Today the Office of Management and Budget Director, Peter Orszag, formally announced the $2 Trillion dollar increase to the 10 year deficit forecast. From the official OMB blog:

The MSR shows a smaller 2009 deficit but larger out-year deficits than previously projected. Overall, it underscores the dire fiscal situation that we inherited and the need for serious steps to put our nation back on a sustainable fiscal path.

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As a result of a deeper-than-expected recession, certain spending programs (such as unemployment insurance and food stamps) are projected to automatically increase and revenues are projected to automatically decline, compared to our previous projection. Although these effects help to ameliorate the economic downturn by stimulating demand, they also lead to higher medium-term deficits both directly and indirectly (through higher interest costs on a higher level of public debt). Over the next 10 years, the net impact is to add $2 trillion to the projected deficit, compared to our last projection made based on February’s economic assumptions. That brings the projected 10-year deficit for 2010-2019 to $9.05 trillion – in line with CBO’s June projection.

This isn’t so bad, as adding $2 trillion to $7.05 trillion only amounts to a 28% revision in a period of six months. It’s important to have three significant figures on estimates that are obviously so well modeled.

Don’t worry, there’s a good justification for this deficit:

During an economic downturn, one wants to allow the deficit to increase, so deficit reduction should be focused on the out-years – after the economy has recovered. That said, the out-year deficits hover in the range of 4 percent of GDP, which is higher than desirable. Getting the out-year deficit under control is a top priority of the Administration.

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On inauguration day, the Administration inherited the greatest economic crisis and the largest deficits since the end of World War II. The economic freefall has been arrested, and, while too many people remain out of work, the consensus among private forecasters is that the economy will return to positive growth in the second half of this year. As the economy recovers, the Administration is committed to putting the nation on a fiscally sustainable path.

The deficit forecast for the second half of this year shrunk, but it grew for every year after. If it’s important to increase deficit spending during an economic downturn and to reduce deficit spending during the out-years, and the economy is recovering in the second half of this year, isn’t this backwards?