Budget Director Peter Orszag wrote on his blog yesterday that he thinks “Debt held by the public net of financial assets is the most meaningful measure of current federal debt.”

I wrote earlier today why I think Director Orszag’s new metric is misleading and dangerous. Now, however, I’m going to take his argument and apply it to the President’s budget, for which Director Orszag is responsible.

It seems to me that his own logic invalidates his claim (and therefore President Obama’s statement) that the President’s budget would cut the deficit in half by the end of the President’s first term.

Therefore, while our Budget will run deficits, we must begin the process of making the tough choices necessary to restore fiscal discipline, cut the deficit in half by the end of my first term in office, and put our Nation on sound fiscal footing. (President’s Message on the Budget, page 4)

You will remember from my earlier post that debt held by the public is simply the accumulation of the federal budget deficits and surpluses of prior years. It is the sum of all current and past borrowing by the federal government from those outside the government. The deficit is an annual measurement, and the debt is a total of deficits and surpluses over time.

Director Orszag writes that “the most meaningful measure of current federal debt” should net out financial assets held by the U.S. government. If he believes this when measuring debt, then logically you should do the same with the annual deficit. His logic argues that this year’s projected $1.752 trillion federal budget deficit (OMB numbers) is not as good a measure as if we net out the amount of financial assets the U.S. government will purchase this year, which according to OMB is $915 billion (my calculation from Table S-1 of the President’s Budget). The Director’s logic suggests that he would think that the most meaningful measure of this year’s federal budget deficit is to net out this year’s purchase of financial assets. Instead of $1.752 trillion, the “most meaningful” deficit figure for 2009 would be $837 billion.

If the Director disagrees with me extending his logic from the debt to the deficit, I would be intrigued to hear his rationale.

The President has said that his budget will “cut the deficit in half by the end of my first […]