On April 9, the Congressional Budget Office released its latest economic and budget deficit forecasts for 2018 to 2027. I’ve written about the findings of these new forecasts twice since then – in my Blog last week and again in Forecasts & Trends on Tuesday of this week.
That CBO report had good news and bad news as I reported. The bad news was that federal budget deficits are expected to top $1 trillion annually by 2020 and remain above $1 trillion indefinitely. The good news was that the CBO raised its forecast for US GDP growth in 2018 from only 2% earlier this year to 3.3%, and from 1.5% to 2.4% in 2019.
There is one more important finding in the latest CBO report that I want to bring to your attention. While the CBO did raise its forecast for economic growth for 2018 and 2019, its outlook beyond this year and next is, well, dismal.
Despite the improvement this year and in 2019, the CBO claims that the economy will slow again and experience only 1.9% annual growth for the next decade. But this prediction makes no sense, and here’s why.
GDP growth averaged only 1.95% annually during President Obama’s eight years in office, and nearly everything he did on the economy was anti-growth – higher taxes, more regulation, etc.
Now we have a president who is cutting tax rates, eliminating onerous regulations, promoting massive new energy and mineral development, reforming welfare to get people back into the workforce, redesigning trade policy to get better deals for American companies and products, etc. So, are we to believe this is going to only give us the same measly rate of growth we had under Obama?
I say NO! The core principle of Trump’s economic agenda is to attain at least 3% annual GDP growth. Most of his policies are focused like a laser beam on that goal. And it’s not out of the question. Here’s why. The average annual growth rate of the US economy for the past century is near 3.3%, not 1.9%.
In a recent economic analysis, Rob Arnott, founder of Research Affiliates, and Stephen Moore of the Heritage Foundation recalculated the CBO numbers based on 3% annual growth over the next decade, not the 1.9% that the CBO used. Arnott and Moore assume, correctly in my opinion, that Trump’s pro-growth policies will stimulate the economy well above Obama-era levels.
What Arnott and Moore found was that, while the budget deficits still go up every year even with economic growth of 3% vs. 1.9%, the debt rises at a fraction of the CBO’s latest estimates. Most importantly, the (publicly-held) debt-to-GDP ratio goes down, down, down every year.
Instead of a dangerous debt-to-GDP ratio of 150% a decade or more from now based on 1.9% GDP growth, that ratio actually falls to about 50% — which is very manageable, if we grow at or near 3%.
[Keep in mind that debt held by the public is apprx. $15 trillion whereas our total national debt is apprx. $21.1 trillion if we include intra-governmental debt, and we should.]
The point here is that the CBO’s questionable analysis begins with the firm conviction that Trump’s economic policies won’t work, and then base their GDP forecasts on growth of only 1.9%. That’s slightly less even than we saw under Obama’s high tax, overregulation, anti-growth policies. This is what passes for rigorous analysis these days.
I can’t say with certainty that Trump’s economic policies will definitely return the US economy to its historical growth above 3%. But I can say with confidence that Trump’s policies will result in stronger growth than the anemic 1.95% growth we experienced under Obama.
Finally, we have been told for years that the Congressional Budget Office is a non-partisan government agency. I have never believed that! While the head of the CBO changes each time the White House changes parties, the underlying staff that cranks-out these forecasts remains largely the same year after year.
That staff is largely made up of liberal career bureaucrats who stay in their jobs regardless of who is president, as is the case with most large government agencies. No wonder they give President Trump’s pro-growth policies no chance of returning us to our historical growth rate of 3% or better.
No one knows if the US economy will return to 3% annual GDP growth, just as no one knows how long President Trump’s pro-growth policies will stay in place – especially if the Democrats take control of the House and Senate in November. Absent that, I expect the economy to rebound considerably above the CBO’s forecast of only 1.9% in the years ahead.
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