Yesterday the Congressional
Budget Office (CBO) released “An Update to the Budget and Economic Outlook: 2019 to
2029.” AAF’s Gordon Gray has a complete analysis of the revisions, but to my
eye there are four main takeaways.
1. The budget outlook is (slightly more) horrible. The annual deficit will
exceed $1 trillion beginning in 2020, totaling more than $12 trillion over the
next 10 years, and average in excess of 4.5 percent of gross domestic product
(GDP). Debt in the hands of the public will end up at $29.3 trillion, or 95
percent of GDP. The outlook worsened slightly from earlier this year because of
the passage of the Bipartisan Budget Act of 2019 — which added $1.7 trillion —
but benefitted from a downward revision in interest rates — which saved $1.4
trillion.
2. There is no recession before the election. CBO anticipates (4th
quarter-over-4th quarter) growth of 2.3 percent in 2019 and 2.1 percent in
2020. This may take some steam out of the recession chatter that was spawned by
financial volatility and stoked by the incoherent and undisciplined White House
policy process. (The clever reader, however, will note that the uncertainty
analysis on page 57 does not seem to rule out a growth rate below zero at some
point.)
3. CBO has embraced the lower-interest rate environment. The most significant
change in the economic forecast is a roughly 60 basis point downward revision
in the 10-year interest rate. Nevertheless, the continued large deficits place
upward pressure on the projected rates, leaving CBO still somewhat higher than
other forecasts.
4. Nobody cares. From one end of Pennsylvania Avenue to the other, there is no
interest in tackling the fiscal outlook. On the campaign trail there is a
heated competition to make it much, much worse. This is a disservice to the
American public; continued large deficits are a corrosive drain on productivity
growth and competitiveness. The absence of a crisis does not mean the absence
of a cost.
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