Tuesday, May 17, 2022

One thing missing from Biden’s budget: booming growth

“We are a really big economy in which really big forces are shaping what happens to GDP growth,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution and former chief economist at the CBO.

Even these dovish projections from the Biden administration imply that its policies will boost economic activity growth by a few tenths percent each year for a decade. This is significant when compared to the growth that would be expected simply by looking at demographics and historical averages of productivity growth. The forecast is inherently more optimistic about Biden’s policies, and their potential to increase productivity and the size of the workforce, than it might appear at first glance.

“To say that their fiscal policies will boost growth by four tenths of a point seems optimistic, but I can see how they could get there,” he said.

Jason Furman, the former chief economist in the Obama administration, said: “I think there is a problem that people have on their minds: more outlandish ideas about what economic policy can do and how quickly it can do it. When you talk about improving productivity, you talk about compounding that becomes a big problem for a long time. “

In other words, a difference of a few tenths of a percentage of GDP growth may not mean much for a single year, but a gap of that size that persists for many years has a large impact on living standards.

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Some of the administration’s policies, by design, would focus on the very long-term impact on the nation’s economic potential. For example, the extra money for community colleges could actually reduce the size of the workforce and therefore GDP in the short term if more adults go back to school. But then the productive potential of these workers would increase and, therefore, their contribution to growth during the following decades.

Conservatives, for their part, believe that Biden’s agenda will likely restrict growth, particularly once tax increases and new regulatory measures take effect. Mulligan, Trump’s adviser, said he believed Biden’s agenda would reduce the nation’s growth path by about 0.8 percentage points a year compared to the trajectory of the Trump era. Douglas Holtz-Eakin, president of the American Action Forum, said he thought Biden’s policies could lead to faster growth in the short term but slower growth in the long term due to taxes and spending.

Nation World News Desk
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