From 1983 to 1999, the CBO issued two-year forecasts that added up to a 2.7% growth rate, which would now be widely dismissed as a “rosy” forecast. Yet actual growth averaged 3.7% from 1983 to 1999 – a full percentage point higher – despite a recession in 1991. Today, the CBO forecasts that even 2.7% economic growth is impossible, and claims only 1.9% is within reach.
The Administration thinks the economy can grow a percentage point faster. The 2019 Budget estimates the economy will grow by 2.9% a year for ten years. The Committee for a Responsible Budget (CFRB) argues that this “strains credulity, especially if interest rates and inflation also remain under control, as the budget predicts they will.” [This appears to suggest higher inflation would be good for growth.]
“Given population aging and other economic fundamentals,” says the CFRB, “the United States is likely to ultimately achieve growth of 2 percent per year or perhaps less – not 3 percent. The Federal Reserve projects long-term sustained growth of 1.8 percent per year [1.7–2.2%], and the Blue Chip average for sustained growth is only slightly higher at 2.1 percent. Prior to the tax deal, CBO projected a long-run growth rate of 1.9 percent.”
Is the OMB unrealistic to estimate the economy can grow by 2.9% a year or is the CBO unrealistic to assume it can’t grow faster than 1.9%?