Friday, January 10, 2014

The CBO is nuts

Jared Bernstein reports:
Percent by which real GDP is below its potential (according to Congressional Budget Office): $800 billion, or 4.6 percent.

Let me click thru because this is just nutty, that means our nominal growth should be 8%, impossible. Yes, this is what they say:
In the third quarter of 2013, the demand for goods and services (actual GDP) was roughly $810 billion (about 4.6 percent) less than what the economy was capable of supplying (potential GDP). This large output gap, which is manifested in a high rate of unemployment and substantial idle productive capacity among businesses, is the legacy of the Great Recession. Congressional Budget Office projections show the gap closing slowly over the next several years as actual GDP grows only moderately faster than potential GDP.

They mean that tomorrow, if we fixed some glitch in the economy, would go up to 8%? Whether we make it up and a few years or tomorrow is immaterial, that kind of growth will drive up interest expenses to 25% of the federal budget, the US Senate would collapse.  Jared has no answer about how we pay those interest costs, except raising taxes, mostly on the middle class.

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