Cogito Ergo Non Serviam
CBO Says Economic Deceleration Looms
The Congressional Budget Office has lowered its expectations for the American economy this year. Then, the US growth rate will decline. The new forecast for this year is a 3.1% growth rate, down 0.2% from 3.3%. Next year, the CBO says 2.4% is the best the economy will do, and in 2020, that figure dips further to 1.6% for 202. All th0e while the federal budget deficit and national debt will rise. While the CBO is clear that there is not going to be a recession according to the tea leaves it sees now, a more sluggish economy is almost inevitable.
In other words, the current growth rate is largely a sugar rush brought on by tax cuts and deficit spending that will not last much longer. In its own words, the CBO stated,
In 2018, real GDP is projected to grow by 3.1 percent. That is about 0.6 percentage points faster than the pace of its growth in 2017. The pickup in growth is largely the result of increases in government spending, reductions in taxes, and faster growth in private investment. For the second half of the year, CBO expects real GDP to grow at roughly the same average pace as it grew in the first half of the year, which would represent a moderation following the 4.1 percent annualized growth of GDP reported in the second quarter. Such moderation occurs because several factors that boosted second-quarter growth -- including a rebound in the growth of consumer spending from a weak first quarter and a surge in agricultural exports -- are expected to either fade or reverse. In 2019, the pace of GDP growth slows to 2.4 percent in the agency's forecast as growth in business investment and government purchases slows.
The CBO foresees excess demand from 2019-2022 owing to lower unemployment and higher incomes. This will spark higher interest rates as well as higher prices such that by 2022, the excess demand is gone. From 2023-2028, therefore, growth is going to average about 1.7% a year. That is a far cry from the 3.3% anticipated in the April report for this year's growth. Anemic is the word that springs to mind.
In addition, this forecast does not take into consideration the trade was Mr. Trump has launched against many of America's trading partners. The CBO noted, "Recently implemented changes to trade policies, and proposals calling for further changes, compound the uncertainty surrounding the current economic outlook." Uncertainty in the marketplace results in less economic activity.
Politically, this is not particularly good news for the Trump administration. Again, the CBO is not saying there will be a recession, but sluggish growth lies ahead. Mr. Trump has made a main feature of his program a booming economy. Just how long his core of supporters stay in line when growth dips below 2%, when prices rise and when interest rates return to normal levels is anyone's guess. He may be able to keep them in his camp with appeals to cultural, identity politics. Or they may realize that his economic stewardship did not deliver as they had hoped. The 2020 presidential campaign is going to take place with the boom years in the rear-view mirror. The recipe for a one-term presidency is in place, Mueller investigation or not.
CBO Director Keith Hall cautioned, "Economic projections are inherently uncertain." That is true, and it is possible that this sobering forecast will not come to pass. What is most likely to blow the economy, the administration and the country off course? As Harold MacMillan said when asked that question decades ago, "Events, my dear boy, events."
© Copyright 2018 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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