You have to remember, these are the folks who said we’d have no Federal Debt by 2010 – in 2000.
CBO expects that the recovery will continue but that real (inflation-adjusted) GDP will stay well below the economy’s potential—a level that corresponds to a high rate of use of labor and capital—for several years. On the basis of economic data available through early July, when the agency initially completed its economic forecast, CBO projects that real GDP will increase by 2.3 percent this year and by 2.7 percent next year. Under current law, federal tax and spending policies will impose substantial restraint on the economy in 2013, so CBO projects that economic growth will slow that year before picking up again, averaging 3.6 percent per year from 2013 through 2016.
Ok, that might be realistic if we were to look only at the recent past. After all, GDP from 2000-2010 expanded at a compounded annual rate of approximately 4.1%.
But here’s the problem with this projection: It assumes that the debt ponzi will fade. See, from 1990 to 2010 GDP expanded at 4.8% annualized, but debt was expanding faster, at 7.4%. So the real rate of expansion was in fact negative.
If the recovery continues as CBO expects, and if tax and spending policies unfold as specified in current law, deficits will drop markedly as a share of GDP over the next few years. Under CBO’s baseline projections, which generally reflect the assumption that current law will not change, deficits fall to 6.2 percent of GDP next year and 3.2 percent in 2013, and they average 1.2 percent of GDP from 2014 to 2021. Those projections incorporate the effects of the deficit reduction measures in the recently enacted Budget Control Act of 2011; they also reflect the sharp increases in revenues that will occur when provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 tax act) expire.
Look at those “ifs”.
IF the economy AND GDP expands, even though at the end of this year (current law) the payroll tax credit expires and then in 2012 the entirety of the Bush tax cuts expire, and none of that reflects back into GDP (the total of the two in terms of deficit spending, incidentally, is well north of 3% of GDP, as they total to more than $500 billion!) THEN these projections are credible.
The problem is that there’s 30 years of history that says this can’t happen. If the government actually cuts deficit spending to 3% of GDP by 2013 GDP will contract by a minimum of 10%, and more likely by a figure closer to 15%.
This in turn will trash both unemployment and tax receipts.
How CBO can publish this sort of trash with a straight face is beyond belief. Given their record of ignoring the mathematical facts in evidence from the 2000-2010 time frame, at which point their projections were trivially able to be dismissed as an outright farce, one wonders how these jackasses sleep at night.
I’m sure this will give cover to the government thinking it’s “doing just fine”, but the fact of the matter is that none of the “Ifs” in that paragraph up above will happen in combination with economic expansion, because it simply can’t. At present the government is providing roughly 12% of GDP in deficit spending. For this to fade over the space of two years and yet produce a 3% growth rate actual private production would have to expand at an approximate 9% annualized rate.
Of course the CBO places all sorts of disclaimers in their page, and notes that the tax code changes scheduled to take place are going to have a major impact should they actually come to pass. What they’re not saying, but should be, is that if those come to pass, or if spending reductions take place, either mathematically must hit GDP, simply because GDP is the sum of consumption, net investment, government spending and net exports. Either reducing government outlays or increasing taxes must hit one of these categories dollar for dollar, and thus must directly impact their GDP projections.
The CBO’s projections are a public disgrace as they intentionally ignore third-grade arithmetic.
As a consequence it is entirely fair to call those “projections” a fraud upon the public.