Plugging in Pollyanna-ish growth forecasts therefore helps paper over the large deficits that would show up under more realistic assumptions.
Assuming gangbusters growth to tidy away large deficits is a time-tested political tradition. Ronald Reagan famously employed his “Rosy Scenario” in the 1980s. So have many politicians since, on both the left and right.
Growth in more recent decades has slowed, due to reasons mostly outside a president’s control — chiefly, the aging of the population and slowing growth in productivity. But that didn’t stop, say, Sen. Bernie Sanders (I-Vt.) from boasting that his presidential agenda would produce 5.3 percent economic growth, or more than double the roughly 2 percent long-term pace that the Federal Reserve and others had forecast.
When Donald Trump was first elected, his transition team ordered White House economic staffers to forecast sustained growth of 3 to 3.5 percent in budget documents and then backfill all the inputs needed to produce that result. (Not how forecasting usually works.) Even that book-cooking was less brazen than Trump’s usual promises. As president, he pledged sustained economic growth of “4, 5 and even 6 percent.” Such figures allowed him to (falsely) claim that his expensive fiscal policies, such as the 2017 tax cuts, would pay for themselves.
In reality, economic growth under Trump pre-pandemic was not appreciably different from that during Barack Obama’s second term (2.5 percent vs. 2.3 percent), though Republicans usually describe Obama’s growth record as tepid and Trump’s as tremendous. Presidents can affect things only on the margin (by tweaking the tax code, encouraging more labor-force attachment and skill-upgrading, admitting additional working-age immigrants, etc.).
Which brings us to President Biden’s approach to this question, as shown in the fiscal 2022 budget released Friday.
Given that the White House put out its budget just before a holiday weekend, Biden clearly wasn’t hoping for much media scrutiny. Perhaps understandably: His staff projected growing deficits and debt, with total debt held by the public hitting a record 110 percent of gross domestic product this year and reaching 117 percent by 2031.
The administration projected strong growth this year and next — 5.2 percent and 4.3 percent, respectively — as the economy bounces back from the pandemic recession. But over the rest of the decade, it estimated, the economy will grow only about 1.8 to 2.2 percent each year. That’s roughly in line with forecasts from the Congressional Budget Office and the Federal Reserve. At best it’s a few tenths of a percentage point higher, which is an optimistic but still reasonable estimate for how much a president’s agenda might affect growth trends.
To Republicans, this judicious forecast — this failure to grossly exaggerate or lie — is somehow damning.
“The Return of the Bad Old Days with Slow Growth: The Obama-Biden administration famously accepted slow growth as America’s ‘new normal’ while pursuing policies that sent jobs overseas,” sneers a blog post from Republicans on the House Ways and Means Committee. “President Biden appears to be lowering the bar even further.” They’re judging Biden against Trump’s preposterous promises, rather than Trump’s actual record.
For their part, Biden aides have halfheartedly resisted such criticisms. They note that the protracted budgeting process required calculating economic growth forecasts in February — that is, before Biden’s infrastructure and family proposals were fully developed, and when the covid-19 recovery looked more uncertain. In a call with reporters Friday, Council of Economic Advisers Chair Cecilia Rouse suggested that staff forecasts might be more optimistic if calculated today. She also pointed out that even small increases in annual growth rates, when compounded, can have large cumulative effects.
All the same, the White House was brave enough to publish its seemingly modest projections. And since I’ve spent several years criticizing politicians for fudging their forecasts, I’ll happily praise this rare moment of fiscal forthrightness. Two cheers for moderate economic growth, which is mostly beyond the president’s control — but three for honesty, which falls squarely within it.