Edward Conard

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CBO Cuts Its Forecasted Growth of the Economy Another 3 Points

Lost in the controversy surrounding the CBO’s estimate that the Affordable Care Act will motivate 2.5 million low-wage workers to quit working at the taxpayers’ expense, is its 20% reduction in its forecasted growth of the economy.  Since the recession, the CBO has continued to forecast that a five-year economic rebound is just around the corner and that this rebound will grow the real economy 20% before the economy returns to its long term growth rate. Every year, when the rebound doesn’t materialize, the CBO pushed its forecast back another year. This just-around-the-corner feature of its forecast gives air cover to advocates of government spending who claim an elevated level of spending is temporarily needed to bridge a soon-to-end lull in demand. Last year, the CBO dialed back its forecasted rebound to 19% and its long-term growth rate to 2.3% per year. This year, it dialed down its expected rebound further to 16%, which accumulates less than four points of growth more than its now-forecasted long term growth rate of 2.2% per year. Overall, the CB0 now expects the economy to be 7% smaller in 2017 than it forecasted in 2007, with no significant rebound back to the prior trend line. After mistakenly giving air cover to advocates of increased government spending over the last five years, the CBO is finally realizing that this recession stems, not from a temporary lull in demand, like many other recessions, but from permanent structural problems that increased government spending cannot mitigate.

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