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Obama’s overly optimistic economic forecasts

White House Flickr stream

White House Flickr stream

How much confidence should Americans have in the latest economic forecasts from the Obama White House? In its latest update, Obama’s Office of Management and Budget slashed its GDP forecast for 2012, to 2.3% from 2.7%, and for 2013, to 2.7% from 3.0%. Pretty tepid growth.

But then, supposedly, comes a mini-boom from 2014-2017 with the economy growing by 3.5%, 4.1%, 4.0% and 3.8%.

Of course, the White House and its Keynesian economic models have continually forecasted mini-booms as being right around the corner. And those forecasts have yet to pan out.

Will this one? Well, the IMF recently put out its extended forecast for the U.S economy, and its sees markedly slower growth than the White House: 2.0% in 2012, 2.3% in 2013,  2.8% in 2014, 3.3% in 2015, 3.4% in 2016, and  3.3% in 2017. In total, the White House sees the U.S. economy generating about $1.5 trillion more in real GDP growth during the next six years than the IMF does. Adjusted for purchasing power, $1.5 trillion is equal to the economy of South Korea. Big difference.

And certainly there are mainstream economists out there more gloomy than the IMF. The economic team at JPMorgan, for instance, sees the economy growing at just 1.9% this year and next.

Oh, and none of those forecasts assumes a recession in the next half decade or so — even though such continually slow economic growth makes the U.S. economy more vulnerable to a downturn.

And if the White House is wrong and the IMF and other more pessimistic forecasters are correct, U.S. debt (held by public) as a share of GDP will be closer to 100% than the 75% predicted by Team Obama. That would be a dangerously high level of debt,creating a further drag on economic growth.

 

2 thoughts on “Obama’s overly optimistic economic forecasts

  1. Well, we who are not economists all know this intuitively. I wish your message would cross the blood-brain barrier of the terminally ignorant who blithely keep placing all their faith in O and look for even more govt. This news, along with the complete cluelessness of a good deal of the population concerning our fundamental values, who see no problem with govt breaching the bounds of our Constitution willy nilly, makes me once again consider cyanide on the toothbrush…Holding out hope tho, will wait til after election.

  2. Some voters are encouraged that the Dow rose to 13,000 and that retirement accounts have risen with it and they believe it when Obama says the private sector is doing fine now (with the help of Uncle Sam). The global economy may be encouraged that US consumption is up since the big downturn, but at what cost? Obama claims to have used unprecedented measures to stuff cash into the pockets of the middle-class to get the economic furnace roaring again. But to do this, it took about $1.5 trillion in deficit spending each year of his presidency. In March 2012 national debt passed 100% of GDP (about $15 trillion at that time) and now CBO projection show trillion dollar deficits as far as the eye can see. How much time can this buy us when municipalities and states are on the verge of bankruptcy and when Social Security, Medicare, Medicaid, and the new Obamacare entitlements have unfunded liabilities, some say, in the $10s of trillions of dollars. What if governments, businesses and individuals are no longer willing to buy US government debt to keep the US middle-class spending and consuming? Money will have to be immediately printed, instead of being borrowed from the future. Inflation will dramatically rise and interest on the debt will rise along with it. And before you know it, we as a nation will begin to reap what we have sown. Obama claims he has more to do to build the new economy, but he does not build it on his own. Vote in November.

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