Fun with math: What Ten Million Simulations Tell Us about Trump’s Chances of Achieving 3-Percent Economic Growth

❝ President Donald Trump’s budget is premised on the projection that the United States will be able to raise its long-run economic growth rate to 3 percent a year. This rate allows the budget to assume large tax cuts and still project a balanced budget after ten years. This long-run forecast represents the largest divergence between an administration forecast and that of either the consensus forecast of the Blue Chip survey of private forecasters (2.0 percent) or that of the nonpartisan Congressional Budget Office (CBO, 1.9 percent) in many decades…

❝ To assess how likely the United States is to experience 3-percent growth over the next decade, I estimated the likely range of future potential GDP growth by taking random draws from the history of productivity growth rates, changes in the labor force participation rate, and changes in average hours worked… In running 10,000,000 simulations, the estimated median annual growth rate over the next decade was 1.8 percent, while the 90-percent confidence interval ran from 0.7 percent to 3.0 percent… The odds of the growth rate being at or above 3 percent are only 4 percent — essentially requiring the economy to repeat some of the fastest productivity growth it has seen over the past seven decades.

Not that our so-called president or most of his so-called advisors are likely to consider any of these scenarios in their ideology. Even those few individuals accustomed to this level of arithmetic will challenge the boss on facts. He doesn’t want facts. He wants answers which fit his 6th grade-level semantics, economics understanding and a demographic base even more ignorant.

Thanks, Barry Ritholtz

Paul Krugman says – The geezers are all right

Last month the Congressional Budget Office released its much-anticipated projections for debt and deficits, and there were cries of lamentation from the deficit scolds who have had so much influence on our policy discourse. The problem, you see, was that the budget office numbers looked, well, O.K.: deficits are falling fast, and the ratio of debt to gross domestic product is projected to remain roughly stable over the next decade. Obviously it would be nice, eventually, to actually reduce debt. But if you’ve built your career around proclamations of imminent fiscal doom, this definitely wasn’t the report you wanted to see.

Still, we can always count on the baby boomers to deliver disaster, can’t we? Doesn’t the rising tide of retirees mean that Social Security and Medicare are doomed unless we radically change those programs now now now?

Maybe not…

…The numbers aren’t nearly as overwhelming as you might have imagined, given the usual rhetoric. And if you look under the hood, the data suggest that we can, if we choose, maintain social insurance as we know it with only modest adjustments.

Start with Social Security. The retirement program’s trustees do foresee rising spending as the population ages, with total payments rising from 5.1 percent of G.D.P. now to 6.2 percent in 2035, at which point they stabilize. This means, by the way, that all the talk of Social Security going “bankrupt” is nonsense; even if nothing at all is done, the system will be able to pay most of its scheduled benefits as far as the eye can see.

Still, it does look as if there will eventually be a shortfall, and the usual suspects insist that we must move right now to reduce scheduled benefits. But I’ve never understood the logic of this demand. The risk is that we might, at some point in the future, have to cut benefits; to avoid this risk of future benefit cuts, we are supposed to act pre-emptively by…cutting future benefits. What problem, exactly, are we solving here?

Solutions offered BTW by politicians who in no way will ever have to rely on Social Security.

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U.S. budget deficit shrinks faster than Republicans dare admit

Since the recession ended four years ago, the federal budget deficit has topped $1 trillion every year. But now the government’s annual deficit is shrinking far faster than anyone in Washington expected, and perhaps even faster than many economists think is advisable for the health of the economy.

That is the thrust of a new report released Tuesday by the nonpartisan Congressional Budget Office, estimating that the deficit for this fiscal year, which ends on Sept. 30, will fall to about $642 billion, or 4 percent of the nation’s annual economic output, about $200 billion lower than the agency estimated just three months ago…

Over all, the figures demonstrate how the economic recovery has begun to refill the government’s coffers. At the same time, Washington, despite its political paralysis, has proved remarkably successful at slashing the deficit through a variety of tax increases and cuts in domestic and military programs.

Perhaps too successful. Given that the economy continues to perform well below its potential and that unemployment has so far failed to fall below 7.5 percent, many economists are cautioning that the deficit is coming down too fast, too soon.

It’s good news for the budget deficit and bad news for the jobs deficit,” said Jared Bernstein of the Center on Budget and Policy Priorities, a left-of-center research group in Washington. “I’m more worried about the latter…”

The $200 billion reduction to the estimated deficit comes not from the $85 billion in mandatory cuts known as sequestration, nor from the package of tax increases that Congress passed this winter to avoid the so-called fiscal cliff. The office had already incorporated those policy changes into its February forecasts.

Rather, it comes from higher-than-expected tax payments from businesses and individuals, as well as an increase in payments from Fannie Mae and Freddie Mac, the mortgage finance companies the government took over as part of the wave of bailouts thrust upon Washington in the darkest days of the financial crisis…

In revising its estimates for the current year, the budget office also cut its projections of the 10-year cumulative deficit by $618 billion. Those longer-term adjustments are mostly a result of smaller projected outlays for the entitlement programs of Social Security, Medicaid and Medicare, as well as smaller interest payments on the debt.

The report noted that the growth in health care costs seemed to have slowed — a trend that, if it lasted, would eliminate much of the budget pressure and probably help restore a stronger economy as well. The C.B.O. has quietly erased hundreds of billions of dollars in projected government health spending over the last few years.

The minimal Keynesian response to the Great Recession has resulted in at least as much of a recovery as expected – albeit slower than a Republican reaching to help a homeless person out of the gutter.

Economic recovery, nationwide job growth, is kept at a molasses pace by conservative foot-dragging, especially in the chunk of our national economy generated by federal, state and local government. That segment continues to face a decline in employment.

CBO says a tax hike for the wealthy won’t kill economic growth

Allowing income tax rates to rise for wealthy Americans, and maintaining rates for the less affluent, would not hurt U.S. economic growth much in 2013, the Congressional Budget Office said on Thursday, stepping into a dispute between Republicans and Democrats over how to resolve the so-called “fiscal cliff.”

The report by the authoritative non-partisan arm of Congress is expected to fuel President Barack Obama’s demand for higher taxes on the rich, part of his proposal to avoid the full impact of the expiring tax cuts and across-the-board spending reductions set to begin in early 2013 unless Congress acts…

Obama has also stuck to his position, with the White House reiterating on Thursday that the president sees his election victory…as an endorsement by voters of his view on higher taxes for the affluent.

“One of the messages that was sent by the American people throughout this campaign is … (they) clearly chose the president’s view of making sure that the wealthiest Americans are asked to do a little bit more in the context of reducing our deficit in a balanced way,” senior White House adviser David Plouffe said.

Confirmed by every exit poll during the election.

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The Bush tax cut Armageddon could yield a better tax code

How much does the federal government actually spend? About $830 billion more than you think.

That’s the conclusion of a recent study by Donald Marron and Eric Toder. They analyzed so-called tax expenditures — the deductions, breaks and loopholes that clog the tax code — and sorted them into two groups: “spending substitutes” and “tax policy design…”

Other expenditures, however, are simply government spending programs by another name…

Marron and Toder counted about $600 billion of such expenditures in the 2010 tax code. Add in $230 billion in “user fees” that are counted as “negative spending” but are more like tax revenue, and you reach the $830 billion total — “almost 30 percent more than officially reported…”

But here’s the rub: Although the looming expiration of the Bush tax cuts adds urgency to reform, they also stand in its way…

The Bush tax cuts have created a “baseline” problem. The two parties can’t agree on a plan because they can’t agree on a common equation for how much revenue counts as “revenue neutral.”

Republicans work from a baseline that includes a full extension of the Bush tax cuts. The Democrats’ baseline assumes the expiration of the tax cuts for families earning more than $250,000. The Congressional Budget Office uses yet another baseline, one that assumes that all of the Bush tax cuts will expire, because that’s what current law says will happen at the end of 2012. The difference in revenue between the Republican and the current-law scenario exceeds $4 trillion over 10 years.

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CBO says Dodd reform bill would reduce U.S. deficit


Republican plan for hidden assets

The Democrat’s Senate financial reform bill would cut the U.S. budget deficit by $21 billion over the next 10 years, according to a cost estimate by the Congressional Budget Office obtained by Reuters.

The estimated reduction in the budget deficit over the 2011-2020 period stems largely from charging the financial industry assessments for a fund to liquidate large, troubled financial firms, the office said.

The bill authored by Senate Banking Committee Chairman Christopher Dodd is designed to ensure no financial firm is too big to fail and the senate may start debating it next week.

However, the idea of creating a $50 billion liquidation fund has been criticized by banks and Republicans [quelle surprise?] and is not favored by the Obama administration…

Dodd’s bill would also create a bureau to regulate consumer financial products such as mortgages, as well as new rules to regulate derivatives and hedge funds. The bill aims to rein in banks’ risky activities and revamp financial regulation in wake of the worst economic crisis in decades.

This is the bill the Republicans said contained a bailout provision – when the truth is exactly the opposite: the fund “pays for the funeral” of failures – and insures investors.