Growth in GDP lowers the deficit projections

Ira Stroll:
When one of President Trump’s top economic advisers, Lawrence Kudlow, said recently that the federal budget deficit “is coming down,” the Democrats and the press — apologies for the redundancy — accused him of lying.

The Democratic leader in the House of Representatives, Nancy Pelosi, issued a press release about what she called “Kudlow’s outrageous claim.”

Politifact, a Pulitzer Prize-winning website operated by the nonprofit Poynter Institute, called the statement by Mr. Kudlow, who is chairman of the National Economic Council, “inaccurate and ridiculous.” It gave the comment by Mr. Kudlow its “pants on fire” rating, as in “liar, liar, pants on fire.”

The New York Times assigned a “fact-check reporter,” Linda Qiu, to the story. She declared Mr. Kudlow’s statement “false.”

After Friday’s news that second-quarter real GDP growth hit an estimated 4.1%, and that the real GDP growth rate for the first half of 2018 exceeded 3%, maybe it’s time for some fact-checking of the fact-checkers.

After all, one of the main ways that economists and government accountants have long measured the federal budget deficit is as a percentage of gross domestic product.

There’s some logic to that. If the government is spending $500 billion a year more than it takes in, that means something different in a $3 trillion economy than it does in a $20 trillion economy.

Projections about budget deficits as a percentage of GDP, then, are built not only on assumptions about the size of deficits, but on assumptions about the size of the economy.

A growing economy can help reduce the deficit in other ways, too. If the economy is strong, the government often has to spend less money on means-tested poverty-assistance programs such as food stamps or even on disability aid. Food stamp enrollment recently reached an eight-year low. A growing economy can mean some increased tax revenues even at lower tax rates, as supply-side economic thinkers and policy makers such as Presidents Kennedy and Reagan realized.

Even small differences in assumptions can translate into big differences in projections. The White House Office of Management and Budget, for example, assuming a 3% real GDP growth rate, estimates a federal budget deficit in 2024 of $749 billion. The Congressional Budget Office, assuming an annual average real GDP growth rate of 1.9% for 2018 to 2028, estimates a federal budget deficit in 2024 of $1.25 trillion.
There is more.

 This adds to my list of reasons to be suspect of "Fact Checkers."  I have maintained for some time they mainly write briefs for liberalism rather than examine the facts.  In this case, projections are not really amenable to fact checking.  They are always based on assumptions and the only way they can be measured is whether the assumptions on which the projection is made is valid.  It shows deep ignorance about projections to call them a lie.  All one can really do is dispute whether the assumptions are reasonable and will be realized.


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