— Bud Norman
— Bud Norman
— Bud Norman
We take a back seat to no one when it comes to gloominess and doomsaying, but the number-crunching folks at the Congressional Budget Office are almost our equal in that regard.
The putatively non-partisan agency released an update to its “Budget and Economic Outlook” this week, and it can be quickly summarized by saying that the outlook is bleak. There are two forecasts included in the report, and both are quite glum, so the CBO’s outlook could actually be said to be doubly bleak.
After starting off with the sobering statistic that the federal budget deficit for the year will total $1.1 trillion, bringing the federal debt held by the public to 73 percent of the nation’s gross domestic product, the CBO assures policy-makers that all of that stimulus has at least ensured that the “economic recovery” will “continue at a modest pace for the remainder of the calendar year 2012.” This modest achievement will doubtless suffice as vindication for Obama’s more stalwart supporters, but after that the CBO sees trouble in either direction it looks.
The CBO has prepared a “baseline projection” based on the assumption that current laws will continue, meaning that in January all of the Bush era tax cuts will expire, the extension of unemployment benefits and the 2 percent reduction in the Social Security payroll tax also disappear, and a number of mandatory budget cuts go into effect. Under this scenario, the CBO expects that the unemployment rate will climb to 9.2 percent, the gross domestic product will shrink by 2.9 percent, and the situation “will probably be considered a recession.” They add the cheery note that the deficit would likely shrink to 4 percent of the gross domestic product, which could delay the day of fiscal reckoning by a few weeks or so, but it is not clear if that is based on assumption that all the tax hikes won’t actually result in less government revenue and more social spending as a result of all the economic carnage.
It is still possible that the government will act to extend all of the Bush era tax cuts — although the president seems ruthlessly determined to raise taxes on the higher earners, and quite confident that the public will blame the Republicans if everyone’s taxes get raised as a result — so the CBO has prepared an “alternative fiscal scenario” that envisions such an action as well as ignoring the mandatory spending cuts. Under this scenario the country goes another $1 trillion in debt for yet another year, but the economy grows by an unimpressive 1.7 percent and the unemployment rates stays stuck at around 8 percent.
— Bud Norman
Few things in life provide the emotional stimulation of depressing literature, so our bookshelves are well-stocked with such grim fare as Nathaniel West’s “Miss Lonelyhearts” and Sylvia Plath’s “The Bell Jar,” but for unrelentingly gloomy reading nothing can top the latest offerings from the Commerce Department and the Congressional Budget Office.
A stiff drink is recommended before delving into the Commerce Department’s look back at the past three months of the American economy, which reports that the nation’s gross domestic product increased by a mere 2.8 percent annual rate during the final quarter of a year, meaning that the economy grew by only 0.7 percent during the holiday shopping months. The figure is ugly enough at first glance, but upon closer examination it becomes even more gruesome.
Slog through the Commerce Department’s bureaucratic prose and you’ll discover that 75 percent of the growth was due to businesses restocking inventories with as-yet unsold goods, which they will not continue to do indefinitely. Careful readers will also note that the Commerce Department arrived at its GDP number by assuming an inflation rate of just 0.4 percent, an assumption that will seem suspicious to anyone who has shopped for groceries in recent months.
Another stiff drink, perhaps hemlock, is recommended to anyone reading the Congressional Budget Office’s look ahead to the next decade of the American economy, which paints a picture of our economic future as disturbing as anything Hieronymus Bosch ever put on canvas. The CBO predicts the unemployment rate rate will rise to 8.9 percent by the end of the year and to 9.2 percent in 2013, that GDP growth will be only 2 percent in the coming year, and that the budget deficit will be $1.08 trillion in 2012 and very high years to come.
Again, the ugly numbers get uglier with a closer look. The report modestly admits that “Many developments could produce economic outcomes that differ from the CBO’s forecast,” citing a “significant worsening of the of the banking and fiscal problems in Europe” as one example, and when that one inevitably develops the current gloomy predictions will seem wildly optimistic.
— Bud Norman