Trump Administration

Trump's New Budget Uses More Realistic Assumptions Than His Predecessors' Did

Trump's budget projects 10 straight years of 3 percent growth. If this forecast fails to materialize, it will make the budget deficits worse than projected.

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Much of my time is spent criticizing politicians for misrepresenting the impact of their policies. So, for once, I'd actually like to note an area where the Trump White House has represented the impact of its policies more accurately, and even better, than any other administration: economic growth forecasts. It may not sound like much, and I'd rather they balance the budget, but that's a start.

The Congressional Budget and Impoundment Control Act of 1974 requires that each administration report "the economic and programmatic assumptions" underlying a budget. The result is a database of every administration's growth forecasts released since 1975. Using this data, the Council of Economic Advisers (CEA) just released a report showing that this administration "is the first on record to have experienced economic growth that meets or exceeds its own forecasts in each of its first two years in office."

The report displays two charts that span the Carter administration through the Trump administration. One chart shows the first year in office, the other the second year, and each show what the administration forecasted growth to be versus what was achieved.

For both years, the Trump administration's actual growth was equal or slightly higher than the projected growth rates. While it forecasted growth of 2.3 percent during Trump's first year in office, it reached 2.5 percent. In the second year, its projection of 3.1 percent was equal to actual growth.

By comparison, President George W. Bush's projections were seriously off during his first year in office. His administration predicted 2.6 percent growth but only achieved 0.2 percent. His second-term projections were again overly optimistic by nearly a full percent. Growth projections for his father, President George H. W. Bush, were off by 0.6 percent during his first year and by 1.7 percent in his second year. President Ronald Reagan's projections were only off by 0.1 percent in his first year, but his forecast was off by 4.6 percent during his second year due to a recession.

The Trump administration's accuracy is an interesting anomaly. CEA acknowledges, "Forecasting macroeconomic growth is never an exact science." This is true, regardless of which public entities published the forecast. It's also generally true, regardless of the country. Back in 2011, Harvard economist Jeffrey Frankel published a National Bureau of Economic Research paper on the unreliability of economic forecasting. Frankel looked at data from 33 countries and found a systematic bias toward overly optimistic official forecasts for gross domestic product and budget balances.

Overly optimistic assumptions for economic growth lead to over-optimism in budget estimates. Frankel suggests that the "average upward bias in the official forecast of the budget balance, relative to the realized balance, is 0.2 percent of GDP at the one-year horizon, 0.8 percent at the two-year horizon, and 1.5 percent at the three-year horizon." However, Frankel notes the United States tends to be even more overly optimistic than other countries: "The U.S. and UK forecasts have substantial positive biases around 3 percent of GDP at the three-year horizon (approximately equal to their actual deficit on average; in other words, on average they repeatedly forecast a disappearance of their deficits that never came)."

Unsurprisingly, optimism bias is more pronounced during boom times, or times of economic prosperity. Yet Frankel found that optimism also persists during busts: "Evidently official forecasters…over-estimate the permanence of the booms and the transitoriness of the busts."

While the Obama administration got tripped up by how long the burst lasted, the Trump administration could get cocky about the longevity of the boom. His latest budget projects 10 straight years of 3 percent real growth, but if this forecast fails to materialize, it will make the budget deficits and debt levels worse than projected.

Interestingly, the CEA report adopts a posture of humility by not taking too much credit for the forecasting performance of the administration's first two years, noting, "Forecasts today could perform better than forecasts in the past, for instance, due to improvements over time in the economics literature. The data seem consistent with at least this pattern: this Administration, as the figures in aggregate show, is the first on record to have experienced economic growth that meets or exceeds its own forecasts in each of its first two years in office."

I suspect this humility will serve the administration well, as we advance through this president's term and future forecasts.

COPYRIGHT 2019 CREATORS.COM

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  1. I think it would be helpful if you included the graphic with appropriate citation so we could see it and go find it in the report easily.
    Thanks for this. I have seen a couple articles complaining about Trump’s optimistic economic projections and wondered how they compared to previous presidents.

    1. I still remember laughing hysterically at Obama’s charts promoting his stimulus… by the end of his 8nyears he was calling 2% the new norm. He had one of the worst economic teams I can recall. But OBL will be here shortly to state how Obama’s team predicted the trump recession.

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  2. The real test will be when a correction of the market happens, will Trump and Congress interfere making the recession worse or let the market correct and rebound into growth.

    ‘W’ and Obama interfered with the market correction of 2008 and it resulted in the Great Recession that lasted far longer that when the GDP returned to positive numbers.

    One could argue that short cycle high and low GDP numbers do not indicate a boom economy. A boom economy is indicated by steady GDP growth over years.

    1. The understated economic history we seem to ignore is that fed monetary policy may have made corrections occur less frequently, but it has also greatly extended the length of recessions. Prior to 1929 busts occurred more often but recessions lasted for much shorter periods. The markets are self correcting. Fed intervention is causing distortions in these correction periods. Yang is running on fed policy to repurpose malls with federal money, another distortion. We have to allow failures on markets to increase growth of more efficient ventures.

      1. Moreover, if you look at comparisons of various recessions, you can see that about 1980 or so, there was some sort of change in the economy.

        Prior to that, recessions followed the usual swift drop, then bounce back up to where the economy would have been if there hadn’t been a recession, then normal growth rates resumed.

        The last few recessions have followed a very different trajectory, where the swift drop is followed by a lull, and then a resumption of grown at normal (Anemic!) growth rates from the bottom. No swift rebound, each recession now represents a downward step in the economy which is never recouped.

        1. Before 1980 government was not so intertwined in our economy at nearly every regulatory level.

          There are few ways for people to bounce the market back because government steps in immediately and/or prevent people with cash from buying these “troubled assets”.

          GM factories might have been bought by other car manufacturers during the Great Recession and repurposed them for their needs. It might have been cheaper than building new factories. Instead TARP bailouts saved companies that should not have been saved. Now other car manufacturers have to spend more capital to build new factories.

          Recessions are a great time to invest in capital improvements. Most things are cheaper. (After the 2008 crash, I bought more land because of foreclosures and people wanting to sell land).

          GM and other US car manufacturers are still building crappy vehicles and pumping money into stupid investments like bi pensions and autonomous vehicles. Americans are not ready to spend billions on autonomous vehicles this decade.

        2. Well, the government has only been unrestrained in printing dollars since the ’70s, so……..

    2. ‘W’ and Obama interfered with the market correction of 2008 and it resulted in the Great Recession that lasted far longer that when the GDP returned to positive numbers.

      As religious beliefs go, I guess that beats out the tenet that a virgin in the volcano makes the Gods happy.

      1. You can argue about the cause, but they’ve been calling it the Great Recession for a reason. It just dragged on and on.

        1. grb cannot admit that the Great Recession lasted longer than 2 years because the Lefty Narrative is adamant that Obama saved the USA.

          Although Recession is defined as:
          re?ces?sion
          /r??seSH(?)n/
          noun: recession
          1. a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

          Clearly GDP being positive but low does not actually indicate recovery from a Recession as the government would have you believe.

        2. Brett,

          I don’t think there’s much legitimate argument over the cause, but damn if people don’t keep trying. There is an argument in JesseAz’s comment that monetary regulation has made recessions less frequent but longer. Left unsaid however, is that monetary regulations also make recessions less pronounced or harsh. The whole case for monetary policy is it flattens out the business cycle, with less extreme swings.

          Which brings us to the Great Recession, and the real problems with the comment I responded to :

          (1) To say intervention “caused” the Great Recession is just plain dumb – full stop.

          (2) To say intervention might have been a trade-off between length of recession vs depth of recession may (or may not) be correct. However, given the impact depth even with the measures taken, is it really possible to say some intervention wasn’t necessary?

          If your shtick is “Government Bad” – said in some slow ponderous Neanderthal cadence – maybe. Speaking as someone who had his entire existence torn asunder by the Great Recession, I find that shtick shallow and unpersuasive.

  3. Um, links, so that we can look at the material ourselves?

    “Forecasts today could perform better than forecasts in the past, for instance, due to improvements over time in the economics literature.”

    The data seem consistent with at least this pattern: this Administration, as the figures in aggregate show, is the first on record to have experienced economic growth that meets or exceeds its own forecasts in each of its first two years in office.”

    The obvious question is, how did the last administration’s forecasts for the other six years stack up compared to the real numbers? Were they improving as they went along? In that case the proffered explanation is plausible.

    If they were just as bad as the first two years, then something changed when Trump took office.

    1. Obama’s estimates were terrible his first 2 years, see stimulus predictions.

      1. Yes, I’m asking if they were any better AFTER those first two years, just just kept being bad.

  4. The lowest of bars.

  5. “I suspect this humility will serve the administration well”

    As it always does!!

    (can you believe a Trump policy is seen as humble? Another first!)

  6. Two things :

    First, notice the examples given are all from Republican administrations? Even if you go to Veronique de Rugy’s actual article there’s still only the one reference to “While the Obama administration got tripped up by how long the burst lasted…” and no actual numbers. This is expected since the GOP SOP is “proving” tax cuts pay for themselves by never-ending fantasy numbers out beyond the horizon. Reagan’s projections weren’t undone because of a second term recession; his long-term numbers were Rosy Scenario ludicrous from day-one. Kinda like Trump.

    Second, the story out in the real world is that Trump still repeatedly talks-up nonstop 3% annual growth. Meanwhile, his own economists project 2% or lower for years to come, as the economy burns off the sugar high of deficit-exploding tax cuts. Outside the bubble? People see Trump’s head is in Magic-Unicorn-Fairy-Dust world. Inside the bubble? Ms de Rugy offers this : “I suspect this humility will serve the administration well, as we advance through this president’s term and future forecasts”

    Up is down; black is white.

    1. You may want to refer to trumps budget to see what his own economists predict. I like to think you’re more intelligent than this. The 2% prediction is from the feds, the same ones who still believe largely on Keynesian estimates.

      1. And I’d like for you to know what you’re talking about before speaking, but no chance.

        Just a few days ago, Trump’s Council of Economic Advisers issued its annual report. Up in the front they say – yes – there’ll be endless fields of plenty with 3% annual growth. Go in the back however, and you find that under “current law” their projections start with 2.6% next year and shrink year by year afterwards.

        And the 3 percent growth? Trump’s economists say that will (surely) come if we pass a new tax cut, and a big infrastructure bill, and lotsa new deregulation of big business, and some new labor policies. Oh, and everything needs to be passed in the next nine months. If not, economic growth plummets, but – hey – that’ll be the fault of those Democrats, right?

        A truly sweet bit of whoring for their orange Lord, eh? But I’m used to seeing even more abject self-abasement from DJT’s supporters here, in these comments…..

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  9. “Much of my time is spent criticizing politicians for misrepresenting the impact of their policies. So, for once, I’d actually like to note an area where the Trump White House has represented the impact of its policies more accurately, and even better, than any other administration: economic growth forecasts. It may not sound like much, and I’d rather they balance the budget, but that’s a start.”

    Feel the hate flow through her.

  10. So we have a budget. Last month the government overspent its revenues by nearly $250 billion, or about $3 trillion annualized. The clowns in the DC Swamp, like their predecessors, have no intention of reigning in spending, following a budget, actually voting on and agreeing on a budget, let alone sticking to it for an entire year. Debt will never be paid off and spending beyond their means never is questioned. Politicians believe they are immune to any consequence which arises from their actions. This will never change until the entire system is changed.

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