When Mick Mulvaney was appointed budget director in February, you said he would bring “fiscal sanity to Washington.” Mulvaney has now released a full version of the President’s proposed budget. It balances if the U.S. has a continuous 3% GDP growth rate over the next decade.
“It used to be normal,” he said. “Ten years ago it was normal.” But ten years ago it was not normal. It hasn’t been normal for decades. He said the average has been 3.2% since 1948. But the average since 1980 is only 2.6%. Is it “fiscal sanity” to build a budget on the assumption that a four-decade norm will suddenly change?
It is also true that the U.S. normally has individual 3% years. But the Bureau of Economic Analysis reported that we just went a record-breaking decade without one. From 2007-2015, the highest peak was only 2.7. That’s never happened before in the 85 years that the BEA has been keeping records.
Perhaps Mulvaney’s 3% projection might make some sense if recent indicators suggested a new upward trend. They don’t. The last quarter of 2016 the GDP increased 2.1%, and in the first quarter of 2017 it increased only 0.7%. That means the odds of 2017 hitting an average of 3% are around zero. Since the budget year begins in October, Mulvaney’s projection is wrong from the start.
Mulvaney’s 3% is also much higher than projections from your own Congressional Budget Office, the Federal Reserve, and the International Monetary Fund. Former Treasury Secretary Larry Summers said the budget was “ludicrous” and Mulvaney’s 3% projection a “logical error of the kind that would justify failing a student in an introductory economics course.”
Republican Rep. Mark Sanford was equally direct yesterday:
“It’s not only a myth, it’s frankly a lie… we have to base it on real numbers… if you’re wrong on these numbers, it means all of a sudden we’ve created a $2-plus trillion dollar hole for our kids and grandkids here going forward.”
I’ve never taken an economics course, but even I can see that Mulvanehy’s reasoning is circular. He said “if you don’t” use 3%, “the budget will never balance. If you assume 1.9 percent growth, my guess is you’ll never see a balanced budget again.” This is exactly right. Trump’s tax cuts cannot be balanced.
But in Mulvaney’s defense, 3% is not strictly impossible. It’s just overwhelmingly unlikely. Mulvaney is a high-stakes gambler, and he’s placing all of our chips on the likelihood of a perfect roll of the President’s economic dice.
Are you still calling this “fiscal sanity”?