The Growth Gap

June 20, 2011

The main reason we have a big budget deficit right now is that the U.S. economy has been growing too slowly for a decade, including the Great Recession and Terrible Recovery. That means less tax revenue and more government services like unemployment insurance and Medicaid. So perhaps the real way Obamanomics has worsened our debt situation is by contributing to this extended period of weak growth.

By my back of the envelope calculations, the CBO forecasts a roughly 10% of GDP budget deficit this year. If revenues were at their historical average, that number would be more like 6%. And if the economy way rebounding as it should, the automatic stabilizers would be more like 3% of GDP, instead of 6%. So that would bring the budget deficit down to around 3% of GDP. The rest you can blame on Obama-“investment” spending.  Of course, one big problem is that Obama’s future budget plans would never bring spending down to historic levels — it stays right around 24% of GDP for a decade —  even as its assumes a growth splurge that would supposedly reduce annual deficits.

A chart from give a few for the growth gap:



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