Friday, October 26, 2012

Great expectations for US economy: Are Obama, Romney too optimistic?

Mitt Romney and President Obama both present to voters rosy views of future economic growth. Those scenarios aren't impossible, but it's fair to attach some big asterisks to them.

By Mark Trumbull,?Staff writer / October 25, 2012

President Obama and Republican presidential nominee Mitt Romney both present to voters rosy views of future economic growth. Too optimistic?

Steve Helber/AP, Brian Snyder/Reuters

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Here's a pocketbook pointer for American voters to consider: As the presidential candidates make their closing arguments, both President Obama and rival Mitt Romney are offering visions of the economy that tilt heavily toward optimism ? and that may not be a good thing when it comes to making good on their fiscal promises.

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A case in point: Mr. Obama's budget proposal this year assumed an economy growing by 3 percent, adjusted for inflation, during the 2013 calendar year. The consensus among top private-sector forecasters calls for 2 percent growth, according to a monthly survey by Blue Chip Economic Indicators.

A single percentage point may not sound like much, but the difference amounts to one-third of the economic growth that the White House had planned for. If 2 percent proves to be correct, the change would mean about $165 billion less in gross domestic product (GDP) for the US, slowing the pace of everything from job creation to tax revenues.

The GOP's Mr. Romney has his own big expectations that could prove to be hard to realize. His campaign hasn't released formal economic forecasts. (Challengers don't tend to do that.) But the former Massachusetts governor has sketched a vision that counts on rapid economic growth.?

Romney vows that after cutting income-tax rates by 20 percent, under his plan "we keep taking in the same [tax] money when you also account for growth." Independent analysts challenge his assertion that the tax cuts can be paid for (so they bring in the same amount of revenue) through Romney's recipe of faster GDP growth and reducing tax breaks such as deductions.

Politically, there's a strong reason for candidates to run on a platform of economic optimism. It helps Obama if voters believe that the economy is improving and will gain momentum. It helps Romney if voters believe that an economy with him in the White House will grow faster still.

The optimistic scenarios aren't necessarily impossible. But it's fair to attach some big asterisks to them.?

Romney himself notes that the economy hasn't been growing very fast lately.

"How about the growth of the economy? It's growing more slowly this year than last year, and more slowly last year than the year before," he said this month in the second presidential debate.?

What he didn't add is that next year's growth could be slower than this year's.?That's what the Blue Chip survey currently projects. The average among forecasters calls for 2.1 percent GDP growth for 2012, and 2 percent next year. (If it pans out that way, Romney would prove to have been wrong on one count: Growth in 2012 would end up a bit stronger than in 2011. But Romney is correct that at present, this year has seen some cooling relative to last year.)

A major hurdle for the economy next year, seldom mentioned in campaign ads or speeches, is the "fiscal cliff" that's approaching at the end of the year.?Come Jan. 1, a range of tax cuts are poised to expire, even as new restraints on federal spending kick in. To the degree that Congress and the White House fail to mitigate these changes, the result could be to suck several percentage points of GDP out of the economy.?

Economists widely agree that going "over the cliff" is a recipe for recession. Both parties say it's important not to let that happen. But the political compromises needed to achieve a benign outcome shouldn't be taken for granted, budget experts say. Even under some best-case scenarios for the economy, fiscal policy changes could create some downward drag on GDP growth.?

Source: http://rss.csmonitor.com/~r/feeds/csm/~3/AYDk3RrEiVY/Great-expectations-for-US-economy-Are-Obama-Romney-too-optimistic

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