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“We’re a really big economy, with really big forces determining what happens to GDP growth,” said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution and former CBO chief economist.
Even these modest projections by the Biden government imply that its policies will increase economic activity growth by a few tenths of a percent each year for a decade. This is important when comparing it to growth one would expect based on demographics and historical averages of productivity growth alone. The forecast is inherently more optimistic about Mr Biden’s policies – and their potential for increasing productivity and the number of workers – than it may seem at first glance.
“The claim that your fiscal policies will boost growth by four tenths of a point seems optimistic, but I can see how they could get there,” she said.
Jason Furman, former top economist in the Obama administration, said, “I think people have a problem on their mind – more extravagant ideas about what economic policy can do and how quickly it can do it. When you talk about increasing productivity, you’re talking about compounding, which will be a big thing for a long time. “
In other words, the difference of a few tenths of a percent in GDP growth might not mean much for a single year, but such a large gap that lasts for many years has a huge impact on the standard of living.
Some of the government’s policies would inherently focus on the very long-term effects on the country’s economic potential. For example, additional funding for community colleges could in the short term reduce the labor force and thus GDP as more adults return to school. But it would then increase the productive potential of these workers and thus contribute to growth for the following decades.
For their part, Conservatives believe the Biden agenda is likely to hold back growth, especially if tax hikes and new regulatory measures come into effect. Mr Mulligan, the Trump advisor, said he believed the Biden agenda would reduce the country’s growth path by about 0.8 percentage points per year compared to how it did in the Trump era. Douglas Holtz-Eakin, president of the American Action Forum, said he believes Mr. Biden’s policies could result in faster growth in the short term but slower growth in the long term due to taxes and spending.