CBO’s Hall: Stimulus Unlikely to Improve Long-Term Growth

By Jonathan Nicholson

Fiscal stimulus could boost short-term economic growth but changes in the supply of labor and other factors will be needed to increase the U.S. economy’s long-term growth rate, the director of the nonpartisan Congressional Budget Office told senators.

Testifying before the Senate Budget Committee Feb. 1 on the CBO’s recent budget outlook, Keith Hall said constraints on supply, not lack of demand, were major factors holding back the U.S. economy’s growth rate over the long term.

“If we’re talking about the short term, just basic stimulus, we could accelerate the elimination of the output gap over the next two years,” Hall said. “You could accelerate that.”

“But for having anything lasting, we need to worry about the supply-side of things,” he said, citing specifically labor supply, the stock of capital available and innovation.

Potential GDP 1.8 Percent

Hall said over the next 10 years, labor growth is projected to grow at about 0.5 percent annually, while productivity is expected to increase at about 1.3 percent a year. Those two factors are seen by most economists as the driving forces behind long-term growth in gross domestic product.

“That adds up to about 1.8 percent GDP. That is our forecast for potential GDP. If you want to get potential GDP up, you’ve got to raise one of those two things, or both,” Hall said.

In his prepared testimony, Hall said again that the U.S. government would see debt rise to a level not seen since after World War II. “CBO projects that over the next decade, if current laws remained generally unchanged, budget deficits would eventually follow an upward trajectory—the result of strong growth in spending for retirement and health programs targeted to older people and rising interest payments on the government’s debt, accompanied by only modest growth in revenue collections,” he said.

However Hall, in response to a question from Senate Budgett Chairman Mike Enzi (R-Wyo.), said it was unclear what level of debt was dangerous. “It’s on an unsustainable path,” he said. “It’s hard to pick a number, however. In some respects, it’s like any other organization that puts up debt. It’s hard to say how much debt is too much.”

To contact the reporter on this story: Jonathan Nicholson in Washington at jnicholson@bna.com

To contact the editor responsible for this story: Paul Hendrie at pHendrie@bna.com

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