Assuming nominal GDP growth of 2% per year and inflation of about 2% a year, which of the following would be better:
- Federal deficit spending of 2% of GDP per year for the foreseeable future
- Federal deficit spending of 5% of GDP per year for the foreseeable future
- A balanced federal budget, i.e. no deficit spending, until growth picks up
- Federal deficit spending in excess of 5% of GDP per until growth picks up
- There’s no way to tell
- None of the above
The first is the CBO baseline projection, i.e. what would happen if we go over the “fiscal cliff”. The second is the CBO “alternative fiscal projection”, i.e. what would happen if President Obama’s proposals are adopted in full.
Over at Forbes there’s one take on the question.