I keep on hearing about the supply-side miracle associated with the the Reagan era tax cuts. What do changes in estimated potential versus actual output suggest?
Figure 1: Year-on-year growth rate of real GDP (blue), and of potential GDP (red), calculated as 4th differences of logged values. Dashed lines at effective dates for Economic Recovery Tax Act of 1981 and Tax Reform Act of 1986. Source: BEA, CBO.
From the recent CBO Budget and Economic Outlook, the projected current account and implied cyclically adjusted budget balance.
Figure 1: Structural/cyclically adjusted Federal budget balance (dark blue), and current account balance (dark red), both as a share of GDP. NBER defined recession dates shaded gray. CBO projection period shaded gray. Projection of structural budget balance estimated by author using June 2017 estimate, adding in legislative changes reported in CBO (2018). Source: BEA 2017Q4 3rd release, CBO (2018), and author’s calculations.
In the current discourse, there seems to be some amnesia with respect to when tax cuts occurred, why they occurred, and how they affected Federal budget deficits. Here is some data (read comments to this post).
Relative to before.
Source: CBO, Budget and Economic Outlook, April 2018 via Kaplan/NYT.
these estimates include macro feedback effects (i.e., dynamic scoring). So much for tax cuts paying for themselves (if anybody ever really believed that).
The conventionally reported trade balance (or “net exports”) for the United States from the National Income and Product Accounts (NIPA) is net exports of goods and services, in nominal terms. (There are also trade balance measures on a Census basis and Balance of Payments basis, which differ in coverage and definitions.) The inflation adjusted trade balance is hard to calculate correctly, given the use of chain weighted measures of exports and imports. Here I plot a (Törnqvist) approximation to the real trade balance.
A progress report (the deficit is increasing, if you were wondering…)
Figure 1: Trade balance in billions of dollars, SAAR (blue), and 12 month moving average (red). Orange denotes Trump administration. Source: BEA/Census December trade release, and FRED.
The algebra and graphical analysis (from my undergrad course) is here. If you don’t understand it, don’t bother commenting.
Source: Irwin, NYT, 9 Feb 2018.
From Bloomberg:
“I don’t think that’s had an impact on the market at the moment,” Mnuchin told reporters at the Capitol on Tuesday. “The debt markets are one of the most liquid markets in the world and are reacting very well.”
Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. This is an extended version of a column that appeared at Project Syndicate on January 15th.
