Business Economists Worry About Rising Deficits

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Large majorities of business economists said in a recent survey that current U.S. fiscal policy is overstimulating the economy and should be aimed at reducing the federal deficit rather than increasing it.

The National Association for Business Economics said 81 percent of the survey respondents think fiscal policy “should reduce the federal deficit’s share of GDP when compared with the Congressional Budget Office’s (CBO’s) baseline.”

This is a substantial increase since February, when only 61 percent of survey respondents expressed that view. The latest survey of 251 members of the business economists’ organization was conducted in July and early August.

It’s easy to understand the economists’ growing concern, given the sharp deterioration in federal finances over the past half-year.

As the result of deficit-financed tax cuts and spending increases, the administration itself is projecting trillion-dollar annual deficits over the next three years — and even that is based on unrealistic assumptions about economic growth and future federal austerity.

The administration this year also abandoned any pretense of attempting to balance the budget over the next decade.

The CBO baseline projects that under current law the federal debt — already quite high by historical terms at 78 percent of GDP — will rise to nearly 100 percent of GDP by the end of the decade, and will continue rising indefinitely after that. And even that debt figure may be too low compared to credible alternative scenarios.

The new survey found that 71 percent of the respondents considered fiscal policy to be “too stimulative,” meaning that Washington — in the face of what is already a strong economy — is pushing harder for additional growth than may be prudent. This could, for example, risk rapid inflation and instability in the financial markets. It also requires additional government borrowing.

The 71 percent of the survey respondents who are concerned about excessive economic stimulation is up from just 52 percent last February. Again, this seems to represent rapidly growing concern about current fiscal policies.

Only 24 percent in the latest survey thought current fiscal policy was “about right,” and 4 percent considered it “too restrictive.”

While the great majority of the economists thought fiscal policy should reduce the federal deficit, there was little optimism that this would actually happen.

NABE said 83 percent of the respondents “believe that the most probable tax and spending policies are likely to increase the deficit as a share of GDP relative to the CBO baseline.”

In contrast, the survey found nearly eight out of ten respondents thought the Federal Reserve Board’s monetary policies — which President Trump has recently criticized — were “about right.”

On the positive side for the administration, the survey found substantial approval of its deregulatory policies, at least in the short run. Two-thirds of the respondents thought the December tax law improved the corporate tax system.

But most thought the law made the individual income tax system worse. In addition to concerns about the deficit, more than 90 percent of the survey respondents considered “current tariffs and threats of tariffs as having unfavorable impacts on the U.S. economy,” said NABE Vice President Kevin Swift.

Many respondents also indicated that Trump’s executive actions regarding immigration would likely have unfavorable economic impacts.

While the survey addresses an array of political and economic issues, a key take-away is that an overwhelming majority of business economists are now concerned about the rapidly growing deficit but fear Washington does not share that concern — and is in fact heading in the wrong direction.

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