Wednesday, June 8, 2011

Pawlenty’s Economic Goal is Almost Right

Benjy Sarlin notes that one GOP Presidential hopeful is being criticized by GOP economists:

Tim Pawlenty drew widespread ridicule from experts across the political spectrum on Wednesday for his wildly optimistic economic plan. Pawlenty unveiled his platform at a speech in Chicago, a combination of tax reforms and budget cuts that he said would yield an explosive economic recovery. The centerpiece of his proposal was setting a goal of 5% economic growth per year for a decade. "Growing at 5% a year, rather than the current level of 1.8%, would net us millions of new jobs," he said. "Trillions of dollars in new wealth. Put us on a path to saving our entitlement programs. And balance the federal budget."But a group of former CBO directors, who are chosen by Congress to analyze the budget from a nonpartisan perspective, are lambasting the number, saying it's completely out of line with any mainstream assessment of the American economy."The trend growth rate is not going to be 5% in the United States," Douglas Holtz-Eakin, director of the CBO under President Bush and a top GOP advisor, told TPM. "The market just doesn't support that. It just doesn't."

Five percent growth for an entire decade may be “out of line with any mainstream assessment of the American economy” but with a GDP gap near 10 percent and potential GDP growing at about 3 percent per year, 5 percent growth for the next five years strikes me as a very laudable goal.

My problem with Tim Pawlentry is not his policy but with his proposed policies. The GDP gap is due to a lack of aggregate demand. Budget cuts will only serve to further depress aggregate demand.


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