McCourt School of Public Policy, Georgetown University
There can be big differences in GDP growth depending upon whether that statistic is calculated over a given year, such as from the end of the previous year to the end of the current year, or by comparing GDP in one calendar year to GDP in the previous year. The differences in these calculations can make, and have made, a sizable difference in reports of how the economy is performing.
The discrepancies across the two main ways of calculating GDP growth do not reflect incorrect mathematics or the distortion of statistics, it is simply a reflection that these methods can yield different results. When discussing growth that took place during a given year, it is better to use Q4/Q4 statistics if possible, but in some cases, only annual data are available. As with any statistical methodology, it is important to know the way in which differences can arise across different types of calculations, to recognize that consistency of methodology across time allows for fair comparisons, and to make sure that changes in methodology are not undertaken purely for reasons of messaging or to distort results for political gain.
Beginning in December 2015, as the economic recovery from the Great Recession gained traction, the Fed began gradually raising the federal funds rate. The tightening of monetary policy after a prolonged expansion is consistent with the notion that central banks should “take away the punch bowl just as the party is heating up.” But President Trump said in December 2018 that raising interest rates “…was a terrible thing to do at this time.” Is it, in fact, time to take away the punch bowl? And how spiked is it?
No mechanistic formula will ever be able to determine definitively whether monetary policy is excessively tight, given the uncertainty associated with estimates of the natural rate of interest, potential output, and the effects of the unwinding of Quantitative Easing. These caveats notwithstanding, the policy rule commonly used to evaluate the stance of monetary policy indicates that the current federal funds rate is not out of line with historical experience; if anything, the funds rate remains below where it would normally be, given current economic conditions. Concerns about an overly restrictive policy are therefore overblown — although a significant deterioration in economic conditions could change that assessment.
Over the next ten years, the United States is on course for routine trillion-dollar annual deficits in the federal budget and the highest debt-to-GDP ratio in its history. Beyond the next decade, large and rising projected annual deficits will push the national debt steadily upwards, reaching almost 200 percent of GDP by 2049 (up from 78 percent today) under plausible scenarios. The projections derive from rising spending on health care, Social Security, and interest payments and, as of yet, an unwillingness either to reduce such outlays or provide the revenues needed to finance them. The projections assume steady economic growth and relatively low interest rates, so they could be far worse under alternative scenarios. What are the implications?
Not all debt is bad. When it finances government investment or anti-recession efforts, increased debt can boost the economy in the short-term and the long-term. But the debts we are accumulating do not involve these priorities. Indeed, federal investment in infrastructure and human capital is slated to decline as a share of GDP. As a result, the current level of government borrowing will likely reduce future national income. This can happen if the deficits lead to higher interest rates and crowd out future investment, reducing future production and income. But an increase in interest rates is not necessary to generate the decline in future national income. If a rise in deficits is financed by capital inflows (that are sufficiently large so that interest rates do not rise), future investment and production won’t fall, but Americans’ claims on that production will decline, as more of the proceeds of production will have to be directed to repay foreign creditors. Worse still, if we finance our current debt trajectory with capital inflows and interest rates do subsequently rise to exceed growth rates, the nation would be left with an enormous and expensive debt burden. As Keynes’s famous quote states: “The boom, not the slump, is the right time for austerity at the Treasury.” Well, this is the boom. If the future deficit path looked favorable, i.e., if our current primary deficits were thought to be temporary, the argument for simply letting them evolve would be stronger. But if policymakers do not address the fiscal imbalance now, it will only become a harder problem in the future, due both to the growing size of the problem and the increased economic costs and political difficulty of enacting spending cuts or tax increases in less favorable times. Addressing the fiscal imbalance now does not require sharp, immediate spending cuts or tax increases. Rather, the changes should be phased in over time. Nevertheless, the longer we wait to act, the larger and more disruptive the eventual policy solutions will need to be.
Voter turnout in the United States is vastly unequal: richer people are more likely to vote than poorer people. If the poor are less likely to vote then they have a lower probability of having their interests and preferences reflected in public policy.
Understanding what drives the relationship between higher incomes and voting could help address this form of political inequality and, more generally, provide insight into how to increase political participation in the democratic process. We find that a cash transfer program that increases household incomes has a positive effect on the voting behaviors of children from the poorest households. This suggests that income augmentation programs that help children may have other indirect (and long-term) benefits to society in the form of increased political participation and civic engagement as adults.
Should antitrust policy show deference to big firms that benefit consumers through lower prices, or is there an inherent “Curse of Bigness” (as Louis Brandeis argued in 1914)? This question has taken on a new urgency with the rise of companies like Amazon, Alphabet (the parent company of Google and some of its former subsidiaries), and Facebook. There are intrinsic reasons why these tech giants are large players in their markets. Would the public benefit from breaking them up, as was done with Standard Oil over a century ago, and, more recently, with AT&T?
The goal of antitrust policy should be that consumers enjoy the benefits of healthy market competition. There is evidence to suggest that merger policy has been too lenient in the past and future policy should be more restrictive. But competition is dulled when antitrust policy is used to address broader social problems such as the political power of large firms, privacy concerns and income inequality – and there are alternative tools that are better targeted towards these ends. Jettisoning the goal of maintaining competition to benefit consumers in an effort to address broader social aims is likely to achieve neither objective.