January 25, 2017
In his column today Thomas Friedman was reasonably arguing for stronger supports for workers who are transitioning between jobs. However, the fundamental premise of his piece, that:
“every worker today will most likely have to transition multiple times to multiple jobs as the pace of change accelerates,”
…directly contradicts the economic assumptions used by the Congressional Budget Office (CBO) and other official forecasters.
While Friedman is asserting that pace of change in the economy will accelerate, in its most recent budget projections, which were highlighted in a front page story in the New York Times, CBO assumed that the pace of change in the economy would slow over the next decade. CBO assumed potential productivity growth will average just 1.3 percent annually over the next decade. This is down from an average of 1.7 percent over the period from 1950 to 2016, and a peak of 2.4 percent annual growth from 1950 to 1973 (Table 2-3).
Of course, it is possible that Friedman will be right and we may see a pace of change equal to the 1.6 percent long period average or even the 2.4 percent rate of the 1950s and 1960s. However, if this is true, then CBO has hugely over-estimated the size of the budget deficits we will be seeing in the next decade. Higher productivity growth will mean more economic growth and more tax revenue and therefore low budget deficits. In other words, if Friedman’s claims about accelerating productivity growth are taken seriously, we have no reason to be worried about budget deficits.
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