By James Pethokoukis

The American economy has grown by 2.5 percent annually, adjusted for inflation, since 1980. That’s one bit of context when examining the new economic forecasts from the Biden White House. The first bite at the apple came in its fiscal 2022 budget proposal earlier this year. Last spring, the Office of Management and Budget (OMB) predicted rapid growth this year and next, followed by deceleration and then settling into a long run pace of around 1.6 percent.

But that forecast didn’t incorporate the full effects of the Biden policy agenda — then still under construction — notably the American Jobs Plan (AJP) and the American Families Plan (AFP). The OMB’s new Mid-Session Review, however, does attempt to include such impacts. The result is a growthier forecast as seen below, including a comparison to outside models:

So the new OMB forecast sees 0.3 percentage-point faster growth in the out years than the previous forecast. That’s hardly an insignificant upgrade. It puts the OMB forecast for 2029-2031 ahead of other forecasts by an average of a half percentage point. Yeah, you can call it optimistic.

Now a big chunk of that upgrade almost certainly comes from a forecast for accelerated productivity growth due to the Biden agenda. The earlier budget proposal assumed 1.4 percent annual productivity growth. I’m not sure of the new estimate, but let’s say it’s something like 1.8 percent. As it happens, that’s the growth rate at the heart of a long-term bet between economists Erik Brynjolfsson and Robert Gordon about the future pace of productivity growth. The former thinks productivity growth will be faster than 1.8 percent; the latter thinks it won’t.

Neither economist’s forecast is obviously based on their takes of the long-run impacts from the AJP or AFP. Gordon famously doubts the degree of productivity oomph from advances in AI and robotics. Brynjolfsson, on the other hand, sees AI as “a general-purpose technology that is affecting almost every industry while accelerating the pace of discovery.” (Here is a full explanation of Brynjolfsson’s bullish thesis.)

I’m highlighting the wonky wager because we should remember that everything isn’t about what government does or doesn’t do. Invention and commercial innovation by the private sector is pretty darn important. And policymakers should remember that what they do — taxing, spending, regulating — can help or hinder those critical business processes. Indeed, any upbeat economic forecast likely assumes at least some competence by Washington in dealing with long-term challenges such as infrastructure or entitlement spending. One hopes that is a reasonable assumption.

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