Get Ready for a Short-Lived Economic Boom
Third-quarter economic growth may run at 5%, but the bubble is sure to deflate quickly after that.
The Bureau of Economic Analysis will release its third-quarter economic-growth estimate Thursday, and expectations are stratospheric. The Atlanta Federal Reserve suggests gross domestic product might have grown at an annual rate of more than 5%. Given persistent expectations for a slowdown, how is that possible? The answer lies in the unexpected loosening of fiscal and monetary policy in 2023.
The fiscal story is straightforward. After taking account of the Biden administration’s unsuccessful attempt to forgive student loans, the deficit unexpectedly doubled this year to about $2 trillion, according to the Congressional Budget Office. A deficit more than 7% of GDP can lift growth, but outside war or severe recession, it is irresponsible fiscal management, for which we are paying the price through higher interest rates.
Not all that extra $1 trillion boosts growth. Lower capital-gains-tax revenues, which reflect poor asset-market performance, won’t raise GDP. Neither will reimbursements from the Federal Deposit Insurance Corp. for the springtime bank bailouts.
Stephen Miran is an adjunct fellow at the Manhattan Institute, co-founder of asset manager Amberwave Partners, and a former senior adviser for economic policy at the U.S. Treasury, 2020–21.
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