Chart of the Day – Is The President’s New Spending Based On Faulty Assumptions?

Actually, we have two charts in response to the President’s State of the Union address last night and his new spending initiatives. According to the Milwaukee Journal Sentinel, President Obama told lawmakers his proposals were “fully paid for” and wouldn’t boost the deficit.

“It’s not a bigger government we need, but a smarter government that sets priorities and invests in broad-based growth,” Obama said.

The folks at e21 take the President to task for asserting that the United States is “more than halfway” to the required cumulative deficit reduction to stabilize debt ratios. The President believes with our debt under control, he has the luxury of proposing new spending proposals.

The notion that the federal government is “more than halfway” to fiscal stability is complete nonsense that can only be justified by defining the problem as narrowly as possible and relying on excessively optimistic forecasts for growth and interest rates.

As you can see, the Congressional Budget Office is predicting robust growth in the economy that some would say is pure fantasy.

e21 cbos_economic_outlook.png

e21 real_growth_rates.png

As shown in Figure 2, this is what CBO assumes: in spite of the fact that growth has averaged just 1.8% since 2010, CBO expects growth rates to more than double to an annual average of 3.8% for 16 consecutive quarters between the end of 2013 and the middle of 2017.