Every year I look forward to reading the Economic Report of the President. It always has tons of interesting economic analysis, including a chapter on artificial intelligence in this year’s just-released version. One of the first things I do is find the long-term economic forecasts of the current administration. The following chart is what Biden White House economists are looking for over the next decade:
How did Team Biden arrive at those numbers, especially the economic growth forecast? A few explanatory highlights from the report:
- The long-term forecast for real GDP growth from 2025 to 2034 is higher than the Blue Chip consensus forecast by an average of 0.3 percentage points per year, assuming the implementation of Biden’s proposed economic policies such as the infrastructure, CHIPS and Science, and clean energy bills.
- Demographic factors, such as the slowing retirement of baby boomers, are expected to ease the downward pressure on labor force participation and potential real GDP growth.
- Biden’s human capital and childcare policy proposals are expected to largely offset the demographic factors weighing on the labor force participation rate.
- Productivity growth is projected to be slightly slower than its long-term average but faster than the growth rate during the 2007–2019 business cycle.
- The combination of these factors results in the Administration’s projected 2.2 percent annual real GDP growth rate during the final five years of the budget window.
Look, I would rather have steady long-term growth of 2.2 percent instead of 1.9 percent. Likewise, I would rather have 2.5 percent growth than 2.2 percent and 3.0 percent than 2.5 percent. And it wouldn’t surprise me if the Biden economics team thinks AI will be such a powerful general-purpose technology that we might well get a sizable bump in productivity growth—and thus economic growth—at some point during that ten-year window through 2034. I think a lot about this recent quote from Stanford University economist Erik Brynjolffsson who specializes in analyzing AI and the digital economy: “I see a coming productivity boom. I see about a doubling of productivity growth in the coming decade as a result of these technologies.”
If that prediction happens, productivity growth would be more like three percent a year rather than the 1.5 percent annual pace seen in the decade before the pandemic. Basically, it would be like what happened during the late 1990s and early 2000s tech boom. So not ahistorical at all, although we shouldn’t count on it happening and saving us from our fiscal follies. And to be sure, the Biden forecast doesn’t make any wild productivity assumptions, instead inserting just a modest, though hardly insignificant, uptick above the recent pace due to its policies, as seen in this chart:
But as I contend in my new book, The Conservative Futurist: How To Create the Sci-Fi World We Were Promised, we can do better than a Two Percent Economy. We’re experiencing the biggest wave of emerging technologies—in computer science, biology, energy, and space—in decades. Now we need supportive decisions by the government to help maximize the progress and impact of these advances, including more science investment, more immigration, and less regulation that makes it hard to build in physical world.
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