Tuesday, March 19, 2013

the President's economic report

Morgan Housel highlights four charts

[1] The budget forecasts that promise trillion-dollar deficits for decades to come overwhelmingly rely on the assumption that health-care costs will spiral higher, just as they did over the past few decades. But lately, per-beneficiary cost growth for Medicare has actually been below the rate of overall economic growth. I've written more extensively about this here, but the bottom line is that we're really bad at forecasting, so the discrepancy between forecasts and reality shouldn't be surprising. And if the trend of recent years holds up, it's a true game-changer: A majority of projected budget deficits will disappear without lifting a finger.

 [2] Evan Soltas of Bloomberg writes:
For much of the middle class, the real net cost of college has not changed significantly [over the past two decades]. ... Data from the College Board show effectively no change in real net tuition and fees for dependent students at four-year public or private universities whose families are in the lower-two income quartiles.
[3] Not only are we currently building too few homes to keep up with demographics, but the skew is almost as large today as it was during last decade's housing bubble -- just in the other direction.

The importance of that can't be overstated enough, which is why I've written about it a lot. People look back at the housing bubble with a sense of amazement. The market was out of control! It was so crazy! Everything was out of balance! But it's virtually the same today. Except this time, rather than a bust, the end game is likely to be a surge in construction.

[4] Yes, real federal government spending has risen sharply since 2008. But real state and local spending declined sharply during that period. Not only is that unheard of in modern recoveries, but it offset part of the rise in government spending. With the recent federal spending sequestration, total state, local, and federal government spending as a share of GDP will probably be the same in 2013 as it was in 2007, before the recession (36%).

[bottom line: it might not be as bad as people think]



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