This article first appeared on Larry Summers blog.
Details of President Trump's first budget have now been released. Much can and will be said about the dire social consequences about what is in it and the ludicrously optimistic economic assumptions it embodies. My observation is that there appears to be a logical error of the kind that would justify failing a student in an introductory economics course.
Apparently, the budget forecasts that US growth will rise to 3.0 percent because of the Administration's policies-largely its tax cuts and perhaps also its regulatory policies. Fair enough if you believe in
Then the Administration asserts that it will propose
The Trump team prides itself on its business background. This error is akin to buying a company assuming that you can make investments that will raise profits, but then, in calculating the increased profits, counting the higher revenues while failing to account for the fact that the investments would actually cost some money to make.