CBO Report Evaluates Employment Policy Options

A new report from the Congressional Budget Office (CBO) that examines "the potential role and efficacy of fiscal policy options in increasing economic growth and employment...over the next two years."

The analysis notes that, based on its economic forecast from August, without further policy action, unemployment will be above 8 percent in 2012. However, "CBO concludes that further policy action, if properly designed, would promote economic growth and increase employment in 2010 and 2011."

The analysis contains a chart of various proposals and their estimated effects on GDP and employment (see graph below).

Importantly, fiscal hawks who fear that expanded periods of high federal deficits will create problematic inflation need not worry. CBO writes that:

Fiscal actions to promote growth run some risk of raising inflationary pressures, but that risk seems low over the next two years. Inflation is currently very low [emphasis mine]: CBO expects that the core price index for personal consumption expenditures (that is, excluding the prices of food and energy) and the price index for personal consumption expenditures increased less than 2 percent and less than half of a percent, respectively, in 2009. More important, given the substantial slack that currently exists in the use of capital and labor, and the expectation of a slow initial recovery, CBO expects that low inflation will persist for some time; there is even a risk of deflation.

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