New CBO projections about the U.S. economy.

If I'm doing the math correctly, CBO is projecting an output gap of $293 billion in 2021 and $585 billion over the 2021-2025 period.

(This suggests to me that we don't need $1.9 trillion of stimulus)

Report here: https://www.cbo.gov/publication/56965

Here's CBO's graph of the output gap.

One caution about the CBO projections is that nobody *really* knows the level of potential GDP; it's an unobservable concept. So the output gap might be bigger than CBO thinks.

I still think that the risks of "too little" outweigh the risks of "too much." And there are other reasons to support federal economic relief besides aggregate demand. Both of these considerations suggest that going big on an economic relief bill might still be the right move.

In an ideal world, we'd enact enough relief to close the projected 2021 output gap now, while remaining open to more relief later if the economy still isn't looking great

Brian gets larger output gap numbers from the CBO report than I did, and on reflection, he's right. I was only looking at Q4, like the CBO chart does, but Brian runs the numbers for full calendar years, which is the better way to do it.) https://twitter.com/Brian_Riedl/status/1356283149941157889

Ernie suggests that there's something seriously wrong with the CBO's potential GDP suggestions, which is another reason to aim higher rather than lower https://twitter.com/ernietedeschi/status/1356285191162130432

Jason also thinks that CBO is underestimating potential GDP (though he also thinks CBO is underestimating the rate at which GDP is set to rebound) https://twitter.com/jasonfurman/status/1356323104230789120