The Cyclically Adjusted Federal Budget Balance

Just a reminder – the budget balance is endogenous (as long as one believes in a fiscal multiplier).

Figure 1: Federal budget balance to potential GDP (blue), and cyclically adjusted budget balance to potential GDP (tan). NBER defined peak-to-trough recession dates shaded gray. Orange shading denotes Trump administration. Source: CBO, NBER and author’s calculations.

This post prompted by a reader’s mendacious assertion that Trump was righting the fiscal ship before the pandemic (not that I expect him to understand what “endogenous” means).