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Great expectations for US economy: Are Obama, Romney too optimistic?

Mitt Romney and President Obama both present to voters rosy views of future economic growth. Those scenarios aren't impossible, but it's fair to attach some big asterisks to them.

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Europe is another danger area for the economy. The debt challenges of the euro zone's Mediterranean members could lead to more turbulence and economic weakness for the currency union in the year ahead.

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It also appears that Washington's rosy-scenario issue extends beyond just next year. The latest Blue Chip survey, released Oct. 10, compares its consensus forecast for the US with that of the White House Office of Management and Budget (OMB) and of the Congressional Budget Office (CBO). The private-sector forecasters call for average growth of 2.9 percent from 2014 through 2018, versus 3.7 percent for the White House and 3.9 percent for the CBO.

Some economists worry that America's typical or "trend" growth rate has slowed toward the 2 percent level in recent years. That doesn't mean it's unreasonable to hope for some faster-than-normal growth on the economy's long path to recovery from a deep recession. And certainly it's right for politicians to seek ways to boost the nation back toward a stronger growth rate.

A challenge, however, is that some of the corrective steps may be ones that aren't easy for the economy in the short run.

Many economists say fiscal reform should reduce federal deficits and the national debt (as a share of GDP) without making the adjustments so fast that they suck wind out of the economy. 

That's no easy task, however. It includes some risk of conflict between two goals: restoring full employment and averting a dangerous buildup of public debt. Navigating between this proverbial rock and hard place is difficult, today in particular, because virtually all advanced economies are facing pressure to contain public debt levels at the same time. 

If the next president bases his policy around economic assumptions that prove unrealistic, the nation's fiscal position could worsen. Under a President Romney, this scenario could unfold if his tax-reform plan fails to provide a major boost to economic growth, or if he doesn't win cuts to federal spending (still not detailed by his campaign) on the promised scale. 

"Voters need to see the specifics," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan group that supports fiscal sustainability. Without more details from Romney, it's hard for voters to judge if they find his plans credible and appealing.

Similarly, Obama's fiscal leadership has been wanting, Ms. MacGuineas said in a recent interview. So if the economy were to underperform, Obama's plan might fail to curb high deficits. She describes his plans to date as "Simpson-Bowles lite," with some spending cuts and revenue hikes, but not enough to put the public debt on a downward path.

Obama's bipartisan fiscal commission, chaired by Alan Simpson (R) and Erskine Bowles (D), offered a plan that could serve as a template for eventual reforms – in its spirit of compromise if not in all its details. Such reform is backed by a growing list of corporate CEOs. They have signed on to a "Fix the Debt" campaign, designed to put pressure on both political parties for a grand bargain on fiscal policy. 

If the next president wants GDP growth to come in strong, it may hinge on a policy course that includes tax reform, deficit reduction, and broader steps to improve US competitiveness.

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