White House chief economic adviser Gregory Mankiw said on Thursday the U.S. budget deficit was a concern, but the government hoped to cut it in half over the next five years with higher growth and by restraining spending.
“On the budget deficit issue, I think it’s a concern,” Mankiw, the chairman of the White House Council of Economic Advisers, told a press briefing at the Organization for Economic Cooperation and Development in Paris.
He added that Bush had chosen to place more emphasis in the short term on creating jobs and that in the medium term he aimed to bring the deficit down with higher growth and by restraining government spending.
“Over time, we want the budget deficit to shrink. It needs to shrink. The economy is going to recover, and as it recovers, more revenues will come in, in addition to spending restrictions,” he said.
Mankiw said he saw the U.S. economy growing above the historical rate in the year ahead, but added he did not expect it to keep up the pace seen in the third quarter of 2003.
U.S. gross domestic product surged at an unexpectedly strong 7.2 percent annual rate in the July-September period.
“Going forward, we don’t expect 7.2 (percent) to continue. That would be extraordinary,” he said.
“We do expect above historical average growth rates. For the past 40 years, the average growth in the U.S. economy has been about 3.3 percent. We expect growth over the next year to be higher than that.
“There is a lot of evidence that the U.S. economy is looking better,” Mankiw said, adding that higher growth would create more jobs.
“The signs are good.”
Mankiw said higher savings by Americans would, over time, be a “good thing” and help reduce the current account deficit.
He added that there was “quite a significant output gap” in the United States, referring to the difference between actual economic output and the economy’s potential output.
The White House aide also said that slow growth in Japan and Europe was a bigger concern for the United States than fast growth in the Chinese economy. Europe needed to conduct more structural economic reforms, he said.
“There have been advances in Europe. I think there’s still a long way to go.”
Speaking about Japan, he said: “The signs are looking up. I hope that they can get rid of the deflation.”