Take CBO’s lowered expectations as a challenge, not a prediction

The Geico television advertisement campaign began with a pretend spelling problem that left a surprised gecko fielding consumer questions about insurance.

For TV audiences it was a case of lizard-love at first sight. Everybody loved the gecko, and he has become the anchor for Geico’s advertising and marketing sales and the most visible symbol of the company.

He no longer has to appear in every television ad, though — a lesson, perhaps, in balancing presence against overexposure — and recent ones involve human actors in a “Did you know?” series. The scripts present the idea that although everybody knows that Geico saves them money, they might not know that, for example, that “Old MacDonald” was not a good speller (because he would add “E-I-E-I-O” at the end of words).

One recent “did you know?” ad features Pinocchio as a very bad motivational speaker. When he sees his audience as “a room full of unfulfilled potential,” and, for emphasis singles out one poor guy and says, “You’ve got potential,” Pinocchio’s nose grows long enough to reveal that he is lying.

Unlike Old MacDonald’s spelling problem, Pinocchio’s ill-fated focus on unmet potential touches a nerve from childhood. Most people who are bad spellers seem not to care about it, or even take pride in it. With few exceptions, though, growing up includes a “can do better” report card or a “not performing up to potential” talk at some point in the maturation process.

These events are not calculated to make us feel good but to be a directed kick to change our behavior, our priorities. They may come from a parent, a brother or sister, a teacher, a coach, or a drill sergeant — or in some cases all of the above. And, unlike Pinocchio’s experience, the kick-in-the-pants talks often work.

Last month, the Congressional Budget Office delivered one of those talks in the form of a forecast of our nation’s economic output, our Gross Domestic Product, over the next decade. It was even worse than the usual kick talk, though, because the CBO had lowered its expectations for our economy’s potential.

We can only imagine how the GDP felt after that. We all like to think of ourselves as having untapped potential. It is the more rational side of our thoughts that someday we’ll be “discovered” and swept up into a world more to our liking — one that recognizes our qualities and potential. None of us would like to hear that our possibilities are limited or that we’ve gone as far as we can ever go.

Fortunately, while people’s expectations for us may be reduced and even our own expectations for ourselves may shrink, the vast majority of us still have untapped potential. Pinocchio was right, even if he didn’t believe it himself.

Is this true for our economy, or are we doomed to lowered expectations, and a “this is as good as it gets” future?

This particular forecast by the CBO, for example, was greatly influenced by two demographic factors: the declining rate of population growth; and the declining rate of participation in the labor force. Both factors had a negative impact on the CBO’s estimate of our potential.

The sharp decline in labor force participation is linked closely to the recession and is not necessarily a permanent fixture in our economy. The CBO forecast of economic potential, though, has to take things as they are and “follow the data,” which explains part of the dreary outlook.

The population growth rate has been declining for a much longer time, and parallels the similar declines in other developed countries. What is uncertain about it is its specific effect on economic growth. We know that a declining population is often associated with a declining economy, but it is far from clear that a higher birth rate in the U.S. would significantly increase our economic potential or economic growth.

We probably cannot do much about the population growth or the labor force participation rates, but that doesn’t mean that we are condemned to economic skies that are cloudy all day. What it does mean is that we have to focus on improving the impact of the other factors of economic growth. That means enhancing the usage and flow of capital in our economy, raising the quality and mobility of our labor force and improving the quality and quantity of natural resource use.

Whether it’s in the fifth-grade, high school, college, boot camp, on the job or at home, when somebody who cares about us gives us an “up to your potential” kick talk we should pay attention. More importantly, we should do something about it. That has been America’s history, and it is, hopefully, our future.

James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.