overstimulation risk will far exceed the “output gap” shown in the latest Congressional Budget Office economic projections. What is an output gap? Gross Domestic Product measures (or at least tries to) economic growth. Economists also calculate “potential GDP,” which is how much the economy could grow, if every available worker and other resource were fully employed. Inflation tends to occur when actual GDP exceeds potential GDP because the economy is “running hot.” An output gap is when it goes the other way, with the economy operating well below its potential. That’s what we see in recessions. Of course, all this involves numerous assumptions. GDP itself has problems, too, but it’s still a useful framework for analysis. Government and central bank policy should aim to keep the economy running roughly in line with its potential: not too hot, not too cold.