Our sister publication asks analysts whether the administration's economic forecasts are too optimistic. They would have gotten a more interesting discussion if their query had been "Is the Pope Catholic?" Of course they're too optimistic. In fact, the word optimistic is too optimistic. A better choice might have been "insane". Like Greg Mankiw, I would love to find a (sucker) investor who is willing to take the other end of a bet that both growth and revenue will fall short of the administration's predictions.See if you believe in these projections.
Having defended Obama's candidacy largely on his economic team, I'm having serious buyer's remorse. Geithner, who is rapidly starting to look like the weakest link, is rattling around by himself in Treasury. Meanwhile, the administration is clearly prioritized a stimulus package that will not work without fixing the banks over, um, fixing the banking system.
The Obama administration is basing its budget forecasts on the economy growing an eyebrow-raising 15.6 percent above inflation between 2008 and 2013 - a drop of 1.2 percent this year followed by an average of 4 percent growth over the following four years. That's very impressive growth for any period of time. Even small deviations in growth rates can mean hundreds of billions or even trillions of dollars in the federal budget deficit.They're projecting that the economy will only sink 1.2% this year. Hey, what happened to saying this is the worst economy since the Great Depression? I guess there was some real powerful mojo in that stimulus package. Given the drop that we've seen so far this year, just picture what the growth must be for the rest of the year to average out to only droppoing 1.2%.
No wonder Gregory Mankiw feels confident asking Paul Krugman to place a bet on whether those forecasts will hold up.
UPDATE: The man whom President Obama praised for his approach to fiscal discipline is not buying the rosy scenarios in the budget either. Senator Judd Gregg, one-time nominee to head up Commerce, gave Secretary Geithner a hard time this week.
In a hearing before the Senate Budget Committee Gregg dressed down Geithner with facts, figures, and charts. While always keeping his cool, the exchange was somewhere between a mother's scolding, a drill sergeant's questioning and an attorney's cross examination.Ouch.
In his opening statement, Gregg politely called the administration's budget forecast a lie.
"The argument that it cuts the debt in half in four years is, ahh, is truly spurious," he told Geithner.
President Obama himself gives Gregg's comments a sense of stinging credibility. When the president introduced Gregg as his nominee for Commerce Secretary last month, he said Gregg is known for is fiscal discipline.
"He shares my deep-seated commitment to guaranteeing that our children inherit a future they can afford," Obama said.
Today, the president's compliment of Gregg turned into an attack on Geithner. Gregg said the budget is essentially "putting on our children's backs a debt they can never get out from underneath."
He added pointedly, "I think we're putting at risk not only our children's future, we're clearly putting at risk the value of a dollar and our ability to sell debt."
When Gregg withdrew his nomination, he said he and the administration were "functioning from a different set of views on many critical items of policy."
Gregg's opening monologue today would indicate that was a gross understatement.
"The argument that this budget doesn't have tax increases [on everyone] is, I think, an 'Alice in Wonderland' view of the budget," he said.
He challenged the budget's math on cutting the debt: "When you take the deficit and quadruple it and then you cut it and half, that's like taking four steps back and two steps forward. That's not making any progress; you're still going backwards."
Gregg questioned why any foreign country would continue to buy up U.S. debt: "Because if I'm in the international marketplace, and I'm looking at this budget, I'm saying to myself, ‘Where's the discipline? Where's the containment?' There isn't any."
In his withdrawal statement last month, Gregg said, "I expect there will be many issues and initiatives where I can and will work to assure the success of the president's proposals."
The budget doesn't appear to be one of them.
2 comments:
I'm not too sure if those numbers are wrong except misleading. By including the decline in GDP of 2008 and however much of 2009 there still could be they have only claimed the return to the status quo ante.
Much like the numbers from the Depression where the GDP had fallen so low that even the slightest improvement seemed impressive but only by ignoring how far the economy had fallen. Tiny or rather underutilized economies can improve impressively but mature ones that are much more efficient grow just as rapidly in dollar amounts but less so as a percentage of GDP.
The next largest GDP is China but is only half that of the US. In terms of dollar amounts the Chinese would need to grow at more than twice the rate of the US to ever catch up and as they acquire more efficiences in their economy the rate of growth will slow down but still look impressive much like the claims of the administration.
When even David Obey, about as far Left as you can get, starts finding fault, is the bloom starting to fade from Geithner's rose. Or is Obey merely setting up his and Pelosi's bid for their next $400 billion "stimulus package?" Or both?
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