February 24, 2003

William Watts Gets Snookered

William Watts of CBS Marketwatch gets snookered. He writes:


EarthLink - Finance: But as is usually the case when politics and economics meet, there are a number of contradictory answers.

Glenn Hubbard, the chairman of the president's Council of Economic Advisers and an architect of the tax-cut plan, has argued that the deficit's impact is relatively minor, and partly offset by future economic growth that can stem from income-tax cuts.

"I think that the effects (on interest rates) of the size of the proposals that the president proposed are very, very modest and they are outweighed" by the potential upside benefits Hubbard told reporters last week.

The Economic Report of the President, released earlier this month by the Hubbard-led CEA, laid out a formula that results in a sanguine answer when it comes to the impact of debt on interest rates. Read it.

According to the CEA's calculations, each dollar of debt crowds out about 60 cents of capital. The other 40 cents is offset by larger capital inflows from abroad. "A conservative rule of thumb based on this relationship is that interest rates rise by about 3 basis points for every additional $200 billion in government debt," the report says...


Why is he being snookered? Because the Bush Administration's plan is not to add $200 billion to the national debt, and then stop. It is to add $200 billion to the national debt this year, and then another $200 billion next year, and then another $200 billion the year after that, and then another $200 billion the year after that, and so on, and so forth: bigger deficits as far as the eye can see.

Ask Glenn Hubbard what the effect of raising national debt by $4 trillion--the net impact over the next 12 years of the Bush Administration's proposed budgetary policies if you add in the (uncounted) cost of war and the (uncounted) cost of Alternative Minimum Tax reform--and you'll get a number like 0.6 percentage points, a number in the same ballpark as that of the other people quoted in the article, Mark Zandi and Bill Gale.

There aren't conflicting answers being given at all. Glenn Hubbard is answering a different question from the one that William Watts asked him. Watts had asked about the impact of the Bush Administration budget proposals. Hubbar answered with an estimate of the effect of a one-time $200 billion one-year temporary deficit.

It's been quite a while since I've seen anyone working on the CEA work this hard to muddy the waters, confuse reporters, and lower the level of the debate about economic policy.

Posted by DeLong at February 24, 2003 06:18 PM | TrackBack
Comments

"It's been quite a while since I've seen anyone working on the CEA work this hard to muddy the waters, confuse reporters, and lower the level of the debate about economic policy."

The level of Administration deception on economic matters is startling, but as startling is the acceptance of the deception by much of the press.

Why is that Glen Hubbard can not be asked a telling question even by PBS reporters?

Why is it that Glen Hubbard is willing to be so deceptive? There is no honor there.

We have a radical set of budget proposals set forward by the Administration. The need is to have thorough analysis of the proposals to see just how radical they are.

Posted by: anne on February 25, 2003 10:28 AM

I share your frustration.Hubbard used a common politicians rhetorical trick--he answered the question he wanted to answer, not the he was asked. It's very hard for a host to break through that sort of thing. If the host pursues a question the way I'd like to see it done, the guests won't come back.

Posted by: cliff on February 28, 2003 12:59 PM
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