Semi-Daily Journal

Maybe the Bush administration still believes the Clinton CEA 2001 estimate: GDP growth of 2.6%!

Was that rosy? Is it partisan to ask?

Brad, there have always been some institutional barriers to prevent presidents from having too much control over things: the Fed, the CEA, the courts, the independent press, and, of course, Congress's habit of probing, blocking, and modifying the prez's ideas. Such barriers made me mad sometimes when Clinton was president, such barriers make me very grateful sometimes now that Bush is president, but I'm just wondering: while all administrations probably try to circumvent such barriers to a certain extent, has the Bush administration been more successful than most? It seems to me that Bush has been unusually successful in circumventing such barriers, or at least rendering them compliant. Economic forecasting, naturally, would be one symptom of such tampering, though by no means the only one. What do you think? Is this administration unusually unrestrained, or do I just notice violations and circumventions of checks on power more when it's a guy I don't like who's doing it? If it's the former, why? Is the current administration simply unusually ruthless or contemptuous of the U.S.'s governmental balance? Or are they using new techniques that simply haven't been used before to manipulate things?

It seems like a question that isn't just important for good economic forecasts, or even just important during the 4-8 years of Bush we have, but for administrations beyond 2009 as well.

>>Maybe the Bush administration still believes the Clinton CEA 2001 estimate<<

You misunderstand. The problem is with the radical disjunction between the employment forecast and the GDP growth forecast.

Moi, wrong? Impossible. The little table I posted is a graphic file straight from the CEA. It is consistent with the paper they posted in February, once you understand the crosswalk. The paper reports its results in a peculiar way. I explain it on my site.

They used the WUMM (Washington University/Macroeconomic Advisers/Lawrence Meyer model) for this forecast, but they are able to adjust (sic) parameters of the model to their liking.

Ya know what really bothers me? Jamming all the jobs into the first couple of years makes this an election ploy. No biggie - that's not what bothers me. What bothers me is that the White House will run around asserting that a nutso forecast is reality, and get away with it. The press has been just terrible about taking what comes out of Ari's mouth (see ya, Ari) about taxes and the economy as true.

Remember when the war "wasn't going well", just about a week before it was over? If the press had the temerity to question US war planning when there was just no way we were going to do badly against Iraq, why can't the press screw up the courage to question White House economic claims in a similarly vigorous manner? The economic claims are so much farther from reality than projections for the war's progress and outcome (though not its justification) that this should be easy.

Which is to say, of course somebody has rearranged the jobs forecast in a politically convenient way - the risks of doing so seem pretty low.

There's an interesting (and, I hope, profitable for Dems) dynamic offered here.

This is an incredible 18 month forecast, equivalent to saying that the economy will add 283,333 jobs per month, starting right now.

Well, next month it will be fair to ask how many jobs were added. Suppose its none (I think it will be negative but let's be optomistic). Then, the forecast suggests the month after that there will be 300,000 new jobs. Each month, the amount required to fulfill the forecast will rise, in a cataclysm of compounding absurdity.

Surely, some mileage can be made of that.

Well, one thing could be said in regards to civility. The first and only response on this point in Sawicky's weblog:

http://maxspeak.org/gm/archives/00001194.html

reads:

> 137,640,000 level for payroll employment by the end of
> 2004? The troika must be on crack!
>
> Posted by Brad DeLong @ 05/23/2003 12:15 AM EST

I note the absence of Netional Sucialist imagery here, but just barely. :-)

More substantively, I think what is way more interesting are the numbers *without* the tax package proposal: 136.24 million is the baseline for end-2004. In other words, 4.11 million more than their July 2003 projection, which itself is probably looking optimistic after yesterday. Is that scenario itself actually believable?

Speaking as an outsider and a bomb-thrower, I wish a few more economists besides Krugman, deLong, and Max would stand up and speak frankly, truthfully, and impolitely about this kind of thing.

Isn't there is an ethics problem here? In extreme situations, such as this one, shouldn't professionalism require shouting on streetcorners (as Krugman has been doing)? But most economists seem to think that professionalism actually forbids that.

As a suspicious outsider I tend to conclude that the economists have mostly been bought. They are the last people in the world ever to think of making a financial sacrifice on ethical or political grounds, since their science brackets out ethics and politics and teaches that the market is a virtually perfect method for allocating resources of any kind, including knowledge and truth.

I suppose that we citizens would get the truth if we could afford it. (Theoretically government economists are working for us, but actually all of them can earn much more in the private sector where they usually end up).

Weidenbaum once made fun of me for posting an April Fools Party notice for a party on April 2nd. He indicated (in very good humor--he is always very nice) this an example of political scientists not being good at numbers. In fact, he thought it so funny he repeated to every polisci professor on the floor.

Irony dies a thousand deaths.

Do you claim that it is _impossible_ for the economy to improve to such an extent? what _is_ your hope?

>>Do you claim that it is _impossible_ for the economy to improve to such an extent? what _is_ your hope?<<

The forecast is supposed to be a forecast--a prediction, not a hope.

And, yes, it is impossible for payroll employment to grow by so much over the next eighteen months without much, much, much faster real GDP growth than the administration is currently predicting. The forecast is a fake: incoherent.

Kalle,
My reasing is that it is impossible to reconcile the GDP number (probably closer to accurate) with the emploment number.

I don't understand the value of a bogus number. The truth will out before the 04 election.

Are they afraid Krugman will write another column about the high cost per job and want it to come in under $100k?

The previous report had 1.4 million jobs. Maybe they lost a digit and a decimal?

Maybe in 04 we will hear that the missing jobs are right next to the missing WMD. We just haven't located them yet?

Looking at the numbers in the table posted by Max Sawicky, the total number of jobs created above baseline is 5.2 million and not 1.4 million. So if the original paper claimed 1.4 million jobs in 03-04 then nothing after that due to monetary policy, how do they get to the table that shows the extra job creation especially in the later years? It would be interesting to read how the numbers in the table were calculated.

Thomas asked about the Clinton GDP growth projection of 2.6 percent. Even if the economy grew at 2.65 it would not create the number of jobs listed in the table. Productivity increases are around 2%. The job increase over 18 months is 4.1%. That would require an average of 2.8% job growth in the next 12 months. So the economy would have to grow by around 2% productivity increase plus 2.8% job increase or 4.8% per year to produce the jobs in the table. Is anyone forecasting an average 4.8% economic growth over the next 18 months?

Fake forecasts are one thing. Distorting the historical record is quite another. Wolf Blitzer had the normally quite good Gene Sperling on with Steve Forbes. Per his usual, Forbes spun all sorts of nonsense such as the 80's were high growth and the 90's were low growth. Sperling suggested otherwise but then he let Steve Forbes get away with the claim that employment is up 1.8 million. Yes - overall employment has recovered 90% of those 2.0 million lost jobs in 2001 but then the net change is still negative. And didn't employment grow by over 2 million jobs per year during those "slow growth" 90's. Look, I have come to expect these Forbes mischaracterization of reality. And maybe I'm expecting too much from Sperling. After all, doesn't the interviwer have some responsibility to challenge his guests when they distort the truth? At least Russert tries.

Hey, Thomas-bite me!

Thomas--

If you can't tell the difference between a 2.6% forecast and a greater than 5% forecast, it is you who have the problem with honesty.

Thomas: the state of the economy in early 2001 was unclear to everyone. If you recall, Greenspan had been (probably rightly) concerned, in 2000, about the economy overheating. He did not, naturally, think that a recession was a good idea, but rather hoped to engineer a soft landing. He failed, but this was not clear as of January 2001. Bear in mind that 2.6% growth WAS a significant decline from the 4% growth from 1997-2000.

Perhaps dishonesty doesn't bother Brad (after all, Snow telling the truth bothers him more than business-as-usual platitudes about a strong Dollar from finance ministers), but it's only to be expected that a high Stalinist with Miltonian grandeur would find small lies in service of greater truths acceptable. That doesn't change that the CEA was forecasting something that was essentially plausible in early 2001 -- a soft landing, probably accompianied by increasing unemployment without a recession -- whereas the current forecasts seem to imply a massive increase in employment without rapid GDP growth. Where will it come from? Will productivity suddenly start declining?

I reckon that a 2.6% forecast is correct when doing it in 2000, since this forecast could not include the changes that Bush, not to say other parties (9-11 anyone?) did. The tax-rebate check was pure hubris.

DSW

I'm sure all the Clinton era government economists should have been dilligently scrambling to readjust/correct their projections as the economy went into shock over the bizarre events of November/December 2000.

I suspect they were distracted by the need to dust off their resumes.

Thomas Dear Thomas

The Clinton forecast of 2.6 turned out to be just about on the mark for 2001. Whatever are you thinking, Dear Thomas. The Administration forecast of 5.5 million jobs created in 18 months is sadly absurd and decidedly false. Of course, I know DeLong and Krugman and Swicky are all awful [awful awful] economists, but they are oddly CORRECT on the absurd Administration fiscal policies.

Black is white and white iks black in fiscal policy in this Administration.

Remember - the Clinton forcast was for a slowing of GDP growth in 2001. That was correct. The Bush forecast of 5.4 million jobs in 18 months? We can hope hope hope, but I do not see a number even remotely close. Well, as long as Warren Buffett gets a capital gians tax reduction, which Buffett does not want, I am happy.

Hey, we now have a top income tax rate of 35%, and if you can live off dividends and capital gains a 15% tax rate. Hmmmmm....

The government numbers have to come from somewhere. It seems to me that 2000 was about the height of the overstatement of earnings by businesses that led to the collapse of Enron, World Com and other LARGE buisnesses. Coupled with most businesses overstating earnings in 2000 and restating earnings in 2001-2, it is no wonder that the 2000 forecast had to be revised downward.

At the same time the Bush administration revised the 2001 numbers, they revised their own numbers on 2002 Q1 GDP growth down from 6.1% to 5%. The final revisions won't be in place until 3 years out. In 2000, many revered Mr. Greenspan as next to God. They didn't believe that he would vastly overshoot the mark and tank the economy with his interest rate hikes, but he did. Who would have thought it?

As for the $300 rebate checks that are thought to contribute to the upswing in 2002, I don't remember Mr. Bush ever proposing or supporting this idea. I thought the rebates were added by the Democrats to bring in more support for the tax cut.

Is the employment forecast necessarily inconsistent with the GDP forecast? Only if we retain a market economy. In a pure accounting sense, I can imagine having firms take on 5% more workers even with little output growth. But then costs would rise relative to revenues, which would mean lower profits (or larger losses). I can certainly imagine a socialist government imposing this on its companies. But then this would be terrible economic policy. Could this be what the Bush White House is considering? Surely not - I HOPE.

Bram:

Please explain what you mean by the bizarre events of Nov. and Dec. 2000. Do you mean the Florida recount controversy? Quite frankly, I'm not sure what difference the final result of that would have meant for the economy as I was clueless as to what Gore fiscal policy really was supposed to be. Is there something else you had in mind and why would that have changed forecasts of economic growth? I know of no economist who was forecasting a recession back then. Yea Cheney uttered the "R" word for political reasons but O'Neill refused to do so even months later. And I did not see any forecasts of a recession from Lindsey or Hubbard. So who was forecasting a recession and based on what information known at the time?

Gore economic policy = Bush economic policy. That's something he didn't run away from. So figure what Clinton would have done (you've got 8 years to draw on) and you have a good idea of what Gore would have done (pretty much what his economic team told him to - which wouldn't have been what Bush has done.)

Ian:

Had Gore kept the same level of taxes as we saw in 2000 and kept spending levels down, the Gore policy = Clinton policy. I had hoped that might be the case in a Gore Administration. But Gore kept saying "do more for you" and was mumbling about a tax cut too. So Gore was saying a lot more spending and a little less in taxes, while Bush has given us a little more spending and a lot less in taxes. Either way, massive fiscal stimulus. Maybe the Gore stimulus would have been more frontloaded which would be good Keynesian short-run economics. But either way - long-term fiscal stimulus crowds out investment. But maybe you are right - Gore might have not followed through on his campaign promises. Unfortunately, Bush is.

Hal, you may be right. Clinton knew when to listen to his advisers. I hope Gore would have had that sense as well. Cutting taxes would have been a mistake - but a proper stimulus might have been a good idea. Borrowing to give tax cuts to the rich, however, is clearly the wrong thing.

Okay, Thomas: unless you have your own definition of a recession (please tell us if you do), we were NOT in a recession as of January, 2001. The latest business cycle peak was dated as of March, 2001, two months later. Furthermore, even that was not dated until months later, in November 26th, 2001. The signs were unusually ambiguous for a recession, as well, with payroll employment, real income, sales, and manufacturing giving somewhat contradictory signals.

http://www.nber.org/cycles/

Of course, I'm fairly sure that there were some people who were confident that there would be a recession in 2001 by January. I'd also guess -- not sure, but guessing -- that these people probably get most of there predictions wronger than most economists. You can always find SOMEONE who "divines" a correct prediction from confusing signals when most people get it wrong, but going into her records, you often find she also predicted a stock market crash in 1995 and hyperinflation in 1998. If I recall correctly, in early 2001, the Bush administration thought there was a risk of a recession that was greater than what most forecasters thought. Fine. So what, though? The economic signals were confusing enough that the NBER couldn't date the business cycle peak until eight months after the recession started. Perhaps the Bush administration had brilliant analysis that lead them to believe that the risk for recession was higher than most people could see at the time, or perhaps the Bush administration forecasted a recession without sufficient data and got lucky. Regardless, though, neither case shows Martin Baily faking a 2.6% growth forecast.

Julian:

Excellent post. But this date changing has a history. In 1984, the Republicans convinced many voters that Carter was the one who led the economy to 11% unemployment. We are still hearing this spin over and over. NBER shows the Carter recession ending in mid-1980 followed by a mild recovery. The fact is that when Volcker saw the massive 1981 tax cut, he felt compelled to contract monetary growth. Maybe he overdid this, but this was due a set of policies put forward in 1981. But hey - the GOP spin machine is well funded and few people really listen to real economists.

Whatever Mr Gore's fiscal policies were in 2000, he would have had to revise them by the end of 2001. The half-baked projection of a $5 trillion + surplus would have collapsed and Mr. Gore would have been forced to react. Would he have pretended that the picture had not changed as Mr. Bush has done? We don't know. Given some of his more recent pronouncements, Mr. Gore would have done more to secure unemployment benefits and keep the budget closer to balance. I suspect that "lockbox" would have been the Gore mantra.

"lise--The 2.6% projection didn't turn out to be anywhere near the mark, unless you think that a projection which misses GDP growth by 2.5% is close, in which case I'm sure you'll find the Bush projections hit the mark as well. Right?
[...]"

I must mean 2.5 points, or something like that, because a 2.5% error is small indeed. That would mean that the true value was between 2.665% and 2.535%, from the advanced value of 2.6%. The BEA says ( http://www.bea.doc.gov/bea/glance.htm ) that the GDP growth was 0.3% for the whole year, 2.7% for the last quarter.

DSW

Right folks. The Clinton 2.6% GDP growth projection for 2001 was far stonger than the .3 growth that was experienced. The projection called for a slowing, but did not anticipate a recession. The projection was wrong in magnitude but right in direction.

Then, let us hope that the Bush projection for growth of 5.51 million jobs in 18 months will be remotely close to what is experienced. If GDP growth spurts to a steady 5% a quarter, I will be delighted. But, projecting 5.51 million new jobs over the coming 18 months seems wildly optimistic.

Studying this new tax bill, I do not find enough stimulus. Hope you can tease me for lack of optimism in coming months!

Lise

"Maybe the Bush administration still believes the Clinton CEA 2001 estimate: GDP growth of 2.6%!"

That projection was of course contingent on Al Gore becoming president! :-) I mean, an economic policy like this one is very hard to predict and depressing to consider as an eventuality for your country...

Remember, 2.6% growth is not going to be enough to spur job creation. Productivity growth would be enough to cover the 2.6%. The potential labor force is growing, jobs are not there, the problem of sluggishness continues. We must grow perhaps 4% to spur job creation. Japan's problem is growth that is too slow to raise the need for new employees, but Japan protects labor in ways that we do not. We need faster growth.

The latter part of this string of comments - so sad. Here we are, doing the "your guys were just as bad" thing. If one's goal is to win the partisan war, then wrangle on. If, on the other hand, one's goal is to get the best government available under the circumstances, then worrying about whether Clinton was as free and easy with the numbers as Bush is a waste of time. We shouldn't tolerate Bush being free and easy with the numbers (you parents all know the line - "I don't care what the other kids do, you aren't going to ...")

We get the best government out of the guys we've got by keeping an eye on the guys we've got. It is the "ins" we have to control. The guys who are out of power can't give away the farm. So for those who can't get their heads out of the 1990s, or who have consciously chosen to carry on the project of dirtying Clinton up even after he is out of office, have a ball. For the rest, Bush in in power now. Let's worry about him.

Kevin--I certainly agree that we should 'keep an eye on the guys we've got.' But that shouldn't involve holding them to partisan standards, one way or the other. My intent in showing that the Clinton CEA was subject to the same fault as the Bush CEA was not meant to 'dirty Clinton up.' To the contrary, I meant only to show that one can be clean as a whistle and still get things disastrously wrong.

Jean-Phillipe--Doubly clever, but it seems to me doubly wrong. Of course, the Clinton CEA's forecast was released in January, so they knew the winner of the election. And it seems to me that there's nothing wrong with our current economic policy. What would you suggest? Reduced spending? Higher taxes? A stronger dollar? I'd wager you wouldn't recommend any of those. Am I right?