August 04, 2004

Why Oh Why Are We Ruled by These Liars? (Yet Another Midsession Review Edition)

Business Week's Howard Gleckman bangs his head against the wall as he contemplates the midsession review:

BW Online | August 2, 2004 | Bush's Biggest Deficit: Consistency: This year's budgetary shortfall will be bigger than ever -- but by White House math, that's a victory. In its latest fiscal forecast, released on July 30, the Bush Administration projects the deficit for the year ending on Sept. 30 will hit $445 billion. That would be $70 billion more than the record $375 billion deficit we hit last year. According to the White House and its GOP allies, this shows great progress in the battle against deficits.

"Because the President's economic policies are working," says Budget Director Joshua B. Bolten, "We are ahead of pace to meet the goal of cutting the deficit in half within five years." Adds House Budget Committee Chairman Jim Nussle (R-Okla.): "Our budget outlook has significantly improved in the past seven months due to strong economic growth and spending restraint."

MISOVERESTIMATE.  Say what? How does the idea of the deficit getting $70 billion bigger translate into fiscal success? It's easy, when you combine Washington's bizarre budget accounting rules, the increasingly superheated campaign season, and some Orwellian rhetoric. You see, last February, President Bush projected the deficit for this year would hit $521 billion. Now, thanks to a growing economy, the Bushies figure it will come in $76 billion below that number. Thus, we have a whole new way to game the budget debate: Overestimate deficits at the beginning of the year, come in below that forecast, and declare victory.

It's a pity that the real world isn't that rosy....

THE REAL NUMBERS.  And what about Bush's promise to cut the deficit in half in five years? The new Bush budget claims he can do it even faster -- by 2007. But don't hold your breath. That happy prediction assumes the U.S. will spend no more money on Iraq and Afghanistan after Sept. 30. And it ignores the need to fix the dreaded alternative minimum tax (AMT). Without a fix, the levy will hit more than 30 million taxpayers by the end of the decade.... If anyone pays attention to the real numbers, the fiscal situation is more bad news for Bush's reelection chances and good news for his newly minted Democratic challenger, John Kerry.

The bad news for Kerry, of course, is that if gets elected, he'll actually have to do something about this mess. And while he at least can credibly claim he won't make matters much worse, he hasn't yet shown any inclination to make things better.

Posted by DeLong at August 4, 2004 09:57 AM | TrackBack | | Other weblogs commenting on this post

Take a look at the employment component of the ISM nonmanufacturing index -- it just fell off the table. It fell from 57.4 to 50 -- where it was in June of 2003.

Do not have a record of how this series is as a predictor of the unemployment record, but historically the change in the ISM manufcturing employment is a better indicator than unemployment claims. the manufacturing index has fallen for 2 months.

Posted by: spencer on August 4, 2004 10:06 AM


Or in other words: "We're deep in a hole, but not quite as deep as we misled you about last January".

And this is good news?

Posted by: Chuck Nolan on August 4, 2004 10:18 AM


Am I alone in wishing for an end of the "Why Oh Why" motif that regularly paints this otherwise excellent blog like cheap ketchup on top of tournedos bearnaise?

It's not that the point is not right. It is. But it just perpetuates the image of the hand-wringing whiny-ass nebbish liberal which is something we don't need just now.

So could we come up with a better headline format? You're a real smart guy. I know, I read this blog. So how about it?

Posted by: Alan on August 4, 2004 10:27 AM


How about "These liars ought to be slowly and painfully killed"?

Posted by: zizka / John Emerson on August 4, 2004 10:47 AM


On the contrary, I think the "Why oh why..." adds a needed element of sarcasm and humor to what is otherwise very depressing news.

Posted by: Brad Reed on August 4, 2004 11:00 AM


"Am I alone in wishing for an end of the "Why Oh Why" motif that regularly paints this otherwise excellent blog like cheap ketchup on top of tournedos bearnaise?"

I would think that punch is something the liberals lack rather than anything else. And the reason for this is clear: self-censorship from the educated elite in the Democratic Party. I am not calling for matching the populist rhetoric the GOP but a bit of passion seems to be precisely what Gore lacked to insure his victory against chad-hangings and other racial tricks.

"It's not that the point is not right. It is. But it just perpetuates the image of the hand-wringing whiny-ass nebbish liberal which is something we don't need just now."

I believe liberals should reclaim the term liberal. Conservatives proudly claim to be conservative no matter how much criticism liberals can muster. And I think it serves them well. How much confidence is Joe in Middle America going to have in a bunch of people afraid to be called who they are?

Posted by: Jean-Philippe Stijns on August 4, 2004 11:03 AM


Which is why it is so important to get a progressive consumption tax into place. Only then can we make the right rich guys pay up without penalizing the rest of society. BTW, the USA Tax Bill of several years ago (Domenici & Nunn co-sponsored it)would have been a big step in the right direction. Kerry needs to brush it off and reintroduce it as his plan to abolish the income tax.

Posted by: Luke Lea on August 4, 2004 11:21 AM


For Brad:

Red meat here. This little piece is top center with a VERY prominent chart (much less so on the website - click through to see it) on the Op Ed page of the newsprint NY Times. Your take?

August 4, 2004
A Record of Recovery

Over the course of last week, we heard a lot from the Democrats about their record of economic achievement. So let's take the advice of a Democrat of yesteryear, Al Smith... His trademark phrase was, "Let's look at the record."

These charts show the rate of change in real gross domestic product and in employment from 1990 to last June. The shaded areas show recessions. The vertical lines show when President Bill Clinton took office and when he left. Because the economy has momentum, it's useful to look carefully at the trends in evidence at the time of presidential transitions. When you look at the record, a quick summary is this: President Clinton inherited prosperity; President Clinton bequeathed recession.

The 2001 recession was short and shallow, with employment - always a lagging indicator - the last part of the economy to rebound. The employment picture has been a little puzzling since the two main surveys... [show]... slightly different patterns. In any case, by now a third piece of the record appears clear: the recession President Clinton left behind has turned into prosperity under George W. Bush....

Posted by: Peter Quennell on August 4, 2004 11:25 AM


August 04, 2004 A NATIONAL HEALTH CARE PLAN THAT MIGHT ACTUALLY WORK The brilliant Kerry Advisor Prof Brad Delong (who should be a Republican) in a very interesting analysis of Health Care finance. I think I agree with him as much I hate to admit it.

The plan seems to basically involve using the treasury as the reinsuror of last resort. The insurance companies act just as they do now but on all claims uop to $20,000 or something like that. Once a claim reaches that threshold the goverment then pays the bills as reinsuror.

Insurance premiums would be much lower so more people would be able to buy it. It actually sounds pretty good to me except that I would want the Republicans to design and implement it so it really works.


Posted by: Adrian Spidle on August 4, 2004 11:51 AM


Peter Q. what you are missing in the Shultz comments in the NYT op-ed piece is that these
are the two weakest economic recoveries in history. Going back as far as the NBER classifies the cycle -- almost to the civil war -- these two recoveries are way below all other recoveries in history. No other recovery has been anywhere near as weak as these two.

On average,in the previous 7 post WW- II economic reconomic recoveries real GDP increased 11.6%. In these two recoveries real GDP increased 5.7% in the first two years, or about half the previous average.

It is what the spin-masters have been doing for 20 years -- they call weak or average data strong and get away with it.

Posted by: SPENCER on August 4, 2004 12:22 PM


What I do not understand is why, given all the financial mismanagement, large business interests still contribute overwhelmingly to Bush's campaign.

From here (second article down, "I Got a Real Bad Feeling") - -
"on Bloomberg and other financial news networks...of the 500 companies on the S&P, 499 have now given the maximum legal permissible hard money contributions to the Bush-Cheney reelection campaign. Only one corporation has given money to Kerry Edwards; thatís Cotsco. "

Interesting other info in this article (if true; it may be constructed wholly of tinfoil, I don't know, it came via email) - says that rightwing-owned media companies ClearChannel and Sinclair have stopped taking pre-sales of advertising for January 2005 - "The only time that this has happened before...October 1962...Cuban missile crisis...White House told the networks not to accept any further advertising because the government may invoke its emergency power to commandeer the nationís broadcasters."

Ok, tinfoil hat off now. It's not comfortable.

Posted by: Anna on August 4, 2004 12:32 PM


Oh, sure, when you express the deficit in BILLIONS it's bound to sound like a lot of money ... but it's not so big when you express it as a percent of, say, GDP or Avogadro's Number or whatever.

And it's really not much at all when you compare that to the usual 15% post-convention bounce.

Posted by: RonK, Seattle on August 4, 2004 01:46 PM


This "Kerry had a disappointing bounce" spin is really getting tired. According to the nonpartisan Electoral Vote Predictor 2004 (Found via This Modern World), Kerry is up by 76 as of this very moment. That ain't no ham on rye, pal.

Posted by: drew on August 4, 2004 02:35 PM


You know, in the Civil war the Confederate government was able to borrow huge amounts of money (essentially their entire munitions budget and then some) from European and especially British investors. There was a feeling that even if the Confederacy lost, that somehow the Union government would pay off the bonds. The US ambassador to Britain (John Quincy Adams?) said that it would have been offensive if it had not been so amusing.
Do the Europeans somehow think that the Democrats are going to be able to win election on a plank of paying back the Republican administration's debts? I know that the Constitution forbids questioning (and by implication, default) on the public debt, but that does not mean that the voters are ever going to vote for a Democratic party that in every election threatens to raise their taxes and lower their services.
Now if the Democrats had nominated Nader for president, the people overseas who are buying treasuries might have reconsidered. A collapse of the dollar and the resulting hyperinflation just before the election would ensure Nader's winning the election. He may be an idiot, but is he a bigger idiot than Junior?
Is the deficit your enemy or your friend?

Posted by: walter willis on August 4, 2004 02:38 PM


"What I do not understand is why, given all the financial mismanagement, large business interests still contribute overwhelmingly to Bush's campaign."

I think it's protection money. Democrats haven't learned how to match Republican thuggery.

Posted by: dennisS on August 4, 2004 02:57 PM


Re Spencers ISM nonmanufactoring notice, check out the employment stories in Yahoo News: US Economy.

Job cut plans jump in July
Plans by U.S. firms to trim payrolls surge, as hiring plans fall, employment firm says.
August 3, 2004: 1:19 PM EDT
By Mark Gongloff, CNN/Money senior writer

NEW YORK (CNN/Money) - The number of job cuts planned by U.S. employers rose in July, while hiring announcements fell for the second straight month, an outplacement firm said Tuesday.


The employment and GDP news will be interesting this month. Hope that the employment news is at least mediocre.

If July employment does not meet expectations (or given that expectations are so low, maybe if it does not excedd them substantially), I think that will be evidence that the problem is not enough real consumer income growth to spur demand, and that problem will not be solved until more cash is put into consumer hands. I feel like an old time lefty who is saying there is too much supply and too little purchasing power in the hands of the masses, driven what seems to be a definite long term increase in productivity (even after cyclical variations are taken into account). In other words, a productivity driven glut, that cannot be unglutted becuase of in imbalance in purchasing power.

And since I don't believe there is any mechanism to get onto the rational expectations growth path that meets the transversality conditions, I don't care about the fact there is supposed to be some kind of stinking equilibrium on capital and goods markets that will solve it.

Any opinions on that for little non-macro me?

Posted by: jml on August 4, 2004 02:59 PM


" like cheap ketchup on top of tournedos bearnaise? "

You mean the stuff that's the foundation of Kerry's wife's fortune.

"It's not that the point is not right. It is. But it just perpetuates the image of the hand-wringing whiny-ass nebbish liberal which is something we don't need just now."

In that case why did you nominate one.

Posted by: Patrick R. Sullivan on August 4, 2004 04:03 PM


Anna: "What I do not understand is why, given all the financial mismanagement, large business interests still contribute overwhelmingly to Bush's campaign."

Because those at the helm of the large businesses are not interested in the long-term success of the business, but only in keeping the current feeding trough running long enough to get theirs. From an acquaintance who works in the finance group of a large corporation: "We're technically bankrupt. The business is not going to get well, and the senior executives know it. But each of them makes a minimum of $3.5M per year, and they're still getting options and bonuses, and none of them is willing to give that up."

Why wouldn't they support Bush? Lower marginal tax rates at the high end. Resistance to expensing options, so the books look better. Large government spending structured in ways that let the big companies have bigger profits (so the scam can continue).

Posted by: Michael Cain on August 4, 2004 04:28 PM


Just because an individual manages to get to be CEO of a major corporation does not mean he has anyreal understanding of how the economy really works are the role of govt.

Basically they all like to have someone to blame.

It is very simple, when things go well it is because of superior management.

It when go poorly it is the governments fault.

the problem is that the stupid press lets them get away with it.

It is like the stock market. Researsch time and time again has shown that a large caps stocks performance is due one-half to the market, one-third to the industry a company is in , and well under 20% to individual company factors. But they stiil take credit and demand big salaries when their stock goes up.

Posted by: spencer on August 4, 2004 04:37 PM


In that case why did you nominate one.

Oh, you wish.

Posted by: Alan on August 4, 2004 06:41 PM


Bush fiscal policy is successful, says Bolton. You can see it in the revisions to the White House deficit estimates. This sounds like fiscal policy for fiscal policy's sake. Anybody know if GDP of job growth through the first half of the year hit the estimates in the February budget projection? If fiscal policy is successful, doesn't it help the economy? More to the point, if fiscal policy is successful, shouldn't any improvement in the fiscal balance be due to better than expected economic performance? If the economy missed its growth targets on the low side, while the budget missed on the high side (smaller deficit), it just means the initial forecast was wrong about the link between growth, revenue and spending. It is a truism that the link between growth, revenue and spending is not all that reliable, but the CBO somehow did a far better job getting close to reality.

Posted by: kharris on August 5, 2004 05:00 AM



The correlelation that Bloomberg spits out between the monthly change in payrolls and the non-factory ISM jobs series is 0.714. I wonder if I have done something wrong, but that's what it says. Did the correlation on the monthly change in the ISM jobs series, and got 0.156 - it is (as ISM watchers have always maintained) the level, not the change, that matters.

Didn't do any lags, 'cause it didn't look like I needed to.

Posted by: kharris on August 5, 2004 05:51 AM


And another thing...

A dumb forecast, based on regressing changes private non-farm jobs against ISM factory and non-factory jobs series comes up with a 132k gain in jobs for July (but then, the residual for June was -226k --- there should have been a bunch more jobs in June). Government employment is pretty much flat for the past year, so that 132k dumb estimate is also the dumb estimate for overall non-farm payrolls. The median estimate for non-farm payrolls is 250k, so there is room for disappointment here. It should be noted that the 250k median estimate comes from surveys done prior to the release of non-factory ISM data - expectations may have fallen since then.

Posted by: kharris on August 5, 2004 06:16 AM


One of the most uplifting things about the Dem convention was the children of candidates, who I found attractive, intelligent, and poised, people the country should be proud to produce. But then I thought how sad that my irresponsible Boomer generation is loading them down with the rapidly growing debt burden. As though they will not have enough to worry about anyway!

Posted by: Bob H on August 5, 2004 06:44 AM


Post a comment