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February 12, 2005

Lies, [Fill in the Blank], and Statistics

Nouriel Roubini untangles the Bush budget forecast "statistics":

Nouriel Roubini's Global Economics Blog: Bush Damned Budget Lies and Voodoo Budget Magic: it will be a $600b deficit, not $233b by 2009...and over $1,100b by 2015!: How do they create the false $233b deficit by 2009?

  1. They assume spending cuts that are, by any historical and political standard, impossible to achieve.
  2. They assume revenue growth that is altogether wishful thinking and false based on current trends. And they do not consider the long-run costs of making all the Bush tax cuts permanent.
  3. They do not count the ongoing costs of the continued defense and homeland security spending and of future military and homeland security build-ups.
  4. They phase-in a budget busting social security privatization (that will cost alone $4.5 trillion in the next 20 years) only starting in 2009.

This is... the most squalid manipulation of budgets ever seen aimed at pretending to achieve a budget figure that is utterly unrealistic and false.... Realistic and sensible assumptions imply that the 2009 deficit will be close to $600b (or 4.0% of GDP)... and the deficit will reach over $1,100b (or about 5.5.% of GDP) by 2015.... So, how do we get the difference between the administration lies and the true figures?

First, note that the administration baseline assumes that all discretionary spending - apart from military and domestic security - will be frozen for the next five years.... How likely is it that such draconian spending cuts in non-defense discretionary spending will be passed even by a Republican Congress? Zero... historically, discretionary spending has grown close to nominal GDP (i.e. by a rate equal to the inflation rate plus real GDP growth)....

Second, note that the official objective of the administration is to make all the 2001-2003 tax cuts permanent.... Add to those costs, the cost of fixing the AMT.... [T]he overestimation of revenues is another farce... voodoo economics plus black magic... only a delirious mind could make such far-fetched forecasts...

Third, add sensible assumptions about the costs of the wars in Iraq, Afghanistan and other military spending....

Fourth, consider the transition costs of Social Security privatization...

[O]ne gets a budget deficit of about $600b (or 4.0% of GDP) by 2009, well above the 2004 level of $412 (3.5% of GDP), well above the fake administration target of $233b (1.5% of GDP) for 2009. Moreover, using again these realistic scenarios, by 2015 - counting the effects of the permanent tax cuts and of the phase-in of Social Security privatization - you get an explosive budget deficit of over $1,100b or 5.5% of GDP....

Posted by DeLong at February 12, 2005 01:45 PM