February 13, 2005
More Intellectual Garbage Pickup (Just How Bad Were We in Our Previous Lives to Deserve This? Department)
*Sigh*. It's time to lay down a marker: to say what is and what is not the case.
I complained about the Washington Post's taking another dive in misrepresenting yet another issue in a way favorable to the Bush administration:
Brad DeLong's Website: Opinions on Shape of Earth Differ (Why Oh Why Can't We Have a Better Press Corps? Department): Paul Krugman likes to say that if the White House were to announce tomorrow that the world is flat, our press is so disfunctional that the leads the following day would read 'opinions on shape of earth differ.' Here's our latest example... the Washington Post's Jonathan Weisman sees a 'heated debate' among economists between those who (like me) believe the Baker-Krugman argument that administration forecasts of 6.5% stock returns and 1.9% economic growth rates are inconsistent, and those who see no trouble....
On the side of the angels here, Weisman quotes Douglas Fore... Richard Jackson... Richard Berner... Edward Keon... Dean Baker... and me.
On the other side, Weisman cites... Bush's Council of Economic Advisers... unnamed 'White House economists [who] say such calculations are absurd.... If there really were a 'furious debate,' shouldn't Weisman have been able to find at least one White House economist who would agree to be quoted by name to say that... [the] calculations are 'absurd'? Shouldn't Weisman have been able to find one reputable economist not on the White House payroll willing to say that 1.9% per year future real GDP growth is not inconsistent with 6.5% real stock returns starting from our current price-dividend ratio of more than 60?
Against... are... the White House Council of Economic Advisers and a bunch of conservatives whom I didn't quote by maybe should have, including Kevin Hassett at the American Enterprise Institute and Donald Luskin, whom Prof. DeLong knows full well disagrees fiercely with him. Just because Prof. DeLong says Mr. Luskin is the stupidest man in the world doesn't mean I as a reporter have to ignore Luskin's writings on the subject. Indeed, when various economic bloggers start calling each other idiots over the subject, I think it qualifies as a fierce debate...
First, a correspondent writes to tell me that Weisman misrepresents Luskin. On this issue--mirabile visu--Luskin gets it right, and is on my side: he says 1.9% long-run real GDP growth is inconsistent with 6.5% long-run real stock returns:
Donald Luskin: Krugman does make one good point.... He states that stock returns in the neighborhood of 6.5 percent will not be possible over the coming 75 years if economic growth is as low as the 1.9 percent rate used by the actuaries of the Social Security Administration in their solvency estimates...
Second, Weisman cites Kevin Hassett as being happy with a 1.9% real GDP growth rate and a 6.5% long-run real return on the U.S. stock market. But Hassett has long been on record that stock returns are not holding steady at their historical 6.5% level but are instead declining--and declining by a lot:
Glassman and Hassett: [These] valuations are a rational response to the truth about stocks--that they provide high returns at risk levels about equal to bonds. Another way to say this is that investors have been bidding down the equity risk premium--the extra return that they demanded in the past because they believed (irrationally) that stocks were riskier than Treasuries...
That Hassett believes that expected equity returns are and will continue to decline from their historical 6.5% levels is no surprise. It is, after all, the entire point of Hassett's Dow 36000.
Third is Weisman's citation of unnamed "White House economists [who] say such calculations [that claim inconsistency between 1.9% real GDP growth rates and 6.5% real equity returns starting from today's price-dividend and price-earnings ratios] are absurd." Subcabinet rank officials in the Bush administration assure me that no professional economist on the White House staff would dismiss the Baker-Krugman argument as absurd--they would say that the arguments are wrong, but not that they are absurd. Weisman responds that that of "two of the economists [I talked to]... did use the word "absurd."
Really, what can one say? There's no furious debate. Weisman got what Luskin told him completely backwards. Either Hassett has reversed ground and repudiated a decade of his own work, or Weisman got him backwards too. The administration is anxious to make sure I know that while they "accept" the forecast combination of 1.9% real GDP growth and 6.5% stock market returns, it is not *their* forecast and they wish I would not characterize it as such. But I am inclined to credit Weisman's claim that he did not make up the word "absurd": administration officials hiding behind the anonymous source mask do say things they would be deeply ashamed to say in their own personae--but if I'm wrong, I expect to hear about it soon.
Michael Kinsley said some apposite things today about this kind of journalism:
The Meathead Proposition (washingtonpost.com): Bush might as well be proposing legislation that two plus two is five. And if that happened, there would be no shortage of Republicans prepared to endorse this view, experts on arithmetic to declare that it is a very difficult question, research to indicate that the answer may lie anywhere between 2.3 and 7.09, moderate Washington sages to urge caution, media to report both sides of the question...
Posted by DeLong at February 13, 2005 08:55 PM