February 05, 2003
The Return of Rosy Scenario

Cooking the books department. Stephen Roach writes about the unlikelihood of the Bush Administration's forecasts--even their forecast of GDP in 2003 is a big reach beyond the plausible:


Morgan Stanley: ...there?s good reason to be suspicious about the 2003 GDP growth forecast of 2.9%. With the US economy ending 2002 on a very weak note (+0.7% in 4Q) and that weakness likely to persist at least into the current period of 2003 (latest MS estimate: +1.8%), the math makes it very hard to hit the annual growth bogey embedded in the budget. By my calculations, this weak starting point means that real GDP growth would have to average 4.6% over each of the final three quarters of 2003 just to hit the budget?s annual growth target of 2.9%. Anything is possible, but with war-related economic disruptions more likely than not, the Administration?s growth assumptions seem wildly optimistic to me...

Posted by DeLong at February 05, 2003 07:45 PM | Trackback

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Your math seems off. 1.8% in 1st q plus 3.3% in other 3 qs = 2.9% for year. where did the 4.6% come from?

Posted by: Daniel on February 6, 2003 08:08 AM

Remember folks - As long as we get tough enough with kids who think they can fool with the system and come away with free school lunches we can pay for 15,000 dollar a year IRAs for all, dividends that are tax free, reduction in the income tax brackets, getting rid of the dread deeath taxes, a 50% tax deduction on super SUVs as the Lincoln Navigator or [my favorite tank] Hummer. Got to make sure we catch those kiddies trying to cop an extra milk at recess. Budget problem solved.

"Leave no child behind." Say what?

Posted by: anne on February 6, 2003 09:53 AM

February 6, 2003

Bush's Plan Would Scrap Many Investor Taxes
By EDMUND L. ANDREWS - NYT

WASHINGTON - Piece by piece, President Bush's new tax proposals would go a long way toward achieving a goal cherished by many of his top advisers: eliminating taxes on investment income....

Posted by: anne on February 6, 2003 10:22 AM

>>Your math seems off<<

Nope. Stephen Roach's math isn't off. The 2002/2003 growth rate--the proportional difference between real GDP in 2002 and real GDP in 2003--is *not* the average of the growth rates in the first through fourth quarters of 2003.

Letting 2002:Q1 stand for the growth rate of 2002:Q1 GDP from 2001:Q4 GDP. Then the year-over-year 2002/2003 growth rate is equal to:

((2002:Q2) + 2*(2002:Q3) + 3*(2002:Q4) + 4*(2003:Q1) + 3*(2003:Q2) + 2*(2003:Q3) + (2003:Q4))/16

Low growth rates in the last quarter of 2003 and the first quarter of 2003 have *very* big retarding effects on the 2002/2003 year-over-year growth rates.

Posted by: Brad DeLong on February 6, 2003 12:29 PM

This is not to defend the Administration's forecast, but there's much evidence that businesses and consumers are deferring some economic activity during the U.S. confrontation with Iraq that looks likely to lead to war.

If the war ends quickly with a positive outcome, it shouldn't be surprising to see a rebound in economic activity for a quarter or two as deferred investment and consumption takes place.

So yes, the fourth quarter looks weaker and the first quarter of 2003 may be weak as well, but this is not an environment likely to be characterized by smooth linear trends. We'll see.

Posted by: Anarchus on February 6, 2003 01:37 PM
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