Sunday, March 15, 2009

Obama Budget: Mankiw Rehashes Old Spin

Greg Mankiw calls President Obama a deficit dove who loves to spend. Mankiw also accuses the White House of economic optimism:

they expect their policies to bring the recession to a swift conclusion. For the next four years, they forecast an average growth rate of 4 percent. The unemployment rate is projected to fall to 5.2 percent in 2013.Not everyone is so sanguine. The administration forecast is “way too optimistic,” said Nariman Behravesh, chief economist at IHS Global Insight and author of the excellent primer “Spin-Free Economics.”

OK – if one expects the recession to be deeper and more prolonged than the White House, why would one be upset that the White House is pursuing fiscal stimulus? Mankiw’s economic pessimism and his call for a more deficit hawk position strikes me as inconsistent.

Mankiw also repeats this line:

In a second term for Mr. Obama, with the economy recovered and unemployment stabilized at 5 percent, federal outlays would be 22.2 percent of G.D.P. — well above the average of 20.2 percent over the last 50 years.

Didn’t we already address this claim with:

A New Era of Responsibility - Renewing America’s Promise does show that the projected Federal outlay to GDP ratio for 2019 under President Obama’s proposed changed in the budget will be 22.6% as Greg claims but what Greg did not tell us is that the baseline budget projected Federal outlays to be 23.2% of GDP by 2019.

Update: The deficit hawks at the Concord Coalition does not agree with Mankiw’s deficit dove characterization:

A further complication is that many of the budget’s main components are linked in an effort to control the net effect on the deficit. Maintaining this linkage is critical for fiscal responsibility. However, it will prove to be a formidable political hurtle because it challenges the free lunch mentality that has taken root in Washington. New initiatives, popular with many Congressional leaders, are paired with tax increases and spending cuts that are not as popular ... Nothing in the budget directly alters the drift toward fiscal unsustainability, which is primarily driven by the projected growth of the three largest entitlement programs -- Medicare, Medicaid and Social Security. Under the budget, spending on these programs declines by just $32 billion relative to baseline assumptions through 2019 ... As the president acknowledges, any effort to permanently improve the fiscal outlook beyond the 10-year budget window will require more fundamentally addressing the structural causes of the long-term imbalance -- demographic changes and rising health care costs. While there is plenty of room to debate the priorities, assumptions, and details, it cannot be said that the Obama administration has taken a timid approach in its first budget. It confronts a broad array of challenges and does not pretend that we can have something for nothing.

While the Concord Coalition goes onto to note several factors that might work against President’s goal of long-term fiscal restraint, it is much more informative and balanced than Mankiw’s spin.


Anonymous said...

Mankiwvilles, just doesn't have the ring that Hoovervilles had!!

Shag from Brookline said...

Mankiw is exposing himself as a gambler of sorts. I have noted on earlier comments that he has bet against Paul Krugman several times. In Mankiw's current article he includes:

"Let's hope that the administration is right. But if I had to bet, I'd put my money on Mr. Behravesh."

A few years back, Mankiw bet on Bush. And how did that turn out, except for his 15 minutes?

At some point there should be a tally of Mankiw's bets. Perhaps he may be in need a bailout.

Anonymous said...

If "hawks" promote war and "doves" seek to prevent war then "deficit hawks" must promote deficitss (e.g., Makiw and his Republican fellow travelers) and "deficit doves" must seek to reduce deficits (e.g., Clinton).

Scott Ferguson said...

Does Mr Mankiw understand the concept of "average"? It is expected that some results will be above and some below. This is not Lake Wobegone - where all budgets are below average.

If the economic situation calls for stimulus, then , yes, federal spending will be a larger share of GDP. Duh!

Now if he thinks that stimulus spending is unwise, he should stick to that argument, not throw in red herrings.

What I can't wait to see is the day when the Republicans in congress start arguing that we should not rollback spending in their districts when the economy recovers. I expect as much from Democrats but the hypocrisy of the Repugs is precious.

Anonymous said...

Old spin:

Bruce Webb said...

pgl an interesting exercise is going to be a side by side comparison of the GDP numbers as projected by the Social Security Trustees with the release of the Report (due at the end of the month) with the ones projected in the President's Budget (to be released at about the same time).

It is hard to pin it down exactly because the SSA uses calender years and the OMB uses fiscal years but the last time I tried it it seemed that Bush Administration people pushing tax cuts seemed to use somewhat more optimistic GDP projections than those same people pushing Social Security benefit cuts on the basis of low growth projected forward.

I am very much looking forward to seeing how the Obama people reconcile this, there seems to be no reason not to be working from the same set of economic assumptions between OMB and SSA.

The 2008 Report has been left behind by economic results for 2008 and 2009 not really fully anticipated last spring but for what it is worth this is the series for Real GDP for 2008-2012 as of March 2008:
Intermediate 2.3%, 2.8%, 2.7%, 2.5%, 2.5%
Low Cost: 3.4%, 3.5%, 3.5%, 3.3%, 3.1%

Well the real world wasn't friendly to those 2008 numbers and likely won't look better for the 2009. But if Obama's program works as designed his projected growth numbers fix Social Security along the way (Low Cost projects an actual overfunded system going forward, results around 3.0% ultimate GDP would be enough to save SS longterm)

AndrewBW said...

Those projections that Mankiw thinks are too optimistic didn't come into being overnight. The seeds were sown over the last several years by the Bush administration, of which he was a key member. Perhaps one day he'll enlighten us as to why his former boss wasn't more aggressive in eliminating all sorts of budgetary chicanery and reducing the deficit when he had the chance. It seems Mankiw's conversion to budget hackery -- excuse me, hawkery -- comes a bit too late to matter. Convenient.