A bet too far

A bet too far

FederalBudget ObamaAdministration paulkrugman Washingtontimes

The Obama administration is basing its budget forecasts on the economy growing an eyebrow-raising 15.6 percent above inflation between 2008 and 2013 - a drop of 1.2 percent this year followed by an average of 4 percent growth over the following four years. That's very impressive growth for any period of time. Even small deviations in growth rates can mean hundreds of billions or even trillions of dollars in the federal budget deficit.

The federal government faces a $1.75 trillion deficit this year, over 12 percent of GDP - more than twice as large a share of GDP as any deficit since World War II. Despite all its new spending programs, the Obama administration claims that it will be able to cut the deficit down to 3 percent by 2013, and that depends on fast economic growth and thus more government revenues.

If President Obama is correct that the economy will only shrink by 1.2 percent this year, despite all the rhetoric comparing our current plight to the Great Depression, this will be a relatively moderate recession. During the first four years of the Depression the economy shrank by 27.5 percent. For a more recent example, the economy shrank by 1.9 percent in 1982.

Harvard economics Professor Greg Mankiw thinks that Mr. Obama's growth forecasts are overly optimistic and that the federal deficit will be a lot larger than Mr. Obama thinks. He was chastised by Princeton's Paul Krugman, a Nobel Prize winner in economics, who on his New York Times blog claims that Mankiw can only make the predictions that he does because of "more than a bit of deliberate obtuseness." He titled his post on Mankiw, "Roots of Evil."

Last Wednesday, Mankiw responded to Krugman's attacks by suggesting: "Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?" Krugman has still not responded. It seems even a Nobel Prize winner isn't willing to lay money on Mr. Obama's rosy projections. 

UPDATE:

Mankiw makes the right call on all this and asks Krugman: "Wanna bet some of that Nobel money?"

Well, Paul, if you are so confident in this forecast, would you like to place a wager on it and take advantage of my wickedness?

Team Obama says that real GDP in 2013 will be 15.6 percent above real GDP in 2008. (That number comes from compounding their predicted growth rates for these five years.) So, Paul, are you willing to wager that the economy will meet or exceed this benchmark? I am not much of a gambler, but that is a bet I would be happy to take the other side of (even as I hope to lose, for the sake of the economy). . . .

Another useful discussion is available here.

Ditching 90 percent of earmarks in Federal Budget?

Ditching 90 percent of earmarks in Federal Budget?

FederalBudget

John Fund at OpinionJournal.com's Political Diary writes:

After expressing disappointment at the thousands of earmarks stuffed into the foot-tall Omnibus spending bill passed by Congress, Mr. Bush told reporters: "I am instructing the budget director to review options for dealing with the wasteful spending in the omnibus bill."

The president gave no details, but South Carolina Senator Jim DeMint, a vocal critic of earmarks, has an idea what the president may have in mind. He has long cited a Congressional Research Service opinion that 90% of earmarks are suspect because they were slipped into committee reports and not written into law. "These non-legislated earmarks are not legally binding," Mr. DeMint says. "President Bush could ignore them. He doesn't need a line-item veto." The Club for Growth reports that Mr. Bush might be planning an executive order that would tell federal agencies simply to ignore Congress' earmarks if they aren't written into law and spend the money on higher priorities.