Relevant and even prescient commentary on news, politics and the economy.

Kerry Wins

Wow, Kerry smashed Clark and Edwards in two Southern states. In Virginia, Kerry smashed Clark and Edwards, combined (52% to 36%); in Tennessee, the two Southerners combined for 49%, exceeding Kerry’s 42%. So for Edwards to have any chance at all, Clark will have to send every one of his supporters Edwards’ way, now that Clark is out. And even so, Dean’s impending withdrawal will likely send at least as many votes Kerry’s way as Clark’s sends to Edwards.

So now the interesting question is this: Kerry and Clark or Kerry and Edwards? Or perhaps some surprise nominee? Given Clark’s mediocre performances, he seems somewhat unlikely.


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Take a look at Kash’s last post (two below this one), which contains yet another great graph.

How could any group of employees be as consistently and dramatically wrong as the administration’s employment forecasters and still keep their jobs?(*)


(*) Ok, so O’Neill, Hubbard and Lindsey are gone, but that’s had no discernible impact on policy-making. Basically, they formulate a hypothesis: tax cuts create a lot of jobs and then the the data turn out inconsistent with that hypothesis. Based on the scientific method, they shoud reject the hypothesis. Instead, they repeated the experiment and got the same result: data inconsistent with the maintained hypothesis. We’re now in the midst of the third iteration of this experiment. I wonder what the result will be? (If they repeat it enough times, the business cycle will eventually give them the result their looking for.)

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Intended and Actual Spending

Kash, Brad, and I have been hamering Bush’s “15% discretionary spending growth” lie pretty hard. Now even the conservative/libertarians are getting in on the game. Posting on the subject, Jacob Levy at the Volkh Conspiracy writes this rather damning paragraph:

Authorization is not spending. A question about whether one is spending a lot of money is not responded to with an answer about how much one said one intended to spend. And “discretionary spending” is not the same as “non-defense, non-homeland discretionary spending.” This isn’t harmless abbreviation. In order to obscure the explosion in spending, the president’s advisors had to come up with an obscure and tortured way to measure what has happened (one that, again, doesn’t measure what actually happened but only what it was said that it was intended to have happen). If you’re going to offer an answer that’s intends to mislead about substance but is technically true, one had better be sure to get the technicalities right. (That is what Bill Clinton excelled at, of course: “There is no sexual relationship.”) Bush’s answer intended to mislead about substance (a strange way of measuring was used for the clear purpose of having a more palatable spending story to tell than is reflected in actual expenditures), and didn’t even manage to be technically true (because ‘discretionary spending’ wasn’t qualified).

Levy (a smart guy and, along with Dan Drezner, a conservative who uses reason to argue his points) is referring to a graph Calpundit found in the current budget, which contains alleged numbers for “authorized” [not actual] spending. That graph puts non-defense and non-homeland discretionary spending at 15% in 2001, and 6, 5, 4, and 1 percent in 2002-2005. However, those numbers don’t add up. (Somehow, intended/authorized spending growth of 5%, 14%, and 15% somehow averaged out to realized overall spending growth of 5.5% so either “authorization” is meaningless or the 15% growth is inaccurate.)

I’d give Levy’s post an A if he could somehow manage to criticize Bush without referencing Clinton’s penis (Andrew Sullivan managed that feat, here.) Still, a strong effort overall. A-.


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The CEA’s Forecast Record

If you’re a regular visitor to this or Brad DeLong’s site, you probably know all about the White House’s unlikely forecast for job creation that was released this week. To put it in context, I thought it might be helpful to compare this year’s forecast of job creation by the White House’s Council of Economic Advisors (CEA) to the forecasts that they’ve made in previous years.

The picture below tells the story. It shows the predictions that the White House made in Feb. of 2002, Feb. of 2003, and Feb. of 2004, juxtaposed with what actually happened in the US job market from 2000 to 2003. All figures are annual averages and are taken from the Economic Report of the President.

It seems that, in fairness to the White House, this year’s forecast is no more optimistic than any previous year’s forecast. Will be just as far off? Probably not… but it will be surprising if it’s right, too.


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Josh Marshall

I have to quote this one in full:

Given the president’s record as a businessman, and since he’s now run the country hopelessly into debt, isn’t it about time he sells the country off to some rich friends who will swallow the loss so he can move on to greener pastures?

Now that’s funny. On a more serious note, Josh also has White House spokesman McClellan having a hard time with the press over the AWOL issue this morning (on second thought, that’s kind of funny too.)


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How Long Will This Keep Going On?

What I’m referring to, of course, is the seemingly endless purchases of US dollars by Japan. (Isn’t that the first thing that came to your head?) This week’s Buttonwood column in The Economist elaborates on the point that I made yesterday about the self-contradictory G-7 communiqué regarding currency interventions, starting with this:

A CAMEL, goes the old saw, is a horse designed by a committee. What that makes this weekend’s statement by the Group of Seven (G7) finance ministers and central bankers is anyone’s guess, but a duck-billed platypus is Buttonwood’s offering.

They end the column asking the question we’ve all repeatedly asked: how long can the current state of affairs – with Japan keeping the dollar strong through enormous purchases of US dollars – continue? The question matters, because right now the purchases of US debt by Japan (and to a lesser degree, China) is having a major effect on the US economy. As one of today’s columns in CNN/ says: “Like low rates? Thank Japan.”


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The Press Picks Up On the White House Jobs ‘Forecast’


Fuzzy Math: Bush plan would need up to 5mln jobs

Report’s call for 2.6 mln doesn’t add up

The U.S. economy would need to add between 3.6 million and 5 million jobs between now and the end of the year to meet the administration’s official job-growth forecasts, not the 2.6 million figure cited Monday by the White House.

In the Economic Report of the President released Monday, the White House’s Council of Economic Advisers said employment would average 132.7 million jobs in 2004, about 2.6 million more than the 2003 monthly average. All day, the White House bandied the 2.6 million forecast without explaining just how difficult that average would be to achieve.

Likewise, we have this from CNN/Money:

White House: 3.8 million new jobs

NEW YORK (CNN/Money) – The White House forecast for job growth this year is even more optimistic than it first appeared — a source says the Bush administration expects about 3.8 million new jobs in 2004, as opposed to the 2.6 million widely reported on Monday.

Is the press becoming more skeptical? Or just reading more blogs?


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Weapons of Math Destruction, Part III

CORRECTION: Brad re-ran the numbers and finds that the actual necessary job growth is 320,000/month, not 470,000. That’s still an impossible target: it’s been reached in only 18 of the 119 months between Feb. 1994 and Dec. 2003.

Brad DeLong catches another one: Table 3-1 of the 2004 The Economic Report of the President, on page 98 predicts that the US economy will average 132.7 million jobs in 2004 (not end with, but average); 2003 averaged 130.1 million jobs. Given the January number Brad ballparks that the economy will need to create 470,000 new jobs per month for the rest of the year (we’ve lost about 2.2 million jobs since Bush took office.)

How could this get into the budget? In a follow up post, Brad speculates that

Whatever powerful person it was then called the forecasters in on the carpet: “We cannot publish a number saying that payroll employment in 2004 will be lower than it was at the start of the administration. That number *must* be bigger than 132.5 million [the number at the start of Bush’s administration]. If that number is smaller than 132.5 million, there will be lots of negative newspaper stories saying ‘Bush administration forecasts negative job growth over first term’. We can’t have that.”

And so the number is 132.7 million.

But perhaps Brad is too harsh. Maybe, just maybe, 470,000 per month isn’t that crazy — we all remember the booming Clinton years; surely they had monthly job growth over 470,000. How often was monthly job growth over 400,000 under Clinton? The answer: 7 times, and in only two of those months were over 470,000+ jobs added. That’s right, the prediction underlying the jobs numbers in the current Economic Report of the President requires that the economy create more jobs in the next 11 months in a row than it created in any eleven months in the last decade (not 11 months in a row, the best 11 months out of the last 120 months). Here are the data, color coded to help the reader see how times have changed:

Flat out, the 132.7 million jobs in 2004 is impossible and whoever wrote that knows this. It is a lie, not a mistake or misguided optimism.


UPDATE: Further proof that the 470,000 target is impossible. Atrios says “I believe after the last tax cut I promised that if they made their jobs projection I would vote for Bush in ’04. I make that promise once again with this new round of numbers.”

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Weapons of Math Destruction, Part II

Calpundit, Angry Bear, and Joshua Claybourn have all had things to say about the issue that I addressed in my “Lies, Direct from the President’s Mouth” post of yesterday. Several people have offered up theories to explain the President’s incorrect statement, most of which revolve around the idea that Bush was talking about non-defense discretionary spending. Along those lines, Calpundit helpfully found the source of Bush’s untrue statement – it’s from the overview of the just-submitted budget, and it shows “non-defense, non-homeland spending” to be just as Bush described it on MTP yesterday.

The problem is that there is no supporting data for the chart. Furthermore, the OMB doesn’t even give us much insight into how they calculated those growth rates, so we have to guess.

Undeterred, I have been trying to replicate their graph. To do so, I’ve assumed that they took the data from their own historical budget documents. One particular White House document contains the salient information: “Historical Tables, Budget of the US”. The two tables that contain the relevant information are table 4.1, which contains spending for homeland security, and table 8.1, which contains budget outlays by category (i.e. discretionary vs. mandatory). When you subtract defense spending and homeland security spending from the numbers given by the White House for discretionary spending, this is what you end up with:

1999: $284 bn

2000: $307 bn, +8.1%

2001: $328 bn, +6.8%

2002: $367 bn, +12.0%

2003: $389 bn, +6.0%

But this still doesn’t match the White House chart (or what the President said on MTP). If someone has any insight into how the OMB came up with that chart of theirs, please let me know. Because at the moment, I’m starting to think that the OMB just made up that chart out of thin air – and then told the President that those numbers actually represented reality.


UPDATE: Spinsanity has provided the best explanation yet for how the OMB derived their numbers.

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A Self-Contradictory G-7 Statement

Finance ministers from the G-7 countries met over the weekend. As is customary at the end of such meetings, they issued a joint statement yesterday containing their thinking about the state of the world economy – and specifically addressed exchange rate movements. The statement was a compromise, and thus somewhat confused and self-contradictory. Here’s the relevant paragraph from the text of the communiqué:

We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely and cooperate as appropriate. In this context, we emphasize that more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments in the international financial system, based on market mechanisms.

They quite reasonably note that “excess volatility in exchange rates are undesirable for economic growth” – a statement with quite a bit of empirical validity, by the way. The statement implies that they prefer fixed exchange rates (or a very carefully managed float, such as Japan is currently practicing), to avoid volatility.

At the same time, they explicitly ask for “more flexibility in exchange rates” – which means allowing exchange rates to float freely. But another well-documented empirical fact is that when exchange rates float freely, they move in unpredictable, volatile ways. The unfortunate fact of the matter is that no one has yet figured out how to have flexible exchange rates without volatility.

So which do they really want – fixed or flexible exchange rates? This statement says that they want both.

Of course, the reason for this self-contradiction is that some of the G-7 members want one, and some the other. Japan wants to continue managing its exchange rate to keep its currency weak, while the US and EU want it to float against the dollar so the yen will strengthen. What I find interesting is that this statement perfectly reflects tremendous and deep-seated disagreement about where they would like exchange rates to go from here. I expect the tensions between the US, the EU, Japan, and China over this issue – which I’ve remarked on before – to just get worse. Whose preference will win? Time will tell…


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