PRESIDENTIAL MATH: Our Future Depends On It
President Obama’s promise to cut the federal deficit in half in his first term relies on his assumption that the real Gross Domestic Product (GDP) will grow 3.2% next year, 4% in 2010, and 4.6% in 2012. We know he can write, but can he calculate?
He did not tell us how he calculated future GDP so let’s ask if history says his results, and thus the future hope he promises, is reasonable.
Since 1930 the average annual growth rate of GDP was 3.4%, and that included three years of WWII when it was over 17%. If we begin in 1945 average Real GPD increased 3%. In the nine years and 36 economic quarters from January 2000 through December 2008 real GDP grew faster than 3% in only 9 quarters. (All figures from US Bureau of Economic Analysis)
Conclusion: President Obama rests his economic plan on the calculation that real GDP for the three years starting in January 2010 the economy will grow faster than its 64 year average since WWI and that it will consistently grow faster than it did in 25 or the last 36 quarterly reporting periods. If the President would show us how he did his math, we would know whether we should call that math presidential or political.
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Well, my intuition is the same as yours, but we probably shouldn't criticize a politician for being a politician. Anyway, let's see what the average rate of growth of GDP is for the first three years following a recession. It would be even better if we could calculate that average taking into account the depth of the recession. That might give us a better idea of the basis for his projection than the average of all years.
ReplyDeleteI never question the truth of a tautology. A rose is a rose, a politician is a politician. But isn't it fair to criticize a politician for pretending to be . . . what? In the oath they promise to uphold the Constitution, but not to tell the whole truth and nothing but the truth.
ReplyDeleteIt's true that in recoveries following recessions for 2 or 3 years GDP growth is higher than 3%, sometimes 5-6%. Let's take the 8 Clinton years (which Obama wants to emulate in tax structure, etc. and which is closest to our economy in character). The average GDP growth was 3.7%. Obama's 3 year projected average is 3.9% despite the fact that Clinton and the Republican Congress actually balanced the budget and Obama projects no more than cutting it in half 10 years from now. He also raises government's share of GDP to some 30%. Conclusion: if the recession ends this year, he might achieve his GDP numbers, but we still can't check the calculations of this presidency that has promised to be the most open in history.