White House budget director Peter Orszag had an interesting blog item over the weekend responding to critics who noted that the GDP numbers underlying Obama's budget were far more optimistic than the GDP numbers the Congressional Budget Office recently used. The source of the discrepency, explains Orszag, is that the CBO numbers in question didn't account for the effects of the stimulus package--the whole point of which, after all, is to "stimulate" GDP growth. Here's Orszag:
To put the forecasts on an "apples-to-apples" basis, one can take the CBO forecast and add in the effects from CBO’s macroeconomic analysis of the Recovery Act—which included both a "high" and "low" estimate for the projected effect of the act. The results show that the Administration’s GDP forecast is entirely consistent with CBO’s forecast (and indeed right in the middle of CBO’s "high" and "low" estimates) once the effects of the Recovery Act are included. The table below presents the GDP projections on this "apples-to-apples" basis.
Projected Real GDP Levels
(Calendar Years, in 2000 dollars)
|CBO with "High" Effect of Recovery Act*||11,624||11,983|
|CBO with "Low" Effect of Recovery Act*||11,487||11,720|
Of course, as Orszag points out, both estimates are probably too optimistic in light of recent evidence suggesting the economy's even weaker than we thought. But that evidence wasn't available when the administration did its forecast.