Harvard economics professor Gregory Mankiw has challenged Paul Krugman to bet some of his Nobel money on the Obama administration’s growth forecast over the next few years. Tom Maguire places his money on Mankiw. The technical issues are far beyond my competence, but I’m with Maguire.
JOHN adds: The Obama administration’s budget incorporates the assumption that real GDP will be 15.6 percent higher in 2013 than it was in 2008. Mankiw is skeptical of this prediction; Krugman thinks you can take it to the bank. I’ll leave the technical debate to the economists, but it seems obvious that Obama’s budget is a shell game.
In his Senate Finance Committee hearing yesterday, Chairman Max Baucus defended the unprecedented deficits that Obama’s budget predicts over the next few years. Baucus defended them on the ground that the economy will be in recession and deficits will therefore be necessary and stimulative:
The budget presents some difficult realities, and it presents some hard choices, but the budget is fiscally responsible. For the first several years of this budget, the economy will be in a recession. During a recession, revenues fall. During a recession, spending on unemployment insurance, Medicaid and other means-tested benefits automatically increases.
The budget’s first year is FY 2010. So, it is predicated on the idea that for the budget’s “first several years” the economy will be in recession, but then–in the budget’s fourth year–it will suddenly grow to a level more than 15 percent above 2008? Ridiculous.