There’s been a lot of subtle dissing in the econ-blog world lately. My favorite is the back and forth between J. Bradford DeLong and N. Gregory Mankiw’s favorite economist, N. Gregory Mankiw*. So, the back-story is that Mankiw keeps posting graphs showing the unemployment forecast published in the beginning of the year by Romer (CEA chair) and Bernstein (economic advisor to the VP) as part of the push to pass the stimulus, and comparing it to the actual unemployment numbers. Here’s the latest such post, and here’s the graph.
Mankiw’s implication? The recovery package is failing (or at least not working as promised), and the Obama administration is failing to admit it.
Of course, Mankiw knows a few things about the politics of presidential macroeconomic forecasts. In particular, Mankiw was chair of the CEA himself from 2003 to 2005. And Brad DeLong has a few issues with Mankiw’s own forecasts. In particular, DeLong notes that the CEA inexplicably lowered its forecasted growth in productivity to arithmetically force a higher predicted labor force (i.e. less unemployment). Here’s the relevant chart:
And here is DeLong’s analysis:
But assuming a 1.8% labor productivity growth rate at the start of 2004 would have meant that the forecast average level of employment in Tqble 3.1 for 2004 would have been lower than the level of employment when Bush took office, and that would have created a point of political vulnerability. There were two ways to fix this that would have satisfied White House Media Affairs: (i) reformat the table so that it no longer reports an annual average payroll employment number, or (ii) push assumed labor productivity growth down because if you keep GDP the same but reduce labor productivity arithmetic forces your forecast to produce higher employment.
Why the Bush CEA didn’t pick option (i) is something I have never understood…
Oh Snap! Your move, Mankiw.
* I’m not saying, I’m just saying. Also, less fun note, I bought two intermediate macroeconomics texts to read this summer: DeLong’s and Mankiw’s. I know, I lead a thrilling life.