Naked Capitalism: CBO's Latest Con: Deficit Scaremongering by Deleting Data

The CBO’s Latest Con Job: Disappearing Data to Deter Analysis of its Deficit Scaremongering


The CBO is resorting to such extreme measures to impede independent analysis of its scaremongering about the fiscal deficit...

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.....If you look at the CBO forecasts, they show the US getting to a 89.7% federal debt to GDP ratio by 2022 if no changes in policy occur. For economists and financial markets types, as well as the policymakers they lead by the nose, that 90% number is treated as a seriously bad outcome for very dubious reasons. It has the same stature as edge of the earth in maps from the days when people thought the world was flat, that if you go over it, all sorts of terrible things happen. That number comes from the work of Carmen Reinhart and Kenneth Rogoff in which they found that countries that had 90% debt to GDP ratio had lower growth levels.

The wee problem is that using that correlation as a guide is bunk First, it mingles gold standard countries (which do have to do through all sorts of insane growth-damaging contortions to run sustained deficits)n with fiat currency issuers. Second, in the overwhelming majority of cases, the increase in debt to over 90% and low growth were the result of a large financial crisis. Thus there is no evidence that dorking with the debt levels would ameliorate the post crisis sluggish growth; the evidence from Europe (and the IMF has ‘fessed up to this) is that trying to cut deficits in the wake of a crisis produces an economic contraction, making debt to GDP ratios worse than they were before. Third, there are some striking exceptions to what among the policy classes is being treated as an inviolate rule, most importantly, Great Britain in its greatest growth period, from 1735 to 1875, had a debt to GDP ratio of over 100%.

But since everyone takes this phony danger level as real, let’s indulge it for a minute. Despite the CBO’s blatant deficit hawkery, if you run the data correctly, you don’t reach that scary level. The CBO has done the equivalent of cooking the data to produce its desired outcome. It omits financial assets held by the government from its calculation.

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......Thomas Ferguson and Robert Johnson took the CBO’s forecasts as of August 2010 and demonstrated that if you included the federal government’s financial assets, which it had shown as just under 8% of GDP, even in its worst case “low growth” scenario, debt to GDP stayed under 82% by 2020.....

.....has the CBO decided to deal honestly with the question? No. Like the mob faced with the prospect of a damaging witness testifying, it has done a hit job on the data. Its recent deficit discussions do not even reference this information.....

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http://www.nakedcapitalism.com/2012/11/the-cbos-latest-con-job-disappearing-data-to-deter-analysis-of-its-deficit-scaremongering.html