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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (44564)	9/10/2003 2:34:53 PM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

The Gloomy Forecasts Begin It begins. Many reports on the size of the defict and how this implies a drag on the US economy: President George W. Bush's request for US $87 billion in new spending for Iraq and Afghanistan will worsen already gloomy forecasts for the budget deficit - sending it above the half-trillion-dollar mark next year - and could ultimately translate into weaker economic growth in the United States...That is the assessment of private economists who believe the surging federal deficits, while helping to boost a lagging economic recovery this year and next, will mean trouble down the road in the form of rising interest rates and higher inflation...This scenario of a classic 'guns and butter'' conflict between competing military and domestic priorities was visibly demonstrated in the 1960s when President Lyndon Johnson's 'Great Society'' programs ran up against escalating costs for the Vietnam War, triggering higher inflation and rising interest rates. (Interesting how this story exhibits virtually no understanding of what it oh-so-sophisticatedly calls the "classic guns and butter conflict". Anyway...) As regular readers know I've been obsessing about ECM unemployment rate forecasts and how they just don't go below 5.5%. Well, guess what? I quickly ran Fairmodel raising its COG exogenous variable by 5%, pessimistically expecting to see little change -- but what emerges is actually kinda dramatic: This is really quick and dirty and (when more time emerges) we'll do more, but right now a reasonable model might predict bottoming out of unemployment at 4.5% rather than 5.5% about six months earlier than would otherwise be the case. Link posted by Steven : 8:28 AM econopundit.com