Thursday, June 23, 2011

Half a good prediction?

As the economic recovery continues to sputter in this second quarter, my thoughts have strayed from time to time to a February 2011 forecast by Goldman Sachs economist Alec Phillips. At the time, the shutdown loomed and the House GOP was demanding $61 billion in cuts to FY 2011:
Federal spending cuts deserve the most attention. They are the most likely of these issues to occur, and could have the largest magnitude. The assumption we incorporated into our recently revised budget estimates—discretionary spending cuts of $25bn and $50bn below the CBO baseline for FY2011 and FY2012 respectively—would shave nearly one percentage point off of the annualized rate of real GDP growth in Q2, but would fade quickly with a negligible effect on growth by year-end.
By most accounts, there was much less to the alleged cuts of $39 billion in 2011 discretionary spending than met the eye.  In any case, Phillips' forecast, for whatever reason, seems to have been on target for Q2.  Let's hope he's right about the quick don't feel quick while it's happening.

As for the basic tradeoffs Obama has made in negotiations with the GOP in December and April -- it's too early to judge their net effects.

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