Economists and Statisticians chime in

none | 5-19-2006 | Republican Extremist

[Republican Extremist]

Economists and Statisticians, I have a problem for you to tackle.

Of late, it has been obvious that our nation's revenues have been risng rapidly, and have resulted in a two year reduction in the deficit.

In fact total revenues look like this:

2000 2,025.5
2001 1,991.4
2002 1,853.4
2003 1,782.5
2004 1,880.3
2005 2,153.9

Now there has been a counter argument based on Democrat talking points that the revenues when adjusted to 2000 chained dollars is actually lower than in 2000.

Observe:

2000 2025.2
2001 1944.6
2002 1778.7
2003 1676.6
2004 1723.3
2005 1920.6

These are CBO numbers, in 2000 chained dollars.

Now we all know about lies, damn lies, and statistics.

It's obvious that the market, economy, and thus revenues peaked in 2000, just as the Dot Coms began their free-fall, so 2000 is an arbitrary year to begin with, but it is the year in question.

What I want is an explaination as to how they could be manipulating the numbers using specifically the 2000 chained dollars, instead of chained dollars from a different year. If the chained dollars argument is a fallacy to begin with, then tell me why.

Thanks ahead of time.

[kinoxi]

if i want to measure in 'thumb lengths', i can :). they pick their most convenient slanted baseline and try to 'compensate for the depreciation of the dollar(which all things being equal would raise revenue from foreign currencies).

[Jim Robinson]

1) Cut the taxes.
2) Cut the spending.
3) Repeat often.

[Republican Extremist]

Jim, I agree.

I just need some ammo to use. I tooks statistics back when Abacuses were cutting edge technology, so I need a refresher from our deep knowledge base.

[econjack]

Perhaps a lot of it is explained by the recession after 9/11. The recovery, in large measure, was driven by the Bush tax reforms which helped pull us back from the post-9/11 recession. At the same time, however, inflation has increased recently to rates that are greater than those experienced during the early years, as reflected in the higher interest rates. Recent inflation plus using 2000 as a base year does yield the results you present.

Clearly, we can guess where the Dims are going with this. My question, however, has always been: What amount of hubris is it that lets the politicians think they can spend my money better than I can?

[Eastbound]

" . . . inflation has increased recently to rates that are greater than those experienced during the early years, as reflected in the higher interest rates."

I thought inflation was the result of more money to spend. Doesn't higher interest rates tighten the money supply?

[kinoxi]

currency depreciation can also affect inflation. especially in a country that imports as much as the US.

[Buck W.]

I would take issue with your first statement that revenues have been rising rapidly. In your six-year table, the first four actually show a year-over-year decline in revenue.

[groanup]

It's the theory of relativity. If you are going to describe revenues in 2000 dollars then you must describe the deficit that way. Also the total budget, the total expenditures, the total tax receipts, the total cost of the war, etc.

[RWR8189]

By the broadest measure of measuring, there hasn't been a recession since 1991.

Line		2000    I	2000    II	2000    III	2000    IV	2001    I	2001    II	2001    III
	Gross domestic product	1.0	6.4	-0.5	2.1	-0.5	1.2	-1.4

 

During the economic downturn around the turn of the century there were not two or more consecutive quarters of negative GDP growth.  We've had continuous growth since Q3 2001.

[CivilWarguy]

If the numbers represent fiscal years, as I believe they do (all federal budget figures are in fiscal, not actual years) then the revenue decline started when Slick Willie was president, not Bush. Given that Bush didn't take office until 2001, and any economic program takes a while to effect the economy, it appears clear that once the Bush tax cuts "took hold", then federal revenues started to rise--whether measured by 2000 dollars or by actual dollars.

[1stMarylandRegiment]

The fallacy in their argument is called start-point bias (or end-point bias, depending on the context).

Intentionally processing an algorithim on a data set that has no context relevant to a question, that cannot be supported by the same mathematical application used with data sets starting or ending at different time points is, by its very nature, biased.

The chained-dollars argument is thus fallacious.

[econjack]

That's exactly what I'm saying. The Fed's been raising interest rates for the past two years in an effort to cool things down.

The two basic theories of inflation are cost push and demand pull. I think what we're seeing now is more a cost-push type of inflation and I believe that energy costs play a part in it. Relatively low unemployment rates yet fairly robust growth is also raising wage rates (e.g., another cost) a tad, too.

[econjack]

Agreed. Still, the trend was broken by 9/11 and it was a pretty significant dip. Also, I thought Q4 of 2001 was lower than pre-9/11, but I'm not sure.

[Republican Extremist]

Revenues since 2003 have been rising rapidly, which is why the deficit has been lower than expected.

I did not mean to imply that revenues rose each year, as we were in a recession, and a poor economy from 9-11.

[Eastbound]

That seems clear. Thanks for your reply!

[RWR8189]

 By Q4 2001 GDP had expanded past pre-contraction levels:

 

Quarterly
(Seasonally adjusted annual rates)
	GDP in billions of current dollars	GDP in billions of chained 2000 dollars
1999q4	9,519.5	9,671.1
2000q1	9,629.4	9,695.6
2000q2	9,822.8	9,847.9
2000q3	9,862.1	9,836.6
2000q4	9,953.6	9,887.7
2001q1	10,021.5	9,875.6
2001q2	10,128.9	9,905.9
2001q3	10,135.1	9,871.1
2001q4	10,226.3	9,910.0

 

[econjack]

That's for the update!

[Eastbound]

What causes currency depreciation? I thought that was the automatic result of inflation, two bucks for a loaf of bread instead of one buck. I also thought that importing goods for resale at a lower price than domestic goods, quality for quality, would increase the purchasing power of currency, at least in the short term if no one over-bought. Wrong?

[kinoxi]

the open market. political climate, terrorist acts, and 'activist' foreign governments can contribute as well. currency is backed by the issuer. if the issuing country sends most of it's reserves out of the country what happens? the currency devalues. this helps local business to compete and is not necessarily bad. the latest string of currency depreciation happened near mid 2002 and wouldn't be calculated until '03 . look at the graph above and tell me if you think it's a coincidence.