Summary
President Obama sometimes strayed from the facts or made dubious claims during his hour-long evening news conference March 24.
- He said his budget projections are based on economic assumptions that “are perfectly consistent with what Blue Chip forecasters out there are saying.” Not true. The average projection by leading private economists is now for substantially less economic growth than the administration’s forecast assumes.
- He said he is reducing “nondefense discretionary spending” to less than it was under the past four presidents. Not true. His own forecast for the final budget of his four-year term puts this figure higher than in many years under Reagan, Clinton or either Bush.
- He said he was “angry” about “inexcusable” bonuses paid to AIG executives. But he glossed over the fact that his own aides insisted on watering down a Senate-passed amendment that might have prevented payment of such bonuses.
- He repeated that his budget is projected to cut the federal deficit in half by the end of his term. That’s true, but deficits also are projected to shoot up again later unless big policy changes are made.
One of the most dramatic claims came not from Obama but from a reporter who asked about children “who are sleeping under bridges and in tents across the country” and who said 1 child in 50 is “homeless.” The truth is far less dramatic. The study he cited doesn’t just count children with no roof over their heads. It also includes those whose families are staying with friends or family members, in hotels and motels, in trailer parks or in housing deemed to be “substandard.”
Analysis
President Barack Obama addressed the nation in a prime time news conference last night, assuring the public that "we’ll recover from this recession" with time, patience and perseverance. His economic stimulus plan and moves by his Treasury Department to shore up financial institutions, he said, would put the economy on a path to recovery. Along the way, Obama made some factual missteps.
Cooking the Books
Facing some heat from critics who complain that the administration’s budget figures are too rosy, Obama offered a misleading defense:
Obama: [T]he main difference between the budget that we presented and the budget that came out of the Congressional Budget Office is assumptions about growth. They’re assuming a growth rate of 2.2 percent; we’re assuming a growth rate of 2.6 percent. Those small differences end up adding up to a lot of money. Our assumptions are perfectly consistent with what Blue Chip forecasters out there are saying.
Obama is correctly characterizing the differences between his projections and the CBO’s figures. But it’s not entirely accurate to say that the administration’s assumptions are consistent with the Blue Chip Economic Indicators, which is a survey of forecasts from 50 private economists. In fact, the most recent Blue Chip forecast is far more pessimistic than either CBO’s or the administration’s.
As CBO Director Doug Elmendorf explains, weaker economic news in the two months between the administration’s budget and the newest Blue Chip (and CBO) forecasts led many economists to produce a far gloomier picture. This can be seen in the chart below.
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| Source: Congressional Budget Office |
The Obama administration has argued that the relevant comparison is to projections that were released at the same time as the administration’s, not the current outlook. Even so, the administration’s growth assumptions for 2009 and 2010 were considerably more optimistic than the Blue Chip average, according to the president’s own Council of Economic Advisers, as seen here:
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| Source: President’s Council of Economic Advisers |
In any case, the president claimed his economic assumptions are consistent with "what Blue Chip forecasters out there are saying," not what they were saying. It is simply false for Obama to imply that his numbers are consistent with the most recent private projections.
A Page from the Bush Playbook
In 2006, we criticized President Bush for bragging about reducing "nondefense discretionary spending" without mentioning that overall spending had increased dramatically. Obama is adopting at least that page of the Bush playbook. He said:
Obama: [A]s a percentage of gross domestic product, we are reducing non-defense discretionary spending to its lowest level since the ’60s, lower than it was under Reagan, lower than it was under Clinton, lower than it was under Bush, or both Bushes.
Even if Obama’s claim were accurate, it would be misleading. Nondefense discretionary spending amounts to just under 20 percent of total spending in Obama’s 2010 budget proposal. It excludes military spending, homeland security spending and rapidly rising "mandatory" spending including Social Security and Medicare.
And anyway, it’s not exactly true that the figure would be "lower than it was under Clinton" or any of the other presidents he mentions. Using Obama’s own GDP and spending projections (scroll to the summary tables at the bottom), we found that nondefense discretionary spending would be 3.8 percent of GDP in fiscal 2013, the last budget of Obama’s four-year term. That’s actually higher than it was during Ronald Reagan’s last four years, George H.W. Bush’s first three years, Bill Clinton’s entire eight years and at least one year of President George W. Bush’s time in office, fiscal 2002, when it was 3.7 percent. See table 8.4 from the historical tables in last year’s federal budget, on page 137.
Bush may also have achieved a lower figure in fiscal 2007, 2008 and 2009, the current fiscal year, for which he was projecting a 3.6 percent figure. New historical tables are expected soon from the Office of Management and Budget, which may revise the estimates for those years.
Obama’s OMB is projecting that the figure will drop to 3.3 percent of GDP by 2018. That’s still higher than the 3.2 percent achieved under Clinton in 1999. Anyway, the fiscal 2018 budget won’t be Obama’s. Even if he runs for a second term and wins, his last budget would cover fiscal 2017.
Cutting Deficits
Obama repeated his claim that his proposed budget will "cut our deficit in half by the end of my first term, even under the most pessimistic estimates." But cut in half compared with what? And according to whom?
Obama starts with a figure of $1.3 trillion, saying "some of those Republican critics have a short memory, because, as I recall, I’m inheriting a $1.3 trillion deficit, annual deficit, from them." He did inherit a huge deficit, but not entirely from Republicans. Democrats have controlled both houses of Congress for the past two years. Furthermore, the size is a bit slippery. The Congressional Budget Office projected a $1.18 trillion deficit on Jan. 8, 2009, its last estimate before Obama took office Jan. 20. That was the CBO’s estimate for the current fiscal year, which ends in September.
The president’s $1.3 trillion figure comes from an analysis released by Obama’s Office of Management and Budget in late February. We can assume that part of the reason for the higher estimate is that the economy worsened more than expected, which will reduce the government’s revenue from taxes even more than CBO had projected earlier.
If $1.3 trillion is the starting point, it is roughly accurate to say that Obama is proposing to cut the figure in half. CBO’s most recent projections of Obama’s budget put the deficit in fiscal 2013 (the last budget that would come from Obama’s current term in office) at $672 billion. That’s a 48 percent reduction from $1.3 trillion. The reduction would be even greater under the more optimistic projections from his own Office of Management and Budget. OMB projects the deficit will be about $533 billion in fiscal 2013, amounting to a cut of 59 percent.
However, both OMB and CBO predict that deficits would begin to shoot up again after the initial four-year period. OMB predicts a rise to $712 billion in 2019, and CBO forecasts a much sharper rise, reaching more than $1 trillion in fiscal 2018 and nearly $1.19 trillion in 2019 – about the same amount Obama inherited upon entering office.
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Anger Management
Obama said he was "angry" about those "inexcusable" AIG bonuses, and called for Wall Street to restrain its "outsized" pay:
Obama: I’m as angry as anybody about those bonuses that went to some of the very same individuals who brought our financial system to its knees, partly because it’s yet another symptom of the culture that led us to this point. But one of the most important lessons to learn from this crisis is that our economy only works if we recognize that we’re all in this together, that we all have responsibilities to each other and to our country. Bankers and executives on Wall Street need to realize that enriching themselves on the taxpayers’ dime is inexcusable, that the days of outsized rewards and reckless speculation that puts us all at risk have to be over.
We don’t dispute that the president felt angry; that’s for him to say. It’s worth noting, however, that Obama’s own administration opposed tough rules, passed by the Senate, that might have prevented AIG from handing out those bonuses in the first place.
As we explained last week, an amendment introduced by Sen. Chris Dodd and passed by voice vote in the Senate called for any institution that still needed to pay back money issued under the Troubled Assets Relief Program to be prohibited from paying "any bonus, retention award, or incentive compensation" to at least the top 25 employees on the payroll. That became part of the Senate version of the massive stimulus bill. But in February, the administration expressed concern that banks would be reluctant to accept help under those rules, and Dodd’s amendment was watered down substantially by Democratic lawmakers who drafted a Senate-House compromise version of the stimulus package. Last week, Treasury Secretary Timothy Geithner said that his department thought the Dodd prohibition wouldn’t withstand legal challenges. Dodd has said he reluctantly went along with a weaker ban as part of the final legislation, which instead stipulated that bonuses could be issued if they were part of contracts signed before Feb. 11.
Exaggerating Homelessness
Not all the errors came from the president. Kevin Chappell of Ebony magazine asked a misleading question about homelessness and the recession.
Chappell: A recent report found that, as a result of the economic downturn, 1 in 50 children are now homeless in America. With shelters at full capacity, tent cities are sprouting up across the country. In passing your stimulus package, you said that help was on the way. But what would you say to these families, especially children, who are sleeping under bridges and in tents across the country?
A study from the National Center on Family Homelessness, released March 9, did find that 1 in 50 children, or 2 percent of all children in the U.S., are homeless at some point during the year. But NCFH has a broader definition for homelessness than Chappell implies. Its definition isn’t restricted to children who are "sleeping under bridges and in tents." It also includes children whose families are staying with friends or family members, in hotels and motels, in trailer parks or in "substandard" housing.
This is the definition used in the McKinney-Vento Homeless Assistance Act and a number of other pieces of legislation, but not the definition used by the U.S. Department of Housing and Urban Development. HUD considers families homeless only if they are sleeping on the streets, in shelters or in places not designated for human habitation.
Furthermore, Chappell was wrong to claim that the 2 percent "homeless" figure is "a result of the economic downturn." The NCFH study looked at data from 2005 to 2006 – well before the current recession started. The National Bureau of Economic Research says the current slump began in December 2007.
Chappell would be right to say that by any estimate the number of homeless children is significant even in good times, and is likely to be higher now. A 2000 study from the Urban Institute estimated that 1 million children (1.4 percent) were using assistance services and shelters at some point each year, "despite a booming economy and the lowest unemployment rate in a generation."
Chappell would also be justified in saying too many children actually are "sleeping under bridges and in tents." A 2008 report from the U.S. Conference of Mayors gives a rough idea of how many that might be. Based on data from 23 cities, the report estimated that on an average night in an average city 543 people in families (both children and adults) and 268 unaccompanied youth were sleeping on the street. That’s an unfortunate figure, but nowhere close to 1 child in 50.
– by Brooks Jackson, Joe Miller, Justin Bank, Jess Henig and Lori Robertson
Sources
Elmendorf, Douglas. "CBO’s Economic Projections." 23 March 2009. Congressional Budget Office Director’s Blog, 25 March 2009.
Orszag, Peter. "Economic forecasts and the Budget: Consistency with CBO." 28 February 2009. OMB Blog, 25 March 2009.
Romer, Christina. "Economic Projections and the Budget Outlook." 28 February 2009. Council of Economic Advisers, 25 March 2009.
National Center on Family Homelessness. "America’s Young Outcasts," March 2009.
U.S. Department of Housing and Urban Development. "Federal Definition of Homeless," Aug. 2007.
United States Conference of Mayors. "Hunger and Homelessness Survey," Dec. 2008.