-- John Maggs, NationalJournal.com

However, it is the job of economic forecasters to critically review the politicians’ statements and to tell the truth – whether it’s good or bad news. And if we do not know the truth it is our job to analyze and point out risks that the economy might face in the future. Politicians have designed and decided on huge stimulus packages that are meant to support economic growth in the course of the year 2009. Barack Obama is leading in numbers with his USD 789 bn (approx. 5.5% of GDP) package recently passed by Congress. Many of the stimulus packages – of which only the USA’s and China’s are comparable as a percentage of GDP, while the stimulus packages passed in Europe only amount to roughly half of that percentage – will not prove effective in the short term. They will help to support growth in 2010 or later (e.g. investments in infrastructure, schools or renewable energies).

Thus I fully agree: The growth forecasts given by governments are far too optimistic due to the fact that the underlying stimulus packages are not as effective in the short term as they are supposed to be.

Personally, I spoilt the rosy picture painted by the government in Germany by saying that GDP might decline by 5% in 2009 – and was vilified by politicians, entrepreneurs and the public. Nevertheless I am sure that it was the right decision. To stop forecasting entirely or to be overly optimistic is not the right way to go in difficult times.

An optimistic forecast has a clear short-term advantage.  A pessimistic forecast might cause consumer and investor confidence to erode faster, contributing to the drop in private demand.  For the Administration there is a second short-term advantage.   With an optimistic economic forecast, the budget outlook looks less frightening.

The Administration can pay a price for an over-optimistic forecast, however.  Congress may be less persuaded that a large stimulus is needed.  Like many other economists, I worry that the stimulus the President asked for is too small in light of the weakness in consumer and investor demand.  An over-optimistic forecast may also carry a price in terms of popular political support.  At this point, most Americans blame the Bush Administration for the nation's economic catastrophe.  If the current Administration promises a milder recession than the one that we actually experience, voters may conclude that the shortfall in performance is due to the Administration's own policies, including its tax and spending policies and its handling of the banking crisis. 

When Democrats run for office in 2010 and 2012, they will find it helpful if the economy is performing better than expected rather than worse than expected.  By helping to form voters' expectations about the future course of the economy, an over-optimistic forecast can lead voters to judge the Administration's performance more harshly than would be the case if its initial economic forecast were more pessimistic.

The Reid/Pelosi/Obama economic plan is to empower trial lawyers to sue more often, spending a 800 billion on earmarks rejected by previous congresses,  funding 9000 more earmarks, raising taxes on income, investments, dividends, capital gains and exporters, eliminating pesky elections that hamper the Teamster’s organizing drives, sending tens of thousands more American troops to Afghanistan (Iraq without the flat bits), subsidizing those banks that wasted the most of their depositors money, and increasing the power of Washington DC.

            This, they predict will create economic growth.  

            Each of these projects have been tried by other nations in the past.  Track record is not encouraging.