Our Predictions for 2005: A Reality-Check

Reply Thu 5 Jan, 2006 08:01 am
A year ago, Timber, georgeob1 and I exchanged some testable predictions in a now-dormant thread called "Let's talk about George W. Bush in 2004". I started it by offering a bet (post here), Timber took me up on it and invited me to negotiate the terms via PMs (post here), and George offered a few prediction of its own (post here). Somehow Timber and I never got around to finalizing the bet. But I think it might still be fun to look back and see how we did. So let me start with mine.

On January 3 2005, Thomas wrote:
1) America's GDP will grow by 3-4%. Jobs will continue to be created, but it won't be enough to keep pace with the growth of productivity and the labor force. As a consequence, payroll employment on January 2, 2006 will be lower than predicted in the 2004Economic Report of the President
US GDP growth: 3.8% (Source: Bureau of Economic Analysis)
Payroll employment: 134289 M (Source: Bureau of Labor Statistics)
Payroll employment predicted in the 2004 economic report of the president: 136.3 (for 2005), 138.6 (for 2006) (Source: 2004 Economic report of the president. Skip to page 16 of the PDF file, which is page 98 of the paper document)

So this prediction was correct.

On January 3 2005, Thomas wrote:
2) The budget deficit and the current account deficit will both be larger than they are today, both in absolute numbers and as a share of GDP. As a result, America will be even closer to a balance-of-payment crisis than it is today. Alas I don't know how one would objectively measure "closeness to balance of payment crises", so I'd welcome any suggestions you might have.[/url]
(Source: Bureau of Economic Analysis)

US Current Account Deficit, 3d quarter 2004: $164.7 billion, or 14% of GDP
US Current Account Deficit, 3d quarter 2005: $195.8 billion, or 18% of GDP (Source: Bureau of Economic Analysis)
US Budget Deficit 2004: 47 B, or 4% of GDP (Source: Congressional Budget Office (PDF))
US Budget Deficit 2005: 57 B, or 4.5% of GDP (Source: Congressional Budget Office(PDF)

In other words, my prediction was correct about America's current account, incorrect about the federal budget.

On January 3 2005, Thomas wrote:
) If another major source of conflict arises -- candidates include a conflict in the Taiwan street, revolutions in Iran or Saudi Arabia, or an escalation of the conflict with North Korea -- America will find that its military lacks the personnel to deal with it. In this case, the Bush administration will either forsake its allies or reintroduce the draft.[/url]

No major source of conflict did arise, so the prediction cannot be tested.

On January 3 2005, Thomas wrote:
4) The situation in Iraq will deteriorate further. As an objective measure of the deterioration, the casualty rate in the fourth quarter of 2005, as measured by icasualties.org, will be higher than the casualty rate in the fourth quarter of 2004. I see a 4:1 chance that even the conservatives on A2K will acknowledge the deterioration. If so, I see a 10:1 chance that they will blame it on anything but the policies of the Bush administration. As a test of these probabilities, I invite A2K's conservatives to bet with me on these odds. (But if they do, I won't count their voice about the "acknowledge the deterioration" part.)

Iraq casualties, 4th quarter 2004: 284
Iraq casualties, 4th quarter 2005: 253

Interpretation: My prediction was wrong.

So overall, it turns out that I was more right than wrong with my skeptical assumptions about the Bush economy and its labor market, while I was wrong, but not terribly wrong, about Iraq. I'd say my predictions clearly didn't do great, but they kinda did okay.
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Reply Thu 5 Jan, 2006 08:12 am
So hows about you set up some predictions for '06? With your track record at least some parts (the majority) of it will be on target.
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Reply Thu 5 Jan, 2006 08:31 am
I thought GDP growth had been revised to 4.3%.
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Walter Hinteler
Reply Thu 5 Jan, 2006 08:57 am
JustWonders wrote:
I thought GDP growth had been revised to 4.3%.

Exactly the other way around:

The GDP estimates released today are based on more complete source data than were available for the preliminary estimates issued last month. In the preliminary estimates, the increase in real GDP was 4.3 percent (see "Revisions" on page 3).
source: BEA "RELEASE AT 8:30 A.M. EST, WEDNESDAY, DECEMBER 21, 2005"
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Reply Thu 5 Jan, 2006 11:04 am
JustWonders wrote:
I thought GDP growth had been revised to 4.3%.

Maybe so -- but that was the annualized growth rate over the quarter, not the growth rate over the year. My prediction had been for the growth rate over the year.
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Reply Thu 5 Jan, 2006 05:35 pm
In several areas we have forecast for certain pasrticular facts or outcomes and in addition accompanying broader forecasts that go well beyond the specifics. An example is Thomas' particular forecast for the U.S. butget deficit and his general prediction that it would have us in serious trouble. In fact the deficit grew very slghtly as a % of GDP, but not so much as to materially change our situation. Thomas in this case correctly noted that his general forecast was wrong. However the point here is that in this and other areas, there is the temptation to generalize incorrectly about the general forecast, based on a forecasted detail that itself fails to tell the whhole story. Iraq is a case in point.

In my forecast I suggested some comparative analysis about the performance of the U.S. economy compared to major continental Europeasn economies, mostly to expose what I see as a pervasive hypocrisy on the part on many European posters here. No such predictions were made, eccept that I forecast that the U.S. economy would grow significantly more than those of Germany and France. I don't have the time now, but I will followup on that analysis. If anyone wishes to suggest a source of 2005 economic data that they find particularly reliable, I will be happy to use it.
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