April 16, 2004, 8:21 a.m.
The Supply-Siders Were Right All Along
Nasty scribe Brad DeLong should look for a place to hide.

I have an old score to settle and with the adjusted GDP numbers for 2004 safely in hand this seems a good time to do it.

You may know Bradford DeLong, a University of California at Berkeley professor and former Clinton administration official. He has a problem with National Review and NRO Financial, the problem being that he often disagrees with us and writes about these disagreements on his website. All well and good, except that DeLong’s rejoinders feature faulty math, tricky writing, and questionable economics. More, they are filled with nasty invective. My colleagues at NRO have, at times, followed up on DeLong’s attacks (see pieces by Don Luskin and Tom Nugent). Now I’ll take my turn.

In an October 31 entry on his website, Delong administered a misleading and vicious attack on my column of the same day. After stating that National Review economics writers are completely off the scale of ineptness, Professor Delong manipulated my original article to misrepresent my position:

For example, consider Victor Canto of La Jolla Economics. He asks the question: [W]ho had the closest GDP Forecast? I went back and looked at the tables in the January 2003 Wall Street Journal Forecasting Survey, as well as the revisions to these forecasts. … I computed the annual real GDP forecast [of growth in calendar 2003] of participating economists from the quarterly figures and ranked the economists in descending order. The results were pleasing … Leading the way was John Mueller, a long-time supply-sider, with a 5.32 percent forecast for [real GDP growth in] 2003. Our own Larry Kudlow, at 4.4 percent was third …

Everything Delong quotes me as writing I wrote. There’s more in the un-ellipsed original, however (note some of the returned type in bold ):

I computed the annual real GDP forecast of participating economists from the quarterly figures and ranked the economists in descending order. The results were pleasing — the four supply-side forecasters in the survey were among the top ten. Leading the way was John Mueller, a long-time supply-sider, with a 5.32 percent forecast for 2003. Our own Larry Kudlow, at 4.40 percent, was third. Brian Wesbury, of Griffin, Kubik, and Stephens in Chicago, ranked sixth, and the Bear Stearns team of David Malpass/John Ryding followed in seventh place.

My original makes it clear that I ranked the forecasts of the individual economists and that the four supply-siders were among the ten most-optimistic forecasts. I was pleased because the supply-siders were optimistic and I argued that they correctly anticipated the turning point in the economy.

Later on I went on to discuss why I believed the supply-siders were able to anticipate the turning point. I stated that “What they have in common … is that they focus on the substitution (or incentive) effects of policy changes.”

Here was my major conclusion: “The moral of the story is that substitution effects are perilous to ignore. Those who do not incorporate substitution effects into their forecasts will suffer the fate of missing the turning points in the economy.”

In his reaction piece, DeLong’s standard was to rank the forecasters according to how close they got to the actual GDP numbers. At the time, DeLong thought these numbers to be 1.4 percent for the first quarter, 3.3 percent for the second, 7.2 percent for the third, and a “consensus forecast” of 3.7 percent for the fourth. After calculating (which was guesstimating at the time as the numbers were not final) that these “four quarterly growth rates average to 3.9%,” here was his take:

Thus, John Mueller’s 5.3% forecast doesn’t “lead the way” — it’s way, way high of what 2003 economic performance is turning out to be. Larry Kudlow’s 4.4% forecast is not “third” in anything but it’s degree of overoptimism — it is further from what we now expect the real number to be, 3.9%, than was last January's average forecast of 3.7%. To overestimate GDP growth is a very different thing from making an accurate forecast. (Bear-Sterns, however, does look like it is about to hit it on the nose — I would argue on the stopped-clock principle.)

I find it hard to believe that a university professor would deliberate misinterpret my original statement to suit his purposes. Yet that appears to be what he did. DeLong knows better, and I will not sink to his level of misinterpretation. However, with revised GDP numbers in hand for 2004, I will use his interpretation to see how well the supply-siders actually did.

But one point first: DeLong also wrote, “Does Victor Canto understand that a calendar-year growth rate is an average of the growth rates for the four quarters that make up the year?” It surprises me that a tenured professor at a prestigious university would be so sloppy. Does he mean an arithmetic average or a geometric average? I could not have benefited from his wisdom as a teacher as I am older than he is. I also do not have his Ivy League education. But I am sure that my professors at MIT and the University of Chicago taught me well.

So much for the personal stuff — let’s look at the numbers. Real GDP grew at 1.97 percent during the first quarter of 2003, 3.1 percent during the second, 8.2 percent during the third, and a preliminary 4.1 percent in the fourth. According to my calculations, that would put real GDP growth for 2003 at 4.3 percent.

Like the great philosopher Yogi Berra said, “It ain’t over ’til it’s over.” Using the rankings in my original article and the actual real GDP growth rate for 2003 we find that Larry Kudlow ranks second, Brian Wesbury fifth, and the duo of Malpass/Ryding sixth. Even DeLong’s own scheme makes my original point. He missed the forecast because he ignored the substitution effects that supply-siders are so keen on.

In the final sentence of his article attacking me last fall, DeLong wrote, “Here at DeLong World Headquarters, we are rolling in the aisles …” After such sloppy economic analysis, he should be well off the floor by now — and looking for a place to hide.

WHILE I’M HERE . . .
I’d now like to address two additional matters regarding the professor.

My guess is that a liberal UC Berkeley educator would be sensitive to diversity and minority issues. Yet in his October 23, 2003, column, “Empirical Evidence that Republicans Can’t Count,” DeLong goes after an article by Cesar Conda which ran on NRO Financial. In his piece, Cesar argued that given high U.S. productivity figures, companies will have to add 120,000 to 180,000 jobs a month to meet a 4 percent real GDP growth rate.

DeLong retorted:

So where does Canto’s 120,000 to 180,000 a month number come from? Can’t he subtract? Can’t he multiply 140 million by a percentage? Can’t he divide?

And can’t National Review find some spoiled rich-kid teenage intern to check NRO Financial articles for arithmetic errors? Isn’t teaching people to do math supposed to be one of Empower America’s big projects?

How about checking names. I am not Cesar Conda. I know we both have Hispanic surnames but my understanding is that Cesar is a Filipino-American and I am originally from the Caribbean. I think DeLong got his minorities mixed up. As he wrote his comments on Cesar approximately eight days before he attacked me, he must have had Canto on the mind.

On another housecleaning matter I would like to point out that Brad DeLong is not interested in an intellectually honest discussion. A friend of mine tried to post a comment in my defense on his website yet it never appeared. Perhaps he is not interested in the truth.

— Victor Canto, Ph.D., is the founder of La Jolla Economics, an economics research and consulting firm in La Jolla, California.