The Bush Admin's Fuzzy Math: Faking Big Bang Growth with GDP Statistics

by: Yankee Group

By Carl Howe

I don't often wade into the current political fray because I don't feel it's productive. However, when I saw this posting by Lawrence Kudlow, claiming $2.2 trillion in US Gross Domestic Product growth was attributable to the Bush tax cuts, I thought some analysis with real numbers might be illuminating. After all, I'm a quantitative marketer; I know how numbers can be used to both make and break an argument.

At issue are the opening paragraphs:

Did you know that just over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20 percent? In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium.

This is an extraordinary fact, although you may be reading it here first. Most in the mainstream media would rather tout the faults of American capitalism than sing its praises. And of course, the media will almost always discuss supply-side tax cuts in negative terms, such as big budget deficits and static revenue losses. But here's another suppressed fact: Since the 2003 tax cuts, tax-revenue collections from the expanding economy have been surging at double-digit rates while the deficit is constantly being revised downward.

The $2.2 trillion growth number is correct, and is verifiable at the Bureau of Economic Activity, a source we use all the time for our Sizing US Marketing research. But the second paragraph is a bit misleading, since the deficits mentioned are only projections, not actual results. If we look at the GDP, minus the national debt, we end up with the two very interesting tables of data shown here (click to enlarge):

Howe Debt 1
Howe Debt 2

What was missing from Mr. Kudlow's analysis was the fact that the national debt grew by $1.9 trillion over the period of that $2.2 trillion GDP growth. Traditionally, we subtract debt when calculating net worth and growth (Can you imagine saying to your spouse, "Honey, we grew our income by $50,000 with that loan we took out!"). So if we do that, we discover that the actual growth minus debt for the period was about $300 billion.

But is that so bad? After all, debt can be useful in growing a business. Why not a country? Sadly, there are some pretty good benchmarks out there to beat, and this one comes nowhere close. Look at the second table in the graphic looking at the same numbers for 1997-2000. There, you'll discover that we had $1.6 trillion in growth over 11 quarters for only $250 billion in debt increase, resulting in net growth of $1.2 trillion over the same period. Suddenly the argument that the Bush tax cuts stimulated growth falls apart, since we had $1.2 trillion in growth during the period before those tax cuts were enacted (i.e., during the period with those awful "high" taxes that were inhibiting growth).

The bottom line: promoting a product or position with statistics can be quite persuasive. But if you're going to do that today, you want to use data that isn't easily refuted by a vast population of savvy online readers with a free hour or two, because they will check your work. One of these days, the politicians will figure that out; marketers already are.