Wednesday, October 7, 2009

Are Congressional Budget Office Estimates Accurate? > Flip a coin .... or worse

Are you wondering if the Congressional Budget Office estimates are accurate? Put aside the conclusion that prophecies are only a 50/50% proposition.  Common sense please. How are you going to radically increase government entitlements and spend less without raising taxes and/or penalizing some other budget item? Worse yet, budgets can be off by a mere +100% for just one year of a 10 year projection.

A report by Rudolph Penner from the Urban Institute said:
I recently studied the history of errors and I would like to submit my results for the record. They are pretty discouraging. The average error made in the forecast of the budget balance used to formulate the budget resolution is over $100 billion for the first year covered by the resolution and over $400 billion five years out. These are errors made because of flaws in economic and technical assumptions and do not include the effect of policy changes. (They are also adjusted for the growth in the economy.) Ten-year projections were initiated only in 1997; so we cannot test them against reality. But the projection for the budget balance in 2007 changed over $800 billion between early 1997 and the summer of 2000 — an amount equal to more than five times the value of the 2001 tax cut in 2007. If our view of the 2012 budget balance changes by a comparable amount over the next 3-1/2 years relative to GDP, it will be altered by a cool $1 trillion for that single year.
If that isn't scary enough, a future S. Moore WSJ editorial studied CBO health care estimates since the start of Medicare in the 1930's.  The study is reported to say that those estimates were 500%-1,000% low!

2 comments:

  1. I think it's more important to look at their accuracy as a percentage of GDP, not just a raw figure. To boot, economic forecasting formulas and methods have changed a lot since 1930. I doubt that any predictions for any given period of time made in 1930 would be half as accurate as predictions made today.

    The tables on this page (http://www.cbo.gov/doc.cfm?index=3277&type=0&sequence=6) have some interesting statistics concerning the CBO's accuracy.

    An interesting note from the CBO link: "On average, the absolute difference (without regard to whether the difference was positive or negative) between CBO's estimate of the federal deficit or surplus and the actual result was 0.5 percent of gross domestic product for the ongoing fiscal year, 1.1 percent for the budget year, and 3.2 percent for the fourth year beyond the budget year, adjusted for the effects of subsequent legislation (see Table 5-1). If those averages were applied to CBO's current baseline, the actual surplus or deficit could be expected to differ in one direction or the other from CBO's projections by about $50 billion in 2002, $130 billion in 2003, and over $350 billion in 2007.

    While $350bn may sound like a lot to be off by, it only represents a small portion of the $13.84 trillion GDP of 2007.

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  2. yea, cause I'm sure the 1930 version of the CBO & healthcare could totally foresee 80 years from then the spiraling that's taken place. Way to be disingenuous at best, and just plain hate mongering at worst.

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