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!