Tuesday, February 15, 2011

Fabricating a Budget

The Department of Labor releases numerous economic statistics.  Among these are the “Weekly Jobless Claims” every Thursday and the “Monthly Unemployment Rate” the first Friday of each month.  ADP releases a monthly “National Employment Report.”

Select at random a hundred forecasters from business, finance, government, and academia.  In any given month, at best only a few will forecast the correct numbers for all three reports.  It is most unlikely that anyone will forecast the correct numbers for two or three consecutive months.

Yet, the White House Budget, released this year on January 14, rests on economic assumptions that span 10 years (Table S-13). These include gross domestic product, changes in the consumer price index, the civilian unemployment rate, and the 91-day and 10-year Treasury bill and note interest rates (which dictate the cost of borrowing).  On these assumptions, the budget sets forth 10-year estimates of receipts, outlays, deficits, and public debt (Table S-1).

Can anyone believe the precision of these numbers when forecasters cannot accurately predict next month’s jobs reports?

Why would anyone in business, government, the media, or academia treat these numbers seriously?

What we know is that the federal government is spending a whole lot more money than it collects in taxes, and that debt and interest payments are piling up.  But those who claim that the president’s or the Republican’s budget proposals will reduce the deficit by a certain figure in 2015 and 2020 is comedy at its best.   Or worse, use the quarrel to avoid making substantial cuts while the debt burns our future prospects!

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