10-year Budget Projections
By Arnold Kling
Will Wilkinson writes (on Facebook),
Tell me what you think about the usefulness/uselessness of 10-year budget/deficit projections.
You can think of this as three questions.
1. Are the projections useful? I think they are useful if understood as conditional forecasts. They tell us what will happen if key macroeconomic variables follow a reasonable path. I believe that Congressional Budget Office knows something useful about how GDP and employment affect tax revenues, so I think this is useful. I think trying to go the other way–taking projections about deficits and using them to predict GDP–the CBO knows much less, because that involves theory that is less reliable
2. Is the 10-year window helpful? It can be gamed. You can make a policy look good under the 10-year window even though catastrophe follows. It is possible that the proponents of such a policy will be called out, but that does not always work.
3. Does anyone care about the projections? Here I could argue both ways. On the one hand, the fact that politicians take the trouble to game the projections says that they care about them, at least from the standpoint of appearances. On the other hand, the phenomenon of gaming suggests that in a sense the politicians do not care, except in terms of appearances. The projections provide what Murray Edelman would call symbolic reassurance, and meanwhile the politicians do whatever they want.
Probably the most interesting example is the projection for the effect of Obamacare on health care spending. This illustrates gaming, involving a combination of policy assumptions and the spending window–mostly the policy assumptions, actually. The proponents insisted that cutbacks to doctor payments be scored as part of the legislation, even though past experience would suggest that it would be highly unwise to assume that those cutbacks will take place.
CBO expressed skepticism about the doctor payment cutbacks and made it possible to draw inferences about the path of health care spending under Obamacare under the more realistic assumption that doctor payments are not curbed. However, supporters of Obamacare have chosen to ignore those inferences. Hence the mantra, “repealing Obamacare will raise health care spending and increase the deficit.” That mantra is false unless you buy into the projections as gamed.
In the end, I come out strongly in favor of CBO projections, even though in this case they are being used to promulgate nonsense to two decimal places. I think that as long as you have the Journolist types who want to shape the story in Obama’s favor, that is where the fault lies. Not with 10-year projections per se.