Dealing with Uncertain Budget Forecasts

The article reviews the history of past budget projections by the Congressional Budget Office (CBO). The projections have been extremely inaccurate because of errors in the choice of economic and technical assumptions. The errors grow rapidly as the projection's period is lengthened. The projections are unlikely to get better soon. Therefore, the question becomes how CBO, the Congress, and the media should react to the extraordinary uncertainty that must be attached to the budget outlook. Among other things, the author suggests de-emphasizing projections made for periods longer than five years, because such projections are only a little better than random noise. He also points out the futility of aiming for rigorously enforced numerical targets for the budget balance, as was done in Gramm-Rudman and as has been proposed in various types of "lock box" legislation. The targets move around too rapidly to ever be hit.