A few snippets of data from the Congressional Budget Office’s Budget and Economic Outlook 2003.
Estimated 10-year budge surplus = $5.6T.
Reality = $6.6T deficit. A 200+% miss.
Estimate for 2012 Debt Held by Public = $1.2T (5% of GDP).
Reality = Debt Held by Public = $11.6T. A 1000% miss.
Estimate for fiscal 2012 GDP = $17.4T.
Reality = $15.8T. A 25% miss.
Okay, it was not an easy period to forecast. But the fact is, no period is easy to model and forecast. The CBO assumed that there would be no recessions in the 2004-2012 period. The CBO got hit on the head with that assumption.
I think the CBO is making the same mistakes again in 2013. It has a crystal ball of what the future will look like. The CBO assessment is that there is nothing but blue skies ahead. Some more snippets; this time from the just released 2013 CBO report on our future:
- GDP is about to soar! It’s going to grow at more than double the current rate! Happy days are right around the corner. The economy is going to experience a period of sustained economic growth – and it’s going to star in just ten-months! Wow!
- Debt is not a problem any longer. Don’t worry about it any more. After shooting up the past five years, the Debt to GDP is going to flatten out, starting really soon.
- Unemployment will be no problem. The rate is going back to 5.5% in a couple of years, and it is going to stay low for the remaining 7-years. There is Zero, repeat Zero (as in nada, no-way-no how) chance for a recession over the next decade. I find this very comforting.
- Inflation is not going to be an issue. Not too cold, not too hot – the CPI will average less than 2% for well into the 2020’s. No chance of inflation picking up – it’s silly to worry about inflation risks – really, it’s a non issue for at least a decade.
- There is even good news for savers. Interest rates will be going up very sharply. By 2015 the 10-year T-bond will be back to 4.5%, more than double where it is today. This backup in interest rates will have no consequence to the economy at, in fact the higher interest rates will help propel the economy higher. Not to worry about this asumption, interest rates don’t matter any more..
- There is a reason that the future is so bright. The economy will prosper. GDP will grow to $26T in 2023. This comes to a 67% increase. Think of that! We haven’t seen that kind of performance since…well, actually, we’ve never seen it. But who knows? You have to believe in miracles if you work for the CBO.
You can argue with me all you want about those CBO estimates. The fact is, no one really knows what will happen. But the CBO is using one assumption that is almost certain to be proven wrong. It is a very critical assumption: What will labor’s role be in the economy of the future?
- Labor income, as a percent of GDP, has been in a multi-decade decline (rise of the robots). The CBO is anticipating that the trend will not only stabilize, but will substantially reverse.
I think the CBO is out on a limb with this critical assumption. I think they are all wet with the generally rosy outlook it says is in our future. If you believe the CBO, the last thing you would do would be to address some of America’s daunting problems. After all, everything is going to be on easy street, so why sweat the small stuff? If we just do “nothing” – everything will turn out just fine.
I think the CBO has done our legislators, and the country a disservice with this report. A great excuse to do nothing for a few more years has been created. I’ll be generous, and give the CBO a D+for this effort.