Washington and its press corps love ten-year economic projections. The executive branch is required by law to make them for all manner of things. And news outlets publish them with the same shamelessness that supermarket tabloids publish predictions of Martians landing in Central Park.
Only one problem — just like the predictions of Martians, they are completely worthless for anything except garnering headlines. Projecting such things as GDP, federal revenues and outlays, and the size of the national debt ten years out is like predicting the weather ten years out. Both predictions must fail for precisely the same reason: millions — probably billions — of variables interact in often completely unpredictable ways. So predicting the economy (or the weather) ten years out is like predicting the outcome of a backgammon game after the third roll of the dice.
I stumbled on a perfect example of what I mean this morning, while working on a new edition of my history of the national debt, first published in 1997: It’s a Treasury Department press release titled “From Widening Deficits to Paying Down the Debt: Benefits for the American People,” and it was published in August 1999.
It confidently predicts ever-increasing budget surpluses from that point on, reaching as high as nearly $500 billion in fiscal 2009 — 3.5 percent of GDP. (In fact, the budget deficit this year will be at least $1.8 trillion — nearly 14 percent of GDP). The press release goes on to foresee that the publicly-held national debt in fiscal 2009 would be a mere $1.5 trillion (it is $6.9 trillion) and only 25 percent of GDP (it’s 49 percent). I suppose the Treasury Department economists who wrote this press release might have done a better job had they only taken the end of the dot.com bubble, 9/11, the Iraq War, and the financial crisis of 2008 into account. I wonder why they didn’t.
If economists had the scruples of meteorologists, they would flatly refuse to make these projections. Unfortunately, all too often when you scratch an economist (especially in Washington, D.C.) you find a politician.