December 14, 2012
Many years ago, back when I was a fresh second lieutenant straight out of the academy, my battalion executive officer summoned me to his office one day saying that he had a ‘mission’ for me.
I hurried over, wondering what this special mission might be. Several members of our intelligence unit had just been deployed to South America, and I thought it might be my first field assignment. So I hoped.
When I arrived, the Major explained that the unit’s budget forecasts were due, and he was assigning me the responsibility of completing our long-term projections.
He said someone had told him that I was ‘smart’, and so I shouldn’t have any problems getting it done. And with that, he handed over a stack of binders and dismissed me from his office.
I wheeled a smart about-face on the backs of my heels and marched off, stunned at what had just transpired.
Aside from the disappointment of not being assigned to something more exciting (I would end up getting more than my fill later in my career), I couldn’t believe that I had been handed something so momentous.
Essentially, I was responsible for requesting how much money my unit would need to operate… 2, 3, 4, 10 years down the road. It seemed heady. So I went to a friend to ask if he had any experience with such things.
“Oh yeah,” he told me, “just keep adding 5% each year. It’s easy.”
That was my introduction to government forecasting.
I think about that story as this ridiculous ‘fiscal cliff’ charade drags on in the United States, because the same fundamental flaw underpins both sides of the debate.
Have you noticed, for example, how both sides continually reference the ‘nonpartisan’ Congressional Budget Office (CBO) to make their case?
They’ll go on TV and say ‘according to the non-partisan CBO, increasing taxes on the rich won’t impact the economy…’ Or, “the CBO says that by 2019, our tax plan will reduce the deficit by 60%…” Etc.
This tactic of quoting CBO predictions was a constant during the Presidential campaign as well.
But does anyone remember how utterly flawed CBO projections are? These guys never, ever get it right. Ever.
In January 2001, for example, the CBO projected a cumulative budget surplus of $5.6 trillion over the next ten years (from 2002-2011). That same 10-year period actually ended up being a deficit of $6.1 trillion… an error of $11.7 trillion. This is more than the size of the entire US economy at the time they made the prediction. Oops.
The following year, post-9/11, the 2002-2011 projection was still off by $7.7 trillion. They further presumed that the US federal debt would be $1.27 trillion by the end of 2012. They were only off by a factor of 10. No biggie.
Look, I’m not trying to pick on the CBO. It’s like what Yogi Berra said– “Predictions are hard, especially about the future.” There is no crystal ball, so any long-term economic calculation is absurd no matter who divines it.
But the CBO’s long-term track record of constantly missing the mark seems pretty obvious to anyone paying attention. It’s like a weatherman in Seattle who tells you that every day is going to be sunny. At some point, a reasonable person just stops listening.
The problem is that people have been deluded for so long into believing that economics is an actual science… and so it must be true. Well, for a time, so was bloodletting. Or the ‘ethnic sciences’.
We know all of these things are nonsense today. But for some reason, people still haven’t figured out that an economist with a forecast is no different than a medieval fortuneteller.
The whole argument is a clever deception, all to conceal a simple truth: that the US has long since passed the point of no return where they’re borrowing more money just to pay interest on money they’ve already borrowed.
There is no victor in the debate. Only an entire nation of losers, and a tiny handful of people who see the writing on the wall and take steps now to prepare.
Which are you?