Dwight Cass
09/01/2004
“Forecast,” with its presumption of plausibility, may be an appropriate label for many types of economic divination, but it is certainly too credible to describe the fumblings in the dark that constitute government budget projections. I prefer “prognosticate,” which brings to mind scattered chicken bones and the bottom of a dirty teacup.
Government budget forecasts are akin to weather predictions. The task of assembling the many factors that bear on the outcome, weighting them, calculating their correlations and fitting them into a model with any predictive value seems to be beyond anyone’s grasp. Those government employees who wrestle with the problem for a living, the brave men and women of the Congressional Budget Office, are hobbled further by rules that limit their ability to consider any political factors. They are prohibited from weighing even the most important variables: which party will ascend to the White House in November, for example, or each candidate’s revenue and spending preferences. Garbage in, as usual, leads to garbage out.
| "Prognosticate" brings to mind scattered chicken bones and the bottom of a dirty teacup. |
The government’s incompetence leaves us at the mercy of private-sector prognosticators, most of whom are affiliated with dueling partisan think tanks whose main concern is to buttress their rants on Sunday morning talk shows. Their estimates tend to be even more dubious.
Whether we prefer to get our estimates from Brookings or from Cato, it is hard to avoid the fact that our government’s finances are, once again, under water. But unlike deficits in the past, such as those that financed the New Deal, the Vietnam War and the Reagan administration’s defense buildup, some economists believe our current shortfall is not amenable to a natural solution: economic growth. Keynes, they argue, fails us when the bulk of the government’s overspending is not designed to fund short-term stimuli to cushion an economic downturn, but to support open-ended commitments to politically untouchable programs with rapidly increasing costs like Medicare and Social Security. They call our deficit a secular, rather than a cyclical, phenomenon, which can only be tamed by tax increases, spending cuts or both.
Those of us seeking to determine how this state of affairs should bear on our financial decision making are in some ways reduced to the unenviable position of the meteorologist on the local news who distills an overwhelmingly complex problem into a simple binary question by sticking his hand out the window. We can assume we will have another four years under an inveterate tax-cutter, or we can brace ourselves for the tax increases promised by his rival. (Of course, there’s a chance that President Bush may, like his father, wilt under the fiscal pressures and raise some taxes if he is re-elected.)
The financial planners, private bankers and analysts we interviewed for our cover story are nearly unanimous in their expectation that there will be some type of tax increase in the next four years. If not, we may soon have to account for the various consequences of the deficit itself in our long-term financial planning.