March 29, 2010
I wonder how accurate the government budget projections are for the next 20 years. You need to look out that far because any reckoning of the national debt will be over a long period. If you don’t consider such a long view to the future, there’s no way to know how much of a budget deficit is too much today.
Back in my banking days, one of my jobs was “budget guy.” I was in charge of forecasting the costs of our individual projects as well as predicting expenses for the department as a whole. I say with all modesty that if there were any correlations between my forecasts and the actual costs of things, it was coincidental. Allow me to explain how budgeting works. There are two rules of budget forecasting:
- You must assume that trends continue.
- Trends never continue.
Life is a series of shocks and surprises. It’s delusional, bordering on superstition, to think you can predict the future more than a few months out. Another problem is that you aren’t allowed to budget with any assumption of failure or organizational change, no matter how likely you think those things might be.
For example, can the CBO assume that the U.S. Postal Service shuts down within twenty years? My personal assumption is that by then all letters will be sent by e-mail, and packages will be handled by private companies. It would be insane to keep funding the Post Office twenty years from now. But I doubt the CBO forecasts assume that it goes away. (Do any of you know?)
The budget estimates for defense spending are obviously complete nonsense too. I can’t imagine that the guy who handles that part of the forecast for the CBO includes, for example, an assumption that we’ll invade at least two smaller countries per decade. I think there would be a lot of pressure on that guy to remove those assumptions, no matter how right he is.
Also, in twenty years our military might be mostly drones and robot tanks. How do you predict a budget for that?
What about population growth? That’s a huge assumption in any budget looking out twenty years. It’s not certain that the U.S. population will even increase. Japan’s population is predicted to DECREASE in coming decades, and it’s the same for other industrialized countries. In twenty years we might have the technology and the will to seal our porous borders as effectively as Japan. I don’t think one can predict U.S. population growth or even its direction.
Healthcare is another huge wild card. I already do half of my healthcare by e-mail with my doctor (at Kaiser). And they just added the capability to receive digital pictures. I never would have predicted that five years ago. I think most people predicted that we would be doing teleconferencing with our doctors by now. But e-mail is about five times more efficient for the doctor.
Suppose medical technology gets to the point where you can diagnose potential problems, from gene analysis for example, and start treating things before they become expensive? Preventing cancer has to be a lot cheaper than treating it after the fact. How do you forecast a budget for that?
Or perhaps euthanasia will become legal, or at least widely practiced, and the expensive part of healthcare – the last few months of life – suddenly becomes economical. That’s a game changer that the CBO can’t assume will happen.
Budget-wise, I think it’s fair to say we’ll run a deficit for the next five to ten years. But in twenty years? It’s anyone’s guess.