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Research Desk: How accurate were CBO projections of spending and revenue for the 2000s?

By Dylan Matthews

cummije5 asks:

Since the CBO makes 10 year projections, I would like to see how much more spending over what was projected in 2000 happened, and how much less revenue under what was projected in 2000 happened.

As cummije5 says, the CBO's 2000 Budget and Economic Outlook, released in January of that year, provided predicted revenue (see table 3-2) and spending figures, both in nominal terms and as a percentage of GDP, from 2000 to 2010. Given as we now know, of course, what revenue and spending were for 2000 to 2009, it's useful to see how accurate the predictions were. Here's how the projected and real figures compare:


The discrepancy here does not prove that the CBO is wrong or bad at making these kinds of predictions. It just shows that they don't know what Congress is going to do over the course of the decade. For one thing, the outlays estimates assume that discretionary spending will grow at the rate of inflation, which they obviously did not.

But more important, the CBO in 2000 did not know that we were going to invade and occupy two foreign countries. They did not know two major tax cuts representing trillions in lost revenue would be passed. They did not know Medicare would start covering prescription drugs. They definitely did not know that the financial sector would collapse in upon itself, leading to a dramatic drop in revenues and necessitating trillions in spending to fuel a recovery. Policymaking is messy and unpredictable, and those sorts of thing just can't be factored in ahead of time.

Which is all to say that while CBO estimates are very useful, especially when discussing specific policies and trying to isolate their effects, Doug Elmendorf is not a precog. The next 10 years is a long time for Congress to pass new spending programs, cut old ones, raise some taxes, cut others and so forth, and while we have to operate off of something, it's likely in 10 years we'll look back at the budget discussions we're having now and find the budget outlook we're working with preposterous.

By Dylan Matthews  |  August 26, 2010; 5:31 PM ET
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Can't you adjust the graphs to give a year-by-year projection based on the major legislation? I know that would be a pain, but it might be more illustrative.

Posted by: mschol17 | August 26, 2010 5:49 PM | Report abuse

The nerd in me is more interested in how off the assumed cointegrating relationship was than the series themselves.

Posted by: nylund | August 26, 2010 6:12 PM | Report abuse

My interpretation of this graph is that the Clinton recession that Bush inherited, and 9/11 on top of that, got the budget out of whack. However, thanks to the Bush tax cuts, the economy got back in gear and the budget imbalance was on track to start generating surpluses again. But unfortunately, the Pelosi/Reid congress came to power in 2006 and the wheels fell off the economy causing record job losses, record deficits, and a financial crisis.

Thanks for doing this Dylan. Good luck with school this year. If you have to do a book report, I would suggest you read The 5,000 Year Leap. It will broaden your perspective of America beyond the drivel that you were reading on the Jounolist.

Posted by: cummije5 | August 26, 2010 7:54 PM | Report abuse

"My interpretation of this graph...."

Are you engaged in an imaginative activity? This does not even mention off the budget war expenditures incurred at the same time as tax cuts.

Daniel Patrick Moynihan's words to live by:

"Everyone is entitled to his own opinion, but not to his own facts."

Posted by: tc125231 | August 27, 2010 12:12 AM | Report abuse

What would really be useful is a graph showing what CBO actually believed would happen based on standard Congressional spending behavior, not what they had to believe would happen per Congress' instructions.

Anyway, we're broke, in massive debt, and the private sector continues to contract.

Posted by: millionea81 | August 27, 2010 2:28 PM | Report abuse

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