The Reagan administration has helped force budget politics to the top of the American political agenda with its stated determination to check a number of fiscal trends which have been gaining momentum for at least a decade. Less appreciated, perhaps, but no less significant than the new administration in focusing attention on the federal budget is the cumbersome congressional budget process itself. It ensures that budget politics consume an inordinately large portion of each congressional session to the inevitable exclusion of many other issues.
One important aspect of the federal budget that is frequently overlooked, however, is the reliability of forecasts of major budget components such as the deficit, outlays and receipts, Gross National Product (GNP), unemployment, and inflation. In examining previous forecasts on these economic variables in federal budgets between 1971 and 1982, it is evident that the forecasters’ records have been very poor, that many indicators such as GNP and unemployment are seriously deficient as mirrors of economic reality, and that the uncritical acceptance of aggregate budget figures by the mass media, policymakers, and citizens alike is wholly unwarranted.
Aside, perhaps, from compiling the historical tables in order to monitor the results of previous economic forecasts used in the budget, much of the following analysis is not original. Academic economists as well as economists in the federal agencies who compile the data making up each of the aggregates under discussion regularly point to their deficiencies. Most opine that these deficiencies can be overcome in time with more complete statistical information and greater conceptual refinement. Others are not sure that it will ever be possible to make the aggregates accurately reflect economic reality.
As an academic pursuit, the efforts to quantify data and make predictions may be unexceptionable. Serious errors in academic pursuits often prove beneficial so far as they serve to educate. But such errors obtruding upon public policymaking or codified in law have pernicious effects far beyond their educational value. More attention needs to be focused on the limitations of these various budget components and of efforts to forecast changes in them.
Policymakers’ attitudes toward these concepts, however, seem to reflect a trend that is moving in just the opposite direction. President Reagan recently proposed “triggering” stand‐by income tax increases on a ratio between two of the aggregates under discussion here — the deficit and the GNP. The Humphrey‐Hawkins full employment bill of the last decade proposed the unemployment rate as a “trigger” for wideranging public works projects. Other instances of this sort could be noted. In addressing this trend of relying upon aggregate economic statistics, a recent study by the Government Accounting Office discusses GNP figures: