Wednesday, March 18, 2009

When you forecast, you will err 

An old saw in forecasting: �Give 'em a number, or give 'em a date, but never give them both a number and a date. �If you do, you'll be wrong.

The Obama Administration, less than a week into its Spring Happy Offensive, got a bold fresh piece of reality from one of its allies in the Senate.

With new estimates due Friday from the Congressional Budget Office, the White House is being warned to expect a grim set of deficit projections, adding well over $1 trillion on top of the red ink already conceded in President Barack Obama�s 10-year spending plan.�

�The CBO re-score is going to be an eye-opening event for a lot of people who want to finesse this,� New Hampshire Sen. Judd Gregg told POLITICO. �You cannot finesse the coming fiscal calamity we are facing, the size of the debt in the out years and the size of the deficit in the out years.��

Gregg, the ranking Republican on the Senate Budget Committee, refused to discuss any of the CBO estimates. But behind the scenes, Senate Budget Committee Chairman Kent Conrad (D-N.D.) has begun to aggressively raise warnings with the administration and his colleagues about the data.�

CBO said Wednesday that it has yet to complete its formal scoring of the Obama budget. But some data, including a revised economic baseline, have been provided to Congress, and Conrad appears to be using these numbers to map out where he believes the figures will end up.�

In 2014, at which point the White House projects a deficit of $570 billion, it�s now expected that CBO will show a number in excess of $700 billion. Five years later, in 2019, Obama�s budget concedes that the deficit will have widened to $712 billion; Democrats expect CBO to put the number over $1 trillion.

...White House Budget Director Peter Orszag, who met with House Democratic leaders Wednesday evening, is himself a former CBO director and veteran of scoring former President George W. Bush�s budgets in the past. Orszag said he had yet to see any of his old colleague�s deficit numbers but said CBO�s economic growth numbers lagged behind Blue Chip forecasts and this would be a drag then on the Obama plan.�

Conrad is adamant that the numbers require budget adjustments: Senate Democrats could be put in the position of scaling back the administration�s domestic appropriations requests. �I�m expecting significant change,� Conrad said this week of the CBO numbers. �I think all of us have a very good sense that they will be more adverse.�

I italicized the key point. CBO is saying it sees the economy as being not as robust as the Blue Chip forecast, which is not as robust as that being offered by the White House (the forecast Orszag is charged with making.) There's nothing up at the CBO's site to tell us what those are. Some Senate Republicans are already slagging on the Obama budget for forecasting a 3.7% GDP growth rate between 2011 and 2015 as opposed to 3.1% for Blue Chip, -1.2% vs -2.6% for 2009 and 3.2% vs 1.9% for 2010. If CBO is even south of the Blue Chip estimates (courtesy U.S. News), it makes life for Orszag very hard and gives a lot of strength to Sen. Conrad, who is quickly becoming the center of the battle over the size of the deficit and the national debt. �Orszag is seen by most as an excellent former CBO head, and an honest broker. �It will do no good to his reputation if his forecast looks too rosy.

It's no small matter; the Senate Republican document claims that the Blue Chip forecast generates a national debt $2.2 trillion higher than that projected by the Obama Administration. �And they are pointing to nervous centrist Democrats who share their concerns. �And now maybe CBO projecting lower growth than even private economists? �For a first budget of a popular president being sent to a Congress of his own party, this cannot be what the White House expected.

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