How Accurate is the CBO?

Politicians and pundits often talk about budget projections from the CBO. Depending on how the CBO's projections mesh with the commenter's worldview, the projections are either the best possible from the nation's top budget economists, or they're crap, constrained by Congressional rules until they're useless. So just how accurate is the CBO?

A comment over at Bob Murphy's Free Advice inspired me to check out both the 2001 and 2012 "Budget and Economic Outlook" reports from the CBO. While I've got them out, I thought it'd be interesting to compare the CBO's old projections with what actually happened. Conveniently, the 2001 and 2012 reports overlap in 2011, so that's the year I'll compare.

First, Table 1-2 from the 2001 report (page 24 of the PDF), including the 2001 projection for 2011 in the far-right column:

Then, Table 1 from the 2012 report (page 6 of the PDF), including the actual numbers for 2011 in the far-left column:

How accurate was the CBO for 2011? Not at all.

Revenue: The CBO projected revenues of $3.4 trillion, while actual revenues were a full third lower than the projection, at $2.3 trillion.

Outlays: The CBO projected outlays of $2.6 trillion, while actual outlays were a full trillion higher at $3.6 trillion.

Deficit: The CBO optimistically projected an $889 billion surplus for 2011. The actual deficit was $1.3 trillion, a $2.2 trillion difference. (Of course, this error is just the combination of the two errors above. Still, it's interesting to contemplate a United States with an $889 billion surplus!)

GDP: The CBO projected a $16.9 trillion (nominal) GDP, but actual GDP was only $15.3 trillion.

Should we just write off the CBO entirely then? I don't think so. On the revenue side, the CBO could not have accounted for the Bush tax cuts or the revenue lost from the Great Recession. On the spending side, they could not have accounted for the war spending or, again, for the Great Recession, or for Obama keeping stimulus-level spending even after the stimulus was over.

I think the takeaway here, as we approach the end of the fiscal cliff negotiations, is that all projections for a decade in the future need to be taken with a grain of salt. Stuff is going to happen that no one expects. Decide for yourself what that should mean for current policy.

A final note: Some might look at the four areas above and say that in each area, the projections ended up being more optimistic than reality. I think that's a mistake. First, the CBO projected in 2001 that 20% of 2011's GDP would be soaked up by federal taxes, when it was actually only 15%. I think that's a good thing, despite what it means for the deficit.

Second, the GDP numbers above are nominal, meaning they include both real GDP and inflation. If nominal GDP is lower than expected, the cause might be lower real GDP (bad) or lower inflation (good). We've had both in recent years, so I'd have to dig deeper into the reports to see which effect dominates, and that's more playing with PDFs than I'd like to do tonight.

Aboriginal "Rights"

The "aboriginal rights group" Idle No More is protesting in Ottawa, including a hunger strike by Theresa Spence, chief of the Attawapiskat First Nation. Top of the list of their demands:

[Idle No More co-founder Tonya] Kappo worries that new laws outlined in Bill C-45 would clear the way for aboriginals to sell plots of their land to non-natives, threatening traditional practices and eroding their language.

“This guarantees the end of reserve lands,” Kappo told Postmedia News. “The kind of life my parents live, the kind of live our people live is only possible because of the reserve system. It’s ironic that the same system created to assimilate us is actually what has allowed us to keep our way of life.”

I don't think that word "rights" means what they think it means. The Conservative government is trying to give Natives more rights, by allowing them to sell their land to whoever they want, just like non-Natives can. Idle No More is protesting to prevent Natives from having the same rights non-Natives have always had.

To make this even more disturbing, near the end of that link, Spence talks about how she is willing to die and has even said her farewells to her 17-year-old child. She is willing to starve herself to death to deny her fellow Natives the same rights non-Natives already have. With friends like that...

Perhaps it should be no surprise that, with Spence in charge, Attawapiskat receives some $10,000 per member per year from the federal government, yet the people live in squalor and last year the government required Attawapiskat to temporarily turn over their finances to a third-party manager. The surprise is that the people of Attawapiskat put up with Spence in the first place.

Recent Reasons for Optimism VI

While it's been awhile, I think it's time for another installment of Recent (more or less) Reasons for Optimism.

The Best of Humanity
1. Buzzfeed profiles some of the heroes of Sandy Hook. A single man embodied the worst that humanity can be and caused enormous suffering. But these six women stood up to the challenge and saved dozens of lives, some at the cost of their own.

2. Buzzfeed also has a list of "26 Moments that Restored Our Faith in Humanity." My favorites include the responses to Hurricane Sandy at #4 and #5, the man with the arthritic dog at #23, and the "parents of the year" at #24.

Health
3. This infographic, covering the leading causes of death since 1900, has some great reasons for optimism. The number one cause of death in 2010 was heart disease, but the deaths caused by heart disease have fallen steadily since their peak in the 60s, from about 370 to 193 per 100,000. Deaths from the second-worst killer, cancer, have also been falling since they peaked in the early 90s.

4. Scientists in the UK have successfully spurred nerve regeneration in paralyzed dogs by transplanting cells from the dogs' own noses to the injured areas. It remains to be seen if the technique will work in humans, but over several months, the dogs went from complete paralysis in the rear legs to being able to walk on a treadmill without assistance.

5. Jan Scheuermann, who is paralyzed from the neck down, can now operate a robotic arm using only her mind "with speeds comparable to the able-bodied" and with a 91.6% accuracy rate.

Civil Liberties
6. The Senate Judiciary Committee unanimously passed a bill that would require law enforcement to actually get warrants to read private emails, no matter how old the email is. The bill will now go to the full Senate, and if it passes there, would also need to pass the House and be signed by Obama, but at least it's a step in the right direction.

Technology
7. Self-driving cars are inching closer to reality. Ford plans to introduce cars that can drive for you in stressful stop-and-go traffic, possibly by 2015. But Volvo will beat them to the punch with cars that can drive themselves at slow speeds in 2014. Meanwhile, a company called Rio Tinto is already using ten driverless trucks to transport iron ore, with plans to expand to 150 over the next few years.

8. 3D printing is coming to a store near you, at least in Europe. Staples will be offering 3D printing services next year in The Netherlands and Belgium. No doubt the US will soon follow, if this turns out to be profitable for them. Meanwhile, Virginia Tech is providing 3D printing free for students (ht). Researchers in Britain are also having some success in printing electronics.

9. From Planetary Resources, a nearly hour-long video with a great amount of detail on the work they're doing to mine asteroids. Early in the video, Eric Anderson says, "The fact of the matter is that the population of the planet has grown a lot over the last couple hundred years, and people live longer, people live much better lives. It's really an extraordinary time to be alive. And yet, we're just at the cusp of doing some of the more incredibly exciting things that we never thought were possible before."

Some more highlights:

• 17% of near-Earth asteroids are easier to reach than the surface of the moon.
• Platinum-group metals are usually mined in concentrations of a few parts per billion and have an average price of $1500 per ounce. A single 500-meter asteroid has more of these metals than have been mined from Earth in the history of humanity.
• Anderson: "Some of the naysayers to asteroid mining say, well gee, if you bring back all the platinum, then the price will crash. And I say, great. I would love to see that. I would like to see a world of abundance."

10. First-world technology is bringing simple, inexpensive solutions to third-world problems. The GravityLight uses the same idea as old weight-driven clocks to provide light and electricity to those not connected to the grid.

Economics
11. In the US, household net worth is the highest it's been since 2007, and higher than any point prior to 2006. The total value of US real estate is also on the rise for the first time since 2006.

12. Don Boudreaux is in the midst of a series of blog entries detailing how everyday items are both less expensive and higher quality today than in 1956, based on an old Sears catalog from that year. So far, he's included women's clothing, bedsheets and lawn care. Mark Perry has made similar observations using other old advertisements, including dishwashers and home entertainment.

And finally, not a reason for optimism, but rather a quote from Winston Churchill: "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."

Under the Protection of the State

This is absolutely disgusting (ht Bob Murphy, more here and here). Even moreso that it happened here in Washington state. In a nutshell, public schools in Longview didn't know what to do with disabled children when they acted up. So they built specially-designed "isolation rooms" and then they locked children in these padded rooms -- in some cases without parental permission, notification or even internal documentation. Now that they've been found out, the schools are "suspending" the use of solitary confinement in the padded rooms, apparently reserving the right to use them again once the media isn't watching anymore.

Furthermore, the "alternate methods" they plan to use in the meantime (including isolation in non-padded rooms, immobility holds and aversion therapy) aren't going to work either. People with cognitive disabilities don't (usually) act out because they want to be bad. They act out because they have some need that is not being met, and they don't know any other way to have that need met. Sometimes it can take a lot of time and effort to find out what that need is, or to get the person to express the need in a socially-acceptable manner, but that's why the phrase "special needs" was coined in the first place. The problem is that every one of the proposed "alternate methods" to handle these children ignores the unmet need, and therefore guarantees the bad behavior will continue.

But it gets worse. While I try not to talk about my work on this blog, I work at a company that works directly with the disabled. We are very heavily regulated and very closely monitored by the state government to ensure the rights of our disabled clients are not infringed. If we, as a private company, did anything close to what Longview public schools did, we would be shut down immediately.

But Longview public schools, as government institutions, are protected in ways that children in their care are not. As far as I can tell, apparently nothing will be done to the teachers or schools who used the isolation rooms. Police and regulators have done nothing; the only investigation has apparently been led by ABC News and the local ABC affiliate, KATU. The teachers and school administrators who locked children in the padded rooms without parental permission, who failed to notify the parents and who failed to even document the incidents (in violation of state law) will apparently not suffer any consequences at all. And that's just as disgusting as the fact that it happened in the first place.