CBO: We’re Less Wrong Than They Are
If the Fed can’t accurately forecast the economy, can anyone? Surely someone in the federal government has better answers.
The Congressional Budget Office issues forecasts much as the Federal Reserve does. And like the Fed, the CBO grades itself. You can see for yourself in “CBO’s Economic Forecasting Record: 2015 Update.”
Read that document, and you will find the CBO readily admitting that its forecasts bear little resemblance to reality. Their main defense, or maybe I should say excuse, is that the executive branch and private forecasters are even worse.
I’m not kidding. The CBO report includes the following chart. I removed other categories they measure so we can look specifically at their GDP estimates. I should also point out that they cooked the books a little by averaging two-year forecasts to make themselves look better. But even so…
The bars compare the degree of error in forecasts by the CBO, the Office of Management and Budget (OMB), and the private Blue Chip economic forecast consensus. A reading of zero would mean the average forecasts matched reality. A negative number would mean they were too pessimistic. A positive number – which is what we see for all three entities – means they were all overly optimistic on GDP growth.
So, what we see is that the OMB – whose director is a political appointee – was more optimistic than the Blue Chip consensus, which in turn was more optimistic than the CBO, which was more optimistic than reality.
It is also worth noting how the CBO views the future. Their latest economic outlook update, published last August, features this chart.
