Homepage / Currency / The hubris of ten-year budgets
Как Стать Стримером Казино%3F Что для Этого Нужно%3 Best Game Software How to Design Engaging and Effective Educational Events Winline Делает Разницу! Букмекерская Контора Winline Онлайн Ставки На Спорт Making Corporate Travel Arrangements Business Virtual Data Room Stock Market Tips For Beginners What to Look for in a VDR Provider Why You Need a Secure Data Room Learning in the Digital Age How to Apply For Business Loans VDR and Document Management Performance Management and HR Outsourcing Modern Business Integration How to Choose the Right Board Portal Software for Your Company How to Choose a Data Storage Room Why Startups Use a Data Room for Investors The Best Web Tools for Designers Use Cases For Using VDR Documents Subsidy Programs and Financing Innovative Technologies for Audit What Is Real Estate Management? Investment and Funds Inspiring Teaching Books What Are the Benefits of a Virtual Data Room? Startups and Business Ideas How to Improve Virtual Board Communication The Lego Company History Investing in the Biotech Industry Financial Startup Basics Jogue Por Dinheiro Actual Em Cassino Onlin Virtual Communication Methods for Remote Leaders How to Choose the Best VDR Providers How Successful Online Businesses Succeed How Business Experts Fuel Innovation and Create Competitive Edge The IT World and Business Deal Making Software and How it Can Help Your Business Virtual Data Room Software Types of Steel Materials and Their Uses Board of Directors Software Bonver Casino Cz Hrací Automaty S Bonusem Zdarm Magazyn Żużel Speedway W Polsce I Na Świeci What Is Logistics School? What Is the VDR for Acquisition? The Best Data Room Apps For Startups Best Practices for Creating an Effective Board Meeting Agenda How to Choose the Best Shareholders Online Platforms Ostdeutsche Biersorten Getting a Construction Management Degree How to Select an Online Data Room Provider Start Your Blog Without Investment What to Look for in a Board Room Provider Data Room Comparison – Which Data Room Is Right For Your Business? Zakłady Sportowe Online Autógrafo Bukmacherska 1xbe “Pin-up O Melhor Cassino Do Brasil Web Site Oficial ᐈ Jogar Caça-níquei Rotating Events in Our Time How to Choose the Best Business Software Choosing an Online Payment Processor Due Diligence Software Virtual Data Room Providers for M&A Due Diligence The Best Online Data Room Benefits of a Due Diligence Data Room Best Practices for Data Rooms Types of Corporate Governance What Is Virtual Data Storage? Benefits of Document Distribution Software The Benefits of a Data Room for Startups Effective Project Management Requires a Mix of Technical and People Skills Top 5 Free File Sharing Services Zakłady Sportowe Online Obstawiaj U Bukmachera Gg Be Speed Up Your Business Valuation With a Data Room How to Choose the Best Board Management Software for Business How to Write Effective Board Decision Papers Choosing Board Meeting Software The Benefits of Document Distribution Software Why Startups Need a VDR for Start-Up Virtual Data Room for Ipos and the IPO Process What is a Board Portal? What Industries Use Virtual Data Room? Advantages of a Data Room What Does a Board Room Provider Do? Data Room Analysis for Venture Capital Funding The Importance of Board Reporting Software Safe Uploading and Downloading Business Files How to Select the Best Board Management Software How to Organize the Work of a Company “gerçek Parayla En Iyi Slot Makineleri Ve Spor Bahisler Which is the Best Podcast For Stock Market Beginners? Virtual Data Room Facts How to Protect Confidential Documents for Boards Advantages of Online Meetings Business Issues to Consider When Choosing a Data Room Provider What Is a Data Room? Virtual Board Room Software Due Diligence Risk Factors How to Choose a Reliable Tool for Data Exchange test Users535352253 Board Software and VDR Programs Business Operations Management Software

Currency

The hubris of ten-year budgets

IN February of 2001, Alan Greenspan, then still the chairman of the Federal Reserve, and still called the “Maestro”, testified to the Senate Budget Committee. The committee wanted to get started on the tax cuts George W. Bush had promised during his campaign. Mr Greenspan gave them his qualified blessing, with an argument that now sounds incredible: he was worried that America would pay down its debt too soon. 

That week the Clinton administration’s Office of Management and Budget had released its final ten-year budget projections. Firms had just completed several years of capital investments in desktop computers, and workers had become more productive. This had increased corporate revenue, and consequently taxes paid to the government. A long bull market in stocks meant that the Treasury was taking in more in capital gains taxes, too. “The experience of the last five to seven years,” said Mr Greenspan, “has truly been without precedent.” The Clinton administration had apparently left Washington with a gift. The annual budget surplus by 2011 would be $889 billion, for a cumulative gain over the decade of $5.6 trillion–exactly the size of the federal debt at the end of 2000. 

  • The president haunts the race for governor of Virginia

  • The hubris of ten-year budgets

  • A new biopic of Morrissey, Britain’s controversial music icon

  • Lobbyists know which way the Washington winds are blowing

  • In Ireland’s Jerusalem, calls to forgive are more than a platitude

  • Why so many African presidents are ditching term limits

And so the Fed chairman told Congress he was worried that the federal government might completely pay down its debt, and perhaps even start saving, investing its wealth in private assets. This could distort the efficient allocation of capital, worried Mr Greenspan. Preventing the government from completely squaring its accounts, by cutting taxes, could be a good idea. He cautioned that those cuts should be made contingent on the appearance of actual surplus, but reporters at the time took away a less nuanced message: Alan Greenspan approves of the Bush tax plan. 

Then several other things happened. The bubble in technology stocks evaporated, and with the shallow recession that followed, so did some of the forecast tax revenue. Terrorists flew planes into the Pentagon and the World Trade Center, and taxpayers had to fund two wars. Later in the decade, a huge financial crisis and deep recession reduced tax revenues, raised payments for things like unemployment insurance, and scared Congress into two separate stimulus bills. The $5.6 trillion cumulative savings that the Office of Management and Budget predicted in 2001 turned into a $6.1 trillion cumulative deficit. America’s ten-year forecast was off by $11.7 trillion. 

Alan Greenspan, one of the great economists of his or any generation, did not see these things coming. We can forgive him for that; few other people did, either. The problem is not that he was wrong, but rather that we have no business thinking we know what’s going to happen over the next ten years. 

As members of Congress and the administration start to talk about taxes again, they reckon their sums in ten-year increments. “This will save $400 billion” means “At the end of ten years from now, we will have saved $400 billion.” Two common tricks cavort under this blanket. The first is when the most painful changes–the ones that save the most money–don’t take hold until year seven or even year nine. The second is that today’s Congress can direct future lawmakers to figure out which painful changes to make to meet the ten-year target. Both tricks ultimately fail for the same reason: no Congress likes to make painful changes, and tomorrow’s politicians are no more virtuous than today’s. 

But suppose Congress is doing its job honestly, rather than deferring hard choices. Ten-year budget projections are still misleading, for a more fundamental reason: we just aren’t that good at predicting the future. Forecasts often fail catastrophically in the face of some seismic event such as financial collapse or the Euro crisis. There is routine bias, too. A 2011 study by Jeffrey Frankel in the Oxford Review of Economic Policy found, unsurprisingly, that governments tend to be too optimistic. 

Ten-year budgeting isn’t universal. The European Union directs its member states to predict budget trends over three years, and that is what most of them do. Europe has hardly been a paragon of conservative prediction since 2000, but the limited three-year horizon does admit some humility. Even a perfect model would omit what economists call “exogenous shocks”. This is a fancy way of saying “stuff we couldn’t possibly have seen coming”. Things like 19 terrorists on four planes. Or the almost total collapse of capital markets.  

So during the next six months of fighting over taxes, every time you hear a member of Congress say what she’ll save over the next ten years, wonder what she’ll be willing to sign for next year. Even better, demand that Congress finally heed a bit of overlooked advice that Alan Greenspan offered back in 2001. 

As for tax policy over the longer run, most economists believe that it should be directed at setting rates at the levels required to meet spending commitments, while doing so in a manner that minimizes distortions, increases efficiency, and enhances incentives for saving, investment, and work.

Simple advice. Hard to pull off. 

NextPodcast: Goodbye, Benito

Source: economist
The hubris of ten-year budgets

Comments are closed.