It Ain’t Easy Being an Economist for the State of Colorado
Or, at least it isn’t easy forecasting how much money the State will steal acquire from taxes and fees. Tim Hoover of the Denver Post has written an article about the trouble economic forecasters are having in calculating the budget shortfall in Colorado.
Economists for the Legislative Council estimated last week that Colorado would be short another $240 million on top of a $320 million hole.
Gov. Bill Ritter’s office is predicting that the existing $320 million shortfall could shrink by as much as $233 million.
“The last two years with this downturn have shown such incredible volatility and missed forecasts, it just shows it’s an incredibly difficult thing to do,” said Scott Pattison, executive director of the National Association of State Budget Officers.
In Colorado, as in many states, government economists have had to revise their forecasts multiple times during the recession.
Surprised? You shouldn’t be. Economists for the Legislative Council, The National Association of State Budget Officers, and Bill Ritter’s office have quite a track record of exaggerating miscalculating budget forecasts. I can imagine how difficult it is to manipulate, intervene, and distort the economy through state laws, regulations, taxes, and fees while trying to determine how all the intervention will affect the overall economic outcome. As a matter of fact, its nearly impossible. Which is why economic schools that promote econometrics, statistical modeling, and other forms of non-sensical gimmicks rarely get it right. To assume that an economist using these methods can accurately predict the individual subjective actions of every single person, business, and financial institution is pure fantasy. If you don’t believe me, check out the track record of Colorado’s Office of State Planning and Budgeting (OSPB).
For example, in March of 2007, the OSPB predicited, “After increasing 13.1 percent in FY 2005-06, gross General Fund revenues are forecast to increase 6.1 percent in FY 2006-07 and 5.0 percent in FY 2007-08.” Compare these figures with the OSPB’s predictions in June of 2008, “After increasing 8.3 percent in FY 2006-07, gross General Fund revenues are forecast to increase 3.4 percent in FY 2007-08 and 3.5 percent in FY 2008-09. Just a wee bit off. I could go on but that might prove to be quite embarrassing to the OSPB.
The only school of economics that has predicted these economic boom and busts is the Austrian school of economics. Why haven’t the state governments gone to these economists for advice? It’s simple really. The austrian economists wouldn’t recommend government intervention, increased taxes, increased regulation, debt-based financing, or any price controls. Their recommendation would be to let the free market work and cut spending, and what fun would that be for politicians who feel the need to redistribute wealth.
The next “budget forecast” you see from the state will be an optimistic guess and nothing more. Take whatever number they give, subtract a couple hundred million, and take it all with a grain bag of salt.
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