Saturday, December 23, 2017

Making 40 year economic projections is pointless

The government has just issued its annual 40-year projection of federal spending and revenue trends, in which it claims that this year's stronger-than-expected economic growth means that the federal deficit could be elimited by 2045, rather than last year's estimate of 2055.
This seems like arrant nonsense. How can one year's results change a future projection by ten years? More to the point, what is the practical value of projecting 40 years into the future, given that a week is condidered a long time in politics?
Next year could prove to be a weaker-than-expected year - could it not? - in which case these current projections will suddenly become redundant. Several changes in government, both in Canada and south of the border, will take place over the next 40 years, all of which will probably impact the projections being made now. Bitcoin may take off or implode; several new, world-changin technologies will almost certainly occur; wars will be fought, won and lost; trade treaties we can not even imagine will be signed and broken; major companies will come and go.
What, then, is the point is making projections forty years into the future? Or even five years for that matter? I understand that governments have to justify their current policies with reference to their future impacts, and to sound like their plans are in the long-term interests of the country, and particularly that "hard-working middle class" politicians always talk about. But surely no serious economist can take such projections seriously.

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