EXAMPLE 4 Predicting the national deficit

The Congressional Budget Office is required to submit annual reports that predict the federal budget and its deficit or surplus for the next five years. These forecasts depend on future economic trends (unknown) and on what Congress will decide about taxes and spending (also unknown). Even the prediction of the state of the budget if current policies are not changed has been wildly inaccurate. The forecast made in January 2008 for 2012, for example, underestimated the deficit by nearly $1000 billion! The January 2009 forecast for 2013 underestimated the deficit by $423 billion, but the January 2010 forecast for 2014 underestimated the deficit by only $8 billion. As Senator Everett Dirksen once said, “A billion here and a billion there and pretty soon you are talking real money.” In 1999, the Budget Office was predicting a surplus (ignoring Social Security) of $996 billion over the following 10 years. Politicians debated what to do with the money, but no one else believed the prediction (correctly, as it turned out). In 2012, there was a $1087 billion deficit; in 2013, a $680 billion deficit; and in 2014, a $483 billion deficit. The forecast in January 2015 is for a $652 billion deficit in 2019. Time will tell how accurate this forecast is.