CBO Director Elmendorf writes,
in some situations, legislators might want to adopt policies with a smaller variance of budgetary effects in order to reduce the risk of large fiscal problems. For example, understanding the extent of uncertainty about future federal spending that arises from uncertainty about lifespans might affect whether policymakers want to index eligibility ages for certain programs to lifespans.
Pointer from Mark Thoma.
A couple years back when some CBO staff invited me to have a discussion of their work, I gave two complaints. One was that their macroeconomic forecasting was treated as “scoring” by the public, and I thought that they needed to make clear the tenuous nature of macro modeling. The other was that I thought that they should be augmenting point forecasting of the budget with scenario analysis.
I think that reporting a number like “forecast variance” would not be helpful to politicians. However, reporting what would happen under particular scenarios, such as increased longevity, higher interest rates, or lower house prices, could be very useful.
As a forecaster at times, I have to agree with you. Running simulations is more fun, and useful if you need to estimate the pdf, the variance, or the percentiles. But the reality is, lawmakers do not have the ability to integrate that information properly – does anyone, really :)? At the very least, run multiple simulation under different scenarios, but at that point might as well just go all of the way.
I believe that if we had a true accounting of uncertainty, variance, and distributional rather than scalar summaries, we would find a giant fog of grey instead of nice bright lines. Giant fogs of grey are useless politically, and we’re back to the old aphorism of guaranteed misunderstanding when one’s livelihood depends on such.
We’re like a giant ocean liner lost at sea, with hordes of false prophets skirmishing in a melee over the captaincy and command structure, having given up any real hope of the promised land, ultimately squabbling over the diminishing onboard rations.
Luckily, many of the mere passengers are able to send out exploratory sorties and often return with very real and valuable resources, the bulk of which are of course appropriated by the current command structure and squandered in a myopic orgy of political favoritism.
If the size and opacity of the fog increase nonlinearly over time, this suggests we should focus on short-term, narrow-scope policies which offer concrete verification of improvement. Every new policy should include basic short term predictions in the form of clear success / failure metrics. Failed policies should be aborted quickly. First, do no harm.
Serious question, force your answer into splitting 100 percent between the two. How much are mechanisms like the CBO (which may be the least compromised of the bunch) for informing the public versus being used by politicians and agencies to disinform the public? To help inform the answer, how often do they implement superior techniques before being forced to? Do we start at 50/50?
I think this relates to the bargainer discussion. When an agency invites you in and gives you cookies, are they really looking to change themselves based on your advice? Or are they trying to change you with cookies?
Now that you are wiser, and have a great deal of respect from people like myself (no, nobody would take that seriously, but they should) have they invited you back?