The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Since budgeting is about the future, budget decisions regarding the allocation of resources must be based on forecasts. Indeed, changes in budget projections caused by alterations in economic forecasts and technical assumptions gen-erally far exceed adjustments caused by changes in fiscal policies. The degree to which politicians are annoyed by such major adjustments is only dampened slightly by the fact that we are now enjoying the best budget outcomes of the last 70 years.
Forecasts are unlikely to become significantly more accurate in the future.
They are compiled by skilled technicians who do their work as conscientiously as possible. The problem is partly due to the unscientific state of economic science. But economic and budget forecasting is also affected by forecasting in other fields. Forecasters are notoriously unreliable at predicting things like the next wave of technological change, the weather, and earthquakes, all of which can have significant economic and bud-get implications. Given that we cannot expect major improvements in the accuracy of forecasts, the question becomes how policymakers should use these highly inaccurate forecasts as effectively as possible and how journalists should report on them.