Patiently awaiting the Golden Years

640 inches of snow

By Randall Poulton | Sep 12, 2018

As you may have noticed, the people who forecast the future are seldom correct. However, we not only seem to believe the individual forecasts; we make decisions based on their very sketchy prognostications.

Meteorologists are wrong so often we joke about it. Yet we close schools, businesses and government offices based on their dire weather forecasts. While these weather-related cancellations have costs, the consequences are relatively minor compared to other decisions based on inaccurate predictions.

For example, how about the Affordable Care Act? This legislation was sold to Congress and the American people based on a forecast that the cost of health insurance for an average family would decrease by $2,000 a year and “if you like your doctor, you can keep your doctor.” Both predictions were wrong.

Last year the Department of Health and Human Services reported that the average policy premium has more than doubled. And yes, you can keep your doctor but if they are arbitrarily deemed “out of network” based on your ZIP code (as mine was), you are going to pay a whole lot more out of pocket.

Sure, some people now get free health insurance, but for others, like me, the ACA has been a complete disaster: much higher health insurance premiums and lower-quality health care. Congress continues to struggle to fix the mess they made based on predictions that proved totally wrong.

And then there is the matter of the last presidential election. Forecasters told us Hillary Clinton would win in a landslide. Did some Democrats stay home because they thought the election was a foregone conclusion? Possibly. Did HRC believe the predictions and curtail her campaigning in favor of planning the big post-election celebration? Yup.

But there was no landslide. Instead there was an earthquake and the aftershocks are still rattling this country. Makes closing school for a few snow flurries look pretty harmless, doesn’t it?

And now the forecasters that have adopted a new, intentionally sensational, method to hype their predictions. Remember when Trump’s tax plan was being debated? With Trump’s lower tax rates, some “experts,” and I stress some, forecast that federal tax revenues would decrease as much as $150 billion per year.

Then, to gin up the story, these experts decided to multiply by 10 and report: “Trump’s tax plan will add $1.5 trillion to the deficit,” the critically important “within 10 years” somewhere is the fine print (I suspect this was the same team of experts who predicted Hillary Clinton would win in a landslide).

Yet, the $1.5 trillion price tag has stuck and is still repeated today. Now the “multiply by 10” exaggeration is becoming standard operating procedure. I wonder if meteorologists will soon jump on the bandwagon? Imagine the headline: Belfast to get 640 inches of snow! (In the next 10 years.) Pure horse manure.

So how are Trump’s tax cuts really doing? I was in a local bank the other day and picked up their Spring Newsletter touting their wealth management services. It included a forecast of key economic indicators complied by Bloomberg and Stifel (two well-respected financial services companies that provide analysis and forecasting to their clients).

The brochure forecast 2018 second-quarter GDP to be 2.8 percent. Now we know it was actually 4.3 percent (a rate, that if it continues, will pay for all of Trump’s tax cuts).

The brochure forecast 2018 second-quarter unemployment to be 4.2 percent. Now we know, it was actually 3.9 percent (that is about one million fewer people unemployed than forecast).

The brochure forecast the 2018 second-quarter workforce participation rate to be 62.6 percent. Now we know, it was actually 62.9 percent (that means a lot more people are working than predicted).

The fact is, these forecasts, done by true financial experts, and only 6 months old, are off by a significant margin, underestimating the robust nature of our current economy. And if you think that is bad, imagine if these inaccurate forecasts had been extended out for 10 years!

Consider this quote from Investor’s Business Daily: “What these numbers do show is that all the hand-wringing about the impact of the tax cuts on federal deficits was based on wildly exaggerated estimates of revenue losses, which failed to take into account the fact that a faster-growing economy would offset at least some of the lost revenue.”

I am guessing, that for many readers (and I do hope there are many!), this is the first time you are hearing that Trump’s tax cuts are working “hugely.” Why is that? Why isn’t the same media who pounded the $1.5 trillion deficit story now reporting that our economy is cooking and tax revenues are up, not down?

I will give you a hint: Good news about the economy will boost our president’s ratings and that is a media no-no.

And how about the stock market? Back when there was a correction in February (the Dow dropped 2,300 points), all the forecasters predicted the beginning of a new Bear market.

The reality is, as of today (Aug. 28), not only has the market recovered the entire 2,300-point drop, but the Dow, for the year, is up another 1,200 points and we are enjoying the longest-running Bull market in history! In history! Where is that news? (See my previous hint.)

It is really no surprise that tax cuts are like gas on a bonfire. After all, it was JKF who, in 1962, said: "It is a paradoxical truth that tax rates are too high today and tax revenues are too low — and the soundest way to raise revenues in the long run is to cut rates now.''

Yet we will still believe the next forecast. Shame on us. Maybe we should just close schools now and get it over with!

This month’s 'Do you know?'

When talking about our economy, the media seems to use the terms “deficit” and “debt” interchangeably. They are not the same thing; like so much of what the media says, this is at best sloppy.

Let me explain: This year, our government will spend about $4 trillion. If our government collects more than enough revenue (taxes) to cover our spending, we have a surplus. If less than enough, we run a deficit (as was the case every year under President Obama).

To cover a deficit, we borrow enough money to pay the bills. Think of this borrowing like a home equity credit line. Today, the total amount of our home equity loan, properly known as the national debt, stands at over $20 trillion.

Randall Poulton lives in Winterport. He writes a monthly column for The Republican Journal.


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