• How to kill your afternoon (fun with big numbers)

    Ezra Klein suggests he may spend much of his afternoon with a new budget forecasting tool. For those that care to join him, he has some advice

    So in general, when you see a budget forecast, think of it as, “this is what the budget will look like if nothing at all changes, and something, obviously, is going to change.” The trick is knowing the direction of the change.

    This is a good time to share two things, one old and one new. The old one is an excerpt from my archived post “How to use forecasts“:

    The point is not necessarily to predict the future accurately, though that would certainly be nice. The point is to use prediction tools to observe the expected changes to future budgets under different policies put into place today. […]

    Notice that this exercise has less to do with predicting a single future budget accurately than it does with predicting the difference in future budgets under two regimes. And what’s of great importance is the sign of the difference. Which one does more? As I said, none of this means that accurate absolute prediction isn’t valuable. It is. It’s just not the whole point. And there’s one other reason for that.

    Do you think for a second nothing happens between the time of prediction and the time of comparison to actual? I hope not. Lots of things happen. And not all of them are in the model. Budget models typically don’t try to predict the outcomes of elections, the mood of the nation, whether a filibuster-proof majority exists in the Senate, what new legislative ideas will pass and when, terrorist events, and so on. All those things are exogenous to the model. Some of them occur in response to the prediction itself. (Surpluses can initiate a spending spree. Deficits can motivate belt tightening. Etc.)

    So, don’t get worked up about inaccuracy of budget predictions. Don’t dismiss the exercise just because the result misses the mark a few years down the road. The best use of budget modeling is as a tool to policy planning. It can lead to better relative decisions even if it is inaccurate in an absolute sense. (The key, of course, is the extent to which the tool is systematically biased, favoring one policy type over another, say. That’s a different story.)

    I promised something new too, and it is related to budgets and Ezra Klein. It’s xkcd’s latest. It’s about the economy, hence money, lots of money (like federal budgets). I could imagine Ezra losing an afternoon in that chart too. (Later: I was right.) Click through to see what I mean. It’s amazing.

    What I really need to know is how to print xkcd’s chart. My office door does not look right without it. Little help? Forget printing, the chart is available from the xkcd store.

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