The administration released its updated economic forecast last Friday with the cautionary note that it should not be interpreted as a thorough review of the economy's prospects. The assumptions underlying the forecast are in fact considerably rosier than those being used by the Congressional Budget Office and most private forecasters. But the administration has good reason--beyond genuine uncertainty about the economy's future course--for staying as close as possible to its earlier, more optimistic projections.
The budget process has changed in the last two years, and the mid-year review now comes at an awkward time for both the administration and Congress. Originally, the first budget resolution was to be adopted by Congress in the spring largely as an advisory measure to guide subsequent action on appropriations. The mid-year economic review was meant to provide additional guidance before Congress acted on the presumably binding second resolution in the fall.
To gain better control over spending, Congress decided last year to make the first budget resolution binding on all subsequent decisions with respect to the next fiscal year. This year, that forced Republican leaders in the Senate into a delicate set of negotiations with the White House, culminating in June in the adoption of a compromise budget resolution. That resolution is based on economic assumptions less optimistic than those originally set forth by the administration in its February budget, but more optimistic than most people now find plausible.
This puts OMB forecasters in a difficult position. In the last few months, the economy has worsened to the point where some adjustment in the forecast is necessary simply to take account of the harsh reality of the present. But a thoroughgoing overhaul could derail the fragile set of compromises reached between the president--who didn't like either raising taxes or cutting back on the defense buildup--and Republican Senate leaders, who saw the necessity of both.
Legislation now working its way through Congress will require tough decisions to cut popular programs and raise needed revenues. The prospect of still enormous deficits--and the administration's deficit projections, while much lower than CBO's, are still terrifying--should stiffen congressional resolve. But big deficits could also generate a sense of futility--why take the heat for cutting this program or that when the savings are just a drop in a seemingly bottomless bucket? And congressional tempers have not been improved by the president's recent insistence that he is not bound by the agreement to restrain military spending.
Under the circumstances, the president's economic advisers have probably done the best they could to meet the legal requirement of providing an updated forecast while creating a minimum of confusion and embarrassment for everyone concerned. Whatever you think about the record of administration forecasting, it is important to remember that getting the present set of compromises into law is more important than quarreling over who misled whom.