Ryan's Rosy Scenario
In contrast to President Obama's overly optimistic budget proposal, GOP Rep. Paul Ryan's budget plan doesn't rely on rosy economic growth scenarios. Instead, the congressman's budget is built around the Congressional Budget Office's comparatively conservative growth assumptions.
Unfortunately, in making the case for his plan, Rep. Ryan has commited to a different sort of budgetary optimism: unrealistic and unbelievable unemployment projections. Ryan cites a study by the Heritage Center for Data Analysis to claim that his budget plan would dramatically reduce unemployment over the next decade. Its projections aren't just rosy. They're ridiculous. At The Economist, Ryan Avent offers the following caution:
According to [the Heritage Centers for Data Analysis study], Mr Ryan's plan will bring the unemployment rate down to 6.4% next year, 4.0% in 2015, and 2.8% in 2021. When the Obama administration projected a 5.9% unemployment rate in 2015 falling to 5.3% by the end of the decade, the Congressional Budget Office chided it for excessive optimism. The Federal Reserve has been indicating that the long-run unemployment rate in America is likely to be between 5.0% and 6.0%, and their estimate has risen over the past year. During the heady economic days of the late 1990s, the unemployment rate never got down to 4%. It's an assumption, in other words, that's unrealistic enough to be considered somewhat bizarre.
Economic models that attempt to predict the future with any certainty are of limited use to begin with: The economy is complex enough that it's exceedingly difficult to model, and even the best projections tend to rely on limited or incomplete data. Careful forecasting can provide a loose guide to what might happen, but in the end, long-term economic prediction is always a guessing game. It tends to help, however, if those guesses are somewhat plausible.