Introducing the 'Government Finances Word Match Challenge'
By F.F. Wiley Apr 08, 2013 9:10 am
The most glaring double standard of public versus private financial management.
And here are the unemployment rates in the same four scenarios:
Clearly, the charts mix apples and oranges. The Fed (bank stress tests) and Social Security trustees' scenarios represent the worst of three different sets of inputs, while the OMB and CBO each use a single scenario. And this is exactly the problem. The OMB and CBO are the main places to look for government financial projections, and they don't consider the possibility of even a mild slowdown.
Ironically, the health of the Social Security program is largely insensitive to the economy's growth rate, and yet, this and Medicare are the parts of the budget that are tested against an adverse scenario. Notice, though, that the adverse Social Security scenario (which is also used for Medicare) is a walk in the park compared to the downturn that banks are required to test. Unless they're setting guidelines for the private sector, government analysts simply don't test their projections against a true recession.
In other articles in this series, I'll have more to say about the perpetually stable economy assumed by the OMB and CBO. But I'll base my word match answer on the giant gap between the government's standards for the private sector and the standards it applies to itself. And I'll call it hypocrisy.
See more from Cyniconomics:
Word Matching the "Deadly Sins": #2
Word Matching the "Deadly Sins": #3
Word Matching the "Deadly Sins": #4
Editor's note: F.F. Wiley, co-creator of Cyniconomics, is a professional name for an experienced asset manager and thought leader whose work has been included in the CFA program and featured in academic journals and many other industry publications. He has advised and managed money for all types of investors, including large institutions, sovereigns, wealthy individuals, and financial advisors.
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