Friday, May 23, 2008

Treasury does it again

Frogblog has a nice sideline in tracking Treasury's ludicrous projections of oil prices - they always pick oil to peak in the near future and then decline to a stable level well below current prices. So last year for example they picked oil to stay flat at just short of US$70/bbl. That projection rather speaks for itself.

And today? They expect oil prices to peak at around US$115/bbl sometime next year, and then decline to a nice, stable US$100/bbl. In reality, its just hit US$135/bbl, and setting a new record price every other day.

This isn't just an amusing cock-up which shows how divorced from reality Treasury is; the economic projections underlying Treasury's core forecasts of things like economic growth, unemployment, tax revenue and social spending depend critically on that number. And they're not even in the ballpark. While its good enough for astrophysics (astrophysicists usually being happy if something is within an order of magnitude), it's not good enough for economics. As we may well find out next year when actual revenue and spending bear no relation to Treasury's "projections".