Yesterday’s report from the Congressional Budget Office was widely derided for “dated optimism.” Reuters columnist James Pethokoukis wrote: “The rosy economic forecast is one reason I place little confidence in the CBO’s budget projections.”
Let’s go over the unemployment projections.
The CBO sees the rate dropping to 8.5% in 2012. Although more pessimistic than past estimates, this figure is optimistic compared to Wall Street estimates of 9.25% from Goldman and 9.5% from JP Morgan.
But what’s really controversial is the claim that unemployment will return to a steady 5%. This assumes that unemployment is entirely cyclical and disregards well-known structural factors such as changes in technology, skill mismatches and global trade shifts.