Economics

2 Pages 420 Words

Have you ever made a mistake that was so big and so public that you just wanted to crawl under your bed? If so, you can imagine how Michael Boskin feels these days.

Boskin, a highly respected Stanford University economist who was head of the Council of Economic Advisers under George H.W. Bush, electronically circulated a startling paper to fellow economists this summer. He argued that the future tax payments on withdrawals from tax-deferred retirement accounts, such as 401(k)s and employer pension plans, were being drastically undercounted. That meant federal budget revenues could potentially be in for a huge, unforeseen windfall. The underestimate over the next 40 years was so big, Boskin wrote at the time, that is was “larger than the sum of the 75-year actuarial deficits in Social Security and Medicare plus the national debt.” Being that Boskin was such a reputable economist; the sweeping claims of his paper quickly drew widespread attention. Business Week reported that “Boskin’s paper has the potential to shake up the budget debate.”

As the paper received increasing scrutiny, it sparked a huge controversy and came under sharp criticism from fellow economists who argued that the savings would be nowhere near what Boskin predicted. He took another look at his numbers and concluded that he made a serious mistake: A key term had been left out of a complicated calculation of the effect of tax deferral on future savings and business investment, possibly wiping out most of the estimated $12 trillion in savings. Boskin sent an e-mail notifying recipients of the paper about the error. He said “I apologize for any inconvenience this may have caused you.”

Boskin is now his calculations, both to fix the mistake and to take the criticisms into account. But the debate is far from over. Boskin still argues that some of the revenues from deferred taxes are not being counted in long-term budget projections, but he’s not wil...