I’ve been saying this for a while now, but I am happy to see somebody else discussing the issue. This Bloomberg article makes excellent points about the issues for North Dakota and several other states experiencing revenue shortfalls.

The biggest learning experience the state needs to take going forward is to think about what the forecast implies about behavior. My forecasting class was aghast when we looked at the forecasts and revisions. The expectation was for taxable sales and purchases to continue at the levels of recent biennia, even with a decline in oil to around $40 per barrel in the forecast. How? Why?

The only thing we could come up with in class were some type of labor market turnover theory where new workers kept coming in and needing to buy goods and services. We thought that was clutching at straws.

Forecasts tell a story about how you expect people and businesses to behave and there should be some economic logic or consistency to that story. We did not get that with the last round of forecasts and we need to think about this going forward so that we get the best possible information into the hands of policy authorities and decision makers.

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