April 20, 2011
Heritage Breaks Internet Silence on Its Ryan Plan Simulations (w/o a single number!)
Or, a "Forensic Analysis for the Heritage CDA results"
The Heritage Foundation Center for Data Analysis (CDA) simulation of the Ryan plan, on behalf of the House Committee, has come in for some criticism. Commentary has been provided by Paul Krugman, and perhaps most comprehensively by Macroeconomic Advisers. (My comments are here:   ). Yesterday, the Heritage Foundation CDA’s director, William Beach, posted a rebuttal to Krugman's critique. While Big Picture posted an excellent rejoinder, I want to deal with one particular aspect of Mr. Beach's open letter. Consider this excerpt.
Claim # 2 - We crafted the Ryan plan results with the end in mind: While I can see how you may have forgotten the limited purposes of economic policy modeling (though it’s still shocking that someone of your stature could be so unmindful), it is simply bizarre that you argue that we designed the economic modeling of the Ryan plan to reach specific conclusions. Either you are intentionally lying about our work, or you are totally ignorant of the complex, widely used model we employed for this work and also failed to read the detailed description of what we did that is posted on the House Budget Committee web site along with our results (which you apparently did see).
We used the highly regarded U.S. Macroeconomic Model of IHS Global Insights [sic!!!], Inc. Perhaps this is a model you as a pundit "do not recognize, but most economists do. This model has been around in its various forms for nearly 50 years. It contains over a thousand equations and several thousand variables. The modeler's ability to affect the mechanics of the model is very limited, and, given the fact that the Budget Committee gave us final inputs only a few days prior to publication of their budget, we only had time to make sure that this detailed model would solve with the enormous changes to public policy we had to introduce into it.
Then, as I mentioned, we published a detailed description of how we did this work. Even today, it is there for anyone to read, and I especially encourage you to do so. I don't expect everyone to agree with our modeling of this plan, but I do expect the debate over our work to start from an understanding that our modeling is fully described in the methodological appendix to our publicly available report.
I'll leave it Professor Krugman to rebut Mr. Beach's claim that he did not recognize the IHS Global Insight model (I can't find the reference using the NYT search command). I'll address the non-responsiveness of Mr. Beach’s remarks to the general critique that the combined CDA plus IHS Global Insight results are implausible. In fact, I think Mr. Beach's focus on the IHS GI model aims to distract attention away from the role played by Heritage's in-house model, the CDA microsimulation model.
In other words, most people are not concerned with the IHS Global Insight model, which is as far as I can tell is utterly conventional in the world of large scale macroeconometric models. (Confirmation from Macroeconomic Advisers). Rather, the concern is focused on the nexus between the IHS Global Insight model and the CDA’s microsimulation model, and here Mr. Beach’s open letter is completely unresponsive.
There is some discussion in the documentation Heritage provided for the Ryan analysis, but in fact after some investigation I have found a more clear exposition in the 2006 documentation of how Heritage analyzed the Bush tax cuts in a dynamic fashion using their combined GI/CDA microsimulation model. After adjusting the IHS GI model to fit the CBO baseline:
Calibrating the Microsimulation Model. We next calibrate the microsimulation model of individual income tax returns to CBO's baseline projections. The final CBO-like forecast provides income, price level, and some budgetary variables used in this calibration.
Primary Components of the Microsimulation Model. The microsimulation model consists of three primary components-the core base-year data, a federal income tax and payroll tax calculator, and an optimizing routine that ages (extrapolates) the core base-year data. The first component consists of individual tax return data and demographic data in the base year. The second component reads a data file and replicates the process of calculating individual income and payroll taxes in the base year and future years. The third component ages the base-year data to reflect projected changes in not only key demographic and economic aggregates but also the distribution of income.
Aging the core base-year data involves four major steps. In each, we target tax and non-tax variables in the microsimulation model.
Step 1.We use the CBO-like forecast to update all nominal income values on individual tax returns. We also update all targets for demographic variables.
Step 2.We sequentially target four broad measures of individual income by percentile class. Total income is divided into wages and salaries, business income, non-capital gains investment income, and income from other sources. It encompasses both gross income reported on individual tax returns (gross tax return income) and non-taxable income.
Step 3.We target more detailed measures of the components of gross tax return income. Most of the targets are for components of NIPA personal income, with some important exceptions. Those exceptions include small business corporation (S-Corporation) net income, taxable pension and annuity income, net capital gains, and gains from the sale of other assets.
The final CBO-like baseline forecast provides a number of NIPA measures of personal and business income. These include wage and salary income, investment income, proprietors' income, other business income, transfer payments to persons, and corporate profits.
The difficulty in disentangling the two models is shown by the following:
Simulating the Economic and Budget Effects of a Change in Tax Policy. Calibrating a macroeconomic model of the U.S. economy and a microsimulation model of the federal individual income tax to a common baseline yields a consistent starting point for dynamic policy analysis. We apply an additional calibration process to ensure that final dynamic revenue estimates from the macroeconomic model are broadly consistent with revenue estimates from the microsimulation model.
We regularly calibrate both the Global Insight model and the microsimulation model to CBO's baseline projections. We also regularly use the calibrated macroeconomic and microsimulation models to analyze a variety of tax proposals. Tax data in the microsimulation model can be used to provide a "stand-alone" revenue estimate. A revenue estimate from the microsimulation model can also be introduced into the GI model to generate a "first-round" dynamic estimate of a proposal's economic and budget effects.
A fully dynamic tax policy simulation proceeds in three steps.
First, we use the microsimulation model to estimate the revenue effects of the proposed change in tax policy under baseline economic assumptions. The proposed tax policy can involve a change in current-law federal income tax rates, a change in the federal individual income tax base, or both. The microsimulation model is used to estimate the change in federal income tax revenues. It also produces estimates of marginal tax rates on three types of income-ordinary income, long-term capital gains realizations, and dividend income-under the proposed policy and current law.
Second, we use the Global Insight model to estimate the dynamic revenue effects of the same policy change. Estimated changes in federal tax revenues and marginal tax rates from the microsimulation model are used as inputs into a simulation with the GI model. The macroeconomic simulation produces an alternative to the CBO-like baseline forecast. That alternative (non-baseline) forecast includes the dynamic effects of the proposed policy on GDP, prices, interest rates, employment, and personal and corporate incomes, among other variables.
Third, we update the microsimulation model to reflect the dynamic effects of the proposed tax policy on individual and business incomes. This is done using procedures similar to those developed for baseline calibration. Thus, NIPA components of individual and business income along with price level variables and some NIPA budget variables from the alternative forecast are used to estimate target values for non-taxable income and gross tax return income on individual income tax returns. We use those targets to update individual and business incomes in the microsimulation model so that they are consistent with the Global Insight model's alternative forecast for the components of NIPA personal income.
For major tax proposals, we typically continue to iterate between the microsimulation model and the Global Insight model. Thus, we use revenue estimates and marginal rates from the updated microsimulation model to adjust the alternative forecast from the GI model so that it better reflects the effects of the tax proposal. [Emphasis added -- mdc]
I think the underlined portions of the text are key to understanding in part the revenue aspects of the Heritage CDA simulations. However, they cannot be the reason for the fantastical investment responses implied in the simulations. I repeat three figures on investment from this post below.
Figure 2: Real equipment investment (blue), baseline (dark blue) and simulated under Ryan plan (red), in bn Ch.05$. Source: BEA, Heritage CDA, Appendix 3.
Figure 3: Real nonresidential structures investment (blue), baseline (dark blue) and simulated under Ryan plan (red), in bn Ch.05$. Source: BEA, Heritage CDA, Appendix 3.
Figure 4: Real residential investment (blue), baseline (dark blue) and simulated under Ryan plan (red), in bn Ch.05$. Source: BEA, Heritage CDA, Appendix 3.
In order to rebut the critics, Mr. Beach will have to justify the implied supply elasticities, in light of the extant empirical literature.
By the way, I still think, as before, it is the add factors that do the trick on the investment side. In any case, until Mr. Beach addresses these concerns, as well as those (mundane things like Okun's Law) raised by Macroeconomic Advisers, with some actual numbers, we will just have to guess at what is exactly going on in these simulations.
I know that some will have tired of my discussion of this topic. However, I think it is incumbent upon us in the policy analysis community to fully understand what Heritage CDA did in this simulation, which provides the intellectual basis for an important policy proposal, before moving on. I for one intend to keep at this until a fuller explanation (involving numbers) is forthcoming.
Postscript: If you want to see what passes for a defense of the Heritage CDA analysis, see here (written by a former "director of The Heritage Foundation's Center for Media and Public Policy"). No numbers, so the innumerate need not fear. Just ad hominem attacks.
Posted by Menzie Chinn at April 20, 2011 10:00 AMdigg this | reddit
We are not tired Menzie, we appreciate your insight.
Posted by: me at April 20, 2011 10:36 AM
So Ryan's plan has ridiculously optimistic assumptions and still does not come anywhere close to fixing the deficit.
And Obama's plan is far worse on addressing the deficit.
Now would be a good time for Keynesians to admit they have ruined us.
Posted by: W.C. Varones at April 20, 2011 11:10 AM
Now would be an excellent time for Republicans to remember that the year 2008 was preceded by the year 2007, and 2006, 2005, all the way to 2001. And the actions of Republicans in those years has ruined us.
Of course, the interesting thing about Republicans is that they believe that in order to solve the problems of 2011, one should reinstate the Republican policies of 2007. After all, it was SOOO successful.
Posted by: Russell L. Carter at April 20, 2011 11:46 AM
The Ryan plan doesn't warrant the valuable use of your intellectual capital.
The Ryan plan is also DOA, so even on the public policy side, it wll (eventually) fade into obscurity.
Sadly, so will true deficit and debt reduction plans.
Our long national nightmare of unwillingness to make tough choices has no end in sight, especially when nonsense like the Ryan plan is actually brought forth and voted on by a body poitic of sme actual importance.
A more truthful plan would have been to just abolish Medicare for all. Call a spade a spade. Much less analysis needed for that sort of proposal. It would work, so long as we all agree that government shouldn't fulfill one of its most basic functions.
Posted by: enonymous at April 20, 2011 11:51 AM
Menzie: A minor methodological question. Is the point of your analysis a sort of calibration exercise in the sense that you look at a result/prediction of the model (in this case elasticities), then compare it with the range of values that are commonly found for that variable in other papers, derived from other types of information?
Posted by: Robert Bell at April 20, 2011 12:00 PM
For me, the key cornerstones for any plan would be:
- total government receipts not to exceed 32% of GDP, which must cover
- govt outlays (on avg. over the cycle) and
- some amount which brings govt debt back to about around 60% of GDP by 2020, plus or minus
Other than that, for my taste, tax rates and spending can be allocated as desired. It won't matter, because the private sector will have enough flexbility to operate.
Also keep in mind that the Saudis--who own virtually all spare global oil production capacity--have stated that they have reduced production by 0.8 mpbd and that they intend to limit production to around 8.7 mbpd (current levels). If we take Saudi statements at face value, we have zero spare oil production capacity globally, which in turns suggests an oil shock by sometime in the summer and implies that both the Ryan and CBO forecasts are well off the mark.
Posted by: Steven Kopits at April 20, 2011 12:10 PM
W.C. Varones: So Ryan's plan has ridiculously optimistic assumptions and still does not come anywhere close to fixing the deficit.
And Obama's plan is far worse on addressing the deficit.
You concede that Ryan's numbers are faulty and from that conclude that it is a better plan than Obama's. I am astounded by your logic, or rather lack thereof.
Posted by: Joseph at April 20, 2011 12:34 PM
I agree that rebutting bad work is valuable in itself, and the fact that some part of the audience doesn't care to play along is not reason to leave valuable work undone.
That said, yeah, it's looking like the giggly whispers about running Ryan for the GOP presidential nomination is gonna end soon. TPM has a couple of pieces noting that Tea Party voters overwhelmingly don't support Ryan's Medicare notions (somebody missed that "hands off my Medicare" poster?) and that people in his own district are booing at his public events. Too much exposure has not proven good for Ryan.
Posted by: kharris at April 20, 2011 12:49 PM
In case you have not checked, the Ryan plan, even under its own highly questionable projections, does not lower the deficit below either Obama's plan or even the status quo for at least a decade. It is really a total fraud and joke, not the serious and brave thing that so many mindless commentators pronounced it to be.
Posted by: Barkley Rosser at April 20, 2011 12:51 PM
I keep hearing all this doomsday talk about the deficit, but nobody is willing to put an actual date on it. When exactly will the federal debt doomsday arrive? Will it be before the Second Coming of Christ?
Posted by: Paul at April 20, 2011 01:24 PM
Tried to post a couple of non-incendiary comments with links in the Heritage "rebuttal" thread. Thought it was 100-1 they'd make it past moderation. So far I'm right.
Posted by: Nicholas Mycroft at April 20, 2011 01:54 PM
I'm still waiting for Heritage to defend the godawful economics displayed in their arguments about the estate tax. And yes, Beach was responsible for that POS "analysis."
Posted by: 2slugbaits at April 20, 2011 02:03 PM
"The Ryan plan is also DOA, so even on the public policy side, it wll (eventually) fade into obscurity."
I think many people will be surprised when, although much of the plan is DOA, the Medicaid block grant conversion gets passed and sent to Obama. In the Senate, support will come from the Republicans and 6-10 Democrats who will be under enormous pressure from their state governors/legislatures to do something to reduce the cost of Medicaid to the states.
Posted by: Michael Cain at April 20, 2011 02:09 PM
Mr Varones forgot to add that AlGore is fat.
I did not know that w and his crew were Keynesians. That explains a lot.
I do remember how Greenspan told congress that paying off the debt would end the world as we know it. Glad they followed his advice.
Posted by: dilbert dogbert at April 20, 2011 02:17 PM
W.C. Varones: What exactly do you mean by "far worse". Do you mean the made up numbers (with incredibly dynamic scoring I'm referring to) on the deficit, versus what Obama has indicated (which as far as I can tell does not incorporate dynamic scoring)? This is why we need to debate this issue in an intelligent fashion, and not approach it in the nihilistic innumerate fashion you have.
Robert Bell: I suppose that would be kind of right. First, Heritage CDA implies the results are driven by the IHS GI model. Second, we know the IHS GI model has in the long run Classical characteristics. This implies the supply side should dominate. We have standard models for answering what the supply response will be, and for those models, we have a tremendous empirical literature. When one obtains estimates at large variance with that literature, that signals to me one should investigate further.
Posted by: Menzie Chinn at April 20, 2011 02:26 PM
Static scoring doesn't make much sense, especially at 10 year (or 12 year) horizons. The Heritage Foundation's dynamic scoring doesn't make sense as per your analysis. So does anyone actually do correct dynamic scoring?
A related point, how has the CBO done in the past? I recall several WSJ articles bemoaning the lack of dynamic scoring but I haven't seen any systematic academic analysis of their track record.
Posted by: Tom at April 20, 2011 03:00 PM
I recall several WSJ articles bemoaning the lack of dynamic scoring but I haven't seen any systematic academic analysis of their track record.
The problem with dynamic scoring is that Republicans have always used it as an arbitrary fudge factor applied so that tax cuts seem to magically pay for themselves. These assumptions have no basis in fact and are merely useful inventions to create a desired result.
When the WSJ complains about the absence of dynamic scoring, they are simply looking for an excuse for more tax cuts.
Posted by: Anonymous at April 20, 2011 06:27 PM
Menzie you're such a partisan hack. Who cares what Heritage says. Have you read the CBO's report on Ryan's proposal?
How about the CBO's report on Obama's proposal?
Nobody with a brain can say with a straight face Ryan's plan is not better than Obama's by a mile.
Posted by: Anonymous at April 20, 2011 07:16 PM
Prof. Chinn in The Economist
The rise of the anti-Keynesians
Posted by: Anonymous at April 20, 2011 07:36 PM
We want numbers... we want to see the simulation...
Is it proprietary information? I don't think so... If it concerns public policy, the public has a right to view the mathematics of the simulation...
This is a democracy, not the land of OZ...
Posted by: Edward Lambert at April 20, 2011 08:27 PM
However, I think it is incumbent upon us in the policy analysis community to fully understand what Heritage CDA did in this simulation, which provides the intellectual basis for an important policy proposal, before moving on.
On the surface this sounds reasonable, but if you really want to readers to follow you on this campaign of yours I would suggest couching your arguments with more discussion on exactly how the faulty assumption of the Heritage's model will lead to misguided policy decisions. Otherwise I'm personally inclined to think, sure the implied elasticities are unrealistic, but is this really going to effect the way we treat or address the deficit? Probably not.
Posted by: Jeff at April 21, 2011 12:20 AM
Thank you for the analysis. There's a very thin line of economists standing between a population that would otherwise lack the expertise to evaluate them (myself very much included) and far reaching proposals / actual polices that appear to range from poorly constructed to essentially bogus. Scary. Really, scary. So, truly, thank you.
Posted by: Vincent at April 21, 2011 05:26 AM
I must disagree.
I have read the MA analysis, and it does seem that Heritage "add factored" the investment equations in the IHS model, presumably reflecting some supposed missing element in the model. Granted.
But the Ryan plan's job is to make the federal government solvent, not create an economic boom. Unsustainable fiscal policies are not the way to create prosperity.
CBO has scored the Ryan plan compared to two CBO scenarios, using the exact same set of plausible macro projections. That is the way to compare fiscal plans. The CBO found that the Ryan plan ultimately significantly reduces the debt-GDP ratio. It is not the only plan, and probably not the best plan, but it is a sustainable plan. And it does not require phony economic projections to make it work.
The CBO did not compare the Ryan plan with the Obama plan because there is no Obama plan, only empty rhetoric.
Obamaa created a bipartisan Fiscal Commission which released its findings last November. Obama ignored the report. Then his OMB released a budget which took no note of the Fiscal Commission nor expressed any concern for solvency or sustainability. Obama has deficits exceeding $1 trillion at full employment, starting in FY 2019 and increasing going forward.
He is not a serious man, and he has no serious plan. His budget speech at George Washington was really just a campaign speech. There is still not budget which creates solvency.
S&P did us a favor by downgrading the outlook. The US is more Greece than not; it is not an AAA debtor.
Something like the Ryan plan is change I can believe in.
Posted by: B.B. at April 21, 2011 06:54 AM
when economies and cultures collapse many exotic and fantastical remedies are put forth from all "interested" parties; get use to it
Posted by: brad at April 21, 2011 07:01 AM
No explicit underlying assumptions are available as regards a necessary shift in the GDP components ,macroadvisers are explicit and this time not indulging themselves in "Smithonian" prays.
This financial mess has causes,and causations and the later are of utmost importances for drawing future plan.In clear a panel commissioned by the congress may have concluded the USA economy was misguided.It is not only financial mismanagement but structural.
Implicitly the mess was poor financial planing, explicitly the recovery needs government planing and the private sector needs to understand.Explicitly justice for the poor execution,implicitly review of the business plan.
The congressionally appointed panel assigned to probe the origins of the 2008 credit crisis heaped blame on “reckless” Wall Street firms and “weak” federal regulators, concluding the meltdown could have been avoided.
“The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public,” the Financial Crisis Inquiry Commission wrote in a 545-page book outlining its conclusions. “Theirs was a big miss, not a stumble.”
Posted by: ppcm at April 21, 2011 07:32 AM
Anonymous, April 20, 7:16AM: Your post is an example of the reason I keep on writing. It starts with an ad hominem attack, three leading questions, and absolutely no data and facts. My hope is that those of us who can add, subtract, and use analytical reasoning will prevail over this type of useless bloviating.
In direct response to your questions: (i) Many people; (ii) yes; (iii) yes (President's budget proposal of February).
Jeff, April 21, 12:20AM: I would like to critique the specific assumptions. However, the documentation I have access to is insufficient to directly attack the assumptions. What I have done is second-best.
Tom: CBO does not incorporate dynamic scoring into its official projections. At various junctures, it has released separate results of simulations making different assumptions regarding the underlying economic model. See my posts on dynamic scoring here and here.
Posted by: Menzie Chinn at April 21, 2011 08:14 AM
I have an opportunity to meet with Mr. Beach in the near future. If anyone has a good question they'd like to ask him, send me an email.
Posted by: Michael at April 21, 2011 08:31 AM
I see here even among academics, liberals, and moderates of the economics community that the meme that Barack Obama was President in 2008 has worked its way into the narrative.
Alas, he was only a Senator and a candidate for President in that universe apparently a long time ago and not within living memory of us here in 2011. The actual President was a guy name George W. Bush, last time I looked, and he remained President until January 20, 2009. And I assume that it was his appointees and policies that were in effect. Now Congress in 2007-08 was divided with a Democratic House and a Republican Senate, and partially as a result in both years CRs were passed, but no change was done the Bush-Cheney tax cuts or the policy of spending hundreds of billions "off budget" on the little wars in Iraq and Afghanistan. The housing bubble occurred from 2001-2006, the consequent crash started in 2006, the financial crisis resulting from the housing crash started in August 2007, the recession in December 2007, and the great panic of September 2008 all occurred before January 20, 2009 on my calendar. So how is all the current ruin is the current President's responsibility unless, like the late Elizabeth Gladden (a/k/a Sara Jane Smith), did he Journey back in time with Dr. Who and Harry Potter in the Tardis and then took a sip Polyjuice potion to transform himself into George W. Bush while at the same time running for President as Barack Obama? (Oh My God, I have just invented a new Obama conspiracy story. I look forward to reading about it on Newsmax).
P.S. As part of the current ruin, since March of 2009 U.S. companies have posted record earnings and the Market is up 60%, recovering about 80% of its losses from the old peak of October 2007. Ruin for the unemployed and congressional Democrats perhaps, but Obama has not meant ruin for Wall Street. Calculated Risk has a post up today about those who are suffering current ruin, and points out that this ruin has been going on for the last 11 years. See http://www.calculatedriskblog.com/2011/04/more-than-lost-decade.html
I could take the Conservative neo-classical and Austrian critiques (although on most blogs they amount to nothing more than ad hominem and school yard insults)of Keynsianism a little more seriously if there was some effort to actual account for and model the actual economic events that occurred (and since one of the significant actions of the last eleven years has been the massive Government intervention by the People's Republic of China to peg its currency to the dollar I would like to see that justified as laissez-faire, although it has certainly been good for U.S. multi-nationals).
Posted by: sherparick at April 21, 2011 08:51 AM
Ryan's plan may "ultimately" reduce the debt/GDP ratio, but not for decades. Problems with debt/deficit are likely to be much nearer term (especially if there is gridlock on raising the debt limit, which I think should be abolished and said so on Econospeak; no other country has such a stupid law), and Ryan's plan unequivocally raises the deficit (and the debt/GDP ratio) over the next decade compared to alternatives.
Maybe you might support the Ryan plan minus all the taxt cuts for the wealthy he is proposing? That would do at least somewhat better. Or are you one of those Grover Norquist followers who believes that no taxes can ever ever be raised?
Posted by: Barkley Rosser at April 21, 2011 10:09 AM
Menzie: I wasn't suggesting you need to critique the particular assumptions of the model, my point was actually the opposite. I was simply saying that there needs to be more discussion as to why presenting an unrealistic model is important to policy makers. If the model is simply being used to frame the current policy proposals in a better light and those proposals were derived independent of the model, then I would argue that the model, no matter how sensible, is rather unimportant. On the other hand, if the results of the model are directly influencing the types of proposals being offered then I would argue that yes it is important to determine whether or not the model is sensible. These are the important questions that are taking a back seat to uncovering the inner workings of the model.
Posted by: Jeff at April 21, 2011 11:20 AM
It sounds to me like everything you know about CBO's assessment of the Ryan plan you learned from Fox News. Let me help you out. First, here is the CBO analysis:
Second, let me direct your attention to the top of page 11:
The path for revenues as a percentage of GDP was specified by Chairman Ryan’s staff.
The path rises steadily from about 15 percent of GDP in 2010 to 19 percent in 2028
and remains at that level thereafter. There were no specifications of particular revenue
provisions that would generate that path.
Did you get that last part? No explanation for the rise in revenues. Deus ex machina. Ryan just sprinkled some magic fairy dust and told CBO that for purposes of scoring his budget proposal CBO was to just assume that revenues would grow by (19 - 15) / 15 = 26.7% without any explanation and in the face of reducing the top tax rate from 35% to 25% and in the face of eliminating taxes entirely for most forms of unearned income. But since Ryan is chairman of the committee, and since CBO has to do as instructed, CBO went ahead and crunched the numbers...meaningless as they are.
Posted by: 2slugbaits at April 21, 2011 01:45 PM
Thanks for the post. To give a sense of the scale of the illiteracy, I had dinner with some committed Democrats and not one had the slightest understanding of the realities of Ryan's excrescence. It's easy to lie when the populace is ignorant.
Bartlett's piece is very good.
Posted by: Jonathan at April 21, 2011 02:33 PM
Jeff I was simply saying that there needs to be more discussion as to why presenting an unrealistic model is important to policy makers.
That's a good point. And I think the answer is that policy makers are not really all that interested in a properly modeled answer. Wealthy folks don't contribute to Heritage in order to learn deep answers to difficult policy questions. Those wealthy contributors already know the answer...what they don't have is some kind of officially looking study that has the petina of sounding well researched. Basically they have Brookings envy. So when I write to my braindead GOP senator...and he is braindead...his predictable reply is to always point to some bogus Heritage study as the basis for his decision. Most people, and especially most retirees that form the core of the GOP, are not particularly well trained in economics. And even if they were, they likely couldn't get through an NBER working paper or a JSTOR article without dozing off at page 3. But Heritage provides nice brightly colored brochures with clever, easy to remember slogans. Heritage's mission isn't to contribute original research; it's to validate the instincts of those who practice ersatz economics.
Posted by: 2slugbaits at April 21, 2011 02:39 PM
As Matt Miller points out today, the Republicans last week passed the Ryan budget plan which increases the debt by $6 trillion over the next decade. This week the Republicans are refusing to increase the debt limit. This would make the very budget they passed last week illegal. These folks are nuts. How can anyone take them seriously?
Posted by: Joseph at April 21, 2011 03:45 PM
The objective mind of a Minzi economist...
I do not like Ryan, so Ryan plan bad. I like Obama, deficit giant and squanderer of billions of taxpayer $$$. Obama has no plan, so .....
....go with no plan cause Obama is a Dem and I hate Republicans....
I am an objective economist/scientist....teaching at a public university and sucking heavily at [expletive deleted -- mdc].
Posted by: Anon at April 21, 2011 04:32 PM
Anon (aka Union Power, Robert and Bob): As of Wednesday, I believe the President has a plan. Even before that, he had a budget proposal.
In contrast with your data-free comment, let me direct you to Figure 1 in this post, which shows that in terms of percentage points of potential GDP, GW Bush is still the leader in accumulating Federal debt.
I know that the existence of data contrary to your priors might pain you, but those are the numbers.
Posted by: Menzie Chinn at April 21, 2011 05:48 PM
How can Heritage begin to defend their report which uses a model, which I'm guessing economists building and using it would describe as a computer model. I quote Heritage itself to dismiss its computer modeling results as just biased rationalization for failed Heritage political economic policies. Just as Heritage to reject the Heritage forecasts on the ryan plans using the same sharp insight in the following sampling of dozens if not hundreds of papers and posts clearly rejecting all computer models as leftist junk science.
Garbage In, Garbage Out II: Climate Modeling
The economy is not the only policy area where the left has slapped some lines of code together and are attempting to pass it off as reality. As Al Gore’s testimony today on Capitol Hill reminds us, global warming would not exist as an issue without the left’s blind devotion to computer modeling.
Rise of the Machines
Often overlooked in the global warming debate is how little actual scientific evidence exists about the specific effects of increased levels of carbon in various regions of the world. Eco-Imperialism author Paul Driessen tackles this issue in his latest column:
"Climate models do help scientists evaluate possible consequences of changing economic growth, emission, cloud cover and other variables. But they can’t reproduce the actual climate of the past century. They cannot make accurate predictions, even one year in the future, much less fifty. They do not represent reality, and should not be relied on to guide public policy."
Obama’s Faith-Based Economics
On the stimulus’s first anniversary, keep in mind one number: 9 million.
That is the Obama jobs gap — the difference between the 3+ million net jobs President Obama said would be created (not just saved) and the nearly 6 million additional net jobs that have since been lost.
By the president’s own logic, the stimulus failed. So Obama has shifted his argument. Sure, the economy lost jobs, he now says, but without the stimulus it would have lost nearly 2 million more jobs.
This “it would have been worse” theory is completely unprovable. No one knows how the economy would have performed without the stimulus.
Furthermore, it’s faith-based economics. The White House’s new estimates of “saving” nearly 2 million jobs are not based on observations of the economy’s recent performance. Rather, they are based on the Obama administration’s unshakable belief that deficit spending must create jobs and growth. Specifically, the White House’s “proof” that the stimulus created jobs is an economic model that they programmed to assume that stimulus spending automatically creates jobs.
How’s that for circular logic?
Posted by: mulp at April 21, 2011 06:16 PM
This whole Ryan even has driven the following points home to me. Republicans must now believe the following:
1) Big changes need partisan changes. The House budget was passed without even attempting to gain a single Democratic vote.
2) Polls don't matter. Specific elements of the Ryan plan have polled very badly. Yet it is now practically their political platform.
3) The Affordable Care Act’s Medicare cuts seemingly will not hurt hospitals. These same cuts are now in Ryan’s budget, so they must be OK. In fact, in little over a year, "keep your hands off of my Medicare" has changed to something more like "completely destroy my Medicare".
4) The Affordable Care Act’s savings evidently now begin too quickly (what were they thinking?) Ryan’s voucherization of Medicare begins not in 2018 like the ACA's cost savings but are delayed until 2022. In fact why not postpone them until 2026?
Posted by: Mark A. Sadowski at April 22, 2011 12:06 AM
Menzie said: "In contrast with your data-free comment, let me direct you to Figure 1 in this post, which shows that in terms of percentage points of potential GDP, GW Bush is still the leader in accumulating Federal debt."
Using a cherry picked chart, ended in 09, and based upon a hypothetical target, potential GDP, is a sign for a new level of desperation to make a point.
BTW, since you now think we have: "As of Wednesday, I believe the President has a plan." Let's compare the Obama Budget Plan to the Ryan Budget Plan to see which actually lowers the deficit more and earliest.
If we can use the same model as Heritage, then we can compare all three. That would just leave the CBO analysis to be included.
Posted by: CoRev at April 22, 2011 07:35 AM
The point is both parties use unrealistic assumptions and push reform off into the future to avoid pain today. ObamaCare's assumptions and gimmicks make Heritage's numbers look honest by comparison.
So the massive deficits will continue. Look, we're still running a deficit of 11% of GDP two years after the recession allegedly ended. Three consecutive years of 10%+ GDP deficits (and that's actually understated and ignores GSE and student loan accounting games). And the Democrats couldn't find a single thing they wanted to cut out of a $3.5 trillion budget, even super-hero capes for the unemployed?
We're getting ~3% GDP growth running 10% deficits. Transfer payments alone exceed revenues. This is not sustainable, and neither the Ryan or Obama plans come close to putting us on a sustainable course.
Those who align themselves with and defend either of these corrupt parties are part of the problem.
Posted by: W.C. Varones at April 22, 2011 07:40 AM
Time to get serious. No Obama or Ryan plan. Cut spending at the federal level by 30% over the next 5 years. Start at 2% in cuts this year, then 4%, then 6%, 8%, and 10%. This will give people time to arrange their lives accordingly. Untether SS and Med from the general fund and for crying out loud, if you do not pay in, do not expect a payment. I know I'm, heartless right? No, proper and moral leadership will put into place charity that can far surpass the need. Government intervention in distribution of other peoples money is immoral, it breeds sloth. Current system will bankrupt us all!!
Posted by: Steve at April 22, 2011 09:20 AM
I'm not following those who are claiming that we now have two deficit reduction proposals out there. We don't. We only have the outlines of the Obama plan and the outlines suggests that it's overly optimistic...not wildly so, but I don't think we can expect to get where we need to go with the Obama plan "as is." Bumping up tax rates for the top 2% will help, but it won't get us there. There will have to be additional taxes of some kind on the middle class. Those taxes could be on income or something like a VAT (~2%). Slightly higher taxes coupled with Obama's proposed spending cuts and the "trigger" mechanism would probably get us there. And contrary to what I'm reading here, there is nothing that says we have to get to some magic number by some date certain. The bond markets only care that we make credible progress at running a primary budget surplus (as opposed to a total budget surplus).
We're still waiting for the GOP plan. There is something out there that is posing as a plan...I believe it's referred in the press as the "Ryan plan," but if you read the CBO's analysis it's pretty clear that no one ought to take the Ryan plan seriously. And if you are fluent in "Washington-speak" it's clear from the CBO Director's somewhat snarky wording that CBO doesn't take the plan seriously either. So why should we?
Posted by: 2slugbaits at April 22, 2011 01:59 PM
Minzie @ 5.48. Hate to tell you this, but
George Bush ain't President no more.
What a monumentally dumb post. In 2 years, Obama runs up almost as much debt as Bush does in 8 and you post this drivel....
My gawd, UW should revoke your tenure for stupidity....and political hackery....
Can't imagine the BS you teach to undergraduates if you actually teach undergraduates.....as opposed to simply sucking at the taxpayer teat...
Posted by: Anonymous at April 25, 2011 04:02 PM
Anonymous aka anon aka Union Power aka Robert aka Bob: Thank you for your comment. Do you have a substantive point?
Posted by: Menzie Chinn at April 25, 2011 08:04 PM
The IS-LM model! Talk about dinosaurs.
Posted by: Anon at April 28, 2011 11:16 AM