Dynamic Scoring in Congress Is Defensible but Slippery

[applegrove]

Dynamic Scoring in Congress Is Defensible but Slippery

http://www.nytimes.com/2015/03/01/upshot/a-slippery-new-rule-for-gauging-fiscal-policy.html?_r=0&abt=0002&abg=0

"SNIP.............



We don’t yet know how Mr. Hall’s leadership will differ from Mr. Elmendorf’s but we do know that he will face a big challenge. House Republicans have recently changed the rules: The Congressional Budget Office and Joint Committee on Taxation are now required to use “dynamic scoring” when evaluating major changes in tax and spending policy. This is the can of worms that awaits Mr. Hall as he takes on his new job.

Until now, conventional budget analysis has used a process called static scoring, which assumes that the path of gross domestic product remains the same when the government changes taxes or spending. This procedure has the virtues of simplicity and transparency.

Yet the assumption of unchanged G.D.P. also has one notable drawback: It is patently false. Much economic theory and empirical research confirm that fiscal policy influences the course of the economy.

Indeed, having an economic impact is a big part of why policy makers use the tools at their disposal, whether it is the tax cuts of Ronald Reagan and George W. Bush or the stimulus package of Mr. Obama. It seems somehow churlish for Congress’s economists to assume that a policy change won’t accomplish its goal simply to make their jobs easier.

.............SNIP"

[applegrove]

1. And who decides what the assumptions will be?

[Igel]

2. That's what the fight's about, isn't it?

Because those assumptions are pure political gold. They have nothing to do with economics, of course. Or even common sense. Gullible, low-info voters don't know this. American innumeracy has no upper bound.

We know that the current assumptions are pretty worthless. We knew that back in 2001, when the CBO announced a huge government surplus for the following 10 years. Even as all the leading indicators said "there's a recession in your near future!" and the CBO said as much. So the time there was no bipartisan or non-partisan doubt that those numbers were just plain wrong. But we still hear those numbers quoted today as though they were rock-solid.

We knew that in 2010 when the CBO scored the HCRA and ACA. The CBO complained that it was compelled to use projections it had not only no confidence in but knew were pretty much certainly wrong. But politicians didn't want any change--and those wedded to pretty political forecasts fought against change--because it's always possible to jigger the numbers and assumptions required in the legislation to make the predictions come out the way you want them to. On paper. You can predict the past, and if the future has to be exactly like the recent past was you know what you need to do to make things like great. And yet we continue to be amazed when, for a variety of reasons, the 10-year projection comes out better (or possibly worse) than we expected. Of course, the current 10-year projection assumes that what's happened in the last year or two continues in a straight line for the next 10.

Imagine that: If your 2012-13 income plummeted, the projection for 2014-2023 says your income can only go down. If your 2014 income then increases you evince amazement, and now the projection for 2015-2024 says your income can only go up. Two "rock-solid" projections for 2015--falling income and rising income--worth 100% of your faith and confidence. Ignore recessions. Ignore training. Ignore everything else. Just believe. "I want to believe" is the enemy of critical thinking and the soul-mate of confirmation bias.

Once you get past the wonderful possibilities given static scoring, things go to pieces. Best thing would be to let the CBO set most of its own guidelines, because making economic forecasts based on what's politically expedient for people who are watching their current poll numbers or are getting ready for elections in 2 years is just plain crazy.

(And always has been.)