Republicans Are Crazy for Wanting Dynamic Scoring at the CBO
Dynamic scoring of budget proposals has been on the Republican wish list for decades. They have always been frustrated that tax cut proposals look like such budget losers with static scoring. In their supply-side bones, Republicans know that tax cuts will stimulate economic activity and thus increase future tax revenues. Taking this second order effect into account is what they mean by dynamic scoring (see: Laffer Curve).
I have some sympathy for this argument, but in making it Republicans are falling for the "this will work great when our guys are in charge" fallacy (I need to find a name for that). Democrats fall into this all the time, expanding government power only to be shocked at what their political enemies do with this power once in charge.
Because it is pretty clear what dynamic scoring will mean in a Democratic Congress. Remember that stimulus bill? Democrats all thought that expanded the economy, so its costs would, by their Keynesian assumptions, appear much lower under dynamic scoring. The Left thinks the auto bailout was stimulative. They even think that Obamacare was stimulative. Do you really want some BS Keynesian fudge factor obscuring the true cost of such proposals in the future?
Related: Greg Mankiw discusses why, if I read him right, dynamic scoring is impossible to do correctly
SamWah:
Dynamic= Cheating is EASY!
March 4, 2015, 11:14 amErikEssig:
I thought Mankiw was basically agreeing with your headline, although in his typical understated way.
March 4, 2015, 11:58 amMichael Stack:
I couldn't agree more. Even well-meaning economists can't agree on the dynamic effects of policy change. Once you get politicians involved any hope of impartiality and accuracy in the forecasts goes right out the window.
March 4, 2015, 12:33 pmjoe:
I happen to agree with dynamic scoring. Unfortunately the play with the numbers is greatly enhanced.
Kinda like the dynamic scoring with the positive feedbacks of AGW
March 4, 2015, 12:44 pmmlhouse:
In practice the Democrats already apply dynamic scoring. They say things, such as unemployment benefits being stimulative, and that is echoed through the media tunnel until it is true.
March 4, 2015, 2:29 pmmarque2:
And the CBO is told to assume that Doing X stimulus will create Y jobs and will create Z total improvement in the economy, and they score it based on those assumptions. The assumptions are often written directly into the bill.
Not sure why Democrats should be able to tell to CBO to score Obamacare so it saved us a trillion, but Republicans need to abstain.
And of course dynamic modelling can't be modeled well. CBO numbers are notoriously bad, because they are based on political assumptions, and assumptions that everything is static - congressmen will never find a new program they want to add, and we will never go to another war - just the last one, etc etc.
This blog post is just another unwarranted libertarian attack on the GOP. And this time it is over a economically reasonable idea. I get the feeling that libertarians, aren't so much about freedom, they are just an unhappy lot.
March 4, 2015, 2:47 pmColoComment:
Back in January, Keith Hennessey had a good post on dynamic scoring.
http://keithhennessey.com/2015/01/06/response-to-donovan/
March 4, 2015, 2:59 pmNot Rick:
The whole Laffer curve concept is based on assumptions with no little or no evidence, it seems quite logical and at the low extreme it's probably correct, at the high, it may very well not be correct. I can easily see a situation where the tax rate is 100% and people have no ability to flee - essentially making everyone a government employee, that those with sufficient capital will flee seems a pretty safe conclusion, but if you can't afford to leave the country, your not going to avoid the taxes. That doesn't mean tax revenues are going to cover costs though.
It also doesn't account for multiple maximums, and maximums that result in net losses, etc. All you can be sure of is that behaviors will change with any change in the tax system. Trying to use math to predict behavior only works when you control the possible behavioral paths, people have an unfortunate (for analysis) tendency to veer well off the predicted paths and come up with entirely unanticipated behaviors.
As far as dynamic scoring goes, there is no system you can apply that politicians won't corrupt to their own benefit with the possible exception of a system that deprives them of other peoples money. - I would say add with no legal means of getting other peoples money, but as we've seen, the legality of it doesn't seem to be an issue any more. This government no longer views laws as even an obstacle to work around, they just ignore them.
March 4, 2015, 5:39 pmNot Rick:
I'm a bit confused by your reply. You state than dynamic modeling can't be modeled well and that CBO numbers are 'notoriously bad' - both statements I agree with. You point out how Democrats corrupt the system to get the outcome they want - also true. Then suggest the answer is that the GOP should just do the same thing. Then you call it a reasonable idea - how can an idea which is essentially unworkable, and easily corrupted by politicians be reasonable? Are you saying that participation in the corrupt behavior (that's going to occur no matter what the GOP does) is the only logical choice? Certainly allowing the system to exits and refusing to play because it's broken is a losing strategy and if they can't eliminate it, then they really have no choice but to play along.
I'm not sure there is such a thing as an unwarranted attack on the GOP - or the Democrats for that matter. In this particular case, this is I believe, and since I lack any proof so belief is all I've got, the GOP will ultimately loose at this game, they're not nearly as good at the big lie as the Democrats. So I view this as a losing strategy for them.
When you talk about the GOP and Democrats, are you talking about the political machines that manipulates voters, or the voters who pick on of those two options?
March 4, 2015, 6:00 pmmarque2:
Yes, you read correctly. GOP should be able to have the CBO do the numbers any way they want, when the GOP is in power, because we all know the CBO is a political body. I think you are being a bit bizarre, by insisting that the CBO continue to score in the Democrats favor even though the Democrats are gone. As for everything CBO does, it is just a guess based on political biases, so what is wrong with guessing using dynamic scoring? Cant be any worse.
The real answer is that we probably should get rid of the CBO, but that is never going to happen.
And yes Warren, is bizarrely attacking GOP for being a political body. What does he want?
March 4, 2015, 7:55 pmmarque2:
How is it any easier to cheat, than what the Democrats did with the GAO and Obamacare? Those numbers were completely phony and yet Warren wasn't calling out the Democrats not to use their favorite accounting methods with their programs.
Why the double standard. This is as bad as the press which complains wildly about everything when GOP is in power and yet ignores everything when the Dems are in power. What Bengazi? What difference, at this point, what difference does it make?
March 4, 2015, 8:00 pmNimrod:
The best I can come up with for the sort of fallacy that you're talking about is something like the time reversed version of the "historian's fallacy" which is the false assumption that people in the past viewed events in the same way that people now view them. I suppose you could call this the futurist's fallacy. This seems to be a staple of Marxism. (For example, "in the future it is inevitable that everyone will be communist anyway, so Montesquieu's separation of powers won't be needed then, and isn't needed now if it impedes the transition into communism.)
The only real difference is that the sort of case you're talking about is shorter term. "whatever we do with this power now is good, so therefore whatever anyone in the future does with it will be good also." There's an underlying bogus assumption that the amount of "goodness" in the world is necessarily monotonically increasing, despite historical evidence to the contrary.
It is worth noting though that people often claim that something is a logical fallacy even when it isn't. For example, a gun ban supporter once tried to tell me that "slippery slope" objections to new gun control laws were based on the "slippery slope fallacy." However, upon further questioning he admitted that he wanted a total gun ban, and seemed to suggest that achieving that through incremental implementation of ever more restrictive laws would be something he would support. So he was effectively trying to support an incremental path to banning guns, while at the same time claiming that to accuse him of exactly what he admitted he wanted was "a logical fallacy"! So you run into these idiotic semantic arguments like "slippery slope is the name of a fallacy, therefore anyone who questions my intentional slippery slope scheme is guilty of being irrational."
The Newspeak is even invading the language of reasoning errors to try to make erroneous reasoning seem valid.
March 4, 2015, 8:06 pmDavidCobb:
There are other ways to avoid taxes besides moving. Just take a look at Greece. They have a large black market economy. Once taxes get high enough people will start to risk spending and earning their money under the table. And, the more people doing it, the less risk there is.
March 5, 2015, 6:47 amobloodyhell:
}}} "this will work great when our guys are in charge" fallacy (I need to find a name for that)
President Homeboy
March 5, 2015, 7:22 amZeev Kidron:
There's a name for that fallacy, it's called Democracy. Can also be described as "we'll set up a crappy system but put the RIGHT people to manage it". Been working great for centuries.
March 5, 2015, 10:24 amskhpcola:
The whole Laffer curve concept is based on assumptions with no little or no evidence
Wrong. Absolutely, resolutely wrong. There is a vast quantity of data that shows that people work more when tax rates are decreased. When tax rates increase, people either work less or more, depending on their ability to mitigate the effect. There are even economic terms for these phenomena.
I can easily see a situation where the tax rate is 100% and people have no ability to flee - essentially making everyone a government employee
A tax rate of 100% and no chance to flee? Hmm...there's a term for that, right? Yeah, there is: "slave."
if you can't afford to leave the country, your not going to avoid the taxes.
To DavidCobb's comment below, I would add that with taxes above some maximum on the Laffer Curve (notwithstanding your head-scratching hypothesis about multiple maxima, which is inane), the underground economy begins to grow and taxes collected from that source decrease or cease altogether. That's not debatable or refutable in the least. Why you believe that it is, is laughable.
March 5, 2015, 11:12 amstanbrown:
Democrats already play ridiculous games with scoring. what's your point?
March 5, 2015, 1:53 pmJ Calvert:
BLS is already "dynamically" adjusting unemployment number and BEA is "dynamically" adjusting GDP numbers, why not the CBO get in on the act?
The statistics are all manipulated garbage anyway, nothing more than a club to beat your opponents.
March 5, 2015, 2:43 pmGil G:
Nope, there's going to be an optimum tax rate in which decreasing the tax rate will decrease the tax revenue.
March 5, 2015, 6:02 pmskhpcola:
Of course there is. We haven't been at that rate in the modern era. And, in these discussions on this topic, short- and long-term behaviors are different, as people either resign themselves to beings serfs...or not. Conversely, the increase in wealth production and the consequent higher tax receipts don't happen immediately, either.
March 5, 2015, 6:41 pmmarque2:
Right, and if the government is charging a tax rate higher than optimum, then the government can actually reduce taxes and increase revenue, orndecrease even more and keep revenue the same.
March 5, 2015, 9:23 pmRick Caird:
These are valid concerns with dynamic scoring, but there are also concerns with static scoring. In particular, when Congress passes tax increases, they always assume behavior will not change. But worse, no one ever seems to go back and see how the tax increase worked out. In 2009 Congress passed $1 pack tax on cigarettes to fund SCHIP. Since cigarette taxes already fund a number of state and federal programs did that tax increase affect anything else. MY guess is yes. My guess is that there were fewer packs of cigarettes sold after the tax meaning the funding was less than expected and there was less funding for other programs which used cigarette tax money.
Dynamic scoring would have given a much more realistic picture that static scoring.
March 6, 2015, 7:23 amJohn Say:
The "everything will go to hell it their guys are in charge" is merely a permutation.
Static scoring is fraud. Static scoring is merely a permutation of dynamic scoring where the coefficient of economic impact is 0.
All we are arguing about is the coefficient. Atleast we are being honest about the fact that government policies do have economic consequences.
March 8, 2015, 7:53 am