Dynamic Lying

In the complex world of considering and passing legislation, aside from the partisan conflicts based on philosophical differences, are the balancing of impacts and interests. Who and what benefits from the legislation change? Who and what gets hurt? The new GOP-dominated Congress is very much focused on encouraging business opportunities, pretty much clinging to the discredited “supply side” or “trickle down” economic theory: cut taxes and regulations at the highest earning segments of society, they maintain, and jobs and higher wages will filter down to everybody. The fact that such trickling down has never happened since these disproven mantras were first proposed in the 1980s seems to be irrelevant, since the slogan sounds so good.

However, given the harsh reality of a failed philosophy that lies at the heart of so many campaign contributors’ agendas, there is a new movement afoot to repackage an old idea, and then manufacture the supporting statistics… as legislation is being considered. And it sounds so reasonable. “Amid the main attractions, Republicans are expected to adopt an obscure but significant change in rules, long sought by conservatives, that would require congressional scorekeepers to consider a bill’s potential impact on economic growth when calculating its cost.

“The idea, called ‘dynamic scoring’ by proponents, is that tax cuts would look a lot cheaper if those responsible for determining their cost considered the economic growth they would prompt. The new rule doesn’t apply only to tax cuts, but to any ‘major legislation’ with a cost of at least 0.25 percent of the economy, or $40 billion a year.” New York Times (First Draft), January 6^th. What’s wrong with this approach, Peter?

The problem is twofold: (i) it is a future projection and not a measurement of actual results, and (ii) the numbers projected are no better than the assumptions going into the calculation, numbers which are based more on philosophical approach rather than genuine mathematical calculations based on the complex world of regression analysis (using past statistical trends to predict future numbers) and the number of variables that can be considered. So if you assume that trickle-down economics constitute a viable methodology, and you apply those assumptions to your calculations, your tax cuts and regulatory enablements will pretty much guarantee that every piece of legislation intended to make life easier and cheaper at the top of the economic spectrum will show overall positive results for the entire economy. And since you don’t have to look at the actual results, your theory trumps actual facts every time.

We’ve been here before, and so far, no one has figured out how to make this calculation truly and consistently objective. “In 2002 Congress undertook the difficult task of ‘dynamic scoring’ of tax policy. This means developing a set of economic models that can be used to estimate the true revenue effect of tax proposals, including the feedback effects of taxes on national income. This task is challenging, because there is little agreement among professional economists about how best to model long-run economic growth and the impact of taxes on the economy.” NBER.org. In short: Pick your economic theory and your economists and get the result you want.

Christopher Falvelle, writing for BloombergView (December 31^st) explains the debate on how the various approaches to measuring additional economic impacts from potential legislations differs between Democrats and Republicans, and then looks at Canada, where such theories have been applied in recent years: “Congressional Budget Office and the Joint Committee on Taxation generally employ so-called static scoring to assess tax and spending measures. This technique, largely favored by Democrats, doesn't take into account estimates of the legislation's potential effect on the size of the economy and, critics contend, its broader impact on federal revenue.

“Republicans and some of their allies have periodically pushed for the agencies to provide more estimates that rely on dynamic scoring, which assesses the potential macroeconomic effects of legislation, namely the changes it could produce in economic activity and employment… Representative Paul Ryan of Wisconsin, who will take over as chairman of the House Ways and Means Committee in January, wants the CBO and JCT to make greater use of the practice, which he calls ‘reality-based scoring,’ for tax measures. Democrats have long objected to the change, which they say would understate the actual cost of tax cuts by overestimating their impact on the economy. 

“For what it's worth, the people who work for the Parliamentary Budget Officer, Canada's equivalent of the CBO and JCT, mostly agree with the Democrats. The PBO doesn't use dynamic scoring to estimate the cost of individual pieces of legislation… Mostafa Askari, the assistant parliamentary budget officer, provided several reasons for the PBO's caution about the method… The first is that predicting the effects of policy changes isn't as straightforward as dynamic scoring's proponents suggest, and in some cases comes down to assumptions that are a matter of belief.

“‘Dynamic scoring will depend on methods and methodology that are not really standard,’ Askari said. ‘You could have a wide range of views.’… Another reason for Canada's decision to stick with the static method, according to Askari, is that in most cases it doesn't make that much of a difference, a conclusion many American experts share. ‘The assumption is there is an impact, but that impact is not significant enough to change the views of the policy,’ he said.

“Finally, Askari said that dynamic scoring reflects an ideological agenda, derived from the belief that tax cuts always lead to growth… ‘The source of this debate in the U.S. is supply-side economics,’ he said. ‘It's not an economics issue, it's a political issue.’”

But Americans like simple slogans that promise to explain and correct exceptionally complex problems, problems too difficult for most voters to comprehend. So if the politicians they voted for tell them it totally works, that is pretty much the end of a typical voter’s concern; they’re never going to look beyond this simple and seemingly logical approach, even if the resulting calculations are far from accurate. And when their economic lives deteriorate, and the economic “great divide” between “average” and the “economic elite” widens, the politicians will have some other slogan to explain the failure and the “other party” to blame.

I’m Peter Dekom, and this addiction to false and simplistic slogans and irresponsible economic mythology is one of the most destructive recent trends in American politics.