Budget Analytics

In the past couple of weeks there has been quite stir about a proposal from the Republican US Representative from Wisconsin, Paul Ryan. Much of the initial analysis has focused on the usual partisan, and political dialogue about Federal spending and the role of the Government. There has been few close looks at the actually analysis used to put the budget together or the real ramifications of passing this kind of fiscal package.

One first attempt at analyzing some of the basic assumptions is a piece written by NY Times columnist, Paul Krugman. Krugman has never been shy about his political leanings and has often written explicitly about his liberal leaning. However, in this piece he did a pretty good job about setting his partisan leaning and focused basics. He points to the suspicious decrease in unemployment in the next 10 years from close to 9% to under 3%, something that is a) never achieved since World War 2 and b) is not possible in a sustainable economy. Krugman also points to the unrealistic decrease in non-defense, non-entitlement funding from 12% of GDP at current levels to 3.5% of GDP in 2021.

Still, as much as these 2 assumptions undermine the budget, there is still much to desired in looking fully at this budget or the potential ramifications. This void was filled yesterday by the incredibly credible, non-partisan research group Macroeconomics Advisers (Macro Advisers)in a post on their company blog. Macro Advisers test many of the assumptions used in analysis used by the authors of Rep Ryan's Budget, originally put together by the conservative Heritage Institute. After much simulation, Macro Advisers have founds several flaws in the analysis, and that the economic models were intentionally altered to produce favorable results for the Ryan budget. They point to everything from GDP growth expectations, unemployment projections, interest rate assumptions, and the relationship between spending contractions and capital investment.

The most disturbing part about the Macro Advisers analysis is that it points to the intentional fabrication of economic analysis to produce ideologically based policy that has the potential to derail economic recovery and effect the livelihood of the country. Policy makers need take fiscal policy more seriously and consider how it impacts the citizenry. Fiscal policy that impacts such a large percentage of the population should not be treated as a political game, but should consider all potential economic and social consequences.