Dynamic Scoring

The Washington Post comes out against "dynamic scoring". So do ex-Congressional Budget Office head Dan Crippen, and (last year, at least) future CBO head Douglas Holtz-Eakin. Dan says that it would "pose intractable problems." Doug says that although dynamic scoring is "'conceptually correct'... he also acknowledged that it was 'difficult' to implement and said there was 'no need to embed dynamic scoring in the existing budget process.' Instead, he suggested, in some cases the broader impact of tax or spending policies could be presented as an additional, alternative scenario..."

In truth--or in what I believe to be the truth, at least--both Dan and Doug are hiding behind "difficulties of implementation" because they fear that dynamic scoring--introducing into budget calculations estimates of the effects of policy changes on the level of economic activity--will expose the CBO to political pressures under which it will crack. Implementation is hard, yes, and will burn CBO staff time, but there is a broad (but fuzzy) consensus on what the effects of dynamic scoring will be:

• A higher level of the deficit equal to 1% of GNP over 1 year will reduce that year's rate of growth of the economy's productive potential by about 0.1 percentage point--will have a permanent effect reducing real GNP by 0.1 percentage point.
• A change in the deficit of 1% of GNP over 1 year will raise real GNP relative to the economy's productive potential by about 1% in the current year, and by 0.5% in the subsequent year--will have a temporary effect raising real GNP by 1.0 percent this year, and 0.5 percent next year, after which the effect will vanish.
• A change in tax policy that increases distortions will reduce potential GNP over time by an amount that will in the end amount to the static economy-wide efficiency loss from the change in policy.

If the "dynamic scoring" effects that CBO reports in the next few years differ widely from these rules of thumb, then the institution has cracked under political pressure.

Posted by DeLong at February 04, 2003 09:14 PM | Trackback