One thing that makes me uncomfortable with long term economic projections is how easily they can be disproved by tweaking just one of the variables in the model. Especially when citing exact numbers rather than giving range of possible outcomes. Economists are wrong all the time, sometimes they are wrong really big.
http://www.nytimes.com/2009/09/06/magazine/06Economic-t.htmlOne of those currently is with the deficit projections being thrown around is the 1.5 trillion in deficit. The CBP/JCT use static scoring for the next 10 years, which seems crazy to me. Using a dynamic scoring is more in line with reality (you have to account for varying growth and just uncertainty in business and individual behavior in the next 10 years). NY Times give a good example of how different models produce different deficit outcomes based on using different assumptions. Economics is not a hard science - economist have been wrong multiple times (refer to Krugman above).
https://www.nytimes.com/interactive/2017/11/28/us/politics/tax-bill-deficits.htmlQuoted - "They (Republicans) have argued that economic growth spurred by the cuts would make up for the difference in tax revenue, eventually reducing the deficits.
But there is no consensus among economists about the amount of growth that would occur, and few estimate that the bill would generate enough economic growth to offset the drop in tax revenue." This is what gets me to be skeptical of long term economic projections...Also, re-read Krugman above.
If you read the Tax Foundation report, on p15 they address this uncertainty of the future (it being the future!). Quote:
"Uncertainty in Modeling Estimates
There are three primary sources of uncertainty in modeling the provisions of the Senate’s version
of the Tax Cuts and Jobs Act: the significance of deficit effects, the timing of economic effects, and
expectations regarding the extension of temporary provisions.
Some economic models assume that there is a limited amount of saving available to the United States
to fund new investment opportunities when taxes on investment are reduced, and that when the
federal budget deficit increases, the amount of available saving for private investment is “crowdedout”
by government borrowing, which reduces the long-run size of the U.S. economy. While past
empirical work has found evidence of crowd-out, the estimated impact is usually small. Furthermore,
global savings remain high, which may help explain why interest rates remain low despite rising
budget deficits. We assume that a deficit increase will not meaningfully crowd out private investment
in the United States.5"
We are also forced to make certain assumptions about how quickly the economy would respond to
lower tax burdens on investment. There is an inherent level of uncertainty here that could impact the
timing of revenue generation within the budget window.
Finally, we assume that temporary tax changes will expire on schedule, and that business decisions
will be made in anticipation of this expiration. To the extent that investments are made in the
anticipation that temporary expensing provisions might be extended, economic effects could exceed
our projections.
Thoughts?