Lie to me, baby


Some people are upset that the GOP is going to lie, sorry impose dynamic scoring, to get their tax cuts for rich guys through. See, for example, here. *

FWIW, I favor a relatively orthodox approach to fiscal policy now that the US is pulling away from the zero bound.  Right or wrong, I shifted to that take a couple years ago, even though it would hurt Hillary if applied! I am not apocalyptic about it. I just have my own opinion about what relatively less shitty policy might be.

The move away from zero may be transitory, but there is no reason necessarily for fiscal policy now to look through that.  Going into the next recession and zero bound episode with a larger deficit would not be helpful.  My perspective here assumes a model of the economy, just like yours does.

I think a lot of people miss this aspect, when they just assume that there is a trade-off between a larger deficit now and the risk of returning to the zero bound. There is no obvious trade-off.  Indeed, a larger deficit now arguably raises the risk of a return to zero bound and then getting stuck there for a while.

Still, we need not be particularly bothered by scoring chicanery per se.  The media’s insistence on falling for the ruse, out of a desire for “balance”, will predictably be irksome. But the trick itself is mostly just a case of Congress lying to itself.  The weak media and Congressional lying are the problems, not the budget rule.

As I see it, there are two issues here, one to do with budget process and one to do with understanding reality.  The process issue is that dynamic scoring will allow the Congress to evade the spirit of some rules it had tried to impose on itself. If you assume that the tax cuts will pay for themselves, as Mnuchin is, and if you impose that on the scoring, then the tax cuts can be passed with less legislation and less focus on the deficit implications.

I guess some deficit purists will get upset about that, and I can see their point. But it is useful to keep in mind that this is just the usual lying. If we had a political culture able to call out the lying, then there would be no practical effect of the scoring change itself.  Let’s not miss that simple point in our usual obsessing over process.

Second and related is the issue of understanding reality, which is also no big deal.  If the scoring assumes too much growth, then people with an interest in knowing the more “realistic” deficit trajectory, can just read the Goldman reports or look up the CBO table showing the effect on the estimated budget deficit of, say, slower growth. (Even Rogoff and Reinhart could do that, probably.  Sorry. Unfair.  I am among those who think that was no big deal not permanently discrediting, but for me the humor value is very high.)

The implied more “realistic” scoring might not be reliable. But it would resemble all prior CBO and consensus estimates in that regard. Estimates that are presumably unbiased are not for that reason necessarily accurate. But there is nothing new under the sun there.

I can’t help but concluding with a reference to how this relates to my recent – and admittedly tedious – forays into MMT.  Hard as it is to get advocates to be straight on this issue, a central tenet of MMT is that it is stupid to obsess over the relation between government spending and taxation, particularly when inflation is low, like now.

So I guess the MMT guys would not be particularly fazed by this, at least from the deficit perspective. I mention this because – to me – MMT and religious believers are pretty similar. If you can just repeat back at them what they claim to believe, making it as tangible as possible, then the merit of their case becomes self-evident. Forget the sacred texts, this is what you are saying about what will actually happen. Really?  Let’s trace through that.

In fairness to MMT, many of them think themselves quite progressive, so they might not like that the tax cutting is redistributive upward. If so, I would agree with them on that. But it is a separate issue.

* The journalist’s hook is that these tax cuts are stealing money from future generations.  This is an argument that Stanley Druckenmiller trotted around to wild applause from the Villagers a while back.  Druck did not want to cut social programs because of a class interest. No, it was because he was so concerned with the future generations. Awwwwww.  So I guess we can expect Druck to start up his Can Kicks Back deficit fear mongering again and rail against the injustice of all this.  Remember, with intergenerational accounting, the “true” deficit is already $5 gazillion dollars and the real debt is $100 bazillion. Some calls are just too easy.