In other news, the sun rose today in the east.
I'm no tax policy expert by a long shot, but there seems to be a whole lot that's misleading about this post from John Cochrane…. First it's just weird how he calls "static" scoring "Keynesian" and dynamic scoring "neoclassical", since it's a pretty standard Keynesian point that cutting taxes is going to improve growth. Tax economists in Washington don't really line up with the macroeconomic camps….
Aside from that oddity, the impression that you get is that the Tax Foundation makes some kind of accounting for microfoundations that nobody else in Washington does. As far as I'm aware that's entirely untrue….
Dynamic scoring is somewhat different from just including microfoundations…. It would incorporate assumptions about the (aggregate) relationship between GDP, unemployment, and tax policy into the analysis. So in a lot of ways, dynamic scoring is more old school Keynesian than the standard Washington analysis that Cochrane is complaining about, not less.
So why doesn't everyone go all in for dynamic scoring?… [T]here's a lot of disagreement about the macroeconomic effects of fiscal policy, like tax policy, and the results are highly sensitive to the assumptions that you make. Dynamic scoring… is a nuanced methodological point that people in Washington love to talk about….
Yes, in an ideal world we'd do dynamic scoring but there just isn't enough consensus on the macroeconomics involved to go too far with it.
Indeed. If you let the congressional majority do dynamic scoring, then because each successive majority builds its own assumptions about what is good for the economy into its model-building, you get a strong drift over time toward larger and larger deficits. The ban on dynamic scoring is a way of eliminating that destructive dynamic.
Cochrane does not know that. But, then, Cochrane does not know many things that he really ought to by now.