Ryan’s Rosy Job Numbers: Fact or Fantasy?

April 6th, 2011 at 12:46 am | 34 Comments |

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The element of the new Ryan/GOP budget which has received the most condemnation and in some cases mockery are the unemployment figures. Specifically, the Ryan budget touts analysis from the Heritage Foundation which argues that the unemployment rate will reach 2.8% by 2021. (For comparison, ‘natural’ unemployment is estimated to be around 5%) FrumForum contacted the Heritage Foundation’s Center for Data Analysis to ask about this figure.

Heritage responded that they came to this conclusion using a CBO baseline they were requested to use, and that they view this baseline as one which was too optimistic to begin with. Critics contend that the real flaw is in running their model continuously out until 2021.

Heritage’s Center for Data Analysis uses a macroeconomic model developed by IHS Global Insight for its forecasting. The Center’s director, William Beach, explained to FrumForum how it arrived at the figure. Heritage made their assumptions on what the unemployment rate will be from the CBO’s own estimate and applied what they think the effects of the Ryan plan will be on top of that. So if the CBO estimates that in a certain year, the unemployment rate is 5%, and Heritage calculates how much Ryan’s plan cuts off, for example 2%, then they would estimate that an unemployment rate of 3% is happens if the Ryan plan were enacted.

Beach told FrumForum that their projections further out from the 2021 figure actually showed the unemployment rate rising again: “In the period from 2022 to 2041, the unemployment rate is back to what we would call, more normal levels.”

Beach expressed a great deal of concern that the main culprit for the unusually low unemployment figures was the CBO estimates they were asked to use, noting that “CBO has been criticized for predicting particularly strong decreases in the unemployment rate.” “I think the CBO has given us a scenario that is pretty rosy, how can you have unemployment rates of 5.2% in a world where we have a financial crisis?”

Beach said that the focus shouldn’t be on the new baseline unemployment rate which is generated by the model, but by the magnitude of job creation that comes from the Ryan budget (the percent figure that brings the baseline down.)

When asked why he included the unemployment figures at all if he was concerned about the baseline, Beach responded, “I could have chosen not to [have] chosen the unemployment rate, but then people would have asked for them” suggesting that Heritage was in a damned if you do, damned if you don’t situation.

Critics assert that simply blaming CBO numbers is not sufficient, and that the deeper problem is in assuming the Ryan budget keeps working on the economy out to the 2020s.

Chad Stone of the Center on Budget and Policy Priorities described Heritage’s analysis as “mechanically applying changes from their model … it doesn’t make sense that far out, when the economy is back to full employment, that the Ryan plan can still cut two points off unemployment.”

According to Stone, it’s Heritage’s insistence that the Ryan plan constantly knocks down the unemployment rate that is problematic: “Most people’s analysis of an economy coming out of a recession is that the impact of any policy on the unemployment rate five years out is close to zero.”

According to Stone, normally, once the economy reaches full employment, the Fed responds to prevent the economy from overheating. According to Beach, the Ryan budget did not generate a response from the Fed in their modeling.

Stone also took issue with the assumption that a dramatic cut in spending can immediately decrease the unemployment rate.

Making projections within a ten year budget window is challenging. The further out the projection goes the more the predictions become straight-lined assumptions which can account less and less for the inevitable changes in the economy that come from the business cycle.

This is where the debate currently is: Ryan is touting analysis which assumes that the benefits from his plan will stretch out into the 2020s. The analysts were instructed to look that far out by Ryan but they think they are working from an optimistic baseline, and critics are wondering why they assume that the plan continues to keep reducing unemployment even after the recession ends and natural unemployment is assumed to have been reached.

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34 Comments so far ↓

  • rbottoms

    Shorter analysis:

    Ryan is a lying sack o’shite?

    • Smargalicious

      Ahh. Lovely critics of a Republican who’s tired of the massive welfare state that is doomed for an economic apocalypse.

      What are you liberal loons going to do when the recipients of public assistance start rioting when their free money, food, and medical care stops? Hopefully they’ll enter your neighborhoods and give you some love back. Haw!

      • Cforchange

        What are you, Smarg, going to do when the recipients of public assistance start rioting when their free money, food, and medical care stops?

        Let’s all hope they don’t enter any neighborhood as you obviously do not understand how large and armed the “lesser functioning” are these days because not only do they receive public assistance, they in their “helpless” states somehow manage to multitask. Many operate successful drug businesses that require AK47′s as standard issue.

        The problem with sweeping vague government change is that it’s vague. It provides plenty of opportunity for interpetation, error and argument. Why not start with some very specific actions.
        Entitlements could be cut by reducing the number of individuals who qualify. Instituting drug tests like those required by employers would make at least 60% of current recipients ineligible. Currently we penalize those who are working, but we tolerate every bad behavior from those who put their hand out. There’s alot of support for drug testing and denying benefits for the entitled. Why is smart targeted change never on the table.

        Put the land army on the ground, house call or have individuals physically show up to receive their purse and wee in a cup. For those who fail, cut them off and if necessary simply take their kids away. Spending $75,000 per year to house and educate a child would be a much better expense than giving the parent SSI funds, food stamps, counseling and supervision, huge medical expenses, law enforcement intervention, court processing, jail housing, public defenders, foster parents while parents are jailed. If so many are worried about the life of a child – why not start here.

        While 4 months of new leadership in DC has passed, we’ve arrived with a contentious plan to cut government costs. All the while, there has been absolutely no mention of our broken judicial system that is tightly interwoven with entitlements but is obviously the more costly element. With that said, supporters of either party need not be too cocky. Ooops, another cop down. Let’s have a ceremony.

  • Bunker555

    Ryan could do a better job of pulling numbers from his own ass instead of the Heritage Foundation’s Center for Data Anal ysis’s garbage dump.

    There is “no theoretical way” in modeling the correct balance between employment and macroeconomic factors. Too many variables and assumptions. Anyone can lie with statistics.

  • TJ Parker

    “which has received the most amount of condemnation”

    just “which has received the most condemnation”

  • TJ Parker

    Gentlemen and -women of the Heritage’s Center for Data Analysis:

    Rule #1 of data analysis is: “Garbage in, garbage out.” If you blame your sources for bad data, you’re admitting that your own analysis is crap.

  • TerryF98

    This budget is made up from whole cloth I don’t really believe any of the figures in it.

    Is the GOP so devoid of talent that they have to go to the Heritage Foundation, who have a terrible record on economic forecasting to get their ideas and data to back those ideas up?

    This making budgets for 10 plus years into the future is a complete joke anyway. Who the hell knows what is going to happen 10 years down the line.

  • Rabiner

    Noah,

    Good piece offering interesting insights as to how little the actual analysis who performed the unemployment forecasting believe their own numbers. Yet Ryan is still peddling this figure as a reality which is troubling.

  • valkayec

    Short answer: it’s pure, fictional fantasy.

    See my rather long comment of the previous Ryan budget praise post.

    According to the Economic Policy Institute:
    “The most specific Republican long-term budget proposal, House Budget Committee Chairman Paul Ryan’s Roadmap for America’s future—which like the balanced budget amendment also places the entire burden of deficit reduction on spending cuts—would not come close to meeting this spending cap for at least half a century.

    Ryan’s Roadmap—a draconian but detailed plan to partially privatize Social Security, voucherize Medicare, block grant Medicaid, and eliminate the Children’s Health Insurance Program—would not meet the effective 16.6% of GDP spending cap for more than half a century. According to CBO, primary spending under the Ryan Roadmap would total 19.3% in 2040, with total spending at 23.5%. (This CBO calculation assumes that the accompanying tax policies would generate revenue of 19.0% of GDP, whereas the Tax Policy Center estimates that revenue under the Ryan Roadmap would average only 16.3% of GDP over 2011-20). Again ignoring the regressive, budget-breaking tax policies in the Ryan Roadmap, total spending would equal 19.5% of GDP by 2060—a full 1.5 percentage points above an 18% global spending cap and roughly three percentage points above the effective cap, assuming similar rates of trend GDP growth. The 16.6% average effective spending cap over 2016-21, if somehow met, would almost balance budgets with the Ryan Roadmap tax cuts, including elimination of all investment income taxation and replacing corporate income taxation with a consumption tax that would be passed along to consumers.”

  • larry

    In this dude’s analysis, unemployment will be below 3% by 2020. Only frictional unemployment remains. Labor markets will be a little tight. McDonald’s entry- level employees will demand $50 an hour in real terms. Dry-wallers are unavailable at less than $200. Hire a plumber? Forget it. They are surfing in Hawaii. Hire a fireman? That’s going to require better pensions. That’s o.k., tax revenues are pouring in. The Heritage “Senior Fellows” have figured this out. Is there a “Junior Fellow?” Can they publish in the peer-reviewed journals? Has anyone thought that a tax on stupidity might yield enormous returns? And meet every test of equity.

  • JosephP

    Fantasy. Complete and utter fantasy.

    Unemployment will plunge to 2.8%?? The last time the unemployment rate was that low was in 1953, during the post-war boom. And perhaps not coincidentally, the top tax bracket back then was 91%.

    In the last 40 years, the unemployment rate has never dipped below 4%. In fact, if it ever actually did get so low, it would raise a whole different set of problems that would need to be addressed.

    If the Heritage Foundation is going to make up numbers, can’t they at least make some up that have at least some semblance of reality?

  • jerseychix

    This budget is what years of bad public education will get you. Complied by people who engaged in wishful thinking instead of critical thinking. Sold to yahoos who can only read a headline and are to dumb to realize they’ve spent 25 years voting against their own best interest.

    While the rich folks take what little money we have left and laugh all the way to the bank.

    3/4 of a trillion dollars in Medicaid cuts? In my house that will mean that we will have 3 elderly adults living with us who will need constant care. In most households, this responsibility will fall on the daughter/DIL.

  • Nanotek

    Nice work, Noah. Thank you for digging in for us.

  • indy

    Funny how the CBO baseline was good enough to be used when it shows a great unemployment prediction, but when it comes to dismantling ACA, the CBO was ignored in favor of some other “analysts”. I wonder why?

    And what kind of economic model predicting the course of the US economy doesn’t factor in fed actions anyway?

    It wasn’t a budget, it was a cause, just as Ryan said. And that cause is to do away with the last 80 years.

    Is it just me, or does anybody else find it funny that Ryan can’t bring the budget into compliance with the balanced budget amendment he supports for 25 years?

  • ottovbvs

    The element of the new Ryan/GOP budget which has received the most amount of condemnation and in some cases mockery are the unemployment figures.

    It’s hard to know which parts of Ryan’s GOP budget have received the most condemnation and mockery. Certainly the ludicrous figures from Heritage, which has produced previous largely fictional analyses, didn’t do his credibility any good anymore than did the CBO’s initial reaction (on admittedly sparse information). I’ve no doubt as more scrutiny is applied to Ryan’s plan and he’s forced to defend both his basic numbers and the shifts it entails there are going to many more such instances.

  • Watusie

    Congratulations, you’ve noticed one of the very fishy-smelling aspects of Ryan’s numbers.

    There are at least three others;
    1) he uses “dynamic scoring”. This is, of course, the same supply side nonsense that Republicans have been peddling since 1981. His primary tool for deducing the deficit is to cut taxes, arguing that it will increase revenue. In reality, of course, tax cuts increase the deficit. Haven’t that last few decades proven rather conclusively that tax cuts do not pay for themselves?
    2) he assumes one of the magic effects of cutting taxes will be a a new housing boom – he projects an additional $89 billion in residential investment in 2012, and a total of more than $1 trillion in additional housing investment for the next decade. This despite the fact that the housing market still hasn’t dealt with the after-effects of GWB’s bubble – falling prices, a backlog of foreclosures, and a glut of unsold homes.
    3) he assumes $1.4 trillion in savings from health care repeal – whereas the Congressional Budget Office scores repeal as INCREASING the deficit by $200 million. Ryan can’t explain the discrepancy.

    His numbers simply aren’t to be believed.

    • ottovbvs

      He apparently also assumes non defense discretionary spending goes from 12% of GDP to 3.5% of GDP. Given that we’re currently talking about shutting the govt down over a $33 billion cut in the same area of the budget, how realistic is this? There’s also the fact that if the top rate of taxation is to be reduced to 25% for individuals and corporations this automatically implies a substantial reduction in revenue from these sources which will either be lost completely or more likely will have to be shifted to the middle class. Now this doc has been out there a while people are obviously having the opportunity to catalog the lies, errors, distortions, fabrications and fantasies of which it is composed and I’m sure within a week or two an extant list of them all will be published. As someone has remarked if the president produced anything as ridiculous as this he’d be laughed out of office.

  • Sinnombre

    Anyone can make up numbers to support their preconceived notions regarding the relationship between taxation and private sector job creation. We do know that at least for one company, GE, the relationship is tenuous at best. For several years now, GE has had an effective tax rate of zero, yet they still seem to justify significant investment and job creation overseas.

    And GE is not the exception. The forces driving GE’s propensity to invest overseas apply to other tech sector companies and their are tangentially related to taxation. These factors include productivity differences, R&D superiority in emerging technical areas and critical manufacturing know-how. Indeed, shifting health care costs to the poor and middle class at the same time we are significantly reducing funds for public education seem more likely to increase our disadvantages relative to our competitors.

    Ryan’s plan should significantly increase unemployment — not reduce it.

  • kimmah

    All you have to do is look at projections from the Clinton years to see what a complete pile of poo the numbers are since an election, a war, a stock market crash or a bank collapse will dramatically transform the future. Ryan is pandering, just like all the talking heads do these days. He is playing to the percentage of the population out there who don’t understand that renting a sofa from RentaCenter or taking out a pay day loan is a terrible idea.

  • Non-Contributor

    The current economic situation started with the as a crisis in the financial sector.

    The republicans elevated inflation as the main problem and changed unemployment from being a policy goal (low) into a policy tool (to control inflation) so now we no longer had to be concerned about unemployment.

    With the myth of inflation firmly planted the republicans created the mandate for microeconomic reform which is cutting expenditures on public sector employment and social programs and dismantling what were claimed to be supply impediments (such as labor regulations, minimum wages, Social Security payments and the like). Privatization and outsourcing accompanied these policy shifts.

    So the plan is to burden the working class with fixing a mythical problem while enriching the the already wealthy.

  • politicalfan

    If his numbers include repealing things. He may be jumping on the wishful thinking bandwagon. He also may be making the best argument for a larger health care via Obama’s HCR. His timing may prove to be off.

    Watch the ads to come. Republicans want to steal your medicare (and they thought end of life counseling was a big deal.) Yikes!

    Regardless of your position, he brings up an argument of needed reform. How many Republicans live on their social security and use medicare benefits? I just don’t see the benefits of a voucher.

  • Saladdin

    When asked how they got their numbers, the Heritage foundation spokesman said that if the numbers weren’t low enough, they wouldn’t stick out.

    http://www.slate.com/blogs/blogs/weigel/archive/2011/04/06/how-did-the-heritage-foundation-get-that-2-8-percent-unemployment-number.aspx

  • dante

    So wait, let me get this straight… The same group that claimed that we were going to pay off the entire national debt in the decade after the GWB tax cuts is now stating that Ryan’s job numbers are too rosy??

    Oh man.

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  • jg bennet

    We just might be be getting billions in tariff money before long so his numbers may be irrelevant or so says a really smart guy.

    For once, some good news: public support for free trade will almost certainly collapse over the next few years. On this issue, the public is way ahead of the political class in the quality of its thinking., and the average hardware store owner in Nebraska understands the real economics involved better than the average U.S. Senator.
    http://www.marketoracle.co.uk/Article27384.html

    • ram6968

      they tried that in the 70′s with foreign steel…..the U.S. steel companies said thank you very much and raised their prices, resulting in spiraling inflation..

  • politicalfan

    Noah did you get that raise yet?

    “FrumForum contacted the Heritage Foundation’s Center for Data Analysis to ask about this figure. Heritage responded that they came to this conclusion using a CBO baseline they were requested to use, and that they view this baseline as one which was too optimistic to begin with. Critics contend that the real flaw is in running their model continuously out until 2021.”

    It will be on the number check block.

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