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The Latest CBO Deficits Analysis - An Endorsement of the Ryan Plan?

May 23rd, 2008 . by economistmom

When earlier this week I posted on the latest CBO analysis on the adverse economic effects of budget deficits, I had no idea that Congressman Ryan had requested this analysis to gather analytical support for his “Roadmap for America’s Future”, which he unveiled on Wednesday.

Mr. Ryan’s plan has been praised by at least one budget watchdog group for its specifics in how it would eliminate budget deficits, which is mainly through a per-beneficiary limit on Medicare spending.  

But CBO did not analyze what the effect of such a rationing of health care would be on the economy.

Here is what Mr. Ryan says about the CBO analysis in his press release:

Here’s what CBO found – Under the Roadmap, GNP per person would be a full 85 percent higher than if we remain on the current course. Hence, this plan maintains the American legacy of leaving the next generation better off.

But here’s how CBO Director, Peter Orszag, explains what their analysis does and doesn’t analyze regarding the benefits of reducing the deficit:

How Would the Slowing the Growth of Deficits Affect the Economy? The minority staff of the House Budget Committee provided CBO with a target path [that] slows the growth of budget deficits. In evaluating the economic effects of the target path, CBO did not examine how specific policies to achieve that path would affect the economy; instead, CBO limited its attention solely to examining how the deficits produced by the target would affect the economy, assuming that such effects would play out as they have in the past. (CBO has not evaluated either the political feasibility or the economic effects of reducing spending sufficiently to accomplish this path for the deficit. Furthermore, the spending and revenue targets provided by the Committee staff are not the only way to achieve a sustainable budget path. Alternative policies will have different effects on the economy, and changes in taxes and spending can exert influences on the economy other than the effects of reducing budget deficits.)

In other words, CBO’s analysis is just as much an analysis of the economic benefits from the Ryan plan as of the economic benefits of reducing the budget deficit entirely by raising revenues.  Which gets back precisely to the point I made earlier about the CBO analysis when I noted that:

Congressman Ryan didn’t ask CBO to show what cuts to the entitlement programs and other government spending would have to be done in order to keep taxes as a share of the economy at its 40-year historical average, now did he?

I obviously meant that mostly as a cute punch line, but that was before I realized that Mr. Ryan would try to say that CBO had actually analyzed exactly that.

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