Thursday, December 15, 2011

The Budget Advisor Who Couldn't Read Budgets

It sounds like an awful children's story or something, I know. But while I was perusing the blogosphere today, I came across something that Krugman and DeLong highlighted that gave me pause. A former Bush budget advisor, Jeff Rosen, wrote an article in the National Review about how, based on the CBO's projections in early 2008, we were set to be running a surplus in 2012. As such, he cleverly reasoned, the current deficits are all Obama's fault, period. Full stop. No questions asked. Jonathan Chait wrote an excellent piece tearing down the man's entire argument. I felt the need to see these claims for myself, so I read the articles and then turned to the CBO report. 

So I go and take a gander at the CBO report that Rosen is referencing. The report immediately explains that it makes a series of shaky assumptions right from the get-go: that the early stages of what we now know as the greatest slump since the Great Depression was going to be mild and likely not going to push the economy into a full-blown recession. Rosen does acknowledge that the recession did happen, and that that may have caused a reduction in revenues and an increase in outlays, he downplays the whole thing and doesn't acknowledge that there was a justification for policies to combat the downturn.

The report that Rosen was drawing from also is forced to make the assumption that federal spending for that year was much lower than it actually was going to be, as Congress had given it unrealistically low spending projections. Some of these projections included the abrupt end to funding for the wars in Iraq and Afghanistan (ellipses added):
"That outlays for discretionary programs (those whose spending levels are set anew each year through appropriation acts) will decline from 7.6 percent of GDP last year to 6.1 percent by 2018—a lower percentage than any recorded in the past 40 years. . .Implicit in the projection for discretionary spending is an assumption that no additional funding is provided for military operations in Iraq and Afghanistan in 2008 and that future appropriations for activities related to the war on terrorism remain equivalent, in real (inflation adjusted) terms, to the $88 billion appropriated so far this year."
Unlikely, to say the least. So why would Rosen take this baseline scenario from the CBO report at face value? Especially when the report itself practically shouts to the reader in the first few pages that it had to take a number of assumptions that probably weren't true!

Take a look at what the report says:
"CBO’s baseline budget projections for the next 10 years are not a forecast of future outcomes; rather, they are based on the assumption that current laws and policies remain the same."
I feel like anybody who is competent at all in any way could and would pick up on the fact that they shouldn't do what Jeff Rosen did and use the baseline projections from any CBO report as being accurate. That's why the CBO gives alternate scenarios that are much more plausible. Since I would like to believe that Jeff Rosen is not incompetent, I'm compelled to believe, as Paul Krugman and Brad DeLong do, that Rosen is deliberately trying to deceive his readers into actually thinking that we would be running a surplus (or at least a much smaller debt) if Obama hadn't embarked upon his grandiose spending spree.

The final assumption, and this one's really the kicker--the report assumed that the Bush tax cuts were going to expire in 2010:
"That revenues will rise from 18.7 percent of GDP this year to almost 20 percent of GDP in 2012 and then remain near that historically high level through 2018. Much of the projected increase in revenues results from the growing impact of the alternative minimum tax (AMT) and, even more significantly, the expiration at the end of 2010 of various provisions originally enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)."
So, yeah, Jeff Rosen, I guess you could say that Obama is responsible for our lack of a budget surplus. Except for the part where we got hit by a huge recession, the wars were not ended abruptly, and the Bush tax cuts did not expire. I might add, that the latter two of those things played out the way they did because of Republican opposition (in that they largely don't want the wars to end and they want to maintain the tax cuts). 

Thus ends the tale of the budget aide who couldn't read a budget report. For those of you who want a more graphic description of what part of the debt Obama and Bush actually are responsible for, take a look here