Figure 1: Private nonfarm payroll employment (blue), baseline (dark b lue) and simulated under Ryan plan (red), in millions. Source: BLS, Heritage CDA, Appendix 3.
Posted on 04/15/2011 9:21:45 AM PDT by JerseyHighlander
Edited on 04/15/2011 9:45:51 AM PDT by Sidebar Moderator. [history]
BS. Which here is short for Baseline Scenarios.Which could also refer to the book "On Bull****", by Harry G Frankfurt, published by Princeton University Press.
At first blush, Paul Ryan's Budget Plan made no sense to me, I didn't have time to read through it all, but now that the econ/finance blogosphere and financial sector media have gotten time to dissect and digest the plan, it's becoming increasingly clear that Paul Ryan has been extremely extremely disingenuous in regards to his budget proposal. I'm going to post a collection of links and excerpt some of them, you'll need to invest some time to digest this because it swings from economics professors, to global macro analysts, to finance guys, to financial journalists... etc.
First off, the two better pieces to start with,
http://www.econbrowser.com/archives/2011/04/more_on_the_cha_1.html
Posted by Menzie Chinn at April 14, 2011 07:50 AM
Menzie David Chinn is a professor of Public Affairs and Economics at the University of Wisconsin–Madison.
Usually, when I look at something longer, I understand more what is going on. In the case of the Heritage CDA simulations of the Ryan plan, it just gets more and more incomprehensible. To illustrate this confusion, consider the following graphs of private employment, equipment investment, nonresidential structures investment and residential investment, under the baseline and as simulated under the Ryan plan.
Figure 1: Private nonfarm payroll employment (blue), baseline (dark b lue) and simulated under Ryan plan (red), in millions. Source: BLS, Heritage CDA, Appendix 3.
[As so you understand the mention of Menzie's employment is a disclaimer]
TO understand what Menzie is talking about in the illustgrated graphs, you need to read this first:
http://www.offthechartsblog.org/heritage’s-rosy-view-of-ryan-budget/
Heritage’s Rosy View of Ryan Budget
April 5, 2011 at 4:52 pm
Posted by:
Chad StoneChad Stone is Chief Economist at the Center on Budget and Policy Priorities, where he specializes in the economic analysis of budget and policy issues.
Ryan Avent beat me to the punch in calling out the Heritage Foundation’s analysis of how House Budget Committee Chairman Paul Ryan’s budget would affect the economy. I’m with Avent: Heritage’s unemployment projection is so bizarre as to call into question the whole exercise.
As the chart above shows, Heritage projects that under the Ryan budget, the unemployment rate will be 6.4 percent in 2012 — a full two percentage points below the Congressional Budget Office forecast — and will drop below 3 percent by 2020. That’s over a percentage point lower than the lowest unemployment rate reached in the very strong 1960s and 1990s expansions, and over two percentage points lower than CBO’s and the Obama Administration’s forecasts for this recovery.
The second article that is a must read on the subject is from Macroeconomic Advisers blog, Joel Prakken - Chairman of Macroeconomic Advisers, and Chris Varvares Macroeconomic Advisers who also served as president of the National Association for Business Economics (NABE) during 2008-2009
http://macroadvisers.blogspot.com/2011/04/economic-effects-of-ryan-plan-assuming.html
Believable Baseline?
To start, consider that the baseline shows the economy recovering cyclically to full employment by 2016, with real GDP growing at a trend-like rate of 2.4% thereafter, inflation averaging slightly more than 2.5%, and the yield on 10-year Treasury debt holding steady at 5.4%. While this seems reasonable, under CBO’s Alternative Fiscal Scenario the ratio of debt to GDP explodes. From 2016, when the economy first nears full employment, through 2021, the baseline shows federal debt held by the public rising 55% — or $9 trillion — all with no change whatsoever in long-term interest rates after 2017.
If the analysis shows that trimming $10 trillion of debt by 2021 reduces long-term rates by 84 basis points, then isn’t it the case that in the baseline the $9 trillion expansion of debt after 2016 should keep pushing rates further above 5.4% by 2021? If not, then what is preventing rates from rising?
...........
Ready Response!
Either way, something went awry here. In response, Heritage pulled the initial tabulations and replaced them with new ones that did not show or discuss the unemployment rate but left all the other results unchanged. Then, in a separate update, Heritage published a new path for the unemployment rate averaging 1.5 percentage points higher than the original path, along with the following explanation[6]:
“In further response to the Chairman’s letter of February 28, 2011 requesting technical advice and assistance, we have given additional scrutiny to calculations concerning the unemployment rate under the Chairman’s proposed budget plan. As a result of that examination, we are making an adjustment to one variable — the full-employment unemployment rate, which is one component of the equation for the overall unemployment rate.”
In other words, it was the case — nonsensical, in our view — that the NAIRU fell sharply in the first set of results.[7] We do know that in the GI model the NAIRU is an exogenous variable, so this is something that Heritage assumed. Why, and why the revised path of the NAIRU?[8]
In any event, the update goes on to say “while the adjustment has an impact on the unemployment rate in the model, the overall results elsewhere in the model do not change significantly.”[9] Of course it can’t be the case that no other variables changed. In particular, for a given population, if the unemployment rate rises for whatever reason, either household employment must be lower and/or the labor force participation rate must be higher. Is it really the case that in a general equilibrium model such large changes in labor force participation, household employment, and the NAIRU have no other significant impacts? We doubt it.[10] To us, these machinations call into serious question this part of the exercise.
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Hilarious Housing?
In the simulation, the component of GDP that initially increases most, both in absolute and in percentage terms, is residential investment. This is really hard to fathom. There’s no change in pre-tax interest rates to speak of, hence the after-tax mortgage rate presumably rises with the decline in marginal tax rates even as the proposed tax reform curtails some or all of the mortgage interest deduction. It’s hard to imagine the financing cost of housing not rising, at least initially. True, the simulation shows the number of households increasing 75 thousand in the first year, but the simulation also shows residential investment jumping $89 billion, or 21%. Given the size of this increase, we can suspect that residential investment was also adjusted up directly. In any event, at today’s real value of approximately $210 thousand per newly completed housing unit[18], the extra investment is enough to build roughly 425 thousand units in 2012, of which 350 thousand would be empty at a time when we estimate there already is an excess of more than a million units that could be absorbed by new household formation.
And this imbalance only worsens through time. Cumulating the increases in residential investment by perpetual inventory using a 1.5% annual depreciation rate, we calculate that by 2021 the real residential housing stock is up $1.023 trillion. At a decadal average of roughly $234 thousand per newly completed housing unit, this translates into an additional 4.4 million units. By the end of 2021 households are up only 379,000, so that 4 million unoccupied housing units have been built, creating an overhang as large as we estimate developed at the peak of the recent housing boom. 19
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From what I have read so far, the Heritage Foundation had selected their baseline data sets and models to goal seek, manipulated the data sets, omitted results that didn't fit their narrative, deleted publicly posted information on their website that discredited the narrative, misunderstood some of the models they borrowed as the model creators have been up in arms about since Ryan's announcement, and have refused to post any public response besides whitewashing their public availablity of the underlying data sets and results posted on their website.
I am just a messenger, trying to get the word out that Paul Ryan is a false prophet using the Tea Party for his own political and financial gains, and has made the situation worse by spearheading this audacious manipulation of the Federal budget policy debate.
On top of that the Heritage Foundation has discredited themselves, they pulled a stunt as similar to the climate change scientists by manipulating data and purposefully and maliciously creating and propagating bad models that fit their ideological agenda.
Keep in mind that outside of the internal political battlefield in the UNited States, the creditors who buy US Treasuries must be looking at this askew, they can now be confident that there isn't a single political entity in the country that is committed to reforming the budget of the US Federal Government, that indeed there is no real future plan in Washington DC to do anything but Quantitative Easing to inifitnite and beyond.
Further reading:
http://www.economist.com/blogs/freeexchange/2011/04/facts_and_figures
Facts and figures
Best budget ever
Apr 5th 2011, 15:02 by R.A. | WASHINGTON
and
http://www.economist.com/node/18560739?story_id=18560739
Republican economics
The rise of the anti-Keynesians
Paul Ryan’s intellectual hinterland
Apr 14th 2011 | WASHINGTON, DC | from the print edition
and
http://pragcap.com/a-glimpse-into-the-land-of-paul-ryans-austeria
A GLIMPSE INTO THE LAND OF PAUL RYAN’S AUSTERIA
12 April 2011 by Cullen Roche
and
http://www.cato-at-liberty.org/federal-spending-ryan-vs-obama/
Figure 1 shows that spending rises more slowly over the next decade under Ryan’s plan than Obama’s plan. But spending rises substantially under both plans—between 2012 and 2021, spending rises 34 percent under Ryan and 55 percent under Obama.
Figure 2 compares Ryan’s and Obama’s proposed spending levels at the end of the 10-year budget window in 2021. The figure indicates where Ryan finds his budget savings. Going from the largest spending category to the smallest:
To summarize, Ryan’s budget plan would make crucial reforms to federal health care programs, and it would limit the size of the federal government over the long term. However, his plan would be improved by adopting more cuts and eliminations of agencies in short term, such as those proposed by Senator Rand Paul.
We've come to the point where there are no principle players in DC looking after anything remotely called the "common good" or a sound currency.
Paul Ryan's plan is a nonstarter, and a failure through milquetoast moderation, still beholden to Ryan's political contributors' special interests, and flawed in it's basic assumptions and models.
And that's the best plan put forth besides Rand Paul's outlier proposal that hasn't really been presented to the public yet.
Also , the rosy scenario are BS, but they dont change anything and dont really matter. WHAT REALLY MATTERS IS WHAT THE BUDGET IS ABOUT - SPENDING. This is the only chart that matters:
The KEY PROBLEM WITH THE RYAN PLAN IS THAT IT DOES NOT CUT ENOUGH NOW. The other problem is a political one - by taking on entitlements, nice and bravely, they have let the Democrats have NO REAL PLAN and yet run against the Ryan plan. Ergo, Obama's horrible dishonest and egregious speech on the budget. A campaign political speech full of lies. The Dem 2012 campaign will be to go full throttle with the fearmongering while claiming the mantle of the center.
The pushback strategy should be simple. Have the debate on 3 topics - the economy of today, Obamacare, and the spending of NOW, not the future.
We need to cut $400 billion NOW from the Obama budget.
One of the problems with SS, IMO, is that too many payments are coming out of it for other purposes such as monthly payment to children of deceased parents and for all kinds of disability. The regulations and reporting on funds supposedly going to benefit a child whose parent is deceased are a real joke. I also suspect that if everyone receiving checks had to reenroll in person, prove their identity and they were a U.S. citizen and have their checks direct deposited to an account only belonging to them that we would find substantial savings. There are many things that can be done simply by correcting false data and errors - never figured out why they couldn’t attack these areas first.
This problem has been postponed by 6 months because of a trick called QE2. Printing money.
If the Debt Ceiling is raised, they will have no choice but do QE3 and this is a disaster of epic proportions.
What needs to be done is to add to the Debt Ceiling the requirement to enact 1/2 Billion in permanent cuts from existing expenditures for each additional Billion to be Borrowed. This creates a 2 year pay back period for the additional obligations and brings us to the current level of Deficit to an absolute brick wall maximum in a period of about 5 years.
We have to be our own IMF here because no one is going to bail us out.
I agree dalight, these pricks in DC must know that they have already screwed us all. Reminds me of the Russian Submarine in The Hunt for Red October....
I posted direct links to Ryan’s own, and Heritage’s own datum.
Ryan snowjobbed the country with the assistance of a “conservative think tank”.
The numbers here are insanely unbelievable.
That not a single Republican Congressman of good repute came out to repudiate and challenge these bogus hockey stick scenarios is a final nail in the coffin of the Republic.
I hoped for better, I think we deserve better, we’ve been sold a false bill of goods here, and this passed Ryan House budget is now the best we can get before Boehnhead et al get on their knees and start giving away the small lot discaptured in the Ryan budget.
Next year in the middle of the primary season and reelection season we will not see a better budget put forth voluntarily by the whore politicians and their pimp lobbyists. We could see the FedRes lose control of the yield curve if there is a buyers strike on new Treasuries, which would subject Americans to austerity at the whims of financial forces outside the controls of the democratic republic.
regards,
Bumping this to the top as Commentary Magazine and Wehner are currently given top billing on DrudgeReport tonight to smear Gingrich on the FL primary eve.
http://www.commentarymagazine.com/2012/01/30/conservatives-oppose-gingrich/
The snowjob Wehner is pumping out tonight shows Wehner is a complete failure as a human being, before you even get to comment on his professional status.
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