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Thursday, November 17, 2016

William Gale from the Brookings Institution rises to respond. When you go home to your families for Thanksgiving, he says, you really ought to be able to talk with authority about the ideal level of sovereign debt. But, he laments, the research just isn’t there yet. “Better to talk about Trump,” says another economist. There’s a short bark of nervous laughter.
The PowerPoint slides continue, part of a session called “Structural Models of Fiscal Policy Effects.” A model, an economist’s basic kitchen knife, is a simulation of how people will respond to, say, an interest rate hike or a sudden flood of cheap labor. The people in the James Room build models to estimate what happens when the federal government changes the way it taxes or spends.
When Washington argues about fiscal policy, it’s really fighting over models. By the time the White House produces its budget, its Office of Management and Budget has already modeled what it hopes that budget will do. Majorities in Congress send their budget resolutions to their own preferred think tanks for modeling, too. Then, by statute, bills that come out of most committees must receive a “score”—a modeled result—from the Congressional Budget Office and, for revenue bills, the Joint Committee on Taxation. The CBO and the JCT have a reputation for straight-backed probity, but congressional staffers quietly haggle with both institutions over footnotes.
So Republican economists model against Democratic economists, with some referee economists in the middle. You say your tax cuts can be offset by economic growth. Oh, I ask? Well, are your agents life-cycle or infinitely lived? This is the knife fight in the kitchen, and it’s how the presumed mortality of imaginary people determines the size of your tax bill.
The discussion in Baltimore was planned months ago, but it took place last Friday, on Nov. 11. Structural models of fiscal policy effects have sudden relevance. A single party now controls the White House and both houses of Congress, which means a revenue bill is coming soon, with the first significant tax cuts since 2003. It’s likely to pass, and an appropriations bill will likely follow hard upon. Anyone who cares about taxes, spending, and the debt owed by the U.S. Treasury is going to have to start caring about the details of models.

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