John Irons's Blog


Economic News, Data and Analysis

CBO Budget Information (II)

More on the budget…

The Vanishing Budget Surplus: Interpreting CBO’s New Projections and Fiscal Prospects
The short-term changes are due primarily to worsening economic conditions, which account for about two-thirds of decline in the 2002 budget and half of the projected changes for 2003 to 2005. In contrast, the longer-term changes are due as much to the 2001 tax cut as to economic and technical changes, each of which accounts for just under 40 percent of the decline in projected surpluses between 2007 and 2011.

Filed under: Policy

WTO rules against the US

The WTO has indicated the EU can impose up to $4 Billion in sanctions. The dispute seems to be centered on something called the Foreign Sales Corporation (FSC).
It does appear that the US is showing interest into coming into compliance with the WTO regulations; however, their heart doesn’t seem to be in it as previous revisions have not satisfied the WTO.
A nice summary of the FSC was prepared by
the National Council for Science and the Environment.
Here is some background on the dispute from the house Joint Committee on Taxation.
For much more on the dispute, see
Public Affairs Office, United States Mission to the European Union

WTO Gives EU OK for U.S. Sanctions (
The World Trade Organization (WTO) ruled Friday that the European Union could slam sanctions worth $4 billion on U.S. exports in retaliation for tax breaks to U.S. companies, the EU said.
The ruling is be by far the highest level of retaliation ever authorized since the Geneva-based international trade body was set up in January 1995.
The Foreign Sales Corporation (FSC), as the tax system is known, has been ruled in violation of WTO rules four times when past Washington efforts to reform it were deemed insufficient.

Filed under: Economics, Policy

Greenspan on Bubbles

Greenspan looks back on asset prices during the late 1990s and the Fed’s response to the bubble. The conclusion seems to be that the Fed has little real ability to recognize and respond to asset bubbles.

FRB: Speech, Greenspan — Economic volatility — August 30, 2002
If low-cost, incremental policy tightening appears incapable of deflating bubbles, do other options exist that can at least effectively limit the size of bubbles without doing substantial damage in the process? To date, we have not been able to identify such policies, though perhaps we or others may do so in the future.
It is by no means evident to us that we currently have–or will be able to find–a measure of equity premiums or related indicators that convincingly presage an emerging bubble. Short of such a measure, I find it difficult to conceive of an adequate degree of central bank certainty to justify the scale of preemptive tightening that would likely be necessary to neutralize a bubble.

Filed under: Economics, Policy

Treasury Department Morale

Bruce Bartlett, part of the Bush (Sr.) Treasury, wonders about the current morale problem at that department.
I agree that the Treasury ought to have a stronger voice in economic policymaking. He also has an interesting suggestion for a new Treasury Secretary!

NCPA – Opinion Editorial – Restoring The Treasury Department to Preeminence in Economic Policy
As it happens, I know many of the people mentioned in the Post article. From 1988 to 1993, I was deputy assistant secretary for economic policy at the Treasury. Many of the staff people named as leaving due to frustration with O’Neill are people who used to work for me. Over the last 2 years, they have expressed to me directly many of the same concerns highlighted in the Post article.
The basic problem is that O’Neill seems to have little interest in economic policy. Consequently, there really wasn’t much work to do for the people who worked in that area. Eventually, they left for other agencies or simply retired, rather than do nothing.
I think it is only a matter of time before O’Neill departs–either on his own or under pressure. I hope Bush uses the opportunity to reinvigorate the Treasury by appointing a secretary with the stature and the wisdom to know how to use this agency properly in pursuit of the president’s goals. I believe that man is Federal Reserve Chairman Alan Greenspan.

Here is the Post article to which he refers.
Perhaps Brad DeLong would like to weigh in?

Filed under: Economics, Policy, Politics

CBO Budget Information

The Center on Budget and Policy Priorities has put together a series of 1-page reports answering questions about the most recent CBO budget release.

  • Why the surplus has disappeared
  • What part was under congressional control
  • Revenue loss vs. spending
  • Debt and interest on the debt
  • CBO vs. OMB
  • What’s missing?

    Data Relating to Recent Budget and Economic Projections by the Congressional Budget Office, 8/29/02, 7pp.
    This series of one-page analyses discusses a range of issues, including the causes of the disappearing surplus. The data in these materials will be more fully discussed in a forthcoming paper.

    Filed under: Economics, Policy

  • Advertising

    I’ve implemented a way to advertise on this site. The (open) source was developed by Bill Rini at WindowSix and is called TextAds.
    I’ve made a couple minor changes, but it seems to be working well.
    You can see a sample ad in the column on the right.
    I’ll give a free 1,000 impressions to the first 5 people to sign-up.
    Just click on this link, ArgMax TextAds, to sign up for 1,000 ads. After creating your ad, click “pay for ads with paypal.” When you reach PayPal, don’t bother paying, and if you’re one of the first 5, I’ll validate your campaign.
    Here’s what I wrote on the ad page…

    Read the rest of this entry »

    Filed under: Website

    Deficit Projections

    Yesterday the CBO released a projected 10-year surplus of about $1 trillion (down from over $5.5 trillion as of January last year).
    The change is due in part to the tax cuts enacted last year, economic changes, technical changes, and other legislation.
    Keep in mind, however, that these are baseline estimates. They assume 1) no change in policy, and 2) an average economy. If policy, or the economy, changes, so too will the deficit.
    Since we are projecting out 10 years, small changes in economic assumptions (particularly real GDP growth rates) can lead to very large changes in projected deficits.
    How much uncertainty is there? Take a look at the following graph from the CBO (which indicates only the uncertainty from non-policy changes.)

    Uncertainties in Projecting Budget Surpluses: A Discussion of Data and Methods
    Uncertainty in CBO’s Projection of the Total Budget Surplus Under Current Policies.

    This figure shows the estimated likelihood of alternative projections of the surplus under current policies. The calculations are based on CBO’s past track record. CBO’s baseline projection falls in the middle of the darkest area. Under the assumption that current policies do not change, the probability is 10 percent that actual surpluses will fall in the darkest area and 90 percent that they will fall within the whole shaded area.
    Actual surpluses will of course be affected by legislation enacted during the next five years, including decisions about discretionary spending. The effects of future legislation are not included in this figure.

    Filed under: Economics, Policy

    Estate Tax

    Norman Ornstein has a nice ed piece on the estate tax. He makes the point that eliminating the estate tax would remove the incentive for charitable giving by the wealthy.

    The ‘Death Tax’ Should Be Reformed – Not Eliminated
    Dramatic reductions in the estate tax are good politics and good policy. Elimination of the estate tax may turn out to be good politics, especially if Republicans continue successfully to redefine it as a death tax. But it is bad and counterproductive policy.

    Filed under: Economics, Policy, Politics

    CBO Budget Estimates

    The CBO has released the latest deficit numbers…

    The Budget and Economic Outlook: An Update
    A sharp decline in tax revenues coupled with double-digit growth in spending will produce a deficit of about $157 billion in fiscal year 2002, CBO estimates. If current tax and spending policies are maintained, deficits are likely to persist for a few years before giving way to small surpluses.

    Filed under: Economics, Policy

    Supply-Side Returns

    So, you thought supply-side economics was dead (or at least wounded)? Perhaps it’s still kicking about. (See quote below).
    Quick supply side primer:
    1. (Weak version) If you decrease income taxes, you remove a disincentive to work, which may lead to an increase in output as people increase the quantity of labor they supply at a given pre-tax wage.
    2. (Strong) The size of the effect from the Weak version above is so strong that the increase in the number of hours worked, increases in employment, output, etc, will actually lead to an increase in tax revenue. This, in principle, might happen because, even though tax rates are lower, the tax base might be so much larger so as to increase revenue.
    When you think of Reaganomics, or Supply-side economics as cited in the press – think of the Strong version.
    Most economists will agree with the weak version, or at least the notion that tax decreases by themselves would not decrease output.
    Most economists will also disagree with the Strong version. All evidence points to the fact that the size of the tax effect simply is not strong enough to create a revenue increase.
    Roughly speaking, the only people who still really believe in the strong version are in congress or the administration who like the idea of tax cuts without costs.

    The New Republic Online: The Champion
    Moments later, when asked how much the tax cut will contribute to the deficit in future years, he replied, “If it contributes to greater economic growth down the road, it’ll be a positive factor. Now, I believe it will, and so does the president.” So Daniels has embraced the hoary notion–repudiated even by radical supply-siders–that cutting taxes at current rates will increase tax revenues. Meanwhile, the official position of Daniels’s own office is that the tax cut will contribute 40 percent to the deficit over the next decade.

    Is this just spin or does White House Budget Director Mitch Daniels really believe this?

    Filed under: Economics, Policy, Politics