Use of “economic models” to mislead the public

thumonscaleThe Washington Policy Center, a right-leaning think tank, published a report today with a terrifying title: “Economic model shows Superintendent Dorn’s proposed tax increases would cost 18,500 jobs“. This is “truthy”, AN economic model did show this. Of course, THIS economic model ALWAYS shows job losses from proposed public policy proposals.

Economic model shows Superintendent Dorn’s proposed tax increases would cost 18,500 jobs |Washington Policy Center  Economic model shows Superintendent Dorn’s proposed tax increases would cost 18,500 jobs | Washington Policy Center.

The model in question, the STAMP model, is often used by people who want to make a point. The Policy Center, and this author in particular often have their thumb on the scale when they describe the impact of actually funding our K12 system. For an alternate viewpoint on a similar discussion in Arizona, the link below discusses a comparison of three different economic models, models based on the same basic set of data about the economy.

They are looking at a remarkably similar issue – the impacts of a $1 billion increase in the sales tax in Arizona, an increase I believe they did in the end. The other two economic models showed the exact opposite – an increase in jobs in Arizona. The conclusion from the University of Arizona analysis is:

Both the model structure and the parameter assumptions suggest  that the STAMP model was both designed and specified in a way that biases the  results toward the findings of very low impacts of government expenditures and  very high impacts of tax increases.

UA Estimates of Tax/Expenditure Impacts Compared to those of the Goldwater Institute (prepared by Beacon Hill) and REMI. | Economic and Business Research Center, Eller College of Management, University of Arizona http://ebr.eller.arizona.edu/research/articles/2010/compare_ua_remi_stamp_simulations.asp

You can say almost anything you want about economics and get a study to “prove” it. This article from the Policy Center is unlikely to say anything interesting because of its use of the STAMP model. It’s yet another example of the Policy Center not providing data and analysis in a way that can actually be used by policymakers. By not providing a balanced view of the variety of economic models out there it makes the analysis almost painful to read, and not trustworthy.

About Ross

I'm proud to represent Bellevue, Redmond, Kirkland, Medina, Clyde Hill, Hunts Point, and Yarrow Point in the Washington State House of Representatives. I am chairman of the Appropriations Committee, responsible for crafting biennial budgets. I also chair the Washington State Economic and Revenue Forecast Council.
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4 Responses to Use of “economic models” to mislead the public

  1. degsme@hotmail.com says:

    >>Representative Ross Hunter calls into question the use of economic models as a tool to better inform the public<>I don’t disagree with using economic models to make decisions.<>It is up to the public, and the public servants who represent them, whether this
    dead weight loss is an acceptable price to pay for the benefits of the new services the state spending would create.<<

    Your reasoning here is circular. YOUR model – one that is not subject to peer review – and which I suspect has the assumption of "dead weight loss" built in – concludes there is dead weight loss. That's not particularly surprising given the ideological profile your organization has.

    And given the less than honest appraisal of what Mr Hunter responded – I'm rather surprised ANY University would associate itself with this sort of "commentary".

  2. degsme@hotmail.com says:

    The BHI is an ultraconservative think tank. It is not even part of a 1st or 2nd tier University environment and has never subjected its STAMP model to any sort of peer review. So the claims that somehow it is attempting to model “what happens when a dollar is moved from the private sector to the public sector” is

    A) Not validated as accurate
    B) dubious because we already have such measures in the form of Velocity of Money and Fiscal Multipliers
    C) Based in a presumption that there is a difference in outcomes

    all of which indicts this model.

    Having spent some time trying to understand the actual assumptions that BHI employs in its analysis – I have reached the conclusion that the reason they keep their model “proprietary” is precisely because they do not want an accurate econometric analysis done by peers.

    This in turn goes back to why BHI is associated with a minor university ; Peer Review of fundamental work is something that major universities demand of their institutes. And the only way to avoid this is by not being associated with such

  3. Ross says:

    I don’t disagree with using economic models to make decisions. It’s incredibly important to think through the possible implications of what we do. I disagree with using only one model; in particular a model that produces results that are significantly different than more mainstream models.

    My deeper concern is trying to have a veneer of scholarship over presenting a one-sided point of view. This is entirely appropriate in the political arena. The Beacon Hill people were hired by the Goldwater Institute in Arizona to make a one-sided argument, which they did. The Policy Center in Washington State does exactly the same thing, and you have to understand this point of view when evaluating the results of their advocacy.

  4. MHead says:

    Representative Ross Hunter calls into question the use of economic models as a tool to better inform the public (and public servants) about the costs and benefits of tax policy. In particular he is critical of Beacon Hill Institute’s State Tax Analysis Modeling Program (STAMP) suggesting it is unreliable and untrustworthy. His analysis is incorrect.

    A sales tax creates a tax wedge between the price that producers charge and the price consumers pay, reducing total demand for the good and in turn reducing total economic surplus. A share of this lost surplus becomes revenue to the state government, but some share is also lost and is referred to as a dead weight loss. The concept of dead weight exists in every major microeconomics textbook.

    It is up to the public, and the public servants who represent them, whether this
    dead weight loss is an acceptable price to pay for the benefits of the new services the state spending would create. It is the job of economists, of which economic modeling is an important and widely used tool, to identify these costs and benefits. To dismiss this tool merely because it states that a politician cannot have his cake and eat it too is painful to read, and not trustworthy.

    The Institute has always made available both the assumptions made in developing the
    model and the data used to generate results. We would be more than happy to discuss with Representative Hunter the assumptions or reasoning of why higher taxes lead to lower economic opportunities.

    Please see the full response, as well as details correcting the UofA paper at: http://www.beaconhill.org/STAMP-Method/Response-to-%20Rep-Hunter-WA-State.pdf

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