Heritage’s Rosy View of Ryan Budget

April 5, 2011 at 4:52 pm

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.Analysis of Ryan Budget Plan Assumes Huge Drop in Unemployment

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.

I explained here why I didn’t think Rosy Scenario prepared the Obama forecast, but she sure seems to have her fingerprints all over this one.  The Heritage analysts are pretty forthcoming in explaining how they grafted their own supply-side assumptions about labor force participation and investment responses to budget and tax changes on to the macroeconomic model owned and operated by IHS Global Insight, Inc, a leading economic forecasting firm.  Global Insight didn’t use those assumptions.  Presumably, it would have incorporated them into its model if it thought that would produce the most accurate forecasts.

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More About Chad Stone

Chad Stone

Chad Stone is Chief Economist at the Center on Budget and Policy Priorities, where he specializes in the economic analysis of budget and policy issues. You can follow him on Twitter @ChadCBPP.

Full bio | Blog Archive | Research archive at CBPP.org

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