Category: Aside

A walk through the Ryan budget proposal

Since the budget deal was announced, I’ve been wondering what was in it. It’s hard to imagine that it really works like this:

“This is an agreement to invest in our country’s future while making the largest annual spending cut in our history,” Obama said.

However, it seems that there isn’t really much substance to the deal yet, so I thought I’d better look instead at one target: the Ryan budget roadmap. The CBO recently analyzed it, and put the $ conveniently in a spreadsheet.

Like most spreadsheets, this is very good at presenting the numbers, and lousy at revealing causality. The projections are basically open-loop, but they run to 2084. There’s actually some justification for open-loop budget projections, because many policies are open loop. The big health and social security programs, for example, are driven by demographics, cutoff ages and inflation adjustment formulae. The demographics and cutoff ages are predictable. It’s harder to fathom the possible divergence between inflation adjustments and broad inflation (which affects the health sector share) and future GDP growth. So, over long horizons, it’s a bit bonkers to look at the system without considering feedback, or at least uncertainty in the future trajectory of some key drivers.

There’s also a confounding annoyance in the presentation, with budgets and debt as percentages of GDP. Here’s revenue and “other” expenditures (everything but social security, health and interest):

RevenueOtherTransientThere’s a huge transient in each, due to the current financial mess. (Actually this behavior is to some extent deliberately Keynesian – the loss of revenue in a recession is amplified over the contraction of GDP, because people fall into lower tax brackets and profits are more volatile than gross activity. Increased borrowing automatically takes up the slack, maintaining more stable spending.) The transient makes it tough to sort out what’s real change, and what is merely the shifting sands of the GDP denominator. This graph also points out another irritation: there’s no history. Is this plausible, or unprecedented behavior?

The Ryan team actually points out some of the same problems with budgets and their analyses:

One reason the Federal Government’s major entitlement programs are difficult to control is that they are designed that way. A second is that current congressional budgeting provides no means of identifying the long-term effects of near-term program expansions. A third is that these programs are not subject to regular review, as annually appropriated discretionary programs are; and as a result, Congress rarely evaluates the costs and effectiveness of entitlements except when it is proposing to enlarge them. Nothing can substitute for sound and prudent policy choices. But an improved budget process, with enforceable limits on total spending, would surely be a step forward. This proposal calls for such a reform.

Unfortunately the proposed reforms don’t seem to change anything about the process for analyzing the budget or designing programs. We need transparent models with at least a little bit of feedback in them, and programs that are robust because they’re designed with that little bit of feedback in mind.

Setting aside these gripes, here’s what I can glean from the spreadsheet.

The Ryan proposal basically flatlines revenue at 19% of GDP, then squashes programs to fit. By contrast, the CBO Extended Baseline scenario expands programs per current rules and then raises revenue to match (very roughly – the Ryan proposal actually winds up with slightly more public debt 20 years from now).

RevenueIt’s not clear how the 19% revenue level arises; the CBO used a trajectory from Ryan’s staff, not its own analysis. Ryan’s proposal says:

  • Provides individual income tax payers a choice of how to pay their taxes – through existing law, or through a highly simplified code that fits on a postcard with just two rates and virtually no special tax deductions, credits, or exclusions (except the health care tax credit).
  • Simplifies tax rates to 10 percent on income up to $100,000 for joint filers, and $50,000 for single filers; and 25 percent on taxable income above these amounts. Also includes a generous standard deduction and personal exemption (totaling $39,000 for a family of four).
  • Eliminates the alternative minimum tax [AMT].
  • Promotes saving by eliminating taxes on interest, capital gains, and dividends; also eliminates the death tax.
  • Replaces the corporate income tax – currently the second highest in the industrialized world – with a border-adjustable business consumption tax of 8.5 percent. This new rate is roughly half that of the rest of the industrialized world.

It’s not clear that there’s any analysis to back up the effects of this proposal. Certainly it’s an extremely regressive shift. Real estate fans will flip when they find out that the mortgage interest deduction is gone (actually a good idea, I think).

On the outlay side, here’s the picture (CBO in solid lines; Ryan proposal with dashes):

OutlaysYou can see several things here:

  • Social security is untouched until some time after 2050. CBO says that the proposal doesn’t change the program; Ryan’s web site partially privatizes it after about a decade and “eventually” raises the retirement age. There seems to be some disconnect here.
  • Health care outlays are drastically lower; this is clearly where the bulk of the savings originate. Even so, there’s not much change in the trend until at least 2025 (the initial absolute difference is definitional – inclusion of programs other than Medicare/Medicaid in the CBO version).
  • Other noninterest outlays also fall substantially – presumably this means that all other expenditures would have to fit into a box not much bigger than today’s defense budget, which seems like a heroic assumption even if you get rid of unemployment, SSI, food stamps, Section 8, and all similar support programs.

You can also look at the ratio of outlays under Ryan vs. CBO’s Extended Baseline:

OutlayRatios

Since health care carries the flag for savings, the question is, will the proposal work? I’ll take a look at that next.

Crazy orbital dynamics

An asteroid has been discovered sharing earth’s orbit, with a horseshoe-shaped orbit (from an earthbound reference frame).

asteroid

The arXiv blog has a nice summary:

Near-Earth asteroids are common but SO16 is in a category of its own. First and foremost, it has an exotic horseshoe-shaped orbit (see diagram above) which astronomers believe to be very rare.

Its worth taking a few moments to think about horseshoe orbits. Two points are worth bearing in mind. First, objects further from the Sun than Earth, orbit more slowly. Second, objects that are closer to the Sun orbit more quickly than Earth.

So imagine an asteroid with an orbit around the Sun that is just a little bit smaller than Earth’s. Because it is orbiting more quickly, this asteroid will gradually catch up with Earth.

When it approaches Earth, the larger planet’s gravity will tend to pull the asteroid towards it and away from the Sun. This makes the asteroid orbit more slowly and if the asteroid ends up in a orbit that is slightly bigger than Earth’s, it will orbit the Sun more slowly than Earth and fall behind.

After that, the Earth will catch up with the slower asteroid in the bigger orbit, pulling it back into the small faster orbit and process begins again.

So from the point of view of the Earth, the asteroid has a horseshoe-shaped orbit, constantly moving towards and away from the Earth without ever passing it. (However, from the asteroid’s point of view, it orbits the Sun continuously in the same direction, sometimes more quickly in smaller orbits and sometimes more slowly in bigger orbits.)

For SO16, the period of this effect is about 350 years.

Even simple systems like the three-body problem can yield analytically intractable and surprising solutions, but this is the weirdest I’ve yet seen (and the competition is stiff this week). It even inspires poetry in the comments.

Production functions – so pretty, so unphysical

I’m rediscovering my old frustrations with aggregate production functions like the CES. They’re handy, but I have a nagging suspicion, never quite formalized, that they just don’t capture the engineering/thermodynamic realities of substitution. Anyone know any papers on that? I’m aware of critiques of KLEM applications, but not interfuel aggregation.

prodFimages

Click to enlarge. From a google images search for production function.

Vensim->Forio Simulate webinar tomorrow

Tomorrow I’ll be co-hosting a free webinar on development of web simulations using Vensim and Forio. Here’s the invite:

VENSIM/FORIO WEBINAR: How to create web simulations with Vensim using Forio Simulate

Vensim is ideally suited for creating sophisticated system dynamics simulation models, and Ventana UK’s Sable tool provides desktop deployment, but how can modelers make the insights from models accessible via the web?

Forio Simulate is a web hosting application that makes it easy for modelers to integrate Vensim models into end-user web applications. It allows modelers working in Vensim to publish VMF files to a server-based installation of Vensim hosted by Forio. Modelers can then use the interface design tool to create a web interface using a drag-and-drop application. No programming is necessary.

Date:
Wednesday, March 23rd @ 1 PM Eastern / 10 AM Pacific

Presenters:
Tom Fiddaman from Ventana Systems, Inc.
Billy Schoenberg from Forio Online Simulations

Cost:
Free

In this free webinar, Tom Fiddaman and Billy Schoenberg will show how Vensim modelers can combine interactive web applications with Vensim.

The webinar will cover:

1. Importing your Vensim model into Forio Simulate for use on the web.
2. Exploring your model with the Forio Simulate Model Explorer
3. Creating a web based user interface without writing code
4. Expanding past the drag and drop UI designer using Forio Simulate’s RESTful APIs

This webinar is suitable for all system dynamics modelers who would like to integrate their simulation into a web application.

There is no charge to attend the webinar. Reserve your spot now at https://www2.gotomeeting.com/register/474057034

Monday tidbits- tools, courses

I neglected to cross-post an interesting new Vensim model documentation tool that’s in my model library.

Shameless commerce dept.: I’m teaching Vensim courses in Palo Alto in April and Bozeman in June. Following the June offering, Ventana’s Bill Arthur will be teaching “SMLOD” – Small Models with Lots of Data – a deep technical dive into the extraction of insight from large datasets.

Knowing Sooner

SEED magazine recently published an article on models for managing complex systems. In it, I talk about the C-ROADS experience. It nicely captures the punchline:

having the capacity to accurately predict the utility of proposed policy—whether it be domestic legislature or multilateral agreements—in real time while discussions are ongoing, opens the door for an entirely new way to enact policy.

I get too much credit for C-ROADS in the article; here are some of the people who really made it happen:

CI teamThe ClimateInteractive team: Travis Franck, Drew Jones, Stephanie McCauley, Phil Sawin, Beth Sawin, and Lori Siegel. Many other partners have also been instrumental, including John Sterman (MIT), Peter Senge (SOL), and really too many others to mention.

The secret to successful system dynamics modeling

Whenever a student wandered in late to a lecture at MIT, Jim Hines would announce, “… and that’s the secret to system dynamics.” If you were one of those perpetually late students, who’s struggled without the secret ever since, I will now reveal it.

”The key to successful modeling is to keep one’s understanding of the model and what it says about the problem ahead of its size.” – Geoff Coyle, via JJ Lauble at the Vensim forum.

Maintaining understanding is really a matter of balancing model testing and critique against creation of new structure, which requires a little discipline in your modeling process. A few suggestions: