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so pen Wharton budget model started about 7 years ago that's right how did it get started and what was the Genesis
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of the idea behind it yeah it was really members of Congress who I already was having conversations with they they were
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they really wanted a analysis not after they wrote the legislation not after it went to a chairperson maybe what went
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over to like the CBO or some of the other scoring agencies they wanted analysis at the very beginning while
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they're actually writing legislation so they wanted to know what was the effects
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before they put their reputation on the line what's the effect on the budget
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what's the effect on the economy what's the effect on people welcome to the
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ripple effect the podcast that takes you on a journey through the minds of wart and faculty I'm your host Dan Loney and
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in each episode we'll be diving deep into the inspiration behind the groundbreaking research that Wharton
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professors have conducted and exploring how their findings resonate with the world today well a pleasure to be joined
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right now by Ken Mets who is a professor of business economics and public policy
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here at the Wharton School as well as faculty director of the Penn Wharton budget model Kent great to see you again
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great to be back fair to say when we're talking about economy and economics right now that we're in a period of time
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where there is more interest on what's occurring and how it's occurring than
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maybe we've seen in in times past yeah it definitely true it's the last time
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we've really had this type of focus especially given the focus on inflation it's been over 40 years you have to go
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back to the early 1980s Ronald Reagan first term to really see this level of interest and also that people are
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understanding that you know inflation is this real phenomenon it's not just you
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know a textbook issue that the Federal Reserve has to worry about it really has a big pocketbook issue as well so pen
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Wharton budget model started about seven years ago that's right how did it get
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started and what was the Genesis of the idea behind it yeah it was really members of Congress who I already was
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having conversations with they they were they really wanted uh analysis not after
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they wrote the legislation not after it went to a chairperson maybe what went over to like the CBO or some of the
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other scoring agencies they wanted analysis at the very beginning while they're actually writing legislation so
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they wanted to know what was the effects before they put their reputation on the
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line what's the effect on the budget what's the effect on the economy what's
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an effect on people and um that's really how we operate very differently we do a
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lot of analysis it's not even on our website directly with policy makers on both sides of the aisle who just are
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looking for an understanding of the impact of their legislation and before they put pen to paper before they put
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the reputation on the line so then in the landscape of what's going on in Washington right now what do you think
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the benefit has been of having a resource like that to be able to bring this type of information forward it's
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ultimately about credibility we become known very much as the honest broker at any point in time one side May really
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dislike us for our analysis honest in Washington DC sometimes that's a challenge it is because there's a lot of
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groups in uh DC that call themselves nonpartisan they're really for tax purposes because you can give to a
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nonpartisan deduct the uh amount that you're giving um even though they're
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doing a lot of advocacy in terms of issues and things like that we are not just nonpartisan we go one step further
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we're nonnormative what that simply means is that we'll never advocate for a
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policy we'll simply do the analysis as what we think is the best as possible
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and let the numbers just be what they are CH let the chips fall where they may and um at any point in time one party
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May love that number and uh another party May hate that number but if you look at at who asks us for numbers it's
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coming from both sides of the aisle now if you look at our free certificate program that we do in Washington DC that
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is available to anybody interest in policy but not surprisingly a lot of capital staff it's basically evenly
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split between both parties and so even yes uh people on both sides have said that they find our our numbers often
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scary when they're writing legislation they still respect it how much then do
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you also think that it it has while maybe it wasn't the intentional goal right from the outset of also focusing
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on the issue of bias that we see play out in and around Washington DC as well yeah there's a lot of problems with the
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metrics that are traditionally used in Washington DC so Republicans typically focus on just a macro outcome Democrats
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on distributional outcome economists have never believed that either measure is the right one to look at a policy and
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in particular we want to have things are much more integrated uh so something that may look bad for a low-income
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person simply because they happen to be young may actually be good for them over
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a lifetime if it happens to grow the economy and so it we have a much more integrated approach that actually
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combines uh everything and also we don't truncate uh like under current rules a
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lot of analysis under current law is done on their fiveyear or 10year budget so anything that is like a preas
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spending program is always going to look bad under 10 budget because you spend all the money up front and those you
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know four-year-olds are not going into the workforce until decades later and so whenever you truncate you're creating
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this bias and so we really uh work hard to remove biases and really focus on good economics and and Analysis I mean
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it's true in many ways what economists have focused on have been clever insights and so forth they've never
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built their models to actually do real policy work uh and the policy work that's often done is really from an
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advocacy perspective we're trying to bring the actually make economics useful
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in many ways and bring bring the rigor of analysis tie our hands in a way that the the the process has to be rigorous
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and um let the chips swall where they make May and let economics be really useful where where does the funding
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component come from for pen Warton budget model sure wa it's partly alumni and partly that we get grants from
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different uh large organizations and so uh what we do is really make it clear to
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everybody that our analysis is our analysis and if you uh look at what we have done in the last you know five
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years with for example the tax cuts and jobs Act was largely liked by Wall Street but in fact we came out and said
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it's going to have very little effect on the economy and on top of that it will
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um cost a lot more than what the government's official numbers were and after it got passed the government
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official numbers then came right up to ours they did a technical revision and came right up to our numbers and so it
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then if you look at the uh infrastructure bill that was uh passed a couple years ago and then last year the
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inflation reduction act our analysis really played a key role in those legislation both sides of the Isis said
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are analysis was pivotal for for their members in both cases you know highly cited by both by Advocates of those
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policies hand we also showed neither policy was going to energ ISAC ony like you know The Advocates were trying to
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say and so um not not terribly surprising there's lots of overstepping that happens in the political process do
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you see even interest from outside the political realm like uh even the public in general because as I said there's
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such more of an interest in seeing what has been going on and trying to understand it a little better that the
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public is diving more into something like ped Mor budget model to have a better understanding of what what's
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going on right you I would say just because of our size we're uh around 30 people with two offices philadelph in DC
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we have to be somewhat focused and our main policy audience has been policy makers them them themselves having said
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that we have definitely tried to write briefs and articles that on public legislation so this is the legislation
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that's actually been introduced um either as a bill or signing the law um that's accessible on our website but
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even there I will admit that sometimes uh things can get a little little Advanced when you're trying to explain
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hard to understand Concepts and and so we certainly are trying to do a better job of that over time and give people
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tools like simulators that they can try to understand things with I I will say that you know our modeling is often
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takes hours to run across 75,000 threads in many T cases running paralyzed Computing very detailed calculations
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trying to break that down and make it really understandable it's it's a it's
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always been at chore and we we continue make improvements but we're not there
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yet but that under that element of understanding uh becomes that more important even for those members uh on
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Capitol Hill or their aids to have a better framework of understanding of what x might have an impact instead of Y
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as we move forward with some of this legislation right I mean I think it's really important a couple things one is
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that we're as transparent as possible possible with the mechanisms that were
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including and not including um that were credible that we are not an advocacy um
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organization but immediately um it's still going to be hard for staff to on the Capital Hill even trained staff to
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really understand everything that's kind of going on because there's a lot so
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we're working hard to really document things first for the experts who could
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validate and understand what's going on and making sure that uh for everybody
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else that work communicating in a way that is as straightforward as possible knowing that we're never going to get
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that completely right and so uh we live in a country where just basic financial literacy is often very challenging and
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um we're not going to solve all those problems we're going to try to do best
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we can with our limited headcount so obviously one of the big stories right now involves the debt uh which has been
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talked about a lot how then does pen Warton budget model look to try and address some of the issues that are out
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there in around uh the level of debt that we have in this country yeah the debt is it continues to increase
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relative to the size of the economy there's no end in sight on that and um right now neither side is proposing
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really anything that will address that and so that's a very scary Outlook in
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the sense that um that's happened at the same time a large carbon debt is accumulating and it you know if you
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think things are a little bit kind of crazy now in the politics and the world and so forth um this is is actually the
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good time because we actually are very Capital flush right now in the United States and the world as a lot of people
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are going into retirement they have a lot of retirement Savings in a a decade from now we're going to see a lot of
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that saving um have uh disappeared and as a result of that or continue to disappear and um as a result we're
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really have this convergence between a debt that's spiraling out of control carbon's still going to keep on going to
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where it's going and then um the resources of the uh the capital deepening that we have right now is
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going to go away and so it is one of those things we're really trying to get
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people to look down the the the road a lot more than they currently are you know both sides have taken strict
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positions or what they're willing and not willing to do you know the fact of
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matter is if you're not willing to raise taxes on those making less than $400,000
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a year which the Democrats have said um there's not enough money left over and
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the high income the high wealth and so forth every everybody thinks that there's tons of money up there they
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they're not understanding the size of the imbalance rate now there's just not
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enough money up there there has to be broad-based uh either increase in revenue or decrease in spending and then
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on the other side of the aisle the Republicans are also taking you know positions about no new tax increases but
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we're not going to touch int tellement programs either well that doesn't add up
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either so both sides really need to come to grips with the situation and what we're going to do is we're really in the
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past what we done is we've created these policy uh these different policy options
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but they typically were things like uh before the 2017 tax cuts and jobs act or the infrastructure bill or IRA or before
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that um build back better or some of the cash payments and we lay out the options
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and the policy makers a lot of times are picking one of those options that's what
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they form in the law what we're going to be doing going forward is also uh creting these policy bundles because
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there's lots of interactions between things like what you do social security
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and the rest of the economy and the rest of the tax bases and we're going to be looking at those um big
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bundles and trying to show people first the path that we're on this is not sustainable it literally will collapse
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the economy if we don't do something but secondly then layout here is different
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options uh for dealing with this and they all have different trade-offs and just let's be super transparent um about
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that is that the the concept that the belief that the idea of the bundle is going to be something that we're going
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to be talking about more and more you're bringing some of these elements together
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kind of under one package as we move forward I think so I mean usually the politics is you know you try to be
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incremental make small changes the problem with incrementalism is first of all it's too late for that in the United
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States um we've uh we're really too far along in the debt path uh so we need um
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to make bigger changes sooner but the second is some people feel like actually what happens with those incremental
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changes is that you've had too many people who benefit from that particular tax provision or spending provision they
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Lobby intensely and maybe now is the day for the Big B for the big bundles uh that worked our way in where you know
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everybody's a loser in some ways today but we're making these Investments for
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the future Generations Kent always great to talk with you and get your Insight on all of
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these things thanks very much and all the best with the pen Warton budget model and for people that do want to
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follow it the website is you can simply Google pen Warton budget model and that will be actually the easiest to fine all
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right great thanks Kent all the best to you thank you thank you Wharton school's
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Kent smetters thank you for listening to the ripple effect we hope you found this
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episode informative and engaging don't forget to subscribe and leave us a review so that we can continue to bring
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you the best Insight from the warten school