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so pen Wharton budget model started
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about 7 years ago that's right how did
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it get started and what was the Genesis
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of the idea behind it yeah it was really
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members of Congress who I already was
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having conversations with they they were
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they really wanted a analysis not after
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they wrote the legislation not after it
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went to a chairperson maybe what went
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over to like the CBO or some of the
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other scoring agencies they wanted
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analysis at the very beginning while
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they're actually writing legislation so
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they wanted to know what was the effects
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before they put their reputation on the
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line what's the effect on the budget
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what's the effect on the economy what's
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the effect on people welcome to the
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ripple effect the podcast that takes you
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on a journey through the minds of wart
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and faculty I'm your host Dan Loney and
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in each episode we'll be diving deep
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into the inspiration behind the
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groundbreaking research that Wharton
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professors have conducted and exploring
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how their findings resonate with the
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world today well a pleasure to be joined
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right now by Ken Mets who is a professor
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of business economics and public policy
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here at the Wharton School as well as
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faculty director of the Penn Wharton
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budget model Kent great to see you again
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great to be back fair to say when we're
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talking about economy and economics
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right now that we're in a period of time
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where there is more interest on what's
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occurring and how it's occurring than
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maybe we've seen in in times past yeah
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it definitely true it's the last time
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we've really had this type of focus
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especially given the focus on inflation
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it's been over 40 years you have to go
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back to the early 1980s Ronald Reagan
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first term to really see this level of
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interest and also that people are
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understanding that you know inflation is
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this real phenomenon it's not just you
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know a textbook issue that the Federal
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Reserve has to worry about it really has
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a big pocketbook issue as well so pen
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Wharton budget model started about seven
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years ago that's right how did it get
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started and what was the Genesis of the
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idea behind it yeah it was really
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members of Congress who I already was
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having conversations with they they were
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they really wanted uh analysis not after
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they wrote the legislation not after it
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went to a chairperson maybe what went
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over to like the CBO or some of the
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other scoring agencies they wanted
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analysis at the very beginning while
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they're actually writing legislation so
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they wanted to know what was the effects
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before they put their reputation on the
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line what's the effect on the budget
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what's the effect on the economy what's
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an effect on people and um that's really
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how we operate very differently we do a
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lot of analysis it's not even on our
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website directly with policy makers on
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both sides of the aisle who just are
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looking for an understanding of the
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impact of their legislation and before
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they put pen to paper before they put
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the reputation on the line so then in
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the landscape of what's going on in
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Washington right now what do you think
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the benefit has been of having a
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resource like that to be able to bring
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this type of information forward it's
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ultimately about credibility we become
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known very much as the honest broker at
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any point in time one side May really
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dislike us for our analysis honest in
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Washington DC sometimes that's a
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challenge it is because there's a lot of
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groups in uh DC that call themselves
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nonpartisan they're really for tax
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purposes because you can give to a
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nonpartisan deduct the uh amount that
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you're giving um even though they're
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doing a lot of advocacy in terms of
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issues and things like that we are not
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just nonpartisan we go one step further
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we're nonnormative what that simply
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means is that we'll never advocate for a
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policy we'll simply do the analysis as
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what we think is the best as possible
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and let the numbers just be what they
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are CH let the chips fall where they may
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and um at any point in time one party
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May love that number and uh another
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party May hate that number but if you
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look at at who asks us for numbers it's
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coming from both sides of the aisle now
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if you look at our free certificate
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program that we do in Washington DC that
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is available to anybody interest in
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policy but not surprisingly a lot of
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capital staff it's basically evenly
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split between both parties and so even
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yes uh people on both sides have said
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that they find our our numbers often
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scary when they're writing legislation
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they still respect it how much then do
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you also think that it it has while
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maybe it wasn't the intentional goal
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right from the outset of also focusing
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on the issue of bias that we see play
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out in and around Washington DC as well
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yeah there's a lot of problems with the
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metrics that are traditionally used in
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Washington DC so Republicans typically
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focus on just a macro outcome Democrats
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on distributional outcome economists
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have never believed that either measure
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is the right one to look at a policy and
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in particular we want to have things are
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much more integrated uh so something
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that may look bad for a low-income
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person simply because they happen to be
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young may actually be good for them over
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a lifetime if it happens to grow the
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economy and so it we have a much more
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integrated approach that actually
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combines uh everything and also we don't
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truncate uh like under current rules a
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lot of analysis under current law is
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done on their fiveyear or 10year budget
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so anything that is like a preas
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spending program is always going to look
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bad under 10 budget because you spend
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all the money up front and those you
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know four-year-olds are not going into
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the workforce until decades later and so
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whenever you truncate you're creating
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this bias and so we really uh work hard
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to remove biases and really focus on
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good economics and and Analysis I mean
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it's true in many ways what economists
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have focused on have been clever
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insights and so forth they've never
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built their models to actually do real
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policy work uh and the policy work
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that's often done is really from an
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advocacy perspective we're trying to
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bring the actually make economics useful
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in many ways and bring bring the rigor
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of analysis tie our hands in a way that
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the the the process has to be rigorous
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and um let the chips swall where they
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make May and let economics be really
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useful where where does the funding
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component come from for pen Warton
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budget model sure wa it's partly alumni
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and partly that we get grants from
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different uh large organizations and so
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uh what we do is really make it clear to
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everybody that our analysis is our
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analysis and if you uh look at what we
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have done in the last you know five
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years with for example the tax cuts and
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jobs Act was largely liked by Wall
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Street but in fact we came out and said
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it's going to have very little effect on
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the economy and on top of that it will
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um cost a lot more than what the
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government's official numbers were and
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after it got passed the government
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official numbers then came right up to
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ours they did a technical revision and
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came right up to our numbers and so it
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then if you look at the uh
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infrastructure bill that was uh passed a
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couple years ago and then last year the
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inflation reduction act our analysis
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really played a key role in those
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legislation both sides of the Isis said
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are analysis was pivotal for for their
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members in both cases you know highly
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cited by both by Advocates of those
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policies hand we also showed neither
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policy was going to energ ISAC ony like
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you know The Advocates were trying to
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say and so um not not terribly
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surprising there's lots of overstepping
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that happens in the political process do
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you see even interest from outside the
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political realm like uh even the public
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in general because as I said there's
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such more of an interest in seeing what
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has been going on and trying to
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understand it a little better that the
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public is diving more into something
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like ped Mor budget model to have a
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better understanding of what what's
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going on right you I would say just
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because of our size we're uh around 30
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people with two offices philadelph in DC
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we have to be somewhat focused and our
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main policy audience has been policy
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makers them them themselves having said
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that we have definitely tried to write
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briefs and articles that on public
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legislation so this is the legislation
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that's actually been introduced um
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either as a bill or signing the law um
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that's accessible on our website but
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even there I will admit that sometimes
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uh things can get a little little
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Advanced when you're trying to explain
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hard to understand Concepts and and so
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we certainly are trying to do a better
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job of that over time and give people
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tools like simulators that they can try
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to understand things with I I will say
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that you know our modeling is often
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takes hours to run across 75,000 threads
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in many T cases running paralyzed
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Computing very detailed calculations
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trying to break that down and make it
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really understandable it's it's a it's
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always been at chore and we we continue
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make improvements but we're not there
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yet but that under that element of
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understanding uh becomes that more
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important even for those members uh on
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Capitol Hill or their aids to have a
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better framework of understanding of
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what x might have an impact instead of Y
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as we move forward with some of this
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legislation right I mean I think it's
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really important a couple things one is
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that we're as transparent as possible
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possible with the mechanisms that were
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including and not including um that were
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credible that we are not an advocacy um
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organization but immediately um it's
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still going to be hard for staff to on
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the Capital Hill even trained staff to
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really understand everything that's kind
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of going on because there's a lot so
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we're working hard to really document
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things first for the experts who could
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validate and understand what's going on
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and making sure that uh for everybody
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else that work communicating in a way
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that is as straightforward as possible
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knowing that we're never going to get
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that completely right and so uh we live
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in a country where just basic financial
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literacy is often very challenging and
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um we're not going to solve all those
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problems we're going to try to do best
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we can with our limited headcount so
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obviously one of the big stories right
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now involves the debt uh which has been
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talked about a lot how then does pen
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Warton budget model look to try and
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address some of the issues that are out
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there in around uh the level of debt
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that we have in this country yeah the
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debt is it continues to increase
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relative to the size of the economy
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there's no end in sight on that and um
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right now neither side is proposing
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really anything that will address that
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and so that's a very scary Outlook in
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the sense that um that's happened at the
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same time a large carbon debt is
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accumulating and it you know if you
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think things are a little bit kind of
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crazy now in the politics and the world
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and so forth um this is is actually the
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good time because we actually are very
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Capital flush right now in the United
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States and the world as a lot of people
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are going into retirement they have a
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lot of retirement Savings in a a decade
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from now we're going to see a lot of
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that saving um have uh disappeared and
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as a result of that or continue to
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disappear and um as a result we're
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really have this convergence between a
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debt that's spiraling out of control
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carbon's still going to keep on going to
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where it's going and then um
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the resources of the uh the capital
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deepening that we have right now is
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going to go away and so it is one of
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those things we're really trying to get
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people to look down the the the road a
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lot more than they currently are you
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know both sides have taken strict
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positions or what they're willing and
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not willing to do you know the fact of
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matter is if you're not willing to raise
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taxes on those making less than $400,000
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a year which the Democrats have said um
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there's not enough money left over and
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the high income the high wealth and so
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forth every everybody thinks that
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there's tons of money up there they
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they're not understanding the size of
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the imbalance rate now there's just not
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enough money up there there has to be
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broad-based uh either increase in
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revenue or decrease in spending and then
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on the other side of the aisle the
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Republicans are also taking you know
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positions about no new tax increases but
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we're not going to touch int tellement
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programs either well that doesn't add up
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either so both sides really need to come
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to grips with the situation and what
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we're going to do is we're really in the
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past what we done is we've created these
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policy uh these different policy options
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but they typically were things like uh
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before the 2017 tax cuts and jobs act or
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the infrastructure bill or IRA or before
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that um build back better or some of the
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cash payments and we lay out the options
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and the policy makers a lot of times are
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picking one of those options that's what
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they form in the law what we're going to
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be doing going forward is also uh
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creting these policy bundles because
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there's lots of interactions between
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things like what you do social security
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and the rest of the economy
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and the rest of the tax bases and we're
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going to be looking at those um big
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bundles and trying to show people first
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the path that we're on this is not
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sustainable it literally will collapse
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the economy if we don't do something but
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secondly then layout here is different
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options uh for dealing with this and
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they all have different trade-offs and
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just let's be super transparent um about
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that is that the the concept that the
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belief that the idea of the bundle is
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going to be something that we're going
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to be talking about more and more you're
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bringing some of these elements together
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kind of under one package as we move
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forward I think so I mean usually the
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politics is you know you try to be
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incremental make small changes the
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problem with incrementalism is first of
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all it's too late for that in the United
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States um we've uh we're really too far
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along in the debt path uh so we need um
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to make bigger changes sooner but the
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second is some people feel like actually
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what happens with those incremental
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changes is that you've had too many
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people who benefit from that particular
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tax provision or spending provision they
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Lobby intensely and maybe now is the day
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for the Big B for the big bundles uh
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that worked our way in where you know
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everybody's a loser in some ways today
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but we're making these Investments for
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the future
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Generations Kent always great to talk
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with you and get your Insight on all of
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these things thanks very much and all
00:14:19
the best with the pen Warton budget
00:14:20
model and for people that do want to
00:14:21
follow it the website is you can simply
00:14:24
Google pen Warton budget model and that
00:14:26
will be actually the easiest to fine all
00:14:29
right great thanks Kent all the best to
00:14:30
you thank you thank you Wharton school's
00:14:32
Kent smetters thank you for listening to
00:14:35
the ripple effect we hope you found this
00:14:37
episode informative and engaging don't
00:14:39
forget to subscribe and leave us a
00:14:41
review so that we can continue to bring
00:14:43
you the best Insight from the warten
00:14:47
school
