WHEN the two congressional budget committees hold a joint hearing Tuesday on ``dynamic scoring,'' it will feature ``a cast of thousands,'' as one Capitol Hill wag put it.
Well, not really thousands, but certainly big names.
Though dynamic scoring, or dynamic analysis, may sound arcane, it is so important in Washington that Alan Greenspan, chairman of the Federal Reserve, and his predecessor, Paul Volcker, have been summoned to testify. So have Martin Feldstein and Michael Boskin, top economic advisers to Presidents Reagan and Bush, plus several others renowned in the field of economics.
Dynamic scoring is one way of measuring the impact on the economy and the budget of tax and spending proposals, such as those in the ``Contract With America'' put together by House Speaker Newt Gingrich.
Under present rules of Congress, any tax cuts or spending increases have to somehow pay for themselves, or be offset by tax hikes elsewhere or expenditure cuts. This necessitates that any such proposal must be ``scored'' by the Congressional Budget Office for its impact on revenues and outlays.
Republicans have called the CBO analysis ``static,'' saying it doesn't take account of the favorable boost to the economy and, thus, to federal revenues resulting from some of their proposals, such as lower capital-gains taxes.
Some Democrats see dynamic scoring as a phony technique for making feasible passage of the contract, including its promises of tax cuts, increased military spending, a reduction in the deficit, and a balanced-budget amendment. They don't see the plan adding up right.
That's why Wall Street economist Robert Parks terms the Republican promise a contract ``on'' America. ``If Newt Gingrich gets his way, big Al Greenspan will not sit idly by,'' says Mr. Parks. He expects the Fed chairman will assume that tax cuts will expand the deficit and threaten more inflation. So the Fed will raise interest rates further and brake, or break, the recovery. ``You can't divorce fiscal policy from monetary policy,'' he says.
As for dynamic scoring, Parks calls it ``ideological screaming. It has nothing to do with economic science.''
David Wyss, an economist with DRI/McGraw-Hill, a Lexington, Mass., consulting firm, doesn't go that far. ``Dynamic analysis is the right way to look at it,'' he says. ``But you have got to be honest in how you use it. The problem is it is so easy to misuse.''
That's why financial sophisticates are keen to see whom the Republicans name as successor to Robert Reischauer, the present head of the CBO. ``If they appoint someone that is political to that slot, it will kill the credibility of that institution,'' says Mr. Wyss. A decision is expected any day now.
To many analysts, the Gingrich contract presents an element of d vu. It reminds them of President Reagan's combination of massive tax cuts and a huge defense buildup in 1981. Supply-side economists held that the tax cuts would pay for themselves by stimulating the economy. With lower marginal tax rates, people would work harder and share some of the extra income with Uncle Sam in personal and corporate income-tax revenues.
``But Paul [Volcker] walked over to the printing presses and pulled the plug,'' recalls Parks. The result of the Fed's tight money was the worst recession since the 1930s.
With the Fed today similarly pulling reserves out of the banking system and not allowing any growth in the money supply, he predicts the recovery will fade into tiny growth or a recession this year. And that would ``balloon'' the federal deficit, as it did in 1982 and '83. The vast majority of economists, however, expect modest growth this year.
If the Republican-controlled CBO does an honest job of dynamic scoring on the contract, it would mean finding spending cuts to offset revenue losses - ``a big problem,'' notes Wyss. Then the budget changes will have little if any stimulative effect on the economy. ``There is no magic,'' says Wyss. Tax cuts don't prompt people to work twice as hard.
Wall Street's financiers know this. ``They aren't about to be suckered in with a bunch of smoke and mirrors,'' says a Capitol Hill expert. They would push up interest rates if they see larger deficits ahead. ``The financial markets will have the final say.''