Static analysis, static projection, and static scoring are terms for simplified analysis wherein the effect of an immediate change to a system is calculated without respect to the longer term response of the system to that change. Such analysis typically produces poor correlation to empirical results.
Its opposite, dynamic analysis or dynamic scoring, is an attempt to take into account how the system is likely to respond to the change. One common use of these terms is budget policy in the United States, although it also occurs in many other statistical disputes.
The term was used in 1977 in an international academic journal, in a discussion of tax policy. In recent years, it has become very common in academic, business, and political discussions of US government economic policy.
A famous example of static analysis comes from overpopulation theory. Starting with Thomas Malthus at the end of the 18th century, various commentators have projected some short-term population growth trend for years into the future, resulting in the prediction that there would be disastrous overpopulation within a generation or two. Malthus himself essentially claimed that British society would collapse under the weight of overpopulation by 1850, while during the 1960s the book The Population Bomb made similar dire predictions for the US by the 1980s.
Similarly, some scientists used a short-term trend of temperature declines during the 1930s to theorize that the world would be in an ice age by 1978. As with the overpopulation theories, the projection was less accurate than a roll of the dice because it didn't take into account how factors interact, nor how a short-term trend was being treated like a long-term trend.
For economic policy discussions, predictions that assume no significant change of behavior in response to change in incentives are often termed static projection (and in the US Congressional Budget Office, "static scoring"). By contrast, dynamic scoring refers to projections based on historical response of population to the effect of economic policy changes such as tax increases or cuts.
Typically, static analysis works for very simple systems: for example, how fast snow is accumulating in what is thought to be the midpoint of a blizzard. But even then it must be tempered with rationality—guess how much longer the storm might actually last, rather than assuming that snow will fall continually for the next sixty years, and project the average of the storm so far, rather than plotting the curve of its growth as if that will continue to increase for the second half.
However, when applied to dynamically responsive systems, static analysis tends to produce results that are not only incorrect but opposite in direction to what was predicted, as shown in the following applications.
Presidents from John F Kennedy to Ronald Reagan  were explicit in their recognition of the apparent paradox that while static scoring would suggest a change in taxes will produce revenue change commensurate with the tax, in reality revenue tends to change in the opposite direction, due to the response of those affected.
The empirical evidence for this is available but not widely discussed. Several references, both from economic and political sources, draw on data demonstrating the difference between static scoring of a tax policy change, and the actual result.
Some have criticized the notion of a technological singularity as an instance of static analysis: accelerating change in some factor of information growth, such as Moore's law or computer intelligence, is projected into the future, resulting in exponential growth or hyperbolic growth (to a singularity), that suggest that everything will be known by a relatively early date.
Satire: safety razors
A satire on this idea has been presented using the development of safety razors: After their invention, all safety razors were single-bladed for 70 years. Then the first double-bladed razor was introduced. It only required 15 years for a third blade to be added, and then one year for the fourth and fifth. Fitting these five data points to a hyperbolic curve produced the prediction that within nine years of the calculation—by the year 2015—safety razors would have an infinite number of blades.
- Alen J. Auerbach (7 January 2005), Dynamic Scoring: An Introduction to the Issues (PDF), American Economic Association, retrieved 2010-03-31
- Masaaki Homma (1977). "A comparative static analysis of tax incidence". Journal of Public Economics (Elsevier Science B.V.) 8111 (1): 53–65. doi:10.1016/0047-2727(77)90028-7. Retrieved 2010-03-31.
- "Address to the Economic Club of New York". 14 December 1962. Retrieved 2010-03-31.
In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.
- "President Reagan's Farewell Speech". 11 January 1989. Retrieved 2010-03-31.
Common sense told us that when you put a big tax on something, the people will produce less of it. So, we cut the people's tax rates, and the people produced more than ever before.
- "A Capital Gains Primer". Wall Street Journal. 15 October 2007. Archived from the original on 2008-01-30. Retrieved 2010-03-31.
- "The Reagan Tax Cuts: Lessons for Tax Reform". April 1996. Retrieved 2010-03-31.
The criticism that the tax payments of the rich would fall under ERTA was based on a static conception of human behavior. As a 1982 JEC study pointed out, similar across-the-board tax cuts had been implemented in the 1920s as the Mellon tax cuts, and in the 1960s as the Kennedy tax cuts. In both cases the reduction of high marginal tax rates actually increased tax payments by "the rich," also increasing their share of total individual income taxes paid.[dead link]
- Note that the issue of budget deficits is completely separate and even more complex, as it depends not only on government revenue-affecting tax policy but also expense-affecting spending policy.
- "More blades good". The Economist. 16 March 2006. p. 78. Retrieved 2007-10-19.