The Congressional Budget Office Honest Numbers Power and

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The Congressional Budget Office: Honest Numbers, Power and Policymaking Philip G. Joyce Maryland School

The Congressional Budget Office: Honest Numbers, Power and Policymaking Philip G. Joyce Maryland School of Public Policy August 30, 2011

The Congressional Budget Office � Created by the Congressional Budget and Impoundment Control Act

The Congressional Budget Office � Created by the Congressional Budget and Impoundment Control Act of 1974 � Goals of 1974 Budget Act ◦ Make Congress a stronger player in budget process ◦ Encourage Congress to look at overall fiscal policy � CBO’s Role in This ◦ Provide an alternate economic and budget forecast ◦ Inform the Congress on the impact of economic and budget decisions ◦ Do cost estimates of legislation ◦ All of this is to happen in a nonpartisan manner

How Is CBO Organized? � Director Chosen by Congressional Leadership ◦ 8 directors since

How Is CBO Organized? � Director Chosen by Congressional Leadership ◦ 8 directors since creation ◦ Four nominal Democrats and four nominal Republicans ◦ First director was Alice Rivlin � CBO ◦ ◦ Organization Budget Analysis Division—budget baseline, cost estimates Macroeconomic Analysis Division—economic forecast Policy Analysis Divisions—do longer term studies Total of approximately 250 employees

I. Lessons from CBO’s Past � Rivlin made something ambiguous into something concrete �

I. Lessons from CBO’s Past � Rivlin made something ambiguous into something concrete � Leadership was key to developing and sustaining culture � Key events, mostly related to Presidential proposals, solidified CBO’s role and reputation � CBO has tended to keep executive branch (OMB) honest � CBO Role in Clinton v. Obama health reform

Ambiguity, then Clarity � Statute said director and staff appointed “without regard to political

Ambiguity, then Clarity � Statute said director and staff appointed “without regard to political affiliation” � Rivlin clarified that into nonpartisan BEHAVIOR, and no recommendations � She also made it clear that CBO would to an alternate economic forecast and baseline � Key initial event was March 1975 meeting where three goals set: ◦ Agency highly respected and nonpartisan ◦ Initiative kept within CBO ◦ Major written products “in a form readable by Congressmen”

Importance of Leadership � Initially Rivlin and other leaders establishing culture ◦ Drilling ethic

Importance of Leadership � Initially Rivlin and other leaders establishing culture ◦ Drilling ethic of nonpartisanship into employees ◦ Uncompromising (stubborn? ) in sticking to vision, in spite of efforts by some in Congress � Subsequent directors reinforced that vision ◦ Penner-”a Republican Alice Rivlin” ◦ O’Neill—resisted the pressure to gut the organization ◦ Crippen and Holtz-Eakin (even coming from Bush administration) on dynamic scoring

Key Events Shaping CBO’s Credibility � Initial Carter budgets and Carter energy policy �

Key Events Shaping CBO’s Credibility � Initial Carter budgets and Carter energy policy � Reagan budget proposals in 1981 � Gramm-Rudman and “rosy scenarios” � Health reform 1994 � Health reform 2009/10 � Default debate 2011 � Without exception, these involved Presidential proposals

Keeping the Executive Branch Honest � Formally ◦ Economic and budget forecast ◦ During

Keeping the Executive Branch Honest � Formally ◦ Economic and budget forecast ◦ During some periods, had to compare estimates � Informally ◦ OMB forecasts moderated by knowledge that CBO will weigh in ◦ Give support to OMB career staff arguing for the “right” analysis � CBO has replaced OMB as the source of “honest numbers”

Comparing CBO Role in Clinton and Obama Health Reforms � Similarities ◦ Widely understood

Comparing CBO Role in Clinton and Obama Health Reforms � Similarities ◦ Widely understood that CBO role important ◦ Focus on deficit effects ◦ President elevated CBO ◦ WH interested before the fact ◦ Influence not “grabbed” but “given” ◦ Support by Budget Committees � Differences ◦ Clinton “all or nothing”; Obama iterative ◦ Obama: Advance signals from CBO on scoring, budget treatment issues ◦ Congress v. President (Clinton); House v. Senate (Obama) ◦ Big public event (Clinton); lots of smaller milestones (Obama) ◦ CBO better positioned analytically for Obama

II. Key Challenges for CBO � How does the agency organize to integrate policy

II. Key Challenges for CBO � How does the agency organize to integrate policy analysis and budget analysis? � When does skepticism become bias? � When is nonpartisanship just an excuse for conservatism? � How does it stay in the mainstream of economic thought? � Can CBO have influence when no one is listening? � How high a profile should CBO maintain? � How does CBO maintain credibility of its estimates? (Why should we trust CBO? )

Budget Analysis and Policy Analysis � Crucial initial decision—separating policy analysis from budget analysis

Budget Analysis and Policy Analysis � Crucial initial decision—separating policy analysis from budget analysis ◦ Important because BAD could protect the program divisions and allow them to cultivate clients ◦ Fear was that organizing by function would lead to budget analysis forcing out budget analysis � Challenges ◦ Resisting stovepipes where the two “sides” of CBO do not communicate ◦ Policy analysis can be disconnected from the calendar ◦ Budget analysis can fail to account for most recent thinking

Skepticism, or Bias? � Budget office are skeptics � There is good reason for

Skepticism, or Bias? � Budget office are skeptics � There is good reason for this, since people ARE trying to get a free lunch � Holtz-Eakin--CBO’s null is not that CBO is right; it’s that you are wrong � This means, however, that CBO is potentially biased against innovative ideas � It may be that this is just an effective counterbalance against fuzzy thinking � It opens agency up to, at a minimum, lots of frustrated clients

Nonpartisanship, or Conservatism? � Norm of nonpartisanship preserves CBO’s influence � Manifests itself in

Nonpartisanship, or Conservatism? � Norm of nonpartisanship preserves CBO’s influence � Manifests itself in “on the one hand, on the other” ◦ But sometimes there is no credible argument on the other hand � Might nonpartisanship become an excuse for saying nothing? (like the Fed) � Particular challenge—budget process and concepts changes ◦ Reischauer—BBA is a “cruel hoax” (as opposed to “supporters say” and “opponents say”)

CBO and Economic Assumptions � Macro--CBO Tries to Stay in the Mainstream ◦ Panel

CBO and Economic Assumptions � Macro--CBO Tries to Stay in the Mainstream ◦ Panel of Economic Advisers ◦ Informal checks--Blue Chip Forecast, executive forecast � Tax Estimates Not Done by CBO � Dynamic Scoring ◦ Have always included behavioral effects ◦ But how far do you go? ◦ Estimates of Bush budget in 2003 found little economic feedback effects ◦ Again, bias is toward the middle of the mainstream

When No One is Listening � Analysis is just analysis � CBO directors have

When No One is Listening � Analysis is just analysis � CBO directors have sometimes tried to exercise influence more informally ◦ Rivlin with Carter energy ◦ Various directors and the media � Good example of CBO warnings going unheeded was analysis of GSE risks ◦ CBO warnings began almost 20 years before the eventual takeover ◦ CBO not alone here—GAO, OFHEO, Fed ignored as well � This is a particular problem for policy analysis products � In case of cost estimates, Congress has to listen

How Public a Role? � Problem from the beginning (1977 House report on support

How Public a Role? � Problem from the beginning (1977 House report on support agencies led with statement that CBO “maintains too high a profile”) � Substantial attention, from the beginning, to quality of work � Key unanticipated role of CBO has been public education, through media

How Does CBO Maintain Credibility? �A lot of this is just attention to nonpartisanship

How Does CBO Maintain Credibility? �A lot of this is just attention to nonpartisanship � In addition, it is crucial for CBO to maintain an internally consistent set of rules (may be more important than “accuracy”) � It is challenging when the baseline lacks credibility � CBO can be more transparent about its forecasting record than its cost estimating record � Should more effort be made (and can it) to evaluate and publicize cost estimating successes and failures?

III. What About Other Countries? � Does political system support independent legislative budget authority?

III. What About Other Countries? � Does political system support independent legislative budget authority? � Is there a need for keeping the numbers “honest” and what is the best structure for that? � Does the analytical capacity exist? � Are there other reforms that are more important?

Independent Budget Authority � U. S. by Design, has separate and equal branches �

Independent Budget Authority � U. S. by Design, has separate and equal branches � Is that a good idea? ◦ In other countries? ◦ Even in the U. S. ? � Difficult to have legislative independence without independent analytical capacity ◦ Does this rob essential institutions (MOF)?

Keeping the Numbers “Honest” � Is a tendency for governments to produce self-serving numbers

Keeping the Numbers “Honest” � Is a tendency for governments to produce self-serving numbers � An independent fiscal institution can offset that tendency � Does this create unnecessary confusion? � Is a CBO-type organization the only option for maintaining honesty? � What are other possible means?

Does the Analytical Capacity Exist? � Necessary analytical capacity ◦ Macroeconomic forecasting ◦ Budget

Does the Analytical Capacity Exist? � Necessary analytical capacity ◦ Macroeconomic forecasting ◦ Budget (cost) analysis ◦ Policy analysis � Are there universities producing such expertise? � Does an independent fiscal agency simply dilute the available capacity?

Are Other Reforms More Important? � There may be MUCH larger problems than the

Are Other Reforms More Important? � There may be MUCH larger problems than the lack of an independent fiscal agency � Possibilities ◦ ◦ ◦ Economic and budget forecasting Accounting systems Treasury management Capital planning and budgeting Program evaluation � Any country should establish priorities for reform