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The Congressional Budget Office Should Serve The People, Not Politics

Memo Pad Politics

The Congressional Budget Office Should Serve The People, Not Politics

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The CBO’s projections often miss the mark, but its mandate is to produce a politically useful number.

The admirable Jared Bernstein entirely misses the point in his post about recent critiques of the Congressional Budget Office. Floyd NorrisZachary Karabell, and Dean Baker have noted how often the CBO gets it wrong, and how it influences policy in damaging ways. I wrote last March in Harper’s Magazine that there should be a shadow CBO to correct and decipher CBO pronouncements.

Jared counters that CBO economists are simply following ”state of the art” economics most of the time. What state of the art? Hasn’t confidence in “economic science” been sorely tested by the 2008 crash? It should have been tested long before that tragic event. In 2003, Robert Lucas said that we had solved the problems of depression. In 2005, Milton Friedman said that he wondered why so many people were worried about the economy because to him it appeared so stable—this at the height of the subprime mortgage boom. In 2008, Olivier Blanchard said macro was in good shape.

Jared notes that the CBO assumes public spending will crowd out private spending as an example of how it follows textbook economics. That’s right, it does, and often entirely incorrectly. Textbook economics is getting a grilling by many macroeconomists these days.

The point is that the CBO’s mission is all wrong. Jared kind of acknowledges this; he adds in parentheses they should give ranges, not single-point forecasts. But that is not a parenthetical point. It is the heart of the matter.

CBO economists can’t make single-point projections with any confidence, so why do they? These forecasts are often terribly misleading. The recent minimum-wage report, as I noted on Next New Deal, is a perfect example. Everyone took the CBO’s midpoint number as an actual projection. Why? Because the CBO said it was in just those words. That is its mandate. In addition, the CBO’s “non-partisan” label is taken to mean “objective,” and to non-practitioners, its projections simply reflect some hard, politically unbiased analysis.

Just like Wall Street bankers, politicians want a forecast that is a single number they can use. A range of projections does not have as much political force as a single number with the authority of the “non-partisan” CBO. In other words, the CBO is meeting the needs of its clients, not the needs of the nation.

It’s time to change the CBO’s mandate fundamentally. These economists should produce ranges, they should explain as much as the project, and they should get over their habit of hiding the most important qualifications of their analysis in footnotes and appendices, thereby covering themselves (and perhaps relieving their guilt).

The state of economics simply doesn’t warrant the certitude that the CBO almost always implies—and then qualifies, as I say, in the footnotes. It would be very useful if Jared Bernstein himself led a charge in reforming the CBO’s mission. That doesn’t mean firing the economists there. It means having them do what economists can do, and not do what they can’t.

Jeff Madrick is a Senior Fellow at the Roosevelt Institute and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

Cross-posted From Rediscovering Government.

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

Photo of CBO Director Doug Elmendorf: University of Michigan’s Ford School via Flickr

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5 Comments

  1. disqus_ivSI3ByGmh March 3, 2014

    To paraphrase the old joke, the only thing any two economists ever agree on is the third economist has it wrong.
    So, we know supply side is almost as much of a success in practical economics as cold fusion is to energy production. Both assume things will react in a certain way when certain conditions are available. One has proven to be speculative fiction, and the other is still being worked on by physicists.

    Reply
  2. Sand_Cat March 3, 2014

    I like the Despair.Com definition of economics:
    The science of explaining tomorrow why the predictions you made yesterday didn’t come true today.

    Reply
  3. Daniel Jones March 3, 2014

    The art of the grift!

    They are confidence men in the truest sense!
    CBO is a pack of grifters grifting on the grift for grifters in office.

    Reply
  4. Independent1 March 3, 2014

    I totally agree with virtually everything Jeff Madrick says. It’s been my feeling for years that the CBO’s 10-year projections are about as accurate as the National Weather Service trying to forecast exactly what the weather will be next year at this time – quite often very inaccurate.

    Just as an example: The economists at the CBO had no more of an idea of just how Americans would view Obamacare and therefore sign up for it, than the local gypsy down the street has in telling your by looking in her crystal ball. Yet they came out with an asinine single number estimate of 7 million supposedly signing up for Obamacare by 3/31/14; which of course the GOP hung its hat on and is using in some of its trashy negative Obamacare ads.

    As Jeff Madirck says in his article: “The point is that the CBO’s mission is all wrong. Jared kind of acknowledges this; he adds in parentheses they should give ranges, not single-point forecasts. But that is not a parenthetical point. It is the heart of the matter. CBO economists can’t make single-point projections with any confidence, so why do they? These forecasts are often terribly misleading.”
    At best, the CBO’s forecastl should have been a range something like 4-8 million are projected to sign up by 3/31/14; not a finite number that one of the political parties could grab onto and use in negative advertising, Like: Obamacare is failing!! Only 4 million have signed up by 2/28!! Obama’s disaster will never reach the CBO’s projection of 7 million by 3/31!! The sky is falling!! Obamacare just has to be repealed, it’s never going to work!!
    If Congressional Politicians aren’t mathematically inclined enough to use a range of numbers when crafting and voting on legislation, my suggestion is to vote them out of office and vote in people who have a few more brains. Problem is today that a large number of our politicians in Congress don’t even have enough brains to balance their checkbooks.

    Reply
  5. jointerjohn March 4, 2014

    I’m not taking any advice from Milton Friedman. He thinks the most ideal economy on the planet is Hong Kong. I’d rather hear a temperance lecture from Robert Downey Jr.

    Reply

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