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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 of 1974 Goals of 1974 Budget Act

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the congressional budget office honest numbers power and policymaking

The Congressional Budget Office: Honest Numbers, Power and Policymaking

Philip G. Joyce

Maryland School of Public Policy

August 30, 2011

the congressional budget office
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
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
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
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
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
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
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
Comparing CBO Role in Clinton and Obama Health Reforms
  • 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
  • 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
ii key challenges for cbo
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
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
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
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
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
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
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
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
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
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
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
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
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