Presentation on theme: "Philip G. Joyce Maryland School of Public Policy August 30, 2011."— Presentation transcript:
Philip G. Joyce Maryland School of Public Policy August 30, 2011
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
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
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
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”
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
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
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”
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
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?)
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
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
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”)
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
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
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
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?
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?
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)?
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?
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?
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