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Philip G. Joyce Maryland School of Public Policy August 30, 2011.

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

1 Philip G. Joyce Maryland School of Public Policy August 30, 2011

2  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

3  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

4  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

5  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”

6  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

7  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

8  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”

9  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

10  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?)

11  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

12  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

13  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”)

14  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

15  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

16  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

17  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?

18  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?

19  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)?

20  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?

21  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?

22  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

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