Fall 2015 Brookings Panel on Economic Activity Weblogging: Greece: Doug Elmendorf on Dynamic Scoring

Fall 2015 BPEA 8:30 AM Fr: Twenty-two years and one month ago, after an OEOB meeting I spent carrying spears for David Cutler in one of his hopeless attempts to warn certain Assistant to the President for Health Policy precisely what reception his policy proposals would get from a CBO where Doug Elmendorf piloted the health-care desk, I returned to my office at the Treasury, and one of our career economists lectured me thus about dynamic scoring:

“Brad, you people come in with your exaggerated belief in the productivity benefits of public investment. And so you command us to score your policies as having a very favorable impact on the deficit. They come in with their exaggerated belief in the benefits of tax cuts. They command us to score their policies as having a very favorable impact. We cannot say we disagree with our bosses’ analytic judgments. But by holding the line and stating that we do not consider any macroeconomic effects of policies, we can at least prevent being whipsawed by this partisan rosy-scenario ratchet.”

Thus I find myself worrying about this:

I find myself thinking of CBO Directors past and future. I think of June O’Neill, talking over and over again about how her model showed substantial disemployment effects of universal health coverage, without ever letting past her lips any acknowledgement that the people whose jobs her model showed as “destroyed” had in fact moved to a higher utility level as a result. I find myself thinking of the persistent rumors that after Doug Elmendorf had wreaked his analytic wrath on Ira Magaziner, Majority Leader Mitchell had said to Bob Reischauer: “You are gone on January 4, 1995”.

One unintended side effect of the budget process introduced in the 1970s has been to give CBO and JCT great power, which they have by and large shouldered with great responsibility. But with great power comes great pressure. And it is not at all clear to me that, given the magnitude of this pressure, we want extra degrees of freedom in which these organizations can respond to the pressures they are under.

Yesterday, after all, I saw estimates of the dynamic revenue impact of Jeb!’s tax proposals that varied from negative–that the reduction in national savings would outweigh any positive incentive effects–to recouping 2/3 of the static revenue loss. And I imminently expect to see n estimate today that it will produce 4%/year real growth and thus raise revenue. It’s opening a can of worms. Doug and Peter may think the worms are dead. I fear they are not…

Doug Elmendorf: “Based on my experience as the director of CBO from January 2009 through March 2015…

…the principal concerns expressed about estimated macroeconomic effects of proposals apply with equal force to other aspects of budget estimates or can be addressed by CBO and JCT. In my view, including macroeconomic effects in budget estimates for certain legislative proposals would improve the accuracy of those estimates and would provide important information about the economic effects of those proposals. Moreover, if certain key conditions were satisfied, those estimates would meet the general goals of the estimating process that estimates be understandable and resistant to misinterpretation, based on a consistent and credible methodology, produced quickly enough to serve the legislative process, and prepared using the resources available to CBO and JCT.

September 11, 2015

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