Budget Games

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Stan Collender tut-tuts at me for saying that the CBO process can be gamed.  He seems to think that I am inplying some dark conspiracy between the folks at the CBO, and Democrats in Congress. I confess, I have no idea how he derived this from an offhand observation that the CBO process can be gamed, but not infinitely.  But had he read any of my other writings on the subject, he would know that I have the highest respect for the CBO.  It is how the CBO is being used in the political process that I object to.


Let's think about the theoretical CBO--the institution that Alice Rivlin and her merry band of madmen dreamed into being in the wake of the Nixon presidency.  The idea is that Congress proposes legislation, and the CBO tells you how much that legislation costs.  Maybe you modify some provisions that cost too much or increase the deficit.  Then you pass the legislation. Or don't, if it turns out to be a bad idea.

But that is not how it was used in the health care process.  Rather, Democrats exploited the fact that the CBO has to score any law, however unlikely to be sustained, as taking effect and working as expected.

This is not a flaw in the CBO--except insofar as we live in an imperfect world where we need rules that unfortunately depart from godlike efficiency.  We don't want a CBO where the director starts guessing which laws are "likely" to stand, and which aren't.  There's too much room for a bad CBO director to start deeming any laws he opposes as being "unlikely".  

However, this creates a problem when--as with this legislation--there are hard targets for cost and deficit reduction, and overwhelming legislative will to pass the bill.  In my opinion, the Democrats have larded this bill with provisions that are politically very unlikely to operate as legislated.  And as evidence, I offer the fact that these provisions keep getting pushed back or weakened, particularly the excise tax, which is only barely in the budget window--and only hits the last year of Obama's (possible) second term.

So what you get is a piece of legislation where the actual cost/deficit reducing provisions aren't politically or even economically realistic (there's reason to be somewhat skeptical that you can simply mandate an across-the-board reduction in the rate of cost growth for various providers, while expanding coverage, as this bill does).  They don't have to be.  They get you the score that allows you to tell folks that you're reducing the deficit, even though you know that many of them may have to be undone later.

That's what I mean by gaming the system:  you pass politically unrealistic laws, which all the relevant interest groups expect to revisit before they take effect, solely in order to get a number.  And then you use the number to sell the bill.

That is not the fault of the CBO; they're doing their job (and a very fine job at that).  I'm not even sure it's the fault of legislators--I'm not sure they necessarily understand how the constant submit-and-revise-and-submit process has essentially selected, in evolutionary fashion, for a bill that is "fit" in the rarified world of the CBO's economic model, but may be completely unfit to survive the actual political environment.

But in my opinion, you will see the same thing done by Republicans, as Democrats scream that the CBO score is a meaningless piece of junk because, well, the CBO process has been gamed.  Once politicians understand the CBO model well enough to start writing never-never sections into its bills which generate an excellent score even though they are virtually certain to be repealed or revised, then the core mission of the CBO will be compromised.  Politicians will repeal the offending provisions, one by one, either in small chunks that don't smack us with a huge price tag, or as part of other bills.  The net effect will be to ratchet government spending, and the deficit, but those proposing the bills will just keep pointing back to the excellent CBO score that their bill got.

It's pretty clear to me from what Doug Elmendorf has been saying that he is also concerned about this effect; he has done everything but rent a skywriter to point out that if the revenue/cost cutting portions of the bill turn out not to be politically sustainable, we will be left with a budget-busting new entitlement.

But it is certainly not his fault that his office is being used this way, and I quite agree with Stan Collender that the CBO has emerged from this with its reputation for integrity untouched.  Unfortunately, I wasn't worried about the integrity of Doug Elmendorf, or his unbelievably hard-working team of analysts.  It's the rest of the government that keeps me awake at night.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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