I have been a huge fan of the Congressional Budget Office since it opened its doors more than three decades ago. It's a critically important part of the congressional budget process and has had a big positive impact on the outcome of many, many policy debates.
Many of CBO's biggest successes have been hidden from view, especially when it's assessments have stopped expensive ideas that otherwise might have been debated from moving forward or from being considered in their original forms. In other cases -- especially when it determined that Bill Clinton's health care reform plan should be counted on-budget -- its impact has been widely noted. Indeed, CBO's assessment of the Clinton plan is often credited with it's demise.
But as this report from Brian Faler at Bloomberg points out, especially when it comes to big policy changes like health care, CBO's estimates are often not just wrong, but by hundreds of billions of dollars wildy inaccurate.
Faler's article is most interesting because the only people he quotes are current and former CBO directors, and all speak very candidly about the extreme difficulty in doing what the organization is asked to do when it comes to major policy changes like health care.
For example, current Director Doug Elmendorf (that's him above) says CBO's cost estimates
“often depend on projections of economic or political developments that are very hard to foresee.”
In other words, they're may be guessing.
Former Director Douglas Holtz-Eakin (again, look above) is quoted as saying,
“...it’s hard to anticipate the cost-cutting implications that come out of the private sector -- they’re fundamentally imaginative, they have a lot on the line and they do better than you would guess sometimes.”
Note Doug's use of the word "guess."
And Former Director Rudy Penner (above, just for consistency) says,
“In an ideal world Congress would recognize the uncertainty around these numbers and a good part of the debate would be, ‘What will we do if the cost of this turns out to be higher than CBO estimated?"
Or lower.
In other words, someone should always say up front that CBO's numbers should not be taken as gospel.
You're right. Someone should
You're right. Someone should say that. Luckily, someone does. The following is from the CBO website (http://www.cbo.gov/aboutcbo/faqs.shtml):
"How accurate are CBO's budget projections?
By statute, CBO's baseline projections must estimate the future paths of federal spending and revenues under current law and policies. The baseline is therefore not intended to be a prediction of future budgetary outcomes; instead, it is meant to serve as a neutral benchmark that lawmakers can use to measure the effects of proposed changes to spending and taxes. So for that reason and others, actual budgetary outcomes are almost certain to differ from CBO's baseline projections. For a related discussion, see Chapter 1 of CBO's Budget and Economic Outlook; see also The Uncertainty of Budget Projections: A Discussion of Data and Methods for supplemental information."
Something that bothers me is
Something that bothers me is a guess that CBO does not make. In its Long-term Budget Outlook projections of deficits and debt-to-GDP, CBO assumes the same set of GDP growth rates for every scenario. They do not factor into their projections the assumption that, as deficits and debt-to-GDP start to grow as projected, real interest rates would likely rise, suppressing GDP growth (or worse). Therefore, as bad as the curves look, they actually significantly understate how rapidly our fiscal situation will spiral out of control if we continue on our current fiscal policy course.