When It Comes to the CBO, Hypocrisy Is Bipartisan
(Bloomberg Opinion) -- The nonpartisan Congressional Budget Office is typically less popular with the party in power. During various Republican presidencies, Republicans would propose tax cuts and make exaggerated claims about the revenue and extra economic activity that would result. The sober CBO was always there to inject a dose of reality, and was usually closer to being right than Republicans were.
In Republican administrations, unsurprisingly, Democrats are full of praise for the CBO. It represents the kind of technocratic thinking and numbers orientation that has a longstanding tradition in the party.
The CBO also was a major player in the scoring of the Affordable Care Act in 2010. Was Obamacare budget-neutral or perhaps even a fiscal positive over a 10-year time horizon, as President Barack Obama’s administration claimed? The CBO ruled that it was, paving the way for Democrats to support Obamacare while still claiming the mantle of fiscal responsibility. Obamacare was designed precisely to get this kind of sign-off from the CBO, a sign of respect for the institution and its credibility.
Again, many Republicans did not agree, arguing that Obamacare contained some long-term fiscal time bombs that the CBO was not taking proper account of. One of those factors came into play in 2019, when Congress and the president decided the “Cadillac tax” on high-quality health insurance was unnecessary and repealed it.
Now there is a Democrat in the White House — and, predictably, it is rare for Democratic economists praise the CBO. They prefer to criticize or sometimes just to ignore it.
Earlier this year the CBO said that a federal $15 minimum wage would eliminate 1.4 million jobs. The Democratic establishment, which had been considering the idea of inserting such a minimum wage hike into the American Rescue Plan, did not welcome this judgment. Meanwhile, many academics also did not side with the CBO. Arindrajit Dube of the University of Massachusetts, a self-described social democrat, argued against the CBO interpretation of the research literature and suggested the loss of employment would be much lower.
My own view is closer to that of the CBO. But my larger point is contextual: It is not obvious whether Dube or the CBO is right or wrong. A person operating in good faith can look at the evidence and take either side of the argument.
At the same time, it is useful to think of the CBO as a source of relatively conservative assessments of economic policy, with the word conservative being used in the temperamental rather than ideological sense. If you can’t convince the CBO, maybe you should go back to the drawing board. Your idea might be right, or more likely to be right, but hard-to-reverse policy changes require better than a 51% chance of correctness for their passage to make sense.
Before enacting a large increase in the minimum wage, in other words, Congress should be pretty sure it won’t throw so many Americans out of work. The CBO’s judgment showed that the policy did not meet that standard.
The CBO is a group of highly trained experts, and most of its employees live in strongly “blue” metropolitan Washington. Educated people in this area lean all the more strongly Democratic in their voting behavior. So while the CBO enforces a kind of conservatism of analytical spirit, in another way it is hardly stacked against liberal ideas.
Recently the CBO issued a working paper considering what would happen if U.S. government expenditures were to consume an additional 5% to 10% of GDP. The results are pretty grim: By 2030, because of higher taxes and higher borrowing, the level of GDP would be 3 to 10 percentage points lower. The largest losses are suffered by young Americans, who would go through more of their lives with a lower capital stock, leading to lower wages. Worse yet, the losses are highest when the spending is financed by progressive taxation — a very popular idea in today’s Democratic Party.
As with the CBO’s minimum-wage analysis, you may not agree with every aspect of this study. The authors themselves note that it neglects any productivity gains that might follow from the expenditures. Still, these estimates represent a real challenge to those who favor more government spending.
This analysis has mostly been ignored rather than attacked, which is unfortunate for those of us who would prefer a robust debate. In the meantime, “If you can’t even convince the CBO” seems like a good standard of proof for Democrats to accept — and one they themselves insisted on not very long ago.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include "Big Business: A Love Letter to an American Anti-Hero."
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