(Bloomberg View) -- Whenever legislation wends its way to the floor of Congress, there is a breathless period when everyone waits to see what score it will get from the Congressional Budget Office and the Joint Committee on Taxation. That score will indicate whether the proposed law will increase the deficit, or decrease it, and how it will affect the public and the economy. Those findings, in turn, may well determine whether the bill lives or dies.
This process can be quite complicated; often a bad score forces legislators back to the drawing board to come up with some more pleasing bill. The architects of health-care reform spent a great deal of time tossing proposals at the CBO, seeing what the CBO model spat out and modifying things accordingly so that Democrats ultimately ended up with something that scored as both reducing the budget deficit and costing less than a trillion dollars over 10 years.
When Obamacare was finally voted on, critics (including me) complained that this iterative process of gaming the CBO scores was undermining the office’s ability to discipline the policy process. Many of the things Democrats came up with to get that score were outlandish and unworkable -- like strapping changes to an unrelated program (the student loan program) to Obamacare because it scored as reducing the deficit within the forecast window, and passing various taxes and add-on programs that ranged from politically fragile to completely disastrous, and seemed likely to expire in short order (as indeed, many of them did).
When the GOP passed its big tax bill, Democrats turned around and complained that Republicans were exploiting a hole in the CBO model that registered the repeal of Obamacare's individual mandate as saving an improbable amount of money (as indeed they were).
But both of these complaints are really a symptom of something larger: the fact that the CBO models are an inscrutable black box. We push bills into it; some numbers come out the other end. How were they generated? Further deponent sayeth naught.
In an essay at National Affairs, Matt Jensen, the director of the Open Source Policy Center at the American Enterprise Institute, argues that the inscrutability of these models ought to change. He makes a few basic points:
- The CBO and the Joint Committee on Taxation have privileged access to government data that could be very valuable for the rest of us
- The CBO and the JCT are actually forbidden to follow the data-sharing and model openness that are common in much of social science, making it impossible to replicate what they do
- This creates a bottleneck for policy analysis, because their staff resources are limited
- It also makes it impossible for outsiders to check what they do in anything like a timely fashion. The people at the CBO are very bright, very dedicated and very knowledgeable; I am second to none in my admiration for them. But at the end of the day, they are one, relatively small group of people. They are going to make mistakes, and their modeling practices will keep those mistakes from being caught.
In other words, Jensen concludes, everyone would be better off if the CBO opened its models.
He spends much of the rest of the essay exploring how the CBO might do so within reasonable constraints involving things like data privacy. But I won’t address those. Instead I’ll ask whether he’s right that the CBO should do this.
On its face, it seems like a crazy question. In the policy world, opposing transparency is a bit like opposing school lunches and mother-love. The one thing everyone can agree on is that more transparency is better.
But hold on: How many of us think that the world would be a better place if the CIA and the Defense Department were completely transparent about what they were going to do? (All right, Mr. Putin, put your hand down.) Most of the rest of us recognize that in fact, more transparency may make an organization less effective at its job.
So yes, transparency is a bad idea in strategic situations. But the CBO is not supposed to be strategic; it’s supposed to be informational. How could more information be worse?
More information can be worse. Consider what happened when well-meaning people decided that restaurants should display calorie counts. At great expense, restaurants calculated the calories -- and most studies found it made no difference. In one study, calorie intake seems to have actually increased, perhaps because customers decided that more calories meant greater value for money.
This is not the only instance of transparency going wrong. Consider a 2010 experimental study of the “lemons” problem, in which unscrupulous sellers palm off bad goods on unsuspecting customers and weaken the overall market for the product -- the classic example being used cars. This study found that even in markets with asymmetric information between buyers and sellers, some kinds of transparency could actually make the problem worse. If you want a more concrete example, mark-to-market accounting, in which firms are forced to frequently update the value of the assets on their books, probably made the financial crisis worse.
Transparency, in other words, is a great thing, but not an unalloyed good. So we have to ask what purpose the CBO’s lack of transparency actually serves. And the answer is that the very inscrutable nature of the models preserves the institutional authority that allows the office to discipline Congress from its more creative flights of fancy.
In its early years, for example, the CBO put the kibosh on a health-care bill proposed by Ted Kennedy, by estimating that it would cost about $185 billion over 5 years (about $900 billion in today’s dollars). Kennedy’s office had estimated that it would cost about a third that much. The CBO could provide that kind of counterweight to Kennedy (and also to the more overexuberant supply-siders) because its product is revered as The Number, with no ability to second-guess and backchat.
Now imagine a world with open CBO models. Every bill would still have a score, yes -- that’s mandated by law -- but then every score would have a dozen think-tanks slinging mud at the assumptions, and proclaiming that their iteration of the CBO model was producing the true results. Politicians would simply cherry-pick whichever model delivered them the most politically felicitous result. In fact, Republicans already inched perilously close to “Who cares what the CBO thinks?” during the passage of the recent tax bill.
And maybe the fact that the CBO is already under sustained attack means that the cost of breaking open its models for the world to see will be minimal. The benefits are certainly obvious: better modeling, faster modeling, more informed policy design in both the political arena and the wonkosphere.
But we should not forget about the costs, either, or dismiss them without careful consideration. A world in which all political argument proceeds by dueling models is not necessarily one in which the public is better informed. It might well be one in which the public is more deeply confused than ever, and the parties glaring at each other across our bitter partisan divide have even less common ground upon which to come to some decision.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
For example, that problem with the modeling of the individual mandate that has recently made Democrats so unhappy. It seems clear to me that the CBO overestimates the benefit of the mandate, and has done so for at least the better part of a decade. That’s only been clear to policy writers recently, and it seems to have taken an awfully long time to adjust the model to reflect observed empirical reality, which is that not nearly as many people signed up as the CBO kept expecting.
To contact the author of this story: Megan McArdle at mmcardle3@bloomberg.net.
To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net.
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