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How to Think About the CBO

I want to link to some of the criticisms of the Congressional Budget Office that are flying around today, but I want to link to them with a disclaimer: These are not criticisms of the Congressional Budget Office. These are criticisms of how the Congressional Budget Office's work is being used by politicians and interpreted by the media.

The CBO was formed in the Budget Act of 1974. It exists for a simple reason: to help Congress build the budget. In order to do that, the CBO develops estimates of how much things cost, because that's what the people writing the budget need to know. Those estimates are, as you'd expect, biased toward costs and away from savings: What we will save if a policy works as hoped is always a lot less concrete than what we will spend.

This is a good approach for the agency charged with giving Congress budget numbers. It is not how we'd set up an agency charged with advising Congress on how to vote on policy. Which is why the CBO does not allow itself to advise Congress on whether something is a good idea. It limits itself to how much it thinks that thing will cost, and how much the CBO can confidently predict it will save.

Making things better is always something of a gamble. Few policies are a sure thing, and new policy approaches are hard to assess precisely because they have never been tried before. You probably want to pay for a new approach conservatively, emphasizing sure costs over likely savings. That's good budgeting. But when deciding whether to pursue a new approach, you don't want to make that judgment conservatively. You want to ask whether this is worth a try. That's a question the CBO can't ask. But it is the question that their numbers are being used -- by both sides -- to answer.

By Ezra Klein  |  July 29, 2009; 12:26 PM ET
Categories:  Budget  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Eight Reasons to Pass Health-Care Reform
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When both sides are biased and are throwing out pretty numbers that support their cause I think people just end up talking past each other. I personally like having at least one group charged with looking at things in an objective manner to cut through the BS.

Posted by: spotatl | July 29, 2009 12:42 PM | Report abuse

Excellent, excellent point.

Said differently, Obama has pledged to make health care reform deficit neutral, and rather than raising taxes to cover it all, he's relying in part on cost-savings. This was a policy and political choice.

PS I wrote a comment earlier on the op-ed piece, but rather than it posting, I was redirected to a page that said "Thanks for the comment, the blog author needs to approve." 1. Can you? 2. Why did that happen?

Posted by: wisewon | July 29, 2009 12:56 PM | Report abuse

In a 2004 study on medical imaging in Canada,[79] it was found that Canada had 4.6 MRI scanners per million population while the U.S. had 19.5 per million. Canada's 10.3 CT scanners per million also ranked behind the U.S., which had 29.5 per million.[80]

Why Ezra, why? Could it be that the market system is superior than the command and control? Could it be that by nature and through the market system people seek to invest their money where there is a higher return? The US has made the investment in MRI's and CT scans because there was a higher return on investment due to demand. When the market becomes saturated, demand goes down, the profit will go down, then the investment will turn elsewhere, where there is demand. The result is an equilibrium. Or to put it more concisely, there is a tendency in a free market toward the establishment of a uniform rate of profit on capital invested in all different industries.
The result is that the industry is well served, the patients are well served. They are not waiting in line like they are in Canada or in Britain.

You can't get this equilibrium through command and control system. Either the patient is underserved or the investor (the investor might be anyone with a 401k or savings.) is underserved. Or both are underserved. That is exactly what is happening with your plans. I advise you to visit a library and study some economics before bloviating all over the internet about something you

Posted by: HayeksHeroes | July 29, 2009 1:30 PM | Report abuse

I have collected some critiques here:

I disagree with your generally sanguine view of CBO. Given Heinzerling & Ackerman's work in the book Priceless, it's naive to think that media won't dwarf so-called "soft variables" (like increased security and labor mobility that would come from a well-designed exchange and public plan) in favor of reporting the "hard" costs. Moreover, as the work of Tim Westmoreland has shown, the rules of the estimates systematically obscure the full range of benefits of programs designed to increase human welfare.

When you're projecting 10 years into the future, all manner of values sneak into ostensibly "objective" estimates.

Posted by: pasqualefrank | July 29, 2009 2:02 PM | Report abuse

Ezra...did you miss my previously posted comment? I wrote a piece based around CBO estimates and included my link in a comment on your 8 things piece, and then you immediately follow up with your own CBO piece, without so much as a mention? Throw a dog a bone, man.

In case you missed it:

I just finished doing a quick analysis with the CBO numbers and was shocked to find that the House bill manages to cover uninsured persons at roughly 1/3 the cost of the Senate HELP bill. Granted both bills are drafts, and CBO's analyses are preliminary, but if one of the goals of reform is increased coverage, and another goal is efficiency, shouldn't this be a rather important finding? Come take a look and give me your comments. Spread the word on this.

Posted by: bradwright1 | July 29, 2009 12:40 PM

Posted by: bradwright1 | July 29, 2009 2:08 PM | Report abuse

Ezra has it exactly wrong. If you go boldly in a direction that the budget staff can tell you is going to bend the cost curve in the opposite direction, you can end up with a calamatous budget situation like ones that are being experienced around the nation right now. California has been much too generous especially in the state share of higher education costs for decades. Massachusetts embarked on a universal health care plan that now requires disenrollments to keep within existing funding.

One thing is absolutly certain. There is more pain in disenrolling people from an existing program than not getting those people on the program in the first place. The politics of disenrollment are worse. People have adjusted to getting something for free so they are not used to having to scramble, fight, and work for it. Disenrollment is horrible, and if a federal health care reform bill is not passed paying close attention to the budget estimates, I can almost assure you that 10-20 years from now we as a nation will determine that we will have to reduce costs (disenrollment) to stay competitive in a a very competative world.

The Baucus/Grassley bill is looking very, very good to me right now.

Posted by: lancediverson | July 29, 2009 2:29 PM | Report abuse

The Republicans used to whine about how the CBO refused to engage in dynamic scoring of the effect of tax cuts.

Now Democrats whine about how the CBO refuses to engage in dynamic scoring of the effect of programmatic changes.

Posted by: ostap666 | July 29, 2009 2:29 PM | Report abuse

" because there was a higher return on investment due to demand. When the market becomes saturated, demand goes down, the profit will go down"

This might be true in some markets; it is certainly not true in the medical market. If there are more MRI's, physicians will simply prescribe more tests. This is especially true if the MRI machines are owned by doctors, but even if they are not, just having them around increases the number of tests. Everything looks like a nail to a man with a hammer.

The last three times one of my physicians wanted an MRI, I refused.

"They are not waiting in line like they are in Canada or in Britain."

You might do a little research here. Don't foget that everyone in other countries who needs a procedure, gets it, while thousands in the US do without; their wait times are infinte. Don't believe everything you hear from the Republicans. Start here then you can look at if you want to see the raw data.

Posted by: lensch | July 29, 2009 2:35 PM | Report abuse

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