Embattled CBO Director Defends Calculation of Economic Uncertainties
Some Republican ‘supply siders’ want more dynamic scoring of budget changes.
Congressional Budget Office Director Douglas Elmendorf, whose term expires in January, put out a blog post on Monday seeking to clarify how his agency handles the inherent uncertainty of budget estimates and the economic impact of legislation.
The piece comes as numerous conservative think tanks and free-market advocates are pressing for Elmendorf to be replaced with someone more willing to apply the supply-sider’s concept of “dynamic scoring,” primarily to show the impact of tax cuts on government revenue.
“We view our estimates as representing the middle of the distribution of possible outcomes,” Elmendorf wrote. “We frequently explain the estimates that way to members of Congress and their staffs, and we regularly discuss risks to our estimates.”
But there are limits on CBO’s ability to quantify uncertainties in such areas as tax cuts, the effects of raising the minimum wage or adding more competition to the Medicare system, he stressed. Elmendorf offered four examples of how to handle politically fraught estimates on macroeconomic effects of changes in fiscal policies. “We regularly provide both a ‘central estimate’ and a ‘range,’” he wrote. “The ranges allow for uncertainty about the response of labor supply to changes in tax rates, the effect of changes in budget deficits on national saving and international capital flows, and other factors, and they are intended to cover roughly two-thirds of the distribution of possible outcomes.”
In its July report on the long-term budget outlook, CBO showed what “would happen to the budget if four key underlying factors—the decline in mortality, the growth of productivity, interest rates, and the growth of health care costs—differed from the values that are used in most of the report.” Similarly, CBO’s analysts add information on a range of projections for Social Security based on the historical year-to-year variation in key demographic and economic factors, including fertility and mortality rates, interest rates, and the growth of productivity.
The reasons CBO is unable to provide more alternative analysis are multifold, Elmendorf wrote. So-called “point values” that are treated as certain are in sync with requirement of the congressional budget process, he said. Secondly “we often lack a strong analytical basis for constructing such ranges,” he added. The studies CBO draws from don’t always measure uncertainty, and there is often too little time to evaluate them, according to Elmendorf. “We are often rushing to finish analyses before congressional action on an issue is expected to occur,” he wrote, “and doing the additional modeling or gathering the additional information needed to quantify uncertainty can take considerable time.”
CBO is still working with legislators to make effective use of its existing quantification of uncertainty. “The profession is still in the fairly early days of this sort of analysis,” Elmendorf concluded. “As a result, policymakers’ direct use of our estimates of uncertainty is limited at this point, which in turn leads us to devote only a limited portion of our time to producing such estimates.”