Matt Yglesias

The OMB Strikes Back

Tim Fernholz has a good summary of the latest developments in the Orszag v. Elmendorf battle of the budgeteers:

The White House scored a point today in its ongoing battle to convince establishment Washington that health-care reform will succeed at cutting costs even as it expands coverage. The White House and budget director Peter Orszag, as well as the House Blue Dogs, are very bullish about allowing an independent board to pursue cost-cutting measures in Medicare. But when CBO scored the measure to determine if it would be succesful, they produced a very lukewarm estimate. Today, though, a group of health-care experts sent a letter [PDF] to Obama arguing that IMAC, the independent cost-cutting board, would be very effective if done right — and nine of the signatories are members of the CBO’s Panel of Health Advisers, nearly half the membership. It’s a good sign for the White House, and will help push the message that, while CBO’s scores are important, the assumptions made in that office are not carved in concrete.

Not surprisingly, according to Peter Orszag this is a huge victory for truth, justice, and Peter Orszag.

When thinking about both the politics and policy here, it’s important to distinguish between two different administration promises. One promise was that their proposal will be “paid for,” i.e. deficit neutral, over the course of the ten-year budget window. On that issue, the CBO’s word is God. The other promise was that their proposal will “bend the curve,” i.e. reduce the pace of health care cost increase relative to baseline. On that issue, the CBO’s word may matter, but it’s an inherently speculative enterprise and both the White House and Congress are free to see things however they think is best. IMAC is primarily about this latter issue.

In Defense of CBO Stodginess

CBO Director Doug Elmendorf

As the Congressional Budget Office has proven increasingly unhelpful to the Obama administration’s health reform drive, people are increasingly looking to take hits at the CBO itself. And with some good reason. Here’s Bruce Vladeck, who ran Medicaid and Medicare during the Clinton years, drawing some blood:

Put most simply, the CBO’s track record in predicting the effects of health legislation is abysmal. Over the last two decades, the CBO has routinely overestimated the costs of expanded government health care benefits and underestimated the savings from program changes designed to reduce expenditures. Most recently, it overestimated the five-year cost of Medicare Part D — the prescription drug benefit -— by more than 35%. Even more dramatically, the CBO’s estimates of the Medicare savings from the Balanced Budget Act of 1997 underestimated the impact, on average, by a full 100%. That’s right: In the BBA’s first three years, Medicare spending fell fully twice as fast as the CBO had projected.

Noam Scheiber piles on. I’ll say, though, that I don’t really think the CBO should change its methods. You need the CBO do be methodologically conservative in terms of what it’ll score or else all kinds of monkeybusiness can start flying through congress. Instead, let me join Ezra Klein in saying we should leave the CBO as it is and just discourage people from wildly misrepresenting the significance of CBO findings.

What you actually need is for politicians to step up and make independent judgments about what they want to do. Doug Elmendorf has decent reason for not wanting to promise that MedPAC reform will lead to vast savings. But members of congress actually serve in congress, and it would be eminently reasonable for them to reach the conclusion that the CBO is underrating how dramatically the proposed reforms would alter congressional behavior. The point is just that if members of congress want to reach that conclusion, they ought to do so under the banner of their own names and own judgment about the politics and policy.

Congress is also allowed to throw caution about medium-term fiscal issues to the wind if they want to. The CBO doesn’t have coercive authority over Senators. Max Baucus was instrumental in passing a gigantic, budget-busting tax cut for rich people eight years ago. If he decides he cares as much about the uninsured as he does about multi-millionaires, he can do what he wants. Insofar as he cares more about multi-millionaires than about the uninsured, the problem is with Baucus not the CBO.

That said, I think Brad DeLong makes a sound distinction here “I think Doug should have drawn a distinction between ‘we score this, and the savings are zero’ and ‘we can’t score this.’”

Will The CBO Score MedPAC Reform?

Ruth Marcus has a column joining the Obama administration in touting MedPAC reform, specifically altering the default rule regarding congressional involvement with MedPAC’s Medicare payment recommendations, as a good way to produce efficiencies in health care reform. I am also enthusiastic about this idea but it is important to note one wrinkle here. One thing that’s important in the health care debate is actually saving money over the long run. Another thing that’s not important but does carry a lot of political significance is fitting costs into the ten-year Congressional Budget Office scoring window.

Some things that reduce the CBO-scored cost, don’t actually generate any efficiency. Delaying implementation of your program, for example, makes it “look cheaper” to the CBO’s rule-based approach simply by exploiting the rules. But by the same token, some things that really would save money won’t necessarily be scored as saving money. And I worry about this with regard to MedPAC. The CBO can say easily enough that if such-and-such recommendations were adopted, that would save money. And it’s common sense to say that if you depoliticized the decision-making, certain expert recommendations that would be rejected under the current system would instead be adopted. But it’s not totally obvious to me how CBO analysts are supposed to score that. And when faced with uncertainty, the CBO tends to score very conservatively. As Jon Cohn explains:

Jay Rockefeller (D-WV)

The CBO, again, makes projections based on fairly conservative assumptions about the impact of efficiency changes to health care. In effect, it assumes the worst. As far it’s concerned, there are really only a handful of ways to substantially reduce costs–that is, to bend the cost curve down–over the long run. You can cap or eliminate the tax exclusion, which CBO believes will drastically alter incentives and put downward pressure on costs. You can create sort of automatic budget mechanism that reduces spending levels if savings don’t materialize over time. (The 1993-94 Clinton health care plan had something like this.) You can also take payment policy out of the hands of Congress and put it in the hands of an independent authority.

(Actually, CBO has only hinted that the last suggestion will work. We’ll learn more soon, if indeed Congress adopts a proposal along those lines that the administration and Senator Rockefeller are circulating.)

That parenthesis is important, since the MedPAC reform appears to be the main cost-cutting measure the administration is pushing on the Hill. And I think it’s a smart idea. But members of congress generally care much more about CBO scores than about reality. So if the CBO comes back and says “there’s a case to be made that this will save a ton of money but it’s hard to say for sure so we’re only going to predict very modest savings” then this could be a lot of work for little political payoff. By contrast, the CBO keeps indicating that it will score exclusion-curbing pretty aggressively which I think counts as a good reason to put some version of this back on the table.

Situational Love for the CBO

Hero of conservatism, destroyer of budgetary balance.

Sam Stein has a very good item on the right’s situational affection for Congressional Budget Office scores:

When the CBO predicted in 2004 that Bush’s new tax and spending proposals would produce deficits of $2.75 trillion over ten years, a spokesman for the White House Office of Management and Budget declared that ”even CBO would admit we don’t honestly know what these numbers will look like 10 years from now.”

That same year, the Bush administration pushed forward with its plans for Medicare Part D despite the fact that its internal cost estimates were $139 billion more than those offered by the CBO. Republicans on the House Ways and Means Committee had worked diligently to defeat the attempts of their Democratic colleagues to make those estimates public.

In a similar vein, conservatives were beside themselves when the CBO refused to run the 2004 Bush tax cuts through various economic models to see if the government could, in the end, make money by stimulating spending. Rather, the CBO used a “static” method and found $1.2 trillion worth of deficits through the next decade. Republicans, naturally, largely ignored the findings.

Keep that in mind when you hear Republicans saying that the CBO estimates of the House health care bill ought to deal them some kind of death blow. The larger issue, however, isn’t situational love for the CBO so much as it is situational regard for budgetary balance. When Republicans ran the show they gleefully put wars, tax cuts, Pentagon budget increases, and even Medicare expansion on the national credit card.

That said, annoying as conservative hypocrisy on this score is, it doesn’t burn me nearly as much as “centrist” hypocrisy does. When you see a moderate Democrat who didn’t mind voting for the Bush tax cuts—Ben Nelson or Max Baucus say—now worrying that the country doesn’t have the money to make health care affordable, then you really need to wonder where their priorities are.

CBO Scores Complete HELP Bill and the News is Good

When the Congressional Budget Office did its preliminary analysis of a sketchy outline of the Senate HELP committee’s vision of health care reform, the outlook was not-so-good. The bill was estimated to cost $1 trillion over 10 years, while reducing the number of uninsured by “only” one-third. At the time, voices of reason tried to point out that this was a preliminary estimate of a bill that was missing many crucial elements so we ought to reserve judgment. But Faiz Shakir reminds us that key conservative legislators were not so kind:

John McCain: “[The CBO estimate] should be a wake up call for all of us to scrap the current bill and start over in a true bipartisan fashion.”

John Boehner: “[T]he public option would cost over $1 trillion, and would cause 23 million Americans to lose their private health care coverage.”

Lindsey Graham: “The CBO estimates were a death blow to a government run health care plan.”

It’s a sign of the ignorance or dishonesty of Boehner and Graham that they made those remarks even though the absence of analysis of the impact of a public health insurance option was precisely one of the shortcomings of the initial analysis. At any rate, now a more fleshed-out version of the bill is available and as the AP reports things now look much better:

The plan carries a 10-year price tag of slightly over $600 billion, and would lead toward an estimated 97 percent of all Americans having coverage, according to the Congressional Budget Office, Sens. Edward M. Kennedy and Chris Dodd said in a letter to other members of the Senate Health, Education, Labor and Pensions Committee. [...]

The [employer mandate] provision is also estimated to greatly reduce the number of workers whose employers would drop coverage, thus addressing a major concern noted by CBO when it reviewed the earlier proposals.

John Cohn explains that this $900 billion figure is actually somewhat misleading, and fully covering this 97 percent should cost more like $1 trillion to $1.3 trillion. That’s a lot of money, but the gains in coverage are major. Given that the right was so impressed by the CBO score of the preliminary draft, will they also be so impressed by this new, more accurate score of the more completed draft? If they’re honest and principled they ought to be and they ought to recognize that this is a pretty good bill.

The Costs of Climate Inaction

Matt Zeitlin remarks that “while this may be outside the purview of the Congressional Budget Office, it would be nice if they could score — somehow or another — the economic benefits of the world not melting down.”

I think the main issue here isn’t so much that it isn’t possible to develop such a metric, as that a dollars and cents approach to the costs of letting the world burn tends not to capture what’s going on. For example, even a very optimistic take on the consequences of climate change is going to say that things will look very bleak for Bangadesh. But Bangladesh is a poor country. Consequently, the economic costs of Bangladesh’s 161 million people all dying tomorrow would be relatively modest—their whole GDP is only about $225 billion. The cost to Americans of Bangladesh being wiped off the face of the earth would be tiny. But that doesn’t mean it’s okay for Americans to be blithely unconcerned about activity that threatens the lives of hundreds of millions of people in the developing world.

Second, probabilities:

The impact of a 10 degree or more warming of the globe is simply not very well-understood. The climate science along is hard to model. It’s possible that it will set into motion feedback loops that rapidly spiral out of control. The geopolitical implications are also difficult to get a grasp on. But from a strictly selfish American-centric point of view, a lot of the correctly weighted costs of climate change come from the 5-10 percent chance that things will be much worse than expected rather than from the costs arising under the most likely scenario. More modeling of the price of inaction is still worth doing, I think, but it’s critical to keep in mind that the dominant issues have to do with the risks of utter catastrophe and with the consequences to relatively poor people—neither of which are well-captured by a simple account of the likely economic cost of inaction.

CBO Scores Kinda Sorta HELP Bill

Ted Kennedy and Jeff Bingaman (HELP Committee photo)

Latish yesterday the Congressional Budget Office released a preliminary score of the draft health care legislation under consideration by the Senate Committee on Health, Education, Labor, and Pensions. The news was not pretty. On the one hand, the bill was estimated to cost $1 trillion over ten years. That’s a lot of money, though not in my view too much money to spend on something important. But what you get for the money is very disappointing—a net reduction in the quantity of the uninsured of only about 16 million people. When you spend a trillion bucks on your universal health care bill, you’re generally looking to get a lot closer than that to a world in which everyone has health insurance.

Now the CBO does caution that this is only an estimate of a partial bill. In particular, the actual HELP legislation is expected to contain a more robust employer mandate and some provisions related to Medicaid, among other things. But how much difference does that make? According to Ezra Klein a lot:

The bill that CBO scored did not look much like the bill they intend to write. Which means that the numbers aren’t correct. If HELP is writing a bill with a strong employer and individual mandate, and CBO scores a bill with no employer mandate and a weak individual mandate, it’s not clear where that estimate leaves us.

By Monday night, members of the HELP Committee were scrambling to give the CBO something closer to the final legislation to examine — this time including rough details of the employer mandate and the individual mandate. They’re hoping to have a new set of estimates by Friday, though that’s probably ambitious.

The bottom line is that we should expect the real bill to have a somewhat higher cost number but a much higher number of people getting health coverage. Consequently the cost per person will be much lower and the legislation will look much more reasonable. Jonathan Cohn explains some of the mechanics by which the inclusion of the employer-side provisions will dramatically alter the final impact of the bill.

But long story short, for now this looks more like a problem of legislative mechanics—they shouldn’t have had the CBO score this in such a preliminary way and get a misleading headline number out there—than one of policy gone off the rails.

Climate Change Means Much More Extreme Temperature

The CBO’s report on the impact of climate change in the United States (PDF) is interesting reading, but nothing all that earth-shattering. It looks like the impact would probably be pretty bad, but possibly much worse than that, and the uncertainty around the projections is not a cause for optimism. This chart, showing how relatively small average shifts can lead to drastically increased odds of “extreme” events was, I thought, interesting:

One thing this brings to mind is that unusual weather is often problematic simply because it’s unusual. For example, an 8-inch snowfall is not a cataclysm. Except its impact actually is catastrophic when it happens in Washington, DC. Boston and other cities in New England experience that kind of snow volume often enough that they’ve laid the groundwork to do a good job of removing 8 inches worth of snow expeditiously. But in the Washington area it’s so rare that DC and other municipalities in the region aren’t prepared and traffic can be paralyzed for days. Similarly, when I was in Italy in the summer of 2003 whether that was unusually hot for Rome but wouldn’t have been all that abnormal in DC led to a lot of deaths. Not nearly as many people had air conditioning over there, and the government didn’t have really good plans in place to help vulnerable citizens deal with extreme heat.

The Significance of Today’s Health Care Announcement

Paul Krugman and Jonathan Cohn wax enthusiastic about the news that representatives for the nation’s major health care provider organizations—doctors, hospitals, drugmakers, device makers, and insurers—will come to the White House and announce that they believe it’s possible to achieve $2 trillion in cost savings over ten years without compromising patient care. Ezra Klein is more skeptical, worrying that these groups haven’t really made any firm commitments to anything in particular.

But the real import of today’s event isn’t in its signal for what industry insiders may do in the future, it’s for the Congressional Budget Office. The main impediment to a health care deal, at this point, is cost. The up-front costs are large. To cover these costs, the Obama administration proposed several exceedingly reasonable tax changes, focused on curbing deductions for high-income taxpayer. This is the most economically efficient possible way of raising revenue, so naturally congressional Democrats rejected it out of hand.

That means that to make the costs work, it’s going to be necessary to rely on reform’s inherent potential to wring some of the massive waste out of the system. The problem here is that the CBO has been reluctant to “score” such savings in its official account of the bill. As Igor Volsky emphasizes, this industry statement is an important challenge to that CBO reluctance:

Early reports indicate that the signers — the Advanced Medical Technology Association (AdvaMed), America’s Health Insurance Plans (AHIP), the American Hospital Association (AHA), the American Medical Association (AMA) and Pharmaceutical Manufacturers of America (PhRMA), among others — hope to contain costs by implementing “aggressive efforts to prevent obesity, coordinate care, manage chronic illnesses and curtail unnecessary tests and procedures; by standardizing insurance claim forms; and by increasing the use of information technology, like electronic medical records.”

The industry is suggesting that these cost containment measures — which don’t score too well with the Congressional Budget Office — would in fact yield cost savings and help finance health reform. The letter blunts conservative critics who argue that health reform is unsustainable or too expensive, and it also takes on the CBO, whose models are likely under-scoring the savings from reforms.

Whatever kind of backstabbing these industry groups may or may not do in the future, they won’t be able to take back the fact that once upon a time they stood beside the White House in agreeing that it’s possible to achieve massive cost-savings without compromising patient care. That argument may well prove hugely important, politically, to getting a package through congress.

CBO Projection of GDP Growth

This is how information about projections ought to be presented—in terms of probability—figure 2-3 of the CBO’s latest report:

According to the text, these confidence bands actually understate the uncertainty. They say that “If the potential errors in the current
forecast are similar to the errors in CBO’s forecasts published between 1976 and 2006, the probability is 90 percent that real GDP will
fall in the shaded area of the graph” but that due to the unusual nature of present circumstances, “larger errors are more likely to occur than usual.”

CBO Analysis Highlights Staggering “Output Gap” Absent Fiscal Stimulus

Part of the idea behind fiscal stimulus is that an economy in recession is suffering from an “output gap.” Over the long run, a society increases its material standard of living by increasing its capacity to produce goods and services. But sometimes it comes to be the case that a society is producing much less than it could. That’s a recession. Able bodied people want jobs but nobody will hire them. Assembly lines aren’t running. Retail spaces are going empty. The Congressional Budget Office has numbers on the scale of the gap we’re facing absent a substantial recovery plan and Ben Furnas has a nice writeup of the findings:

A surprisingly common conservative argument has been that it’s impossible for the government to stimulate the economy since “the money has to come from somewhere” and thus must crowd-out private activity on a one-to-one basis. This ignores the output gap. With productive capacity standing idle, an increase in public sector activity doesn’t need to purely displace private activity, it can also mobilize idle resources. And by doing so, it can lay the groundwork for a return to private growth that’s sufficiently robust to close the gap.

Conservatives Prepare to Abandon Newfound Love for CBO

The Congressional Budget Office produces a lot of sober-minded, sensible, reality-based policy analysis. Consequently, 99 days out of a 100 conservatives ignore what it says. For the past week, however, there’s been a CBO report that says liberal stimulus plans are likely to be ineffective, so suddenly the right-wing’s decided it loves the CBO. And with the minor problem that the report they’ve been touting doesn’t exist, it’s been a charming love affair. But late yesterday out came the real CBO analysis largely supporting the efficacy of the recovery plan. And now there’s this:

The nation’s current recession is likely to be the longest since World War II, and by some measures could be the worst since the Great Depression, a new Congressional Budget Office forecast said Tuesday.

Without a major economic stimulus plan, “the shortfall in the nation’s output relative to its potential would be the largest — in terms of both length and depth — since the Depression of the 1930s,” said new CBO Director Douglas Elmendorf in testimony prepared for the House Budget Committee.

The analysis is sure to add important momentum to the effort to enact an $825 billion stimulus by mid-February.

Last week, referring to the non-existent report, David Brooks wrote that Obama’s “going to have to prove the hard way that he meant what he said about being pragmatic and evidence-based. That means he won’t sweep a C.B.O. study under the rug simply because the findings are inconvenient.” My guess is that few conservative legislators and no conservative New York Times columnists will wind up meeting the Brooks Test in this regard.

Actual CBO Report

Would it have been so hard for conservative to wait until tonight when we have an actual CBO analysis of the stimulus plan to work with? With the whole thing done, it seems that two thirds of the funds will flow within 18 months of enacting the plan. Of course it’s true that 100 percent would be better. And even truer that if we had passed a stimulus plan back last September rather than experiencing months of delay thanks to conservative intransigence this problem wouldn’t be so severe.

Conservative Media Can’t Get Enough of Non-Existent CBO Report

On C-SPAN yesterday, my opponent naturally brought up the Congressional Budget Office report that dismisses the stimulus plan as too slow to be effective. Today, The Wall Street Journal has an editorial based on the report. And The Washington Times’s Donald Lambro does the same. And David Brooks did the same on Friday. But as Ryan Grim has reported there is no such CBO report! This is just a zombie notion bopping around the rightosphere being endlessly repeated by people who haven’t read the report. You know they haven’t read it because it doesn’t exist.

You can’t pass a bill, however, without a CBO analysis. And when the analysis is done—which I believe will be this week—people should pay attention to what it says. But until then, people should stop pretending that there’s a report debunking the administration’s work. Given that Peter Orszag left the CBO to go be Obama’s budget director, I think we should be reasonably confident that the Obama administration wouldn’t be so sloppy as to write a proposal that flunks an obvious CBO test.

Elmendorf to CBO

Doug Elmendorf, formerly of all the major public sector economic policy institutions (specifically the Federal Reserve Board, U.S. Treasury Department, Council of Economic Advisors, and Congressional Budget Office) and then the Hamilton Project at Brookings, will replace Peter Orszag at CBO. Elmendorf’s a moderate Democrat who wins praise from Greg Mankiw. I liked this paper he co-authored on the Bush tax cuts some months ago which concluded that “the 2001 and 2003 tax cuts made most U.S. households worse off” while helping to further enrich the already richest.

Readers may be interested in this and this from him on TARP. I’d be interested to know what’s the nature of the norm that ensures that the CBO Director’s job seems to stay consistently in the hands of broadly respected moderates even during a time of massively increasing polarization inside the congress.

One also wonders if Elmendorf will continue the CBO blog and/or whether Orszag will be blogging from his new perch at OMB.

Important Questions

Now that CBO Director Peter Orszag’s designation as the new administration’s OMB Director is official, we can get down to the really important questions. For example: Wither the CBO Director’s blog? Acting Director Bob Sunshine has a post up saying goodbye to Orszag, but no word on the future, perhaps because he’s only the acting director. And will OMB have a blog?

I raise these issues somewhat in jest. But also in earnest. The CBO blog was, in my view, an excellent idea. Blogs have a reputation for being full of fluff and trivia, but they’re actually an ideal publication outlet for hyper-earnest, incredibly boring reports that are of very little interest to anyone. Obviously, the highest traffic is going to go to sites that write about stuff people do find interesting. But it’s not the CBO’s fault that its products don’t attract widespread interest — it’s inherent to their mission. And the genius of online publishing is that there’s no problem with being unpopular. The nature of publishing is that the higher your fixed costs of production and distribution, the more important it becomes to be able to move a large volume of product so as to spread the fixed costs out. But online your fixed costs are essentially zero. What’s more, putting your stuff on a blog — even if it’s mostly links to PDFs and stuff — can render your material much more salient to Google, thus meaning that that minority of people who are interested in what you’re doing have maximum chance of finding it.