Paul Constant is a writer at Civic Ventures and the cohost of the "Pitchfork Economics" podcast.- In a recent episode, he spoke with economist Mark Paul about the role of the Congressional Budget Office.
Last winter, as Congressional discussions over President Biden's proposed
The media uncritically picked up those CBO numbers, warning that the BBB "would add to national debt" as USA Today reported, and the New York Times offered a dire assurance in a headline that the BBB "Will Add to Deficit." Finally, just before Christmas, West Virginia Senator Joe Manchin cited the CBO's deficit warnings when he announced that he would not vote for the BBB, effectively killing the legislation.
The Congressional Budget Office has always served a vital role in government, economist Mark Paul explains in the latest episode of the "Pitchfork Economics" podcast.
"I like to call them the scorekeepers," Paul said. "They're really the referees here. They run these economic models that I think are the most important policy models out there."
As we saw with Build Back Better last year, the CBO's models are regarded by lawmakers and the media alike as the gold standard of economic objectivity, and their reports can make or break a piece of legislation.
But the CBO, like any human institution, brings biases to their work — and it doesn't help that the current CBO director came from the American Enterprise Institute, a conservative think tank. The CBO's models are built from flawed assumptions that don't necessarily reflect how legislation might actually behave in the real world.
Paul argues that the CBO's projections suffer from one particular fundamental flaw that renders them largely useless: CBO estimates assume that public spending is only ever half as productive as private industry. Paul quotes from a CBO report which "estimates that productive federal investment has an average annual rate of return of about 5%, or half of the agency's estimate of the average rate of return on private investment."
"In other words," Paul said, "they simply say that government is just terrible at their job and any public investments are largely wasteful."
The CBO's assumption is a byproduct of the toxic trickle-down mindset that has held politicians in sway since the 1980s — the Reagan-popularized concept that government is always inept, inefficient, and unproductive. And it's important to note that this assumption actually bears no relationship to public spending in the real world.
"In the economics literature, what we find is that on average public investment is at least as productive as private investment — and often more so," Paul said. "In fact, there's this really well-known review that shows that public investment is 50% more productive on average than private investment."
"So CBO just has the relationship totally backwards here," Paul said.
That baked-in assumption is why the CBO, for instance, assumes that any infrastructure bill will be a huge drag on the economy, Paul said, "despite the fact that our crumbling infrastructure today costs the average American household $3,300 a year in extra expenses from sitting in traffic, to potholes that damage their cars, to a lack of ability to take public transit almost anywhere in the nation."
The Build Back Better legislation that Manchin killed, using the CBO's projection as an excuse, would in practice likely have had a huge return on investment for ordinary Americans. BBB programs like affordable childcare, the child tax credit, and green infrastructure investments would have served as an investment in America's working class, encouraging them to spend more money in their communities, start small businesses, and create opportunities for their children.
But because the supposedly objective CBO's estimates don't allow for any of that economic activity in their models, politicians refuse to pass ambitious legislation like the BBB, which means they never see the real-world proof that public investments can pay off. So the CBO has for almost 50 years inspired and reinforced a kind of trickle-down death spiral that discourages our leaders from making bold, forward-thinking investments in the American people.
Paul thinks more transparency in the CBO's model would help demystify the process. Allowing peer review of CBO analysis and clearly admitting the limitations of CBO's assumptions in reports would go a long way to communicating the uncertainty inherent to economic modeling.
Further, leaders could update the outcomes that the CBO keeps in mind while modeling: California Representative Barbara Lee introduced a bill decades ago that would require the CBO to include poverty impact reports in their analysis of legislation, so that actual real-world effects of legislation on poor Americans would be weighted just as much as GDP.
We now know enough about human nature to understand that no human endeavor — from journalism to complex algorithms to economics — is truly objective and wholly unbiased.