The Anti-Economist — March 12, 2013, 5:02 pm

We Need a Shadow CBO

The trouble with the Congressional Budget Office???s long-term budget projections

I have written before on this blog and in my Harper’s Magazine column about the distorted long-term budget projections produced by the Congressional Budget Office. The CBO’s figures are a primary source of the current alarm about the need to cut government spending even with the economy weak.

To earn its “non-partisan” label, the CBO makes unrealistic assumptions that for the most part merely project past trends into the future, and sometimes don’t even do that — underscoring the need, in my view, for a “shadow CBO” that exposes the office’s outlandish assumptions and offers us a set of alternative projections based on realistic ones. The office forecasts, for instance, that U.S. debt as a proportion of GDP will be 150 percent by the early 2030s and nearly 200 percent by 2037. Michael Linden, a highly competent economist at the Center for American Progress, has made a good start at exposing the assumptions that underlie such predictions by taking a close look at the office’s June 2012 long-term forecast:

Since CBO released its long-term outlook in June 2012, we’ve already made significant progress toward bringing down our deficits. First, contrary to CBO’s assumption, we did not extend all of the Bush tax cuts at the end of 2012. Instead, the American Taxpayer Relief Act allowed approximately $600 billion of the Bush tax cuts to expire as scheduled, thereby raising future revenue projections. Second, the most recent CBO budget outlook, published in early February 2013, shows substantially less spending over the next 10 years than was projected in June’s long-term outlook. Finally, given the scheduled drawdown in Afghanistan, it seems unlikely that we will continue spending more than $100 billion a year—as is currently projected—on foreign wars. Incorporating these changes brings the 2037 debt projection down from 199 percent of GDP to 169 percent.

Linden goes on to point out that the CBO is projecting no rise in tax revenues as a proportion of GDP, even though these revenues usually go up with the rise in personal and corporate income that accompanies economic expansion. The office is also expecting a sudden increase in non-entitlement spending in 2022 — the very spending that Congress is now working to cut. Thus, the CBO is building into its projections deficit increases that likely won’t occur. Moreover, if these programs receive additional funding in the future — and let’s hope they do — they may be accompanied by tax increases to finance them.

The CBO’s projections are further skewed quite seriously by the office’s assumption that health care costs — which drive Medicare and Medicaid spending — will increase at the same rapid rate as they have in the past couple of decades, despite the fact that these costs have risen far more slowly in the past four years.

Linden concludes that adjusting for all of these factors would cut the CBO’s 2037 debt prediction from nearly 200 percent to under 100 percent. He leaves out one additional CBO assumption, though: the “crowding out” argument, which states that government budget deficits reduce savings, in turn limiting capital investment and therefore growth. The following example underscores the problems with this assumption:

Last year, the CBO projected that without a fiscal-cliff compromise — in other words, if the economy contracted alongside in the face of reduced government spending and higher taxes — the nation would have gone into a pretty serious recession in 2013. But, it added, by 2016 or so, the economy would be better off, because it would have resumed its normal growth track with a lower deficit. And people believed that. Oh my. To repeat, the office was saying that a recession would have been beneficial to the long-term economic health of the United States. Their analysis was straight from the playbook of the Austrian economists of the 1930s and 1940s: recessions are good cleansing agents, in a nutshell.

As I said, we badly need a shadow Congressional Budget Office to challenge the authority of the current one. The alarmism of the CBO is influencing U.S. budget discussions for the worse, damaging the economy and placing the country’s long-term welfare at risk. 

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writes the Anti-Economist column and blog for Harper’s Magazine.

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Ashley arrived for her prenatal appointment at Black Hills Obstetrics and Gynecology, in Rapid City, South Dakota, wearing a black zip-up hoodie and Converse sneakers.1 To explain her absence from work that morning — a Tuesday in April 2015 — she had told a co-worker that she was having “female issues.” She was twenty-five years old and eight weeks pregnant. She had been separated from her husband, with whom she had a five-year-old son, for the better part of a year. The guy who’d gotten her pregnant was someone she’d met at the gym, and he’d made it abundantly clear that he wanted nothing more to do with her. Ashley found herself hoping that the doctor would discover some kind of fetal defect, so that her decision would be easier. She glanced across the waiting room at a television playing a birth-control ad and laughed darkly. “Jesus, Lord, it would be so nice if someone just pushed me down a flight of stairs.”

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Ashley arrived for her prenatal appointment at Black Hills Obstetrics and Gynecology, in Rapid City, South Dakota, wearing a black zip-up hoodie and Converse sneakers.1 To explain her absence from work that morning — a Tuesday in April 2015 — she had told a co-worker that she was having “female issues.” She was twenty-five years old and eight weeks pregnant. She had been separated from her husband, with whom she had a five-year-old son, for the better part of a year. The guy who’d gotten her pregnant was someone she’d met at the gym, and he’d made it abundantly clear that he wanted nothing more to do with her. Ashley found herself hoping that the doctor would discover some kind of fetal defect, so that her decision would be easier. She glanced across the waiting room at a television playing a birth-control ad and laughed darkly. “Jesus, Lord, it would be so nice if someone just pushed me down a flight of stairs.”

In the exam room, she perched on the table with her feet crossed at the ankles, her blond hair brushing the back of her pink hospital gown. “I don’t know what’s available for me here,” she told her doctor, Katherine Degen, who sat facing her on a stool. “I figured nothing.”

 Some names and identifying details have been changed. 

“Big, fat zero, unfortunately,” Degen said, making a 0 with her fingers. The last doctor who provided abortions in Rapid City retired in 1986, three years before Ashley was born.

The baby was due in November, when Ashley, who was a nurse, hoped to be enrolled in a graduate program to become a nurse practitioner. Getting pregnant as a teenager had forced her to put that dream on hold, but she had thought that she was finally ready; she had even submitted her application shortly before the March 15 deadline. For the first time in her adult life, Ashley felt as if her plans were coming together. Then she missed her period.

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Artwork by Imre Kinszki © Imre Kinszki Estate
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Ashley arrived for her prenatal appointment at Black Hills Obstetrics and Gynecology, in Rapid City, South Dakota, wearing a black zip-up hoodie and Converse sneakers.1 To explain her absence from work that morning — a Tuesday in April 2015 — she had told a co-worker that she was having “female issues.” She was twenty-five years old and eight weeks pregnant. She had been separated from her husband, with whom she had a five-year-old son, for the better part of a year. The guy who’d gotten her pregnant was someone she’d met at the gym, and he’d made it abundantly clear that he wanted nothing more to do with her. Ashley found herself hoping that the doctor would discover some kind of fetal defect, so that her decision would be easier. She glanced across the waiting room at a television playing a birth-control ad and laughed darkly. “Jesus, Lord, it would be so nice if someone just pushed me down a flight of stairs.”

In the exam room, she perched on the table with her feet crossed at the ankles, her blond hair brushing the back of her pink hospital gown. “I don’t know what’s available for me here,” she told her doctor, Katherine Degen, who sat facing her on a stool. “I figured nothing.”

 Some names and identifying details have been changed. 

“Big, fat zero, unfortunately,” Degen said, making a 0 with her fingers. The last doctor who provided abortions in Rapid City retired in 1986, three years before Ashley was born.

The baby was due in November, when Ashley, who was a nurse, hoped to be enrolled in a graduate program to become a nurse practitioner. Getting pregnant as a teenager had forced her to put that dream on hold, but she had thought that she was finally ready; she had even submitted her application shortly before the March 15 deadline. For the first time in her adult life, Ashley felt as if her plans were coming together. Then she missed her period.

It would be too difficult to attend school as a single mother of two, Ashley knew. She had made an appointment for three weeks from now at the nearest abortion clinic, in Billings, Montana, 318 miles away. But just a week and a half ago, her husband had said he wanted to get back together and offered to raise the child as his own. Was it a sign that she was meant to continue the pregnancy? As a rule, Ashley approached her problems with resolve. She was capable and tough; she liked shooting guns and lifting weights. She kept track of her stats and checked off her goals as she achieved them one by one. Yet the dilemma before her had shaken her confidence. She leaned back and turned to watch the ultrasound screen. The black-and-white image danced. A sharp, fast thumping emerged from the machine. As Degen removed the wand, Ashley wiped the corner of her eye.

Photograph (detail) by Balazs Gardi
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