Opinion Editorial | |
| Wednesday, November 18, 1998 | |
Keynesians Have Dominated The CBO |
If Republicans are to be more successful in the next Congress one of the things they must learn is how to exercise power more effectively. This means bringing the institutional structure of Congress more into line with Republican policies and programs so that they support rather than impede their agenda. Unfortunately, four years after Republicans took control of Congress key parts of the congressional machinery are still undermining their legislative efforts. Among them is the Congressional Budget Office. The CBO was established by the Congressional Budget and Impoundment Control Act of 1974. It was created to provide Congress with independent analyses of the budgetary impact of legislation. Such an organization was deemed necessary because Congress believed that the president's monopoly of such analytical capability, through the Office of Management and Budget, put Congress at a disadvantage. The first director of the CBO was Alice Rivlin, a Brookings Institution economist who later became Bill Clinton's OMB director and is now vice-chairman of the Federal Reserve Board. Described by Time magazine in 1975 as "politically liberal," Rivlin hired all of the initial staff and instituted the procedures and methodologies that were used to analyze and estimate the impact of tax and spending programs. The Keynesian Model In 1974, Keynesian theories still dominated the economics profession, and most of the CBO's staff came from this school. In the Keynesian model, the budget deficit is the driving force in the economy, monetary policy plays virtually no role, and taxes affect the economy solely through their impact on disposable income. The CBO continued to hold these views long after most other economists had come to appreciate the dangers of budget deficits and the virtues of tax cuts and sound money. A typical early CBO study, "Temporary Measures to Stimulate Employment," shows how its Keynesian worldview affected its policy analysis. In this study, the CBO evaluated four alternatives for reducing unemployment, each with a gross cost of $1 billion. After 24 months, CBO found that a public service jobs program created the most jobs at the least net budgetary cost. Anti-recession aid to state and local governments came in second, accelerated public-works spending ranked third, and at the bottom was a tax cut, which had the highest net cost and the lowest job creation. Analyses such as these sandbagged tax reduction efforts in Congress for years. Although the CBO would today deny being a bastion of Keynesianism, it continues to use methodologies devised during its early days, and many of its early key players are still on board. For example, the CBO's deputy director and its most powerful presence is James Blum, who has worked for the agency continuously since 1975. In short, the CBO is a bureaucracy like all bureaucracies, which tend to keep doing things the same way they have always done them until forced to change. Consequently, there has been little difference in the CBO analyses produced under its Republican directors, Rudolph Penner (1983-87) and June O'Neill (1995-99), and its Democrats, Alice Rivlin (1975-83) and Robert Reischauer (1991-95). CBO points to this fact as a source of pride, indicating its fundamental nonpartisanship. In truth, it says more about the timidity of Republican leaders, who feared criticism in the liberal press for shaking up an agency that has over the years been so supportive of the Democrats' agenda. For example:
For these and other contributions to its cause, the radical leftist magazine The Nation praised the CBO as "long a bastion of Democratic liberalism" in a 1994 article. Similarly, the CBO is routinely commended for its professionalism, intellectual honesty and nonpartisanship by the liberal Washington Post and New York Times. One is especially likely to see in these newspapers editorials supporting the CBO whenever there is the slightest possibility that Republicans might actually do something to right its leftward tilt. Unfortunately, this pressure usually works. Republicans had a historic opportunity to fix the CBO after taking control of Congress in 1994. But liberals were far quicker than conservatives to recognize the threat to their agenda. Within days after the election the Washington Post editorialized against turning the CBO into a "rubber stamp" for Republican tax policies. In particular, the Post feared that the CBO might institute "dynamic scoring" for tax cuts. Dynamic Scoring Under dynamic scoring, revenue estimates would take account of the behavioral and macroeconomic effects of tax changes, which would tend to lower both the net revenue loss from tax cuts and the revenue gain from tax increases. Liberals have long fought against the use of dynamic scoring because they correctly recognize that failing to use such methods tilts the playing field against tax cuts and in favor of tax increases. Soon, there were echoes throughout the liberal establishment warning Republicans against changing CBO's revenue-estimating methodology. To their discredit, Republican leaders acquiesced. The maintenance of the status quo was cemented by the appointment of June O'Neill as director of the CBO in February 1995. A former CBO staffer, Ms. O'Neill basically kept the agency on automatic pilot for the last four years. Most of the top staff are the same people who were there under her Democratic predecessor. And CBO's analyses continue to reflect a bias against Republican initiatives. In just the last few months, for example, Mrs. O'Neill released CBO studies strongly critical of reducing the capital gains tax and privatizing Social Security. Now Republicans have another opportunity to get the CBO onto their team. Ms. O'Neill's term expires on Jan. 3 and she has not sought reappointment. By law, the new director will be appointed by the speaker of the House and the president pro tempore of the Senate, Rep. Bob Livingston (R., La.) and Sen. Strom Thurmond (R., S.C.). They should actively seek a new CBO director who will shake up the agency, bring in new blood, and institute new methodologies that reflect the advances in economic theory over the last 25 years. They will know they have made the right decision when the Washington Post and New York Times denounce their choice. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 18, 1998. Home | Support Us | All Issues | Social Security Debate Central | Contact Us |