The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Amity Schlaes: How the CBO Works & How it is Easily Manipulated

Posted by iusbvision on April 4, 2010

Amity Schlaes is perhaps the greatest living economic historian.

I like how Schlaes describes how the CBO works, they are asked to score what is placed in their box and that includes the assumptions they are asked to make in the request.

For example Ann Coulter once made the following analogy. If Congress proposed a new “green energy bill” that assumed that there was a car that ran on grass and got 1000 miles per gallon of grass the CBO would tell us that our dependency on foreign oil would drop significantly.

Bloomberg News Amity Schlaes:

The question is how can lawmakers get away with their misrepresentation? One answer lies in the structure of the Congressional Budget Office, the government’s official accountant. Its job is to establish an honest price: to tell legislators and voters what a policy will cost in the short, medium and long terms. That CBO work is important because Americans rightly sense that the politicians’ math is rigged.

Amity Shlaes

Amity Shlaes

“Nobody told me you were cheating.

Aww, it’s just a feeling I had.”

Flawed Assumptions

The CBO’s rules make it hard for the group to fulfill its own mandate. You’d think, for example, that the CBO would use its own parameters when it crunches numbers. Instead, the CBO must use the same mathematical assumptions supplied by the very lawmakers who wrote the bill the group is evaluating. No matter how improbable those formulas are.

Former CBO director Douglas Holtz-Eakin, writing in the New York Times, described the group’s process as “fantasy in, fantasy out.”

CBO rules often preclude common sense. Its forecasters can’t take into account any other legislation when studying the price tag of a proposed bill. That enabled the forecasters costing out House Speaker Nancy Pelosi’s bill to overlook this fact: Medicare spending increases will force tax increases, which in turn will hurt growth.

Political Salesmen

This dynamic is permitted because the answers the CBO supplies make it easier for politicians to sell their bills. They’re happy. And so, for the moment, are voters who are painfully aware that the U.S. federal budget can’t cover new entitlements, yet accept such legislation as a balm for that pain.

“So if I’m right, you got to lie to me

Then I won’t feel so bad.”

The CBO’s structural failure benefits the Democrats this week. Indeed, Pelosi is teaching Republicans something: the bigger the misrepresentation, the greater the credibility with voters. Croon to them a tune about entitlement, and they forget that you’re clearing a path for a tripling of the tax on dividends.

The CBO’s rules are bipartisan — they hold for whatever legislation lands in its in box. Congressman Paul Ryan, a Republican from Wisconsin, recently put forward a new blueprint for the federal budget. Ryan’s plan is less questionable than Pelosi’s because it’s relatively honest about costs. Ryan points out that the current unfunded part of the Medicare liability is in the trillions.

One Response to “Amity Schlaes: How the CBO Works & How it is Easily Manipulated”

  1. […] Hat Tip ISUB Vision. Categories: Economy and Spending Tags: CBO, Economics, government spending Comments (0) Trackbacks (0) Leave a comment Trackback […]

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