Two Cheers for the CBO

The new report of the Congressional Budget Office, showing substantial job losses from the Obama administration’s proposed hike of the minimum wage to $10.10 has changed the tenor of the debate in Washington. A nonpartisan, professional agency’s considered opinion is hard to ignore, although White House and congressional spinners are trying to deflect its findings. Our national conversation has suddenly deepened and it is now harder for politicians to claim credit for a free lunch. We need more such institutions to inject accurate information into the fact free zone that is our nation’s capital.

The Congressional Budget Office, begun in 1974, is staffed by professional economists, not political appointees. To be sure, its director is appointed by House and Senate leaders, but the norm now is to appoint an economist of independent academic stature, not a political hack. Four factors make the CBO a credible organization. First, it has no actual power to implement policy and thus is less likely to shape its agenda to fit the usual imperatives of bureaucratic aggrandizement and personal ambition. Second, its mandate is broad in scope: an agency with a narrower reporting focus, as for instance on a particular policy, is more likely to be captured by those in the field on which it is reporting. Third, its staff and its director have professional reputations to maintain and thus incentives to avoid politically driven and result oriented analysis. Finally, their reputations are made and maintained in the field of economics,  a path breaking social science in its capacity to use quantitative methods to analyze the past and predict the future. There is an objective basis for their work.

The CBO’s report on the minimum wage noted other costs that have not been as widely reported. An increase in minimum wage to $10.10  would also create not insubstantial price increases. These increases would decrease the purchasing power of all citizens. They would also increase the costs of government services and thus in the long run require additional taxes or debt to pay for them. But as substantial as are these costs, they pale in comparison to the unemployment wrought by government design on our most vulnerable fellow citizens. Long term involuntary unemployment is now well understood to be cause of deep unhappiness, even despair. The CBO report does a great public service in putting this effect front and center in the public debate.

My praise of CBO is not meant to suggest that I think it is perfect. It has been too slow to offer some forms of dynamic scoring alongside static scoring of changes in the tax code, when dynamic scoring generally would show the additional benefits of tax cuts. And its analysis of macroeconomic policies, like the fiscal stimulus, is less persuasive, in no small degree because there is less consensus in the economics profession on the effect of such policies. But unlike many other agencies, CBO is on balance a positive force for the public good.  Congress would do well to create other information producing agencies where the conditions responsible for the CBO’s success obtain. For instance, I have called for an office that would help Congress imbed policy experiments into its legislation so that the nation would learn by doing.