Lies, Damned Lies, and CBO Estimates

Washington is buzzing with news that the Congressional Budget Office has a new cost estimate for the President’s proposal to further expand the federal government’s control over the health care system. The White House is doubtlessly pleased because the takeaway message, as blindly regurgitated by the Associated Press, is that a giant new entitlement program is going to “drive down red ink:”

The Congressional Budget Office estimated the legislation would reduce the federal deficit by $138 billion over its first 10 years, and continue to drive down the red ink thereafter. Democratic leaders said the deficit would be cut $1.2 trillion in the second decade - and Obama called it the biggest reduction since the 1990s, when President Bill Clinton put the federal budget on a path to surplus.

Michael Cannon already has explained that the cost estimate is fraudulent because of what it leaves out, so let me explain why it is fraudulent because of what it includes. The CBO has a very dismal track record of getting the numbers wrong, in part because there is no attempt to measure how a bigger burden of government has negative macroeconomic effects, but also because the number crunchers do a poor job of measuring the degree to which people (recipients, health care providers, state and local politicians, etc.) will modify their behavior to become eligible for other people’s money. The problem is compounded by similar mistakes for revenue estimates from the Joint Committee on Taxation, which (like CBO) makes no attempt to capture macroeconomic effects and has a less-than-stellar history of predicting behavioral responses.

If the legislation passes, we will get more spending, more taxes, and more debt. Equally troubling, we will get more dependency. That’s good for Washington and bad for the country.