Does the CBO promote neoliberalism?
from http://triplecrisis.com/we-need-a-shadow-cbo/
by Jeff Madrick
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:
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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.
(Read more: http://triplecrisis.com/we-need-a-shadow-cbo/)
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