`

BOHANON & STYRING: Widely cited CBO scores have their shortcomings

July 8, 2017

Economic AnalysisRepublicans are taking a terrible public relations beating. The public hears that the “nonpartisan Congressional Budget Office” says more than 20 million will lose health insurance under the Republican plan to repeal and replace Obamacare. Who could possibly favor such a heartless idea? The GOP plan polls a paltry 17 percent approval.

Let’s look closer at what CBO “scores” actually say and don’t say. CBO doesn’t look beyond immediate, first-order consequences of legislation. CBO doesn’t take into account how people will adjust their private arrangements in response to public-policy changes. CBO technicians are loath to speculate what these adjustments might be, and rightfully so: because these involve thousands or millions of future private decisions. Unintended consequences, which are inevitable in major policy changes, are, by definition, unintended, and can’t be foreseen with any degree of accuracy.

Suppose Abraham Lincoln had submitted the Emancipation Proclamation to the CBO for analysis. The CBO might have reasoned: “This proclamation says slaves will henceforth not be slaves. Let’s see. There are about 4 million of them. That’s a good, hard number we can use. They will no longer be forced to supply plantation labor without pay. Their current jobs won’t exist. While they were slaves, their owners had a big incentive to keep them fed. Ex-slaves will have no master. It’s not clear how they will obtain food. That’s all we know for sure.”

CBO would duly write this up in acceptable bureaucratese. And the next morning’s headlines would be (we’re dead serious): “4 million black slaves to lose jobs.” With the subhead: “Nonpartisan agency says starvation looms for thousands.” No doubt there’d be a sidebar: “Anti-war senator calls Lincoln a murderer.”

We know that, in the real world, this isn’t at all what happened. Some ex-slaves ended up as paid laborers or sharecroppers with their old master. Some made arrangements with other employers. Some struck out on their own and moved from the South. The CBO’s analysis that “4 million slaves will lose their current jobs” would be both technically correct and horribly wrong in its implications.

So it goes with health insurance. If we remove the penalty for not buying government-approved insurance, some people will not buy the insurance. But they won’t be worse off not buying a product they were forced to buy in the first place. Of course, being freed from the obligation to buy health insurance is hardly the moral equivalent of being freed from involuntary servitude, but the implications of CBO scoring are the same.•

__________

Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at INforefront.com. Send comments to ibjedit@ibj.com.

ADVERTISEMENT

Recent Articles by Cecil Bohanon / Special to IBJ

Comments powered by Disqus