New CBO Director to Make Transparency a Focus for Dynamic Analysis

May 20, 2015

In his first testimony as director of the Congressional Budget Office, Keith Hall told the Senate Budget Committee that he plans to be transparent as the agency incorporates more dynamic analysis.

“We’re going to open ourselves up to criticism and comments if we’re not doing a fair job, and I think that’s the only way for us to remain credible and also improve what we’re doing,” Hall said, according to Politico.

Congress adopted a rule that requires CBO and the Joint Committee on Taxation (JCT) to incorporate macroeconomic analysis on bills that are larger than 0.25 percent of GDP in any given year over the next ten years or as designated by the chairs of the budget committees.

This is a welcomed change. Dynamic scoring is an important tool for policymakers. It provides them with information on how changes in policy will affect the overall size of the economy and key metrics such as investment, wages, jobs, and levels of federal revenue.

Current models used by Congress – often referred to as static models – assume that policy changes have no effect on the size of the economy (GDP). This is an unrealistic assumption that leaves members of Congress with an incomplete picture of how their policy decisions with impact the economy.

One common criticism of dynamic scoring is that there is no consensus on how it should be done. This is why Director Hall’s focus on transparency is so important. While speaking to the Senate Budget Committee, he said the CBO plans on “making clear how we’re going to do the dynamic scoring, what models we’re going to use, what estimates we’re going to use.”

This is an important step. More and more observers recognize that the current static models used by Congress don’t paint a complete picture. We know that something needs to be fixed and dynamic scoring, or macroeconomic analysis, can help provide that fix. The next question, then, is how we go about the process dynamic scoring and determining the assumptions we use.

A commitment from the CBO to be transparent will help along that process. A similar commitment to transparency from JCT would also help. This type of transparency is important to the dynamic scoring debate.

Transparency allows us to have an open discussion about where the historical evidence and economic literature lead and how we can build models that more closely reflect reality.

On our website, you can find the equations and assumptions that drive our model and examples of the results our model produces.

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