Monday, February 17, 2014

CBO, ACA, Casey Mulligan, and empirical work

From the WSJ, a look behind the scenes at the CBO (on the ACA/ObamaCare): smart people who are generalists and apparently let science do what science does-- as they listen to researchers/specialists who necessarily know more than they do and self-correct...

"...the CBO—Congress's official fiscal scorekeeper, widely revered by Democrats and Republicans alike as the gold standard of economic analysis—reported that by 2024 the equivalent of 2.5 million Americans who were otherwise willing and able to work before ObamaCare will work less or not at all as a result of ObamaCare. As the CBO admits, that's a 'substantially larger' and 'considerably higher' subtraction to the labor force than the mere 800,000 the budget office estimated in 2010...Mr. Mulligan's empirical research puts the best estimate of the contraction at 3%. The CBO still has some of the economics wrong, he said in a phone interview Thursday, "but, boy, it's a lot better to be off by a factor of two than a factor of six."...

The CBO works in mysterious ways, but its commentary and a footnote suggest that two National Bureau of Economic Research papers Mr. Mulligan published last August were "roughly" the most important drivers of this revision to its model. In short, the CBO has pulled this economist's arguments and analysis from the fringes to center of the health-care debate.

For his part, Mr. Mulligan declines to take too much credit. "I'm not an expert in that town, Washington," he says, "but I showed them my work and I know they listened, carefully."

And then a nice insight into how economists think (as economists vs. economists in their potential roles as public policy analysts, ideologues, etc.)

Mr. Mulligan reserves particular scorn for the economists making this "eliminated from the drudgery of labor market" argument..."it looks like they're trying to leverage the lack of economic education in their audience by making these sorts of points." A job, Mr. Mulligan explains, "is a transaction between buyers and sellers. When a transaction doesn't happen, it doesn't happen...I can understand something like cigarettes and people believe that there's too much smoking, so we put a tax on cigarettes, so people smoke less, and we say that's a good thing. OK. But are we saying we were working too much before? Is that the new argument? I mean make up your mind. We've been complaining for six years now that there's not enough work being done..."

The larger betrayal, Mr. Mulligan argues, is that the same economists now praising the great shrinking workforce used to claim that ObamaCare would expand the labor market. He points to a 2011 letter organized by Harvard's David Cutler and the University of Chicago's Harold Pollack, signed by dozens of left-leaning economists including Nobel laureates, stating "our strong conclusion" that ObamaCare will strengthen the economy and create 250,000 to 400,000 jobs annually. (Mr. Cutler has since qualified and walked back some of his claims.)

Mr. Mulligan is uncomfortable speculating about whether the benefits of this shift outweigh the costs. Perhaps the public was willing to trade market efficiency for more income security after the 2008 crisis. "As an economist I can't argue with that," he says. "The thing that I argue with is the denial that there is a trade-off. I argue with the denial that if you pay unemployed people you're going to get more unemployed people. There are consequences of that. That doesn't mean the consequences aren't worth paying. But you can't deny the consequences for the labor market."


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