CBO needs more fans!

June 24th, 2015 at 10:06 am

Though his title veers into hyperbolic clickbait, Howard Gleckman makes an important point in a post this AM, one I’ve made as well. Gleckman argues that in their recent analysis of the impact of repealing the Affordable Care Act on deficits and growth, the budget office was unable to give us a reliable, accurate point estimate.

The problem is that it’s beyond our analytic capability to reliably know the impact of taking a complex policy like the ACA out of a complex economy. Too damn many moving parts in both the economy and the policy. Gleckman correctly notes, for example, that guessing the impact of repeal on health care prices or labor supply within a meaningful range is, if not impossible, near enough that trying to do so will not provide policymakers with useful, usable information. (At least with labor supply, CBO is probably right that repeal would increase it, for one reason by re-instituting job lock; but pinpointing the magnitude over a decade is beyond our skill.)

Gleckman points out that to their credit, the budget office clearly admits their limits in this case (from their report; my bold):

“Although CBO and JCT’s best estimate is that repealing the ACA would increase federal budget deficits by $137 billion over the 2016–2025 period…the effects…could differ, in either direction, from the central estimates…by a sum that exceeds that amount. Thus, the uncertainty is sufficiently great that repealing the ACA could in fact reduce deficits over that period—or could increase deficits by a substantially larger margin than the agencies have estimated.”

In other words, this is case where the degree of uncertainty is such that the forecast may cross zero and end up with a different sign. That’s a big deal for policy makers trying to make sense out of the proposal in question (yes, I know…that assumes fact-based policy making, which is in itself an assertion with a very wide confidence interval).

While I appreciate the text, I think it would be a real advance if the CBO would use “fan graphs” for all of their forecasts. These are figures, like the one below, which explicitly plot the bands of uncertainty around the central forecast.

First, pictures are worth a lot of words, and I don’t care how sophisticated you are, most of us look at a graph with a line going into the future and tend to think of it as more accurate than it usually is. Putting it the fan would counteract that tendency.

Second, there are estimates wherein we can be confident that they will have a consistent sign around a confidence interval. Implementing policy X is likely to lower the deficit, for example, though we can’t be sure by how much. But when the fans cross zero, as they would in this case, that tells us something else we need to know about the uncertainty of this particular forecast.

So I hope you’re listening CBO. If you want more fans, add more fans!

cbo_fan     Source: CBO

 

 

Strengthening collective bargaining

June 23rd, 2015 at 9:56 am

A few ideas over at PostEverything. One colleague already tells me I may be thinking too incrementally and what’s needed is a major shift in the power structure. I don’t disagree, though we’d be hard pressed–perhaps more than I admit in the piece–to even get these ideas implemented. So I’m all for simultaneously playing the inside and outside games.

The curse of American optimism

June 22nd, 2015 at 5:10 pm

On my way in this morning, I was listening to a talk show about the mass slaying at the Emanuel AME Church in Charleston, SC. The host asked an expert on such things whether there was anything we could do to prevent the next one of these horrific episodes.

I fully expected him to go on about the need for a “national conversation” about race or gun control or some such platitude but instead, without dropping a beat, he asserted that in fact there was nothing we could do, and that it was a virtual certainty that we’d be back here again soon playing out the same scenario of shock, anger, disgust, fear, and ultimately, helplessness in the face of a patently insane situation.

The host, and I suspect many listeners, reacted with alarm. Americans are not allowed to admit hopelessness. We’re an optimistic, can-do people, whose innovative creativity works through flexible institutions to solve whatever fate throws our way. We employ the power of positive thinking, we invoke our exceptional spirit, our unstoppable military, our skilled workforce, our basic sense of American decency.

And yet, I found the expert’s hopelessness resonant, and I’m suspect I’m not alone. I’d go a step further and suggest that any knee-jerk optimism and positive thinking not only have no place in this tragedy. They are a destructive distraction.

The author Barbara Ehrenreich wrote about this in her book Bright-Sided: How the Relentless Promotion of Positive Thinking has Undermined America, a thorough analysis of how optimism and hopefulness trumped careful thought in ways that contributed to multiple disasters, including 9/11/2001, the Iraq war, the failed response to Hurricane Katrina, and the housing bubble and subsequent financial market implosion that brought us the Great Recession.

I see the same dynamic at work in global warming. How can the “greatest nation on earth” contribute to behaviors with the potential to destroy the planet? It just doesn’t make sense! Who are you going to believe, the downer scientist or the upbeat politician?

The power to ignore the facts behind the smiley face is a uniquely American trait. Of course, citizens of other countries are patriotic, but they’re much less likely to be so to the point that in the face of existential obstacles, they assume we’ll work it out, because hey…that’s what we do!

The fact is, at least for now and I’d guess for some number of years to come, we are helpless in the face of the gun lobby against murderous psychopaths, racists, and terrorists. Our non-response to Sandy Hook confirmed that reality.

We can and probably will have some “national conversations” about race and violence and whatever, and if those debates lead to some increment of change, like taking down the Confederate flag in public places, that will be an advance.

But the sooner we dump our national optimism and recognize that we are firmly and, for some unknown number of victims, fatally stuck in an insane equilibrium, the closer we will be to at least facing reality, if not changing it.

Correcting CBO and touting some fiscal oxygen

June 22nd, 2015 at 6:21 am

I wanted to weigh in briefly on this little dust up re some recent CBO analysis. My colleague Richard Kogan pointed out that while the CBO’s recent long-term budget analysis was as sound as ever, the opening sentence was very wrong:

“The Congressional Budget Office’s (CBO) new report on the budget picture opens by saying, “The long-term outlook for the federal budget has worsened dramatically over the past several years,” blaming the Great Recession and the steps taken to address it. But CBO’s own data, in that very report, show that’s not the case. The CBO data that allow an apples-to-apples comparison of its new projections with its earlier ones from before the recession show that the long-term budget picture has improved significantly, not worsened.”

Paul Krugman amplified this message last week.

Probably the easiest way to see Richard’s point, though it’s not as accurate as the figure he shows (i.e., it’s not CBOs work; it’s our own, but it amounts to the same thing), is to look the evolution of CBPP’s long term projects as in the first figure here (shown below). There we show the 2040 debt projected to be around 100% of GDP by 2040 vs. over 200% from our projection a few years back.

cbpp_ltbo

One reason for that improvement—not the only one, but a big one—is the decline in government spending on health care, due in large part to the fact that the growth of health care costs has slowed significantly in recent years, which is in turn partially due to health care delivery efficiencies enforced by the ACA.

The figure below, from another new CBO release, shows the persistent decline in their estimates of budget impact of the ACAs premium subsidies, driven both by the decline in costs and reductions in their guesstimates of how many people will purchase coverage through the exchanges (assuming the federal gov’t led exchanges in 34 states survive the SCOTUS).

hc_costs

Source: CBO

Since our strongest fiscal pressures are coming from the combination of aging demographics and rising health costs, this development is creating some much needed fiscal oxygen. From our long-term analysis: “in January 2010 we projected that Medicare and Medicaid together would cost 11.1 percent of GDP in 2040, but we now project that Medicare, Medicaid including the [ACA] expansion, CHIP, and the new marketplace subsidies will together cost 7.7 percent of GDP, or about 30 percent lower than the previous estimate.”

Now, let’s not get too carried away here. First, as Krugman says, long-term budget projections are a uniquely boring sub-genre of science fiction. Second, the path you see in our long-term projection is not sustainable. You still want to be a CDSH and while fiscal rectitude doesn’t imply balanced budgets, austerity, or the reckless cuts of sequestration, it does require debt rising more slowly than GDP in a strong economy. The analysis also implies that the costs of repealing the ACA or for that matter, landing the wrong way on King v. Burwell, will suck a lot of that oxygen out of the fiscal room.

The bottom line is that in part due to a more favorable health cost trajectory than we expected, we have some time to build on this progress. Or, we can mindlessly squabble about whether or not to keep the lights on.

Three reasons why polls are increasingly wrong

June 21st, 2015 at 12:58 pm

I found this to be an important bit of analysis from this AMs NYT. It’s a piece on three reasons why polling is increasingly failing to accurately predict electoral outcomes: the growth of cell phones, lower response rates, and greater difficulty predicting who are the likely voters (i.e., getting turnout wrong).

For reasons explained in the piece (related to an FCC ruling), it’s a lot more expensive to poll by cellphone and polling firms have been trying to make up the loss by cutting corners in sampling and interviewing.

For reasons that may also have to do with technology, response rates have fallen to the point where pollsters cannot count on ending up with a random sample. That in turn makes it hard for them to guess the probability that different types of people are in the sample, which implies greater guesswork to weight the sample up to be nationally representative.

Finally, you can ask people if they plan to vote, but that answer has long been known to have an upward bias. Apparently, it’s getting worse. I’ve thought for awhile that one reason polls seemed to be getting less reliable was due to the problem of accurately modeling turnout, and it turns out that’s true.

I was taught back in econ grad school that economists should work off of what people do, not what they say. (Unfortunately, there are too many economists who believe their models more than the evidence, but that’s a different problem.) So I’ve always taken poll results with a grain of salt. One doesn’t want to push that too far–when a Nate-Silver-style meta-analysis of many polls points in the same direction, I’d still give that some weight.

But for the most part, we should all add a few more grains of salt to the equation until the pollsters can straighten some of this out.