Jennifer Nou: "The CBO-CBA Analogy"

The CBO-CBA Analogy, or What Wonks Could Learn from Each Other
Jennifer Nou
Take Care
March 17, 2017

The Congressional Budget Office (CBO) recently released its long-awaited report on the likely budgetary effects of the American Health Care Act. The legislative counterpart to the White House’s Office of Management and Budget, CBO estimates how federal spending and revenues would change as a result of proposed legislative bills. The resulting Republican talking points were familiar: the health care bill’s numbers were biased, they protested, predicting the future is hard. They were familiar not only because they have become Trump’s refrains du jour for “so-called” expertise (think intelligence agency reports or unemployment statistics), but also because they are the same critiques often lobbed at another little-known office that wields outsized influence: the Office of Information and Regulatory Affairs (OIRA).

Among other things, OIRA is charged with reviewing the cost-benefit analyses (CBAs) of executive agencies’ significant regulatory actions. Its mission is to ensure that “the benefits of the intended regulation justify its costs.” A more recent Trump executive order also has the office scrutinizing the “total incremental costs” of new regulations to ensure they remain within fixed regulatory budgets.

Like the CBO Director, the OIRA Administrator is often a punching bag for both the Left and the Right. When you’re trying to maintain a reputation for nonpartisan number-crunching, you can’t please everyone. And like CBO, OIRA must also make predictions about the future amidst uncertainty: How many companies will go out of business as a result of technology-forcing requirements? How many people will no longer get lung cancer as a result of tobacco warning labels? These judgments require answers to hard questions about the right modeling assumptions, discount rates, and time horizons.

Faculty: 
Jennifer Nou