[Reforms are needed to ensure that inaccurate budgetary math
doesn’t take precedence over maximizing long-term prosperity.]
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HOW POLICYMAKERS FIGHT A LOSING BATTLE WITH MODELS  
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Elizabeth Warren
April 4, 2023
The American Prospect
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_ Reforms are needed to ensure that inaccurate budgetary math
doesn’t take precedence over maximizing long-term prosperity. _

Sen. Elizabeth Warren (D-MA) conducts a news conference outside the
Capitol to reintroduce the Universal Child Care and Early Learning
Act, April 27, 2021., Tom Williams / CQ Roll Call via AP Images

 

_This article appears in the __April 2023_
[[link removed]] issue of The American
Prospect _magazine. Subscribe here
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If you’re wondering why the U.S. has failed so miserably in
developing a workable child care and early-childhood education system,
consider the role of economic modeling.

In 2021, when the Congressional Budget Office (CBO) released its
much-anticipated score for the cost of the child care provisions in
the Build Back Better Act, it produced one headline number: $381.5
billion. This was what CBO estimated as the amount of money the
government would lay out for child care.

But that budget score badly missed the mark on the net cost of the
program. It did not account for any of the savings predicted by reams
of academic research on the long-term economic benefits of child care.
Nothing about how kids with high-quality early care do better in
school, stay out of trouble, and have higher lifetime earnings.
Nothing about the increased tax revenues generated by mamas and
daddies who could now work full-time. Nothing about the mountains of
data that show that when mothers are held out of the workforce in
their early years, their lifetime earnings and even their security in
retirement are seriously undercut—something universal child care
could reverse. And nothing about the impact of higher wages for child
care workers—wages that would mean many of those workers would be
paying more taxes and wouldn’t need SNAP, Medicaid, housing
supplements, and other help offered to the lowest-paid people in the
country. In other words, according to CBO, investing in our children
and filling a wheelbarrow with $381.5 billion in cash (a big
wheelbarrow) and setting it on fire would have exactly the same impact
on our national budget and our nation.

_MORE FROM ELIZABETH WARREN_
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To every CEO of a Fortune 500 company or owner of a small neighborhood
restaurant, budget scoring like this must sound like a crazy way of
doing business. After all, investments don’t just have costs—they
also have benefits. That’s why companies invest in things like
building factories, converting to green energy, or offering employee
benefits, even if they have to book a big cost up front. Those
corporate executives don’t take on big-ticket projects out of the
goodness of their hearts; they take them on because they want to boost
profits, retain workers, and improve the company’s long-term
outlook.

Budget rules, by contrast, tilt against investing in people. And
there’s a reason for that. Decades ago, Congress decided that CBO
cannot account for the indirect or secondary effects a policy change
may have on other parts of the budget. Research shows, for example,
that federal spending on things like safe housing and nutrition
assistance for babies makes people healthier and reduces total health
costs. But because of the rules Congress set, CBO cost estimates for
these programs cannot assume taxpayers would save any money on health
insurance costs or that taxpayers would spend less on Medicaid. Meals
on Wheels helps seniors stay out of much more costly nursing homes and
saves Medicare and Medicaid billions of dollars, but the federal
government says it is nothing but an expense. Beefing up IRS
enforcement, as Democrats did in the Inflation Reduction Act, would
mean fewer tax cheats and more revenue. But according to official CBO
scoring, more money for the IRS is mostly another expense that adds to
the deficit.

Bad budget modeling, and how members of Congress respond to it, also
distorts the way we _design_ policies.

These and other self-imposed rules structurally bias the policymaking
process away from making commonsense investments that meet families’
needs.

Bad budget modeling, and how members of Congress respond to it, also
distorts the way we _design_ policies. Consider again our
country’s need for child care. The U.S. is 33rd out of the 37
richest nations in terms of what we spend on child care, and millions
of parents—mostly mamas—are kept out of the workforce because they
can’t find safe, affordable child care. The pandemic drove this
crisis into the open, fueling a national outcry over the sorry state
of care for our youngest children.

When I was invited to deliver one of the keynote speeches at the
all-remote 2020 Democratic convention, I spoke from a closed child
care center in Springfield, Massachusetts—standing amid the blocks,
tiny chairs, and individual cubbies in the room for three-year-olds.
As more people rallied behind the need for universal child care, and
as Democrats won both the White House and Congress, I believed this
was our moment.

But as I assembled a new, comprehensive bill, the first question I got
was the dreaded “How does it score?” The answer hobbled the
process from the start. Instead of fighting for good policy, Democrats
arbitrarily decided that the child care provisions in the bill would
need to cost less than $400 billion. Universal care costs a lot more
than that.

So the bill that ultimately moved forward was not based on how much
money it would take to make certain every child had access to care.
Instead, it was loaded with ways to game the policy design so the CBO
score would meet the $400 billion threshold. The bill cut out millions
of families that needed care, delayed implementation for years, and
let states opt out. Bad budget modeling meant that these decisions
weren’t driven by what would maximize our children’s well-being or
our nation’s long-term growth. Instead, decisions were driven by the
political imperative to produce a smaller score, regardless of what it
meant for the workability of the proposed program.

The only number used to evaluate a child care program was the direct
outlay for care. The compromises made to hit a politically palatable
CBO number raised questions about who would and wouldn’t benefit
from a compromise program, draining away support. As one bill after
another passed the 2021-2022 Congress, child care was left behind.

OUR CURRENT BUDGET MODELS don’t create random errors. They don’t
sometimes overstate and sometimes understate costs. They create
systematic errors, making many investments look far more expensive
than they are. They lead to the routine underfunding of critical
programs and enforcement activities, and they distort the policymaking
process from start to finish.

For those who want to shrink the government to a size that can be
drowned in a bathtub, the current budget-scoring model works great.
But for those who live in the real world and want a country in which
all our people have a chance to thrive, bad budget models are choking
us.

Reforming these economic models would not be easy. CBO cost estimates
generally exclude the potential macroeconomic effects of a proposed
policy precisely because, as they explain it, they have too few
analysts to crunch the numbers. Worse, say former CBO scorers, the
“estimates of macroeconomic effects are highly uncertain.”
Translation: It’s hard.

Yes, estimating the costs and benefits of major investments decades
out is hard—really hard. Figuring out the right model and the right
assumptions is tricky and uncertain, and real life can prove our best
estimates wrong. Politics can weave its way into judgment calls. Data
are imperfect. But “hard” is no excuse for not trying.

Congress has a responsibility to maximize our people’s long-term
prosperity, and we need economic models that stand a better chance of
doing that.

We should start by changing the rules on modeling so that both costs
and benefits are accounted for. And because this is hard, we should
ensure that the agencies we rely on for modeling have the resources
they need to provide a solid understanding of both the likely costs
and the likely benefits of any given policy.

We should also ensure that our modelers, who make countless judgment
calls in doing their work, reflect a real diversity of perspectives.
Consider CBO’s Panel of Economic Advisers. CBO relies on these
experts, “selected to represent a variety of perspectives,” to
help calibrate their models and gut-check their assumptions. But look
at the team: Of the 22 people on last year’s panel, 20 had
doctorates in economics; 11 of those 20 went to the same three Ph.D.
programs. Recognizing that economic modeling is highly uncertain and
highly dependent upon assumptions means that we should strive for
diversity among our modelers and be open to different kinds of models
when making decisions. CBO shouldn’t be the only game in town.

We should also build accountability into the modeling system. Instead
of scoring, voting, and moving on, we should assign independent
outside teams to collect data on programs that have been adopted to
see how far wide of the mark past modeling turned out to be. That
information would arm us to improve modeling over time.

Finally, policymakers need to remember that modeling the costs and
benefits of major public policies isn’t just about numbers—it’s
also about our values. Yes, we need better data and better models, but
we also can’t be afraid to make the case for bold investments, even
when the (accurate) price tag is high. I believe that with accurate
modeling, high-quality child care pretty much pays for itself. But
even if not, such care helps us create an America in which everyone
has opportunities—and “everyone” includes mamas. An investment
in care is also an investment in care workers, treating them with
respect for the hard work they do. In other words, just as a CEO would
make the case to her board for taking a bet on a big new project,
Congress shouldn’t shy away from making the investments the American
people and our economy need.

ELIZABETH WARREN is the senior Democratic senator from Massachusetts.

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* Economic Policy
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* Child Care
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* Healthcare
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* Congress
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