Wonkblog: Peter Orszag

Can we have an evidence-based government?

Can we have an evidence-based government?

In 1988, Congress funded an effort to help young children from disadvantaged families do better in school. A few years later, the federal government tested the program, called Even Start, to see whether it was working. Researchers found no proof that it was, so President George W. Bush proposed scrapping it.

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The reality of tax reform: Less charity, smaller homes, higher state taxes

The reality of tax reform: Less charity, smaller homes, higher state taxes

"Base-broadening, rate-lowering tax reform." It sounds so good, right? But what if you call it what it really is? Charity-destroying, home-shrinking, state-burdening tax reform.

Doesn't sound as good, does it?

But that's really what we're talking about. The term "base-broadening, rate-lowering tax reform" has the advantage of vagueness: No one knows what it means. But the practical definition, at least the one that's emerging in the ongoing "fiscal cliff" negotiations, is tax reform that limits itemized deductions among high-income taxpayers. And as former OMB director Peter Orszag points out, 90 percent of the value of those deductions comes from just three categories: "taxes paid (mostly state and local taxes), home-mortgage interest and charitable contributions."

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Could this time have been different?


(KEVIN LAMARQUE - REUTERS)
Christina Romer had traveled to Chicago to perform an unpleasant task: she needed to scare her new boss. David Axelrod, Barack Obama’s top political adviser, had been very clear about that. He thought the president-elect needed to know exactly what he would be walking into when he took the oath of office in January. But it fell to Romer to deliver the bad news.

So Romer, a preternaturally cheerful economist whose expertise on the Great Depression made her an obvious choice to head the Council of Economic Advisers, gathered her tables and her charts and, on a snowy day in mid-December, sat down to explain to the next President of the United States of America exactly what sort of mess he was inheriting.

Axelrod had warned her against pulling her punches, and so she didn’t. It was not a pleasant presentation to sit through. Afterward, Austan Goolsbee, Obama’s friend from Chicago and Romer’s successor, remarked that “that must be the worst briefing any president-elect has ever had.”

But Romer wasn’t trying to be alarmist. Her numbers were based, at least in part, on everybody else’s numbers: There were models from forecasting firms such as Macroeconomic Advisers and Moody’s Analytics. There were preliminary data pouring in from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the Federal Reserve. Romer’s predictions were more pessimistic than the consensus, but not by much.

By that point, the shape of the crisis was clear: The housing bubble had burst, and it was taking the banks that held the loans, and the households that did the borrowing, down with it. Romer estimated that the damage would be about $2 trillion over the next two years and recommended a $1.2 trillion stimulus plan. The political team balked at that price tag, but with the support of Larry Summers, the former Treasury secretary who would soon lead the National Economic Council, she persuaded the administration to support an $800 billion plan.

The next challenge was to persuade Congress. There had never been a stimulus that big, and there hadn’t been many financial crises this severe. So how to estimate precisely what a dollar of infrastructure spending or small-business relief would do when let loose into the economy under these unusual conditions? Romer was asked to calculate how many jobs a stimulus might create. Jared Bernstein, a labor economist who would be working out of Vice President Biden’s office, was assigned to join the effort.

Romer and Bernstein gathered data from the Federal Reserve, from Mark Zandi at Moody’s, from anywhere they could think of. The incoming administration loved their report and wanted to release it publicly. Romer took it home over Christmas to double-check, rewrite and pick over. At 6 a.m. Jan. 10, just days before Obama would be sworn in as president, his transition team lifted the embargo on “The Job Impact of the American Recovery and Reinvestment Act.” It was a smash hit.

“It will be a joy to argue policy with an administration that provides comprehensible, honest reports,” enthused columnist Paul Krugman in the New York Times.

There was only one problem: It was wrong.

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Is Peter Orszag against democracy?


(MIKE SEGAR - REUTERS)
Peter Orszag’s New Republic article arguing that “we need less democracy” is getting a lot of attention, but mostly for the wrong reasons. “We need less democracy” is a good headline, but if you read the piece closely, that’s not actually what Orszag is arguing. Rather, he’s arguing that we need less Congress. And that’s a bit different.

Orszag is really worried about the way party polarization leads to “paralyzing gridlock” in our system. But that’s often because Congress actually isn’t that democratic. The filibuster foils majority rule and exacerbates the consequences of political polarization in the Senate, and the six-year election cycle and lack of proportional representation further insulate the chamber from democratic trends. Legislators also pulled toward party discipline and away from their voters by the desire to chair committees and secure campaign cash through the party’s fundraising apparatus. And as for whether Congress works this way because this is how the American people want it to work, a quick look at the legislative branch’s poll numbers will disabuse anyone if that notion.

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