Save the PBO [Parliamentary Budget Office]

NationalPost.com – Full Comment –  Save the PBO
Posted: November 20, 2009.  Stephen Gordon, economics

Thursday’s National Post has an op-ed written by a couple of Fraser Institute types entitled “Scrap the Parliamentary Budget Office”. It’s a remarkable piece of rhetoric. Although its stated purpose is to make the case for eliminating the PBO, it ends up demonstrating once again why an effective PBO is so desperately needed.

Let’s start with this bit:

[A]t the same time as the PBO released its updated fiscal and economic forecasts, Kevin Page, head of the PBO, warned that his office may have to shut down if it does not receive the $2.8-million it needs for operations this year, a substantial increase from last year’s budget of $1.8-million.

With the current federal deficit estimated at $56-billion in 2009/10, and further deficits amounting to $109-billion expected over the next five years, the Conservative government has got its work cut out. In this context, the PBO’s funding request provides an interesting case study about how the government should examine its programs and activities going forward.

The use of the word “context” here is clearly ironic; the authors are comparing an extra $1m for the PBO with an accumulated deficit of $109b – a number that is five orders of magnitude greater than what the PBO is asking for. Even if we dial it back and compare that $1m to the $10b estimate for the annual structural deficit, we’re still talking about numbers that are different by four orders of magnitude. One of the reasons so many academic economists support the PBO is to raise debate on economic policy issues beyond this level of innumerate nonsense.

But do we really need another government agency to do much of the same as several private sector organizations? Indeed, what functions does the PBO perform that the private sector cannot or does not provide?

Private sector organizations such as TD Economics, Global Insight, Dale Orr Economic Insight, and others regularly produce fiscal projections of government budgets, many of which are available online for free. In other words, there is healthy competition in the private sector for the production of economic and fiscal forecasts. This competition ensures that no one organization’s forecasts dominate, also serving the dual purpose of disciplining wildly inaccurate figures.

Dear reader, I must confess to snickering a bit at this point. I don’t suppose that it ever occurred to MM Veldhuis and Lammam to question this assertion: investigating market failures isn’t exactly part of the Fraser Institute’s mission statement. But as I note over here, there is an academic literature on the performance of private sector forecasts that largely contradicts this claim.

Read the rest

Stephen Gordon is a professor of economics at l’Université Laval in Quebec City, Canada and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l’emploi. He is co-author of the blog site, Worthwhile Canadian Initiative.

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worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/ – More reasons to support the PBO
November 19, 2009.   Stephen Gordon

Today’s National Post has an op-ed written by a couple of Fraser Institute types entitled “Scrap the Parliamentary Budget Office”. It’s a remarkable piece of rhetoric. Although its stated purpose is to make the case for eliminating the PBO, it ends up demonstrating once again why an effective PBO is so desperately needed.

Let’s start with this bit:

[A]t the same time as the PBO released its updated fiscal and economic forecasts, Kevin Page, head of the PBO, warned that his office may have to shut down if it does not receive the $2.8-million it needs for operations this year, a substantial increase from last year’s budget of $1.8-million.

With the current federal deficit estimated at $56-billion in 2009/10, and further deficits amounting to $109-billion expected over the next five years, the Conservative government has got its work cut out. In this context, the PBO’s funding request provides an interesting case study about how the government should examine its programs and activities going forward.

The use of the word “context” here is clearly ironic; the authors are comparing an extra $1m for the PBO with an accumulated deficit of $109b – a number that is five orders of magnitude greater than what the PBO is asking for. Even if we dial it back and compare that $1m to the $10b estimate for the annual structural deficit, we’re still talking about numbers that are different by four orders of magnitude. One of the reasons so many academic economists support the PBO is to raise debate on economic policy issues beyond this level of innumerate nonsense.

But do we really need another government agency to do much of the same as several private sector organizations? Indeed, what functions does the PBO perform that the private sector cannot or does not provide?

Private sector organizations such as TD Economics, Global Insight, Dale Orr Economic Insight, and others regularly produce fiscal projections of government budgets, many of which are available online for free. In other words, there is healthy competition in the private sector for the production of economic and fiscal forecasts. This competition ensures that no one organization’s forecasts dominate, also serving the dual purpose of disciplining wildly inaccurate figures.

Dear reader, I must confess to snickering a bit at this point. I don’t suppose that it ever occurred to MM Veldhuis and Lammam to question this assertion: investigating market failures isn’t exactly part of the Fraser Institute’s mission statement. But as I note over here, there is an academic literature on the performance of private sector forecasts that largely contradicts this claim.

In addition to the multitude of private organizations supplying economic forecasts and fiscal projections, others still go to great lengths to scrutinize the accuracy of government budget numbers and assess its fiscal policies and programs. These include think tank institutions (including our own), lobbyist groups, and professional and academic economists. In a sense, the government already has multiple “watchdogs” keeping it honest and disciplined.

Yeah, not so much. One can predict with a remarkable degree of precision the conclusions of such think-tanks as the Fraser Institute (‘markets always work’) or the Canadian Centre for Policy Alternatives (‘markets never work’). With the notable – and laudable – exception of the work of the CD Howe Institute (disclaimer: I have nothing to do with the CD Howe Institute), there simply isn’t much in the way of timely, accessible and high-quality policy analysis that can advance public debate.

[T]he private sector seems to be doing a fine job.

And at this point, snickering became laughter; regular readers may recall these gems that the private sector recently offered on an important policy issue.

When it comes to economic policy analysis, the story is one of market failure. The benefits of high-quality analysis accrue to everyone who cares to read the report, not just those who pay for it. This is a classic example of a positive externality, and the standard conclusion from public economics is that the market will produce less than the social optimum. Worse, the people who are best able to produce those analyses – that is, academic economists – have little incentive to do so. Unless we can come up with a way to fix these problems, the best way to deal with this market failure is government intervention. And the PBO is the best option available to us just now.

Update: Kevin Milligan at Support the OPBO adds his comments.

Posted by Stephen Gordon on November 19, 2009 in Canada – Politics, Media | Permalink
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