Keith Hall will probably keep a balanced approach, while using “dynamic scoring” to make budget forecasts.
Last week, congressional Republicans picked Keith Hall, an economist who worked in the Bush and Obama administrations, as the new CBO director to replace outgoing Democratic appointee Doug Elmendorf as of April 1. Under Hall, it is likely that the CBO will no longer work under the assumption that budget and tax changes have no effect on overall economic growth — meaning that the CBO under Hall will probably implement some form of “dynamic scoring,” a type of economic modeling that seeks to account for the effect of government policy on the economy.
A new rule proposed earlier this year by House Ways and Means Committee chairman Paul Ryan would require the CBO to complete some form of “dynamic scoring” for any legislation with a budgetary impact above 0.25 percent of annual GDP. Hall will probably comply with this rule in some form.
That being said, Hall is no “party hack” for Republicans — the phrase former CBO director Peter Orszag used in describing the kind of leader he feared the GOP would appoint to the post. Indeed, the liberal Washington Post editorial board praised Hall as a moderate budget expert who would make a good CBO director.
During the first Obama term, Hall was commissioner of the Bureau of Labor Statistics, one of the government’s main economic data-gathering agencies, which is known for its impartiality. Hall also served as the chief economist for the White House Council of Economic Advisers (CEA) from 2005 to 2008. This is in keeping with the way in which previous CBO directors have been appointed: Many have been chosen from the pool of former senior economists at CEA, including Doug Holtz-Eakin, the most recent Republican appointee at CBO, who notably implemented a “dynamic scoring” supplement.
Phillip Swagel, a former economist in the Bush Treasury Department, has attested to Hall’s balanced approach, telling the Wall Street Journal, “He’s very mainstream — not an ideologue — and the kind of person who thinks about both sides and will listen to both sides.”
On the minimum wage, Hall maintained in recent Senate testimony that an increase in the federal minimum wage would tend to reduce overall employment. This view is in line with that of Elmendorf, who made a similar argument last year, to the dismay of many Democrats. Like many Democrats, Hall sees the dangers of increasing income inequality, though he predicts that raising the federal minimum wage to $10.10 an hour “may have the perverse and unintended effect of increasing income inequality.” Hall does not blanketly condemn efforts to raise the minimum wage, though, saying, “It is, of course, a laudable goal to see wages increase, particularly for those who could benefit the most from the raise” (a goal advanced by the raises recently announced by Walmart and TJX).
On taxes, Hall also has shown concern for the poor and the middle class, noting that government policies that “either raise the cost of hiring or reduce the incentive for work are counterproductive.” Hall also sees the labor-force participation rate as the largest impediment to the ongoing economic recovery.
While critical of Obamacare, Hall is not out of sync with the current CBO under Elmendorf, who has projected that the ACA will raise the federal deficit by $131 billion over the next decade. Hall further observed in his Senate testimony that this projected deficit did not take into account the ACA’s effects on the labor market: “While new regulations may be important, they raise the cost of production and therefore the cost of hiring production workers.” Mitigating regulation, in his view, is the best way to recharge the economy.
Fortunately for Congress and the American people, CBO estimates will at last take into account these types of growth-hindering regulations and policies. While estimates of the impact of economic policy will vary depending on which type of model is employed, it is about time for the CBO to discard the false notion that policy does not affect the economy, and Keith Hall is the right economist to lead the effort.
— Jon Hartley is an economics contributor for Forbes and the co-founder of Real Time Macroeconomics LLC, a financial-technology firm.