Risk And Reward

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THE PLANK FEBRUARY 2, 2007

Risk And Reward

If you're among those disappointed the Democratic Congress hasn't accomplished more in its first few weeks, keep in mind that some of the most important reforms Democrats have made are simply not that high-profile, unless you're a wonk who follows public policy closely. A case in point is the arrival of Peter Orszag.

Orszag is an economist who served in the Clinton Administration and was working at the Brookings Institution until just a few weeks ago -- when Democrats tapped him to run the Congressional Budget Office. The CBO is one of the most influential, if underappreciated, institutions in Washington; its cost estimates can make or break legislative proposals, at least during those times when political leaders take cost seriously. (Sadly, CBO's dour projections proved much more devastating to the Clinton health care plan than they did to the Bush tax cuts. But that's another story.)

Orszag's relatively liberal politics are no great secret. After his tenure in the Clinton White House, he did work on behalf of the Center on Budget and Policy Priorities, an organization that churns out research making the case for a more progressive tax code, better funded social programs, and the like. Still, like the Center itself, Orszag has a well-deserved reputation for intellectual honesty that crosses party lines. Among the reasons: Orszag, like many other center-left economists, has a strong commitment to fiscal responsibility -- and a faith in markets typical of mainstream economists -- that he must square with his general enthusiasm for government activism on behalf of the poor and middle class.

So what difference does having Orszag at CBO make? For one thing, it produces reports like this, which I found via Max Sawicky
and Kevin Drum. It's testimony about the American economy, delivered earlier this week before the House Ways and Means Committee. Its conclusion: While the economy as a whole has become less volatile than it once was, meaning that recessions are less severe, individuals seem to be experiencing more financial volatility -- in part because losing a job, with its health and pension benefits, can cause dramatic and long-term declines in income.

This idea will not surprise folks familiar with, say, the recent work of Jacob Hacker, whose book The Great Risk Shift
makes the same essential point. In fact, this report merely confirms a growing consensus among center-left economists -- documented recently by my colleague Jonathan Chait
-- that globalization has not produced income security and evenly distributed prosperity as these economists had once hoped.

But a CBO director less interested in this subject might not have dwelled on these facts or seen fit to synthesize them in this way. Indeed, Max, who follows these things far more closely than I do,
says he's never seen a CBO report like this before. If true, that seems pretty significant. Having the CBO's imprimatur on the phenomenon of rising insecurity gives the idea much greater currency in policy debates. And should the debate over addressing that insecurity move forward -- say, over proposals to strengthen unions or create universal health insurance -- that currency will come in handy.

(Note that this doesn't necessarily mean Orszag endorses either idea specifically. In fact, my hunch is that, like most center-left economists, he still gets skittish about big government programs and worries how unions might restrict a fluid labor market. But he's sufficiently open-minded that I also wouldn't expect him to dismiss either idea the way more conservative economists might, out of sheer instinct. And, in any event, just having him endorse the existence of the problem is a big step in the right direction.)

-- Jonathan Cohn

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posted in: the plank, business, entertainment, environment, health, labor, politics, social issues, person career, peter orszag

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