This article appears in the April 2023 issue of The American Prospect magazine. Subscribe here.
If you’re wondering why the US failed so miserably in developing a workable child care and early childhood education system, consider the role of economic modeling.
When the Congressional Budget Office (CBO) released its much-anticipated score for the cost of childcare facilities in the Build Back Better Act in 2021, it produced a headline: $381.5 billion. That was what CBO estimated as the amount of money the government would allocate to child care.
But this budget value fell well short of the net cost of the program. It didn’t take into account the savings predicted by reams of academic research on the long-term economic benefits of childcare. Nothing about how kids with quality early childhood education do better in school, avoid trouble and have higher lifetime earnings. Nothing about the increased tax revenue for moms and dads who could now work full-time. Nothing about the mountains of data showing that if mothers are kept out of the workforce in their early years, their lifetime earnings and even their security in retirement will be seriously undermined – something that universal child care could reverse. And nothing about the impact of higher wages for childcare workers — wages that would mean many of those workers would pay more in taxes and wouldn’t need SN`, Medicaid, housing benefits, and other assistance offered to the lowest-paid people in the country. In other words, according to the 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 state budget and our nation.
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To any CEO of a Fortune 500 company or owner of a small neighborhood restaurant, a budget assessment like this must sound like a crazy way of doing business. Because investments not only have costs, but also advantages. That’s why companies are investing in things like building factories, switching to green energy, or offering employee benefits, even if they have to book heavy upfront costs. These business leaders don’t take on big projects out of the goodness of their hearts; They hire them because they want to increase profits, retain employees, and improve the company’s long-term prospects.
Budget rules, on the other hand, discourage investments in people. And there’s a reason for that. Decades ago, Congress ruled that CBO cannot account for the indirect or secondary impact that a policy change may have on other parts of the budget. For example, research shows that federal spending on things like safe housing and baby feeding assistance makes people healthier and lowers overall healthcare costs. However, because of the rules set by Congress, CBO cost estimates for these programs cannot assume that taxpayers would save money on health insurance costs or that taxpayers would spend less on Medicaid. Meals on Wheels helps seniors stay out of much more expensive nursing homes and saves Medicare and Medicaid billions of dollars, but the federal government says it’s nothing but an expense. Increased IRS enforcement, like Democrats did in the Inflation Reduction Act, would mean less tax evasion and more revenue. But most of the time, according to the official CBO assessment, more money for the IRS is another expense that increases the deficit.
Poor budget models, and the reaction of members of Congress to them, also skew the way we make policies.
These and other self-imposed rules structurally divert the policy-making process from making sound investments that meet families’ needs.
Poor budget models, and the reaction of members of Congress to them, also skew the way we make policies. Consider again our country’s need for child care. The US ranks 33rd of the 37 wealthiest nations in terms of childcare spending, and millions of parents – mostly mothers – are kept out of the workforce because they cannot find safe and affordable childcare. The pandemic has brought this crisis to light, sparking a nationwide outcry over the pitiful state of care for our youngest children.
When I was invited to deliver one of the keynote speeches at the 2020 Democratic Convention, which was held remotely, I was speaking from a gated child care center in Springfield, Massachusetts – I stood between the blocks, tiny chairs and single cubbies in the room for three – year olds. As more and more people championed the need for universal child care and the Democrats won both the White House and Congress, I believed this was our moment.
But when I put together a new, comprehensive bill, the first question I got was the dreaded “How does it compare?” The answer got in the way of the process from the start. Instead of fighting for good policy, Democrats arbitrarily decided that the bill’s childcare provisions should cost less than $400 billion. Universal care costs a lot more than that.
So the bill that eventually went ahead was not based on how much money would be required to ensure every child had access to care. Instead, it was full of opportunities to play the policy design so that the CBO score would hit the $400 billion mark. The bill excluded millions of families in need of care, delayed implementation for years, and forced states to opt out. Poor budgetary models meant these decisions were not driven by what would maximize the well-being of our children or our nation’s long-term growth. Instead, decisions were driven by the political need to score a lower score, regardless of what that meant for the viability of the proposed program.
The only number used to rate a child care program was the direct expenditure on care. The compromises made to reach a politically acceptable CBO figure raised the question of who would and would not benefit from a compromise program, which eludes support. As bill after bill passed Congress in 2021-2022, childcare fell by the wayside.
OUR CURRENT HOUSEHOLD MODELS do not generate random errors. They don’t sometimes exaggerate the cost and sometimes they don’t underestimate it. They cause systematic errors and make many investments look much more expensive than they are. They result in routine underfunding of critical programs and enforcement efforts, and distort the policy-making process from start to finish.
For those who want to shrink 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 where all our people have a chance to thrive, poor budget models suffocate us.
Reforming these economic models would not be easy. CBO cost estimates generally exclude the potential macroeconomic impact of a proposed policy precisely because, as they explain, they have too few analysts to pull the numbers. Worse, say former CBO scorers, “estimates of the macroeconomic impact are highly uncertain.” Translation: It’s hard.
Yes, estimating the costs and benefits of large investments over decades is difficult – really difficult. Figuring out the right model and assumptions is difficult and uncertain, and real life can prove our best guesses wrong. Politicians can interfere in court decisions. data is imperfect. But “hard” is no excuse not to try.
Congress has a responsibility to maximize the long-term prosperity of our people, and we need economic models that stand a better chance of doing so.
We should start changing the modeling rules to account for both costs and benefits. And because this is difficult, 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 likely benefits of a given policy .
We should also ensure that our modelers, who make myriad judgments in their work, reflect a true diversity of perspectives. Consider CBO’s Panel of Economic Advisers. CBO relies on these experts, who were “selected to represent a variety of perspectives,” to calibrate their models and test their assumptions. But look at the team: Of the 22 people on last year’s panel, 20 had PhDs in economics; 11 of those 20 went to the same three Ph.D. programs. Recognizing that economic modeling is highly uncertain and heavily dependent on assumptions means that we should strive for diversity among our modelers and be open to different types 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 hire independent external teams to collect data on programs that have been adopted to see how off-brand past modeling was. This information would enable us to improve the modeling over time.
Finally, policymakers need to remember that modeling the costs and benefits of major public policies is not just about numbers, it’s also about our values. Yes, we need better data and better models, but neither can we shy away from advocating bold investments, even when the (exact) price is high. I believe that when modeled accurately, quality childcare pays quite a price. But even if we don’t, such caring will help us build an America where everyone has opportunities — and “everyone” includes mothers. An investment in care is also an investment in caregivers who treat them with respect for the hard work they put in. In other words, just as a CEO would urge his board to embark on a major new project, Congress should not shy away from making the investments that the American people and our economy need.
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