This post is by Nat Keohane, Ph.D., Director of Economic Policy and Analysis at the Environmental Defense Fund.
My February 21 post, CBO Report: The Real Story, caught the attention of the folks at the Congressional Budget Office (CBO). Last Wednesday, I received a call from Terry Dinan, the senior analyst at CBO who wrote the report. A little while later I got a second call, this time from Peter Orszag, the Director of CBO.
In particular, they didn’t like the attention-grabbing paragraph at the top that said:
…a careful reading reveals the report to be a theoretical exercise with no real-world relevance. It highlights the drawbacks of a version of cap-and-trade that no one advocates, and bases its efficiency analysis on a faulty premise.
I stand by what I wrote, as I’ll explain in a moment. But a call from the Director of CBO is fairly attention-getting, as well. Moreover, Dinan and Orszag are smart and well-respected economists, and my conversations with them helped to sharpen my own thinking. So I thought I’d explain a couple of points in more detail.