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June O'neill Won't Dance To Just Any Gop Tune


Economics: BUDGETS

JUNE O'NEILL WON'T DANCE TO JUST ANY GOP TUNE

As a member of the ignored minority, Representative Richard K. Armey (R-Tex.) used to rail against the Congressional Budget Office as an agent of Democratic Big Government. "One of the biggest fictions in this town is that the CBO is nonpartisan," insisted Armey, himself an economist. But now the Texas lawmaker is House Majority Leader, and Republicans get to pick the CBO director, so they tapped an ideological soul mate for the powerful post: Baruch College economist June E. O'Neill, who describes herself as "conservative and market-oriented."

And there's little doubt that House GOP leaders expect a quick reversal of the CBO's supposed bias toward government spending. No sooner did O'Neill arrive at work on Mar. 6 than she was presented with a "congratulations" letter from House Speaker Newt Gingrich (R-Ga.) and House Budget Committee Chairman John R. Kasich (R-Ohio) demanding that the CBO no longer automatically factor inflation into its baseline forecasts of federal spending. "That way, the House will approach the federal budget as a family looks at its own budget, beginning with current spending, not anticipated increases," they insisted.

But if GOP deficit hawks and supply-siders believe they have found a new chef to cook the books with a sauce to their liking, they may be disappointed. In an interview with BUSINESS WEEK, the 60-year-old economist vowed to maintain the CBO's reputation for independence, an asset admired by most outside observers. "I've been assured by everybody, and explicitly by John Kasich, that they all want the honest truth," says O'Neill, the fourth director in the CBO's 20-year history.

Certainly, her past work as a labor economist tends toward the conservative end of the spectrum. O'Neill's research on gender-based wage differentials concluded that the choices that women make on entering and leaving the labor force--not sex discrimination--were the key factors behind unequal pay. As a result, she opposed "comparable-worth" policies on the grounds that raising wages for traditionally female jobs would reduce incentive to enter other occupations and mean an oversupply in women's fields, "making it still harder to find a stable solution to the problem."

In 1992, O'Neill's studies found that women narrowed the pay gap with men during the 1980s because of increased skills and higher education levels rather than affirmative action. As for race-based pay gaps, she wrote three years ago that "deprivations related to school, home, and neighborhood are more serious obstacles to the attainment of black-white equality in earnings than current labor-market discrimination." More recently, she and her husband, fellow economist David M. O'Neill, criticized the Clinton Administration's 1993 health-reform proposal, arguing that the mandate for employer health coverage would have triggered mass job losses in low-wage industries such as restaurants and construction.

"SOLID RESEARCH." But those conservative views haven't stopped O'Neill from winning kudos from Democrats--even some in the Clinton Administration. Isabel V. Sawhill, who recently left the Office of Management & Budget, recommended O'Neill as her replacement in charge of the Women & Family Policy program at the liberal-leaning Urban Institute in 1979, when Sawhill joined the Carter Administration. "We differed on some conclusions, but I always respected her," says Sawhill. "She's not a political animal--she's more an intellectual and a scholar."

Similar praise comes from Alice M. Rivlin, the CBO's first director and now head of the executive branch's OMB, the CBO's rival budget scorekeeper. Rivlin, who hired O'Neill in the 1970s as a staff economist at the CBO, says: "She's on the conservative side and a Republican, but no extremist. She's got a good, long track record of solid research."

Indeed, it may be the Republicans who end up most surprised by O'Neill's views. Take the Bureau of Labor Statistics' monthly calculation of the consumer price index. Gingrich has threatened to "zero out" the BLS unless it quickly lowers its CPI estimates--a change that could save $150 billion in cost-of-living adjustments for Social Security and other government programs over the next five years. The money would help the GOP cut the deficit and pay for tax cuts.

But as far as O'Neill is concerned, the CPI "is something that can never be [totally] fixed" because it is nearly impossible to adjust for quality changes and consumer buying habits. If politicians want to trim the COLA, they'll likely have to do it themselves by using an entirely new formula, O'Neill says.

SIDESTEP. Nor will she embrace "dynamic scoring," which in its extreme form implies that a cut in tax rates can actually increase tax collections by stimulating growth. Some House Republicans had hoped that the CBO would endorse the idea that the GOP's $189 billion tax-cut package would pay for itself. But she avoids the issue by noting that estimating revenues from tax-law changes is not the CBO's job but that of the Joint Committee on Taxation.

Not surprisingly, O'Neill wasn't the GOP's top candidate. The job was first offered to John F. Cogan, an economist at Stanford University's Hoover Institution, who turned it down. Among other mainstream economists making the final cut but not offered the job: Robert Glenn Hubbard of Columbia University, James M. Poterba at Massachusetts Institute of Technology, and James R. Barth at Auburn University. More radical economists--including true-blue supply-siders--were dropped after a group of economists led by former Federal Reserve Board Chairman Paul A. Volcker warned that attempts to calculate the macroeconomic effects of tax cuts were "an invitation to wishful thinking."

O'Neill appeared on Kasich's list as well as that of Senate Budget Committee Chairman Pete V. Domenici (R-N.M.), who opposed putting a supply-sider in the job. Eventually, she became the compromise choice. Despite her vows to remain independent and nonpartisan, the Senate Budget Committee's ranking Democrat, Senator J. James Exon (D-Neb.), remains suspicious. He opposed her selection, claiming O'Neill will accept "lock, stock, and barrel" some GOP supply-side notions.

So far, O'Neill plans to avoid choosing sides. Her immediate task is to upgrade CBO presentations with computer-generated graphics. "I believe in clarifying the presentation," she says. "When budget people talk to each other now, it's frequently incomprehensible." That may also mean changing assumptions for budget forecasting, as Gingrich and Kasich suggest. But O'Neill knows no computer software or new assumptions can make the deficit vanish--and she's ready to say that to anyone who listens.

WHERE O'NEILL STANDS

RACE

Wage differentials between blacks and whites are more closely linked to unequal education and poor neighborhoods than to discrimination in hiring

GENDER

The long-standing male-female wage gap was due largely to women having less education and training and fewer consecutive working years--rather than workplace bias

HEALTH CARE

The Clinton health-care plan--even including a large federal subsidy to small business--would have resulted in perhaps 1 million lost jobs

in such industries as restaurants and constructionBy Paul Magnusson in Washington


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