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February
28, 2003 11:30 a.m. By Stephen Moore |
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ne
of the president’s most talented economic advisers, Glenn Hubbard, has
resigned as chairman of the Council of Economic Advisors. The White House
has apparently chosen Harvard economist Gregory Mankiw as his successor.
This is a pivotal position in the White House. It is imperative that President Bush put a strong and persuasive advocate of supply-side economic policies in this top job — someone to help sell the financial benefits of the current tax-cut plan and pursue even bolder pro-growth policies down the road.
Professor Mankiw is not that man. I say this never having met or spoken to Mankiw. I say this as someone who has read his writings. The Bush administration should too.
I would refer the White House to the third edition of his book Macroeconomics. In that book, Mankiw refers to Ronald Reagan’s supply-side advisers as "charlatans and cranks." Here is a passage from a section of the book entitled "Charlatans and Cranks":
An example of fad economics occurred in 1980, when a small group of economists advised Presidential candidate, Ronald Reagan, that an across-the-board cut in income tax rates would raise tax revenue. They argued that if people could keep a higher fraction of their income, people would work harder to earn more income. Even though tax rates would be lower, income would rise by so much, they claimed, that tax revenues would rise. Almost all professional economists, including most of those who supported Reagan's proposal to cut taxes, viewed this outcome as far too optimistic. Lower tax rates might encourage people to work harder and this extra effort would offset the direct effects of lower tax rates to some extent, but there was no credible evidence that work effort would rise by enough to cause tax revenues to rise in the face of lower tax rates. . . .Nonetheless, the argument was appealing to Reagan, and it shaped the 1980 Presidential campaign and the economic policies of the 1980s.
Here is the conclusion of Mankiw’s analysis of the Reagan years:
People on fad diets put their health at risk but rarely achieve the permanent weight loss they desire. Similarly, when politicians rely on the advice of charlatans and cranks, they rarely get the desirable results they anticipate. After Reagan's election, Congress passed the cut in tax rates that Reagan advocated, but the tax cut did not cause tax revenues to rise.
Never did President Reagan nor any of his economic advisers predict that the tax-rate cuts would increase tax revenues. They merely predicted that the revenue losses from the tax cuts would be lower than anticipated.
In these passages, Mankiw echoes the classic liberal Keynesian attack against the Reagan economic policies that created an 18-year expansion and a $16 trillion increase in wealth. Were those results not “desirable”?
Mankiw seems unaware of the economic reality that tax revenues doubled between 1980 and 1990. He should read Larry Lindsey’s book The Growth Experiment, which carefully documents the increase in tax revenues from high-income individuals after the Reagan income-tax cuts.
The latest edition of Macroeconomics has omitted the passages shown above. Perhaps Professor Mankiw has seen the errors of his ways (hopefully), or perhaps he realized how damaging these statements might be to his future political viability — to borrow a phrase from Bill Clinton.
Nevertheless, for several years Mankiw was indoctrinating young economists with wrongheaded thinking about supply-side economics. And the statements are now a matter of public record that will no doubt come back to haunt Mankiw if he gets the job of selling President Bush’s supply-side policies.
Mankiw was also an informed adviser to presidential candidate John McCain in the 2000 election. McCain attacked Bush’s economic and tax-cut agenda. This, too, does not inspire confidence in Mankiw.
The good news is there are a multitude of brilliant supply-siders who would be superb chief economists at the White House. I am thinking of talented people like Brian Wesbury of Chicago, Richard Vedder of Ohio University, and David Malpass of Bear Stearns.
Mankiw is right about one thing. The economics profession is filled with charlatans and cranks. Let us hope that Mr. Mankiw is not one of them.
— Stephen Moore is president of the Club for Growth.