Economists Have Been Demoted in Washington. That’s a Bad Idea.
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Version 0 of 1. Academic economists have received a demotion. The Trump administration has been filling out its cabinet and, unlike in the Obama administration, the chairman of the Council of Economic Advisers will not be part of it. The council has long been the home of the economics profession in Washington, and this move softens the loudest policy voice that academics have. As an academic economist, it is hardly surprising that I say this is a bad idea. But I don’t think my concerns are self-serving: They do not stem from a belief in the superiority of economists, from some sense that we understand the economy better than anyone else. Instead, they arise from a belief that this move will rob the policy-making process of a particular kind of expertise and, worse, contribute to insularity and bias. From the outside, it may be hard to imagine why removing one economist from the cabinet should have much of an effect. After all, the corporate world is well represented in the administration: At least five cabinet nominees or appointees and several more cabinet-level appointees have been chief executives or corporate leaders. If anything, some would argue that this cabinet has too many businesspeople. But don’t confuse business acumen with economic analytics. You surely wouldn’t conflate the two in one direction: Would you ask an academic economist without business experience to run a company? It would be an equivalent error going in the other direction: The Council of Economic Advisers performs a function, and provides a perspective, that businesspeople do not. By way of background, it is useful to understand how the council, which does not, at the moment, have a chairman, actually operates. In effect, it is an in-house economic consultancy for the White House. The staff produces economic analysis on nearly every issue the president faces. This is a much broader responsibility than you might imagine. For example, suppose a reduction in the size of the Army was being considered. The effect on national security would be a major concern, but even this policy has economic consequences. What would the reduced job opportunities do to people who have made the military their profession? What would happen to the economies of the towns that surround Army bases? What would the fiscal consequences be, such as the cost of early retirement or severance packages that might need to be paid as part of a downsizing? It is the council’s job to marshal the best analysis and evidence to answer these questions. Even when the economic consequences are not the primary consideration, they can influence the final decision. Few choices are cut and dried, and economic considerations can swing many of the close calls the White House must routinely make. Business acumen, by itself, produces little insight into these questions. Take the example of military downsizing. Surely corporate executives have some insight into the process; they may even have managed a downsizing or two. For example, Wilbur Ross, the commerce secretary nominee, specialized in buying distressed assets such as firms in bankruptcy. He would provide a valuable perspective, correct? Yet at the same time, this kind of experience does not speak to broader, systemwide consequences. What is known about how to minimize the effects on the towns surrounding military bases? For example, should new companies be recruited to these towns? Should people be encouraged to look for work elsewhere? If there are “short run” costs, will they last a year or a decade? Or take tax policy. Companies spend vast amounts of resources navigating the tax system. Businesspeople know the loopholes and the kind of incentives and tax breaks that might be attractive for their own operations. After all, this was implicit in Mr. Trump’s assertion that, “I know our complex tax laws better than anyone who has ever run for president and am the only one who can fix them.” Even if Mr. Trump were to follow through on this promise, there is more to tax policy than fixing loopholes. Any discussion must recognize how taxes distort behaviors and choices: For example, even a high income tax without loopholes might cause some people who would like employment to decide to stay out of the work force. The discussion must also examine who actually will bear the brunt of the tax. These are the questions the council focuses on. But the council brings more than just a different kind of expertise. While cabinet members serve the country, they also have their private interests and ambitions. For some, these are primarily political. For others, they may be mainly business interests. It is hard not to let these ambitions color policy making. Even when intentions are admirable, the mind is effective at warping perspectives to line up with self-interest. The academics serving on the council have their own biases. They, too, have political preferences and party affiliations. In recent years, there has even been concern that academics’ research and policy advice are polluted by their business ties or speaking fees. But by and large the largest bias of academics lies elsewhere. In 1983, Martin S. Feldstein, an economist now at Harvard, where I work, was the chairman of the Council of Economic Advisers. This was when the Reagan administration was cutting taxes broadly. The problem was that without accompanying cuts in spending, deficits would rise. Mr. Feldstein was particularly concerned about this and expressed his worries loudly. His voice was important: It raised a concern that wasn’t politically popular. Critics of Mr. Feldstein complained. Lawrence A. Kudlow, who had been chief economist of Office of Management and Budget earlier in the Reagan administration, said of Mr. Feldstein: “There’s always been the suspicion that he’s playing to Harvard, the Charles River crowd, that he’s more interested in protecting his academic integrity than the president’s programs.” Yes, academics fret about what their peers think, just as other people do. In this case, it’s a good thing. It is important to have someone in the cabinet who is more interested in protecting academic integrity than in protecting business interests or the president’s image. |