Council of Economic Advisers Chairman R. Glenn Hubbard, one of the last remaining members of the original Bush economic team and its most prominent supply-side adherent, resigned earlier this week to return to Columbia's economics department.
When a policy wonk leaves Washington as the fate of the policy he designed is in doubt, it's frequently regarded as a defeat—especially when his replacement is hostile to many of his core ideas. At first glance, that would seem to be the case here. The latest Bush tax plan, which Hubbard crafted, hasn't gained much traction even in the Republican-dominated Congress. And the Bush economic team is now populated almost entirely by officials who are less than enamored of the supply-side theories that animated Hubbard's plan. New Treasury Secretary John Snow agitated for a balanced budget in the '90s. Stephen Friedman, who replaced Lawrence Lindsey at the helm of the National Economic Council, served on the board of the deficit-loathing Concord Coalition. And in his textbook, Hubbard's successor, Harvard economist Gregory Mankiw, referred to Ronald Reagan's insistence that slashing income tax rates would result in higher government revenues as "fad economics." Worse, Mankiw discussed the theory's adherents in a section called "Charlatans and Cranks."
But despite the supply-siders' complaints and Hubbard's departure, they have already won the policy war.
Hubbard was a coherent choice for Bush. He was one of the only members of the economic team who didn't have to stow his beliefs at an intellectual coatcheck in order to be an effective advocate. He emerged in recent months as the administration's leading economic voice partially by default—the rest of the economic team either quit or was booted out.
But the youthful 44-year-old economist also had much to recommend him. Hubbard held tenure at Columbia University, where intellectual standards are rigorous, not at a Washington think tank, where intellectual standards are less so. He was energetic on television and articulated policy in a way that led one to think there was something other than political calculation at work. Unlike the pained optimism of former Treasury Secretary Paul O'Neill, Hubbard's perpetually sunny worldview didn't seem forced. Unlike Lindsey, he seemed comfortable in his suits and on camera. Unlike Harvey Pitt, his professional judgment was unquestioned. Too bad Hubbard's supply-side theories didn't make more sense.
Even though Hubbard has left, his influence will still be felt. All the people who are supposed to formulate policy are newbies, and none is part of the Bush inner circle. They've hired on as marketing executives, not strategists. Hubbard's brainchild is their policy and they're sticking to it—despite the changing circumstances.
In the last few years, a structural gap has opened up between the government's revenues and its expenditures. This gap is likely only to widen as tax cuts kick in and the Bush administration eagerly signs on to new spending programs—from the war in Iraq to increased farm aid, from a prospective Medicare drug benefit to missile defense. (Never mind the other enormously expensive propositions that it has backed, such as fixing the alternative minimum tax and transforming Social Security.)
But Hubbard's latest plan made no attempt to rein in spending or deal with looming liabilities. Bush is essentially rolling the dice that slashing taxes will somehow wind up increasing revenues down the road—or at least that the problems won't be sufficiently dire until 2009.
And even as consumer confidence and Bush's poll numbers on the economy fall, the administration is showing few signs it will reconsider the tax cut. Sure, the pension plan floated a couple of weeks ago to great fanfare has already pretty much been abandoned. And, yes, the highly convoluted dividend tax cut continues to defy explanation. But in the end, the tonic they're offering is straight out of the supply-side handbook: Cut taxes whenever possible, have faith that the fact of growing deficits will somehow restrain spending, and trust that growth will take care of the rest.
Hubbard's heir Mankiw had it wrong on one count. Supply-side economics is less a fad than a theology. And while the new members of the economic team may not be true believers, they're committed to preaching the gospel.