First-rate economist. Tax-cut champion. Presidential yes man.
If the dividend tax cut happens, you can thank—or blame—Glenn Hubbard. As the chairman of the White House's Council of Economic Advisers, he's widely believed to be the primary mover behind President Bush's tax-cut package. Weekly Standard executive editor Fred Barnes, in the International Economy, called him "the most influential chairman of the Council of Economic Advisers in two decades." Hubbard has amassed even more power since surviving the purge that booted Treasury Secretary Paul O'Neill and National Economic Council head Larry Lindsey in December.
But by acquiring so much influence, Hubbard's CEA has lost something, too. The CEA has long viewed its role in any administration, Republican or Democrat, in much the same way as William F. Buckley characterized the conservative's role in history: To stand athwart it, yelling "Stop!" The CEA's traditional job is to say "no" to ideas that make good politics but bad economics (which is to say, lots of them). As an advisory committee, the CEA is often ignored—on issues such as trade, it's frequently cast as a powerless and frustrated Cassandra—but its dispassionate economic assessments are considered crucial to a president's ability to weigh the pros and cons of administration policies. Which is why it's worrisome that Hubbard appears not to like the CEA's customary party-pooping role. Instead, Hubbard wants to be a yes man.
The CEA was established by Congress in 1946 with the intent of fulfilling the Keynesian dream of a panel of economic technocrats who would fine-tune the government's fiscal policy in order to maintain full employment. Over time, that goal was abandoned in favor of monetary policy and price stability, but the commission's makeup has remained largely the same: Academic economists and graduate students take short leaves of one or two years from their universities to provide the government with the latest and greatest in economic research. As Martin Feldstein, who served as CEA chairman during Ronald Reagan's first term and who was Hubbard's dissertation adviser at Harvard, wrote in a 1992 article, "CEA chairmen have generally regarded their role as presenting professional advice on what is economically correct rather than on trying to balance economic and political considerations in determining the 'best' policy." Or, as Dan Mitchell of the Heritage Foundation put it to USA Today when Bush nominated Hubbard, the job is to tell the government: "Go ahead and do dumb things, but realize they're dumb for these reasons."
Most observers thought Hubbard, who's a first-rate economist with unimpeachable credentials—Harvard Ph.D., teaching positions at Northwestern and Columbia—would make a first-rate CEA chairman. But from the start, Hubbard wanted to do more than conduct dry academic research on the effects of proposed policies. He wanted to be an active player in formulating and suggesting specific positions that the Bush administration should adopt. As he told the New York Times upon his nomination, "You have to see how these things evolve, but my hope for the Council of Economic Advisers is that it plays a very strong participatory role in developing economic policy."
Hubbard's fierce advocacy of specific tax reforms—both within and without the administration—has made him increasingly willing to adopt the administration's politically expedient, rather than economically sound, justifications for its proposals. It's not fair to expect Hubbard to check his beliefs at the White House door, nor is it objectionable that Hubbard is a conservative economist—after all, he's been one for years. The problem is that his eagerness to enact his preferred legislation has made him willing to adopt the bad logic of the administration's talking points and spin. In Hubbard's book, the best policy is tax reform, not honesty.
In 2001, he uncorked an economic whopper in a Washington Post op-ed, writing, "It is a major fallacy to praise new spending plans as stimulus." That's "not even right-wing economics," a former CEA member told the NewRepublic. "If an undergrad wrote that, you'd give the statement and the logic behind it a D."
For the past few months, Hubbard has dissembled on a new topic, this time the deficit's relationship to interest rates. Lately he has been insisting that there is "no link" between the two. "That's 'Rubinomics,' and we think it is completely wrong," Hubbard said in December. But Clinton economist Brad DeLong dug into Hubbard's textbook Money, the Financial System, and the Economy to find this quote, among others: "By the late 1990s, an emerging federal budget surplus put downward pressure on interest rates." Hubbard's textbook even has a handy-dandy formula explaining the relationship, which DeLong posted on his Web site.
The honest defense for Hubbard's preferred tax cuts—which he does make—is to argue that, yes, they will increase the deficit in the short-run, but they will also unleash long-term growth that will offset the short-term cost. There's disagreement as to whether that's true, but with that case, Hubbard can at least defend himself with the old joke about economists—if you laid them all end to end, you still wouldn't reach a conclusion. But in addition to advancing this point, Hubbard insists on Clintonian parsing about the deficit and interest rates, insisting that they do not move "in lockstep" with one another. Yes, and so what? There's a broad consensus among economists (including Hubbard, based on DeLong's reading of his textbook) that people's expectations about the size of the federal deficit affect interest rates. The debate is over whether that effect is large or small. It's disingenuous of Hubbard to suggest otherwise.
One of Clinton's CEA chairmen, Joseph Stiglitz, complained that government economists—the ones that work for Treasury or Agriculture or some other specific department—would adopt dishonest but expedient arguments in an effort to win favor for a policy. Worse, "sometimes good economists even seem to come to believe their specious arguments," Stiglitz wrote in 1998. That sort of thing happens when people have a vested interest in the success or failure of certain policies. And that's why the CEA exists—so that at least one group of White House economists is disinterested enough to provide detached analysis rather than talking points and spin. The CEA economists are supposed to care more about their academic reputations than the success or failure of specific policies. There's a little bit of myth to the CEA's institutional self-image, but it's a myth that encourages its economists to aspire to a dispassionate ideal. Unfortunately, Hubbard's CEA appears to have discarded the ideal altogether.
Interestingly, despite all Hubbard's influence in the Bush White House, the press continues to chatter about rumors that he's heading to the Treasury Department as deputy secretary. It's a great idea—the Treasury Department is supposed to lobby for specific administration proposals. From there, Hubbard could push for his vision of tax reform to his heart's content. He could be, as Fred Barnes approvingly wrote, "a player" and "a lot more than an economist." And the White House could have a real CEA chairman again.