Correcting the record
3/4/2003 12:00:00 AM - Bruce Bartlett
One might expect President Bush to be attacked by Democrats for
appointing a staunchly free market-oriented economist as his chief economic
adviser. But it is a bit odd for him to be attacked by Republicans for doing
so. Yet that is what happened last week, when Steve Moore of the
pro-Republican Club for Growth attacked N. Gregory Mankiw's appointment as
chairman of the Council of Economic Advisers.
Moore's concerns mainly involve some comments Mankiw made in the
first edition of his best-selling textbook, "Principles of Economics" [buy book
the third edition of his "Macroeconomics," as Moore writes). He condemns
Mankiw for referring to supply-side economists as "charlatans and cranks"
and "snake-oil salesmen" for allegedly convincing Ronald Reagan that taxes
could be cut with no loss of revenue.
Of course, no one ever said such a thing. I have thoroughly
researched this matter and found no evidence that any economist working for
the Reagan administration ever said that. This fact is documented in books
by Martin Anderson, chief domestic policy adviser to President Reagan, and
William Niskanen, a member of his Council of Economic Advisers.
Nevertheless, the canard has been repeated so many times that Mankiw can be
excused for thinking it was true.
Mankiw was simply trying to illustrate the point that sometimes
a fad can sweep the economics profession that later turns out to be false.
This is indisputably true. Unfortunately, he chose a poor example to make
his point. Mankiw acknowledged this fact by purging this section from later
editions of his book, the third edition of which is due out shortly.
Yet even in the first edition of his textbook, Mankiw
acknowledged that the Laffer Curve is correct in theory -- it simply shows
that at a 100 percent tax rate or a zero percent tax rate no revenue is
collected. Every economist knows that this is true. But of course, we are
nowhere near a 100 percent tax rate -- nor were we in 1981 -- such that one
could expect an across-the-board reduction in tax rates actually to raise
revenue. Ronald Reagan never said so, nor did any other responsible
To his credit, Mankiw quickly recognized that he had made a
mistake. Yet Moore seems intent on hanging it around his neck forever. This
is just stupid, especially in light of the fact that Mankiw has written
extensively in favor of policies Moore certainly approves of.
One of the things Moore completely ignores is that Mankiw had a
column in Fortune Magazine from 1997 to 2001, in which he regularly promoted
strongly free market policies. For example:
- In a 1998 column, he praised Milton Friedman as among the top
three economists of the 20th century.
- In a 1999 column and again in 2000, Mankiw criticized the
estate tax as one that "restrains the economy, doesn't fall on the rich ...
and doesn't even raise much revenue."
- In another 1999 column, Mankiw strongly praised school
vouchers, saying, "An economy based on free and competitive markets serves
consumers better than one based on central planning."
- In one of his last columns, Mankiw endorsed the election of
George W. Bush because, unlike Al Gore, he would cut taxes, reform Social
Security and antitrust policy, and try to implement school choice.
It is hard to see what more Moore could ask for in any
economist -- let alone one trained at M.I.T. and a full professor at
Harvard. Let's face it, advocating the free market at such institutions
takes a great deal of effort.
It would be much easier for Mankiw simply to parrot the
interventionist line at those schools that the market is inherently
imperfect and in constant need of government policies to correct its errors.
Yet early in his career, Mankiw rejected the simplistic Keynesianism that
has long dominated both Harvard and M.I.T.
For example, economist Mark Skousen, former president of the
Foundation for Economic Education, praised Mankiw in his book, "The Making
of Modern Economics" (M.E. Sharpe, 2001). Mankiw, Skousen said, put
classical economics at the front of his text and relegated Keynesian
economics to a secondary position. Said Skousen, "In essence, under Mankiw,
the classical model becomes the 'general' theory and the Keynesian model
becomes the 'special' case -- the very opposite of Keynes's thesis."
It is also worth noting that Mankiw's textbook was strenuously
attacked by leftists precisely for being too free market-oriented. Socialist
Robert Heilbroner criticized it on such grounds in a review in the far left
Nation magazine in 1997.
I think President Bush has found an excellent replacement for
Glenn Hubbard, who resigned from the CEA to return to his family in New
York. Anyone who thinks Mankiw is a liberal in sheep's clothing simply
doesn't know what he is talking about.