Correcting the record

Posted: Mar 04, 2003 12:00 AM
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] (not 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 economist. 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.