Clinton's dismal scientists - Bill Clinton's economic advisers

National Review, March 15, 1993 by Stephen Moore

Among academic economists, Bill Clinton may be the most popular incoming President in history, and his first budget may be the most highly praised White House economic proposal since Jimmy Carter backed gasoline rationing. Some 565 distinguished scholars have endorsed Clintonomics as "our best hope for reviving the nation's economic growth." The list of FOBs reads like a Who's Who of Keynesian economics: it includes nine Nobel laureates and seemingly the entire economics faculties of MIT, Harvard, Stanford, Northwestern, and the Brookings Institution, as well as many pop-economists who spent the 1980s writing on the failure of supply-side economics--Robert Reich, Lester Thurow, John Kenneth Galbraith, etc. These economists' enthusiasm for Clinton nearly rivals their disdain for Ronald Reagan. That is to say, they like Bill Clinton a whole lot.

Unfortunately, this avalanche of scholarly support says far more about the partisan leanings of professional economists these days that it does about the wisdom of Clintonomics. If macro-economics was once a pseudo-science, today it is all too often merely an outlet for political propaganda.

Clinton has skillfully capitalized on this scholarly propaganda machine, featuring three of America's most celebrated Keynesians--Robert Solow, James Tobin, and Alan Blinder--as top advisors at the Little Rock economic summit, and tapping anti-supply-siders Alice Rivlin, Roger Altman, Laura Tyson, Robert Reich, and Larry Summers for high-level economic posts in his Administration.

The scary part is this: the economists who are mapping out a new economic game-plan for the 1990s are precisely the same people who wrote the nation's blueprint for the stagflationary 1970s, fiercely opposed the Reagan policies of the prosperous 1980s, and otherwise compiled a spectacular record of wrong economic prediction over the past two decades. President Clinton could not possibly find a worse source of advice. There is no better way to demonstrate this than to review the inglorious track record of the Left's best and brightest economists.

1978-79: HOW to Handle Stagflation?

IN 1978 the nation was just entering the throes of the most severe economic crisis of the past half-century: double-digit inflation combined with eroding real incomes. To combat this stagflation the Democrats proposed a $15-billion increase in government spending to provide an economic stimulus, the third major fiscal stimulus in four years. (This may sound familiar.) The additional spending for 1978 would raise the budget deficit to $70 billion, or about 3.5 per cent of GNP.

The establishment argued that the economic impact of this large budget deficit would be fundamentally benign. The late Walter Heller, a revered Keynesian spokesmen of the day and chairman of John F. Kennedy's Council of Economic Advisors, confidently declared that this deficit did not present "even a remote specter of inflation." Similarly, the Democrat-controlled Joint Economic Committee reported: "We do not believe this deficit is inflationary, nor will it crowd private borrowers out of credit markets or reduce private economic activity."

In the event, the Keynesians' policies failed completely. In 1979 the Consumer Price Index (CPI) rose by 13 per cent and by January 1980--the last year of the Carter Administration--the inflation rate skyrocketed to an unthinkable 18 per cent. Henry Kaufman of Salomon Brothers summed up the national mood: "I am aghast at how much our country has faltered."A top Carter White House official conceded, "There's a feeling that events are beyond our control."

The Keynesians were thoroughly confounded. A key element of their model is the Phillips Curve trade-off between inflation and unemployment, which predicts that prices will come down when unemployment goes up. Instead both were spiraling upward simultaneously. In 1980, Paul Samuelson, the godfather of neo-Keynesianism, wrote, "Two-digit price-inflation is a distinct possibility for much of the decade of the 1980s," predicting that from 1982 to 1987 "the CPI will average 9.4 per cent a year" and that by 1987 the unemployment rate would linger at 8.3 per cent.

Remarkable as it may seem today, the Left's prescription in 1980 was wage-and-price controls. James Tobin wrote in The New Republic: "There is a better and surer way to attack stagflation [than Reaganomics]. It is to organize a concerted mutual disinflation of wages, costs, and mark-ups. Announce a schedule, for a transitional five-year period of gradually declining wage-increase guide posts." Paul Samuelson also suggested a "wage-price freeze" to bring inflation down to "the hoped-for 9 per cent"; alternately, "five to ten years of austerity, in which the unemployment rate rises toward an 8 or 9 per cent average and real output inches upward at barely 1 or 2 per cent per year... might accomplish a gradual taming of U.S. inflation."

1979-81: Kemp-Roth Is Inflationary

When Democrats under then-Chairman of the Joint Economic Committee Lloyd Bentsen set out to try another answer--a supply-side income-tax reduction, a policy Keynesians had supported under JFK as a different form of fiscal stimulus--the liberal economics establishment responded with unanimous and ferocious opposition, deploying every conceivable argument, no matter how absurd or philosophically inconsistent, against the tax cuts.