Mr. Lindsey goes to Washington - former Harvard University economics professor Lawrence Lindsey appointed as governor at the Federal Reserve - Interview

Chief Executive, The, June, 1992 by Joseph L. McCarthy

COP ON THE BEAT

During the primaries, Republican presidential

candidate Patrick Buchanan has

hammered away at the fact that President

Bush committed supply-side heresy - that is

to say, he has raised taxes. Do you agree?

President Bush did raise taxes, but let's look at the reason why.

During his term, the president has faced a Congress in which both houses were overwhelmingly controlled by the other party. We often forget that during the first six years of the Reagan administration, the Senate was in Republican hands.

Looking back at the 1990 budget agreement, Senate Majority Leader George Mitchell and House Speaker Thomas Foley told the president that he wouldn't get any legislation passed unless he agreed to a tax increase. They held him hostage.

One debate raging in the presidential campaign

involves protectionism. What do you

think of Pat Buchanan's "America first"

platform?

Fundamentally, I disagree with Buchanan. I'm an unabashed internationalist. I think free trade is good for America. A rapidly growing world economy is not only in our interest from a humanitarian point of view, it's in our interest from a very narrow, selfish, economic point of view.

We're the suppliers of both the capital goods and technology that permit the world to develop. To keep developing, you need two things. First, you need an economic environment on a global scale that allows the capitalist economy room to breathe. You need bordering markets, relatively stable prices, and rules of the game. So I think we have to be active economically in GATT and with the IMF.

What the world also needs - and we tend to forget this - is a cop. The market miracle does not work if there are not policemen on the street. Like every other American, I don't like paying the taxes to be the world's policeman. But we're the only ones who can do this, because we are the world's only superpower. To have us withdraw from the world - to say we're tired of being the cop on the beat - is an invitation to disaster.

MARKET METAMORPHOSIS

Looking at the field of Democratic presidential

contenders, what do you make of

Governors Clinton and Brown firing the

"fairness" cannon at Republicans and

pressing for tax relief for the middle class?

The interesting thing about the fairness issue is that there are many ways of presenting the data to prove whatever point you want.

The evidence is fairly conclusive that the tax changes made during the 1980s were probably distributionally neutral, or actually somewhat progressive. Higher-income people are actually paying a much higher share of the income tax than they were in 1980. Middle-class taxpayers were the big losers from the unindexed taxes of the late 1970s. Because of inflation, they continually faced an automatic tax increase.

One thing that complicates perceptions of the tax picture is changes in the Social Security tax. The funny thing about that tax - unlike all others - is that your benefits are linked directly to the taxes that you pay. Looked at that way, the social security tax-transfer system is extremely progressive.