Report card on the economy A National Journal special report
By John Maggs
National Journal
Updated: 5:12 p.m. ET Oct 13, 2006
WASHINGTON - In Washington, it can be hard to find an economist who hasn't picked sides in the argument over whether Republican rule has been good or bad for the economy. It isn't much easier elsewhere, even among leaders of the profession.
Among Nobel laureates, you could credit the broad and harsh critique of President Bush's economic policy by Joseph Stiglitz -- but only with the understanding that he served as President Clinton's chief economic adviser. Nobel winner Milton Friedman has never held a political job, but his ideas and private counsel have so thoroughly influenced Republican economic policies over the past 30 years that there's little suspense about how his op-ed articles will judge the parties' proposals.
The second-most-prestigious award in economics is the John Bates Clark Medal. Clark winner Martin Feldstein (a former president of the American Economic Association) celebrates the Bush tax cuts, but he served as Ronald Reagan's chief economic adviser and has been an éminence grise to Republican politicians ever since. Former Clinton Treasury Secretary Lawrence Summers was also honored with a Clark. (Other past AEA presidents include Democrat Alice Rivlin and Republicans Arthur Burns and Anne Krueger.) Clark Medal winner Paul Krugman is a little different: He did a stint as a staff economist in the Reagan White House, but readers of his New York Times column know that no part of the Republican agenda escapes his outrage.
In any given week, it is possible to hear former Clinton White House staffer Peter Orszag savage Bush economic policies from his perch at the Brookings Institution, or American Enterprise Institute economist Kevin Hassett argue the Republican case. It's even possible to hear the two of them whack away at each other on the same stage. Unlike some economic commentators, both are serious researchers, but neither is able to deliver an unbiased judgment of the Republicans' economic management.
Perhaps more than any other science, economics and its basic truths are clouded by politics. This doesn't make it any easier for the rest of us, especially when Election Day rolls around.
National Journal addressed this challenge by seeking out 11 prominent "nonaligned" economists -- people who, by virtue of their work and long careers outside of politics, have earned reputations for delivering unvarnished analysis of economic policy. Some come from Washington, a larger number from Wall Street, and a few from academic institutions across the country. We asked them to issue grades, A through F, on the economic performance of the Republican Congress and White House in seven areas. In general, Congress plays a less direct role in economic policymaking than does the administration, but the two branches of government have been partners in tax cuts and other economic initiatives since 2001. To the degree that the economy moves voters, their judgment in November will rest on whether the Republican-controlled government delivered on its promises.
All of the economists in this year's survey participated in a similar report in 2004. Ethan Harris, Maury Harris, Allen Sinai, and David Wyss are well known on Wall Street. Nariman Behravesh of Global Insight is one of the most respected economic forecasters. Lyle Gramley is a former governor on the Federal Reserve Board, and Michael Mussa is former research director at the International Monetary Fund. Edward Leamer is director of the Business Forecast Project at UCLA's Anderson School of Management, and James F. Smith is a professor at the Kenan-Flagler Business School at the University of North Carolina. David Lereah is a longtime chief economist at the National Association of Realtors. Victor Zarnowitz has long worked at the Conference Board, the business group that issues closely watched numbers on consumer confidence and leading economic indicators, and he serves on the committee of economists that decides when recessions begin and end.
The grading standards here are tough: a C signifies an average performance, and there is no shame in that grade (2004 presidential candidates John Kerry and George W. Bush both had a C average as students at Yale). In 2004, White House officials basically agreed with most of the grades in National Journal's survey. Economic advisers Al Hubbard and Edward Lazear, given an advance peek this year, argued strenuously against the economic panel's low grade for long-term fiscal policy. Although entitlements "are a long-term problem which must be dealt with," Lazear said, "the deficit is under control, and we don't believe that tax increases, as some are suggesting, are needed to deal with the deficit in the long term."
Short-Term Fiscal Policy: B- In 2004, tax cuts earned Bush a B+ for a well-timed fiscal stimulus that economists credited with softening the effects of the 2001 recession. Two more years with little spending restraint means, in the eyes of most economists, the Republicans deserve a lower grade this time. Ethan Harris said that Congress, in partnership with the administration, "deserves a little better than a gentleman's C for delivering well-timed tax cuts, but the reason they don't get a better grade is their emphasis on tax cuts for upper-income earners, who tend to save rather than spend." Several faulted Congress and Bush for failing to reduce the deficit more at a time when big revenue increases should have allowed them to do so. "There has been very little effort to keep the deficit under control, at a time when the economy has been growing above trend," Behravesh said. Sinai, along with Smith, said that the Republicans deserve an A-. Tax cuts, including those for capital gains and dividends, "are responsible for much of the strong economic growth that has occurred," Sinai said.
Long-Term Fiscal Policy: D This was the lowest grade for the Republicans. A sense, in the 2004 survey, that tax and spending policies were in conflict has deepened. Most economists focused on Congress's unwillingness to deal with the crushing long-term liabilities of Medicare and Social Security. "Congress and the administration are not facing what are big problems," Gramley said. Behravesh said, "Congress and the president have been quite irresponsible when it has come to taking any action to get long-term deficits under control." A couple of economists suggested that tax increases may be inevitable. "Republican insistence that the Bush tax cuts must be preserved (in the face of large inevitable increases in federal spending) is silly," Mussa said, "but the Democrats' refusal to consider necessary restraint on the growth of entitlement spending is equally stupid." In response, the administration's Hubbard maintained that most voters blame Democrats for the failure of Social Security reform. "We tried, but they made a political decision," he said. "The Republicans were with us."
Long-Term Growth And Competitiveness: C In this category, economists were asked to judge how well Republicans have done in improving the competitiveness of the U.S. economy. Included in this are the long-term effects of lower taxes and other policies in areas such as education that are geared toward making workers more competitive internationally. Most economists offered lukewarm praise for the president's No Child Left Behind education law, which set national standards for primary and secondary schools. Maury Harris said that "there has been more 'talk' as opposed to significant action here." Bush's tax cuts have been the main contributors, Sinai said, adding that Congress has taken "very few actions... to enhance education and worker competitiveness. By and large, the Republican Congress has been relatively inactive on this front." Several economists said that Republican congressional leaders should have worked harder to encourage tax reform, which Bush studied and shelved last spring. "No action on tax reform (which could have helped competitiveness), and inadequate funding for research and development and education are major impediments to improved competitiveness," Behravesh said. To increase competitiveness, Lazear cited several initiatives that Bush has proposed but not pushed in Congress.
International Economic Policy: C Several of the economists said that congressional Republicans should have exhibited more courage in standing up to protectionist and anti-globalization sentiments, although others said that little substantive action was taken to close the U.S. market. "Despite a wide and growing trade deficit, Congress has been remarkably subdued in pressing for new protectionist measures," Mussa said. Several economists said this lack of action, so far, was mostly the product of a solid economy. Although Republicans scraped together enough votes to pass free-trade agreements with Central America and several small countries, the degree of GOP opposition to the Central American pact and the uproar over Dubai's taking control of facilities at six U.S. ports showed that Republican leaders were not willing to take the lead on promoting open markets around the world. Behravesh blamed Congress for this year's collapse of the latest round of global trade negotiations: "The failure of the Doha Round was in large part the result of Congress [catering to] the agricultural lobby." Economists were generally pleased that Congress failed to act on legislation that would impose new tariffs on Chinese goods unless that country devalued its currency. This legislation, they said, was a protectionist measure that could cause a global trade war.
Regulation: B- Most economists praised the Republicans' restraint in imposing new regulatory requirements on business. Pension and bankruptcy reform were called small positives, while opinion was divided over the significance and effect of the Sarbanes-Oxley reforms in corporate governance. "Although not without negative side effects and unnecessary costs, the legislation ... and SEC regulations have provided a significant element of reform to the practices and excesses of U.S. corporations," Sinai said. For Maury Harris, "Business near-term confidence and certainty has been enhanced by the likelihood of little significant regulatory change." Lereah praised the pension law, but said that Congress should have done more to curb predatory lending for mortgages. Most economists were pleased that Republicans did not respond to the recent run-up in oil prices by passing regulations to control prices; likewise, they were happy that the GOP leadership avoided a bailout for the beleaguered auto industry. "Less regulation is usually better than more," summed up Lereah.
Leadership: C In this area, economists were asked whether the Republican Congress had set a clear course for a responsible and growth-promoting U.S. economic policy. They were also asked to include any positive or negative views of Congress's role in confirming and supporting economic officials. Mussa summed up the view of most of the economists: "There has been very little leadership from Congress on most economic issues. Appointments of key economic officials have been quite good, for which Congress merits modest credit." Sinai bestows a B in this category, mostly to signify Congress's success in defending tax cuts. Leamer, on the other hand, finds the "single-minded focus on tax cuts for upper-income people incredibly annoying." Behravesh said that "congressional leadership has been severely lacking in many areas." Like others, Ethan Harris praises the swift confirmation of Ben Bernanke as Federal Reserve chairman and Henry Paulson Jr. as Treasury secretary, but laments that Congress has not provided "a new and sophisticated discussion of where the country should be headed."
Comparison With Past Congresses: C In this category, the economists were asked to rate Congress's performance relative to its predecessors', with a C being the dividing line between better and worse. Sinai gives a B to Congress for reducing taxes, "the signature contribution of the Republican Congress over the last six years." Mussa said that "the present Congress has been a do-little -- not a Do-Nothing -- Congress. Fortunately, while the Congress has done little that is likely to improve the performance of the U.S. economy, it has also done little that will do it significant harm." Maury Harris said that the "relative inaction of most past Congresses is not a tough act to follow when grading on a curve."
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