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Economic View: Politics Aside, a Common Bond for Two Economists

June 29, 2013 by Leave a Comment

ONE of the cool things about hanging around a place like Harvard, where I have been a professor for almost 30 years, is that you get to meet some supertalented people long before the world recognizes their talents. I had a vivid reminder of this just a few days ago, when President Obama appointed Jason Furman as chairman of the Council of Economic Advisers, a position that I held under George W. Bush.

Jason was once a student of mine at Harvard. As the president noted in announcing the appointment, I was chairman of Jason’s Ph.D. dissertation committee. He and I have remained friends ever since.

In Washington these days, comity between Republicans and Democrats is rare. Yet my relationship with Jason has never been hampered by our differing political affiliations.

During the campaign of 2004, I was part of the Bush administration and he was working for two Democratic candidates, first for Wesley K. Clark in the primary season and then for John Kerry during the general election. Yet the fact that our bosses were steeped in a political battle at the highest level did not stop us from enjoying regular dinners together. For me, and I suspect for Jason as well, friendship trumps politics.

Our friendship is based in part on the common bond of all economists. The field of economics offers a lens through which to view the world. For those who buy into it and pursue it as a career, it provides a foundation of a personal and political philosophy. It forever sets you apart — for better or worse — from mere muggles.

For economists working for politicians, as both Jason and I have, there is an inevitable tension between where the logic of the discipline leads you and what your political allies would like to hear.

In my case, one example is the gasoline tax. I have long advocated higher taxes on gasoline as a way to correct for the adverse side effects of driving, such as congestion, accidents and carbon emissions.

Yet this is not a message that most elected Republicans are ready to embrace. It dilutes the Republican message of being the party against higher taxes. Moreover, among the general public, the idea of raising the gasoline tax fares especially badly in polls, despite arguments from me and many other economists.

In Jason’s case, an issue on which he parts ways with many of his political allies concerns the retailing giant Wal-Mart. Unions are traditional supporters of the Democratic Party, and over the years they have often been critical of Wal-Mart’s business practices.

Yet in a 2005 study, titled “Wal-Mart: A Progressive Success Story,” Jason concluded that the criticism was mostly off the mark. “By acting in the interests of its shareholders,” he wrote, “Wal-Mart has innovated and expanded competition, resulting in huge benefits for the American middle class and even proportionately larger benefits for moderate-income Americans.”

He did not reference Adam Smith’s metaphor of the invisible hand, but the logic follows directly from it. The Walton family may have started its business to become rich, and it succeeded in doing so, but the normal forces of free markets have spread the benefits of its efforts more widely.

A NATURAL question is how, if Jason and I come from the same intellectual tradition, we ended up working for different political parties. I have never discussed this explicitly with him, but I doubt that there is a simple answer. So let me suggest three.

Arthur M. Okun, who served under President Lyndon B. Johnson as chairman of the Council of Economic Advisers, wrote that the big trade-off faced by society is between equality and efficiency. We can redistribute income to give everyone a more equal slice of the economic pie, but as we do so we blunt work incentives and the economic pie shrinks, he said. From this perspective, the Democrats are the party of more equality, and the Republicans are the party of more efficiency.

Another view is that the important tradeoff is between community and liberty. As members of society, we have goals we want to achieve with others. But as we reach those shared goals, we are asked to sacrifice some personal freedoms. From this perspective, the Democrats are the party that emphasizes communal values, and the Republicans are the party that emphasizes individual liberty.

Finally, there is the issue of how much one trusts centralized governmental power. Democrats tend to want to expand the scope of the federal government to improve the lives of the citizenry, while Republicans are more fearful that centralized power leads to abuse and lack of accountability.

These three answers go a long way to explaining, for example, why Jason and I disagreed on President Obama’s health care reform. Jason saw it as a proper expansion of government’s role to promote the community value that everyone should have access to affordable health insurance. I saw it as a risky expansion of government’s power that reduces individual freedom, dulls incentives and will likely lead to a host of unintended consequences.

On health care, and many other public policy discussions, there is room for reasonable people to disagree. I don’t expect to agree with all the advice my friend will give the president in the years to come. But I am confident that the nation will be better off for Jason’s having the president’s ear.

N. Gregory Mankiw is a professor of economics at Harvard.

Article source: http://www.nytimes.com/2013/06/30/business/politics-aside-a-common-bond-for-two-economists.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Obama, in Speech to Congress, Offers Plan for Economy

September 9, 2011 by Leave a Comment

Speaking to a joint session of Congress, Mr. Obama ticked off a list of measures that he emphasized had been supported by both Republicans and Democrats in the past. To keep the proposals from adding to the swelling federal deficit, Mr. Obama also said he would encourage a more ambitious target for long-term reduction of the deficit.

“You should pass this jobs plan right away,” the president declared over and over in his 32-minute speech, in which he eschewed his trademark soaring oratory in favor of a plainspoken appeal for action, stiffened by a few sarcastic political jabs.

With Republicans listening politely but with stone-faced expressions, Mr. Obama said, “The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy.”

Though Mr. Obama’s proposals — including an expansion of a cut in payroll taxes and new spending on public works — were widely expected, the package was substantially larger than predicted, and much of the money would flow into the economic bloodstream in 2012. The pace would be similar to that of the $787 billion stimulus package passed in 2009, which was spread over more than two years. Analysts said that, if passed, the package would likely lift growth somewhat.

While Republicans did not often applaud Mr. Obama,, party leaders greeted his proposals with uncharacteristic conciliation. Representative Eric Cantor, the House majority leader, and other Republicans signaled a willingness to consider at least some of the measures, reflecting what some have described as anger in their home districts over the political dysfunction in Washington.

“The proposals the president outlined tonight merit consideration,” Speaker John A. Boehner said in a statement. “We hope he gives serious consideration to our ideas as well.”

Still, analysts said it was unlikely that the White House would win Congressional approval for many elements of the package.

For Mr. Obama, burdened by the lowest approval ratings of his presidency, the address crystallized the multiple challenges he faces, among them reviving a torpid economy with a Republican House that, however receptive some of its leaders appeared Thursday, has staked out a relentlessly confrontational course with the White House. The president must also shake off a perception, after so many speeches on the economy, that he has not delivered on the promise of his oratory.

After weeks on the defensive, however, Mr. Obama seemed to get off his back foot. He framed the debate over the economy as a tug-of-war between mainstream American values and a radical, antigovernment orthodoxy that holds that “the only thing we can do restore prosperity is just dismantle government, refund everyone’s money, let everyone write their own rules, and tell everyone they’re on their own.”

With a difficult re-election bid looming, Mr. Obama declared that his vision would appeal to more voters. “These are real choices we have to make,” he said. “And I’m pretty sure I know what most Americans would choose. It’s not even close.”

At times, he edged into sarcasm. Promoting the extension in the payroll tax cut to Republicans, Mr. Obama said: “I know some of you have sworn oaths never to raise any taxes on anyone for as long as you live. Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away.”

The centerpiece of the bill, known as the American Jobs Act, is an extension and expansion of the cut in payroll taxes, worth $240 billion, under which the tax paid by employees would be cut in half through 2012. Smaller businesses would also get a cut in their payroll taxes, as well as a tax holiday for hiring new employees. The plan also provides $140 billion for modernizing schools and repairing roads and bridges — spending that Mr. Obama portrayed as critical to maintaining America’s competitiveness.

Article source: http://www.nytimes.com/2011/09/09/us/politics/09payroll.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Senate Leaves F.A.A. in Limbo

August 3, 2011 by Leave a Comment

The partial agency shutdown, which began on July 23 and is likely to continue at least through Labor Day, has also idled tens of thousands of construction workers on airport projects around the country. Dozens of airport inspectors have been asked by the F.A.A. to work without pay and to charge their government travel expenses to their personal credit cards to keep airports operating safely.

Air traffic controllers and airplane inspectors, who are paid with separate accounts, have continued to work, but workers who oversee research on aviation systems, grants for airports and facilities and operations equipment have been furloughed.

If the stalemate continues through Labor Day, the government could lose roughly $1 billion in tax revenues on airline ticket sales.

Ray LaHood, the transporta-tion secretary, said he firmly believed that passenger safety was not at risk.

“No safety issues will be compromised,” Mr. LaHood told reporters on a conference call. “Flying is safe. Air traffic controllers are guiding airplanes. Safety inspectors are on duty and are doing their job. No one needs to worry about safety.”

The House began its August recess on Monday night, and the Senate followed Tuesday, leaving little hope for a resolution until Congress returns in September. President Obama, in remarks after the Senate’s passage of the debt ceiling bill, urged Congress to break the impasse, which he described as “another Washington-inflicted wound on America.”

The impasse centers on disagreements between Republicans and Democrats over a program that subsidizes commercial air service to rural airports. But behind the scenes, a larger fight has been taking place over federal rules on labor elections in the airline industry.

Randy Babbitt, the F.A.A. administrator, said in a conference call with reporters on Tuesday that the agency was depending on the “professionalism” of airport safety inspectors to continue their work without being paid, because their jobs are paid for with money that is awaiting Congressional authorization.

Those inspectors are the primary individuals responsible for ensuring that commercial airports comply with federal regulations. They also support runway safety action teams, oversee construction safety plans, investigate runway incursions and ensure that corrective action is taken on safety discrepancies.

“The reason they are out on the job is because of the risk to operational safety or life and property,” Mr. Babbitt said. “We can neither pay them nor can we compensate them for expenses. We are depending and living on their professionalism at this point.”

It is unclear how long the inspectors can continue to pay the bills for their own travel and hotel expenses. Typically, each of the roughly 40 regional inspectors travels to up to five airports in each two-week period, F.A.A. officials said.

When F.A.A. financing expired last month, the agency also lost the ability to collect taxes on airline tickets. Those taxes amount to about $30 million a day and are paid into a trust fund that pays for much of its operations.

The House passed a bill last month that would extend F.A.A. financing through Sept. 16 and allow it to continue collecting the ticket tax. Congress has passed 20 such temporary spending bills over the last four years, in part because it has been unable to agree on a larger, long-term authorization of the agency’s budget and capital plans.

But the House temporary bill also would end $14 million in subsidies that provided commercial airline service to 16 rural airports. The law was written in a way that appeared to single out for closing airports in the states of prominent Senate Democrats, including the majority leader, Harry Reid of Nevada.

Democrats say Republicans are trying to save a few million dollars at the expense of the ticket tax, which would generate roughly $200 million a week.

Some of the airport closings were included in a long-term spending bill passed by the Senate in February. But Senate Democrats, including Senator John D. Rockefeller IV of West Virginia who is chairman of the committee with jurisdiction over the F.A.A., objected to their inclusion in what they said should have been a “clean” temporary spending measure.

Robert Pear contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=313f7ad6b1746b661600fccb3c5735fe

Filed Under: Business News Tagged With: , ,

Administration Defends Effort on Debt After Credit Warning

April 19, 2011 by Leave a Comment

Mr. Obama made his remarks at the start of a campaign to promote his ideas for reducing the deficit, while Mr. Geithner made the rounds of business television programs.

The appearances came a day after the S.P. revised its outlook on the country’s Triple AAA rating — the highest level — to negative from stable, an announcement loaded with political implications because it cited the need for Republicans and Democrats to agree on a plan to reduce the deficit.

As Mr. Geithner took the lead for the administration in responding to the S.P. warning, President Obama focused on the deficit. In his first stop, at a town hall meeting in Virginia, Mr. Obama said there was “general agreement” between Democrats and Republicans on the need to cut spending by about $4 trillion over the medium term.

But “it won’t be easy. There are going to be some fierce disagreements,” said Mr. Obama, who is also planning stops this week in California and Nevada.

Both President Obama and Republican lawmakers have suggested plans to cut the federal deficit by at least $4 trillion over the next 10 to 12 years, but disagree on methods.

In his comments, Mr. Geithner tried to reassure investors that the Democrats and Republicans would reach a deal, a concern at the heart of the S.P.’s reasoning for lowering its outlook.

He said there was “no risk” that the United States would lose its AAA credit rating and that investors were still confident in government bonds, strongly disagreeing with the negative assessment of the nation’s outlook by the Standard Poor’s ratings agency.

“Again, if you look — if you listen carefully now, you see the leadership of the United States of America, the president, the Republican leadership in both houses and the Democrats recognizing now that this is the right thing to do for the economy,” Mr. Geithner said according to a transcript of the Fox Business News interview.

Representative Eric Cantor, Republican of Virginia and House majority leader, who on Monday called the S.P. decision a “wake-up call,” said on Tuesday that the government was a “fiscal train wreck” with more than $14 trillion in debt.

“House Republicans have taken an honest, responsible approach to confront the debt crisis facing our nation,” he wrote in an opinion article published by The Culpeper Star Exponent in Virginia.

In its warning, the S.P. questioned whether government leaders would be able to agree on how to address the medium- and long-term budget challenges by 2013.

But Mr. Geithner said that a long-term deficit reduction plan can be in place before the 2012 election: “Absolutely,” he replied in response to a question. “We have a chance to make progress on that just in the next couple of months.”

“Our challenge now is to lock that in, in terms of reforms that Congress passes, so that people around the world will look at the United States and know that we’re not going to get behind the problem, we’re going to get ahead of it,” Mr. Geithner said in an interview on CNBC.

Mr. Geithner also said that he did not think the S.P. decision accelerated the need for a vote on the debt ceiling.

“There is a lot of confidence in the capacity of this economy to grow to make sure that we can meet our commitments or obligations,” Mr. Geithner told Bloomberg Television. “You can see that in that price at which we borrow every day, but we have to earn that confidence.”

When asked whether foreign buyers of United States debt had to be reassured, he added: ”Absolutely not. Look at the price at which we borrow.”

Anthony G. Valeri, a senior vice president and market strategist for LPL Financial, said there was little movement in the bond market on Tuesday, with the 10-year yield at 3.32 percent in the early afternoon and narrower credit default swaps, suggesting that the market does not see the default risk changing for United States Treasuries.

As such, he said that Mr. Geithner’s appearances seemed intended to ease political concerns rather than financial ones.

“I think he is trying to do potential damage control in Treasuries,” Mr. Valeri said. “Not that he needed to. The bond market saw right through the S..P move.”

“I think the market has moved on, and we have also got the Easter and Passover holidays this week,” he said.

The Dow Jones industrial average was up 0.50 percent, after a decline of more than 1 percent the previous day, less than two hours before the close of trading. The broader S. P. 500-stock index was up 0.46 percent, and the technology-heavy Nasdaq gained 0.14 percent. The three indexes posted their largest one-day drop in more than a month on Monday after the announcement.

In the Asia-Pacific region, stocks fell broadly but shares rebounded in Europe, after a sharp decline on Monday.

The S.P. announcement reverberated in global economies.

China’s foreign ministry said in a statement on its Web site on Tuesday that the United States must take “responsible” measures to protect investors in its debt.

It said that United States debt “reflects the credibility” of the government, and said China hoped the United States takes “responsible” measures to safeguard the interests of investors.

Government officials in Japan voiced their support of the United States.

“The United States is tackling fiscal issues in various ways, so I still think U.S. Treasuries are basically an attractive product for us,” Japan’s finance minister, Yoshihiko Noda , said, according to Reuters.

Bettina Wassener contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=1ee1317a0292bb00c61ecae6105d178c

Filed Under: Business News Tagged With: , ,