George W. Bush has named his cabinet, and his inauguration is only a few days off. Now that the public knows just whom he has asked to serve, attention turns to the policies these appointees will champion. Given the widespread perception that Bush will take a relatively hands-off approach to governing, the leanings of his appointees take on particular salience.
Most media attention and liberal ire has focused on John Ashcroft, the Missouri conservative Bush named as attorney general, and on two conservative women, Gale Norton and Linda Chavez, named to head the Interior and Labor departments, respectively.
Remarkable little attention has been paid to Lawrence Lindsey, the putative economic czar of the incoming administration. Many had expected that Bush would name him to head the Treasury, currently run by Lindsey’s Harvard colleague Larry Summers. But Lindsey apparently prefers to work directly with the new president in the White House rather than run a department.
Lindsey and Summers have superficial similarities. Both were born in 1954, got doctorates from Harvard, were on the faculty there and worked closely with Martin Feldstein, a tax expert and one-time advisor to the Reagan Administration.
But the similarities stop there. Summers is a Democrat and a moderate Keynsian. Lindsey is best described as a supply-side economist. This is a rarer breed than most people might think. Supply-side economics got far more attention in the media than it ever had in the economics profession. And Harvard is not exactly a hotbed of supply-side thinking.
Lindsey is one of the more academically distinguished supply-siders. But while he held a faculty position at Harvard, most of his professional career has been spent in government. He joined the Reagan Administration as an associate director for domestic economic policy within the White House and then rapidly rose to become a special assistant to the President.
George Bush named him to the Fed’s Board of Governors in late 1991, where he served for a bit more than five years before resigning in early 1997. As a governor, he was responsible for overseeing Fed policies on enforcement of the Community Reinvestment Act and other regulations designed to prevent discrimination in lending and to ensure that credit was available to all communities.
Having been tagged as a conservative who would be opposed on principal to regulation such as the CRA, he surprised many by throwing himself into the task with gusto. Needless to say, such enthusiasm was an unpleasant surprise to many on the right who expected a former Reagan advisor to take a different tack.
In terms of monetary policy, Lindsey did not make waves while on the board and reportedly got along well with Alan Greenspan. But since he resigned from the board and joined the American Enterprise Institute, he has been critical of excess reliance on monetary policy to micromanage the economy.
An interview with him in Barron’s magazine in late 1998 included the comment that “continued reliance on central-bank engineering to sustain the U.S. expansion and rescue the global economy would be ineffective, even calamitous.”
Lindsey has been a particularly forceful proponent of the idea that Fed policy was excessively lax in the 1990s and contributed to a speculative boon in equity markets. Those investors who objected to Greenspan’s castigation of “irrational exuberance” will find no comfort in Lindsey’s description of 1990s investors in the Barron’s article: “Their stock portfolios go up–give them paper gains–which they borrow against and turn around and spend. . . . This is a very dangerous course of action.”
He went on to say: “We are not in a sustainable expansion. We are in the most unbalanced expansion since the 1920s; and the question is: How do we get out of it? You don’t want to end the expansion. Not only does it matter for us, it matters for the rest of the world.”
What sort of policies does Lindsey prescribe as a substitute for this over-reliance on monetary policy? The classic supply-side nostrum of large tax cuts for people in the highest marginal rate brackets, those who are most likely to invest their tax reduction rather than spend it. These cuts should be coupled with broad and deep reductions in regulation of business activity.
What sort of people would he recommend to fill the two governor’s seats already open, plus that of Laurence Meyer, whose term expires a year from now, or Vice Chair Roger Ferguson, whose term ends in 2003?
They will certainly be more skeptical of Keynsian accelerating and braking than the six people Clinton nominated during his two terms. Combined with Reagan appointee Ed Kelly, whose current term does not end till 2004, G.W. Bush appointees could form a solid phalanx against monetary activism.
Kelly is not a noted anti-inflation hawk, but his appointment was generally thought to be a result of his long relationship with James Baker, who held multiple posts in the Reagan era and is closely associated with the Bush family. He would probably have some sympathy with new Bush appointee’s positions.
Those who want to learn more about Lindsey can read an extensive interview in the Minneapolis Fed’s The Region magazine in 1993 or a statement of his views on taxes that he made to the U.S. senate (search www.senate.gov).
© 2001 Edward Lotterman
Chanarambie Consulting, Inc.