The New Republic

Greg Mankiw is a nerd. The current chairman of the White House
Council of Economic Advisers (CEA), Mankiw is tall and lanky with
hunched nerd shoulders. He has a round nerd face, with a big nerd
nose and squinty nerd eyes. He does wear sleek, metal-framed
glasses. But, as they sit atop a perpetually pinched, nerd
expression, the effect is less to mask his overall nerdiness than
to draw attention to it. Occasionally, Mankiw lets slip that he,
too, considers himself a nerd. Asked about the recent trend in
productivity growth at a conference of the National Association for
Business Economics (nabe), he begins by observing that most people
are bored silly by such discussions. But, he says, surveying the
room, "Nerds like this love that kind of stuff."For those (like myself) who find such earnest dweebiness endearing,
Mankiw (pronounced "Man-cue") is a highly sympathetic character. He
also happens to be one of the most talented and respected
macroeconomists in the world. "Greg is good and honest," Jeffrey
Frankel, a former Clinton administration CEA member and a fellow
Harvard economist, says succinctly. The combination of the two
makes it particularly painful to watch Mankiw operate in an
administration that so actively disdains intellectual give-and-take
and where political considerations so obviously trump economic
ones.

At times, you can practically see the dissonance spelled out on
Mankiw's face. He appears to wince when he gets a question from the
generally anodyne nabe crowd about the administration's dubious
promise to cut the deficit in half in five years. His hurried
delivery suggests a man who clearly prefers musing on the finer
points of investment spending to reciting administration talking
points. "Spending restraint is the big challenge," he mutters half-
heartedly, before explaining that the administration plans to
achieve its goal through a mixture of spending restraint and
entitlement reform. He cites the recent Medicare reform bill as an
example. "The easy thing to do would have been to take the existing
system and add a prescription-drug benefit on top of it." But,
instead, he continues--utterly unconvincingly--the president
demanded changes that will save real money over the long term.
(This, describing a bill recently estimated to cost $534 billion
over ten years.) "So there's--there's a fundamental rethinking"
going on, he concludes.

Given such performances, it's not hard to see why Mankiw gets into
trouble from time to time. Though the administration's economic
agenda has become no more irresponsible in the year or so since
Mankiw took over as CEA chair (and possibly less so, since there
have been no new budget-busting tax cuts and steel tariffs have
been rescinded), the administration increasingly finds itself on
the defensive on the economy. In recent weeks, critics have accused
it of everything from ignoring the plight of the unemployed to
grossly optimistic economic forecasting to Soviet-style historical
revisionism about the recent recession. In part, this is due to the
heightened scrutiny that inevitably accompanies a presidential
campaign. In part, it's due to the continued inability of the
economy to produce jobs. But a final factor is a recent series of
wounds inflicted by Mankiw--the academic nerd thrust into an
unexpectedly political role.

Mankiw's political ham-handedness is particularly glaring when
compared with the bureaucratic savvy of his immediate predecessor,
Columbia University economist Glenn Hubbard. Hubbard is, by all
accounts, a political animal. He served as a deputy assistant
treasury secretary during the first Bush administration and
coordinated economic policy for the Bush campaign in 2000. He
reportedly lobbied for the job of deputy treasury secretary once
George W. Bush won the election but ended up with the CEA post as a
consolation prize. The move turned out to be a blessing. Though the
CEA has traditionally been thought of as an administration's
in-house economic think tank--sizing up the relative merits of
various policy options but rarely proposing policy initiatives
itself--Hubbard, aided by the bureaucratic ineptitude of then-
Treasury Secretary Paul O'Neill, molded it into a major policy
force. Last year's dividend tax cut, for example, was Hubbard's
brainchild--one he pushed in part by using his CEA perch to bully
Treasury officials into lowballing their estimates of how much it
would cost, according to these officials. (Hubbard responds, "I
have enormous respect for the [Treasury] staff, but the sort of
conversations you mentioned did not happen.") In internal
deliberations, as Ron Suskind reports in his recent book, The Price
of Loyalty, Hubbard also dramatically underplayed the effects that
the deficits created by this tax cut would have on interest
rates--and, therefore, long-term growth.

Mankiw, by contrast, is hardly what you'd consider a politico. "He
is very much rooted in Boston," says Jeffrey Miron, an economics
professor at Boston University who knows Mankiw from their
grad-school days. Mankiw's only experience in Washington prior to
his current job was a brief stint as a CEA staff economist during
the early '80s. There he worked under Harvard economist Marty
Feldstein, who famously (and publicly) clashed with supply-siders in
the Reagan administration over the dangers of running large budget
deficits.

Back in Massachusetts, where in 1987 he became Harvard's
youngest-ever tenured professor at the age of 29, Mankiw was
preoccupied with two things. The first was building a world-class
reputation as a macroeconomist. "His academic reputation is indeed
first-rate," says columnist (and Princeton economist) Paul Krugman.
Then, his academic credentials established, Mankiw set about making
himself one of the best-compensated college professors on the planet
by writing the gold standard of undergraduate economics textbooks,
Principles of Economics. The book, widely hailed as the most lucid
and engaging of its kind, earned Mankiw an unprecedented $1.4
million advance prior to its publication in 1997. It also offers
evidence that Mankiw never harbored aspirations for a top-level
political appointment in a GOP administration. On pages 29 and 30 of
the first edition, Mankiw writes, "An example of fad economics
occurred in 1980, when a small group of economists advised
presidential candidate Ronald Reagan that an across-the-board cut
in income tax rates would raise revenue. ... When politicians rely
on the advice of charlatans and cranks, they rarely get the
desirable results they anticipate." This, needless to say, did not
much endear him to the various supply-siders in and around the
second Bush administration.

Still, by the time Hubbard left the administration in February 2003,
Mankiw seemed to fit the profile of the White House's ideal CEA
chairman. His academic reputation would lend credibility to the
administration's economic pronouncements. Meanwhile, his textbook
and a several-year stint as a Fortune magazine columnist had
established him as a gifted explicator of economic ideas. (The
latter also marked him as clearly right of center ideologically:
Among other topics, his Fortune columns advocated Social Security
privatization and an elimination of the estate tax.) But perhaps
most important was that the White House wanted to replace Hubbard
with a CEA chairman who was less of a political operator, in hopes
of restoring some of the historical balance between Treasury and
CEA. "Greg came into an environment where [the White House] was
much more interested in Treasury playing a larger role [and] doing
the heavy lifting on tax policy," says one former CEA economist
present for the transition. Mankiw would be left to do what CEA
chairmen had done for decades: Give objective economic advice.

This is more or less what he has done. "Hubbard ... had a good feel
for how the Hill works," says one Republican congressional aide. "I
saw him a lot [during the negotiations over the 2003 tax cut]. He
was a major player in that. " Mankiw, by contrast, remains a
virtual unknown in Congress. "I haven't seen him on the Hill at
all," says the aide. According to Bob Collender, a former CEA
economist who worked under both Mankiw and Hubbard, "When I came in,
Glenn had been chairman for a while; Glenn knew what he wanted to
accomplish. When Greg came in, he was coming in cold."

But giving advice behind the scenes is only half of a CEA chairman's
job. The other half is making the case publicly for the
administration's economic policies--no easy task at a time of
historically high deficits and historically low job growth. And
it's in this role that Mankiw's lack of political experience has
become a liability. Any appointee can make the case for economic
policies that are either honest or successful. But making the case
for policies that are neither--recall that last year's tax cut was
sold as a "jobs and growth" package--requires a skill Mankiw's
academic background has not equipped him with.

Mankiw's troubles began in early February, when, while announcing
the release of the annual Economic Report of the President, he
lauded offshore outsourcing as a "good thing" and "just a new way
to do international trade." From an academic standpoint, Mankiw was
entirely right: Trade in goods is theoretically indistinguishable
from trade in labor (i.e., outsourcing), and both increase the
amount of output an economy can produce. But, at a time when
outsourcing ranks among Americans' chief economic anxieties, the
comment was a political disaster, opening the administration to
ridicule from Democrats and Republicans alike. House Speaker Dennis
Hastert went so far as to issue a press release headlined "hastert
disagrees with president's economic advisor on outsourcing," which
chided Mankiw for failing "a basic test of real economics."

The outsourcing flap was only the beginning. In a speech in
Washington a little over a week later, Mankiw picked up on another
theme he'd highlighted in the Economic Report: whether fast-food
restaurants like McDonald's should be considered part of the
manufacturing sector or the service sector. "[W]hen a fast-food
restaurant sells a hamburger," he asked in a speech before the
National Economists Club, "is it providing a service or combining
inputs to manufacture a product?" His point was to suggest that
such seemingly academic classification issues have important policy
consequences--such as whether or not a particular firm is eligible
for a tax cut. But Democrats and late-night comedians quickly
lampooned the comments as a suggestion that fast-food jobs might be
the solution to the nation's manufacturing crisis. Michigan
Representative John Dingell went so far as to write the
administration a letter recommending that Mayor McCheese be
nominated to fill the still-vacant position of American
manufacturing czar.

But, from the perspective of both his personal reputation and the
Bush administration's credibility on economic matters, Mankiw's
costliest mistakes were buried deeper in the text of the Economic
Report. The report put the average level of employment in 2003 at
about 130.1 million and projected that number would rise to 132.7
million in 2004. On its face, this seemed to suggest that the
administration was anticipating 2.6 million new jobs in 2004--which
was unlikely given that the economy had only created some 300,000
jobs in the entire second half of last year (itself an improvement
from the first half). In fact, the projection was even more
ambitious than it appeared. That's because, given the level of
employment at which the United States started the year (around 130
million), achieving an average of 132.7 million jobs in 2004 would
have required adding over four million jobs by the end of the
year--a virtual impossibility given the current high rate of
productivity growth. (High productivity makes it less necessary to
hire more employees.)

The administration backpedaled from Mankiw's obviously unrealistic
figure like mad. "I'm not going to get hung up on any particular
number," Treasury Secretary John Snow said in response to
persistent hectoring from reporters in mid-February. (This was odd,
since Snow would have personally approved the particular number in
question.) The president also declined to endorse the estimate,
saying only that "I think the economy is growing, and I think it's
going to get stronger." These developments prompted no small amount
of glee from John Kerry. "They don't know what they're talking
about in their own economic policy," the presumptive Democratic
nominee announced.

At almost the same time, yet another passage in the Economic Report
was creating yet another controversy, this one over whether the
2001 recession actually began on Bill Clinton's watch. In the
Economic Report, Mankiw noted that the data used by the National
Bureau of Economic Research (nber) to "date" the start of the
recession had been revised backward; he argued that the March 2001
start date should therefore be revised as well, to late 2000. "For
these reasons," the Economic Report explains, "the analyses
throughout this chapter (including the charts that compare this
recession to past recessions) use the fourth quarter of 2000 as the
peak of economic activity and the start of the recession." The
problem, according to Jeffrey Frankel, a member of the nber's
recession-dating committee, was that only a small minority on the
nber committee favored moving the start date back more than a
month. The CEA's analysis had ignored the fact that the nber
weights different pieces of data differently--and that the pieces
given the most weight in the original decision still supported a
2001 date. Worse, the discussion flouted the precedent of
government agencies deferring to the nber on the matter. Once
again, administration officials found themselves facing allegations
of political tinkering, forcing White House spokesman Scott
McClellan to retreat from the position at a mid-February press
conference.

The irony of these controversies is that, unlike Hubbard, who
repeatedly got away with big evasions with important policy
implications, Mankiw has run into trouble either for claims that
are utterly uncontroversial among economists or for modest fudges
that hardly matter at all.

The jobs estimate, for example, actually relied on a very cautious
2004 gross-domestic-product (GDP) forecast of about 4 percent. But
it's the latter number that has far more serious policy
implications, since it's the most important factor in projecting
how much money the administration will have to spend from year to
year. Had Mankiw wanted to massage the numbers to benefit the
administration, he could have killed two birds with one stone by
inflating his estimate of GDP growth to a level consistent with
most private forecasts, which would have brought up his jobs number
as well. (Instead, the high jobs estimate hinged on a conservative
assumption about productivity growth--one far out of line with the
experience of the last few years, but not so outrageous given that
no one expects that performance to continue.) Moreover, the jobs
forecast didn't look nearly as optimistic on December 1, when it was
finalized, as it did following the Economic Report's release in
February, after three months' worth of lousy job data.

Likewise, to anyone other than a handful of academic economists
plugging data into their regressions, the question of whether the
recession began in late 2000 or early 2001 is of zero economic or
policy significance: No tax revenue depend on it; no spending
decisions are based on it. And any suspicion that Mankiw's argument
on the recession was politically motivated is allayed by the fact
that it is both carefully reasoned and extremely obtrusive--sitting
as it does in a box on page 30 of the Economic Report with the
headline, "when did the recent recession begin?" If Mankiw had been
trying to get away with outright hackery, then he would have been
much better served by simply asserting the change in passing. (CEA
documents during the Hubbard era tended to rely much more heavily
on such assertions.) Instead, "the report reads like academics
debating in the coffee room," says Krugman.

Of course, given the administration's history of economic
dishonesty--and the fact that Bush officials have spent years
trying to sell tax cuts for the wealthy as job-creation programs
and making the case that they inherited a recession from Bill
Clinton--it was inevitable that Mankiw's assertions would be widely
viewed as politically motivated. Which is why, even if he had no
bad intentions, Mankiw's story has to be viewed as a cautionary
tale for academics considering serving an administration that puts
such a low priority on intellectual integrity. If you take a job
that makes you look like you're fudging the facts, at the very
least, make sure you learn how to do it well.

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