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Advice and Dissent
Why America Suffers When Economics and Politics Collide
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American economic policy ranks as something between bad and disgraceful. As leading economist Alan S. Blinder argues, a crucial cultural divide separates economic and political civilizations. Economists and politicians often talk — and act — at cross purposes: politicians typically seek economists’ “advice” only to support preconceived notions, not to learn what economists actually know or believe. Politicians naturally worry about keeping constituents happy and winning elections. Some are devoted to an ideology. Economists sometimes overlook the real human costs of what may seem to be the obviously best policy — to a calculating machine. In Advice and Dissent, Blinder shows how both sides can shrink the yawning gap between good politics and good economics and encourage the hardheaded but softhearted policies our country so desperately needs.
Economists offer lots of policy advice, most of which politicians routinely reject even though it would improve the quality of economic policy—and in consequence, the economy suffers. What may be a surprise is that many of these rejections of good policy advice are done for good reasons.
The solution, to the extent there is one, requires changes from both economists and politicos. Economists must change how they conceptualize issues, frame policy prescriptions, and deliver advice. Politicians need to improve their understanding of basic economics, and use it more as a guide to good policy and less as a tool for political spin. Neither is easy, however, because of the radically different civilizations from which economists and politicians hail. Plainly put, neither group understands the other. This book is an attempt to bridge the gap.
Chapter 1 distills the problem into what I call the Lamppost Theory: that politicians use economics the way a drunk uses a lamppost—for support, not for illumination. Chapters 2–5 elaborate on the origins of the Lamppost Theory, examining the factors that underpin the frequent (and sometimes harsh) collisions between good economics and good politics. Chapters 6 and 7 then consider how most economists, at least progressive ones, decide what constitutes good economics—an approach I call hard-headed but soft-hearted. These few pages are the proselytizing part of the book.
Precious few politicians, whether of the left or the right, think like economists, however. And of course, it is the politicians, not the economists, who make the policy decisions—as they should. Chapters 8–10 examine how the dominance of politics over economics plays out in three critical policy domains: international trade, income inequality, and tax reform. In each case, I explain how the clash of civilizations has produced either paralysis or movement in the wrong direction. This dysfunction, I argue, is not random. It follows logically from the factors underpinning the Lamppost Theory.
The good news, such as it is, comes in the final three chapters. There I search for remedies—or rather, for palliatives that might narrow the gap and make the collisions less severe. A brief summary is that we need to put more economics into politics, and put more political savvy into economics. But I’ll be much more specific than that.
The ideas offered in this book have been germinating in my mind for over forty years. During a long career of teaching economics to beginning students, writing hundreds of op-ed columns (lately for the Wall Street Journal), advising many politicians and several presidential campaigns, serving on President Bill Clinton’s original Council of Economic Advisers, and then as vice chairman of the Federal Reserve Board, I’ve watched Washington closely, both from the outside and the inside. And I’ve drawn a number of conclusions, which I share here.
Part of the book’s message, especially Chapters 6 and 7, is a lineal descendant of a book I published about thirty years ago: Hard Heads, Soft Hearts: Tough-Minded Economics for a Just Society (Addison-Wesley, 1987). In planning for this book, I reread that one, and there was little I wanted to retract. But there was much to add because Hard Heads was written before I was ever immersed in official Washington. While my economic attitudes have barely changed over the last thirty years, my political attitudes have undergone several transformations—the latest thanks to Donald Trump.
After mentioning our forty-fifth president, I should perhaps make my personal politics clear. I have always considered myself center-left in the American political spectrum. If there was still such a thing as a Rockefeller Republican, I might be one. But there isn’t, so I’m a longtime Democrat. I want to emphasize, however, that my intent here is not to draw a line between center-left Democrats and center-right Republicans. Fine distinctions like that hardly matter. Instead, I want to explain why most economists reject the far right as mean-spirited and the far left as naive.
Yes, Donald Trump receives much criticism in these pages. But that’s mainly because I try to illustrate enduring principles with fresh examples. The truth is that this book was planned and partly drafted before I ever imagined that Trump would be elected president. The central ideas long predate Mr. Trump and will outlast him by many years.
Yogi Berra was right: you can observe a lot just by watching. When you’ve been thinking about something for over forty years, your intellectual debts pile up—many of them unrecognized. (Where did I first get that thought?) My accidental teachers include famous public figures like Bill Clinton (for whom I worked) and Alan Greenspan (with whom I worked), a long list of politicians and journalists, a few political scientists and commentators, and even some economists.
In preparing this book, I benefited specifically from literally hundreds of helpful comments from (in alphabetical order) Henry Aaron, Ben Bernanke, Joseph Blasi, Barry Bosworth, Gary Burtless, Philip Friedman, Michael Froman, Carol Graham, Bradley Hardy, John Hudak, Joseph Kennedy, Aaron Klein, Don Kohn, Robert Lerman, Avi Lerner, Ephraim Liebtag, Ofer Malamud, Norman Ornstein, Eswar Prasad, Jamie Raskin, Jonathan Rauch, Richard Reeves, Alice Rivlin, Howard Rosen, Leslie Samuels, Isabel Sawhill, Alan Schwartz, Philip Wallach, Vin Weber, David Wessel, and Cliff Winston. I thank them all and hold them blameless for any errors.
Many of these people were colleagues of mine at the Brookings Institution, where I did most of the writing during a sabbatical year in 2016–2017. I thank Princeton University for the sabbatical and its Griswold Center for Economic Policy Studies for continued support of my research. And I’m grateful to Brookings and its director of Economic Studies, Ted Gayer, for their hospitality and for providing me with a fine research assistant, Eric Koepcke. It is no exaggeration to say that, without that year at Brookings, this book never would have been written. The two nonsecret ingredients were peace and quiet and interested colleagues to bounce ideas off. Brookings provided both in abundance.
Turning a long document into the book you have in your hands is a laborious process made easier by my astute literary agents, John and Max Brockman, and by the talented folks at Basic Books, especially editorial director T. J. Kelleher and editorial assistant Carrie Napolitano, and project editor Collin Tracy, and copyeditor Beth Wright of Trio Bookworks. Here I must single out Brian Distelberg, whose thorough and perceptive reading of the penultimate draft led me to make several major changes. When the task turned to marketing and publicity, I acquired further debts to Isadora Johnson, Kait Howard, and Connie Capone.
Never mind that we were two hundred miles apart when most of the drafting was done; email makes geography almost irrelevant. My longtime and exceptional assistant at Princeton University, Kathleen Hurley, was always there when I needed her, performing many essential tasks with her usual efficiency, care, and good cheer.
But my biggest thank-you goes where it’s most deserved: to my wonderful wife, Madeline Blinder. For over fifty years now, she has offered me a constant stream of good advice, some of which was met by dissent, but most of which was taken—to my good fortune. It is to her that this book is lovingly dedicated.
ALAN S. BLINDER
Princeton, New Jersey
The Lamppost Theory of Economic Policy
Politicians use economics in the same way that a drunk uses lamp-posts—for support rather than illumination.
—variation on a theme of Andrew Lang (1910)
May I start by dispelling a myth? Many people seem to believe that economists have enormous influence over public policy. After all, we pop up frequently on television, have our own Council of Economic Advisers within the White House, serve in many advisory posts, sometimes occupy cabinet positions, and dominate one of the US government’s most powerful agencies, the Federal Reserve System.* All this provides superficial credence for the popular misconception that economists play pivotal, if not indeed decisive, roles in public policy decisions.
But it’s a myth. The truth is better summarized by the epigram above: like a drunk, politicians use economics for support, not illumination. Consider Donald J. Trump. He was elected president of the United States on November 8, 2016, and assumed office on January 20, 2017. That was plenty of time to acquire some economic advisers, not to mention some economic advice. If he wanted any. Instead, the new president killed the Trans-Pacific Partnership, presented a budget to Congress, embraced a radical House plan to replace Obamacare (which later failed in the Senate), backed America out of the Paris Agreement on climate change, and made menacing noises about bank deregulation—all before he had a single member on his Council of Economic Advisers (CEA).
That “momentous” event finally arrived on September 12, 2017, when Kevin Hassett was confirmed as chairman of the CEA. Until that day, a campaign aide named Peter Navarro was the only PhD economist in Trumpworld. What’s that? You’ve never heard of Navarro? That’s my point. If Mr. Trump thought either illumination or support from economists was important, he certainly didn’t show it.
As a longtime member of the tribe, I’d like to believe that economists are essential pieces in the economic policy puzzle. But it’s a myth, and one purpose of this book is to explode it. The truth is that the Lamppost Theory, which predates President Trump by decades, has it about right. To be sure, there are instances in which economic reasoning has provided illumination that influenced policy profoundly, maybe even decisively. Deregulation of trucking and airlines in the 1970s and 1980s comes to mind, as does tax reform in 1986. But it’s hard to think of a recent example. There are far more cases in which politicians knew what they wanted to do, and then just leaned on economics—sometimes very bad economics—for support.
The Lamppost Theory may be good for politicians. Many of them like to trot out economists to support their favored policies in public. It’s good for political messaging—or so they believe. It certainly adds a patina of intellectual respectability. And, especially in a world where hardly anyone believes politicians, economists can add putatively disinterested—maybe even “scientific”—voices to the debate.
There is even a name for this support activity. It’s called “validating.” I have served as a validator for Democratic politicians numerous times, typically being asked to speak or write approvingly about policy positions I had no role in formulating. (After all, if you’ve helped formulate a policy, how can you validate it?) If I agree with the policy, I often accept this role willingly. If I disagree, I don’t. Many other economists, both Democrats and Republicans, do the same. Notice that validating is only about lending support. It comes way too late in the game to provide any illumination. And after the way the 2016 election and its aftermath denigrated expertise, even the political usefulness of support is now open to question.
Is the Lamppost Theory good for economists? Not likely. Being used as a stage prop is usually harmless, and some economists enjoy seeing their names in the papers and their faces on TV. But in truth, most of us are naturally what Harry Truman once disparagingly called “two-handed” (“On the one hand,… but on the other hand,…”). Complex policy proposals are rarely all good or all bad. The world is a messy place in which purist solutions hardly ever make sense and, even when they do, are politically infeasible. So real-world policy proposals run the gamut from mostly attractive with a few warts to mostly ugly with some pleasant features. And choosing policies that are mostly good, albeit with some blemishes, is a huge step up from choosing policies that are mostly bad, though with some bright spots.
Genuine illumination would present the full picture, including all the pros and cons and the weak points in each side’s arguments. But when you’re serving as a validator, the politicos are seeking support, not illumination. Giving voice to “the other hand” might provide fodder for your opponents—which is not helpful to your side. This political reality creates a tension for many academics, for whom exceptions, fine points, and shades of gray are their stock-in-trade. So many won’t venture anywhere near the political arena, and even those who do may fill the role of validator clumsily. In politico-speak, they pose a constant risk to stray “off message,” a place where political handlers never want you to be.
My favorite all-time example of this hazard happened way back in 1982. The Reagan administration trotted out George Stigler, an illustrious conservative University of Chicago economist who had just been awarded the Nobel Prize, to (they hoped) sing the praises of supply-side economics—the “theory” that underpinned the Reagan tax cuts by claiming miraculous effects of tax cuts on growth. What a fantastic validator, they must have thought: a Reagan supporter who had just been anointed an oracle. But when Stigler was put in front of the TV cameras, lights blazing, and asked about supply-side economics, the iconoclastic economist opined that “it’s a gimmick, or, if you wish, a slogan.” Ouch. That didn’t help Ronald Reagan. I presume it didn’t help George Stigler either, who was quickly hustled off stage. (But it did not hurt Stigler’s lofty reputation in academia.)
Is the Lamppost Theory good for public understanding of economic policies? Definitely not. When presented with dueling teams of economic experts making opposing claims, ordinary people are likely to be confused, to conclude that economists don’t know what they’re talking about, and to tune out. The best spinners, not the ones with the best arguments, are likely to prevail in the public debate. And in a democracy, a confused electorate opens the door to poorly conceived policies.
Once again, supply-side economics, a doctrine that was born in the 1970s but lives on today, offers a marvelous example. Early in the Reagan presidency, supply-side economics was flying high politically, even though it had never left the ground economically. At the time, perhaps eighteen thousand members of the American Economic Association would have told you that the Reagan tax cuts would not stimulate enough new economic activity to pay for themselves; maybe about eighteen would have told you they would (though I can’t name eighteen). But that “division” of opinion meant that every TV show that wanted to demonstrate how fair it was could produce an economist on each side of the phony debate. Most did. There never was a real intellectual debate, just a few quacks advocating a nutty position with no evidence behind it. Nonetheless, the media dutifully reported that economists were divided on the issue. So the public was first befuddled and then buffaloed.
Finally, the most important question by far: Is the Lamppost Theory good for public policy? Certainly not, and here the stakes are high. Public opinion matters in our rough-and-tumble, media-driven, hyper-democratic system—more than most people realize. In a sense, election campaigns never end. Since votes in Congress are swayed by popular attitudes, politicians often engage in intense message warfare—a process that resembles commercial advertising more than it does the Lincoln-Douglas debates (and may the best spinner win). Unfortunately, only by sheer coincidence are the best crafters of policy also the best crafters of message.
Thus the Lamppost Theory appears to be good for many politicians but bad for almost everyone else. Please don’t jump to the wrong conclusion, however. The chapters that follow are not a paean to the remarkable wisdom and insight of economists. I will not suggest that the body politic should hand over critical policy decisions to a bunch of wonks with PhDs in economics. With some rare exceptions, such as the Federal Reserve’s monetary policy, the division of labor that has economists advising and elected politicians deciding is approximately right. We call that democracy.
The real questions are: Can the status quo be improved in ways that use economics for illumination somewhat more and for support somewhat less? And if so, how?
The search for answers must begin at the beginning—with an understanding of what can, without exaggeration, be viewed as a clash of civilizations between politicos and economists. That is the subject of Chapter 2, which analyzes in detail how and why politicians seek support while economists offer what they see as illumination. That same clash is the tacit subject of Chapter 3, which concentrates on the contrast between the super-short time horizons of politicians and the excessively long time horizons of economists, and of Chapter 4, which discusses the starkly different ways in which politicians and economists practice the art of messaging. (Preview: Economists are pretty bad at it.)
In Chapter 5, on the role of the media as information intermediaries, the focus shifts from the use of economics for support to the possible—and, I argue, socially more useful—uses of economics for illumination. The media, we shall see, can help or hinder each. Following that, Chapters 6 and 7 discuss in more detail what I really mean by illumination. How could the quality of economic policy improve if politicians made better use of economics?
The next three chapters get down to cases. Here I apply the basic ideas and lessons from the first seven chapters to three major issues of contemporary policy: why international trade is so controversial politically even though it is not controversial among economists (Chapter 8), what might be done economically to mitigate income inequality—if politics didn’t prevent it (Chapter 9), and how politics makes a hash out of economics when it comes to reforming the tax code (Chapter 10).
There are problems you solve and others you just manage. The Lamppost Theory falls squarely in the second category. The clash between political and economic civilizations runs so deep, and is so multifaceted, that no one should pretend to be able to solve it. I won’t. Instead, I devote Chapters 11 and 12 to the search for palliatives, not solutions. What are some feasible changes that could make economic advice more useful to politicians, and thereby improve the quality of economic policy?
But first we must understand why economic lampposts are used so much more for support than for illumination.
* Prior to Jerome Powell, five of the last six chairs of the Federal Reserve Board, dating back to 1970, were economists. The other lasted just seventeen months on the job.
On a number of issues, a bipartisan majority of the [economics] profession would unite on the opposite side from a bipartisan majority of Congress.
—Arthur Okun (1970)
Politicos and economists speak different languages. And that’s not all. Their differences go deeper and further. It is barely an exaggeration to say that politicians and economists live in two different, often clashing, civilizations.
One day long ago, I crossed the border from one strange land to the other as a fledgling member of President-elect Bill Clinton’s new economic team. At our first meeting at the governor’s mansion in Little Rock in January 1993, I felt like a duck out of water. The cast of characters gathered around the big mahogany table that winter day included titans of Wall Street like Robert Rubin and Roger Altman; experienced politicians like Lloyd Bentsen, Leon Panetta, and Ron Brown; and campaign figures like George Stephanopoulos, Gene Sperling, and Robert Reich. Apart from Bentsen and Brown, who have since passed away, those are all my friends now, but they were mostly strangers then. And I didn’t know the rules of engagement, which made me uneasy. Only later did I learn that nobody else did, either.
Two other fugitives from academia were present at that first meeting: Laura Tyson and Larry Summers. I had agreed to join Laura as a member of the Council of Economic Advisers (CEA)—a team of three economists, typically professors on leave from their universities, who advise the president on all matters economic. Larry was headed to Treasury.
I arrived early, via connecting commercial flights from Newark through Memphis, while most of the others came directly from Washington on a charter plane. As the number two person in the smallest and least powerful agency at the briefing, I knew enough not to take a seat until the bigger shots arrived to claim theirs. When Vice President–elect Al Gore walked in, he said a round of hellos. Then Gore and Bentsen, the Treasury secretary designate, sat at the end of the table closest to the door. Interpreting that action to mark the presidential end of the table, I modestly positioned myself at the opposite end.
Whoops. Moments later the photographers swooped in and hustled Gore down to my end of the table, practically sitting him in my lap. I slid down two chairs to make room for Bentsen and a honcho to be named later. But alas, when President-elect Clinton entered the room, he chose to sit at the opposite end—near Gore’s original seat—and it was musical chairs all over again. Thus did I receive my first lesson in hierarchy: where you sit depends on where you stand.
Exactly a week later, the team returned to Little Rock. This time I traveled with the others from Washington, thereby helping to overcrowd the little charter plane. Those with the highest ranks (Bentsen and Rubin) got comfortable seats in the front; we peons squeezed onto the sofas that lined the back of the bus, er, plane. Ironically, that morning’s Wall Street Journal had carried an article on some new OSHA rules on overcrowded workplaces. I joked to Reich, the incoming secretary of labor, that this was just the sort of thing that OSHA should prevent.
After a long delay—imagine, Bill Clinton was late!—we were ushered into the dining room and took our seats around the polished mahogany table. The decor had been transformed from early American to early transient—featuring cardboard moving boxes, crated mirrors, and the like—for the First Family would be moving to Washington in a few days. This time, Clinton’s end of the long table was clearly demarcated, so I headed dutifully for the opposite end.
As dictated by our respective ranks, Laura sat to my left, one seat closer to the president-elect. While we waited, I whispered to her to observe a pattern that, I predicted, would characterize all future meetings of the economic team: the Treasury would bring the most people, the Office of Management and Budget (OMB) would bring the most paper, and we (the CEA) would bring the best ideas. Snarky, but basically true.
Then Clinton arrived, followed by an orderly with a bowl of soup. I thought at the time that the poor man must not have eaten anything all day. I later learned that he ate all day long. Laura began the briefing with a quick review of the state of the economy and the basic rationale for reducing the federal budget deficit. Then it was my turn to hold forth with the details.
Armed with slides, tables, and numbers to bolster my deficit-reduction pedantry, I started. But barely three words had passed my lips when a young aide rushed in to announce that the press would be allowed in for a photo op—no reporters, just photographers. How exciting, I thought, my very first photo op! I’ve heard so much about them.
Realizing that I was an alien in his civilization, the president-elect looked up from his soup and instructed me graciously on proper photo op behavior: “Alan, now you’re supposed to say nothing and look profound.” The raucous laughter around the table gave me a much-needed moment to gather my wits, and I responded: “That’s funny, Mr. President-elect. In my previous job, I was supposed to look like nothing and say profound things.” (More laughter.)
Two seconds later, we were surrounded by a swarm of photographers, flashbulbs popping and cameras whirring. I thought to myself, It’s a new world, Tevye.
The Unholy Trinity
It was. To the untrained eye and ear, the political world looks and sounds chaotic. At first, I thought there was no logic to it at all. But if you pay attention, there is an underlying logic, as I learned during my time in the Clinton White House, after that (albeit from a distance) at the Federal Reserve, and subsequently working on several presidential campaigns. It’s just not the Aristotelian logic you learn in school and use in economics. Call it political logic.
Before going further, let me be clear: this book is not a screed complaining that those foolish politicians refuse to behave like us logical economists—and wishing that they would. Well, in all honesty, there will be a little of that—but not much, because the truth is that politicians cannot and should not follow Aristotelian logic. People who succeed at high levels of politics and government must and do have different personalities, talents, and weaknesses than people who succeed in business or in the academy. Their job applications are completely different from those in other occupations. They are chosen and succeed or fail on totally different Darwinian principles. They face dramatically different incentives. And, most important, the rules and objectives of the game are starkly different. Top government officials, especially elected ones, do not think or act like business executives or professors because they shouldn’t. The early presidency of Donald Trump helped prove that point.
In the university, policy discussions always start with the merits of the case—and often end there. General principles, especially high-minded ones, figure prominently in the debate, generally crowding out dreary details of implementation. What is this policy trying to accomplish? Are the goals appropriate? What are the pros, cons, and likely side effects of the various options under consideration? Which are most likely to succeed? Which seem most consistent with other policies and other principles? Such questions are all perfectly legitimate; indeed, they are indispensable. Policymakers who ignore them court disaster—and often get it.
The best policy debates inside the government start out in more or less that same place—on the substantive merits of the case. But, unlike debates in the academy, they do not and cannot end there. Instead, the unholy trinity of politics, message, and process all demand close and protracted attention—sometimes to seemingly ludicrous degrees, sometimes overwhelming any attention to substance. But there is a method to this apparent madness. Let me take up the unholy trinity in turn.
- "[Blinder] knows of what he speaks... His purpose is always to show an underlying economic reality that is too easily overlooked in the hurly-burly of daily debate."—Wall Street Journal
- "Refreshingly, this is not just a high-minded complaint that ignorant politicians are scorning dispassionate technocratic economists. Prof Blinder points out, for example, that while economists have correctly argued that in the very long run freer trade boosts efficiency, they tend to discount the transitional costs for those who lose jobs from import competition...Prof Blinder's helpful suggestions are likely for the moment to go unheeded. That is a shame."—Financial Times
- "...An outstanding exposition of the contemporary crisis of inequality in America."—Washington Post
- "In Advice and Dissent, economic sage Alan Blinder offers brilliant insights into why politicians so often rely on economics for support but not illumination, with the economy suffering as a consequence. Blinder's perceptive ideas to transform good economics into good politics makes it a must-read for everyone interested in a stronger economy and for economists who need the political savvy to contribute to the policy process."—Janet L. Yellen
- "Alan Blinder's book is a thoughtful and witty exploration of what he calls the Lamppost Theory--the proposition that politicians who make economic policy rely on economic experts for support, not for illumination. As a leading academic, a veteran of the policy wars in Washington, and a witty prose stylist, Blinder is ideally placed to explain the policy process in all its messiness and to suggest some practical options for getting better results."—Ben Bernanke
- "Full of examples, anecdotes, and wry humor...An illuminating primer on critical U.S. economic issues and how they intersect with politics."—Library Journal
- "A valuable book from a sensible centrist who writes with great knowledge and good humor."—Kirkus
- "At a moment when policy expertise is devalued in Washington, Advice and Dissent is a brisk and refreshing call to reason. Blinder's thoughtful, entertaining and eminently readable book rightly critiques politicians and economists for misunderstanding each other's motivations. And he traces a helpful path to tackling even the most difficult economic problems by balancing the sound insights of economics with appropriate respect for the exigencies of politics. Politicians and economists can learn from this book. So can the rest of us."—E.J. Dionne, Jr.
- "Alan Blinder provides one of the best summaries of the divide between economics and politics. He should know because he has served both areas in the highest capacities. But Alan's greatest gift is that he is first and foremost a pragmatist who is sick and tired of the dysfunction in Washington. His recommendation to economists and politicians is my recommendation to Democrats and Republicans--grow up, work together and better understand that fairness and efficiency can both serve the interest of a better democracy."—Leon Panetta
- "More than any other aspect of governance, economic policy is entangled with--note well: I do not say 'informed by'--scholarship. Alan Blinder has participated from both sides in the complicated relationship between academic theories and political practices. His reflections about this are as fresh as today's headlines, and as entertaining as they are illuminating."—George F. Will
- On Sale
- Mar 27, 2018
- Page Count
- 368 pages
- Basic Books