Clinton Economic Team
Jude Wanniski
December 4, 1992


We have thus far refrained from speculating on the shape of the Clinton Cabinet and economic team, as the newspapers have been exhausting all of us with the possibilities. Little Rock seems to have gotten close enough to decisions to persuade us that the soundings we're taking are realistic enough to pass along today. It appears, first of all, that Texas Senator Lloyd Bentsen, chairman of the Senate Finance Committee, will be the Treasury Secretary.  Alice Rivlin, we hear, will be Budget Director. Harvard economist Larry Summers will be chairman of the Council of Economic Advisors. Roger Altman of the Blackstone Group will be Bentsen's deputy at Treasury. It is not yet clear whether Robert Reich will remain as supercoordinator of economic policymaking. What does this mean at first glance?

Lloyd Bentsen: On a scale of zero to ten, with Nick Brady at zero and Alexander Hamilton at ten, we can imagine Bentsen at five, maybe even six. This is not bad, considering he is replacing a zero, which translates into an infinite improvement. Bentsen, like the President-elect, has no deep-seated ideological commitments. In the Carter years, when he was chairman of the Joint Economic Committee, he was among the most positive forces of all the Democrats in Congress, so much so that supply-siders considered him an ally. In the last dozen years of GOP control of the White House, he has moved closer to the official partisan line of his party. A successful businessman before he turned politican, Bentsen understands incentives, although he is much more likely to dribble them out to special interests than to push sweeping changes in macroeconomic policies to encourage entrepreneurial capitalism. On our key issue of capital gains taxation, Bentsen has insisted to me personally that he has always favored a capgains differential, but it has never been very high on his list. He's conventional in wishing to increase savings, which is what leads him to favor IRAs and the like. We think he will support prospective indexation of capital gains, perhaps even a token cut in the rate. He has made no consistent impression on monetary policy over the years, but is likely to get along much better with the Greenspan Fed than did Brady.

Roger Altman: I've not met Altman, but based my objections to him as a candidate for Treasury Secretary on his public comments over the years in criticism of Reaganomics, reflecting the views of Peter Peterson and David Stockman, who are also Blackstone principals. This team has close ties to Fred Bergsten at the Institute for International Economics in Washington, one of the most negative forces of economic influence on the planet. I'm told by people I respect who know Altman, that he is the best of this bunch, has an open mind, and that he may well be a surprisingly positive force at Treasury. He claims not to be a currency manipulator or devaluationist. We have heard from solid second-hand sources that he believes the ideal rate for capital gains is zero, but we have no idea how that might translate into action, as there are any number of people who take that position very quietly. We would have to see who would be brought into Treasury as undersecretaries for monetary and international affairs before offering further comment, but relatively speaking we are marginally satisfied with the possibilities under Bentsen.

Alice Rivlin: The Congressional Budget Office director for many years, an extremely partisan Democrat, as Keynesian as they come, but with some offbeat wrinkles on spending. She is all for raising taxes and believes Americans will support higher taxes to finance national health insurance. In her recent book, Reviving the American Dream, she argues for budget surplus as follows: "The federal government should run a surplus in its whole budget (counting social security), thus reducing federal debt service costs and adding to the pool of saving available to finance private investment." To get to budget balance she would also slash defense and domestic outlays: "The federal government should eliminate most of its programs in education, housing, highways, social services, economic development, and job training." The states, she says, should shoulder these spending burdens. She will be controversial, but will have little major impact on macroeconomics, which will be dominated by Treasury and to a lesser degree by the CEA and Reich. Robert Shapiro of the Progressive Policy Insitute may be named Rivlin's deputy, which would be a positive, as Shapiro has fairly healthy views on capital gains taxation and monetary policy, which he may be able to transmit from this post.

Lawrence Summers: A second-generation Keynesian and fervent Democrat who was made chief economist at the World Bank two years ago because of his Republican connections. His parents are both PhD economists and he has two Nobel Prize-winning economic uncles, Paul Samuelson and Kenneth Arrow. (His father changed his name to Summers from Samuelson to get out of his brother's shadow.) He was a Harvard student and protege of Martin Feldstein, the hapless Reagan CEA chairman, to whom Reagan, fortunately, never listened. He is also a buddy and tennis partner of Michael Boskin. He told a Fortune interviewer in 1988: "Feldstein, Boskin and I agree on the importance of encouraging savings and investment. But they are much more complacent about the economy. I believe there is more scope for government involvement in promoting growth and helping people." A San Francisco Chronicle commentary on November 21, 1988, noted, "The savings crisis is an issue that unites Michael Boskin, George Bush's chief economic advisor, and Lawrence Summers, who advised Michael Dukakis on economic matters. They agree that the low savings rate is one of the major causes of the persistently high U.S. trade deficit." As Summers told the Chronicle, "A significant increase in federal tax revenues will almost certainly be necessary if national savings is to be restored to a satisfactory level." Summers is known throughout the upper reaches of economic policymaking around the world, as well as in Washington, for a degree of arrogance that perhaps flows from his pedigree. Summers promises to be the most negative force on economic policymaking in the Clinton Administration, as he is the most ideologically stubborn in representing an economic model that is inevitably destructive. Summers, like his mentor Feldstein, is a devaluationist.

Robert Reich: Reich, along with Summers and MIT's Paul Krugman, was part of the 1988 "Rebuild America" coalition that was formed explicitly as "the nation's  first comprehensive alternative to supply-side economics," as its press release asserted. Reich, though, is not a trained mathematical economist, but rather a political scientist and armchair economist. The academic economists have waged a campaign to keep Reich out of a position of influence in the Administration, as he really does have an open mind and is subject to heresy. The New Republic two weeks ago put Reich on the cover and blasted him for his fuzzy, evolving economic thinking and sloppy math. This was rather shocking, as Reich has been a contributing editor to The New Republic, going to show how far the liberal intelligentsia will go to keep their economics pure. Reich, obviously, is not to be trusted, which is why I kind of like him. He even favors phasing out capital gains taxation.