Memo to the POTUS-elect

Congratulations, Senator Obama. You ran a good campaign, and you racked up an historic victory. As you get ready for your new responsibilities, let me suggest four ways for you to become a reliable steward of the economy:

Listen to your economists. During the campaign you assembled an impressive team of economic advisers from the nation’s top universities, including Austan Goolsbee from University of Chicago and David Cutler and Jeff Liebman from Harvard. Your campaign’s director of economic policy, Jason Furman, is a smart, sensible, and well-trained policy economist. I know: He is a former student of mine.

Pay close attention to what they have to say. They will often give you advice quite different from what you will hear from congressional leaders Nancy Pelosi and Harry Reid. To make sure you hear the views of your economists, put them in offices close to yours. Tell your chief of staff to invite them to all the relevant meetings.

Embrace some Republican ideas. No party has a monopoly on truth. Be ready to take the best Republican policy proposals and make them your own, as Bill Clinton did with welfare reform in 1996.

Health policy is a case in point. Over the past several months, you lambasted McCain’s proposal to reform the tax code to include a refundable health insurance tax credit. Did you know that long before McCain ever proposed this idea, it was advanced by Mr. Furman, your campaign’s policy director? He can explain to you why the Furman-McCain plan makes a lot of sense.

Now you may decide that this plan does not go far enough. You may want a more generously funded social safety net to help the less fortunate get health care. Fair enough, but in pursuing that goal, you run into the next issue.

Pay attention to the government’s budget constraint. The nation faces a long-term imbalance between government spending and tax revenue. The fundamental problem is that the federal government has promised the elderly more benefits than the tax system can support. This fiscal imbalance will become acute as more baby boomers retire and start collecting Social Security and Medicare.

Yet during the campaign, you promised that you would cut taxes for 95 percent of Americans, that you would vastly expand health insurance coverage, and that you would never cut Social Security benefits or raise the retirement age. You will almost surely have to renege on some of these promises. As your economic team will often remind you, even if the laws of arithmetic are ignored during campaigns, they provide a real constraint when making actual policy.

Recognize your past mistakes. As a new senator, you voted along predictable left-wing lines. As president, you will need a more eclectic, nuanced approach.

Take trade policy, for example. In the senate, you voted against the Dominican Republic-Central American Free Trade Agreement. You opposed free trade agreements with Colombia and South Korea. You supported Senators Charles Schumer and Lindsey Graham in their quest to put tariffs on Chinese goods if China failed to revalue its exchange rate. You supported the Byrd Amendment, which encouraged domestic companies to file anti-dumping suits against foreign competitors. You supported subsidies for domestic producers of corn-based ethanol and tariffs on imports of more efficient sugar-based ethanol.

Your economists can explain to you why these positions were wrong-headed. Economic isolationism is not in the national interest. A high point of the Clinton presidency was the enactment of the North American Free Trade Agreement, which passed both the House and Senate with a majority of Republicans and a minority of Democrats.

This past Tuesday, many people voted for you hoping you would achieve the kind of economic success that Bill Clinton enjoyed in the 1990s. Your best chance of delivering what they want requires that you abandon some of your past positions and pursue a more moderate, bipartisan course.

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Tomorrow's NY Times includes an edited version of this article.

An Epistemological Digression

I have been rereading Robert Pirsig's Zen and the Art of Motorcycle Maintenance. This passage really sticks with me:

After a while he says, "Do you believe in ghosts?"

"No," I say.

"Why not?"

"Because they are un-sci-en-ti-fic."

The way I say this makes John smile. "They contain no matter," I continue, "and have no energy and therefore, according to the laws of science, do not exist except in people’s minds."

The whiskey, the fatigue and the wind in the trees start mixing in my mind. "Of course," I add, "the laws of science contain no matter and have no energy either and therefore do not exist except in people’s minds. It’s best to be completely scientific about the whole thing and refuse to believe in either ghosts or the laws of science. That way you’re safe. That doesn’t leave you very much to believe in, but that’s scientific too."

The New Draft

From the President-elect's website:

The Obama Administration will call on Americans to serve in order to meet the nation’s challenges. President-Elect Obama will expand national service programs like AmeriCorps and Peace Corps and will create a new Classroom Corps to help teachers in underserved schools, as well as a new Health Corps, Clean Energy Corps, and Veterans Corps. Obama will call on citizens of all ages to serve America, by developing a plan to require 50 hours of community service in middle school and high school and 100 hours of community service in college every year. Obama will encourage retiring Americans to serve by improving programs available for individuals over age 55, while at the same time promoting youth programs such as Youth Build and Head Start.

In the past, economists of both the right and left opposed the military draft. Will they similarly come together to oppose conscription for community service? I hope so.

This initiative brought to mind the opening passage of Milton Friedman's Capitalism and Freedom:

In a much quoted passage in his inaugural address, President Kennedy said, "Ask not what your country can do for you -- ask what you can do for your country." It is a striking sign of the temper of our times that the controversy about this passage centered on its origin and not on its content. Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic "what your country can do for you" implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, "what you can do for your country" implies that government is the master or the deity, the citizen, the servant or the votary. To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom? And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?

Update: The presidential transition website to which I linked above no longer uses the word "require." The passage quoted above was copied and pasted from that website (with bolding added by me). But within a few hours after I posted it here, the wording changed to "setting a goal."

I am delighted to see this blog having so much influence on the policies of the new administration. That's change I can believe in!

Addendum: Click here for a shot of the original webpage.

Hire Better Teachers

Says Harvard economist Ed Glaeser.

Trust the Voters

Says Northwestern economist Tim Feddersen (in a piece published Tuesday, before the polls closed).

The Youth Vote and the GOP

This picture from Andrew Gelman is striking. It suggests that the major difference between the past two elections and this one was the youth vote. In this election, the young left the Republican party in droves.

Why? I am not enough of a political scientist to be sure, but recent conversations I have had with some Harvard undergrads have led me to a conjecture: It was largely noneconomic issues. These particular students told me they preferred the lower tax, more limited government, freer trade views of McCain, but they were voting for Obama on the basis of foreign policy and especially social issues like abortion. The choice of a social conservative like Palin as veep really turned them off McCain.

So what does the Republican Party need to do to get the youth vote back? If these Harvard students are typical (and perhaps they are not, as Harvard students are hardly a random sample), the party needs to scale back its social conservatism. Put simply, it needs to become a party for moderate and mainstream libertarians. The actual Libertarian Party is far too extreme in its views to attract these students. And it is too much of a strange fringe group. These students are, after all, part of the establishment. But a reformed Republican Party could, I think, win them back.

Can the Republican Party move in this direction without losing much of its base? I have no idea, but for the GOP, that seems to be the challenge ahead.

Larry, Vindicated

A flashback to 2006:

“President Summers asked me, didn’t I agree that, in general, economists are smarter than political scientists, and political scientists are smarter than sociologists?” [former dean Peter] Ellison told the Globe.

Here (via Mark Perry, posted two days ago) are GRE scores by field. Economists rank number 4. Political scientists are number 17, and sociologists are number 23.

In last place is public administration.

(Click on table to enlarge.)