Greg Mankiw

Drank the Kool-Aid! He really has no understanding just how little impact he had in the Bush Administration. He pumped for Social Security reform in the New Republic, arguing in an obnoxious, patronizing way that what Bush had in mind was no different than the sort of 401K programs academics are familiar with (presumably the core readership of TNR). Really annoyed me!

Here are choice nuggets from Mankiw's Fortune interview. To start, Mankiw blames public ignorance for the negative reaction to his offshoring comments during the presidential campaign, despite the fact offshoring directly threatens people's livelihoods:

Q: What are your thoughts on the reaction to your offshoring comments during the presidential campaign? What does that say about the ability to discuss economic issues in this country?

A: It's a challenge. You have to talk about sophisticated economics to voters, most of whom haven't studied economics, or even taken a single course. So you're starting from a base of knowledge that's pretty low.

Mankiw gets very vague about the trade deficit, and ultimately decides to blame the people again, suggesting subtle approaches to take away their discretion to use their money as they see fit:

Q: A lot of people are worried about the trade deficit. Your thoughts?

A: I don't think the economic profession in general has a very good handle on how to think about the trade deficit. If you had asked economists 20 years ago whether the U.S. could run a trade deficit for as long as we have, they would say no, that it could never happen. This has come as a bit of a surprise. I don't think we really have a good sense of what the limits are, especially since we're growing so much faster than most of the world. This might sound glib, but it might be fruitful to think about immigration and the trade deficit as reflecting the same thing—capital and labor both want to flee here because we're the most productive economy.

On the other hand, while the trade deficit isn't a problem in itself, it may be a symptom of a problem. The problem is that Americans aren't saving enough. I don't think there's a single magic bullet to increase national saving, but I do think a switch from an income tax to a consumption tax would help.

Q: But we don't seem to have had much success with efforts to bolster the savings rate, which remains near record lows.

A: I'm intrigued by some compelling evidence from [Harvard economics professor] David Laibson and others that if you design 401(k)s differently, you could improve saving a lot. For example, suppose we made the default for a 401(k) plan that people have to decide to opt out if they don't want to save, rather than having to opt in if they do want to save, as is currently the norm. The evidence suggests that the participation rate would increase substantially.

Rove was the scary political guy who was Mankiw's real boss. Despite his lack of training, or maybe because of it, Rove, not Mankiw, makes Administration economic policy:

Q: What are your thoughts about characterizations of this White House as insular with Karl Rove running most of economic policymaking show?

A: The policy process worked extremely well. It's not like one person sits there—like Karl Rove sits off all by himself making economic policy, or Dick Cheney sits all by himself making economic policy. It's a very formal process where deputies meet, talk to their principals, then principals meet, everyone from [former U.S. Trade Representative and current deputy Secretary of State Bob] Zoellick to [Labor Secretary Elaine] Chao to [former Commerce Secretary Don] Evans, when I was there. Then meetings with the president. We all give different points of view, and the president makes a call. It's a well-run decision making process—the way it should work. .....

Q: It was a collaborative process?

A: It was very collaborative. Look, Karl Rove is a very reasonable guy. I was absolutely delighted that he got the job as deputy chief of staff. He knows his stuff. Some political folks see policy as a way of getting political things accomplished. That's not Karl Rove. He's motivated a lot by good policy. He has a vision of what the party should be doing. He was one of my favorite people in the White House. I didn't come in expecting to think that. I thought he'd be a political guy who'd push policy in a bad direction for political reasons. I left the White House having great respect for Karl.

Note Mankiw's rationalizations: don't blame the Bushies for the enormous deficits! They're nice guys with a well-run decision-making process (which functions so well because independent people with a clue are systematically excluded):

Q: What about the argument that administration policies made the deficit worse than it would have otherwise been?

A: Well, it did. But the president came in inheriting an economy that was sliding into recession. He cut taxes in part to stimulate the economy, and I think that did have a positive impact on the growth of the past few years. He also, in the aftermath of 9/11, had to increase spending on defense and homeland security. But over time everyone agrees we have to reduce the budget deficit and move toward budget balance. Also, over the long term, the key fiscal challenge is not the short-run deficit, it’s the long-run budgetary pressures coming from entitlements, which is why Social Security reform is such an important priority.

Q: But does the administration truly believe that? What about what [Vice President Dick] Cheney is alleged to have explicitly said, that "Reagan proved deficits don’t really matter," and this general sense that this administration truly believes that?

A: In my dealings with everyone in the administration, from the President, to Snow to Friedman to [Office of Management and Budget director Joshua] Bolten, there was a lot of concern about the budget deficit and an acknowledgement that it was one of many priorities, but that it was an important priority to reduce the budget deficit over time.

Mankiw blames the public for balking at Bush's Social Security reform. Remember, Bush never actually presented a reform plan, he just talked about it, so what Mankiw says regarding the 'plan' is, simply, wrong, because no 'plan' was ever presented. Also remember that Social Security's unfunded liability can be solved by modest increases in payroll taxes and doesn't require destroying the entire program in the process. Also recall that none of the private account plans bandied about so far would be either voluntary or would allow much discretion regarding where to put your money (certainly not as much as a typical 401K plan currently offers). What gives Social Security stability is that Congress is on the hook for seeing that Social Security functions, and they can raise taxes just as high as necessary to make certain it functions. Congress is accountable, Wall Street is not accountable, and that's the difference!:

Q: What do you think of the idea that a part of the reason Americans are not embracing the President’s Social Security reform plan is that this is a period of greater economic uncertainty and Americans value all forms of insurance more highly as a result—including perceived insurance like Social Security?

A: I think for people to perceive Social Security as safe they haven’t looked hard at the facts. The fact is that the current system is not sustainable. You have a large unfunded liability. There’s tremendous uncertainty about what the future resolution is going to be if we kick the problem down the road. The way to reduce future political uncertainty is to deal with the problem head on right now.

Q: Given that, do you think there’s a plausible argument to be made that people want to protect guarantees?

A: Under the president’s plan, personal accounts are a voluntary option. People are not required to take it as an option. In addition, when you take those personal accounts, you have the option to invest in low-risk assets, if you want to invest in safe Treasury bonds. Most financial planners would tell you its prudent to put some assets in higher-risk, higher-return equities—I personally have 60% to 70% of my assets in equities and what the President’s proposal does is give the option to choose what kind of risk-return profile they’d like.

Q: Let’s put aside the lack of awareness of this reform plan. You don’t think it’s a plausible explanation that Americans are dealing with a lot of economic uncertainty these days that they just didn’t have to deal with 30 years ago—the evaporation of defined benefits, higher health-care premiums, the prospect of more people becoming uninsured as a result? That, along many dimensions, people are losing the kind of economic certainty, job security, financial security that Harvard professors on tenure can take for granted, and don’t want cuts to perceived guaranteed benefits and that this insecurity has to be addressed if the Social Security reform plan is to be successfully advertised?

A: Under the President’s plan, people would have the option to choose themselves how much risk they would want to take on. You’re absolutely right, that defined benefit plans are disappearing, but there’s a reason for that—because they’re not the best way to set up a retirement system. What the President is proposing is to do for public pensions what companies are doing for private pensions—to give people that option.

Interesting sign-off here for the brainwashed!:

Q: Any other thoughts on any of this?

A: No. I think you’ve completely emptied my brain of all thoughts in economics.