Harvard economists offer rival visions
By Megan Woolhouse | The Boston Globe | September 14, 2012
In a Northeastern University classroom, the architect of President Obama’s stimulus plan and a key economic adviser to presidential candidate Mitt Romney laid out competing visions on how to repair the nation’s economy — the issue that has come to define the election campaign.
Lawrence Summers, a former Harvard University president, Treasury secretary under President Bill Clinton, and top economic adviser to Obama, told the audience government must help fuel a recovery, advocating for additional stimulus to repair schools, hire teachers, and rebuild airports.
On the other end sat N. Gregory Mankiw, who in addition to counseling Romney served as chairman of the White House Council of Economic Advisers under President George W. Bush. He said the key to a long-term recovery is tax reform, including a review of the necessity of popular tax breaks, such as the deduction for mortgage interest.
The Wednesday night forum, called Open Classroom, was part of a series of lectures on election-year issues. Open to the public, this week’s class offered a glimpse into the economic thinking that has helped shape the candidates’ very different policies.
The joint appearance of Summers and Mankiw, both Harvard professors, came less than week after a disappointing employment report showed slow job growth in August and a US unemployment rate holding above 8 percent.
The Federal Reserve, citing its concern over continued high unemployment, on Thursday said it would inject more stimulus into the economy by pushing down long-term interest rates and holding its key short-term interest rate near zero through mid-2015.
Summers and Mankiw did not address the central bank and its policies but focused on measures available to the White House and Congress. They aired competing views about stimulus spending, taxes, and the deficit.
Summers cited the need for a combination of targeted tax cuts and government spending to fuel a recovery when the private sector is “unwilling or unable” to do it.
“How many of you have been to Kennedy Airport? How many of you are proud of Kennedy Airport?” Summers asked. “Government [could be] borrowing money in a currency we print at a time when interest rates are below 3 percent and unemployment in the construction sector is high. Could there be a better time to fix Kennedy Airport?”
Summers said offering a tax break for middle-class Americans would be better for the economy than a tax break that benefits the wealthiest, because middle-class families tend to spend extra money quickly, putting it back into the economy, while those earning $250,000 or more a year tend to save it.
And he speculated Facebook founder Mark Zuckerberg, who attended Harvard, would probably accept a tax increase.
“I suspect Greg Mankiw will disagree with me on that point,” he added.
Mankiw, who described Summers as a mentor while he was a graduate student at MIT, said the question of whether the richest should pay more is a “political question and a question of values” about the role of government. Like other conservative economists, he said he was more concerned about the long-term outlook and unchecked government borrowing that could lead to crippling debt. “Borrowing without repaying, that’s when we become like Greece,” he said.
Greece, with unemployment above 20 percent, is struggling under crushing debt and has teetered on the brink of default, threatening the stability of the euro currency.
Mankiw offered no new insights into Romney’s proposal to lower tax rates while eliminating various breaks or “loopholes.” Romney has been criticized for being short on specifics about which breaks would be scrapped and how the plan would avoid adding to the nation’s debt or increasing taxes for the middle class.
Mankiw, who teaches one of the most popular courses at Harvard, questioned whether the sick economy needs another dose of big-government stimulus when the medicine failed to significantly lower the unemployment rate.
“There’s no easy answer” to that question, Mankiw said. “But I think if a Republican was in charge [at the White House], we would have seen more attention to tax policy.”
Mankiw, describing his views as his own and not those of the Romney campaign, said he thinks popular tax deductions should be reevaluated and eliminated or streamlined. Describing the mortgage interest deduction, for example, he questioned why renters, who are typically poorer than homeowners, should subsidize homeowners.
“I like it personally,” he said of the mortgage interest deduction, “but it fails the test of efficiency.”
The Open Classroom Series topic for Spring Semester 2013 will be “Climate Change. Challenges. Solutions.”
6:00 to 8:00pm. Wednesday evenings from January 9th through April 17th.
Each semester we select one graduate-level seminar and open it up to the public. Each week features prominent guest lecturers with real-world expertise and experience.
For more information or to RSVP, click here.
Food, Ecology, Democracy, Justice: What we Eat Matters
Frances Moore Lappé
Wednesday, February 15th | 6:00 to 8:00pm
West Village F, Room 20 | 40 Leon Street
Frances Moore Lappé is the author of 18 books including the three-million copy Diet for a Small Planet. She is the cofounder of three organizations, including Food First: The Institute for Food and Development Policy and, more recently, the Small Planet Institute, a collaborative network for research and popular education seeking to bring democracy to life, which she leads with her daughter Anna Lappé. Frances and her daughter have also cofounded the Small Planet Fund, which channels resources to democratic social movements worldwide. Frances appears frequently as a public speaker and on radio, and is a regular contributor to Huffington Post and Alternet.
Visit northeastern.edu/campusmap for directions and parking information.
Globalization has yielded many economic benefits, but it has also left parts of our world vulnerable to the financial missteps of one country or region, as seen in Europe’s current crisis, said Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston.
Speaking at an Open Classroom Series event, “The Role of Government in the 21st Century,” Rosengren said, “We should be concerned about what’s happening in Europe because if the European sovereign debt crisis gets worse, we are not going to be insulated.” More than 100 students, faculty and community members attended the discussion, held in West Village F on Wednesday.
The seminar-style lecture — focusing on the role of government in the regulation of business — fell on the same day the Federal Reserve and other central banks acted to help foreign banks more easily borrow and lend money, a measure designed to address Europe’s debt crisis.
Rosengren said economic problems tend to occur when assumptions that seem plausible at the time turn out to be very wrong. Sound regulation and smart public and economic policies, he noted, are critical to solving our current challenges.
In the second lecture of the evening, John Kwoka, the Neal F. Finnegan Distinguished Professor of Economics at Northeastern, explained that government regulation of American industry and business as a whole typically follows a cycle: tight regulation ultimately recedes, followed by the tendency for imbalance and other issues to take root, leading back to tighter regulation.
He pointed to America’s Great Recession, in which the government intervened when the housing and auto industries were swept up in financial crisis.
Kwoka also compared the controversial government bailouts of the auto industry and financial institutions, which he said have yielded mixed results. The auto industry bailout, he said, was successful in part because change was strictly enforced and top industry executives were removed.
The banks and financial industry, however, received what he referred to as a “soft bailout.”
“The incentives for bad bank behavior have really not been controlled,” Kwoka said. “The structure, the incentives and even some of the same personnel remain in place, and I believe it’s predictable that banks and financial institutions will do this again.”