Is President Bush A Smithian?

Lynne Kiesling

Detroit News columnist Thomas Bray argued so on Sunday. In fact, his argument is more along the lines of his being more Smithian than Keynesian (as is Doug Allen’s at Catallarchy, from whom I got the link):

President Bush responded to the bursting of the economic bubble of the late 1990s in quite a different fashion than Nixon responded to the collapse of the 1960s boom. He cut tax rates and has generally supported Federal Reserve Board Chairman Alan Greenspan’s efforts to keep prices on an even keel. And he has — so far — resisted the temptation to clamp price controls on oil.

As a result, the economy has responded with two years of uninterrupted, low-inflation growth, despite the phenomenal spike in oil prices. Bush might say we are all Adam Smithians now, referring to the British economist who argued for the market system and against unbridled government intervention.

Perhaps. But he’s no unbridled Smithian, so to speak. Trade policy? Steel tariffs? “People of the same trade seldom meet …”? Tax policy and economic regulation, yes. Trade policy, domestic policy, processes that encourage the persistence of rent seeking? Not Smithian. Then again, neither was Smith, in the stereotyped understanding of his thought. Smith believed markets exist within a construct of formal and informal rules, with many of the formal rules being the proper role of government.

Bray ends with

Nonetheless, intellectuals and politicians forgot about Smith. They rushed to embrace Keynesian theory, whose near-mystical complexities allowed them to believe government could stimulate the economy to even higher performance. Alas, most of their imagined improvements turned out to have counterproductive long-term effects. As a result, Smith is getting a fresh hearing, as the Greenspan lecture suggests.

There will always be those, including many Republicans, who argue that markets will fail. But this reckons without government’s tendency to fail.

This observation resonates with Hayek’s The Intellectuals and Socialism, and with a post from Masden Pirie about a recent speech from Vaclav Klaus to the Mont Pelerin Society:

He quoted Hayek’s observation that intellectuals are drawn to visions and ideas, as well as to systems which accord them a greater share of influence and power. Intellectuals feel ‘under-valued’ by the market, in that it puts a value on them less than they think appropriate. …

The threat these days, Klaus said, came from the spread of illiberal ideas OUTSIDE of socialism. He instanced ambitious social engineering, radical human rightsism, the enforcement of the perceived good, environmentalism, what he called ‘NGO-ism,’ and Europeanism (meaning moves to an integrated European over-government). All, he said, were substitute idelogies for socialism, and all provided niches for interference by intellectuals in the spontaneous activities of human societies.

These two articles suggest that the power of ideas shapes the future course of human events, but that we (intellectuals especially) have a tendency to be “men of system”.

UPDATE: This is what happens when html and I meet too early in the morning, and then I get on the bike to ride to work. Link fixed. Post more coherent.


10 thoughts on “Is President Bush A Smithian?

  1. I’m a little dubious about the comparison here. Nixon was not well-read in economics, knew it, and was moreover pressured by a Congress controlled by the other party and likely to respond to Presidential inaction on economic policy by moving even further in a statist direction. In seeking to retain the political initiative he adopted measure we now think unwise, but our understanding of economics has advanced somewhat in the last 35 years.

    Bush on the other hand maintained the policies outlined in his campaign platform circa 1999 and justified then for reasons entirely different than those advanced in their defense now. It is unlikely they represent a core of “Smithian” beliefs on Bush’s part; it is more likely they were the product of inertia and in the case of the tax cuts of advocacy from Bush friends and campaign contributors who stood to benefit from them.

  2. Bray is wrong on the timeline here:

    ‘In 1971, seeking to justify the scrapping of the gold standard and flooding the market with dollars, a Republican president, Richard Nixon, declared “we are all Keynesians now.”‘

    Nixon made that comment privately to Howard K. Smith late in 1970, and Smith reported it on ABC News in January 1971 (I saw the program that night). But, the scrapping of the gold standard came in August of ’71.

    My guess is that Nixon was excusing his excessive federal spending with the ‘Keynesian’ remark.

    Milton Friedman said–in Two Lucky People–that Nixon was well informed about economics. He simply was more concerned with politics.

    Specifically, Nixon knew that wage and price controls were the wrong thing to do, but politically useful–a cover for abandoning gold. So, we got the controls.

  3. I would suggest that everyone has benefited from the Bush tax cuts, whether or not they are friends or contributors. This rising tide has lifted all ships; however, as usual, the oarspersons (PC!) are still at a lower level on the ship than the officers on the bridge, the passengers and the owner.

    It is the “loyal opposition” which is making noises about price controls on gasoline at this point. These price controls would be truly “unwise”, as they were in Nixon’s day.

    It would be wonderful if the health of the economy were more important than punishing the “rich”, whether defined as high wage earners or those with significant assets. Alas, tain’t so to many “opinion leaders” and academic intellectuals still enamored of Lord Keynes and the omniscience and omnipotence of government.

  4. I would suggest that everyone has benefited from the Bush tax cuts, whether or not they are friends or contributors. This rising tide has lifted all ships; however, as usual, the oarspersons (PC!) are still at a lower level on the ship than the officers on the bridge, the passengers and the owner.

    It is the “loyal opposition” which is making noises about price controls on gasoline at this point. These price controls would be truly “unwise”, as they were in Nixon’s day.

    It would be wonderful if the health of the economy were more important than punishing the “rich”, whether defined as high wage earners or those with significant assets. Alas, tain’t so to many “opinion leaders” and academic intellectuals still enamored of Lord Keynes and the omniscience and omnipotence of government.

  5. Nixon was a Keynsian, pur and simple. the subsequent inflation of taking us off the gold standard was the reaction of OPEC to raise oil prices to match the devaluing USD.

    Bush is more of a suppysider of a President than we may have ever had. against tarrifs. suppyside style tax cuts. cuts in death taxes, and pushing to make them permanent. he talks of backing our currency with some sort of a gold polaris.

    even old Greenspan was once, long ago, in favor of a gold polaris. he better think hard about how he can come back to this important foundation of money before he walks into the sunset.

    he would have the full backing of this President, a suppysider, all the way.

  6. The steel tariffs have expired, incidentally. The strategy of temporary tariffs in order to get trade deals passed by Congress is at least defensible as a strategy. Sure, I’d like unilateral free trade and no subsidies as well; neither the Congress nor the American people favor either by a long shot.

    Speaking of tariffs and such, have you seen the EU response of new quotas after Chinese garments started pouring in?

  7. Rhetoric that depicts the very wealthy as victims is no longer so shocking as it used to be. Everyone’s a victim these days. What is a little novel is the claim that President Bush is a supply-sider.

    Supply-side doctrine circa 1981 focused on marginal income tax rates, then as high as 70%. Supply siders’ contention was that lowering those would result in a net increase in tax revenue over time. How much time was a matter in dispute, and an important related issue was the much lower effective tax rate for upper-income taxpayers then, due to the vast number of tax shelters embedded in the tax code.

    What supply side doctrine did not say was that every cut in taxes would increase tax revenue to the government, or increase economic activity. And indeed, many Bush-supported ideas for changing tax policy — abolishing the estate tax is the most flagrant example — are not promoted as means to achieve higher economic growth, more economic activity or anything of that kind; they are promoted instead as corrections of injustice to very wealthy taxpayers.

    This is not a tax policy that relies on supply-side doctrine. It is a tax policy that relies on handouts to the kind of people the President knows personally or who have helped fund his campaigns. Its long term consequences are beside the point from his perspective, because — to paraphrase Keynes — in the long run we are all out of public life.

  8. Rhetoric that depicts the very wealthy as victims is no longer so shocking as it used to be. Everyone’s a victim these days. What is a little novel is the claim that President Bush is a supply-sider.

    Supply-side doctrine circa 1981 focused on marginal income tax rates, then as high as 70%. Supply siders’ contention was that lowering those would result in a net increase in tax revenue over time. How much time was a matter in dispute, and an important related issue was the much lower effective tax rate for upper-income taxpayers then, due to the vast number of tax shelters embedded in the tax code.

    What supply side doctrine did not say was that every cut in taxes would increase tax revenue to the government, or increase economic activity. And indeed, many Bush-supported ideas for changing tax policy — abolishing the estate tax is the most flagrant example — are not promoted as means to achieve higher economic growth, more economic activity or anything of that kind; they are promoted instead as corrections of injustice to very wealthy taxpayers.

    This is not a tax policy that relies on supply-side doctrine. It is a tax policy that relies on handouts to the kind of people the President knows personally or who have helped fund his campaigns. Its long term consequences are beside the point from his perspective, because — to paraphrase Keynes — in the long run we are all out of public life.

  9. Rhetoric that depicts the very wealthy as victims is no longer so shocking as it used to be. Everyone’s a victim these days. What is a little novel is the claim that President Bush is a supply-sider.

    Supply-side doctrine circa 1981 focused on marginal income tax rates, then as high as 70%. Supply siders’ contention was that lowering those would result in a net increase in tax revenue over time. How much time was a matter in dispute, and an important related issue was the much lower effective tax rate for upper-income taxpayers then, due to the vast number of tax shelters embedded in the tax code.

    What supply side doctrine did not say was that every cut in taxes would increase tax revenue to the government, or increase economic activity. And indeed, many Bush-supported ideas for changing tax policy — abolishing the estate tax is the most flagrant example — are not promoted as means to achieve higher economic growth, more economic activity or anything of that kind; they are promoted instead as corrections of injustice to very wealthy taxpayers.

    This is not a tax policy that relies on supply-side doctrine. It is a tax policy that relies on handouts to the kind of people the President knows personally or who have helped fund his campaigns. Its long term consequences are beside the point from his perspective, because — to paraphrase Keynes — in the long run we are all out of public life.

  10. Bah, this criticism of Dubya is so… triffling. No president is perfect. Even the best president in the history of mankind, Ronaldus Magnus, did not have an unblemished record (did he privatize Socialist Insecurity, for example?).

    I don’t think that right wing economists have a thing to complain about with Bush. The good far outweighs the bad. And as with everything in life, you have to weigh what Bush has done against what the alternatives (Gore, Kerry, maybe McCain) would have done. Does anyone want to even speculate where this country would be if Gore had won? It sends shivers down my spine to even think it.

    I wish that Bush were less aloof and better communicated his accomplishments, as well as the challenges facing this country. But that doesn’t diminish the MANY things the guy has done, economic or otherwise. Clinton in 8 years didn’t get anything done compared to what Dubya has done in 4 and a half.

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