Another Question I Didn't Have Time to Ask Ask Alice Rivlin: Possibilities for Technocracy

Alice Rivlin

You said that technocracy was still possible because there was still substantial agreement on models—and as an example you pointed out that there used to be strong disagreements about monetary policy and whether policy should be made by a "rule", and now there isn't much of anybody who thinks so.

But there is now a 50/50 chance that the next Fed Reserve Chair will be John Taylor, who does believe in a rule—his rule, in spite of what I at least see as a total absence of any empirical or theoretical support for the claim that would produce good outcomes.

And we now have Kevin Hassett running the CEA. It was clear back in 1999 when he wrote Dow 36000 that he was not a normal economist. In Dow 36000 he replaced dividends with earnings in the Gordon stock valuation equation. He specified the equity return premium as a factor that lowers stock prices, rather than a force that lowers stock and raises safe bond prices. Both of these are analytical mistakes that a competent, honest economist would not make.

Leave to one side whether it is the "competent" or the "honest"—or both—that is at issue here. When Kevin Hassett was seeking support for his CEA bid, assurances were made that CEA estimates would continue to be in the range of near-consensus economic models, and that he understood our common and collective interest in building up the authority and credibility of competent technocratic institutions like CBO; the JCT, OTA, OMB, and CEA staff; TPC, Urban, and the CBPP.

Neither of these assurances have been kept.

Hassett's attacks on the professionalism of TPC are beyond the pale. And Hassett's estimates of the effects of corporate tax cuts are beyond the pale. Consensus estimates are that tax incidence goes about 25% to labor and about 75% to capital, with growth recapturing about 20% of the "static" revenue loss if the lost revenue were to be replaced by non-distortionary lump-sum taxes. A 200 billion dollar corporate tax cut would thus produce a 62.5 billion increase in wages.

Hassett's claim: 975 billion—15 times larger.

And remember the Heritage Foundation "model" of the 2011 Ryan Plan: that it would push the unemployment rate down to 2.8%.

So far, yes, the technocracy has held. But I am not confident that it will not break in the next decade. What can you tell to reassure me?