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Economists Who Advised Presidents From Both Parties Find Common Ground

Challenges now are more structural than cyclical, say panelists who served on the Council of Economic Advisers

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Stanford University professor John Taylor spoke in Washington in 2015. On Saturday, Mr. Taylor, who served on the Council of Economic Advisers under George H.W. Bush, said he sees potential for a higher economic growth rate with the right policies. Photo: Andrew Harrer/Bloomberg News

By

Josh Zumbrun

Jan. 7, 2017 4:42 p.m. ET

16 COMMENTS

Now is the right time for a shift in economic policy, and not just because Donald Trump won the White House, economists who have advised both Democrats and Republicans said Saturday.

When President Barack Obama took office nearly eight years ago, the challenge was to respond to a financial crisis, soaring unemployment and cyclical weakness in the economy. With the start of that crisis nearly a decade behind us, the challenge now is to implement structural reforms that could boost the economy’s long-run growth rate, the economists said in a panel discussion at an American Economic Association event in Chicago.

The challenges for coming years are “not the cyclical ones that we spent the last eight years on, but they will be structural,” said Jason Furman, the departing chairman of the White House Council of Economic Advisers who was joined on the panel by four former CEA members.

Or in the words of Stanford University’s John Taylor, who was a CEA member under George H.W. Bush: “We have potential for a higher growth rate, not only because productivity growth could be higher, but because labor growth, employment growth, could be higher with the right policies.”

Economists often think of economic challenges in two broad baskets. First there are cyclical challenges, characterized by recession and a sharp increase in joblessness. Second are the deeper structural challenges that determine the economy’s long-run growth potential. The economists differed on the appropriate cyclical responses to the financial crisis—Mr. Furman and Princeton University’s Alan Krueger, a former CEA chairman for President Barack Obama, helped implement the administration’s response. Mr. Taylor has been a critic of the administration, saying that overregulation and unpredictable Federal Reserve policies have helped stunt the economy’s ability to recover.

Despite the disagreements in recent years between liberal and conservative economists about how to respond to the financial crisis and to an unemployment rate that dropped only slowly, many now agree that the key challenges are structural.

The panel was moderated by Harvard University’s Greg Mankiw and also featured Columbia University’s Glenn Hubbard, both of whom were CEA chairmen for President George W. Bush.

In particular, the panelists agreed that opportunities exist to improve the labor-force participation rate. Even as the unemployment rate has declined, a falling share of Americans are either working or actively seeking work. This can only partially be explained by the nation’s aging demographics, as men in their prime working years have become increasingly less likely to work.

Mr. Krueger’s presentation focused on these men—ages 25 to 54—who aren’t working. Many have lower levels of education, and thus may no longer be working because of employers’ increasing focus on jobs that require higher education. Mr. Krueger noted research showing that men outside the labor force frequently report both being unhappy and in physical pain, requiring regular pain medication.

The economists broadly agreed that a simpler tax code could boost the economy. Mr. Trump has indicated, in general terms, a desire to simplify the tax code and to address the plight of workers with less education.

The economists also cited a number of potential pitfalls. One is that specific policies have been described only in broad brush strokes by the incoming Trump administration. By contrast, Mr. Hubbard recalled that when George W. Bush took office, “every jitter and jot of what President Bush wanted to do, proposals and budgets, had been worked out.” For now, many are just guessing about what Mr. Trump might do. “Obviously, policy is more than a tweet, and you can’t make policy by calling out individual companies,” Mr. Hubbard said.

The panel was also unified in fretting about a reversal in the U.S.’s role in global trade.

“In the last 15 years, a billion people came out of poverty by World Bank measures,” Mr. Taylor said. “We don’t want to forget the great benefits of moving toward markets, trade; it’s generally been very beneficial and we shouldn’t forget that.” ECONOMISTS LOVE FREE TRADE - WHY??

Write to Josh Zumbrun at josh.zumbrun@

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