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.”