Business School Professors Write Open Letter To Bush

We've already had diplomats and former military commanders, more retired generals and admirals, Nobel laureates, eminent pediatricians, and others signing statements against President Bush and his policies -- and those are just the ones that leapt to mind. Some of these are interesting: diplomats and former military generals, for instance, don't organize to endorse candidates all that often, and I take the fact that they are doing it now as a sign of real alarm. But now comes the most unlikely group of all: Business School Professors have written a stinging letter to President Bush.

Now: Professors are a diverse and often unruly bunch, and attempts to generalize about them are usually a mistake. However, I will take the risk and say: Business School professors are, by and large, fairly conservative. The letter these B-School professors have written pulls no punches. After trying to excerpt it, I've decided to post the whole of it: the first two paragraphs here, the rest after the fold. These are very serious points made by very serious people.

Dear Mr. President:

As professors of economics and business, we are concerned that U.S. economic policy has taken a dangerous turn under your stewardship. Nearly every major economic indicator has deteriorated since you took office in January 2001. Real GDP growth during your term is the lowest of any presidential term in recent memory. Total non-farm employment has contracted and the unemployment rate has increased. Bankruptcies are up sharply, as is our dependence on foreign capital to finance an exploding current account deficit. All three major stock indexes are lower now than at the time of your inauguration. The percentage of Americans in poverty has increased, real median income has declined, and income inequality has grown.

The data make clear that your policy of slashing taxes – primarily for those at the upper reaches of the income distribution – has not worked. The fiscal reversal that has taken place under your leadership is so extreme that it would have been unimaginable just a few years ago. The federal budget surplus of over $200 billion that we enjoyed in the year 2000 has disappeared, and we are now facing a massive annual deficit of over $400 billion. In fact, if transfers from the Social Security trust fund are excluded, the federal deficit is even worse – well in excess of a half a trillion dollars this year alone. Although some members of your administration have suggested that the mountain of new debt accumulated on your watch is mainly the consequence of 9-11 and the war on terror, budget experts know that this is simply false. Your economic policies have played a significant role in driving this fiscal collapse. And the economic proposals you have suggested for a potential second term – from diverting Social Security contributions into private accounts to making the recent tax cuts permanent – only promise to exacerbate the crisis by further narrowing the federal revenue base.

These sorts of deficits crowd out private investment and are politically addictive. They also place a heavy burden on monetary policy – and create additional pressure for higher interest rates – by stoking inflationary expectations. If your economic advisers are telling you that these deficits can be defeated through further reductions in tax rates, then you need new advisers. More robust economic growth could certainly help, but nearly every one of your administration’s economic forecasts – both before and after 9-11 – has proved overly optimistic. Expenditure cuts could be part of the answer, but your record so far has been one of increasing expenditures, not reducing them.

What is called for, we believe, is a dramatic reorientation of fiscal policy, including substantial reversals of your tax policy. Running a budget deficit in response to a short bout of recession is one thing. But running large structural deficits over a long period is something else entirely. We therefore urge you to consider the fiscal realities we now face and the substantial burden they are placing on our economy.

We also urge you to consider the distributional consequences of your policies. Under your administration, the income gap between the most affluent Americans and everyone else has widened. Although the latest data reveal that real household incomes have dropped across the board since you took office, low and middle income households have experienced steeper declines than upper income households. To be sure, the general phenomenon of mounting inequality preceded your administration, but it has continued (and, by some accounts, intensified) over the past three and a half years.

Some degree of inequality is inherent in any free market economy, creating positive incentives for economic and technological advancement. But when inequality becomes extreme, it can be socially corrosive and economically dysfunctional. Problems of this sort are visible throughout much of the developing world. At the moment, the most commonly accepted measure of inequality – the so-called Gini coefficient – is far higher in the United States than in any other developed country and is continuing to move upward. We don’t know where the breakpoint is for the U.S., but we would rather not find out. With all due respect, we believe your tax policy has exacerbated the problem of inequality in the United States, which has worrisome implications for the economy as a whole. We very much hope you will take this threat to our nation into account as you consider new fiscal approaches to address the nation’s most pressing economic problems.

Sensible and farsighted economic management requires true discipline, compassion, and courage – not just slogans. Given the tenuous state of the American economy, we believe that the time for an honest assessment of the problem and for genuine corrective action is now. Ignoring the fiscal crisis that has taken hold during your presidency may seem politically appealing in the short run, but we fear it could ultimately prove disastrous. From a policy standpoint, the clear message is that more of the same won’t work. The warning signs are already visible, and it is incumbent upon all of us to pay attention.

Respectfully submitted,

Read the names here. I counted 170 of them, but I suspect I'm off by one or two. -- via email from a friend, MaxSpeak, and kos.

Comments

[John Thullen]

Yeah, but, they are professors, otherwise known as the elite. And we all know what they're up to.

Not much anyone can say to that comeback.

And that will be the comeback.

[blogbudsman]

Bwahahahaha!! You almost got me on this one hilzoy. Conservative professors, almost bit. This letter is pure boilerplate. I'm guessing you teach. I can't imagine submitting something like this to you. First of all I'd have to assume presidents have that much control over the economy. Then you would have pointed out that I left out all references to the affect of the dot com bust, the recession, the attack, the war, China's economic boom, heck hurricanes for that matter -you know serious issues that actually impact things. You'd have tore me apart like you did that Brooks character. This was a test, just to see if we'd notice. Did this come from Dan Rather?

[JKC]

Don't gloat yet, blogbudsman: two things that have effected the economy are the large drop in tax revenues, created at least in part by Bush's tax cuts, and that little war in Iraq (and Afghanistan) that the Bush League keeps putting on the national credit card.

Re-read the letter: government debt does divert capital from private markets- unless you want Shrub to speed up the printing presses and try to inflate the debt away.

[hilzoy]

Blogbudsman: Yes, I teach. But if I were looking this letter over, I would note that the writers of this letter do not say, or imply, that Bush's policies are totally responsible for the state of the economy. They cite the indicators to show that Bush's policies have not worked. And this is, in my view, consistent with saying that the President does not control all of the economy (thank God.) All you have to believe is that his economic policies exert enough influence to prevent all the major economic indicators from heading in the wrong direction. And this is, I think, a good assumption, especially since normal growth causes some of them to improve somewhat even in when policy is entirely neutral -- e.g., non-farm employment tends to rise due to population growth, and the stock indices tend to rise, at least over longish periods like four years (as opposed to, say, a week) when the economy grows at all.

Plus, their main concern is with fiscal policy, over which the President has a lot of control, especially now, when the Congress is controlled by his own party, over which he maintains unusually tight discipline. They are talking about the deficit, and they explicitly point out that the deficit is not caused by 9/11 and the War on Terror. They also point out that it's a structural, not a cyclical, deficit -- i.e., that it's not due to recession.

If a budget is basically balanced, it will run cyclical deficits. In recessions people make less money, so tax revenues go down, and also certain sorts of spending (e.g., unemployment insurance) increase: thus a deficit. In good years, tax revenues go up and certain forms of spending go down; thus a surplus. This sort of deficit is cyclical, and it is, as the professors note, not a problem, since it and cyclical surpluses cancel each other out.

A structural deficit is different. A country has a structural deficit when it would run a deficit even if it were at full employment; i.e. even if times are very, very good. A structural deficit means that if the country doesn't want to rack up debt forever (which its creditors will not allow it to do), it has to either cut spending or raise taxes, so that it is spending no more than it takes in. That's our present situation, and that's what they're blaming Bush for. (I'm sorry if you know all this already; I wasn't trying to be condescending; it's just that getting those terms is important for seeing that they are only talking about the part of the deficit over which Bush has control, and I have no idea whether you know econ jargon.)

Besides this, if you want to know their credentials, you should google them. I don't recognize all the names, but the ones I do recognize are impressive. And whatever you think of me, I really don't think that all of them are partisan Democrats, if they're Democrats at all. (As I said, B-Schools are pretty much the most conservative of all, by and large. They really are not known as bastions of the left.)

[dmbeaster]

blogsbudsman:

You would obviously flunk business education.

You recite the hack Bush lines justifying his horrble economic policies, rather than address the very real analysis in this letter.

Over the last twenty years, the economy has endured much worse business shocks than the events during the Bush administration, and yet no one has the dismal economic record of Bush. Examples? The 91 recession was far worse; the S&L melt-down eclipsed the dot.com bust; etc.

And Presidential policy can have a big impact on economic performance. For example, huge structural deficits brought on us by Bush are guaranteed to wreck the economy.

[blogbudsman]

dmb - "You would obviously flunk business education."

Wrong-O Henny Penney.

[hilzoy]

dmb: be civil. For every answer that takes the form "You would obviously flunk business education", there's an answer that doesn't say that, but just cites the reasons why you think so.

[Navy Davy]

Business School Professors?

Bwa ha ha wha ha wah ha ha:)

These eggheads couldn't manage the night-shift at my local AM-PM mini mart!

Please. If these pin-heads could do anything to create wealth, they'd be, ahem, doin' it:)

[Gromit]

These eggheads couldn't manage the night-shift at my local AM-PM mini mart!

Is lack of ability to run a successful business really a topic you want to broach in a discussing about Bush fiscal policy, ND?

Please. If these pin-heads could do anything to create wealth, they'd be, ahem, doin' it:)

Well put, though I suspect you didn't mean the implications to be quite so far-reaching.

[dmbeaster]

Hilzoy:

Sorry for the incivility.

My brother-in-law is a business professor -- he specializes in tax policy. Through him, I have met a few people on this list. He knows several more of them directly or by reputation. Through my brother-in-law, I have been hearing parts of this analysis for a considerable length of time from people whose business it is to try and understand economic policy.

These people have a lot of wisdom, and its very frustrating to see them casually trashed as if their opinions can be laughed away by ad hominem attacks. Also, the content of the letter is very cogent analysis, but is dissed without two words about the analysis.

I have yet to see anyone explain the wisdom of Bush economic policy -- just wise-cracking in response to pretty cogent criticism.

Does anyone expect massive deficits and out-of-control spending to change under Bush until the economy finally tanks from such nonsense? (I guess we will still hear how its still due to Clinton or other things not in Bush's control.)

[carsick]

My brother leads the equity investments division of one of the country's larger banks.
Obviously very economically conservative and not an academic.
His biggest fear with Bush is that our economic debt and instability will encourage foreign investment to pull out. A very large number of American bonds are owned by foreign investors.
They pull out and our credit rating falls way way down and our ability to borrow obviously goes with it.
Econmoic collapse would be imminent. (Oops. Not 'imminent' but a 'gathering storm'.)

[Gromit]

"discussing" should read "discussion" BTW.

[Bernard Yomtov]

These eggheads couldn't manage the night-shift at my local AM-PM mini mart!

Please. If these pin-heads could do anything to create wealth, they'd be, ahem, doin' it:)

Care to compare the incomes of B-school professors with those of mini-mart managers? They don't produce wealth? Try telling it to the firms that hire their graduates at very healthy salaries.

[Bernard Yomtov]

Italics tag alert. The first two paragraphs in my last post were quoted. The third was mine.

What is that "preview" button for, again?

[hilzoy]

Close, italics!

[katelin]

dear bush i would like you to ask if we can have dogs wear seatbelts we care for ourselfs and not our pets. now i now your busy but this means a lot to me &my freinds so please make this true in ILLINOIS.