It’s a Time to Listen, and to Obey the Laws of Arithmetic By N. GREGORY MANKIW

The New York Times
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November 9, 2008
It’s a Time to Listen, and to Obey the Laws of Arithmetic By N. GREGORY MANKIW

IT was a good campaign, and a historic victory. As the president-elect gets ready for new responsibilities, here are four ways to become a reliable steward of the economy:

LISTEN TO THE ECONOMISTS During the campaign, Senator Barack Obama assembled an impressive team of economic advisers from the nation’s top universities, including Austan D. Goolsbee of the University of Chicago and David Cutler and Jeffrey Liebman of Harvard. The campaign’s director of economic policy, Jason Furman, is a smart, sensible and well-trained policy economist. I know: he is a former student of mine.

It would be a good idea to pay close attention to what they have to say. They will often give advice quite different from what will be coming from the Congressional leaders Nancy Pelosi and Harry Reid. To make sure the views of economic advisers are heard, they should have offices close to the Oval Office. The chief of staff should invite them to all the relevant meetings.

EMBRACE SOME REPUBLICAN IDEAS No party has a monopoly on truth. It would be wise to adopt the best Republican policy proposals, as Bill Clinton did with welfare reform in 1996.

Health policy is a case in point.

Over the past several months, Senator Obama lambasted Senator John McCain’s proposal to reform the tax code to include a refundable health insurance tax credit. But long before Mr. McCain ever proposed this idea, it was advanced by Mr. Furman, the Obama campaign’s policy director. He can explain why the Furman-McCain plan makes a lot of sense.

Now the new president may decide that this plan does not go far enough. He may want a more generously funded social safety net to help the less fortunate get health care. Fair enough, but in pursuing that goal, he will run into the next issue.

PAY ATTENTION TO BUDGET CONSTRAINTS The nation faces a long-term imbalance between government spending and tax revenue. The fundamental problem is that the federal government has promised the elderly more benefits than the tax system can support. This fiscal imbalance will become acute as more baby boomers retire and start collecting Social Security and Medicare benefits.

Yet during the campaign, Mr. Obama promised to cut taxes for 95 percent of Americans, to vastly expand health insurance coverage and never to cut Social Security benefits or raise the retirement age. The new administration will almost surely have to renege on some of these promises. As the economic team will often say, even if the laws of arithmetic are ignored during campaigns, they become a real constraint when making actual policy.

RECOGNIZE PAST MISTAKES As a new senator, Mr. Obama voted along predictable left-wing lines. As president, he will need a more eclectic, nuanced approach.

Consider trade policy. In the Senate, he voted against the Dominican Republic-Central America Free Trade Agreement. He opposed free-trade agreements with Colombia and South Korea. He supported Senators Charles E. Schumer and Lindsey Graham in their quest to put tariffs on Chinese goods if China failed to revalue its exchange rate. He supported the Byrd Amendment, which encouraged domestic companies to file antidumping suits against foreign competitors. He supported subsidies for domestic producers of corn-based ethanol and tariffs on imports of more efficient sugar-based ethanol.

The team of economists can explain why these positions were wrong-headed. Economic isolationism is not in the national interest. A high point of the Clinton presidency was the enactment of the North American Free Trade Agreement, which passed both the House and Senate with a majority of Republicans and a minority of Democrats.

Last Tuesday, many people voted for Mr. Obama hoping that he would achieve the kind of economic success that Mr. Clinton enjoyed in the 1990s. The best chance of delivering what they want requires abandoning some positions and pursuing a more moderate, bipartisan course.