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Trump Would Need Larry Kudlow To Be Focused On Economics, Not Politics

When President George W. Bush considered imposing a steep tariff on imported steel in 2002, the chairman of his Council of Economic Advisers, Glenn Hubbard, told him it was a bad idea. Hubbard pointed to the near-consensus among economists that tariffs cost jobs rather than create them. He laid out the math showing the move would result in higher prices for consumers. He identified the specific states where the impacts would be greatest.

He lost the argument — Bush imposed the tariffs, which were politically popular. But the president did so knowing the economic consequences of his decision. (Bush lifted the tariff less than two years later after other countries threatened to impose their own tariffs on American goods in retaliation.)

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“I was very clear with President Bush what the costs of the tariffs are,” Hubbard recalled in an interview. “I gave him the arguments that I still think are the right arguments, and he made a different decision.”

When Donald Trump takes office next month, he is likely to face many “steel tariff” moments. On Thursday, a member of his transition team floated the idea of a 10 percent tariff on Chinese imports. Trump earlier suggested a 35 percent border tax on imports from U.S. companies that shift jobs overseas. And on the campaign trail, he made numerous other promises on immigration, spending and other topics that run counter to conventional economic reasoning.

What is less clear is whether Trump will have advisers like Hubbard to make the economic case against such proposals. His nominee for Treasury secretary, Steven Mnuchin, is a financier with no policy experience. His nominee for Commerce secretary, Wilbur Ross Jr., is a billionaire investor who once made money off Bush’s steel tariffs. Trump’s pick to run his National Economic Council, Goldman Sachs President Gary Cohn, has questioned the validity of government statistics. And this week, Trump appointed Peter Navarro, an economist who is a longtime skeptic of free trade and an outspoken critic of China, to a newly created post overseeing trade policy.

There is still one key economic post that Trump hasn’t filled: chair of the Council of Economic Advisers, the job Hubbard had when he argued against steel tariffs. The post has traditionally gone to respected academic economists with little public profile — Hubbard, a Columbia professor in his early 40s at the time of his appointment, was a typical choice. If Trump sticks to that model, the CEA could emerge as an important source of economic policy expertise in an administration that so far has little of it.

But it looks like Trump might not stick to that model. Last week, multiple news outlets reported that Trump was considering naming Larry Kudlow, a CNBC commentator, to run the CEA.

Kudlow would be, to say the least, an unconventional choice. Kudlow doesn’t have a Ph.D. in economics, or even a bachelor’s degree in the subject. (His highest degree was a bachelor’s in history from the University of Rochester.) He began his career as a junior economist at the Federal Reserve Bank of New York and served in the Reagan administration, but he has spent most of his career on Wall Street and in front of television cameras. In contrast to the anonymous academics who usually fill the role, Kudlow is a well-known figure who once considered running for Senate.

Kudlow wouldn’t be the first CEA chair without a doctorate, and former CEA officials disagreed about how much his unconventional résumé would matter. Phillip Swagel, a University of Maryland economist who served as chief of staff to both Hubbard and his successor, Gregory Mankiw, said the most distinguished academics haven’t always made the best CEA chairs. And he noted that the current chair, Jason Furman, was himself an unconventional pick because he wasn’t an academic (although he does have a doctorate in economics from Harvard).

“Anyone who criticizes the idea of Kudlow should show me the email they sent criticizing [Furman],” Swagel said. (Swagel himself had no problem with Furman’s qualifications — he organized a letter from conservative economists supporting his appointment.)

But Laura D’Andrea Tyson, who was President Clinton’s first CEA chair, said that appointing someone who isn’t a credentialed economist “endangers the CEA and endangers what I think is a valuable role of the CEA within government.”

The role of CEA chair is fundamentally different from that of a television pundit, Tyson said. The best CEA chairs aren’t trying to win arguments but to provide objective economic analysis so that the president can make a decision. Tyson said she wondered whether Kudlow’s long history of taking public positions on policy could make it hard for him to provide impartial advice.

“If you’re a proselytizer publicly on a certain set of things, you’re no longer playing that role of objective, dispassionate adviser,” Tyson said.

Hubbard said he didn’t necessarily see a Ph.D. as a prerequisite for the job. But he agreed with Tyson that the primary role of the CEA chair is to provide sound economic analysis — and to leave the political considerations to the politicians.

“I never like it when economists wander into politics,” Hubbard said. “That’s not our job.”

CLARIFICATION (Dec. 23, 1:45 p.m.): This post had been updated to add that Swagel supported Furman’s appointment.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.

Filed under The Trump Administration 25 posts, Larry Kudlow 2, CEA 1

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