Now that Larry Summers is surrendering his position as the dark knight of American economics, someone new will direct the National Economic Council.
That’s good.
But how good remains to be seen.
The question is whether President Obama’s pick to replace an economist who did not "get it" with one who does.
The best picks for the post—Joseph Stiglitz, Robert Pollin, James K. Galbraith—are not getting a lot of mention around a White House where the words "smart" and "economist" are not frequently paired.
But one reasonably savvy economist is being mentioned.
While the former Clinton administration economic aide may not be at the top of the Obama lists, she is, according to the Wall Street Journal, being mentioned.
And, significantly, Tyson is saying things that make sense.
In an interview this week on the PBS NewsHour program, Tyson argued for ending tax breaks for the rich and using the money for job creation.
Here’s some of what she said to Jeffrey Brown:
MR. BROWN: So you think we should let the tax cuts for the wealthy lapse. What’s the argument for doing that?.
MS. TYSON: Well, I actually think we have to step back and say, What are the problems? And then, once you know what the problems are, I think you can get to that solution. One problem is the jobs deficit. Another problem is the fiscal deficit. And I would say, also, one that’s not mentioned too often is the growth deficit.
So the decisions we make about tax affect all of those things. In the jobs-deficit case we’re talking about a lack of aggregate demand, insufficient aggregate demand. That means we certainly don’t want to allow all of the Bush tax cuts to expire right now. That would be not a good policy because those expirations will affect the purchasing capabilities of American household.
But, at the same time, we have this long-run deficit problem. And I think we need, right now, to not only be introducing policies to handle the jobs deficit but we have to have a credible plan on the table for a multiyear deficit reduction. And I believe part of that plan is most likely to be an expiration of the tax cuts for the top-two income-tax brackets.
It’s a lot of money. It’s over $3 trillion over a ten-year period. We have a big deficit problem. This is an important source of revenue to help handle that problem.
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MR. BROWN: But we also, as you say, have a jobs and economic-growth problem. So you know the argument against what you’re suggesting. We heard it from Glenn Hubbard; we hear it from Republicans; we hear from it even a few Democrats, which is just, this is the wrong time to let any of these tax cuts lapse.
MS. TYSON: Okay. Well, I think—let me distinguish here ideal policy from compromised policy. My ideal policy would be to allow the top-two brackets to expire at the end of this year—to move off of the Bush tax cuts for the top two to 3 percent of the American population; to take the resulting additional tax revenue, which is probably in the order of $35- to-40 billion next year, and to take that money and spend it on job-creating programs.
The Congressional Budget Office itself has done an analysis of eleven different programs, ways you can stimulate job growth. Retaining the Bush tax cuts for the top 2 percent is number eleven on the list in terms of effectiveness.
It’s not as effective as giving grants to state and local government. It’s not as effective as unemployment compensation. It’s not as effective as the temporary payroll tax reduction targeted at employment—or spending on infrastructure.
So by all means we have to worry about the jobs deficit next year. We can meet the revenue.
MR. BROWN: But, excuse me for interrupting, I was just thinking that even though the argument that we hear often is that among those top earners are small businessmen and women who create jobs.
MS. TYSON: Well, unfortunately that is a very misleading statement. Sure there are some small businesses in those top two income brackets. But the reality is that only about 2 to 3 percent of all small-business filings every tax year are in the top two income tax brackets.
So we’re really talking about 98 percent of small-business filings would not be affected by allowing the Bush tax cuts for the top two income tax brackets to expire on schedule.
MR. BROWN: Now coming at it from the other side, the other problem that you’ve talked about: the deficit and the growing debt problem—because I talked to Alan Greenspan last week. He famously testified in favor of these tax cuts in 2001. But now he thinks we should let them all lapse because the debt problem, he thinks, greatly outweighs the potential slowing of growth—because if we let the tax cuts lapse.
MS. TYSON: Well, he’s making a judgment that we can handle—that we need the tax cuts that have been introduced for the middle class and the lower income groups. He’s making a judgment that those tax cuts have to expire for deficit reduction. I think we have to have that conversation. I think there are many things that need to be on the table for the deficit-reduction package.
I think they include looking seriously at Social Security. They include looking seriously at Medicare and Medicaid. How about defense? How about other kinds of tax issues? I actually think, ideally, truthfully, what I would like to see happen is that we look at a deficit-reduction package in the context of a tax reform.
We have a very, very complex, messy, expensive, unfair tax system which is not very pro-growth in the way it’s organized. So I think I agree completely with Alan that we will need more revenue as part of the way to solve the deficit challenge we have. And I’ve already mentioned that the top tax cuts for the top income earners will generate $3 trillion of deficit over the next year—ten years, if we don’t get rid of those things.
These are big numbers. But I think we really should look broadly at all of the issues that are part of deficit reduction.
MR. BROWN: And when I interrupted you before… but you were making the practical case, was that you would use that money for, what, for more stimulus?
MS. TYSON: Well, I would say for more spending right now. Look, you’re—no, in this case—remember, stimulus means you’re spending without a revenue stream. What I was saying is if you allow the top two rates to go back to pre-Bush levels, back to the Clinton levels when the top two income groups were doing extremely well—as they’ve been doing extremely well for the last ten years.
But let the Bush tax cuts expire for the top two income-tax brackets. That generates revenue of about $40 billion. Use that revenue to fund spending programs that we know from Congressional Budget Office analysis and analysis by Mark Zandi and Moody.com and others, we know that those programs will have a much bigger effect on addressing the jobs deficit than simply keeping the lower tax rates for the top two income-tax brackets. This is a matter of what is effective. And I want to use the revenue we would collect from allowing the Bush tax cuts to expire for the top to be used for job-creating programs.
