America’s New Economic Czar

What can the world expect from the U.S. president’s chief economic adviser?

January 18, 2001

What can the world expect from the U.S. president's chief economic adviser?

A former Harvard economics professor, Larry Lindsey first made a name for himself as a defender of Reagan’s supply side tax cuts. To some, he is something of an ideologue, a true believer in tax cuts whether the economy needs them or not. Even some Republicans say his belief in deep, across-the-board tax cuts has cost him some credibility on Capitol Hill.

But, as a former colleague put it, Mr. Lindsey is hard to stereotype. At the Federal Reserve, he was more hawkish on inflation than Alan Greenspan. Disappointed supply-siders complained he was “captured” by the Fed staff. Throughout the campaign, Lindsey stressed that the Bush tax package was incremental, had been passed on by the Fed Chairman, and would not be inflationary. And to be fair, the case for cutting taxes is better than it has been in a long time. The U.S. economy is slowing, and the budget surplus is soaring.

Mr. Lindsey is also well known for his bearish views on the stock market. He critiqued the book “Dow 36,000,” noting that technology breeds creative destruction. As the benefit of technology spread, Mr. Lindsey noted, “prices must begin to fall to attract more and more buyers.”

Competition emerges, driving down prices. Anyone who owns tech stocks would have done well to heed that warning a year or so ago. But Mr. Lindsey was bearish going back to 1998, saying he’d sold his stocks so he could sleep better.

That is not to say that Mr. Lindsey is a gloomy Cassandra. In person, he is unfailingly polite, cheerful and unpretentious. Those are qualities that must appeal greatly to a man from Midland, Texas.

But it is another quality that I suspect appeals to the President-elect. Larry Lindsey has proven himself a compassionate conservative economist. It happened by accident, as he cheerfully admits. As a new Fed governor back in 1991, Mr. Lindsey says he was volunteered for the job of heading up the Fed’s Consumer and Community Affairs division.

By way of background, the Community Reinvestment Act is a favorite tool of the Clinton administration. It encourages banks to lend to poor communities. Some conservatives say it allows activists to pressure banks into making sweetheart loans. Minority groups say it’s the only way to address persistent racism. Governor Lindsey was thrust into the middle of a tough fight.

Many thought a conservative might not take his new responsibilities seriously, but Mr. Lindsey quickly proved them wrong. He threw himself into the job with an open mind. He took the time to learn the issues. He could relate easily to all kinds of people. He visited many of the poorest communities in the nation. Community leaders praised his compassion and pragmatism.

The experience did not make Mr. Lindsey a liberal. He still believes charity groups and churches are better at handling many social problems. He believes in market-oriented solutions. But he also came to recognize that discrimination exists, and needs to be addressed.

I suspect Mr. Lindsey’s experience with poor communities also reinforced his desire to do something to ease the high marginal tax rates faced by many low-income families. It will also be worth watching how hard the new Bush administration works on economic development issues. African Americans voted nine to one for Al Gore. Larry Lindsey could again surprise people by using what he learned at the Fed to help the communities he has come to know so well.