In late August and early September 1982, just after I started as a senior economist with President Reagan’s Council of Economic Advisers, Eric Hemel, special assistant to the chairman of the CEA, asked me to work my way through a large part of Martin Feldstein’s published work to help him anticipate “gotcha” questions that Senator Ted Kennedy and others on the Democratic side might use to go after Marty at his confirmation hearing. (Note: as commenter Vivian Darkbloom points out below, I didn’t remember correctly. Kennedy was not on the confirmation committee.)
Going through old memos recently, I found a September 13, 1982 memo to Eric in which I reported on 5 articles that some of the Democrats might use. Although Marty started in the job the day after Labor Day, he officially became chairman on October 14.
Here’s my memo:
September 13, 1982
From: David Henderson
Subject: Questions on Feldstein Material
To: Eric Hemel
Here are the questions that you asked me to generate on the basis of Martin Feldstein’s main ideas. I did not get into most of his proposals for Social Security reform (with the exception of the trust fund) because I am sure that others will prepare questions on that area.
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You said in an article in the May 20, 1982 Wall Street Journal that “Unemployment is the price we must pay to undo more than a decade of inflationary policies.” Are you willing to throw people out of work just to reduce inflation?
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In that same article, you said: “The perception that the government would accept 8% to 9% unemployment–about two percentage points over the natural unemployment rate–for three or four years in order to eliminate inflation would almost certainly bring inflation down so fast that it would be unnecessary to pay such a high cost.” [DRH note in 2021: Marty turned out to be right on this one. Also note how high he thought the natural unemployment rate was.] What if you’re wrong, and it does take three or four years of 8 or 9 percent unemployment to eliminate inflation? Would you, as the Chairman of the CEA, be willing to recommend such a policy to the President?
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You wrote in an article in the Journal of Political Economy (August 1979) that “if the inflation rate is above its optimal level, the economy should then be deflated to reduce the inflation rate regardless of the temporary consequences for unemployment.” Does this mean that you would be willing to put 20 million workers out of work for three to four years in order to reduce the inflation rate by one tenth of one percent? [I meant “one tenth of one percentage point” but I was trying to write it the way Kennedy’s staff might.]
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In an article in the Harvard Business Review (March-April 1975), you stated that “The favorable incentives of experience rating [of unemployment insurance] could be strengthened by removing the ceiling on the employer’s rate of contribution” so that firms with unstable employment would pay more than firms with stable employment. Given that the auto, rubber, and steel industries are all composed of firms with unstable employment, this would mean that if your proposal were implemented today, you would raise taxes on such firms. Do you advocate increasing taxes on firms that are currently in a slump?
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In that same article, you said: “Because the cost [to an unemployed person] of additional waiting time and search time is so very low, the unemployed worker is encouraged to wait until there is almost no chance of a better job.” Are you saying that American workers are cheaters who would abuse the unemployment insurance system? Try telling that to the unemployed auto worker who would love to get a job but who can’t find one.
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In an interview with Business and Society Review (Fall 1976), you said that “We could raise the [social security] tax rate over the next, say, five to ten years by more than is necessary to finance current benefits, and use the surplus to accumulate a fund which would be used to retire federal government debt already outstanding in the market.” Do you still advocate such a tax increase? Will you do so within the Administration?
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A recent article in the Journal of Political Economy (June 1982) by Leimer and Lesson called into question your claim that social security has reduced personal saving by 50 percent. You admitted that you had made an error in your original study, but still stuck with your conclusion. How do you justify that? How to you reconcile your evidence with that of other economists who say that there is little or not effect of social security on saving?
One of Senator Riegle’s gotcha questions was on whether Marty knew his monthly electric bill. (Riegle was trying to establish that Marty was rich and, therefore, wouldn’t have much sympathy for or knowledge of the average worker’s economic situation.)
My gotcha questions were much better.
READER COMMENTS
Ken Costello
Dec 31 2021 at 7:43am
What an arrogant question from Kennedy, who was rich: does that necessarily mean that Kennedy was insensitive to the plight of the average worker, as well as the poor? Feldstein could have turned the question back to Kennedy: Senator, your wealth hasn’t kept you from advocating for the poor and average worker; why would you think I could not sympathize with the poor and average worker? But I guess it wouldn’t be wise to confront a Senator even if he ask stupid questions. I guess some things haven’t changed.
Vivian Darkbloom
Dec 31 2021 at 8:31am
Is this the 22 September 1982 Senate confirmation hearing that you are referring to? If so, it doesn’t appear that Kennedy was on the Committee.
https://books.google.fr/books?id=XnwbvOGgXwwC&pg=PP1&lpg=PP1&dq=martin+feldstein+1982+nomination+hearings&source=bl&ots=rmAfSX6EPA&sig=ACfU3U20fLb8AnFGyWJJOoTpFCOLOtOgqg&hl=en&sa=X&ved=2ahUKEwiwh5uDkY71AhUF14UKHcP3BlkQ6AF6BAgNEAM#v=onepage&q=martin%20feldstein%201982%20nomination%20hearings&f=false
David Henderson
Dec 31 2021 at 9:30am
Thank you. You’re right and I’ve updated accordingly. It was Senator Riegle who asked Marty about his utility bill.
Mark Brady
Dec 31 2021 at 3:54pm
This thread got me to research Senator Riegle. I’d guess that at least the substance of the first paragraph below is known to many of your readers, but I’d also expect that there are other readers who are unaware of Senator Riegle’s activities on behalf of Charles Keating.
“Riegle was among the five Senators included in the Keating Five, a banking and political contribution ethics investigation during the 1980s which grew out of the U.S. Savings and Loan Crisis. The Senate investigation involved Charles Keating and Lincoln Savings/Continental Homes, the owner of the Pontchatrain Hotel in Detroit, MI. The Senate Ethics Committee looked into the actions of the Senators in relation to their actions connected with Charles Keating and concluded that Senators DeConcini, McCain, Glenn and Riegle ‘broke no laws or Senate ethics rules, but were aggressive in their actions on behalf of Charles Keating.'”
“On March 6, 2016, Riegle endorsed Bernie Sanders for the Democratic nomination for President of the United States and then again four years later.”
https://en.wikipedia.org/wiki/Donald_Riegle
David Henderson
Dec 31 2021 at 7:39pm
Thanks for that background. After that hearing, which, if I recall correctly, I attended (I hope Vivian doesn’t come up with evidence that I misremembered that one also :-)), I tracked Riegle’s views and votes more than those of a random Senator. Not impressed.
Robert Rounthwaite
Dec 31 2021 at 5:20pm
Was it naivete on your part or the changing times that makes these questions seem so innocent, based on actual policy issues rather than political posturing and oneupsmanship? The example question that you gave that really came up makes me think that the kinds of questions you generated back then were not representative of the kinds of things Congresspeople would ask. Of course, perhaps your role was to focus on these policy type questions which are the ones you would have expertise on.
Robert Rounthwaite
Dec 31 2021 at 5:21pm
… either way, a neat window into this hidden process
David Henderson
Dec 31 2021 at 7:40pm
I don’t think it was naïveté on my part. I was given a particular task and because it was one of the first major ones I given, I wanted to do it really well. This would be one of Marty’s first looks at me and my abilities.
Thomas Lee Hutcheson
Jan 1 2022 at 1:46am
I wonder why Feldstein ever thought we should use a wage tax as a way to finance SS and Medicare benefits or increase it rather than some other tax to reduce the actuarial deficits of the trust funds?
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