We can’t ask President Ronald Reagan what he would do to get the U.S. economy back on track if he were president today, but we can ask the man who was his chief economic adviser. And Martin Feldstein has just told us, in an op-ed column in the Sunday edition of the New York Times. It might surprise you.
Feldstein advocates something you don’t hear often from Republicans: Direct government spending of more than $1 trillion over the next five years aimed at infrastructure. Anything less, Feldstein writes, would be too small “to achieve the needed rise in the economic growth rate.”
Is this guy really a Republican? Certainly. Not only did Feldstein help shape Reagan’s revolutionary tax cuts as head of the Council of Economic Advisers from 1982 to 1984, but he advised President George W. Bush to call for partial privatization of Social Security and, as recently as last year, plugged the tax-cut plans of Republican presidential nominee Mitt Romney.
Unlike today’s Republican leaders, though, Feldstein doesn’t think that raising government spending is always wrong. In his op-ed he calls for short-term fiscal stimulus aimed at getting the U.S. economy’s growth rate back above 3 percent. He would combine it with a deal for “long-term deficit reductions that would cause the ratio of debt to gross domestic product to begin declining by the end of this decade.” That’s not a radical concept, but then Feldstein is not a radical character: He’s a longtime economics professor at Harvard University and past president of the National Bureau of Economic Research.
The Republican-sounding piece of his prescription is that Feldstein wouldn’t put any of the pump-priming money into programs for the poor. He’d pour it all into infrastructure. He interprets that category rather broadly to include replacing and repairing military hardware. He’d also kick some of the money to state and local government, which makes sense: They do the bulk of spending on roads, bridges, sewers, and other conventional infrastructure.
Another Republican touch is that Feldstein doesn’t want to rush out and spend money right away. “It would be better to spend a year or two preparing for the right kind of spending,” he writes.
Some Republicans in Congress, such as Alabama Senator Richard Shelby, have faulted the Federal Reserve for taking extreme measures to stimulate the economy that could inadvertently result in inflation or asset bubbles. Feldstein shares those concerns. The crucial difference is that he understands why the Fed is doing what it’s doing. “The central bank, because of political paralysis, is the only game in town,” he wrote. Feldstein wants Congress to step up and do its part. Would Reagan agree? That we’ll never know.