Clinton's dismal scientists.

Among academic economists, Bill Clinton may be the most popular incoming President in history, and his first budget may be the most highly praised White House economic proposal since Jimmy Carter backed gasoline rationing. Some 565 distinguished scholars have endorsed Clintonomics as "our best hope for reviving the nation's economic growth." The list of FOBs reads like a Who's Who of Keynesian economics: it includes nine Nobel laureates and seemingly the entire economics faculties of MIT, Harvard, Stanford, Northwestern, and the Brookings Institution, as well as many pop-economists who spent the 1980s writing on the failure of supply-side economics--Robert Reich, Lester Thurow, John Kenneth Galbraith, etc. These economists' enthusiasm for Clinton nearly rivals their disdain for Ronald Reagan. That is to say, they like Bill Clinton a whole lot.

Unfortunately, this avalanche of scholarly support says far more about the partisan leanings of professional economists these days that it does about the wisdom of Clintonomics. If macro-economics was once a pseudo-science, today it is all too often merely an outlet for political propaganda.

Clinton has skillfully capitalized on this scholarly propaganda machine, featuring three of America's most celebrated Keynesians--Robert Solow, James Tobin, and Alan Blinder--as top advisors at the Little Rock economic summit, and tapping anti-supply-siders Alice Rivlin, Roger Altman, Laura Tyson, Robert Reich, and Larry Summers for high-level economic posts in his Administration.

The scary part is this: the economists who are mapping out a new economic game-plan for the 1990s are precisely the same people who wrote the nation's blueprint for the stagflationary 1970s, fiercely opposed the Reagan policies of the prosperous 1980s, and otherwise compiled a spectacular record of wrong economic prediction over the past two decades. President Clinton could not possibly find a worse source of advice. There is no better way to demonstrate this than to review the inglorious track record of the Left's best and brightest economists.

1978-79: HOW to Handle Stagflation?

IN 1978 the nation was just entering the throes of the most severe economic crisis of the past half-century: double-digit inflation combined with eroding real incomes. To combat this stagflation the Democrats proposed a $15-billion increase in government spending to provide an economic stimulus, the third major fiscal stimulus in four years. (This may sound familiar.) The additional spending for 1978 would raise the budget deficit to $70 billion, or about 3.5 per cent of GNP.

The establishment argued that the economic impact of this large budget deficit would be fundamentally benign. The late Walter Heller, a revered Keynesian spokesmen of the day and chairman of John F. Kennedy's Council of Economic Advisors, confidently declared that this deficit did not present "even a remote specter of inflation." Similarly, the Democrat-controlled Joint Economic Committee reported: "We do not believe this deficit is inflationary, nor will it crowd private borrowers out of credit markets or reduce private economic activity."

In the event, the Keynesians' policies failed completely. In 1979 the Consumer Price Index (CPI) rose by 13 per cent and by January 1980--the last year of the Carter Administration--the inflation rate skyrocketed to an unthinkable 18 per cent. Henry Kaufman of Salomon Brothers summed up the national mood: "I am aghast at how much our country has faltered."A top Carter White House official conceded, "There's a feeling that events are beyond our control."

The Keynesians were thoroughly confounded. A key element of their model is the Phillips Curve trade-off between inflation and unemployment, which predicts that prices will come down when unemployment goes up. Instead both were spiraling upward simultaneously. In 1980, Paul Samuelson, the godfather of neo-Keynesianism, wrote, "Two-digit price-inflation is a distinct possibility for much of the decade of the 1980s," predicting that from 1982 to 1987 "the CPI will average 9.4 per cent a year" and that by 1987 the unemployment rate would linger at 8.3 per cent.

Remarkable as it may seem today, the Left's prescription in 1980 was wage-and-price controls. James Tobin wrote in The New Republic: "There is a better and surer way to attack stagflation [than Reaganomics]. It is to organize a concerted mutual disinflation of wages, costs, and mark-ups. Announce a schedule, for a transitional five-year period of gradually declining wage-increase guide posts." Paul Samuelson also suggested a "wage-price freeze" to bring inflation down to "the hoped-for 9 per cent"; alternately, "five to ten years of austerity, in which the unemployment rate rises toward an 8 or 9 per cent average and real output inches upward at barely 1 or 2 per cent per year... might accomplish a gradual taming of U.S. inflation."

1979-81: Kemp-Roth Is Inflationary

When Democrats under then-Chairman of the Joint Economic Committee Lloyd Bentsen set out to try another answer--a supply-side income-tax reduction, a policy Keynesians had supported under JFK as a different form of fiscal stimulus--the liberal economics establishment responded with unanimous and ferocious opposition, deploying every conceivable argument, no matter how absurd or philosophically inconsistent, against the tax cuts.

With few exceptions, the line of attack was that an income rate reduction would be inflationary. In late 1979, John Kenneth Galbraith said: "A tax cut now would be an extreme act of unwisdom. It would put new and unwelcome pressure on prices." That same year Walter Heller--the same economist who a year before had not the slightest concern over the Democrats' spending-induced deficits--said: "A $114-billion tax cut over three years would simply overwhelm our existing productive capacity with a tidal wave of demand and sweep away all hope of curbing deficits and containing inflation." In the Heller model, increasing government spending presents not even "a remote specter of inflation" but tax cuts set off a "tidal wave" of rising prices.

After Ronald Reagan entered the White House on a platform of cutting taxes, the Keynesians began to sound like born-again balanced-budget zealots. Prominent Keynesian journalist Hobart Rowen of the Washington Post called Kemp-Roth "dangerously inflationary. Even if Congress were to pass budget cuts that matched the tax cuts dollar for dollar, there is nothing in the fiscal program--in the view of those not addicted to supply-side theory--that works against inflation."

Gardner Ackley of the University of Michigan, a former chairman of the Council of Economic Advisors, told Congress: "I am ready to predict and to promise that the effect of the President's program will not be--as he so confidently predicts--to cut the present inflation rate in half. Whatever effects it would have on the inflation rate surely would work in the opposite direction. The Administration's projection is that inflation in the CPI will decline from 11.1 per cent in 1981 to 4.2 per cent in 1986. That, I think, would surely be a miracle."

Ronald Reagan had an endearing way of making miracles happen. In 1981 he ignored the advice of Samuelson, Tobin, and the rest of the Keynesians. Rather than implement gas rationing, he immediately decontrolled oil prices, vastly loosening OPEC's stranglehold. Rather than implement across-the-board wage-and-price controls, he dismantled Carter's Council on Wage and Price Stability. And in late 1981 he signed into law the act of "supreme unwisdom": the supply-side tax cuts.

What happened to inflation? Instead of accelerating as predicated, the CPI plummeted. From a peak of 12.4 per cent in 1980 it tumbled to 4.5 per cent in 1983 to 1.9 per cent in 1986. In other words, Paul Samuelson, who had predicted a 9.4 per cent inflation rate over the period, was off by about a factor of four.

1982: Reagan's Failed Experiment

IN 1982 OMB Director David Stockman forecast $200-billion deficits "for as far as the eye could see" and suddenly Keynesians, believers in the stimulative powers of deficit spending, became paragons of fiscal responsibility. Samuelson, Tobin, and other Keynesian Nobel winners began to endorse a large tax increase--that is, a fiscal contraction!--in the midst of the deepest recession since the Thirties. Galbraith lamented, "On the consequences of President Reagan's budget I find myself in harmony with the great majority of other economists and the instincts of the American people .... The sound instinct of the American people is that deficits of this magnitude [$100 billion in 1983] are unwise and dangerous .... Taxes must be raised." In early 1983, Samuelson similarly explained his support for new taxes by claiming that the deficit was causing high interest rates, thus crowding out private investment.

Here again Reagan's political enemies were confounded by actual events. The prime interest rate peaked in 1981 at 19 per cent and fell to 12 per cent in 1984 and then tumbled to 8 per cent in 1987.

But never mind that the critics were wrong. More important is their spectacular hypocrisy during the 1981-82 recession. Here were almost the entire entourage of neo-Keynesians arguing that deficits crowd out private investment, when for fifty years the whole basis of their creed was that deficits are stimulatory in times of economic contraction. If deficits do crowd out private investment (which may in fact be the case) then by definition they cannot be expansionary and Keynesianism is reduced to theoretical rubble. Keynesians cautioning about the evil of deficits is the equivalent of Madonna preaching against smut.

By late 1982, as America remained entangled in recession with high unemployment, the Keynesians joyfully began to write the obituary for Reaganomics. Ignoring the reminders of Paul Craig Roberts and other supply-siders that the tax cut would not be fully implemented until 1983, virtually every prominent liberal in the economics community announced that supply-side economics was a proven fraud and failure and that there was no hope for the economy's resuscitation.

For example, Alan Blinder of Princeton (the kick-off speaker at Clinton's economic summit a decade later) rejoiced in the New York Times: "The failed supply-side experiment has restored faith in Keynesian economics in a way that scholarly debate never can." James Tobin's outlook was all doom and gloom: "We're stuck in a worldwide depression. The only question is whether we're going to get out of it at all." Lester Thurow put it this way: "The engines of economic growth have shut down here and across the globe, and they are likely to stay that way for years to come."

In early 1983, after the last phase of the "dangerous" and "unwelcome" Kemp-Roth tax cut took effect, the "implausible" Reagan recovery erupted. It would last eighty months, it would create 18 million jobs, it would produce $2.5 trillion worth of GNP growth. It would catch almost the entire economics profession thoroughly by surprise. Reagan summarized the liberal response to the boom: "Funny, they're not calling it Reaganomics anymore."

1983-89: The Imminent Collapse

For the rest of the decade, the Left became modern-day Chicken Littles, warning of economic collapse unless Reagan retreated from his stubborn and irresponsible opposition to new taxes. For example, Samuelson, the man who wrote the textbook on Keynesian economics, went so far as to say to the Senate Finance Committee that the "chronic budget deficit is an overconsuming evil with insidious long-run consequences for American might and affluence."

Liberal economists were confident that the Reagan recovery would be short-lived. In early 1984, Robert Reich, now Clinton's Secretary of Labor, wrote hopefully in The New Republic: "The recovery may not last long beyond next election day. Ronald Reagan is vulnerable on the economy. The new voters now surging into the electorate know that the recovery is not for them. If the Democrats succeed in offering an economic vision responsive to this political reality, they may well sweep Congress and the White House in 1984."

Reich was not the only one whose predictions would prove wildly off target. Economists Paul Krugman of MIT and Larry Summers of Harvard, both close Clinton allies, wrote that the reduction of inflation in 1981 and 1982 was merely a temporary aberration. They warned of an "Inflation Time Bomb" that would explode during 1983: "It is reasonable to expect a significant reacceleration of inflation in the near future. Much of the apparent progress against inflation has resulted from the temporary side effects of tight money and high real interest rates. These side effects must be expected to reverse themselves as real interest rates decline and the economy expands .... A significant portion of the slowing of consumer price inflation since 1980 does not represent a reduction in the underlying rate."

In medicine, such a severe misdiagnosis is grounds for a malpractice suit. In law, for disbarment. In economics, the result is a choice job in the Clinton Administration: Larry Summers is now a high-level aide in the Treasury Department.

Throughout the 1980s, left-wing economists were unwavering in their assurances that recession was lurking right around the corner. The only escape route from financial catastrophe was major new taxes. But every year they would be disappointed as the economic expansion continued and Reagan "stubbornly" refused to yield to a tax hike. Increasingly frustrated, they began to ascribe Reagan's economic successes to good fortune. "Luck was on [Reagan's] side," Robert Reich insisted. "OPEC crumbled, world commodity prices declined, the recession of 1981-82 was so severe that the bounce back has been vigorous." This is now a standard refrain: Reagan bears no responsibility for any of the geopolitical or economic events that happened during his Presidency except Iran-Contra, the growth of the deficit, and the savings-and-loan crisis.

The luck seemed to end with the stock-market crash in 1987. John Kenneth Galbraith exulted: "This debacle marks the last chapter of Reaganomics. It is the product of supply-side economics--the irresponsible tax cut, the high interest rates that bid up the dollar and subsidized imports... This is the end product of Arthur Laffer's supply-side economics and Milton Friedman's experiment with monetarism."

Their solution was, of course, more taxes. Robert Solow, who had just won the Nobel prize, demanded that Reagan and Congress "get down to business. You have to have a tax increase." Roger Altman of the Blackstone Group, now second in command at Clinton's Treasury Department, suggested a 50-cent-a-gallon gasoline tax increase to settle the jittery financial markets.

The liberal doomsayers successfully exploited the crisis atmosphere to wrangle Reagan into a modest tax increase but nothing near what they had wanted. When the Dow Jones recovered within two months with no sign of permanent wear and tear on the economy, the Left shrank back to the sidelines.

But Don't Cut Spending

Despite the routinely promised apocalyptic consequences of the Reagan deficits, the Keynesians never approved of cutting spending. In fact, these deficit hawks savagely attacked Reagan's deficits and his proposed domestic budget cuts--sometimes in the same testimony before Congress. After an obligatory attack against Reagan's irresponsible deficits, James Tobin dubbed Reagan's domestic budget cuts in welfare and jobs programs "mean-spirited," the reduction in federal aid to states "a step backward," and the proposed termination of subsidies for the National Endowment for the Arts and the Corporation for Public Broadcasting "narrow-minded and vindictive." Ray Marshall, Labor Secretary under Jimmy Carter, told the Joint Economic Committee that the Reagan domestic cuts would "clearly weaken the economy" while Reagan's military build-up was an "independent source of inflationary pressure." In a preview of the rhetoric soon to come, Marshall lamented that Reagan did not view domestic programs as "public investments."

Throughout the 1980s the Keynesians were equally unenthusiastic about deficit-reducing budget reforms. They met the Gramm-Rudman-Hollings deficit reduction law with uniform hostility. Tobin called it "mindless" and "desperate"; in 1989, Alice Rivlin, now Bill Clinton's deputy budget director, announced, "It's a well-intentioned experiment that failed... It is time to recognize the mistake before more damage is done." What damage? Between 5985 and 1989 the federal budget deficit declined from 6 per cent to 3 per cent of GNP. If their concerns over the federal debt were sincere, the Left should have been cheerleading for the budget law. In fact, liberals had gambled that Gramm-Rudman would eventually force Reagan to capitulate on new taxes; when it didn't, they demanded a repeal to forestall spending cuts.

Even more illuminating was their opposition to a balanced-budget amendment. Whenever Congress was forced to vote on the issue, the Keynesian Nobel winners would rush to Capitol Hill to warn of its destructive effects. In 1984 Franco Modigliani, a Keynesian Nobel laureate, and not one usually prone to hyperbole, said that the amendment would be a "formulation for disaster." Only weeks before he had sounded the alarm for fiscal responsibility, grimly noting that the deficit had become such an overriding impediment to economic health that an increase in income-tax rates was a necessity.

In the 1990s the pro-tax and pro-spend agenda of the Keynesians became even more pronounced. In the pivotal year 1990, they were nearly unanimous in their opinion that the "fragile" U.S. economy could never handle a $100-billion cut under Gramm-Rudman. Yet the same pundits who warned that Gramm-Rudman spending reductions would be catastrophic erupted in applause when Bush and Congress released the budget-summit plan of a $200-billion tax hike. In other words, deficit reduction through spending cuts would be economically debilitating, but a plan to raise taxes by roughly the same amount was wise and prudent.

James Tobin, a principal cheerleader for the budget deal, told the Wall Street Journal that, although he would have preferred the tax increase sooner, his professional opinion was that the recession should not deter its passage. According to Tobin, a credible deficit package would reduce interest rates, which would cushion the impact of the fiscal contraction.

This was a remarkable about-face. If reducing the deficit in the midst of an economic downturn lowers interest rates, then by the same logic increasing the deficit must raise interest rates. That means a fiscal stimulus cannot be expansionary, even though that's what Professor Tobin preached at Yale for thirty years.

1992: Time for a Fiscal Stimulus

After two years of the budget deal, the deficit exploded to a peacetime record $300 billion and 6 per cent of GDP. One would expect the liberal deficit hawks to be nearly apoplectic over this surge in red ink. But strangely, just the opposite is the case. Now the standard economic line is that a $30 to 50 billion fiscal spending stimulus is necessary. For example, Paul Samuelson had called the $150-billion Reagan deficit an "all-consuming evil"; last year, with the deficit twice as high, he told Congress it should expand unemployment insurance, provide more grants to states and cities, and approve other new short-run stimulus measures. In the same 1992 hearings, James Tobin told Congress that "public investments in education, health care, public health, infrastructure, and environmental protection have been underfunded  .... At present there is plenty of room in the economy for them, and an increase in the budget deficit to pay for them is in any case a desirable allocation of saving rather than a diversion of saving to private or public consumption."

Similarly, Clinton confidant Robert Solow of MIT offered this nonsensical advice in a recent New York Times article: "Almost any kind of prompt action to increase total demand is desirable, and there is every reason to believe that direct fiscal steps will be effective. A temporary widening of the budget deficit is a price well worth paying, in fact not much of a price at all: it will lead to more, not less, private investment."

Honestly, I am not making these quotes up. This is simply a bizarre new twist to Keynesianism, one rapidly gaining adherents in left-wing intellectual circles. The notion is that when government spends people's money, that is good: "investment." But when individuals spend their own money, that is bad: "consumption." The more the government spends, the better off we and our children are and never mind the deficit.

Another disciple of this new boodoo economics is Hobart Rowen, who recently wrote, "The nation is in trouble primarily because the private sector has over-produced for the consumer, while the public sector, including state and local governments, has been literally starved for resources." In fact, between 1980 and 1991 state and local budgets rose by an enormous 48 per cent-after adjusting for inflation. Similarly, the Federal Government in real dollars spent $900 billion in 1980 and $1.5 trillion this year. Who's starving?

It gets worse. The policy statement recently signed by more than one hundred economists, the intellectual underpinning for Clinton's budget proposal, is a landmark in economic double-speak. Its overall policy recommendation is $50 billion in additional grants to local governments financed through higher deficits and an easing of monetary policy by the Fed. Providing a fiscal stimulus by reducing income taxes, as Clinton once thought to do, "is exactly the wrong approach because that would promote consumption, not investment." One wonders what these academics think big-city mayors would do with $50 billion in free money--prudently invest it in the stock market? In any case, under the Keynesian model that Samuelson, Tobin, and the others have refined over the past thirty years, the idea of a fiscal stimulus is precisely to promote consumption.

The statement concludes that when the recovery begins, the spending splurge should continue while defense cuts and higher taxes erase the deficit. This completes the recommendations from liberal economics establishment: easy money, higher civilian government spending, higher taxes, reductions in the military, and much higher energy prices (this time engineered not by OPEC or the Ayatollah, but the U.S. Government through higher energy taxes). This is the set of policies in place during the glory years of the 1970s.

Actually, it is worse than that. It is not Carternomics. It is not Keynesianism. It is simply tax-and-spend liberalism masquerading as an intellectually coherent economic policy. It is a program rooted not in scholarship, empiricism, or theory, but only in blind ideology--a belief in the absolute efficacy of government.

Such gobbledygook may give Clinton intellectual cover, but it cannot produce good results. Keynes famously wrote off long-term problems by noting "in the long run, we are all dead." Under Clinton's Keynesians, in the long run, we will all be a lot poorer.

Mr. Moore is the director of fiscal policy studies at the Cato Institute.