Glenn Hubbard (that's right—the same Hubbard who's on the cover of your econ textbook) is one of America's best-known economists, as well as the dean of Columbia Business School. Hubbard served as economic advisor to Mitt Romney's 2012 presidential bid, has authored multiple books, and was previously deputy assistant secretary at the U.S. Department of the Treasury, among other government positions. Hubbard's career as a conservative economist has coincided with some of the most controversial economic decisions in recent history, some of which—including the 2003 Bush tax cuts—he had an active part in engineering. QIUYUN TAN sat down with Hubbard to hear his perspectives on the recent debt crisis and other major economic issues.
You have just co-authored a book, Balance: The Economics of Great Powers From Ancient Rome to Modern America. What inspired you to look to history to solve today's economic problems? What have been your discoveries?
Really two things. One: I have been interested for some time in the problems of the U.S. budget, and wondering if they were historical. And second, there was a great book, about 25 years ago, by Paul Kennedy, called The Rise and Fall of the Great Powers, which I never really agreed with as an economist. His thesis was that it was all about military overstretch, and that's not my reading of the historical records. It's really less overstretch than under-stretch. It's what happens when the political system isn't sufficiently adapted to keep up with changes in economics.
The example that I used in the book is actually the game of basketball, which nearly died as a competitive sport in the 1930s. It got reborn because rules got changed. For the modern-day U.S., it is more about changing budget institution rules. There is too much of a tendency in our country to treat our problems as technical: that all we need is a smart person to come in, or a great leader—it's not that at all. They are built into the system. They are political problems, and they need rule changes.
What do you think is the largest problem with policies related to economics today?
The ones that Tim [Kane, co-author of Balance] and I talked about were ways in which we could go after the real problem, which is entitlement—the huge growth of Social Security and Medicare spending. Prior to 1970, if you look at any industrial country, war and peace is what a budget was about, and debt was self-correcting. Even Keynesian stimulus is self-correcting. If you look since 1970, there has been a steady march up in the debt-over-GDP ratio. If you look relative to GDP, spending on defense, on education, on research, all those things are falling. And what is exploding is entitlements, and if we don't get this under control, it means not only that tax increases would be necessary, but we have to cut back on all the spending that's future-oriented for our country ... which is not a very good policy to be running.
Can you specify a few rule changes that you are expecting?
One rule change would be to put the changes in the crude liabilities of these programs on the budget ... And if we do that, we'd force politicians to make choices. We need to raise taxes, or we need to cut some other spending, or by the way, maybe we need to cut these programs. Tim and I aren't about specific policies; we just want politicians to make the choices. The American people are wise, they will come to a political consensus, but right now they are not being told they have to choose. There's a system that says we want low taxes and high spending at the same time. That's not equilibrium. If you ask 20 economists from a variety of political points of view, you won't get very different answers on how to handle the entitlement problem—it's not a technical problem; it's a political problem, which means we need rules that force our leaders to act. Because no individual has an incentive to act in a way that leads to political pain. So rules become very important.
Do you see that happening in the near future?
I do. I think the American people have become more fed up. If you look at the history of balanced-budget amendments, in the past couple of decades, 32 states have considered recommending to the Congress a balanced-budget amendment, and it only takes 34 to get it congressional. And Congress itself has twice passed, in some form, budget amendments. This is real. And I think the public understands that we are on an unsustainable fiscal trajectory.
What do you think of the mayor-elect, Bill de Blasio's, budget plan?
It's way too early to know what will actually happen. I think the notion of raising marginal tax rates in a city that already has very high marginal tax rates is a terrible tax policy. It's what the governor of the state, who is also a Democrat, rejects. So it's not going to happen in likelihood. It would be nice to see the mayor talk about an internally sustainable tax policy that would actually promote growth in New York. Mayor Dinkins said much the same thing yesterday [at the NYC Summit on Children].
People have been talking about the formation of another tech bubble today. Do you see that as a concern?
There may be froth in some elements in the tech sector, but it doesn't worry me too much either as a macroeconomist or a microeconomist. As a macroeconomist, it doesn't worry me any more than the '90s tech bubble did, because the tech bubble then and now is not leveraged. When bubbles burst with high leverage, they can create severe dislocations—that's the housing crisis. As a microeconomist, I also think that there is such wonderful productivity change happening in the tech sectors. Even though there may be froth around how much Snapchat is worth, the fact that we are seeing this level of innovation is encouraging, and it's particularly encouraging here in New York. Indeed, here in the business school, I'd say the fastest-growing area of student interest is entrepreneurship.