What Martin Feldstein Taught Me
(Bloomberg Opinion) -- The economist Martin Feldstein, who died Tuesday, had a well-deserved reputation as a classic conservative, consistently promoting small government, balanced budgets and low taxation. Yet he also had an underappreciated pragmatic streak, advising presidents of both parties and preferring to work within the system.
Feldstein also played a huge role in the careers of hundreds of young economists through the National Bureau of Economic Research, an organization he led for 30 years. I should know: I was one of them.
Every year, NBER runs a summer institute, a three-week series of workshops dominated by young researchers from the world’s foremost economic institution. Having come up through local state universities, I had only a vague sense of NBER as a place where great economists worked on important things. I hadn’t the slightest clue how I could break my way in.
That didn’t matter to Feldstein. I wrote him an email explaining my desire to participate, and he responded by personally inviting me to his workshop on the economics of national security in the summer of 2006. It was my first exposure to elite economics, and it helped give me the confidence to believe that I could contribute to national policy discussions.
Feldstein himself spent his entire career in the most elite circles, earning his doctorate from Oxford in 1967 and 10 years later winning the John Bates Clark Medal, awarded every two years to most outstanding economist under 40. In addition to running NBER, he taught the introductory economics course at Harvard for 20 years and served as chairman of the Council of Economic Advisers under President Ronald Reagan.
As chairman, he tempered his conservatism with pragmatism. His balanced-budget views clashed with the supply-side economics that was taking the administration by storm. Rather than going to war with the supply-siders, Feldstein focused on making tax reform as effective as possible, and his research helped shape the widely heralded tax-reform bill of 1986.
After leaving the Reagan administration, he continued to research and write on the optimal path of tax reform. He invariably encouraged leaders not to think in utopian terms, but to carefully weigh the costs and benefits of incremental steps.
Feldstein presciently warned against the establishment of the euro. He acknowledged that it was an awesome project that had the potential to unleash prosperity across the continent and forge a lasting peace. However, he noted, the political economy was not yet workable.
Member nations would be required to cede an enormous amount of economic independence, he argued, and the divergent interests of the periphery and the core would prove to be irreconcilable. This prediction came true in the wake of the Great Recession. Skyrocketing unemployment in the periphery nearly lead to a collapse of the euro, and the economies of Spain, Portugal and Greece have yet to recover.
Feldstein showed that same pragmatism when the Great Recession began to unfold in the U.S. Despite his usual insistence on a balanced budget, Feldstein recognized in 2007 that the recession would be more that the Federal Reserve could handle and advocated for an immediate fiscal stimulus package. He continued that advocacy after Barack Obama was elected president, strengthening his calls for government action as the situation continued to deteriorate.
This commitment to the most effective policy despite the prevailing political winds was typical of Feldstein and is one of his most admirable legacies. Throughout his career, he showed that economic ideas — not to mention young economists — deserve to be taken seriously.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Karl W. Smith is a former assistant professor of economics at the University of North Carolina's school of government and founder of the blog Modeled Behavior.
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