The Bentsen Era

Senator Lloyd Bentsen of Texas became chairman of the committee at the beginning of the 98th Congress. He was very conservative for a Democrat and appointed an equally conservative Democrat, Jack Albertine, as executive director.

In 1979, Bentsen and Albertine were very concerned that the JEC might be abolished. Joint committees, which had been fashionable after the war, had become viewed as anachronistic and expendable every time congressional reform was discussed. Moreover, enactment of the Budget Act of 1974 created House and Senate budget committees, as well as the Congressional Budget Office, which made much of the JEC’s traditional work redundant. The CBO, in particular, was a problem for the JEC because it had vastly more resources and could speak with one voice through its director, while the JEC was perpetually divided between House and Senate, Democrats and Republicans, and alternating chairmen every two years.^{Footnote 10} Bentsen and Albertine thought the JEC needed to prove its usefulness if it hoped to survive. They thought the best way to do so was to build a bipartisan consensus on the committee that all the members would support. This meant having a unified annual report signed by every member.

Typically, the majority (Democratic) staff of the JEC wrote its own report, and the minority (Republican) staff wrote a separate report without bothering to solicit support from the other side. These drafts were circulated among the members, who injected input and often appended individual views to the reports. But in 1979, Bentsen and Albertine fully engaged the Republican staff in drafting a unified report around the basic ideas that the nation needed increased capital formation for growth, a tight monetary and fiscal policy to fight inflation, and greater emphasis on the international sector in devising economic policy.

The JEC’s 1979 annual report may have been a bit bland, but it served the purpose of getting every Republican and Democratic member of the committee to sign it. According to a memoir by one of the committee’s majority staff, economist Kent Hughes, there had been much soul-searching on the Democratic side resulting from relentless attacks by University of Chicago economists such as Milton Friedman on the JEC’s traditional Keynesian philosophy, plus the apparent failure of Keynesian policies to foster growth in the inflation-ridden 1970s, which diminished differences with the Republicans on key issues. Republicans went along somewhat reluctantly, but they felt that the hint of support for tax cuts by the committee’s Democrats was worth compromising on other issues.^{Footnote 11}

The basic conservatism of the JEC report was highlighted by a harsh attack on it by the liberal group Americans for Democratic Action, then headed by former Representative Patsy Mink of Hawaii. The ADA felt that the JEC was much too worried about inflation and not nearly enough about joblessness.^{Footnote 12} But the 1979 report was just the beginning. In 1980, Bentsen and Albertine were again determined to have a unanimous annual report, and they were willing to concede even more to the Republicans to get it. According to Hughes, the 1980 report “made an even sharper break with the past than the 1979 report.” Indeed, it openly endorsed supply-side economics, saying that tax cuts would raise productivity and hence be anti-inflationary—a clear repudiation of Keynesian economics. It was a testament to just how desperate everyone in Congress was about inflation, which reached 13.3 percent in 1979, and the growing belief that the Carter administration had no idea what to do about it.

It was widely thought that Carter made a dreadful mistake in appointing businessman G. William Miller as chairman of the Federal Reserve Board in 1978.^{Footnote 13} Carter eventually came to believe so as well, but he couldn’t fire Miller because he served a fixed term and the Fed is an independent agency. The only way he could be removed was by offering him something better—secretary of the Treasury, which Miller accepted. This meant firing W. Michael Blumenthal as Treasury secretary to make way for Miller.

It turned out that Miller wasn’t any better a Treasury secretary than he had been a Fed chairman. In a May 1980 article, Washington Post economics columnist Hobart Rowen reviewed Jimmy Carter’s economic advisers and pronounced them all subpar. But he gave his worst marks to Miller, ridiculing him for failing to recognize that the economy was in recession until months after it began. As much as he opposed Reagan’s policies, the liberal Rowen thought they probably couldn’t be any worse than Carter’s at that point.^{Footnote 14}

The JEC’s 1980 report was remarkable for having a title and a regular book cover with art work, something very unusual for a congressional committee report. The title was “Plugging in the Supply-Side.” In it, Bentsen was very forthright about the idea that the supply-side of the economy needed stimulus along the lines that Republicans had been advocating.

Hughes says that Republicans exaggerated the extent to which Democrats conceded much in terms of policy to the sorts of radical ideas being propounded by Representative Jack Kemp of New York, Wall Street Journal editorial writer Jude Wanniski, and University of Southern California professor Arthur Laffer. But there is no question that outside observers saw great significance and support for supply-side economics in the JEC’s 1980 report. For example, Leonard Silk, the economics columnist for the New York Times, said it marked “a major change” in “economic theory and policy,” which involved “a deeper integration of supply-side and demand-side economics, and an integration of thinking about both the long run and short run.”^{Footnote 15}

Even more remarkable were the comments of one of the JEC’s most liberal members, Representative Henry Reuss of Wisconsin. Following publication of the report, he told the New York Times, “We have learned from our mistakes in the past. We’ve given up blind pursuit of Keynesian demand acceleration.” Reuss added that the JEC report was important in depriving “demand-side” economics of “an undeserved primacy.”^{Footnote 16}

Senator William Proxmire of Wisconsin, a Democrat and former JEC chairman, echoed Reuss’s comments in a speech on the Senate floor on the report. While Keynesian economics made sense in the Great Depression, it was time for “a shift in emphasis,” he said. In periods of “massive, unprecedented peacetime inflation,” Keynesian policies made “a lot less sense.” Proxmire said Congress needed to cut spending, balance the budget, and run a budget surplus “to lessen demand and the pressure demand places on prices.”^{Footnote 17}

The 1980 Election

When Republicans took control of the Senate in the 1980 election, it thrust freshman Senator Roger Jepsen of Iowa into position as the JEC’s senior Republican. There were three Republican senators ahead of Jepsen in seniority on the committee: Jacob Javits of New York, Bill Roth of Delaware, and Jim McClure of Idaho. But Javits, the current ranking Senate Republican, was defeated and both Roth and McClure were in line to become committee chairmen, Roth of Government Affairs and McClure of Energy and Natural Resources. Senate Republican rules barred members from chairing two committees simultaneously, so Jepsen was elevated to the senior position. Roth briefly argued that being the ranking Republican on the JEC wasn’t the same thing as a chairmanship, but the Senate Republican Conference disagreed and Jepsen was given the slot.

The way the JEC worked is that the chairmanship rotated every two years between the House and Senate. Since it had just been the Senate’s turn, the senior member of the majority party in the House was in line to be the next chairman. That was Mr. Reuss. He had previously been chairman of the House Banking Committee. The vice chairman of the JEC was the senior member of the majority party of the house opposite the one holding the chairmanship. And that was Senator Jepsen. So all of the sudden, he was now in charge of the Republican staff of the committee and appointed Bruce Bartlett, a former economist for Representatives Jack Kemp and Ron Paul who had been on his personal staff for two years, as executive director.

The JEC had about fifty total staff, including economists, support staff, secretaries, and such. The Republicans had only five economists and one secretary. The senior Republican economist was Charles Bradford. He essentially worked for the senior House Republican on the JEC, Representative Clarence “Bud” Brown of Ohio. Other economists were Steve Entin and Mark Policinski, who also reported to Brown.

The Javits people left on their own and it was decided that the JEC professional staff should be divided equally between Republicans and Democrats. Thus there were a number of staff positions for the Republicans to fill. Organizationally, Bartlett took the title of deputy director of the JEC and his counterpart, named by Reuss, was Jamie Galbraith. Galbraith had worked for Reuss on the House Banking Committee and was the son of John Kenneth Galbraith, one of the best-known economists in the United States and probably the most liberal major economist as well. He had a Ph.D. in economics from Yale.

The first person Bartlett hired was Bob Weintraub, who was one of the leading monetary economists in the United States. He had a Ph.D. in economics from the University of Chicago and had previously been a full professor at the University of California, Santa Barbara. He had been working for the House Banking Committee’s majority staff. Weintraub’s major accomplishment on the Banking Committee had been to convert Representative Parren Mitchell, who was from a prominent political family in Maryland, to monetarism.^{Footnote 18} He also helped get through Congress a law requiring the Federal Reserve chairman to report to Congress twice a year on monetary policy. In those days, the Fed was a much more opaque institution than it is today and many key details about how it conducted monetary policy were secret. The legislation requiring the Fed chairman to testify is considered a landmark in opening up the Fed to public scrutiny.^{Footnote 19}

Weintraub’s position at the Banking Committee was in jeopardy because Mitchell left the chairmanship of the subcommittee he worked for, and Weintraub was grateful to have another position available. He brought an enormous amount of stature to the Republican staff, was very well known around Washington and in academia, and had extremely good contacts at the Fed and in the media.^{Footnote 20}

Another economist Bartlett hired was Tim Roth. He had a Ph.D. from Texas A&M and was already working for the JEC majority on some project that had just wound up. Facing layoff, he was eager to move over to the Republican staff because he was, in fact, a Republican. Roth’s most important study for the JEC put the Reagan economic program into a formal IS/LM macroeconomic framework.^{Footnote 21} He later chaired the economics department at the University of Texas at El Paso. Representative Brown requested that Bartlett hire two economists on leave from Ohio University, Lowell Gallaway and Richard Vedder. Both had impressive academic credentials and were prolific writers.

The JEC Reorganizes

Early 1981 was a very, very heady time on Capitol Hill, the Senate in particular, because of all the reorganization going on. There were no Republican senators left from the last time the Senate had been under Republican control, except Strom Thurmond of South Carolina, who had been a Democrat at the time. Republican senators suddenly needed to become experts on aspects of simple parliamentary procedures that no Republican had needed to know for decades.

To further accommodate the equal number of Republicans and Democrats on the committee, Galbraith and Bartlett created a number of new subcommittees, with half chaired by Republican senators and half chaired by Democratic House members. Senator Jepsen chaired the Subcommittee on Monetary and Fiscal Policy and would often allow the Republican House members to chair his subcommittee if they had a hearing idea they wanted to pursue. The staff was happy to accommodate them. Representative Dan Lungren of California was one who very much enjoyed the opportunity. He later became attorney general of the state of California.

The Republican and Democratic staffs on the JEC were very competitive and not above playing dirty tricks.^{Footnote 22} In early 1981, Galbraith said he wanted to continue the practice of having bipartisan annual reports and he assigned one of the Democratic economists, Lloyd Atkinson, to write a draft incorporating Republican suggestions.^{Footnote 23} It turned out, unbeknown to the Republican staff, Galbraith was preparing an alternative report more along traditional Democratic lines. The Republicans discovered this just days before the annual report needed to be submitted and they had to crash over a weekend to write a report of their own.

With just hours to go before the report was to be submitted to the Government Printing Office, the Republican staff saw that Galbraith had labeled the Democratic views as the “Majority Report.” They protested that each report had ten signatures and so there was no majority report. Galbraith said, simply, “I can count.” It was quickly determined that two of the House Republicans, Representatives Margaret Heckler of Massachusetts and Chalmers Wylie of Ohio, had signed the Democratic report, having possibly been misled by the Democrats to think that it was another unified report like those in 1979 and 1980.

Senator Jepsen fixed the problem himself, going over the House floor personally to get Heckler and Wylie to withdraw their signatures on the Democratic report, thus saving the Republicans an enormous amount of embarrassment. Ironically, the Democrats’ call for a smaller tax cut than the Reagan administration was proposing, the centerpiece of their report, was written up in the Washington Post as essentially supporting the Reagan proposal, rather than as criticism.^{Footnote 24}

Among the more influential hearings held by the JEC Republicans was the first-ever on the flat tax. After passage of the Reagan tax cut in 1981, the politics of the deficit prevented any further tax-cutting for the balance of the administration. But supply-siders were anxious to cut tax rates further if possible. The idea of doing so in the context of a revenue-neutral tax reform was already percolating when two Hoover Institution fellows, the economist Robert Hall and the political scientist Alvin Rabushka, wrote an op-ed article for the Wall Street Journal in December 1981 proposing a tax reform so simple that every individual and business, no matter how large, could file their tax returns on a postcard and everyone would pay a flat rate of 19 percent.^{Footnote 25}

During early 1982, the flat tax idea gathered steam. With pressure on Reagan to reverse course and raise taxes, which he later did in the Tax Equity and Fiscal Responsibility Act of 1982, some conservatives saw the flat tax as an alternative way of raising revenue. It would so energize the economy, they said, that government revenues would rise à la the Laffer curve.^{Footnote 26} David Stockman and Ronald Reagan himself fed the fire by publicly indicating interest.^{Footnote 27} For example, at an event on July 6, 1982, Reagan said of the flat tax:

The JEC scheduled a hearing on the flat tax for July 27, 1982, at which Hall, Rabushka, and Ture testified in favor, with Congressional Budget Office economist Joseph Minarik testifying against. But there was so much interest in the subject that a second day of hearings was scheduled with former Assistant Secretary of the Treasury for economic policy Paul Craig Roberts; the Princeton economist David Bradford, whose pioneering work at the Treasury really underpinned the Hall-Rabushka plan; Ernest Christian, a prominent Washington tax lawyer who had been deputy assistant secretary of the Treasury for tax policy in the Ford administration; and, opposed, Jerome Kurtz, who had been Internal Revenue Service commissioner under Jimmy Carter.^{Footnote 29}

Title Switch

In January 1983, Bartlett and Galbraith switched titles; the former became executive director of the JEC and the latter became deputy director. Nothing else changed except that they switched offices. In early 1984, Bartlett left the JEC to work for Jude Wanniski at his consulting company, Polyconomics, in Morristown, New Jersey. He was replaced by Dan Roberts, a Wall Street economist with an Iowa background. Galbraith left at the end of the year to become a professor at the University of Texas in Austin.

Afterward, the JEC began a long, slow decline. Mr. Reuss retired, Senator Jepsen was defeated in 1984, and subsequent chairmen didn’t seem to have much institutional attachment to the committee and its activity level fell dramatically, with fewer hearings and studies. In 1986, the Washington Post published a long article about its ebbing influence, and in her presidential address to the American Economic Association that year, Alice Rivlin said the JEC “should celebrate the important contributions it made to economic understanding in the days before the budget process and then close up shop.”^{Footnote 30}

After Republicans took control of both the House and Senate in 1994, the JEC was under complete Republican control for the first time since 1954. The first chairman of the unified Republican era, Senator Connie Mack of Florida, used the staff more for political self-promotion than serious economic analysis.^{Footnote 31} One theory is that Mack’s intention was to abolish the committee to show that he could personally cut the federal budget. But he was unable to do so because the JEC had been created by a public law, rather than a congressional resolution, as was normally the case. The law would have to be repealed, which would also abolish the CEA. Consequently, the idea went nowhere, but the JEC continued on a downward course under chairmen of both parties and now is little heard from.

The debate within the JEC in the early 1980s was a microcosm of a larger public policy debate on the merits of the traditional Democratic economic policy based on Keynesian economics and supply-side economics, which was embraced by Republicans. Although the Democrats never fully embraced supply-side economics, their tepid support for Keynesian economics and modest support for supply-side economics under Lloyd Bentsen were politically important at a critical moment in time.