Andrew Samwick offers us How to Advice on Fiscal Policy. While the whole post is worth a read, let me offer some highlights:
The overriding problem in conducting fiscal policy is that politicians, in both the executive and legislative branches, face electoral pressure to please their current constituencies. It is extremely tempting for them to boost spending or lower taxes today, handing out windfalls to today’s voters and leaving an unrepresented constituency – future taxpayers – to foot the bill. It takes an enormous amount of energy to resist that temptation. That energy has to come from the politician’s advisers … There are other advisers with a central role to play in fiscal policy, however, who are Presidential nominees who undergo Senate confirmation and who can be called to testify to Congress on the President’s policies. We should expect them to be the ones who look at the larger picture, who take a longer horizon into their policy discussions, and who do the heavy lifting to help the politician resist the temptation to use future generations’ resources to buy votes today. On fiscal policy, the three main advisers are the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Chairman of the Council of Economic Advisers. To address the overriding problem, these three advisers must insist on an explicit budget target … The standard can be that simple, and it isn’t as austere as I’m trying to make it sound. It doesn’t rule out cutting taxes during the weak part of a business cycle, for example, but it does rule out cutting taxes to run a deficit that the Administration has no intention of paying back during the strong part of a business cycle. As a corollary, it does rule out passing tax cuts with explicit sunset provisions and then arguing to extend them with the budget not in balance … Twice a year, the Administration makes an economic forecast to underlie the budget or its mid-session review. I’d be surprised if you ever see such a forecast that predicts an upcoming recession. That means that every budget or mid-session review should be projecting on-budget surpluses or their quick resumption if we are just coming out of a recession. As I’ve discussed elsewhere, the “cut the deficit in half in five years” policy was at variance with this standard … Taxing someone in 2020 to pay for our spending binge in 2003 violates my notions of fairness, and that is a substantially more salient issue here than any additional concerns about efficiency.
In short, the actual fiscal policy stances of the Bush Administration are not consistent with how Dr. Samwick would have advised the President. Perhaps the internal advice that Glenn Hubbard and Greg Mankiw gave President Bush were roughly consistent with how Andrew Samwick would have advised the President. If so, the President clearly ignored his CEA. Which raises the question as to why these two gentlemen did not resign sooner?
One note to Andrew Samwick on this excellent post – I suspect the sources you link are very good ones, but when I tried to reference them, the links were not working properly.