Interview with Murray Weidenbaum

President Reagan put a critic of government regulation at the head of his Council of Economic Advisors. REASON sent one of its editors to quiz him about the prospects for individual liberty.


In recent months some of those whose judgments we at REASON have found valuable in the past have been invited to go to Washington to give advice and even direction to the Reagan administration. Of course, having some good people in Washington is far from seeing some good policies through to fruition: yet it offers hope.

One of the individuals whom we have long regarded as a friend of liberty is Dr. Murray L. Weidenbaum. Our interviewer, Senior Editor Tibor Machan, has met Dr. Weidenbaum before on just the sort of occasion that confirmed our respect for his judgment concerning government economic policy: a conference at Hillsdale College in 1976 on the "alphabet soup" agencies.

Before being appointed to his present position as chairman of President Reagan's Council of Economic Advisors, Dr. Weidenbaum was director of the Center for the Study of American Business at Washington University in St. Louis, where he holds the Mallinckrodt Distinguished University Professorship. In addition to being a prolific author, with such works to his credit as Business, Government, and the Public and The Future of Business Regulation, he has served as an assistant secretary of the Treasury (1969-71).

One might imagine Dr. Weidenbaum as a somewhat reserved, studious person who uses big fancy words and economic jargon. In fact, he is a relaxed, calm, soft-spoken man who likes to discuss his concerns in straight, uncluttered, cogent English. One can only hope that his respect for liberty and his ability to give testimony to its value will serve to make an impact in Washington.

REASON: Doctor Weidenbaum, please explain briefly what the Council of Economic Advisors is and what it does.

WEIDENBAUM: The Council itself has the most modest statutory authorization to advise the president on economic matters and to write the annual economic report. What we actually do is a function of the confidence that the president has in us and in whatever special abilities we bring to bear. It turned out that cutting the budget is a major activity of this administration, and this is an area to which I have devoted part of my adult life. So from the time I got here President Reagan put me on his three main budget review groups. David Stockman is of course the chairman of these groups, and Martin Anderson is a member also. It isn't determined by statute that as CEA chairman I have a vital role in the budget, but in this administration, the CEA chairman does.

REASON: The legal role of the Council is purely advisory, isn't it?

WEIDENBAUM: Yes, that's right. We operate no programs. We provide the data for and prepare the monthly publication Economic Indicators, which is actually published by the Congressional Joint Economic Committee.

REASON: It is quite conceivable that you will sometimes be critical of some things that this administration will go along with…

WEIDENBAUM: Oh, you don't have to guess that. It's well known that I am the purist free trader in this administration. In discussions of, say, the automobile industry or other protection matters, my colleagues in the administration know that I, and my colleagues in the council, will take the most free-market, antiprotectionist, and proconsumer position.

REASON: What major changes would you like to see in the economic policies of the current administration, or do they follow in general your own ideas?

WEIDENBAUM: Fundamentally, I see a close correspondence between my views and my boss's views, and I feel very comfortable here. Now when you get down to specifics, no two adults are going to agree. But I think we need to see a major reduction in the size, scope, power, and burden of government in our society in all its dimensions, and it's delightful to work for a man who shares that view very strongly. So the question isn't, Shall we cut taxes or spending? or, Shall we cut spending or regulations? or, Shall we cut regulations or government credit programs? We want to reduce the size of government in all its dimensions. And that's fundamental.

REASON: One of the things that comes up in any administration is "horse trading." An example that comes to mind is the tobacco subsidy.

WEIDENBAUM: What we did when we set out to cut budgets was decide that we couldn't exempt the farmers, so we cut the farm part of the budget. Well, which part do you cut? The dairy subsidy is the biggest; the tobacco subsidy is much smaller. To the extent that you can have a major reduction of dairy subsidies, you have a double whammy: not only do you reduce government spending and hence the deficit; you also reduce the rate of inflation. So we went after the dairy subsidy.

REASON: How do you answer the criticism that this administration is cutting subsidies to such marvelous things as National Public Radio while at the same time continuing subsidies to, for instance, the tobacco industry?

WEIDENBAUM: All those "wonderful" things that we are cutting, I don't think they are so wonderful in practice. The National Endowment for the Arts, the National Endowment for the Humanities—I'm not convinced that this is a proper role for the federal government in the first place. And then I look at the specific projects being funded under those grants. I think the public welfare is not diminished by shaving those budgets. I don't think that society has to subsidize my symphony ticket. Now I have to admit that so far we haven't successfully attacked every sacred cow in the budget, but in the first 100 days we did a bigger job of budget cutting than all preceding administrations put together. Not a bad start. I'm not apologetic at all.

REASON: This morning's Washington Post had a story on how some of the cuts in the budget of the Export-Import Bank were rescinded by Congress. Why did that happen?

WEIDENBAUM: I can tell you. I was once chief economist at Boeing, so it's ironic that I am now a leader in the effort to reduce the budget of the Export-Import Bank. [The Eximbank is an independent federal agency that makes loans and issues loan guarantees and insurance to foreign governments and businesses purchasing American-manufactured goods. Boeing is one of the beneficiaries of Eximbank operations—Ed.] I don't mean to pick on business subsidies, but I don't mean to ignore them either. That is why in good conscience I could advocate reducing farm subsidies, labor subsidies, and housing subsidies. In this case, my former colleagues in the aerospace industry launched what seems to be a successful counterattack to our plan to reduce the Export-Import Bank subsidy. I think we need to redouble our efforts. It's an inefficient use of public resources, and we ought to cut it.

REASON: It is very difficult for some of us to stomach the way many people in the business world give lip service to free enterprise but then initiate some of the most flagrant violations of a principled adherence to the market system.

WEIDENBAUM: You are so right. This administration is not simple-mindedly probusiness. It's pro-free-market, pro-competition. And of course lots of companies don't appreciate the distinction.

I have had two unexpected experiences in this administration. One, the so-called consumer advocates are quiet when important consumer issues come up—like restriction of imports, which is certainly an anticonsumer action. Those so-called consumer groups are mute on that issue. You can speculate as to reasons. Look at who supports them and draw some conclusions. The other unpleasant surprise has been a steady stream of business people who call, write, or visit to support our program in general, but they advocate a subsidy to their company or industry. It's never "subsidy," you understand; it's an "exception," it's a necessary investment in economic growth, it's a special tax deal or expenditure subsidy or credit subsidy or something to help their industry.

REASON: In recent years, a substantial portion of your own work has been the study of government regulation. Do you think that this administration is going to make as much headway in the direction of deregulation as its initial rhetoric made it appear?

WEIDENBAUM: I think overtly, measurably, we've made more progress in that area than any other administration. On the tax cuts and budget cuts, implementation depends on Congress ratifying the proposals of the president. But in regulation there's an awful lot that can be done and is being done under existing statutory authority. We haven't priced out all the actions that we have taken in this administration to reduce regulation, but we did price out about 30 of them reducing the burden on automobile production. It's our estimate that those 30 specific actions to either eliminate or revise regulations affecting the automobile will save the consumer more than $10 billion over the next five years. That's better than $2 billion a year.

REASON: Do you approach government regulation in terms of cost-benefit analysis?

WEIDENBAUM: That's not the sole way I look at regulations, but I find that it's useful.

REASON: There are some economists who would contend the cost side of that approach is very difficult to estimate because of a number of factors that are just undeterminable.

WEIDENBAUM: Absolutely, and the proponents of regulation can make the same statement about the benefits side.

REASON: Recently, Stephen Kelman had a piece in Regulation, the magazine of the American Enterprise Institute, in which he criticized the entire utilitarian tradition of public policy analysis. There have been some others who have also raised objections to regulation not so much on economic grounds but on moral grounds. For example, there seems to be in government regulation the phenomenon of presuming that someone is guilty and imposing burdens on him before any guilt has actually been established.

WEIDENBAUM: Like affirmative action programs. I think that's just morally wrong. Provisions like that should fail any test of equity before they even get subjected to a cost-benefit test.

REASON: This brings up a kind of a side issue. The president has a Council of Economic Advisors—are there comparable advisors in law, education, morality, arts, and so on? Should there be? Maybe there shouldn't even be a Council of Economic Advisors?

WEIDENBAUM: That's a good question. The attorney general is his chief legal advisor, and there is in a more specialized way a legal advisor, the general counsel in the White House. As to moral advice, I'd be concerned about institutionalizing moral advice. I must say I don't view government as having much of a role in moral matters—the less the better. I think zero is optimal.

REASON: But when you listen to critics of the free market, most of what they offer is moral criticism. Ralph Nader constantly stresses justice and lack of compassion, and so forth.

WEIDENBAUM: It is ironic to listen to frequent statements that free-market institutions are heartless and literally would let people starve. The fact of the matter is that the capitalist nations of the world are feeding the socialist nations—not on a purely eleemosynary basis but rather in the spirit of Adam Smith's baker, that is, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

REASON: Do you see any upsurge of a broader intellectual defense of the free society?

WEIDENBAUM: Well, here is part of a speech I've now given on two occasions, and I must admit to having received a standing ovation both times.

Our concern for the free enterprise system is part of a larger national debate over fundamental values, especially over the balance between the power of government and the freedom of the individual.…It's true that private enterprise is the basic source of material wealth, but that is too narrow an argument to command sufficient popular support. We need to remind the public of something so obvious that we often overlook it. Just spin the globe, identify the various nations of the world that provide their citizens with a substantial degree of personal freedom, and spin the globe again and then find those countries that have a large and strong private sector. You'll find there's a striking overlap between the two groups. The close correspondence between economic freedom and personal liberty is not coincidental.

REASON: I come across many sophisticated Marxist humanists who, whenever you mention that the capitalist nations provide the greatest amount of freedom and freedom of choice, will immediately talk about manipulation, false consciousness, etc.

WEIDENBAUM: I am fascinated by the fact that when you take away the legal frontier between the communist sector and the capitalistic sector and you let people move, you can predict the direction in which they will move.

REASON: Yet magazines like the New York Review of Books, the Nation, and the New Republic are filled with people who question capitalism fundamentally—not its performance here and there but fundamentally—as being callous, heartless, exploitative, alienating, and so on. Do you ever reflect on why this is so?

WEIDENBAUM: Yes, because my students asked me that frequently. In a sense it is because in concept the communist/socialist approach is very neat. You can predict within a fairly small margin what the position of an individual is going to be in that society. But the capitalist society is very disorderly. The variance is great and may be on the basis of ability, luck, all sorts of happenstance, external circumstances. That upsets people's sense of order. But this is why someone who I think is concerned to find a system that provides more discretion for the individual will put up with all that disorder and unpredictability of results. It's not just that on the average, in an economic sense, you'll do better in a capitalistic society; it's that you have more opportunities for those adjustments as an individual.

REASON: You have said that although you are a critic of government regulations, you are not in that sense such an absolutist or a purist that you do not see any role for regulations.

WEIDENBAUM: That's right.

REASON: Now there are those who would argue that the only time regulation seems justifiable is when government has taken over a domain and manages it as a proprietor, say national forests, roads, some hospitals. So it's not really regulating, but managing.

WEIDENBAUM: I wouldn't call that regulation. And of course a lot of that is misguided public ownership in the first place.

REASON: But don't you think that you would turn into an absolute antiregulationist were the economy freed up so much that there wouldn't be these overlaps?

WEIDENBAUM: I like to think of myself as a practical type rather than a theorist, which is why I'm here. If on one side of me is the free-market alternative and on the opposite the totalitarian, and we've moved seven-eighths of the way toward the free market in my lifetime—perhaps during my tour here—I'll have achieved something. I want to move us a significant distance toward freedom. If I can do that I'll feel a sense of real accomplishment.

REASON: I do not wish to call into question the value of the practical, step-by-step, gradual approach, but one still needs to be guided by ideals, I think.

WEIDENBAUM: Sure. Milton Friedman and I have had this discussion on occasion, and in fact at one point I said to Milton after making my presentation, "I guess you really want to start criticizing me." He said, "No. I understand your concern with political reality." He said, "You're trying to move the society in a direction I want to see it moved, and you're doing it in a political context." And I said, "Fine. I'm glad to hear that, because you set the kind of goal that we need to shoot at." So I guess this is a division of labor.

REASON: I should then ask you a couple of those practical questions! There are some people who are claiming that the supposedly high tax rate in the United States is really a myth, that in most Western societies—Germany, Switzerland, and Sweden, and so on—tax rates are higher. Is there statistical manipulation going on here?

WEIDENBAUM: Well, I take a very provincial attitude: I really don't care whether there are countries whose tax burdens are even higher than ours. As I look at the one economy that I have studied, which is the American economy, in terms of the impact on our society's ability to function, I have to conclude that taxes are extremely high. And when I look to see where the money is spent, and I see all of the silly, wasteful, counterproductive programs that these taxes fund, to me it's a compelling reason not to increase the tax burden but to reduce it.

REASON: I recently read in the Chicago Tribune about a study that argued that in terms of what their incomes will buy, Americans are still better off than European societies with higher productivity levels.

WEIDENBAUM: Those international comparisons are tricky. There are some kinds of analysis that say per capita income is now higher in a few western European nations than they are here. Given the fact that we are a more energy-intensive society, I find that tricky. What I think is apparent is that we've had a stagnation in our living standards here in the past decade.

REASON: What do you think about those conservatives who claim to believe in a free market but tend not to believe in some of the freedoms that liberals emphasize more, such as those regarding the draft, drug usage, pornography, religion, and so forth? These are areas that some conservatives wish to regulate because they believe that the country and the culture will suffer if they aren't.

WEIDENBAUM: Well, the draft was eliminated as a result of a commission dominated by conservatives, many of whom, such as Martin Anderson, are senior members of this administration. I think it's clear that there's a large group of conservatives, and I'm one of them, who believe the draft is an unwarranted interference with personal freedom but who simultaneously are very concerned with protecting this free society from external aggression and hence look upon the market to attract resources. Here I am very concerned over the fact that since the draft was instituted, there's been an erosion in the real income of members of the US armed forces, which means we haven't used the market effectively. In this case I think the liberals and the conservatives have a common ground.

Let me give you another example—no-knock power. I wrote a little piece a few years ago twitting my liberal friends, saying that they're so concerned about government having no-knock power when it comes to our homes, but what happens when government agencies come into my office or my factory without knocking? That's still an infringement on my personal liberty. I'm against both. I think the liberals are more selective than the conservatives.

REASON: George Will recently wrote a column in which he complained about the members of the administration who wear Adam Smith ties, and then he proceeded to denounce Adam Smith as being a crass, utility-maximization kind of social theorist and not a robust, morally aware social theorist.

WEIDENBAUM: He obviously didn't read or has forgotten Smith's Theory of Moral Sentiments.

REASON: The fact is that Will and other conservatives are now worrying about the administration's concern about liberty and lack of concern about social order.

WEIDENBAUM: Well obviously we're concerned about government setting rules for conduct, contract, etc. I am not a nihilist. I make no bones about it. I think there's a role for government in this society—setting the rules of conduct in various transactions—otherwise it is anarchy. But in this administration I see little danger of going the route of inadequate order.

REASON: Let me come back to economics. One of the criticisms of supply-side economics has been that the capacity of any model to predict that people will do certain things with the income that will be generated out of tax cuts and so on is very meager. Just as we shouldn't believe that the Keynesian model is effective, why should we believe that the supply-side model is going to accomplish what it promises?

WEIDENBAUM: I think you have to make a distinction between the enthusiastic claims of some individual monetarists, whether supply-siders or advocates of any other school of thought, and the specific policies of the Reagan administration. We've avoided putting on rose-colored glasses. We're not assuming that our tax program will eliminate consumption and just generate savings. All we're saying is that the savings rate, which is now terribly depressed—it used to be seven or eight percent and is now down to four or five percent—should be brought back to the seven or eight percent range. People would still consume rather than save the bulk of their income, but not quite as much as they do now. I think it's very modest to hope the savings rate moves from five to seven percent over a period of years. I don't think we're promising too much.

REASON: In many local areas, socialism appears to be making headway. New-leftist economic democrats are taking over such offices as the local planning commissions. Some such planning commissioners are out-and-out, unabashed socialists who advocate rent control and want "community ownership" of various enterprises and so on. Now I know that at the federal level you can't do very much about that, but do you have some reflections on it?

WEIDENBAUM: Rent control is a self-inflicted wound. Just look at what happens to areas that are afflicted with rent control. You don't see an expansion of homes, apartments, or rental property available for people, you see a decline—either a deterioration of the physical stock or a conversion to condominiums as a way of getting out from under rent control. And it's fascinating how some awfully intelligent, educated people can be so dumb that on the one hand they advocate rent control and on the other hand they simultaneously oppose conversions into condominiums when, in a sense, one is the cause and the other is the effect. The trouble is, one thing they cannot do is force people to build new apartment houses for them. So the amount of rental property available in this country is going down.

REASON: Another common practice is to establish so-called cooperatives among the local leftists, and then to go to the federal government to borrow money from such agencies as the National Consumer Co-op Bank…

WEIDENBAUM: An outfit we're trying to eliminate.

REASON: That's right. The NCCB was recently in the news because one of its officials put a lot of its budgeted money into private banks so it couldn't be cut back.

WEIDENBAUM: Oh, they have no sense of financial integrity. It was a most high-handed thing. This official took government money and put it into a private bank on her own because she didn't want the Reagan administration to prevent her from spending it. She knew she was going to do something good with it.

REASON: So there is something that the federal government can do by eliminating some of the money that these local organizations can use for ideological uses?

WEIDENBAUM: We're trying to do that as rapidly as possible. It's totally outrageous. If someone wants to set up a socialist scheme with their own money, I may not approve of it, but it's their money. But to force me to subsidize their socialist experiment—that's tyranny.

REASON: What would you advise people who are interested in the success of free-market-oriented measures to do? Say they have no access to power; they may not be good at writing; they are just hard-working people who would like to see saner economic policies?

WEIDENBAUM: Well, of course in my current official position I can't urge people to lobby, but while I was a professor I used to urge my students, friends, and neighbors to participate in any decisionmaking they could be involved in. If they lived in a local community that was debating whether or not to take over the privately owned utility, I urged them to take a strong free-market approach and not let the activists who wanted to socialize that branch of the economy prevail.

REASON: You mentioned utilities. Now, one of the most outstanding anomalies in a supposedly free-market economy is the existence of so many government-maintained monopolies. Such monopolies give American capitalism a bad reputation, because although the government protects them against competition, they are taken by many—friend and foe—as instances of the capitalist economy. Do you plan to do something about this?

WEIDENBAUM: As a philosophical matter, we share your belief in the free market. In terms of practical priorities, we haven't focused attention simultaneously on each and every activity of the government we've inherited. You see quite clearly an absence of new initiatives in this administration that would extend socialization any further. If anything you see, for instance, an effort to sell off a nationalized part of the railroad industry. That certainly indicates the direction in which we'd like to go. I think of the monopoly that the post office has—it's a subject that private scholars have raised, and it needs more attention. But I just think that when you're in office you have to set some reasonable targets. The direction that we need to go in is quite clear. It's toward less government involvement in economic activity than is the case today.

REASON: Well, thank you very much.

WEIDENBAUM: My pleasure.