An Academic in Washington

How did you wind up in Washington?

Well, that involves, I think, the phenomenon of networks in the United States or in any society. First of all, I think that my choice of graduate school was very important to everything that happened to me thereafter. MIT has an outstanding reputation in the field of economics; its students are very well placed at the best institutions around the country. So I first had a job at Princeton, then I had a job at Berkeley. I started to develop my reputation for being both an effective teacher and for asking interesting questions. That led to my being invited, at a certain point, to teach for a year at MIT and then to teach for a year at the Harvard Business School. At Harvard Business School I got to know Bob Reich, who became Secretary of Labor, and who was a very close friend of the Clintons. And it was really that network which led me to being introduced to the President when he was a candidate. From there on it turned on the issue of what kind of cabinet did he want, what kind of economic advice did he want, whom did he feel comfortable with.

How would you characterize the differences between the realm of politics and public service, and the realm of academic life? Here you were, a professor at Berkeley and all that that conjures up. Then for the next four years you're at the very top in Washington. What was the difference?

My husband claims, and I guess I would agree with him, that my ability to get through in Washington, my ability to do well in Washington, was not really predictable. I didn't have any experience or history which would have suggested that I would go into this environment of political figures and convince them that I had reason to be in the room, or convince them that I had reason to be at the table. Again, I would go back to the special nature of my assignment. I felt that what I did in the university, which was to explain economics, to explain trade-offs ... I never try in my teaching to tell people the right thing to do. I try to help people develop the logic to make that decision on their own. So a lot of what I try to do in the classroom, or in consulting I did with business leaders before I went to Washington, was to explain the economic trade-offs and help them think through a decision. I just did the same thing in Washington. I guess the other thing that is true is that I did believe, and this may be about who I am as a person, I certainly believed in what we were doing. And because I believed in what we were doing I was very energetic and able to defend it, to explain it, to try to convince people that we were doing the right thing.

In Washington you earned a reputation as a communicator and an analyst. One of the things you were quoted as saying is that what you do best is present the facts at odds with public perception, that you felt very comfortable in that role. Let's talk about your reactions and experiences in confronting the irrational symbolic side of politics, where people really don't want to look at the evidence, they don't want to look at the facts.

Well, I think that I had different roles in the administration. I did a lot of representing the administration with the national media, the print media and the television media. And there I felt that, as I mentioned before, the key thing was credibility. And therefore, if I presented the facts and tried to present them in a clear and unbiased way, and tried to defend my presentation when called upon, then that's what people wanted to hear. They didn't want to have me posturing.

At one point I went to a conference, as an administration official, in Aspen. It was a big conference primarily of very high ranking Republicans. The speaker before me was Senator Dole. I was the only Clinton administration official who was there and it was not a supportive audience, it was quite a hostile audience. But I actually won over a lot of the audience. Not that I convinced them to change their positions, but they believed that I was earnestly trying to explain the situation, how I understood it, why we were doing what we were doing.

And frankly, the other thing you need to do as a professional economist is recognize all the time the limitations on our knowledge. Nothing is perfect. So you say, "We think this kind of tax increase" (that's always been the big issue with Republicans) "while it was not our goal to come in and raise taxes on the top 1.5 percent of the American population, we felt that given all of the economic and political constraints that we confronted, the only way to get this deficit reduction path in place was to accept this. It was a trade-off." Were Tyson with Robert Rubin at a press conference there costs to that? Sure. There were political costs, and there were even some economic costs. And if you say that to people, so you've given them a full representation of the situation, they're more likely to believe you.

Now, inside the halls of the administration, that approach also worked very well, just going in and taking the arguments and facts and trying to present trade-offs. Where it worked less well, and perhaps not well at all, was in testimony before Congress. Because testimony before Congress really is much more about posturing and criticizing or defending than it is about explication or understanding.

What idea did you take to Washington? I know that right before you went you had written this book, Who's Bashing Whom? Do you think that what you did in Washington on those issues was consistent with what you had written? Or did your ideas about the way things work change when you were in Washington?

I think by and large there was consistency. I do think that you learn when you're in that situation what is feasible and what is not feasible. And the feasibility limitations can actually be from political constraints. So let me suggest where it's consistent and then some of the constraints. Where it's consistent is, there is a lot of criticism of that book by people who never read it and who claim that I was protectionist, that I was a heavy enthusiast of industrial policy. Basically what the book says is that most of the U.S. economic competitive loss which occurred between the mid-1980s and the mid-1990s was self induced, that the main things we should worry about were getting our macro economic house in order, continuing to spend on research and development, and working to bring down trade barriers around the world -- not build them up here but bring them down. That where we had serious bilateral conflicts. Particularly with Japan and with the Europeans, we needed to not assume that we would be better off if they broke the rules or didn't play by the rules. We needed to recognize that it was in our interest to use our negotiating policy, and rarely but occasionally the threat or actual use of the sanction, to get them to change their behavior. I think we behaved in Washington very consistently with all of those policy views.

Now, where would I say limitations existed (I mean, just on the example of trade policy issues)? We did develop a sectorally oriented trade approach with Japan. Now, I would say that there was a lot of debate about what sectors should be on our sectorally oriented approach. Some sectors, I think, fit my notion of what should be on there and some didn't. Why did ones get on that didn't fit my notion of high technology and research and development and forward looking? Well, because there are political reasons why things get on a list as well as economic. So I say that's a feasibility constraint. Maybe that just means that some of the decisions are made on economic logic and some of them are made on political logic.

As you navigated this transition and you watched ideas that you have had in the academy apply, what surprised you most about political life? Anything in particular about the way ideas work their way through the system?

Well, I guess I have a couple of examples.

Back in 1993, when we were talking about how much deficit reduction to introduce into the president's budget proposal, there was a big debate about whether it mattered to the economy if we had a $500 billion target or a $480 billion target. And the reason this became a hot topic was because, in order to get to the $500 billion target, we had to do some really undesirable things, like make the tax-rate increase retroactive. I argued that with a $6 trillion economy, $20 million over five years is nothing, it's minuscule. And that argument was overruled by the notion that the only way we could make this politically sale-able (this was not just the administration's position, it was the Democrats in Congress), the only way we could get the Democrats in Congress to support us was to make it a certain figure, a figure itself which had no particular economic logic. So I learned a lot from that experience, because I would bring in all this evidence....

Another example, in 1996, someone in the Treasury had proposed that we eliminate capital gains on housing as a tax simplification measure, because Americans who buy houses and do make improvements, when they sell the house it used to be the case that you had to show all your improvements, keep all those records, so you could show what your actual capital gains are. We were looking for tax simplification ideas. Well, over time, over the course of 1996, this idea moved from a tax simplification idea to a tax break. It's not really a tax break. Most people actually never paid capital gains on their house. Most people didn't even keep the paperwork. But it became a tax break, and the Republicans also proposed a tax break. So here's a tax proposal which had a very small significance in terms of simplification. It has no merit in terms of economic effect. And it became something that is now part of the tax code. The most interesting thing about that is that, to my knowledge, this was not because there was a ground swell of support for such a position. This actually came from the top down rather than from the bottom up. A very interesting phenomenon.

Next page: Tackling the Issues