This is the beginning of a section of my book, The Confiscation of American 
Prosperity


The National Bureau of Economic Research
	Supply side economics was unique because the basic theory largely emerged 
from outside of the economics discipline.  For the most part, economists do not wait 
for right wing activists to package a theory for them.  They are perfectly capable 
of defending business interests on their own.  These home grown theories have a more 
long lasting effect than the brief burst of supply side economics.
	In recent decades, no organization, not even Ely's American Economic 
Association, has been more influential in shaping the economics profession than the 
National Bureau of Economic Research.  Thomas Edsall, a distinguished journalist who 
was surveying the changing political scene in 1984, concurred:  "Perhaps the most 
prestigious of the institutions that have helped to push the economic debate to the 
right is the National Bureau of Economic Research" (Edsall 1984, p. 118).
	The original purpose of the National Bureau of Economic Research was 
entirely different.  In 1920, the founders' objective was not to narrow economics 
down to a business friendly dogma.  Instead, they intended "to conduct economic 
research effectively on a factual basis."  They reasoned:  "In these days of 
conflicting economic opinions and skillful propaganda, the interests of economic 
knowledge can best be served by the presentation and analysis of data, objectively 
collected and interpreted.  Unless some guarantee of impartiality can be given, 
results will be viewed with distrust by many" (Mitchell 1936, p. 7).
	Toward this end, the Bureau aimed at discovering the truth by including as 
wide a range of people as possible, "from extreme conservative to extreme radical 
who should associate with them representatives of all the important organized 
interests in the country" (cited in Fabricant 1984).  Within a few decades, however, 
the Bureau fell considerably short of its goal of inclusiveness.
	Although the noble idea behind the National Bureau of Economic Research    
to examine every aspect of economic knowledge    would seem to exclude political 
involvement, only a few years after its creation, the Bureau began its collaboration 
with Herbert Hoover.  The Bureau maintained a rather progressive perspective at the 
time, but as its political engagement became more institutionalized, its political 
leanings turned more conservative.
	Since 1945, two highly placed economists have almost continually dominated 
the Bureau.  The first of these economists, Arthur F. Burns, a close friend and 
teacher of Milton Friedman, became Director of Research in 1945, where he remained 
until 1953, when President Eisenhower appointed him as head the Council of Economic 
Advisers.  After three years, he returned to academia and then served as president 
of the Bureau for ten years.  In 1969, President Nixon first appointed Burns as an 
economic counselor, and then one year later named him chairman of the Federal 
Reserve Board, where he served from 1970 to 1978.  Incidentally, Burns was also the 
mentor of Alan Greenspan, a more famous leader of the Fed.
	Burns played a highly political role at the Fed.  He used his powers to 
stimulate the economy to ensure Nixon's reelection, even though this action was 
certain to create both inflation and dangerous imbalances in the economy after the 
election.
	Later, Burns tried to explain why he had not managed to stem the 
inflationary tide in a famous lecture, melodramatically entitled, "The Anguish of 
Central Banking."  In this central banker's retrospective equivalent of the Powell 
memo, Burns held the unruly behavior of the masses to be ultimately responsible:
		But the rapid rise in national affluence did not create a mood of 
contentment.  On the contrary, the 1960s were years of social turmoil in the United 
States, as they were in other industrial democracies.  In part, the unrest reflected 
discontent by blacks and other minorities with prevailing conditions of social 
discrimination and economic deprivation    a discontent that erupted during the "hot 
summers" of the middle 1960s in burning and looting.  In part, the social unrest 
reflected growing feelings of injustice by or on behalf of other groups    the poor, 
the aged, the physically handicapped, ethnics, farmers, blue collar workers, women, 
and so forth. In part, the unrest reflected a growing rejection by middle class 
youth of prevailing institutions and cultural values.  In part, it reflected the 
more or less sudden recognition by broad segments of the population that the 
economic reforms of the New Deal and the more recent rise in national affluence had 
left untouched problems in various areas of American life social, political, 
economic, and environmental.  And interacting with all these sources of social 
disturbance were the heightening tensions associated with the Viet Nam War.  [Burns 
1979, p. 690]
Burns endorsed Reagan's inconsistent promises during the 1980 campaign that the 
Republicans could raise defense spending, cut taxes, and still balance the budget.  
Later, he explained to Herbert Stein that he did so because "if you dissented from 
it, your whole usefulness in the organization was lost" (Judis 2000, p. 150).
	In 1977, the National Bureau of Economic Research turned to Martin Feldstein 
as its next president.  To his credit, Feldstein was not one to construct abstract 
models with no connection to reality.  However, his work is more openly ideological 
than that of the abstract model builders.  Throughout his career, Feldstein has 
carefully constructed his models to make the case that government activities, such 
as the collection of taxes and especially the maintenance of Social Security, create 
destructive disincentives that weaken the economy.
	Feldstein carefully used the Bureau to further his own political agenda.  
Even Arthur Burns was moved to criticize the new turn of the Bureau.  Burns 
maintained that the institution once confined itself to objective research, ignoring 
policy issues and acting as a check on Federal statistics, but he lamented that 
"work of that kind does not come across my desk from them anymore" (Golden 1980).
	A recent article in the monthly magazine of the International Monetary Fund 
referred to Feldstein's approach as "supply side lite" (Loungani 2004).  Feldstein 
himself offers a different account, explaining:  "I'm a true supply sider ....  At 
the time, some of the extreme statements people were making were giving it a bad 
name" (Bernasek 2004).  In short, Feldstein offered supply side policy 
recommendations, but with a patina of academic respectability.
	Feldstein first came to national attention in 1974, the same year that 
Arthur Laffer produced his famous napkin.  Feldstein published a model that "proved" 
that Social Security caused enormous losses for the US economy.  According to 
Feldstein, Social Security was reducing personal savings by 30 to 50 percent.  He 
estimated that if Social Security had not existed, the stock of plant and equipment 
in the United States would have been as much as 50 percent larger and total personal 
income 20 percent greater than the level in 1971 (Feldstein 1974).  Since Social 
Security had only been functioning 24 years at the end of the time period that his 
data covered, Feldstein's article implies that the present effect of Social Security 
on total personal income today would be far higher    perhaps almost 50 percent 
since the program has had another 35 years at the time of this writing.

Michael Perelman