A (Better) Government for the People

Bill Whalen: It's Monday, September 16, 2024, and welcome back to Matters of Policy and Politics, a Hoover Institution podcast devoted to governance and balance of power here in America and around the globe. I'm Bill Whalen. I'm the Hoover Institution's Virginia Hobbs Carpenter Distinguished Policy Fellow in Journalism, but not the only fellow who is dabbling in podcasting these days.

On that note, I suggest you go to the Hoover Institution's website, which is hoover.org, click on the tab at the top of the homepage, it says Commentary, then head over to Multimedia. And from there you can go to Audio Podcasts you'll see about a good dozen in all, including this one.

My guest today is Dr. Michael Boskin. Dr. Boskin is the Hoover Institution's Wohlford Family Senior Fellow and the Tully M Friedman Professor of Economics at Stanford University. He also chaired the White House's Council of Economic Advisors during the presidency of George H W Bush, that's Bush 41. He joins us today to discuss something that's at the core of the American experiment, and that would be federalism, the division of authority between national and state and local government.

Now, a year ago, Dr. Boskin convened a conference here at the Hoover Institution to analyze this topic. What was discussed then now appears in the form of a book that he edited and was released earlier this month. It's titled American Federalism Today, Perspectives on Political and Economic Governance.

Michael J. Boskin: Can they just see the cover?

Bill Whalen: There it is, there's the book. Michael, congratulations on the book, excellent timing, by the way. In case you haven't noticed, there's an election about 50 days away.

Michael J. Boskin: Absolutely, thanks, always good to be with you, Bill.

Bill Whalen: Good, before we get into the findings in the book, Michael, and the conference, let's talk a little about design, and how you decided to pull this conference together.

What I'm interested in is participants, which we'll get to in a moment. But first, Michael, in terms of talking about federalism, the timeline, federalism exists in various phases in American history. We could talk about it with the Founding Fathers, we can discuss the Civil War, we can discuss Woodrow Wilson's time in office, Michael.

We can get into the presidencies of FDR and LBJ and Reagan, all who had decided opinions about the role of the federal government or the lack of a role of federal government. But Michael, I turn your attention to something that James Madison said in the the Federalist Papers.

And I quote, the operations of the federal government will be most extensive and important in times of war and danger, those of the state governments in times of peace and security. Michael, that Madison used the words most extensive, not exclusive, so he has tried to draw a line of demarcation, Michael.

But there's a lot of gray area here as well.

Michael J. Boskin: Absolutely, and we tried to delve into that in great detail in the conference and the book. In terms of the organization of the conference and the ideas for the conference, this was an idea George Shultz and I, our former Secretary of State, the late George Shultz and I decided to do shortly before COVID hit.

It was kind of postponed for a bit because of COVID and then unfortunately, George passed, but his imprint on the entire project continues to this day. And what happened was I had been writing a few opinion pieces about the increasing strained relations between central and subnational governments. In the United States, for sure, we'll get back to that in a second, but all around the world, we had Catalonia trying to secede from Spain.

Matter of fact, just recently the socialist premier of Spain cut a deal to get a majority in their legislature by giving amnesty to the people they had arrested. Venice and Veneto threatened to secede from Italy. We've had the Quebecois in Canada quite quiescent for some time, but at various times they've threatened to secede or try to.

The Scots actually voted on secession and voted against it, but they were granted considerable devolution of authority from the parliament in Westminster, and they may vote on it again. In the United States what we've seen is an increasing polarization politically between, as we call them, blue and red states, more liberal, tending to be run by Democrats and governors in office and legislature.

The opposite for the red states by Republicans, they tend to be lower tax, less regulation, the blue states tend to have higher taxes, more regulation, etc. And there's a sort of a natural sorting, which economists say is partially efficient. So people who want lower taxes go where there's lower taxes, people who want more government can come, and then there's a role for the federal government to play, to deal with, for example, people with insufficient incomes to escape poverty or whatever, and it kind of adds that to the mix.

So that's what is going on today, but there's this rich history, as you mentioned. And so we brought together scholars, and participants at times in the government from many different disciplines, from law, former circuit court Judge Michael McConnell talking about what the founders intended, and some detail about how that has evolved and what's stuck to, at least in loose terms, what the founders intended, what strayed.

John Kogan did a wonderful paper on what would the federal budget look like if it had stuck to Madisonian principles and left a lot more things to state and local governments. So we had economists talking about infrastructure, myself and Val Bolotney, healthcare, Tom McCurdy and Jay Bhattacharya, education, Rick Hanyshek, Josh Rao talking about is the federal government on the hook for unfunded state liabilities, and things of this sort.

And then we had a very prominent Pulitzer Prize-winning historian, David Kennedy, talking about the history and how it's viewed. Has it been just an aggrandizement, a continuous aggrandizement on behalf of the federal government, at least in the 20th and 21st century, or is it sort of more complex than that?

And we had a variety of other political scientists talking about how the public views federalism, and we'll get to the findings in a second, but that was a very important finding on the relative level of trust of their local and state government versus the federal government. And then we had three distinguished, and many people would say successful former governors and reformers in various ways, two from one from a swing state, then Jeb Bush in Florida, it's turned a bit red now.

Mitch Daniels in Indiana and Jerry Brown in California, who actually served four terms, two two-term sequences, and instituted some reforms that had some ideas. They've had their ups and downs, they've governed through a variety of disruptions, for example, deep recessions that affected their budgets and things of that sort, and increasing demands to do various things.

And all of them have been involved at the federal level and the local level. Jeb Bush has been a big influence on education reform, which many other states and cities have tried to adopt his reforms that were so successful in Florida. He's also been involved in the relative role of the federal and state government.

Mitch Daniels, of course, was OMB director. Jerry Brown was also mayor and ran for mayor of Oakland and presided over a more competent government in Oakland than we have had recently, and, of course, ran for president unsuccessfully. So they've all been involved in this nexus and had a lot to say about it as practitioners.

Bill Whalen: That's true Michael. I miss Jerry Brown the longer he's been out of office. He stepped down in January 2019 due to term limits. I just wrote a column on this for the Hoover Institution. He's a quirky guy, I think we can agree on that. You've known him for goodness, 50 years, I suppose, by now.

But he does have a way with words, and one of my favorite Brown sayings, which is germaine to September, which is bill signing season in Sacramento. It was a veto message he delivered in 2011, Michael. It was a bill having to do with fining kids $25 if they didn't wear a helmet when they were snowboarding or skiing.

And Brown's veto message was rather withering. What he said, Michael, was, every human problem does not require a law.

Michael J. Boskin: Yeah, he also made probably the most obvious but penetrating comment in the entire conference when he said, what's needed in our federalist system is a giant infusion of common sense.

Bill Whalen: Well put, you mentioned Michael McConnell explaining the founding fathers. Michael, what's the challenge in trying to interpret the founding fathers? Because there is a tendency in this day and age to take people who are no longer with us and try to reject what they would think in this day and age.

I learned this lesson bitterly trying to write a speech for a California governor, long a time about welfare reform and thought it'd be good to talk about what Abraham Lincoln would think about welfare reform. And so I called up a Lincoln historian, and the guy listened to me, and he basically said, Abraham Lincoln would just be lost in this day and age trying to figure out how the 20th and 21st century worlds work.

But in the case of the founding fathers, Michael, they have this line of demarcation between federal and state. But a lot of things have come along in the history of our country that they could not have anticipated, the 1950s, the federal highway system, they didn't have two coasts back in their day.

Obamacare, more recently, back in the 1970s, the guy over my shoulder here, Richard Nixon, creating the EPA, environmental stewardship. So what is the peril? Or what is the risk in terms of trying to say, well, if Madison or Hamilton or Jefferson were around today, they would think X, Y, and Z.

Michael J. Boskin: Well, first of all, I think that my understanding of our founders was that they not only were deeply immersed in creating a country and a tremendous experiment in a constitutional republic that was the first in the world. They were very well read in history. They were very thoughtful, and they came from many different backgrounds.

From owning plantations to being lawyers in Boston, to Benjamin Franklin, who was a great experimenter, started the first insurance company in the United States, and go on and on and on. So they were both people of ideas and concepts and people of practicality. Adam's famous quip, we've given you a republic if you can keep it.

A nation of laws, not of men, if you can keep it, was understanding the strengths and weaknesses of human nature. Which, for all the material and scientific and technological progress, good and bad, horrible world wars in the 20th century, for example, it's still human nature. And we have all of our foibles.

And if you go back to reading Greek history, and Homer, and Plato, and Aristotle, etc, onto their influences from Locke and Hume and Rousseau, the great philosophers, etc. So I think they would have adapted, it's very hard to compare people and say, well, things have changed so much, they never been any good, okay?

Babe Ruth have been a great hitter today, almost certainly, okay? But we don't know different, it's kinds of pitching, lots of other things going on, right? People are bigger, stronger, they have more scientific training and athletics. The same thing is true. So I think that they dealt with complexity, and they had a fundamental concept, and there were, in my view, the two most important of which were balancing and the separation of powers.

So that you had to build consensus to do things, not on the narrowest, mad crowd hysteria, as Madison would have put it, but on practicalities of human nature. And the second is, they wanted processes and procedures that reacted to majority opinion, but had deep respect and checks and balances and restrictions so that minority rights were protected.

Nowadays, given our history and the civil war and Jim Crow, etc, we've moved more to thinking of protecting minority rights as heavily racially based. But also is based on occupation, location, farmers versus industry, and banking on big states versus small states. And set up systems where you have to try to appeal build a consensus, including the middle, which obviously meant practical considerations, not just ideology, would come into play.

So it's my own view that if these brilliant people had been in today's world, they would have the same sense of basic principles that were really important, but reacting to the realities of the world. So with nuclear weapons in North Korea, and Iran about to get one, unfortunately, they would have had an expansive view of the first item you mentioned in Madison.

During times of war, or in this case, they need to deter war, they would have given great weight to the executive branch, right?

Bill Whalen: You mentioned Babe Ruth, Michael, I'm reminded of something that Ty Cobb said later in his life. He was asked by a fan, what would you hit if you were playing baseball today?

Cobb was a 367 career hitter, I think, Michael only said, probably hit around 300. And the guy looked at him and said, really, 300? Cobb said, well, I'm 65 years old.

Michael J. Boskin: Yeah, well, same sort of thing. So I think the founders were onto something, and it's not something, the basic framework they gave us is not something we should easily amend.

Obviously, it has to be adapted a bit, but this becomes a great sense of tension in our country and in many others. Between state and local governments or provincial governments and towns and others in other countries, which are closer to the people's needs and daily needs. And a centralized government, or the federal government in our case, which is in Washington, has lots of power and keeps trying to add to that power in various ways.

Bill Whalen: Right, Michael, let's quickly touch on four topic areas that came up at the conference, the first being infrastructure. I'll admit to a California bias here, Infrastructure interests me in this regard, the federal state role. We've had a rather disastrous experiment in high speed rail, Michael, which stays alive in part from large s, from the federal government.

Michael J. Boskin: Well, that's right, originally, Californians voted a 9 or $10 billion bond for what's supposed to be a $33 billion high speed rail between San Francisco and Los Angeles. 24 billion was gonna come from the federal government and from the private sector. Well, this happened in just 2008/9, I've forgotten the exact year, and then years later.

So first of all, in 2009, we got $3 billion or so from Obama's stimulus program to deal with the deep recession following the financial crisis. And it wasn't really spent till many years later, so it obviously had no ability to help California out of a recession, it was just sitting there waiting to be spent as delays occurred.

And then years later, they broke ground in order not to have to return the money for nonconformance by a certain date. And then there's been bits and pieces built in the Central Valley, but there have been lots of up and down. First of all, the cost balloon, it's now many times what the original cost estimate And not just because of inflation.

Granted, technical difficulties started drilling in the Tehachapi Mountains in an area that never been seismically mapped before. And, whoa, they had problems, they got tremors. So they changed the first stage to be from the Central Valley to San Jose, rather than from the Central Valley to LA. And they've been getting a bits of money in various ways to keep going.

They're hoping to get a bunch more from the infrastructure bill. I guess if Harris is reelected, we'll have to see what Congress will allow. It's just been the biggest boondoggle in the state's history. Not just the ballooning cost, but the ineptitude despite good intentions, by the way. I mean, the basic idea was to decongest the airports and build something.

So now, we may have something in 2050, if we're lucky. That probably would be somewhat obsolete technology. It'd be updated 1970s technology. And it's unclear that it makes a lot of sense. They were projecting huge increases in California's population, which, of course, has been declining in recent years for the first time.

It's unclear, it's needed. It's a boondoggle, I think, ex ante. It was very risky, and we'll see, but I think that those funds could well have been spent in other ways and also to prevent unnecessary tax hikes.

Bill Whalen: But there's an overriding question, Michael, should the federal government be involved in something that's not interstate commerce? This is a state rail system.

Michael J. Boskin: Well, it's a big problem because the way infrastructure, big infrastructure is funded in the United States, there's a lot of federal granting of funds to state and local governments. Generally on a formula that federal government pays 80%, and the state and local government says 20%.

So if you're a state and local official and you've got some project that isn't very good from a cost benefit basis, but you get 25 or 30% of the benefits and only have to pay 20% of the cost. That looks great, but if everybody around the country is doing that, we have a massive system of cross hauling where Californians are subsidizing inefficient stuff in other states.

Taxpayers in other states paying federal taxes, where we'll pay in the future to cover the debt, taxes to fund infrastructure in California that they'll never use. Now, some intrastate commerce does have an interstate purpose, but the money would have been much better spent on, for example, on decongesting ports.

Bill Whalen: Right, okay, topic number two, Michael. Education, and this comes up every four years in a presidential election, Republican presidential candidate, especially if they're very conservative. There's the obligatory line. We need to abolish the federal Department of Education.

Michael J. Boskin: Well, I think the biggest problem in our education system is that we have a large group in our population, primarily in inner cities, primarily minorities, who are getting terrible educations.

It's not all the teachers fault, not all the school's fault, but they pay part of the blame. Some of it has to do with family not being there, lack of anything in the home, etc. But the achievement rates in fourth and eighth grade in our biggest inner city school districts in California, which I know well, are basically a human and potential national catastrophe.

We're talking about 20, 25%, sometimes less than that of some minority students at grade level in those areas. And if you look at what their achievement is, when they get on to AP classes in STEM fields, in technology and math and science, it's criminal. We need to do much better.

And so that's part of our future labor force, and we need to get a big improvement there. And it's not gonna come from pouring more money into the existing system. The existing system is broken. The teachers unions have too much power over it. There are many great teachers.

I'm not degrading teachers here, but they're in a system where we spend lots of money and not a whole bunch of it gets down to the classroom and we have big problems. So I think that we need to strengthen state and local governance, and we need to have the federal government retreat to its traditional role for some specific purposes.

But that's gonna require a greater sense of authority and responsibility and drive from governors in the states where these problems are occurring. And the model is what Jeb Bush did in Florida. He got minority test scores way up with his reforms. Joel Klein, when he was commissioner of the New York City school system, said he was trying to copy those reforms.

So I think there's a model out there, including from one of the participants in our conference, and it's just not enforced enough. Now, I personally believe in more school choice, and I'd like to see that become phased in and become the norm, but I don't think it's sufficient.

I think we're gonna have to do a lot more than that, including not combining that with improvement. Cuz we are long time before, there are lots of private schools to compensate for the huge fraction of the populations of public schools with merit pay and outcome based performance. And things of this sort that will drive reforms.

One of the participants in our book, Rick Hanyshek, has been doing lots of work on analyzing, and Caroline Hoxby, who is not in the book, lots of work on analyzing what works and what doesn't and how to improve things. Rick in particular has also done an analysis of the harm done by the school lockdowns during COVID which again is tragic.

Bill Whalen: Right, lost learning. Topic three Michael, healthcare financing.

Michael J. Boskin: Well, healthcare is a big issue and it's a huge cost. And even at the federal level, there needs to be a much more efficient and effective way we're taking care of people who need it. I do believe that trying to put all the financial burden on states will be very difficult getting to there from here.

But there are ways to provide much greater transparency about pricing, much greater transparency about outcomes, much greater transparency of what's needed. And a variety of other reforms that are sketched out in the book. But with an aging population, it's just not practical to think they're gonna be able to have total spending between the federal and state and local government.

And your household be a lot less than it was or the same as it was 20 or 40 years ago when the fraction of the population over 65 and increasingly over 85 was much smaller. Now, there are ways we can help people save to deal with that so they're not so dependent on these transfers.

But it's just not sensible. As a practical matter, given the data facts and what the demography has been, that we have drastically reduced federal spending. We can do reforms that prevent it from growing more rapidly and reduce it some. And that should be a high priority of the federal and state governments working together.

Bill Whalen: And finally, Michael, and this might be the most important of all, because if you wanna do infrastructure, education, healthcare, financing changes, you need this one, which is trust in government. And the timing here is good because we're recording this on Monday, the 16th, the day after what happened down in Palm Beach, which of course has people wondering, my goodness, what is the Secret Service doing?

Michael J. Boskin: Well, trust in government's really important and it shouldn't be taken for granted. It has to be earned, and we should expect governments, federal, state and local, to have to earn it by their performance, by their effectiveness, by being more efficient. By helping people thrive in their private capacities, not always getting in the way on the one hand, and being there as a last resort when there are problems, not as a first resort.

So it has an important role to play. And trust is an outcome, it's not a given, and it can't always be bought, yes, there's some in Washington would like to buy it with specific favors and so on, earmarks and big spending, etc. And that may work a little bit on the basis of the recipients.

But the fact of the matter is people look at the government and they see a lot of waste, outright fraud, which occurred during the pandemic. For example, California seems to have been the worst state, where there are tens of billions of dollars of fraudulent payments made in a joint federal program, unemployment insurance, same in Medicaid, etc.

So the federal government has to take that seriously.

Bill Whalen: Well put, let's talk now about how you actually implement these reform ideas. And I want to turn your attention, Michael, to the idea of federal commissions. And here, Mike Boskin knows very well how commissions work, because back in 1995, I believe it was, Michael.

There was a thing called the Boskin Commission, which sure sounds a lot better to the tongue than the much stuffier advisory commission to study the consumer price index. But while that might sound like government goblet gook, your commission was doing something important, Michael, which was you and a handful of economists.

I think there are five of you altogether, if I'm not mistaken. You were tasked with looking into something quite important, which is how the government goes about doing cost of living estimates, which is usually important in terms of budget estimates and Social Security.

Michael J. Boskin: That's right, and it's also hugely important in understanding our history and our progress.

Bill Whalen: Right.

Michael J. Boskin: So there were many problems with the way the consumer price index, and price indexes in general were being measured and their use, of course, to get measures of real GDP and productivity. So it's not just inflation plays a key role in our understanding of the economy.

And if you go back to the simple supply and demand diagram you first encountered in high school or college, we have a price and a quantity. But what does that mean when goods are continually evolving, when goods disappear and new ones show up, when they're more energy efficient, when they require less maintenance, that has to be factored in.

And also when the price of some things go up relative to others, beef relative to chicken, rail versus truck transportation, etcetera, which is in the producer price index, you have to pay attention to that and adjust for it. And we were doing some of that. And the statistical agencies are serious people trying to do things, but they have very specific rules and requirements, and this was causing big problems.

So we recommended a series of reforms that lead to greater accuracy in measuring inflation, some of them were adopted. So the current inflation rate is going up about a half a percentage point or three quarters of a percentage point less than it would have if they hadn't adopted our recommendations.

And this is influencing grievances around the world. The Germans have in their constitution price stability. So the central bank of Germany had a delegation come talk to me about that, so they were playing around with how they were trying to improve their measurement. So it was deeply important, and the key thing was we had serious people, it was small enough, maybe there are some estimates that the optimal size of a committee is around five.

So you have enough diversity, bring different points of view, but you're not bogged down in a lot of inefficient hot air being espoused by 50 people.

Bill Whalen: Right.

Michael J. Boskin: So we took this seriously and we developed a very careful analysis, very careful understanding what would be practical down to.

We all went out to see how things were being measured in department stores and grocery stores, just to make sure, number one, that we understood it. Number two, we wouldn't be accused of being a bunch of airheads from academia, didn't know the real world. So it had a big influence.

And we've had others that have had an opportunity. The Simpson Bowles commission that President Obama appointed try to deal with a budget deficit and make recommendations. And had a bipartisan group of people came up with a very good set of recommendations. Is that everything conservative Republicans would have wanted to know it had some increased revenue.

So everything that Liberal Democrats would like know it had entitlement reform. But it was very sound, very sensible, and actually, the way it got more revenue was to broaden the tax base, not to raise the tax rates. And that framework was intellectually prevalent back in the 1970s and early eighties.

In fact, a former presidential candidate and New Jersey governor, and obviously, pardon me. Senator and famous basketball player Bill Bradley had his version of what became the Kemp Roth bill that President Reagan instituted, which I helped design his tax policies back then on his tax policy task force.

So that framework was very good and should have been passed, but President Obama decided he couldn't live with it and yanked it, even though he had appointed the commission. But we desperately need some big reforms in our budget. We now have a huge deficit right now in fairly prosperous times.

Unemployment's creeping up a little, but we're still in pretty low unemployment times since World War II. If you look at every administration adjust for that business cycle, which presidents have not a lot to do with. You'd see that the highest since World War II was Obama and then Trump was higher, and now Biden has topped that.

Bill Whalen: Right.

Michael J. Boskin: So it's not being caused by a recession. In fact, Biden's proposed on the war part, Biden's proposed cutting the defense budget in inflation adjusted terms every year. Fortunately, the Congress has added a bit, but it's $100 billion less in inflation adjusted dollars than it was in 2011.

And now we have China, Russia, Iran, North Korea, perhaps even in there as well. But they're a much bigger issue than we had in 2011. We're still focused on terrorism, which is important, but now we have the big military risk from big powers around the world. So with all that said, we need to really have a look at this, we need more bucks for Pentagon.

We need more bang for the buck from the Pentagon and every agency in the federal government. There's a lot of waste and fraud, there's no line item for waste and fraud, that's for sure. But there's a lot of waste and fraud and just as bad, there's a lot of ineffectiveness.

We're not carrying out what the goal of the law was, what the goal of the agency is. They've grown into something adjacent that they're not very good at. And as a part of that at the federal and also at the state government, which I'm sad to say California is a leading example of.

They're trying to be so many things to so many people that they're not doing the core functions really well.

Bill Whalen: Right.

Michael J. Boskin: Core functions that all of us have come to expect and believe that's the basic function of government. These other things are nice to have if we can afford them and if they don't screw things up too much.

But as we try to broaden the scope and be all things to all people and spend more freely and regulate and mandate when we can't get what we want by spending. We've wound up damaging the ability of governments at all levels to carry out their core functions well and adequately funded.

Bill Whalen: Michael, California at all times offers cautionary tales, as you and your colleague John Kogan have written about for years in the Wall Street Journal. I'd point you to one recently, which would be the California Task Force on Business and Jobs Recovery. Governor Newsom's heart's in the right place.

We need to look at how COVID struck businesses, how we could do things better. But Michael, in terms of building a better mousetrap, he creates a commission, a task force, as he likes to call it, a 100 members. I don't know how many people you've had on the Zoom call Max, but 100 people on a Zoom call it just doesn't work.

And Michael, they did issue a report. Zero new initiatives in it, and really no ideas for how to better protect California's economy. Having said that, you were involved in a California-based commission several years ago, the so called Parsky commission, formerly the commission on the 21st century economy, you and John Kogan were on that, a report brimming with ideas.

But here's the challenge to do with commissions, Michael, you could come up with great ideas, but if there's neither a sense of urgency or the political will, it doesn't see the light of day.

Michael J. Boskin: Well, that's certainly correct. It can be an out for politicians to say they're doing something by appointing a commission and then ignore it, that's always a risk.

There is one thing that's worth remembering. Sometimes good ideas, even if they're not adopted immediately, are there when there is a sense of urgency later on, and people are scrambling for good ideas. For example, Milton Friedman had long proposed an all volunteer army and took Marty Anderson, my late Martin Anderson, who was my Hoover colleague, being President Nixon's domestic policy advisor and putting that idea in his head for finally to take place.

We just celebrated the 50th anniversary of that, welfare reform is another important example, Mister Justice Brandeis had this great idea, the states, as laboratories of democracy, they should try things out, if they worked, other states can emulate them. And by the way, other states, not necessarily the federal government.

So Tommy Thompson, then the governor of Wisconsin, got a waiver to try some new ideas in welfare, with work requirements and time limits, et cetera. With some training and other things to assist people to get into this better state of affairs, and get on their feet and get into the job market, and that became the model for the 1996 welfare reform.

So there are examples of this, and some of the three governors we had at the conference have these ideas, and some really could spread even more to other states beneficially. And some could help the federal government understand, what it could do better and what it should get out of the way of.

Bill Whalen: Okay, Michael, as I mentioned at the beginning, there is an election coming up? Whoever wins that election will have a couple of months to figure out what to do when they take office, and it's the 100 day challenge, the first year challenge. And I suspect that some of the authority matters we've been talking, but if I could make you the Czar of this new presidency, if I could give you a wand and orbit a scepter and let you start creating commissions and addressing problems, tell me two or three problems you'd go after.

And I think you've already mentioned one, which is government waste and government inefficiency.

Michael J. Boskin: I think President Trump, if he's elected and if he follows through, has a very good idea in having Elon Musk share something, that really takes a deep forensic dive and tries to weed out as much inefficiency and ineffectiveness as we can in the federal government.

I personally think on a ten year time scale, the first couple of trillion dollars would be pretty easy to do. But that's too much detail to get on this call.

Bill Whalen: Right.

Michael J. Boskin: So that would be one, but it would also be part of a three pronged effort.

One would be based on what to do about our spending, including entitlements, Social Security, Medicare, Medicaid, how to reform those while keeping their best features, making sure people that need them aren't effective, that any changes are gradually introduced over a span of time. So, people before they become retirement age and eligible for those things, have some planning they can do so they're not affected abruptly and slows the growth of these.

And institute some sensible, more market oriented reforms and decrease in government bureaucracy and overreach. That would be sort of spending side, parallel to that would be on the tax side. What can we do to include a larger, broader tax base of people and activities? So we have to deal with the question of do we want to have a really broad based tax or a tax that has lots of deductions and exemptions?

We should talk about those individually and collectively. And if we are gonna need more revenue in the future, we should do that in a way that relies primarily on broadening the baseline, on raising rates. We don't want to decrease incentives to work, save, invest and innovate in our economy.

And one of the big problems we have is the basic discussion of the tax code. This is something really important. They talk about static distribution tables, somebody's rich, middle income or poor, and they ignore the fact that many people who are very well off today started out with not much, okay?

And built something that was really valuable and created a lot of opportunity and jobs for people and wealth and income for people over time. That model Adam Smith taught us is really important. He famously said, it's not, this is an approximate quote. It's not to the beneficence of the butcher, baker and brewer, that we owe our daily dinner and brew, but to their regard to their self interest.

So the taxes that are being proposed on capital here, are taxes also on people getting ahead and becoming better off.

Bill Whalen: Right.

Michael J. Boskin: If you have to sell your business prematurely, if you have to borrow a lot of money to pay taxes on accrued capital gains that haven't brought out, at some point, that's going to really heavily impact the economy.

So we have to have a more honest debate about what's actually going on in the economy, than the simplified discussion of it. And there are plenty of ways, the tax code reform, I was involved in 1986 tax reform, and it broadened the base and kept rates and actually lowered them and kept them low.

And I think that's really an important hallmark of a good tax system. The last thing I would say is, as part of all this, the most fundamental role of government, and as Madison said, this relies heavily on the federal government. There's a counterpart at the state and local level, and that is the security of the country, our national security.

If we have to, God forbid, fight a war, we should be able to win it, quickly and get it over with and stop the problems that caused it. More importantly, we also have to deter it, and we can't deter it if our military is, despite it, being the most capable in the world, still, our adversaries are gaining, and that gap's shrinking.

The Chinese have a bigger navy than we do, and it's focused just on Taiwan and the South China Sea, well, we have to be spread in several places. I can go on and on with that, the age of our jet fighter fleet, etc. We need to recapitalize, we need to do a better job of getting innovation and technology that's primarily now coming from the private sector, not from the government, more rapidly into the defense procurement process, etcetera.

And so we need to focus on strengthening our military, which is unfortunately going to require some more top line money. But it's also gonna require the Pentagon and the Congress as overseer and oversight responsibilities, to loosen up some of the inflexibilities it's imposing on the Pentagon. To enable our military to expand, improve and rewiden that gap that is worryingly shrinking.

Bill Whalen: Our colleague here at Hoover, Michael, Neil Ferguson, the evident historian, has what he calls the Ferguson law. And the Ferguson law, Michael, is that a great power come the time, the great power is spending more money, dealing with debt payments than it is investing in its military, it ceases to be a great power, and United States has crossed that line.

Michael J. Boskin: Absolutely, recently started paying more on the federal government interest payments on our previously issued debt, than we're spending on our military. And there's two sided problems. We need to reduce the growth of our debt, getting the budget closer to balance, and increasing our military spending. But the quid pro quo for that, and more importantly, what's desperately needed for our security is helping the Pentagon become more effective and efficient in what it's doing.

Bill Whalen: Final note Michael presidential politics, you in a past life, you did debate Rep. for a presidential candidate, did you not?

Michael J. Boskin: Well, for a couple of. I helped Prep President Reagan first debate with Jimmy Carter. I was one of the three questioners in a barn in Virginia set up as a debate studio with David Stockman playing Carter.

And that all went, I thought, exceedingly well. Reagan was extremely impressive in that. And, so I was a young economist. George Will and Gene Kirkpatrick were the other two questioners. And in the actual debate, he got asked some of the questions or versions of the questions, not exact, but I got asked, and I was horrified.

He made the three main points in the wrong order. It was pretty naive back then. And, of course, it was a home run that he understood the question quickly and was able to answer that adroitly. And I also obviously helped prep President Bush at times in various ways, not so much in the studio, but feeding into questions and in discussions in the Oval Office.

And I was part of an economic advisory group to George W Bush, and we fed in some ideas, as did George Shultz, I know. So, I've done that many times. And I think, for better or for worse, Vice President Harris had a very low bar to clear. She wasn't Joe Biden, unable to speak, and she wasn't her word salad self.

That was her caricature as vice president, however accurate that may or may not be. Of course, she dodged the main questions. The first question was, are Americans better off? President Trump had an opportunity to nail her immediately on that, but he went on to some other things. He did more or less at the end with, why didn't you do this?

But also, she was a tie breaking vote in the Senate for all the spending bills that caused the high inflation. So, he missed an opportunity there. He had what he thought was debate prep, which was not as much time in a studio, etc. And I'll leave it to others to decide about that.

But I think he could have hit the nail on the head a little harder had he had a few more specific facts that documented his case. And I think she did what she wanted to do, was give the appearance of somebody who was capable in speaking, debating with Trump.

And dodging the serious problems she had in her earlier record of being quite far left on lots of issues. And on the Biden, Harris record, which there's a reason they dropped using the term Bidenomics, because of some of the problems that it caused, right?

Bill Whalen: Michael, you and I share some political DNA, which is George HW Bush in 1992.

You were in the White House trying to help him with a sluggish economy, in 1992, I was a few blocks away on the Bush quail reelect campaign. Which meant that you spend your days cursing at the campaign, and we spent our days cursing at the White House. And so it went, I think Michael go teach an entire course on the dysfunctionality of that campaign.

It really was quite something.

Michael J. Boskin: They never figured out how to deal with Ross Perot.

Bill Whalen: No, they never did. But also, it's a long story. He was just sluggish to run for reelection. He didn't like to campaign.

Michael J. Boskin: He definitely liked governing and not campaigning. There's no doubt about that, exactly. And that was an issue.

Bill Whalen: But in March of 1992, Michael, the president goes to the Detroit Economic Club. You may have worked on this speech for all I know. And he gave a big address on the economy, laying out what was going on and what he wanted to do.

You read it 30 years later, it's decidedly 1990s. He's talking about things like the North American Free Trade Agreement, CAFE standards in Michigan, and so forth. But the point, Michael, is here's a president doing what presidents used to do. They would go to a club like the one in Detroit and give a big speech on economics and talk to very smart people in economics and just show presidential thought and insight.

Fast forward to 2024, Michael, I don't think Donald Trump has given a detailed speech on the economy. Kamala Harris has given a quote unquote speech.

Michael J. Boskin: He actually gave a talk at the Economic Club of New York.

Bill Whalen: Okay, he gave a talk. Kamala Harris has given a quote unquote speech.

But it was really part of a campaign rally in New York. Where's the Detroit Economic Club? Why aren't we doing this or am I just an old man lost to the previous generation?

Michael J. Boskin: No, I think that was important. It's important to get out and talk to people and not just business community and the economic club, so on.

You have to talk to ordinary people. You have to be in venues where that's going on. That's why there are a variety of town halls, which, however you feel about how the networks and their anchors dealt with the debates. And the town halls at least gave some exposure to ordinary people asking questions in a way that affected their life, even if they weren't the way that was erudite in a policy context.

So I think it's important. But former President Trump, gets out on the campaign trail a lot and talks. And he talks for a long period of time, goes through a lot of things. I personally wish he would tone down some of the stuff that he does and focus more directly on a variety of things.

But he has his, I guess, his purposes and his personality, as does Vice President Harris. The word is that they're trying to protect her from having to do that. And so far, it seems to be doing pretty well. Whether it hold up to the end of the election, who knows?

But I do know the next president will be dealing with lots of important issues, and they range from the economic issues, including the budget. What will they do on spending, on taxes, on regulation, on who will they appoint the next Fed chair if President Trump has said he's not gonna reappoint, Jay Powell.

By the way, after the Fed being late, has done a good job in dealing with inflation, got interest rates up to the point where inflation is coming down and heading in the right direction. And most people think they'll start lowering rates at their next meeting next week. So we'll have to see.

But it's really an important issue that has not been fully laid out. And one of the big problems is that people talk about the deficit and debt. But it's convenient for politicians to try to pass the buck to somebody else in the future, some future legislature, or our children and grandchildren.

That's really a big problem, especially in an era where the debt is so large. The last time we had debt this large was in world War II. In its immediate aftermath, three quarters of the last three years of the war were funded by debt. That's a big problem, and it's just easy to pretend you're doing something about it and not.

I think Trump has laid out some good ideas about that. I think Miss Harris is mostly desirous of big tax increases. I think they'll raise a lot less revenue than she's proposing, and they'll do some pretty bad damage to the economy. But the debt and deficit's getting large enough where it eventually will cause some problems with the economy.

We've seen this notion that the left pedaled intellectual left, modern monetary theory, deficits don't matter. The Fed can print all the money it wants nothing will happen. And that's obviously proved untrue by what happened in 2021 to 2223 where we had the worst inflation since World War II.

There's no American under the age of 60 who has a worker, an investor, a manager, a household budget manager, policymaker, had ever experienced anything like that in their entire working life. The last time we had a place like that was in the early 80s.

Bill Whalen: No, Michael, many, many years ago, I was sitting in a meeting with you and some other fellows.

I think we're talking about California. And came out of the meeting and had a phone call with a mutual friend of ours and he said what did you do today? And I said, well, I was in this meeting and here's what Mike Boskin said, X, Y and Z.

And there's a pause, my friend said one thing you need to know about Mike Boskin, he's usually the smartest guy in the room.

Michael J. Boskin: Well, that's gracious of you to say. I try to understand what's going on and try to explain it in terms people, whatever audience I'm dealing with, whatever group I'm dealing with understands and I try to be constructive.

That's a tradition here at Hoover. George Schultz, Condi Rice and others have laid a great template to follow.

Bill Whalen: And you're about to add something to your portfolio? I understand you're about to get in the podcasting business. This yourself?

Michael J. Boskin: Well, we're gonna do a podcast with the three governors who were so influential as practitioners of federalism.

And I think it'll be extremely interesting if people have an opportunity to hear how they view the challenges they faced, how they dealt with them, how they view the aftermath. Hopefully, they'll get into a little bit of how that might affect what we should be doing now at the state and at the federal level.

Bill Whalen: Going back to baseball, I now feel like Wally Pip.

Michael J. Boskin: Okay, great.

Bill Whalen: You're smiling cuz you know who Wally Pip is.

Michael J. Boskin: Absolutely.

Bill Whalen: To those who don't, Wally Pip is the answer to the question of who played first base for the Yankees before Lou Gehrig.

The story goes, Michael, I think it's 1925, he has a headache, or something, he's out of the lineup that day. Young kid named Lou Gehrig goes in and the next 1314 years he's the first baseman. I think that's the last game Wally Pip played for the Yankees.

Michael J. Boskin: And he became known as the Iron Man, Lou Gehrig, until Cal Ripken broke his record many years later as the Oriole shortstop for the most consecutive games played.

Yeah, he went out when he was hurt, he kept playing. He didn't stop playing at some minor injury, or whatever. And he was a great example, he also famously had the disease that now bears his name, ALS. And in a farewell speech in Yankee Stadium, a full house of 60,000 people and millions watching on television, he famously said, I feel like I've been the luckiest man on the face of the earth.

So he was quite an example for all of us.

Bill Whalen: A great book written on him by a fellow named Jonathan Ig, who used to write for the Wall Street Journal called Luckiest Man, if anybody's interested. Michael, enjoy the conversation. Dave, congratulations again on the book, and let's do this again soon.

Michael J. Boskin: Thanks, Bill. Hope everybody enjoys hearing about it. And federalism and a sensible balance between the national government, the sub-national governments is a hugely important issue in political and economic governance, and we can do better.

Bill Whalen: You've been listening to matters of policy and politics at Hoover Institution podcast devoted to governance and balance of power here in America and around the globe.

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The title of the book we've been discussing once again, American Federalism Today, Perspectives on Political and Economic Governance. It's available at Hoover Institution Press, that website is hooverpress.org. For the Hoover Institution, I'm Bill Whelan, we back soon with a new installment on matters of policy and politics, until then, take care, thanks for listening.

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