openDemocracy: Why did you write the open letter to President Bush?
Louis Wells: It originated with two or three people. Three or four weeks ago a few of us realised that we have very similar concerns about current economic policy and we took the decision to express these concisely and clearly for an audience that was not highly technical, but also not economically illiterate. We started circulating it among friends within the business school faculty and were surprised by the degree to which others agreed with it; pretty quickly more than fifty faculty members had signed the letter. When we opened the letter for signatures from professors at other business schools, 113 more signed within 72 hours.
We would take signatures only from tenured and emeritus professors. We wanted no possibility that it looked as if someone was being pressured to sign. Tenured faculty members are those who cant be fired except for moral turpitude or similar. So theyre not subject to pressure from the Dean or anyone else. Emeritus means retired. All of the emeritus professors who signed had also been tenured. So nobody can put pressure on them either.
George W Bush is the first United States president with a Masters in Business Administration (MBA). But 169 concerned business-school professors including three Nobel laureates, and a large portion of the senior faculty at the Harvard Business School where Bush earned his diploma in 1975 say he is making potentially disastrous choices in the country whose business is business.
These scholars sent an open letter to President Bush on 4 October 2004. They are especially critical of rising social inequality and of the budget deficit, which in this fiscal year is projected to reach more than $400 billion. The open letter to the president can be found at www.openlettertothepresident.org.
In a separate initiative, ten Nobel economics prize-winners have written a letter in support of US presidential candidate John Kerry; read it here
openDemocracy: Tenure requires a certain level of quality; you have to go through a very rigorous process of peer review to achieve it.
Louis Wells: True, but that wasnt our real concern. We dont think were really necessarily better than anyone else!
openDemocracy: Some fifty-six Harvard Business School staff signed. What approximate proportion of tenured and emeritus professors do they represent?
Louis Wells: Its hard to say. There are more or less ninety active tenured professors at Harvard. Emeritus professors are a little harder to count; its not easy to assemble a complete list and to reach them. They die off; others dont use email, for example.
openDemocracy: How widely accepted are the economic arguments in this letter? Theres an old joke about two economists and three opinions.
Louis Wells: The basic arguments are almost universally accepted by serious economists. And a lot of the people who didnt sign didnt sign for reasons that are different from disagreeing with us. There are people who dont ever sign any kind of open letter. There are people whose outside affilitations made them cautious about signing.
At the Harvard Business School we teach by the case method. And we often say that cases dont have right or wrong answers. In fact, many of our cases quite clearly have wrong answers. But they dont have only one acceptable answer. Long-term deficits are a wrong answer.
People who signed the letter might promote different alternative policies. Some would perhaps support tax cuts and decreases in government spending to offset them in the long run. Others would probably support continuing with the old tax rates or maybe even higher tax rates and also continuing to spend to deal with social problems, defence problems, infrastructure problems.
So we intentionally did not say what the right solution was. We think thats a political question where our signers might have different views. But the current policy is a bad one.
A political act?
openDemocracy: Randall Kroszner at the University of Chicago refused to sign the letter. He told a journalist at Business Week that the letter ignores or dismisses factors outside the control of the Bush administration such as corporate governance scandals, the 2001 recession, and the costs of the war on terror. Kroszner says the assumption that a deficit leads automatically to higher interest rates and inflation is simply wrong.
Louis Wells: Its not a very careful response to what the letter actually says. The letter does not say short-term deficits are bad. Keynesian ideas are deep enough that most of us think its OK to run short-term deficits in a recession. As long as the economy is not fully recovered, its clear that deficits neednt lead to higher interest rates.
What bothered those who did sign the letter is the permanency of the tax cuts and therefore the likelihood that the deficits will continue on into a recovery.
Obviously the economy will recover at some point. But if we continue to run big deficits there is large inflationary pressure, which means monetary policy is the only stabilising tool and the only way to counteract the pressure is by tightening money supply, leading in turn to higher interest rates. I think thats pretty widely accepted.
Kroszner has jumped on the short-term part and I dont disagree with him. In the short term you do not get higher interest rates. But hes ignored the main issue.
openDemocracy: Do you accept that this is a very political letter? After all, you are saying a candidate for president of the United States is wrong, and many people would draw the conclusion that youre saying he shouldnt be re-elected.
Louis Wells: Thats up to somebody who reads the letter. We did not endorse a candidate unlike the ten Nobelists who wrote a letter in support of John Kerry.
openDemocracy: What responses have you had from President Bush, people in government, or from bodies that influence the government?
Louis Wells: We were interviewed by CNBC and they said when they approached the White House about the letter, the response they got was, in effect, a bunch of ivory-tower liberals who shouldnt be listened to. To which I replied that its pretty unusual to consider business schools as hotbeds of liberalism. The HBS is on the right bank of the Charles river, not the left bank like most of the university!
One thing I forgot to say to CNBC: I wish the administration wouldnt do what it so often does, which is attack the messenger rather than dealing with the issues that are raised.
Nevertheless, people are clearly reading the letter. More than 60,000 have come to our website, and the text has been reproduced on a lot of other sites. Business Week has reported on the letter. So has the Financial Times. The New York Times has mentioned it twice. Its now slowly beginning to appear in local papers across the United States.
An economic red light
openDemocracy: The Harvard Business School is considered the highest centre of excellence in its field. I understand it is strictly non-political in most circumstances. But an insitution like the HBS, not necessarily known as liberal, has a significant place in American public life. When it makes a statement of this kind, what are the repercussions?
Louis Wells: Do note that theres a disclaimer that we represent our own views, not those of the insitution. And thats true. We were careful and must remain careful to keep that clear. Members of the faculty speak out with some degree of frequency on things they think they know something about whether its accounting standards or something to do with capital markets.
On issues with bigger political implications, the last time I can remember a letter signed by a number of faculty members from the business school was during the Vietnam war.
openDemocracy: Many people who are rising or have risen to the most senior positions in corporate America are graduates of the Harvard Business School and institutions like it. What impact if any would a letter from their former professors have on people like that.
Louis Wells: Speaking for myself, precisely what I wanted to do was to reach those corporate executives. I wanted them to think seriously about the implications of what long-term deficits would be for the economy, and that its something they ought to be concerned about.
This is in no way a claim that business leaders are different from other people. Like most of us, they easily go for the promises of tax cuts, and it takes a little push to get them to think through the implcations.
Those of us who signed the letter only want a higher level of discussion of what the implications are.
openDemocracy: Full disclosure here: my sister, Rebecca Henderson, is one of the signatories. I talked to her about the letter. She said that she thought a letter of this kind coming from the people it did would be sufficiently surprising that people would actually notice. She also added that the only feedback shed had so far was from a student asking whether it was a fraud!
Our conversation brought to mind another question. In at least one of the televised presidential debates John Kerry said he would raise taxes only on people who earn more than $200,000. Im curious. Do business professors earn above or below that level?
Louis Wells: Would I be hit by it? Yup.
openDemocracy: And youd be happy with that?
Louis Wells: Yes
openDemocracy: And you think that would go for many people who signed the letter?
Louis Wells: I cant speak for others.
openDemocracy: But you must know broadly what people earn?
Louis Wells: Im sure that a substantial number of our faculty would be hit by it. A lot of our faculty earn a good deal through outside activities like consulting. They may not be signing in their very narrow sense of self-interest. But it would be a very narrow sense. Personally, I think Im better off with a healthy economy.
Theres another, larger point in our letter that few people seem to have noticed: the question of income distribution. The United States has the worst, in the sense of uneven, income distribution of any of the industrialised countries. Now we dont blame that entirely on the Bush administration. Its the result of a trend that has been going on now for almost two decades.
openDemocracy: Wasnt it partly reversed during the Clinton years?
Louis Wells: Id have to look at the data, but over the whole period inequality increased slowly and rather steadily. Now tax policy is perfectly consistent with the increase. Its not the only thing thats causing it of course. But we do think that it is something that ought to be of concern because at some point poor distribution of income leads to populist political movements.
Were not saying the society is going to break down, but you get political reactions that are unhealthy. We dont know at what point that comes, but certainly being the worst of the industrialised countries is not a very good thing.
openDemocracy: Its reported that some 19% of Americans believe they are in the top 1% of earners, and another 20% believe they soon will be.
Louis Wells: Yes. The general level of understanding is low. For one thing I dont think people know what the Gini coefficient is! Weve had to explain that a number of times, and I cant do it without a piece of paper!
This interview took place on 18 October 2004
For further information and background:
- Amity Shlaes, a columnist on the Financial Times, argues that the ten Nobel laureate economists who wrote an open letter endorsing John Kerry are in words from their letter reckless and extreme [(17 October 2004 (subscription only)]
- Benjamin M. Friedman in the New York Review of Books anatomises the different fiscal strategies of the presidential candidates and their political significance
