NCPA - National Center for Policy Analysis

Economists Haven't Been Successful Treasury Secretaries

July 7, 1999

On July 2, Lawrence Summers was sworn-in as America's 71st secretary of the treasury. He holds a Ph.D. in economics from the Massachusetts Institute of Technology and was a professor at Harvard University. However, history shows that in times of economic turmoil, academic credentials may not be an asset for a treasury secretary.

The first professional economist to be treasury secretary was George Shultz, appointed by Richard Nixon in 1972. Shultz also holds a Ph.D. from MIT. His predecessor, John Connally, had launched a disastrous trade war against Japan, pressured the Federal Reserve to pump-up the money supply to stimulate the economy, and then put on wage and price controls in 1971 to contain the inflation that the money growth was causing.

Shultz opposed all those policies, but was not very successful in cleaning up the mess. The wage and price controls broke down and inflation exploded. The economy fell into its deepest postwar recession just as Shultz left office in 1974.

The second professional economist to serve as Treasury secretary was Michael Blumenthal, appointed by Jimmy Carter in 1977. Blumenthal holds a Ph.D. in economics from Princeton University, where he taught before going into business.

Carter also tried to get the Federal Reserve to stimulate the economy. He appointed G. William Miller chairman of the Federal Reserve, where Miller strongly pushed an easy money policy despite rising inflation. Blumenthal opposed the easy money policies, but in order to move Miller from the Fed, Carter fired Blumenthal and replaced him with Miller. (Ironically, one of those who undermined Blumenthal was Carter's Chief Domestic Policy Adviser Stuart Eizenstat, who has been nominated by Bill Clinton to be Deputy Secretary of the Treasury.)

Thus neither of the professional economists who preceded Summers had very successful careers as Treasury secretary. Maybe Summers will escape their fate.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 7, 1999.

 

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