Bush Flunks

For Bush, a Blast from the Ivory Tower
A B-school professors' letter flunks the President on economic smarts. An added sting: It began at Harvard, his alma mater
George Bush, America's first President with an MBA, has been slapped on the knuckles by 169 concerned business-school professors. In an open letter sent on Oct. 4, the senior business and economics professors say Bush's economic policies are taking the country in the wrong direction. The academics, including two Nobel laureates, are especially critical of the budget deficit, which this year is projected to come in at more than $400 billion.

The unkindest cut of all: The idea for the letter began in the faculty offices of Harvard Business School, where Bush earned his diploma in 1975. The architects were Harvard professors of a required, first-year MBA course called Business, Government and the International Economy, which teaches the ins and outs of responsible fiscal and monetary policies and the ways in which politicians' decisions can impact society.

"WRONG DIRECTION."  "The data make clear that your policy of slashing taxes -- primarily for those at the upper reaches of the income distribution -- has not worked," the letter says. "Nearly every major economic indicator has deteriorated since you took office in January, 2001...[and] if your economic advisers are telling you that these deficits can be defeated through further reductions in tax rates, then you need new advisers."

"Politically desirable policies can have negative economic effects," says Debora Spar, professor of business administration at Harvard, and one of the early signatories. "If you look at [the U.S. economy] in a purely analytical way, just at numbers, they're all heading in the wrong direction."

All the professors who signed the letter -- and more signatures are expected next week -- are tenured or emeritus, and 50 hail from Harvard. (Harvard Business School says the views are of faculty members who chose to sign the document, not of the institution.) Two signers are Nobel laureates -- Harvard's Robert Merton and William Sharpe, an emeritus professor from Stanford -- and two have won Pulitzer prizes.

MORE TAXES, LESS SPENDING.  Harvard professors David Moss and Louis Wells, who drafted the note, say the signatures aren't purely partisan. "Many of us thought that as we moved closer to an election, there would be more serious discussion about the economy," says Moss. But when political discourse turned to Kerry's combat record in Vietnam and the unrest in Iraq, "there was a view that it was our responsibility to focus attention on the economy," Moss adds.

The professors had different reasons for deciding to become pundits. Theresa Lant, who teaches management and organizational behavior at New York University's Stern School of Business, points to policies she thinks are "potentially destabilizing." Michael Cusumano, a professor of management at Massachusetts Institute of Technology's B-school says: "I think almost every policy the Bush Administration has undertaken is wrong, whether it's economic or military."

What should Bush do? The letter doesn't spell it out exactly, but the signers point to the basic economics textbooks Bush would have read in the 1970s: Reduce the budget deficit before it starts to act as a dead weight on the economy and forces interest rates higher. That means spending cuts and tax increases. "You can't have long-term tax cuts and have spending continue to grow," Wells adds. Or as the letter says, "from a policy standpoint, the clear message is that more of the same won't work."

CHICAGO SKEPTIC.  The professors' letter also expresses concern for the widening gap between the haves and have-nots in America: "Some degree of inequality is inherent in any free-market economy, creating positive incentives for economic and technological advancement. But when inequality becomes extreme, it can be socially corrosive and economically dysfunctional.... With all due respect, we believe your tax policy has exacerbated the problem of inequality in the United States, which has worrisome implications for the economy as a whole."

Some professors passed on signing the letter. Randall Kroszner, who teaches economics at the University of Chicago Graduate School of Business and was a member of President Bush's Council of Economic Advisers from 2001 to 2003, certainly won't be adding his name. He says the letter ignores or dismisses the factors that were outside the control of the Bush Administration, such as corporate governance scandals, the 2001 recession, and the costs arising from September 11, including the war on terror.

What's more, Kroszner says the signing professors' assumption that a deficit leads automatically to higher interest rates and inflation is simply wrong. "We have recently had robust economic growth, but when you read the letter, you'd think that we've been in a major recession," he says. "We've had particularly strong growth in the past few quarters," and interest rates remain low.

LOW GRADE.  Yet others say the letter could have gone further. What about job losses to overseas outsourcing and record levels of consumer debt, asks Daniel Smith, interim dean at Indiana University's Kelley School of Business?

Bush hasn't responded to the criticism. But one thing is clear: If the President were to visit his alma mater and present his case for spending and cutting taxes, many professors "wouldn't give a stellar grade by any stretch of the imagination," says Spar. For a school known for its apolitical approach to business issues, this Harvard experiment is one that Bush may want to take to heart.

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