08/12/2009 - Pew’s new Economic Policy program was established to address certain critical issues—and it has a plateful.
With the nation, and the world, in a severe economic crisis, the programs operated by Pew’s Economy Policy department seem almost to be taking their cues from the front page. Program initiatives include real-time monitoring of the Troubled Assets Relief Program’s bailouts to banks; an examination of the impact of the new administration’s policy proposals on the federal budget and deficit; and an analysis of efforts to regulate the financial services industry.
In fact, however, the department was established at a time when the Dow-Jones Industrial Average was at an all-time high (although dark clouds were gathering on the horizon, notably in the housing market). Trust asked John E. Morton, Economic Policy’s managing director, to describe his program’s development.
Trust: It may seem eons ago, but what large ideas were simmering in economic policy in 2006-07?
Morton: Back then, even though the U.S. economy was growing, its dynamics were precarious. It was clear to us that, in issues ranging from free markets to trade and subsidies, tax policy and national competitiveness, the health of our economy would depend on the development and enactment of economic policies that shared broad, bipartisan support. New issues have arisen, but that premise has not changed.
Trust: And the Economic Policy program could provide . . . ?
Morton: First and foremost, data and analysis. We focused initially on economic mobility, because a mobile society has always been identified as central to America’s economic DNA. Our playbook was drawn directly from J. Howard Pew [one of The Pew Charitable Trusts’ founders], who believed in free markets and a well-informed citizenry. “To me, free enterprise is a noble and simple thing,” he said. He was referring to an individual’s right to improve his or her status in life through initiative and hard work. Today’s shorthand for that concept is the American Dream, and we asked: “Is it alive today?”
The idea was to forge bipartisan agreement on the facts, figures and trends on economic mobility. After all, this is an issue that unites the right, left and center. This spotlight turned out to be both timely and important—and recognized. The Boston Globe, in an editorial during the presidential campaign last year, said, “Few barometers should motivate the next president more than the ongoing Pew Economic Mobility Project.”
Trust: By Election Day, the economy had already begun what has become a staggering turn for the worse.
Morton: And Economic Policy’s initiatives that had been in the planning stage for months suddenly became as timely as the day’s headlines. While the drumbeat of bad news hasn’t dictated our agenda—our mission remains the promotion of policies and practices that strengthen and ensure the future competitiveness of the U.S. economy—it is certainly, and appropriately, influencing the direction.
Trust: How is Economic Policy carrying out its agenda?
Morton: Through two new lines of work. One is the Fiscal and Budget Program. It elevates fiscal responsibility as a primary element of federal executive and legislative leadership, promotes reforms to the budget process that enable greater transparency and supports policies that are critical to ensuring the nation’s long-term fiscal health.
The other is the Markets Program, which is developing a strong, bipartisan fact base to chronicle the full extent of government involvement in markets. It will illuminate the ways the federal government engages in the market economy through such measures as subsidies and regulation.
The goal is to reveal how government resources are used to support a range of interests in the national economy—and help Americans make informed decisions about how they should be allocated.
Trust: What has the Fiscal and Budget Program done to date?
Morton: Our first effort was US Budget Watch, a two-year initiative in which we’re partnering with the Committee for a Responsible Federal Budget. The first phase was ensuring that the long-term consequences of the two presidential candidates’ fiscal proposals were kept front and center during the campaign, as I described.
Now, it has taken on a watchdog function that provides ongoing and timely analysis of the administration’s policy proposals as they impact the federal budget and deficit. Its Web site, USbudgetwatch.org, has become much-visited, and we will continue our work through the release of the president’s next budget in March 2010.
Early this year, in partnership with the Peter G. Peterson Foundation, we established the Peterson-Pew Commission on Budget Reform to make recommendations for improving the congressional budget process. The last time there was budget-process reform was in the late 1960s. Since then, the budget has not only grown but also become far more complicated.
The commissioners include budget experts—they are former directors of the Office of Management and Budget, and of the Congressional Budget Office—and former elected officials, so they really understand the flaws and loopholes in the process and how they got there.
Trust: What sorts of problems?
Morton: One good example is obligations that are left out of the budget. For example, Congress funded the costs of the war in Iraq by means of emergency supplemental legislation; these costs were predictable, and yet they were omitted time and time again from the regular budget.
Trust: What else is the commission looking at?
Morton: Making sure that Congress actually passes a budget, improving budget review and oversight and strengthening budget enforcement. We’ll also recommend changes in accounting standards, which now are inconsistent and outdated.
Overall, we’re trying, in a sense, to re-establish the rules of the road: speed limits, police patrols, consequences for breaking the rules. Currently when lawmakers hold up a bill, there is little or no public knowledge or compulsion to get them to get the ball rolling.
The current budget process has extraordinarily little transparency, accountability or predictability—yet it’s the single most important process for allocating trillions of dollars every year. Our recommendations won’t solve the Medicare or Social Security crises, but they’ll be necessary steps to ensure that the decisions that come out are predictable results of a responsible process.
Trust: With the stimulus budget pumping money into the economy to end the recession, is this really the best time to talk about fiscal responsibility?
Morton: As strange as it sounds, on the spectrum of fiscal responsibility, there are better places and worse places even as you engage in a massive stimulus. You’d be hard-pressed to find any economist saying that paying down debt should be our top priority today. But you can stimulate the economy in ways that are more productive and less fiscally irresponsible— for example, through programs that have long-term job creation and payback. That bridges the partisan divide between those who say “Stimulate right now” and others who say “We should be a little more careful about where we put this money.”
Trust: Are you also exploring ways to reduce spending as well as improve the process?
Morton: We’ve just launched a project, the Economic and Fiscal Data Analysis Initiative, that we hope will help address overspending by raising awareness of the trillion-dollar annual deficits the nation is running. There’s a dangerous lack of nonpartisan analysis of the long-term budgetary and fiscal consequences of proposed legislation. Without sound analysis, lawmakers on both sides of the aisle will continue to take positions without fully appreciating the economic impact of their votes—and taxpayers will foot the bill.
We’re not going to come out for or against specific legislation. That’s not our role. Instead, we want to provide reputable, timely data and analysis about the impact of various measures on the nation’s long-term fiscal health.
Trust: What projects has the Markets Program rolled out?
Morton: The first was Subsidyscope, which focuses on the role of federal subsidies—both direct payments and through loan guarantees and tax policy—in the economy. It had always been our plan to spend two years pulling together data on seven discrete industries—agriculture, housing, defense and so on; financial services, banking weren’t even on the list. But events conspired to change that. Initially we focused almost exclusively on the Troubled Assets Relief Program, but we’re already getting into transportation and housing, our original agenda.
Most of these data don’t exist in consolidated form anywhere; much is not even public. Working with our technology partner, the Sunlight Foundation, we are obtaining lots of good information through Freedom of Information Act requests. Only after we’ve aggregated the data will we begin to analyze them to determine the efficacy, impact and cost-effectiveness of the subsidies.
Trust: And what is your second project under Markets?
Morton: Our newest is the Pew Financial Reform Project. Even before this crisis, we had targeted the economic consequences of regulation as an issue we wanted to study. The thought was that, with the regulatory pendulum already beginning to swing back toward re-regulation, we wanted to ensure that there was good, solid economic analysis behind its implementation. We know it’s important to rebuild confidence in the financial markets. At the same time, we want to avoid inefficient over-regulation as we close some of the loopholes.
Morton: The aim of this project is to bring rigorous fact-based analysis to the financial reform debate on Capitol Hill. We support an independent, bipartisan Task Force of eminent experts to thrash through the issues and produce consensus recommendations wherever they can, and a clear analysis of differences where they lack consensus. The Pew Charitable Trusts takes no position on the Task Force’s recommendations.
First, we will be looking at past experiences of crisis and policy reaction like the 1933 Glass-Steagall Act, which was a response to the Great Depression, and the 2002 Sarbanes-Oxley Act, which addressed the accounting and governance scandals of Enron and WorldCom.
We will also be looking at the causes of the current crisis. There’s a growing recognition in Congress that we need to understand better how we arrived where we are before we design an entirely new structure.
Third, we’ll be doing some real-time analysis of the pros and cons of alternative reform proposals as they are developed and considered by Congress.
Trust: Do you worry that things are changing so quickly that it’s difficult to get on top of this crisis?
Morton: Our projects, timely as they are, also have staying power. As a department, our intent is not to be tied to the daily headlines but to build the fact bases, data sets and reputation that will allow us to pivot to a more active advocacy position in the next couple of years. We’ve plotted a course that’s sound and relevant for good and bad times.
Pew is no longer active in this line of work, but for more information, visit the main Pew Financial Reform page.