Gotcha Questions for Martin Feldstein’s Confirmation Hearing

In late August and early September 1982, just after I started as a senior economist with President Reagan’s Council of Economic Advisers, Eric Hemel, special assistant to the chairman of the CEA, asked me to work my way through a large part of Martin Feldstein’s published work to help him anticipate “gotcha” questions that Senator Ted Kennedy and others on the Democratic side might use to go after Marty at his confirmation hearing.

Going through old memos recently, I found a September 13, 1982 memo to Eric in which I reported on 5 articles that Kennedy and others might use. Although Marty started in the job the day after Labor Day, he officially became chairman on October 14.

Here’s my memo:

September 13, 1982

From: David Henderson

Subject: Questions on Feldstein Material

To: Eric Hemel

Here are the questions that you asked me to generate on the basis of Martin Feldstein’s main ideas. I did not get into most of his proposals for Social Security reform (with the exception of the trust fund) because I am sure that others will prepare questions on that area.

  1. You said in an article in the May 20, 1982 Wall Street Journal that “Unemployment is the price we must pay to undo more than a decade of inflationary policies.” Are you willing to throw people out of work just to reduce inflation?

  2. In that same article, you said: “The perception that the government would accept 8% to 9% unemployment–about two percentage points over the natural unemployment rate–for three or four years in order to eliminate inflation would almost certainly bring inflation down so fast that it would be unnecessary to pay such a high cost.” [DRH note in 2021: Marty turned out to be right on this one. Also note how high he thought the natural unemployment rate was.] What if you’re wrong, and it does take three or four years of 8 or 9 percent unemployment to eliminate inflation? Would you, as the Chairman of the CEA, be willing to recommend such a policy to the President?

  3. You wrote in an article in the Journal of Political Economy (August 1979) that “if the inflation rate is above its optimal level, the economy should then be deflated to reduce the inflation rate regardless of the temporary consequences for unemployment.” Does this mean that you would be willing to put 20 million workers out of work for three to four years in order to reduce the inflation rate by one tenth of one percent? [I meant “one tenth of one percentage point” but I was trying to write it the way Kennedy’s staff might.]

  4. In an article in the Harvard Business Review (March-April 1975), you stated that “The favorable incentives of experience rating [of unemployment insurance] could be strengthened by removing the ceiling on the employer’s rate of contribution” so that firms with unstable employment would pay more than firms with stable employment. Given that the auto, rubber, and steel industries are all composed of firms with unstable employment, this would mean that if your proposal were implemented today, you would raise taxes on such firms. Do you advocate increasing taxes on firms that are currently in a slump?

  5. In that same article, you said: “Because the cost [to an unemployed person] of additional waiting time and search time is so very low, the unemployed worker is encouraged to wait until there is almost no chance of a better job.” Are you saying that American workers are cheaters who would abuse the unemployment insurance system? Try telling that to the unemployed auto worker who would love to get a job but who can’t find one.

  6. In an interview with Business and Society Review (Fall 1976), you said that “We could raise the tax rate over the next, say, five to ten years by more than is necessary to finance current benefits, and use the surplus to accumulate a fund which would be used to retire federal government debt already outstanding in the market.” Do you still advocate such a tax increase? Will you do so within the Administration?

  7. A recent article in the Journal of Political Economy (June 1982) by Leimer and Lesson called into question your claim that social security has reduced personal saving by 50 percent. You admitted that you had made an error in your original study, but still stuck with your conclusion. How do you justify that? How to you reconcile your evidence with that of other economists who say that there is little or not effect of social security on saving?

I had heard great things about how well Kennedy’s staff prepped him. But as I recall, Kennedy’s gotcha questions were on issues like whether Marty knew his monthly electric bill. (Kennedy was trying to establish that Marty was rich and, therefore, wouldn’t have much sympathy for or knowledge of the average worker’s economic situation.)

My gotcha questions were much better.