WASHINGTON - Senior Bush administration adviser Glenn Hubbard abruptly resigned on Wednesday as chairman of the White House Council of Economic Advisers, rounding out a shake-up of President Bush's economic team. The White House quickly nominated Harvard University's Gregory Mankiw, a veteran of the Reagan administration, to replace him. If confirmed by the Senate as expected, Mankiw will play a leading role in trying to shore up support for the president's sweeping tax cut plan. The plan, crafted in large part by Hubbard, has run into stiff opposition from Democrats and some Republicans worried about growing deficits at a time when the United States is preparing for a costly war with Iraq.
Hubbard's departure followed last year's rapid-fire resignations of Treasury Secretary Paul O'Neill, White House economic aide Lawrence Lindsey and Securities and Exchange Commission Chairman Harvey Pitt. The shake-up comes as the U.S. economy struggles to regain momentum after a business-spending led recession in 2001 and a halting recovery last year. "I am writing to inform you that I shall resign my position as chairman of the Council of Economic Advisers, effective February 28, 2003," Hubbard said in a letter to Bush. "This decision is a difficult one, as serving you in the campaign and in this post has been the greatest honor and privilege of my professional life, but family needs are my most significant concern."
While Hubbard was based in Washington, his wife and young children remained in New York, where he returned on weekends. White House spokeswoman Claire Buchan said Hubbard planned to return to "academia" but offered no details. Hubbard, who has served as chairman of the Council of Economic Advisers since May 2001, has told colleagues he is likely to return to Columbia University, where he has been a member of the faculty since 1988. A rising star in Bush's economic team, Hubbard was a chief architect of the president's $695 billion tax-cut package proposed by last month in a bid to bolster both the economy and his chances for reelection. The proposal, the centerpiece of which calls for eliminating the double taxation of corporate dividends, has received a lukewarm reception from many lawmakers and an openly hostile one from Democrats.
In a blow to the White House, Federal Reserve Chairman Alan Greenspan said it was "premature" to apply a fiscal jolt before it was clear whether the economy was chiefly weighed down by worries about an Iraq warm, and warned of rising deficits. "Clearly there's a feeling that selling the new economic agenda is going to take some new firepower," said Republican consultant Scott Reed. He said once a war with Iraq is completed, "all eyes will be focused on getting this economy growing again as we head into a presidential election. The new economic team is the key to this president getting reelected.
RESEARCH ON DEFICITS
Along with Hubbard's letter of resignation, the White House issued a brief statement announcing that Bush intended to nominate Mankiw to take over as chairman of the council. Mankiw, 45, has been a professor of economics at Harvard University since July 1987. He served as a staff economist for the Council of Economic Advisors in the first administration of President Ronald Reagan from 1982 to 1983. Some of Mankiw's recent research has dealt with Social Security, inflation targeting for central banks and the effects of budget deficits. He co-wrote a 1998 paper, entitled "The Deficit Gamble," that argued government budget gaps do not put as much pressure on interest rates as many economists believe. "The historical behavior of interest rates and growth rates in U.S. data suggest that the government can, with a high probability, run temporary budget deficits and then roll over the resulting government debt forever," the paper said.
"This conclusion does not imply that deficits are good policy, for an attempt to roll over debt forever might fail. But the adverse effects of deficits, rather than being inevitable, occur with only a small probability." In contrast, in testimony before Congress earlier this month, Greenspan warned that a surge in government red ink could bring higher interest rates on consumer loans, particularly on mortgages. Mankiw received his bachelor's degree in economics from Princeton University in 1980 and a doctorate from MIT in 1984. He has written two popular college economics textbooks, "Macroeconomics" and "Principles of Economics." Together, the books have sold about a million copies. Mankiw lives in Wellesley, Massachusetts, with his wife and three children. He is a research associate with the National Bureau of Economic Research and an adviser to the Federal Reserve Bank of Boston and the Congressional Budget Office.///