William Arthur Niskanen was an American economist noted as one of the architects of
President Ronald Reagan's economic programme and for his contributions to
public choice theory. He was also a long-time chairman of the libertarian
Cato Institute.
(March 13, 1933,
Bend, Oregon – October 26, 2011,
Washington, D.C.)
Education
Niskanen received his
B.A. from
Harvard University in 1954. He pursued graduate study of economics at the
University of Chicago, where his teachers included
Milton Friedman
and other prominent economists who were then revolutionizing economics,
public policy, and law with ideas that would come to be known as the
Chicago school of economics. Niskanen received his
M.A. in 1955 and his doctorate in 1962, writing his dissertation on the economics of alcoholic beverage sales.
[1]
To Washington
After Chicago, Niskanen joined the
RAND Corporation
as a defense policy analyst in 1957, using his economic and
mathematical modeling skills to analyze and improve military efficiency.
Among his accomplishments was developing a 400-line linear programming
model of the Air Force transport system. His programmer for the model
was a young
William Sharpe, who would later win the Nobel economics prize.
[2]
Because of his work at RAND, the incoming Kennedy administration appointed Niskanen director of special studies in the
Office of the Secretary of Defense. There, he became one of Defense Secretary
Robert McNamara's original Pentagon "whiz kids" who used statistical analysis to examine Defense Department operations.
[1]
During his time at the Pentagon, Niskanen became disillusioned with
the nation's political leadership, later claiming that the president and
other executive branch officials "lied with ... regularity" to the
public. He frequently quipped that this disillusionment sometimes caused
him to question whether the United States truly landed on the moon in
1969.
[3]
Niskanen left DOD in 1964 to become director of the Program Analysis Division at the
Institute of Defense Analysis. In 1972, he returned to public service as assistant director of the
Office of Management and Budget, though his internal criticisms of Nixon administration policy would make his tenure at OMB short.
[4][5]
Academia
Niskanen left Washington and returned to academia, becoming professor of economics at the
University of California at Berkeley in 1972, where he would remain until he became chief economist of
Ford Motor Company
in 1975. While at Berkeley, Niskanen would help establish the school's
graduate school of public policy. During this time in California, he
became acquainted with then-governor
Ronald Reagan, who appointed him to a task force on the state's economy.
[1]
Following his dismissal from Ford in 1980 (see below), Niskanen returned to academia, this time to
UCLA.
[6]
Ford Motor Company
In 1975, Niskanen was appointed chief economist at the Ford Motor Company under chairman Henry Ford II and president
Lee Iacocca.
[1]
He quickly became critical of Ford's corporate culture and its failure
to follow consumer trends, such as the 1970s desire for more
fuel-efficient cars because of rising gas prices resulting from
OPEC constraints on oil supply.
Foreign automakers, especially the Japanese, were quick to exploit
American consumers' demand for more fuel-efficient cars, gaining a
growing share of the U.S. market in the 1970s. Ford responded by asking
the U.S. government to place import quotas on Japanese cars. Niskanen, a
free-trade advocate, argued internally against this policy, saying that
Ford needed to improve its products in light of consumer demand. In
response to this criticism, Ford fired Niskanen in 1980.
[1]
Reagan administration
However, Niskanen would not be out of work for long. Incoming president Ronald Reagan appointed Niskanen to his
Council of Economic Advisers,
which was responsible for conducting and analyzing economic research to
inform executive branch policies. The appointment was surprising given
Niskanen's hawkishness on deficits and concern about military
spending—views that conflicted with Reagan policies.
Niskanen's blunt-spokenness both inside and outside the CEA sometimes
caused problems. In a speech before a women's group in 1984, he
commented that women's leaving the workforce to raise children
contributed to a disparity in pay between the genders. Though broadly
accepted and empirically supported today, Niskanen's comment was
condemned in 1984, including criticism from Democratic presidential
nominee
Walter Mondale, who claimed it exemplified a lack of respect toward women by the Reagan administration.
[7]
The following year, another of Niskanen's blunt comments would
ultimately lead to his departure from the Reagan administration. During
the negotiations over legislation that would ultimately become the
Tax Reform Act of 1986, Niskanen internally criticized the administration proposal that was drawn up by the Treasury Department under Secretary
Donald Regan,
telling President Reagan in front of Regan that the proposal was
"something Walter Mondale would love." Regan took offense at the comment
and, after becoming Reagan's chief of staff, blocked Niskanen's
ascendancy to chair the CEA after
Martin Feldstein
left to return to Harvard. Niskanen served as acting chair for a brief
period, but then resigned from the CEA. Niskanen later chastised Regan
as "a tower of jelly" in his book
Reaganomics.
[8]
Cato Institute
After leaving the Reagan administration, Niskanen joined the
libertarian Cato Institute, where he served as chairman of the board of
directors from 1985 to 2008 and was an active policy scholar. He was
chairman emeritus of Cato from 2008 until his death in 2011.
[9]
In March 2012, a dispute broke out between Charles and David Koch and
Niskanen's widow, Kathryn Washburn, over the ownership of Niskanen's
ownership share in Cato.
[10][11]
Scholarly contributions
Niskanen was a prominent contributor to public choice theory, a field
of both economics and political science that examines the behavior of
politicians and other government officials. Public choice eschewed the
traditional notion that these agents are motivated by selfless interest
in the public good, and instead considered them as typically
self-interested, like other agents. His chief contribution to public
choice theory was the
budget-maximizing model
-- the notion that bureaucrats will attempt to maximize their agency's
budget and authority. He presented this theory in 1971 book
Bureaucracy and Representative Government.
[9]
Publications
Niskanen authored several books, academic articles, and essays on government and politics. His most noted work,
Bureaucracy and Representative Government, published in 1971, made a great impact on the field of
public management and strongly challenged the field of
public administration in the spirit of
Ludwig von Mises's
Bureaucracy. The book was for a long time out of print, but was reissued with several additional essays as, William Niskanen,
Bureaucracy and Public Economics (Cheltenham, UK: Edward Elgar, 1994). Niskanen's work was an early text in
rational choice models of
bureaucracy. In his work he proposed the budget-maximizing model.
[citation needed]
Another of his noted works was his 1988 book
Reaganomics, which describes both the policies and inside-the-White House politics of Reagan's economic programme.
Washington Post columnist Lou Cannon, author of the biography
President Reagan: The Role of a Lifetime, described the book as "a definitive and notably objective account of administration economic policies."
[12]
Niskanen's final book was
Reflections of a Political Economist
(2008). The book is a collection of essays and book reviews on public
policy and economic topics, and serves as an intellectual biography.
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