Bush's economic brain Feb. 9, 2004, 2004

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As part of PBS' By The People election 2004 coverage, Wall $treet Week with FORTUNE's Feb. 20 broadcast will take a look at the Bush economic team. Who sells and influences White House fiscal policy?

If the Treasury Secretary, Commerce Secretary, director of the National Economic Council and White House chief economic adviser comprise a president's economic brain, then consider the current team an organ transplant.

» Wall $treet Week with FORTUNE, Jan. 23, 2004: N. Gregory Mankiw interview » FORTUNE, Sept. 15, 2003: Did John Snow sell his deficit-hawk soul to the Devil? » FORTUNE, Sept. 15, 2003: John Snow, secretary of schmooze » Wall $treet Week with FORTUNE, Sept. 5, 2003: N. Gregory Mankiw interview » FORTUNE, Aug. 18, 2003: George Bush -- Deficit reducer? » FORTUNE, June. 6, 2003: Interview with John Snow » Wall $treet Week with FORTUNE, April 25, 2003: Donald Evans interview » Wall $treet Week with FORTUNE, Feb. 7, 2003: Glenn Hubbard interview » FORTUNE, Jan. 23, 2003: Is Hubbard leaving -- or isn't he? » FORTUNE, Dec. 6, 2002: O'Neill, Lindsey departures: A welcome non-surprise » Karen Gibbs, Aug. 14, 2002: Bush must find an economic leader » FORTUNE, Oct. 15, 2001: War and recession » Mankiw FORTUNE column, Nov. 13, 2000: Bush is a leader the economy can trust » Mankiw FORTUNE column, Mar. 20, 2000: Candidates need clues, not tax plans » Mankiw paper: The Savers-Spenders Theory of Fiscal Policy

Three-fourths of the economic quartet were replaced a little more than a year ago, shortly after the mid-term elections in 2002. Former business executive John Snow replaced the oft-embattled Paul O'Neill atop the Treasury Department, Stephen Friedman took Lawrence Lindsey's spot in charge of the National Economic Council and soon thereafter N. Gregory Mankiw succeeded Glenn Hubbard as chairman of the White House Council of Economic Advisers. Donald Evans is the one constant, in charge of the Commerce Department from the start of President Bush's administration.

O'Neill and Lindsey were frequently criticized for a lack of political acumen and an unwillingness to hew to the administration's economic line, and their replacements may have been chosen at least partly to remedy those perceived weaknesses. The Washington Post quoted White House officials as saying that the main job of Snow and Friedman would be as policy sellers, rather than makers.

That's not surprising, since Snow and Friedman may, in fact, share the same views as their predecessors when it comes deficits. O'Neill especially fretted over cutting taxes in the face of a deficit projected to run more than $400 billion, and when they were leading business executives, Snow and Friedman also took positions against federal deficit spending -- Friedman was even vice-chairman of the Concord Coalition, an organization dedicated to fighting deficits and strengthening entitlement programs such as Social Security, Medicaid and Medicare. Conservative pundits such as Lawrence Kudlow and Donald Luskin openly questioned the choice of Friedman as the White House economic coordinator.

Of all the prominent economic figures now in the White House, Mankiw's supply-side credentials are the most firmly established. The Harvard professor's research includes papers such as "The Savers-Spenders Theory of Fiscal Policy," which, among other things, argues that even from the viewpoint of so-called spenders who live paycheck-to-paycheck, the optimal tax rate for capital gains should be zero.

During his tenure as a FORTUNE magazine columnist from 2000 to 2001, Mankiw consistently espoused lower taxes and a less intrusive role for government. But before his government appointment, he expressed caveats about the tax plan that is the centerpiece of Bush's economic blueprint.

"The candidates have spent too much time focusing on how big a tax cut we can afford. The truth is, no one really knows," Mankiw wrote in a November 2000 column that backed Bush for president. "If this technology-driven boom continues, Gore's smaller tax cut looks stingy; if it fizzles, Bush's larger tax cut seems profligate. Whatever tax plan the next President adopts, he may have to rethink it in a few years."

In retrospect, Mankiw seemed almost prescient. "It's easy to imagine an even more pessimistic scenario in which -- believe it or not -- the U.S. economy actually experiences a recession once again, together with the usual adverse effects on the budget," Mankiw wrote for a March 2000 piece. "More vital than choosing a President with the right tax plan is electing a President with the political courage to change course when events demand it. If we have learned anything from the past decade of fiscal history, it's that we shouldn't look too hard into any budget forecaster's crystal ball."

The stock market peaked the same month that column was written, and the economy entered what a recession in Bush's first year in office. Statistically, the downturn proved to be relatively brief -- gross domestic product has been growing for the past several quarters, and the stock market boomed in 2003 -- but job growth has been relatively anemic.

And other Mankiw statements suggest doubts about the necessity of tax cuts as economic juice. "There is a risk to this: That by the time it kicks in, it won't be necessary," Mankiw was quoted as saying in an Oct. 15, 2001 FORTUNE article that also cited Mankiw wondering about the population's ability to wisely spend a tax windfall.

But throughout his tenure in the Oval Office, Bush has been firm in standing for tax cuts and now he has spokesmen who will push them aggressively, regardless of how they may have felt before. "I am absolutely delighted," Snow told FORTUNE last year. "I think it's a terrific bill ... This is stupendous."