BANKRUPTING AMERICA: ADVISORY ENTREPRENEURSHIP, FISCAL COMPETENCE & THE PRESIDENCY 1977-2009 by James Clark Gillies B.A., The University of Victoria, 2000 M.A., The University of British Columbia, 2003 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in The Faculty of Graduate Studies (Political Science) THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver) March 2011 James Clark Gillies, 2011 Abstract This study focuses on the presidential advisory system through the lens of fiscal policy in order to develop a better understanding of how modern presidents utilize their advisers and how through a process of advisory entrepreneurship, advisers compete among each other for the president’s attention and time. A set of ideal types of presidential advisers is developed in an effort to shift away from studying the presidency through traditional notions of staff hierarchies and management of the White House to the actual selection of advisers. This research traces fiscal policymaking from the Carter administration through the administration of George W. Bush by using a qualitative case study approach, with elite interviews and a quantitative test of ideal adviser types on fiscal policy, to provide a view of the decision making process inside the White House that often gets submerged in larger institutional studies of Washington. The study also offers an important perspective in explaining how presidents can veer away from fiscal competence. Presidential advisory systems matter a great deal to the policies that get passed through Congress. The fiscal policies themselves are the mark of what presidential advisers often decide is best for the country. Therefore providing the background and narrative of the roles these advisers play gives insight into how presidents confront their economic realities and how designing policies that appeal to the national interest can be sometimes, at best, a second or third priority. The case of presidential advisers and fiscal policy across these five presidential administrations provides instances of fiscal competence, when an administration crafts ways to have government live within its means and design policies that for the most part appeal to and benefit the majority of Americans. It also provides instances of fiscal incompetence, in ii which presidents ignore long-established truths and principles to push the country off of a sensible economic footing often for the benefit of those who elected them, and instances in which administrations aim for fiscal prudence but alienate the public in doing so because the policies enacted do not reflect the campaign promises made by the incumbents. iii Table of Contents Abstract .................................................................................................................................... ii List of Tables .......................................................................................................................... vi List of Figures ........................................................................................................................ vii List of Abbreviations ........................................................................................................... viii Acknowledgements ................................................................................................................ ix Dedication ............................................................................................................................... xi Chapter 1: Introduction ......................................................................................................... 1 1.1 General Introduction of the Topic ................................................................................... 1 1.2 Theory ............................................................................................................................. 5 Ideal Types of Presidential Advisers ................................................................................ 5 A Theory of Presidential Adviser Selection ................................................................... 13 Scope Conditions ............................................................................................................ 17 Research Questions and Adviser Propositions ............................................................... 19 1.3 Presidential Studies: A Review of the Literature .......................................................... 21 Why Case Studies and Statistical Tests and not Formal Modeling?: Positioning this Research within the Confines of Presidential Studies .................................................... 21 Recent Research on Presidents and their Advisers ......................................................... 24 1.4 Research Design: Methodology, Case Selection and Data Collection ......................... 27 Methodology and Case Selection .................................................................................... 27 Data Collection ............................................................................................................... 28 1.5 Conclusion and Outline of this Study ........................................................................... 30 Chapter 2: The Fiscal Policy Inner Circle and Presidential Stewardship of the Economy ................................................................................................................................................. 33 2.1 The Economic Advisory System in the White House .................................................. 36 2.2 The OMB Director ........................................................................................................ 39 2.3 The Chairman of the CEA ............................................................................................ 41 2.4 The National Economic Council ................................................................................... 44 2.5 Grappling with Congress and Relying on Advisers ...................................................... 46 2.6 The Institutional and Economic Context ...................................................................... 50 The Stewardship Role of the President as Manager of the U.S. Economy ..................... 51 The President versus Congress: Authority over Budgeting ............................................ 52 Authority over Taxation .................................................................................................. 57 Setting the Stage for Today: Uncertainty in the 1970s ................................................... 61 2.7 Conclusions ................................................................................................................... 65 Chapter 3: Carter and George H.W. Bush: One Term Failures at Fiscal Policy .......... 68 3.1 Staffing the White House .............................................................................................. 68 3.2 Fiscal Legislation and Advisory Influence ................................................................... 79 3.3 Advisory Analysis: The Fiscal Numbers .................................................................... 110 3.4 Conclusion: Unbalanced Advisory Systems ............................................................... 114 iv Chapter 4: Ronald Reagan and George W. Bush: From Ideological Pandering to Fiscal Disaster ................................................................................................................................. 123 4.1 Staffing the Reagan White House ............................................................................... 127 4.2 The Bush II First Term Advisers: Political Advisers and Ideologues ........................ 132 4.3 Fiscal Legislation and Advisory Influence: The First Reagan Term .......................... 146 4.4 The Reagan Second Term: Advisers and Fiscal Policy .............................................. 156 4.5 The George W. Bush First Term: Tax Cuts, Then More Tax Cuts ............................ 165 4.6 The Bush Second Term Advisers: From Ideological to Ineffectual ........................... 175 4.7 The Reagan Legacy: An Ideological Agenda Achieved Through Advisory Balance 186 4.8 The Bush II Legacy: Fiscal Incompetence, Blowback and the Decline of the American Economy ........................................................................................................................... 194 Chapter 5: Bill Clinton: Fiscal Competence and Advisory Effectiveness ..................... 200 5.1 Clinton’s First Term Advisory System: Learning to Self-Correct .............................. 201 5.2 The First Term Fiscal Legislation: From Deep Red into the Black ............................ 214 5.3 Clinton’s Second Term: Maintaining Fiscal Discipline in a Lion’s Den .................... 220 5.4 Clinton’s Legacy: Fleeting Fiscal Competence and a Model for Mixed Adviser Sets225 Chapter 6: Quantitative Analysis of Presidential Advisers and Fiscal Policy .............. 230 6.1 Data ............................................................................................................................. 232 6.2 Summary Statistics ...................................................................................................... 233 6.3 Box Plots ..................................................................................................................... 235 6.4 Determinants of Tax Revenue, Spending, and Budget Deficits (Surpluses)