I spoke with him in September 2010 in a recorded interview conducted as part of the G.W. Regulatory Studies Center’s oral history project focusing on the people, events, and conditions that led to the successful economic deregulation of the 1970s and 1980s. This tribute to Niskanen—one of the most interesting, principled, and thoughtful people I have met—offers highlights from that interview. In it, he talked not only about the ideas that influenced economic deregulation, but also about his own life’s experiences, and he offered advice to young people interested in improving public policy.
Deregulation
The wave of economic deregulation that eliminated entire agencies during the mid-1970s to mid-1980s seems to run counter to the predictions of public choice economics. Despite opposition to deregulation from powerful organized interests (particularly regulated businesses and labor unions), politicians of both major political parties successfully worked to abolish rate, entry, and exit regulation in such industries as trucking, rail, airlines, and energy. I started the interview by asking Niskanen what he thought was most responsible for this success.
He credited scholarship at nonprofit think thanks for laying the foundation for the administrative and legislative efforts by showing that regulation in these areas had tended to benefit the regulated industries, often at the expense of consumers. This scholarship reflected a range of political views, from the center-right to the center-left. He thought that the Brookings Institution did the best early work in the area, though he found their rationale for deregulation—as a way to control inflation—“somewhat misleading.” Nevertheless, he understood that linking regulation to inflation provided cover that protected Brookings scholars from pressure on the left and allowed them to do important research. (Later, the Carter administration’s Council on Wage and Price Stability would use this same rationale to advocate for deregulation.)
The American Enterprise Institute also contributed to the scholarship, and launched Regulation in 1977, edited initially by Antonin Scalia and Murray Weidenbaum. (After AEI revamped its publications in 1989 and stopped publishing Regulation, Bill approached AEI’s Chris DeMuth with the idea to relaunch the journal at Cato; Bill then served as its editor-in-chief from 1990 to 1996.) Other individuals Niskanen identified as contributing significantly to the scholarship of that period included Robert Crandall, Robert Litan, and Clifford Winston of Brookings, and Roger Noll, Marvin Kosters, and Chris DeMuth of AEI. They were all “solid scholars, who had learned to write in English rather than mathematics, which is a great advantage in trying to reach a broader audience.” During this same period, scholarship also led to significant reforms in related areas of trade and antitrust, with the latter being led by lawyers with economic training (including Scalia and Douglas Ginsburg).
Policy officials (including some of the scholars themselves who entered government, including professors Stephen Breyer, Alfred Kahn, Weidenbaum, DeMuth, and Niskanen) turned this scholarship into action, focusing on a limited range of activities related to transportation, communications, and electricity.
Niskanen thought one reason the case for deregulation was successful in those selected areas was that emerging technology was broadening potential competition, allaying fears that deregulation would lead to cartels and monopoly power. He expressed disappointment that recent efforts at deregulation have been “hard going,” citing a 1996 joint Brookings-Cato conference he organized with Robert Litan examining the regulatory implications of trends in digital technology and communications. In retrospect, conference participants showed undue optimism about what was possible, anticipating that the competition from new technologies would lead to the abolition of the Federal Communications Commission within two to five years.
Bill also observed that, despite their success in transportation, communications, and energy, the models of the 1970s and 1980s “were not sufficient to head off the big increase in regulation of health, safety, and environment” that began during that period. “Even the scholars working in the area were unable to make the same contributions [to reform] they did earlier.”
He attributes this to the fact that valuation of human life and health is both difficult to analyze and difficult to talk about. He also recognized that common law solutions to these problems would not always be satisfactory. Common law requires competing petitioners, and when organizing petitioners is difficult, governments will step in with administrative law solutions.
Education and Career
Niskanen’s academic training (Harvard A.B. and University of Chicago M.A. and Ph.D.) was in public finance and economics. He said he did not learn much about regulation, trade, and antitrust until he took a job with the Ford Motor Company in 1975, where “there was no way to avoid the issues.”
During his early years after graduate school he focused on defense analysis. He joined the RAND Corporation in 1957 just as the Soviets put the first satellite into orbit. It was a challenging time, when RAND assembled a team of intellectual heavyweights (that included George Danzig, Albert Wohlstetter, Alain Enthoven, and Harry Rowen) with the goal of providing the intellectual horsepower to win the cold war. Niskanen was told he either had to learn Russian or bone up on his math skills. After trying Russian, he went back to math, and ended up developing a 400-equation linear programming model of the Air Force transport system. His programmer for the model was a young William Sharpe, who later won the Nobel economics prize with another RAND colleague, Harry Markowitz.
He thought a good academic background was important, remarking that “without it you don’t have much to offer. Going from college to being a lobbyist, I think, is a wasted life.”
The election of John F. Kennedy and appointment of Robert McNamara as secretary of defense brought Niskanen and several of his RAND colleagues to Washington. As an economist with the Department of Defense, he worked under Enthoven as one of Secretary McNamara’s “whiz kids” and enjoyed “almost free access” to him. (He later worked for McNamara again at the Ford Motor Company.) At Defense, the staff worked 100-hour weeks and the test of their commitment on Mondays was to describe how bad the cafeteria food had been on Sunday. Those who couldn’t were regarded as slackers.
He took a position as director of the Program Analysis Division at the Institute for Defense Analyses from 1964 to 1972, where, among other things, he developed a course introducing military officers to systems analysis. He said he found it rewarding to teach the conscientious young officers. He then joined the faculty of the University of California, Berkeley in 1972, where, along with Aaron Wildavsky, he helped to establish Berkeley’s Graduate School of Public Policy. He found the students very bright, but (due to their undergraduate experience as student protesters and organizers) not well enough trained to grasp the concepts without introductory material. The teaching was personally rewarding and many of his students have become distinguished scholars, but he found it difficult to strike the right balance between being a conscientious teacher and productive researcher, so he left Berkeley to join the Ford Motor Company as chief economist in 1975.
It was at Ford that he first dealt with regulation, trade, and antitrust policy and began to appreciate that the conventional economic wisdom regarding these policies was not adequate for understanding them. Congress was considering setting corporate average fuel economy (CAFE) standards for the first time. Niskanen thought it was an “absurd idea” and worked hard to convince the Ford administration to oppose them. While the administration was sympathetic to the economic arguments Niskanen and his team presented, the Ford company lobbyist in Washington was working in the opposite direction, crafting a deal in Congress that would temporarily treat some imported foreign cars as domestic in exchange for Ford’s support of the new standards. The American Automobile Manufacturers Association (AAMA), which opposed CAFE, had no lobbyists in Washington at the time, so the Ford lobbyist’s position carried the day in Congress. President Gerald Ford did not veto the bill, the AAMA moved their headquarters to Washington, and now CAFE standards are a perennial source of regulatory controversy. When we spoke, Niskanen was particularly concerned that new CAFE standards are now being developed and implemented by the Environmental Protection Agency under the Clean Air Act following the Supreme Court’s Massachusetts vs. EPA decision. He saw this as a clear example of the difficulty of defeating even a very bad regulation once it is in place.
He also learned a lot about antitrust and trade issues during his years at Ford, but it was the only time he was ever fired from a job. The company had trouble adjusting to changing consumer demand for more fuel-efficient cars and successful competition from the Japanese automakers. As Ford and the other U.S. auto companies began to realize they could no longer dismiss Japanese cars as “shoddy and unattractive alternatives to U.S. vehicles,” Niskanen argued internally against challenging them through trade legislation. Against his advice, Ford Motor filed a trade restraint complaint against the Japanese automakers in 1980. Realizing its free-trade chief economist would not support the petition, Ford chose to fire him. When we spoke, he had no regrets about his time at Ford and revealed no resentment over his dismissal.
Niskanen returned to California to teach at the University of California, Los Angeles briefly before joining the Reagan administration in 1981 as a member of the Council of Economic Advisers (CEA), where he continued his focus on regulation, antitrust, and trade issues. Reagan’s first CEA chairman, Murray Weidenbaum, was an expert in regulatory matters and a “fine fellow to work with,” who trusted Niskanen to lead those issues. Niskanen worked with cabinet members in his issue areas, and co-directed the Task Force on Regulatory Relief with Office of Information and Regulatory Affairs (OIRA) administrator James C. Miller, III.
He had great respect for Reagan, whom he had gotten to know as California governor, and marveled at his principles and instinctive grasp of economic concepts. Niskanen observed that deregulation was the lowest of Reagan’s four domestic priorities (after macroeconomic conditions, taxes, and spending), and did not receive the analytical or political focus the other priorities did.
In general, the Reagan administration was able to maintain a favorable environment for trade except for the “voluntary export restraints” on Japanese automobiles. (The U.S. trade representative had rejected Ford’s petition for trade restraints but, to Niskanen’s dismay, the Reagan administration supported “voluntary” restrictions, which he thought had no basis in either U.S. or Japanese law.) He thought Bill Baxter really turned around the government’s approach to antitrust as the head of the Justice Department’s Antitrust Division. Deregulation was more difficult, however. He noted that, because the newly created OIRA focused on reviewing and analyzing agency regulatory decisions, it was not a focal point for deregulation.
He appreciated the CEA model of recruiting members to take a temporary leave from tenured academic positions, observing that this practice allowed them to be committed to good economics and unwilling to compromise their principles. But his time at the CEA was a learning experience that made him recognize “that there’s an enormous amount of politics in this business and that you have to be prepared to address the implications of a proposal you’re making for a wide range of affected parties.” He served as acting CEA chairman from 1984 to 1985 and tried to refrain from publicly expressing his own opinions about policy matters. Nevertheless, when privately asked by Reagan’s chief of staff, Donald Regan, about a corporate tax reform proposal that had been drafted by the Treasury Department that Regan formerly headed, he responded that it would make Walter Mondale (who had just lost the election to President Reagan) proud; he knew then that he would not be appointed permanent CEA chair.
Niskanen left government service to join the Cato Institute in April 1985, where he remained until his passing in 2011. He told me that his time at Cato had been his most productive for writing and research. In terms of affecting public policy, his four years at the CEA were very influential and more direct (due to his access to cabinet-level decisionmakers and the president), but he thought his over 25 years at Cato have had the greatest overall effect. He called the influence of Cato and other think tanks “reflective access”—less direct than that of government officials, but valuable. He credited Cato president Ed Crane for the “correct decision years ago to address what you think is important [rather than the topic of the day, because] sooner or later the issue will have to come up.” Social Security and health, safety, and environmental regulation are two areas he said will eventually benefit from continued policy scholarship.
Advice
I asked him what advice he would offer young people starting their careers in public policy. He thought a good academic background was important, remarking that “without it you don’t have much to offer. Going from college to being a lobbyist, I think, is a wasted life.” Experience in a think tank environment is very valuable, but it is also worthwhile to spend time in government and industry policy roles. He gained an important perspective from his industry experience, noting that understanding how large firms are organized and how they operate and relate to the rest of the world is not taught in school.
One impressive aspect of Niskanen’s writings was his ability to stay open to different ideas and perspectives, and to treat other people, and their ideas, respectfully. When I asked him about this, he said his mother taught him “not to call people names or dishonor them in any way because you may have to deal with them later on. You can argue with them but don’t challenge their integrity.” He listened to other people’s ideas, “on the premise they might know something I don’t.” As a reflection of his humility, when I asked him which of his writings was most underappreciated, he couldn’t answer, but he immediately said his 1971 book, Bureaucracy and Representative Government, was “over-appreciated.” It is the book he is “most known for, but not most proud.” Nevertheless, he did not regret writing it. Noting the book, he advised young people not to try to avoid all risk. “You learn from risk-taking. I was the first to write an analytic book about bureaucracy. Though it is not the analysis in retrospect I would do now, it provoked good comment.” He was proud of his 1988 book, Reaganomics.
My final question to him was whether we are now on Hayek’s “road to serfdom,” or Reagan’s “road to a new morning in America.” He smiled and responded that it is important to keep a balanced perspective, even when in the short run things don’t seem promising. He was hopeful that the influence of the Tea Party—an example of spontaneous order that he thought Hayek would have appreciated—could move us toward a “genuinely more limited government” guided by the Constitution.
