William A. Niskanen: In Memoriam

lIn ate October, Bill Niskanen met his Maker. Cato lost its chairman emeritus and most distinguished scholar. I lost a friend and collaborator of 40 years.

I first met Bill in 1971, when he was the assistant director for evaluation at the Office of Management and Budget. OMB was a new organization. It had a mandate to reform government and make it more “efficient.”

Bill tapped me as an OMB adviser. My narrow charge was to rewrite the benefit-cost procedures that the federal government used to evaluate water projects and to develop marginal-cost pricing standards for rationing the output from those projects. Bill was very knowledgeable and interested in this project.

Bill and I hit it off immediately. As it turned out, our common interests and experiences made for a very rapid and effortless introduction. Among other things, Bill’s PhD dissertation was titled “The Demand for Alcoholic Beverages”; mine carried the title “The Demand for Water Under Dynamic Conditions.” Apparently, we were both attracted to liquids. Also, Carl Christ entered our common frame of reference: Carl served on Bill’s dissertation committee at the University of Chicago and on my hiring committee at Johns Hopkins.

At the time, we were both technocrats who had the same type of nuts and bolts experience: Bill had spent several years developing linear programming models of the military air transport system and was an expert on cost-effectiveness analysis and program budgeting; I was engaged in designing and evaluating water and waste water systems, including developing design criteria (that are still used) to determine optimum pipe sizes. Our mindsets were technocratic: optimism about the possibilities for making the government “efficient” — an optimism covered with thick layers of naïveté.

Bill left OMB one week before Watergate. His OMB experience left a sour taste in his mouth: “As a group, we made an awful botch of things as a party to a rapid growth of domestic spending and regulation and the implementation of comprehensive wage and price controls.” And to top it off, Bill was particularly annoyed by the fact that most of those anti-economic, wrongheaded policies had been designed and implemented by economists who had been either professors or students at the University of Chicago.

Bill’s OMB experience wasn’t the first time he was mugged by Washington, D.C. During the Kennedy-Johnson years, Bill served as Director of Special Studies for Secretary Robert McNamara at the Department of Defense. At 29 years of age, Bill was a “whiz kid” with the civilian rank equivalent to that of a brigadier-general. He had access to highly classified information, and as Bill put it: “I came to recognize that our government sometimes lies to us about important events… Over the 1960s, I became so skeptical about government pronouncements that I suspected that the television images of the first moon landing were staged in some warehouse.” Bill’s former professor Frank Knight must have been lurking in the background when Bill penned those words.

But, I am getting ahead of myself. To understand Bill and his work, we must take a deeper look to see what Bill’s foundations, habits of work, and style were. The foundations were Chicago of the late 1950s. Milton Friedman was riding high, and his two-quarter, price-theory course left an indelible mark on Bill. That course focused solely on the fundamentals of supply, demand and markets. Milton eschewed the fads, the frilly and esoteric techniques. He stuck to what was fundamental, basic, simple, robust and applicable. All that — plus Milton’s monetarism — stuck to Bill.

Beyond the confines of price theory and monetary economics, Friedman’s general methodology marked Bill’s approach to economics. In contrast to Ludwig von Mises’ praxeology — an approach that employs a priori reasoning to develop universal laws of economic behavior, laws that are not open to verification or falsification — Bill embraced a methodology espoused by Karl Popper and Milton Friedman.

“Conjecture and refutation” was Bill’s methodological lodestar. Armed with this “open-minded” approach, Bill believed that a consensus was possible.

This methodological perspective allowed Bill to avoid the futile task of trying to inculcate other people with his normative values. He sought to convince others that his arguments and material evidence demonstrated that others’ values — like economic growth and increased employment — could best be met through the implementation of the policies he recommended. Bill always projected an air of tolerating opposing views and an openness to new ideas.

Beyond Friedman, there was Al Harberger, Bill’s dissertation adviser at Chicago. A great deal of Bill’s work, including his pioneering book Bureaucracy and Representative Government (1971), contained Harberger-type models that explain much, with little. These models allowed Bill to contribute to virtually all fields in applied economics and to pioneer new ones — like public choice.

As an example, allow me to mention an article published in the Review of Economics and Statistics(1977) that Bill and I co-authored. A rich literature had developed in which differences in land prices had been used as surrogates for the worth of environmental amenities. We were able to show that — due to error of omission, namely the government’s equity interest in land — all of the major studies had underestimated the willingness-to-pay for environmental amenities by 60% to 99%. That simple model did what they often do: it detected a huge error and generated a substantial dividend.

In addition to Chicago, Bill’s work habits were important. The master craftsman went to his workshop at the same time each day — to work. After Bill left OMB, he moved to the University of California at Berkeley, where he became a Professor at the Graduate School of Public Policy. Bill persuaded me to move from Johns Hopkins to Berkeley, an experiment that lasted one year. During that time, my office was directly above Bill’s. Bill smoked a pipe then, and had a large (about the size of a small hub cap) metal ash tray. I knew, with precision, when he would arrive each morning. I could set my watch when I heard the first bang of his pipe in the ash tray. Those gong-like sounds would continue until he departed at exactly the same time each evening. Bill was a man of habit. He liked to work in the same place, at the same time each day. This explains one of the secrets behind his enormous output.

Bill began each day reading newspapers. He could read newspapers — a rare talent. He was always in the watchtower, whether in the middle of a newspaper or attending to his other daily chores — like staff meetings, lectures and so forth. Yes, he was persistent, and always reminded me of James Madison’s spirit of industry. Recall, that Madison was the only Founding Father who was in attendance for every hour of every day during the Constitutional Convention. Bill’s work-style was that of a duck serenely gliding across a pond; below the surface, two feet were churning away at a ferocious pace.

“Roll up your sleeves and do it yourself” was one of Bill’s mantras. I found this out explicitly when we were colleagues at President Reagan’s Council of Economic Advisers. It was then that he gave me the only professional advice he ever offered: during my first day on the job, he indicated that we would face an avalanche of material that required rapid analysis and recommendations. For this, Bill counseled to just do it myself, because most of the problems that would enter the “in” box would not have been dealt with by others, and, if they had been, the analyses would probably be dated.

Another one of Bill’s important characteristics became very evident at the CEA: he was very knowledgeable about the machinery of government. Indeed, he was usually as (or more) informed about the plumbing and problems of a given governmental bureau as was the person responsible for the bureau in question.

Style usually reveals a great deal about a man, and that was the case with Bill. He identified his management style in the mid-1960s, when he was director of economic and political studies at the Institute for Defense Analyses (after his stints at the Rand Corporation and the Department of Defense): “I quickly discovered that the secret of being a good research manager is to hire bright people and give them only the most general guidance.”

Bill was laid back. But, when he struck, it was a Muhammad Ali punch: lightning fast and on target. His most memorable one was delivered while he was serving as director of economics at Ford Motor Company. In the mid-1970s, Ford thought that its salvation would be the imposition of government restrictions on Japanese auto imports. Bill thought otherwise, and said so publicly. He also wrote that “A common commitment to refrain from special favors serves the same economic function as a common commitment to refrain from stealing.” For this — perhaps the clearest statement on the immortality of corporate welfare ever written — Bill was sacked. This, of course, didn’t surprise Bill, and he mentioned that it was the source of untold nonpecuniary benefits. Yes, Bill loved adhering to principles.

And for all his years on the top rungs of Washington, the corporate world and academia, I never heard Bill engage in disparaging ad hominem. The quality of someone’s work was grist for his mill — no back-scratching, no back-stabbing.

Bill had other equally strong interests. At one dinner over 30 years ago, Bill and my wife Liliane engaged in an extended conversation about French literature. Bill was smitten by Madame de Staël. He also ventured into the realm of religion. In one of his lay sermons delivered at Christ Church in Washington, D.C., he attempted to sort out the doctrine of the Trinity. On that day in 2006, even Bill’s analytical skills were not powerful enough to crack that nut.

Bill arrived at Cato in April 1985. It was a perfect match. He had evolved from a technocrat and a policy analyst (skills he didn’t abandon) to a political economist. He embraced Cato’s credo: individual liberty, free markets, limited government and peace.

• On peace, Bill argued that unnecessary wars were unjust. He also — with his experience at the highest levels of the so-called defense establishment — convincingly demonstrated ex-ante that neither the Gulf War of 1991 nor the subsequent Iraq War was necessary to protect the vital interests of the United States. He concluded that they, among others, were unjust.

• On liberty, Bill demonstrated that the so-called war on terror “has led to a significant reduction in our civil liberties.”

• On free markets, Bill showed that the empirical evidence and moral arguments were clear and unambiguous and that they favored markets. On the empirical question, he wrote: “Economic growth, income equality, and environmental conditions are all a positive function of the degree of economic freedom.” On the moral question, Bill argued that good and evil had no moral meaning in the absence of choice and that a free market economy “maximizes the conditions in which we are ‘free to choose’.”

• On limited government, Bill argued that the “fiscal constitution” in the United States was massively breached during the Great Depression-New Deal era, and that the breach was first rationalized in the Supreme Court decision U.S. vs. Butler (1936). In consequence, he concluded that the fiscal constitution in the U.S. is only a “parchment barrier” and that the size of the federal government was at least double that which would have resulted had not the floodgates been opened. Bill spent considerable effort at the constitutional-process level, trying to plug the dike, because, as he wrote: “Today, however, most federal spending programs and many regulatory activities have no formal constitutional basis.”

At the more micro level, all of Bill’s empirical work supported his broader constitutional perspective. For example, he estimated that the marginal cost of a dollar in government spending was not $1.00, but between $2.75 and $4.50. He then concluded: “One wonders whether there are any government programs for which the marginal value is that high.” In short, if one conducted a proper benefit-cost analysis, most federal programs could not pass muster, and, if one adhered to the results, the programs would be dramatically slashed, putting the scope and scale of the federal government back to something like the pre-New Deal days.

Bill Niskanen had personality and character. He was learned and thoughtful. He was at ease with friends and devoted to them. For the outside world, he was rather shy and stiff. Bill Niskanen was a man of liberty — one who was worth knowing. He is missed.

Author Steve H. Hanke