Thursday, January 08, 2009

The Obama Economists: What Did We Expect?

President-elect Obama and his economic advisors have been hard at work trying to come up with a legislative package to prevent the recession from becoming a depression (and maybe even to turn the economy around). Who are the people giving him economic advice, and what might we expect from them? The short answer is that the Obama team is generally made up of safe, uninspired choices who are nevertheless offering much more progressive advice than we might have expected from them. One can only hope that they will continue to deny their own histories at least long enough to get the economy moving in the right direction.

I am, of course, hardly the first observer on the left side of the ideological divide to be disappointed by Obama's choices of economists to join his team. Among many critiques, one of the best that I have read thus far is in the most recent issue of The Progressive ("The Great Recession," by Matthew Rothschild, January 2009). Rothschild describes the tight group of proteges of former Clinton Treasury Secretary (and current Citigroup executive) Robert Rubin who will fill key posts in the Obama administration. The most prominent among these is Larry Summers, whose controversial history was apparently worrisome enough to cause Obama to put him in a position that does not require Senate confirmation. Timothy Geithner, the designated Treasury Secretary, is third-generation Rubin. Rothschild also points out that Paul Volcker, whom Obama has put in another key advisory role, engineered what amounts to shock therapy for the U.S. economy as chairman of the Fed back in the 1980's.

It is not just that the key players have safe, corporatist, generally Clintonian credentials. They are also pretty definitively linked to the policies that either caused the current mess or that made it possible. It was Summers, after all, who very aggressively aided and abetted former Senator Phil Gramm's efforts to deregulate the financial markets in ways that led directly to the current collapse by allowing financial "innovations" to flourish until they brought us all down. Geithner, as President of the powerful Federal Reserve Bank of New York, was at least a hapless observer (and more likely an active participant) in some of the worst decisions of the past few years. Whether the move from Henry Paulson to Tim Geither is a move up is sadly not obvious.

This set of choices was, however, entirely foreseeable. As I wrote in "The Usual Suspects" on this blog back in June of 2008, Obama's choice of Jason Furman as his campaign's economic policy director was itself all too predictable; and once that choice had been made, there was no doubt that the "safe, centrist technocratic economic theory" that Furman represents would hold sway in the Obama camp. What we have seen since Election Day simply confirms what we should have known was coming.

There were alternatives to the Rubin/Summers crowd. Jamie Galbraith, Dean Baker, and Jared Bernstein were surely rejected because they would be too scary to Wall Street. Paul Krugman might not even want a job with Obama; but if he did, he has become such a bete noire to the loud Right that Obama would never choose him. Joe Stiglitz would, in my opinion, have been a great choice. He, however, has a history of hostility to the Rubin camp that clearly kept him out of the running. (That both Krugman and Stiglitz have received the Royal Swedish Bank Prize in Economic Science in Memory of Alfred Nobel is actually neither a plus nor a minus, since that prize is entirely about methodological virtuosity in the mysterious "land of the econ.")

If we are to blame Obama for the make-up of his economic team, therefore, it must either be because we blame him for taking the safe road back during the primaries or because he refused to dump his own advisors after the election. I never would have expected Obama to do anything but what he did at either stage of his ascendancy. (That, by the way, is why I do not feel betrayed by these choices, no matter how much I wish that Obama had chosen differently. When I supported Obama, I fully expected that his economic advisors would be defensible mainly by comparison to John McCain's likely choices.)

I should point out that there are bright spots. Obama's choice of Rep. Hilda Solis to be Secretary of Labor was inspired in many ways; but as Robert Reich learned under Clinton, the post at Labor (as important as that job surely is on its own merits) is hardly where the action is. Obama has surrounded himself with people who helped to create (or at least approved of) the very policies that put us where we are today.

Still, I remain strangely, almost piteously, optimistic. What sets Summers and his co-horts apart from their Republican counterparts, I think, is that their ideological blinders can be dislodged by events in the world. The actual proposals coming out of the Obama camp this week seem fully appropriate to the grim situation (notwithstanding the pre-emptive capitulation on tax cuts). Summers really does deserve the "super smart" label that is so often applied to him; and although he is often led astray by his stubbornness and his intellectual priors, he is willing to be a pragmatist at least in an extreme situation like the one we face. If the current stimulus works, Obama will surely change course based on the orthodox assumptions of his advisors. For now, though, even Obama's uninspired choices are showing that they grasp reality. Not high praise, but I am grateful for a return to reality-based policy.

-- Posted by Neil H. Buchanan