Obama's New Treasury Secretary Has to Work for the Public, Not Wall Street Hustlers

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After his re-election last November, almost immediately President Barack Obama again stressed (as he did in 2008) that he would continue to work non-stop to help middle-class families and those striving to reach the middle class. Given the recent negotiations with Congress, it appears that the new Obama is much like the old Obama. Anyway you measure his resolution of the so-called fiscal cliff, and it is clear that we’ve got a fairly big fiscal restriction coming up. And that’s not even factoring in what is to come. And for all of the talk of making the wealthy pay its fair share, it’s particularly worth noting that the payroll tax hike is the biggest component of the deal, saving $124 billion in 2013. By contrast, the higher tax rate on the wealthy is $60 billion. 

If the president were serious about genuinely changing course, then the new Treasury Secretary would be the polar opposite of Timothy Geithner. The nomination presents an opportunity for a White House course correction, finally putting Main Street ahead of Wall Street. But it doesn't look like that's going to happen.

We need a Treasury Secretary who recognizes that simply saving big financial institutions does not save the economy. The financialization of the economy of successive treasury secretaries since Rubin has led to a financial sector that is at least three orders of magnitude too big. If anything, all the efforts directed toward saving Wall Street have only made the economy more fragile. Another financial crash is inevitable because the financial system is still too large to be supported by the economy -- even if the economy could recover. We need a Treasury Secretary who recognizes that the best course of action is to downsize the financial system. Jacob Lew  is not that guy.

And we need a Treasury team that understands government finance. The current team is hopelessly confused, and still operates under the baleful influence of the Rubinites, all of whom continue to believe that the Clinton boom was due to federal budget surpluses, not recognizing that it was actually due to an unsustainable boom of household borrowing. The new team must have no connection to Rubin (or billionaire Pete Peterson) and his anti-deficit hysteria. The Great Depression of the 1930s only ended with the massive spending of WWII, when the budget deficit reached 25 precent of GDP. Our current situation is not yet that severe, and it is likely that a sustained recovery can be obtained long before the budget deficit reaches such a level. However, the more we continue to get Rubin clones in charge of Treasury, the greater the probability that this could still turn into another Great Depression.