Obama to the Economic Rescue: Is He Picking the Best Team?
Three weeks after the election, the markets are rallying behind the president-elect's picks for his administration's top economic posts. In an irony that has not escaped observers critical of the selections, yesterday's appointment of two protégés of former Treasury Secretary Robert Rubin was announced along with a $300 billion federal bailout of Citigroup, the failed financial giant that has become the latest symbol of the eponymous and thoroughly discredited economic philosophy known as Rubinomics.
For those hoping for a progressive transformational presidency, the tapping of Timothy Geithner for treasury secretary and Larry Summers to advise the White House on economic policy is cause for serious concern. Will continuity, more than the promised change, define the Obama administration's thinking as it confronts the economic crisis? In a New York Times article describing how a "virtual Rubin constellation is taking shape" in the incoming administration, the liberal economist Robert Kuttner spoke for many when he asked, "Where is the diversity of opinion in this economic team? What worries me is there is not one person in the senior group who is the outsider to this club."
Relax, say others. Policy, not personnel, is what matters, and so far the major policy signals coming from the Obama team are blinking in the right direction. In Saturday's radio address, the president-elect called for creating 2.5 million jobs by 2011 through heavy deficit-spending on public infrastructure, modernizing the auto industry and developing clean energy. He also praised the decision to extend unemployment benefits and has continued laying the groundwork for an early and successful push for universal health care.
"The crisis we face makes Rubinomics irrelevant," says Robert Borosage, director of the Campaign for America's Future. "The situation drives policy, and the situation no longer allows for Rubinomics. The fact that these are Rubin protégés doesn't change that. There is no way they can go back to the old economics [of deregulation and an obsession with balanced budgets]." Borosage isn't alone in refusing to despair -- yet -- over the appointments of Geithner and Summers. His colleague at the Economic Policy Institute, the labor economist Jared Bernstein, who is frequently mentioned as a potential progressive voice in the Obama administration brain trust, recently told reporters that Mr. Summers has "truly evolved" since his days as a dogmatic free-trader and regulation-slasher.
This evolution has been charted in Summer's regular columns for the Financial Times, such as one in October, in which Summers sounded like a big-thinking New New Dealer. "[T]he crisis creates space to address longer-standing problems," wrote the former treasury secretary. "Just as patients hear advice regarding diet and exercise differently after a heart attack, so recent events should make it possible for the next U.S. administration to accomplish more than might previously have been thought possible."
Kuttner himself has notably measured his concern over Summers and Geithner, noting that Geithner has been "among the toughest on the need to re-regulate" the financial industry during his years at the New York Federal Reserve.
But even if these two former Rubin protégés are hemmed in and transformed by new realities -- not to mention the policy dictated by their boss -- the question remains: Why not hire people who were right all along, and not historic failures who are now in the process of recalibrating everything they ever believed? Why not reward people like Kuttner, Bernstein, James Galbraith, and others, who have been right all along?
Whatever their take on the Summers and Geithner appointments, progressives have reason to cheer the recent lower-key selections of Peter Orszag to run the Office of Management and Budget, and Patrick Gaspard as White House political director. Orszag has been educating himself on the inefficiencies of our health care system at the Congressional Budget Office, and Gaspard comes to Washington from the political office of SEIU's massive New York-based Health Care Workers East Union, aka local 1199.
As for the Big Four announced yesterday, here's a quick cheat sheet:
Timothy Geithner, Treasury Secretary
Currently: President and CEO of the Federal Reserve Bank of New York
Resume: Worked in the U.S. Treasury for three presidents; spent two years crafting policy at the International Monetary Fund. Like the president he will serve, he spent a chunk of his childhood in Southeast Asia.
Permanent stain: Worked for Kissinger Associates for a few years after graduating Dartmouth.
The progressive critique: William Greider writes that the choice of Geithner "raises very serious questions about where the new president intends to lead. Geithner has been a central player in the [recent] deal-making, from Bear Stearns to AIG to Citi. The strategy has not only failed, it has arguably made things worse as savvy market players saw through the contradictions and rushed out to dump more bank stocks. On Wall Street, Geithner is known as a highly competent technocrat, well versed in the financial complexities. But he has also been seen as a weak and compliant regulator of Wall Street firms, someone who did not see the storm coming. Occasionally, Geithner would anguish publicly about the accumulating time bombs like credit derivatives and urge bankers to do something, but he did not use his supervisory powers to compel action. In bailout negotiations with Wall Street titans, Geithner and the Federal Reserve were spun around like a top more than once. No wonder the stock markets rallied explosively when they heard [he] would be their new boss in Washington."
Larry Summers, Chief White House Economic Advisor
Currently: Economics professor at Harvard University
Resume: The OG Robert Rubin protégé served as deputy and undersecretary of the Treasury and as the World Bank's top economist before being named secretary of the Treasury in 1999. Was president of Harvard from 2001 to 2006, a period marked by his famous "girls suck at math" comment and the defection of Cornel West to Princeton.
Permanent stain: Single-handedly drove up the suicide rate in Lithuania.
The progressive critique: David Corn concedes Summer's towering intellect, but writes "it's worth remembering that he did blow one of the major calls of the 1990s: what to do about financial derivatives -- those esoteric financial products (such as credit default swaps) that helped grease the way to the subprime meltdown. Not only did Summers oppose greater regulation for those financial instruments; he led the opposition against it. [During the '90s] while others presciently spotted potential problems arising from the exploding derivatives market, Summers, [along with] Rubin and [Alan] Greenspan, blithely fell back on the conventional view: regulation is a growth killer. Obama -- and the rest of the nation -- should hope that when it comes to thinking about regulation these days, Summers has experienced a market-driven correction."
Melody Barnes, Director of Domestic Policy Council
Presently: Co-director of Agency Review for the Obama transition team
Resume: Former executive vice president for Policy at the Center for American Progress; chief counsel to Sen. Edward Kennedy on the Senate Judiciary Committee from 1995 to 2003.
Permanent Stain: None. Even the white-shoe mega law firm where Barnes started her career, Shearman & Sterling, is known for its pro bono work, including representing Guantanamo Bay detainees. The progressive critique: There isn't one. According to the Center for American Progress, "as the executive vice president for Policy at CAP, and before that as a top aide to Sen. Ted Kennedy, Melody has dedicated herself to driving and shaping ideas and policies designed to ensure that all hard-working Americans have access to the American Dream. From the economy to health care to immigration, Melody has had an impact on nearly every major issue facing our country."
Christina Romer, Director of the Council of Economic Advisors
Presently: Economics professor at the University of California, Berkeley
Resume: Before joining the faculty at Berkeley, taught public affairs at Princeton, and has been a visiting scholar at the Board of Governors of the Federal Reserve System.
Permanent Stain: None. Has enjoyed what appears to be a highly successful and incredibly dull academic career studying the history of fiscal policy and business cycles with her equally bland colleague-husband, David Romer.
The progressive critique: John B. Judis of The New Republic has parsed Romer's academic output and finds that her views on the economy "appear to place her well to the right of mainstream Democratic economic opinion." Judis is particularly troubled by her interpretations of what caused recovery and growth from the Great Depression to the Reagan recession.
"Fiscal policy...contributed almost nothing to the recovery before 1942," Romer wrote in a 1991 paper for the National Bureau of Economic Research. That's a view that would lead one to emphasize monetary over fiscal fixes -- that is, changes in the federal funds rate and money supply over increases in public investment and cuts in taxes. This policy perspective would seem to de-emphasize or even oppose the kind of massive public investments that Obama now seems to be considering ... According to Romer, fiscal and monetary policy partially returned to the successful strategy of the 1950s after Ronald Reagan's election in 1980. She cites Federal Reserve chief Paul Volcker's attempt to kill off inflation through inducing the steepest recession since the 1930s ... If Romer's views [are] applied to November 2008, what do we get? Deficits, but with an eye toward surpluses, and an emphasis -- going back to her article on the Depression -- on monetary rather than fiscal expansion as the solution. If that is, indeed, what Romer advocates, that's probably not the change we need -- or that Obama has promised.