Why Obama Should Stop Congratulating Himself on America's Economic Progress
The president's economic initiatives – food stamps, manufacturing, infrastructure, raising the debt ceiling, appointing a new chairman of the Federal Reserve – have mostly ended in either neglect or shambles. After five years, the Obama Administration's stated intentions to improve the fortunes of the middle class, boost manufacturing, reduce income inequality, and promote the recovery of the economy have come up severely short.
Despite this, the president believes he is negotiating his economic agenda with Congress from a position of strength, and almost every speech includes some self-congratulatory note about how far the economy has come.
Most recently, when answering the withdrawal letter of Larry Summers, the former Treasury Secretary and Harvard president who was an unofficially named candidate for chairman of the Federal Reserve, the president claimed that Summers was instrumental to turning the current economy into what the rest of us must have missed: a world of butterflies and unicorns:
Larry was a critical member of my team as we faced down the worst economic crisis since the Great Depression, and it was in no small part because of his expertise, wisdom, and leadership that we wrestled the economy back to growth and made the kind of progress we are seeing today.
The kind of progress we are seeing today? The mind boggles: what progress is that?
Here's the litany of failure: the president has not pushed through any major stimulus bill since 2009, and most of that was pork-barrel junk. Manufacturing is weak and weakening; the employment gap between the rich and the poor is the widest on record; the economic recovery is actually more like an extended stagnation with 12 million people unemployed; the housing "recovery" will be stalled as long as incomes are low and house prices are high; and quantitative easing as a stimulus, while a heroic independent effort by the Federal Reserve, is past its due date and is no longer improving the country's fortunesbeyond the stock market.
Shall we continue? We don't have a food stamp bill even though 49 million Americans lack regular access to food. Goldman Sachs analysts have said the sequester is taking a toll on stubbornly growing unemployment: "since sequestration took effect in March, federal job losses have been somewhat more pronounced," they wrote last week; and another debt ceiling controversy – the third of Obama's presidency – looms in only a few weeks with the potential to hurt what meager economic growth we can still cling to.
The president could not be more wrong or misleading in the way in which he presents our economic progress. One can perfectly understand economist Dean Baker's horror when he realized, back in August, that Obama's economic team believes it is doing a good job.
It's time to end the delusion that this White House has accomplished even a fraction of what it should be doing to help the economy. It should have been focusing all its efforts on employment, perhaps by boosting job-retraining programs, providing tax incentives for employers or supporting a comprehensive infrastructure effort. Instead, the administration is falling victim to political distractions and lack of follow-through and wasting its meager political capital on the wrong fights.
The latest example is the debacle around Larry Summers. The week leading up to his exit was a rough one, as no fewer than three important senators – Jeff Merkley, Sherrod Brown and Jon Tester – openly stated that they would not vote for Summers when his name came in front of the Senate Banking Committee. Another member of the committee, Elizabeth Warren, was opposed to Summers as well, and two other senators – Dianne Feinstein and Dick Durbin – signed a letter begging Obama to choose someone else.
Given the ferocity of the opposition, the main surprise today is not why Summers is pulling his name from consideration, but how his candidacy ever got this far. The usually genteel (or at least passive-aggressive) profession of economics is not one given to activism. Yet, when Summers' name came up, the White House was inundated with petitions: 20 senators opposing his nomination this summer, 300 economists (300!) uniting against him. Wherever the president turned, it would have been abundantly clear to him that tying his fortunes to Summers would have been akin to tying two rocks together to see if they float. Instead, Obama listened to his "trusted economic advisers", who have again, as they have for years, failed to read the room correctly.
The president's economic team has changed over the past few years, but currently consists of chief economic adviser Gene Sperling, Treasury Secretary Jacob Lew, Jason Furman at the Council of Economic Advisers and Office of Management and Budget director Sylvia Matthews Burwell. Fill another mug for Tim Geithner (who has left government but apparently is deputized to help Obama pick the new chair of the Federal Reserve) and several others. The assumption, at least going by the gossip from "senior administration officials" is that the team, which has worked together since the Clinton years more or less,supported Summers to get the band together again.
The idea, apparently, was that with a sufficient quorum, this merry band of (mostly) brothers could, through the magic of their sheer collected brilliance and perhaps a few incantations, recreate the booming economic magic of the Clinton years in the deepest recession since the Great Depression. Apparently the addition of Janet Yellen, an eminently qualified woman – who, by the way, also worked with that Clinton team – would ruin the special magic of this team. Perhaps, with her correct calls on housing and the economy, she would interfere with the paralysis around fiscal policy and the budget that has plagued the White House for the past few years. Yellen, like Bernanke, would be no newcomer topicking up the slack left by a dysfunctional relationship between Congress and the president.
That Obama economic team, like it or not, is in for more changes. As of this weekend (only 24 hours before Summers withdrew) Sperling, his biggest supporter, has said he will leave the administration.
Even if Yellen does win the Fed job, that doesn't solve Obama's larger problem of having steered the economic conversation in the wrong direction for months. He has locked himself in a bubble in which he bases his relationship with his economic advisers on "trust" (code for familiarity) even when their advice is at odds with the ample evidence from the real world.
To shut out the opposition to Summers, the president had to have been wearing earplugs. How closed is his economic circle? How well do they fit the profile of honest brokers about our economic situation? Loyalty is a great thing. But that kind of trust is clearly not working for Obama. Maybe he should stop relying on those he knows, and rely instead on those who know what they're doing.