You can sense a surge in criticism of the Obama administration coming, both from within and from former members of Obama’s economic team—something not unexpected as the rats see the ship start to sink again.
Here’s a speech Christina Romer gave recently that’s on the leading edge here:
‘Like the Federal Reserve, the Administration and Congress should have done more in the fall of 2009 and early 2010 to aid the recovery. I remember that fall of 2009 as a very frustrating one. It was very clear to me that the economy was still struggling, but the will to do more to help it had died.
There was a definite split among the economics team about whether we should push for more fiscal stimulus, or switch our focus to the deficit. A number of us tried to make the case that more action was desperately needed and would be effective.”
So why did that case fail, and who are the advisers that pushed deficit reduction over stimulus?
A good Washington Post profile of Treasury Secretary Tim Geithner gives us some good insight. Wall Street’s best friend in the White House—and the last man standing from Obama’s original economic team—has been the one pushing these policies, along with former budget director Peter Orszag, who’s now making millions at bailed-out Citigroup.
The Post’s Zachary Goldfarb has the details:
By early last year, Geithner was beginning to gain the upper hand in a rancorous debate over whether to propose a second economic stimulus program to Congress, beyond the $787 billion package lawmakers had approved in 2009.
Lawrence Summers, then the director of the National Economic Council, and Christina Romer, then the chairwoman of the Council of Economic Advisers, argued that Obama should focus on bringing down the stubbornly high unemployment rate. This was not the time to concentrate on deficits, they said.
Peter Orszag, Obama’s budget director, wanted the president to start proposing ways to bring spending in line with tax revenue…
Geithner pushed Obama to “lean forward,” according to several participants, cutting the deficit as much as possible as fast as possible.
Look, when even the chairman of the Federal Reserve is saying you’re wrong to focus on deficits right now, you’ve got problems. Here’s Ben Bernanke the other day:
The prospect of increasing fiscal drag on the recovery highlights one of the many difficult tradeoffs faced by fiscal policymakers: If the nation is to have a healthy economic future, policymakers urgently need to put the federal government’s finances on a sustainable trajectory. But, on the other hand, a sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery. The solution to this dilemma, I believe, lies in recognizing that our nation’s fiscal problems are inherently long-term in nature. Consequently, the appropriate response is to move quickly to enact a credible, long-term plan for fiscal consolidation. By taking decisions today that lead to fiscal consolidation over a longer horizon, policymakers can avoid a sudden fiscal contraction that could put the recovery at risk…
The Post, meantime, has some excellent reporting that shows Geithner was philosophically opposed to the very idea of the government stimulating demand:
The economic team went round and round. Geithner would hold his views close, but occasionally he would get frustrated. Once, as Romer pressed for more stimulus spending, Geithner snapped. Stimulus, he told Romer, was “sugar,” and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt.
Wrong, Romer snapped back. Stimulus is an “antibiotic” for a sick economy, she told Geithner. “It’s not giving a child a lollipop.”
The Obama administration’s lack of focus on jobs has been baffling, and its turn toward cutting spending in the near term a textbook example of what not to do in the midst of a deep recession. This is a Democratic administration overseeing unemployment that three years ago would have seemed near-impossible. It inherited this crisis when it took office, but it will own it fully come next year.
Geithner has certainly been the worst Secretary of the Treasury in memory, just as Robert Gibbs was the worst Press Secretary ever, and hell, while we are at it, Rahm Emanuel really sucked at being Chief of Staff. But ultimately, Barack Obama is responsible for the failure of his administration. He's the one who decides who to listen to, and when any of his advisors steer him wrong, he should fire or replace him.
One hopes the damage isn't enough to result in President Sara Palin, but who knows? So much promise, undone by poor executive skills.
#1 Posted by James, CJR on Wed 8 Jun 2011 at 07:28 PM
Ryan wrote: The Obama administration’s lack of focus on jobs has been baffling, and its turn toward cutting spending in the near term a textbook example of what not to do in the midst of a deep recession
padikiller wonders: We're in a deep recession?
I thought we were two summers into a stimulated Obama recovery...
#2 Posted by padikiller, CJR on Wed 8 Jun 2011 at 09:10 PM
What really should be looked at is where Geithner is getting his advice from. Look no further than the Pete Peterson / Robert Rubin "Hamilton" coalition who have both been pushing deficit reduction and entitlement reform in contrast to boosting the economy and removing drags like the slow to resolve, banker demolished, housing market.
Geithner has always been at the forefront pushing for the government to get bad assets of the banks books without taking a writedown of their values while telling everybody else "we don't have any lollipops. We're the government, you'll have to wait for the free market and hope it has a used lollipop freshly picked off the ground in stock for you."
Orzag, the other deficit hawk, also came from the Hamilton crowd and Clinton is a big player there too (which might be why he was whispering to Paul Ryan on the medicare subject the other week).
Pete Peterson, of course, has spent millions of dollars, some of it here, to spread his "the government is the real subprime crisis" mantra.
For instance:
http://www.nakedcapitalism.com/2011/06/bribes-work-peterson-institute-donations-turning-nominally-liberal-foundations-to-the-right.html
For all the talk about Soros and his untold billions buying "puppet master influence" amongst the mainstream media, the roles of guys like Peterson, Koch, and Rubin and the like go woefully under covered.
#3 Posted by Thimbles, CJR on Thu 9 Jun 2011 at 01:56 AM
I thought this was a clip from the Onion when I first read it. Geithner pushed for “austerity” and the result was QE1, QU2, 800 trillion in stimulus, 2 trillion dollar deficits … did Geithner’s push for “austerity” have any real effect? Has the administration done any substantive about reducing the deficit? Get real here guys.
#4 Posted by Mike H, CJR on Thu 9 Jun 2011 at 11:32 AM
I thought I was pretty clear that geithner pushed for generosity towards the banks and the bare minimum for everyone else. This stimulus has, of course, allowed the banks to recover at the cost of everyone else.
QE 1 and 2 didn't help underwater mortgage holders find better deals or new jobs, they helped banks. HAMP was supposed to help those people, and Geithner and his wall street buddies in government and the fed ensured it helped banks too.
Now that the banks are fine-ish, now we have to focus on deficits. Somebody had the bright idea that saving the banks = saving the economy. That's just willful stupidity.
Ps your 800 trillion figure is off by a decimal point or two. It sure looks dramatic though.
#5 Posted by Thimbles, CJR on Thu 9 Jun 2011 at 06:10 PM
"When Barack Obama looks back on his one term in office, he’ll think a lot about Tim Geithner."
That seems more likely by the week. Sadly, he'll probably be wondering about how abruptly Tim has stopped taking his calls.
We might have to go back to Hoover to find a president who rode to office on such widespread goodwill, only to discard it so myopically. Bush didn't arrive that way; he squandered a similar moment after 9/11, though.
It's all the more ironic given how many saw this administration as the antidote to its predecessor. They were going to institute an open process, and listen to all the smartest experts. Instead, millions of Americans are suffering -- and Obama's economic Rasputin doesn't even have an undergrad econ major.
@MikeH: Try combining situational ethics and intellectually bankrupt reasoning. It makes sense for them: A corrupt oligarchy runs things from the Wall Street-Washington corridor, and continues to engorge itself at democracy's expense. Meanwhile, you poor suckers -- i.e., the other 99% -- have to tighten your belts.
After all, look at those deficits. Our leaders can't stop overpaying defense contractors for worthless sh--, or for services that soldiers do more professionally. You don't expect them to start enforcing the law or taxing rich people, do you? Surely no one hoped to end the loopholes, crutches and free money that let the financial sector nourish itself at the government trough?
Be patient. Ask not what your leaders can sacrifice for you, but how many lost decades we can sacrifice for their treasured perks.
#6 Posted by beyond appalled , CJR on Thu 9 Jun 2011 at 09:28 PM
Less about Geithner and more about where Geithner is coming from, pk (not padkiller) writes about the pain caucus and who they are helping vs who they are ignoring out of fear of "moral hazzard" and what not.
http://www.nytimes.com/2011/06/10/opinion/10krugman.html
#7 Posted by Thimbles, CJR on Fri 10 Jun 2011 at 08:15 PM