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.
When Barack Obama looks back on his one term in office, he’ll think a lot about Tim Geithner.