The art of economics
Posted: Wednesday, September 7, 2011 7:01 pm
By DOUGLAS COHN
and ELEANOR CLIFT
WASHINGTON — Like military tactics and strategy, economics is an art, not a science, a fact driven home when the notes from the Federal Reserve’s open market meeting last month were made public. Although Fed Chairman Ben Bernanke announced no new proposals to spur the economy, the notes revealed considerable and unparalleled dissent among Fed members urging a third round of quantitative easing or some similar boost.
If these trained economists can’t agree, how can Obama be certain which course to follow? It was President Truman who famously wished for a one-handed economist, since those he dealt with always hedged their advice with on the one hand, and on the other hand. With America in the most prolonged job crisis since the Great Depression, economists and politicians alike are floundering. There are many nice theories, but no clear path ahead.
Princeton labor economist Alan Krueger is President Obama’s choice to become chairman of the Council of Economic Advisors, the post recently vacated by another academic, Austan Goolsbee. Krueger won’t be confirmed by the Senate until late September or October at best, but he’s free to give advice in the interim, and Obama could use some good ideas about how to generate jobs in a work force transformed by globalization and the Internet.
Krueger specializes in labor issues and his voice is especially welcome in a political climate dominated by Goldman Sachs alumni and corporate interests. Let’s hope he provides an alternate view now and then to an economics team focused more on getting Wall Street to flourish than with cleaning up the home foreclosure mess and getting Main Street back on track.
When Adam Smith published “The Wealth of Nations” in 1776, he became the father of capitalism and his book the bible for generations of entrepreneurs. But unrestrained capitalism produced Robber Baron monopolies and other inequities.
Restraint came in the form of anti-trust laws and other actions. Then, after the shock of the Great Depression, Keynesian economics and its advocacy of pump priming stimulus plans seemed the salvation. It worked for FDR, especially with the massive deficit spending forced by World War II, providing the longest sustained period of prosperity in U.S. history.
Now Republicans are saying we can’t spend our way out of today’s recession because the debt being created cannot be sustained. Whether right or wrong, they’re winning the political debate.
Enter Obama and his long awaited jobs creation plan which he will soon announce to the nation. Obama is not an economist, and he has no significant business experience, and so he must rely on those around him who have those credentials. It’s unclear exactly who is whispering in Obama’s ear and whose ideas will carry the day. As in the past iterations of capitalism, this latest version is going to be based upon theories, and those will come from people like Krueger.
Krueger is new to the team and hampered by not being confirmed, but Obama must have some confidence in him or he wouldn’t have chosen to bring him into the White House at this critical time. Krueger was at the Treasury Department for the first two years of the administration and was a big booster of the Cash for Clunkers program, which put money into the pockets of working Americans.
Treasury Secretary Timothy Geithner is also a major player, and he’s been at Obama’s side since before the administration took office. Geithner is no Bob Rubin. The reputation of Clinton’s former Treasury secretary has since been tarnished, but during the heyday of the 1990’s Rubin and President Clinton made a powerful duo and a budget surplus was the result.
Times are different now. We’ve gone from an era of plenty to an era of paucity, and the decisions that confront Obama are weighty and difficult. If he gets them wrong, the consequences could be devastating.
Published in The Messenger 9.7.11
DOUGLAS COHN, ELEANOR CLIFT