We are all Keynesians now
SOME MEMBERS of President-elect Barack Obama's economic team, introduced yesterday, counseled against too much pump-priming by government when they worked in the Clinton administration or the financial markets. Happily, the group is also pragmatic enough to recognize when deficit-avoidance is impossible and the pendulum of deregulation has swung too far.
On Saturday, Obama announced a bold economic stimulus plan intended to create as many as 2.5 million jobs over the next two years and offer relief to cash-strapped cities and states. Obama said the plan would also make a "down payment" on his campaign promises, including investments in energy-efficient technologies and a middle-class tax cut. The numbers will be big - probably in excess of $500 billion - and the timeframe short.
"The truth is we don't have a minute to waste," Obama said yesterday.
Obama's Cabinet picks so far have been reassuring to the establishment, and the economic team is no exception. Yesterday the stock market continued the rally that began Friday when news of Obama's pick for US Treasury secretary, New York Federal Reserve chief Timothy Geithner, was confirmed. The brash and brilliant Lawrence Summers, former Treasury secretary and president of Harvard, is Obama's choice for senior economic adviser - not the kind of person an untested radical would select.
Summers, Geithner, and budget director Peter Orszag are all protégés of Robert Rubin, who as President Clinton's Treasury secretary pushed free trade, deficit reduction, and market deregulation. The latter of these policies, misguided or abused, brought the nation to the trouble it is in today. But Obama, like his appointees, is more a problem-solver than an ideologue. Direct federal aid is needed to jump-start the economy, and the resulting deficits can be addressed later. Similarly, Obama may be willing to put off reversing the Bush tax cuts for the rich until the recession has abated.
Importantly, Obama included his domestic policy adviser, Melody Barnes, in his economic team. He understands that healthcare, education, and energy reform will drive the nation's long-term recovery.
In the short term, the stimulus package must be big enough to make a difference, and quickly. Still, it is important that the money be spent strategically. Sending rebate checks directly to citizens didn't work for the Bush administration, as anxious Americans mostly banked the cash. And just distributing infrastructure funds through block grants to the states could end up undermining environmental sustainability, another priority, by contributing to sprawl in the politically powerful suburbs. "Federal infrastructure policy today is an unaccountable free-for-all," wrote two Brookings Instutution specialists in a recent analysis.
Yesterday Obama called his economic team "the best minds in America." They will need every point of IQ, and more. 