[....] I think that is a very loud wake-up call for Mr. Obama--that it is long past time for him to stop talking about how surrendering to Republicans on long-run spending priorities will bring the confidence fairy who will then gift us with a strong recovery and start actually doing his job.Back in the summer of 2009, Barack Obama had five economic policy principals on the Treasury Bench:
- Tim Geithner, who thought that the administration and the Fed had done enough to stabilize the economy, that we were on track for a rapid recovery, and that the principal economic policy problems were going to be avoiding an unwanted uptick in inflation and dealing with the long-run budget.
- Ben Bernanke, who thought that the administration and the Fed had done enough to stabilize the economy, that we were on track for a rapid recovery, and that the principal economic policy problems were going to be avoiding an unwanted uptick in inflation and dealing with the long-run budget.
- Peter Orszag, who thought that the economy probably needed some (relatively small) additional fiscal, banking, and monetary stimulus to boost demand, but that the path to getting to that stimulus was to make it part of a package with policies to deal with the long-run budget.
- Larry Summers, who thought that the economy probably would need some additional fiscal, monetary, and banking-side stimulus--if only as insurance--and that dealing with the long-run budget could wait until the recovery was well-established (although in an ideal world Washington would be able to do more than one thing at a time and so it would not have to wait).
- Christy Romer, who thought that the economy probably needed (much) more additional fiscal, monetary, and banking-side stimulus--especially as insurance should things break badly--and that dealing with the long-run budget crisis probably should wait until the recovery was well-established: that the key point was "no 1937s!"
Opposite the Treasury Bench was the Right Opposition, with its guiding principle: never mind everything we have said in the past, whatever Obama proposes we reject.And over in the corner was the Left Opposition, represented by:
- Paul Krugman, who thought not quite "we are all going to die!" but rather that without five-alarm stimulus the risks were very high of a jobless recovery stemming from a combination of labor-market changes that had eliminated the temporary layoff and so the economy's ability to rapidly bounce-back on the labor side and of the fact that a financial-crisis solvency and safety squeeze was different from a monetary liquidity squeeze along the lines argued by Koo, Reinhart, Rogoff, and before them Bagehot, Minsky, and Kindleberger. And that Christy Romer was a wild-eyed optimist.
Even with a Congress gridlocked and neutralized, the Fed and the executive had enough power through their ownership of Fannie and Freddie, through the Federal Reserve act, and through the TARP to do everything necessary to guarantee a strong recovery.But the problem I did not see in the summer of 2009 was that the stimulus skeptics were the operational managers of the government, while the stimulus advocates were staff without line responsibilities. Hence nothing happened. And Peter, Larry, and Christy left.And their successors--Jack, Gene, and Austen--are very smart men and dedicated civil servants, but they lack the strong substance-matter knowledge and aggressive policy views of their predecessors. So the only strong policy views in the administration's internal debate mix right now are those of people who were wrong in the summer of 2009. [...]