Romer right; Obama wrong
Posted: Monday, August 16, 2010 8:02 pm
By: Douglas Cohn and Eleanor Clift
By DOUGLAS COHN
and ELEANOR CLIFT
WASHINGTON – With so much happening this summer, the departure of two top figures from the Obama administration’s economic team has received minimal media attention.
But it is the closest thing to a shakeup in the no-drama-Obama White House, offering the president a chance to make something of a fresh start.
All you need to know about 54-year-old Jack Lew, the next budget director, is that he had the same job in the Clinton administration and drafted the balanced budget that President Clinton achieved with the Republican-controlled Congress. With Republicans expected to gain seats in the House and Senate in November, and deficit reduction gaining urgency, Lew seems well positioned for the challenges ahead.
Former budget director Peter Orzag had personal challenges, a new marriage and a child born out of wedlock, so his leaving had less to do with policy differences than the departure of Christina Romer from her position as chair of the president’s Council of Economic Advisors. Romer returns to her academic perch at the University of California at Berkeley, where she is considered one of the top academic experts on Depression-era economics.
She came to Washington advocating a radical stimulus plan and quickly found herself in conflict with Lawrence Summers, assistant to the president for economic policy and director of the National Economic Council, who out-ranked her title-wise and was far more aggressive in courting both President Obama and the media. Summers pushed for a more moderate course, and his views carried the day.
Given the sluggish state of the economy, it appears Romer was right, and that’s why she left. She knows from her academic research that FDR made the same mistake, launching government programs that were not big enough to lift the economy out of Depression, and pulling back on the spending too soon, before the fragile recovery had taken hold. She knows if World War II had not come along, FDR might not be celebrated today as the savior of the economy.
The war’s deficit spending started the greatest and longest expansion of the American economy, but Obama’s wars today are draining resources, so he doesn’t have FDR’s fallback position. He is also battling a negative mood in the country. Unlike President Roosevelt, who restored faith in his leadership even as people had no money and no work, the American people are unsure about Obama. They like him and think he is trying to do the right thing, but they’re not confident he is on the right course.
The Right attacks Obama for being a socialist, and the left hammers him for not going far enough to expand government when people are in need. To put today’s woes in perspective, it is worth remembering that things were a whole lot worse during the Depression.
Fascist and communist movements gained traction as unemployed Americans looked enviously at Nazi Germany in the 1930s, where Hitler was putting everybody to work building the Autobahn and other public works projects and launching a massive military buildup.
There are important differences between then and now. Today, companies have lots of money, which they’re sitting on, waiting for consumer demand to rebound.
And unemployment today, as debilitating as it is, is half what it was during FDR’s time. It’s a severe downturn, but one that the country can pull out of with the right policies, and some patience. The biggest single problem Obama has that FDR did not have is a housing market that for many people is under water, meaning they owe more than their home is worth.
There was real estate deflation under Roosevelt, but a much smaller percentage of people owned homes when the Depression hit.
Romer leaves with her assumptions vindicated, but being right is little solace unless Obama changes course when he chooses her successor.
Published in The Messenger 8.16.10