So Larry Summers, the president’s chief economic adviser, is stepping down from his post as director of the National Economic Council. Summers may win few popularity contests, but he is near universally acclaimed as one of the finest economic minds of our time. Word of his resignation raises the question: If Summers is so smart, how does one explain the administration’s economic policies?
Similar though less pointed versions of this question can and have been asked regarding the recent quick-step departures of two other well-regarded top Obama economic advisors — Peter Orszag from the Office of Management and Budget and Christina Romer from the Council of Economic Advisers.
With such economic luminaries at his disposal, why the president’s all-in Keynesian economic stimulus approach to the recession? A hair-of-the-dog policy that says, in effect, the solution to excessive debt is more debt? For reasons once understood well and increasingly acknowledged again, increasing deficit spending subtracts from private spending; it does not raise total demand. All the nation gets from a debt-based stimulus policy is, well, more debt. Not more jobs. The economy is more complicated than the simple Keynesian one-equation aggregate demand explanation.
How does one explain the White House’s repeated attempts at economic humor by trotting out analyses that show that the stimulus “saved or created” jobs even as the economy was losing jobs and has now entered into another jobless recovery? Is someone over in White House communications looking to replace Jon Stewart on The Daily Show?
How does one explain an administration facing a stubbornly high unemployment rate and possible deflation, yet simultaneously pressing to raise taxes massively on the job creators of our economy while offering tax-policy trinkets like making permanent the long-standing Research and Experimentation tax credit?
How does one explain an administration playing with fire over the Chinese exchange rate? For years Congress has threatened retaliation against the Chinese mercantilist exchange-rate policy. What kept a cork in the bottle was a Treasury Secretary urging sobriety. Now we have Secretary Geithner stoking a bacchanalia of self-destructive, reactionary protectionism.
It’s entirely possible that, upon entering the White House, Summers et al. simply drank the Kool-Aid. It happens, most frequently to shiny new congressmen and senators. The fact that a newly released Orszag quickly penned a high-profile editorial urging the president to back down on his tax hike promise supports this theory.
Or, as is more likely, it may turn out that Obama’s chief economic adviser was not Summers, or Orszag, or Romer. Perhaps all three were frustrated to learn that, from the start, Barack Obama’s chief and ultimately sole economic adviser has been Barack Obama. It would explain the frustrated departure of the illustrious three. It would explain the administration’s economic policies. And it would explain the unease of so many Americans who tell pollsters that Washington’s economic policies are fundamentally headed in the wrong direction.
— J. D. Foster is the Norman B. Ture senior fellow in the economics of fiscal policy at the Heritage Foundation.