Politics & Policy

Obama Money Talk

The new administration and the economy.

National Review Online asked a group of economics experts to assess the Obama economic team.

Bruce Bartlett

I am very pleased by Obama’s economic appointments. They are all centrists for whom I have great professional respect. Frankly, they are a substantial cut above Bush’s current appointees in the same positions. But they have their work cut out for them. First, they face the worst economic crisis since 1929. Second, they are going to have their hands full fighting off the liberal special interests who view the crisis as a once-in-a-lifetime opportunity to spend like there’s no tomorrow.

#ad#For this reason, I view the appointment of Larry Summers as director of the National Economic Council as especially inspired. As everyone who knows him knows, Larry can be a bull in a china shop at times. But I think this quality is exactly what the person in this job needs. Larry’s personality, not to mention his extraordinary resume, will ensure that serious economic analysis underlies, or at least will be given fair consideration, in every Obama initiative. I think this is the best conservatives can hope for under the circumstances.

I think Summers will put his two cents into every Obama initiative, domestic or foreign. Don’t forget that Larry spent many years heading Treasury’s international-affairs office, which is like a mini State Department. And having an office in the West Wing ensures that Larry will have his fingers in every single pie going in or out of the Oval Office.

Personally, I think this is all to the good. The one thing missing is Cabinet rank. Obama can confer that upon anyone he chooses. He would be wise to elevate Larry Summers to Cabinet rank to ensure that his voice is heard wherever and whenever it needs to be.

Bruce Bartlett was a White House economist in the Reagan administration and a Treasury Department economist in the George H. W. Bush administration.

John Berlau

After relentless bashing of the Bush economic policies and calls for change you can believe in, President-Elect Barack Obama has made a Treasury-secretary selection in Timoty F. Geithner that would — from all indications — scarcely be different from reappointing Henry Paulson to another tenure. As president of the Federal Reserve Bank of New York, Geithner has been, in the Washington Posts words a primary architect of the Bush administrations response to the financial crisis and has worked closely with Treasury Secretary Henry M. Paulson Jr. to devise responses to the most critical events of the market turmoil.

The Geithner nomination would be “more of the same” of the worst aspects of the Bush administration — more bailouts, more lack of transparency in the bailouts, and more corporate welfare.

Other than organizing bailouts Geithners resume is quite thin compared to that of others who have held the office he has been nominated to. As liberal columnist Robert Kuttner noted recently in The American Prospect, Geithner has neither a doctorate in economics nor an M.B.A. He has never been a corporate leader nor been a professor with a trail of published economic papers. Instead, Geithners career has been almost entirely in the bowels of the bureaucracy. He started at the Treasury Department in 1988 as a career civil servant before being appointed under-secretary of the Treasury for international affairs in 1999.

Geithner would not have even been under consideration had he not come to prominence in circumventing rules to arrange the bailiout of Bear Stearns creditors earlier this year, with $29 billion in backing from U.S taxpayers. According to accounts from both conservative columnist Robert Novak and the financial magazine Conde Nast Portfolio, Geithner was the main instigator of the bailout, getting Paulson and Fed Chairman Ben Bernanke to sign on to his handiwork.

The Bear deal faced criticism from the Left and Right as both an abuse of Fed power and as a precedent that spread moral hazard leading to the further bailouts down the line — bailouts that Geithner would be heavily involved in, working hand-in glove with Hank Paulson. Novak wrote, The Federal Reserves unprecedented bailout of Bear Stearns was crafted not at the White House or Treasury, but in secret by a New York central banker. But Geithers actions received similar criticism from former Fed Chairman Paul Volcker, an adviser to Obama who himself was considered for the Treasury job. In a speech to the Economic Club of New York, Volcker said the FEd took actions that extend to the very edge of its lawful and implied powers, transcending certain long-embedded central-banking principles and practices.

Given that bailouts are just about his only siginificant policy accomplishment, both the long-term implications of Geithner’s actions and the short-term lack of results in calming a nervous economy (indeed they may have exacerbated fears about the next shoe to drop) need to be heavily scrutinized at his confirmation hearing.

— John Berlau is director of the Center for Entrepreneurship at the Competitive Enterprise Institute.

James C. Capretta

Personnel is policy, it is often said. By that standard, we should be somewhat reassured by the team Senator Obama is assembling to implement economic policy in the new administration. Lawrence Summers, Peter Orszag, and Tim Geithner are all veterans of the Clinton era, and their public positions reveal a disposition to markets, free trade, and fiscal discipline.

But, at this unusual — really unprecedented — moment in our economic history, prior positions and past statements may not tell us much about what we can expect by way of policy in the future.

What’s most worrisome is that Senator Obama himself seems to have strong instincts toward policies which would hinder growth rather than hasten a rapid recovery. He is clearly not an ardent free-trader. He speaks the language of redistribution, not growth. He has yet to back off of any of his many proposals which would impose new burdens and taxes on businesses, thus slowing job creation (for instance, his “pay or play” health care mandate).

And then there is the matter of taxes. The newly emerging team favors reducing budget deficits, but none seem much inclined to do what is necessary to reign in the expansive federal enterprise. To them, fiscal discipline only means higher taxes. And there, the only uncertainty is when they will push for the massive tax hike they all favor.

— James C. Capretta is fellow at the Ethics and Public Policy Center and a former associate director at the Office of Management and Budget.

Richard Ebeling

In spite of the impression the media, that President-Elect Obama’s economic team reflects an underlying “pro-market” orientation, they in fact are advocates of manipulating markets to generate outcomes more to their interventionist and welfare redistributive liking. The French have long called this “indicative planning”: use the tax system and the regulatory mechanism to induce the private sector to do what politicians and ideological special interests want. That is not the free market. They will manipulate the markets to bring about the “green” and pro-labor union outcomes that will have nothing to do with the outcomes we as consumers would have desired in a more competitive environment.

In addition, they are all on board to design and implement a vast deficit spending package that will end up doing far more harm than any good, by creating politically influenced public works jobs that will only last for as long as the government keeps spending money in particular ways. Also, they seem to be completely oblivious to the simple but vital question: where is the money coming from to fund what will end up being a total $1.5 trillion bailout and stimulus budget buster? An answer would be nice.

— Richard Ebeling is a visiting professor at Trinity College (Conn.) and senior fellow at the American Institute for Economic Research.

Peter Ferrara

The Obama economic team is more moderate than I had feared. But instead of Hugo Chavez socialists, they are still hopeless liberals. They are going to try to solve the financial crisis with unprecedented Keynesian overspending and deficits, proven to fail, rather than Reaganite supply side economics, proven to work. They have a blind spot for global warming regulation and central economic planning for energy, which is enough to crush the economy by itself, and produce blackouts and gas rationing. In the long run this crowd will bring back ruinous inflation as well. Congressional leaders like Nancy Pelosi, Barney Frank, Ted Kennedy and others are truly crazy socialists not living in the real world, and will only further lead Obama’s team toward disaster. The American people will eventually wake up as a result and restore grown up capitalist economics. The only question is how much will they have to suffer before that happens.

–Peter Ferrara is director of entitlement and budget policy for the Institute for Policy Innovation.

Burton Folsom Jr.

The problem with Obama’s economic team, especially Timothy Geithner and Lawrence Summers, is not so much their ties to the Clinton administration, but their stronger ties to failed economic policies of the past. They support bailouts and put much confidence in a large “stimulus package” that will, they say, create jobs and protect American investments.


Such actions have never worked before. We can’t secure a recovery by taking dollars from one group and giving them to another. What is gained in jobs at one end is lost at the other.

#ad#Furthermore, stimulus packages always result in decisions that are more political than economic. Geithner and Summers, for example, have close ties to former Treasury Secretary Robert Rubin, who is former chairman of Citibank — the probable recipient of a bailout. During the Great Depression we had a parallel. Under President Hoover, Charles Dawes, former vice president under Coolidge, was appointed to head the Reconstruction Finance Corporation, which was the bailout mechanism of the 1930s. Dawes conveniently supported a $90 million loan to his own Chicago bank. Dawes’ bank, like Citicorp, eventually failed. Meanwhile, 1930s tax rates had to be raised to get the bailout money and unemployment rose to 25 percent.

– Burton Folsom Jr. is professor of history at Hillsdale College and author of New Deal or Raw Deal? (Simon & Schuster, 2008).

Rea S. Hederman Jr.

Christina Romer recently published a paper arguing that tax increases hurt economic growth and discourage investment, albeit not for pure supply-side reasons. She also has warned about the long-term structural deficit of the U.S. government. This flouts the new, revived 1960’s mentality that deficits do not matter, and government spending is again a magical cure-all. It’s not impossible to imagine her working with President George H. W. Bush.

The Summers and Geithner picks reveal the value that President-Elect Obama is placing on experience and prior government service.

The economic team should act as a brake to policies that attempt to soak the rich to pay for new programs. If only Nixon could go to China, maybe only Obama can work to make Medicare and Social Security a good deal for retired workers without overburdening current workers. In the campaign, Obama embraced a sharp payroll tax hike to pay for Social Security. Hopefully, his economic team can explain why tax increases are a bad choice for entitlement reform.

— Rea S. Hederman Jr. is senior policy analyst and the assistant director of the Center for Data Analysis at the Heritage Foundation.

Raymond J. Keating

It’s hard to find any bright spots in terms of the economy and economic policy these days. And that includes the announcement of President-Elect Barack Obama’s economics team.

In recent months, the Bush economics team has been leading a government bailout frenzy that seems to change and expand daily, and has helped scare entrepreneurs, investors, businesses, and consumers onto the economic sidelines. And despite the fact that government policies — such as an “affordable housing” agenda detached from economic reality, too-easy monetary policy, and misguided mark-to-market accounting regulations — largely got us into this mess, the message from political leaders has been that the market failed, and government must come to the rescue. Not only is that fundamentally incorrect, but it establishes a very dangerous precedent.

Over the weekend, President-Elect Obama simply pushed the government-as-economic-savior idea further along, pointing to an economic recovery agenda focused on additional government spending on assorted infrastructure and energy boondoggles, while hinting that his promised tax increases on upper income earners — i.e., on many entrepreneurs and investors — might come a bit later than originally proposed.

As long as these types of proposals dominate economic policy, it really does not matter who is on the Obama economics team.

Besides, on the campaign trail, the President-elect clearly pushed an anti-growth tax, regulatory, trade and spending agenda. Why should anyone expect that the Obama economics team would disagree with Obama in any substantive, fundamental ways? As much as I might hope, there are unlikely to be any closet supply-siders in an Obama administration.

— Raymond J. Keating serves as chief economist for the Small Business & Entrepreneurship Council.

Stan Liebowitz

Obama’s economic team is quite conventional. That is a good thing, given that the candidate had such a liberal voting record and given his sophomoric theme of change. Love him or hate him, Larry Summers did join with Alan Greenspan to try to rein in Fannie Mae. Although the attempt failed, the fact that he tried indicates some good sense and a willingness to take on an organization dear to liberal orthodoxy. Christina Romer, like Ben Bernanke, is an expert on the Great Depression. The benefit of such expertise is obvious when the markets are as spooked as they have been lately. The possible downside of this is that, like a kid with a hammer, everything may look like a nail. They may see symptoms of depression even when none exist. I would be happier if the forthcoming shift into Keynesian government spending were run by this economic team as opposed to Congress, but it won’t be. We can only hope, although I am pessimistic, that the government budget doesn’t get busted too badly, that the spending doesn’t take place after its justification is over, and that the money doesn’t get siphoned off to political friends of the Democrats.

— Stan Liebowitz is Ashbel Smith Professor of Economics and director of the Center for the Analysis of Property Rights and Innovation at the University of Texas–Dallas.

Donald T. Luskin

Timothy Geithner for Treasury secretary is a positive development. Geithner is not an ideologue or a partisan. He is a career technocrat. He played an important role in the failed banking bailouts this year, but along with Henry Paulson and Ben Bernanke, he has learned on-the-job as the regulators have found ways to save the banking system without destroying it in the process. As long as the Treasury secretary is going to be a bail-out czar, better to have one who has had some experience than someone would who have to learn from scratch.

— Donald L. Luskin is Chief Investment Officer at Trend Macrolytics LLC.

Dan Mitchell

There are two big economic issues facing the country: A government that is too big and too expensive and financial markets whipsawed by bad monetary policy and misguided intervention. Unfortunately, the economic team unveiled by President-Elect Obama offers little reason for optimism. Larry Summers, who will head the National Economic Council (and also be the dominant player) is a reflexive supporter of higher tax rates. He also supports the anti-tax competition schemes of international bureaucracies, which means the United States will be in bed with the French and Germans trying to oppress low-tax jurisdictions (for more information, see here).


The other two appointees are not as troubling, but that may be damning with faint praise. The future Treasury secretary, Timothy Geithner, developed a reputation as a technocrat as head of the New York Federal Reserve. He has played a major role in the various Wall Street bailouts, which — given the unsurprisingly poor results of government intervention — does not bode well and suggests more of the same for the immediate future.

#ad#The only potential bright light is Christina Romer, who has been tapped to head the Council of Economic Advisers. Some of her research has illustrated the negative impact of higher tax rates, so hopefully she will provide the incoming president with some much-needed cautionary words about making government even bigger and more expensive. But there is a big difference between providing good advice and having it heeded. The Council of Economic Advisers repeatedly advised President Bush against expanding the burden of government, but the White House ignored that wisdom and spent eight years expanding the burden of government.

— Dan Mitchell is a senior fellow at the Cato Institute.

Grover G. Norquist

What does one think of Obama’s economic team?

Would you really care about the names or personal attributes of the gentlemen making up your firing squad? Did the Romans care about the personal characteristics of Alaric’s Visigoths who entered Rome in the year 410 with their own economic plans?

The questions is not who, but what they intend to do. That was settled when Obama became the candidate of the trial lawyers, the labor union bosses and the big city machines. Obama and his three-headed Cerberus of trial lawyers, labor unions and big city machines have a fixed set of plans. Who implements them is not important.

Everything Obama’s team says they will do will hurt the economy. Tax increases. Protectionism. Subsidies for the economically challenged and the politically favored. More government employment. More regulations. More lawsuits. Less competition. Who cares who pulls the trigger?

— Grover G. Norquist is president of Americans for Tax Reform and author of Leave Us Alone—Getting the Government’s Hands Off Our Money, Our Guns, Our Lives

Andrew Roth

I’m firmly pessimistic on tax policy, but there are some small signs of hope. Although Obama has not made any broad statements on trade policy, his recent economic appointments look better than I expected. It appears that Geitner’s previous experience and background make him friendly to a continued pro-trade relationship between the U.S. and China. That is nothing to sneeze at. In additional, Council of Economic Advisers nominee Christina Romer is a committed free trader. National Economic Council nominee Larry Summers was also very pro-free trade as a member of the Clinton administration and there is no reason to think he will not make this pro-free trade views heard as a member of the Obama administration. All of this is refreshing — not to mentions surprising — after listening to Obama’s non-stop protectionism on the campaign trail. Let’s hope economic freedom continues to cross more and more borders under the new administration.

— Andrew Roth is director of government affairs at the Club for Growth.

Stephen Spruiell

Obama’s decisions regarding personnel have been better than his decisions about policy so far. The market has appeared to react favorably to his choice of economic advisers, particularly his selection of Timothy Geithner to lead the Treasury Department. Geithner is a known entity on Wall Street, and he won’t need to catch up on the details of the government’s massive and growing bailout of the banking system. As chairman of the New York Fed, he was present at the creation of these complicated and fragile arrangements.

Obama’s decision to place former Treasury Secretary Larry Summers and Berkeley economics professor Christine Romer in key positions on his economic team are good signs that Obama will steer clear of steep tax hikes, at least in the early going. Both are likely to advise against raising taxes in the midst of an economic downturn. But if Obama signs a $700 billion stimulus bill into law, tax increases can’t be far behind. The most likely scenario is that he will let some of the Bush tax cuts expire in 2011. A more depressing outcome would involve the expiration of all the Bush tax cuts, plus the creation of a new revenue stream for the federal government from the auction of carbon permits under some sort of cap-and-trade regime.

Troubling though these portents are, Obama’s initial moves on the economy offer some reassurance for the time being.

— Stephen Spruiell is an NRO staff reporter who writes frequently on economic policy.

Brian Wesbury

Politics is often backwards. For example, only Richard Nixon could go to China, only Bill Clinton (or a democrat) could sign welfare reform, and only George Bush could introduce a hugely expensive new drug entitlement.

So far, this triangulation seems to be playing out again. If John McCain had won the election, and was putting together an economic team, it is easy to believe that he would have asked Timothy Giethner and Christina Romer to be part of it. Larry Summers might have been considered, but would have been a stretch. The fact that Barack Obama has assembled this team suggests he understands that economic forces could deny him a second term.

Taken as a whole, this team is clearly not as left-leaning as the market or political opponents had feared. In fact, Christina Romer has written extensively about monetary policy, taxes and the measurement of economic activity prior to more modern data collection techniques. Her work supports stable money, low tax rates, and argues against the perceived benefits of government intervention. Her research does not support a liberal world view. Summers and Giethner, while more aligned with a liberal worldview, are considered moderates, supportive of a strong dollar and free trade.

Most of all the team looks pragmatic. This pragmatism is one reason the Obama team has leaked that it is willing to hold off on tax hikes until as late as 2011. Either this is a well-designed head fake to keep high income earners from shifting their income into 2008 from 2009, or it is a clear sign that the Obama team understands at some deep level that if it wants a second term it must govern from a different mountain top than it campaigned on.

– Brian S. Wesbury is the chief economist for First Trust Advisors. He is the former chief economist for the Joint Economic Committee of the U.S. Congress.


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