Monday, November 29, 2010

Disturbing Story on Obama Economic Team

According to Los Angeles Times columnist Richard Wolffe, a White House senior adviser told him that Obama called a meeting with the economic team about the level of unemployment. Obama called this meeting the day before the election. The goal of the meeting was not to find a solution for unemployment. The meeting was an intellectual debate on if the cause of unemployment was structural or cyclical.

I find this hard to believe. Obama has never exhibit economic policy wonkery. If Obama did he would have never hired Lawrence Summers and Tim Geithner. Obama is not going to take time out of his schedule to have academic debates. Obama wants new jobs created so he can get re-elected. The details are secondary.

Economist (and Lawrence Summers protege) Brad Delong calls the White House adviser quoted a "liar."

Given who they were and what I know of how they all think, all the members of Obama's original economic policy team--except, I suspect, Peter Orszag--did indeed have different views of what would be the best policy to try to generate jobs in the short run, but they all agreed that anything was better than nothing. (Peter thought, I think, that only policies that promised credible long-term deficit reduction were better than nothing.)

Orszag is no longer serving in the Obama administration. Orszag has advocated in his New York Times column to extend the Bush tax cuts and gushed about the deficit commission's recommendations. Summers will soon be out the door. Geithner is hoping quantitative easing by devaluing the dollar will increase exports. Federal Reserve chair Ben Bernanke sees short-term inflation, created by QE, helping job gains.

The action by the Obama administration on quantitative easing and signing the Recovery Act of 2009 suggests the economic team does not believe unemployment problems are structural. Paul Krugman comes to the same conclusion.

What I want to know is, who was arguing for structural? I find it hard to think of anyone I know in the administration’s economic team who would make that case, who would deny that the bulk of the rise in unemployment since 2007 is cyclical. And as I and others have been trying to point out, none of the signatures of structural unemployment are visible: there are no large groups of workers with rising wages, there are no large parts of the labor force at full employment, there are no full-employment states aside from Nebraska and the Dakotas, inflation is falling, not rising.

The real question is why did the Obama senior adviser tell Wolffe that the White House economic team hasn't figued out if the increase in unemployment is structural or cyclical? Either the Obama economic team is clueless or the Obama adviser has an axe to grind. Either possibility doesn't fill me with hope. What seems to be clear is Team Obama is falling apart and the finger-pointing has begun.

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