In the upcoming issue of the New York Times Magazine, Peter Baker provides a retrospective on Obama’s first economic team members and also looks at the new members, with a focus on the administration’s desire to foster job growth. As I read the article a few thoughts struck me.
1. Baker repeats the stock justification of Obamanomics:
There is a compelling case that Obamanomics has produced results…. The American Recovery and Reinvestment Act, known as the stimulus, produced or saved at least 1.9 million jobs and as many as 4.7 million last year, according to the Congressional Budget Office. The much-derided Troubled Asset Relief Program, or TARP, started by George W. Bush and continued by Obama, stabilized the financial sector, and the big banks have repaid the money with interest. According to a Treasury Department report sent to Congress this month, TARP will cost taxpayers $28 billion instead of the $700 billion originally set aside. The nearly $80 billion bailout of the auto industry may cost taxpayers only $15 billion, as the restructured General Motors and Chrysler come back to life with strong sales.
That this is posed to become the historical narrative on Obama’s first two years in office is disconcerting. It should be mentioned that the CBO hasn’t provided any evidence whatsoever that the stimulus created 2-5 million jobs. Also, the fact that TARP will cost taxpayers $28 billion instead of much more is almost totally irrelevant to whether it was a good idea. Why cite that number without providing any other context about the bailouts?
Yet citing these numbers is apparently enough to make the case that Obamanomics writ large has proved successful. It seems as if Baker didn’t feel the need to probe into the statistics he cites even a little bit: the auto bailouts he references were, of course, part of TARP, yet he seems to segregate the costs of the TARP bank bailouts and the auto bailouts.
2. Geithner’s self-defense is underwhelming:
“People look at the economy today, and they’re disappointed by what we’ve achieved,” Treasury Secretary Timothy Geithner told me last month. “But that just misses the fundamental reality – it could have been so much worse.”
That’s a good epitaph for the 2009-2001 Obama economic team: “it could have been so much worse.”
3. Baker recounts some of the now-famous tensions between members of Obama’s economic team, especially between Summers and everything else. Perhaps the most important instance of disagreement came at the height of the financial crisis, when the team was designing the stimulus:
[CEA chair Christina] Romer calculated how much government spending would be needed to fill the gaping hole of consumer demand and came up with $1.2 trillion, the highest of three options. Summers told her to leave that number out of the memorandum to Obama. Emanuel argued that such an astronomical figure would be politically explosive. Romer left it out but mentioned it to Obama during a briefing. “That’s what you’d need to do to definitively heal the economy,” she said, according to someone in the room. Still, she and Summers agreed on recommending close to $900 billion.
From these comments, are we to understand that a forgone $300 billion in stimulus spending was the difference between “definitively” healing the economy and a prolonged recession? Is that believable?
3. Baker talks with Cindy Romer about the infamous transition paper asserting that employment would max out at 8 percent without the stimulus:
“I truly believed that forecast,” Romer told me. “I consulted with every good forecaster who would talk with me, including the Federal Reserve.” The problem was that the baseline economy was in worse shape than even the grim assessment of that Chicago meeting in late 2008.
So “every good forecaster,” including the Federal Reserve, failed to forecast the immediate, terrible deterioration in the baseline economy. Yet these same economists, using the same models, are somehow able to know without any doubt that the stimulus created up to 5 million jobs.