WASHINGTON (MarketWatch) — President Barack Obama is poised to start the new year and the last three years of his presidency without a coherent economic policy.
In fact, there is an empty chair where there should be an economic guru capable of helping the president stamp his legacy on American history.
The financial crisis of 2008-09 arguably hobbled Obama’s original economic team, forcing them into a reactive mode where the priorities were to prevent a collapse of the financial system and stop the economy from entering into a deflationary spiral.
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[h=3]Home Prices Back at Peak in Some Areas[/h]Paul Vigna and Nick Timiraos discuss how home prices in some areas of the United States are back at new highs. Photo: Getty Images
And that team — Larry Summers, Christina Romer and Austan Goolsbee with an able assist from Ben Bernanke at the Federal Reserve and a single-minded effort by Timothy Geithner at Treasury to preserve banks— managed to do that.
But their efforts were insufficient to eliminate the drag on the economy from toxic assets on bank balance sheets or to stimulate demand for a robust recovery.
Instead, hampered by a chief executive who cared little for economics, the administration made a political choice to pursue health-care reform instead of an aggressive economic package like Franklin Roosevelt’s New Deal.
In short, they wasted a good crisis. Worse, demonstrating political timidity and naiveté in equal measure, Obama met the deficit hawks on their own ground and embraced a policy of fiscal consolidation in the midst of a recession, undermining any further effort to invigorate the economy.
As a result, unemployment has remained stubbornly and unacceptably high, recovery remains sluggish and fitful, and the economy faces new financial bubbles due to the efforts of a frustrated Fed to make up for the ineffectiveness of the administration by flooding the market with money.
With the worst of the crisis behind us, the vacuum in economic policy making has become even more apparent.
Summers left the administration to cash in on Wall Street gigs and await his expected anointing as Fed chairman. Romer left in sheer frustration after unsuccessfully trying to pierce the crony old-boy network in the White House.
In the place of these two world-class economists, the White House policy team has been steered by economic mediocrities like Gene Sperling, a lawyer with no training in economics who is head of the National Economic Council, and Jason Furman, a trained economist who has followed a political career rather than coming to the head of the Council of Economic Advisers with an established academic reputation, like most previous occupants of that post.
Meanwhile, the Treasury Department, which has the pride of place in the economic pecking order, is not really a policy maker in the best of times. Neither Geithner nor his successor, Jack Lew, have been in a position to generate any effective economic policy.
The missteps and bad choices in Obama’s first term now severely limit the administration in finding any overarching vision or strategy for economic policy.
Instead, the president is left to take up whatever buzzword has some traction — currently it is inequality — and apply his little supply of band-aids to these issues du jour.
In fact, there is an empty chair where there should be an economic guru capable of helping the president stamp his legacy on American history.
The financial crisis of 2008-09 arguably hobbled Obama’s original economic team, forcing them into a reactive mode where the priorities were to prevent a collapse of the financial system and stop the economy from entering into a deflationary spiral.
Click to Play
[h=3]Home Prices Back at Peak in Some Areas[/h]Paul Vigna and Nick Timiraos discuss how home prices in some areas of the United States are back at new highs. Photo: Getty Images
And that team — Larry Summers, Christina Romer and Austan Goolsbee with an able assist from Ben Bernanke at the Federal Reserve and a single-minded effort by Timothy Geithner at Treasury to preserve banks— managed to do that.
But their efforts were insufficient to eliminate the drag on the economy from toxic assets on bank balance sheets or to stimulate demand for a robust recovery.
Instead, hampered by a chief executive who cared little for economics, the administration made a political choice to pursue health-care reform instead of an aggressive economic package like Franklin Roosevelt’s New Deal.
In short, they wasted a good crisis. Worse, demonstrating political timidity and naiveté in equal measure, Obama met the deficit hawks on their own ground and embraced a policy of fiscal consolidation in the midst of a recession, undermining any further effort to invigorate the economy.
As a result, unemployment has remained stubbornly and unacceptably high, recovery remains sluggish and fitful, and the economy faces new financial bubbles due to the efforts of a frustrated Fed to make up for the ineffectiveness of the administration by flooding the market with money.
With the worst of the crisis behind us, the vacuum in economic policy making has become even more apparent.
Summers left the administration to cash in on Wall Street gigs and await his expected anointing as Fed chairman. Romer left in sheer frustration after unsuccessfully trying to pierce the crony old-boy network in the White House.
In the place of these two world-class economists, the White House policy team has been steered by economic mediocrities like Gene Sperling, a lawyer with no training in economics who is head of the National Economic Council, and Jason Furman, a trained economist who has followed a political career rather than coming to the head of the Council of Economic Advisers with an established academic reputation, like most previous occupants of that post.
Meanwhile, the Treasury Department, which has the pride of place in the economic pecking order, is not really a policy maker in the best of times. Neither Geithner nor his successor, Jack Lew, have been in a position to generate any effective economic policy.
The missteps and bad choices in Obama’s first term now severely limit the administration in finding any overarching vision or strategy for economic policy.
Instead, the president is left to take up whatever buzzword has some traction — currently it is inequality — and apply his little supply of band-aids to these issues du jour.