The High Priests of the Bubble Economy
Those following the meeting of Barack Obama's economic advisory committee could not have been very reassured by the presence of Robert Rubin and Larry Summers, both former Treasury secretaries in the Clinton administration. Along with former Federal Reserve Board chairman Alan Greenspan, Rubin and Summers compose the high priesthood of the bubble economy. Their policy of one-sided financial deregulation is responsible for the current economic catastrophe.
It is important to separate Clinton-era mythology from the real economic record. In the mythology, Clinton's decision to raise taxes and cut spending led to an investment boom. This boom led to a surge in productivity growth. Soaring productivity growth led to the low unemployment of the late 1990s and wage gains for workers at all points along the wage distribution.
At the end of the administration, there was a huge surplus, and we set target dates for paying off the national debt. The moral of the myth is that all good things came from deficit reduction.
The reality was quite different. There was nothing resembling an investment boom until the dot-com bubble at the end of the decade funnelled vast sums of capital into crazy internet schemes. There was a surge in productivity growth beginning in 1995, but this preceded any substantial upturn in investment. Clinton had the good fortune to be sitting in the White House at the point where the economy finally enjoyed the long-predicted dividend from the information technology revolution.
Rather than investment driving growth during the Clinton boom, the main source of demand growth was consumption. Consumption soared during the Clinton years because the stock market bubble created $10tn of wealth. Stockholders consumed based on their bubble wealth, pushing the saving rate to record lows, and the consumption share of GDP to a record high.
The other key part of the story is the high dollar policy initiated by Rubin when he took over as Treasury secretary. In the first years of the Clinton administration, the dollar actually fell in value against other currencies. This is the predicted result of the deficit reduction. Lower deficits are supposed to lead to lower interest rates, which will in turn lower the value of the dollar.
A lowered dollar value will reduce the trade deficit, by making US exports cheaper to foreigners and imports more expensive for people living in the US. The falling dollar and lower trade deficit is supposed to be one of the main dividends of deficit reduction. In fact, the lower dollar and lower trade deficit were often touted by economists as the primary benefit of deficit reduction until they decided to change their story to fit the Clinton mythology.
The high dollar of the late 1990s reversed this logic. The dollar was pushed upward by a combination of Treasury cheerleading, worldwide financial instability beginning with the East Asian financial crisis and the irrational exuberance propelling the stock bubble, which also infected foreign investors.
In the short-run, the over-valued dollar led to cheap imports and lower inflation. It incidentally all also led to the loss of millions of manufacturing jobs, putting downward pressure on the wages of non-college educated workers.
Like the stock bubble, the high dollar is also unsustainable as a long-run policy. It led to a large and growing trade deficit. This deficit eventually forced a decline in the value of the dollar, although the process has been temporarily reversed by the current financial crisis.
Rather than handing George Bush a booming economy, Clinton handed over an economy that was propelled by an unsustainable stock bubble and distorted by a hugely over-valued dollar.
The 2001 recession was relatively short, but the economy continued to shed jobs for almost two years after the recession ended. Because President Bush refused to abandon the high dollar policy, the only tool available to boost the economy was the housing bubble. In addition to the growth created directly by the housing sector, the wealth created by this bubble led to an even sharper decline in saving than the stock bubble.
Of course, the housing bubble is now in the process of deflating. The resulting tidal wave of bad debt has created the greatest financial crisis since the second world war. With the loss of $8tn in housing wealth, consumption has seized up, throwing the economy into a severe recession.
While the Bush administration must take responsibility for the current crisis (they have been in power the last eight years), the stage was set during the Clinton years. The Clinton team set the economy on the path of one-sided financial deregulation and bubble driven growth that brought us where we are today. (The deregulation was one-sided, because they did not take away the "too big to fail" security blanket of the Wall Street big boys.)
For this reason, it was very discouraging to see top Clinton administration officials standing centre stage at Obama's meeting on the economy. This is not change, and certainly not policies that we can believe in.
C'mon Dean ... don't start playing liberal circular firing squad, Rubin and Summers were the core of the Clinton economic team and Obama should at least listen to what they have to say as part of a very large, very diverse economic discussion. Read the very good NYT Magazine piece that came out right before the convention about Obama's economic thinking ... Obama wants to hear everyone out, then he's going to follow his own path. He understand your point about the frothy late-Clinton years very well and articulated just as much in that piece.
November 11, 2008 4:21 PM | Reply | Permalink
Read the very good NYT Magazine piece that came out right before the convention
Here: "Advanced Obamanomics..."
November 11, 2008 5:44 PM | Reply | Permalink
How does one deflate a bubble?
By letting the air out of it slowly, or in some cases, not letting it in in the first place.
The bubble could have been contained by higher taxes at the highest end of the income spectrum, where the money comes from that goes into speculative investing.
Clinton couldn't have choked higher tax rates down congresses throat given the Republicans there at the time. High tax rates at the highest income levels has more than a redistributive effect - it also creates a head wind to the formation of bubbles.
funny that they don't ever talk about such things.
November 11, 2008 7:34 PM | Reply | Permalink
Didn't you get the memo? All conversations to be undertaken by President Elect Obama are to be approved in advance by select progressives. You get that? He cannot be trusted to meet certain people and engage them in conversation because he is just not smart enough to resist bad advice. He must listen to liberal blog commenters only, and must never, NEVER speak to or be seen with anyone who at any time worked with or even knew Bill or Hillary Clinton. Evidently, under the new theme being developed here and and at HuffPo, having worked in the Clinton Administration is an offense worse than rape or murder and Obama is to be excoriated for even considering speaking to them. Remember, Obama is stupid and can't be trusted to figure out what to do. He needs to resist information (as Bush does) and live in an echo chamber (as Bush does). This kind of behavior has worked so well...
November 12, 2008 12:13 AM | Reply | Permalink
libgirl: Not expressing an opinion that Obama should not talk to Rubin and Summers. Rather, saying that there be, in formal government positions, individuals with other, different points of view, in more than token numbers. I haven't seen anyone say "don't talk to X or Y, because they're former Clinton people". That would be just dumb.
Have you ever worked in government? I have. My experience is that who is, and is not, at the table when discussions are held among an elected official's advisors can have a major impact on how a decision goes.
This isn't a matter of the elected official being stupid. It has to do with the factual information, the points of view and the options that get discussed at particular times when an elected official, who in the case of a president is always dealing with many, many decisions in the course of a day, is considering what to do.
FDR certainly wasn't dumb. He deliberately solicited a wide range of views. Some close to him felt, however, on the basis of what they observed, that too often he would end up siding with the point of view expressed by the last individual he ended up speaking with on a matter.
No more than any other mortal, Obama can't always know what he doesn't know. Depending on who he hears from on a given matter, among other factors such as who he might decide to speak with privately or what he might read on his own, for example, that helps inform the range of facts and points of view he may consider for a given decision.
Isn't it just a matter of common sense that you'd want to surround yourself with people you guess (because that's all you can do) are going to give you something as close as possible to the range of perspectives you'd like to consider, given the immense time pressures of the job? Sure, he can always contact others on the outside or hope that he gets whatever else he needs or wants from what he's reading. But wouldn't you want to minimize the need to do that to get the range of views you really want?
I say this because looking at the list of his economic advisors, it looks to me as though the sort of pro-public investment, willing-to regulate-where-it's-necessary economic policy folks such as the ones I mentioned elsewhere in this thread are pretty seriously under-represented. So I don't see this as a merely abstract point.
It really has nothing to do with not wanting to listen to those with strong ties to the Clinton Administration, at least from this denizen's point of view. He of course should want to hear--and he will hear, without any doubt--from folks such as Rubin and Summers and others. They have important experience and they are very smart, very capable individuals. If he wants to get the best decisions he'll want to hear from a broad range of folks and not permit the deck to get stacked too much in any one direction.
November 12, 2008 1:27 AM | Reply | Permalink
I think you overlooked my broader point: Now that Democrats and liberals finally have what they wanted, all they seem to be doing is complaining and wringing their hands. They are giving our new president no chance. It is day fucking seven for God's sake! And he won an overwhelming victory (unlike Bush, who didn't win the first time and had to rig Ohio the second time just to get the narrow win that he did). Don't believe me? Take a look at Jane Hamsher's articles over at Firedoglake. That woman would evidently find fault with a morning sunrise. But she is not focused on a morning sunrise. All of her ire is focused on Barack Obama. She disapproves of EVERYTHING he does.
It just seems to me that after 8 years of justifiably bitching about the illegitimate Bush presidency, we need to holster our guns. This is our guy! And some are treating him like shit.
And yes, I have found there to be, here and at HuffPo, an unreasonable latent suggestion that Obama has a duty to avoid anyone and anything to do with the Clinton Administration. I find that ridiculous.
November 12, 2008 2:34 PM | Reply | Permalink
I see a distinction between expressing constructive criticism that is not mean-spirited but is motivated by concern, versus "treating him like shit", in your words.
If you're talking about unconstructive carping I agree with your point--it's useless if not counter-productive.
Re constructive expressions of concern or criticism, though, there are some who, impressed as pretty much all of us are with the campaign he ran, are essentially saying: "They won the damned election. They were consistently underestimated. So, to all of you out there in the peanut gallery wanting to offer your advice: sit down and shut up!"
I think this would be a bad idea.
The Bush Administration has had a pretty consistent response to criticism, constructive or not: ignore it or denigrate it. Criticism = harrassment, in their view.
The Obama crowd has a different mentality, one which I think has served them exceedingly well. They seem to view constructive criticism as feedback that enables them to get more information and points of view than they otherwise would. They appear to have done a great job of sifting out the useful suggestions from the unuseful ones.
There are many new players involved now who were not involved during the campaign. Even if this were not the case, effective governing does not follow from effective campaigning. We need only look at recent history to realize this. So to think that constructive criticism is no longer warranted or helpful or desirable now that the campaign is over because so much was done well during the campaign I think does not at all follow.
Many key appointments are going to be made within the coming weeks. None of us knows the timing of them. If, to take this thread as an example, the composition of this initial economic advisory group prompts a concern about balance, it makes sense to me for those concerned to speak up now, in a constructive way. Speak now, or forever hold one's piece. Because after-the-fact carping is moot.
November 12, 2008 6:43 PM | Reply | Permalink
Here's the David Leonhardt piece in the NY Times magazine I referenced above ... read it and I think you'll be a lot less concerned about Clintonomics gurus having a seat at the table.
http://www.nytimes.com/2008/08/24/magazine/24Obamanomics-t.html?ref=magazine
November 11, 2008 4:28 PM | Reply | Permalink
oops, you found it. two links better than one, maybe someone will actually read it? :-)
November 11, 2008 5:45 PM | Reply | Permalink
The Leonhardt article is definitely worth reading.
For the entire campaign, people have been second-guessing Obama, giving him advice on how to run his campaign -- that he was not replying forcefully enough to Clinton, or to McCain. Given the size of his electoral victory, maybe everyone ought to chill out a bit and have some faith in the guy we elected.
We are in a new economic regime -- the road to resolving the present crisis will be tortuous, to say the least. If Obama is listening to all sides, more power to him.
Summers, Rubin, and Geithner clearly have liabilities, but they may also have something to say; so far, Obama is only talking to them.
November 11, 2008 6:51 PM | Reply | Permalink
Good point dhs. Also is it impossible to believe that these people actually learned something from their screw up. Does anybody think they would actually argue a continuation of the same policies that got us into this fix? Times have changed. We have a good idea what went wrong. It's most likely that Obama will listen to what they have to say and what their prescription might be to get us going again and choose what he thinks is best. He's certainly not going to be swayed by an argument that we repeat the past. Punishment for the past is not what we're after. Pointless. Addressing the problem is what we want.
November 11, 2008 8:00 PM | Reply | Permalink
Thanks, NickthePick, this was my thought, too.
The people who design something that has initial success and then fails ugly are on an exquisite hook, when invited to analyze that failure and make sure it doesn't happen again.
November 11, 2008 10:56 PM | Reply | Permalink
There are a few things in the NYT article that might allay my fears, but not enough. For example, Leonhardt writes that Obama is in favor of cap and trade. Great. So the MBA morons who gave us LBOs then CDOs and the collapse of the world’s financial system, are now going to be entrusted with saving the world from global warming.
Another example: Leonhardt writes that Obama did not mention all the factors of the decline of working class wages, but provides a list of his own: “new technologies that have made some blue-collar work obsolete; a slowing in the nation’s educational attainment; the shriveling of labor unions; the increase in one-parent families, which are far less economically secure; and the rise of other countries that have huge low-wage work forces.” Other than education, where has Obama taken a stance on any of these issues. To two easiest policies to address this issue would be to remove the Reagan era obstacles to labor unions and let unions go on a tear of organizing, and to abandon the failed notion of free trade. Yet, there are no labor leaders among Obama’s economic advisers (with the possible exception of Los Angeles mayor Antonio Villaraigosa, who was a labor organizer), and Obama has publicly backed away from his questioning of the benefits of free trade earlier during the campaign.
(There will probably be those who indignantly respond that free trade has worked; they obviously have not bothered to read, or are deliberately ignoring, the work of Ha-Joon Chang and others who show clearly that only a very small elite in developing countries have benefited from the GATT and WTO regime of the past three decades, while the vast majority of people have actually see no gains, or have even slipped deeper into poverty and misery.)
November 12, 2008 1:07 AM | Reply | Permalink
This argument seems odd. Dean asserts that the late 1990s boom was spurred by the stock market bubble, and not deficit reduction. Of course these are not mutually exclusive factors, but let's accept that for the purposes of argument.
Where did Rubin/Summers mis-step? Greenspan controlled monetary policy, after all. And let's not forget that they managed the mid-1990s Mexican crisis quite well.
And the deregulation of the 1990s preceded CDOs, no documentation loans and other abuses that arose in this decade. Permitting inter-state banking seems to me to be a tenuous part of the story.
Personally, I think that we need to bring to bear a combination of excellent technical skills and industry knowledge, if we're to successfully redesign the financial structure. I would be disappointed if Summers isn't at least a member of this administration, though I acknowledge his deficiency in diplomacy.
November 11, 2008 4:37 PM | Reply | Permalink
The 90's boom was simply due to decades of US post WWII tech advantage coming to fruition. It had almost nothing to do with Reagan or Clinton.
Credit for the 90s tech boom goes to the post WWII environment of college-educated, upper to middle-class, garage-tinkerers and geeks. By yhr millions they came from good families and went to universities like MIT, Stanford, Berkeley, etc. where they were exposed to early mainframe computers, genetics labs, usually built for science research, often with Government and private grants. The best then went to work in technology labs like XEROX PARC, BELL Labs, NASA JPL, etc. And the very best founded the US companies that created the tech boom, often piggybacking on technology invented by the government, such as the internet created by DARPA.
(same story for biotech)
November 11, 2008 4:55 PM | Reply | Permalink
I believe we should always listen to the GOP on how to get ahead and insure the economy will do so well.
Since Dean is so interested in revisionist history, perhaps he would like to do a full description of the Reagan adminstration and its performance on the economy. That is a story deep in myth and pathos.
November 11, 2008 4:39 PM | Reply | Permalink
I don't think Dean is defending Reaganomics in any way. His critique comes from the left of Clinton, not from the right of Clinton.
November 11, 2008 5:29 PM | Reply | Permalink
I actually think your concerns are well-placed, Dean. It's one thing to have a bubble created by simple stock speculation, and another to allow the proliferation of unregulated derivatives and securities that sever links between real risk and reward.
It depends on what "lessons" the Clintonistas have learned (if any).
If they suggest reforms to firmly reconnect risks and rewards, we may have a chance. If they push to allow even more socialization of financial risk, they may (temporarily) revive the economy, but the whole thing will be built on a house of cards.
November 11, 2008 4:41 PM | Reply | Permalink
The liberal left, Dean Baker included, is already criticizing Obama and expressing disappointment. Obama always campaigned and ran as much more of a centrist than a liberal and no one should be in the least surprised. Most of the democratic party and the country that elected him is centrist!The sight of Clinton advisers and a Colin Powell, for example, is exactly what we need after 8 years of an ideological, insane right.
Have patience. Write about something else, like the need to rescue the automotive industry from the onerous costs of caring for retirees.No company should have to do that or use shareholders' money to do it.
November 11, 2008 4:45 PM | Reply | Permalink
To refer to those concerned about whether Rubin and Summers, among others, will support sufficient regulation of Wall Street and sufficient stimulus to help this economy and build the foundation for a more productive one down the road, as "the liberal left", versus "the center", is silly and question-begging in this context.
It applies old labels to current realities. We're dealing with the economy of today, not that of the 1990s. The challenges are different and we have new information and experience from which to draw. More of the right kind of regulation of Wall Street is called for. A major stimulus that, of course, should also help lay the foundation for stronger future growth (one of Robert Reich's excellent points, pressed by others as well), is likewise also called for.
Many of us are anxious about where these two heavyweights will come down during the debates that are taking place behind closed doors. And not without reason, it seems to me.
November 11, 2008 6:51 PM | Reply | Permalink
Colin Powell -- that careerist who lied us into war -- should be part of the Obama team?
Auto companies should be free to break the promises they made to their workers, promises which induced those workers to accept lower wages and benefited the companies for years?
I would have replied but prmco's entire comment has got to be ironical. It does, doesn't it?
November 12, 2008 4:36 AM | Reply | Permalink
But, yes, it could very well be that concern troll is in fact concerned.
November 12, 2008 12:06 PM | Reply | Permalink
Again, you don't trust Obama. What you are expressing is a desire for him to not talk to these gentleman at all, apparently because you believe he is not smart enough to reject bad advice and take good advice. That is the big picture complaint here. You have no faith in Obama, and it's only day seven.
November 12, 2008 2:38 PM | Reply | Permalink
libgirl, not sure if the "you're suggesting Obama not talk to Rubin, Summers, et al" comment is directed to me or not.
If it is, not so. I was explicit on this point in the first paragraph of a comment in this thread, where I said that to not listen to Rubin and Summers because they have Clinton Administration ties, or for any other reason, would be just dumb. I'm not sure how to be clearer than that.
November 12, 2008 8:05 PM | Reply | Permalink
Now they should be allowed to abrogate those contracts, because their poor business decisions leave them financially strained? Too goddamn bad. I'd rather see them forced to recoup the $$ spent on executive and BOD compensation, even if it requires dissolving the trusts of the heirs. After all, it wasn't the rank and file that got them into their current predicament.
November 12, 2008 12:00 PM | Reply | Permalink
Is it me or do people never seem to mention these men balanced the budget and ended with a surplus? Of course they did some bad and some good but please mention the positives along with the negatives.
November 11, 2008 4:48 PM | Reply | Permalink
If they can create a bubble in green energy initiatives, I'm all for it.
November 11, 2008 5:00 PM | Reply | Permalink
Negative negative negative.... so much tone and so little substance. Did you catch McCain's Fear Fever during the election? Let's have a bit of common sense here! Also, Summers only had less than 18 months with Clinton and your broken link info says something about what is officially attributed to his time there:
"During Summers’s tenure as secretary of the Treasury, the United States used budget surpluses to repurchase Treasury debt for the first time since the 1920's, and extended the life of the Social Security and Medicare trust funds. Summers led efforts to modernize the financial system, extend financial privacy protections, provide for digital signatures, and insure the viability of the over-the-counter derivatives market. Summers also championed reforms to address corporate tax shelters and predatory lending practices.
Internationally, Summers worked to address the challenges presented by modern capital markets. His work with the International Monetary Fund contributed to more effective surveillance of financial vulnerabilities, greater transparency in the international financial system, the introduction of new lending facilities to deal with capital account crises, and improvements in IMB lending practices. Summers was a key figure domestically and internationally in securing significant expansion in debt relief for the world’s poorest and most indebted countries—a measure that led to the increased availability of funds for primary health care and education in a number of countries. Summers also unveiled the first National Anti-Money Laundering Strategy, and led international efforts to limit the abuses of tax and regulatory havens. He also played an important role in negotiating the United States’ agreement to allow China to join the World Trade Organization."
November 11, 2008 5:19 PM | Reply | Permalink
Wait a minute... how is a falling dollar that makes it more expensive for me to by imported goods going to improve my standard of living? Don't I want a strong currency so that I can use my money to buy more of the best things from around the world?
A weak dollar is basically inflationary.
November 11, 2008 5:31 PM | Reply | Permalink
Isn't that a balance? High dollar limits export income, low dollar limits import spending (and/or tips balance of trade). Balance of trade shows where so-called "wealth" is going to first order. The US is "spreading the wealth" globally while trying to hold onto some measure of control of the means of production and real profits, domestic or otherwise.
November 11, 2008 5:48 PM | Reply | Permalink
Then we're kind of spreading the wealth at the expense of our own people. Every time the dollar drops it becomes harder for me to buy what I want to buy. It is, in essence, a silent tax.
November 11, 2008 8:53 PM | Reply | Permalink
Yeah, not a tax but a 'de facto' tariff.
It's a kind of irony that globalization spreads the wealth, a kind of anti-colonialism perhaps, but maybe what you want to buy SHOULD be expensive so that you (not you personally) need not to take its availability for granted but make sound trade-offs in your own value system. Belt-tightening may restrict the wallet but in some cases it can free the soul! America still overconsumes and more and more it underproduces.
November 12, 2008 2:49 AM | Reply | Permalink
Where did the Larry Summers defense patrol come from. I've disagreed with Dean Baker on some of his recent posts, but it seems to me he is spot on here.
Do we want a truly progressive economy, or just another bubble-inflated, debt-fueled, crash-destined round of easy money, high dollar, job-wrecking consumerism?
November 11, 2008 5:32 PM | Reply | Permalink
Ummm... bubble, please?
November 11, 2008 9:44 PM | Reply | Permalink
I'm pretty sure these are not the only two choices.
November 11, 2008 10:41 PM | Reply | Permalink
A provocative post. It suggests that short-termism doesn't just plague Wall Street -- it also plagues our system of governance. There aren't enough incentives in place to convince presidents to build a foundation for real, enduring growth.
On the other hand, maybe the incentives are there after all since it should be abundantly clear to anyone that "kicking the can down the road" by promoting a bubble is playing with nitroglycerin and a match.
November 11, 2008 6:51 PM | Reply | Permalink
While it's always best to take care when second-guessing Mr. Obama (he has a pretty good track record in matters of good judgment), I have to agree with many of the comments here that there's cause for concern in seeing these particular Clinton era "experts" on the team. Of course, Barak told everyone he was going to seek advice from a wide range of sources, so just because certain people are in there doesn't mean their opinions are going to prevail. It may be enough for those of us with concerns to express them, and offer constructive criticism like people have here. Paul Krugman had a good take on things in his column yesterday. The real danger here is that a new administration will proceed with too much, rather than little, caution. What I'm reading in this post and comments is that many others share that opinion, which is encouraging.
November 11, 2008 7:11 PM | Reply | Permalink
As Greenspan more or less admitted during his recent congressional testimony, deregulation was less important than the failure of regulators to act using authorities that were already in place. Clinton's deregulation scheme might have been OK if not for Greenspan's (and Bush's)ideological paralysis in the face of a clear and present economic danger.
November 11, 2008 7:33 PM | Reply | Permalink
Dean Baker is astonishingly on target. The magic of the Clinton era economy was mostly luck, the luck of the internet coming to fruition. And that was a revolution..agricultural, industrial, technological/informational. It is not going to happen again in our lifetimes. The Obama zealots continually point to the Clinton magic as if it could be repeated through repeating his taxation and economic policies. It cannot. And with the scale of the economic problem and the equal scale of the expectation that Obama will miraculously make it go away, well, we're in for some serious disappointments. Batten down the hatches.
November 11, 2008 7:36 PM | Reply | Permalink
A few observations and questions:
(1)If we can't use Clinton economic advisers (ie, the credible heart of the Democratic Party economic establishment) and we can't use Republicans, who DO we use? Perot? Nader?
(2)Is it just me, or is it mildly hilarious that people who have presumably spent about 6 of the last 8 years pining nostalgically for the Clinton Boom-Times, have NOW decided (A Democrat safely back in the White House)that GOP talking-points were actually RIGHT the whole time, after all?
(3)Actually, ALL of our many current difficulties are the fault of George Washington. That is the only logical conclusion I can draw, if we are to continue this annoying habit of always blaming the predecessor for things that happened years after his watch.
(4)Balancing the budget and getting your bills paid may not be a big deal in academia or around the policy-seminar conference table, but it cuts a lot of ice at MY house. If President Clinton had done nothing MORE than that, that would put him in the top tier of Presidents in my lifetime.
(5)I DO agree with Mr. Baker on one point: I do not myself believe that we should settle for Clinton advisers. This may well the area of our most serious national and even international emergency, and we need the best and most gifted we have on the case right away. We should cut straight to the heart of the matter, and nominate Bill Clinton for Secretary of the Treasury.
November 11, 2008 7:38 PM | Reply | Permalink
is it mildly hilarious that people who have presumably spent about 6 of the last 8 years pining nostalgically for the Clinton Boom-Times, have NOW decided (A Democrat safely back in the White House)that GOP talking-points were actually RIGHT the whole time, after all?
Your point about the problem of alternatives to Clinton people is well-taken. I don't have a solution.
Your quote above however is way off. The progressive critique of Clinton's economics is long-standing. See books by Doug Henwood and Robert Pollin and Dean himself. Disputes as to the wonderfulness of Clinton policy have also been offered by two of his own economists -- Alan Blinder and Joseph Stiglitz.
November 11, 2008 8:48 PM | Reply | Permalink
Well, then what about, not as alternatives but as key voices given formal positions and the access to the President that comes with them, Joe Stiglitz and Alan Blinder? Stiglitz is fabulous, I agree. So is Robert Reich. So is Brad DeLong, although I'm not sure where he is on the issues we're discussing here.
Not sure whether folks such as Dean Baker, Henwood, and Pollin that you mentioned, and some others, such as Krugman, Bob Kuttner, Jamie Galbraith, Jeff Faux, Jared Bernstein, and Larry Mishel of the Economic Policy Institute (I'm sure I'm forgetting some other outstanding folks) would work out better inside this Administration or would be better on the outside continuing to do what they have long excelled at.
November 11, 2008 9:43 PM | Reply | Permalink
Well, then what about, not as alternatives but as key voices given formal positions and the access to the President that comes with them, Joe Stiglitz and Alan Blinder? Stiglitz is fabulous, I agree. So is Robert Reich. So is Brad DeLong, although I'm not sure where he is on the issues we're discussing here.
Not sure whether folks such as Dean Baker, Henwood, and Pollin that you mentioned, and some others, such as Krugman, Bob Kuttner, Jamie Galbraith, Jeff Faux, Jared Bernstein, and Larry Mishel of the Economic Policy Institute (I'm sure I'm forgetting some other outstanding folks) would work out better inside this Administration or would be better on the outside continuing to do what they have long excelled at.
November 11, 2008 9:44 PM | Reply | Permalink
There have been a number of articles in the FT of late suggesting that the role of the federal government (to the degree that it has any role at all) should be to keep housing prices low, not the reverse. They suggest that the mortgage tax credit and similar policies are inherently counterproductive in that they encourage bubbles, and increased debt loads (which in turn obligate a policy to keep prices high...). Even though I recognize that even if this were true, it might not be a good idea right at the moment, and in any event it seems nigh impossible politically, it makes sense to me.
November 11, 2008 7:45 PM | Reply | Permalink
Some, for lack of ideas, have to masticate bubbles while pretending they are seriously substantive matter.
We already know that Obama listens to ALL points of view in order to inform himself BEFORE making decisions. Who is at the table does not prefigure the decision.
So this particular post is a wind-egg pretending to be a pregnancy.
November 11, 2008 8:03 PM | Reply | Permalink
Who is at the table does not prefigure the decision.
I'll make this a motto for the next 4 years, and beyond.
November 11, 2008 11:03 PM | Reply | Permalink
Really? Then how do you explain the FISA flip flop?
November 12, 2008 12:53 AM | Reply | Permalink
Perhaps there is a mistake is assuming we are the masters of the process and that our Fed chairmen and Treasury Secretaries and SEC heads can keep the whole ball rolling along: a kind of "perfect leadership" fallacy. I don't think its possible anymore even with optimal decision-making and all of our Keynesian arsenal of controls to rule out periodic crashes of the sort we are seeing now unless we install a fundamental structural modification or two.. or at least not until we figure out how to put in some kind of negative feedback loop like the questioner posed in that symposium in 2007. Both Volcker and Summers laughed it off...main reason to ixnay the latter from being given the controls again.
November 11, 2008 8:37 PM | Reply | Permalink
The criterion is not who was right in the 90s, it's who is reacting most intelligently to what then happened.
Summers is certainly smart enough to notice he got it wrong.And maybe to conclude that if something didn't work, don't do more of it.
I question Baker's confidence in the prime responsibility of Clinton's strong dollar for the de-industrialization of the US. Seems to me that it as least equally reasonable to assign that to "trade policy" i.e. an open door to imports from the developing-that is to say low wage- societies.
Plus or minus 20% on the exchange rate is noise level vs the power of a $1/hour labor cost-protected by anti union policies.
Sometimes yestersday's failure is today's hero. The Churchill who failed with Gallipoli in 1915, and the pound in the 20s, was right in May 1940.
Chances are that the solution/solutions for this catastrophe will turn out to be "none of the above". And if so that Summers may be more apt to
come up with what is actually the right answer,now, than some of those who had the right answer 10 years ago.
November 11, 2008 11:20 PM | Reply | Permalink
Excellent analysis Prof. Baker. Too bad that the Rubins' and Summers' of the political world are winning back their influence and position in the highest governmental circles and few are hearing, let alone listening, to voices like yours.
I was particularly distressed to see how disconnected from reality the Obama transition team apparently is when they trumpet how they will make "independents" and Republicans an integral part of the new administration. Obama himself in the closing days of the campaign almost literally said he was listening to and would bring back the Clinton era economic adisers and policies. I feared all along that the change mantra from Obama really was a marketing device and in this first week since the election it appears more and more likely that is the case. Too bad too. It seems that Obama is the captive of Washington now and also that neither he nor his DC oriented group of confidenates really understand what a catastrophe average people are experiencing economically and how dire the situation is becoming for the little people of America.
Just as it is becoming more evident than ever that dramatic changes need to be instituted and that the new administration is in a position to do just that, they seem to be sending every signal they possibly can that they will seize the moment, but instead will pursue policies that are very cautious, designed to be low impact and not have as braod a reach as the times and condition really are demanding. What a lost opportunity it will be if this plays out like it looks like it will at this moment in time.
November 12, 2008 12:50 AM | Reply | Permalink
One of these days all the boomers who are now nearing retirement who have had their life savings decimated will indicate beyond refute the manner in which government economic policy should be conducted.
Government has encouraged savings and created vehicles that promote it. Government then proceeded to completely undermine that strategy. The public cost for this illogical scheme is yet to be revealed but will dwarf anything we have seen by a mile. The notion of promoting the creation of wealth at the top will prove completely valueless. The recognition of this is going to come at a terrible cost that will be played out across the next three decades. The social and finacial burden will be devastating.
November 12, 2008 2:29 AM | Reply | Permalink
C'mon Baker! Stop dancing; what's your recipe and who do you think would have the chops/credibility to put it into effect?
Krugman, employing Okun's rule of thumb, has estimated that the stimulus should be $600 billion. Adding Obama's tax cut for the middle class (he won't raise taxes on upper incomes) and carrying the current deficit forward, Krugman's fiscal deficit must be something like 12-15% of GDP.
Coming at it from an accounting equivalency standpoint Martin Wolf argues the fiscal deficit should be around 10% of GDP.
Who's going to whip the Washington Post into line when they get wind of this?
November 12, 2008 4:19 AM | Reply | Permalink
Samuel Brittain's sober evaluation last week of this melt down made Martin Wolf look like an optimist. Worst since 1919 was his assessment.
While , like you ,I'd normally be more interested in Baker's recommendations than his criticism of possible appointees , still this is the exact moment when Obama is choosing the players so it's understandable that Baker is trying to put a thumb on the scale while it may still be possible to have some influence on that decision.
November 12, 2008 8:02 AM | Reply | Permalink
Just tryin' to tweak Ole Dean but --
I'm still looking for an answer. My preference is for tax cuts (a one or two year moratorium on payroll tax collections, both firms and workers) over Congressional boondoggles.
P.S. Do you have a link to Samuel Brittain's article; I couldn't find it in his archive.
November 12, 2008 1:35 PM | Reply | Permalink
I am guessing Krugman's estimate is really a low-ball figure and he knows it, but doesn't want to alarm people with the real goods.
I am guessing to stabilize things maybe 4 trillion dollars spread out over the next 4-6 years and this figure includes some big bucks heading overseas to help out our friends. But what do I know? Zip.
The first thing Obama needs to do is to ditch ANY tax cuts. They won't stimulate demand and the government needs every last shekel it can puts its hands on.
November 12, 2008 1:16 PM | Reply | Permalink
Economic textbooks at 20 paces, Lux!
Shall we instruct our seconds to meet and select the appropriate weapons?
November 12, 2008 1:40 PM | Reply | Permalink
Not a chance Ellen!
If you disagree with me, you're the one who is probably right. I mean that. My predictive skills are pretty nil, my economic knowledge is even less, and my Magic Eight Ball has been giving me out-of-whack numbers since 2005! Besides, I flunked Stochastic Methods and I don't know heteroscedasticity from heter-variance, GDP from GNP....
clueless Lux
November 12, 2008 3:19 PM | Reply | Permalink
I am not the only one worried over deficits:
John Whitehead today:
"Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds," he said. "Eventually U.S. government bonds would no longer be the triple-A credit that they've always been."
I don't even want to think about it.
November 12, 2008 8:16 PM | Reply | Permalink
"Also is it impossible to believe that these people actually learned something from their screw up."
Sure. They learned something: how much they can get away with.
This is crystal clear in the case of Rubin, who worked in government then went out and exploited the policies he strong armed. Now he wants a seat at the government table again? That he even serves in an "advisory capacity" is #1 on my list of questionable Obama judgment calls. This is pretty basic conflict of interest stuff. Even Joe the Plumber could get it.
November 12, 2008 10:13 AM | Reply | Permalink
Well, I certainly carry no brief for either Summers or Rubin, and I am right there with Dr Baker in hoping that their advice is not put too much into practice. That said, I am inclined to agree with that crowd that is responding that their mere presence on the podium should not be taken to signify too very much. It seems to me that much of what President Elect Obama needs to do is simply to reassure folks right now. I agree with Dr Baker that Summers and Rubin deserve little credit for the past economic successes which this nation enjoyed, but the fact is that they held high office at a time when our economy was comfortable, so their faces are reassuring to a broad mass of folks. Putting them on the podium allows Obama to capitalize on that reassuring image, so there is a good reason to put them up there even if they are not going to be put in charge of running any actual government programs.
In other words, if it should come to pass that Obama appoints either man to some significant office, then we have reason to grit our teeth. In the meantime, however, it is not clear to me that their presence on the dias is anything more than window-dressing, and if that is all there is to it, that is not such a bad thing. They are actually fairly useful as window-dressing props.
November 12, 2008 10:31 AM | Reply | Permalink
Like several other posters above me here, I'd really like to hear the alternatives instead of just criticism and more criticism of everyone whose name comes up.
If not the Clinton team or independents/moderate Republicans who do we get? Dean Baker keeps pushing Sheila Bair, but what do we actually know about her? She's proposed a mortgage relief plan that Treasury says is unworkable -- has anyone here actually seen the plan and done an analysis as to whether Treasury has a point or not?
November 12, 2008 2:41 PM | Reply | Permalink
Sheila Bair's a technocrat.
Her interest is saving the FDIC's trust fund by keeping the zombie banks out of receivership.
Unlike Paulson she's in the enviable position of not having to sell her idea of bailing out mortgagors to the tune of several hundred billion taxpayer dollars to the American people.
November 12, 2008 5:55 PM | Reply | Permalink
We should note that Rubin et al. aren't joining others at the table--they're the only people there. So the question is not whether he's listening to Rubin or Summers, but that he's not listening to anyone else, unless he turns to his laptop and says "let's see what Dean Baker thinks about this."
November 12, 2008 5:25 PM | Reply | Permalink