President-elect Barack Obama today announced more details of the economic team that will be advising the new president. I find these quite encouraging.
Speaking at a news conference in Chicago, Mr. Obama unveiled the team that will lead his administration’s response to the slumping economy and battered financial markets, confirming that New York Federal Reserve President Tim Geithner will be nominated to replace Henry Paulson at the Treasury Department…. In addition to Mr. Geithner, Mr. Obama said former Treasury Secretary Larry Summers will head his National Economic Council, while economist Christina Romer will lead the Council of Economic Advisors and Melody Barnes will be director of the Domestic Policy Council.
I’m particularly reassured to hear that Larry Summers will head the National Economic Council. How much power this position involves will depend on how the internal White House politics play out, but potentially this appointment could set Summers up to be the single most important architect of economic policy for the new administration. Summers is blessed with a tremendous intellect, and he’s exactly the person who can sort through the current complex issues to identify and implement what needs to be done. The fact that Obama picked him for this position means that the president-elect is serious about this whole economy thing– Obama wanted (and got) the best person for the job, period.
I have also known and admired Berkeley Professor Christina Romer for many years, and consider her an excellent choice to lead the Council of Economic Advisors. I expect that Americans will come to find her clear speaking, keen insight, and common sense to be very valuable and reassuring as we face together the tumultuous months that surely lie ahead.
I’m also pleased by the appointments of Summers and Romer because of what they portend looking past the current crisis. I expect them to be voices of reason counseling against protectionist trade measures that could otherwise have the potential to cause tremendous damage to the U.S. and world economy. I would also expect these thoughtful economists to make sure that the administration understands the potentially disastrous economic consequences of relying on heavy new corporate tax loads as the way to pay for all of the initiatives.
Although I do not know Tim Geithner personally, I can see that his experience would be quite valuable in the current situation. We can’t have the new team learning on the job– they have to hit the ground running. Geithner fits that bill in a way that perhaps no one else in the world could.
I’d also like to comment briefly on the stimulus package that was also brought up in today’s news conference. I recall the advice that Larry Summers offered when we were debating this issue last January:
First, to be effective, fiscal stimulus must be timely…. Second, fiscal stimulus only works if it is spent so it must be targeted…. Third, fiscal stimulus, to be maximally effective, must be clearly and credibly temporary– with no significant adverse impact on the deficit for more than a year or so after implementation.
Although our current situation is more serious than the one we faced a year ago, I still believe that this is a correct articulation of the core principles to keep in mind. Bigger government deficits should not be conceived by anyone as a long-run solution to our economic problems. When economists tell the politicians, “increasing the deficit right now would be a good thing,” we run the same risk as if a doctor advises an alcoholic, “a few glasses of wine will be good for your heart.”
But I think Obama’s announcements today may be just what the doctor ordered. Let us hope that the new president and congress listen carefully to the good doctors’ advice, and can later put the deficit drink down with the same enthusiasm that they currently lift it to their lips.