But the Rubinesque focus on the deficit, if anything, is stronger in the Obama administration than it was in Clinton’s. Even before his first inauguration, while the economy was in a job-shedding, recessionary free fall, Obama’s advisers were discussing an eventual pivot to deficit reduction. Now, by tapping Lew as Timothy Geithner’s successor at Treasury, the president is signaling clearly that budget negotiations with congressional Republicans will dominate economic policymaking in his second term.
Within the administration, the deficit has become a “black hole” of economic policy discussion, said MIT’s Michael Greenstone, a former chief economist in Obama’s Council of Economic Advisers. Advisers from the president’s first term who pushed for more aggressive action on, say, unemployment or inequality largely find themselves at think tanks or universities today — just as Clinton advisers who worried about shared prosperity, such as Labor Secretary Robert Reich, found themselves losing out to Rubin.
Obama advisers stress that widening inequality is a 30-year trend that can’t be quickly reversed. A senior administration official pointed to the Affordable Care Act, which taxes the rich to help provide health care for the middle class and the poor, as a major victory against inequality. The official also said the tax increases in the “fiscal cliff” deal will reduce the income of the top 1 percent relative to the rest of the population.
In 2011, the president picked one of the foremost academic thinkers on inequality, Princeton economist Alan Krueger, to lead his Council of Economic Advisers. A year ago, Krueger gave a speech on what he called the “Great Gatsby Curve,” warning against the economic dangers of growing inequality.
Krueger says Obama will propose more steps to address inequality. “The president is genuinely motivated by concern about growing inequality and the stress it puts on the middle class and those struggling to get into the middle class,” he said. “That really animates his views on the economy.”
But the policy options Obama has talked about — such as tax reform — tend to work around the edges and focus on the budget. Raising tax rates a few points on the rich or limiting their charitable deductions won’t do much to help middle-class wages break out of their decades-long stagnation. Protecting federal spending on education and innovation is an attempt to keep the middle class from slipping even further, but it’s nowhere near the fundamental overhaul in skills training that many economists believe is necessary to help workers thrive amid global competition.
If he wants more serious plans to fix the big problems, Obama needs to build a new bench. By turning so much to trusted Clinton hands, he has developed precious little economic talent of his own. The most prominent young economist on his team, Jason Furman, is in his 40s and got his start under Clinton.
In this administration, said Dean Baker, co-director of the Center for Economic and Policy Research and a critic of Obama’s deficit-reduction focus, “people who have alternative views aren’t getting a foothold.”
Anyone eager for greater progress on inequality and jobs must hope that Obama’s team settles the budget debate so that it recedes to the back burner, allowing other economic challenges to move forward — and hopefully without tighter budgets exacerbating them even more.
“It’s always important for policy to begin with the Hippocratic Oath,” said Larry Summers, a former Clinton Treasury secretaryand Obama National Economic Council director who teaches at Harvard. “We have to make a set of long-term adjustments. A time when middle-class Americans are having more and more difficulty is an odd time to make a priority out of cutting basic social protections or investments in education. Before we can do new, good things, we have to be very thoughtful in making sure that as we address looming budget deficits, we don’t put past accomplishments at fundamental risk.”
With his current team and polices, that may be the best Obama can hope for: clearing space for a new generation of economic policymakers — whoever they are — to solve the problems he couldn’t get to.
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