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Fast Forward on the Economy

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Tuesday, November 25, 2008

PRESIDENT-ELECT Obama introduced an economic team of well-respected centrists yesterday, including New York Federal Reserve Bank President Timothy F. Geithner as Treasury secretary and former Clinton administration Treasury secretary Lawrence H. Summers as director of what figures to be a beefed-up National Economic Council within the White House. At a time when the country badly needed a sense of confidence and direction, these choices inspired it -- but don't take our word for it. Consider the praise heaped on Mr. Obama's picks by Sen. Charles E. Grassley of Iowa, the ranking Republican on the Finance Committee, who described Mr. Geithner and Mr. Summers as experienced figures who have worked well with both parties.

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In announcing the picks, Mr. Obama made it clear that his team's first job will be preparing an economic stimulus package of unspecified, but probably enormous, size. As he noted, this is now the consensus prescription of economists across the ideological spectrum, notwithstanding the fact that it could expand the federal deficit to well over $1 trillion. In fact, the whole point is to increase the deficit at a time when potential private-sector sources of economic life, whether consumers or businesses, are tapped out.

Perhaps as important as the plan's size is its timing and composition. No doubt the economy is in such bad shape that it could use what Mr. Obama called a "jolt" right away, under President Bush and the lame-duck Congress. But given the magnitude of federal borrowing Mr. Obama is likely about to seek, and the risk that funds allocated in haste could be inappropriately targeted, he is right to try to give his advisers until after the New Year to craft a program and get it to the Congress that will be sworn in Jan. 3. Alas, the recession will still be around, as it will be when the new president takes the oath of office Jan. 20. Better to take a few weeks to devise the best possible mix of tax breaks, infrastructure spending and energy investments than to rush out a suboptimal plan.

Mr. Obama wisely observed yesterday that budgetary "reform" must be part of the package, "so that we have a path towards a sustainable and responsible budget scenario down the line." We hope that what he has in mind goes beyond an attack on wasteful congressional "earmarks" and other pork-barrel spending. Important as those items are, Mr. Obama properly noted during the campaign that they constitute only a tiny portion of the federal deficit. The structural deficit, caused by uncontrolled entitlement spending, especially for Medicare, is the real menace. A credible blueprint for long-term entitlement reform would go a long way toward ensuring the viability of Mr. Obama's short-term anti-recession efforts, both politically and economically. The macroeconomic repairs Mr. Obama has in mind won't last unless he can also eventually put the federal government's finances back on a sound foundation.


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