How did President Obama's outgoing economic team do?

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Sunday, September 26, 2010

With Peter Orszag having left the Office of Management and Budget, Christina Romer departing from the Council of Economic Advisers and Lawrence Summers stepping down from the National Economic Council, The Post asked experts to rate the work of President Obama's outgoing economic team. Below are responses from Mark Zandi, N. Gregory Mankiw, Dino Kos, Diane Lim Rogers, Douglas Holtz-Eakin and Sebastian Mallaby.

MARK ZANDI

Chief economist at Moody's Economy.com

President Obama's outgoing economic team deserves high praise. They are earnest people who were required to make epic decisions under extreme uncertainty and distress. And the decisions they made worked. Think back to January 2009, when Obama took office: The financial system was frozen, gross domestic product was in free fall, stock prices had been cut in half, house prices were cratering, and some 750,000 jobs were vanishing each month. Consider what has happened since: The financial system is stable, GDP is expanding, the stock market has recovered half its losses, house prices have risen and private-sector job creation has resumed.

Some argue that the economy would have done better if the economists had simply done nothing. Really? The much maligned bank bailout is making taxpayers money; GM is about ready to go public, thanks to the auto bailout; and the fiscal stimulus halted the Great Recession: the recession ended in June 2009, the precise month in which the stimulus provided its maximum boost to the economy.

Did the Obama team get everything right? No. As a former entrepreneur and small-business owner, I know the importance of marketing. Forecasting that the stimulus would keep unemployment from rising above 8 percent was a serious marketing error that has soiled perceptions regarding its effectiveness. The team also failed to get the business community on board with its plans. As a provider of economic advice to large Main Street businesses, I see first-hand the distrust and uncertainty of many in this community, and these are the same firms that must create more jobs.

Yes, the economy isn't performing as well as anyone would like, but that speaks to the calamity Obama's economic team inherited, not the way it responded.

N. GREGORY MANKIW

Economics professor at Harvard University; chairman of the President's Council of Economic Advisers from 2003 to 2005

When President Obama took office, he assembled a first-rate team of economists. Larry Summers, Christina Romer, Austan Goolsbee and Peter Orszag are smart, sensible and moderate by the standards of the Democratic Party.

How have they done? To be sure, the economy is in worse shape than they anticipated. Logically, there are two possibilities: (a) The economy was sicker than they appreciated; or (b) the policies they put in place have not had their intended effect. There is no way to know for sure which is the case, but the Obama team is adamant that the answer is A rather than B. Obama's advisers seem unwilling to doubt the efficacy of their policies -- even though they were more interventionist and more redistributionist than was probably wise.

Not only has the short-run economic picture turned out worse than expected, but the long-term picture looks increasingly dire as well. As is well known, the nation's entitlement promises far outstrip projected tax revenue. The only solutions offered by the Obama team have been to increase taxes on the top 2 percent of Americans, who already face the highest marginal tax rates, while adding a new health-care entitlement. The president and his team have yet to produce a credible long-term budget. That is a failure they cannot ignore.

DINO KOS

Managing director at Portales Partners LLC and former executive vice president at the Federal Reserve Bank of New York

The Obama economic team gets credit for reviving confidence in the banking system and withstanding pressure to nationalize the banks, something that would have been a disaster for the country. The financial regulation bill addresses some deficiencies, though it mostly skirts the "too big to fail" issue. But the Obama team loses points for its inability to craft a true stimulus bill. The one enacted was primarily a massive transfer to states and localities (and their unions) that did not provide incremental activity or jobs. The team overpromised and then under-delivered. And, perhaps most important, the administration never confronted the American people with the truth about the mismatch between the promises that have been made to our citizens and the government's ability to pay for it.

Over many years, the government has made commitments -- especially Social Security and health care -- that cannot and, ultimately, will not be fulfilled. Future governments will default on those promises one way or the other. Instead of shifting direction and moving to reduce those commitments, the administration doubled down with a massive expansion of government-subsidized health care, pretending the program would pay for itself. This is a mistake.

Ultimately, economic growth and job creation will be driven by private-sector entrepreneurship, innovation, business formations and risk-taking. The administration has not shown that it understands this basic dynamic. Perhaps the incoming economic team will.

DIANE LIM ROGERS

Chief economist at the Concord Coalition and blogger at EconomistMom.com

President Obama's inaugural economic team did about the best it could, given the terrible economic circumstances it inherited and the challenges it faced in Congress. Its individual members would have preferred policies more effective in dampening the recession and in improving the long-term budget outlook. The stimulus might have been structured to provide greater short-term "bang per buck" with elements better reflecting Larry Summers's own "three Ts" -- timely, targeted, and temporary. And the health-care reform could have been heavier on long-term cost-saving measures to "bend the health cost curve" more to Peter Orszag's liking. But given the political constraints, the policies enacted were decent successes.

The departing members of the economic team were chosen for their pure intelligence and their well-tested policy instincts -- exactly what was needed to perform triage on a failing economy. Over the next two years, however, there will be more time to develop a fiscal policy strategy that will best transition our economy from a "stimulate demand" mode (throw the money out there fast) to an "increase supply" (start living within our means) mode. Because this will necessitate many difficult policy choices that can only be achieved by working with Congress in a bipartisan manner, it is crucial that the new members of the Obama economic team have unusual people skills -- not just book smarts.

DOUGLAS HOLTZ-EAKIN

Former director of the Congressional Budget Office; senior economic adviser to John McCain's presidential campaign

President Obama's brief tenure has featured massive government expansion. Under his vision, the federal government has undertaken unprincipled ownership grabs (Chrysler, GM), supported devastatingly invasive regulation (Waxman-Markey, EPA regulation of carbon) and taken steps to micromanage broadband, health information technology and energy. Unemployment is nearly 10 percent, and growth is under 2 percent. It is a dismal record.

But blame lies squarely with the president. It is precisely the vision he articulated daily during his campaign. The economic team's job is to support the president's vision with a program of policy options, policy education, policy advice and policy advocacy -- and to take the blame. To my eye, they've done this very well. The policy options have been, well, far too inventive for my tastes. Consistent with Obama's perpetual campaign style, they engaged in a blizzard of public speeches, reporter briefings, listening sessions, media interviews, Hill visits, blog posts, op-eds and other advocacy.

And when the anger over spending profligacy and mortgaging our children's futures rose, Peter Orszag left in disgrace. When stimulus was revealed to resemble a certain Redskin defensive tackle -- bloated, expensive and underperforming -- Christina Romer packed up her 8 percent unemployment forecast and headed west. And most recently the architect, Larry Summers, afforded critics another opportunity to pin the blame by announcing his departure.

So, at least from one perspective, the team deserves high marks. Still, one could aspire to a higher standard, under which the economic team sells the president good policy, not just good politics. But then, that was the vision the president always advocated.

SEBASTIAN MALLABY

Director of the Maurice R. Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations; author of "More Money Than God: Hedge Funds and the Making of a New Elite"

The public may have lost faith in President Obama's handling of the economy, but the truth is that the administration's economic team has gotten the big calls right. It was correct to push a massive stimulus in early 2009, correct to stabilize Detroit and correct to push financial reform through Congress. Yes, the economic recovery remains anemic, and unemployment is stuck near 10 percent. But that is not the administration's fault. A growing body of research demonstrates that recoveries are bound to be slow and painful after a credit-cum-real-estate bust, especially when that bust is global.

Did the administration get some things wrong? Of course. The president's rhetoric, if not his policy, has sometimes been excessively tough on business, contributing to nervousness in corporate boardrooms. There can be no durable recovery until businesses start to invest, so beating up on captains of industry may be good short-term politics but is lousy economic strategy. Still, blaming that on Obama's departing economic advisers seems wrong. The president's counterproductive rhetoric is presumably the product of his political handlers rather than his economic ones.

Going forward, the biggest risk to the economy is that we expect too much from policymakers. They can't save us from several years of depressingly slow growth, and too much pressure on them to pull magic rabbits out of their hats will lead only to counterproductive quick fixes. We have to balance the desire to return to decent growth against the desire to return to sustainable growth. Masses of extra government spending could juice the economy in the short run and ease Obama's worries about 2012, but it will also pile up yet more government debt and depress the economy's long-run potential.


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