There seems to be a lot of confusion about what Obama is doing, especially in regards to supporting the signature George W. Bush domestic agenda of high-end tax cuts. A lot of people seem to believe that Obama is confused, or a poor strategist, rather than he is simply carrying out exactly what he wants to do in regards to the domestic economy. Kevin Drum vents here.
One way to figure this out is to find a proxy for Obama’s political and economic instincts and beliefs and see how that person views the current climate. I think, and people who are better at this can correct me, Peter Orszag’s recent editorials for the New York Times have been the best barometer for what the Obama administration is currently doing in terms of the economy and budget. By extension, this is also the best barometer for what the Obama administration thinks are the important items to prioritize and fight for and the reasoning behind it.
Orszag was a director of the Hamilton Project, where then Senator Obama spoke at their opening. Orszag has left OMB and is rumored to be heading off to Citigroup, perhaps replacing Jack Lew who was at Citigroup and is now replacing Orszag at OMB. (Democrats!)
Let’s look at some of the stuff Orszag has written since he’s left the administration. One Nation, Two Deficits:
The nation faces a nasty dual deficit problem: a painful jobs deficit in the near term and an unsustainable budget deficit over the medium and long term. This month, the Senate will be debating an issue with significant implications for both — what to do about the Bush-era tax cuts scheduled to expire at the end of the year.
In the face of the dueling deficits, the best approach is a compromise: extend the tax cuts for two years and then end them altogether…Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem…A benign bond market, however, is a luxury we won’t enjoy forever if we fail to tackle our long-term fiscal problem.
This is exactly the likely outcome of the debate, the outcome that the Obama administration has pushed for recently. Orszag believes we’ll have a bond market problem starting around 3 years from now if we don’t start austerity plans. He thinks that raising taxes on the rich right now is a bad idea economically and that there will be the political will, perhaps because of the bond market, to cut them in 2 years. Orszag write this in the New York Times, and by all accounts it is what the administration has set out to do. It’s not the problems I see, hence my disagreement.
Continuing, Saving Social Security:
In contrast to the medium-term fiscal outlook, which is not improved by the election results, Social Security reform may be. Erskine Bowles and Alan Simpson, the co-chairs of the fiscal commission due to report at the beginning of December, have both expressed a desire to restore solvency to Social Security. And Republican leaders have previously expressed a willingness to tackle the issue too.
Social Security is not the nation’s key long-term fiscal problem — health care is. (A column in Thursday’s Times will discuss health care.) But Social Security does face a long-term deficit, and a variety of reasonable reform plans (including one I wrote with Peter Diamond, a winner of this year’s Nobel Prize in Economics) have been proposed to address that deficit.
The left, though, seems adamantly opposed to restoring actuarial balance to Social Security now. I have trouble understanding this reluctance for several reasons: the key issue progressives had been concerned about — individual accounts within Social Security — has been definitively won in their favor (for now); they have a president from their party in office, which will not always be the case; acting now would allow changes to take effect more gradually, cushioning the blow; and establishing some credibility on out-year fiscal problems by enacting Social Security reform could open up (admittedly limited) running room to pass necessary additional stimulus legislation in the short run.
Given the left’s strident opposition to any serious discussion of Social Security reform, the issue will provide a key early indicator of the administration’s response to the election results.
This seems like what the administration believes. The real problem with saving Social Security, and by extension starting to get serious about the budget, is that “the left” are getting in the way. Bowles and Simpson are willing to have a discussion on this, and though they may not be perfectly on target they’ll frame the debate in a way that Democrats can work with. Heck even Republicans are interested! Everyone seems interested in doing what is responsible except the left, even though the cards are stacked in their favor. Orszag write this in the New York Times, and by all accounts it is what the administration has set out to do. This is not the problems I see, hence my disagreement.
Continuing, Sailing the Wrong Way with QE2?
To bolster the economy, we need a three-part shift in policy:
· more fiscal expansion (read: more stimulus) now;
· much more deficit reduction, enacted now, to take effect in two to three years; and
· an improvement in the relationship between business and government (the current antagonism, even if not the primary explanation for slow hiring and sluggish investment, does seem to be affecting hiring and other business behavior).
We need short term stimulus and medium-term deficit reduction, but it’s also important for overt and serious moves to improve the relationship between the business community and the government. Not just because of the importance to the Democratic party and brand, but also because it is increasing unemployment and keeping a full recovery from happening.
I don’t think this is the case. But Orszag write this in the New York Times, and by all accounts it is what the administration has set out to do post midterms.
It’s not hard to imagine Orszag and his fellow-travelers thinking that federal workers could do with making just a bit less, or that structural problems in education and skills are really driving unemployment, the latest rumor we are hearing from the Obama economics team. The political rationality behind this should be examined more critically – what’s neo about this kind of neoliberalism? – but these writings put into context that these policy solutions, rather than being the result of perpetual screw-ups and bad bargaining, are precisely the outcomes that one could imagine them wanting to bring into the world.