cross-posted from Working America's Main Street blog where I am a featured guest blogger
On the heels of another disappointing jobs report, other bad economic news and even higher initial jobless claims last week, a curious and disturbing piece by reporter Jackie Calmes ran in Saturday's New York Times.
White House Memo: Spend or Scrimp? Two Sides in White House Debate
Not since the first years of the Clinton administration has a White House had to debate whether to give precedence to stimulating the economy or reducing budget deficits. Now, as the recovery shows signs of faltering, that debate is playing out within the Obama administration, with a twist compared to the 1990s: the economic and political teams have switched sides.
While President Bill Clinton’s political advisers favored more spending and tax cuts coming out of the recession of the early 1990s and his economic team pushed to start reducing deficits, in President Obama’s circle the opposite is true. Political advisers are channeling the widespread public anger at deficits while the economic team argues that the government should further spur the economy to avert another recession.
In Mr. Clinton’s day, the economic team, asserting that a credible commitment to fiscal responsibility would reassure financial markets and lead to greater long-term growth, won the argument in favor of deficit reduction, helped by moderate Democrats in Congress. These days, the Obama political team has the edge, again in the cause of emphasizing deficit reduction and with an assist from Congressional Democrats nervous about the midterm elections.
Well, if that's true then both the economy and Congressional Democrats are screwed, along with the rest of us. But, strangely, Ms. Calmes goes on to contradict that -- at least somewhat.
Those pressing for more stimulus measures include Christina Romer, the chairwoman of the Council of Economic Advisers; Jared Bernstein, economic adviser to Vice President Joseph R. Biden Jr.; and the Treasury secretary, Timothy F. Geithner, who took that message internationally to the Group of 20 summit meeting of developed nations last weekend in Canada. Lawrence H. Summers, who as director of the National Economic Council tries to broker what he calls the "brakes-versus-accelerator" debates, nonetheless makes the economic arguments for an additional stimulus, officials say.
More focused on deficits — or at least on positioning Mr. Obama to show his concern — are his chief strategist, David Axelrod, other political advisers and Rahm Emanuel, the White House chief of staff, according to Democrats. Their lone supporter among the top economic aides is Peter R. Orszag, the budget director, who will leave the administration this month.
But then Axelrod is quoted distancing himself from the deficit-hounds:
But Mr. Axelrod said that he and Mr. Obama are also concerned that cutting the budget too soon could retard the recovery or even provoke a relapse like in the Depression era, when the government’s premature turn from stimulus to cutting deficits spawned another recession in 1937.
So while the administration is pursuing "a long-term strategy for reining in these deficits," Mr. Axelrod said, "I’m very much allied with the economic group, because even as a political matter it would be very shortsighted to take steps that would send us backward."
So, if Axelrod is not really pushing the deficit-hounds' approach within the White House, then who is? Curiously, the aforementioned White House chief of staff, Rahm Emanuel, is neither quoted nor mentioned again.
This omission should not go unnoticed. I would assume that Ms. Calmes made an effort to interview Mr. Emanuel. If she did, there is no mention of Mr. Emanuel declining that offer. All of which leads me to believe that Mr. Emanuel did not wish to be quoted for fear of appearing to be the principle deficit-hound in the White House.
At Think Progress Matthew Yglesias writes:
The President should almost never side with his political team in a dispute of this nature. The reason is that the single most important factor determining a president’s political fortunes is the fate of the economy. Tradeoffs can exist in the form of things that are short-term economic pain for long-term economic pain. But there’s no real tradeoff between "unpopular but growth-boosting measures that ultimately make you more popular" and "popular but growth-strangling measures that ultimately make you less popular." When it comes to macroeconomic management, it’s results that matter most.
I agree. But, in a sense, this is all baloney. What Yglesias misses and Ms. Calmes glosses over is that the backward reference to similar debates in the Clinton administration is both misplaced and oversimplified. First, the economic conditions coming out of the 1990-1991 recession were vastly different, and far less precarious than those we face now. Secondly, the debates weren't so clearly ones between the "political" and the "economic" advisers. They were more like Main Street advocates vs Wall Street advisers.
The deficit-reduction push inside the Clinton administration came principally from former Goldman Sachs co-chairman Robert Rubin, first at the National Economic Council and then at Treasury -- with a boost from then-Federal Reserve chairman Alan Greenspan. Efforts to stimulate growth were advocated by a group that included Labor Secretary Robert Reich and the Council of Economic Advisers' Joseph Stiglitz. With the start of the recovery already underway, the success of economic stimulus created the economic growth that then allowed the deficits to be reduced.
Which, parenthetically, makes me wonder where Rahm Emanuel stood back then.
But the problem we now face is two-fold:
On the economic front, the reality of persistent mass unemployment, excessive under-utilization of real capital, depressed demand, a lack of credit and low levels of productive investment are producing the threats of deflation and a more severe downturn. Add to that the efforts by conservatives, led by Senate Republicans and enabled by some wrong-headed Democrats, to pull the plug on extending unemployment insurance and aiding strapped state and local governments... well, you don't need a PhD in Economics to see where this is going.
On the policy front, instead of decisive, bold leadership we have Senate Democrats playing compromised games with Republican conservatives who will only use the games to extend their obstructions. And a White House whose advisers think they are still playing out the internal Beltway debates of nearly two decades ago -- while 2 million American workers desperately seeking work are already losing their jobless benefits and many millions more are losing hope.
Mr. President, if ever there was a time for a fierce urgency, it's now.
Mr. President, it's time to burst the Beltway Baloney Bubble.