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Brad DeLong: Obama economic team "exceeds expectations"

geithnerwatches.jpgBrad DeLong grades the first year of the Obama economic team:

[A] sizeable fiscal stimulus, a second round now moving through the congress, victory in the intellectual war over whether the government should and can stabilize the economy, blocking any protectionist moves, key support for what looks to be a successful (if moderate Republican) health care reform, key support for ongoing climate policy--a solid B+/A-. The major problems are (a) that the macroeconomic situation turned out to be much more dire than we thought last November-December, (b) that financial regulatory reform looks to be a flop -- too many members of congress bought by bankers -- but IMHO Geithner and company played out a weak hand that Paulson had taken care to leave them, and (c) that the fact that private banks have profited while the government has not from the bailouts means that there is now no more ammunition should things turn south once more.

But still: exceeds expectations. Remember: Clinton's attempt at a stimulus package cratered in the spring of 1993, NAFTA nearly failed in spite of Republican and Democratic leadership support, the 1993 Reconciliation Bill was the narrowest of victories (albeit a very important one) -- and that was it for two years.

Photo credit: Chip Somodevilla -- Getty Images Photo.

By Ezra Klein  |  December 30, 2009; 10:30 AM ET
Categories:  Economic Policy  
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Comments

I am not so sanguine. Some of the problems I see are:

1. Clearly wrong assumptions in 'selling the first stimulus'; especially unemployment rate and Chirstina Roemer is specific. May be this is what Brad meant when he said 'down turn more severe' than projected.

2. Misguided Tax Cuts in the first stimulus package and wasting money on that.

3. Missing an opportunity to 'regulate financial sector' when exactly they were weakest. That may be partly during Bush Admin time line, but President Obama never made any public utterances - before and after the election - nor did his Admin too in terms of what immediate steps can be taken to control banks. Further, in early days Obama Admin had chances to put forward at least some basic regulations in place and it failed. Classic example is bonuses to Bankers. With one single fiat order or a single item Congress resolution it could have stopped that. They never made it 'law of the land'. The 'political optics' of the failure is horrible and Obama Administration is responsible for that.

4. Another one is when Christina Roemer said 'hedge fund guys' as 'good guys' on TV Talk Show during an introduction of PIPP or some such other program where Treasury partnered with Private Sector to buy written down mortgages. The program kind of stopped at $50B or so only as it was needed later.

5. As Matt points out rightly; in early days 'sharing work and encouraging that via tax policies' was far more relevant than in later months. Germans did, this Administration missed that part in the Stimulus Act or any related early measures. That would have helped to put some dent in unemployment. But I guess to 'free market' principles of Larry Summers that does not suit well.

6. Similarly, it was clear since Summer that Small Businesses are not getting loans. Merdith Whitney has been saying that for long. Again President started to talk about that only in late October and still concrete actions are missing there.

7. Look Chinese got their stimulus late than us but still it worked faster than use. In that sense Stimulus was not correctly designed. If it needed to be done differently because of preponderance of Service Sector in our economy then messers Larry Summers and gang failed. If pouring money on Infrastructure was the answer, then again they missed since current allocations are not inadequate considering long lag time for such projects.

8. Larry Summers and Obama Administration still have not rendered the 'vision' of American Economy (structural aspects, composition, debt handling, taxation, energy and carbon policy) which they want to pursue in years to come. Summers talked in bits and pieces here and there; but nothing comprehensive. Obama prides that he can and wants to do multi-tasking; then why this failure to waive the economic vision? Is it because otherwise then people would ask them to focus on that instead of HCR? That is not an excuse. That is a big failure in providing the 'big picture'.

Couple of additional positive things I would like to add are:
- quite competent handling of Dollar Policy
- and (though it is with Fed in some measures) handling of Treasury Debt Auctions. Those can be better but compared to Bush Admin. at least this Admin wants to increase the average age of debt to 5 to 7 years. During Bush time, that Admin famously missed opportunities to issue 30 years Debt when those rates were fantastic for the Government. They issued it later. Going forward, Debt issuance management is critical and things like issuing over $100B in the last week of this year, as they are doing now, will not be good. But still overall I would say 'debt issuance management' was not bad during this year.

Posted by: umesh409 | December 30, 2009 11:46 AM | Report abuse

I am not so sanguine. Some of the problems I see are:

1. Clearly wrong assumptions in 'selling the first stimulus'; especially unemployment rate and Chirstina Roemer is specific. May be this is what Brad meant when he said 'down turn more severe' than projected.

2. Misguided Tax Cuts in the first stimulus package and wasting money on that.

3. Missing an opportunity to 'regulate financial sector' when exactly they were weakest. That may be partly during Bush Admin time line, but President Obama never made any public utterances - before and after the election - nor did his Admin too in terms of what immediate steps can be taken to control banks. Further, in early days Obama Admin had chances to put forward at least some basic regulations in place and it failed. Classic example is bonuses to Bankers. With one single fiat order or a single item Congress resolution it could have stopped that. They never made it 'law of the land'. The 'political optics' of the failure is horrible and Obama Administration is responsible for that.

4. Another one is when Christina Roemer said 'hedge fund guys' as 'good guys' on TV Talk Show during an introduction of PIPP or some such other program where Treasury partnered with Private Sector to buy written down mortgages. The program kind of stopped at $50B or so only as it was needed later.

5. As Matt points out rightly; in early days 'sharing work and encouraging that via tax policies' was far more relevant than in later months. Germans did, this Administration missed that part in the Stimulus Act or any related early measures. That would have helped to put some dent in unemployment. But I guess to 'free market' principles of Larry Summers that does not suit well.

6. Similarly, it was clear since Summer that Small Businesses are not getting loans. Merdith Whitney has been saying that for long. Again President started to talk about that only in late October and still concrete actions are missing there.

7. Look Chinese got their stimulus late than us but still it worked faster than use. In that sense Stimulus was not correctly designed. If it needed to be done differently because of preponderance of Service Sector in our economy then messers Larry Summers and gang failed. If pouring money on Infrastructure was the answer, then again they missed since current allocations are not inadequate considering long lag time for such projects.

8. Larry Summers and Obama Administration still have not rendered the 'vision' of American Economy (structural aspects, composition, debt handling, taxation, energy and carbon policy) which they want to pursue in years to come. Summers talked in bits and pieces here and there; but nothing comprehensive. Obama prides that he can and wants to do multi-tasking; then why this failure to waive the economic vision? Is it because otherwise then people would ask them to focus on that instead of HCR? That is not an excuse. That is a big failure in providing the 'big picture'.

Couple of additional positive things I would like to add are:
- quite competent handling of Dollar Policy
- and (though it is with Fed in some measures) handling of Treasury Debt Auctions. Those can be better but compared to Bush Admin. at least this Admin wants to increase the average age of debt to 5 to 7 years. During Bush time, that Admin famously missed opportunities to issue 30 years Debt when those rates were fantastic for the Government. They issued it later. Going forward, Debt issuance management is critical and things like issuing over $100B in the last week of this year, as they are doing now, will not be good. But still overall I would say 'debt issuance management' was not bad during this year.

Posted by: umesh409 | December 30, 2009 11:49 AM | Report abuse

I don't think you will have much Republican friends left. They want the Obama administration to fail even if it means taking the country down with them. Any greenshoots is not viewed positively by the Republicans.

Posted by: ATLGuy | December 30, 2009 1:56 PM | Report abuse

Considering over selling of Stimulus, undermining extent of unemployment, missing an opportunity to regulate Banks when they were asking money from Fed and failing to control executive compensation; it is surprising why anyone would consider Obama Economic Team deserves A.

True solving Bank solvency issue without Nationalization, reasonable handling of Dollar and better issuance of management of Treasury Debt instruments; all these are positives.

But still there was much to be desired from this team.

Posted by: umesh409 | December 30, 2009 2:23 PM | Report abuse

"Other than bad politics and poor economic judgments, they're exceeding expectations!"

In other words, they're successful, once you adjust for their lack of success.

Posted by: tomtildrum | December 30, 2009 3:31 PM | Report abuse

DeLong worked with these guys in the Clinton administration and Brad has a huge capacity to overlook the faults of his friends

Posted by: williamcross1 | December 30, 2009 5:02 PM | Report abuse

The expectation were low.

Your right I thought the tax cheat Geithner would have been fired after the AIG bonus fiasco but he is still there.

After seeing Obama buy GM, I now feel anything is possible in US politics.

The politicians know no bounds ...

Posted by: cautious | January 2, 2010 2:47 AM | Report abuse

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