A couple of days ago I wrote a post about a declaration by the National Bureau of Economic Research’s (NBER) that the recession ended in June 2009. The point of that post was that it was silly and indeed cruel for a few academic economists to broadcast their technical definition of recession at a time when so many Americans are suffering in what for them is a very real on-going and in many ways deepening recession.
Insensitive timing by a few academic economists in an obscure professional backwater is no big thing in itself, however. The real problem here is that a few other academic economists who viewed the same data in the same way as their peers at the NBER have been President Obama’s chief economic advisers since he’s been in office. And the advice they gave based on thinking the recession ended in June 2009 have had disastrous consequences for Mr. Obama and his party, and far, far worse consequences for the American public generally
Consider the policies we got because academic economists like Larry Summers (who is soon to return to Harvard) and Christina Romer (who recently left the administration to return to the University of California, Berkeley) thought the recession actually did end in June 2009 — and convinced Mr. Obama of that fact.
Shortly after coming into office in early 2009, the Obama administration pushed through a $700 billion stimulus package to help boost the economy. Was that package large enough to do the job? Sure it was — if the recession had ended in June 2009, because this $700 billion would then just act as an afterburner to a naturally recovering economy’s own bounce back. Except the real economy, as opposed to the economy of academic economists, didn’t end in June 2009.
Was unemployment a concern to the Obama Administration in June 2009? Of course. But since the main in-house economic advisers were reading their academic tea leaves in a way that indicated the recession had ended, that was no big worry. Employment is a lagging indicator. Every economist knows that. So with the recession ended in June 2009 it was just a matter of waiting patiently a few months until a lot more jobs were created by a recovering private sector. Something that would certainly happen by the 2010 mid-term election. Right?
And how should the president position himself after June 2009? If we were still in deep recession and likely to be there for some time, he might have done a Reagan and made it clear we had “to stay the course.” Or he could have done a Clinton and got into deep “feeling your pain mode.” But since Mr. Obama was assured by his best-and-brightest academic economic team that the recession ended in June 2009 and a recovery was underway, he could play the part of a cool, detached, cerebral chief executive — an approach which today has put his approval numbers in the mid-40s.
And how would the Obama Administration have behaved toward Wall Street if it weren’t mesmerized by an academic economists-generated notion that things had bottomed out and were starting to get better? Well obviously the president would have come down hard on Wall Street in word and deed, demand that The Street share the pain of Main Street. But why bother with the recession being over? Let the fun guys on Wall Street get huge bonuses because that was part of the economic turnaround of a recovering economy.
Why focus on this past? Why bother noting the disastrous results of listening to the wrong people when it came to economic policy setting? The reason is because a number of these wrong people (e.g. Summers and Romer) are leaving their posts and we must now hope that their replacements are more attuned to the real world.
Word that Mr. Obama is looking very hard for a woman to fill a key position is unsettling. This is absolutely not the time to include gender balance as a prime adviser qualification.
Word that someone from business (man or woman) might soon have the ear of the president is more promising. Though there’s a catch here, too.
The catch is that no one inside the Beltway seems to have any noticeable ties to small business. You know. The kind of businesses that generate most of the jobs in this country and whose health, or lack of health, is a true measure of economic well-being. The kind of small businesses that can’t get bank loans these days, and can’t raise money from Wall Street.
If Mr. Obama ends up picking “businesspeople” as his prime economic advisers rather than academics, maybe, just maybe, one or two of them should be tuned into small business angst as well as the happy dance giant corporations are now enjoying with Wall Street and an accommodating Fed.
Pretty please…
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