Obama’s Challenge at Treasury
With Treasury Secretary Timothy Geithner planning to step down, President Obama is faced with an important appointment.
Much of Official Washington wants a “deficit hawk,” but Obama and the country would be better served by someone who cares more about recovery than austerity, says Beverly Bandler.
By Beverly Bandler
We Americans need to face hard reality: The U.S. economy was once in a free-fall toward a new depression. It has begun to recover, but we should not delude ourselves: our economy remains in perilous condition and a new austerity-induced recession remains a threat.
Economics journalist William Greider points out: “At least nine of the economies in Western Europe are already contracting.” He warns: “The International Monetary Fund, not usually known for dire forecasts, predicts increased risk of worldwide stagnation, and has warned specifically against the “excessive fiscal consolidation” of austerity measures.” Even China’s growth is now slowing at an alarming rate.
“The economy still sucks — three years into the recovery, we have an official unemployment rate of just under 8 percent and an underemployment rate of almost 15 percent,” writes economist Jeff Faux.
“Incomes are declining and at least 12 million homeowners have mortgages that exceed the value of their houses.”
“Consumers aren’t spending and therefore business is not investing. And we are still running a huge trade deficit with a sluggish global economy. This leaves government as the only possible source of substantial new spending to create jobs. Yet there is no jobs program.”
Of concern is that President Barack Obama, like the GOP and too many conservative Democrats, seems primarily, if not solely, focused on large-scale deficit reduction.
“Obama has tacked back and forth, sometimes emphasizing the need for jobs and recovery now and deficit reduction when strong growth returns; and other times he has veered in the direction of the Bowles-Simpson austerity crusade, a demon partly of Obama’s own making,” writes journalist Robert Kuttner.
Kuttner concluded this November that: “On the question of whether the economy needs a big budget cut, Obama is with the deficit hawks, the only fight is over the details.”
Former Wall Street executive Richard Eskow further notes: “During a time of economic agony brought on by joblessness and wage stagnation, the President followed the Wall Street agenda by creating a ‘deficit commission’ instead of a Jobs and Middle-Class Growth Commission. And he appointed two anti-Social Security and anti-government activists, Alan Simpson and Erskine Bowles, to lead it.”
Obama’s latest major speech indicates that his overriding national priority had to be jobs. So, just where is Barack Obama? The White House should be reminded that the 2012 election results cannot be assumed to be a vindication of his policies in light of the threat of radical right-wing extremists.
The President would do well to heed the wisdom of Benjamin Franklin, who said: “For having lived long, I have experienced many instances of being obliged, by better information or fuller consideration, to change opinions, even on important subjects, which I once thought right but found to be otherwise.”
The real question seems to be, in the short term can we do both large-scale deficit reduction and create jobs? No, is the common sense answer.
“President Obama says his top priority is a deal with House Republicans to reduce the deficit by $4 trillion over the next 10 years,” writes Faux. “His ‘liberal’ position starts with a ratio of spending cuts to tax increases of 2.5-to-1. The only real dispute between the president and Republicans is whether the rich will have to give back the tax breaks George W. Bush gave them.
“So when the eventual deal is struck, the federal government will be taking more out of the economy over the next decade than it is putting in. This virtually guarantees that — even if we escape another recession or financial meltdown — we will not reach anywhere near full employment in the next four years.”
“If stagnation drags on for years, tearing up society and destabilizing politics, demands for more radical action will swell and eventually overwhelm the old restraints,” warns Greider.
We voters, so ardently sought in the hotly contested pre-election period, are cast aside after the election like young brides won but now of diminished value to victorious bridegrooms.
Since most of us are not members of the rather small circle of influential policy experts and financial interests, nor part of a circle of “fiercely one-sided politics dominated by [but not limited to] conservative Republicans and their patrons in banking,” and since most citizens are generally clueless on a whole range of issues and don’t “do lunch” with the members of the “false consensus” Inside the Beltway (a.k.a. Byzantium on the Potomac), we are “easily ignored by unaccountable decision-makers” (as are most elected politicians, interestingly enough).
We need to be mindful that progressives and other rational Americans dodged a bullet in the 2012 election, but the anti-democratic reactionaries that we fought are still around and in powerful places. They have been humiliated, and it is crucial to remember that humiliation is a prime motivator. Many of the regressive Powers That Be (and they are not only in the GOP) want us to go back to sleep.
Let’s say: “Not this time.” Let’s join in the conversation as we have the right to do about our government and our money — pay attention, become well informed and take appropriate action.
Americans need to be informed as to what got the country into this mess, and it is a mess, are too many of the same “policy experts and financial interests,” too many of whom economist Paul Krugman mocks are the so-called “Serious People” who base much of what they believe on prejudices [and myths] rather than analysis, and too many of the same well paid politicians who are dependent on finance campaign money and enthralled with austerity snake oil.
These “experts” (the bloodletters and body scourgers) now want the rest of us to passively “eat our broccoli” while they, the rich, elite cronies who believe they are entitled to govern, patronize us and dine on steak — with one another, of course.
The “overwhelming conclusion is that fiscal stimulus raises employment and output in the near term,” states economist Christina Romer, a real expert.
There is no evidence that the Wall Street types are smarter than we are, and there is plenty evidence that suggests to the contrary – that they are indeed not — starting with the Great Depression not to mention the Great Recession that began in late 2007.
The public needs to remember who gave us the deficit and the alarming debt, who is responsible for the dangerous “fiscal cliff” that could have, should have been avoided.
We don’t have to become economic experts who understand the intricacies of multipliers, but we do have to pay attention, need to understand that there are no silver bullets, and do our homework about complex issues thoughtfully. We can discern who is peddling “snake oil,” and who is worthy of trust and take appropriate action.
Citizens can play an important role in promoting jobs as the priority and preventing a Grand Bargain from turning into a Great Betrayal and the shredding of what’s left of the safety nets.
Americans need the Treasury Secretary (and all the members of the President’s Cabinet) to represent us, not bankers, not special interests. The latter two groups have no trouble looking out for themselves.
A Treasury secretary concerned more about recovery than austerity is not only what President Obama needs, it is what you and I need, what the country needs, indeed what the globe needs.
Appointing an effective Secretary of the Treasury is a real opportunity for the United States not only to recover, but to demonstrate that it has not completely lost its mind nor its capacity for global leadership.
What does the Treasury Secretary do? The Secretary of the Treasury is the country’s chief Financial Officer or CFO.
According to the Treasury Department: “The Secretary of the Treasury is the principal economic advisor to the President and plays a critical role in policy-making by bringing an economic and government financial policy perspective to issues facing the the government … and is responsible for formulating and recommending domestic and international financial, economic, and tax policy … the formulation of broad fiscal policies that have general significance for the economy and managing the public debt.”
The CFO “serves as Chairman Pro Tempore of the President’s Economic Policy Council, chairman of the Boards and Managing Trustee of the Social Security and Medicare Trust Funds” and “U.S. Governor of the International Monetary Fund” as well as other multilateral institutions. … The Treasury Secretary also controls the Emergency Economic Stabilization Fund, better known as ‘TARP.’ If a national tragedy occurs, the Treasury Secretary of the United States if fifth in the line of Presidential succession.”
The following, “Case for Ben Bernanke,” is an attempt to synthesize the key points made by William Greider, Richard Eskow, Robert Kuttner, and Roger Lowenstein.
Federal Reserve Chairman Ben Bernanke has been seen as both “hero” and “villain,” but Bernanke was named Man of the Year by Time magazine in 2009, a year of a weak economy that could have been “much, much weaker” because “the mild-mannered man who runs the Federal Reserve prevented an economic catastrophe.”
He has presided over the most sustained period of crisis of any civilian official in recent history, with the fate of millions of unemployed and underemployed Americans hanging in the balance. Bernanke is considered the most “activist Fed chief in history,” and is credited with keeping the recession from turning into a depression and for navigating “masterfully through the most trying of times.”
Since August 2007, Bernanke has deployed the Fed as the lender of last resort to the banking system and worked overtime to furnish an “elastic currency” — that is, to keep enough money in circulation for the economy to function. These were the very tasks that the founders of the Fed envisioned. “He wishes Americans understood that he helped save the irresponsible giants of Wall Street only to protect the ordinary folks on Main Street.”
Bernanke is a former Princeton economics professor and an authority on the Great Depression. He understands how the passive Fed of the 1930s helped create the calamity through its stubborn refusal to expand the money supply and its “tragic lack of imagination and experimentation.”
Bernanke “was determined not to be the Fed chairman who presided over Depression 2.0. so when turbulence in U.S. housing markets metastasized into the worst global financial crisis in more than 75 years, he conjured up trillions of new dollars and blasted them into the economy; engineered massive public rescues of failing private companies; ratcheted down interest rates to zero; lent to mutual funds, hedge funds, foreign banks, investment banks, manufacturers, insurers and other borrowers who had never dreamed of receiving Fed cash; jump-started stalled credit markets in everything from car loans to corporate paper; revolutionized housing finance with a breathtaking shopping spree for mortgage bonds; blew up the Fed’s balance sheet to three times its previous size; and generally transformed the staid arena of central banking into a stage for desperate improvisation. He didn’t just reshape U.S. monetary policy; he led an effort to save the world economy.”
Ben Bernanke has “pointedly refused to join the austerity posse.” He has been almost alone among influential officials, sounding the alarm about austerity measures and speaking out against the risks of fiscal contraction in his understated, scholarly manner. He has “all but asked Congress to use fiscal policy to stimulate the economy in the short run.”
He has been surprisingly good at using aggressive monetary policy in a prolonged slump. He emphasizes that “we are stuck in a doozy of a debt deflation” is especially aware of the danger of cutting back government stimulus prematurely before a vigorous recovery is established.
Bernanke is the first Fed chairman since FDR’s chairman, Marriner Eccles, to talk about the risks of protracted unemployment as well as the risks of inflation. It seems out of character for a central banker to make a special plea for the unemployed, but that’s what Bernanke has been doing.
Last August, he warned a Fed symposium that “the stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.”
He has been characterized as surprisingly good on more aggressive measures to deal with the housing and mortgage mess. Bernanke recognizes that: “Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery.”
Bernanke as Treasury secretary would be very hard for Senate Republicans to oppose. Except for a few hard-core monetarists, most Republicans recognize that he kept a recession from turning into a depression. He’s even a Republican, first appointed to the Fed by George W. Bush.
Bernanke is not a Wall Street guy but is respected in financial markets. The appointment would be hailed around the world. A smooth, timely appointment that reflects knowledgeable calm is highly desirable during this turbulent period.
Researchers at the International Monetary Fund have identified no fewer than 173 cases of fiscal austerity in advanced countries over the period between 1978 and 2009. What they found was that austerity policies were followed by economic contraction and higher unemployment.
“Austerity is a political ideology masquerading as an economic policy. It rests on a myth, impervious to facts, that portrays all government spending as wasteful and harmful, and unnecessary to the recovery. The real world is a lot more complicated,” a New York Times editorial said.
Beverly Bandler’s public affairs career spans some 40 years. Her credentials include serving as president of the state-level League of Women Voters of the Virgin Islands and extensive public education efforts in the Washington, D.C. area for 16 years. Bandler attended Sarah Lawrence College (‘59) and has a master’s degree in Public Administration from George Washington University (‘82). She writes from Mexico.
CrossTalking with Jeffrey Sommers, Peter Tchir and Eric Garland.
The original question posed by the writer above shows one of the major problems that must be overcome before we will ever be able to fight our way out of this mess. — “Can austerity really generate economic growth and create jobs?”
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