Continuity, Not Revolution
Posted on November 24, 2008
Continuity, Not Revolution
The Obama Administration seems to be stressing continuity over revolution in the appointment of his economic team. That is a good sign.
Tim Geithner has been neck-deep in trying to reverse the fiscal panic. He has been working hand in glove with Treasury Secretary Hank Paulson, so he will be well-briefed on both the history and the reasoning behind the Bush Administration’s actions over the last couple of month.
Christina Romer, an economist, has warned about the dangers of raising taxes in an economic recession/depression. So that would seem to indicate that Obama will put off tax increases until at least 2010.
Larry Summers, a former Treasury Secretary for Bill Clinton, was an architect of the Clinton economic boom, and is no wild-eyed revolutionary. A proponent of free-trade, he worked hard on the Chinese trade agreement. He is not beloved by the left.
So, this is a good start for the Obama Administration. But let’s not kid ourselves. Obama doesn’t have much wiggle room here. The stakes are very high. The financial markets are very fragile. Consumers are not opening their wallets. Retailers are closing left and right. Had Obama decided to use this as an opportunity to put a bunch of left-winger into office, it would have been devastating for the stock markets and would have been horrible for his new Administration.
Now the talk turns to the size and scope of the stimulus.
A couple of questions immediately need to be asked:
How will we pay for all of the spending? 700 billion for the initial bailout plus 700 billion for another stimulus is far beyond Everett Dirksen’s definition of real money. Tax revenues are certain to be down considerably and that means huge stress on our deficit and our debt. At what point does our government reach the breaking point?
How will this money be spent? We already now that when we gave money for the banks, they decided to basically keep it. The same thing happened when we gave money to consumers in the last stimulus. They used it to pay off bills, not to spend on other things.
Spending on infrastructure sounds good, but it will do little to jump start the economy in the short term. Highway spending takes time. It takes time for planning, zoning etc.
Let us hope that the Obama team learns the lessons from both the Japanese of the 1990s and from the Great Depression of the 1930s. Willy nilly spending and irrational monetary policy doesn’t work. Centralized economic planning doesn’t work. Unnecessary infrastructure spending doesn’t work. Printing money just to print money doesn’t work. And it is completely impossible to reinvent the laws of supply and demand.
President-elect Obama seems to have put in place a smart group of economic advisors who will preach continuity, not revolution. Let’s hope the new President listens to them.