WASHINGTON -- On the heels of his departure from the Obama administration, economist Jared Bernstein warned that Washington's political culture misleads the public about basic economic facts, adding that he thought Obama administration economists had not effectively made the case against many conservative economic ideas that currently hold sway in Washington.
"What frustrated me was ... the real misleading, skewed debate on so many of these issues," Bernstein said. "Partisans claiming that up was down and you could cut [spending] aggressively today and all these jobs would magically appear ... That if you raise any taxes on anybody at any time by any amount, the economy will crumble to its knees. Or the notion that Keynesian stimulus is a bad thing when demand is contracting in the private sector."
"All these basic things that we really kinda know already being challenged, with the electorate being mislead about, that was frustrating. And I felt like I couldn't do enough from the inside to influence that debate."
Bernstein, who served as chief economist to Vice President Joe Biden until two weeks ago, now works as a senior fellow at the Center on Budget and Policy Priorities, a respected Washington think tank.
Bernstein was widely viewed as the most progressive voice on economic policy within the administration, and his departure from the administration was viewed in Washington as a sign that progressive voices were being marginalized within the administration's economic team. Another progressive economist, former Chair of Obama's Council of Economic Advisers Christina Romer -- whose frequent feuds with Larry Summers, director of the White House National Economic Council, have been widely publicized -- left the administration last summer. And former Federal Reserve Chairman Paul Volcker departed under terms indicating that his more aggressive stance on bank regulation was not welcome in a team of policymakers with strong ties to Wall Street.
Of the economic advisers who entered office with Obama and Biden, only Treasury Secretary Timothy Geithner and National Economic Council chairman Austan Goolsbee remain (Goolsbee has changed jobs within the administration). Summers and Romer returned to academia, while former Office of Management and Budget director Peter Orszag left the administration for a lucrative position with Citigroup, recipient of an enormous taxpayer bailout. He was replaced by Jack Lew, who made upwards of $1 million at Citigroup running its alternative investments unit, which took massive losses before taxpayers rescued the bank.
Bernstein, however, downplayed differences with other members of the economic team, including Summers and Geithner, insisting that his frustration with the job was driven not by internal feuding among the Obama crew, but by the team's inability to to counter leading economic notions successfully. Faced with the choice between advocating from the Vice President's office or from the freedom offered as an independent critic at a think-tank, Bernstein chose to leave.
Bernstein expressed deep concerns about the path of the economy, saying that overall economic activity is not growing fast enough to make a serious dent in the unemployment problem. He said the government needs to spend more, not less, to create jobs, and worried that it would be extremely politically challenging to achieve that after a host of new members of Congress were elected amid a pledge to cut spending.
He said foreclosures were creating a particularly big drag on the overall economy, preventing the recovery from reaching "escape velocity" that will allow the private sector to grow on its own. Bernstein called for banks to clean up their act on the foreclosure documentation so that the housing market doesn't "break down the whole system" over concerns about the integrity of mortgage and land records.
"I think the political system needs to do something," Bernstein said. "When I was in the administration, we were thinking a lot about what we could do, but there's also bank regulators ... and absolutely, they need to put some pressure on [the banks]. The attorneys general are one very good line of defense here, and some of them are talking about this pretty aggressively, which I think is positive."
Bernstein also weighed in on the debate over raising the federal debt ceiling. He said he believes it is extremely unlikely that the debt ceiling will not ultimately be raised. But given that the alternative to raising the debt ceiling is a global economic catastrophe, the current negotiations should be considered unacceptable.
"It's a dangerous precedent," Bernstein said. "What purpose is served by even entertaining the possibility of a default?"
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