Obama Right to Reassure Wall Street Markets With Rubinauts But Also Needs Econ Advisors Who Stand for Main Street

It's been a perplexing week for progressives watching President-elect Obama appoint his top economic advisors. There's no question that they are a brilliant, accomplished, competent group who have reassured financial markets and a worried nation that help is on the way.

There's some reason, however, to be concerned that almost all of Obama's top economic advisors are, to one degree or another, protégés of Citigroup Director and former Treasury Secretary Bob Rubin -- the leader of the corporate economic wing of the Democratic Party -- which in the past has stood for deregulation of the financial sector (from which Rubin personally benefited at Citigroup), low deficits over social spending, and no labor or environmental standards in trade agreements.

One hopes that in filling out his economic team, Obama will also add a greater diversity of viewpoints and some more progressive voices which extend beyond what Huffington Post contributor Robert Kuttner has called "A Team of Rubins".

As a progressive, I'm satisfied with Obama's pick of Timothy Geithner for Treasury Secretary. Right now the economy needs a field doctor experienced in financial triage, and Geithner's specialty has been economic crisis management. The most immediate job of a Treasury Secretary is to reassure financial markets -- No president, no matter how progressive, would pick, say, Paul Krugman for this job.

It's somewhat concerning that Larry Summers, Obama's pick to head the National Economic Council, has never acknowledged that as Bill Clinton's last Treasury Secretary, his support for McCain advisor Sen. Phil Gramm's deregulation of derivatives and repeal of depression-era laws separating the ownership of federally insured banks from unregulated investment banks has, in part, created the conditions for the current financial meltdown.

On the other hand, it's somewhat reassuring that, according to The New York Times, Summer's views have moved to the left since the '90s and he's "now writing a lot more about the plight of the middle class than about budget deficits...He is also the centrist who has made it safe for other centrist Democrats to move to the left."

Moreover, in the face of the current economic crisis many of the immediate differences between the corporate Rubinaut wing of the Democratic Party and the more progressive, pro-labor, pro-Main Street wing have diminished in the short-run. Recently Rubin and progressive economist Jared Bernstein co-authored a NY Times Op Ed piece spelling out their broad areas of agreement on immediate economic recovery plans including public investment in such areas as education, health care, energy and worker training; a reduced concern about deficits during this financial crisis; strengthening the power of unions to organize; and increased financial regulations. They also acknowledged some longer term disagreements including the long-term importance of balanced budgets and including worker protections in international trade agreements.

Given these longer term differences; the varying perspective of economists who have been historically allied with corporations and Wall Street and those who have been historically allied with labor and Main Street; and the unacknowledged responsibility of Rubin, Summers, and other deregulatory Rubinauts for the current financial meltdown, it's important that Obama administration also include economic voices from the labor/Main Street wing of the Democratic Party in his Cabinet, in sub-cabinet positions, and on his economic advisory councils.

Following are some potential candidates (some of whom were among Obama's economic advisors during the presidential campaign):

• Jared Bernstein, is a Senior Economist at the labor-supported Economic Policy Institute, whose Mission Statement includes the following principles: "Economic policy should focus on improving conditions for working people." "A strong, effective labor movement is essential for democracy and to ensure an equitable sharing of income and wealth." "Government should set standards and rules for markets, and should ensure the efficient provision of pubic goods and investments." Bernstein was one of the first to predict the subprime meltdown.

• James K. Galbraith, is a brilliant economist in his own right, and the son of renowned economist John Kenneth Galbraith, who served as an advisor to FDR, Harry Truman, JFK and LBJ and kept the liberal Keynesian flame alive during the conservative ascendancy of Ronald Reagan, Milton Friedman and Alan Greenspan. James Galbraith is a critic not just of conservatives who have used "free market" ideology to plunder American society, but of so-called liberals "who praise the 'free market' simply because they fear that otherwise, they will be exposed as heretics, accused of being socialists, perhaps even driven from public life...Liberals have largely accepted the basic conservative principles: monetary control, balanced budgets, regulation only where it can be shown that 'markets fail.' [A perfect description of Rubin, Summers, and their followers.] And until they break the spell, they will not be able to think or talk about the world in terms that relate effectively to its actual condition." Galbraith argues that a new economic policy should focus on issues like war, climate change, energy supply, corruption and fraud including election fraud, the collapse of the public governing capacity, the perilous position of the international dollar, and the position of immigrants in American society.

• Paul Krugman, a Hillary Clinton supporter during the Democratic primaries and seemed to view Obama as less liberal on the economy than Hillary. If Obama is willing to pick so many Wall Street oriented Clintonites for his administration, he should consider picking a more progressive oriented Clintonite like Krugman to include among his economic advisors. Krugman claims to be "temperamentally unsuited to public office." While being impolitic and speaking his mind may make Krugman unsuited for an executive job, those are exactly the traits that would make him suitable for the Council of Economic Advisors, or the new Paul Volker/Austan Goolsbee-led Economic Recovery Advisory Board where Obama should be willing to get some straight talk from a Nobel Prize economist from the liberal side of the spectrum. Fundamentally, Krugman advocates "an unabashedly liberal program of expanding the social safety net and reducing inequality--a new New Deal." After stopping the bleeding of the immediate financial crisis, such a program should be at the heart of an Obama administration.

• Joseph Stiglitz is, like Krugman, a Nobel Prize winning economist, a critic of unfettered free markets, and a public intellectual with a tendency to speak his mind, even when it may be impolitic. An advisor to the Obama Campaign, Stiglitz was warning over a year ago that the subprime mortgage crisis could lead to serious economic problems. Despite having served as head of the President's Council of Economic Advisors during Bill Clinton's first term, as Chief Economist at the World Bank during Clinton's second term, Stiglitz incurred the wrath of then-Treasury Secretary Larry Summers for expressing dissent towards the World Bank's and International Monetary Funds deregulatory and austerity policies on globalization and was fired at Summers' instigation. Obama needs a voice like Stiglitz's, particularly on international economic policy where his views on managing globalization could provide Obama with valuable guidance.

• Robert Kuttner's Huffpo article "Team of Rubins" and his article "Rubin Rising" in The American Prospect, in which he sharply critiques Robert Rubin and his protégés on Obama's economic team--including Tim Geithner, Larry Summers, Peter Orszag and Jason Furman--may have disqualified Kuttner from a place at Obama's table. That would be a shame. As Editor of The American Prospect, he has provided a forum for out-of-power progressives to develop their policy ideas, much as Obama transition chief John Podesta has done at the slightly more centrist Center for American Progress. In his hot-off-the-presses book "Obama's Challenge", Kuttner literally challenges Obama to achieve greatness. "Barack Obama could be the first chief executive since Lyndon Johnson with the potential to be a transformative progressive president. By that I mean a president who profoundly alters American politics and the role of government in American life--one who uses his office to appeal to our best selves to change our economy, society and democracy for the better. That achievement requires a rendezvous of a critical national moment with rare skills of leadership.." To bring transformative change, argues Kuttner, Obama will have to break not only with the past 8 years of Bush's misleadership, but also with "the undertow of bad ideas" among many establishment Democrats.

• George Soros: During the campaign, Obama liked to refer to his conversations with Warren Buffet as a way of convincing voters that he was unthreatening because successful billionaires liked him. I have nothing against Buffet and his billions, but despite his business acumen, Buffet has actually demonstrated little thought regarding public policy. Another self-made billionaire, George Soros, has actually spent a lifetime thinking about public policy and spreading democracy, as well as donating tens of millions of dollars to defeating George Bush. As an investor, Soros predicted the current economic meltdown, shorting US and European stocks and bonds. As a philanthropist, he has done a great deal to promote democracy in Eastern Europe. As a thinker, Soros has written a series of books on public policy. In his most recent book, "The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means," Soros demonstrates how imperfect market information can influence economic fundamentals and lead to self-reinforcing economic downturns. Soros sees the subprime mortgage meltdown taking place in the midst of the bursting of a "superbubble" created over the past quarter century as a result of globalization, credit expansion and deregulation. If Obama wants to call up a billionaire for policy advice, he might be better off calling up Soros than Buffett.

• Sheila Bair is no left-wing economist but a Republican who was appointed by George W. Bush to head the Federal Deposit Insurance Corporation, the FDR-created agency that insures bank deposits and prevents depression era bank-runs. While Treasury Secretary Paulson has been furiously pumping hundreds of billions of dollars of taxpayer money into banks with few conditions--not even that they actually lend the federal dollars back out to the credit market--Bair has taken the opposite approach, proposing direct assistance to distressed homeowners. Under Bair's plan to prevent foreclosures, the Federal government would reduce mortgage payments for distressed borrowers and share losses if the modified mortgages defaulted, thus keeping people in their homes and enticing lenders to modify mortgage terms. Bair projects that at a cost of roughly $24 billion dollars, the plan can prevent 1.5 million foreclosures. The only problem is that Hank Paulson has refused to use any part of the $700 billion financial bailout to support Bair's plan. Obama should strongly consider implementing Bair's plan and appoint her to a top economic position in his administration.

We can only hope that the smart Rubinauts whom Obama has appointed to lead his economic team have learned some of the lessons from their deregulatory past. At the same time, we can hope that Obama brings in other voices whose economic thinking represents Main Street and labor as well as Wall Street, so that he can pick the best economic policies from a diverse group of economic thinkers, a true team of rivals.

Comments

[Biffmeister]

Just found this article and list. Many of these folks have been on Charlie Rose and similar shows. I'd come away thinking boy do these guys make sense, let's hire them. Ms. Bair is even from the "correct" party for Mr. Obama's antagonist grouping. Any or all however, would be great choices. Particularly so for a President Elect who repeatedly emphasized Main Street during the campaign.

[canucklivinginUSA]

Judging from your assessment of some of the progressives, I would love to have Bernstein, Stiglitz, definitely Soros and may I add Nouriel Roubin in the Volker led council? Since, the first two were already his advisor, I highly doubt that they aren't going to play a huge role

[cylindar]

He has a short time to do this in and he needs people with the right experience. His picks have been very good considering. The fact is, any pick comes with it's downsides doesn't it?

[Edzero]

I hope the Obama administration's accountants who are looking at all government departments to
trim fat, will cast an eye at the Pentagon.

Trying to get my arms around these US financial problems in an attempt to put it in a context turned up these facts that gives me pause and offers some thoughts about priorities and perspective.

Fact #1: The USA taxpayer supports a 45% chunk of the 2007 world's "defense" budgets
[ That is $547 billion of the world's $1339 billion]

Fact #2: The next two highest countries are
United Kingdom 5% [$59.7 billion]
China 5% [$58.3 billion]

Fact #3: The United States has 1,000 military bases world wide

Fact #4: The United States has 255,065 military personnel around the world

This fact search took about five minutes to assemble.

Questions that come to my mind

A. Is this the most humane and, constructive way to spend a very large proportion of the nation's resources?

B. Who is paying close attention to this resource allocation on the behalf of the taxpayer?

C. What criteria are being used by which decision makers in making these choices?

D. Do these facts support critics questioning our leaders who have been promoting the American worldwide empire without an open, public discussion of these expensive and questionable policies?

E. Do these facts shed light on President Eisenhower's concerns about the military-industrial complex which he expressed in the 1950's?

Perhaps these facts will provoke some questions of your own.

[Yermammy]

Two words: Dean Baker.

[Miles Mogulescu - Huffpost Blogger]

I agree. Dean Baker should have been on this list, too. He was one of the first economists to warn of the dangers of the housing bubble, starting as early as 2002.

[evekendall]

Thank you, Miles. You have named the people Obama really needs to be listening to. The people he's surrounding himself with right now has me somewhat concerned.

Must-read books by Robert Kuttner:

"The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity"
http://www.obamaschallenge.com/squandering.cfm
http://www.nytimes.com/2007/12/16/books/chapters/1st-squandering-of-america.html?ref=books
Audio:
http://marketplace.publicradio.org/display/web/2007/12/21/squandering_of_america_q/

"Obama's Challenge"
http://www.obamaschallenge.com/obamaschallenge.cfm
Audio/video:
http://www.npr.org/templates/story/story.php?storyId=96694999
http://www.pbs.org/now/shows/447/index.html

[larry278]

There are times when the practice of the most arcane, inaccurate science of economics resembles a voodoo ritual. Some demand that each 'true' science explain, predict & control the evens a science studies. Economics fares poorly at controlling an economy, predicting what an economy may do & the explanitions, terms, definitions & methods economics use to explain itself or a given economy leave a lot unexplained, doubtful reasoning, etc.
When does a particular school of economics cease to resemble a science & become voodoo?

[Biffmeister]

Possibly at the given schools inception. David Stockman called his boss' economic plan Voodoo Economics, and was "taken to the woodshed" by his then boss. I speak of course of Ronald Reagan and his trickle down economics plan. It always puzzled be that a plan panned by many at the time, resurfaced with such vigor. History repeats itself if it's profitable for the few?

[hillol]

Very well written article. It seems Obama has some good ideas. I think he is not sure
who can implement his ideas well. He is depending on Clinton advisers to form a team.

In wall street people are concern about multiples like 20X earnings. Scientific way of thinking
is about the customers such as middle class, working class. If the quality of life is improved
then I see that 20X will become 30X, but it will take some time to reach wall street door.

Today people are not buying so the economy is going down along with Dow.

I think Obama can understand this very well. His current team will act accordingly.

Joseph Stiglitz may be included in a Global responsibility.

[Nonamnesiac]

Although I agree with much of this article, it appears clear that Obama himself believes in voodoo economics (unbridled free trade, deregulation, privatizaiton) and his appointments reflect that bias. Being charitable and not concluding that Obama is simply on-the-take, he needs to look at some of the European Union and Canadian mainstream economists who justify a wholly different approach to economics -- people who accept fundamentally there must be a solid safety net which guarantees the whole population universal health care, adequate pensions for retirment, real protection against eviction or "foreclosure", similar protections in the event illness or other calamity destroy one's earning ability, etc.

The problem here is this whole generation of economist, right and left, have bought voodoo economics, and the whole political class has bought it too. They have all become fabulously wealthy as the largest shift of wealth from the poor and working families to the wealthy has occurred under voodoo economics principles. As they all made out like bandits, none really want to end voodoo economics, as that will cause a shift of wealth back from them to poor and working families.

Changes much be far greater than anything being proposed by any of Obama's new economic team, so Obama must, in addition to those mentioned by Miles, find some Europeans and Canadians to provide some different group-think perspective.

[SamEllison]

This is the opportunity for the Rubinauts to save their legacy.
A friendly congress to update the safe-guards removed when Glass-Steagall went away.

[davidly]

What legacy? Glass-Steagall didn't go just away. It was voided by Gramm-Leach-Bliley, signed into law by the last Democratic president, despite the fact that it was only passed straight down party lines by the GOP. Now that was veto-able. Either he was covering for his party - not having to face another reelection - or he wanted the law, or both. Rubin was all over it. Many say he was the catalyst, though I wouldn't let the president off hook so easily. Either way: What legacy?

[TommyMcCarthy]

Well, here we go again..........

I can hardly describe how heartily SICK I am of hearing what we CAN'T do (health care, infrastructure, stimulus, save Detroit).........or what we MUST do (program cuts, welfare "reform", deregulation of EVERYTHING, 750B down the rathole)....in the holy name of "reassuring the markets".

I think it's rather high time that Wall. St. did a little reassuring of those of us on MAIN St. don't you?

Wall St. et. al. has behaved of late like nothing so much as a flock of chickens in a lightning storm.
There can be little surprise that some have gottn thier heads stuck in the fence and are no longer with us.

Despite a massive infusion of taxpayer's money, major banking institutions are still reluctant to lend to qualified borrowers.
Perhaps they need a little reassurance that, in light of the ineffectiveness of Paulson's TARP program, the next infusion of public will come when XYZ finacial is NATIONALIZED,...and the wizards in upper management, instead of a zillion dollar bonus, will recieve a little pamphlet detailing their compensation package as civil servants in the employ of the new majority shareholder....THE AMERICAN PEOPLE.

Those poor folks at OPEC meet shortly to figure out what to do about $50 oil. Perhaps they need reassurance that a nice CONFISCATORY windfall proits tax retroactive to,say....2005 probaly WONT be enacted immediately.
Reassure this
tm

[SOLERSO68]

Visit the "CORPORATE WELFARE" hall of shame here: http://www.progress.org/banneker/cw.html#news

[Rule Of Law]

HuffPost's Pick

What you suggest would provide critically needed balance on the Obama financial front. You discuss many of the issues that we on the progressive left feel have not been significantly addressed by Obama and his appointments to date. It is one thing to "reassure the market" another to deal with the systemic failure of that same market, and voices like the ones you list would go far toward that.

I hope someone passes your list on to the new President for his consideration.