12/29/2008 05:12 am ET | Updated May 25, 2011

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.

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