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Obama's New Economic Adviser Warned of 'Disturbing Problem'

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Back in March, when he still enjoyed remove from the policy fray as an academic at Princeton, Alan Krueger used unusually blunt language to sound the alarm that the American economy was staring at the sort of crisis that seemed unlikely to be fixed absent sustained and aggressive action.

At the end of a largely wonky, data-driven piece of analysis written for Bloomberg News, Krueger discounted the incessant focus on the unemployment rate -- which does not count jobless people who have grown so discouraged that they have given up looking for work -- arguing that the real action is found in the so-called employment-to-population ratio, which measures what slice of working age Americans are employed. The ratio then sat at a dismal 58.4 percent, just off the low reached the previous December, meaning that the supposed resumption of economic growth was not putting large numbers of jobless people back to work.

Even back when the economy was still technically expanding between 2002 and 2007, Krueger noted, the percentage of working age people then employed never got back to where it had been before the previous recession in 2001, at a peak of 64.7 percent.

"What this indicator tells me is that we weren't creating enough jobs long before the recession that began in December 2007," Krueger declared. "If this pattern holds, even in recovery, it points to a much deeper and disturbing problem for the U.S. economy."

Curiously, Krueger ended his piece right there, without suggesting what we might do to fix this "deeper and disturbing problem," one that is now beyond argument, given that the pattern has indeed held. (Maybe Bloomberg was parsimonious with its space? Maybe Krueger had to go teach a class?) In any event, for Krueger, the answer to that question his observation provoked has just been elevated to something greater than academic interest: It has become his problem to solve, along with the central problem of these times.

President Obama on Monday named Krueger to head the White House Council of Economic Advisers, a development that analysts construed as a sign that the administration finally grasps the public's priorities: Enough with the bickering over the debt ceiling and arguing about what government spending to cut; time for a serious and sustained focus on putting Americans back to work.

The political and policy calculus of his nomination was unimpeachable. Krueger is a highly respected labor economist who has written voluminously about the economic imperatives of the nation. His research has fairly well annihilated the nonetheless enduring red herring that raising the minimum wage exacerbates unemployment. He has studied the extent to which American workers are vulnerable to having their jobs shipped off to lower-wage countries. He has probed at length the benefits that accrue to the economy through greater education of the workforce, and he has advocated for an expansion of programs to train workers for higher-wage careers in faster-growing areas of the economy.

Krueger is in short someone who has, over an academic and public service career spanning decades, thought deeply about the state of play for American workers and what might be done to arrest the steady decline of working opportunities. From the standpoint of messaging -- the only standpoint that generally gains bandwidth in Washington -- he seems like the right guy for the job.

But the real question for the rest of the country is whether Krueger's appointment will in fact alter the policies coming out of Washington, delivering initiatives that can address the crisis he highlighted in his opinion piece early this year, laying the ground for aggressive hiring. On that score, unfortunately, there is limited reason for optimism, for the simple reason that he is walking into an administration that has so far proven unwilling or unable to marshal a fight to generate paychecks.

The Obama White House has been alternately fearful of running up short-term budget deficits with spending aimed at stimulating the economy (and never mind the research showing that austerity only increases deficits over the longer haul by putting the brakes on growth) or naively pursuing the dream of forging peace with a Republican party that has clearly bet on an extension of economic misery as the pathway to electoral gain.

President Obama cast Krueger's appointment as part of his "urgent mission" to boost "economic security", but it is hard to hear such words without retreating to the false comfort of sarcasm: How's that mission been going, and with how much urgency, really?

Obama's supposed "pivot" to jobs has been telegraphed so many times that it has become a joke -- and not a particularly funny one. What else has merited a higher priority all these months? The president has never managed to make this clear.

Krueger is replacing Austan Goolsbee, another highly respected academic economist whose nomination in September 2010 was widely portrayed as a signal that the administration was finally getting serious about jobs. But when the news broke in June that Goolsbee had decided to head back to the University of Chicago to resume teaching this fall, the message seemed clear: His efforts to spur the economy and encourage job growth had run headlong into the partisan sniping and fatal compromising that defines most of the proceedings in the capital.

The president began his administration by leaning on the counsel of Larry Summers, who as treasury secretary in the Clinton administration did as much as anyone to bring us to the crisis at hand: He rolled back regulations on the financial system despite prescient warnings of disaster from people he ridiculed and pounded.

Obama put his own Treasury under the authority of a Summers protege, Timothy Geithner, who has rarely paused when confronted with a choice between catering to mega-banks or to the interests of ordinary people: He is Wall Street's tool. At the New York Fed, he helped engineer the bailouts of big banks in 2008 without safeguarding taxpayer interests. At the Treasury, he has repeatedly shot down proposals to relieve homeowners of untenable mortgages -- a substantial drag on economic growth -- in order to protect banks from having to absorb losses.

Krueger is no stranger to the idea-killing world into which he is now walking: Until late last year, he served as assistant secretary for economic policy in Geithner's Treasury. There, he toed the party line.

In February 2010, Krueger told the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association that the Obama administration's policies seemed to be working out great.

"In sum, the economy is continuing to recover from the most severe recession of the post-war period," Krueger declared. "It will take time for the pickup in economic activity to translate into renewed hiring, but labor market conditions should improve with sustained and solid economic growth." He added: "Administration policies have played an important role in jumpstarting economic activity and restoring stability to markets and will continue to provide support in the months ahead."

In the months since that pronouncement, the employment-to-population ratio toward which Krueger is inclined has dipped from 58.5 percent to 58.1 percent, its lowest level since 1983.

That is not Obama's fault, it must be noted. He is correct in repeatedly emphasizing that it took a lot of years and a lot of hands to turn the American economy from a prodigious job creation machine into a contraption of arbitrage that rewards the wealthiest and best-connected while condemning the rest of the population to stagnant wages and high unemployment. This came about through the financial deregulation of the Clinton years, then more of that plus tax cuts for the rich and expensive wars from the Bush administration.

The trouble is how little Obama has done to change this bleak economy. A man of clearly enormous intellect and analytical command, he shows no will to fight, seemingly reluctant to sully himself with the bloody sport known as politics.

Perhaps his naming of Krueger to his new post is a sign of change, and let us all hope so.

But until we see the initiatives and the follow through, until this administration gets deadly serious about replacing decrepit infrastructure and embracing clean energy, Krueger's dead-on assessment of the problem penned earlier this year will remain a problem diagnosed and left untreated. And that will leave tens of millions of people mired in debt, decline and dismay.