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Which Obamanomics?

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Regardless of your political affiliation and how you feel about the election results, you will probably agree that yesterday was truly a historic day for the nation, electing for the first time an African-American president.

As Senator Obama prepares for the task of governing the nation, a key question is what kind of economic policy will characterize his administration. The last time a Democrat was elected to the White House the answer was anything but clear. For when Bill Clinton took office there were three competing economic camps, each vying to get their views heard and policies adopted.

The Rubinomics camp (named after then National Economic Council Director, and later Treasury Secretary, Robert Rubin) advocated fiscal discipline as the core of Clintonomics. Public investment - and certainly public spending - was to be put on hold.

The liberal neo-Keynesian camp (personified best by the views of Labor Secretary Robert Reich) was more focused on policies to directly help workers, such as universal health insurance, better unemployment insurance policies, and higher minimum wages.

Finally, the innovation economics camp (personified best perhaps by Ira Magaziner, who initially led the failed health care effort, but who later became the administration's "Internet tsar") focused on public investments and other policies to spur innovation, including in the Internet and e-commerce space.

This is not to say that there were not areas of agreement between these three camps or that certain individuals might find themselves sympathizing with more than one group. But it is to say that there was not one unified approach to economic policy.

Sixteen year later, these divisions and tensions have not abided, and an Obama administration is likely to be as divided over them as the Clinton administration was. Different camps within and outside the administration will pressure the new President to adopt their ideas and policies, and by definition this will mean that some policies gain and others lose.

In some ways it boils down to a fundamental question: what economic doctrine will "Obamanomics" be based on?

Will it be Rubinomics with its focus on fiscal discipline and reigning in spending? Given the fact that Bob Rubin himself has admitted that this time around fiscal discipline should not come at the expense of needed investments (although what exactly is spending and what is investment is never made all that clear), it's not likely that Rubinomics will dominate an Obama administration the way it did the Clinton administration. But given that many of the key advisors on the Obama economic team, including Jason Furman, (former director of the Rubinomics-based Hamilton Project) are followers of "Rubinomics", this belief that keeping government deficits under control - even at the expense of expanding investments in innovation - is a key to growth, will likely be at least a moderate influence.

Will it be neo-Keynesianism, with a focus on significantly expanding federal outlays on areas like tax cuts for people making less than $200,000, expanding health care coverage, expanding retirement savings, and implementing much more stringent regulation, including in sectors outside the financial services industry? Given the fact that these and other similar priorities have been at the top of the wish list of many in the Democratic party and many core Obama constituencies, the new administration would be hard pressed to not make these areas a centerpiece of their economic policies.

Or will it be Innovation Economics, with its focus on expanding public-private partnerships to spur productivity and innovation, through measures such as the R&D tax credit, funding programs to spur digital transformation in areas like health care, transportation and education, and expanded support for research (including energy R&D) and programs to spur competitiveness? These are areas that the Obama campaign highlighted over the last year, and it is likely that at least some of the people appointed to key administration posts will at least be moderately, if not strongly, supportive of them. But driving an innovation economics agenda will require the Obama administration to make some tough choices (e.g., should federal monies go to expanding federal research and creating a National Innovation Foundation or instead to social spending), and it's not clear that innovation will win out.

Only time will tell what "Obamanomics" turns out to be. We can however, not only hope but also work to make sure that "Innovation Economics" and an innovation economics agenda is a central part of it.

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