Barone Charitably, and Mistakenly, Exonerates Summers and Romer

Michael Barone takes an admirable stab at the Obama administration's misreading of the economy. He thinks that the very smart economic team of Summers and Romer missed the difference between a classic business cycle recession and a financial panic-induced recession. This is a highly perceptive shot at it, as I myself have talked about this interpretation as all the difference in formulating investment decisions, but I think that Barone is off the mark. First, I don't think that Romer and Summers are all that smart - and when I say "not smart" I am not denying that these people are highly intelligent, I am saying that they were unsuited to the task. These were highly intelligent people unable to see what was going on a) because of their disciplinary biases, b) their perch in a top-down Democratic administration, and c) their disconnectedness from basic economic activity. They had multiple disadvantages that impeded their perception that they could not see , and that is why I think that they cannot be considered smart. Numerous people sussed out the essence of the financial crisis and the impending recession, and even offered advice, but the administration's economic team was blind to it all. Blindness is not a characteristic of smart operating. For example, here the administration wagered its future on the stimulus and the pumping of a trillion dollars into the economy and yet the putative geniuses Summers and Romer let the POTUS traverse the country spouting the rankest anti-business rhetoric we've heard since the days of "malefactors of great wealth." So a trillion dollars got flushed out into the economy (to dead people and bridges to fat pensions) while a trillion dollars of potentially productive capex got hoarded - a wash. A complete and utter wash and nobody told Obama, "Stop" or "Cool it." Not smart. Very dumb, actually. I won't even talk about ObamaCare. There is no way that Romer and Summers could have thought this would help, and yet they remained silent. If they didn't know the uncertainty itself, let alone the dead weight loss of compliance costs, would weigh heavy on the tenuous economy, they could hardly be considered smart. I could go on, but the point is made, the Obama administration didn't misread the economy, they didn't care. Yes, they had some Keynesian, old liberal hands who were predisposed to see the economy through a demand side lens and who overestimated the importance of the role of government, but they made fundamental mistakes which indicate that they weren't basing their program on sound economics.. They were ignoring reality and steamrolling over economic prudence in order to enact a once in a generation progressive policy dream. "Focusing like a laser on jobs" therefore can be considered one of the many great lies of the Obama presidency. They were never focused on jobs, never. The only focus was on their desires, their role in the change that they've been dreaming about for decades. Barone tries mightily, but I imagine even he is too much of an insider and a gentleman to call this what it is - a great big lie. A miss it is not, for if it was an innocent miss, Summers and Romer are guilty of malpractice.

UPDATE: Just to add, this is why I think savvier Obama supporters, like Mort Zuckerman, left the reservation alot sooner and did so voluntarily. He saw what was going on and he has his reputation in the private sector to worry about.

Speak for Yourself, Honey

Christina Romer makes an inauspicious exit to an inauspicious tenure as CEA Chair.

“To this day, economists don’t understand why firms cut production as much as they did, or why they cut labor so much more than they normally would,” said Romer. “The current recession has been fundamentally different from other post-war recessions… Rather than being caused by deliberate monetary actions, it began with interest rates at low levels… Precisely what has made it so terrifying, and so difficult to cure, is that we have been in largely uncharted territory.”

Speak for yourself sugar. Any businessman in America can tell you why firms cut production and labor as much as they did. Any housewife can tell you why "aggregate demand" has not revived. Only in the rarefied air of Obama's academic economic dream team are these things a mystery. No doubt every academic economist will maintain the strict code of collegiality (and political correctness - you can't tell a woman that she totally fucked up in a big job) and insist that Romer is a brilliant economist and still at the height of her profession, but the stark truth is that she has been a disaster and has squandered what credibility she had.

UPDATE: Wow, even Dana Millbank is depressed at how clueless Romer was/is.

On Obama's Economic Wrecking Crew

Over at Instapundit (which is now basically Instapundit & Co. wot with all the contributions from ED, SH, EPF, and MT), the Good Professor links to a Real Clear article saying that Obama's economists, namely Romer and Bernstein, doomed him with their failed models.  That may be true, but I've covered Romer's disastrous tenure before and to be fair to her, I don't think for a minute that she produced these models in good faith and believed in them.  I think she was told to make the models fit the narrative, to make them good sales tools for the Stimulus.  Democrats rolled 30 years of pent up policy frustration into the stimulus and Romer was told to give it an economic gloss.  She served her political masters well.

Finally, I actually don't agree that the stimulus will be decisive in dooming Obama if indeed he goes down as a one term President, but I do believe - and this might be worse for Romer and her ilk - that the stimulus's monumental failure may ultimately prove devastating to Keynesian economics.

Does Romer Understand How Ridiculous She Looks?

ADP is reporting that we've lost another 170K jobs. Meanwhile Christina Romer takes to the pages of the WSJ to 1) make the requisite laughable defense of the stimulus disaster, 2) continue to blame the Bush administration for a deficit that pales in comparison to what her boss is cooking up, and 3) spout some twaddle about incentivizing homeowners to make their homes more energy efficient. We've been over 1 & 2, suffice it to say that Romer should save herself the embarassment. As for 3...Great, let's spend a couple billion to insulate every last damn home in America (my brother-in-law would clean up - he's in the insulation biz), then what? Democrats seem to have said the words "green jobs" so often that they actually believe this is some sort of time-honored economic formula for prosperity, when it is actually the equivalent of taking away the ditch-diggers' shovels, handing them spoons and hiring more ditch-diggers. It is unbelievable that this clan can't shake their statist instincts in the face of persistent, overwhelming evidence that their micro-management is the problem.

I sure hope Romer is just a mouthpiece at this point and not a serious influence on policy. Otherwise we'll see that 12% unemployment rate I predicted very soon. Anyway, far be it for me to curse the darkness without...you know...so how about this or asking David Farr how we might create some jobs.

UPDATE: As expected, Obama's "jobs summit" looks to be more for show than for results. Typical.

Romer Has Drunk the Kool-Aid

I said previously that no economist would want their name attached to the Obama economic record. Christy Romer appears unconcerned about her reputation though. Also, she apparently has been in the White House exactly long enough to drink the Kool-Aid. Via Greg Mankiw, her report on healthcare reform and the budget deficit is typical of "blame Bush"habit of this administration:

"Finally, by far the lion’s share of the projected cumulative deficit is due to policy actions taken in the last Administration. Economists Alan Auerbach and William Gale find that policies from the last eight years that we failed to pay for, including cutting taxes, introducing a new entitlement program for prescription drug benefits, and fighting two wars, are contributing approximately $700 billion per year to the budget deficit."

Again, the data show that tax receipts soared in the years following the 2003 tax cuts. That spending outpaced receipts is a result of the failure to curtail spending in all aspects beyond the war. Yes, new entitlements were a cause of Bush era deficits. Ditto the failure to use the veto pen for out-of-control pork and earmarking. So the Obama administration is doing more (by a multiple) of what the Bush administration did wrong and zero of what the Bush administration did right, but somehow Obama's deficits are Bush's fault. The academic economics profession is too collegial to ever call out its bozos but Christy Romer is shaping up to be a disaster for the profession, someone who spouts nonsense to please her boss.

Changes Coming to CEA?

Greg Mankiw notes that the Council of Economic Advisors, in the absence of good results, is ballyhooing what great people work there. This seems like a) typical government/academic focus on process over result, b) self-congratulatory rubbish, or c) the bittersweet onset of preemptive nostalgia of a team that is about to be broken up. I'm guessing it's c (although this is not exactly like breaking up the Yankees after 2001). Romer can't hang on much longer. She has to be bitter that her integrity was forced through the meatgrinder of DC politics, but much of that is her own fault.

UPDATE: I failed to take a peek at the report that Mankiw cites, but via the guys at Say Anything, who never let anything slip by, I checked out the WaPo's coverage. You will rarely see a more stark admission of failure and defeatism than the notion that high unemployment is going to be a "fact of life" for the remainder of Obama's term. This is an admission the the now $860 billion stimulus was a failure, but also, more disturbingly, that Obama's team are flummoxed as to what to do now. Obama has three more years but they are resigned to high unemployment. They admit to no ability to improve the employment outlook. Stunning really. Frankly, I could give them just three or four policies that would unleash employment like a rocketship, but they are throwing in the towel. Why? (Australia is adding lots of jobs, Canada is creating jobs, what is wrong with us?) Are they wearing idealogical blinders and couldn't possibly fathom the role that tax cuts and deregulation might play or do they consider these not feasible politically? Now the most important question, if Obama's economic team doesn't think they can improve the employment picture, why don't they all resign so a new team can try...or why doesn't the Obama administration stand down and let someone else take over economic policy-making?

UPDATE: Wow, do I feel bad for Romer, she looks awful. Hey out of work Americans - you can now pay rent and put food on the table with something called "trajectory." Look at all that trajectory!!!

Again: Romer Should Resign

I've said that Christina Romer should resign. More evidence here. She's suppressing her own professional judgement for the political agenda of the Obama administration. She's done damage to the country, the economics profession and her own credibility. She should bow out.

Goolsbee Gone

No doubt other economists will greet this departure like they've greeted other departures from Washington DC (Christy Romer's comes to mind)...noting how brilliant such and such economist is thus how "unfortunate" their tenure in DC was. Well, here at NBfPB we are not so collegial. Romer was a disaster and Goolsbee was not much better. Here, Ed Morrissey hints that Goolsbee was pushing for a more private sector approach, but I find that hard to swallow given his performance spouting administration gibberish. The administration has been full stream ahead with an overt and aggressive anti-private sector approach from day one with no let up. If Goolsbee was somehow hoping for something else, he his hopelessly naive. I can assure you that Goolsbee would be basking the glow of success had the economic data been better. He gambled and now finds himself on a sinking ship, so he's out.

Romer Is Gone...Takes a Shot on the Way Out?

I've been beating the dead horse...Christina Romer has trashed her own credibility and has become an embarrassment. If it was the politics, she should have resigned long ago. And now she has.

Summers Out? Don't Let the Door Hit You...and Take Romer with You

The buzz is that Larry Summers is leaving the Obama administration. Two points. One, this would score another one for me in my prediction tally, putting me at 3 for 8 not halfway through the year. Two, if Larry leaves it'll be no surprise and I'll not shed a tear - he deserves the boot. There is no possible way that he thought (if he is as bloody smart as Mankiw makes out) the stimulus package, Obama's signature economic policy, would work and he should have counselled against it. Plus there are any number of detrimental economic policies coming out of this administration for which you could say the same thing and he sat and watched these policies roll out. Maybe the politics has run roughshod over economic policy, but if he felt politics was dictating bad policy he should have said so and resigned. He didn't and he therefore owns the policy, and should suffer as the policy fails. Ditto for Romer, who I've said before, has become a joke. The Obama administration has done everything it can to drive businesses to curl up in the fetal position and yet these two still cling to their silly government spending multipler story ignoring the many burdens piling up on businesses that create the jobs. It's embarrassing.

UPDATE: Just a little recent economic statistic: Consumer credit has plunged...apparently unexpectedly...really, unexpectedly???

Are There That Few Economists Left Who Will Defend the Obama/Pelosi Program?

Christina Romer was not content to embarass herself and trash her credibility while working for the Obama administration, she's insisting on keeping the jibberish flowing after she's left the scene.

Columbia Economists Embody National Debate

I have talked about Glenn Hubbard here and how, in the event of a Romney win in November, he could become the most important economist in America, and perhaps set an economic policy course that leads America out of the Obama wilderness.  Two maybes.  Today, Bloomberg has a nice little "clash of visions" type story contrasting Hubbard and his role in the Romney campaign with Columbia colleague and catch-all-liberal-go-to-Nobelist-who-is-not-Paul Krugman, Joe Stiglitz.

The article isn't earth-shattering, just more campaign fodder with a different twist, but it gives me the opportunity to mention once again that blame for the failed $800 billion stimulus of 2009 ought to be, but isn't, placed on the head of one Joe Stiglitz.  Christy Romer, Larry Summers and others take the heat (when any heat is apply, which it rarely is) for the disastrous at best/ineffective at worst stimulus, but more than anybody the stimulus was a reflection of Stiglitz's thinking.  He was Mr. Aid to States.  He went around during 2008 and 2009 talking about how we desperately needed to give massive federal aid to states to spur the economy.  And we did.  And it did nothing.  States pocketed the money and kept doing what they were doing.  Essentially, we federalized states' profligacy.  Has that enabled California to pull out of its fiscal nose dive, allowed Illinois to get a handle on its fiscal nightmare or obviated the need for the pain reforms that states are now making?  No.  None of it.  And it did nothing for economic growth.  The states that were booming are still booming and the states that were languishing are still languishing. 

So what the article should say, if it were to be really informative, is that we've had Stiglitzian economic policy for years now under Obama.  Despite that Nobel prize, it's yielded pretty miserable results.  Maybe we ought to give an alternate approach, Hubbard's approach, a chance.  We just may.

Krueger to CEA, So What?

I've been a little busy cleaning 1000 gallons of sewerage out of my basement, so I've not gotten a chance to comment on anything. When I heard that the Lightworker appointed Alan Krueger to be the new head of the Council of Economic Advisors, I had two reactions: 1) Oh, you mean the guy who found that demand curves slope upward, and 2) pretty much no matter who it is, Greg Mankiw will say it was a great choice.

Score and score.

Other bloggers have been combing through Krueger's scholarly work to amass hints and clues as to what Obama's future economic policy initiatives might look like. This is dumb and a useless exercise. Obama's economic policy initiatives will be standard progressive, big government, interventionist initiatives, Krueger notwithstanding. Why would anybody assume that Krueger will be any different from Christy Romer whose scholarly writing would have led one to believe that she would not have advocated a massive "stimulus" consisting of transfer payments and infrastructure spending? The head of the CEA may advise the President, but then he/she must turn around and sell/provide gloss to whatever policy the President decides to pursue. CEA heads do this because it is a plum job that is golden on one's resume and promises membership rewards in elite circles for the rest of one's life.

Doom and Gloom From the Experts

Over at SayAnything, avid NBfPB reader Bat One, picks up on a report out of Royal Bank of Scotland - hardly crackpots - that minces no words: doom and gloom are warranted. You won't get much of an argument out of me, I've been saying that we are skirting a Depression by the skin of our teeth but that we could well be headed there due to egregious policy mistakes (here, here, here, here, here, here and here). Obama and the Pelosicrats have done almost everything wrong in the sphere of economic policy and they have succeeded in beating the animal spirits of the US economy into a coma. And we are powerless, to wit we stand only a small chance of a reprieve from the latest policy blunder only due to the death of a 92 year old man. Without such an intervention of fate, a last minute add-on $19 billion bank tax would be sailing onto Obama's desk to be signed into law, representing just one more blow to the economy that we can ill afford. This wounded beast of a Congress and administration is thrashing about wildly, still able to take hunks of prosperity out of our hides when it connects. Hang on tight.

UPDATE: It is worth remembering what Nobelist Robert Mundell said would happen when we raise taxes on dividends and capital gains...nose dive.

UPPDATE: Allen Meltzer sums up nicely what I have been saying on this blog for almost two years now, Obama and the Pelosicrats have gotten nearly everything exactly wrong on economic policy - the stimulus was never going to be anything more than an expensive waste, our leaders have absolutely chilled the entrepreneurial spirit with both legislation and rhetoric, and tax and fiscal policy is sucking resources out of the private economy. They've done, literally, nothing right. Romer, Summers, Bernstein, Goolsbee, Furman...the whole sorry lot have botched it to the point of malpractice. If it was the politics then they should have resigned in protest.

UPPPDATE: I almost forgot that Obama-supporter and voter, Mort Zuckerman has been mincing no words for ahile now about Obama's economic policy program. Niall Ferguson makes an appearance too. Recent reports have Dick Fischer talking about how "regime uncertainty" hurts job creation. There is a chance that these voices are just now coming to the surface and will be absorbed and acted upon by the White House and Congress. Just a chance mind you. My belief is that these voices, if they've even gotten through the highly cloistered walls of officialdom, have been saying this for some time and the White House has simply ignored them because 1) they simply don't jibe with their idealogical bent or 2) they actually don't think that the terrible jobs picture will hurt them in coming elections or in 2012.

Brilliant Economists??

Here is something I have pondered. Barack Obama has some young hot-shot economists as his advisers, who did yeoman's work stumping for BO during the campaign making BO's economic policies sound reasonable. Well, the scale and scope of BO's economic policies are turning out to be truly atrocious and stand in stark contrast to the reasonableness laid out over and over by Jason Furman and Austin Goolsbee. Greg Mankiw highlights this contrast today in this post. Also, throughout the campaign, Mankiw (as is his manner) vouched for these two economists as nothing short of brilliant, even though they do not share similar political affinities. So how could these brilliant economists say all this stuff that could never have been true if the policies then contemplated are the policies now on the table? Were they lying? Were they just wrong? Did Obama use them to mask his policy goals? I suspect they were naive. Most likely they actually thought that you could craft reasonable policy towards a certain goal, like healthcare reform, but were clobbered over the head by reality that nothing reasonable or sensible comes out of Washington (especially a Washington run by crypto-insane medocrities like Nancy Pelosi) once they got into office. So why don't they resign or speak out? Same with this Romer gal. She did academic work touting tax cuts over spending, but she still got out there and stumped for the $787 billion dollar porkulus dud. Something is amiss here. These economists are either not as brilliant as their colleagues claim or are somehow incredibly naive to a point that calls into question their common sense. Or they are blinded by the ambition of holding one of these plum, high-profile jobs in a presidential administration. Either way, these people need to be seriously called out onto the mat. Why is the policy we are getting nothing like what they described to us and why are they still working for an administration that has made them look like fools, willfully or otherwise?

UPDATE: Mankiw notices this happening again.

After Rats Leave, the Ship Still Likely to Sink

Paul Rahe, no amateur observer of the political scene, puts Christina Romer's departure in context. I should have commented further since I have been saying she should go for some time. Anyway, Rahe clearly thinks what is happening is #2 on the world famous NBfPB Obama Unravel Path. I do too, naturally. The conspicuous avoidance of Obama on the campaign trail is further evidence. My very early call on businesses essentially hiding out in the face of a war on business launched by the Obama administration and the Democrats is now officially accepted thinking, and I don't see much room for improvement - nobody in business thinks Obama and the Pelosicrats are going to wake up one morning, understand the consequences of their destructive policy and shrill rhetoric, and reverse course. So businesses will stay hunkered down and wait it out until new cards are dealt in Novemeber, although I would caution not to see November as a sufficient event regardless of what happens. Even if the Republicans make significant gains, the nation will have only stopped the momentum of destructive policy (any maybe not even then, as it depends on what kind of Republicans take over). We need to turn back and go a good distance the other way on economic policy before we see any robust improvement. For that, we may need to wait until Obama is history. I don't see an Obama White House working constructively with a Republican House and/or Senate to move back toward freer markets and smaller, less onerous government. So we could have two years of a muted gridlock that, while welcome, is still overshadowed by another looming all-important election, that of 2012.

Repeating the Mistakes of the Great Depression

This is simply terrible economic policy. If Summers, Romer, Goolsbee and other various Obama braintrusters aren't strongly advising the President against this, they are professionally negligent. If they are and Obama isn't listening, he is negligent.

UPDATE: In the name of fairness I must note that George W. Bush, just as stupidly, imposed tariffs on imported steel. The only thing that makes the two tariff impositions different, and the Obama version slightly more damaging, is the timing. A trade war right now, the given the global economic environment, would be much more damaging than in 2004.

Obama Last Guy in American that Thinks Stimulus Worked

Obama thinks the stimulus worked. He even said that "the vast majority of economists are convinced, that the steps we took in the Recovery Act saved millions of people their jobs."

Oh yeah? If it was so wonderful why did Summers, Romer, Orszag, Bernstein and Goolsbee - stimulus advocates all - quit rather than bask in the success of their policy creation? Also, what of the five prominent economists noted here that have already publicly stated that the stimulus was a waste of money?

In fact very few economists believe that the stimulus worked. Most acknowledge that the stimulus was largely transfer payments to states who used the money to temporarily plug the holes in what are widely seen as unsustainably large deficit budgets. So yes, the stimulus kept the government employee gravy train motoring down the tracks awhile longer, but nobody equates this with fostering the long term health of the economy.

In my view, even if the stimulus could have possibly worked (which I believe it couldn't have), it was neutered by the damaging rhetoric and policy agenda of this President and the Pelosicrats as I have noted here. What the stimulus offered with one hand, the poisonous anti-business stance of Washington DC caused to be withdrawn by the other hand. For all their purported expertise in Keynesian economics, they were ignorant of what Keynes dubbed the "animal spirits" of the economy, which they have succeeded in thoroughly and relentlessly crushing. Obama's economics is all wet here. Perhaps because there's nobody left on the economic roster at the White House.

Markets Rising On Obama's Stumbles?

I think so. Markets might be sighing relief at a weakened executive. President Obama is by no means weak but he is losing relative strength.

1) The parade of his nominees that are bedeviled by tax problems is highly embarassing and the Daschle loss is a big one. One tax scofflaw who made it through, Geithner, is arguably Obama's most important appointee and is under a cloud. A heroic performance is needed out of Mr. Geithner to salvage Obama's cabinet line-up. (It will be interesting to see if the smoothest sailing nominee gliding into office turns out to be Republican Judd Gregg. This could be interpreted as a bipartisan triumph of new Washington under Obama, but I doubt that's how it will be looked at - Dems will be bitter that the Mr. Clean in Obama's cabinet is a Republican, and the far left will just puke at the thought of Sec. Gregg.)

2) Right out of the foreign policy gates, Obama has given Iran a chance to demagogue against the US. If this isn't a free "Save Some Face" card that is accompanied by backroom hardball, well, it constitutes another embarassment. We'll see, but the optics stink.

3) Obama's base already seems to be wise to the fact that they are being thrown bones without alot of meat on them. Guantanamo, "Don't ask, don't tell", CIA renditions - all seem like they could be "policy" but are really just a giant TBD.

4) The stimulus vote in the House was a mini-disaster for Obama. Through sheer stupidity, the Senate Republicans could allow Obama to snatch victory from the jaws of defeat, but they still have a chance of rebuking Obama's call for bipartisanship and making it look like just what it is, an empty plea with no leadership. Obama has an all-star economic team, but it looks as if his team wasn't allowed within 4 counties of the room where the stimulus package was put together. People are scratching their heads; they see no Summers, no Romer, and no Furman fingerprints on this thing at all. This isn't in Obama's loss column yet, but it could be. (UPDATE: Apparently, Obama's all-star line-up of economic heavyweights hasn't even met yet. So, Obama is trying to ram this thing down the nation's throat, but his economic best and brightest haven't even gotten together? Hmm.)

5) Obama is ratcheting up the populist rhetoric against banks and bankers. He may be just playing to the crowd but he has to be careful here. All this rhetoric combined with the serious calls for bank nationalizations spooks the business community. If these bankers and enough business leaders decide to hide under their desks for four years, Obama is a one termer. Already, GE and Caterpillar are having to mobilize against the protectionist elements of the stimulus (and they have European politicians joining in). There will be many more who join this fight. Obama needs the business community, but he's not starting off well.

Finally, and this is not a blunder but rather a fundamental flaw, Obama's legislative support is only as good as his public sheen. The reason he had to stack his administration with Clintonites is that he had no decent network to speak of. His limited experience in government, and life actually, has left him lacking in broad and deep connections to people who can achieve things and stand by him. His quick rise to popularity and electoral promise has attracted a cadre of government and business types to fill the ranks now, but they do so for the sake of Democratic power in and of itself. Does anyone think that previously loyal Clintonites/now Obamites will stay loyal if the bloom starts to come visibly off the rose? I truly wonder how much uphill sledding those around Obama now are prepared to endure. I guess some, but not much.

Directionally, I think this is all fairly obvious, but what matters is magnitude, which I can't estimate. If Obama's stumbles continue and are big enough, the massive expansion of government that is disguised as economic stimulus could run aground. I think the markets have a slight sense of this and are perking up at the thought that we aren't necessarily going to ride a wave of populism to monstrous government intervention in the economy. Bottom line, investors think Obama will be capable of alot less damage than they had originally feared, and the market is reflecting this cautious optimism.