Wednesday, November 26, 2014

A Man Without a Plan

NEW HAVEN – During the United States’ recent presidential election campaign, public-opinion polls consistently showed that the economy – and especially unemployment – was voters’ number one concern. The Republican challenger, Mitt Romney, sought to capitalize on the issue, asserting: “The president’s plans haven’t worked – he doesn’t have a plan to get the economy going.”

Nonetheless, Barack Obama was reelected. The outcome may reflect the economy’s slight improvement at election time (as happened when Franklin Roosevelt defeated the Republican Alf Landon in 1936, despite the continuing Great Depression). But Obama’s victory might also be a testament to most US voters’ basic sense of economic reality.

Economic theory does not provide an unambiguous prescription for policymakers. Professional opinion in macroeconomics is, as always, in disarray. Because controlled experiments to test policy prescriptions are impossible, we will never have a definitive test of macroeconomic measures.

Romney had no miracle cure, either, but he attempted to tap into voters’ wishful-thinking bias, by promising to reduce the size of the government and cut marginal tax rates. That would work if it were true that the best way to ensure economic recovery were to leave more money on the table for individuals. But the electorate did not succumb to wishful thinking.

The idea that Obama lacks a plan is right in a sense: nothing he has proposed has been big enough to boost the US economy’s painfully slow recovery from the 2007-9 recession, nor to insulate it from shocks coming from Europe and from weakening growth in the rest of the world.

What Obama does have is a history of bringing in capable economic advisers. Is there anything more, really, that one can ask of a president?

And yet US presidential campaigns generally neglect discussion of advisers or intellectual influences. Although a president’s advisers may change, one would think that candidates would acknowledge them, if only to suggest where their own ideas come from; after all, realistically what they are selling is their ability to judge and manage expertise, not their own ability as economists. This time, too, however, there was no mention by name of any deep economic thinker, or of any specific economic model.

Obama originally had a wonder team of economic advisers, including Lawrence Summers, Christina Romer, Austan Goolsbee, and Cass Sunstein. But they are gone now.

Today, the most powerful economic adviser remaining in the White House is Gene Sperling, head of the National Economic Council (NEC), the agency created by President Bill Clinton in 1993 to serve as his main source of economic policy (somewhat shunting aside the Council of Economic Advisers). Because this position does not require Congressional approval, the president may appoint whomever he wants, without having his choice raked over the coals in the US Senate. That is why Obama could appoint the highly talented but politically unpopular Summers, the former president of Harvard University.

Sperling is not nearly so well known as Summers. But his record of influence in government is striking; indeed, he has been at the pinnacle of economic-policymaking power in the US for almost a decade. He was the NEC’s deputy director from its beginning in 1993 until 1996, and its director from 1996 to 2000. Obama reappointed him as head of the NEC in January 2011.

His 2005 book The Pro-Growth Progressive contains many ideas about how to make the economy perform better. None is grandiose, but together they might help substantially. Some of these ideas found their way into the American Jobs Act, which might have had some real impact had Congress passed it in 2011.

The AJA embodied some of what Sperling describes in his book: subsidies for hiring, wage insurance, and job training, as well as support for education and early learning. Moreover, the AJA would have offered some balanced-budget stimulus – the kind of stimulus that would boost the level of economic activity without increasing the volume of government debt.

But the public, despite its concern about unemployment, is not very interested in the details of concrete plans to create more jobs. Sperling is just not very visible to the public. His book was not a best seller: in commercial terms, it might be better described as a dud.

Sperling is fundamentally different from the typical academic economist, who tends to concentrate on advancing economic theory and statistics. He concentrates on legislation – that is, practical things that might be accomplished to lift the economy. He listens to academic economists, but is focused differently.

At one point in his book, Sperling jokes that maybe the US needs a third political party, called the “Humility Party.” Its members would admit that there are no miraculous solutions to America’s economic problems, and they would focus on the “practical options” that are actually available to make things a little better.

In fact, Americans do not need a new political party: with Obama’s reelection, voters have endorsed precisely that credo of pragmatic idealism.

Read more from our "Four More Years for Obama" Focal Point. 

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    1. CommentedWaleed Addas

      For any successful progress - be it for nations, governments companies, individuals, there are a number of P's that must be followed. They apply to all walks of life and I think Obama or any other may like to consider making use of them:

      Precepts: the do's and don'ts (the value system, principles and the constitution)

      Perception: to have a vision that stems out from the above precepts

      Plans/Programs: to develop strategic plans and programs that come out from the above Vision

      Policies: to have them aligned with the above precepts

      Processe: delegate and hold accountable for results

      Products: to make a difference in peoples lives

      Price: without corrupting the resources or the climate

      Performance: If you cannot measure it then you cannot manage it!

      Perseverance: in all the above as one can never fool himself/herself.

      Food for thought!

    2. Commentedphilip meguire

      This election was not about economic policy because I submit that the Great Recession is over. The employment population ratio has been declining since 2000 and is now where it was in 1978, seen at the time as a normal year for the American economy. Americans broadly accept that out of every 13 jobs in existence in 2006, one is gone for good. Most Americans can get by in the current labor market but for one thing: mortgage commitments, undertaken between 1998 and 2007, that they can no longer afford.

      About 40% of American voters are committed conservatives: their value judgements are grounded in private property, free enterprise, traditional marriage, and church membership. For them, fiscal policy is low tax rates and a mild and procyclical budget surplus. Employers should enjoy a maximum freedom to hire and dismiss, and a minimum of labor market regulation. The employee's best friend is thought to be a competitive labor market.

      About 40% of American voters are committed Democrats: their value judgements are grounded in personal freedom in all dimensions but the economic one. They advocate for a fiscal policy is strongly procyclical, one that also involves income redistribution via taxes and transfers. They welcome a variety of labor market regulations, and the employee's best friend is seen to be labor unions and a benevolent and paternalistic Federal govt.

      About one fifth of the electorate sits between these two camps, and this is where the median voter lies. A Presidential campaign is an enormously expensive appeal for the support of this elusive median voter.

      Two facts. Obama carried in 2012 every state he carried in 2008, except Indiana, North Carolina, and Omaha NB. (2) Nearly all rural counties were carried by Romney; Obama ran well in urban areas and college towns. To me, it is quite clear that there are two clashing visions of what American is and should be. One vision is a traditional small town one, where many people are entrepreneurs and many businesses process things. The other is an urban one, where most people are employees, and many jobs involve the shuffling of abstractions by relatively educated people. A growing fraction of urban residents lacking formal education are unemployed or out of the labor force. This is a story that has been unfolding since the 1970s, and nobody, including Obama, knows what to do about it.

    3. CommentedPatrick Kelley

      You mention that Gene Sperling pursues practical things to lift the economy. As the owner of a small manufacturing business my greatest concern is access to capital (not loans, but equity.) I read the entire American Job Act. The only item in it that I found to be of value was "Crowd Funding". I have no need for educated employess if I can not purchase machinery with equity capital. Perhaps Mr. Sperling could give some thought as to how to recreate the equity market for small businesses. We need a better answer than "Crowd Funding".

    4. Commenteddan hitt

      Surely the elephants in the room are our hundreds of foreign bases and multi-trillion dollar wars.

      These must have an enormous (and negative) economic impact if only because of their size. But more than that, they divert limited engineering and scientific talent from productive uses to utterly non-productive uses.

      I think we need look no further than to China, whose military spending is a tenth of ours, but whose economy is approaching and will surpass ours soon.

      If we can't close some bases and mind our own business a little more, we are sure to be in the same bad spot---if not worse---in 2016 that we have been for the past several years.

        CommentedAidan Kelly

        Dan, your point has to be made and I agree. US foreign policy is an area, one area, that needs to be reformed if the US is to balance its budget. A lot can be said about that - yes no yes no - pros cons pros cons - i think that we have to accept that the majority of US citizens accept more power overseas as a trade-off for an unbalanced budget either than or they are not concentrating. There is another point, the world has changed. What was a recipe for a balanced budget in the 50-60-70s is not the same as it is now. Both Europe and the US are struggling to change the mechanics of their economy. Adjustments are needed. People want them too. I agree with Robert Shiller that the leaders of the policy tanks should be recognised as having a significant contribution to make and that its people like Obama who are willing to take the "best" solutions from the conga line of experts. My terminal thought is what has prevented the political, institutional and voting side of economic management to lag so far behind the game? I think it has been the dominance of the too-right middle ground majority who failed to recognise that an efficient, diverse and strong internal economy is important and that to do that you need to look after people and value them and train them and look after their health. Vigour is the key. The US has lost some of its all round vigour due to its focus on external indicators (foreign affairs and GDP) and not the bedrock of the economy - people.

    5. CommentedMukesh Adenwala

      I wonder if selling of non-performing assets on the books of the banks by lottery system would help the economy. Prices of foreclosed houses can be decided and declared; lottery tickets for the amount can be issued; and a draw can be held once the amount has been collected by issue of lottery tickets. I think there would be more than 10,000 buyers of lottery ticket of $10 each than a single home buyer for $100,000. If it works, the banks would clear their books of the assets and even of derivative contracts. If this plan is successful then the virtuous cycle may start once again much sooner than is presently envisaged.

    6. CommentedAnthony De Orio

      Congress as a collective body has failed not the President. The Republican Party with its rigid right-wing extremism has rendered the party unrecognizable, useless and obstructionistic. The President does not control Congress. Congress is too comfortable and cozy with its subsidized healthcare, nice salaries, pensions. Something must be done by peaceful protest and voting.

    7. CommentedRavi Bhatta

      There is a risk of another four years of lame duck presidency. I think Romney was in a better position to move legislation with republicans holding the congress. Barack Obama is no doubt a decent person, but his rhetoric and excellent speaking skills are matched by his leadership skills. Till he shows his ability to make deals with republicans and make things happen, he can't deliver on any of the promises.

        CommentedJames Edwards

        I think you are mistaken that Romney would have move legislation with the Republican holding Congress because we have a bi cameral legislature and right now the rules of the Senate requires 60 votes (2/3) to advance legislation. The Republicans have utilized the filibuster far more than they did in 1950, 1960 & 1970 combined because they are angry that they lost the White House to advance their agendas. They took to the next step is obstruct like they did when Clinton was President (there are so many similiarity to what happened to Obama)
        Lastly I found it hoot that Romney made so many promises that they were unmatched with what is realistically going on and many required Congressional approval.

    8. CommentedCarol Maczinsky

      Obama is deadlocked by Congress, so the only thing he could do is world politics/war keynesianism. Syria, Iran and then Asia.

    9. CommentedProcyon Mukherjee

      ‘Leaving money on the table’ kind of simplistic idealism has passed, there is in fact more money locked in corporate balance sheets as never before, while the general public continues to deleverage as well. So where does it leave us, fiscal actions directed merely to increase spending would take us to the same original problem that monetary easing had not been able to solve, creation of new jobs.

      With a clear mandate, the Presidency must now get the act of putting the best team together, non-partisan in approach, to direct money towards investments (both government and private), after the crucial challenge of understanding from where it will come from is settled once and for all (as far as the government spending is concerned).

      Procyon Mukherjee

    10. CommentedZsolt Hermann

      Although it might sound paradoxical today a politician without a plan is the best leader.
      This is because a plan means some personal agenda based on previous experience, previous knowledge or tool-set.
      But in today's, new global, interconnected and interdependent system we can throw away all our previous knowledge and tools, because they simply cannot work, as all conditions changed.
      All the previous tools and methods worked based on an angular, fragmented, polarized reality with different markets, different regions, nations, cultures, enemies and foes, but in a fully integrated network where each element depends on the other such previous practices became destructive, and this is exactly what we are seeing with each passing day of the crisis.
      The main problem with Presidents elected for second term is that they start working on their "legacy" trying to stamp their authority, their ambitions on the world preparing to enter the history books.
      This is the worse kind of attitude in a global system.
      The right attitude is to come empty handed, try to feel the total system first, understand its laws and principles and then start to harmonize, guide the whole system into its most optimal, balanced state.
      Of course no single person can do it alone, this is another key feature of our new world system, but based on the size of the US's influence, the American President can still play a significant moderating role in the process.
      We can only hope that instead of a prideful man chasing history the President will become a servant of the system as leaders are supposed to be in an ideal world.