The Best, the Brightest, and the Least Arrogant

Over the last 24 hours, President-Elect Obama has announced his new economic team. What do they all have in common?

Retreads from the Clinton Administration? Rubin protéeacute;géeacute;s? No, not all.

Friends of mine? Well, yes. As it happens, they have been friends, for 12-to-30 years. (god forgive me. There is no greater turnoff in a column than an author who thinks it’s “all about me.” On the other hand, this isn’t a column. It’s just my personal blog. So what the hell.)

Yesterday, President-elect Obama formally introduced Larry Summers as his choice for Chair of the National Economic Council and Tim Geithner as his choice for Treasury Secretary. Both excellent choices.

At the same time, he introduced Prof. Christina Romer as his choice for Chair of the Council of Economic Advisers. Christie was my colleague for 20 years in the Economics Department at the University of California, Berkeley; she and her husband David Romer form a team who were my favorite daily lunch companions during that period. Although this is her first policy job, she is another excellent choice. She, together with Fed Chairman Ben Bernanke, have the added bonus of being among the world’s top experts in the monetary history of the Great Depression, an expertise that is of unexpected benefit at the current juncture.

Today, Obama also announced Peter Orszag as his choice for Director of the Office of Management and Budget. In 1996, when I arrived at the Council of Economic Advisers, Peter was a Senior Staff Economist at CEA, working on international economics. Even then his extraordinary abilities had made him indispensable to top officials. He was the sort of person who rises very quickly in a merit-oriented government: not just extraordinarily smart, but able to get lots of things done very quickly and very well. When Peter returned from a quick spell at the London School of Economics (finishing his doctoral degree), he moved to a key position on the National Economic Council staff. More recently, he has been director of the Congressional Budget Office. This position at the Capitol Hill end of Pennsylvania Avenue is the counterpart to the OMB Director job at the White House; thus Orszag will “hit the ground running” with respect to the budget, in the same way that Geithner will with respect to the financial crisis.

Irrelevant gossip: At the height of the East Asia crisis in 1998, I hosted a party in honor of Peter Orszag. The party is mentioned in Paul Blustein’s The Chastening (which remains the book that gives the best blow-by-blow account of the East Asia crisis), because Joe Stiglitz took Stanley Fischer outside on the doorstep to voice in person the critiques of the IMF’s management of the crisis that he had been making in public. The reason they went outside was so that Larry Summers, who was managing the crisis from the Treasury, could not hear them inside.

No, the reason that Obama chose this team is that they are The Best and Brightest and The Least Arrogant. As he says, the American people want effectiveness.

The phrase “The Best and the Brightest” comes readily to mind because their IQs are off the chart. After 8 years of the current President and his appointees, I hope that the American public, despite its understandable anti-elitist bias, understands that intelligence and ability do actually matter.

But IQ in an academic sense, by itself, is a very incomplete qualification for higher office. Many university professors are famous for being as bad at social skills, personnel management, openness, and humility as they are smart – all abilities which are just as important in policy making. Indeed, the phrase The Best and the Brightest comes from the famous book by David Halberstam, where the phrase is meant ironically since the Kennedy brain trust screwed up so badly in Vietnam. The McNamaras were arrogant in the same sense as Cheney and Rumsfeld: when reality diverted from their pre-conceptions (whether in Asian wars or other policy areas), they stubbornly refused to process the discrepancy and to adjust course. But the Obama team is different. It is The Best, the Brightest, and the Least Arrogant. With one possible exception, these people have no ego, no rough edges. They are not close-minded or stubborn. They are not ideologues. They will scoop up facts and arguments, on all sides of a policy question, before making a decision; and even after a decision has been made, they will monitor new information as the situation develops and adjust course when necessary. These traits, more than anything, has been missing from government in recent years.

Many will object to this description with the observation that Larry Summers is famous for being arrogant. Summers’ arrogance is a little overdone, compared to some others I could name. But it is true that Larry’s personality is not ideally suited for the traditional job description of the Chair of the National Economic Council, which is to be an honest broker (in the classic phrase of Roger Porter’s early description of the proto-position). The NEC manages the decision-making process in the White House. It must make sure that every agency feels that its views have been heard and fairly represented to the president. (“Agencies” here means not just cabinet departments like Treasury, State, Commerce, Labor, Agriculture, HHS, etc., but also White House agencies such as CEA, OMB, NSC, etc.) It is evident that Larry was given the title of NEC Director so that he could have the status of Principal, which means he gets a seat at the table in cabinet-level meetings, as opposed to having to sit in the row behind, where the top aides sit. I am sure that Obama realizes that Larry is not perfectly suited to the honest-broker role. (The same was true of Larry Lindsay, who was fired from the NEC Director position by George W. Bush not just because he correctly forecast that the cost of the Iraq war would be higher than the official line. He did not have a lot of interest in running the policy process, and was rather more interested in expressing his own views to the President, as compared to his more bureaucratically inclined successors.)

Not to worry. The Wall Street Journal has evidently reported that the NEC will have Jason Furman as Deputy Director. Jason, who has been Obama’s Economic Policy Director during the national campaign, could not possibly be better suited to the job of running the policy process as an honest broker. He is a young version of the others: brilliant, tireless, non-ideological; no ego, no rough edges, a team player. I know. He worked for the CEA in 1996 and 1997.

The Best, The Brightest and the Least Arrogant. Current conditions are so bad it would be foolish to make an optimistic prediction about economic performance over the coming years. But I will make the prediction that this team will function like clock-work, and give the country the most capable economic policy making it has had in many a decade.

Tim Geithner As Treasury Secretary: A Man Who Doesn?t Lose his Cool

News services reported today that Tim Geithner, currently President of the Federal Reserve Bank of New York, was President-elect Obama’s choice to be Secretary of the Treasury. The markets reacted very positively to the news. This presumably captures both relief that some policy uncertainty has been resolved at this critical juncture and approval that Geithner is the man chosen. I share the pleasure at this appointment.

Tim Geithner is refreshingly straightforward and personable, and doesn’t “stand on ceremony.” At the same time, he is cool and unflappable. By coincidence, the Economic Advisory Panel to the NY Fed President, of which I am a member, met today. Unusually, Geithner excused himself at two points in the four-hour meeting to take short phone calls. Given the timing, it seems very likely that one of the phone calls was Senator Obama offering him the Treasury position. These Panel meetings are off the record, but I think I am not betraying any confidences to report that Geithner betrayed no sign to us of what had just happened. No change in demeanor, no change in the substantive flow of the discussion. This is a guy who does not lose his cool. Just what the country needs.

My Guess: Larry Summers will be Chosen Treasury Secretary

Everyone speculating on President-Elect Obama’s most likely choice for Secretary of the Treasury has the same two names: Larry Summers and Tim Geithner. I have known them for a long time, and worked with both in the Clinton Administration. Either one would be excellent. Geithner is now way ahead in the Intrade odds: 45% to 27% as of November 14. But my guess is that Obama will go with Summers. For one thing, Geithner is needed at the New York Fed, where he has been one of the key players managing the financial crisis.

They are both said to have baggage that might disqualify them. I disagree. Some say Geithner is tarred by association with the Bush Administration, because he has been working with it on the financial crisis. But his position is non partisan, and some continuity managing this crisis is desirable. More to the point, it was in the Clinton Administration —under Larry Summers – that Geithner rose from obscurity to prominence. Some say that Obama should not choose either of them, precisely because they are associated with the Clinton Administration and he campaigned for change. But that is the most absurd argument of all. We need somebody experienced in this job. The sort of competence these two showed at the 1993-2001 Treasury, especially at crisis management, and the track record of that Administration, is what we want to change to, not what we want to change from. All the economic indicators improved during the Clinton Administration, as surely as they have worsened since then: employment, growth, inflation, budget balance, poverty, and so on.

Most sensationally, Summers is said to be tainted by his time as President of Harvard. Too much has already been said about this. But I will make just a couple of observations. First, although Summers may not be Mr. Personality, and he will never be elected to high office nor chosen to head offices for women’s rights or the environment, he has all the most important qualities for the Treasury job. Despite a tendency to say what he thinks, I don’t think he committed any true faux pas or became involved in any mini-scandals during 8 years in the government — no easy feat. (The closest he came to a faux pas, or what counts for one in the media, was a statement that the argument for abolishing the estate tax was based on greed rather than efficiency — a statement that he quickly retracted without bothering to try to explain what he had meant, having already by then become familiar with the rules of political brouhahas.) In his time in Washington, he learned how to get along with politicians across the spectrum, from socialists to the far right. It’s true that he wasn’t able subsequently to get along with the full range of faculty in the Harvard English Department, but that is a tougher task.

Finally, I continue to be surprised at how the press describes Summers’ ill-fated and ill-considered (but “off the record”) remarks regarding explanations for the lack of women in academic science departments. He is most often reported as having suggested that women generally have less aptitude for science than men. I link to the text here, and urge readers to make up their minds for themselves. But I don’t read his speculation about the various hypotheses quite the way many people have assumed. To me the outrageous line in the remarks was, rather, the suggestion “that no economist who had gone to work at the President’s Council of Economic Advisers for two years had done highly important academic work after they returned”!

A Few Tax Policy Suggestions for Our New President

President-elect Obama

Three areas that our new President will have to address during his term in office are the recession, energy and the environment, and the long-run fiscal outlook. The recession is the most urgent. But the long-run fiscal outlook will be the most difficult. Social Security and Medicare would have made addressing the long-run fiscal outlook difficult in any case. (Did you know that the first baby-boomers are starting to draw Social Security this year?) The Bush tax cuts of 2001 and 2003 made it worse. The rapid spending increases of the last eight years made it still worse. The financial crisis and recession are now making it still worse. To be clear, fiscal stimulus today is appropriate, given the weak economy. The trick is to combine it with the minimum damage to future budgets.

I offer some recommendations to the new President regarding tax policy that address all three areas simultaneously:

  1. Make clear the intent to let the Bush tax-cuts-for-the-rich expire in 2011 as scheduled. No, the Republicans can’t legitimately claim that this would be a tax increase, because their budget projections (remember, the projections that said we were going to have a budget surplus by 2011) have always built in the assumption that these tax cuts would expire. This plan will help maintain some semblance of long-term fiscal responsibility and therefore help keep long-term interest rates low, which one hopes will have the Rubinomic extra benefit of promoting investment.
  2. Give the 90% or 95% of American workers who don’t make the highest incomes a tax cut now, as Barack Obama talked about in the campaign. This is good for incentives, good for distribution, and good for boosting demand which is what we need in the short run.
  3. 3. Take steps to raise future tax rates on fossil fuels, including gasoline. This would accomplish lots of objectives:
    1. raise much-needed revenue in the future (or else help finance those reductions in tax rates on lower-income workers),
    2. enhance national security by reducing dependence on imported oil
    3. improve the trade balance
    4. reduce emissions of greenhouse gases, particularly in the future by sending the right price signal today
    5. reduce local air pollution, traffic congestion, and traffic accidents.

In the past, such tax proposals have always been considered political suicide. But here are two ideas to reduce political resistance: (i) put a floor under domestic prices of fossil fuels at current levels, by making up any future falls in world energy prices by means of taxes; (ii) respond to any future major national security setback, if it were to occur (god forbid), by asking Americans to do their part toward sacrifice in the form of energy conservation. Since the responses tried by the Bush Administration to the tragedy of 9/11 didn’t work very well (invading an irrelevant country and telling Americans to go shopping), the public may be open to an intelligent response next time.