Who are Obama’s economic team?

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November 25, 2008 @ 6:48 UTC

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Candidates:
Barack Obama
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Economy & Trade, Government & Politics
 

Written by Jason Soon

Obama’s core economic team has been revealed to consist of New York Federal Reserve Bank President Timothy Geithner as Treasury secretary, Larry Summers as White House economic director, Peter Orszag as head of the Congressional Budget Office and Christina Romer as head of the Council of Economic Advisers.

These are some very interesting picks.

Geithner is of course already well known and respected as head of the NY Fed.

Orszag has an interest in health policy and is a protege of the fiscally conservative centrist Robert Rubin. He also has a blog.

Larry Summers of course needs little introduction as he was a centre of a little storm in a tea cup over factually correct comments made about differences in the variances of male and female IQ though interpreted in a sufficiently loose way as to make him fodder for PC activists. He is also an economic rationalist par excellence willing to go wherever his economic logic takes him, a trait which also landed him in a spot of bother years ago when he wrote a (again logically correct) memo arguing that pollution has a lower opportunity cost in developing economies.

Romer is a very interesting pick indeed as she and her husband are well known for their work in New Growth Theory and the impact of taxes on macroeconomic:

That the Romers are so well-regarded by their peers of both parties has many economists cheered that the Obama administration is going for the top minds in the field rather than those who adhere most closely to party lines. The Romers’ work has even been cited by Republicans as supporting the idea that tax increases negatively impact economic output.
Much of Ms. Romer’s work has been on macroeconomic history – studying, for example, the causes of the Great Depression, something that proves quite valuable now as the U.S. economy faces down a similar crisis.

Here is her contribution to the Encylopaedia of Economics on business cycles:

The empirical evidence is strongly on the side of the view that deviations from full employment are often the result of spending shocks. Monetary policy, in particular, appears to have played a crucial role in causing business cycles in the United States since World War II. For example, the severe recessions of both the early 1970s and the early 1980s were directly attributable to decisions by the Federal Reserve to raise interest rates. On the expansionary side, the inflationary booms of the mid-1960s and the late 1970s were both at least partly due to monetary ease and low interest rates. The role of money in causing business cycles is even stronger if one considers the era before World War II. Many of the worst prewar depressions, including the recessions of 1908, 1921, and the Great Depression of the 1930s, were to a large extent the result of monetary contraction and high real interest rates. In this earlier era, however, most monetary swings were engendered not by deliberate monetary policy but by financial panics, policy mistakes, and international monetary developments.

Of interest to libertarians, one of her papers co-authored with her husband is sceptical of the starve the beast (PDF) theory:

The hypothesis that decreases in taxes reduce future government spending is often cited as a reason for cutting taxes. However, because taxes change for many reasons, examinations of the relationship between overall measures of taxation and subsequent spending are plagued by problems of reverse causation and omitted variable bias. To derive more reliable estimates, this paper examines the behavior of government expenditures following legislated tax changes that narrative sources suggest are largely uncorrelated with other factors affecting spending. The results provide no support for the hypothesis that tax cuts restrain government spending; indeed, the point estimates suggest that tax cuts may increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases. Examination of four episodes of major tax cuts reinforces these conclusions

Update:

The first knives are out. Here is a whinge from the left wing Nation:

Not a single, solitary, actual dyed-in-the-wool progressive has, as far as I can tell, even been mentioned for a position in the new administration. Not one. Remember this is the movement that was right about Iraq, right about wage stagnation and inequality, right about financial deregulation …[etc]

And yet, no one who comes from the part of American political and intellectual life that has given birth to all of these ideas is anywhere to be found within miles of the Obama cabinet thus far. WTF?

Sit back and enjoy the fun. And also check out the comments thread below that Nation piece.

One from the time capsule - here’s Lefty-Kim from 2 weeks ago engaging in some scoffing:

Most of this speculation - and the accompanying predictions that Obama may be a steady as she goes moderate - is just that. It’s basically worthless, except for what it reveals about the politics of those doing the predicting. We don’t know exactly how Obama will govern. We do know that he’s stated that big challenges will require bold measures. And we do know that an agenda of de facto universal healthcare, economic revival and redressing the plight of middle and working class voters is what he won on. That’s surprisingly radical in the American context. And this election saw a lot of the anti-government rhetoric Reagan ran into town with finally kicked to the curb.

In denial or prescient? Only time will tell …

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