Most reports on the selection of William Daley as President Obama's new
chief of staff and Gene Sperling as the head of his National Economic
Council included a few lines of criticism from progressives who were
unhappy with these picks. Since there was not much space for the
argument, these lines probably left many readers wondering why
progressives don't like Daley and Sperling.
To remove this sense of wonder, I will spell out the progressive case
against the new team. (I get to do it because this is my column.)
Both Daley and Sperling were major actors in the Clinton
administration. At the center of the Clinton administration's economic
policy was the idea that reducing the budget deficit was the key to
boosting the economy. He held the view that if the deficit fell, then
the private sector could be counted on to provide the demand to fill the
gap created by less demand from the public sector.
While the private sector did fill the gap in the late '90s, it did so
from growth that was driven by a stock bubble. The stock bubble
primarily fueled consumption, which hit a record high as a share of the
GDP. It also led to somewhat higher investment, although much of this
was in hare-brained, Internet start-ups of little or no value.
The stock bubble burst over the years 2000-2002. The resulting
recession featured what was at the time the longest period without job
growth in the post-World War II era.
Three other features of Clinton-era policy made the recovery from
this recession more difficult. First, Robert Rubin's high dollar policy
led to a massive trade deficit. An overvalued dollar provides a huge
subsidy to imports, and effectively imposes a tariff on exports.
Banks like Citigroup (where Rubin took a top post after leaving the
Clinton administration) may like a high dollar because it makes them
more powerful in an international context, however it is about the worst
imaginable policy from the standpoint of manufacturing workers. The
high dollar is the main factor behind the loss of six million
manufacturing jobs over the last 13 years. The basic story is simple: it
is very hard to compete when your currency gives your competitors a 30
percent cost advantage.
A second part of the story were the NAFTA-type trade deals that
further depressed the wages of manufacturing workers by deliberately
placing them in direct competition with low-paid workers in the
developing world. The predicted and actual result of placing
manufacturing workers in competition, while leaving highly paid
professionals like doctors and lawyers largely protected, is an upward
redistribution of income.
This is bad to those who want to see the gains from growth broadly
shared and also from the standpoint of sustaining high levels of demand.
These trade deals transfer money from those most likely to spend it to
people higher up the income ladder who are likely to save a larger share
of their income.
The Clinton economic agenda was also about setting Wall Street loose,
even as the huge banks maintained their "too big to fail" training
wheels. This meant that they could take enormous risks with creditors,
knowing that the government will come to the rescue if necessary.
It was this growth path that laid the seeds for the economic wreckage
that engulfed the country when the housing bubble finally burst in
2007. To be sure, the Bush administration left these policies in place
and ignored all the warning signs, even as the dangers grew ever larger.
For this it deserves at least an equal share of the blame. But there is
little reason to believe the Clintonites would have changed course
before disaster hit had they been at the helm.
This is the small matter that leads progressives to be unhappy with
the renewed dominance of the Clinton economic team. If progressives had
devised policies that caused 25 million people to be unemployed or
underemployed, cost the economy $4 trillion in lost output and caused
millions of people to lose their homes, they and their children and
their grandchildren would be exiled from policy circles for the next
century. However, for the Clinton crew, it's just a matter of putting on
a "pro-growth" hat and going back to work.
This is not just a matter of demanding atonement for past errors of
calamitous proportions. There is the concrete issue of how the Obama
administration is going to address the problem of near double-digit
Working with a Republican Congress is not going to make things easy,
but Obama could take the position that he has the job plan to put people
back to work and the Republican Congress is trying to block him. Or, he
could take the position that times are tough and we (meaning not people like the policymakers) will just have to tough it out.
Unfortunately, the new Obama team seems likely to follow the second
route. This will mean that tens of millions of people across the country
will experience economic hardship because the people designing economic
policy can't shoot straight. But hey, why should this get anyone upset?
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