The dark economic days of early 2009 — hundreds of thousands of jobs lost per month, the Dow sinking to 6,600, a sense of chaos — may now seem a distant memory. But the legacy of the deep downturn, and the economic policies forged in that crucible are still very much with us. And, so, too, are the debates over the response by the Federal Reserve and the Obama Administration. Was the stimulus too much or too little? Did the central bank exert itself excessively to aid Wall Street? And did the elite cadre of brilliant economic minds that flocked to Washington in 2009 accurately diagnose the situation and prescribe the appropriate cure?
In his timely, highly readable new book, The Escape Artist: How Obama's Team Fumbled the Recovery, Noam Scheiber, a veteran Washington reporter with a solid background in economics, delves into these questions.
From the outset, Scheiber argues, the willingness of the Fed and Treasury to go all out to save the financial system was not matched by a similar desire by the administration to pitch big ideas to help the real economy. One of Scheiber's big scoops was the unearthing of a memo written by Christina Romer, the head of the Council of Economic Advisers, in which she argued that a stimulus of $1.8 trillion would be needed to return employment to healthy levels by 2011. But the memo never reached the president's desk, in part because the dominant political advisers believed a measure of that size was a non-starter. "I think they missed an opportunity out of the gate," Scheiber says. While the stimulus worked and helped get the economy back on a track of growth, it ultimately was a half-measure that disappointed. "They were right about the shape but didn't give it enough oomph to get escape velocity," for the economy, Scheiber says. (In the accomanying video, Scheiber joins me and my colleague Aaron Task to discuss his book).
Scheiber also delves into the personalities, conflicts, and egos that made up Obama's economic team: Office of Management and Budget Director Peter Orszag, Romer, National Economic Council Chairman Lawrence Summers, Treasury Secretary Timothy Geithner, economic advisers Austan Goolsbee, Gene Sperling, and Jason Furman, and the political powerhouse of Chief of Staff Rahm Emanuel and advisers David Axelrod and David Plouffe. At times, this Dream Team of advisers turned out to be a Team of Rivals. Scheiber conducted hundreds of interviews with all the key players, unearthing details about their arguments, policy preferences, and tennis games. As a result, with its reconstruction of meetings The Escape Artists reads like a Bob Woodward book — albeit better written and informed by a more sophisticated understanding of economics and policymaking.
Scheiber's provides a critique that echoes the one made by New York Times columnist Paul Krugman: the timidity in attacking the lack of demand in the economy is inexcusable and may cost Obama a second term. "They averted disaster. We could have been looking at a depression. You have to give them credit for that," Scheiber said. "You have to take them to task for the fact that this thing went on two years long than they were thinking and that they were preparing for." Scheiber believes the Obama team erred first by pivoting to health care before the recovery had fully taken root, and then by letting the argument and debate over health care go on for so long. He also criticizes the administration for dithering over deficit reduction and further stimulus proposals. Obama should have come out with an aggressive jobs plan in 2010, Scheiber argues. And the administration spent too much time in fruitless discussions with Republicans over deficit reduction. "In 2011, the economy badly needed support, and he went down this path of trying to negotiate a budget deal with Republicans that was never going to happen," Scheiber says.
The critique of Obama and his team that emerges in these pages is that the administration didn't do enough to aid the real economy in its first two years, and that the lack of urgency over employment and overall growth is likely to harm Obama's re-election chances. I think that's largely true. But this line of attack downplays the political constraints under which Obama operated. What's more, it also underplays the real recovery that has taken place in the nation's private sector, which accelerated throughout 2011 and shows few signs of flagging thus far in 2012. Many of those critiquing Obama from the left argue that the policy and economic cake was baked in 2009 and 2010, and that its failure to rise sufficiently will leave Americans hungry for change in November.
I don't think that's quite accurate. Americans tend to have short-term memories, and voters are frequently guided by recent trends, not by decisions made in the receding past. Ultimately, it will be the jobs data and underlying growth trends of late 2011 and 2012 that determine the fate of President Obama's re-election campaign. In the past few quarters, the economy has been growing at a decent clip, creating jobs at a rate not seen since 2007, while a range of metrics — exports, industrial production, auto sales, retail sales, the stock market — are signaling green. And all this is happening in spite of government spending, not because of it. As we've noted for the past year, each month the government sector cuts jobs while the private sector adds them. Should the economy continue to grow on its current trajectory for another two quarters, it will greatly enhance the president's electoral prospects. Team Obama may have fumbled the economic recovery, but it's looking like the Escape Artists may have tracked it down and fallen on top of it. They may emerge from the scrum this November still in possession of the ball.
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Daniel Gross is economics editor at Yahoo! Finance
Follow him on Twitter @grossdm; email him at firstname.lastname@example.org