[Posted by Karl] The New Hampshire primary preempted my mockery of this New York Times article, which had the audacity to run the above headline — without the quote marks — in marking the departure of White House chief of staff William M. Daley: It was a distracting shake-up in a White House that has prided itself on a lack of internal drama, with a tightly knit circle of loyal senior advisers playing a steadying role. In the real world, no president has gone through as many chiefs of staff in their first term as Obama has to date . And that’s just for starters, well beyond the shuffling of people like David Axelrod to Obama’s reelect campaign. Consider Obama’s original economic team. Peter Orszag, Christina Romer, Larry Summers and Jared Bernstein are all gone , as is Austan Goolsbee , leaving tax-cheating Treasury Secretary Tim Geithner as the anchor of Obamanomics. Press Secretary Robert Gibbs is gone, as is Deputy Press Secretary Bill Burton and White House communications director Anita Dunn . Melody Barnes was the White House’s chief domestic policy adviser. Not anymore. Gen. Jim Jones is no longer Obama’s National Security adviser, after a tenure marked by sniping that sent Deputy National Security Adviser and Chief of Staff to the NSC Mark Lippert back to military service. That happened before Obama’s major Pentagon shakeup last April in which the vacancy caused by the departure of Secretary of Defense Robert Gates was filled by Leon Panetta, whose seat at the CIA was filled in turn by Gen. David Petraeus. Moreover, two books suggest there were plenty of factions and infighting during the president’s term. One of them was written by Jodi Kantor — a reporter for the New York Times. The NYT’s propaganda here is risible, but interesting nonetheless. Reporting on a White House in disarray would underscore what happens when we elect someone with no executive experience. It would also raise the issue of whether any of these people were simply scapegoats for the failures of progressive policy. –Karl
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Daley Stepping Down in “Rare” White House Shake-Up
This Robert Samuelson piece on the inherent problem with Keynesian economic theory – which, in my opinion , can be summed up neatly as “First, assume that your planned economy will be managed forever by an immortal, unelected, and incorruptible Keynesian economist” – is pretty good, but it has one passage in it that makes my teeth ache. Here it is, in all of its questionable glory: For the record, I supported Obama’s stimulus – though disliking some details – and, under similar circumstances, would again. The economy was in a tailspin; the stimulus provided a psychological and spending boost. But how much is less clear. As Romer notes, estimating the effect is “incredibly hard.” For example, the Congressional Budget Office’s estimate of added jobs from the stimulus ranged from 700,000 to 3.3 million for 2010. We’re going to unpack this, sentence by sentence. Because it has to be unpacked. “For the record, I supported Obama’s stimulus – though disliking some details – and, under similar circumstances, would again.” For the record, I did not . In fact, I was adamantly against calling it a ‘stimulus’ in the first place; it was in fact a demented (and nakedly partisan ) Democratic wish list of pork projects and private shibboleths , and I saw no reason why I should pretend otherwise . I still don’t, in fact. “The economy was in a tailspin; the stimulus provided a psychological and spending boost. ” First: either ‘was’ or ‘tailspin’ can be contested; September ’08 was the really scary point in the economy and we’ve been pretty much grinding metal since January 2009. Also: ‘spending’ boost I’ll grant, but ‘psychological’ was not borne out by events. “ But how much is less clear. ” Considering that I am contesting that there was a psychological boost in the first place, you may safely assume that this sentence is effectively a null statement from my point of view. “As Romer notes, estimating the effect is “incredibly hard.”” Actually, no: it’s fairly easy. Time for that graph from Christina Romer that Christina Romer absolutely hates : below is what they promised us, so compare it to actual results and you get a fairly decent rough guide to how well the ‘stimulus’ worked. Spoiler alert: it didn’t . “For example, the Congressional Budget Office’s estimate of added jobs from the stimulus ranged from 700,000 to 3.3 million for 2010.” I assume that Samuelson is referring to this November 2011 report . Rather than reinvent the wheel I’ll note Reason.com’s response to that : “[L]o and behold, if you create a model that predicts the law will create jobs, and then you rerun a mild variation of that model a few years later using updated figures about what money was actually spent, it still reports that the stimulus created jobs.” And considering that what we were promised by now was supposed to be 6% unemployment without the ‘stimulus’ and about 5.5% with it, it’s eminently fair to question the original model. And now here’s the central problem. Back in 2009, a lot of self-identified Smart People – mostly on the Left, but the Right had its share – argued that a ‘stimulus’ was a good idea. And there were a lot of people – widely derided by those same Smart People as being stupid ignoramuses, partisan Republicans, hidebound conservatives, and just about everything else – who insisted that a ‘stimulus’ was a bad idea . And guess what? The Smart People were wrong . And the reason why goes back to my basic critique of Keynesian economic theory in the first paragraph: Keynesian economic theory is not sustainable over the long term in a truly pluralistic and democratic society. That’s because a politician given money without oversight will spend that money pretty much the same way that a drunk would , and for pretty much the same reasons. Seriously, it was a trivial exercise in prognostication to predict that the public moneys given to the then-Democratic Congress would not end up being exclusively funneled to so-called ‘shovel-ready’ job programs. Or that our real problem – which is our long-overdue-for-pruning regulatory system – would not be affected at all by said stimulus. Or that supposed “Keynesian” politicians would blithely ignore Keynes’ own argument that governments need to be frugal when there isn’t a recession. That’s because none of these points are unique obstacles for the system to overcome. They are part of the system itself. All of which the aforementioned critics of the ‘stimulus’ did take into account, and the Smart Guys did not . And it would be nice if the latter acknowledged it every so often. Moe Lane ( crosspost )
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Reminder: the Smart Guys were wrong on the ‘stimulus.’
Today President Obama announced the nomination of Princeton labor economist Alan Krueger to head the Council of Economic Advisers. Krueger is already a veteran of both the Obama and Clinton administrations.
[Posted by Karl] Someone needs to beam up fmr. Enron advisor Paul Krugman : It’s very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish, you know, a great deal. If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. Ed Morrissey savors the irony of the lefty economic icon turned warmonger. Tom Maguire notes fmr Obama economic advisor Christina Romer wrote (at the NYT, no less) just last weekend that WWII helped the recovery from the Depression, but the economy was improving long before military spending increased. Romer’s recent piece is an understatement, even by her own standards, as Amity Shlaes recounted almost a year ago: After shrinking 3.4% in 1938, real GDP grew 8.1% in 1939 and 8.9% in 1940, before Pearl Harbor. What might have caused this upturn? There were monetary factors. Gold flowed to the United States as the crisis in Europe worsened. Since the U.S. was on a form of the gold standard this meant an effective loosening of money. The inflow was not sterilized, but whether the heads at Treasury and the Fed understood the full import of the non-sterilizing decision is not clear. In a 1991 National Bureau of Economic Research working paper Christina Romer, who just retired as chair of the Council of Economic Advisors, stresses the importance of these gold inflows for recovery. You can also argue there were spending factors – the government grew as a share of the economy, although not in the massive fashion that Dr. Krugman prescribes. But other factors in the 1938-1939 upturn were taxes and the diminishment of [government-induced] uncertainty. In 1938, the political tide began to turn against Roosevelt. In the spring of 1938, lawmakers gutted his undistributed profits tax and dropped the graduated corporate income tax in spite of Roosevelt’s objections. Their bill became law without his signature. In the midterm Congressional elections of 1938, Democrats lost 81 seats, not enough to lose control of the House, but enough to chasten them. Bored and frustrated with the New Deal, FDR turned to foreign policy, an area to which he was better suited in any case. The Supreme Court ruled against sit down strikes, limiting the scope of union power. Washington’s war on business was suspended, in part because the president knew he would now need the same industrial giants he had prosecuted if he was going to arm the U.S. and Britain. Treasury Secretary Henry Morgenthau, who had personally sicced attorneys on his predecessor Andrew Mellon, now put a sign on his desk to signal friendship for business. The sign read “Does it contribute to recovery?” The policy mix of the late 1930s was far from ideal, but the direction was enough to cheer everyone. The real question is not how war spending ended the Depression. It is why the Depression lasted so long. Spending, in any case, didn’t have much to do with the Depression’s end. As Dr. Romer herself summed up in that 1991 paper, “it is hard to argue that changes in government spending caused by the war were a major factor in the recovery. The recovery was nearly complete before the war had a noticeable fiscal impact.” This is one of many things about which Krugman has been wrong . Indeed, there is a growing body of academic studies , including one from Romer (and her husband) showing that tax cuts would be a more effective economic stimulus. The magical-thinking establishment media will let the debate pass largely unnoticed, keeping their eyes on the skies. –Karl
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Paul Krugman, Phone Home
Via James Pethokoukis comes an updated version of the graph ( originally created by Obama’s economic advisers Christina Romer and Jared Bernstein) that has been succinctly countering (for years ) any and all attempts to argue that the misnamed ’stimulus’ worked: For those without access to the picture: it’s a modified version of this graph , which was used to sell the idea that with a stimulus, unemployment would not rise above 8%; and that without a stimulus, unemployment might rise all the way to… 9%!!!!!! That last sentence is what usually gets emphasized in these discussions, and for good reason (it was a nitwit prediction). But I’d [like] to note that according to the original chart we were forecast to be having about 6.5% or so unemployment at this point, with that number dropping rapidly. For that matter, I’d also like to note that neither Romer nor Bernstein are currently employed by the Obama administration; they were more or less booted as quietly as could be managed, once the magnitude of the stimulus disaster was fully grasped by the White House. Alas, the damage has been done. Moe Lane ( crosspost )
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The Infamous, Updated, Romer-Bernstein Chart.
