Karl Rove praises Obama's choices says they are "Reassuring."
When President-elect Barack Obama's economic transition team met this month, everyone was there -- inflation fighters, business leaders, union firebrands and leftist economists -- creating confusion about where the new administration was headed.
Mr. Obama's announcement of his economic team on Monday provided surprisingly positive clarity. He picked as Treasury Secretary Tim Geithner, the respected, soft-spoken New York Fed president. Mr. Geithner has been a key player with Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke in confronting the financial crisis. Every major decision in the rescue effort came only after the three agreed.
The National Economic Council director-designee, Larry Summers, is another solid pick. Mr. Summers has been an advocate for trade liberalization, he was the Clinton administration's negotiator for the financial deregulation known as Gramm-Leach-Bliley, and he even attempted to rein in Fannie Mae and Freddie Mac in the 1990s.
Mr. Obama also named a respected monetary expert -- Christina Romer -- to head up his Council of Economic Advisors. On Tuesday he selected a first-rate thinker, Peter Orszag, to be director of the White House's Office of Management and Budget.
The only troubling personnel note was Melody Barnes as Domestic Policy Council director. Putting a former aide to Ted Kennedy in charge of health policy after tapping universal health-care advocate Tom Daschle to be Health and Human Services secretary sends a clear signal that Mr. Obama didn't mean it when his campaign ads said he wouldn't run to the "extremes" with government-run health care.
He did not reduce confusion on a Detroit bailout by saying he supported a "sustainable auto industry." America already has that in 69 foreign-owned auto plants that employ 92,700 Americans. The question is this: Does Mr. Obama want a sustainable U.S.-owned auto industry? If so, will he require changes in the Big Three's management, labor agreements and cost structure in return for aid? All he'd say Monday was that the industry needed to develop a plan.
And despite the president-elect's declaration Monday that "we have a consensus, which is pretty rare, between conservative and liberal economists," there is no agreement about the elements of a stimulus package.
Stanford economist Michael Boskin reminds us that conservatives favor permanent, or long-lived, measures to revive the economy -- incentives like lower income-tax rates, actions to speed recovery of capital costs like bonus depreciation, and steps with an immediate effect on job creation such as cuts in corporate tax rates.
So far, Mr. Obama has only offered unspecified subsidies for "green jobs" and infrastructure spending. Politicians like infrastructure spending because it gives them something concrete to point to. But though Japan spent $516 billion on infrastructure in the 1990s, it didn't stimulate their economy. What makes Mr. Obama think it will work in America? The reason infrastructure is a poor stimulant is that there is a long lag time between project approval and when dollars actually get spent, even for projects on the drawing board.
Mr. Obama suggests that giving consumers up to $500 (his "tax cut for 95% of Americans") will stimulate consumption. Congressional Democrats have demanded rebates like this for people who don't pay income taxes in every stimulus package -- with negligible results. As Harvard economist Martin Feldstein pointed out in these pages in August, a mere 10% to 20% of this year's rebate was spent.
During the campaign, Mr. Obama defined madness as "doing the same things over and over again and expecting something different." He should take those words to heart in preparing his stimulus package
Mr. Obama has less than a month to work out the dimensions of the stimulus and auto legislation he wants passed before his Jan. 20 inauguration. If he continues to hesitate, Congress will give him a mish-mash of spending, rebates, subsidies and pork that won't create the 2.5 million jobs in two years he promises. Congress is hard to stop from budgetary excesses in ordinary times. And these are not ordinary times.
After hearing Mr. Obama's campaign attacks on "the swelling budget deficit," it is jarring to hear him now suggest the deficit will need to be larger to accommodate more spending. He has to be mindful that voters have not been prepared for the numbers now being thrown around.
But, overall, Monday's announcement of Mr. Obama's economic team was reassuring. He's generally surrounded himself with intelligent, mainstream advisers. Investors, workers and business owners can only hope that, over time, this new administration's economic policies bear more of their market-oriented imprint.