Short and Sweet Blog

On ABC’s public affairs program, “This Week with Christiane Amanpour” two very interesting comments were made during the roundtable discussion on Sunday, January 23. First, the dyed-in-the-wool progressive, Paul Krugman, said this about President Obama’s change in character after the 2010 mid term elections:

I think the model is something like Clinton who, in fact, mostly was just riding on a successful economy which was successful . . . for reasons which had mostly nothing to do with him. But he was able to be a very popular President by presiding over that, by providing competent management on those things you could control. I think that is Obama’s model now. . . .

Seconds later in answer to a question from the host, George Will reported on a lunch conversation he had recently had with Austan Goolsbe, Obama’s Chairman of the Council of Economic Advisers:

Amanpour: . . . [B]ut when it comes to real conclusions how do you kickstart and how do you make a dent in that 9.4 figure?
Will: You don’t. I had lunch this week with Austan Goolsbee who was your guest a few weeks ago. He said, “Look, people seem to feel that in the basement of the White House somewhere there’s an enormous switch and you go down and throw it and jobs are created.” The fact is that the terrible frustration in the White House must be that everything that really matters is beyond their control, which is how to create jobs. It’s not going to happen because of the government.

The following is a 2008 video in which the newly tapped Chairman Goolsbee explained that after Obama’s inauguration they would be ready to come in with a bang to change the job picture. He specifically distinguished this type of ‘hands on’ activist government policy from the sort of “wait and see” if things get better policy which he derisively characterized as the policy of the previous administration.

Which Goolsbee is right? The one who admits, after two years in power, that there is no switch that a government can throw to do something about nagging economic problems, like unemployment. Or the one who came into power in 2008 saying that he recognized that when the ball was in Obama’s hands and that he (Obama) would actively manage the use of federal government economic power against the economic problems facing the country. Is Krugman being serious when he says that Clinton’s successful economy was not of his own doing even though Clinton, like Obama, came into power during a recession (remember his election motto, “it’s the economy stupid”) and he has always taken full political credit for the economic turnaround?

I hope that both Krugman and Goolsbee really do understand now that the economic tools in the hands of the government have limitations in terms of raising all boats in a national economy. If it were not so we would be in perpetual sunshine and happiness because politicians would promise and use the magical tool or tools. I hope that they also realize that when the government acts it is really only able to pick economic winners and losers. For instance, the Fed kept interest rates low and the politicians used Fannie Mae and Freddie Mac to hype up the housing market for several years in a way which made people happy. In fact this made a lot of identifiable people prosperous but only for a while. On the other hand the hangover which will last for a number of years is going to be suffered by the rest of us as the price we pay for the government providing short term benefits to high flying home buyers, home builders, mortage originators, financial marketers and bankers. The reaching of such a realization by these two prominent political economists concerning the limitations of the government’s power over the economy will be very good news indeed if it translates into greater prudence on the part of future political economists as to what they promise.

This entry was posted on January 26, 2011 at 1:18 am and is filed under Political Economy. You can subscribe via RSS 2.0 feed to this post's comments. Both comments and pings are currently closed.