Thursday, February 19, 2009

Slow Start

. Thursday, February 19, 2009

Tyler Cowen does not think Barack Obama is off to a good start:

The simple truth is that so far economic policy has fallen short of being good. Some (not all) left-wing bloggers may be reluctant to say this so early in the tenure of such a long-awaited administration, but perhaps a few of them are thinking it. There is the stimulus, the Geithner banking plan, and the housing plan. Of course there are differences of opinion but perhaps it is fair to say he is straining to be one out of three?

This does not even include his ramp-up of protectionism in Canada. I said this on Wednesday, in a more casual setting:

the stimulus bill was a piece of [junk] by almost any definition short of "anything is better than nothing" and contained very little actual stimulus, the much-anticipated Geithner "plan" was actually no plan at all (it amounted to "we're maybe gonna think about doing something about things at some point"), the mortgage bailout is ill-conceived and probably pointless, the protectionism coming from "Buy American" provisions and bailouts for GM workers in the US while GM workers in the EU are getting laid off is [bothering] the rest of the world to the point that CHINA is screaming at the US to keep trade open. and let's not forget Geithner's China-bashing during his confirmation hearing.

it's not insignificant that Obama's first trip is to Canada and Hillary's is to the Far East: Obama's already [irked] a lot of finance ministers around the globe, including our most important trading partners, and they're trying to keep [things] from spinning completely out of control. meanwhile, there has been literally no proposal for reforming/restructuring the financial regulatory system, no proposal for recapitalizing (or liquidating) the banks, no proposal for policy coordination with other countries, and Obama didn't even send a high-ranking official from his administration to Davos. without stability in the banking sector, the already-small potential positive effects of the stimulus bill will be greatly lessened. meanwhile, the stimulus bill contained the largest earmark in the history of the world, which will be used to build a coal gasification plant in illinois that has [irritated] environmentalists. Fed policy is in limbo, waiting to see what the Treasury is gonna do, and the Treasury has no idea what it's going to do. the entire thing is a [disaster] so far, and i honestly can't believe that Summers and Romer are pleased about the way economic policy has taken shape.

what is really needed is sectoral adjustment, and there is no indication that obama understands that fact or is willing to deal with it. most of his proposals are designed to prop up the old system rather than ease the transition to a new one. his approach to the Big 3 so far confirms this, as does his housing bailout plan. in fact, there doesn't even seem to be any sort of unified plan from the obama camp. his advisors are hardly speaking in public about the plans, and when they do they say things like "the president believes" rather than "we are doing this because the empirical evidence says...". the difference may seem a bit subtle, but it's powerful.

[edits in brackets because this is a family-ish blog]

I wrote that in anticipation of Obama doing "damage control" during his trip to Canada, as Alex anticipated yesterday. Back in October, I hoped that Obama was lying about his preferred trade policy -- and I still hope he's lying -- but it now appears more likely that he is actually interested in pursuing damaging trade policies in the middle of this Great-ish Depression. (i call dibs on that term, by the way.)

There is still a chance that whatever Geithner comes up with will be good, but I haven't been encouraged by the performance of the Obama administration over the past month. Indeed, given the political landscape it would have been difficult to do much worse in such a short period of time, and I say this as someone who voted for Obama largely because of the economic advisors he had chosen.

Obama put together a very good economic team before taking office. I really wonder what they really think about the policies so far enacted.


Slow Start




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