demandside

Plus the counterfactual to Obama’s employment of Clintonistas

With the crisis a day theme continuing now with a bailout of CitiGroup, it is easy to get caught up in the tactical issues.  Today we have Joseph Stiglitz to talk about the strategic context.

Then, in place of the idiot of the week, we’re detouring into the political realm in the Rachel Maddow memorial holier than thou counterfactual corner.

First, though, leading into Stiglitz comments, I want to make sure that we take the opportunity of this hard time to make some judgments on what works and what doesn’t.  History is the crucible of the economic experiment.  Let’s take a moment to look at the facts as they go by.

The monetary policy remedies applied by the Federal Reserve and the supply side support to the major financial institutions by the Treasury have not worked.  They have not staved off the collapse of this sector.  It exists now in a zombie state, still paying its employees, sometimes one company combines with another in what is called consolidation, but the function we need a financial sector to perform is not happening except under the direct supervision or through the offices of the government.  Thus, without a viable brain and nervous system, the real economy is staggering.

We do not know whether demand side help to Main Street would work, becaues it has not been tried.  We could have had foreclosure mitigation or forced write-downs of mortgage debt and other debt, but it hasn’t been tried.

We know that the monetarist stimulus package did not work, because we did try the checks from helicopters.  We do not know if demand side infrastructure spending, help to the long-term unemployed, increased food stamps, assistance to state and local governments or health care reform works, because we have not tried it, with the notable recent exception of extension of unemployment benefits.

The good news is some of these demand side remedies are now on the table, though not all.  We are eager to prove our forecasts are not all doom and gloom.  We hope to do that soon, and they could change dramatically as soon as the dimensions and details of the president-elect’s program are more clear.

We’ll go into that more on Friday’s forecast.  But here is Joseph Stiglitz.

STIGLITZ

Joseph Stiglitz

Now there has been a great deal of hand wringing by a few, though by no means all, on the progressive left on account of the composition of the Obama team as it comes to be formed.  Particularly with regard to the number of Clinton era figures that are emerging as key players in the first Obama government, beginning with Hillary Clinton herself, but also including Larry Summers and Tim Geithner, who will be point men on economic policy at the National Economic Council and the Treasury Department  respectively. The Rachel Maddow holier than thou memorial counterfactual corner

Our quizzical look at some of the odd fetishes of the media and others.

Number one:  Hillary Clinton will be the next Secretary of State.  What happens absent this event?  Clinton returns as junior senator from New York after sold out in persuading her supporters to support Obama, apparently to a life of noble obscurity.  Disgruntled Hillary supporters remain on the fringes, ready to criticize and backbite.

Counterfactual Bonus, Hillary does not criticize Obama during the primary on the subject of foreign policy.  Absent this, “A” Clinton apparently would not have wanted the nomination, since the campaign is an exercise in drawing comparisons and “B” McCain would have the subject clean.

What would it be like if Hillary Clinton were not the presumptive Secretary of State?  We’d have Sarah Palin hour every night.  At least this is an interesting soap opera.

Number two:  There are no leaks from the Obama transition.  Absent the leaks, we would have either the most bizarrely authoritarian operation or one that did not communicate to anybody.  Can you imagine not talking to Capitol Hill?  Politicians love to talk.  And the news media would have gone into cardiac arrest.  As it is, the leaks are fairly reliable, since I don’t see many being shot down.  The one exception is the Axelrod statement that the campaign team was frustrated by the leaks.

Number three:  Clinton era people are populating the Obama administration.  I don’t think Obama ran on being liberal.  That was who McCain tried to run against.  But Obama ran on being practical and having an ambitious energy, jobs, and health care agenda.  Absent the Clintonistas in the Cabinet means the presence of the left wing progressives.  Not the best transition team.  And not the people you want to run up the flagpole first.  There are further appointments to be made.  Lefties will be much more acceptable if they join a group of established faces than if they are the group joined by the established faces.

And finally, let’s observe that the Progressive Left were not the only people who voted for Barack Obama, there was also a key number who opted for change from the middle.

It is our view that the policy outcomes are the proof in the pudding.  With Clinton at State, we have Kerry as head of the Senate Foreign Affairs Committee.  With Geithner and Summers on board, we also bring on board a great swath of the business community.  Progressive prospects improved dramatically with the replacement of Dingell as chair of the House Energy and Commerce Committee with Henry Waxman.  Even Lieberman as head of Homeland Security, as bad as that smells, brings a Senate vote in the near term.

We hope and expect that health care reform, a stimulus package on an appropriate scale, big new infrastructure spending, and aggressive action on climate change will happen in the first two years.  It will happen with seasoned and capable administrators in place.  And the contrast with the incompetence and corruption of the previous administration will be complete.  These will be sufficient to carry the off-year elections more forcefully into the Democratic camp.

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