Great News! Geithner's Job Is Secure
With a track record of persistent stagflation, steadily rising unemployment, a declining dollar, ballooning deficits and nearly universal economic discontent, Tim Geithner is feeling better than ever!
At least that's the diagnosis from the Washington Post's Zachary Goldfarb, who claims in his profile of the scandal–plagued, tax-confused Secretary of the Treasury that Geithner has been buoyed by nearly three years of total failure.
The notable part of the profile is that it posits a deficit-hawk Geithner pitted against President Obama's Keynesian brain trust. (If you're keeping score, Geithner is the only member of the Obama economic team who has not yet been put out to pasture.) Here's a characteristic challenge of the superfriends:
Lawrence Summers, then the director of the National Economic Council, and Christina Romer, then the chairwoman of the Council of Economic Advisers, argued that Obama should focus on bringing down the stubbornly high unemployment rate. This was not the time to concentrate on deficits, they said.
Peter Orszag, Obama's budget director, wanted the president to start proposing ways to bring spending in line with tax revenue.
Although Geithner was not as outspoken, he agreed with Orszag on the need to begin reining in the debt, according to current and former administration officials. Some spoke for this article on the condition of anonymity to discuss internal deliberations.
Even before the president had been inaugurated, Geithner had been urging him to set a target for the budget deficit that would require shrinking its size to 3 percent of the U.S. economy. At that level, the national debt would eventually become manageable.
"From the earliest moments of the administration and even before, he clearly had a big focus on long-term deficit reduction and making clear, not just to the markets but for the entire economy, that the government is living within its means," Goolsbee said in an interview.
The economic team went round and round. Geithner would hold his views close, but occasionally he would get frustrated. Once, as Romer pressed for more stimulus spending, Geithner snapped. Stimulus, he told Romer, was "sugar," and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt.
Wrong, Romer snapped back. Stimulus is an "antibiotic" for a sick economy, she told Geithner. "It's not giving a child a lollipop."
Hat tip Felix Salmon, who says Romer was right:
Although it's all well and good for Geithner to talk about building a credible long-term fiscal strategy, where I part ways with him is the idea that such a strategy is incompatible with short-term stimulus. Indeed, I think we need a short-term stimulus to get enough Americans working again that tax revenues can rebound healthily and make a serious dent in the deficit.
It's fitting that Salmon makes this claim while discussing Romer, who cut her teeth by demonstrating the uselessness of fiscal stimulus, then got a job in the stimularious Obama Administration and claimed her earlier work did not say what it clearly said. I'm just a simple caveman, but it seems to me for Salmon's plan to work — the government pays a bunch of people to work, then uses tax revenues on their income to reduce the deficit — you'd need an income tax rate of at least 101 percent. With the multiplier effect, maybe all things are possible?
As for whether Geithner is the enduring stimulus skeptic in the Administration, I invoke my First Amendment right not to care. At this point I've heard many tales of economic policy debates in the Obama White House. They always play as clashes of core beliefs: Romer's faith in the multiplier against the supposed restraint of Orszag or somebody; Goolsbee's skepticism of the auto bailout vs. Summers' machiavellian machinations, and so on.
The player who never gets mentioned in these scenarios is Reality. Massive fiscal stimulus, and even more massive monetary stimulus, have been tried in both the Bush and Obama administrations, at a cost of trillions of dollars to future Americans. These efforts didn't fall out of favor because of some ideological debate or because this or that person had the president's ear. They were put into practice and they failed, publicly and catastrophically, even on their own very forgiving terms. Whether Turbo Timmeh supported this waste or just failed to prevent it, he needs to be fired.