Mr. Obama rolled up his sleeves on Monday and helped out at a homeless center, devoting much of his last full day as president-elect to paying tribute to Martin Luther King Jr. and to the spirit of volunteerism and public service he said Mr. King represented.
Christina Romer, the Chair-designate for the Council of Economic Advisers, discusses a new report about what kinds of jobs and which types of workers will benefit from the proposed American Recovery Act.
On the Economy—Understand the "Irrational" Where did our financial institutions go wrong? Many accounts focus on greed, fear, and lack of trust. And why did things get so out of hand? Why was there a housing "bubble"? Somehow, "irrational exuberance" (Robert Schiller) or "animal spirits" (John Maynard Keynes) overwhelmed rational calculations of risk and reward. And it isn't just that irrational optimism, or even blindness to market fundamentals, gets the better of our rational faculties. Rather, as George Soros has pointed out, these psychological phenomena can become part of a feedback loop that actually changes market fundamentals. "Reflexivity," he calls it. The housing bubble was not the first such phenomenon, nor will it be the last.
Economists offer little that helps us understand why such bubbles occur or how they might be prevented. They also have little to tell us about how to prevent a "downward spiral of negative expectations" that makes fear of an economic downturn self-fulfilling. Economists largely make assumptions about the rationality of human decision-making and proceed from there. Witness Alan Greenspan's recent admission that he was mistaken in assuming that markets operate rationally and efficiently. The current crisis makes it clear that ignoring the real psychology of greed, fear, trust, and irrational enthusiasm (0r pessimism) can be perilous. Economists offer little that helps us understand why such bubbles occur or how they might be prevented. A Council of Psychological Advisors could help.
In general, I think economists need a large dose of humility when evaluating alternative proposals to deal with the current downturn, as there is still a lot we do not understand.
Maya MacGuineas, Director of the Fiscal Policy Program at New America and President of the Committee for a Responsible Federal Budget, argued that the economic crisis is revealing the deep cracks in our existing social insurance system. Although the focus right now is on stimulus and economic growth, we must start talking about our institutions and how to update them. The federal budget deficit will reach at least $1 trillion next year, MacGuineas said, and policymakers need to review the budget line-by-line and think hard about how we are going to pay for it all. Because most of our money currently goes towards “mandatory spending programs,” these programs cannot be ignored when we rethink the budget. MacGuineas would like to link stimulus and long-term entitlement reform. The sums of current stimulus proposals are so large as to enable major, lasting investments in our economy. We should borrow money now, MacGuineas argued, but offset costs once the economy is stabilized. Without neglecting the importance of greater individual responsibility, we must think about vulnerable populations in our country right now--children and those hurt by globalization. Government must become more progressive, and focus its limited resources on those that need them most. The current economic climate demands major reforms, MacGuineas concluded, and the national discussion about the most appropriate policy choices is just beginning.
When voters look at your Administration two years from now, in the off-year election, how will they know whether you’re succeeding?
I think there are a couple of benchmarks we’ve set for ourselves during the course of this campaign. On [domestic] policy, have we helped this economy recover from what is the worst financial crisis since the Great Depression? Have we instituted financial regulations and rules of the road that assure this kind of crisis doesn’t occur again? Have we created jobs that pay well and allow families to support themselves? Have we made significant progress on reducing the cost of health care and expanding coverage? Have we begun what will probably be a decade-long project to shift America to a new energy economy? Have we begun what may be an even longer project of revitalizing our public-school systems so we can compete in the 21st century? That’s on the domestic front.
On foreign policy, have we closed down Guantánamo in a responsible way, put a clear end to torture and restored a balance between the demands of our security and our Constitution? Have we rebuilt alliances around the world effectively? Have I drawn down U.S. troops out of Iraq, and have we strengthened our approach in Afghanistan — not just militarily but also diplomatically and in terms of development? And have we been able to reinvigorate international institutions to deal with transnational threats, like climate change, that we can’t solve on our own?
And outside of specific policy measures, two years from now, I want the American people to be able to say, “Government’s not perfect; there are some things Obama does that get on my nerves. But you know what? I feel like the government’s working for me. I feel like it’s accountable. I feel like it’s transparent. I feel that I am well informed about what government actions are being taken. I feel that this is a President and an Administration that admits when it makes mistakes and adapts itself to new information, that believes in making decisions based on facts and on science as opposed to what is politically expedient.” Those are some of the intangibles that I hope people two years from now can claim.
But what caught my eye is a provision that would create a “Commission on Cross-Sector Solutions.” This commission would explore “ways in which the Federal Government interacts with nonprofit organizations, philanthropic organizations, and business to address national and local challenges.”
The legislation states that “The Commission shall conduct a thorough study of all matters relating to ways in which the Federal Government can work more efficiently and effectively with non-profit organizations and philanthropic organizations to assist the organizations described in this subparagraph, and the Federal Government, in achieving better outcomes with regard to addressing pressing national and local challenges, and improving accountability and utilization of resources, and relating to assisting the Federal Government, such organizations, and business in improving their collaboration to achieve such outcomes.” The commission would have 18 months to report its findings and recommendations.
The "change" we need is not so much ideological in nature, but the return to policy authority of people who have expertise, and are willing to look to past experience and (most importantly to me) analysis to make their judgments about how best to proceed -- in economics as well as in issues of war and peace....
In other words, just like it probably takes more than a hundred thousand troops to stabilize a country the size of Iraq, it probably is true that the elasticity of labor supply and capital is insufficient to yield a tax revenue increase that yields a net tax receipts gain, in response to a permanent tax rate cut holding all else constant...
For some of J.F.K.’s best and brightest, Halberstam wrote, wisdom came “after Vietnam.” We have to hope that wisdom is coming to Summers and Geithner as they struggle with our financial Tet. Clearly it has not come to Rubin. Asked by The Times in April if he’d made any mistakes at Citigroup, he sounded as self-deluded as McNamara in retirement.
“I honestly don’t know,” Rubin answered. “In hindsight, there are a lot of things we’d do differently. But in the context of the facts as I knew them and my role, I’m inclined to think probably not.” Since that interview, 52,000 Citigroup employees have been laid off but not Rubin, who remains remorseless, collecting a salary that has totaled in excess of $115 million since 1999. You may be touched to hear that he is voluntarily relinquishing his bonus this Christmas.
Rubin hasn’t been seen in a transition photo op since Nov. 7, and in the end Obama chose Paul Volcker as chairman of his Economic Recovery Advisory Board. This was a presidential decision not only bright but wise
Rubin himself credits as most important his habit of "probabilistic thinking": always asking questions like "what else might happen?", and "what if we're wrong?"; looking at the full range of possible outcomes rather than the most likely or the most comfortable; and recognizing that just because things came out well doesn't necesssarily mean that you made a good decision, and that just because things turned out badly does not necessarily mean that you made a bad one.
"I assembled this team because I am a strong believer in strong personalities and strong opinions. I believe that's how the best decisions are made," Obama said. "One of the dangers in a White House, based on my reading of history, is that you get wrapped up in group-think and everybody agrees with everything and there's no discussion and there are no dissenting views. So I am going to be welcoming a vigorous debate inside the White House.
"But understand, I will be setting policy as president. I will be responsible for the vision that this team carries out, and I will expect them to implement that vision once decisions are made . . . The buck will stop with me."...
The caution: "Obama's favored approach as a senator -- bringing as many smart people as possible into the room and letting them hash out issues -- could prove less workable when urgent executive decisions must be made."
But they quote James P. Pfiffner, a George Mason University professor and author of "The Strategic Presidency," saying Obama might manage such a team more skillfully than Bush would have because he is a better listener. "It's important for the president to have a broad range of alternative perspectives, but he has to be strong enough not to be threatened by people that he doesn't agree with," Pfiffner said.
As you well know, our nation faces a serious structural fiscal imbalance. A number of other countries issue fiscal sustainability reports to explain and to improve the understanding of the long-term outlook and the magnitude of necessary change. The Federal Accounting Standards Advisory Board has recently issued an exposure draft on fiscal sustainability reporting for the federal government. How has your experience prepared you to help with such reporting?
While the basic reporting would be on the long-term fiscal sustainability of current spending and tax policies, how would you incorporate alternative scenarios and assumptions—on both the spending and the revenue side—into the report?
As you well know, our nation faces a serious structural fiscal imbalance, and it is clear that more needs to be done to raise awareness and stimulate debate in the country about how to address it. How are you prepared to help the federal government do this? What would you do to raise awareness and stimulate debate about how to address our nation’s long-term fiscal challenges?
A number of other countries issue fiscal sustainability reports to explain and to improve the understanding of the long-term outlook and the magnitude of necessary change. The Federal Accounting Standards Advisory Board has recently issued an exposure draft on fiscal sustainability reporting for the federal government. How has your experience prepared you to help with such reporting?
OMB is in a unique position to innovate and improve the performance and budgeting reporting to Congress. What types of information have you either relied on or provided to others before that is most useful for decision making? What measures or reporting mechanisms do you think would be most useful for congressional decision makers?
What steps would you take to increase recognition of existing exposures and encourage explicit consideration of the long-term implications of new proposals before the government makes any additional commitments?
The government already uses accrual concepts for credit programs, and agencies have been working for nearly 20 years to refine credit subsidy estimates. Estimating the long-term claims on budgetary resources from government insurance programs and federal retiree health programs also can be difficult. How would you support agencies’ efforts to improve the estimates of these long-term costs?
Bonus Point: Question for the new Secretary of the Agriculture Department:
**”Forest pests have caused substantial damage in the past and continue to pose a serious threat to the nation’s environment and economy. How have you networked with local, regional, and other organizations such as may be needed to implement cost-effective early warning systems for invasive forest pests, particularly in urban and suburban forests that are at high risk of receiving invasive insects and disease? “
Bonus Point: Question for the new Secretary of the Commerce Department:
** “The 2010 Census is less than 2 years away. What do you think are the key challenges facing its managers, and what advice would you give them to help overcome those challenges?”
