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Thursday, June 10, 2010

"Why Economic Advisors Are Paid to Be Economic Advisors"

Robert Reich says there are two types of economic advisors, but only one of the two has any value to the president:

Why Economic Advisors Are Paid to Be Economic Advisors, by Robert Reich: Say you’re a high government official with some responsibility for advising the President on what he should be doing and saying about the economy. You know the economy is still in a deep hole, the deepest since the Great Depression. The jobs report for May was dismal... 
You also know that consumers don’t have the buying power to get it out of the hole... The housing market is still awful. You know businesses are reluctant to create new jobs if there are few customers... And you know export markets are drying up because of a high dollar..., and Europe has embarked on austerity measures to shrink its deficits.  You also know state revenues are way down because of the deep economic hole, and they’re forced to raise taxes, cut services, and lay off large numbers of state workers, including teachers.
Oh, and one more thing: You know that all the boosters keeping the economy barely going now are coming to an end. The Fed can’t keep interest rates near zero for long because it’s starting to worry about inflation. ... The federal stimulus is 75 percent spent, and the money will be gone in a few months. Census workers will also be gone by the end of the summer. 
So what do you do?
A) Tell the President the economy will either go into a “double-dip” recession or, at best, suffer anemic growth over the next five years — creating enormous pain and suffering for millions of Americans, and imperiling his reelection — unless he immediately champions a $300 billion jobs bill, including zero-interest loans to states and locales to prevent them from having to raise taxes and cut services, public-service jobs (cleaning up the Gulf), and a one-year payroll tax holiday on the first $100,000 of income. To sell this, he’ll need to explain to the American people why larger short-term deficits are necessary now, in order to get jobs back and the economy growing again so that long-term structural deficits (read health care and Medicare, mostly) can be tackled. 
B) Tell the President you understand the political pressures for deficit reduction are growing, and Republicans are making headway fooling the public into believing that this terrible recovery is due to to excessive government deficits. So so it’s perfectly fine for the President to bend to those political pressures. Cut the budgets of most federal agencies by 5 percent, enforce “pay-go” rules that don’t allow bigger deficits, build up expectations for the report of his “deficit commission” on December, and tell the American public that we now have to move toward fiscal austerity. 
If you choose B, you shouldn’t be advising the President. 

I think political realities have to play a role in the advice that is given to the president. Staff time is valuable, and policy proposals take quite a bit of time to construct. No matter how good a proposal is, it doesn't do much good to spend a lot of time developing policy proposals that you know are dead in the water when they arrive, especially if a second best option exists that isn't perfect, but makes substantial progress. However, even when it's clear that a policy has not chance at all of passing, I'd hope the more attractive proposal is at least articulated to the president as an option.

But Robert Reich is talking about something different from operating within the feasible set of policies. He's objecting to economic advisors getting behind proposals that might could be harmful economically if they are enacted, but that are popular politically due to public misperceptions about the underlying economics. Hard to disagree with that.

I'd go even further. When the president's political advisors decide to sell economic policies to the public based upon untrue statements, e.g. telling people that tax cuts pay for themselves, then I think the advisors have an obligation to either set the record straight, or resign.

    Posted by on Thursday, June 10, 2010 at 12:42 AM in Economics, Policy, Politics | Permalink  Comments (40)


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