There is a huge hole in the Treasury secretary's long-term economic strategy: Hanging on to the White House
Zach Goldfarb’s much-buzzed-about Washington Post profile of Treasury secretary Tim Geithner boils down to this: Geithner was and is the primary architect of the Obama administration’s pivot from the economy to the deficit. Furthermore, since Geithner now reigns supreme on economic policy, there is zero chance of any change of direction in the next year. All the advocates for greater attention to boosting economic growth and job creation in the short term — Christy Romer, Jared Bernstein, Austan Goolsbee, and even the much-hated-by-progressives Larry Summers — are gone. Geithner is what we’ve got.
Geithner’s stated position is that without long-term action on the deficit, the government will not be able to continue to support social welfare programs.
Geithner says Obama must tackle the deficit now if he wants the government to be in a position to support the economy in the future and to continue to protect the elderly and the poor.
“It’s been my view for some time that unless he played a major role in shaping and negotiating the broad fiscal framework… we would be left without the capacity to do a whole range of things that are really important,” Geithner, 49, said in an interview. “I have been a consistent advocate of him doing that early and often.”
There is a level on which Geithner’s rationale makes sense. The Republican strategy is to seize upon (and create) big deficits as a tool to eviscerate government. Their successful execution of this strategy poses a serious challenge to the safety net. If no action is taken by Democrats to get spending and revenue aligned in the long term, then Medicare and Medicaid will be in big trouble.
I don’t think any left-of-center economists would seriously disagree with that. Their position has always been that the smart strategy is short-term stimulus paired with a long-term plan to stabilize government finances. With government borrowing costs at historically low levels, now is the time to put as much energy into job creation as possible.
But aside from what should be the overriding government responsibility to deal as forthrightly as possible with massive unemployment and economic hardship, there’s also a realpolitik issue that Geithner seems to be missing. Voters care more about how the economy is faring when they head to the ballot box than they do about the state of the deficit. And as is already clear from the initial campaign salvos from credible Republican presidential candidates such as Mitt Romney and Tim Pawlenty, the 2012 election is going to be a referendum on the economy.
By ruling out any further stimulus — and, even worse, by abandoning efforts to keep the economy growing far too early — Geithner has helped to make Obama and the Democrats extremely vulnerable in 2012. If Republicans take the White House and the Senate in 2012, then it really won’t matter whether Geithner’s deficit pivot could have preserved “the capacity to do a whole range of things that are really important.” Healthcare reform will be dead. Banking reform will be dead. Medicare and Medicaid will face a deeply uncertain future.
Geithner doesn’t deserve all the blame here. Obama picked him and Obama backed him to the hilt. There’s also a very real political question as to whether anything that could meaningfully have altered the economic growth path could have been pushed through Congress. And it’s also not Obama or Geithner’s fault that an earthquake and tsunami forced Japan into recession, or that oil prices spiked, or that Europe’s sovereign debt woes or a possible slowdown in Chinese economic growth have put a damper on global economic conditions.
But the electoral problem for Obama may not hinge on whether or not the president has the actual power to make manifest his will on job creation, but rather on whether he is perceived to be trying. Is he giving it his best shot? Is he making it clear to the general public what constraints have been placed on him by the opposition party and external events?
The answers are no, and no. And judging by Goldfarb’s Geithner profile, the White House is fine with that. It’s going to be a tough platform to run on, if the economy continues to slump as the campaign heats up.
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