President-elect Barack Obama is assembling a deeply experienced team of top economic advisers whose key members firmly believe that limited government spending combined with free markets can create lasting prosperity.
But those advisers will take over at a moment that Obama says requires just the opposite: New financial regulations and generally unthinkable levels of deficit spending are in the offing as the new administration prepares to battle the most severe economic downturn since the Great Depression.
"Right now, our economy is trapped in a vicious cycle. The turmoil on Wall Street means a new round of belt-tightening for families and businesses on Main Street, and as folks produce less and consume less, that just deepens the problems in our financial markets," Obama said in introducing his economic team at a news conference yesterday. "These extraordinary stresses on our financial system require extraordinary policy responses."
To fashion the government's response, Obama has turned to people who have been associated with more market-oriented approaches. Timothy F. Geithner, 47, Obama's choice for Treasury secretary, is president of the Federal Reserve Bank of New York and has been a key player in negotiations aimed at saving some of the nation's largest financial institutions.
Lawrence H. Summers, whom Obama tapped to direct his National Economic Council, served eight years in the Clinton administration, including a year and a half as Treasury secretary. He has argued that the economic boom enjoyed during much of Clinton's presidency was largely a consequence of shrinking federal deficits.
Both Summers and Geithner are proteges of Robert E. Rubin, Summers's predecessor as Treasury secretary and current Citigroup director and counselor, whose views in favor of free trade, deregulation and reduced deficits have come to define the economic approach of the Clinton years.
Christina D. Romer, an economics professor at the University of California at Berkeley who is an expert on tax policy and the nation's recovery from the Depression, has been selected to lead Obama's Council of Economic Advisers. "She has the principal required characteristic of a CEA chair: the ability to clearly explain unpleasant and somewhat complex truths about the world to powerful people without making them mad," said Bradford DeLong, another Berkeley economist.
"These are great choices," said Doug Roberts, chief investment strategist for ChannelCapitalResearch.com, an investment research firm. "Right now, economics is the key thing. He is looking for experienced technocrats, despite the fact that some come from the right or the left."
Obama plans to ask his team to implement a huge stimulus plan -- estimates run as high as $700 billion over the next two years -- that would include money to rebuild crumbling bridges, roads and mass transit systems and jump-start a "green" economy by investing in alternative energy. Obama has said those initiatives are intended not just to carry the nation through the economic downturn but also to lay the foundation for a period of growth.
Obama says the infusion is needed to create or preserve 2.5 million jobs in an economy that this year shed about half that number, causing the nation's unemployment rate to spike to its highest level in 14 years. In the past, such heavy government spending on top of already-record budget deficits would raise strong objections, probably from the key members of Obama's economic team. But in the current climate, Obama's approach has been widely embraced.
"The world has evolved, and so has this group of folks," said Larry Mishel, president of the liberal-leaning Economic Policy Institute. "Issues of where people were eight to 10 years ago, that is just history. I'll tell you why: Right now, no one is talking about accelerating globalization. Everybody is talking about national health care. Nobody is talking about balancing the budget. Everybody is talking about rebuilding the labor movement. A higher minimum wage, all sorts of things that were problematic from an earlier period, are just not there anymore."
Some liberal economists wonder privately whether the past policy preferences of Obama's top economic advisers could prove problematic. But others say Obama's choices reflect his confidence in his ability to set the direction he wants them to pursue.
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