Treasury Secretary Tim Geithner came to New York this week to press President Obama’s case for a budget deal and taking action now to reduce the future budget deficit. Sometimes it helps to be a New York writer. A relative outsider to Washington, I was reminded again how other-worldly the economics debate in Washington now is.
I attended one of Geithner’s New York appearances, this one at the Harvard Club to a mostly friendly audience. He presented the case for dealing with the budget deficit now as if it was beyond controversy. This is of course the Washington consensus, and it has spread north and west. So-called liberals on the editorial pages of The New York Times and elsewhere debate with conservatives, not on whether budget balancing as soon as feasible is critical to the nation’s future, but how to get there.
Geithner felt no obligation to justify cutting government stimulus in the face of a weak economy in pursuit of reducing the deficit. He did not mention the unemployment rate of 9 percent. Why is the recovery weak? Because “we lived beyond our means,” he said. Was he blaming typical Americans, so often the routine of many unthinking analysts? He didn’t make a distinction. He didn’t mention that Wall Street over-speculated in housing, took on way too much leverage, mispriced risk and owned the many mortgage brokers that conned Americans to buy over-priced houses. Who lived beyond their means?
In a time of deleveraging, it seems obvious we must maintain a foot on the pedal: government stimulus. This is fairly moderate economic thinking, not extremism, except in the halls of power in Washington—and in much of the media. Cutting spending now is remarkably irresponsible.
Geithner stated the objective that federal debt should not rise above 70 or 80 percent of GDP. Allowing it to go higher would jeopardize the nation’s future, pure and simple. He cited no statistical or historical evidence as justification—no foreign examples of catastrophe or even mention of the spurious Reinhardt-Rogoff claims, now widely discredited, that debt of 90 percent of GDP was the historical danger point. He took it for granted that only a few outlier types would disagree. He fanned the flames of fear about interest payments overtaking the nation some day (soon was the implication), but in fact, those problems are well down the road, the main culprit rising health care costs.
To the contrary, Geithner seemed delighted that everyone who counted in his mind was on the same page in Washington. He didn’t blame Republicans for their threats and intransigence on budget issues—admittedly, one heckuva a difficult political situation.
But it was Obama who decided to join the Republicans on the budget balancing issue, and not the other way around. The irony was not evident in the dry, overly controlled tone of the man. You’d almost think Obama led the debate. Obama joined the Republicans way back when he endorsed the one-sided Simpson-Bowles deficit commission. It was not leadership, but defensive politics.
Geithner was especially proud of the automatic triggers recently proposed by Obama that would cut spending should the deficit rise above a specified level. I almost expect the administration to propose a balanced budget amendment to the Constitution any day now.
Obama is offering a better package than the Republicans or Bowles-Simpson. But it is still composed of more spending cuts than revenue increases. The Congressional progressives have a far better plan, now incorrectly perceived as extreme. Geithner said we’ve got to get out ahead of this problem, and they are willing to make destructive compromises to do so.
Geithner pressed on about the Obama administration’s successes. He was humble. He credited Obama for major decisions. He was the front man for the Obama economic message, of course, now massaged by the expert clear-headed, do-little political strategists in the White House.
In fact, I think it is too easy to forget how hard it was to get a $900 billion stimulus package passed in early 2009, but Obama should have come back for more fairly quickly. He did not.
He got universal health care, by his definition, but Geithner ignored how he failed to stand up for it publicly, and quickly dropped the ball on the public option.
No, this administration wipes clean such contrary facts. What disturbed me most is how Geithner is now reflecting machine-style message-making in the White House from an earlier era. No deviations, and above all no bad news. The Clinton administration eventually adopted this corporate public relations approach and they believed it helped get the president re-elected.
In fact, some corporations are more forthcoming. Hewlett-Packard and Wal-Mart now tell us business is bad, for example. (Granted, Wall Street is yet to be honest.) TARP was a roaring success, Geithner assured us. We saved the economy from depression.
Well, the truth is that it was mostly the Federal Reserve that saved the economy, along with the $900 billion stimulus. TARP was third.
TARP worked valuably to calm the financial markets at a critical time, however. No one should doubt that. And it made much of its money back, though not nearly as good a return as Warren Buffett made on his investment in Goldman Sachs. But it would have amounted to a mere a finger in the dike if the Fed didn’t pony up with trillions of dollars in reserves, securities purchases and guarantees.
Most important, TARP didn’t force banks to lend again, which the Treasury had the right and obligation to demand. Remarkably. Geithner bragged about TARP just as more data was coming out that housing prices were still falling and defaults rising.
Success? The lack of lending has contributed mightily to the sluggish fragile economy, low tax revenues and the very deficit that is now misdirecting economic policy in Washington.
What was galling is Geithner’s claim that the U.S., because of these policies, is doing far better than most European countries. This is true in terms of GDP growth. The Europeans hesitated to adopt a strong stimulus, and the dead hand of the European Central Bank, which has done so much harm for two decades, failed to step hard on the gas. They were wrong.
But in terms of jobs, the U.S. did far worse than all but a couple of the most damaged European nations. The jobs crisis in America seems generally to be neglected by this administration. Lack of sensitivity to the pain of average Americans helped make the last election a rout.
Many of my well-meaning colleagues continue to fight the good fight, not least the Campaign for America’s Future. There is a clear logic to what should be done. Get the economy on track again as a priority. Create jobs through infrastructure and other investing. Only then, worry about the budget deficit. To them, my venting here is old hat. They are used to dissimulation and indirection in D.C., and have learned how deal with the outrage of austerity economics in a weak economy, yet they gallantly fight on. But Geithner’s visit, reassuring in tone, well-accepted by his audience, got me furious and made me even more pessimistic. Call me naïve.