Subscriber Content Preview | Request a free trialSearch  
  Go

The Deal Economy 2013

Home    |    Event    |    Blog    |    Awards
Print  |  Share  |  Discuss  |  Reprint

Noam Scheiber's 'The Escape Artists'

by Robert Teitelman  |  Published February 27, 2012 at 1:57 PM
theescapeartist2.jpgNoam Scheiber is very clear in his point of view in his newly published dissection of the Obama administration's economic policy, "The Escape Artists." It's contained in the second half of the title: "How Obama's Team Fumbled the Recovery." This is worth pondering for a moment. What does it mean to "fumble" the recovery? To Scheiber, the fine young reporter for The New Republic, it means analyzing all the errors the administration, mostly in the form of its first economic "dream team," made as it tried to quickly pivot from the 2008 campaign to tackle, first, the stimulus, then financial re-regulation, then broader themes of jobs versus deficits. Scheiber argues convincingly that mistakes were made: from Larry Summers' decision to suppress Christy Romer's argument that $1.2 trillion to $1.8 trillion was really necessary in that first stimulus package to Tim Geithner's go-easy-on-the-banks in Dodd-Frank to Obama's own insistence on bipartisanship in negotiating with a wiley, increasingly radical and recalcitrant Republican Congress.

Now it's pretty obvious that mistakes were made, much as mistakes occurred in the ad hoc emergency measures undertaken by the Bush administration. Indeed, in policymaking, as in war, mistakes are inevitable: look at the New Deal. What matters is the longer run. The new administration was handed a collapsing economy in 2008 that was just beginning to emerge in its full scale and scope. Scheiber himself, near the end of the epilogue, some 300 pages after the discussion of the first stimulus, offers some exculpatory context to the decisions that were so-quickly made: "In fairness, cataloguing the administration's missteps in late 2011 can be a detour into academic quibbling. ... In fact, Obama had faced obstacles beyond his control throughout his presidency, and these obstacles help explain the sluggish recovery. There was, for one thing, a recession of unusual depth and force, for which Obama is entirely blameless, and which would have challenged policy maker of preternatural wisdom. Beyond that, it's fair to single out conservative Democrats in Congress who seemed to come by their loyalty from watching the townsfolk on 'High Noon.'" And that doesn't even include Republican recalcitrance, the auto bailout and euro-zone woes. It is odd that those caveats don't appear earlier. By the time they show up, they come across as Scheiber hedging his bets that perhaps the economy, which had already gone from stillborn to sluggish, might actually, well, recover.

All that's not to say Scheiber hasn't written a valuable and often insightful book about how economic policy is actually made. The book offers smart and nuanced portraits of a cast of characters that have seemingly been done to death: Geithner, Summers, Peter Orszag, Robert Rubin, Alan Greenspan, Rahm Emanuel not to say a number of folks who haven't received as much attention, such as Romer, Gene Sperling and Geithner's various deputies. Scheiber writes clearly and accessibly, making complex, contentious and often deeply arcane economic issues seem simple and straightforward -- perhaps too simple. Scheiber assumes that the orthodox neo-Keynesian doctrine, as put forward by New York Times columnist Paul Krugman, is, to any rational reader, pretty obviously right, politics included. Deviations from that orthodoxy almost always in the retrospective telling suggest the administration has gone off course, from the too-small stimulus to Obama, Geithner and Orszag's belief that deficit control was more important than Keynesian job-creation. I'm not foolish enough to insist that that orthodoxy is necessarily wrong, just that the political and economic uncertainty when decisions were actually being made was often far greater and more problematic than Scheiber suggests, although even he admits that vital decisions were often reached quickly and casually.

For example, Scheiber treats Romer's modeling of the first stimulus as really a straightforward matter of getting the right number, like a classroom exercise. Romer may have been right in her calculations (we'll never know for sure), but there was considerable and valid debate within macroeconomics and within the policy shops about the models and the nature of the stimulus. (Shovel ready? Tax cuts versus infrastructure?) And when you included fears that the markets, which had just blown up spectacularly, might react poorly to greater spending, you had a reasonable argument for ratcheting back Romer's stimulus recommendations. The fact is, while the $800 billion stimulus probably did far more good than the GOP gives it credit for, it's unclear what a $1.8 trillion or $1.2 trillion stimulus might have accomplished. To say we know is to suggest that economics is a lot more scientific and predictive than it is. The fact that Romer and the rest of the gang didn't fully understand the depth of the crisis when they came up with stimulus and offered projections is telling.

Indeed, perhaps the most insightful aspect of Scheiber's discussion of the stimulus is his speculation about the intersection of personality, politics and policy -- notably his notion of the difference between what Summers thought he was doing when he edited down Romer's recommendation for Obama and the way others viewed anything coming under his name. In short, Summers thought he was offering politically feasible options; but given his reputation as an economic intellectual powerhouse, and inveterate debater, everyone else assumed he was making a pure economic case. "Even if they solicited the opinions of other economists, including one as respected as Christy Romer, the president and his aides were inclined to discount, particularly if these opinions veered too far from what they wanted to hear."

Is this true? It's as good an explanation as any. Scheiber in fact works hard to track policy and political choices back to matters of personality and biography. Sometimes this gets difficult, particularly with a figure like Geithner who over a career in government service has come in contact with a variety of powerful personalities, such as Summers, Rubin and Greenspan. Scheiber is acute about aspects of Geithner's style that meshed well with Obama's own tendencies (although who knows if he's right or not), and his play-by-play of what works in the West Wing, and what doesn't, is fascinating. He recounts the widespread belief, even within the administration, that Geithner had once worked at Goldman, Sachs & Co. That wasn't true -- Geithner had never worked on Wall Street -- but Scheiber does argue convincingly that this urban myth suggested a deeper truth. Geithner seemed surrounded by Goldman alums at the New York Fed and Treasury, and he certainly displayed solicitude toward the banks and deficit reduction that veered closely to that of Rubin, a former Goldman co-CEO. But again, for all of that close observation, Scheiber sometimes simplifies situations that were bewilderingly complex. That's certainly the case with his discussion of Dodd-Frank. Scheiber's characterization of Geithner's views on the banks -- that it was a necessity to coax them back to health -- does appear accurate. But you don't have to believe that Dodd-Frank was an inspired piece of legislation to see that the issue with the big banks was (and is) tortuously difficult, with a host of knotty trade-offs and unknowns. Here, Scheiber stresses the political aspect of the decision -- that the administration should have paid more attention to populist anger over bailouts -- and less to the economic: what would have happened, in the short run and long, if the big banks got whacked. Scheiber skips over a vast amount of thinking about regulation, economics and finance here, presumably for readability.

Still, "The Escape Artists" is an enjoyable read, even if I don't fully understand the title. But the one great void in this book involves the man in the center: President Obama. He is often strangely absent, even when he's sitting in the room. Scheiber does not offer the same biographical analysis as he does with Summers, Geithner or Orszag. When he does appear, he seems engaged and in command. He impresses economic experts, like Summers, with his ability to comprehend the subject. Scheiber does try to offer some reasons for his insistent bipartisanship and his desire to accomplish great things. But the arguments seem thin and secondhand. Scheiber believes Obama made a series of wrong turns, mostly on deficits versus jobs, by listening to the wrong people, like Orszag and Geithner, or by indulging in his belief that he could deal with Republicans. Perhaps he's right; but again that's awfully easy in retrospect. Obama, in the end, seems to be relatively flexible and deeply pragmatic. More importantly, he appears more comfortable and more sure-footed in the job, which is not surprising. So much of the arc of this administration seems to mirror that of Bill Clinton's first term, right down to the struggle with Republicans in Congress over shutting down the government.

It's possible, of course, that Obama and what Scheiber calls his early "grab-bag" economic team could, entirely on the fly, with depression looming, gotten everything right -- or more correct than they did. Perhaps we could have reached "escape velocity" (Summers' term) into a real, sustainable recovery, and avoided the high unemployment and lackluster growth of the past few years. But it's not a defense of Obama to say that that's not likely. Financial crises like 2008 leave behind malaise and painful readjustment. Scheiber, who clearly knows better, often seems to imply that this was your standard-issue recession, easily resolved by classic Keynesian stimulus. But this wasn't that at all. The crisis was global (Europe plays almost no role here, even toward the end when euro-zone jitters swept U.S. markets). The sins were not only deep-seated and financial in nature but long in the making and resistant to easy cure. Yes, more could have been done. Obama could have taken a more populist stand on jobs and taxes earlier. The stimulus could have been bigger. He could have walked away from the Republicans several years ago. He could have put healthcare reform aside. He could have punished the banks and their shareholders. But each of these steps would have created unknown consequences. That's why, for all the intelligence this worthwhile book brings to the subject, it's so much easier to stand in judgment on the past, as opposed to creating policy for the future. - Robert Teitelman
Share:
Tags: Alan Greenspan | Barack Obama | Bill Clinton | Christy Romer | Dodd-Frank Act | Gene Sperling | Goldman Sachs & Co. | GOP | Keynesian | Larry | neo-Keynsian doctrine | New York Federal Reserve | Noam Scheiber | Obama administration | Paul Krugman | Peter Orszag | Rahm Emanuel | Republican Congress | Robert Rubin | Summers | The Escape Artists | The New Republic | Timothy Geithner | Treasury Department
blog comments powered by Disqus

Meet the journalists

Robert Teitelman

Editor in chief

Bob Teitelman, editor in chief and a member of the company’s executive committee, is responsible for editorial operations of print and electronic products. Contact



Movers & Shakers

Launch Movers and shakers slideshow

Former New York Gov. David Paterson joined Atlanta-based broker-dealer IFS Securities Inc. as chief strategist of U.S. affairs and chairman of the advisory board. For other updates launch today's Movers & shakers slideshow.

Video

Palladium Equity's Sahale Snacks is on sale

Seattle-based provider of all natural, nut-based snacks could garner takeover interest from both larger strategics and private equity. More video

Sectors