Is Obamanomics a boon or a bane? A debate over the president's policies. NEWSWEEK
Published Nov 21, 2009
From the magazine issue dated Nov 30, 2009
Whatever else they may do in office, presidents are largely judged—by the voters, if not historians—on their handling of the economy. So with unemployment edging into double digits, last week's Intelligence Squared US debate topic—"Obama's Economic Policies Are Working Effectively"—attracted the largest audience in the history of the series, and the closest margin of victory ever for one side. It also attracted some notable debaters, including New York's former governor Eliot Spitzer, who is reemerging into public life, 18 months after his resignation. Like many in the audience, Spitzer, who before his election as governor was known for investigating Wall Street banks as New York's attorney general, seemingly had a hard time making up his mind: just before the debate, he threw the organizers into turmoil by switching positions—to join, it turned out, the losing side.
The debaters for the motion were Lawrence Mishel, president of the Economic Policy Institute; Steve Rattner, former deputy chairman of Lazard Freres and the former head of the administration's auto-industry bailout; and Mark Zandi, chief economist of Moody's Economy.com.
Speaking against the motion were Spitzer; James K. Galbraith, an economist and professor of government at the University of Texas at Austin; and Allan H. Meltzer, professor of political economy at Carnegie Mellon.
Edited excerpts from the debate:
Zandi: The most important things (the government did) to shore up the financial system were the bank stress tests, early this year. They were the modern-day equivalent of what FDR did when he closed all the banks, on a Friday, and he said on Monday to his Treasury secretary, "Open all of 'em except a couple of hundred." And the Treasury secretary said, "Which ones should I open?" And FDR said, "It really doesn't matter, because the ones you open, everyone will think are safe." In fact it worked, it restored confidence, and the stress test did that, too.
The second response was to shore up the two weakest parts of our economy, the housing market and the auto market: the first-time homebuyer tax credit, which was very important in stabilizing housing values, the loan modification plan to help homeowners facing foreclosure, and efforts to provide more credit to the residential mortgage market. Ninety percent of all residential mortgage loans today are being made by the federal government.
And the third response, the fiscal stimulus, much maligned but ultimately very successful. In the last three months we lost 200,000 jobs a month. That's a lot, but the trend lines are moving in the right direction, and my view is by early next year we will have a stable job market.
Galbraith: The stimulus did some good, it helped forestall the complete collapse of state and local government budgets, it created some construction jobs. The question is, was it enough? And I think it's pretty clear that it was not. It was based on a forecast that unemployment would not rise past about 8 percent by the middle of this year and would decline after, which was wildly optimistic. We think the housing crisis is important, the collapse of small business is important, we think 10 percent unemployment as far as the eye can see is a disaster. Better than nothing is not good enough.
What would a working program look like? It would dissolve rather than coddle the toxic banks. It would stop the displacement of people from their homes, not just slow it … and it would fund a lot of new green jobs all across the country, providing every American who wants it a chance to work.
Mishel: The question is, are you going to judge the Obama policy ineffective because it hasn't corrected 30 years of generating inequality, of silly deregulation and worshiping of markets, that got us into this darn mess? We calculate that the Recovery Act has actually created 1.1 to 1.5 million jobs by the end of September. I'm very worried that unemployment is going to be high for years to come, but I don't blame that on President Obama, I blame that on the bums that put us in this mess.
I think they got the policy right. Has it solved all our problems? (No, but) I'm not sure how much could have been done economically. I can darn well tell you that politically, there was not much more they could have gotten.
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