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Obama: Optimistic Fiscal Team Determined to Revive American Economy

November 24, 2008 at 6:05 PM EST
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President-elect Barack Obama unveiled his top economic advisers Monday, saying they share his desire to fuel long-term economic growth and create jobs. Economic experts examine the challenges that lie ahead for the team.
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JIM LEHRER: President-elect Obama’s economic team announcement. NewsHour correspondent Kwame Holman reports on the Chicago event.

KWAME HOLMAN: For the second time since Election Day, President-elect Obama held a high-profile event to talk about the economy, this time to unveil his economic team, still 57 days before he is to be sworn into office.

BARACK OBAMA, President-elect of the United States: With our economy in distress, we cannot hesitate and we cannot delay. Our families can’t afford to keep on waiting and hoping for a solution. They can’t afford to watch another month of unpaid bills pile up, another semester of tuition slip out of reach, another month where, instead of saving for retirement, they’re dipping into their savings just to get by.

And I want to repeat: This will not be easy. There are no shortcuts or quick fixes to this crisis, which has been many years in the making, and the economy is likely to get worse before it gets better. Full recovery will not happen immediately.

KWAME HOLMAN: Mr. Obama named four new members of his economic team today, including New York Federal Reserve President Timothy Geithner as treasury secretary. Geithner has worked closely with Treasury Secretary Paulson and Federal Reserve Chairman Bernanke on the implementation of the $700 billion rescue package to help financial institutions.

BARACK OBAMA: Tim Geithner offers not just extensive experience shaping economic policy and managing financial markets; he also has an unparalleled understanding of our current economic crisis in all of its depth, complexity and urgency.

Tim will waste no time getting up to speed. He will start his first day on the job with a unique insight into the failures of today’s markets and a clear vision of the steps we must take to revive them.

KWAME HOLMAN: Geithner served as undersecretary of the treasury for international affairs in the Clinton administration from 1999 to 2001. The top job at Treasury for part of that time belonged to Lawrence Summers. Mr. Obama tapped Summers today to head the White House National Economic Council.

BARACK OBAMA: With respect to both our current financial crisis and other pressing economic issues of our time, his thinking, writing and speaking have set the terms of the debate.

I’m glad he will be by my side, playing the critical role of coordinating my administration’s economic policy in the White House, and I will rely heavily on his advice as we navigate the uncharted waters of this economic crisis.

KWAME HOLMAN: Mr. Obama also announced two other members of his economic team.

Christina Romer, to be chair of his Council of Economic Advisers. A professor of economics at the University of California at Berkeley, Romer is best known for her study of America’s response to the Great Depression.

The other was Melody Barnes as director of his White House Domestic Policy Council. She was chief counsel to Edward Kennedy on the Senate Judiciary Committee.

Mr. Obama said the team was moving quickly to craft policy proposals.

BARACK OBAMA: And that work starts today, because the truth is, we do not have a minute to waste.

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.

These extraordinary stresses on our financial system require extraordinary policy responses. And my administration will honor the public commitments made by the current administration to address this crisis.

KWAME HOLMAN: After a 10-minute opening statement, Mr. Obama took questions from assembled reporters, including one about when he would raise taxes on those earning more than $250,000 a year.

JOURNALIST: Will you let the Bush tax cuts expire at the end of 2010 or will you use legislation to repeal them before that?

BARACK OBAMA: Well, I said during the campaign that my plan represented a net tax cut. And that’s important to remember: 95 percent of workers in this country would receive a net tax cut under my plan.

Now, what I’ve also said during the course of this campaign is we’ve got to restore some balance to our tax code. And the Bush tax cuts were disproportionately targeted towards the very wealthiest Americans. Those who are making more than $250,000 a year can afford to pay a little bit more.

And it is important, if we’re going to help pay for some of these expenditures that are absolutely necessary to get our economy back on track, that those who are in a position to pay a little bit more do so.

Whether that’s done through repeal or whether that’s done because the Bush tax cuts are not renewed is something that my economic team will be providing me a recommendation on.

KWAME HOLMAN: Mr. Obama called on Congress to act swiftly on a stimulus plan. But when pressed, he declined to put a price tag on such a package.

JOURNALIST: Could you give taxpayers a range of — of the figure that you’re thinking of?

BARACK OBAMA: I’m not going to discuss numbers right now, Kim, because I think it’s important for my economic team to come back with a recommendation.

But what I want to emphasize is that there’s a consensus among across the political spectrum that we need a stimulus, and we have to make sure that the stimulus is significant enough that it really gives a jolt to the economy, that it is putting people back to work, that it is making investments, that it is restoring some confidence in the business community that, in fact, their products and services are going to have customers.

KWAME HOLMAN: Mr. Obama also was asked his reaction to U.S. auto executives’ plea to Congress last week for $25 billion in loans to keep their companies afloat.

BARACK OBAMA: I was surprised that they did not have a better-thought-out proposal when they arrived in Congress. I think Congress did the right thing, which is to say, “You guys need to come up with a plan and come back before you’re getting any taxpayer money.”

And my attitude is that we should help the auto industry, but what we should expect is that any additional money that we put into the auto industry, any help that we provide is designed to assure a long-term sustainable auto industry and not just kicking the can down the road.

KWAME HOLMAN: The president-elect said he also had been in touch today with President Bush and Federal Reserve Chair Bernanke on their ongoing efforts to shore up the financial markets.

Assessing the economic team

Dean Baker
Center for Economic and Policy Research
... in many ways, it's a very good, very competent team, but at the same time one that has made some serious mistakes in the past.

JIM LEHRER: And to some analysis of today's announcement. Robert Glauber of Harvard's Kennedy School of Government is former CEO of the National Association of Securities Dealers, and he served as an undersecretary of the treasury under the first President Bush.

Dean Baker is co-director of the Center for Economic and Policy Research, a liberal Washington think-tank.

Mr. Baker, what do you think of the Obama economic team, as announced today?

DEAN BAKER, Center for Economic and Policy Research: Well, they're very competent people, very experienced people, but at the same time that experience means they've been to some extent implicated in the problems that got us here.

I mean, taking Larry Summers as one example, he was a supporter of the financial deregulation that, you know, helped to fuel the housing bubble. I should point out he also didn't think that financial asset bubbles like the stock bubble and housing bubble were a big problem.

And going back to these days in the financial crisis, he put in place the policies that led to the overvalued dollar and the large trade deficit that is, I think, the source of many of the imbalances that created the problems we have today.

So, in many ways, it's a very good, very competent team, but at the same time one that has made some serious mistakes in the past.

JIM LEHRER: Do you agree with that, Robert Glauber, or what would you add or subtract from that?

ROBERT GLAUBER, Harvard University: Well, I certainly agree that they're experienced, competent, skilled. They've had lots of policymaking experience. They'll hit the ground running. I guess I'm more favorably impressed by them than Dean is.

I think the fact is, they're centrist, they're not ideological, and I think that's very important for what they're going to have to do. They're going to have to ask the Congress, the people and the country to support quite, quite tough and expensive steps.

I think it's easier to do that if you're in the center rather than on either of the extremes.

JIM LEHRER: What about Mr. Geithner? He's been involved -- one of the three key players up until now in the whole rescue effort, with Secretary of the Treasury Paulson and with Ben Bernanke, the head of the Federal Reserve. And, of course, he's been the third person, because he's been at the head of the Fed in New York.

What do you think about that?

ROBERT GLAUBER: Well, I think of the three of them, he's been more in the role of an implementer rather than the primary policymaker, which he will now be as secretary of the treasury.

My bet is that some things will be different under his regime, although some of them will continue what's been done, and I think that's important. I don't think you want a radical change in the direction that we're going in when the new administration comes in.

Debating ideology and continuity

Robert Glauber
Harvard University
... there's always been some tension between a strong head of the Economic Policy Council and the secretary of the treasury. I think that's something the president-elect is going to have to sort out.

JIM LEHRER: Do you agree with that, Mr. Dean, that there should be continuity from what the Bush administration has been doing with Geithner, et cetera, et al, and what the new Obama administration will do?

DEAN BAKER: Well, that's a very good continuity, but it's not as though it's been going very smoothly. You know, we've been seeing a lot of mistakes, you know, mistake after mistake, really, so we go back to when those first derivatives began to explode back in the winter of 2007.

And the tendency then was to minimize the seriousness of the problem. That was really all through 2007. Then, when it came around to 2008, we had Bear Stearns go under. We were reassured that this would be the end of it. You know, and then, obviously, things exploded again in the summer.

And then, of course, we had the decision not to bail out Lehman, to let that go under. We did rescue, of course, AIG. And Mr. Geithner has been at the center of that. And, of course, that turns out to be a bottomless pit, again, not necessarily his fault, but it seems that it's -- it's hardly been a seamless effort.

JIM LEHRER: What about the ideology point that Robert Glauber mentioned that these are centrists, and that's a good thing, they're not from the left or they're not from the right?

DEAN BAKER: Well, we want people to make decisions based on, you know, the facts on the ground, what they see, but there are some real issues here.

I mean, we've had an out-of-control financial sector. Wall Street has really been out of control. And I think we kind of need a -- I'm stealing this from someone; I can't remember who offhand -- but we need a sheriff. We need a sheriff to come in and sort of lay down the law to Wall Street.

And I think the question we have to ask is, is this team -- will they be the sheriffs? Can Geithner do it? Can Summers do it? They have close ties to Wall Street. That doesn't mean that they can't do it, but I think it's a question people have to ask.

JIM LEHRER: What about -- speaking of questions that people have to ask, Mr. Glauber, who's going to be in charge of economic policy, Larry Summers or Secretary Geithner?

ROBERT GLAUBER: That's a very interesting question. And there's always been some tension between a strong head of the Economic Policy Council and the secretary of the treasury. I think that's something the president-elect is going to have to sort out.

They're both very, very skilled, experienced. They know each other very well. My bet is they can work together.

But I think you're right. You raised the right issue. Somebody is going to have to work out just how they work together and, of course, how Larry Summers works with the other people who are going to be involved in economic policy-setting.

A second stimulus package

Dean Baker
Center for Economic and Policy Research
I almost think it would be impossible to spend too much. I mean, obviously, it could in principle, but, I mean, $400 billion or $500 billion I think is a reasonable number a year.

JIM LEHRER: On the stimulus package, Mr. Baker, you heard what President-elect Obama said, that -- he said we need to jolt the economy back into shape, meaning it has to be big enough for that. No figure, he wouldn't mention any figure. The speculation is $500 billion to $700 billion. Some people even said as much as $1 trillion. Do you have a number?

DEAN BAKER: Well, you're on the high side here. You know, keep in mind that this is over two years. So if he's saying $500 billion to $700 billion, that's $250 billion to $300 billion a year. To my mind, if anything, that's on the low side. We're really taking...

JIM LEHRER: On the low side?

DEAN BAKER: That's on the low side, because we're really taking a very big hit. We've just seen on the order of $5 trillion in housing wealth disappear, about $8 trillion in stock wealth disappear.

Consumption is falling through the floor. The housing sector is still contracting. The nonresidential construction sector is still contracting. Trade is going the wrong way because of the rise in the dollar.

We only have the government sector left to support the economy. So I almost think it would be impossible to spend too much. I mean, obviously, it could in principle, but, I mean, $400 billion or $500 billion I think is a reasonable number a year.

JIM LEHRER: Do you agree with the president-elect, Mr. Glauber, that, first of all, there is a consensus among probably the two of you and all other economists in between?

ROBERT GLAUBER: I'm sure there's some consensus, although there can be significant disagreement, and there would be, I think, between Dean and me.

I don't think the bigger the better without limit. Something on the order of two percent of GDP to four percent, that would be in the range of $300 billion to $600 billion, probably makes sense.

Look, this is, as Dean said, a very big problem. We've lost $11 trillion, $12 trillion, $13 trillion of household wealth. That cuts back on people's ability to spend, and that's what causes the recession.

So it's got to be large. But it's got to be within some kind of control. And more important, I think, Jim, is, what are the elements of the package, as well as its size?

Bailing out automakers

Robert Glauber
Harvard University
And (the team has) got to come with a viable plan so that they can convince Congress and the American people that this isn't simply throwing more money down a hole where lots has already gone.

JIM LEHRER: Mr. Obama was also asked, Mr. Baker -- and the final question that we had in the clip was about the auto industry. And he said he doesn't want to give them a blank check. He wants to be helpful. What's your view of that?

DEAN BAKER: Well, that's the right answer. I think we have to keep them in business. I mean, the damage to that area, to Michigan and to Ohio, to Indiana, it's such an important sector of their economy, it would just be devastated if you were to see the big three go into bankruptcy.

And this idea that somehow they go into bankruptcy and then just pick up the pieces, that doesn't make sense. People won't buy cars from a bankrupt company. You wouldn't even be able to get financing. No one is going to give them loans when they're in bankruptcy.

So it's absolutely essential that they're kept in business. But, you know, President Obama is absolutely right: You have to demand serious conditions. And it was remarkable to me that, you know, the chief executives came there so ill-prepared to make their case.

JIM LEHRER: How do you feel about that, Mr. Glauber? Mr. Obama mentioned that again, too, that the heads of the auto industry didn't have a plan. They just wanted money. That's what he said.

ROBERT GLAUBER: I think he said it right. I think they've got to come with a plan. Otherwise, it's just throwing good money after bad. There's going to have to be a radical reshaping of the auto industry, downsizing, probably some kind of merger.

And they've got to come with a viable plan so that they can convince Congress and the American people that this isn't simply throwing more money down a hole where lots has already gone. So I think he said the right things. And I think he's perfectly right in not committing to anything at this point.

JIM LEHRER: OK, gentlemen, don't go away. We're going to talk in a moment about the next -- the new big Citigroup bailout, I should say extension of the Citigroup bailout, and after we go to Judy Woodruff for the details of that.