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Team of Rubins

There is no denying the plain fact that only progressive remedies, of large scale public spending and stringent government regulation, will fix what's broken.
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As progressives, we can view President-Elect Obama's emerging economic team in one of two ways. Either he has disappointed us by picking a group of Clinton retreads--the very people who brought us the deregulation that produced the financial collapse; the fiscal conservatives who in the 1990s put budget balance ahead of rebuilding public institutions. Or we can conclude that he has very shrewdly named a team of technically competent centrists so that he can govern as a progressive in pragmatist's clothing--as he moves the political center to the left.

Which will it be? Certainly, Obama's press notices are phenomenal, and Republicans have almost been more enthusiastic than Democrats. When Arianna Huffington and I debated George Will and David Brooks on George Stephanopulos's This Week Sunday morning, the conservatives were, if anything, more approving of Obama's picks than we were.

On another channel, Republican guru Ed Rollins could be heard exulting about the Obama cabinet. I even had the out-of-body experience of debating Pat Buchanan on Hardball, to find that he thought Hillary Clinton was a terrific choice for Secretary of State. Obama now has the highest approval ratings on record for any president-elect, and he has the entire Republican pundit class in a swoon.

The honeymoon can't last, of course, for Obama soon has to make very tough choices: whether to spend massive amounts of federal money to head off a depression; whether to embrace large-scale deficit spending as a temporary stimulus and then to go on to rebuild public investment so that we can have the 21st century infrastructure, energy, and human services that we need; whether to get serious about financial regulation so that the economy is never again brought down by excessive speculation. Whether to rescue the auto industry by imposing very tough conditions in exchange for public aid.

To do all of this right, he may need to nationalize a bank or two rather than just throwing public money at Wall Street, Paulson fashion. The requested aid to the auto companies exceeds the total value of their common stock. We need a plan for a conversion to energy-efficient cars, with a majority of public members on company boards in exchange for the public subsidy; this in turn violates norms of "free trade" by committing the sin of industrial policy. And we need direct government refinancing of distressed mortgages rather than aid to bondholders and banks.

Will Obama do any of this? He has reality on his side. He will have to think and move radically in order to save the economy. By January 20 we will be tottering on the edge of a depression. The entire conservative paradigm is now disgraced. Republicans may support a large initial stimulus package, for their districts are suffering along with Democrats. But they will want it be mostly in the form of tax cuts rather than public investment; and they are likely to oppose much of the rest of Obama's program. The bolder it is, the more rightwing opposition Obama will invite. By January, the lkikes of George Will and David Brooks will be aghast (I hope).

Obama may describe himself as a pragmatist who transcends ideology and bridges differences. But there is no denying the plain fact that only progressive remedies, of large scale public spending and stringent government regulation, will fix what's broken.

Which brings me back to Obama's economic team. Leaks suggest that it will include Tim Geithner as Treasury Secretary; Lawrence Summers as a senior White House adviser, perhaps head of the National Economic Council; Peter Orszag as director of OMB; and Jason Furman, Austan Goolsbee and Jack Lew in other senior economic positions. All are relative centrists. And with the exception of Goolbee, the one thing that all have in common is that every one is a protégé of former Treasury Secretary and current Citigroup executive Robert Rubin. Even Hillary Clinton, as president, might have found a fresher group.

What kind of magic does this man Rubin have? He was one of the key Democratic architects of the extreme financial deregulation that brought the economy to this pass. At Citi, he was one of the grand strategists of the speculation in securitized loans and off-balance-sheet gimmicks that has brought Citi to the edge of bankruptcy. Yet he continues to fall upwards. Surely Barack Obama must have noticed that Rubin is a false prophet. So why is his entire senior economic group a Team of Rubinistas?

On the front page of the Sunday New York Times for November 23 were two feature pieces in startling juxtaposition. The one, "Citigroup Pays for a Rush to Risk," documented Rubin's central role in running America's leading bank into the ground. The other, "Obama Vows Swift Action on Vast Stimulus Package," reported that one Obama top economic official after another was a Rubin man.

In fairness, adults are not merely tools of their patrons. In recent months, Larry Summers has disagreed with Rubin on the scale of the needed stimulus. Tim Geithner is for far more regulation than Rubin. Jason Furman, though suggested by Rubin for his campaign post of economic policy director, actually spent more of his career working for Joseph Stiglitz than for Robert Rubin. Peter Orszag has done a fine job as director of the Congressional Budget Office, and is not averse to large scale public spending.

Obama is the president, and he will do what he deems necessary. In my writings during the campaign, I sometimes found myself second-guessing Obama's strategy--and he invariably turned out to be smarter than I was.

Obama is also famous for listening to a wide variety of views. Others among his senior staff, such as legislative director Phil Schiliro, are further to the left. But this economic team will have influence--in posing options, playing the role of gatekeeper, writing position papers, and serving as an echo chamber of each other's advice.

Obama is intelligent enough to reach his own conclusions, and they are likely to produce far more heartburn for conservative Republicans than for those who worked so hard to elect him. But it would be helpful if his senior economic team included even one person who was not a member of the same centrist club - a Joseph Stiglitz, a Jamie Galbraith, a Jared Bernstein or a Sheila Bair. We shall soon see whether the most interesting team of rivals in the Obama White House will be the president and his own economic advisers.

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