20110223 peters agonistes

J. Bradford DeLong

Peters Agonistes J. Bradford DeLong U.C. Berkeley February 23, 2011

The NY Times flunks the policy test: When economics reporting at the nation's leading newspaper reads like gossip, we’ve got a problem: Partisans of left and right complain that the mainstream media gets things wrong. I've been known to make that complaint once or twice. But I'm not sure that getting things wrong is as serious a problem in the press right now as not getting things at all.

I’ve been thinking about that a lot since reading Peter Baker's New York Times Magazine story about economic policy-making in the Obama administration. It is a subject that I have rather keen interest in.

Let me first recount my own perspective on President Obama's former Director of the Office of Management and Budget, Peter Orszag.

In January 2009 Peter Orszag took office as OMB director. The institutional role of the OMB director is to be the guardian of the long-run coherence of the government's tax and spending plans: To make sure that the receipts coming into the Treasury will, over the long run, match the spending commitments that the government has made. When you have OMB Directors who do not perform this institutional role — as David Stockman and James Miller failed to do their job in the Reagan administration, as Mitch Daniels, Josh Bolten, and Rob Portman failed to

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do their job in the Bush II administration — the economy gets into trouble.

Excessive government borrowing crowds out productive private investment, businesses concerned about prospective tax hikes (to cover the government's spending commitments) cut back on their expansion plans, and economic growth slows.

When Orszag took office the U.S. government faced a very large gap between its long-run spending commitments and its plans for taxes because of the exploding costs of the government health-care programs Medicare and Medicaid — costs driven by rapidly rising costs in the health care sector generally. America's long-run fiscal gap had roughly tripled over the Bush II administration because if there was one thing the Bush II administration loved more than huge additional increases in spending — Medicare Part D and the post-9/11 defense buildup, anyone?

— it was cutting taxes without caring for the long-run coherence of their policies. So Orszag turned his energy to figuring out some way, somehow, to get the government’s taxes and spending commitments back in line with each other.

But January 2009 also saw America confront another more immediate and urgent economic problem than the long-run financing of government commitments. The wake of the financial crisis saw unemployment rise toward 10 percent as private-sector spending collapsed. The long-run fiscal dilemma required economy: That the government find ways to cut back its spending. The short-run downturn and recession required that the government do the opposite of economy: When the private sector sits down and stops spending, the government needs to stand up and spend in order to keep the economy near full employment. Government economy measures needed to be prepared but delayed until the crisis of elevated unemployment ended.

In the initial round of White House decision-making — the round that decided on the Recovery Act passed in February 2009 — Orszag agreed with his fellow members of Obama's National Economic Council that recovery in the short term was more important than deficit-reduction in the

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long term, and that the government should spend more without worrying just then how the debt it issued was to be repaid.

After that, however, Orszag's position shifted. As best as I can see (and I may be wrong here), others wanted to separate policy into two tracks — on the one hand a long-term track to balance the budget, focusing on health care reform to slow the growth of Medicare and Medicaid spending through increased efficiency; on the other hand, a short-term track focusing on getting America back to work by spending more money over the next few years without worrying about the effect of the short-term policy measures on the long term. Some policy makers believed that tying the two tracks together would diminish President Obama's chances of successfully getting the Congress to take action on either: Deficit hawks would not vote for long-term economy measures if they were tied to costly short-term stimulus; those worried about reducing unemployment would not vote for short-term stimulus measures if they were tied to long-term economy measures like tax increases and benefit cuts that they found distasteful.

Orszag, by contrast, thought that tying the two tracks together offered President Obama his best chance of success. Senate moderates, who were the swing votes on every issue, needed a story line on how the deficit would be brought under control in the long run to make them comfortable voting for stimulus in the short run. Thus attempts to decouple short-term and long-term were, in Orszag's view, the administration shooting itself in the foot. Moreover, if short-term stimulus was not going to be enacted on a sufficient scale, then hopes of a strong economic recovery would have to be pinned on a restoration of business confidence — and measures to put the long-run finances of the U.S. government on a sound basis were pretty much the only policy the administration could push that had a chance of restoring business confidence.

This was the message and the policy that Orszag pushed relentlessly throughout his time in the administration.

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Now I think Orszag was wrong. I am more on the side of his adversaries inside the Obama administration, who were more inclined to decouple short-term stimulus from long-term economy measures. I am on their side because even the largest proposed stimulus plans were so small in the perspective of the long term as to be irrelevant to the debate over what to do in the long-term. I am on their side because even though I agree with Peter Orszag that tying the two tracks together would have been the best economic policy, the weight of people whose political judgment I trust is that Orszag is wrong on the legislative politics. (And, I must admit, I am on their side because I am better friends with some of his adversaries than with him.)

So why have I spent 1,000 words on Peter Orszag's positions and the economic policy dilemmas of the Obama administration?

Because I am still troubled by Peter Baker's New York Times Magazine piece on the positions and economic policy dilemmas of Peter Orszag and the other economic policymakers in the Obama administration. Because the striking thing about Peter Baker's piece — or, indeed, about practically everything that you read in MSM publications, since Peter Baker is not an anomalous outlier but rather a typical White House reporter — is that the article tells you remarkably little of what I have just recounted.

Instead, what the Times Magazine piece tells you about Orszag and Obama is that: 1. Obama is unhappy with the menu of policy options his advisors have been giving him.

2. Obama is so focused on the economy that he cancels lunch breaks to continue conversations.

3. Obama is pragmatic.

4. The process of making economic policy inside the Obama administration was no fun and was "dysfunctional."

5. Talking to Obama's economic policy staff is like "picking through the wreckage of a messy divorce."

6. Paul Volcker felt ignored by Peter Orszag and others.

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7. Peter Orszag "was considered... arrogant. When Transportation Secretary Ray LaHood mentioned to a reporter that he had settled a dispute with Orszag by going around him to Emanuel, a peeved Orszag would not take his apology calls; LaHood ultimately sent a case of wine to make amends. Orszag also exchanged testy emails with Emanuel over the health care effort."

8. Other officials "tired of Orszag's refrain" about cutting the long-term deficit.

9. Orszag believes, "Unfortunately, I think the environment often brought out the worst in people instead of the best in people. And I’d include myself in that."

10. Of Larry Summers's replacement, Gene Sperling: "The selection of Sperling, who held the same job under Clinton, was telling. A onetime boy wonder who, despite his graying hair, still has the same whirlingdervish, work-till-midnight energy, Sperling... eventually won over Obama with his doggedness. As a champion of the payroll tax holiday, he proved critical to shaping Obama’s tax deal with Republicans and so many other issues that White House officials refer to him as B.O.G., the Bureau of Gene. Where Summers was a master macroeconomic thinker, Sperling is known for his mastery of getting things done, or at least waging the fight, in the place where policy, politics and media meet."

Now (10) should simply make you laugh. It is a pure "beat sweetener" — a reporter who covers a regular beat extravagantly puffing up the reputation of somebody whom the reporter hopes will become a regular and reliable source of inside information. Gene is extremely talented and hard-working with enormous strengths — the same is true of Larry Summers, Christy Romer, and Peter Orszag — but he does not raise the dead, walk on water, or leap tall buildings with a single bound.

And (1) through (9)? Do you learn anything about the policy dilemmas faced by the Obama administration, about why different members of the administration took the positions that they did, or about why the push-andpull led the administration to adopt the policies that it did? No.

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Peter Baker's article reads like Hollywood celebrity journalism: 95 percent gossip, and perhaps 5 percent policy. This, to me, is a big problem.

Celebrity gossip is the wrong rhetorical mode for a story in the nation's leading newspaper about White House economic policymaking. If The New York Times does not share that belief, if it views decision making on matters of state in the same light as decision making on matters concerning the Academy Awards, that may partially explain the fix the paper is in. It may also determine whether The Times ever emerges from its troubles with its influence and dignity intact.

February 23, 2011: 1686 words

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