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Obama Names Rubin Ally Furman to Economic Policy Post

by Kim Chipman and Matthew Benjamin

(Bloomberg) Barack Obama’s presidential campaign today named Jason Furman, who worked closely with former Treasury Secretary Robert Rubin, as economic policy director.

Not a good sign – Ruben has the fundamental accounting identity of national income accounting- government deficit = non-government surplus – completely confused. He thinks deficits take away from savings when they add to savings.

Furman, 37, most recently worked as an economist and budget expert at the Brookings Institution in Washington, where he headed the Hamilton Project, an economic policy research group aligned with the Democratic Party that was founded by Rubin, now chairman of Citigroup Inc.’s executive committee.

A bunch of deficit terrorists.

Obama today begins a two-week tour of tightly contested states including Missouri and Florida to tout his plan for jumpstarting a slowing economy. The Illinois senator says he, not Republican rival John McCain, is best suited to create jobs, provide tax relief and revive the middle class. Obama, who has struggled to attract lower-income workers, seeks to link McCain to what he deems the failed policies of President George W. Bush.

All he’s going to do is link himself to higher taxes and link McCain to tax cuts. Not a good strategy!

Hamilton Project

Furman’s appointment allies Obama’s campaign with leading economic centrists in the Democratic Party, foremost among them is Rubin, 69, who helped found the Hamilton Project in 2006 and is on the group’s advisory council. Furman is a former adviser to 2004 Democratic presidential nominee John Kerry.

Rubin orchestrated President Bill Clinton’s economic policy of promoting free trade and reducing the federal budget deficit.

Clinton caught the tail wind of the 5% GDP deficits of the early 90’s that pumped in income and savings, and allowed the economy to expand until the surpluses generated by the countercyclical tax structure destroyed almost $1 trillion in net financial equity and caused the economy to collapse in 2000.

Obama says he favors free-trade pacts as long as they include stronger protections for workers and the environment. He also advocates budgeting rules that require new spending proposals or tax changes be paid for by cuts to other government programs or new revenue-generating sources.

Pay Go – he’s all about ‘fiscal responsibility’ which is the road to high unemployment, slow growth, and expanded inequality.

Furman and Austan Goolsbee, a University of Chicago economist who until recently was Obama’s top economic adviser, told reporters today that Obama’s “pay-as-you-go” position contrasts with McCain’s. They claim that the Republican senator from Arizona doesn’t provide details about how he would pay for his economic proposals.

McCain has it backwards and is anti-deficit as well, as he wants to cut taxes now to bring deficits down later. But while that strategy is confused, at least it will initially add to demand, employment, and growth. And inflation…

Consequence of Bush Policies

They also criticized McCain, 71, for what they say are proposals that would increase the federal budget deficit and fail to provide short-term stimulus to the economy

Most any increase in the deficit will add aggregate demand and help support GDP.

and tied him to Bush policies they said were responsible for the current economic slowdown.

He let the deficit get too small as it tailed off after the 2003 fiscal package.

Note they never mention inflation, and McCain probably doesn’t either. When you believe the Fed alone is responsible for inflation, you can run any deficit you want without worrying about it. And it was Bernanke who ran to Congress urging them to add to the deficit not long ago, indicating he also believes inflation is solely up to the Fed.

“We did not arrive at the doorstep of our current economic crisis by some accident of history,” Obama said today. “This was not an inevitable part of the business cycle that was beyond our power to avoid. It was the logical conclusion of a tired and misguided philosophy that has dominated Washington for far too long.”

Right – fiscal responsibility is the enemy, and both parties push it.

McCain’s campaign responded today, saying that Obama’s proposals will lead to higher taxes, further weaken the economy and hurt job creation.

Why is Obama taking the initiative of branding himself as the symbol of higher taxes?

“While hardworking families are hurting and employers are vulnerable, Barack Obama has promised higher income taxes, Social Security taxes, capital gains taxes, dividend taxes, and tax hikes on job creating businesses,” McCain spokesman Tucker Bounds said in a statement.

Obama opens the door to damaging counter-punches with every economic initiative.

Neither party has any obvious economic initiative to ‘fix’ things, so they are both better off allowing the other to lead and then get shot down by the press. Obama seems to be falling into this trap more than McCain.

McCain Fundraiser

McCain today attended a fund raiser in Richmond, Virginia, raising $800,000 for his campaign and other Republicans.

Obama today repeated his calls for a middle-class tax cut, an overhaul of energy policy, the rebuilding of the country’s infrastructure, protection of Social Security and making college more affordable.

And, as per ‘Pay Go’ higher taxes elsewhere to pay for it.

He also singled out Exxon Mobil Corp., the world’s biggest oil refiner. Obama said he would seek to tax oil companies such as Irving, Texas-based Exxon on their record profits.

First, these wouldn’t be nearly enough. Second, he opens himself to all kinds of destructive criticism he can’t respond to about the presumed failures of this in the past, effects on investment and equity prices in general if government can target specific companies for extra taxes, etc. Also, about 75% of Americans are shareholders, and want their stock to do better.

“We’ll use the money to help families pay for their skyrocketing energy costs and other bills,” Obama said today.

The critics will say that directing more money to help pay for energy will only encourage more consumption, even higher prices, and inflation, as well as promote all kinds of environmental damage.

Obama says that McCain’s tax proposals would result in almost $2 trillion in breaks for companies, including $1.2 billion for Exxon alone.

You hear this with every election, and with subsequent examination of the details, it always seems to evaporate.

The Congress is in Democratic hands, and Obama was a senator, so why didn’t he/doesn’t he propose this kind of legislation?

Furman said in an interview that the Obama campaign’s economic goal is based on “broadly shared, bottom-up growth,” similar to the views espoused by groups such as the Hamilton Project and the Economic Policy Institute, a Washington research group funded partly by labor unions.

Not a source of broad based support.

‘Empower People’

“You need to empower people to make the economy work for them,” Furman said.

Sounds like Reagan?

As Obama’s economic policy director, Furman said his priority would be to expand the range of advice and proposals flowing to the presumptive Democratic nominee by reaching out to a wider group of economists.


“My key mandate, which came directly from the senator, is to bring him a diverse set of voices and ideas, because that’s the kind of debate he likes to hear to make up his mind about his economic agenda,” Furman said. He named Rubin, former Treasury Secretary Lawrence Summers and former Federal Reserve Vice Chairman Alan Blinder as advisers the campaign would turn to.

Bringing back both Rubin and Summers- Letting the foxes back into the chicken coop.

Furman also named Jared Bernstein of the Economic Policy Institute and James Galbraith, a University of Texas economist and son of economist John Kenneth Galbraith, who was an adviser to President John F. Kennedy.

Galbraith and Ruben on the same team? What’s next, Mitt Romney as Obama’s VP?

Furman attended Harvard University in Cambridge, Massachusetts and the London School of Economics and received a doctorate in economics from Harvard. He worked as an economist in the Clinton administration and at the World Bank.

Goolsbee will continue to play a leading role in the campaign, Furman said.

Why not?!


4 Responses

  1. Can someone explain how “Clinton caught the tail wind of the 5% GDP deficits of the early 90’s that pumped in income and savings, and allowed the economy to expand until the surpluses generated by the countercyclical tax structure destroyed almost $1 trillion in net financial equity and caused the economy to collapse in 2000.”

    If the deficit became too small under Clinton, as Warren seems to be arguing, wouldn’t that mean there was insufficient money available for savings, and wouldn’t that reduce aggregate demand? But the Clinton years had strong AD — the 2000 drop was because the .com bubble popped (it inflated under Clinton).

    Where do asset bubbles live in the Paradigm?

  2. yes, the surpluses reduced savings by exactly that much, and it was the desire to reduce savings via going into debt that drove the economy until collapse.

    The household sector was expanding its indebtedness at an unheard of and unsustainable 7% of gdp as it crested the y2k hurdle and then collapsed.

    Subsequents deficits still haven’t made up for the equity lost in the surplus years, when you recognize deficits of maybe 4% of gdp are perhaps ‘neutral.’

  3. And doesn’t the “horizontal” monetary expansion lead to increased inequality as the have-nots borrow more and more from the haves? Is that what led to the increase in inequality we’ve seen over the last 30 years?

  4. I don’t think that’s the primary reason. Borrowing to spend supports lifestyle. What matters is distribution of consumption more so than distribution of income. So programs to keep consumption up for lower income individuals in that sense is progressive.

    What has hurt is the fact that the ‘labor market’ is not a ‘fair game’ in that workers have to work to eat, while business only higher if there is a sufficient return on investment.

    Given that game theory tells us real wages would stagnate, which has been the case.

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