You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Summers Defends Obama's Multi-front Approach


I'm generally of the Bill Galston view that Obama should pare down his goals a bit and focus on our most essential problems--I'd probably only do health care beyond the banks/credit crisis, housing, and stimulating demand. But I thought Summers made about as good a case as can be made today for being more ambitious. For example, on energy, he offered this fairly intuitive logic:

As Federal Reserve Chairman Ben Bernanke’s doctoral thesis demonstrated 30 years ago, unresolved uncertainty can be a major inhibitor of investment.  If energy prices will trend higher, you invest one way; if energy prices will be lower, you invest a different way. But if you don’t know what prices will do, often you do not invest at all. 

I was less persuaded by the case for doing education reform now. (Though, interestingly, David Brooks, who made the case for paring down even before Galston did this week, seemed high on Obama's education reform plans--and precisely because he thinks they're ambitious.)

Summers also had a couple interesting data points:

Earlier this week, the Dow Jones Industrial Average, adjusting for inflation according to the standard Consumer Price Index, was at the same level as it was in 1966, when Brookings scholars Charlie Schultze and Arthur Okun were helping to preside over the American economy.  ...

[A]bout 14 million new car sales are necessary for replacement and to accommodate rising population growth. Yet car sales are now running at an annual rate of about 9 million. New household formation requires something like 1.7 million new housing units a year and housing starts are now running about 400,000 a year. Once the inventory is worked off, investment will increase. Historical experience suggests that rapid inventory decline such as we have observed in recent months is followed by increased production to rebuild inventories.

It certainly feels like we're nearing a bottom in both the financial markets and the real economy. Then again, you could probably have presented slightly less grim statistics a few months ago and it would have looked like we'd hit bottom then, too. I guess the whole problem with financial crises is that they tend to overshoot on the way down (in addition to the way up, of course).

P.S. I should note that Obama personally defended his approach in a speech yesterday. Key point, I think (via the Times account):

In his speech and in answer to questions from preselected corporate executives, Mr. Obama said critics were overreacting, because many of these plans would take years to put in place.

“When we issued the budget,” the president said, “they said, ‘Boy, these Obama people, they’re really ambitious. They’re taking on health care. They’re taking on energy. They’re taking on education. Don’t they know that there’s this bank crisis right now? We’ve got to do one thing at a time.’ ”

But the budget, he noted, is a 10-year plan. “We don’t anticipate that every piece of health care is done this year,” he said. “We think that we’ve got to get the process and get in place a structure and a framework and a funding approach, and work out a lot of these details, but it’s going to be implemented over time.”

--Noam Scheiber