There you go again, Paul Krugman

It’s self-defeating to be bitter before the fight is lost. Paul Krugman compounds that danger by being prolific.

Along with Robin Wells, Krugman wrote in The New York Review of Books a sympathetic review of three bitter books about Barack Obama, Wall Street, and the Republican Party.

Here’s Krugman's retrospective on how Obama made decisions during the crisis-filled early days of his presidency:

“True, not all members of the team got it wrong. We now know in particular that Christina Romer, the Berkeley professor appointed to head Obama’s Council of Economic Advisers, called from the beginning for a much larger economic stimulus than the administration ever proposed. But Romer was sidelined and it was Larry Summers—a person not shy about displaying his brilliance—who had Obama’s ear. In principle, that needn’t have made much difference; when wearing his academic hat, Summers espouses Keynesian economic views not noticeably different from Romer’s (or ours). But Summers, rather than passing on straight economic analysis, tried to show his political astuteness about what Congress would accept, and as a result underplayed the case for a bigger stimulus.”

Click on: www.nybooks.com/articles/archives/2012/jul/12/getting-away-it/?pagination=false

Krugman doesn’t point out that not one advisor or school of economic opinion knew, in fact, how deep the recession was until well after the recovery package was passed into law. Nor does he say that Romer’s bigger package could have been enacted.

Instead, Krugman endorses the pop-psychological notion that Obama’s favored "all-star team” was assembled to give him the intellectual affirmation that he “craved.”

There’s something deeply unfair about all this.

Americans also “craved” an all-star team.

Obama’s task was to save a sinking economy. He wasn’t elected to fix morale in the Executive Branch or the White House—or spend his time finding out who’d screwed up.

According to Krugman and the books he reviewed, America was in a terrible mess because of stupid populist Republican decisions over the previous eight years.

So, what does the new president do? What was his fatal mistake? He listened to Larry Summers—a man who displayed his brilliance. In a crisis that absolutely required a divided Congress to quickly agree to explode the size of the federal deficit, Obama was swayed by political astuteness.

Indeed.

Too bad Obama didn’t know that the recession was three times deeper than the statisticians thought. Too bad he didn’t have the freedom to decide when to fight it. However, in an economic emergency or in a war, the nicest leaders must pick the option that’s doable and go with the most brilliant, plausible advise available.

Let the losers write the quickies.

Friendly advice to Obama for the State of the Union address

It’s been exhilarating to watch. In less than two months, Obama has turned around his political fortunes. A bumper sticker in Toronto says proudly “Barack Obama is back.” Americans seem ready to listen to him again—not merely to respond to applause lines, but alter their expectations of what can be done.

The stage has been set for another audacious run at the status quo. Next week’s State of the Union address provides the occasion. 

A fair outline of the risks he may be preparing to take is laid out in The New York Times by Christina Romer, former chairwoman of Obama’s Council of Economic Advisers, a Democrat and economics professor at the University of California, Berkley. She was a centrist in the White House and is arguing that a bold plan to reduce the long-run federal deficit is urgent. The US, she warned, could become the “Argentina of the 21^st century.”

Not only did she put the leadership challenge squarely on the White House, she argued that the recommendations of the National Commission on Fiscal Responsibility and Reform provide a good foundation for the president’s response.

“Finally, the president has to be frank about the need for more tax revenue. Even with bold spending cuts, there will still be a large deficit. The only realistic way to close the gap is by raising revenue. Some of it can and should come from higher taxes on the rich. But because there are far more middle-class families than wealthy ones, much of the additional money will have to come from ordinary people. . .

“AGAIN, the fiscal commission has made sensible proposals. It recommended broad tax reform that lowers marginal tax rates and cuts tax expenditures — deductions and exemptions for mortgage interest, employer-provided benefits, charitable giving, and so on. Such tax reform cannot be revenue-neutral — it needs to increase tax receipts. .  .”

Click on: http://www.nytimes.com/2011/01/16/business/16view.html

As a loyalist practiced in thinking about and recommending policy initiatives that are possible, it’s significant that Romer told the president, in lurid detail, to be frank about the need for more tax revenues. She’s probably reasonably confident that he will be.

Candour may or may not be politically rewarding, but it would be of immense value to the economy.  Talking in the abstract about a consumption tax is a lot easier than raising the retail price of gasoline. However, the prospect of a tangible, legislated set of tax and entitlement reforms would restore confidence in the richest and most productive major economy in the world.

Romer agrees that 2011 is not the year to impose austerity and new taxes. Rather, it is time to thrash out the politics of restoring fiscal balance as the economy gets closer to its potential. This has been done by mortals before.

The question for the president is whether Washington still has the ability to get hard things done.

Congress’ economic agenda: a pathway and a precipice

“The best thing would be for Congress to pass a plan now that will reduce deficits when the economy is back to normal. History shows that well-designed backloaded plans are credible . . .  Such backloaded deficit reduction would not hurt growth in the short run—and could raise it. If uncertainty about future budget policy is harming confidence, as some business leaders suggest, spelling out future spending and tax changes could be helpful . . . ”

—Christina Romer, former Chairwoman of President Obama’s Council of Economic Advisers, “Now Isn’t the Time to Cut the Deficit,” The New York Times, October 23, 2010

Click on: http://www.nytimes.com/2010/10/24/business/24view.html?_r=2&ref=business

Last week the first shoe fell: the $4-trillion dollar debt-reduction plan of the President’s National Commission on Fiscal Responsibility and Reform. Tax reform, as well as spending cuts, including cuts in social security and —defense, are now being discussed. After fifteen years, low tax clichés are sharing air time with concrete ideas about raising revenues and cutting expenditure. The “$4 trillion thing,” as one analyst on PBS described it, is too big to ignore or chase out of the room with Pollyanna growth and revenue forecasts.

Leaders who used to get away with talk about “scenarios” are starting to look at ideas again. Being pragmatic people, Americans won’t long tolerate grand talk about a problem without action.

What is emerging is a shift from a traditional liberal agenda to a traditional conservative agenda that will put Republicans as well as Democrats in jeopardy. The draft plan by Allan Simpson, a former Republican senator, and Erskine Bowles, an ex-chief of staff to Bill Clinton, is careful to do nothing to impede the recovery in the short run and insists that its reforms would more fairly share the burden of American government. If moderate Democrats can even talk about raising consumption taxes rather than raising the highest marginal income tax rate, Republican leaders and presidential aspirants will have no credible choice but to come to the table on defense cuts and revenue-increasing measures.

(Leaving the highest marginal income tax rate at 35% would not be an unprincipled comedown for Democrats. After all, Canada’s highest rate on taxable income is only 29% and we find the money for universal public healthcare and other social priorities that Democrats envy. A plethora of exemptions and overreliance on the income tax are the big problems with the United States’ revenue base. Moderates, including environmentalists and many corporate lobbies, should come together and help design a new national consumption tax. The British Conservative budget just raised their VAT to 20%. Canada’s latest Conservative budget happily projects nearly $30 billion in revenues from the Goods and Services Tax (GST) next year, more revenue than it will collect from corporate taxes.)

Obama has many ways to show leadership, at home and abroad. His presidency can recover without significant congressional cooperation. Unlike healthcare, when he pestered Congress to address his agenda, he can now be an interested party, helping congressmen and congresswomen address a looming challenge they said they sought office to address. He can support their efforts and give them political cover or, with other Americans, shake his head and do what he can on his own.