The first glimpse of Obamanomics

As the President-elect's new team gets to grips with the financial crisis, US economic policy looks set to be guided by pragmatism rather than political philosophy

For now, the people and the policy – for later, the philosophy. Later, if at all. When the President-elect, Barack Obama, unveiled his economic team yesterday, including the return of the former Treasury Secretary Larry Summers to the heart of government, he did not set a toe outside the current economic consensus.

Yes, there will be a substantial government spending programme designed to stimulate the economy, with public works projects at its heart. Yes, there will be tax cuts for working families, another way to help pull the economy out of its funk, but other tax policy will be decided on the hoof. Yes, there will be more effective regulation of finance under a new Treasury Secretary. No, not for now will anyone be focusing on the budget deficit and the national debt, even though we can see it mounting out of the corner of our eye.

Obamanomics will be forged, not in the first crisis-busting phase of the new president's administration, but later. And even then, a glance at the people with whom Mr Obama is surrounding himself, and a listen to the chatter of the economists he favours, suggests that his economic philosophy is one of pragmatism rather than ideology.

"It's not going to be left, it's not going to be right, it is going to be pragmatic," says Ken Goldstein, economist at the Conference Board in New York. "As soon as they take office, they will move very quickly to use policy levers to try to limit the rise in unemployment, and that might make policy look more to the left than to the right, but that is incidental. If a policy doesn't work, you can expect them to drop it. I think the team will be a lot like George Steinbrenner – the New York Yankees owner who changed managers every six months. They will be accused of flip-flopping, but they won't be the least bit worried about that."

The markets, terrified of a power vacuum during the long transition between administrations, are already looking to Mr Obama to act as a president, and were duly disappointed that he had no firm number to announce for the size of the stimulus package he has promised to sign within days of taking office. What we got instead was a glimpse into the workings of this team – something that may prove instructive. Instead, its size was expressed in terms of jobs. It will create or save 2.5 million jobs, Mr Obama said, and the details of the plan will be worked backwards from that number.

There is an irony in all this non-ideological policymaking. The characters with whom the President-elect has peopled his team are all, to varying degrees, associated with a very explicit economic philosophy from the Democratic party's recent past, namely the philosophy that came to be known as Rubinomics.

That is named after Robert Rubin, President Bill Clinton's second Treasury Secretary, and forged in that administration's ideological battles. Mr Rubin worsted opponents who believed in more activist government and higher federal spending, pushing Mr Clinton towards deregulation, a balanced budget and free trade, and – it has to be said – ushering in a prolonged period of strong economic growth.

Mr Rubin himself has been an adviser to the Obama camp, and floats above it as a kind of unofficial guru of Democratic economics, and two of his protégés were named to powerful pos-itions yesterday. Mr Summers was Mr Rubin's deputy and successor at the Treasury, and both men championed the career of Timothy Geithner, who rose to become an under-secretary in charge of the response to the Asian financial crisis of the late Nineties, long before ending up in his current role as president of the New York Federal Reserve.

Mr Summers will run the National Economic Council, a Clinton-era body inside the White House designed to co-ordinate policy across various government departments. Although it has fallen into disrepair under George Bush, the council looks set to be the main policy powerhouse under President Obama, and it was symbolic that, when the new commander-in-chief unveiled his team for the cameras yesterday, it was Mr Summers who was in shot over his left shoulder. Mr Geithner is being described by Obama insiders as an operations man, more likely to be implementing policy than forging it, in the pragmatic spirit he has shown in his current role at the heart of the federal bailouts on Wall Street.

For all their continued closeness to their mentor, both Mr Summers and Mr Geithner have taken positions that deviate from Rubinomics – perhaps inevitably as the credit crisis has shredded not just economic prosperity but also many of the economic assumptions that underpinned an earlier era. Mr Summers has been an early and ardent advocate for a big government spending stimulus, to make up for the effect on the economy of the shrinking banking sector. Mr Geithner signalled plenty of warnings about the effects of unfettered derivatives trading, and toiled – vainly – to impose regulation on a market whose implosion is at the root of the current crisis.

Mr Rubin, too, is helping to forge a new pragmatic consensus, at least for the first phase of the Obama administration. Jointly writing a "bury-the-hatchet" column in The New York Times this month, Mr Rubin and the old tax-and-spender Jared Bernstein said: "The Bible got this right a long time ago. Paraphrasing slightly, there's a time to spend, a time to save; a time to build deficits up and a time to tear them down. Though one of us (Mr Rubin) is often invoked as an advocate of fiscal discipline, we both agree that there are times for fiscal discipline and times for fiscal largesse. With the current financial crisis, our joint view is that for the short term, our economy needs a large fiscal stimulus that generates substantial economic demand."

Of course, here also are the seeds of the interesting philosophical debates to come. With the US national debt now over $10 trillion and sure to be expanded by another trillion or more, there will be a time, when the current crisis is past, when reckoning will have to be made. That is when discussion will turn on how quickly to rebuild the public finances, and when the cost of establishing universal healthcare, for example, will have to be weighed against tax cuts, or against paying off debt.

This is when Obamanomics will emerge. Yesterday, the incoming president characterised it pretty honestly. When the economy is stable, he said, there will have to be a debate about reforming the budget process in Washington (for which, read spending) and establishing a "sustainable fiscal situation for the long-term".

That is when the new team's Rubin-sponsored backgrounds may come to the fore. It is also when Mr Obama will finally have to decide whether to implement campaign spending promises, cut back the free trade deals he attacked in front of union audiences.

As the Conference Board's Mr Goldstein puts it, "From day one, they will be accused of making short-run gains at a long-term cost. Once we are through the immediate crisis, we don't know how they will approach these issues – and I don't think they do either."

Start your day with The Independent, sign up for daily news emails
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor