Are We In a Recession or Not?
"Everyone agrees that the recession is over." - Larry Summers, director of the National Economic Council
"Of course not." - Outgoing Council of Economic Advisers Chairwoman Christina Romer, when asked if the recession was over.
The two senior White House economic advisers made their comments on the same day.
It's getting harder and harder to read the tea leaves with regard to Barack Obama's economic team, which in recent weeks has seen two fairly major resignations – the above-quoted Council of Economic Advisers chairwoman Romer, and budget director Pete Orszag, two very different people with different views on the economy.
Romer is a former Berkeley professor who was brought into the White House for two reasons; one, she was an expert on the Great Depression, which was looking extremely relevant at the time of Obama's election, and two, she lacks a Y chromosome, which was reportedly the problem with Chicago professor and onetime close Obama confidante Austan Goolsbee, the original favorite for the CEA job. Orszag meanwhile is a Bob Rubin disciple, a former head of Rubin's Hamilton Project think tank who often captained the deficit-reduction effort within the Obama White House.
One thing both of these people had in common was that neither of them got along with Larry Summers. In Orszag's case this reportedly was a personal thing, while in Romer's case it was more political, although her lack of a Y chromosome may also have played a role (Summers's famous dictum that "women lack the ability to succeed at the highest levels of math and science" is looming large now that Larry Fishface seems to have squeezed out one of the highest-ranking women in the Obama White House).
Most of the DC chatter class seems to have interpreted the dual resignations as a sign of the ascendant power of the Summers-Geithner axis within the Obama White House. This is a variation of the same theme that I kept hearing when I was in Washington last month covering the Dodd-Frank bill; that while the Geithner/Summers/Rubin clan briefly fell out of sight after Scott Brown's big win last winter, and relative liberals like Paul Volcker and Romer briefly got more room to push their views with Obama, that situation had reversed itself by late spring and Geithner/Summers once again had the presidential ear on economic matters more or less exclusively.
"[Summers] has kept Romer, [Austin] Goolsbee, [Paul] Volcker all outside the inner policy circle. For Romer, why stay under these conditions, when she would lose her tenure if she stayed for more than two years?" was how one unnamed White House advisor put it this week.
To me the interesting thing about Christina Romer's story is that she decided to leave at exactly the same time a horrific piece of news about jobless claims came out. The country lost 131,000 jobs in July, a much bigger number than anyone expected, and the key reason seems to be that the Obama administration made faulty calculations in its effort to boost unemployment via the government till – the end of Census jobs was apparently a major killer in the recent job stats. "The private sector is still hobbled," said Robert A. Dye, senior economist at PNC Financial Services Group in Pittsburgh, "and certainly is not nearly strong enough to overcome the drain on the government side."
This is interesting because Romer was the Obama administration official who was loudest in her advocacy of a much bigger stimulus, with the idea that the administration's economic strategy should have been based around creating jobs and shaving unemployment as quickly as possible. "You don't get your budget deficit under control at a 10 percent unemployment rate," she said last year. The final stimulus number ended up being $787 billion; Romer reportedly wanted that number at $1.2 trillion and wanted the job creation efforts to be more elaborate and focused on long-term, permanent positions as opposed to stat-juking temp gigs like the Census.
In the end the most telling thing about Romer's resignation is that she was really the only person close to Obama's economic inner circle who isn't a former Clintonite or Rubinite and isn't either a former Wall Street banker or, like Geithner, a public-sector tool of Wall Street. (Even Orszag's replacement, Jacob Lew, is a former Citigroup official who worked in the Clinton White House with Rubin). And the reason that is significant is because the economic data being presented to us these days suggests two completely different narratives, depending on your point of view.
If you're on Wall Street, and you've seen the stock markets recover and the banks go from virtual insolvency two years ago back to record profit numbers now, then like Summers you'll think "everybody agrees" that the recession is over.
If however you're just some schmuck looking for a job somewhere outside the Beltway and/or lower Manhattan, and you're noticing that the only easy job openings this year were temp gig taking census surveys (and even those have dried up), then your view of things is going to be no way the recession has ended, "of course not."
In economics as in all other things, it all depends on how you look at things – and if everyone in the Obama White House is looking at things from the same vantage point, that sucks and is dangerous. Not that Christina Romer was a savior by any stretch of the imagination (one source of mine called her "totally mediocre"), but she was at least not completely a Wall Street pod job – she was pretty much the last inner-circle adviser who wasn't, and now she's gone, for whatever that's worth.
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