Replacing Summers: Think Policy, Not Politico

Larry Summers is out, and President Barack Obama now faces a critical
decision. He can focus on policy, naming a replacement who wants to
ease the economic strains on American households, or he can focus on
politics, naming a candidate who appeases the corporate executive class
and their backers in the Republican Party. The choice should be obvious.
On the economy, good policy is also good politics.

The Obama administration has known for a very long time that it needs
to do more about the disintegrating U.S. jobs outlook, but has shied
away from taking strong action due to political considerations. Voters
are worried about the deficit, the administration is taking heat from
cry-baby hedge fund managers for being "anti-business" and besides,
Republican obstructionism makes it nearly impossible to pass anything.
Better to claim credit for the president's modest economic gains than to
wage an uphill battle for economic security.

This pattern of political calculation goes all the way back to the
negotiations surrounding Obama's economic stimulus package back in
February of 2009. Obama adviser Christina Romer suggested that a package
of $1.4 trillion would be needed to significantly bring down
unemployment, a figure that ultimately proved to be based on overly
optimistic assumptions. But fears of a Republican backlash from a dollar
figure ultimately watered down the package to $600 billion -- the
administration even included standard annual tax-code fixes in the deal
to create the illusion of a larger $787 billion plan.

Summers himself was no angel in this process. He was a chief
architect of the too-small-stimulus. But since mid-2009, he has been
advocating for further action to create jobs, and by all indications, he
has been ignored for political reasons. It is a very strange scenario
in which one of the economists most (justifiably) vilified by
progressives has actually been one of the more progressive economic
voices within a Democratic administration.

But what has this political hedgeing won for Obama? A few days of
decent headlines in Politico, followed by years of economic misery. That
economic misery has taken a greater toll on the president's popularity
than any actual policy he has adopted. The fact that unemployment
remains near 10 percent after nearly two years generates a lot of
resentment. Voters do not want to empower policymakers who tolerate such
economic calamities. Ultimately, the Obama administration's focus on
short-term political wins has resulted not only in bad policy, but in
political ruin.

So in replacing Summers, Obama needs to pick somebody who gets the
policy right. Over time, the right policy will result in the right
politics -- bringing down the unemployment rate, fostering economic
growth and battling Wall Street excess will strengthen the economy, make
households happier, and satisfy voters. The right Summers replacement
would be an economist who understands the need for further government
spending to create jobs, who recognizes that record-low interest rates
make the deficit a secondary consideration, and who understands that
Wall Street predation is taking a serious toll on household wealth.

Attempting to appease either the corporate executive class or the Republican establishment would be a fool's errand. The economic platform advocated by House Minority Leader John Boehner, R-Ohio, last month was a recipe for economic ruin
on every front, from jobs to the deficit. Summers is probably the most
conservative economist you can find in the Democratic Party, and Boehner
called for his head anyway.

But trying to appease Wall Street or corporate CEOs is even crazier. As Salon's Andrew Leonard emphasizes,
of all the political calculations Obama could make, trying to appease
the corporate executive class is probably the worst. The entire
anti-business-Obama meme is, at best, a joke. Wall Street doesn't like
the fact that Obama has pushed for modest new restraints on its
risk-taking, even thought that risk-taking wrecked both Wall Street
banks and the broader economy. Billionaire hedge-fund managers don't
like the idea that they might lose their tax privileges and be subject to the same rates everybody else pays. Wall Street's political demands are much like its thirst for bonuses: limitless.

Naming a Summers replacement who focuses on cutting corporate taxes
and reducing the deficit by slashing jobs funding will be
counterproductive on two fronts. First, it will spur economic misery.
Second, that economic misery will generate political unrest. Voters will
not respond to a president who advances a policy agenda that actively
harms them.

So who should Obama name to take Summers' place? Joseph Stiglitz. His
intellectual qualifications cannot be impugned -- he is a Nobel
Prize-winner whose academic work is revered on both the left and right.
But his policy acumen is equally proven -- he has been chief economist
for the World Bank, and Chairman of President Bill Clinton's Council of
Economic Advisers.

And his policy record during the Clinton years is absolutely
superlative. Stiglitz aggressively fought Treasury Secretary Robert
Rubin's efforts to deregulate Wall Street -- efforts that paved the way
for the Great Financial Crash of 2008. Stiglitz also fought Rubin by
pushing for job-creation rather than deficit reduction. Rubin appeared
to win that battle for a while, but once it became clear that the job
growth that took place under Rubin's deficit attack was purely the
result of an unsustainable bubble, Stiglitz emerged as the victor.

So that's Obama's choice. He can try to appease his political
adversaries, and end up losing political points come 2012, or he can
appoint somebody who gets the policy right, and reap the political
benefits of sound policy come re-election time. Stiglitz is the right
man for the job.