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Home Publications Blogs Beat the Press Jacob Lew's Scary Oped

Jacob Lew's Scary Oped

Sunday, 06 February 2011 23:08

Jacob Lew, the head of President Obama's Office of Management and Budget, had a column in the New York Times that should really scare the American people. While the purpose of the column was ostensibly to tell the American people that there are few easy budget cuts left, the scary part is that Mr. Lew seems to have little understanding of the economy.

Lew boasts about the huge budget surplus at the end of the Clinton administration. He shows no understanding of the fact that these surpluses were largely the result of a stock bubble, which was inevitably going to burst. The story of the economy's growth at that point was that the $10 trillion stock bubble fueled a consumption boom, which led to strong economic growth.

Of course the bubble was not sustainable, when it burst, the consumption it supported also disappeared. We only recovered from the recession when the housing bubble created enough demand to replace the demand lost from the collapse of the stock bubble.

The underlying problem was the over-valued dollar. This was a conscious policy of the Treasury Secretary Robert Rubin, who actively pushed a "strong dollar" policy. This policy effectively gave a large subsidy to imports and imposed a large tax on U.S. exports. The result was a huge U.S. trade deficit.

Given a large trade deficit, the economy needs either large government deficits or very low private savings to sustain high levels of employment. This is not a partisan issue; it is an accounting identity.

Mr. Lew shows no understanding of this basic point. Either this top Obama official is ignorant of basic economics or he is not being honest with the American people. Either way, it is an incredibly scary column.

Comments (9)Add Comment
The scary part of Jacob Lew ...
written by Benedict@Large, February 06, 2011 10:53
The scary part of Jacob Lew is that the head of President Obama's Office of Management and Budget doesn't understand that federal debt is equal to private sector savings, and can only be "paid off" by surrendering all outstanding currency and draining all bank reserves.

Jacob Lew, a man who sees only difficult options, would end US currency to achieve what he sees to be his ideal goal. He is a very dangerous man, well above his pay grade.
Concerning ‘boast’, or: The Scary Part of Comrade Doctor Baker
written by John H. McCloskey, February 07, 2011 5:47

’Tis more than (mere organic or subcorporate) flesh and blood can do to remain vividly terrorized for long. The distress is excruciating, but it quickly passes. "Two aspirins and a glass of wine," don’t you know?

After a certain exposure, say thirty-eight complete ingestions of the Dean-baked system from soup to nuts, one calms down enough to notice little silver linings here and there amid the general gloom. For example, that sad sack of a Comrade Lew does not ‘boast’ about St. Bill Clinton’s revenue surpluses; all he does is permit NYTC customers to understand that he might let them pat him on the back if they really *insist* on doing so. At a dozen years’ distance, there will not, I expect, be many insisters.

One cannot quite tell from the available evidence, yet ordinary charity and donkey solidarity unite to discourage the thought in me that Jacob Lew ("Who?")
  • is so total a klutz as to expect hordes of autograph-seekers at all his public appearances.

    (( ADDENDUMB. Or how about a blocks-blobs-and-bulges futuristical sculpture on the White House lawn portraying "The Jacob Lew Budget Surpluses At Work and Play"?

    (( No, not the White House lawn: POTESSA S. L. Heath-Paling will just put a Wasilla-sized garbage bag over the damn thing and have it carted off. We need a site well above the political high-water line. Maybe some tentacle of the Commissariat for the New American Innovation has extra yard space?

    (( ¿Or CEPR? ¡Imagine Dr. Baker having to look out the window at it for the next fifty years! ))

    Q. How did this poor lewser offend, that he should be wickedly needled with that ‘boasts’?

    A. Not a hard question. He missed a chance to rehearse Bakernomics.

    Q. But, by that standard, who is safe?

    A. Not many.

  • The answer to "¿Who?" [http://j.mp/hU42Pb] turns out to be mildly interesting, at least for Massachusettsienses: how on G*re’s green earth did an Alma Mater ’78 and _Juris Doctor_ from Georgetown wind up directing other people’s budgets? Perry Mason must be rolling in his tomb!

    Lesser breeds without the Commonwealth may find URL _cit._ noteworthy as well, especially if they have it in for BIG LEW, the Learnèd Elders of Wiki.: surely that article reads too much like a C.V. to be satisfactory as encyclopædia work?

    Should it turn out that Lew, Esq., scribbled most of it himself, or asked his sister-in-law to, I shall take back everything above and admit that he deserves everything Comrade Baker dumped on him. And maybe a little more.

    That’s me. Dr. Baker logically ought to react the opposite way: after such miseducation, who can reasonably expect Jake to understand much about anybodynomics whatsoever?

  • ...
    written by skeptonomist, February 07, 2011 8:28
    Asset bubbles explain some things such as the surpluses at the end of Clinton administration, which were due mostly to capital gains near the end of a record 20-year bull market. But (again) the pattern of consumption, saving and debt is a much longer-term thing, which does not correlate with the bubbles:


    Economists should be looking for more fundamental causes of this pattern, though the tendency toward financialization of the economy may be part of that.

    The surpluses, by the way, were quite small unless it is assumed that future obligations to SS recipients will be dishonored.
    written by izzatzo, February 07, 2011 8:29
    This policy effectively gave a large subsidy to imports and imposed a large tax on U.S. exports. The result was a huge U.S. trade deficit. Given a large trade deficit, the economy needs either large government deficits or very low private savings to sustain high levels of employment. ... Mr. Lew shows no understanding of this basic point.

    Not to worry. Jeffrey Immelt has been brought in as an expert in subsidizing multinationals with international trade policy under the new Obama-Immelt Competitiveness Plan.

    With substantial experience in how exports compete with imports, and how deficits compete with saving, Immelt will be able to explain even to a zero-summer like Lew how competition really works to keep the dollar strong and achieve full employment to allow even more spending rather than require any budget cuts at all.
    written by skeptonomist, February 07, 2011 8:44
    Yes, the dollar went up during the Clinton administration:


    But after 2001 it went down severely; if exchange rates are so important, why didn't this reverse the trade imbalance? There is some correlation of the imbalance


    with exchange rates up to 2001 or so, but the huge imbalances since then require some other cause, and there is no reason to think that monetary policy will reverse them.
    written by skeptonomist, February 07, 2011 8:55
    I don't mean to exonerate Rubin and the Clinton and Bush administrations (or Lew); Rubin was after all not in charge of monetary policy but presumably had influence over other trade policies. To explain the growth of the trade imbalance since 1990 - and to reverse it if possible - it would probably be useful to identify other policies which have been consistent over that time.
    written by dunkelblau, February 07, 2011 10:26
    What pray tell is going to fuel demand besides bouncing bubbles? At the moment we're piling back into stocks, and commodities are riding along (so this time really is different). And in a couple of years when this crashes and burns, we're back to pumping commercial real estate. The only way out of this accounting identity is when emerging markets demand rises enough to give us an export market, and how many decades will this take?
    written by fuller schmidt, February 07, 2011 12:05
    Perhaps the trade deficit - dollar weakness relationship was altered by skyrocketing oil, war and tax cuts/borrowing, Skepto.
    written by Matt, February 07, 2011 12:13
    "When I returned last November, decisions to make two large tax cuts without offsetting them and to create a Medicare prescription drug benefit without paying for it, combined with the effects of the recession, meant that the nation faced projected deficits of $10.4 trillion over the next decade."
    What about two wars? Those are cheap these days.

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    About Beat the Press

    Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.