Are All the President's Economists to Intoxicated with Being Near the Seat of Power to Prevent Disaster?

by Richard W. Rahn

The Congressional Budget Office, in last week's update of President Obama's budget forecasts, estimated that budget deficits will average nearly $1 trillion per year for the next decade. There is no school of economics (classical, Austrian, Keynesian, etc.) that says deficits of this magnitude for a decade or longer will not result in great economic hardship or worse. Greece, here we come.

The operative question is, why would the president sign off on such a budget without presenting some plan to get the United States out of the mess - and where are his economists?

Mr. Obama assembled a team of highly competent economists, led by former Treasury Secretary Lawrence Summers as head of the National Economic Council, former Federal Reserve Chairman Paul Volcker as a senior adviser, Christina Romer as chairman of the Council of Economic Advisers (CEA), former Congressional Budget Office Director (CBO) Peter Orszag, now head of the Office of Management and Budget, and former University of Chicago Economist Austan Goolsbee, a member of the CEA.

Larry Summers has had a stellar career as an academic economist and government adviser - including serving on the staff of President Reagan's CEA, where I first met him. He is very smart and thoroughly knowledgeable in all schools of economic thought, and he presided over the last federal government surplus - with pride - when he was Treasury secretary under President Clinton. Paul Volcker has warned about the dangers of government budget deficits throughout his career, and at one point, he even served on the board of the American Council for Capital Formation with yours truly and other spending hawks.

Christina Romer, though described as a "New Keynesian," surely believes that running deficits larger than 3 percent of gross domestic product (GDP) for a decade or more is fiscally irresponsible. Peter Orszag repeatedly warned of the dangers of large budget deficits when he was head of the CBO. And Austan Goolsbee, as a Chicago economist, is familiar with the works of Milton Friedman, F.A. Hayek and others who described where excessive government spending and deficits would lead.

Despite all of this intellectual brainpower and experience within the Obama economic team, Obamanomics has so far been defined as a series of seemingly ad hoc decisions based on neither economic theory nor philosophy. Though the Obama administration adopted traditional Keynesian "stimulus" deficit spending during the recession, even the Keynesians thought deficits should only be run at the bottom of the business cycle, not throughout the business cycle, as is being proposed. The president and his advisers made it clear in their speeches that wasteful spending would not be tolerated - but they have not only tolerated it, they have expanded it exponentially.

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