Choose Your President and His Advisers Carefully

The improved economic outlook that I hoped for in my last column clearly has not come and in fact is not in sight. So the next President will face the prospect of dealing with the economic crisis along with it the psychology which has exacerbated the financial crisis has obviously surfaced at the top of the concerns that will drive the voters’ decisions on November 4, 2008 and as that has occurred the media has reported that Barack Obama has opened a corresponding lead. Arguably, more interesting however are the results of a “survey of academic economists” conducted by The Economist a comparatively conservative British magazine reported in their October 4-10, 2008 edition that report of the preferences of what the editors of The Economist describe as “Those who study economics for a living” is that “Mr. Obama’s lead is among that group much more commanding” than it is among the general public. That report further spells out that the basis for Obama’s lead is that the majority of economists even discounting party preference and identification and accounting for the “acknowledged bias of academia’s Democratic tilt” “believe that Mr. Obama has the superior economic plan, a firmer grasp of economics and will appoint better economic advisers. The later point if it is true is the most important for several reasons. As I have expressed in this column before, as I get older, gain more experience and continue to watch the process of developing public policy, who is in the room both literally and figuratively when policy is made is the single most important factor which determines the quality of executive decision-making both in the private and the public sectors. The economic plans of both the candidates have already changed and will continue to do so until and even after one of them is sworn in as President of the United States on January 20, 2009. Their respective grasps of economic issues will of necessity increase as their focus is fixated on the global economy. That having been said, a candidate’s or even a president’s personal economic expertise may ultimately matter less if he surrounds himself with independent intelligent, knowledgeable, psychologically secure, and ideologically flexible advisers. John McCain’s now infamous admission that he does not know as much about economics as he should is therefore not that important if he compensates for that by appointing top quality advisers. That is particularly true since his admission may be more of a commentary on his candor about his weaknesses than a measure of his knowledge of the subject matter compared with the much more tightly managed image of Senator Obama. Unfortunately however the same survey by The Economist magazine reported that 81% of the economists surveyed and even more significantly 71% of the economists surveyed who were not affiliated with a political party stated that Mr. Obama is more likely to surround himself with “clever advisers”. This is despite as The Economist pointed out in a sidebar to the report “praise across all party lines for the excellent Doug Holtz-Eakin, Mr. McCain’s most prominent economic adviser and a former head of the non-partisan Congressional Budget Office.” This result is perhaps at least partially explained by the comment of one republican economist which accompanied by his response to the survey that “Although I have tended to vote Republican, the Democrats have a deeper pool of talented, moderate economists.” That “deep pool” is further described by another unaligned economist, Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology’s Sloan School of Management as “mainstream and non-ideological but extremely talented.” Who are these almost universally highly regarded economic advisers? David Leonhardt an economic columnist for the New York Times says they are “mostly academic economists rather than lawyers or former White House aides.” They include Austan Goolsbee, a young University of Chicago professor who Leonhardt reports “shares Obama’s market-oriented Democratic views” and Jason Furman, a protégé of former Clinton Treasury Secretary, Robert Rubin. These advisers and others reports Leonhardt “still believe in the power of markets.” By surrounding himself with economist instead of political aides and lawyers when he tries to fix the economy, Barack Obama is himself making a political decision with ideological consequences. Economists, even Democratic economists, particularly those named here still believe in the power of markets. This at times makes Obama look like or sound like a conservative Democrat or even a “Blue Dog Democrat”. What tends to distinguish them as David Leonhardt points out is that they don’t accept the premise that these markets should be left unregulated. Instead they seek to uncover the imperfections of the market and then find legislative and regulatory solutions to address them preventatively. This explains their professed and documented interest in “behavioral economics” a relatively new field which David Leonhardt notices in his writing. This new discipline has pointed out the many ways in which people make irrational short-term decisions. This recognition that economic decisions are not always rational inevitably makes the development of both short-term and long-term economic policy and regulations more complicated than it has been historically when it could be based on models where all human actors acted rationally all of the time. James Heckman, a Nobel laureate who David Leonhardt reports was brought into the Obama campaign at the suggestion of Austan Goolsbee described Barak Obama this way. “Anyone who has spent time with Obama knows he likes experts and is interested in empirical research.” Professor Erik Brynjolfsson of MIT’s Sloan School of Management points out that “John McCain has professed disdain for ‘so-called economic experts’ and the feeling is becoming mutual.” If as I believe who’s in the room both literally and figuratively is the largest factor in the quality of executive decision-making, then we have a clear choice next Tuesday. Choose carefully.

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