By Simon Johnson.  Tim Geithner and Larry Summers are talking a good game on fiscal policy to the G20.  But they are struggling with to establish traction for their “spend now, consolidate later” message.  Fortunately, there is an easy and obvious opportunity to establish credibility on this issue: Bring Paul Krugman into government.

Earlier this week, Peter Orszag resigned from his cabinet position as director of the Office of Management and Budget.  The Washington Post put out one of the first lists of candidates who could replacement him.  Senator Byron Dorgan would be a smart pick and some of the Post’s other suggestions could make sense. 

But surely the front runner is Jason Furman.   The working assumption is that Treasury Secretary Tim Geithner and National Economic Council director Larry Summers are in positions of influence for the long haul – and they have a track record of preferring team players over people who could bring competing perspectives to the table.

The Hamilton Project, housed at the Brookings Institution, was designed as a government-in-waiting by Robert Rubin.  Then-Senator Obama attended its inaugural public meeting, with Peter Orszag as head of the project.  Appointing Furman, successor to Orszag at Hamilton and currently a deputy to Larry Summers at the NEC, or another person from the same wing of the Clinton administration would continue in this tradition.

This is unfortunate, because the brilliant choice would be Paul Krugman – completely taking the wind out of the Republicans’ sails on fiscal deficits.  Krugman has scolded them, in real-time and to great effect, consistently with regard to ruining the budget.  And he has an important point – the Bush administration inherited a fairly sound fiscal position from the Clinton administration but squandered it thoroughly over 8 years.  Continue reading “Tim Geithner and Larry Summers Need Paul Krugman To Replace Peter Orszag” →

By Simon Johnson

The president should nominate Paul Krugman to replace Peter Orszag as director of the Office of Management and Budget (OMB).  (Orszag resignation details are here.)

We have previously reviewed Krugman’s outstanding qualifications for this (or any other top level) job (link to details).  The main reason Krugman himself has been reluctant in the past relates to a potentially difficult Senate confirmation hearing – for example, if Krugman had been put forward to replace Ben Bernanke.

But for the OMB position, the dynamic of a hearing would be terrific for the president’s specific agenda and broader messages.  Krugman, of course, is the leading advocate for continued (or increased) fiscal stimulus.  This is exactly President Obama’s message to the G20 this weekend. Continue reading “Paul Krugman For OMB” →

The case for Ben Bernanke’s reappointment was weak to start with, weakened with his hearings, and is now held together by string and some phone calls from the White House.  Bernanke is an airline pilot who pulled off a miraculous landing, but didn’t do his preflight checks and doesn’t show any sign of being more careful in the future – thank him if you want, but why would you fly with him again (or the airline that keeps him on)?

The support for Bernanke in the Senate hangs by a thread – with Harry Reid providing a message of support, albeit lukewarm, after the markets close.  The White House is telling people that if Bernanke is not reconfirmed there will be chaos in the markets and the economic recovery will be derailed.  This is incorrect.

The danger here is uncertainty – the markets fear a prolonged policy vacuum.  Fortunately, there is a way to address this.  Ben Bernanke should withdraw and the president should nominate Paul Krugman to take his place. Continue reading “Paul Krugman For The Fed” →