Obama's Economists

This writing positives about Obama is really hard to do. I struggle finding good things to say about his positions, policies, and ideas. But I like the premise of our site here.

One of the most prominent people on his domestic team up until now has been Austan Goolsbe, a University of Chicago professor who many expect will to head President Obama's Council of Economic Advisors. He is currently the Robert P. Gwinn Professor of Economics at the University of Chicago Graduate School of Business (GSB) among many other distinguished positions and recognitions; many of them progressive and aligned with the Democratic party. Although a UofC professor, he was not a part of the Milton Friedman school of thought as he received his degrees from Yale and MIT (PhD).

Economics is the only academic discipline that in recent decades has moved in the direction that America and much of the world has moved, to the right. Goolsbee no doubt has some quirky ideas, after all he is a Democrat, about how government can creatively fiddle with the market's allocation of wealth and opportunity. But he seems to be the sort of person -- amiable, empirical and reasonable -- you would want at the elbow of a Democratic president, if such there must be.

Mr. Goolsbee has a record and history towards supporting globalised capitalism and no apparent desire for large scale redistribution. If you recall, he caused a bit of turmoil earlier in the year for telling the Canadians not to worry about Obama's anti-NAFTA language in the primaries and while campaigning. Although those were low level discussions and Goolsbee did not necessarily speak for the administration, his record in writ and in the classroom tend to support his free-trade tendencies. This is further supported by Obama's other economic director, Jason Furman, an economist in the Clinton administration and a top aide to John Kerry in 2004. Furman is a staunch free-trader who once praised WalMart and has even favoured lower corporate taxes.

Back to Goolsbee: he is a proponent of markets when it comes to income inequality as well. The stagnation of middle- and working-class incomes, and the anxiety that has generated, is, he says, a most pressing problem, but policymakers must be mindful about trying to address its root cause, which Goolsbee says is "radically increased returns to skill."

In 1980, people with college degrees made on average 30 percent more than those with only high school diplomas. That disparity has widened to 70 percent. In the same year, the average earnings of people with advanced degrees were 50 percent more than those with only high school diplomas; today, it is more than 100 percent.

The market is shouting "Stay in school!" and Goolsbee's conservative colleagues at Chicago say a high tax rate on high earners is "a tax on going to college." Conservatives say: Don't tax something unless you are willing to have less of it. But Goolsbee says: Conservatives often exaggerate the behavioral response to increased tax rates. The solution is to invest more in education, which will raise wages, reduce inequality and move toward equilibrium. The GI Bill was, he says, so prolific in stimulating investment in "human capital" -- particularly, college education -- that for a while the return on it went down relative to high school.

"Globalization" means free trade and various deregulations that supposedly put downward pressure on American wages because of imports from low-wage countries. Goolsbee, however, says globalization is responsible for "a small fraction" of today's income disparities. He says that "60 to 70 percent of the economy faces virtually no international competition." America's 18.5 million government employees have little to fear from free trade; so do auto mechanics, dentists and many others.

Goolsbee's rough estimate is that technology -- meaning all that the phrase "information economy" denotes -- accounts for more than 80 percent of the increase in earnings disparities, whereas trade accounts for much less than 20 percent. This is something congressional Democrats need to hear from a Democratic economist as they resist free trade agreements.

As regards China, Goolsbee -- who favors a tougher approach, especially through the World Trade Organization -- notes that all imports are only 16.7 percent of the U.S. economy and imports from China are a small portion of all imports. Those from China amount to 2.2 percent of the U.S. gross domestic product. Mexico, he says, is genuinely stressed by China, whose exported products "overlap" with nearly two-thirds of Mexico's. China's exports overlap with 5 to 10 percent of America's economy. Rising imports from China predominantly replace those from other lower-skilled countries. Were China to be pressured into revaluing its currency in isolation, Goolsbee says, America would not start making the kind of toys it has been importing from China -- America would import toys from Vietnam.

Thus, if we have to have Obama in the White House, it is nice to know that at least a little bit of Chicago's business culture has rubbed off on one of his economic consultants.