James Pethokoukis

Politics and policy from inside Washington

U.S. trade thaw may leave China out in cold

Sep 30, 2010 18:07 UTC

The retaliatory China currency bill passed in the U.S. House helps brand this Congress as one of the more protectionist in years. The next one might switch gears and embrace trade by passing several stalled pacts. But Beijing shouldn’t expect that to translate into a friendlier Washington.

A companion bill in the Senate also meant to pressure China to allow a faster rise in the yuan is unlikely to succeed. And it would probably be vetoed by President Barack Obama if it did.

Yet the overwhelming vote in the lower chamber does reflect a further fraying of the free trade consensus. It’s not just frustration over the weak yuan policy, blamed for costing U.S. jobs. Congress also has failed to ratify trade agreements signed with South Korea, Colombia and Panama. Those deals would increase American exports by an estimated $12 billion a year. That may be just a small drop in U.S. trade, but would still be a big help for the likes of Boeing , Caterpillar and Oracle in a weak economy.

Enough pro-trade Republicans might enter Congress come November to pass the three deals. The political turnabout could be particularly head-snapping if the GOP was to actually retake the House. Chairmanship of the key trade-related Ways and Means Committee, for one, would shift from a Big Labor-backed Democrat to a Republican who has already pledged to make the outstanding trade agreements a top priority.

The GOP is less likely to take the Senate. But Max Baucus, chairman of the Senate Finance Committee, is a free trade supporter. And the new ranking Republican would be Orrin Hatch, considered more supportive of trade than his predecessor, Charles Grassley.

But there’s common ground when it comes to China. Trade advocates in both parties are coming together on the idea that Beijing needs to be pressed harder on the currency issue, as well as on market access. The latter also resonates with U.S multinationals, traditional members of the open trade lobby. And the Obama administration will probably continue to file anti-dumping and countervailing duty cases against China at the World Trade Organization.

None of this amounts to a trade war. But the risk is that another year of high U.S. unemployment pushes politicians to ratchet tensions to a level that unnerves markets and business.

A pro-market, not pro-business, energy strategy

Sep 27, 2010 19:06 UTC

Here is my Reuters Breakingviews piece from last week:

General Electric boss Jeffrey Immelt last Thursday castigated Washington for neglecting the U.S. energy industry, calling current policy “stupid.” Sure, Immelt was talking his own book — a third of GE’s profit last year came from its power unit. But the lack of a comprehensive energy strategy is still an economic drag.

Immelt was a big fan of President Barack Obama’s energy plan, which proposed a cap-and-trade system for reducing carbon emissions. The version of the Obama plan that died in the U.S. Senate also contained new incentives for nuclear power. Immelt, working hard to boost GE’s reactor business, would surely have welcomed those. So on one level, Immelt’s complaints are gripes from a CEO trying to boost his business.

But his critique goes further. The demise of the Obama plan — Republicans killed the bill by portraying it as an economy-crippling energy tax — left in place a policy vacuum. Immelt also lambasted the current patchwork U.S. regulatory structure as an 18th century relic that “has fundamentally no basis in the modern world.”

The lack of clarity in government policy has become a big concern for corporate America. One obvious example is the continued absence of a defined approach to pricing carbon. Despite faults including needless complexity, Obama’s cap-and-trade plan would have supplied that. Meanwhile, the volatility of oil prices already makes investments in fossil fuel-substitutes such a nuclear, solar and wind power risky enough, without further uncertainty over tax treatment and other government-influenced costs.

But Immelt should take heart. Although cap-and-trade is dead, the idea of a simple carbon tax with revenues used to reduce other taxes still has a pulse among both Democrats and Republicans. Even more likely, perhaps when Congress meets after the November congressional elections, is passage of a nationwide renewable energy standard. The law would require utilities across America to deliver 15 percent of their power from renewable sources, or by ramping up energy efficiency, by 2021. Currently standards vary state by state — exactly the sort of thing that irks Immelt.

But while an energy strategy should mean greater regulatory and pricing certainty, it should be not be a euphemism for massive government subsidies. That would merely reward effective lobbying by energy companies instead of market success. Immelt is right to expect a hand up — but not a handout.

Me: Certainly we don’t need a massive regulatory structure put in place, along with billions or hundreds of billion in subsidies.  I have an upcoming chat with Glenn Hubbard about his idea for a flexible carbon tax.

Can Obama be deprogrammed?

Sep 27, 2010 14:29 UTC

Some interesting stuff in this piece by Michael Lind:

Instead of the updated Rooseveltonomics that America needs, Obama’s team offers warmed-over Rubinomics from the 1990s. Consider the priorities of the Obama administration: the environment, healthcare and education. Why these priorities, as opposed to others, like employment, high wages and manufacturing? The answer is that these three goals co-opt the activist left while fitting neatly into a neoliberal narrative that could as easily have been told in 1999 as in 2009. The story is this: New Dealers and Keynesians are wrong to think that industrial capitalism is permanently and inherently prone to self-destruction, if left to itself. Except in hundred-year disasters, the market economy is basically sound and self-correcting. Government can, however, help the market indirectly, by providing these three public goods, which, thanks to “market failures,” the private sector will not provide.

Me: To me the biggest issue that Obama needs to change his mind on is that economic inequality/redistribution is America’s biggest problem rather than slow growth.(It is certainly not working politically.) Of course, it may be that Obama is such a New Normal believer that he thinks slow growth is a given.


I don’t know what world you live in, but the capitalism I see is becoming less stable and more destructive. With each passing recession, the results get worse and the time interval gets less and less. Looks like a complex system de-constructing

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What’s wrong with the U.S. economy in one chart

Sep 27, 2010 14:14 UTC

Tax rates matter. You tend to get the stuff you tax lightly and don’t get what you tax heavily. Wonder why America had a housing boom and why we are wallowing in debt? Here is why:


The House GOP ‘Pledge to America’

Sep 23, 2010 18:37 UTC

Here is my Reuters Breakingviews columntorial (half column, half editorial)  on the agenda from House Republicans:

America’s so-called “party of no” has finally revealed what it will say “yes” to. Yet a new Republican manifesto offers little more than undoing President Barack Obama’s reforms to date, with vague talk of balanced budgets. Maybe that’s smart politics. But it’s a missed opportunity.

If you’re winning late in the game, it is reckless to pull the goalie and put him on the attack. So with congressional midterm elections just weeks away and polls going the Republicans’ way, the cautious nature of the ideas in the 21-page document from the party’s House leaders is perhaps unsurprising. As the saying goes, if you want to do policy, you have to first do politics. And the main objective of the GOP’s “Pledge to America” is to counter Democratic claims that Republicans are mere obstructionists.

The document does contain a smattering of worthwhile items, particularly on restraining government spending. Republicans want to cut non-defense spending, excluding mandatory social insurance spending, to where it was in 2008. That would save about $100 billion a year. Over ten years, adjusted for inflation, that would only knock off 10 percent or so from the $9.8 trillion in additional debt the United States will accumulate over that period, by Congressional Budget Office estimates. But it’s a start, as is the idea of hard caps on discretionary spending, though specifics are unfortunately lacking. And freezing the hiring of new federal workers would set a good austerity example for state and local governments.

But it’s difficult to take seriously any policy agenda that doesn’t lay out at least a broad plan for much deeper fiscal reform. Paul Ryan, the Republican who would head the House budget committee if the GOP retakes the lower chamber, has a detailed roadmap for restructuring entitlements. But party leaders chose to ignore it. And it’s odd that Republican leaders seem to want to extend all the Bush-era tax cuts even if it means keeping in place a clunky code than penalizes savings and rewards debt.

Sure, the Republicans don’t want to give Democrats fodder for negative advertising. But this manifesto could have begun making the public case for the GOP’s vision of the big budgetary changes America needs. That didn’t happen. America’s long-term economic and fiscal woes call for bolder leadership.


You are expecting too much from a leaderless congressional minority. A truly positive agenda for America will emerge in 2011-2012 as Republicans jockey for leadership in the Presidential race. Which party will take the necessary steps to get America back on track? The electorate is repudiating the Democrats. It is too soon for the Republicans to address long range issues except in a speculative and individual way. Once the Republicans have demonstrated their worthiness to lead the country through this recession, they can make a play to lead us through the impending entitlements crisis.

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Summers speculation roundup

Sep 22, 2010 13:03 UTC

Place your bets!


Following are economists that have been mentioned as potential replacements for Summers as director of the White House National Economic Council.


A member of the President’s Economic Recovery Advisory Board, an outside panel of economic experts advising Obama. Tyson is a former top economic adviser to former President Bill Clinton. She is also a professor at the University of California, Berkeley’s Haas School of Business.


A deputy to Summers on the National Economic Council. She also sits on Obama’s Auto Task Force. From 2002 to 2009, Farrell was Director of the McKinsey Global Institute, the economics research arm of McKinsey & Company. Prior to joining McKinsey, she worked at Goldman Sachs as a financial analyst.


He’s also a deputy to Summers. Furman served as Economic Policy Director of Obama’s presidential campaign. He served in the Clinton administration as a staff economist at the Council of Economic Advisers and later worked for the National Economic Council. In addition, he was a senior adviser to a top World Bank official.


A member of the bipartisan deficit commission Obama formed early this year to tackle the deficit. Fudge was chairman and chief executive officer of Young & Rubicam Brands. She also held senior executive positions at General Mills and Kraft.


Chairman of the Commodities Futures Trading Commission, Gensler is a former Treasury official and Goldman Sachs employee. He was also a senior adviser to former Senate Banking Committee Chairman Paul Sarbanes, on the Sarbanes-Oxley Act.


Counselor to Treasury Secretary Timothy Geithner. Sperling headed the National Economic Council in the Clinton administration. He served as an economic policy adviser to the Clinton-Gore presidential campaign and was also an economic adviser to former New York Governor Mario Cuomo.


Chief economist at Moody’s Analytics, Zandi was an economic adviser to John McCain’s presidential campaign. But he has also advised the White House and congressional Democrats and Republicans.


Chairman and CEO of General Electric since 2001. Immelt is also a member of The Business Council and is on the board of the New York Federal Reserve Bank.


Chairman of Citigroup and a former chair and chief executive of Time Warner, Parsons was on the Obama transition team’s economic advisory board before being named Citigroup chairman. He also served on a task force under former President George W. Bush that examined Social Security changes.


Former Xerox Corp. chief executive. She serves on the President’s Economic Advisory Board.


Among those whose names have been discussed is Anne Mulcahy, the former chief executive officer of Xerox Corp., two people familiar with administration discussions said. Other potential candidates include David Cote, CEO of Honeywell International Inc., and Richard Parsons, chairman of Citigroup Inc., according to one of the people. Cote is a member of Obama’s commission on cutting the federal deficit and, along with Parsons and Mulcahy, has been among the executives the president has called to the White House for consultations. The co-chairman of the deficit commission, former Clinton administration official Erskine Bowles, also has been mentioned as a possibility, a third person said.

Wall Street Journal:

Former Xerox Corp. chief executive Anne Mulcahy quickly emerged as a leading candidate to replace Mr. Summers, though White House officials caution that no decisions have been made yet. A senior administration official confirmed that Ms. Mulcahy had dinner in Washington Friday evening with senior presidential adviser Valerie Jarrett. She is highly thought of within the administration, the official said, where she serves on the President’s Economic Advisory Board. Other candidates include Deputy National Economic Council Director Diana Farrell, who came to the White House from McKinsey & Company, and Laura Tyson, an economist at the University of California, Berkeley, who served in the Clinton administration as chair of the Council of Economic Advisers.


Potential Summers replacements reportedly being initially considered include Rebecca Blank, a Commerce Department official who oversees the Census Bureau and Bureau of Economic Analysis; Ursula Burns, chairwoman and CEO of the Xerox Corp.; Ann Mulcahy, the company’s former CEO; and veteran economist Laura Tyson, who held the NEC director’s post in the Clinton administration. Obama is also expected to give a close look to business executives, as well as women candidates currently serving on his Economic Recovery Advisory Board and the President’s Export Council. The president is also known to think highly of Vice President Joe Biden’s chief economist Jared Bernstein .

Washington Post:

As Obama gears up for the 2012 reelection campaign, administration officials need both a fresh face on the economy and someone who can craft a credible vision for creating jobs and restoring the nation’s economic vitality. Sources said the White House is considering whether to choose a candidate who could blunt criticism that the administration has been anti-business, such as a corporate chieftain or prominent investor. Administration officials are also eager to find a woman to fill a top economic role, since Romer’s departure left Obama with an all-male group of principals at his daily economic briefing.

More on Larry Summers leaving the White House

Sep 22, 2010 12:42 UTC

A few additional thoughts about Larry Summers leaving the White House and going back to Harvard:

1. His replacement as director of the National Economic Council will be an interesting tea leaf.  Obama’s recent replacements for WH budget chief,  Jack Lew, and head of his council of economic advisers, Austan Goolsbee, were steps toward the center. Another centrist (like Jason Furman) could hint at The Pivot, a POTUS effort to work with a congress next year that will likely be far more Republican. And a liberal pick (Jared Bernstein) though, could be a signal to Obama’s base that the president intends to double-down on Obamanomics 1.0.  Markets would like the former, not the latter.

2. On substance, the new NEC head might not be that big a deal. The position will likely revert to that of a coordinator from being the high-level policymaking job it was with Summers who was basically Obama’s maximum economist, at least in 2009.

3. I know that business is clamoring for a CEO to get the gig. And while I think it would be fantastic to get someone in the White House with significant private sector experience, I really want someone who is more pro-market more than pro-business. We need to get rid of corporate pork and take a more realistic approach to China’s anti-market trading position.

4. These are some of the names I was Tweeting (https://twitter.com/JimPethokoukis) yesterday afternoon (followed by odds from Paddy Power): Ann Fudge (5/2), Laura Tyson (11/4), Anne Mulcahy (6/1), Jason Furman (4/1), Mark Zandi (9/1), Diana Farrell (9/2),  Jeffrey Immelt (8/1), Gene Sperling (9/2), Richard Parsons (10/1), Gary Gensler (10/1).


The WH is too male dominated. Bring in some women economists and budget experts. Laura Tyson is well respected but she may not want to leave her attractive life in Berkeley CA. What about Susan Athey – the brilliant Clark medallist? What about Carmen Reinhart? Janet Yellin? Linda Bilmes? Caroline Hoxby? Esther Duflo? There are plenty of good candidates if you look hard enough.

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The departure of Larry Summers

Sep 22, 2010 11:09 UTC

So who is going to replace Larry Summers over at the White House? My Reuters colleagues list a number of options. I have come up with a number of my own over at Twitter. (The WH would love a female CEO as director of the National Economic Council, methinks.) Anyway, here is my Reuters Breakingviews column on the the impending Summers exit:

If deftly handled, the exit of brilliant-but-testy White House economic adviser Lawrence Summers could be addition by subtraction. Summers’ departure for Harvard University gives President Barack Obama an opportunity to fill a gaping hole in his administration’s skill set: private sector experience.

Businessmen, both big and small, would be thrilled to see the next director of the National Economic Council – a key role in the country’s economic leadership – drawn from their own ranks. Executives have repeatedly knocked Team Obama for overweighting academics and government apparatchiks over folks who’ve met payrolls and earned profits. Summers’ two year stint as an adviser at hedge fund D.E. Shaw made him one of the few members of the Obama White House with “real world” experience.

Certainly such a move would make it a bit less likely that president would, as he did at Monday’s town hall meeting, have to reassure Corporate America that he believes making a buck isn’t morally inferior to community organizing.

But such a decision could have policy implications as well. A CEO in the vicinity of the Oval Office might point out the risks of regulatory overhaul amid economic uncertainty. Or he/she might highlight how higher taxes can alter the risk-reward calculations of business owners and investors. Just having someone in the West Wing that business sees as offering a sympathetic ear might be enough to spur détente.

But the significance of the position shouldn’t be overstated. Traditionally, the NEC director is a coordinator more than an idea generator. In that way Summers has been something of an anomaly. He served as Obama’s maximum economist in 2009, designing the stimulus plan, helping steer financial reform and keeping a watchful eye on markets.

During the past year, though, there’s been a sneaking suspicion with the November midterm elections approaching that more policy is being conducted by the Obama political gurus than the financial guys. If so, that power shift may continue as the president continues positioning himself for a possible 2012 reelection campaign.

Still, with the economy clearly the top priority of voters, Obama’s pick to replace Summers will be given plenty of symbolic weight. And with business still nervous about taxes, deficits and regulation a friendlier face would be a way for him to sound the “all clear.”


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Obama vs. the hedgie

Sep 21, 2010 16:53 UTC

Here is a bit-o-goodness from my Reuters Breakingviews column on the Obama-CNBC town hall yesterday .

The Sept. 20 exchange between President Barack Obama and Anthony Scaramucci of SkyBridge Capital illustrates the severity of the rupture between the president and the financial community. … Scaramucci is a guy who was in on the ground floor of Hope and Change, Inc. He’s a former Harvard law school classmate of Obama’s who contributed early and often to Obama’s presidential campaign. …  But Scaramucci also gave the impression of a hedgie scorned, even though it’s debatable to what extent new financial regulations have “whacked” hedge funds. More funds must register with the Securities and Exchange Commission, they’re subject to greater state supervision and they may have to give more info to the SEC. Then again, limits on bank trading desks should allow hedge funds to compete more effectively.

What may really be bugging Scaramucci and his colleagues is that when Obama speaks about the Wall Street “fat cats” who almost toppled the economy, the condemnation is sweeping. Hedge funds didn’t need a bailout like the big banks, used far less leverage and are almost always small enough to fail. … Wall Street is never going to get Main Street’s sympathy. Better to talk softly and carry a big wallet. And that seems to be just what Scaramucci is doing. Filings show he’s only contributed to Republicans so far this year, including $5,000 to Free and Strong America. That’s the political action committee of potential 2012 Republican presidential candidate — and potential Obama challenger — Mitt Romney.