Obama’s new chief economist, Alan Krueger
U.S. President Barack Obama said on Monday he has chosen Princeton University labor economist Alan Krueger to become the top White House economist. Krueger would succeed Austan Goolsbee as chairman of the White House Council of Economic Advisers. The decision comes as Obama prepares to unveil a jobs package in a speech planned for shortly after the September 5 Labor Day holiday.
“As one of this country’s leading economists, Alan has been a key voice on a vast array of economic issues for more than two decades,” Obama said in a written statement. “Alan understands the difficult challenges our country faces, and I have confidence that he will help us meet those challenges as one of the leaders on my economic team.”
Krueger’s expertise in labor-market issues is in keeping with the administration’s efforts to underscore a focus on jobs. At Treasury, Krueger was assistant secretary for economic policy and chief economist. He is also a veteran of President Bill Clinton’s administration, serving as chief economist for the Department of Labor from August 1994 to August 1995. Krueger holds a Bachelor of Science degree in industrial and labor relations from Cornell University. He earned his PhD in economics at Harvard University. While at Princeton, Krueger was a regular contributor to the Economic Scene column in The New York Times. Krueger has written extensively on unemployment and the effects of education on the labor market.
Anyone still looking for a turn to the right from Obama will be mightily disappointed. Krueger is part of the center-left economic consensus that believes a) America is undertaxed, b) government must become permanently bigger as America ages, and c) climate change requires a vast new regulatory scheme to control carbon emissions. His big idea to boost the U.S. economy and bring the budget in balance is ginormous consumption tax on top of the current income tax system:
Why not pass a 5 percent consumption tax to take effect two years from now? … In the short run, the anticipation of a consumption tax would encourage households to spend money now, rather than after the tax is in place. Along with the rest of the economic recovery package, this would help jump-start spending in the economy and thereby increase production and employment. In the long run, a 5 percent consumption tax would raise approximately $500 billion a year, and fill a considerable hole in the budget outlook. In addition, a consumption tax would encourage more saving in the long run. Many economists consider a consumption tax an efficient way of raising tax revenue, especially in a global economy. The prospect of greater revenue flowing into federal coffers would probably help lower long-term interest rates because the government would need to borrow less down the road, and further bolster the economy.
Krueger, who was Tim Geithner’s economist over at Treasury, is probably best known for his 1990s study that showed raising the minimum wage in New Jersery didn’t increase unemployment among fast-food workers. But that study seems to have been debunked. This is just one example (among many):
We re-evaluate the evidence from Card and Krueger’s (1994) New Jersey-Pennsylvania minimum wage experiment, using new data based on actual payroll records from 230 Burger King, KFC, Wendy’s, and Roy Rogers restaurants in New Jersey and Pennsylvania. We compare results using these payroll data to those using CK’s data, which were collected by telephone surveys. We have two findings to report. First, the data collected by CK appear to indicate greater employment variation over the eight-month period between their surveys than do the payroll data. … Second, estimates of the employment effect of the New Jersey minimum wage increase from the payroll data lead to the opposite conclusion from that reached by CK. For comparable sets of restaurants, differences-in-differences estimates using CK’s data imply that the New Jersey minimum wage increase (of 18.8 percent) resulted in an employment increase of 17.6 percent relative to the Pennsylvania control group, an elasticity of 0.93. In contrast, estimates based on the payroll data suggest that the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group.
But for good or ill, I don’t think Krueger’s ideas will have much impact on the Obama White House. Krueger won’t even be sitting in the job when Obama rolls out his new jobs plan on Sept. Moreover, it’s the political shop running policy right now, not the propellerheads. And the reelection team believes little can be done to alter the economy’s path over the next 15 months. Any big stimulus plan, even assuming effectiveness, would open Obama to GOP charges of being a reckless spender. Better, they think, to instead make the case that Obama has the best ideas to improve the economy over the next four years, not Rick Perry or Mitt Romney. In short, the Obama reelection plan is the Obama jobs plan. Krueger’s job will be explain away the bad jobs and GDP numbers and tell American why the GOP is wrong.