James Pethokoukis

Politics and policy from inside Washington

Obama’s new chief economist, Alan Krueger

August 29, 2011

First, the 411 on Alan Krueger, new chairman of the White House Council of Economic Advisers, from Reuters:

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.

Comments

Of course, those in Government will believe Big Government is the solution to every problem. As a small business owner, I am constantly cognizant of opportunity costs, what I lose by opting for A instead of B, C, D, or E. Government must have been absent the day that was taught. Government can give nothing without first taking away more than it will give back. With Krueger, Obama, and the Nation, lost an opportunity.

Posted by Anonymous | Report as abusive
 

so did you expect Obama to appoint a Republican’s economist to the post?

We have a BIG budget problem nothing should be off the table- no not even a national sales tax. (a tax, by the way, that Democrats hate, Republicans despise and State Governors (and many mayors) abhor) Cutting entitlements is ‘job one’ but not job one through ‘n.’ All this Republican whining about taxes is misplaced. Tax reform and more taxes are almost surely part of a real workable solution. But enlightened tax reform, not vicious now-you-are-going-to-get-yours tax reform. America does not need class (or classless) warfare, Everyone should be paying taxes, everyone should pay their ‘fair share.’ The tax code already is progressive.

There is all too much spin doctoring and not enough willingness to take the bull by the tail and look the situation square in the err…’eye.’

Deficits did not spring full born out of the head of Obama as in some tale of Greek mythology. ‘W’ -remember him? ran TWO unfunded wars added a large drug benefit to medicare and added a new cabinet post, Homeland Security. He handed over to the O-man an economy that was losing jobs at a pace of nearly 1-million PER MONTH in the early months of his nascent Presidency. The economy was not just weak, it was spiraling out of control. While I do not give Obama good marks for his fiscal plans (or results!) I think we need to be careful where we put the blame and to whom we ascribe the bulge in the deficits. Hey is that a big deficit in your pants or are you just happy to see me? Let me be clear. This is no defense of Obama who, based on his current body of work does not deserve reelection. (has any Nobel Prize winner ever failed to be elected the very next time he faced the public?) But only look to Europe to see what I call the paraplegic strategy: Cutting and cutting will not really get you anywhere but stuck some place from which you cannot move. It’s medicine is slow-acting. We do not need to shrink government to free up up resources for the private sector: what to you call 9% unemployment if not free resources? We need enlightened minds in both parties and instead we have friggin ideologues.

Here is an appeal to the religious right: God help us.

Posted by FAOEcon | Report as abusive
 

Nice article, I agree that there won’t be much change, just the same old failed godless left policies that don’t work, and have largely gotten us to where we are today.

Posted by zotdoc | Report as abusive
 

FAOEcon, good post. As usual, the leftwinger has good arguments and facts on his side, while teabagger zotdoc just parrots fox and simply plays Orwellian games with us.
He just blames Obama for everything, and hopes no one will remember that his policies, the Republican’ts, brought this country, and the world to ruin.

It’s a simple case of the dumb guy making a mess, leaving it up to the smart guy to clean up, and now, while the clean up is half started, the Dumb Ones have screamed at the top of their lungs blaming the smart guy, that now most are convinced that it’s the smart guy that made all the mistakes.

Did anyone notice that they switched from using the term “boy” to “inexperienced”? Nice, eh?

Posted by TheSteelGeneraI | Report as abusive
 

James Pethokoukis

U’re a terrible debater.

U say nothing and interrupt everyone else to ensure that the cnbc viewers are left with nothing.

I want to hear what people have to say, and u totally ruin that on cnbc. It’s sickening that someone pays u to do what u do.

love all ways
-Mitch R. Corburn

Posted by empyrean | Report as abusive
 

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