Obama's New Economics Guru Is a Safe Choice -- Maybe Too Safe

Last Updated Aug 29, 2011 3:15 PM EDT

Princeton University prof Alan Krueger is a perfect choice to serve as President Obama's new chief economics adviser. But he may not be the best choice.

Krueger is no doubt highly qualified to succeed Austan Goolsbee as head of the White House Council of Economic Advisers. First, Krueger is a labor economist, essential expertise given the country's high unemployment rate and urgent need for creative thinking on putting America back to work. In 2009, for instance, he sat on Obama's auto industry task force, which made the correct call in choosing to restructure General Motors (GM).

Second, on paper Krueger looks confirmable in the Senate (although underestimating Republican intransigence in the real world is usually a mistake, given that GOP lawmakers recently shot down a Nobel Prize-winning economist to serve on the Federal Reserve on grounds he was "unqualified"). Until November, Krueger was the U.S. Treasury's chief economist, which means he has already passed congressional muster. He also previously served as top economist at the Department of Labor during the Clinton administration. In short, there should be zero doubts about his credentials or his ability to function in Washington.

Third, Krueger hasn't been afraid to push back against wacky ideas for reviving the economy. For instance, he shot down one proposal by conservative pundits to cut the minimum wage (hey, while we're at it why not just drown all low-income workers, along with government, in a bathtub?). Krueger also favors sensible, if politically controversial, prescriptions for shifting the economy into gear. Here he is last year urging Senate lawmakers to stimulate growth by increasing government spending on the nation's infrastructure:
[A] wide range of analysts, including economists at the Congressional Budget Office, have found that additional spending on infrastructure is among the most effective policy options for raising output and employment. Investment in infrastructure directly increases employment because workers are hired to undertake construction projects. Additionally, it adds to demand for goods and services through purchases of material and equipment and through additional spending by the workers who are hired. This in turn further increases employment and output throughout the economy.
Wanted: Fresh ideas
More broadly, Krueger seems to understand the fundamental problem afflicting the U.S. economy, noting last year that the main obstacle to recovery "is a lack of demand for workers, not lack of search effort." In his academic work he has also pointed to the adverse economic impact of rising inequality; knocked down misconceptions about the effect of immigration on domestic wages; and even written a book on what breeds terrorism.

So what's not to like? Possibly this: Although Krueger is a safe choice to lead the CEA, he doesn't represent a bold choice. As an economist, his ideas track closely with those of an Obama administration that for two years has put reducing the deficit ahead of creating jobs.

True, as the economy continues to languish the White House finally appears to be pivoting toward boosting employment. But political resistance to the kind of measures necessary to spark the economy (including from Krueger's old boss, Treasury chief Tim Geithner) remains fierce. Whatever the rhetoric emanating from the White House, for now fiscal policy is still punch-drunk on austerity.

Clearly, with growth sputtering, that must change. The major question about Kreuger isn't whether he knows his stuff -- it's whether he's willing to challenge the political orthodoxy that government spending is the chief obstacle to recovery. As Krueger's previous work suggests, he knows the opposite is true. Now let's hear him say it.

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  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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