Cleaning House Starts at 1600 Pennsylvania Ave.: Caroline Baum

With the departure of Larry Summers, President Barack Obama has lost three-quarters of his economic team and much of its heft.

White House budget director Peter Orszag resigned in June. Christina Romer, chairman of the president’s Council of Economic Advisers, left earlier this month to return to her teaching post at the University of California at Berkeley -- one job that wasn’t created or saved by her econometric modeling.

Now comes Summers, who will return to Harvard University for the spring 2011 semester in order to maintain his tenured professorship.

That leaves Treasury Secretary Tim Geithner. Is he next?

It doesn’t matter. Cleaning house starts at the top, with the resident of the White House. Everything else is secondary.

Obama didn’t design the $787 billion fiscal stimulus program that was enacted shortly after he took office or the various mortgage modification programs intended to reduce the rate of home foreclosures. He didn’t write the 2,454-page health-care reform act (we’d sure like to know who did) or the trim 848-page financial reform and consumer protection act, better known as “Dodd-Frank.” He didn’t provide the scientific research for the bill to limit carbon emissions, better known as cap and trade, which passed the House last year.

What he did was provide the vision behind these major initiatives and pieces of legislation. A president hires others to transform that vision into reality. So short of a religious revelation for Obama -- or a veto-proof majority in Congress after the November election -- a changing of the guard doesn’t imply a changed chief.

Mid-Course Correction

It’s not unusual for a president to shake-up his economic team midstream, or for top officials to bail on him after a few years of the grueling work pace.

In some cases, the change may be a statement or represent a new direction. In others it may be a sacrifice, a sign that things haven’t gone so swimmingly well and a new beginning is in order.

Clearly the landmark fiscal stimulus fell short of expectations. The unemployment rate is still stuck at 9.6 percent. Banks aren’t lending. Consumer and business sentiment remain at recessionary levels.

A new direction is certainly in order, but it’s hard to see Obama changing his views about the role of government.

As for his economics team, Summers and Geithner were always considered market-friendly centrists. Obama could do worse. Imagine if Robert Reich, President Bill Clinton’s Labor Secretary, had been crafting the stimulus.

Appeasement Strategy

The early handicapping is that Obama will appoint a businessman or woman -- or both -- to replace Summers as director of the National Economic Council. According to press reports, one of the leading candidates is Anne Mulcahy, former chief executive of Xerox Corp.

I read that such a gesture would be akin to an outstretched arm to the business community Obama has managed to alienate in record time.

Nonsense. Symbolism isn’t what we need. A token businesswoman, satisfying two quotas at once, isn’t going to change the president’s view on how a capitalist system works or enlighten him on how goods and services are produced and jobs created. If it didn’t rub off on him in his days at the University of Chicago, it’s not about to now in Washington.

Geithner’s Remorse?

As far as Geithner’s future is concerned, his appointment was controversial from the start. He cheated on his taxes, which should have immediately disqualified him for a post whose oversight responsibilities include the Internal Revenue Service. It’s as if New York Congressman Charlie Rangel, accused of 13 House ethics violations, including failure to pay taxes, had been tapped to chair the tax-writing Ways and Means Committee. (Oh, right, he was.)

Geithner was fiddling at the helm of the Federal Reserve Bank of New York when the New York banks he was supervising and regulating were burning. He said he recused himself from matters related to the bailout of American International Group Inc. after he was nominated for the cabinet post on Nov. 24, 2008, only to admit in congressional testimony there was no recusal document. Still under investigation is the New York Fed’s request that AIG withhold information about its counterparties to credit-default swaps being paid out in full.

That said, Geithner comes off as a competent bureaucrat.

In a speech in Cleveland last month, House Minority Leader John Boehner encouraged Obama to fire Summers and Geithner. The speaker-in-waiting would probably complain if Obama appointed Art Laffer, the father of supply side economics, to his team.

Boehner got half his wish. What about the other?

Geithner is unpopular with the left for his perceived cushy relationship with Wall Street and unpopular with the right because he’s part of a Democratic administration.

The Treasury secretary could please both constituencies by stepping down. Just don’t expect Obama’s vision to go out the door with him.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

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