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Obamanomics Considered

Interviewees: Allan H. Meltzer
Martin N. Baily
Interviewer: Roya Wolverson
January 29, 2010

U.S. President Barack Obama's State of the Union address signaled his administration's shift in focus from terrorism and foreign policy to the economy.  Obama's economic policies have come under increasing scrutiny as the unemployment rate has inched above 10 percent. His administration had estimated the figure would not top 8 percent under its $800 economic stimulus package last year.

In response to high unemployment and the public's growing frustration over the ballooning U.S. deficit and sizeable bank bonus payouts, Obama has added several economic proposals to Congress' docket of ongoing financial regulatory reforms. These include plans to tax banks' excessive risk-taking, ban proprietary trading, cap the government's discretionary spending, and help the middle class.

Allan Meltzer, professor of political economy at Carnegie Mellon University, says these proposals are mostly "cosmetic," and do more to address Obama's "concern for building a constituency for the election" than to fix economic problems.

Martin Baily, a senior fellow at the Brookings Institution and former chairman of the Council of Economic Advisers, says that although Obama's bank tax probably will not work, it would be nearly impossible for him to propose deeper spending cuts without losing either Democratic or Republican support.

The reappointment of Federal Reserve Chairman Ben Bernanke on January 28 also divided lawmakers and economists, despite the White House's strong support for the move. Although Meltzer commends Bernanke for his creativity and decisiveness in responding to the financial crisis, he also argues that Bernanke overstepped his role, jeopardizing the Federal Reserve's independence and putting the country at risk of inflation. By contrast, Baily says considering the magnitude of the crisis, anyone in Bernanke's position would have made mistakes, but overall his performance has been "terrific."

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