Money-Rx Blog

If ever there was a time to weigh in on the business impact of the political leanings of a politician on a national and global level, it is between now and November - When the election of a new President could mean a drastic shift away from the status quo if Senator Barack Obama were to be elected.

So....What would an Obama administration mean for the economy? Would it be good for business? What would be the fiscal policy highlights? It's a safe bet to say that his current team of economic advisors will be deciding the framework for the economic agenda, priorities and fiscal policy, at least for the first term. So who are these people and what are their priorities and economic philosophies? What do they think about free trade, China and the trade deficit, health care, social security and taxes?

Obama's chief economic advisor is Austan Goolsbee (Age 38), the Robert P. Gwinn Professor of Economics at the University of Chicago. He's got a Ph.D in Economics from MIT and in addition to his classes, he's also a member of the panel of economic advisors to the Congressional Budget Office, a columnist for the New York Times and a research associate at NBER. Previous and relevant experience includes stints as a special consultant for Internet Policy for the Justice Dept.'s Antitrust Division in 2000-2001 (that would be the period when the Antitrust Division came up with the plan to split Microsoft) and as an Economics Staffer with Sen. David Boren in 1991.

His views and leanings are remarkably untainted by partisanship. On October the 4th, 2007, Washington Post columnist George F. Will published a column detailing Goolsbee's priorities and his take of important issues. Brief excerpts from the article. Conservatives often exaggerate the behavioral response to increased tax rates. The solution is to invest more in education, which will raise wages, reduce inequality and move toward equilibrium. Goolsbee, however, says globalization is responsible for "a small fraction" of today's income disparities. He says that "60 to 70 percent of the economy faces virtually no international competition." As regards China, Goolsbee -- who favors a tougher approach, especially through the World Trade Organization -- notes that all imports are only 16.7 percent of the U.S. economy and imports from China are a small portion of all imports. Were China to be pressured into revaluing its currency in isolation, Goolsbee says, America would not start making the kind of toys it has been importing from China -- America would import toys from Vietnam.

If you make a simple translation, that converts into a progressive policy of heavy funding for domestic programs and aid by means of increased taxation and a more conservative hands-off approach on international issues, instead letting the market take care of trade deficits.

Another of Obama's economic advisors, David Cutler (Age 42), is Otto Eckstein Professor of Applied Economics at Harvard and is well know for his mastery of health care economics. He is the author of Money Or Your Life: Strong Medicine for America's Health Care System. He currently also serves as a research associate at NBER, and as a member of the Institute of Medicine. Relevant experience include positions with the National Institutes of Health and the National Academy of Sciences, Council of Economic Advisors and the National Economic Council during the Clinton administration.

Cutler has come up with an innovative plan to revitalize the health care system by adopting a pay-for-performance model where doctors would be paid for the improvements in patients' health rather than specific treatments, and the emphasis would be on preventive care and a culture of educating patients to take better care of their own health. The chances of this kind of healthcare policy being pursued in an Obama Administration are very high, if you factor in the community involvement work done in Chicago by the Senator's wife, Michelle Obama, as a vice president for community and external affairs at the University of Chicago Hospitals. She has categorically stated that preventive healthcare is not a luxury, but a necessity and she has first hand experience in trying to make it a reality.

That should be a clear signal that an Obama Administration, with help from David Cutler and Michelle Obama, will make a real and sustained effort to implement this pay for performance model for the national health care system. Thus, while Hillary Clinton's plan focuses on universal healthcare by offering carrots and sticks, Obama's plan will likely involve a lot of legwork, rewards for performance and community education, along with reducing costs by improving efficiency with a better IT infrastructure.

This streak of pay for perfomance also extends to Barack Obama's intended dealings with Detriot's auto industry, currently drowing in its own failure to adapt to the shifting realities of fuel efficiency standards, increased healthcare benefit costs, hybrid vehicles and global competition. Obama has suggested offsetting a part of the healthcare costs of the auto-makers in return for speeding up implementation of improved fuel efficiency standards.

The third rail of Obama's economic team, and an expert on social security, is Jeffrey Liebman (Age 40), the Malcolm Wiener Professor of Public Policy, John F. Kennedy School of Government, Harvard University. He has been supportive of efforts towards social security solvency, with partial privatization, increased taxation and reduced benefits. This could turn out to be Obama's toughest battle with a Democratic Congress, which considers even mention of the word 'privatization' a blasphemy and a trick to gut the welfare system.

The single most important thread which brings together all three of the above mentioned economists and Senator Barack Obama is not their economic viewpoints, but their age. If they do get the oppurtunity to set the economic agenda for the nation, this will be the youngest team in charge since JFK, and definitely the first post-boomer team. This gives them a better than even chance of breaking the deadlocks, implementing controversial reforms and dishing out some hard medicine for a very sick economy. An interesting four years, to say the least.

References:

http://www.bloomberg.com/apps/news?pid=20601070&sid=a7Zdp3HDltW4

http://www.washingtonpost.com/wp-dyn/content/article/2007/10/03/AR2007100302003.html

http://www.uchospitals.edu/news/2005/20050509-obama.html

http://faculty.chicagogsb.edu/austan.goolsbee/website/research/vitae.htm

http://ksgfaculty.harvard.edu/David_Cutler

http://www.ksg.harvard.edu/jeffreyliebman/