Tim Geithner Owns the Economy, Too

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Treasury Secretary Timothy Geithner, the last remaining principal from President Obama’s original economic team, apparently may step down once the debt ceiling gets sorted out. The obvious point to make about Geithner is that he’s a survivor. He almost didn’t get confirmed because of tax problems; his job seemed to be in constant danger early in the administration; he ended up outlasting all his colleagues on Obama’s endlessly squabbling economic team.

But Geithner wasn’t just the last of the Mohicans. He was the winner of their, um, spirited internal debates. For the most part, Obama ended up taking his advice. Geithner owns this economy as much as anyone other than the President.

When it comes to his oversight of financial markets, I think history will look  kindly on Geithner. In his previous job leading the New York Fed, he helped avert a global cataclysm; I’ve written that the critics of his role in the AIG bailout would probably criticize Lassie for tracking mud on the rug after saving that kid in the well. Geithner also took flak for his muddled initial proposal for toxic financial assets—Obama’s chief of staff at the time, Rahm Emanuel, essentially took on a second job as Geithner’s babysitter after some particularly disastrous congressional testimony—but his revised plan for “stress tests” helped stabilize the banking system.

Geithner was also the primary architect of Obama’s approach to financial regulations, writing the first draft of the strict reforms that Congress passed last year, while pushing for even stricter capital requirements and leverage restrictions at the international level. Liberals gripe about his tense relations with Elizabeth Warren, but he never wavered in his support for the consumer financial protection agency that was her brainchild; their disagreements had more to do with her scathing criticisms of the Wall Street bailout—which, as Geithner’s aides like to point out, is on track to cost taxpayers virtually nothing.

Geithner’s behind-the-scenes role in non-finance economic policy has gotten less attention, but history will recognize his influence there as well. He’s been a consistent voice urging Obama to focus less on short-term stimulus and more on long-term deficit reduction—and as his rivals colleagues on the economic team have returned to the private sector, Obama hasn’t had countervailing voices in his other ear.

The most outspoken countervailing voice was former Council of Economic Advisers chair Christina Romer, a student of the Great Depression who pushed for maximum jolts of fiscal stimulus throughout her time in Washington. But the most important countervailing voice was former National Economic Council chairman Larry Summers, Geithner’s friend and quasi-mentor. You hear a lot of talk about LarryAndTim as if they were Siamese twins, but on fiscal policy, Summers generally wanted to do more pump-priming while Geithner wanted to pivot to the deficit.

Well, Geithner won that battle.  After the initial $787 billion Recovery Act, which he supported a bit grudgingly—he was more focused on the chaotic financial markets at the time—the White House stopped talking about stimulus. There were a few more short-term injections of cash into the economy—extensions of unemployment benefits, modest aid to states and small businesses, and December’s tax-cut deal with Republicans—but White House rhetoric has emphasized Geithnerish themes of long-term fiscal sustainability.

It says a lot about Obama that he has relied so heavily on Geithner. Insiders say they get along well personally; they both spent time abroad as kids, and they’re both low-key, no-drama guys, which is not how anyone would describe Summers.  But it would be interesting to know just how deeply Obama shares Geithner’s view of the political economy.

Clearly, they’re both market-oriented Democrats; the notion that anyone could be called a socialist after choosing Geithner and Summers as top advisers is crazy. But Geithner is a particular kind of market-oriented elite, comfortable with corporate titans, allergic to economic populism. He’s pushed to regulate Wall Street but not to demonize Wall Street, and left-wing complaints about coddling bankers irritate him as much as right-wing complaints about persecuting bankers. And let’s face it: The last three years have turned out much better for bankers than for average Americans. The Obama-Geithner brand of sharia socialism has produced fabulous corporate profits.

As Obama shifts into campaign mode, he’s probably going to say a lot of populist things that would make Geithner squirm, so it’s not surprising that Geithner is considering an exit. But the boyish Treasury Secretary who was supposed to be the Obama administration’s first political casualty has lasted long enough to earn some real responsibility for our economic situation—the fact that we’re not in a second depression, but also the fact that we’re not in a vibrant recovery. He bears even more responsibility for Washington’s skewed economic conversation; despite 9% unemployment, Obama has pivoted to the deficit, just as the Republicans (who enacted the policies that created the deficit when they controlled Washington) hoped he would.

Now Republicans are holding the debt limit hostage, threatening to force the Treasury to default unless Obama accepts their agenda of drastic spending cuts and no tax increases.  Geithner doesn’t want the economic devastation that would follow a default to be part of his legacy, and he’s presumably anxious for a deal that would let him out of Washington. But if that deal embraces austerity measures that could hold back economic growth–and could damage Obama’s chances at re-election–that will be part of his legacy, too.

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