Any hopes that President Obama might somehow recognize the utter failure of his economic policies and seek new ideas and directions were dashed by his selection Monday of Princeton University economist Alan E. Krueger to succeed Austan D. Goolsbee as chairman of the Council of Economic Advisers. Krueger previously served as an assistant secretary of the Treasury under Timothy Geithner. Obama praised Krueger's work during the first two years of his administration, and said Krueger's chief task in the new job will be to help develop policy recommendations to get the stagnating economy growing again. Don't expect any new ideas from Krueger. He was among the architects of such economic stimulus failures as the "cash for clunkers" program. As The Washington Examiner's Conn Carroll pointed out in Beltway Confidential, the clunkers initiative destroyed half a million functioning automobiles as a means of providing automakers a short-term boost in sales. Like all addictions, however, the clunkers fix soon wore off, leaving automakers with the same problem they had before: a recessionary economy and policies in Washington almost certain to prolong the misery.
Krueger first came to public notice during the Clinton years when he co-authored a study seeking to disprove the common-sense economic truth that minimum-wage increases make it more costly for employers to hire teenagers and other low-skilled workers, which means they hire fewer of them, thus driving up unemployment. Legions of liberal politicians and academics have endlessly quoted the Krueger study to challenge critics of higher minimum wages. So don't be surprised if sometime in the near future Obama endorses minimum-wage increases as an incentive for job creation.
Krueger brings other novel arguments to the table as Obama's new chief economic adviser. On energy policy, he is an advocate of the idea that the market prices of oil and natural gas do not reflect certain "externalities" that capture the social costs of using fossil fuels. In testimony before Congress last year, Krueger said "private market decisions can be inefficient when market prices do not reflect the full social costs. Oil and natural gas prices, for example, do not reflect the environmental harm caused by the release of greenhouse gases in the atmosphere associated with oil and gas production and consumption. In addition, the price of oil does not reflect the risks associated with U.S. oil dependency or the costs of traffic congestion. Tax provisions can address this problem by incorporating the social costs into the price of the resources."
We might take such analyses more seriously if their advocates were also willing to take into account the "externalities" associated with federal spending programs. For example, when assessing the $859 billion price tag of the stimulus program, we should also include the value of everything taxpayers would have bought with that money had they spent it themselves instead of having Washington's professional politicians spend it for them.
