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Goolsbee to Head Council of Economic Advisers

Austan Goolsbee (photo: Gery Kodey via CAPAF)

[ed. note: President Obama will announce the choice of Goolsbee in a press conference scheduled for 11am EDT. David will be liveblogging the event.]

Austan Goolsbee, the chief economist during the Presidential campaign and a member of the economic team currently, will become the new head of the Council of Economic Advisers, replacing Christina Romer. If Romer’s tenure on the CEA is any expectation, Goolsbee will spend his time there butting heads with Larry Summers and being stymied on getting his advice to the President.

In fact, that may already be happening. Goolsbee spent a great deal of his early career at the University of Chicago doing academic work on R&D tax credit-style policies, and he found that they don’t really work as stimulus:

Although there appears to be an abiding faith among policy makers that tax incentives can influence the investment decisions of firms and serve as a tool for stabilizing the economy, empirical evidence for the connection is weak. Econometric research has commonly found that tax policy and the cost of capital have little effect on real investment. Economic theory predicts that the marginal user cost of capital should be the primary determinant of investment demand but actual estimates of the price elasticity of nvestment … mostly lie between zero and -0.4… The evidence that investment is only modestly responsive to price has been one of the most robust findings of the empirical investment literature…

In addition to their large revenue costs, investment tax subsidies may give large, unintended rents to capital suppliers without increasing real investment until several years later because of the short-run asset price responses of capital goods. For policy makers interested in using tax policy to stimulate investment or, especially, to smooth business cycle fluctuations, the results are not promising.

He then, according to Jason Furman, helped devise the economic strategy that the President rolled out this week, which includes as a centerpiece a permanent extension of the R&D tax credit. With a claim that it would create jobs.

So he participated in his own humiliation, which is very Japanese of him. [cont’d.]

In Jackie Calmes’ piece she takes pains to say that Geithner and Summers are going nowhere, so that looks to continue. In that piece we also learn that Goolsbee didn’t want to bail out Chrysler:

But Mr. Goolsbee, an amateur comic as well as an economist, was a favorite within the White House, where many colleagues felt he had earned the chairmanship. He has tense relations with Mr. Summers, however, after policy disputes in the early crisis-driven debates over the rescues of the financial industry and Chrysler, among other issues.

Mr. Goolsbee, who has a free-market bent, opposed bailing out Chrysler. He did not prevail, but Mr. Obama personally sought his arguments […]

Mr. Goolsbee has also been the staff director of the President’s Economic Recovery Advisory Board, a panel of business, labor and academic officials providing outside perspective. As such he worked closely with Paul A. Volcker, the former Federal Reserve chairman, and shared with him a preference for tougher regulation of the financial industry than Mr. Geithner and others espoused.

I tepidly agree with Goolsbee on both counts, although the Chrysler rescue had implications for the supply chain and in retrospect was the right thing to do. The point is that Summers and Geithner have experience blocking Goolsbee on these matters, and that looks to continue.

CommunityThe Bullpen

Goolsbee to Head Council of Economic Advisers

Austan Goolsbee, the chief economist during the Presidential campaign and a member of the economic team currently, will become the new head of the Council of Economic Advisers, replacing Christina Romer. If Romer’s tenure on the CEA is any expectation, Goolsbee will spend his time there butting heads with Larry Summers and being stymied on getting his advice to the President.

In fact, that may already be happening. Goolsbee spent a great deal of his early career at the University of Chicago doing academic work on R&D tax credit-style policies, and he found that they don’t really work as stimulus:

Although there appears to be an abiding faith among policy makers that tax incentives can influence the investment decisions of firms and serve as a tool for stabilizing the economy, empirical evidence for the connection is weak. Econometric research has commonly found that tax policy and the cost of capital have little effect on real investment. Economic theory predicts that the marginal user cost of capital should be the primary determinant of investment demand but actual estimates of the price elasticity of nvestment … mostly lie between zero and -0.4… The evidence that investment is only modestly responsive to price has been one of the most robust findings of the empirical investment literature…

In addition to their large revenue costs, investment tax subsidies may give large, unintended rents to capital suppliers without increasing real investment until several years later because of the short-run asset price responses of capital goods. For policy makers interested in using tax policy to stimulate investment or, especially, to smooth business cycle fluctuations, the results are not promising.

He then, according to Jason Furman, helped devise the economic strategy that the President rolled out this week, which includes as a centerpiece a permanent extension of the R&D tax credit. With a claim that it would create jobs.

So he participated in his own humiliation, which is very Japanese of him.

In Jackie Calmes’ piece she takes pains to say that Geithner and Summers are going nowhere, so that looks to continue. In that piece we also learn that Goolsbee didn’t want to bail out Chrysler:

But Mr. Goolsbee, an amateur comic as well as an economist, was a favorite within the White House, where many colleagues felt he had earned the chairmanship. He has tense relations with Mr. Summers, however, after policy disputes in the early crisis-driven debates over the rescues of the financial industry and Chrysler, among other issues.

Mr. Goolsbee, who has a free-market bent, opposed bailing out Chrysler. He did not prevail, but Mr. Obama personally sought his arguments […]

Mr. Goolsbee has also been the staff director of the President’s Economic Recovery Advisory Board, a panel of business, labor and academic officials providing outside perspective. As such he worked closely with Paul A. Volcker, the former Federal Reserve chairman, and shared with him a preference for tougher regulation of the financial industry than Mr. Geithner and others espoused.

I tepidly agree with Goolsbee on both counts, although the Chrysler rescue had implications for the supply chain and in retrospect was the right thing to do. The point is that Summers and Geithner have experience blocking Goolsbee on these matters, and that looks to continue.

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