I believe this is a huge problem for the Obama Administration. This question stems from an article in Newsweek regarding the absence of Professor Joseph Stiglitz from President Obama's circle of advisors. Professor Stiglitz may be prickly but he is a great economist.
Stiglitz is perhaps best known for his unrelenting assault on an idea that has dominated the global landscape since Ronald Reagan: that markets work well on their own and governments should stay out of the way. Since the days of Adam Smith, classical economic theory has held that free markets are always efficient, with rare exceptions. Stiglitz is the leader of a school of economics that, for the past 30 years, has developed complex mathematical models to disprove that idea. The subprime-mortgage disaster was almost tailor-made evidence that financial markets often fail without rigorous government supervision, Stiglitz and his allies say. The work that won Stiglitz the Nobel in 2001 showed how "imperfect" information that is unequally shared by participants in a transaction can make markets go haywire, giving unfair advantage to one party. The subprime scandal was all about people who knew a lot—like mortgage lenders and Wall Street derivatives traders—exploiting people who had less information, like global investors who bought up subprime- mortgage-backed securities. As Stiglitz puts it: "Globalization opened up opportunities to find new people to exploit their ignorance. And we found them."
Then Professor Krugman chimes in this morning:
Yes, Joe should be playing a bigger role — he’s an insanely great economist, in ways you can’t really appreciate unless you’re deep into the field. I’d say that he’s more his generation’s Paul Samuelson than its John Maynard Keynes: as with Great Paul, almost every time you dig into some sub-field of economics — finance, imperfect competition, health care — you find that much of the work rests on a seminal Stiglitz paper.
But the larger story is the absence of a progressive-economist wing. A lot of people supported Obama over Clinton in the primaries because they thought Clinton would bring back the Rubin team; and what Obama has done is … bring back the Rubin team. Even the advisory council, which is supposed to bring in skeptical views, does so by bringing in, um, Marty Feldstein.
He is my answer: Larry Summers. President Obama has turned his economic policies over to the old Robert Rubin Team. This Robert Rubin Team comes from the same financial conglomerates that destroyed our economy. The Robert Rubin "School of Economics" believes in a strong and very powerful financial oligarchy and financial sector.
Just look at their record:
1) Gramm Leach Bliley Act of 1999 - signed by President Clinton and advocated by Rubin and Summers
2) Commodity and Futures Modernization Act of 2000 - signed by President Clinton and advocated by Rubin and Summers.
Oh, BTW, Robert Rubin was co-chairman of Goldman Sachs before becoming Clinton's Secretary of Treasury.
As for Mr. Summers: check this letter out from Mr. Summers to Mr. Ken Lay, deceased former CEO of Enron:
FYI: Here is the Summers correspondence with Ken Lay: Link
President Obama was elected because he represented "Change". He campaigned heavily on this theme. This all rings hollow by allowing the Robert Rubin School of Economics run your economic team.