Volcker Advising Obama -- Why It Matters

It’s not evident to us that either Presidential candidate has much of a clue on the economy, let alone the current financial crisis. John McCain sees it as either a fiscal crisis (it’s not. Not even close) or something having to do with energy independence. Both Obama and McCain are fond of blaming greed and fat cats, but that can’t be it — since Wall Street has always been about greed and making a lot of money.

We suspect that if it had become apparent earlier that the economy would become the central issue in the campaign, neither of the current candidates (certainly not McCain) would have been chosen as their party’s standard bearer.

So while we don’t expect any smart solutions from either side, we do expect them not to sound silly or green. The best way for them to do this is to shut their mouths, and just take it all in. The current lame duck, George W. Bush, is a good example of what not to do, namely, make comments like “this sucker could go down“. Bad (but very amusing!). Beyond that, economics is one area where candidates shouldn’t trust their gut. A lot of the lessons and outcomes are counterintuitive. We can surmise that gut feeling has lead to a lot of bad, misguided economic policy over the years, with all kinds of negative consequences.

So regardless of who is elected, we can only hope that they surround themselves with people who have some vague semblance of a clue. Hence the enthusiasm over the fact that, as reported by the WSJ today, that ex-Fed Chief Volcker has become a senior advisor to Obama. Now, we’ve no doubt that the conservative attacks against Volcker will begin right now. He’s probably attended cocktail parties on the East Coast! But at least it’s some sign of seriousness.

Barry Ritholtz notes:

From an economic perspective, I did not take the Obama candidacy seriously — until I heard about Volcker’s role. When one of the greatest Fed Chairs ever starts consulting for a relatively young candidate with limited fiscal experience, you notice it.

Just one other thing that makes us feel more comfortable about Obama economically. He claims to be familiar with Hayek. When have you heard a candidate say that before?

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