Obama economic team shifts from left with Goolsbee appointment

President Obama’s economic brain trust is taking a small step to the right with Austan Goolsbee’s appointment as head of the White House Council of Economic Advisers.

Goolsbee would replace Christina Romer, a leading voice from the left on Obama’s economic team. Because he has been a member of the council, Goolsbee does not have to go through a Senate confirmation.

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Goolsbee, a former professor at the University of Chicago, had been the favorite to succeed Romer since she announced in August she would be returning to academia. But he’s considered slightly less liberal than both Romer and Laura Tyson, whose name surfaced as another potential CEA chairwoman.

A supporter of free trade, Goolsbee once called himself a “free-market type” in a column for Slate. As a campaign adviser to Obama in 2008, he told Canadian officials that Obama didn’t plan to reopen the North American Free Trade Agreement (NAFTA) despite Obama’s criticism of it as a candidate.

Trade is expected to be a big issue for Obama in the remainder of 2010 and in 2011. The president wants to move a trade pact with South Korea through Congress, and if Republicans re-take the House, it could be a point of convergence for the administration and a Republican Congress.

Goolsbee’s positions could provoke some backlash from the left, which already is disappointed with the administration over several issues.

He also opposed a federal bailout of U.S. auto companies last year, something progressive groups supported. The president signed off on that move and has repeatedly defended it in recent weeks.

While Goolsbee’s promotion may not represent a huge change to the president’s economic policies, it could signal the White House isn’t going to propose the kind of bolder measures that liberals have sought to stimulate the economy, said Dean Baker, co-director of the left-leaning Center for Economic and Policy Research.

Baker identified Jared Bernstein, the chief economic adviser to Vice President Biden, as the only progressive in the president’s inner circle of economists.

“And it's clear that he is in the outer ring of the circle,” Baker said. “It seems that the administration is prepared to live with very high rates of unemployment for long periods of time. I understand the difficulty of getting anything through Congress or forcing the Fed to take more aggressive action, but this could be a clear political divide with the Republicans.”

Goolsbee’s appointment should be well received by the business community, said Jim Kessler, vice president for policy at the center-left think tank, Third Way. Obama has seen his relationship with business groups chill during debates over reforming healthcare and Wall Street.

“He believes government needs to make investments to make the economy grow,” said Kessler. “He does believe in private-sector growth, the power of private markets.

“For businesses, if they’re following this, it should give them confidence,” Kessler added. “I do think one of the challenges for the Obama administration going forward is to generate more confidence in the economy because there's a real psychology to the markets, not just the stock market, but when boardrooms decide to invest in plant equipment and hire.”

Romer was known as the member of Obama’s economic team most interested in pushing for a larger stimulus measure to support the economy.

In early 2009, she supported a stimulus package larger than $1 trillion. Congress passed and the president signed a $787 billion package instead. (The stimulus’ cost has since been revised to $814 billion by the Congressional Budget Office.)

Romer has called for more stimulus spending this summer, as has Tyson, a CEA chairwoman in the Clinton White House.

Above all, Goolsbee is seen as a pragmatist whose arguments are driven by data. And he does have fans on the left.

Proponents of Social Security have pointed to his 2004 paper, in which he argued that President George W. Bush’s Social Security reform plan would be “the largest windfall gain in American financial history.”

Goolsbee wrote that letting people shift Social Security payroll taxes into private investment accounts, as Bush proposed, would result in a “massive increase” in fees for taxpayers that would go to mutual fund companies.

Goolsbee is also considered to be a good economic spokesman for the administration.

He has already shown a willingness to engage his critics as CEA chairman. After the liberal blog Eschaton noted this week that he once questioned the efficacy of business investment tax credits -- which Obama called on Congress to pass this week -- Goolsbee on Friday e-mailed the blog to say why his position isn’t at odds with the president’s.

Goolsbee told the blog that his argument against the tax breaks came in 1997, when the economy was much different.

“[T]he findings in my old work would clearly indicate there would be little reason to expect the increased demand to go into higher prices,” Goolsbee said. “Investment subsidies at a time like this could generate significant amounts of investment.”