President-elect Barack Obama's administration's reaction to the current economy would have to be, in his words, "swift and bold." At a press conference Monday in Chicago, he unveiled his economic team, which will be led by Tim Geithner as secretary of the Treasury and Larry Summers as director of the National Economic Council. The two come with unique experience: The former is the president of the New York Federal Reserve, and the latter was secretary of the Treasury in the Clinton administration, before sitting in the president's office at Harvard.
Markets rallied upon word of the appointments, which also included two other senior advisers, Christina Romer (to be chair of the Council of Economic Advisers) and Melody Barnes (to be director of the Domestic Policy Council). But with the extreme fluctuations global markets are currently seeing—Obama and his new appointees will be looking for solutions to both the short-term rockiness and the longer-term economic problems—the president-elect continues to describe the crisis as "historic." Infamously pessimistic economist Nouriel Roubini, a professor at New York University, spoke to NEWSWEEK's Daniel Stone about what wise decisions must be made early on, his thoughts on Obama's economic team, and how they can they stop the bleeding. Excerpts:
NEWSWEEK: What are your thoughts on the team Obama assembled?
Nouriel Roubini: The choices are excellent. Tim Geithner is going to be a pragmatic, thoughtful and great leader for the Treasury. He has experience at the Treasury and the IMF [International Monetary Fund], then the New York Fed. I have great respect for both Geithner as well as Larry Summers. I think both of them in top roles in economics in the administration were good moves. I think very highly of them both.
What are the first things they need to tackle?
First one is the fiscal stimulus, because the troubled economy is in a freefall, so we really need to boost aggregate demand, and the sooner and larger the better. The second thing they should do is recapitalize the financial system. Most of the $700 billion is going to be used to recapitalize banks, broker dealers, finance companies and insurance companies. To do it aggressively and fast is going to be important.
The plan Obama has talked about includes spending on infrastructure and energy development to create jobs. How likely is that to produce long-term aid to the economy?
We need to do it because demand and spending and housing are literally collapsing. That will get a boost from public-sector spending: [spending on] infrastructure, unemployment benefits, state and local government aid, more food stamps. We're going to have to think larger, but I don't think you can pass most of it until January when [Obama] comes to power. We're going to have to wait, because nothing seems possible for the time being. But I expect most of his plans will pass once the new administration is in power.
Obama is largely powerless for the next two months. What's your outlook from now through January?
The lame-duck session of Congress really needs to spend on unemployment benefits, aid to save the local governments and on food stamps. Those things are very short-run and are very important. It's really the most we can do for now.
Your view of the economic future is often a bit less than optimistic. What does Obama's team signal about what could be coming?
Look, he wants to get things done, so he's choosing a really terrific team. To me, it says that he's choosing people who have great experience. He's choosing people who are pragmatic and who realize the severity of the national problem we're facing. They're knowledgeable about markets, about the economy and the political process in Washington. These are the very best people he could have chosen. I can't look too far, but it's a very good signal of what he wants to do.