At one point, all six of Obama's most senior economic advisers where Rubinites. (They are still overwhelmingly Rubinites.) Obama and H. Clinton have chosen Rubinites as their dominant economic advisers not through some sinister, secret infiltration engineered by Rubin, but because Obama and the Clinton represent the Rubin-wing of the Democratic Party.
Third, H. Clinton chose Hormats as a top adviser not because of his "expertise" -- she knows he has been consistently, horrifically wrong about every important economic policy issue on which he has opined in the last 20 years -- but as a signal to the donors, the elite bankers. The signal is that I have always been with you and will always be with you, regardless of the bleating of the Democratic-wing of the Democratic Party.
I have explained Hormats' incompetence when it came to regulation. I will add briefly related displays of incompetence in what he purports to be his fields of expertise. First, he wants to cut the already inadequate safety net for the purpose of reducing budget deficits. Consider his testimony before the House Budget Committee on June 26, 2007. The setting was a friendly one. The Democrats controlling the Committee held a hearing to embarrass the Bush administration. The Democratic meme was that unlike virtuous Clinton, Bush had taken us deep into deficit -- and much of our national debt was owed to the Chinese (cue dramatic, pulsating minor key music foreshadowing disaster). I know that may "progressives" would think that such a hearing was fantastic -- good politics plus hoisting the Republican's fiscal conservatives on their own petard.
I'll simply refer readers to my colleagues' explanations of why the "Red Peril" fearmongering is nonsense. It is terrible economics and Democrats shouldn't try to score political points by spreading economic lies -- even if the Democrats are right that the Republicans do so routinely.
I think that the hearing and Hormats' testimony demonstrated the idiocy and dishonesty of many Democrats. Recall the date of the hearing -- the U.S. was racing into the Great Recession. It officially began in the Fourth Quarter of 2007. By the time Hormats testified roughly five nonprime lenders were failing every week and housing prices had been falling for over a year in many markets. The U.S. needed to be running far larger federal budget deficits to begin to counter the coming recession. Instead, we had Hormats testifying that July 26, 2007 would be a great time for the U.S. to simultaneously "boost savings at home," cut safety net payments (Social Security, Medicare, and Medicaid), and return the federal budget to surplus. Each of these actions would have further reduced already inadequate demand and caused the Great Recession to come sooner, be deeper, and last far longer -- because that is what austerity does when you add it to a recession.
Hormats: Not Cutting Grandmother's Social Security Will Get Her Nuked
Hormats was just getting started with his plan to ruin America. He claimed that we had to adopt these three self-destructive policies that would hurl us into an earlier, deeper, and longer recession (and therefore increase the budget deficit) to protect ourselves from a terrorist WMD attack.
"Because we know that one of the stated objectives of terrorists is to cause massive disruption in the U.S. economy, such financial vulnerabilities could lead potential perpetrators to feel that they can do a great deal of damage not simply by their initial act, but also because of the secondary and tertiary economic disruptions that would occur because of the subsequent turmoil in a more vulnerable financial environment. In finances as in military affairs, vulnerability frequently invites aggression."
Hormats' position was refuted by an earlier speaker that looked a whole lot like Hormats who only about 30 seconds earlier testified that "It is worth recalling that the country had recorded four years of budget surplus before 9/11"." Indeed, it would have been "worth recalling" by Hormats who only 30 seconds later claimed that we could greatly reduce the risk of terrorist attacks if we ran budget surpluses. Hormats displayed at this hearing that he is not simply incompetent, he is a shill willing to say anything, no matter how looney, to please the Democratic politicians who might again make the mistake of appointing him to office.
In the same testimony, Hormats also indicated that he is a "finance expert" who is clueless about the actual financial system of a nation with a sovereign currency, i.e., the U.S.
"Alexander Hamilton recognized from the very beginning that America's financial strength was vital to its security. If the country did not manage its finances well, he reasoned, it would not have the resources needed to defend itself in time of war and it would lose credibility in the eyes of creditors, making borrowing in time of war or other national emergency all the more difficult.
Over two centuries have passed since Hamilton held office, but these principles are just as relevant today."
Well, no, not even close. On a more technical detail, his "Red Peril" scenarios assume that the U.S. can only fund itself through issuing bonds. My colleagues have explained in loving detail in NEP why Hormats' claims demonstrate that he does not understand even the most basic aspects of how money actually works. I do not demand that Hormats agree with MMT, but he does have to understand the actual operations by which money can be created to be minimally competent in his field. As I explained, one does not make a Rubinite an adviser because one is seeking competence.
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