November 27, 2008 / 1:22 PM / 10 years ago

Obama picks Volcker as economy adviser

CHICAGO (Reuters) - U.S. President-elect Barack Obama on Wednesday named former Federal Reserve Chairman Paul Volcker to chair a new panel to advise him how to stabilize financial markets and navigate a potentially painful recession.

Former Federal Reserve Chairman Paul Volcker during a news conference in Chicago November 26, 2008. REUTERS/Jeff Haynes

It was the latest step toward tackling problems undermining the U.S. economy and was part of an aggressive effort by Obama to demonstrate that his administration will face the global financial crisis head-on when he takes over on January 20.

The new panel was modeled on an advisory panel that gives the president nonpartisan advice on national security matters, Obama said.

“Sometimes policymaking in Washington can become a little bit too ingrown, a little bit too insular,” Obama said at his third news conference in as many days. “This board will provide that fresh perspective to me and my administration.”

Financial markets were not impacted by the news of the appointment, which had leaked overnight.

Volcker, 81, has been an important adviser to Obama on economic issues. As Federal Reserve chairman in the early 1980s, he was credited with taming inflation through policies that also contributed to a recession at the time.

Obama named campaign adviser Austan Goolsbee as the panel’s staff director. Obama said the University of Chicago professor had “shaped his thinking” on economic matters.

Asked about criticism that he was taking too many officials from the administration of former President Bill Clinton into his fold, Obama responded forcefully.

“What we are going to do is combine experience with fresh thinking,” he said. If his top economic officials, such as his pick for treasury secretary, Timothy Geithner, had not had ties to the Clinton government, whose term ended in 2002, they would have no Washington experience at all, he said.

“Understand where the vision for change comes from, first and foremost. It comes from me,” he said. “That’s my job.”

Other members of the new board, who will be named later, will be drawn from business, labor and academia, Obama said.

MORE BAD ECONOMIC NEWS

The drumbeat of bad news continued on Wednesday, as the Commerce Department reported consumers cut spending during October at the steepest rate in more than seven years and orders for costly manufactured goods plummeted.

Later on Wednesday Obama and his family handed out food to poor people in Chicago’s South Side neighborhood ahead of the November 27 Thanksgiving holiday.

In addition to naming his top economic advisers, Obama has come closer to forming his national security team, with reports saying that current Defense Secretary Robert Gates will remain in his post and retired Marine Gen. James Jones will take over as national security adviser.

Those appointments, along with New York Sen. Hillary Clinton as secretary of state, are likely to be made early next week, after the November 27 U.S. Thanksgiving holiday.

For now Obama has put his focus squarely on the economy, pledging a costly stimulus package that he urged the next Congress to pass quickly.

On Tuesday, he vowed to cut billions of dollars in wasteful government spending.

But questions remain about both goals. Obama declined to put a figure on the stimulus package — other Democrats have said it could cost hundreds of billions of dollars — and he did not identify specific government programs to be cut to help pay for it.

“I think would hardly be expected to provide you a detailed list now,” he told the news conference when asked about potential cuts. “The expectation is that we will identify those programs that are not working, make sure that those are eliminated, and put money into programs that do work.”

Analysts said Obama’s economic pronouncements showed the next president stepping into a leadership void left by Bush.

“Confidence in Bush as an effective president has eroded so substantially that he is no longer taken seriously,” said Paul Beck, a professor of political science at Ohio State University.

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“There is, of course, much more confidence in Obama or he would not have been elected as president,” Beck said. “And he is the president-in-waiting, so the only alternative the country has to Bush as a leader, especially in a period when the markets have failed and government must play an enlarged role in them.”

Obama has not shied away from telling struggling industries like banks and automakers to take responsibility for their ailing position in the economy. In an interview with the ABC television, Obama said bank executives should forego their bonuses this year.

Writing by Jeff Mason and Andy Sullivan; Editing by David Storey

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