Getting Serious

It is good to see Barack Obama is getting serious about the economic situation. After initial speculation that Obama would announce his economic team quickly after the election to assuage markets, the primary rumors and leaks on cabinet appointments involved key political figures: Hillary Clinton, Bill Richardson, Janet Napolitano, Tom Daschle, and Eric Holder. In most presidential transitions, focusing on political appointments is entirely appropriate - to satisfy supporters, appeal to broader constituencies, and build up the careers of future leaders.

But in the economic turmoil we are facing, such a path raises concerns in markets about the seriousness and direction of the new administration. Witness the 25% drop in the S&P 500 from Election Day to November 20, before the market began to rebound with leaks of well-regarded economic policy appointments including Tim Geithner as Obama's nominee for Treasury secretary.

While the market drop is probably not entirely attributed to concerns over the future direction of the economic policy of a government controlled by Democrats, market confidence clearly ebbed due to the fear of higher taxes, increased regulation, bailouts of the auto makers and other supplicants, potentially radical environmental policies, the weakening of free trade, and the bashing of business leaders.

Confidence in future economic policies, when there is a serious question as to their direction, is an important factor in whether businesses make new investments and consumers commit to large purchases such as homes and cars. If Barack Obama could inspire markets even modestly as compared to how he inspired so many voters during the election, he would go a long way to facilitating a recovery.