Barack Obama describes his economics as "figuring out what works." With a crisis that so far defies pat solutions, he'll need to improvise – just like the Bush administration has done with each new emergency. He'll need to act as Gen. David Patraeus successfully did in Iraq: Meet the war that exists, not the war you might prefer to fight.
So far, the president-elect has shown himself to be a nimble pragmatist in response to the economy's rapid decline since his Nov. 4 election victory. With jobless claims at a 16-year high and rising, America's preferred agent of "change" has had to change his own transition agenda very quickly.
Instead of picking his national-security team first, as expected, Mr. Obama moved fast to assemble an economic team in order to reassure Americans and the world that he would be ready to act on Jan. 20. Markets can not afford a leadership vacuum.
To maintain continuity with the government solutions devised over the past months, he made a point of saying that he is working in close cooperation with the Bush administration. In fact, Obama chose New York Federal Reserve President Tim Geithner as his nominee for Treasury secretary. Mr. Geithner has been a key player alongside current Treasury chief Henry Paulson and Fed chief Ben Bernanke in the many different rescue operations. That includes the latest move to pump $200 billion into stalled markets for car loans, student loans, and other commercial debt.
Mr. Geithner is known to be a careful listener before devising solutions. He is also famous for his warning years ago that financial markets were in danger of too much "risk dispersion," or new instruments such as credit default swaps that spread risk in hopes of making investors immune from an economic crisis.
Those instruments turned out instead to spread the financial crisis. And because they remain hidden from the view of regulators, the markets are uncertain over their exact amounts.
All the members of Obama's economic team reflect his decision to put competency ahead of ideology. One of his more intriguing choices is Christina Romer as head of the President's Council of Economic Advisers. As a professor at the University of California-Berkeley, she has argued in academic papers that tax increases have a negative effect on investment.
Obama has indeed hinted that he may not follow through on a campaign promise to roll back the Bush tax cuts or to impose tax hikes on those Americans that he regards as being above the middle class (earning more than $250,000). His economic pragmatism may be telling him that raising taxes during a recession may not work.
Still, he needs to find tax money to "jolt" the economy, as he puts it, with a large stimulus of spending and tax cuts (he won't give an exact amount). His plan is to create 2.5 million jobs within two years and to focus those jobs in "green" industries. But as Secretary Paulson has learned, "facts change" about markets and so must government strategy. Lessons from past recessions or the Great Depression may not always apply.
Obama needs to combine competence and stability with a willingness to experiment. It's a nimble dance to find out "what works."