The Issues
In January 2009, Farrell joined the Obama administration as the NEC deputy director. While her role was expected to focus mainly on helping save the financial industry that had been crippled by subprime mortgages, Farrell’s job description expanded in February 2009.
Auto Task Force
That's when auto giants GM and Chrysler submitted plans to the government asking for more money outside of the nearly $25 billion received in December 2008 to head off what they said was imminent collapse. In response, Obama created the Auto Task Force to review GM and Chrysler’s plans, as well as devise strategies to save the struggling companies and aid cities that have long relied on the auto industry for jobs.
While the task force is comprised of secretaries from a variety of cabinet departments, including Energy, Transportation and Labor, it’s mainly run by senior aides. In March 2009, the task force advised Obama to order Chrysler to structure a deal with Italian car company Fiat SpA within 30 days or forfeit $6 billion in funding. GM was allowed 60 days to rework its plan, but its CEO Rick Wagoner was forced to resign. Farrell was involved with the negotiations that eventually led to these recommendations. In April 2009, Chrysler filed for bankruptcy, and 31 days later a bankruptcy court judge approved the sale of the company to Fiat. GM filed for bankruptcy on June 1, 2009. The Treasury Department added an additional $30 billion in financing to GM and took a 60 percent stake in the car company.
Moving U.S. Jobs Overseas
In op-eds and other published writings, Farrell has written extensively on the subject of companies moving jobs overseas in pursuit of cheaper labor. In a book titled “The Economists' Voice: Top Economists Take on Today's Problems,” Farrell wrote a chapter titled “U.S. Offshoring: Small Steps to make it Win-Win.” Her chapter, published in 2008, centered on offshoring, and accompanied other chapters written by famed scholars like Columbia University economics professor and former head of the Council of Economic Advisers Joseph Stiglitz.
In it, Farrell explains why changing U.S. laws to prevent offshoring wouldn't solve anything. She argues that offshoring actually helps the U.S. economy, contending that lawmakers must focus on passing laws that help laid-off workers. “Policymakers should let offshoring continue,” wrote Farrell. “But that doesn’t mean they should ignore its consequences. None of the benefits of offshoring currently flow directly to those who suffer most directly, namely U.S. workers whose jobs move overseas.”
To support her claim that offshoring has minimal impact on the U.S. labor market, Farrell cited MGI statistics that showed the U.S. could only move a maximum of 11 percent of its service jobs overseas; in reality, Farrell demonstrated that only about two percent of the country’s service jobs have been moved overseas.
Furthermore, one-third of U.S. workers are employed by companies too small to afford the initial expense ofpffshoring, while larger companies have trouble integrating U.S. and international staff, which can make the entire venture futile.
But the U.S. economy does get rewarded for its overseas expansion, according to Farrell. “Past MGI research found that for every $1 of cost on services that U.S. companies move offshore, the U.S. economy gains at least $1.14,” wrote Farrell. “This gives companies scope to invest in new opportunities that create jobs both at home and abroad, to raise shareholder dividends, and to lower prices to consumers.”
In the book, Farrell also called for increasing efforts to help displaced workers such as education programs and wage insurance.
2008-2009 Credit Crisis
In one article authored by her and published by McKinsey shortly after she joined the NEC, Farrell wrote about the impact the credit crunch would have on future generations. “Many policy makers and business executives continue to assume that it’s just a matter of time until we go back to where we were before the crisis began,” wrote Farrell. “They are probably mistaken. We know that the ground has already shifted significantly in several ways, with important implications for many players.”
Farrell then explained five ways in which the world will change pending a full recovery of U.S. financial institutions. They include:
- Governments will assume greater influence in developed countries. “Businesses and policy makers must recognize that governments will be a critical stakeholder not only in many emerging markets but also in mature ones,” Farrell said. “In addition, they will have to develop strategies to cope with an evolving regulatory, tax, and trade environment.”
- Households and businesses will borrow less as the economy undergoes a massive deleveraging.
- New global economic players will emerge, including China, India, sovereign-wealth funds, government holding companies and pension funds, among others. “This emerging new order heightens the need to construct a new global financial architecture of regulations, practices, and institutions better suited to a global economy and global players,” wrote Farrell. “National governments and corporations will no longer dominate financial markets, nor will trade be the primary financial linkage between economies.”
Financial Regulation Reform
In October 2009, the debate over financial regulation reform continued. One topic of discussion was the size of financial institutions deemed 'too big to fail' when the credit market collapsed, forcing the federal government to pass the $700 billion bailout bill. Some argued that Congress should create measures that would prevent a company from growing too large.
But Farrell argues that the large, complex institutions, like AIG and Citigroup, have benefits as well. "We have created them, and we're sort of past that point, and I think that in some sense, the genie's out of the bottle and what we need to do is to manage them and to oversee them, as opposed to hark back to a time that we're unlikely to ever come back to or want to come back to," said Farrell.
