Romer's Farewell

In the farewell speech that she gave on her way out the door, chief economic adviser Dr. Christina Romer admitted that the Obama administration stimulus that she helped to design has been a miserable failure.

The Obama administration’s fiscal stimulus was meant to boost aggregate demand and get the economy going again. Estimates of GDP show that the United States is still 6% under its pre-crash trend, and that her plan hasn’t worked as expected.

“The United States still faces a substantial shortfall in aggregate demand… this shortfall in demand, rather than structural changes in the composition of our output… is the fundamental cause of our continued high unemployment,” Romer told the crowd at the National Press Club in Washington, D.C.

And since the stimulus yielded such dismal results, Dr. Romer advised that we do it again.

Romer today called for a second round of fiscal stimulus to further boost aggregate demand, a tacit admission that her first round was a failure:

While we’d all like to find the inexpensive, magic bullet to our economic troubles, the truth is, it almost surely doesn’t exist. The only surefire way for policy makers to increase aggregate demand in the short-run is for the government to spend more and tax less. And in my view we should be moving forward on both fronts… the key is that we need to take action, and we need to do it quickly.

The "tax less" part won't play well in lefty circles where resident geniuses demand that tax cuts be paid for while bailouts be borrowed.  Whatever.  It's all such a mystery.

“To this day, economists don’t understand why firms cut production as much as they did, or why they cut labor so much more than they normally would,” said Romer. “The current recession has been fundamentally different from other post-war recessions… Rather than being caused by deliberate monetary actions, it began with interest rates at low levels… Precisely what has made it so terrifying, and so difficult to cure, is that we have been in largely uncharted territory.”

Gee Doc, do you think the impending regulatory and economic one-two punch from ObamaCare and other "reforms" might have discouraged private businesses from staffing up?  It appears she does not, nor has it occurred to anybody else in this utterly clueless administration.

Comments

[jorod]

You can't take money away from people and expect them to spend more.

[jorod]

We are not in uncharted territory. The Harding Administration cut spending and taxes in response to a severe recession and got the economy moving.

Henry Hazlett noted in his book "Economics in One Lesson" that artificially low interest rates encourage speculation.

Voila....

[Tom Bowler]

Agreed on both counts, Jorod. However, I think I might have used the Reagan administration as the example for the effects of spending and tax cuts. Those policies began a period of economic growth that pretty much persisted almost all the way through the Bush-43 administration.

The detrimental effects of the Clinton administration tax hikes were offset by his free trade policy. Clinton passed NAFTA, much to my astonishment, which had been in the works back in the Bush-41 administration. Obama, on the other hand, opposes free trade because it threatens labor union power.

We're getting a great lesson in what not to do for the economy. Raise taxes, increase regulatory burdens on business, restrict trade, and then wonder why there's no recovery summer.

"To this day, [administration] economists don't understand..."