Christina Romer’s Six Lessons

by Will Wilkinson on March 12, 2009

David Frum’s new column for The Week nicely lays out what the chair of the White House Council of Economic Advisors really thinks of the administration’s economic policy:

Invited by a reporter Monday to criticize President Obama’s economic plans, the chair of the White House Council of Economic Advisers, Christina Romer, naturally brushed the question aside. “You want me to tell you what’s wrong with the fiscal stimulus package?” she said. “SO not going to do that!”

Too late! As it happens, the lecture Romer had just finished delivering at the Brookings Institute on Monday afternoon was criticism enough.

An expert on the Great Depression, Romer organized her lecture around six lessons distilled from the era. The administration she serves seems to be disregarding every one of them.

Read the rest for the lessons.

Vince

Based on the CBO numbers, the stimulus amounts to 2.1% of GDP over the rest of FY 2009 (stimulus is $185B over the 225 days from its mid-February signing through 9/30/09, while GDP for that period is about 225/365 x $14.3T = $8.8T). Then it's 2.8% of GDP in FY 2010, 0.9% of GDP in FY 2011, and 0.5% of one year's GDP over the rest of the 10-year projection. So there goes Frum's criticism based on Lesson One. Maybe bigger would've been better, but the stimulus gets close to its maximum rate quickly and is concentrated over its first 20 months.

I don't know enough about Lesson Two (monetary policy) to comment, and there's nothing to Lesson Six (a bad economy is bad). That leaves Lessons Three through Five, which all depend on predictions about future policy. We'll see over the coming months what the Obama administration does on fixing the financial system (#4) and trade (#5 - though I'm not even sure if that's what Romer was referring to), and over the coming years whether they cut back on the stimulus too soon (#3). Frum doesn't like what he sees in his crystal ball, but who knows what Romer thinks, what Obama is planning, or what's actually going to happen.

Pithlord

Someone appears to have kidnapped Frum and replaced him with somebody reasonable. Wasn't he the guy who thought George Bush could "end evil"?

odograph

Are you really endorsing bigger stimulus Will?

Paul_G_Brown

Woah.

A solid, honest, conservative critique! Repeating some points I agree with, but missing a couple of others. The Fed has engaged in quantitative easing. And statements like "this stimulus is too big", or "this stimulus is too small" always yields eventually to "this stimulus is just right!" followed by a nap and a light snack when the three bears come home.

But I digress!