Former White House economics team member Christina Romer gave a speech last month — when the economic numbers were demonstrably better than they have been of late — and described some of the policy discussion and debate that took place during her tenure in the Obama administration. Seems to me the White House and the Fed now have a distinct deer-in-the-headlights feel about them, and Romer’s speech, to me, goes a long way toward explaining why. Here are the highlights:
To bring the unemployment rate down quickly, GDP growth needs to be much more rapid. To repair the damage from this recession, we need to be adding not 100 to 200 thousand jobs a month, but more like 400 or even 500 thousand per month. Unfortunately, virtually no one is predicting growth like that in the coming quarters. […]
My main criticism [of the Federal Reserve] is that they took their eye off the ball in late 2009 and 2010. They started to think more about exit than about the fact that the economy was still operating far below capacity. The second round of quantitative easing, which started last November has been helpful, but it came about a year too late. […]
The main problem with the Recovery Act is that, big as it was, it wasn’t big enough. […]
Like the Federal Reserve, the Administration and Congress should have done more in the fall of 2009 and early 2010 to aid the recovery. I remember that fall of 2009 as a very frustrating one. It was very clear to me that the economy was still struggling, but the will to do more to help it had died.
There was a definite split among the economics team about whether we should push for more fiscal stimulus, or switch our focus to the deficit. A number of us tried to make the case that more action was desperately needed and would be effective. […]
First, I feel strongly that the cause of our high unemployment today is still the recession and low demand. Firms are not hiring workers because there isn’t enough demand for the output those unemployed workers could produce. Consumers are still cautious; firms are not investing particularly heavily; and our net exports have not grown enough to fill the shortfall. […]
The answer to low overall demand is to try to get it up. […]
Ben Bernanke at his press conference last week made it clear that the Fed was unlikely to do much more in the way of stimulus. I think that is very wrong. Inflation is still well below the Fed’s target and unemployment is certainly above normal.
The second half of her speech discussed the deficit — what has been done, where we are at, and what more needs to be done. But, as I believe a flagging job market (and economy) is the more clear and present danger, I’ll leave reading the balance of the speech to your discretion. For what it’s worth, I’m in complete agreement with Romer’s assessment.
Oh, almost forgot to mention that she found Larry Summers, at times, to be “annoying.”