In her final speech as a public official, the now former chair of the Council of Economic Advisers, Christina Romer, explained that the country required more stimulus to raise aggregate demand, and that failure to do so leaves “unemployed workers to suffer.”
Departing White House chief economist Christina Romer called Wednesday on Congress to summon the political will to “finish the job of economic recovery” by pumping more cash into the economy through additional tax cuts for businesses and middle-class families, as well as fresh investments in the nation’s infrastructure.
In an advance copy of her remarks before the National Press Club, Romer did not say how much more she thinks Congress should spend to combat a jobless rate stuck at 9.5 percent. With massive deficits looming, Romer said much of the cost of any new package should be covered by spending cuts or tax increases in the future, after the economy has fully recovered.
But, she said, the election-year anxiety about current deficits that has blocked so much of President Obama’s economic agenda “cannot be an excuse for leaving unemployed workers to suffer.”
“We have tools that would bring unemployment down without worsening our long-run fiscal outlook,” she said, “if we can only find the will and the wisdom to use them.”
The solutions Romer offered tend toward the “what can pass Congress today” side of the debate, rather than “what can solve the aggregate demand problem.” It’s another brew of tax cuts, tempered with investments in infrastructure. If the infrastructure program were big enough, that could provide a boost. But nobody has yet provided hard numbers.
While it’s clear that Romer sets out the need to “finish the job of economic recovery” directly, the means by which that job gets solved matter. As Martin Wolf said today, the Obama campaign keeps paying the price for the original sin of making the stimulus too small. And now, they’ve boxed themselves into a corner where the only way toward anything but stagnation goes through a tax cut.
So what is going to happen? I assume that, after the midterm elections, resurgent Republicans will offer new tax cuts and ignore the fiscal deficits. They will pretend that this has nothing to do with any reviled stimulus, though it is much the same thing – increasing fiscal deficits, thereby offsetting private frugality. That would put the administration on the spot. It would have to choose between vetoing the tax cuts and accepting them, so allowing the Republicans to get the credit for their “yacht and mansion-led” recovery. Any recovery is better than none. But it could have been much better than this. Those who were cautious when they should have been bold will pay a big price.
This has major implications for the future. By walking into a corner where only tax cuts offer a way out, it perpetuates a false narrative, that Keynesian measures failed and only conservative economic ideas can succeed. In the short run, voters will reward or punish the man in the White House based on their objective economic situation, but in the long run, that narrative will take hold, one of supply-side economics to the rescue. And it’s deeply wrong.
You can argue that nothing bigger and better was politically feasible; we’ll never know about that. But what we do know is that (1) senior administration officials, even in internal arguments, claimed that half-measures were the right thing to do, based on … well, invented doctrines that certainly weren’t basic Keynesian. And (2), the administration has never said that it had to make do with an underpowered plan; on the contrary, to this day it maintains that what it did was just right. And this just feeds the false narrative.
So I’m trying to keep the record straight here. It may not matter for the immediate political debate, but I think it does matter for the long game.
For long-term progressive politics, the stimulus battle may have been far more consequential than anyone realized, regardless of the overall merits of what passed.