Yesterday, outgoing Chair of the White House Council of Economic Advisers Christina Romer delivered a speech at the National Press Club, something of a valedictory address before she departs Washington. It's worth reading in full [PDF] but there are a few takeaways:
- This recession is unlike any other post-war decline; it is driven by dynamics that economists don't clearly understand, unlike, in Romer's example, the recession of the early 1980s, which was clearly driven by monetary policy. Not so today. "Precisely what has made it so terrifying and so difficult to cure is that we have been in largely uncharted territory."
- The White House underestimated the international effects of the recession; only in late January and early February 2009 did the global extent of the recession, and how it would hinder American recovery, become clear.
- Romer responds to those who criticize the failure of the administration to predict that unemployment would be as high as it currently is.
An estimate of what the economy will look like if a policy is adopted contains two components: a forecast of what would happen in the absence of the policy, and an estimate of the effect of the policy. As I’ve described, our estimates of the impact of the Recovery Act have proven quite accurate. But we, like virtually every other forecaster, failed to anticipate just how violent the recession would be in the absence of policy, and the degree to which the usual relationship between GDP and unemployment would break down.
This is one area where opponents of the stimulus just seem unwilling to think clearly; the concept of benchmarks continues to elude them.
- Congress hasn't done enough to support the economy: "The only surefire ways for policy-makers to substantially increase aggregate demand in the short run are for the government to spend more and tax less. In my view, we should be moving forward on both fronts." She recommends, among other things, the small-business bill currently hung up in the Senate.
With Romer returning to Berkeley for the fall, we're still not sure who exactly will replace her. Jonathan Alter hears rumors that Obama's longtime economics adviser Austan Goolsbee will tale the reins at CEA, while Penny Pritzker, a Chicago businesswoman and longtime Obama ally, will replace former Fed Chair Paul Volcker as the head of the Presidents Economic Recovery Advisory Board (PERAB). You also hear Laura Tyson's name for the CEA job.
-- Tim Fernholz
