Christina Romer’s Talk at the Press Club Today

by Veronique de Rugy

Where do I start? How about with something nice: She is a very pleasant woman with a nice smile.

Now then: I cannot believe I had to sit there and listen to the same numbers and assertions about how well the stimulus has worked, including the obligatory paragraphs about how her report has predicted that the stimulus package “would raise real GDP by about 3.5 percent and employment by about 3.5 million jobs, relative to what would otherwise have occurred.” And not only did her own reports to Congress confirm these predictions, but the CBO agreed as well, and apparently, so did “respected private-sector analysts” (meaning Mark Zandy).

I know, you’ve heard me say it before, but I’ll say it again: A prediction only becomes true when it actually materializes. For instance, if you predict that 3.5 million jobs will be created, it only becomes true once the 3.5 million jobs are created. You can’t claim victory if you haven’t gone back and checked that these jobs exist. Nor can you claim victory if the only evidence that these jobs exist comes from models that say that these jobs exist — especially when they are models that have the assumption that the Recovery Act creates jobs built into them.

An interesting moment in the speech came when Romer explained her first recession experience, in the 1980s. Her dad had lost his job and her mom’s teaching job was uncertain, but she got married nonetheless, and the wedding was more special because her mom and her two aunts did much of it themselves. I think the next sentence in her speech says a lot about how Romer thinks about the government’s ability to create jobs:

I remember the tremendous sense of relief when I returned from my honeymoon to hear that my mother’s school district had  found the money to continue her position.

I would have liked to ask her: Where do you think the money was found? Under a rock? Or in the pockets of taxpayers or investors buying U.S. Treasuries?

Overall, the talk was very much about how to increase aggregate demand; the answer was to continue spending more. She did add that taxes should be cut, but not for taxpayers making more than $250,000. That’s because the government can’t afford this $34 billion in spending, she explained — as if letting people keep their money is the same thing as bailing out the states or car companies. She added that she knew better ways to use that cash to put people back to work than to give it to these taxpayers, because she knows how to spend that money better than we do.

She did mention using it to pay down the deficit, but when asked specifically about the deficit, she basically said we should spend more today and take care of the deficit tomorrow. In other words, more of the “eat your dessert now and your spinach later” mentality that got us into this mess in the first place. It’s never worked with my kids, and I am pretty sure it’s not the way to restore fiscal responsibility in Washington.

Overall, it was more of what we have heard in the last two years. The best excuse she has for us for why her plan hasn’t worked is “it’s not my father’s recession” (which was the title of her talk), as if we haven’t heard that “this time it’s different” excuse before.

By the way, for me, this is the song that comes to mind when I think of Romer’s return to academia.