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Christina Romer Was Right

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Now it’s official.  Christina Romer was right.  The signs that she was about to be proven correct had been turning up everywhere.  When Charles Kaldec of Forbes reminded us – yet again – of President Obama’s willful refusal to seriously consider the advice of the former Chair of his Council of Economic Advisers, it became apparent that something was about to happen  .  .  .

On Friday morning, the highly-anticipated non-farm payrolls report for April was released by the Department of Labor’s Bureau of Labor Statistics (BLS).  Although economists had been anticipating an increase of 165,000 jobs during the past month, the report disclosed that only 115,000 jobs were added.  In other words, the headline number was 50,000 less than the anticipated figure, missing economists’ expectations by a whopping 31 percent.  The weak 115,000 total failed to match the 120,000 jobs added in March.  Worse yet, even if payrolls were expanding at twice that rate, it would take more than five years to significantly reduce the jobs backlog and create new jobs to replace the 5.3 million lost during the recession.

Because this is an election year, Republicans are highlighting the ongoing unemployment crisis as a failure of the Obama Presidency.  On Friday evening’s CNN program, Anderson Cooper 360, economist Paul Krugman insisted that this crisis has resulted from Republican intransigence.  Bohemian Grove delegate David Gergen rebutted Krugman’s claim by emphasizing that Obama’s 2009 economic stimulus program was inadequate to address the task of bringing unemployment back to pre-crisis levels.  What annoyed me about Gergen’s response was his dishonest implication that President Obama’s semi-stimulus was Christina Romer’s brainchild.  Nothing could be further from the truth.  The stimulus program proposed by Romer would have involved a more significant, $1.8 trillion investment.  Beyond that, the fact that unemployment continues for so many millions of people who lost their jobs during the recession is precisely because of Barack Obama’s decision to ignore Christina Romer.  I have been groaning about that decision for a long time, as I discussed here and here.

My February 13 discussion of Noam Scheiber’s book, The Escape Artists, demonstrated how abso-fucking-lutely wrong David Gergen was when he tried to align Christina Romer with Obama’s stimulus:

The book tells the tale of a President in a struggle to create a centrist persona, with no roadmap of his own.  In fact, it was Obama’s decision to follow the advice of Peter Orszag, to the exclusion of the opinions offered by Christina Romer and Larry Summers – which prolonged the unemployment crisis.

*   *   *

The Escape Artists takes us back to the pivotal year of 2009 – Obama’s first year in the White House.  Noam Scheiber provided us with a taste of his new book by way of an article published in The New Republic entitled, “Obama’s Worst Year”.  Scheiber gave the reader an insider’s look at Obama’s clueless indecision at the fork in the road between deficit hawkishness vs. economic stimulus.  Ultimately, Obama decided to maintain the illusion of centrism by following the austerity program suggested by Peter Orszag:

BACK IN THE SUMMER of 2009, David Axelrod, the president’s top political aide, was peppering White House economist Christina Romer with questions in preparation for a talk-show appearance.  With unemployment nearing 10 percent, many commentators on the left were second-guessing the size of the original stimulus, and so Axelrod asked if it had been big enough.  “Abso-fucking-lutely not,” Romer responded.  She said it half-jokingly, but the joke was that she would use the line on television.  She was dead serious about the sentiment.  Axelrod did not seem amused.

For Romer, the crusade was a lonely one.  While she believed the economy needed another boost in order to recover, many in the administration were insisting on cuts.  The chief proponent of this view was budget director Peter Orszag.  Worried that the deficit was undermining the confidence of businessmen, Orszag lobbied to pare down the budget in August, six months ahead of the usual budget schedule.      .   .   .

The debate was not only a question of policy.  It was also about governing style – and, in a sense, about the very nature of the Obama presidency.  Pitching a deficit-reduction plan would be a concession to critics on the right, who argued that the original stimulus and the health care bill amounted to liberal overreach.  It would be premised on the notion that bipartisan compromise on a major issue was still possible.  A play for more stimulus, on the other hand, would be a defiant action, and Obama clearly recognized this.  When Romer later urged him to double-down, he groused, “The American people don’t think it worked, so I can’t do it.”

That’s a fine example of great leadership – isn’t it?  “The American people don’t think it worked, so I can’t do it.”  In 2009, the fierce urgency of the unemployment and economic crises demanded a leader who would not feel intimidated by the sheeple’s erroneous belief that the Economic Recovery Act had not “worked”.

Ron Suskind’s book, Confidence Men is another source which contradicts David Gergen’s attempt to characterize Obama’s stimulus as Romer’s baby.  Last fall, Berkeley economics professor, Brad DeLong had been posting and discussing excerpts from the book at his own website, Grasping Reality With Both Hands.  On September 19, Professor DeLong posted a passage from Suskind’s book, which revealed Obama’s expressed belief (in November of 2009) that high unemployment was a result of productivity gains in the economy.  Both Larry Summers (Chair of the National Economic Council) and Christina Romer (Chair of the Council of Economic Advisers) were shocked and puzzled by Obama’s ignorance on this subject:

“What was driving unemployment was clearly deficient aggregate demand,” Romer said.  “We wondered where this could be coming from.  We both tried to convince him otherwise.  He wouldn’t budge.”

Obama’s willful refusal to heed the advice of Cristina Romer has facilitated the persistence of our nation’s unemployment problem.  As Ron Suskind remarked in the previously-quoted passage:

The implications were significant.  If Obama felt that 10 percent unemployment was the product of sound, productivity-driven decisions by American business, then short-term government measures to spur hiring were not only futile but unwise.

There you have it.  Despite the efforts of Obama’s apologists to blame Larry Summers or others on the President’s economic team for persistent unemployment, it wasn’t simply a matter of “the buck stopping” on the President’s desk.  Obama himself  has been the villain, hypocritically advocating a strategy of “trickle-down economics” – in breach of  his campaign promise to do the exact opposite.

As Election Day approaches, it becomes increasingly obvious that the unemployment situation will persist through autumn – and it could get worse.  This is not Christina Romer’s fault.  It is President Obama’s legacy.  Christina Romer was right and President Obama was wrong.


 

Not Getting It Done

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August 9, 2010

Are the Democrats trying to lose their majorities in both the Senate and the House in November?  Their two biggest accomplishments, the healthcare “reform” bill and the financial “reform” bill haven’t really impressed the electorate.  According to a Gallup Poll, voter reaction to the passage of the “Affordable Healthcare Act” is 49 percent contending that the bill is a “good thing” as opposed to 46 percent who believe it is a “bad thing”, with 5 percent undecided.  Criticism of the “Wall Street Reform and Consumer Protection Act of 2010” has been widespread, as I have previously discussed here, here and here.  The latest critique of the bill came from Professor Thomas F. Cooley, of the Stern School of Business at NYU.  His Forbes article entitled, “The Politics Of Regulatory Reform”, was based on this theme:

The awareness of how close we came to paralyzing the financial system created an opportunity to do something truly significant to make the system safer and more in tune with the needs of our economy.  Sadly, because all things in Washington are political, we fumbled the ball.

Rahm Emanuel’s infamous doctrine, “You never want a serious crisis to go to waste” is apparently being disregarded by Rahm Emanuel and company at The White House.  Of course, the entire economic catastrophe has provided the Obama administration with a boatload of crises – most of which have already gone to waste.  For example, consider this fiasco-in-progress:  The “small business” sector plays such an important role in keeping Americans employed, a bill to facilitate lending to small businesses has been sponsored by Senator Mary Landrieu (D-Louisiana).  An August 7 report by Sharon Bernstein of the Los Angeles Times provided this update on the status of the measure:

The small business loan assistance ran into trouble in the Senate when members from both parties began attaching amendments to support their favored causes.

The ineffective efforts of Senate Democrats are unfairly souring public opinion on their more unified counterparts in the House.  In attempt to redeem the image of Congressional Dems, House Speaker Nancy Pelosi scheduled a special session of Congress for Tuesday, August 10, (an interruption of their August recess) to pass a $26-billion bill to avert public employee layoffs.

With the passing of time, it has become more obvious that President Obama’s biggest mistake since taking office was his weak leadership in promoting the economic stimulus effort.  Many commentators have expressed the opinion that Christina Romer’s resignation as chair of the President’s Council of Economic Advisors was based on her frustration with the under-funded stimulus program.

I recently wrote an “I told you so” piece, referencing my July, 2009 prediction that it would eventually become necessary for President Obama to introduce a second stimulus bill because the $787 billion proposal would prove inadequate.  At his blog, liberal economist Paul Krugman similarly reminded readers of his prediction about the consequences for failing to pass an effective stimulus bill:

So here’s the picture that scares me:  It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up.  Mr. Obama finally concedes that a bigger stimulus is needed.

But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts.  And as a result, the recession rages on, unchecked.

The reality has turned out even worse than Krugman’s prediction because we are now approaching September 2010 – an election year – and the unemployment rate is being understated at 9.5 percent.  The conflation Krugman discussed has manifested itself in the narrative of the Tea Party movement.  In September of 2009, I discussed why Obama should have been listening to Australian economist Steve Keen, who – by that point – was saying basically the same thing:

So giving the stimulus to the debtors is a more potent way of reducing the impact of a credit crunch — the opposite of the advice given to Obama by his neoclassical advisers.

Economist Joseph Stiglitz recently provided us with this update about how the global financial crisis is affecting Australia in August of 2010:

Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world.  He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon.  So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.

Rudd’s stimulus worked:  Australia had the shortest and shallowest of recessions of the advanced industrial countries.

Meanwhile, President Obama and the Democrats have decided to utilize a mid-term campaign strategy of assessing all of the blame for our current financial chaos on President George W. Bush.  Criticism of this approach has been voiced by people outside of the Republican camp.  Frank Rich of The New York Times lamented the lack of message control exercised by the Democrats and their ill-advised focus on the Bush era:

But rather than wait for miracles or pray that Bushphobia will save the day, Democrats might instead start playing the hand they’ve been dealt.  Elections, the cliché goes, are about the future, not the past.  At the very least they’re about the present.

At this point in American history, it’s becoming more obvious that the two-party system has served no other purpose than to perpetuate the careers of blundering grafters.  The voting public must accept the reality that the only way it will be honestly and effectively represented in Washington is by independent candidates.  The laws that keep those independents off the ballots must be changed.