Romer: Too Soon for More Stimulus
Tuesday, March 10, 2009
One of the White House's top economic advisers yesterday defended the Obama administration against criticism that its assumptions about economic growth are too rosy, and said it was too soon to consider additional stimulus measures on top of the $787 billion package approved last month.
"We have to let the medicine work for a while to see if it does the trick," Christina Romer, chairman of the Council of Economic Advisers, told an audience at the Brookings Institution.
Forecasts on the nation's growth and unemployment are used as part of the basis for the president's budget plan. When the administration calculated its estimates, Romer said, they were in the "middle of the pack" compared with those of other economists. But recent economic reports have caused some analysts to question the administration's projections. They have also led to speculation that policymakers will need to do more than they already have to kick-start the economy and stabilize the financial system.
A report Friday, for example, showed the nation's unemployment rate has reached 8.1 percent, a level the administration had forecast would be the average for the entire year. In addition, revised data released last month showed that the nation's gross domestic product has declined at an annualized rate of 6.2 percent in the last quarter of 2008, far worse than originally estimated.
Though she labeled such data "terrible," Romer offered an optimistic assessment in an address focused on lessons from the Great Depression and how they apply to the current crisis.
"Though the current recession is unquestionably severe, it pales in comparison with what our parents and grandparents experienced in the 1930s," said Romer, an economic historian who has done extensive research on the Depression.
Romer noted that unemployment reached nearly 25 percent at its worst point during the 1930s, and that real GDP fell more than 25 percent from 1929 to 1933.
However, Romer described important parallels between the causes of the Depression and the current recession, including a decline in asset prices and the failures or near-failures of financial institutions.
Romer also said the Depression offered "an important cautionary tale for modern policymakers" on the danger of cutting back on stimulative spending too soon, a mistake made in 1937 that she said effectively delayed recovery by two years.
She said of the Obama administration: "We are doing all that we can to make sure that the word 'great' never applies to the current downturn."
Romer declined an offer from one questioner to name what she considered the most valid criticisms of the administration's economic recovery plan. "You want me to tell you what's wrong with the stimulus package?" Romer asked. "I'm so not going to do that."