Main Street

“The Only Surefire Ways…”

UC Berkeley economist Brad DeLong provides excerpts from Christina Romer’s speech this week, her last as Chair of the President’s Council of Economic Advisers, in which she said:

The only surefire ways for policymakers 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….

…concern about the deficit 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, if we can only find the will and the wisdom to use them….

Much of her speech details the ways in which the Great Recession has differed from prior U.S. recessions, something we examined back in January in a post titled “Do You Believe in Magic?”

Romer is returning to UC Berkeley to assume her former post as a professor of economics.

She has been perhaps the clearest advocate in the administration for the benefits of fiscal stimulus and the need for additional policy action. But her departure does not necessarily signal a pull back by the White House from pursuing a bolder focus on new initiatives to boost jobs and the economy.

To the contrary, as President Obama has recently said the administration is working on “additional measures” as part of “a full-scale effort, a full-scale attack” to get jobless workers back to work and sustain a real economic recovery.

The question of who is chosen to fill the Council of Economic Advisers (CEA) post may well be one of the critical components determining just how “full-scale” those “additional measures” will be.

In that context, yet another UC Berkeley economics professor comes to mind. Laura Tyson, a senior fellow with the Center for American Progress, and a member of the Economic Recovery Advisory Board, served as the Chair of CEA from 1993 to 1995 in the Clinton administration.

But the primary reason Tyson comes to mind is her Op-Ed in last Sunday’s New York Times, titled “Why We Need a Second Stimulus”:

OUR national debate about fiscal policy has become skewed, with far too much focus on the deficit and far too little on unemployment. There is too much worry about the size of government, and too little appreciation for how stimulus spending has helped stabilize the economy and how more of the right kind of government spending could boost job creation and economic growth. By focusing on the wrong things, we are in serious danger of failing to do the right things to help the economy recover from its worst labor market crisis since the Great Depression.

The primary cause of the labor market crisis is a collapse in private demand — the same problem that bedeviled the economy in the 1930s.
In the wake of the financial shocks at the end of 2008, spending by American households and businesses plummeted, and companies responded by curbing production and shedding workers. By late 2009, in response to unprecedented fiscal and monetary stimulus, household and business spending began to recover. But by the second quarter of this year, economic growth had slowed to 1.6 percent, according to a government estimate issued Friday. Clearly, the pace of recovery is far slower than what is needed to restore the millions of jobs that have been lost.
[...]
Under these circumstances, the economic case for additional government spending and tax relief is compelling.

The author is the winner of the 2010 CREDO Mobile/Netroots Nation award for Blog Activist of the Year.

Tags: Jobs, recovery, stimulus, unemployment