Monday, March 9, 2009

Christina Romer defends Obama's policies

Christina Romer today delivered a major address to the Brookings Institution, in which she laid out the intellectual foundation for Obama's aggressive expansion of government's role in the economy. I have only read through the text of her address once, but that was enough to know that she is using it to justify all that Obama has done to date, by asserting that it is being driven by the lessons to be learned from the Great Depression. Two things stand out: 1) she claims that fiscal stimulus in the Depression was not effective because it was too timid and did not last long enough; and 2) monetary policy was effective mainly because it caused a huge devaluation of the dollar. Needless to say, her interpretation of the lessons to be learned from the Great Depression are not universally shared. For example, Amity Shlaes wrote a book on the Great Depression, "The Forgotten Man," which draws very different conclusions, if not opposite conclusions. My own understanding of the Depression is that fiscal policies were very harmful, and I would be loathe to recommend as a solution to our current problems any policies that resulted in a signficant devaluation of the dollar.

In any event, read Romer's paper for yourself. It is amazing to me that she could come to such clear conclusions about such an historically complex event as the Great Depression, and then use those conclusions to justify the most aggressive government expansion and intervention in the economy in modern times.


Tom Burger said...

I don't know, Scott, I think these people start off with the desire to dramatically expand government and their analyses naturally support that desire.

Robert Shiller just published an article on entitled "A failure to control the animal spirits" -- also about market failure. He says the Keynes' General Theory was the most important economics book of the 20th century because of its sensible balanced message. Frankly, I have to wonder if he has even read the General Theory.

Keynes did nothing but repopularize ancient fallacies that Classical economists thought they had laid to rest, and his book was so poorly written that even his admirers admit that it is difficult to know what he meant. Keynes also said, in his preface to the German translation, that the General Theory can best be implemented in a totalitarian regime.

I wonder if there is an amount of "stimulus" that these policy supporters would consider to be too large?

I think we are all being way too polite about this. The Obama program looks like it's being run by children who believe in the tooth fairy.

Scott Grannis said...

Tom, I would have to agree with you. Romer's role is to come up with the academic justification for a dramatic expansion of government. Shiller has let fame and celebrity go to his head, and Romer may be suffering from the same affliction. The government's brazen power grab is what is at the root of the market's ills these days.

Jon S. said...

Agree with Tom and Scott on all points. Romer should and does know better, but she's a paid operator now for the Obamatons, so if she wants to keep her job and influence she's got to keep preaching things she knows to be untrue.

I expect a book from her in a year or two similar to David Stockman's back in the Reagan years, with the same theme: 'I kept telling these simps that the economy doesn't work that way, but they wouldn't listen....'

Now Scott, get back on those slopes!

zumbador said...

Reuters reported this AM that the SEC is "not" considering changes to mark-to-market accounting however it is rumored they are on the lookout for new Ponzi schemes. Whoa...that is one credible organization!

Public Library said...

I agree with "being way too polite about this".

For better or for worse there is now way in h*ll the current administration is going to "let a crisis go to waste". We all know .Gov does not contract so the market is forecasting a future of ENORMOUS government intersection with private enterprise and inflation up to its eyeballs!

Forget about earnings; figure out where .Gov is heading to reach the lucky pot of gold.

Bob said...


SEC has no jurisdiction over M to M does it? That is FASB dictum. Bernanke, in todays talk, said he was not in favor of suspending M to M.

Agree with the getting tough talk. Someone has to start challenging these ideas. What has happened to the Republican party? Leadership appears to be useless as tits on a boar.


CDLIC said...


"Going Galt": America's Wealth Producers Vs. Wealth Redistributors

Mark A. Sadowski said...

I've read Amity Shales' book. It reads like a historical (science) fiction novel. The book is full of statistical errors (not surprising because she has no formal training in economics or history). There are so many better general histories of the Great Depression out there. My favorite is Robert S. McElvaines' "The Great Depression: America 1929-1941." It is comprehensive and so covers the important contractionary phase of the Great Depression (the part that Shlaes largely ignores). He also published a collection of lettters written by common people during the Great Depression (complete with spelling errors)titled "Down and Out in the Great Depression: Letters From the Forgotten Man" and so provided a much better social history of the period.

In any case I read this article by Jonathan Chait in the TNR the other day. He takes down Shlaes' "little red book" better than I ever could have.

P.S. Ever wondered why Shlaes articles stopped being published by FT after her Katrina article in 2005? Hmmmm.

Scott Grannis said...

CDLIC: The "Going Galt" and "Tea Party" movements are really significant. Thanks for the link to MM's article.

A taxpayers' revolt is really the only defense we have at this point.