Lunch at the National Press Club on Wednesday caused some serious indigestion.
It wasn’t the food; it was the entertainment. Christina Romer, chairman of President Obama‘s Council of Economic Advisers, was giving what was billed as her “valedictory” before she returns to teach at Berkeley, and she used the swan song to establish four points, each more unnerving than the last:
She had no idea how bad the economic collapse would be. She still doesn’t understand exactly why it was so bad. The response to the collapse was inadequate. And she doesn’t have much of an idea about how to fix things.
What she did have was a binder full of scary descriptions and warnings, offered with a perma-smile and singsong delivery: “Terrible recession. . . . Incredibly searing. . . . Dramatically below trend. . . . Suffering terribly. . . . Risk of making high unemployment permanent. . . . Economic nightmare.”
Anybody want dessert?
At week’s end, Romer will leave the council chairmanship after what surely has been the most dismal tenure anybody in that post has had: a loss of nearly 4 million jobs in a year and a half. That’s not Romer’s fault; the financial collapse occurred before she, and Obama, took office. But she was the president’s top economist during a time when the administration consistently underestimated the depth of the economy’s troubles – miscalculations that have caused Americans to lose faith in the president and the Democrats.
Romer had predicted that Obama’s stimulus package would keep the unemployment rate at 8 percent or less; it is now 9.5 percent. One of her bosses, Vice President Biden, told Democrats in January that “you’re going to see, come the spring, net increase in jobs every month.” The economy lost 350,000 jobs in June and July.
This is why nearly two-thirds of Americans think the country is on the wrong track – and why Obama’s efforts to highlight the end of U.S. combat in Iraq and the resumption of Middle East peace talks have little chance of piercing the gloom as voters consider handing control of Congress back to the Republicans.
Romer’s farewell luncheon had been scheduled for the club’s ballroom, but attendance was light and the event was moved to a smaller room. Romer, wearing a green suit, read brightly from her text – a delivery at odds with the dark material she was presenting. When she and her colleagues began work, she acknowledged, they did not realize “how quickly and strongly the financial crisis would affect the economy.” They “failed to anticipate just how violent the recession would be.”
Even now, Romer said, mystery persists. “To this day, economists don’t fully understand why firms cut production as much as they did or why they cut labor so much more than they normally would.” Her defense was that “almost all analysts were surprised by the violent reaction.”
That miscalculation, in turn, led to her miscalculation that the stimulus package would be enough to keep the unemployment rate from exceeding 8 percent. Without the policy, she had predicted, unemployment would soar to 9.5 percent. The plan passed, and unemployment went to 10 percent.
No wonder most Americans think the effort failed. But Romer argued, a bit too defensively, against the majority perception. “As the Council of Economic Advisers has documented in a series of reports to Congress, there is widespread agreement that the act is broadly on track,” she declared. Further, she argued, “I will never regret trying to put analysis and quantitative estimates behind our policy recommendations.”
But the problem is not that Romer did a quantitative analysis; the problem is that the quantitative analysis was wrong. Inevitably, this meant that, as she acknowledged, “the turnaround has been insufficient.”
And what to do about this? Here, Romer became uncharacteristically hesitant to make predictions. She suggested some “innovative, low-cost policies.” But the examples she cited – a “national export initiative,” new trade agreements and a “pragmatic approach to regulation” – aren’t exactly blockbusters.
“The only sure-fire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less,” she said. But asked about the main Republican proposal, extending George W. Bush’s tax cuts for those earning more than $250,000, Romer replied that doing so would be “fiscally irresponsible.”
The truth is that the Obama administration is pretty much out of options. Any major new effort would be blocked by Republicans, who have few alternatives of their own. “What we would all love to find – the inexpensive magic bullet to our economic troubles – the truth is it almost surely doesn’t exist,” Romer admitted.
The valedictory was becoming more of an elegy. At the end of the depressing forum, the moderator read a question submitted by a member of the audience: “You seem like you’d be a lot of fun at parties. Are you?”
The economist blushed. “You’ll have to just take it for granted,” she said.
Like 8 percent unemployment.
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This PR stunt was as transparent as a WWE wrestling match, though the WWE admits what it does is just an act.
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