Christina Romer on the Stimulus

Christina Romer, chair of President Obama's Council of Economic Advisers, joined us in our first hour today to talk about the economy and the debate over whether a second round of stimulus is needed.

Asked about Vice President Biden's recent remarks, that the administration had "misread how bad the economy was," she replied:  "It’s important to realize that none of us has a crystal ball....the important thing, again, is to concentrate on where we are now."  Here's the audio of her interview, followed by the transcript.

http://audio.wbur.org/storage/2009/07/onpoint_0709_romer.mp3

TOM ASHBROOK: We are very glad to have with us right now from Washington Christina Romer. She is chair of President Obama’s Council of Economic Advisors, [and] a leading scholar on the economics of the Great Depression, unfortunately relevant here. Christina Romer, thank you very much for joining us.

CHRISTINA ROMER: It’s great to be here.

TOM ASHBROOK: There’s a lot of talk about another round of stimulus, Stimulus II or Stimulus III, if you count George W. Bush’s initial one. Where are you coming down on this, and why?

CHRISTINA ROMER: Where we’re coming down is we currently have $787 billion of stimulus that’s been passed. We’re certainly focusing on spending that money as quickly and as efficiently and as transparently as we can. We think that’s absolutely the right strategy. That’s certainly going to be the money that can get out the door the quickest and we are already doing that, so I think it makes sense to concentrate on that.

TOM ASHBROOK: The vice president saying there was a miscalculation here over the weekend. Nobody expected unemployment to be where it is right now. If there’s a miscalculation, is that a justification to at least consider more stimulus money?

CHRISTINA ROMER: It’s important to realize that none of us has a crystal ball. So the way I described what happened back in December and January and February was we got a tremendous amount of new information. And certainly, if you watch a lot of the private forecast, everybody was staging their forecasts very quickly, precisely because we were finding out things, like the rest of the world was going down with us.

So the important thing, again, is to concentrate on where we are now, and where we are now is with a lot of fiscal stimulus there already approved. And an important thing that I think everybody needs to realize is that we always knew it would take some time, even with the shovel-ready projects, to actually get the money there and employing people, and an important fact is that it is ramping up substantially over the next couple of quarters. And so, we certainly want to give time for that medicine to start hitting the economy.

…

TOM ASHBROOK: Mark in Amherst, Massachusetts, you’re on the air with President Obama’s big advisor.

MARK: First, concern about the deficit right now is preposterous. Second, FDR tried several public works programs, but the only thing that got us out was a public works program otherwise known as World War II which was a massively greater stimulus….

TOM ASHBROOK: So you say more stimulus Mark?

MARK: Yes.

TOM ASHBROOK: Christina Romer, ridiculous to think about the deficit? Mark says the only thing that bailed FDR out was the war.

CHRISTINA ROMER: I think Mark makes a sensible point about in the short run, given the terrible situation that we inherited, the large budget deficit we inherited, the fact that we needed to do things to get the economy going again, it is unfortunately right and appropriate that the deficit got bigger. That was just inevitable. I think where I differ a little bit, we absolutely have to think about the deficit looking down the road. And certainly that’s something the president has said that we need to, as the economy recovers, have a plan in place for getting it down.

This is one of things I’ve been pushing so hard is, this is why healthcare reform is so important. If you look at the studies coming out of the Congressional Budget Office, the number one thing that’s going to blow a hole in the deficit as we go forward 20, 30 years is government spending on healthcare. So doing those reforms now that genuinely slow the growth rate of cost, that’s the thing that we can do right now to make us healthier, you know, after we get through this crisis and bring those budget deficits down in the long run.

TOM ASHBROOK: The vice president said over the weekend, you know, that the administration undershot its expectations of unemployment. It’s already higher than was expected. So might that mean that you undershot on the size of the stimulus needed as well?

CHRISTINA ROMER: As I was saying earlier, we certainly got a lot of information, all forecasters did, that things were changing quickly, and we certainly have seen the unemployment rate go up more than anyone, I think, anticipated. You know, I think the important thing is to concentrate — we have done a tremendous amount to try to turn this economy around. It’s not just the fiscal stimulus. Think of all the work we’ve been doing on the housing program to try to mitigate foreclosures, to try to allow people to refinance at lower rates. Those are things that are designed to actually help consumers do better, start spending again — the financial rescue. So, all of them are part of a comprehensive package.

TOM ASHBROOK: What would it take for you to say, "You know what, we tried, but it wasn’t enough, it’s time to pull the trigger"? 10.5 percent unemployment? 11 percent unemployment? What would it take for you to advise that?

CHRISTINA ROMER: I think the crucial thing is: What’s the direction that we’re moving in, right? So one of the things that, you know, I think people have forgotten is just what the economy — I’m sure they haven’t forgotten — what the economy was like in December and January. We were truly an economy in freefall. And I think one of the things we’ve been seeing is moderating conditions. We’ve started to see some of those leading indicators, like building permits, orders for durable goods — those kind of things that tend to turn around before the actual economy turns around. You know, what I’m going to be looking at is, Are we on the right path? And certainly we do have to give the stimulus the time to have an effect. Simply because we do know we’re getting a lot more money out the door in the next several months, and we’ll be getting a read on, Is that doing what we think it should be doing?

TOM ASHBROOK: Are we on the right path right now? You saw the unemployment numbers for June that just came out last week.

CHRISTINA ROMER: Of course we all were disappointed at those unemployment numbers. Every person that is unemployed is a tragedy, and the numbers we saw clearly were bad. I think the important thing is to not read too much into any one point of data. For example, right today we just got some information that initial claims for unemployment insurance have dropped a lot. So I think we do have to realize that there’s a fair amount of noise in our indicators.

I’m going to be looking at all of the indicators, and are we seeing them — we’ve got to be moderating the downturn before we actually turn the corner. And I want to make sure we’re still on that path. But of course we are concerned. That’s why we are focusing so much on taking the stimulus we have and using it as quickly and effectively as we can.

Listen to the full hour here, in which Romer was followed by William Gale of Brookings and Dean Baker of the Center for Economic Policy and Research.