Romer Urges Job Creation Measures, As She’s Been Doing for Two Years
Christy Romer, who has published so many op-eds lately that she’s a de facto columnist, writes sensibly about the need for a jobs program to mitigate the ongoing unemployment crisis. Like so many former Obama Administration officials, she sounds much more liberated after leaving the shackles of the White House.
Other forces may well be depressing consumer spending while tax cuts for households are increasing it. But even if the net result is that consumer spending merely holds steady, it doesn’t follow that the tax cuts are useless. In their absence, consumer spending would likely fall, bringing output and employment down with it.
This discussion raises a legitimate question, however. Given the dismal state of the economy, is the president’s proposal large enough? It may not be. The economy is suffering from a profound shortfall of demand, and most forecasts call for only anemic growth over the next few years. The experts who have looked at the administration’s jobs package estimate it will most likely raise growth by one to two percentage points. That would certainly help, but an even larger and more sustained package deserves consideration.
I don’t totally agree with her rebuttal to concerns that housing finance relief is not in this proposal, but she agrees by the end that “bigger increases in government investment spending and more targeted tax cuts would promote faster growth,” with growth subsequently allowing for more private sector debt reduction and an eventual housing recovery.
But overall, her point is sound, and one that I wish more economists and politicians were making. With 14 million Americans (at least) out of work, there’s no alternative but to use government as a lever to boost demand and create jobs. You can argue over the details, but you cannot argue that doing nothing amid 9% unemployment is acceptable.
If you read Ron Suskind’s book, you find Romer has been making this argument internally at the White House since late 2009. It wasn’t until she left the government that the White House picked up on it. But she’s always been right. And she’s also right that irrational fears about the deficit are literally crazy at this point, because giving into those fears lead to austerity measures that lower growth and add to job loss (she rightly points to evidence from Europe over how this works out).
While the prospects for Congress following Romer’s considered advice are remote, the President and the DNC have engaged in a deliberate effort to move public opinion on the issue, and that’s likely to yield results. Unfortunately, Congress is unmovable on the point, so this is sadly a fight for 2012, a time when we may be back in recession.