Christina Romer: Our War On the U.S. Economy Must Continue


Christina D. Romer, the Berkeley economist who serves as chairwoman of the Obama administration's Council of Economic Advisers, has a paper out [pdf] called "Back from the Brink." It's worth reading as a specimen of the kind of totalitarian logic establishments use to create the illusion of popularity and success for actions that in fact have been imposed by force and have not been successful.

As the title suggests, Romer's argument is that the Federal Reserve and the Department of the Treasury succeeded in staving off an even Greater Depression that threatened to engulf the U.S. economy after the collapse of Lehman Brothers. Since there is no real evidence for this view, Romer relies heavily on gross domestic product, which may or may not have stopped declining. Strangely, in a paper committed to apple/orange comparisons between the 2000s and the 1930s (for example, Romer points out that credit spreads were more dire in 2008 than they were in 1929, without mentioning that Americans had a large positive savings rate in 1929 and a large negative rate in 2008), Romer points out that GDP grew rapidly in the mid-1930s. So how can GDP growth (which Romer believes will go positive again this quarter) be evidence that we're not in a new Depression?

I am not arguing that we are in a new Depression, but consider that during the period Romer is discussing—with plenty of imagery about pulling back from edges of cliffs—personal bankruptcies have skyrocketed; credit for anybody not named Goldman or Sachs has been virtually non-existent; Fed chairman Ben Bernanke's March reference to "green shoots" has become a national joke; and real estate, which was, is and will continue to be the heart of the decline, is still plagued by collapsing sales and rental markets, a cratering commercial real estate market, and a vast, still uncharted shadow inventory of defaulting mortgages.

But this is where the totalitarian part of the argument comes in. Romer is not interested in making a factual case but in making assertions and then othering opposite viewpoints. So there's reference to the "not-always-popular TARP legislation" and things that are believed by "every forecaster from industry, government, and the financial sector." In one choice bit, Romer asserts that the $787 billion American Recovery and Reinvestment Act has raised real GDP growth by "roughly 2 to 3 percentage points in both the second and third quarters," adding, "There is widespread consensus (except perhaps on the op-ed page of the Wall Street Journal) that [the stimulus package] has been highly effective."

Is it fair to point out that the economy is not Family Feud? It doesn't matter what the survey says; it matters what the truth is. U.S. GDP is about $14.25 trillion. So far, $164 billion of the ARRA stimulus money has been spent. Even if every dollar were perfectly spent and contributed directly to growth, that would be about 1 percent of the total GDP. And GDP growth was negative during this period. (Also, if you click on that last link you'll see that Romer is actually exaggerating the CEA's own estimate of the stimulus' effect.) If Romer can realize a 300 percent return on a quarterly basis during a deep recession, she should leave the CEA and start managing the Fidelity Magellan fund.

There are countless other offenses. Romer says, "Data…show that American factories are starting to produce again?" (They do?) She credits the Fed with minimizing deflation, which has been one of the few things that have made the last 18 months endurable for normal people.

She describes money market funds as instruments that were "once assumed to be completely safe," which is the precise opposite of the truth: Nobody who ever read a money market fund prospectus could have made this assumption, because they all contained the statement "It is possible to lose money by investing in the Fund." Even the tense is wrong: After what Romer calls "a high point in central bank history," it is now possible to make that assumption, because in September 2008 the FDIC unfathomably began guaranteeing money market accounts.

And in a paper comparing the Great Depression with the Great Repression, Romer makes no mention of tariffs and trade during either the Hoover or the Obama administration.

But these are details. The real purpose here is Panglossian: to convince you that whatever Power does is the right thing to do, and to discredit the idea that government should ever again reduce its presence in the private sector. Romer promises the war will go on:

The accomplishment of walking the American economy back from the edge of a second Great Depression is real and deserves to be celebrated. But, it deserves to be celebrated only in the same way that victory in one battle in the midst of a necessary war deserves to be celebrated.