When Larry Summers and team were preparing a memo for Barack Obama on the planned stimulus, Christina Romer was a part of the effort. The New Republic brings to light a conflict within that team about how much stimulus they should recommend. As you recall, the final recommendation included two options. Option one was a “modest” stimulus in the rage of $550 to $670 of legislated money (about the same amount that Paul Krugman first recommended). The second option was for $850 billion and was the option Obama chose.
Summers mentions in the memo that in order to make a bigger impact on the “output gap”, a stimulus of over a trillion dollars was needed but most likely “not accomplish the goal” of reducing the “output gap” because of the “impact it would have on markets”.
Romer, on the other hand, felt that closing the “output gap” was much more important than the impact such a move might have on markets and recommended a much higher stimulus. How much higher? Approximately twice the level of the highest option presented to Obama of $850 billion. That’s right, about $1.7 trillion dollars. Romer claimed that doing so would bring the unemployment rate to “5.1%”. But then, as we remember, the country was promised that if the stimulus that was eventually passed was made law, unemployment would remain under 8%.
Of course it didn’t rising to 10.5%. However the prediction came directly from the memo Summers presented to the president – $880 billion stimulus would create 3.4 million jobs and keep the unemployment rate at 7.3%.. Neither of those came true and the administration was reduced to claiming “saved” jobs in its defense.
Romer’s predictions were even rosier. She believed that a $900 billion stimulus would create 3.75 million jobs and put the unemployment rate at 6.6%. Again, not even close.
Yet, when you read the comments of others out there, you find some of them still implying that a larger stimulus would have been better for what ailed us. That our problem was the size of the stimulus, not its design.
Of course that’s patent nonsense. The stimulus failed because it was horribly designed and terribly executed. And it was aimed at the wrong things. It became a combination of slush fund for politicians and budget short-fall device for states. Where what little was aimed at it supposed purpose (creating jobs) it failed. We discovered that “shovel ready” was anything but. Additionally it was used to bail out industries government had no business bailing out.
Whether it was $900 billion or $1.7 trillion, those facts wouldn’t have changed one bit. About all that might have happened had Romer gotten her way is a few states might have been able to delay their financial reckoning for another year or so.
Noam Scheiber, the author of the TNR article (and an upcoming book on how the Obama White House “fumbled” the recovery) doesn’t go as far as to claim the larger stimulus would have been a better choice although he certainly implies it. He argues that Obama wouldn’t have proposed it because Congress – even a totally Democratic Congress – wouldn’t have passed a $1.8 trillion dollar stimulus.
However, he argues, the inclusion of the higher stimulus number would have gotten Obama to “have felt a greater sense of urgency had he better understood how far he was from the ideal.”
First, I don’t agree that a Nancy Peolosi/Harry Reid controlled Congress wouldn’t have done exactly that, i.e. passed an almost $2 trillion dollar stimulus package. One only has to remember how they steamrolled the health care bill through to doubt such a thing couldn’t have happened with a larger stimulus. Secondly, it is highly debatable that Romer’s number was any sort of an “ideal”.
It was, at most, a “best guess” and given her predictions of the effect of a $900 billion stimulus (the size eventually passed) on job creation and unemployment, it is a suspect “best guess”.
And finally, regardless of the numbers proposed, it was a terribly designed and executed program that redefined “waste, fraud and abuse”. Doubling that wouldn’t have made it better.
Unlike some out there lamenting Summers refusal to have included Romer’s recommendation, I applaud it. That doesn’t mean I agree with the number he came up with, but to use Washington DC budgetspeak, he “saved” us about a trillion dollars.
he NY Post reminds us that the Joe Biden/Christina Romer dog-and-pony show now currently touring and touting some amazing "magical" job creation numbers are the same crew that gave us other estimates of job creation in the past:
Last year, when they touted their jobs figures, they wound up backtracking — after it turned out that hundreds of jobs were included from congressional districts that didn’t even exist.
Biden later admitted the data were flawed, noting that "further updates and corrections are going to be needed."
Then he and Obama bragged about new job numbers for May — some 430,000 of them. Except that 411,000 were temporary, part-time positions created by the Census Bureau.
Now the claim is that somehow, despite the unemployment numbers, they’ve managed to “create” or “save” anywhere from 2.5 million to 3.6 million jobs with their excellent management of the financial and economic crisis.
Of course no one can put a finger on what jobs were “created” or, really, what jobs were “saved.” Says Romer, apparently trying desperately to keep some shred of professional integrity in tact:
"There’s obviously a lot of uncertainty about any jobs estimate," Romer acknowledged.
Really? That’s certainly true of the estimates this administration has put forth. However, as the Post points out, the timing of this estimate is perfect. This estimate shows an increase of 20% over the last estimate that was found to be based in fraudulent numbers. As the Post notes, this estimate arrives just as Obama’s poll numbers are down.
All that anyone really needs to know is that this all started within the administration when it promised that the massive pork bill of nearly a trillion dollars it passed early in its tenure would keep the unemployment rate under 8%. It didn’t. In fact it didn’t even come close. And the figure is now around 9.5% and shows no indication of falling anytime soon. Where these magic jobs are and why they haven’t had any impact remains a mystery.
Of course the entire point is to understand that they can (and are) claim whatever they wish and it’s pretty hard to check. But skeptics, like myself, aren’t going to be convinced by mere claims. Hard numbers that can be checked and verified will have to follow. And it is my contention that when they do, we’ll see a repeat of the previous two attempts at pulling the wool over the eyes of the America people for political reasons – something this administration shamelessly attempts pretty consistently on a number of fronts.