Christina Romer to chair the CEA

Via Greg Mankiw.  She understands the Great Depression very well.  Here are previous MR entries on Christina Romer, mostly touching on macroeconomics.  I can’t vouch for her managerial or political abilities one way or the other, but intellectually this is a very good pick.  Here is one report on the announcement.

Here is the National Journal on the work of Christina and David Romer on fiscal policy:

At the same time that Obama is calling for higher income taxes on people making $250,000 or more, the Romers have found that tax increases are generally bad for economic growth and that they primarily discourage investment — the supply-side argument that conservatives use to justify tax cuts for the rich. On the other hand, the Romers have shredded the conservative premise that tax cuts eventually force spending reductions (‘starving the beast’). Instead, they concluded that tax reductions lead only to one thing — offsetting tax increases to recover lost revenue.

Here is the MR entry on that paper, please do read it again to receive a dose of good news.  Here is Romer’s home page.  Here is her soon to be longer Wikipedia page.


Is this really as good as it sounds? Or is this going to play out like Alan Greenspan with "Gold and Economic Freedom"

the Romers have shredded the conservative premise that tax cuts eventually force spending reductions

I'm not sure whether any intellectually serious conservatives ever believed this. I classify myself as economically conservative and always thought this was a ludicrous position. Used maybe as a fig leaf by cynical Republicans that wanted to reconcile their big spending with their ideology, but hardly believable.
Of course my thinking on this borders on tautology since I would have trouble classifying anyone who believed in 'starve the beast' as intellectually serious in the first place...

BBartlog - I guess Becker, Lazear, Robert Barro and Milton Friedman aren't "intellectually serious in the first place," right?

"Additionally, a cut, followed by a reinstatement may not be equivalent to having neither happen in the first place." said Mr. Bobbitt.

@voorhees -
Well, I stand corrected as to the pedigree of the idea. The reasoning still seems ridiculous to me, equivalent to saying 'well, if I run up my credit card bills today I'll be forced to be responsible tomorrow.'. Making it work either requires that some future regime behaves more responsibly (in which case we have to ask why we are holding the current one to a lower standard), or else that some catastrophe will force their hand. In the latter case we would certainly like a little more detail from proponents of the theory as to what sort of trainwreck tomorrow they think will both force reduced spending and be preferable to just not cutting the taxes and not running the deficits today. Friedman just sort of assumes that there is some level of deficits that the public won't tolerate, without going into detail about what sort of pain the public will have to feel before they decide that deficits actually do matter. Passing the buck back to the public this way is a sorry excuse for policy.

IIRC, Milton Friedman's argument was that the true cost of government is its spending, and if you give it less revenue, it will spend less.

Christina Romer’s appointment means that we will have at the Council of Economic Advisers an economist with a background in highly relevant economic history and with moderate Keynesian sympathies - just what we need. It is to be hoped that she underatands that one of the key lessons of Keynes is the importance of constructive US leadership in international economic cooperation - including in the international coordination of key economic policies, in building up effective international economic institutions, and in safeguarding free trade. She will be familiar with literature like Donald Moggridge’s biography of Keynes and Donald Markwell’s “John Maynard Keynes and International Relations†, which I think are very helpful in thinking and working our way - nationally and globally - through the present muddle.

No, odograph, it isn't "depression talk". It's about trying to learn from past experience and insight so that we DON'T have to re-live it. Maybe if you read some of the literature I mentioend - like Moggridge and Markwell on Keynes - you would see that this is NOT "depresion talk". Reading Keynes/excellent books on Keynes is empowering, not depressing.

Great post!

Would you like a Link Exchange with our new blog COMMON CENTS where we blog about the issues of the day??

Dr. C,

Maybe this is a good time to bring David Romer to GMU as a visiting professor? After all, he might want to be close to his wife during her time in D.C.


maybe more and more people pay more attention on her

Let's be real people. She is a shill like all the rest and a very bad one at that. You wanna know whats next...

†¢ Housing 38% in negative equity as of the end of July with california, florida near 50% & nevada leading the way at over 65.6% in negative equity. The current housing numbers show that there has been a steady rise in homes and California has reached 2.4 trillion in mortgage debt. 1st stage Foreclosure starts have started their rise again over the last three months and Aug 1st reports Total foreclosures ALL STAGES (of the three) has eclipsed the highs of Aug 08 and Feb 09.

†¢ China is showing signs of crack in the Red Armor. If the Reds are going to pull us thru this take a closer look at the Baltics and you will see that something is awry and perhaps the hype of China leading us out is a joke.

†¢ Simple things like Unemployment (yes of course it is a lagging indicator) Even those simpletons who believe that the recession is over are saying that they do anticipate unemployment to continue to rise over 10%. Any continued rise will not help the housing situation stated above and will have a logarithmical affect on housing this late in the game.

†¢ Consumer Spending flat to down. You cannot come out of a recession where consumer spending accounts for up to 75% of GDP. You cannot spend if you do not have a job, you cannot spend if the government continues to raise taxes. You cannot rob Peter any more to pay Paul because Peter is flat broke.

†¢ While the current administration admits they do not have all the bugs worked out in their socialized medicine program they are going to push hard to get something thru because 180+ days in there are no awards to hang on the mantle piece. Be warned that while we are close to being over you cannot discount the lengths of shenanigans that could show up to push a bill thru that means nothing more then a trophy for the democratic party (for the record I support neither party). So it is indeed possible if they do not acquiesce to some demands they could quite possibly mortgage 5 years of growth for 3 months of float.

†¢ Consumer Savings on the rise. I have heard over and over how savings being UP is a positive thing. Understanding the current state this is a very uneducated statement. Consumer Savings is wonderful in times of inflation. It means growth is coming and profits are as well. We are in deflation right now and the savings are simply created out of fear, not good times. People are retrenching and becoming debt averse. This is very similar to what happened in Japan with the corporations which hasnt quite hit here yet. Once Japan figured out how to deal with their problem they decided to lend credit out for next to nothing assuming that corporations would jump at the chance to grow their organizations. They didn’t and did not. People saving in deflation is the same result and once the market rolls not only will they stop buying even more but they will pull their money out of Metals, stocks, whatever because cash again will be king. (Until perhaps at the end where you could see a hyperinflationary move but that comes later) One note is that I do believe Americans are more aggressive than the Japanese so I do not expect a retrenching as long as the Japanese have but we will get the pants scared off of us I do believe.

†¢ Stock dilution. The list goes on and on of companies that are deluding their stock. Companies don’t like to do this, they usually only do it when its too late.. Lehman, Bear Stearns etc.. while its difficult to say whether its too late for them or not it does not say that they feel strongly about their position. No company hedges like that unless they feel 150% they have too. If you look at a lot of these stocks and factor in their dilution their actual price in some cases is higher then it was in their peak in 2007. How many companies can you name that you think are better now (a relative word) then they were in 2007. I don’t think many, yet they continue to rise.

†¢ GM setting up shop to build more cars on orders. This is the same GM that did not see 150.00 Crude and once we hit 140.00 bought a design for a super duper fuel efficient car as Crude fell 40.00. GM couldn’t be more wrong if they tried. If they are setting up shop I am getting out of Dodge.. City that is.. Im sure some of this has to do with the Cash for Clunkers mess (DO we really want government health care) but you have to understand that these cars purchased thru the program had very little interest from people who were not looking to buy a car within the next year. All this did was UP their time horizon to take advantage of the savings. Problem is that those people are not going to be there down the road when they typically would have bough and you will watch as sales dive bomb especially since there will not be any added incentive at that time. Just another government attempt to defer paying the debt we have made.

†¢ Lastly, for all those who wonder why we are UP here.. This is a mania that is spurred on by the herd and money managers that are hearing it from their customers. I recently spoke with over 100 Investment Advisors and categorically they have said that they think the market is overpriced but feel they have to buy due to pressure from their clients who lost anywhere between 20% (on the good side) to 55% on the bad. Now if you do the math its real easy to see. Lets say in 2007 the average individual money manager has 50 million under his belt which garners him 1% of that a year or 500k. Most of those had their funds cut in half thru bad management and clients seeking other managers so they are now at 250K a year. Still good but lets say you, yourself took a 50% haircut on your salary†¦ how would you be doing†¦ and then your boss comes in and says you need to do a better job or else. At the same time he tells you that you need to be more like another employee Bill who you KNOW is doing a bad job but your boss thinks its good. What do you do.. you do what Bill does even though you know its wrong to save your job. What most of these managers told me is they are getting pressure from their clients to make money and they are piling in even though they are not fans of it. I think you can see where this is going once she falls off the cliff.. There aint no parachute in sight. Most of these guys got caught with their pants down in march and most didn’t start to get in it til May or later. SO they missed 18% right off the bat. Now think of grandma looking at her June statement and seeing being up 5% when the market is up 25%. That’s the story until they start raising interest rates.. Just y'all wait. The game has just begun. This market/economy is a bigger sham then Enron & Madeoff combined.

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