Power Corrupts: Christina Romer is Free Again
Today was Christina Romer's last day as Chairperson of President Obama's Council of Economic Advisors. And Workers wishes her happy trails and providence with good works now that she is free to pursue her own vision, and to continue her life in California with her family free from public scrutiny.
Prior to joining the 'administration' Prof. Romer published an article or two that said tax decreases gave a greater "multiplier" than did government spending ("multiplier" is Keynesian-speak for government spending or tax cuts being a way to stimulate a moribund economy, e.g. policy changes can 'stimulate' the econony through ripple effects). And any establishment economist must speak in terms of the Keynesian rheotoric as that has been the language of the discipline for longer than Christina Romer has been alive.
However when the Obama administration was pushing for its almost $800 million 'stimulus' program (mostly special-interest government spending, though tax cuts did play a small part) Ms. Romer's scholarly findings seemed to have been lost. The administration in its budget proposals said that government spending created larger 'multipliers' than did tax decreases.
This public record must have been shameful for her, but understandable because one does not gain political power without sacrificing ideals. Unless those ideals are to diminuate your own poltical power and control over others, and that is not how mainstream politics is played in a world of discretionary government spending with campaign donors expecting payback. You don't become a political appointee by recommending that your potential employer give up his or her authorities.
After-all tax decreases, as opposed to more government spending, mean more money in the hands of people who can then actually pursue creating products that people want to buy on their own voluntarily, with more money for producers seeking a profit (e.g., sustainable investment) and more money for consumers to buy those products, versus government spending increases which just skew society's scarce resources towards what the government sees fit per political payback without the profit motive (or, once the government funding is gone the production is gone, e.g., unsustainable investment).
There is a quote from Ms. Romer's swan-song speech that "to this day economists don't fully understand why firms cut production as much as they did, and why they cut labor so much more than they normally would". She must know of course, being a scholar of the Great Depression, that the reason for this cut-back in future-oriented business action is that when government creates an unstable investment climate (of course at first blush one example is stepping on the rights of bond-holders in the GM 'restructoring' and at second blush an administration that is 'progressive' in their willingness to increase taxes on those who invest in business, i.e., promoting capital gains and dividend tax increases) this means that people are unwilling to hire employees for the long-term because their business acumen is not appreciated, or to be more blunt, is overtly penalized. Capital formation, the engine of economic growth, is thwarted by expectations of adverse government policy.
Ms. Romer also in the same speech said that the Obama stimulus prevented a depression. This is a question of semantics. Isn't more than 9% unemployment for two years already a depression? There has been positive econonic growth, yes, small business below the radar of progressive politics has been the engine of economic growth in the USA since even before the time that the concept of 'progressive' politics was established.
Workers attended an economic conference in the USA around the time that President Obama was elected (it doesn' t really matter who was elected for the purpose of this story), and attended a session where Ms. Romer and her equally esteemed husband, also an economist (if memory serves, this was of course a couple years ago) were to give talks about economic history. It was announced that the Romers couldn't make it because they were busy "running the country".
This is kind of weird because the whole idea of the USA is that everyday people are supposed to run the country and the government is supposed to work for the people. Oh well, times change. Ms. Romer will be no doubt much happier (and less prone to distortions in her research, her life's work) in Berkeley than in DC.