Christina Romer Says Fix the Jobs

This is part of the series highlighting supporters of pro-jobs policies. An updated list of supporters can be found here.

Christina Romer, former Chair of the Council of Economic Advisors for President Obama and current professor of economics at UC-Berkeley, says that more must be done to fix the jobs. She has been a strong proponent that the government and the Federal Reserve could have and still can do more to fix the current job crisis.
She was one of the main advisors to President Obama during the beginning of his first term helping create the administration’s response to the Great Recession. In the lead up to Obama taking office Romer was advocating for a much larger stimulus package of up to $1.8 trillion with the goal of the US economy reaching full employment by the first quarter of 2011. Due to internal politics and bureaucratic maneuvering, President Obama never saw her recommendation (even the cut down $1.2 trillion proposal) and the high end of the proposals presented to Obama became law as the $800 billion stimulus.
In her final speech as the Chair of the Council of Economic Advisors entitled “Not My Father’s Recession” she continued her push for more action by the government and stated her fears of the effects of a long lasting weak jobs market:

“The thing I do regret is that there is still so much unfinished business. I would give anything if unemployment really were down to 8 percent or lower*. The American people are suffering terribly. Policymakers need to find the will to take the steps needed to finish the job and return the American economy to full health, and no one should be blocking essential actions for partisan reasons…

The pressing question, then, is what can be done to increase demand and bring unemployment down more quickly. Failing to do so would cause millions of workers to suffer unnecessarily. It also runs the risk of making high unemployment permanent as workers’ skills deteriorate with lack of use and their labor force attachment weakens as hope of another job fades…

While we would all love to find the inexpensive magic bullet to our economic troubles, the truth is, it almost surely doesn’t exist. The only surefire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less. In my view, we should be moving forward on both fronts.”

*at the time of the speech (Sept. 2010) the unemployment rate was 9.5%

Her advocacy of more aggressive policies did not wane after she returned to her job as a professor. In 2012, working with her husband, they published a paper advocating for a stronger response from the Federal Reserve called “The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn’t Matter” (.pdf) along with an article in the New York Times. Their main conclusion was pessimism about the power of the Federal Reserve had been decisive in several massive failures in monetary policy, and continued to be so today:

“But the hundred years of Federal Reserve history show that humility can also cause large harms. In the 1930s, excessive pessimism about the power of expansionary monetary policy and about its potential costs caused monetary policymakers to do little to combat the Great Depression or promote recovery. In critical periods in the 1970s, undue pessimism about the potential of contractionary monetary policy to reduce inflation led policymakers to do little to rein in the Great Inflation. We have stressed that it is too soon to reach conclusions about recent developments. But, faced with persistent high unemployment and below-target inflation, beliefs that the benefits of expansion are small and the costs potentially large appear to have led monetary policymakers to eschew more aggressive expansionary policy in much of 2010 and 2011. In hindsight, these beliefs may be judged too pessimistic.”

She then made a speech in October 2013 proposing a change in the way government reacts fiscally to recessions. From her experience creating the fiscal response to the Great Recession, she understands that it is difficult to pass a stimulus through Congress. Her solution is to create an automatic trigger stating:

“We could set up a system that automatically cuts tax rates and increases unemployment benefits and food stamps when the economy weakens. This would get us fiscal stimulus quickly when the economy needs it. To balance out this automatic fiscal expansion, we could require automatic debt reduction in particularly good years. Such a new fiscal policy framework could get us the macroeconomic stability we want, with fiscal responsibility, despite the existence of the zero lower bound.”

In the same speech she also advocated for changes in Fed policy including, “deliberately aiming for 3 or 4 percent inflation, as well as targeting nominal GDP.” As one of the preeminent scholars of the Great Depression, this last call by Christina Romer has been particularly notable. She has explicitly called on the Federal Reserve to embrace the strategies that were most successful in taming both the Great Depression and the Great Inflation of the 1970s, policy regime change. In particular, as a liberal-leaning economist, her embrace of nominal GDP targeting—the preferred tool of more conservative-leaning market monetarist economists like Scott Sumner—shows that the Federal reserve has substantial and wide ranging intellectual support for far more robust responses to our ongoing job crisis.

Finally, in a more recent interview during the annual Federal Reserve meeting in Jackson Hole, WY, Romer continued her advocacy for more aggressive Fed policies as seen in this interview with Bloomberg:

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