Profile of Christina Romer and the $787 bn question

IMF’s recent F&D edition has profile of Christina Romer, Prof at UCB and former head of CEA . As always a very interesting read.

In an interesting story, how she thinks the mail from Obama to join him was some kind of spam:

When Christina Romer received an e-mail out of the blue in November 2008 from someone wanting to talk to her about the transition team of the newly elected U.S. president, her first instinct was to ignore it. Probably a job seeker who believed she had some connection to Barack Obama’s campaign, she thought. ­

But her husband—and fellow economist—David did an Internet search on the e-mail’s sender, Michael Froman. “You might want to call him back,” he advised his wife, “He’s the head of economic personnel for the transition” between the George W. Bush administration and the new Obama government.­

…The interview took place against the backdrop of growing financial instability that had spread from the U.S. mortgage market to a near global panic. Two months earlier, the giant investment bank Lehman Brothers had collapsed in the largest corporate bankruptcy in U.S. history. A few weeks later, the New York Stock Exchange suffered its steepest single-day drop in decades. Credit markets were frozen. Then the Bureau of Labor Statistics reported that the U.S. economy had lost 240,000 jobs in October, a sign that the financial crisis was spreading to the real economy.­ 

Obama offered her the job on the spot and she accepted. Only three and a half weeks after the election, she left for Washington on November 30. The next month was a whirlwind as the couple uprooted their family and found employment for David, a school for their youngest child, 12-year-old Matthew, and a house to rent.­

Romer later asked Rahm Emanuel, then Obama’s chief of staff, why she was approached for the post. Emanuel, now the mayor of Chicago, told her, “That’s easy. You were an expert on the Great Depression, and we thought we might need one.”

The focus moves to her Phd Theses:

As a research assistant for Temin, Romer became fascinated by historical data. The then-prevailing view among macroeconomists was that the U.S. economy was much more stable following World War II than it had been in the decades prior to the war, leading many to conclude that policymakers had finally mastered the art of using monetary and fiscal tools to stabilize the economy. But the modern techniques of collecting and calculating indicators of macroeconomic performance such as real GDP and unemployment began only after World War II. The prewar series being used in those comparisons were derived by piecing together the available scraps of data using numerous assumptions. As a result, it was hard to tell if business cycles had genuinely changed, or if only the data construction had changed.­

So, in a stroke of counterintuitive brilliance, Romer used what Temin dubbed “reverse alchemy”—applying the prewar methods of calculating unemployment and output to the postwar period. Rather than turning lead into gold, she turned gold (the good postwar data) into lead (a postwar series created in the same way as the prewar series). The study, which formed the basis for her doctoral dissertation, revealed that the decades that followed World War II were almost as volatile as the decades (excluding the years of the Great Depression) that preceded it—a marked departure from the conventional wisdom.­

“That easy picture of what macro policy had accomplished was simply a figment of the data,” Romer says.­

Laurence Ball, an MIT classmate who now teaches economics at Johns Hopkins University, says that her dissertation received a lot of attention at the time. “It was threatening to some people for seeming to undermine the evidence that government involvement was a good thing,” he recalls. “This is a bit ironic, since she’s now an advocate of stimulus and activist policy.”

She discusses the logic behind fiscal stimulus of $787 bn and how the eco team wanted a larger one. And yes she did not quit because of Summers. She simply wanted to go back to Berkeley because of family reasons.

Finally on how her joining Obama upped the cool factor amidst her kids:

Looking back at her time in Washington, Romer marvels at the difficulty of juggling work at the White House and family life. “There was just no way to balance things,” she says. After that first month of being on the transition team, Romer recalls coming home two days before Christmas, exhausted and empty-handed.­

“Our two older kids had come home, put up a tree, baked the cookies, and I had no presents. I was just, like, ‘I am so sorry,’ ” Romer remembers. “They said, ‘Mom, it’s okay. You have so upped our cool factor.’ I guess there was something about working for Barack Obama that made up for a lot.”

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