Romer answers critiques and says fiscal stimulus is working

Christina Romer knows how to answer her critiques and does it really well. 

Recently, there was criticism that Obama plan was too small. The plan was based on a Romer study in Jan 2009 which said if Obama fiscal plan goes through unemployment would be around 8%. Where as it is currently at 9.5%. So, econs criticise Romer report & Obama fiscal stimulus to be weak. To this In her recent speech, she says:

Here, I can’t resist pointing out the fallacy in a common critique. Throughout the spring, I frequently heard people say: “The unemployment rate is even higher than you all predicted without stimulus. That means the policy isn’t working and may actually be making things worse.” Even leaving aside the fact that we were always very clear that there was tremendous uncertainty about what would happen to the economy, that argument is – to quote a recent New York Times editorial – just plain “silly.”5 To understand why, let me give you an analogy. Suppose you go to your doctor for a strep throat and he or she prescribes an antibiotic. Sometime after you get the prescription, and maybe even after you take the first pill, your fever spikes. Do you decide that the medicine is useless? Do you conclude the antibiotic caused the infection to get worse? Surely not. You probably conclude that the illness was more serious than you and the doctor thought, and are very glad you saw the doctor and started taking the medicine when you did.

That was exactly the situation with the economy. It is true that the U.S. and world economies went down much faster last fall and winter than we, and almost all other forecasters, expected. The revised GDP statistics show that the actual decline in GDP growth in the third and fourth quarters of last year was about twice as large as the preliminary estimates we had at the time indicated. And, the rise in the unemployment rate has been exceptionally large, even given the large fall in GDP that we now know occurred.  The fact that the economy deteriorated between January when we were doing our forecast and the end of March simply reinforces how crucial it was that we took action when we did.

🙂 She had answered her critiques equally well previously.

Her talk focuses on Obama’s fiscal stimulus plan and says it is working and the results are there for all to see. The numbers have started improving and the confidence is improving. What is even surprising is the recent Q2 GDP and unemployment numbers though negative, show the sharpest rise from Q1 to Q2 in the last 25 years!!

She also looks at fiscal stimuls in other countries and US states and finds that recovery is sharpest in those countries/states where fiscal stimulus is highest.

She also tells you about this website: http://www.recovery.gov/  which provides you details of the Obama fiscal stimulus plan:

I know that some believe that the government can never do things well. But this program really is a model of efficiency and transparency. The recovery.gov website provides an honest and thorough accounting of what is getting done. The biggest problem so far occurred when a blogger misinterpreted an entry and reported that we had spent a million dollars for two pounds of ham. It turns out it was for 760,000 pounds of ham (in two-pound packages) that went to food banks and soup kitchens – a pretty good value at about $1.50 a pound. I can tell you that the Vice President is a man on a mission and is determined that every dollar will go out quickly and to the high-value projects it was designed for.

Great stuff. It also provides a rich refernce list on impact of fiscal stimulus on the economy.

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One Response to “Romer answers critiques and says fiscal stimulus is working”

  1. Romer compares Great Depression and Current Crisis « Mostly Economics Says:

    […] Romer compares Great Depression and Current Crisis By Amol Agrawal Christy Romer speeches are the ones to look forward to. Her speeches and testimonies are excellent and does full justice to her new role. She combines great insights from her research to look at the events now and all this makes it a fascinating reading. Earlier, she had looked at whether fiscal stimulus is working. […]

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