Romer speaks on Obama’s proposals for emplyment creation

In her recent speech, Christina Romer of CEA speaks on the US economic situation. She points how the Obama stimulus helped in recovery which could have been much worse minus the stimulus:

Let me start by discussing the contribution of the Recovery Act. The Act was the largest countercyclical fiscal policy action in American history. Of the $787 billion total budget impact, roughly one-third was tax cuts for individuals and businesses, another one-third was payments to help those directly harmed by the recession and to state and local governments struggling to maintain employment and services, and the final one-third was direct government investments in everything from conventional infrastructure, to health information technology, to a smarter electrical grid. The action was explicitly temporary, with most of the budget impact spread roughly evenly over 2009 and 2010.

The most basic evidence that the Recovery Act and the other measures taken to heal the economy have been effective is that the trajectory of the economy has changed fundamentally. Figure 1 shows the growth of real GDP over the last three years.

She says the high unemployment remains the main worry and highlights 3 Obama’s proposals:

  • Hiring Tax credit
  • State Fiscal Relief
  • Providing capital to small banks

Apart from this, Obama has talked of number of other initiatives:

The three recovery initiatives I have discussed are only a part of what the Administration believes needs to be done. The House has already passed a bill that includes an additional $50 billion of infrastructure investments that is consistent with the President’s call for increased investments in repairing our roads, bridges, and waterways. Last week, the President discussed the importance of another proposal—the Homestar Program. This program is designed to encourage homeowners to undertake energy retrofits right now, when the economy, and the construction industry in particular, has spare capacity. Another key initiative that I did not discuss, simply because it is so obviously important, is extending the unemployment insurance provisions from the Recovery Act. Nearly every analyst classifies unemployment insurance payments as one of the most cost-effective jobs programs. Continuing the Recovery Act provisions is essential both to help families struggling with unemployment and to sustain the recovery.

You know, it sounds like the India budget speech with various initiatives all over the place. Romer realises this upfront and says at the end:

Over the past year, the Administration has taken some heat for supposedly trying to do too much. But, as my discussion this morning makes clear, the policy actions are all interrelated. To continue to move forward on jobs, we need to take additional targeted measures to help turn renewed growth into robust job gains. But, to do that in a responsible way, we need to put in place a plan for dealing with the long-run budget deficit. And controlling long-run health care costs is an essential part of doing that. It is all part of a package that will put people back to work and make sure that the American economy comes through this crisis even stronger than before.

 It is all so complicated. As Yellen pointed recently, the unemployment has been much higher than what Okun Law would have predicted. She added an interesting point that recent unemployment could be because of a surge in productivity. The companies are adjusting to working with lower inputs becuase of recession and weak outlook. So she expects the productivity surge to continue.

All this makes the chances of the recovery (see this as well) being jobless stronger.

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One Response to “Romer speaks on Obama’s proposals for emplyment creation”

  1. NBER Economic Fluctuations and Growth Program – a report « Mostly Economics Says:

    […] to increase input base. So, high productivity and unemployment  is likely to continue. Romer pointed to recent Obama policies to increase […]

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