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Romer Channels Keynes
From The Daily Capitalist
Christina Romer seems like such a nice lady but I think she is actually dangerous. It is frustrating to see those at the top of the Administration keep spouting the same old policies that have failed time and time again. Read this speech and you will see that she is channeling J. M. Keynes:
Christina Romer, chair of the president’s Council of Economic Advisers, says the reason unemployment remains so painfully high is clear: It’s not the inadequacy or laziness of the workers or the long-standing mismatch between workers’ skills and employers’ needs. It’s the old-fashioned Keynesian diagnosis: Too little demand in the economy.
Here's the interesting and very Keynesian part of her speech [my emphasis]:
"The usual postwar recession has a fairly simple narrative. The groundwork is laid when for some reason policy is overly expansionary and so generates inflation. The recession occurs when the Federal Reserve realizes that things have gone awry. It raises interest rates, slows the economy, and so brings inflation down—at the cost of a recession. That type of recession is easy to end: once the Federal Reserve is satisfied with the behavior of inflation, it can slash interest rates and provide the economy with a large jolt of stimulus. ...
The recent recession was obviously not caused by tight monetary policy. Interest rates were not especially high when it began, and so the Federal Reserve had only limited room to cut them. It has brought short-term rates down to virtually zero, but it cannot push them below that. The result is that we have not had the strong monetary stimulus that we would normally have in these economic circumstances. ...
She comes to the startling conclusion that our high unemployment rate is due to the severity of the recession. To correct that we need loosen credit, bail out states and municipalities, and improve exports. Gosh, that is so easy to fix.
She went on to say:
"We have the tools and the knowledge to counteract a shortfall in aggregate demand. We should be continuing to use them aggressively."
Here is a translation of what she is saying:
- Things happen in the economy and we don't have a clue why. It's got to be "animal spirits."
- We sure as hell didn't cause the recession.
- But when things do go awry, we can just pump out money, contract money, increase government spending, and things are all better.
- Unemployment is just terrible. Just terrible. It's that nasty recession.
- If you people would just start spending everything would be wonderful, but instead you aren't--and we aren't sure why--so we will spend your money for you.
- Government spending will jump-start the economy, you just watch. Our spending will make you spend and unemployment will go away.
- Government jobs are just like any jobs and they are good for the economy.
- Our policies have been great. You think we're bad off now, you don't know bad.
This is high school Keynesianism or the Cliff Notes version. It's a technocrat's dream. You merely press on one lever here, adjust a little bit there, and people behave exactly as you wish them to, and mirabile dictu, it happens. Recessions are cured, depressions are prevented, and GDP soars. If Keynesian economics is so wonderful, why is it not working, Mrs. Romer?
They've been spending our money and our future money at record rates. Yet credit is frozen, unemployment is high, consumer spending (PCE) is weak, and we are seeing deflation, not inflation. As usual, Keynesians say that the government has to spend more and immediately or we'll slip back into a depression.
Like Keynes, Mrs. Romer fails to see the obvious.
- I would like her or anyone to explain how the Keynesian formula (AD=C+I+G: Aggregate Demand (GDP) = consumption + gross investment + government spending) works. As Russ Roberts points out, you Keynesians have to settle on some kind of multiplier that we all understand. If she believes it's 1.57, then where are the numbers to support this? Reading Keynes is like reading the Bible: Lord Keynes moves in mysterious way.
- Her conclusion that there is a "recovery" and it is caused by government fiscal policies are one great confirmation bias by her. That is, you ignore or are unaware of data that contradicts your desired conclusion and you find data that fits it.
- Q: If you spend $787 billion to "jump-start" the economy, then where does the money come from? A: Taxes, present or future. No one asks the question of what the people were going to do with the money the government took from them. Romer and her husband's own research concluded that tax cuts help get out of a recession which is another way of saying that a reduction of government spending also helps us get out of a recession (i.e., either way the money stays in the private economy).
- Most of the government Recovery Act spending is wasteful. It didn't work in Japan and it's not doing a thing here other than increase our national debt and burden our children with taxes. Go to Recovery.gov and see for yourself. They've spent $225 billion so far to revive a $13 trillion economy. Most of it is just a waste.
- Why aren't those tools working now? Why doesn't Fed policy work after interest rates went to zero? Why is credit frozen... still. Why is the recession so protracted? Why are wages declining? Why is money supply contracting? Why are they doing the same things that failed in Japan?
It would have been nice if in college she had read something else besides Paul Samuelson and Keynes. Perhaps if she had read a little Mises or Hayek, or had even heard of the marginal revolution, she would at least be aware that there are some other theories out there that satisfactorily explain the business cycle. Alas, no.
We let these people lead us into the abyss and now we are asking them to solve the problem.
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another khazar bull dyke infiltrator a la napolitano and sotomayer, how surprising; probably an israeli citizen to boot.
http://www.biblebelievers.org.au/13trindx.htm
Ok, Ashkenazi Jews are mostly descendants of converts to Judaism, so what? The Jews made converts even in the OT. If most Jews weren't the heirs to the apostate Jews of the NT who said "His blood on us and our children" then they wouldn't have been permitted to rebuild a Jewish state in the Holy Land, so as to make peace with and be betrayed by the Antichrist, before the Second Coming. I don't see how anyone can use the Bible (biblebelievers.org) to argue the Jews aren't "Jew enough" and aren't exactly where they have every right to be at this moment.
After reading this article and the interview link posted by tip e, I can't help but think romer is an affirmative action catastrophe.
The government:
The unqualified forcing the unwilling to do the unnecessary.
What else is she supposed to say?
Sorry folks, the keg is floated, the party is over, and its time to go home ??
People have been waiting in line for 30 years to get theirs. They're thirsty. And pissed off.
Whats FUNNY about Romer is up until very recently, she said many times Keynesian Economics is a JOKE!
BTW....thats a MAN, baby!!!
That's not just Johnny's 'stache, they morphed the faces together. Rommer is Keynes in drag.
You said the magic word, Groucho. Kudos.
You said the magic word, Groucho. Kudos.
Sherman, set the Wayback machine to 2008.
Ok Mr. Peabody.
www.youtube.com/watch?v=RKc4XFK0iVY
"Trying to fix problems caused by excess consumption with more spending is like telling a fat guy that the way to lose weight is to eat more donuts."
"...it can slash interest rates..."
Uh, to less than zero? Those wiley Keynesians - always full of math-defying surprises.
I'm sorry, but I couldn't have been the only one that immediately thought of this.
http://www.youtube.com/watch?v=WgOIEGz7o_s
ever read the paper she did with her hubby, do tax cuts starve the beast?
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4048
well, since she's not going anywhere, maybe they should bring in hubby for some balance?
I can't stand listening to Romer, a constantly giggling chucklehead. Powerful and clueless working with the powerful and criminal.
That moustache made me vomit in my mouth.
Typical clueless government economic bullshit. More exports please, have they forgotten that they encouraged American businesses to flee overseas with tax incentives and in the process destroy many export industries???
MARKET UPDATES:
http://www.zerohedge.com/forum/latest-market-outlook-0
Chumbawamba would do her.
Either central planning doesn't work or you suck at central planning.
You cretins doctored that picture of Romer to give her a Keynesean moustache. The reality is revolting enough without that, or did you?
It is good that we are completely at the mercy of what passes for modern intellectual economists that have never graced a shop floor. They are doing their best to discredit academic economists at any level. Once their plan is in full effect we can take it back and show them how it works under the emergency conditions.
Gombit powerhog wimmin that are that hideous have something to prove to mere morts. A very anti version of Carrie, except she is too thick headed. Ugghh
OMG I scrolled past that pic really fast to avoid having it implanted in my head. OMG.
Jesus Christ, I just had a memory of what Janet Reno looks like. Dammit.
the picture was almost as disturbing as reading about her philosophy (or lack thereof)...
Econophile:
I think she is more case study in congnitive dissonance (from Wikipedia: "Cognitive dissonance is an uncomfortable feeling caused by holding two contradictory ideas simultaneously. The theory of cognitive dissonance proposes that people have a motivational drive to reduce dissonance by changing their attitudes, beliefs, and behaviors, or by justifying or rationalizing them." As you point out: (1) she wants to believe that all we have to do is allow the government to spend in place of those that are spending less, and (2) evidence points to few, or no, cases where the Keynesian 'solution' she has and continues to recommend has worked (incidently, she wrote some papers on the last Depression where she claims some version worked, but it's far from clear that was the case).
I remember my macroeconomics teacher as an undergraduate (I think her name was Tyson) would just walk in and begin writing equations on the board with very little explanation of what was going on. I don't remember any references to empirical proof of the theory actually working as advertised (again, many graphs, many equations, but little in the way of concrete proof, if any). Tyson is a pure beleiver who has been rewarded for her beliefs. Romer is odd in that she has mostly focused on economic history (and a good deal on the last Depression), yet seems to have learned little nothing from it (much like Bernanke), that is, based on her actions in her current position. My guess is tht for her it's a human need to reconcile two currently unreconcilable things: (1) reality (generally government is the problem, more debt on top of too much debt is no solution to too much debt, etc.) and (2) her beliefs (government is good, she is good, she has good intentions for you and your children, etc.). Humans have a strong need to feel good about themselves and what they do, even if it kills you; which in large part explains why socialism has killed so many. My guess is that even Stalin thought he was doing the Ukranians a great service by starving them to death (i.e., according to his belief in the state and himself). In a similar vain, Romer has recommended huge deficits to solve this 'aggregate demand' imbalance and will stick with that story even if it kills us all (or else Tyson or someone like her will take that job, and I know she will finish the job). Overall, Romer doesn't seem as bad as some, but she sure isn't looking like admitting failure and reversing course.