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It happened so quickly, few people noticed. The chief architect of the President’s stimulus plan, Christina Romer, who now heads the Council of Economic Advisors, testified before the Congressional Joint Economic Committee on 22 October. While such an event would be otherwise unremarkable, what is striking in this instance is Dr. Romer’s sudden reversal in her economic projections in so short a period of time.
In her prepared statement before the Committee on the status of American Recovery and Reinvestment Plan, Romer predicted that unemployment will remain at about 10% through 2010. 1
Yet with Jared Bernstein in the seminal paper written for president-elect Obama in January to justify and sell the plan to the country, she writes, “… we expect the plan to more than meet the goal of creating or saving 3 million jobs by 2010Q4” 2. Relying on a now famous chart in that paper, shown here, Romer originally predicted unemployment dropping to 7% by the end of 2010. In other words, the actual unemployment rate will be nearly 50% more than her original estimate. In any other business, inaccuracies like these might have landed Dr. Romer among the numbers she is measuring.
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In stark contrast to the rosy picture she portrayed before the Recovery Plan was passed, Romer wrote this furtive statement in her testimony to Congress last week: “Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009. By mid-2010, fiscal stimulus will likely be contributing little to growth.” What was that again? The stimulus’ greatest impact has already come and gone?
The Romer/Bernstein chart predicted unemployment would peak at 9% without the Recovery Plan. Now Romer reveals the economic picture looks worse than even that through next year. Is it possible, then, that the stimulus actually exacerbates the recession?
Romer unwittingly supplies the elements of an argument supporting such a notion.
When critics of the stimulus originally cited the adverse effect of the nearly $800 billion stimulus on the deficit, she argued in March, "There is no reason to think the government will have any trouble doing the borrowing needed to finance the [stimulus] package. Investors appear to be delighted to lend to the U.S. government at very low interest rates.” 3 Now she admits to Congress: “Such long-term deficits [$1.4 trillion] are unacceptable and need to be dealt with. Over the long run, sustained deficits crowd out private investment and reduce long-run growth.”
No one on Capital Hill or in the press picked up on the implied argument. The stimulus adds to the deficit. Deficits crowd out private investment and reduce long term growth. The stimulus won’t help the economy in 2010. It is plausible, therefore, that the stimulus is making matters worse.
So, Madame Chairman ought we to end the program? “Such a premature end to stimulus would be misguided.” she wrote, anticipating that counterpoint. In Washington, logic has no place when policy makers have unfettered access to taxpayer money.
Paul Krugman, a Nobel laureate in economics, touted the Romer/Bernstein paper on his blog in The New York Times, saying his projections were quite similar. “Kudos, by the way,” wrote Krugman, “to the administration-in-waiting for providing this — it will be a joy to argue policy with an administration that provides comprehensible, honest reports, not case studies in how to lie with statistics.” 4
One wonders if the good Dr. Krugman is so joyful now. We witnessed the President’s chief economic advisor first tell Congress and the American people unemployment will decrease, deficits don’t matter, and growth will be robust through 2010. A short nine months later she confesses unemployment will remain high, the deficit is a major concern, and the stimulus’ benefit is already behind us. Is this not ample evidence of statistical machinations?