Christina Romer's Final Speech: Defending A Failed Stimulus (Today @ National Press Club, Video & Transcript)
Hold it. I know what you're thinking -- that her smile could warm the economy all by itself. Yeah, uh-huh. Video, transcript, links and background are inside.
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Detailed background coverage is at the bottom of this post.
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Text below was written by C-Span.
Romer: Increase Government Spending and Cut Taxes
Christina Romer, the outgoing head of the President's Council of Economic Advisers (CEA), spoke today at the National Press Club on her approach to the economy when President Obama first took office and the impact economic recovery efforts have had during the past 20 months.
After her resignation takes effect on September 3rd, Romer will move from her leadership role at the CEA, a three-member agency within the President’s Executive Office, to join the Economic Recovery Advisory Board, a newly-created independent group that offers economic advice to the White House. Romer has also announced plans to resume teaching economics at the University of California - Berkeley.
She is the second person to leave the Administration's economic team in the past month. There has been no announcement on any replacement for the departing CEA chair. However, reports indicate that Austan Goolsbee, who is currently a member of the CEA and serves as the chief economist, Advisory Board, is a possible candidate; along with Advisory Board member and former CEA head Laura Tyson.
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Background stories on Christina Romer:
Righteous Ratigan Attack On Leverage And Regulation Leaves CEA Chair Dr. Christina Romer Mumbling Nonsense (Clip Of The Week)
Christina Romer: We'll Do Whatever It Takes To Help The Economy (Anti-Keynesian Stimulus Rant Included)
Christina Romer In Love With Rosy Scenario (VIDEO)
Because It's Important To Know What Your Enemies (Romer & Summers) Are Thinking
Sep 1, 2010 at 3:08 PM
Reader Comments (14)
http://thehill.com/blogs/on-the-money/801-economy/116717-resigning-economic-adviser-to-defend-stimulus-in-final-speech
http://globaleconomicanalysis.blogspot.com/2010/08/bankrupt-miami-in-fiscal-emergency.html
http://globaleconomicanalysis.blogspot.com/2010/08/oregon-tax-revenue-from-measure-66-is.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
Romer’s Farewell: We Averted Another Depression
By JACKIE CALMES
http://thecaucus.blogs.nytimes.com/2010/09/01/romers-farewell-we-averted-another-depression/
If you buy this I have shrimp boat to sell you in the Gulf...
Christina Romer’s farewell address, “Not My Father’s Recession,” recalls her first memory of a recession, 1981-2. This brought back memories of my father being laid off as a machinist in Wichita in 1932. We moved to a farm for two years where lack of income did not mean that you would go hungry.
Two years later the bank foreclosed on the farm, but fortunately dad was able to return to his old job half-time; we survived. My mother baked angel and devil’s food cakes for local restaurants at only 25 cents a pop, but we saved money. We scrimped, as our home was worth much less than what we paid for it. The bank had not taken it along with the farm, because title had been transferred to my grandfather!
Baffled by the current crisis, at its start I asked why, and with my colleague Steven Gjerstad we began to study its origins and look for parallels and differences in the previous fourteen recessions, including the Depression. (See http://www.chapman.edu/ESI/wp/Recessions_1929_2007.pdf)
We were dumbfounded by the results.
I was born on the first day of 1927, but already, a 1920s boom in new home annual expenditures had flattened in 1925-26, and it fell sharply for three years ahead of the stock market crash in October, 1929. In 1929 housing expenditures had dropped 59% from their 1925-26 peaks, but were destined to collapse by another 86% before a modest turnaround in 1934 when my parents lost our farm. The flow of mortgage funds collapsed in step with housing.
A comparable decline in housing expenditures would not be repeated for eighty years, which tells you why Romer speaks for economists, policy makers and our leaders everywhere when she says “we have been in largely uncharted territory.”
When the Great Recession began, Q4 2007, housing expenditures had been falling precipitously for seven straight quarters from a level 79% higher in early 2006, but policy makers had not noticed; it would fall another 60% before a weak turnaround beginning Q3, 2009. That weakness continues despite unprecedented housing-related monetary and fiscal action.
Total home negative equity is now estimated to be $771 billion. People hunker down when they owe more than their homes are worth. The fiscal stimulus did little to reach into that hole; hence, the disappointment with its effectiveness. When Bernanke’s Fed finally realized we faced a bank solvency problem, they bought some $1.3 trillion of bank loans. Although bank failures continue over at the FDIC, the Fed’s action seems to have reduced most of the banking system’s negative equity.
But none of this has much affected homeowner negative equity—the biggest peril in the uncharted territory.
The same if smaller perils mark the twelve recessions between the cliffs of Depression and Great Recession. These so-called business cycles are better called consumer expenditure cycles when you combine housing and durable goods spending. Eleven of the last fourteen were led by declines in housing; and percentage declines in expenditures on new housing units and consumer durables preceded and exceeded percentage declines in every other major component of GDP.
In the first thirteen recessions, there were no recoveries without a recovery in housing expenditures. Market nervousness about the current recovery is justified.
Vernon L. Smith
Argyros Professor, Chapman University
2002 Noble Laureate in Economics
I apologize for missing your comment until now...here is your bio for others reading...
http://en.wikipedia.org/wiki/Vernon_L._Smith
I will try not to hold it against you that your first teaching job was at Purdue...I live in Bloomington now so you understand...
Your comment is of course correct...it's all about housing and specifically negative equity...it's why things aren't going to improve anytime soon...I don't know how you found your way here...and i can't tell if you're a Romer supporter and a believer in Keynesian policy...it's unclear from your comment...
But I will say that I'm honored to have a Nobel Prize winning economist comment on this blog...Brad Delong embarrassed himself all over this site once, but we both know the only award Delong will ever win will involve eating Ding Dongs...so he doesn't really count...
Kidding aside...thanks for your comment and please show up and make your presence felt around here a bit more often...
steve
http://dailybail.com/home/and-you-thought-bernanke-was-bad-brad-delong-fantasizes-abou.html
Here's that Brad Delong link...
But there have been several stock market crashes comparable to that of 1929-30 without similar effects.
What is missing in macro models, Keynesian or not, is the balance sheet crunch on households when home prices fall against a fixed mortgage debt obligation. This causes balance sheet distress in the banks and they slow or stop net lending.
Yes, banks hunker down, preserve capital, tighten lending...most are insolvent, FASB 167 Fair Value rule changes allowed them to survive...now with fantasy-marked assets...walking zombies...households are deleveraging from debt to GDP levels of 350%...this is unlike any recession of my lifetime...
Yet. Romer and her ilk claim to be surprised the economy and housing haven't bounced back...they claim that no one foresaw the difficulty in re-starting growht...what a load of nonsense...it was obvious from the get-go that extend and pretend was NOT going to work this time...yet they plowed ahead, heads down, stimulus guns blazing...and now are surprised that nothing has worked...
An esteemed Nobel Laureate such as yourself would never say, so I will...they are clueless clowns...
The only solution is to let housing prices fall without gov't support...when they reach levels more historically in-line with incomes, the buyers will appear...this is going to be a long slog...several more years of malaise...
Thanks for your comment and please tell a few of your students about this site...ultimately, it's about the next generation, and the more young voices that become involved, the better...
steve
Mish Shedlock, in particular, stands out. Well before the GSE takeover and the failure of Lehman, AIG, et al. in 2008, Mish was talking about the effects of the housing decline on both bank and household balance sheets. And throughout the crisis, he has been adamant that household spending patterns would change dramatically -- as they have.
http://globaleconomicanalysis.blogspot.com/
Karl Denninger has also consistently predicted the effects of debt overload in the household and the inability of banks to increase credit in the system at the same rate of growth.
http://www.market-ticker.org/
Finally, Steve Keen of Australia (both an academic and a blogger) has taken some basic insights from Fisher and Minsky and has done some macro-modeling that captures some aspects of the current recession like those mentioned by Dr. Smith. Although, I'm not sure whether he models debt at the household level, but he may.
http://www.debtdeflation.com/blogs/
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