Posted by: Jeff | April 21, 2010

Economic Pragmatism

Ezra Klein has posted a profile of Christina Romer, chair of President Obama’s Council of Economic Advisors, and her view and analysis of the current state of the economy is refreshing:

[T]he [economic indicator] numbers are, if not the administration’s fault, then certainly its responsibility. And the numbers remain horrible. Unacceptable, even. But in her speech at Princeton — which she originally wanted to title “It’s the aggregate demand, stupid” — Romer makes very clear that one of the things the administration is having to fight against is the political system’s willingness to simply accept high unemployment and let horrible become the new normal:

Romer: “My first and most fundamental point is that when it comes to the economy, we are very far from normal. The unemployment rate is currently 9.7 percent. I find it depressing that some observers talk about unemployment remaining high for an extended period with resignation, rather than with a sense of urgency to find news ways to address the problem. Behind this fatalism, there seems to be a view that perhaps the high unemployment reflects structural changes or other factors not easily amenable to correction. High unemployment in this view is simply ‘the new normal.’ I disagree.”

I think this is the right take.  The economy is improving in relative terms – we’re seeing employment and GDP numbers stop their downward spiral and stabilize.  But stabilization isn’t a return to normal.  And certainly isn’t growth or improvement.

From the Wall Street Journal:

More private demand is essential, [Romer] said, but government can do more than it is – and Congress should embrace everything the president has proposed and then some.  “One targeted measure that is likely to be very effective is additional fiscal relief to the states,” she said. Another is putting money into smaller banks, as the president has proposed, to get them to lend more to small and medium sized firms. A third is more aggressive actions to open foreign markets to U.S. goods and services.“Things are better,” she said, “but they are not nearly good enough. We are painfully far from normal.”

The administration has stopped much of the bleeding.  But the economy isn’t yet fully healthy.

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