Thursday, September 02, 2010


Via Ezra Klein's Wonkbook email, Christina Romer's departing words. (It's a pdf, not a big one).

It's hard not to wish there were people doing a Richard Clark imitation, hair on fire, running around, trying anything. Instead, she is measured, prudent, and sorta wistful:

The result of these powerful headwinds and recent developments is that the United States still faces a substantial shortfall of aggregate demand. GDP by most estimates is still about 6 percent below trend. This shortfall in demand, rather than structural changes in the composition of our output or a mismatch between worker skills and jobs, is the fundamental cause of our continued high unemployment. Firms aren’t producing and hiring at normal levels simply because there isn’t demand for a normal level of output.

In the long run, the transition to a higher-saving, higher-investment, higher-export economy can restore demand, and hence output and employment to normal. But at the moment, as the recent data emphasize, that process is operating painfully slowly.

The pressing question, then, is what can be done to increase demand and bring unemployment down more quickly. Failing to do so would cause millions of workers to suffer unnecessarily. It also runs the risk of making high unemployment permanent as workers’ skills deteriorate with lack of use and their labor force attachment weakens as hope of another job fades.

Policymakers should certainly try innovative, low-cost policies. The President’s National Export Initiative is an excellent example. Given the fixed costs associated with exporting to a new market, small investments in information provision and commercial diplomacy could bring about a substantial increase in our exports. Likewise, responsible new trade agreements can help to open markets and increase trade in both the short run and over time.

Policymakers should also take sensible actions to increase confidence. While some in the business community talk about regulatory uncertainty as one reason they are cautious about hiring and investing, I suspect that uncertainty about future sales is a much larger determinant of firms’ actions. We can, however, do more to highlight and codify our pragmatic approach to regulation. As OIRA Administrator Cass Sunstein detailed in his recent Congressional testimony, the estimated net benefits (that is, the benefits minus the costs) of the Obama Administration’s regulatory actions during its first year far surpass those of the first year of the two previous administrations. For the health of the economy, we should continue and trumpet this prudent regulatory approach.

While we would all love to find the inexpensive magic bullet to our economic troubles, the truth is, it almost surely doesn’t exist. The only surefire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less. In my view, we should be moving forward on both fronts.

I don't think FDR would have called this liberalism. Not even sure Teddy would have called it progressive.