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Stimulus Averted Depression, Romer Says - U.s. Council Of Economic Advisers

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http://www.nytimes.com/2010/09/02/business/economy/02romer.html?_r=1&ref=business

Christina D. Romer, chairwoman of President Obama’s Council of Economic Advisers, said in a farewell speech on Wednesday that the administration’s stimulus policies averted “a second Great Depression.”

But she also gave her most detailed explanation yet for why her original forecast that unemployment would peak at 8 percent “was so far off.”

Ms. Romer’s last day as one of the four principals on Mr. Obama’s economic team is Friday, which means one of her last acts will be to provide the administration’s reaction to the latest unemployment report.

For the last year those reports have been a monthly refutation of her early projection. The report for August, expected to show the jobless rate remaining near 9.5 percent, will be no different.

With Republicans continually reminding voters of the erroneous forecast, it undercut Ms. Romer’s effectiveness as a public spokeswoman for administration policies. Within White House economic debates, however, she proved to be more active than most predecessors in past administrations.

The economic projections that were the basis for Mr. Obama’s $787 billion stimulus package of spending and tax cuts were based on data from late 2008, before Mr. Obama took office. Ms. Romer, in her speech at the National Press Club, said that she, like most analysts, had underestimated American businesses’ reaction to the near collapse of the financial system in 2008 and the global nature of the recession.

“What was not clear at the time was how quickly and strongly the financial crisis would affect the economy,” she said. Because such financial shocks are rare, she added, “to this day economists don’t fully understand why firms cut production as much as they did, and why they cut labor so much more than they normally would.”

Ms. Romer, a scholar of the Depression who is returning to the University of California, Berkeley, to resume teaching, said economists would be studying those questions for years.

“In any event,” she added, “almost all analysts were surprised by the violent reaction.”

The analysts, and the new Obama economic team, also were surprised that the reaction turned out to be global, Ms. Romer said. She recalled that until reports in 2009 showed slowdowns in Asian and European countries, she and Mr. Obama’s other advisers had anticipated that those trading partners would help bolster the American economy.

Even so, by then the advisers had greatly increased the size of the proposed stimulus package by hundreds of billions of dollars; Congress passed it within a month of Mr. Obama’s inauguration.

Against Republicans’ continued claims in this campaign season that the stimulus package was a waste — a claim many nonpartisan analyses dispute — Ms. Romer offered an emphatic affirmation.

“I am proud of the recovery actions we have taken,” she said. “I believe they have made the difference between a second Great Depression and a slow but genuine recovery. And the passage of health care reform and financial regulatory reform are accomplishments that will be with us long after the recession is over.”

So like most analysts she made flawed assumptions yet made policy on those flawed assumptions. Yet somehow that policy proved correct and has avoided disaster.

So lets be honest the experts guessed in a herd and got it wrong, yet everyone still thinks these people are "experts" and can somehow guess better than everyone else.

Clearly that's utter crap.

Still everyone can take comfort in the fact experts still guess and get it wildly wrong.

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  • 238 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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