Could a Memo by Christina Romer Have Saved the Economy?
In 2008, White House Economic Adviser Christina Romer wrote a memo outlining a stimulus package as large as $1.8 trillion, only to have it buried by Chief Economic Adviser Larry Summers. Could it have saved the economy?
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News of the memo's existence stems from New Republic staff writer Noam Scheiber's new book on the Obama administration and is sparking a debate about what could've happened in a world with a $1.8 trillion stimulus. In his book, Scheiber writes that Summers dismissed the $1.8 trillion figure as impractical, telling Romer that "people will think we don't get it." Here's where different bloggers are coming down on the issue:
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Yes, it could've have worked Gazing at the memo in wonder, Business Insider's Joe Weisenthal declares, "This Is the Memo that Could Have Saved the U.S. Economy." In the document, Romer writes that to return the economy to full employment and eliminate the "output gap," about $1.7 trillion in legislated stimulus would be required. When considering a practical combination of spending and tax breaks, the cost rises to $1.8 trillion over two years, explains Romer. Mark Thoma at Economist's View also endorsed the stimulus and scolded Summers for playing politics. "With respect to Summer's 'People will think we don’t get it' excuse for not even presenting the higher figure, it seems to me their job was to make people get it—to make them understand why the larger figure was on the list of options."
No, it would've been worse. Surveying work by ProPublica's Michael Grabell, James Pethokoukis at The American Enterprise Institute argues that the U.S. would've been much worse off if the memo were accepted and put into law. He excerpts Grabell, who writes:
In reporting on the stimulus over three years, I traveled to 15 states, interviewed hundreds of people and read through tens of thousands of government documents and project reports. What I found is that the stimulus failed to live up to its promise not because it was too small (as those on the left argue) or because Keynesian economics is obsolete (as those on the right argue), but because it was poorly designed. Even advocates for a bigger stimulus need to acknowledge that their argument is really one about design and presentation.
Nodding in agreement, Bruce McQuain at Questions and Observations writes, " About all that might have happened had Romer gotten her way is a few states might have been able to delay their financial reckoning for another year or so."
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It never would've passed Congress anyway Disagreeing with those who argue that a Democratic-controlled Congress could've passed the mega stimulus with the right sell, Scheiber argues that nobody could've stomached it. "In the end, the significance of the fateful document has as much to do with what wasn’t in it as what was," he writes. "Though Obama was never going to propose a $1.8 trillion stimulus, and Congress certainly wasn’t going to pass one, the president may well have felt a greater sense of urgency had he better understood how far he was from the ideal."
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