Christina Romer, chairwoman of the President's Council of Economic Advisers,
is leaving. Which is ironic, since she was the only one in the White House who seemed to understand, at the time, that we needed a larger stimulus than the one the President asked for.
From Krugman:
For me, the really interesting [of Ryan Lizza's article] passage was this one:The most important question facing Obama that day was how large the stimulus should be. Since the election, as the economy continued to worsen, the consensus among economists kept rising. A hundred-billion-dollar stimulus had seemed prudent earlier in the year. Congress now appeared receptive to something on the order of five hundred billion. Joseph Stiglitz, the Nobel laureate, was calling for a trillion. Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn’t require two trillion dollars of government spending, but Romer’s analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion. The memo to Obama, however, detailed only two packages: a five-hundred-and-fifty-billion-dollar stimulus and an eight-hundred-and-ninety-billion-dollar stimulus. Summers did not include Romer’s $1.2-trillion projection. The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was “an insurance package against catastrophic failure.” At the meeting, according to one participant, “there was no serious discussion to going above a trillion dollars.”
So Christy Romer’s math looked similar to mine: even given what we knew last December, the straight economics said that we should have a stimulus much bigger than the Obama administration’s initial proposal. And given what happened to that proposal in the Senate — we actually ended up with only about $600 billion of actual stimulus — what we eventually got was half of what seemed appropriate in December.
Once, again, before folks at the White House say "$800bn (really $600bn, as Krugman points out), is all we could get politically," let me remind you - $500bn was Congress' opening offer in the negotiation. You don't just cave at the beginning of the negotiation because the other guy says "no." You especially don't cave when the life and death of the entire country's economy is in the balance. You tell the other guy, "if you won't do what's necessary to save the country from going into a second Great Depression, we'll go to the American people and tell them."
But the White House didn't do that. They caved. At the beginning of the negotiation. Then they caved again, giving 35% of the remaining stimulus to near useless tax cuts. And now we have 10% unemployment, the public disapproves of the President, and we're in danger of losing the House in the fall elections. This isn't an academic point that we all need to 'get over.' Rather, the White House screwed up, and we're all in deep shit as a result. And now the only person in the White House who seems to have understood what was needed, is leaving. And the people who got us into this mess, are staying.
That's why we keep bitching. Because history is going to keep repeating itself until the White House learns how to play the game,
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