Christina Romer vs Political Reality
I’ve seen a fair amount of commentary on the part of Ryan Lizza’s profile of the Obama economic team where Christina Romer recommends a $1.2 trillion stimulus proposal and they wind up with just a bit more than half of that out of deference to the tender sensibilities of the United States Senate. I’ve seen less commentary on this other part, where basically the same thing happen on financial system policy:
Romer believed that the banks wouldn’t lend again until they were well capitalized. For banks in severe stress, she favored creating a government-backed “bad bank” to take the toxic assets off the banks’ books and then recapitalize them with government funds—essentially a version of nationalization, and what the Swedish government had done during that nation’s financial crisis of the early nineties. This argument was quickly rendered moot because of the cost. There wasn’t much money left in the TARP kitty, and any chance of getting more from Congress had ended with that morning’s news: A.I.G., which had received a hundred and seventy billion dollars in federal money, had handed out multimillion-dollar bonuses to the executives responsible for the company’s demise. Axelrod said, “The one thing that was absolutely clear was, we were not in a position to go back to Congress.”
Axelrod’s argument seems absolutely sound. And Rahm Emannuel’s argument on the stimulus that congress wouldn’t appropriate $1.2 trillion also seems absolutely sound. But of course Romer’s arguments weren’t arguments about feasible legislative strategies. Of all the senior members of the Obama administration, Romer has by far the least experience with practical legislative politics and also has the job that’s the least concerned with practical legislative politics. And I think that it was in a lot of ways a masterstroke to appoint a very policy-focused academic with no practical legislative experience to the CEA job. When people work too long in Washington, their notions of what would be good policy in principle tend to become unduly corrupted by their knowledge of what’s possible in practice.
But what Lizza is telling us is that on the two biggest pieces of macroeconomic management, the Obama administration is pursuing policies that its in-house expert on macroeconomic crisis management believed were far too timid. He’s also telling us that this was done primarily not because people disagreed with her analysis, but because they felt it wasn’t possible, legislatively speaking, to do what was objectively necessary. It’s a bit of a scary situation.
28 Responses to “Christina Romer vs Political Reality”
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October 14th, 2009 at 3:42 pm
So much for the Audacity of Data. The Dems need a new coterie of politicos to champion the possible. Obama surrounded himself with a new generation of wonks but then went to the Daschle School for his political operatives.
October 14th, 2009 at 3:42 pm
Why does the White House tell itself “no” when it already has plenty of people to do that?
If you’re having difficulty getting what you need, at least get out and make predictions, restating them over and over. For example if we only spend $600 billion we will see 9% unemployment for a long period. Alternatively if we spend 1.5 trillion, we can reduce unemployment to 6%, jump start the economy, help people stay productive and go to school, etc.
Put the predictions and choices out there for people to see and comprehend. Those Republicans may not support it, but they fall all over themselves for the support when it flows.
October 14th, 2009 at 3:44 pm
Brad DeLong recommended we allocate 100 billion a month to additional stimulus, every month indefinitely, essentially until we get inflation that makes us stop.
I’ll do some editing here. “policies…far too timid…scary situation.”
I think there are many many people, especially on the left-left, who would characterize Obama and his administration that way generally, on a whole host of issues, from FISA to macro to Afghanistan to climate change to DADT to you-name-it. I think there is a profound and tragic character flaw in the Oval Office.
October 14th, 2009 at 3:46 pm
Does the term Mayberry Machiavelli ring a bell?
Surprise, surprise. Politics trumps policy.
Where have I heard that before?
Perhaps the difference is that under Obama they at least listen to the policy geeks before ignoring them, while under Bush there were no policy geeks.
Change we can believe in!
October 14th, 2009 at 3:48 pm
Suggest Yglesias either promote a dictatorship or Romer incorporate Congress in her model.
October 14th, 2009 at 3:52 pm
Federal spending in 2008 was $3 billion on GDP of $14 billion, about typical proportion in the modern age. That seems like a decent-sized stimulus for private activity and one we have every year, and yet it didn’t stave off recession. What guarantee do we have that adding another trillion would lead us out of recession?
October 14th, 2009 at 3:57 pm
Given that Obama’s WH team are basically Bob Rubin’s disciples, one should not expect any policies that infringe on Wall Street’s tender sensibilities.
October 14th, 2009 at 3:58 pm
I didn’t have time to read this, but why is that dude wearing a woman’s jacket and lipstick?
October 14th, 2009 at 4:07 pm
I don’t get this post. Is Matt Y saying that the administration is being too timid on TARP? If so, what’s his basis? This post seems exclusively about the stimulus, but he says too timid on two programs. The only reference to TARP is Axelrod’s rejoinder about why the stimulus won’t work.
October 14th, 2009 at 4:12 pm
Democracy–the worst form of government known to man, except for all the rest.
October 14th, 2009 at 4:24 pm
Even the professional apologists have stopped trying to defend the Obama administration’s embrace of the status quo.
October 14th, 2009 at 4:27 pm
So much for the Audacity of Data. The Dems need a new coterie of politicos to champion the possible. Obama surrounded himself with a new generation of wonks but then went to the Daschle School for his political operatives.
I wish people who write shit like this would not would not use random anonymous names. If these used consistent anonymous handles (like truckers), we could immediately skip this bullshit. I’ve read it a million times. All the random names do – if coupled with bullshit like the above – is piss people off. If you’re trolling fine, whatever floats your boat. Otherwise have a little decency.
October 14th, 2009 at 4:36 pm
Brian in Chicago:
Why does the White House tell itself “no” when it already has plenty of people to do that?
Why did Krugman make this argument consistently before and has now sort of changed his tune? What happened?
for instance:
“Also, the preferred narrative on cable news and suchlike — that it was 1993 all over again — has been shattered. The momentum is now all with reform.
Something could still go wrong; clearly, Joe Lieberman is itching to find a way to oppose this. And the bill will, of course, leave much to be desired. Still, at this point it looks as if history is in the making.”
http://krugman.blogs.nytimes.com/2009/10/13/the-finance-committee-vote/
October 14th, 2009 at 4:42 pm
At least all this is an opportunity to sully the reputations and influence of any “experts” who were advising the Congress toward timidity and short sightedness. Name names, point fingers, raise concerns!
October 14th, 2009 at 4:47 pm
it wasn’t possible, legislatively speaking, to do what was objectively necessary
That’s a cute bit of alchemy, the way Christina Romer’s analysis and recommendations became objective necessity.
October 14th, 2009 at 4:56 pm
Scary it may be, but isn’t it a direct consequence of the US constitution?
Do I need to amplify? There must, must be situations where the executive decides it needs this much money and it can’t get it.
October 14th, 2009 at 5:45 pm
Chris Dornan- the administration never said, “if we don’t get 1.2 trillion the stimulus will fail and the recession will become a depression.” They decided how much they could get and then they pretended that that’s what they needed. What did they think, that the future would never arrive?
October 14th, 2009 at 5:54 pm
The one thing that was absolutely clear was, we were not in a position to go back to Congress
Quite an indictment of the Democrats in Congress (seeing as how they control everything).
October 14th, 2009 at 6:16 pm
Banks still don’t want to lend, tho.
October 14th, 2009 at 6:34 pm
@ Chris Dornan
Yes, if only Madison hadn’t insisted that it would take 60 votes to pass anything in the Senate.
October 14th, 2009 at 7:32 pm
John Mauldin via Mike Shedlock yesterday
Bolded mine:Christina Romer vs Political Reality. A few people will know what I am talking about
October 14th, 2009 at 9:21 pm
Perhaps Christina Romer is more aware of legislative obstacles than you think, young Matthew. Perhaps she had been informed that $1.2 trillion had handed out the discount window of the Fed, $500 billion of that money going directly to European banks. Perhaps she believed, and rightly so, there were no obstacles.
It may have been naive of her, but perhaps Romer felt the $1.2 trillion in Fed handouts could have been used in better fashion -to help the American economy and its people. She might have looked around and been confused, thinking “money grows on trees around here, but only when it is needed to protect the moneyed interests, whether they be foreign, or foreign/domestic.”
And she might have also wondered, being a smart lass, “why, if we all agree we need a minimum of $1.2 trillion in stimulus -to begin the process of making the smallest of dents- do we ask for $900 billion? Why do we not demand $2 trillion, a number that has already been bandied about, and negotiate from there?”
October 15th, 2009 at 8:16 am
It’s a bit of a scary situation.
Apply that governmental cowardice to the action required to combat Global Warming and you’ll see why I’m convinced that civilization won’t be here 100 years from now. At 2C, the whole process becomes self-sustaining via feedbacks. We’re almost half the way there (.9C) and the rate at which we’re adding CO2 to the atmosphere is accelerating. (After being below the trend line for around 20 years, the last 10 have been above the trend line.)
October 15th, 2009 at 8:30 am
The administration doesn’t have much time left, as you know, Matteo. One year? 18 months? Then election season will be upon them -a time for slowing down, and caution. Obama has already been stuck with the tag of big spender and deficit builder man. Why not go bold? The specifics of bold plans now will be forgotten in two years, and only a vague and lingering notion that Obama was a little loose with the change -back in the day- will remain come campaign time. And does it really matter if the deficit is 12, or 15, to the electorate? To anybody?
Plus, when the NEW money hits the system, things are going to get a little crazy. It will be hard to get anything done, at least for a little while, as everyone will be too busy trying to figure out the new game while simultaneously, grabbing cash.
Or should bold plans await the NEW money’s arrival? Perhaps it should viewed as an opportunity. There is nothing but deadlock ahead in the normal channels. NEW money and the Fed? There is combination for stimulus X 10 out there. I know there is.
October 15th, 2009 at 11:36 am
MY: He’s also telling us that this [policy] was done primarily not because people disagreed with her analysis, but because they felt it wasn’t possible, legislatively speaking, to do what was objectively necessary. It’s a bit of a scary situation.
Is it? Hasn’t this always been the case in the U.S.? And isn’t it also the case in other rich democracies? With the internet, we just hear about what didn’t get passed and the debate behind it more, and we’re also more informed so we can debate it ourselves. This is the price of not being China, no?
October 15th, 2009 at 2:59 pm
[...] in Business, Daily life, Democrats, Government, Obama administration at 11:58 am by LeisureGuy Interesting post by Matthew Yglesias: I’ve seen a fair amount of commentary on the part of Ryan Lizza’s profile of the Obama [...]
October 16th, 2009 at 5:31 pm
[...] But more to the point, “nationalisation of banking, insurance, auto, and healthcare?” “Unrecognisable?” This is not how we spell words in the United States of America. If Chris Muir wants to run around spelling words like thatmaybe needs to revisit the point of the original tea parties. Here in America we recognize that Barack Obama did not, in fact, nationalize the banking industry but probably should have. [...]
October 16th, 2009 at 6:05 pm
Bloix@17: I wasn’t at all defending the misrepresentation here (though I am actually not sure it *would* have been wise to go much beyond what was politically realistic), but just saying that the separation of powers logically entail precisely what Matt is finding scary, that the executive can come to one conclusion and Congress, collectively, another–that is all.
Lorax@20: the way the filibuster is being used is disgraceful and not a constitutional issue, though two senators per state obviously is.