John Judis comments on a defense of the stimulus bill by the Chair of the Council of Economic Advisors, Christina Romer:
She makes two important observations: First that many of these objections stem from a bygone view of industry, which only can only imagine jobs in construction. An education grant or healthcare spending might easily create as many jobs as a highway project. The second is that the current downturn, when interest rates are very low, provides an important opportunity to stimulate the economy while making investments that will raise productivity in the long run. There is quite of bit of this kind of spending in the stimulus bill–for instance spending for rural broadband, a new electrical grid, and high speed rail. And it’s a good thing there is.
Her observations may be “important,” but they are non-responsive. As to her argument about the type of jobs: the critics are not limiting their critiques to construction jobs. If you aren’t spending the money now, or not spending enough of it now, no industry will get a lift. If we’re relying on healthcare and education grants (which are funded and may not be completed for years) to get us out of the economic ditch, we are really in trouble. The second observation is a neat bit of misdirection. She argues that in the long run it is important to raise productivity. But that’s not the question. The question before the house is what a pork-a-thon stimulus plan that releases much of the money after 2011 is going to do now.
It would also be worth finding out how she thinks the Obama tax increases are going to impact the recovery. J.D. Foster reminds us of the findings of a 2007 study by Christina and her husband David Romer:
The Romer and Romer study presents strong evidence that higher taxes tend to diminish economic activity. It found that a tax increase of 1 percent of GDP initially has a modest downward effect on output and that the effect grows rapidly before leveling off after 10 quarters for a maximum effect of lowering GDP by 3 percentage points. Applied to 2007, the study suggests that after two to three years, a tax increase of about 1 percent of GDP (about $135 billion) would reduce output by about $400 billion annually.
When expressed as tax reductions rather than as tax increases, the study found that “tax cuts have very large and persistent positive output effects.” Moreover, the authors emphasized that these results were “strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes.” In other words, the modern historical record strongly suggests a clear and robust relationship between lower taxes and higher economic output.
Next time Christina Romer is before the media someone might press her again on why the delayed-action stimulus is supposed to work and, more importantly, why Obama is raising rather than lowering taxes.
