Lawrence Lindsey Vs. Christy Romer
By Arnold Kling
by June, before the Recovery Act could have had much of an impact, it was 9½ percent. That is, our projection turned out to be wrong even before the Recovery Act had a chance to get off the ground, which is about as clear-cut evidence as one could imagine that the problem was in our assessment of the baseline, and not in the effects of the Act.
the problem with the stimulus wasn’t just the starting point–it was that the stimulus itself has been ineffective at lowering it. Chart 1 shows that the actual unemployment rate, given by the solid line, is not only above the original Romer-Bernstein projections, but also above projections that take account of the “starting point” problem. Actual unemployment has been consistently above all of the projections, regardless of starting point, because the stimulus bill has basically brought no relief in terms of lower unemployment.
All of us have our biases, obviously. And nobody likes to admit they were wrong about something. But I get the impression that serving as a policy adviser for an Administration tends to undermine one’s ability to be objective. Advisers seem to get inordinately attached and committed to the policies they work on. Herbert Stein was a notable exception.
[UPDATE: I should have made it clear that in my view this hyper-defensiveness shows up in advisers of Republican as well as Democratic Administrations. Also, I should add that in macro it is almost never possible to rule out any theory based on the data, so Romer could be correct. You can generally find a way to interpret almost any path of variables in a way that supports your favorite theory. The question is how far you have to strain to make your interpretation. I was in favor of some sort of stimulus, but I did not like the design of the actual bill. Also, things worked less well than what I expected. So that is why I am a skeptic. I cannot rule out the possibility that the stimulus worked well. But I think anyone who claims to be certain one way or the other is off base. What throws me about Romer’s talk is how certain she comes across.]