Christina Romer's Contradiction
By David Henderson
Here’s a paragraph from Christina Romer’s op/ed in the New York Times:
Now is not the time [to cut the deficit]. Unemployment is still near 10 percent in the United States and in Europe. Tax cuts and spending increases stimulate demand and raise output and employment; tax increases and spending cuts have the opposite effect. This is a basic message of macroeconomics and a central feature of public- and private-sector forecasting models. Immediate moves to lower the deficit substantially would likely result in a 1937-like “double dip” as we struggle to recover from the Great Recession.
I won’t, on this post, take her on on this. That’s a bigger task. But let’s assume, which I don’t, that she’s right. She’s saying, among other things, don’t raise taxes now. But now look at a paragraph later in the piece:
While immediate fiscal tightening isn’t wise for the United States, we do need to address the deficit. The best thing would be for Congress to pass a plan now that will reduce deficits when the economy is back to normal. France’s recent plan to gradually raise its retirement age to 62 from 60 is a classic example of such “backloaded” reduction. President Obama’s proposal to eliminate the Bush tax cuts on high incomes is another: it would raise revenue by only $30 billion in 2011, but by more than $600 billion over the next decade.
Notice the contradiction? We should wait until the economy is back to normal before reducing deficits; she doesn’t mean January 1, 2011. So what does she give as her only example of a policy change that will reduce deficits when things are back to normal? A tax increase that will happen in under 70 days. I guess you could call this paragraph an example of taking one for the previous boss.
HT to Greg Mankiw