Christina Romer vs. Bloggers
By Arnold Kling
The CEA Chairwoman does not take on anyone by name, but She writes,
in my view the overwhelming weight of the evidence is that the current very high — and very disturbing — levels of overall and long-term unemployment are not a separate, structural problem, but largely a cyclical one. It reflects the fact that we are still feeling the effects of the collapse of demand caused by the crisis.
In other words, no Recalculation here. Move along. But if that is true, can you predict where job growth will occur? It seems to me that if the problem is aggregate demand, then there should be some sectors that currently are temporarily depressed where you think that employment will recover. Are there inventories to be worked off in automobiles and steel? Do we think that lots of job growth is going to come in the capital goods sector? Should the state and local government sector that Romer moans about, which has lost–what, 100,000 jobs?–be the engine for employing the six million or so people who have lost private sector jobs?
Also, Romer writes,
The recent recession was obviously not caused by tight monetary policy. Interest rates were not especially high when it began, and so the Federal Reserve had only limited room to cut them. It has brought short-term rates down to virtually zero, but it cannot push them below that. The result is that we have not had the strong monetary stimulus that we would normally have in these economic circumstances.
She’s telling Scott Sumner to move along, also. Note that she focuses on short-term interest rates as a monetary indicator. But long-term interest rates are not zero, and the Fed certainly has not run out of securities to buy.
Basically, her speech is a plea for more Obaminations. She admits that recovery is needed in the private sector, but her top priority is aid to state and local governments. I can remind you that state and local governments can balance their budgets without cutting jobs simply by reducing pay to workers.