Remembrance of Economic Crises Past (Ep. 425)

Posted On Jul 11, 2020 By admin With Comments Off

Christina Romer was a top White House economist during the Great Recession. As a researcher, she specializing in the Great Depression. She tells us what those cataclysms can( and can’t) educate us about the Covid crash.

Listen and are contributing to our podcast at Apple Podcasts, Stitcher, or elsewhere. Below is a transcript of the escapade, revised for readability. For more information on the people and ideas in the escapade, verify the links at the bottom of this post.

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Stephen DUBNER: So, what’s it feel like, as an fiscal historian, to be living through a moment that’s patently historic from an economic position?

Christina ROMER: It is sort of mind-blowing. I remember back from the 2008 recession, I told us to myself,” Well, I never envisioned in my life I’d live through a bank led .” And here were, beings stringing up outside banks. Now I’m living through a pandemic. It is just really hard to fathom.

That is Christina Romer.

ROMER: I’m a prof at the University of California, Berkeley.

She is a scholar of financial misfortune, the Great Depression in particular. She was also chair of President Obama’s Council of Economic Advisors at the start of his first call, during the darkest dates of the world-wide financial crisis. She had been surprised to get that job.

ROMER: And several months later, I was talking to Rahm Emanuel, the president’s chief of staff, and I said, “By the path, can you just tell me why I went this task? ” And he said, “You’re an expert on the Great Depression. And we thought we might need one.”

It did make several years, but the U.S. and world economies retrieved from that catastrophe — recovered pretty well, at least. But now the Covid-1 9 pandemic has rendered an financial threat that borders on the existential 😛 TAGEND

Linsey DAVIS( ABC News ): A new report out today estimates that in the first quarter this year, the G.D.P. decreased 4.8 percent.

Jo Ling KENT( NBC News ): Practically 46 million jobless contends have been filed in the last three months.

Jim ACOSTA( CNN ): Some advisors to the president are warning of unemployment amounts straight out of the Great Depression.

Judy WOODRUFF( PBS NewsHour ): The Great Depression.

Constance HUNTER( Yahoo Finance ): This is way worse than anything we met in the Great Depression.

And so, with everything going on right now, we thought it’d be good for us to consult a Great Depression expert, if only just to help us make sense of it all. Today, on Freakonomics Radio, Christina Romer tells us the valuable tasks we are able to draw from the past.

ROMER: I still feel we should have done even more.

She lists the current priorities.

ROMER: It is the single biggest thing that needs to be done very quickly.

And whether we’ll make it out okay on the other side.

ROMER: I necessitate, its own history of this country is rising to challenges.

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The National Bureau of Economic Research recently announced today that the U.S. economy went into recession all the way back in February. Christina Romer sits on the commission that originates such declarations. For the past few decades, she’s studied the causes and consequences of economic downturns. Why did she espouse such a festive topic?

ROMER: For an economist, there’s almost nothing that matters as much in people’s lives as whether they have a job, whether they can support their families. I think it probably doesn’t hurt that I came of age — I was in graduate school during the Volcker Recession of the early 1980 s, and I think that was a searing know-how for me and really made it stand out in my life.

Romer’s parents were children during the course of its Great Depression. And she saw the mark it manufactured on them as they came older.

ROMER: My mother was “the worlds largest” frugal party you could imagine. I can remember when my father — they were buying a house that was a little bit of a strain — and I can retain result my father sitting up one night time in a sweat over whether he should take over this mortgage.

DUBNER: If we were having this conversation during the early stages of 2020 — with record-low unemployment, record-high stock exchange, a generally robust economy — if we were having this conversation back then and I said, “Uh, Professor Romer, I believe that real G.D.P. in the U.S. will fall something on the order of 5 to 6 percentage in 2020, ” you would have said what to me?

ROMER: “You’re out of your mind.” I can even recollect having been on a phone call with one of the advisory boards that I’m on after the pandemic has already begun, but it was really early. And someone said, “I see the unemployment rate’s going to go to 11 percent.” And even then, I said, “Oh, for heaven’s sakes, this is not just the Great Recession. It’s going to be a dislocation. It’s going to cause difficulties. But how do you get to 11 percentage? ”

The unemployment rate actually blew past 11 percentage. It’s worth noting that an economist as suffered as Romer — as been living in economic misfortunes — didn’t see that coming. It’s likewise worth noting that the quantity and volatility of this strive implosion make it even harder than normal to quantify the true unemployment rate.

ROMER: I intend, it ever has some problems with it. There’s some particular problems because we’re asking questions that we don’t normally have to ask, like, “Are you exerted but abiding home because you’ve been exposed to the coronavirus? ” That’s not a question that was ever on the survey before. And so, there are certainly some problems exactly with, how do we code those things?

How does this compare to her time in the White House during the course of its Great Recession?

ROMER: I made in late November of 2008,” Wow, we’re headed for a awful decline, perhaps the unemployment rate will go up three or four percentage points .” And then the numbers start to come in and it’s hitting you, really, my skies, how unpleasant this thing is.

Both the private forecasters, those of us in authority, everybody was having to readjust and say, “Wow, this is really bad. Oh, my goodness, it’s worse than really bad.” And I’m sure that the people in the Treasury and the Council of Economic Advisers today are having those same kinds of moments of, “Holy hell, I didn’t know it could get this bad.”

DUBNER: So, I approximate the big question really is how fretted are you right now about the near- and long-term future of the U.S. economy?

ROMER: That’s the million-dollar question. I am, of course, deeply worried about the near-term outlook, and what we’re living through right now is truly wretched. And there aren’t bad enough utterances to describe just how much countless people are suffering. We’ve had a cataclysmic decline in output. A cataclysmic fall in employment.

I think what worries me a lot is, I think some people contemplate, “Oh, we’re starting to end the lockdowns, we’ll snap right back.” And that, regrettably, is not going to happen. And I picture people maybe aren’t prepared for the fact that this is going to be a long, hard slog. And so the anguish we may have for not just a few more months, but a few cases more years, is something that concerned at the fact enormously.

There is growing evidence that this slog will indeed be long and hard. Covid-1 9 identifications are rising fast in many neighbourhoods; countless districts — including Texas and Florida and California — have delayed or overturned their plans to reopen the economy.

ROMER: This may cause a much more permanent change in how we live and how we do things. And so we have to shut down some manufactures and there’s going to be some brand-new manufactures that growing quite. And then even for some of the same manufactures that we still miss — the restaurants, the services — if those ventures have gone out of business, then somebody else has to come in, figure out how to do it, hire older workers, construct the customer base. And that’s going to take time.

So, how does Romer compare the current U.S. financial damage to the Great Depression?

ROMER: So, we don’t have quarterly the necessary data for the Great Depression. But the numbers for the first few years of the 1930 s was real G.D.P. precipitated at about 10 percent a year. And from the meridian to the trough of the Great Depression, real G.D.P. decreased over about 30 percent. So, we lost a third of our output. And when the numbers come out for the second quarter of this year, we’re likely to learn that it’s fallen by about 40 percentage at an annual rate. So, when we speak about a 40 percentage annual frequency, it necessitates, if we had the same behavior in the second quarter and in the next three fourths, G.D.P. would be down 40 percent. And none is expected that to happen. I was looking at some numerals from the Congressional Budget Office, and they visualize when the junk is all settled, we’ll probably say that G.D.P. precipitate about 5 or 6 percentage over all of 2020.

So, again, that’s grisly. But when you equate it back to the Great Depression, where it was 10 percent a year, and where it didn’t happen just one year but three years, it does at least help you to realize what our grandparents lived through back in the 1930 s dwarves even what is truly a grisly period now.

As for the Great Recession, where Romer had a front-row seat: Real G.D.P. slip then by about 6.3 percentage in the fourth quarter of 2008. But apart from being a useful comparing, past slumps and hollows may also give instructions on how to escape from this one. I questioned Romer to describe what she considers the most effective parts of the Obama administration’s Recovery Act.

ROMER: The first thing to say is, we still had a fairly severe slump. And so in that sense , no one should take a victory lap because it was really painful for a lot of beings. I make the one part of the Recovery Act that has been now studied in hindsight is the aid to state and local governments. For an economist, it’s a great example, because some on the part of states and regional fiscal relief in the Recovery Act was actually given more based exactly on historical coincidence.

Meaning the comfort was almost randomized, as if in an experiment.

ROMER: And so it gave us a nice natural experimentation. We can see if states that got more fiscal aid for relatively exogenous reasons did better. And the answer was, they did. It was only about $130, $140 billion — I know, “only” — but it seemed to have been very effective.

For instance, one analysis of Recovery Act aid pointed out that increasing a state’s Medicaid funding helped increase long-term employment. On the flip side, states and municipalities that had drastic slasheds were slower to recover, often by years. In Romer’s own analysis of the Great Depression, she found that federal assistance to states and municipalities was very effective.

ROMER: Absolutely. Before Roosevelt came in, the states were the main ones make succour and then as soon as Roosevelt started to have some of his public works and things like that, one of things we see is states saying, “Oh, thank skies , now we can get our monetary house in order.” As we were designing the Recovery Act, I was one of the large-scale proponents of,” We’ve got to make sure that state and local governments don’t start laying off public workers and cutting a lot of the critical business, because that’s just going to make this so much worse .”

Romer meditates the same formula is important in the current crisis. State and local governments are experiencing big fells in revenue and huge increases in spending for community service like healthcare and unemployment.

ROMER: State authorities are something like $750 billion in the red.

And unlike the federal government departments, territory can’t really remain acquiring and run at a deficit; they have laws requiring at least relevant proposals of a balanced budget.

ROMER: And because they’re not allowed to run budget deficits, they’re becoming to have to start cutting spending, cutting social programs, chipping infrastructure. And that’s going to be the real test of bipartisanship, because Democrat have often been proponents of presenting fund to state and local governments. And Republicans often are not. And that will be the real test, if we can get that through because it is the single biggest thing that needs to be done very quickly.

DUBNER: If you are running one of these states that’s taking on massive debt now dealing with Covid, would you try to undo this balanced-budget requirement and run in a deficit?

ROMER: That’s a great question. I picture the much better thing is probably for states to stay the way they are, and for the federal government to use its power to acquire to help the states. Simply because we are one country, and especially something like Covid doesn’t affect every residence the same. But it seems like the natural thing that we all share in those loads. You don’t say,” Oh, well, you’re a state that happened to get unlucky, so you’re just going to have to pay for it, right ?” A benefit of being in a large country is that we have insurance. We take care of one another — when there’s a hurricane in Florida, the rest of the country facilitates them. When there is a terrible Covid outbreak in New York City, I imagine the rest of the country should help them.

DUBNER: Right. But the fact is that a lot of these states that are in real perturb, they claim that they’re not get anywhere near the federal money that they need. So, “il rely on” the age-old model may be disastrous. What do you think will happen there? And let me include the question that’s a matter of some discussion and dissension, about insolvency for moods, and whether it should perhaps be permitted.

ROMER: Just as I think it’s a ghastly thing for anyone to talk about the federal government defaulting on its debt — I think we’re a country where we pay our obligation. So, I meditate causing moods go bankrupt, that’s just not a sensible programme. We ought to actually deal with the problems that “were having”. We’re a rich country. We can do this. And we don’t have to act like a country that doesn’t have effective government.

What should be happening to a state that is in real hassle? I think it would certainly be much better for them to find a way to borrow than to not provide their people, to not deal with the public-health crisis. So, I hope it doesn’t come to that. I hope that we can have sensible federal monetary program to help the states that are in real misfortune. But barring that, finding a way to allow them to borrow, I meditate, would be a much better strategy.

Keep in thinker, Romer was among the most enthusiastic proponents of federal assistance to regimes during the recovery from the Great Recession. While putting together the 2009 Recovery Act, one of the major debates was over the size of the federal stimulus package.

ROMER: I still feel we should have done even more. But I do feel good that I bargained beings up by several hundred billion.

DUBNER: So, talk about that for a minute. We’ve read about your participation as a member of this squad — which included, among others, Larry Summers, who’s, I ponder, sometimes misjudged in whether his aggression is intellectual or personal or whatnot. But you craved the aid to be how really big than it culminated up being, and how something much did you get than was originally proposed?

ROMER: The main thing that I remember actually was a meeting where Larry turned out to be a crucial second vote for my opinion. So, I conceive relevant proposals had been for lists a little bit closer to doing a fiscal stimulus of about $600 billion. And I recollect having raced lots of numbers. I came in and I said, “This is much too small. I think it needs to be, at least $ 800 billion and probably bigger.” And I roughly fell off my bench when Larry said, “I made in accordance with Christy.”

DUBNER: Why were you so surprised he agreed?

ROMER: Well, because Larry doesn’t agree with anyone. But so, it was really important for, as I said, it’s not nearly as big as it needed to be, but it was a lot bigger than anyone had was just thinking.

DUBNER: Now, was your desire to have the fiscal stimulus be larger then, was that a result of your understanding of the Great Depression and the path that fiscal assist was use back then, and that it essentially was not large enough?

ROMER: Absolutely. There are two things that I remember I earned from the Depression. One was, relative to the size of the unemployment problem in the early 1930 s, what Roosevelt did was much too small. It was big-hearted relative to anything that been done in the past. But it was not nearly enough to deal with the problem. I believe the other thing is, actually, monetary policy can be very effective even when interest rates are quite low. And so, though what the Federal Reserve was doing wasn’t the bailiwick of the administration, one of the things that several of us tried to convey to the president is, what the Fed is doing is a great thing. You want to be supporting Ben Bernanke.

DUBNER: What precisely was Bernanke doing that you thought was positive that needed encouragement?

ROMER: Things like — when interest rates got to get zero, one of the tools that you still have is to try to affect people’s expectancies of inflation, because that affects what the real cost of borrowing is. And so, I see Bernanke was taking a number of steps. For example, at this time, they started giving out something that’s close to a target for what they were aiming for, for the inflation rate. And I recollect trying to explain that that was probably a good thing, because we were in a life where with unemployment at 10 percentage, beings might be starting to expect inflation to come down. And if the Fed is signaling,” No, we’re going to keep it at least at 2 percent ,” that can actually be very positive.

DUBNER: So, the political costs of the recession, and your — the Obama White House’s — response to it were pretty extreme, whether it was the recovery plan itself or just the depth of the recession. The Dems came crushed in those midterms two years after Obama’s election. Surely the Trump administration is looking back at that to evaluate how they crave their responses to affect the next election. How do you think that will influence what they ultimately decide?

ROMER: I intend, I cry it doesn’t change what they decide. What everybody should be doing is, what’s right for “the two countries “. And so this is a case where you would think that both their political interest and what the country needs would be,” Let’s deal with the public-health crisis. Let’s make sure there is enough support for workers, that there’s support for state and local governments .” So, I’m hoping that this is a time when there’s no conflict between the politics and what would be right to do. We’ll have to see.

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Christina Romer, a onetime top White House economist, has spent her vocation analyzing the causes and consequences of slumps and recessions. In light-footed of the fact that the economy has become much more globalized in recent decades, I queried Romer to describe how the U.S. economy is unique and how that will affect our recovery from the Covid crash.

ROMER: Traditionally, the Us economy has been — how I do want to say — more vibrant, more dynamic. So, if you was necessary to equate us to Europe, we have more flexible labor markets, it’s easier to start a business here. It’s easier to close down a business now. And that is often used to provided us is a good one, because capitalism is good at some things, and especially at figuring out what buyers want. But it does mean that it makes an economy much harder on workers — it’s a lot easier to lay beings off, you don’t have the same employment armours. It certainly has been very hard on laborers in this downturn likened, say, to a good deal of European countries where the governments have just been compensating employers to keep parties on the books.

So, one thing I could imagine is, we’ve discussed that some industries may never be coming. Brick-and-mortar retail, it may come back some, but it’ll never be like it was. And I picture the positive would be that the U.S. economy may be better at adjusting to such changes. That we are a dynamic economy. And so when there’s an opportunity, American firms are pretty quick to step in. But if you’re going to be a dynamic economy, you too need to think about,” How do you protect the people that may be harmed by all of that vigor and don’t move as easily from one industry to another .” And we have to have a way to protect them and make sure that they’re able to keep body and soul together and retrain for whatever new jobs are coming down the line.

I questioned Romer to think back to the Great Recession and identify the mistakes that she and her colleague Obama financial advisors become, or at least the ideas that didn’t work out so well.

ROMER: There are a couple. We had the Making Work Pay tax credit. We studied, rather than write parties checks and have them arrive in their mailbox or in their history, we would just slip it in. So, it’s just going to show up in lower withholding. And we reputed people would just notice they had more money in their bank account and maybe that would have a good consequence on spend. As it turned out, most people didn’t seem to even know they got it. Or worse yet, they reviewed the Obama administration had given rise to their taxes, which they hadn’t. We’d trimmed them by a great deal. So, that was one that precisely didn’t work as we’d foresaw.

DUBNER: And was that a communication failure? A insight los? How did that happen?

ROMER: I think some of it was a communication failure. I think some of it — it is about to change economic thought doesn’t sacrifice us good insight. It’s actually, in some sense, a behavioral question. Do beings react more if they appreciate the check in their hands or do they respond more if it precisely shown in in their paycheck a little every month? And I think it was partly, we’re exactly learning.

There was another idea that seemed good, but never gained traction.

ROMER: We were trying a lot, particularly in 2010, to think of another fiscal stimulus that maybe would not be atrociously expensive, but could have a big bang for the buck. So, we were very interested in a new hiring-tax approval, a nature to persuasion businesses to hire proletarians. And, we are actually did due diligence on this one. We passed surveys and we invent the C.P.S. tapes.

C.P.S. stands for Current Population Survey.

ROMER: Just all of research we could think of, we were just desperate to get them over the hump and ready to hire again. We objective up coming a small pilot program through Congress, but good-for-nothing on a big scale. So, I’m not sure that we ever learned whether this wouldn’t work. But that was a policy that I was very excited about. Maybe that’s still something we could have in our arsenal and try at some point.

Romer likewise thought that more could be done around public employment, which she feels represented a big part in the U.S. improvement from the Great Depression.

ROMER: Because, what Roosevelt was able to do, of putting exactly millions of people directly on the government payroll, I conclude, was incredibly valuable.

DUBNER: This is the W.P.A.–

ROMER: W.P.A ., the Civilian Conservation Corps. But in a modern world, trying to figure out how to hire millions of people rapidly is something that seems very hard. And I think it’s something President Obama would have liked to do. And we really thought about it. We tried. I recollect having a conversation with some other cabinet secretaries. I’d say, “If money was no object, how many beings could you hire? ” They’d say, “Oh, parcels. You know, 20 – 30,000. ” Like, that’s not going to do now much when we’ve went millions and millions of people unemployed.

DUBNER: Why is it so difficult? I want, I recognise you’re talking about the federal government hiring people vs. private firms, but you have been extolling the virtues of our adroit and robust capitalism, which can move fast, separate things, hire and attack batches and lots of people. Why is it so hard for the federal government to do that?

ROMER: I envisage partly we have different standards for the federal government, so I think we try to do things probably more carefully. Think about the Civilian Conservation Corps. So, that’s the hiring program from the Depression that, built a great deal of the buildings in our national parks and things like that. It hired chiefly young men. It took them out into the woods to build roads and log cabins.

And it transported three-quarters of their paychecks dwelling to their babies. And it was, by all chronicles, improbably successful. And, I’ve met with some of these parties that were on C.C.C. projects. They’re now in their 80 s and 90 s, and it was life-transforming. But can you imagine proposing that today of,” Let’s hire young men, send them out to the groves and send their checks residence to their parents ?” That merely, I envisage, is not in the modern American way of doing things.

DUBNER: Right. But there are certainly modern equivalents. For instance, one question with disbursing expedite coin has been that it needs a lot of manpower. One question with contact detecting is it needs a lot of manpower. So, is it actually so hard to imagine the massive switching from private to public hiring over the next couple of years? Because this is not going to go away. Unemployment is not going, I expect, back to 3, 4, 5 percentage anytime at all soon, right?

ROMER: No, I concur. And so contact tracing is a great example. That is something that we ought to be able to use lots of people and set them to use highly, very fruitfully. I mull even if you were to think about reasonable figures, I suspect that you’re not going to be able to deal with the millions and millions of people that are currently unemployed. I’ll give you another example of — one of the relevant recommendations I was thinking about back in 2009 was, how about only a massive planned of hiring parties to be teachers’ aide-de-camps? And I was really exceedingly taken with this, because so many of our public-works activities tend to be for construction workers, male-, often, familiarized hassles.

And I fantasized this was a great way to make sure that we were getting some offset and something that might be particularly good for female employment in a tough time. And we ran into a certain amount of foe from, you know, “ve been thinking about” neighbourhood school neighborhoods that are laying off coaches. And you say,” But I have this great program. I’m going to give you all these teachers’ aides .” They tended to say,” What we really need is the money so we can obstruct our coaches filled .” So, it is hard to figure out what’s the right way to do this. And I came away speculating,” Well, let’s hold more coin to territory and local governments so they’re not laying off teachers and perhaps they could hire the teachers’ aides .”

DUBNER: Okay. So, if you are running some kind of financial SWAT team right now, let’s imagine you were lead C.E.A. now or National Economic Council or something to the equivalent, and you were trying to game-plan the current recession or economic doldrums. Do you examine more to the Great Recession as the model, whether because it’s more equivalent in some way and/ or time because it’s more recent? Or do you ogle more toward the Great Depression? Where are trying to draw your best inspiration from, both in terms of positive moves and mistakes to be avoided?

ROMER: I nearly was necessary to not look at either of them. In both those episodes, or mostly any other recession, the only problem is a lack of demand. And so, time any policy you make does requirement up. This is so different because it’s a public-health crisis. And you are not going to get demand up until you solve the public-health crisis , nor do you want to because you don’t want every business producing at full capability, because then you have more workers than you can actually keep safe. I think we really need to throw away some of our previous event and focus more on what’s unique about a pandemic and how do we actually deal with the public-health problem. I consider I would go much less, let’s precisely get expect up, let’s precisely give people tax trims. And much more, let’s deplete so that we solve the public-health crisis. I’d perhaps, take inspiration from other countries today that have become more progress than we have, rather than looking back at previous U.S. recedings.

We talked earlier about, there is a dynamism to capitalism and extremely a dynamism to the way Americans do things. But there is a cost, which is, because we’re laying off a lot of workers, the firm-employee link is being broken and they’re hard to get back. And it is hard to hire workers and get those right matches again. And so that’s going to be costly and that may tend to slow us down in the improvement process.

DUBNER: There’s also the issue — I’ve heard this from various employers, chiefly small- and medium-sized houses — that even if they lived Covid pretty well or are now returning to business, that they are having a really hard time rehiring their own onetime works because the unemployment insurance and the other expedite that beings have been coming is really great and they can literally earn as much, if not more, by not gonna work. I know this was an early concern when the CARES Act was being put together. It was primarily dismissed as saying,” Hey, it’s much better to support individuals, if this is the downside, we’ll live with it .” But now, there are supervisors who are living with it. What are your thoughts on that?

ROMER: I feel utterly in the initial stages, it was great to get more money into the handwritings of people who were fighting, and we do as a country have a terrifying inequality trouble. So granting $600 more a week in benefits to a low-wage worker, that really was a great thing to do. I guess as their own economies recovers and you want people to go back to work, you don’t want them to really lose those funds to be worse off if they go back to work. So are you able give some benefits — people have been talking about, re-employment bonuses or things like that. I think it also comes back to, we’ve got a long-run inequality problem. We should be dealing with that. At some detail you don’t want to be doing it through your unemployment method. You want to be doing it in a more sensible way through your tax system or the earned-income tax credit or better benefits in the form of universal health insurance, things like that.

DUBNER: So, one early and much-cited paper of yours was about fiscal programme. And you are of the view that fiscal policy during the Depression didn’t help the recovery all that much. And that meet of yours has been interpreted over the years as an proof against monetary intervention — which, as I speak your work, was not at all what you aimed. So, can you time soon summarize your actual observe and then describe the misconception, then we’ll take it from there.

ROMER: The actual detect is, if you look at what it was that helped the economy to recover from the Great Depression, the monetary acts that Roosevelt made when he came in were much more important. That didn’t have anything to do with whether fiscal policy could only valuable. It was just the fact that we didn’t do all that much fiscal stimulus in the mid-1 930 s. And so it was not the prime operator of the retrieval.

Much of my subsequent study — and all of it seam with my favorite co-author and likewise husband, David Romer — has actually been pointing out that fiscal plan is very effective. So, we have a paper looking at the effects of tax conversions. And if you chipped people’s taxes it does help to stimulate the economy in the short run. It helps you to increase demand and get an increase in output. We’ve looked at the effect of transfer payments, and that, extremely, has a substantial positive effect on intake. I think we’ve done some very important work saying that fiscal plan is certainly valuable. It just turned out it was not used in a nearly aggressive fairly channel in the Depression to have been a big factor accounting for that retrieval.

DUBNER: Although Roosevelt must have felt that he was using a lot of fiscal stimulus, yes? It seemed like a lot at the time relative to what had been had in the past?

ROMER: Oh, of course. Right. And it was even a lot in an ultimate quantity in the sense that the actions taken by the federal government were pretty substantial. But if you look at the total fiscal situation for the U.S ., because regime and local governments were going in the opposite direction of hunkering down, of actually raising taxes, chipping expend, the net fiscal stimulus was pretty small-minded because the states antagonized anything Roosevelt was doing on the positive side.

DUBNER: We should also say — this is tangential, but I can’t let it pass without saying — that among your husband’s most noteworthy experiment has to do not with depressions, recedings, but with fourth-down decisions in football.

ROMER: True. He calls that one his midlife-crisis paper. Even he would tell you, his most important work is on monetary and fiscal policy and financial crises.

DUBNER: But I amass that Bill Belichick read the paper and integrated it into his ideology, yes?

ROMER: I believe he did spoke the paper. But you’d have to talk to David about whether he be interested to hear it enough.

DUBNER: Obviously it is tangential to our conversation, and yet in some way it’s not — which is that it was an empirical procure which argued that using the tools of financial analysis, you can determine that almost all football coaches are playing fourth-down wrong and that they should punt much less than they do. And yet it’s been mostly ignored by all but maybe a handful of tutors. Do you interpret equivalent empirical study done in the realm of fiscal or monetary policy that is demonstrably correct or at least worth considering among the tribe of economists, but is largely ignored by practitioners?

ROMER: One of the things that’s been neat is that in a lot of macro experiment, it actually has been the opposite of rejected, that policymakers have listened. So, I thoughts specially central bankers have been very interested in academic investigate on the efficacy of quantitative easing or the impact of monetary policy or recognition, things like that. So, I visualize on the monetary line-up, there is a lot of interest in research and learning from the research. On the monetary surface, it’s been a mixed bag. I feel there’s a lot of professional investigate that fiscal policy can be very effective.

When I was in the Obama administration, certainly later in the Obama administration, when he desperately needed more fiscal stimulus, that was the moment when policymakers, specially Republican policymakers, has been determined that,” No, fiscal policy didn’t is everything .” But then part of what’s happened over the last 10 times is there’s simply been paper after newspaper looking at what was done in the Recovery Act, looking at what was done across countries in terms of their fiscal response to the Great Recession. And those, again, almost uniformly find that fiscal program is very effective. So, I’ve taken a little bit of aid that, facing this crisis, Congress said,” I suspects we’ll do it again. In detail, we’ll do even more .” So, maybe policymakers are, in fact, listening and realize that these things do cure.

DUBNER: I have to say, when I firstly started paying attention to fiscals years ago, it was one of the things that most dispirited me, because I found that the greatest economists of the epoch were still debating the degree to which fiscal plan during the Depression either helped demise the Depression or, on the other hand, exasperated it. And I studied,” Well, wait, if these people can’t tell us the answer to that question perhaps you’re not very helpful to us .” I don’t mean to indict your totality tribe, but you’re saying that you feel there has been more consensus, at least on that kind of macro policy intervention in the last 10 or so times, yeah?

ROMER: I do. I think if you ogle, say, at the University of Chicago’s — their panel of experts, if “youre telling”,” What did the Recovery Act do ?” Some very large fraction will say,” It absolutely was helpful .”

DUBNER: We should say that’s a inspection that U of C leads. It’s not all University of Chicago economists.

ROMER: No , no , no. It’s actually a very wide range of economists. So, I think everyone wants to say,” Oh, economists all disagree .” I think you can always find somebody to take the other side. But it’s often the action that 90 percent of economists conclude one thing and 10 percentage believe the other. And so the vast majority would say monetary policy is very important. Vast majority would say if you chipped people’s taxes, that will indeed stimulate the economy in the short run.

DUBNER: Okay, so let’s, in our remaining meter, look at the future as best we can. It’s apparently unpredictable. I’m bizarre, when you look at the policy that you experience being considered and being met now, fiscal and monetary policy, and if you try to play it out in your sentiment — not just a few months from now, but a few years, maybe many years from now — I’m peculiarly bizarre if you think there are any lessons from the Depression in particular that we should be taking, peculiarly when the antidote turns out to be as dangerous as the ailment itself.

So, one example I “ve been thinking about” — this is not a perfect parallel — but after the conflict, when there were wage buttons, and health insurance began to be offered as a fringe benefit and bundled with employment, which is something that most health economists say is one of the really difficult things about our health care system now. When you look at the policies being considered or constructed now, what you think we should watch out for, what might be some sad or difficult downstream impacts?

ROMER: The one that worries me is the budget deficit. So , not in the immediate term, but if you think about how much coin we’re spending, it’s totally relevant. We need to be doing it. But we are better at rolling budget deficits now than we are at dealing with them when the crisis has passed. And so if we restrain dealing with here disasters but then not getting our monetary house in order afterwards, at some top, we’re not even going to be able to deal with the catastrophes, because we will have run our debt-to-G.D.P. rate up so high. We should have a plan to raise taxes eventually to get back in a more sustainable system. I think the pandemic may well exacerbate inequality. And that was already a awful difficulty. So, I think we need to be getting through this, but also thinking about, what do we do when we’re through all of this to make sure that we’re sharing the benefits of this amazing economy much more broadly, something much moderately.

DUBNER: I do feel compelled to point out that it’s a little disorienting to speak to you, a Democratic or Democratic-associated, at least, economist, who is urging against a certain level of deficit spending because we’re used to Republican trying to tell me that. Especially recently, Fed Chair Jerome Powell, he pledged to use what he called the Fed’s “full range of tools” to support the economy. And he likewise advised policymakers to not annoy so much better about heightening obligation and instead to use what he called the “great monetary superpower of the United States” to get through this with” as little damage to the longer-run productive capacity of their own economies as possible .” So, is this just a matter of the Republicans are in office now and you respond to the crisis in front of you? Or has there been some kind of switching of direction for Democrats and Republican, or economists who support them, when it comes to deficit spending?

ROMER: I want to be clear. I am wildly in favor of doing the deficit spending that we’re doing now. We need to do this. I concur completely with Chair Powell that we should be doing anything we need to do to get the economy through this crisis. But that doesn’t mean that you don’t think about the deficit. Even in 2010, we’re not about to try to deal with the deficit right then. But we were talking about it. Because you need a plan for three years, five years from now, how do we deal with this? And perhaps because I think this is securely that fiscal stimulus is a crucially valuable tool, I want to make sure it’s there the next time we face something like this. And so I see I’ve been very aware of the need to, when you make it through a hard time and you’re back in the good times, that’s when you amend the roof on your home.

DUBNER: Right. So, are we all going to come out of this okay, do you think?

ROMER: I hope so. I entail, there are going to be some workers whose jobs disappear forever. We’re not just going to go back to the way we were. So I think we could all come out of this okay, catered we take the policy actions that it is necessary to. We invest in the training to make sure everybody’s okay. I worry that we’ll get through the worst of it and then we’ll forget about some of the person or persons that have been hurt and that remain struggling.

DUBNER: And let’s say that some of the changes that have happened thus far to travel, to live entertainment, to restaurants — mostly all of them wiped down close to zero — let’s say that for a variety of reasons, they sort of stick, and that beings don’t return to them, in in large numbers at least. Do you feel that the U.S. economy and our label of capitalism is still set up to be as vibrant and adroit to adjust and for parties to job-reallocate? Or do you worry that a lot of beings in those industries, which exert millions of people, that they will basically be adrift, perhaps for a long time, unable to reallocate into commensurate professions?

ROMER: I imagine many of them can be allowed to reallocate. Again, I have a lot of faith in workers and trade in their ability to develop brand-new skills and find jobs when they’re accessible. I think they’ll need a right hand. They’ll need carry in the period in which they are trying to learn a new ability. It also is going to be a lot easier for a 25 – or a 30 -year-old worker than it’s going to be for a 55 – or a 60 -year-old worker.

DUBNER: I sometimes think that this moment is, that if you were looking at this from the future, like an archeologist looking at sediment, like the meteor that wiped out the fossils, ultimately, that this is going to have a huge scarring effect on all countries of the world. And maybe I’m totally wrong. But my feel is that this disruption has already preceded just about everybody to question the way they live their life, the direction they make the living standards, the mode they interact with their families, the rest of society, parish, and so on. When you look down the road, do you think the world is fundamentally different? And if so, on what stages? Or do you think I’m maybe being road melodramatic here?

ROMER: I’m perhaps not quite as stunning as you, but I agree that this may set off a sea change. I think you’re right that we will probably trade less, cros less, production differently. Whether it is a giant alteration or merely a moderate change, I’m less sure, but I think it is going to change things. And I speculate the real question is how well we manage this. Do we finagle it so that it alters things, but we’re all still okay or did it change things and compile some of our underlying questions all the more serious? But I predict, you haven’t more taken the optimism out of me. I still am hopeful that we can recover. I make, its own history of this country is rising to challenges, and I urgently let us hope that we make love again.

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Here’s where you can learn more about the people and ideas in this episode 😛 TAGEND

SOURCE

Christina Romer , fiscals prof at University of California, Berkley and chair of President Obama’s Council of Economic Advisors.

RESOURCE

” Transfer Payments and the Macroeconomy: The Consequence of Social Security Benefit Increases, 1952-1991 ,” by Christina D. Romer and David H. Romer( American Economic Journal, 2016 ). “Fiscal Policy after the Financial Crisis ,” by Alberto Alesina and Francesco Giavazzi( University of Chicago Press, 2013 ). “Output Spillovers from Fiscal Policy ,” by Alan J. Auerbach and Yuriy Gorodnichenko( American Economic Review, 2013 ). “Does State Fiscal Relief during Slumps Create employment opportunities? Evidence from the American Recovery and Reinvestment Act ,” by Gabriel Chodorow-Reich, Laura Feiveson, Zachary Liscow, and William Gui Woolston( American Economic Journal, 2012 ). “The Macroeconomic Effects of Tax Changes: Guess Based on a New Measure of Fiscal Shocks ,” by Christina D. Romer and David H. Romer( American Economic Review, 2010 ). “Do Firms Maximize? Evidence from Professional Football ,” by David Romer( Journal of Political Economy, 2006 ).

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