Christina Romer’s Evidence Based Economics

Christina Romer and some other Chairs of Democratic Presidents’ Council on Economic Advisors are out tut-tutting Bernie Sanders’ economic plans.

We are concerned to see the Sanders campaign citing extreme claims by Gerald Friedman about the effect of Senator Sanders’s economic plan—claims that cannot be supported by the economic evidence.

[snip]

As much as we wish it were so, no credible economic research supports economic impacts of these magnitudes. Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic. These claims undermine the credibility of the progressive economic agenda and make it that much more difficult to challenge the unrealistic claims made by Republican candidates.

I find Romer’s signature on this document to be interesting given what we know about a report Romer and President Obama’s other economic advisors did in the transition period in 2008. Romer had calculated that it would take $1.7-1.8 Trillion to undo the damage the banks had done. But Larry Summers not only bullied her into taking that out of the report presented to the President, but even the “compromise” $1.2 Trillion she proposed instead.

Romer calculated that it would take an eye-popping $1.7-to-$1.8 trillion to fill the entire hole in the economy—the “output gap,” in economist-speak. “An ambitious goal would be to eliminate the output gap by 2011–Q1 [the first quarter of 2011], returning the economy to full employment by that date,” she wrote. “To achieve that magnitude of effective stimulus using a feasible combination of spending, taxes and transfers to states and localities would require package costing about $1.8 trillion over two years.”

[snip]

When Romer showed Summers her $1.7-to-$1.8 trillion figure late the week before the memo was due, he dismissed it as impractical. So Romer spent the next day or two coming up with a reasonable compromise: $1.2 trillion. In a revised document that she sent Summers over the weekend, she included the $1.2 trillion figure, along with two more limited options: about $600 billion and about $850 billion.

At first, Summers gave her every indication that all three figures would appear in the memo he was sending the president-elect. But with less than twenty-four hours before the memo needed to be in Obama’s hands, Summers informed her that he was inclined to strike the $1.2 trillion figure.

[snip]

The final version of the memo had framed the debate around two basic choices—roughly $600 billion and roughly $850 billion—and these were the focus of the conversation.

In the end, Congress passed somewhere between $787 and $831 billion in stimulus — near the high side of what Summers presented, but still half of what Romer said the economy really needed.

As a result, of course, we’ve had a recovery for the banks, but far less of one for average people. That is, short-selling the stimulus put us where we are now, with millions of voters supporting outsider candidates like Sanders and Trump, because wonks like Larry Summers promised the stimulus was adequate to the problems facing the country.

Marcy has been blogging full time since 2007. She’s known for her live-blogging of the Scooter Libby trial, her discovery of the number of times Khalid Sheikh Mohammed was waterboarded, and generally for her weedy analysis of document dumps.

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including the Guardian, Salon, and the Progressive, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse and dog in Grand Rapids, MI.

18 replies
  1. Kevin T. Keith says:

    That’s a reasonable observation, but what you’re saying is essentially that Romer was correct in her earlier economic analysis and should have stuck to it rather than allow it to be manipulated for political reasons, and that fudging economic analysis for political purposes is counterproductive. That would all seem to support, not undermine, her current argument.

    • Story of O says:

      Perhaps her demonstrated willingness to say what others want her to say, for non-economic reasons, has some bearing here.

    • Peterr says:

      The letter signed by Romer et al. wasn’t exactly a discussion of the economics of the Sanders proposal. At best, it was a conclusion to analysis not shown; at worst, it was a “trust us – we’re experts” plea.
      .
      And given the blockquotes in this post, this part of the letter really rather cuts down on the credibility of those who signed on:
      Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic.
      .
      Maybe it’s just me, but I think Summers et al. did a pretty good job of undermining that reputation long before Sanders threw his hat in the ring for the 2016 presidential race.
      .
      Seeing Austan Goolsbee’s name on this letter makes it even more dubious. Before I’d accept his word on this analysis, I want to see him show his work. As Marcy has noted in a wonderful post entitled “America is a Beautiful Place, Unaccountable Elite Edition, his past analytical work calls his economic judgment into question.

    • Ed Walker says:

      No, it says she is amenable to political pressure. As a result, anything she says in an official position should be taken with a grain of salt.

  2. Ambrellite says:

    @Kevin: Right. Now, we just have to figure out who’s telling the whole, unvarnished truth. So far, my guess is nobody. But everyone agrees that Sanders’ proposals would be a big improvement over what we have now. Clinton’s too, though they’re less ambitious.

    Not bad at all, in terms of our political discourse!

  3. orionATL says:

    well, emptywheel, summers is ripe for criticism on many fronts, probably most importantly on the matter of the benign nature of derivatives.

    but it wasn’t summers who was president; it was former senator obama, the “transformative” political leader of whom you were enthusiatically supportive in 2008 (as oposed to then senator clinton) .

    romer, summers, and sec of state clinton all provided the president with advise on various matters. in what way, if at all, do you hold your candidate, subsequently president, obama responsible for an inadequate stimulus?

    • Ed Walker says:

      I have cited that event myself as evidence that Larry Summers is a courtier, not a reliable guide to good policy. Summers never told Obama about the actual size of needed stimulus, and did not insist that the stimulus be new money instead of tax cuts. Furthermore, he never realized that the problem of debt would not be solved, and he apparently had no idea of the true depth of the collapse of the economy. In general, he is a toady.

      • orionATL says:

        that’s an informative answer, but as any lawyer knows, not responsive to the question.

        1.the president is responsible for what happens during his presidency, right? obama is responsible for his economic decisions, right? but he failed the nation, right?

        2. obama became the president through the support of many, including emptywheel, who were as certain of a new beginning in 2008 as they are certain, 8 years later, of a new beginning in 2016. how do we know ew’s and similarly aligned voters judgements this time are any better than last time?

        3. how is it that president obamas’ subordinates are being held accountable for presidential action? do we not want, expect, and need a president who can ask enough questions not to get snookered by his national secutity, economic advisers, congressional relations advisers?

        is this not a key requirement of a competent president? do we have such a candidate(s)? is this not a key question to be asking?

        • martin says:

          quote”2. obama became the president through the support of many, including emptywheel, who were as certain of a new beginning in 2008 as they are certain, 8 years later, of a new beginning in 2016. how do we know ew’s and similarly aligned voters judgements this time are any better than last time? “unquote

          How do you know??? What the fuck do you care? You are a Clinton supporter, so fuck off and take your chances instead standing on a fence asking “how do we know ew’s and similarly aligned voters judgements this time are any better than last time? ” sheezusfuckingchrist. In the last few days you lambasted anyone who would malign Clinton. And now, you have the fucking gall to ask…”how do we know ew’s and similarly aligned voters judgements this time are any better than last time?” Let me give you a clue. YOU DON’T.

  4. Bill Michtom says:

    Lest we forget, now Hillary-shill Paul Krugman said at the time and multiple times since that the stimulus was 1/3 of what was needed.

    As to the amount of salt necessary, I’d go for a pound, not a grain.

    • bloopie2 says:

      I infer from your comment about Krugman in comparison to Romer that some of these people are right some of the time and wrong part of the time and the rest of them are wrong some of the time and right the rest of the time. In other words, who the hell knows, and how the hell are we to know? Is that right?

  5. fledermaus says:

    One wonders where all these evidence based economists were when we were embarking on a trillion dollar war in Iraq

  6. Peterr says:

    Matthew Klein at FT Alphaville is somewhat dubious about the claims made in the “But we’re the experts here!” letter from Romer et al.:

    You’d think it wouldn’t be news when allies of an incumbent politician criticise the policies of an outsider seeking to change the status quo, but lots of folks were impressed by the publication of “An Open Letter from Past CEA Chairs to Senator Sanders and Professor Gerald Friedman”. . . .
    .
    The big complaint stems from Friedman’s estimate that Sanders’s full agenda, if implemented, would boost the growth rate of America’s real output from about 2.1 per cent annually to 5.3 cent, on average, from 2017 through 2026.

    We have no idea if this is correct — longer-term trends in output are driven by changes in productivity and the share of the population keen on working, which could be affected in lots of different ways by Sanders’s proposals. But it isn’t obviously wrong, in the way suggested by an incomplete group of leading Democratic economists.
    .
    One simple test is to compare what’s happened with actual output since the crisis against its longer-term historical trend. This trend is far from a perfect benchmark of where GDP “should” be, but it’s a reasonable place to start. The chart below compares actual growth against the “Great Moderation” trend and against our simplistic forecast based on Friedman’s analysis of Sanders’s plan:
    .
    [chart omitted here]
    .
    This supposedly “extreme” and “unsupportable” forecast implies American output will return to its previous trend just as Sanders would be finishing up his second term, in the third quarter of 2024. (If this looks familiar, we used a similar test to defend Jeb Bush against similarly partisan charges.)

    .
    Chart, omitted links, and much more at the original post.

  7. lefty665 says:

    Jeez Summers is an a**hole. We owe Elizabeth Warren thanks on a daily basis that the mofo is not Fed Chair.
    .
    Even worse on the stimulus is that almost half of what little was actually enacted was tax cuts. Those do not even pay for themselves after 16 quarters (dunno why we track stimulus that way). The $20T plus the Fed slipped to the TBTF banks at low to no interest has ensured they have thrived along with bonuses to their CEOs while the rest of the country decays.

    There’s little doubt that Obama is a fiscal, monetary and economic moron. But he’s also a willing tool for the fat cats and neolibs. Nor has he shown much inclination to get an education.

  8. Jonf says:

    The planned spending is key to whether Sanders plan will work or not. If, as CNN noted, Sanders plans to spend $15 trillion over the next eight years, there is little doubt it will stimulate the economy substantially.
    .
    There has been a good deal of discussion recently about how Sanders will pay for it. There is the bugaboo about taxes and the deficit/debt this will create. But the higher the deficit the more stimulative the spending. The debt by itself is close to meaningless since our government issues a free floating fiat currency and all debt is in dollars. Hence, it can never be insolvent. And some higher taxes on our plutocrats and finance industry would be welcome to reduce inequality.
    .
    There is a chance the spending will trigger inflation if the spending exceeds capacity, I.e. our work force. But that is manageable with taxes. So it is hard to see, absent more analysis and real numbers, how the geniuses figured out Sanders plan won’t work. Of course it will. Prove it won’t, if u can.

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