Romer: The Fiscal Stimulus, Flawed but Valuable

Christina Romer:

The Fiscal Stimulus, Flawed but Valuable, by Christina Romer, Commentary, NY Times: As a former member of President Obama's economic team, I have a soft spot for the fiscal stimulus legislation... But I'm also an empirical economist who's spent a career trying to estimate the effects of monetary and fiscal policy. So let me put on my empiricist's hat and evaluate what we know about the legislation's effects. ...

After going through the considerable historical and empirical evidence that the fiscal stimulus worked, she concludes:

Though the Recovery Act appears to have had many benefits, it could have been more effective. Most obviously, it was too small. When we were designing it, most forecasters estimated that the United States would lose around six million jobs... Compared with this baseline, creating three million jobs would have filled roughly half of the employment hole. As it turned out,... the correct no-stimulus baseline was a total employment fall of nearly 12 million. With a loss that big, creating three million jobs was helpful, but not nearly enough.

A different mix of spending increases and tax cuts might also have been desirable. ... And I desperately wish we'd been able to design a public employment program that could have directly hired many unemployed workers, especially young people.

Finally, there's little question that policy makers — myself included — should have worked harder to earn the public's support... One frustrating anomaly is that many of its individual components routinely received favorable reactions in polls, while the overall act was viewed negatively. ...

Recovery measures work better when they raise confidence — as Franklin D. Roosevelt understood. ... Recent research suggests that New Deal programs may actually have had their primary impact on the economy by influencing consumer and business expectations of future growth and inflation.

Partly because of fierce political opposition, and partly because of ineffective communication and imperfect design, the Recovery Act generated little such rebound in confidence. As a result, it didn't have that extra, Rooseveltian kick. ...

I believe that as more research occurs and the political rancor fades, the fiscal stimulus will be viewed as an important step at a bleak moment in our history. Not the knockout punch the administration had hoped for, but a valuable effort that improved the lives of many.

That seems to come dangerously close to saying that a "Mr. Awesome" as president might have made the recovery much better. But not quite, at least not if one has Romney's claims about himself in mind. As Paul Krugman noted in his last column, Mr. Romney "doesn’t have a plan. ... Mr. Romney himself asserted that he would give a big boost to the economy simply by being elected, 'without actually doing anything'..., the true Romney plan is to create an economic boom through the sheer power of Mr. Romney’s personal awesomeness."

To put it another way, Romney would cure the economy by relying upon a placebo effect, an effect that somehow works through the powers of his personality. The Obama cure provided too little medicine, and there was not enough communication with the patient -- both could have been improved -- but the medicine it did provide was real, not a placebo, and it did have positive effects.