Wednesday, December 2, 2009

Are You In the Mood for Political Pabulum?

Here, Christina Romer, BHO's Chair of the Council of Economic Advisers lays out her "analysis" of the great success BHO is enjoying running the economy. Ms. Romer's article helps explain why the economics profession is generally ignored when it comes to important questions about the economy.

Mostly, physicists and chemists don't have this problem, because the science they deal with doesn't usually have policy implications for politicians. Economic science almost always has policy implications for the people who want to "set policy" for the rest of us (translation: coerce the rest of us to do what they say).

Ms. Romer states
The vast majority of professional forecasters attribute much of this dramatic turnaround to the fiscal stimulus.
Really? I really don't know what she thinks the word "vast" means, or who these "professional forecasters" are, or why anyone is supposed to believe that economists or any other "professional forecaster" can forecast the economic future. For a different take on what a vast majority thinks, try this link from Nobel Laurette Gary Becker. Or try this link from Michael Boskin. Or try this link from John Cochran

Ms. Romer knows full well that not even a bare majority of economists who study such things think there has been a "dramatic turnaround" just yet (never mind a "vast" majority). It's equally not clear that even a bare majority of economists who study such things think the pork barrel .... er, fiscal stimulus bill will have or has had much to do with the economy moving out of recession.

Ms Romer knows full well that we won't really know whether GDP has begun growing again for at least another few quarters, after the NIPA data catches up with current events. She also knows full well that whatever gains in nominal GDP that may have occurred so far are due to federal government spending (which is part of measured GDP), not spending by consumers or businesses that will likely be sustained in the future. Ms. Romer has to be talking about nominal GDP, not real GDP, since we can't know what real GDP has done for at least another couple of years, really.

Ms. Romer also knows that the federal spending that may be causing nominal GDP to move in a positive direction right now cannot be sustained without continuing production of real goods and services. She knows that small businesses and large businesses alike must be willing and able to step up production for sustained growth in GDP. And because she is smart, she knows that businesses won't begin growing their production unless they can see a predictable, reasonably stable future for selling what they produce.

The cause of the recession in the first place was the inability of businesses and consumers to see a predictable, reasonably stable future. Congress, banks, near banks, and their buddy the Fed stirred the economic pot so violently that businesses and consumers alike couldn't count on the future. That's what causes recessions.

Given that Ms. Romer knows all these things (and as I say, she's way too smart not to know), wouldn't it be refreshing if she told us what she knows, instead of what BHO wants her to say?

Ms. Romer goes on to say
the Recovery Act helped stem the decline in spending caused by consumers and businesses reeling from the fall in asset prices and the drying up of credit.
Businesses and consumers were not reeling from the fall in asset prices and drying up of credit. Calling the sub-prime mortgage debacle a "fall in asset prices" is really euphemistic, don't you think? As for the "drying up of credit," read this. Why is Ms. Romer saying these things?

First, it was banks and near banks that were reeling from their amazingly poor decisions about sub-prime mortgage investments. Second, credit did not dry up (here's the data). The problem was too much credit in the first place, a la the Fed. Third, the so-called Recovery Act did nothing to stem the decline in prices for the toxic assets given birth by really bad housing policy from Congress and really bad lending practices supported by the Fed --- the main regulator of the banks and near banks that caused the problem.

Ms. Romer is an official apologist for BHO (she's on his payroll, after all). For the sake of the economic profession, one wishes economists didn't forget all the economics they've learned when they start working for a politician.

1 comment:

Fiddlinmike said...

Amen, brother.

Not only are economists subject political agendas, but let's not forget the whole field of environmental science.

Objectivity doesn't pay very well.