The fact that Christina Romer is resigning does not come as a shock. For quite some time, it has been clear that the Rubin disciples — Larry Summers and Timothy Geitner — hold the real power on the president’s economic team. Apparently, Romer felt that she did not have enough direct access to the president.
Reid Wilson reports on the reason behind Romer’s departure.
“She has been frustrated,” a source with insight into the WH economics team said. “She doesn’t feel that she has a direct line to the president. She would be giving different advice than Larry Summers [director of the National Economic Council], who does have a direct line to the president.”
“She is ostensibly the chief economic adviser, but she doesn’t seem to be playing that role,” the source said. The WH has been pounded for its faulty forecast that unemployment would not top 8% after its economic stimulus proposal passed.
Instead, the jobless rate is 9.5%, after exceeding 10% last year. It was “a horribly inaccurate forecast,” said Bert Ely, a banking consultant. “You have to wonder why Summers isn’t the one that should be taking the fall. But Larry is a pretty good bureaucratic infighter.”
Make no mistake: Obama’s decision to rely upon Summers’ advice over Romer’s has proven to be disastrous. The country remains crippled by unemployment, with no end in sight. Production remains significantly below capacity — a direct result of the insufficient stimulus package.
Recall that when the Obama administration was holding internal discussions to formulate a stimulus plan, Romer advocated for significantly more government spending — in excess of $1.2 trillion.
Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn’t require two trillion dollars of government spending, but Romer’s analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion. The memo to Obama, however, detailed only two packages: a five-hundred-and-fifty-billion-dollar stimulus and an eight-hundred-and-ninety-billion-dollar stimulus. Summers did not include Romer’s $1.2-trillion projection. The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was “an insurance package against catastrophic failure.”
Obama’s defenders like to claim that the White House pushed for the largest stimulus package that was feasible, given the political environment. Would Congress have passed a larger bill — something akin to the $1.2 trillion package Romer was pushing for? We do not know, because the Obama administration never tried. The political team (i.e. Rahm Emmanuel) valued an early legislative ‘win’ over smart policy.
To make matters worse, the administration inexplicably acted as if the $787 billion bill was indeed the cure to the economy’s ailments. Huge mistake. Now that the stimulus bill championed by the White House has proven to be much too small, the administration has lost credibility, and voters are not happy.
Taking everything into account, it is understandable why Romer is fleeing.
