The Romer Speech
Posted on September 2, 2010
Just about every Monday night over the last several years, I have tried to recapture my youth by playing basketball with a bunch of other guys who are similarly trying to recapture their youths. It is fun way to exercise, as long as you don’t snap your Achilles or anything like that.
One of the guys I have been playing with is Jared Bernstein. Before he became famous, Jared was an economist with a labor-affiliated think tank. Jared is a very good athlete, a tough defender, but (and I think he would admit this himself) his jumpshot leaves a lot to be desired.
Jared and I have a friendly rivalry on the court and off the court, and now that he is Joe Biden’s top economic advisor, we talk about what the Obama White House is up to and what the Republican response is likely to be.
Earlier this week, Jared pointed me to Christina Romer’s farewell address, telling me that it had some good stuff in it.
Jared and I disagree philosophically (for obvious reasons) but I am glad that he pointed me to this speech.
Romer’s basic thesis is that this recession was deeper and more debilitating than anybody really understood at the time. As she calls it, “this was not my father’s recession”, making the point that the downturn in 2008 and 2009 was far worse than the downturn in 1983. She says that we are in uncharted territory here, that while the stimulus package passed by the Congress was pragmatic and balanced, right now we need more government spending and deeper tax cuts to get out it.
Her analysis is numbers based, her assumptions are based on economic theory, and it seems that her end goal is to somehow get the unemployment rate to the 8 percent that she initially promised two years ago. What she misses, in my estimation, is any kind of historical context (other than the comparison to 1983), and any appreciation for the psychological state of the American people.
Economics can be a dismal science and if it is divorced completely from the bigger historical context and collective psychology, I think it can be downright misleading.
What is the bigger history out there? Well, first, America is recovering from a personal spending and credit binge. They bought a bunch of stuff that they couldn’t afford, including big houses, big-screen televisions, big purses and big cups of coffee, with a bunch of money that they didn’t have. They aren’t doing that anymore (as evidenced by the fact that the personal savings rate is going up again), and in fact, they are going through a spiritual transformation against wasteful spending and waste in general.
This is a healthy development, unless you are an economist, and then you fret about the paradox of thrift. The paradox of thrift states that while thrift is good on a personal basis, when everybody does it, it is bad for the economy in the short term.
The Obama philosophy seems to be that consumers need to get over their thriftiness, and the best way to do that is to expand government. That explains why they are busy touting their stimulus package as the best thing since sliced bread, but it also explains why the stimulus package has gone over like a ton of bricks. Most voters understand instinctively that there is something wrong when they are personally tightening their belt, only to see the government loosening its belt. They know instinctively that they are going to have to pay for this spending binge sooner or later (and probably sooner and later).
Every once in a while, the President says that we need to cut spending. Nobody believes him, because he does nothing to actually cut spending. This meant the Obama White House is completely out of step with the concerns of a majority of voters who want the government to cut spending just like they are cutting spending.
The other historical trend that my good friend Jared and his labor movement buddies choose to ignore has to do with the changing nature of productivity in the workplace. I hear over and over again about how if we just brought those old manufacturing jobs back like we had in the good old days, we would just be fine. But those jobs are gone forever, and it wasn’t free trade that killed those jobs. It was modernization. It simply doesn’t take as many people to make as many things as it used to. The information revolution has made more and more people obsolete.
And, unfortunately, the people who are most obsolete are those folks who were at the bottom rung of the manufacturing ladder.
The biggest problem facing working class Americans is that their education is not keeping pace with the changing workforce. For those who have a college degree, the unemployment rate is right around 4 percent. For those who don’t, it is well north of 10 percent. And if you have been unemployed for more one year, the chance is you will be unemployed for longer than two years, and if that is the case, unless you are well-educated working mother who is re-entering the workforce, the chances are that you will never get another decent paying job again.
As far as I can tell, the President has never said a single word about how to reach these folks in a specific way. He has never offered a broad new vision of the new realities of the workforce.
Yes, the President talks about green jobs. But I venture to guess whatever green jobs that will be created (and there won’t be too many), they will be created by entrepreneurs who will hire smart engineers and folks with college degrees to make the new products.
I think there is a revolution going on out beyond the beltway. The American people want authenticity, they want passion, they want quality, and they want a confident vision of how the country is going to be able to compete with China, India, Brazil and Europe. They don’t want wasteful government spending, because they don’t want to pay for it.
But from this President, they are getting no vision and a lot of government waste.
The Romer speech accurately described from an economist’s view how nobody knew how bad the economy really was. But from a real person’s perspective, it didn’t give any insights on a new vision of the workforce, nor did its prescriptions fit in with the temper of the times.