Saturday, April 17, 2010

Christina Romer: Hey, Let's Inflate

Using the broken down tools of Keynesian economics, the Chairman of the President's Council of Economic Advisers, Christina Romer, is calling for what can only be viewed as a Great Inflation.

Here's WSJ reporting:
Christina Romer, chair of the president’s Council of Economic Advisers, says the reason unemployment remains so painfully high is clear: It’s not the inadequacy or laziness of the workers or the long-standing mismatch between workers’ skills and employers’ needs. It’s the old-fashioned Keynesian diagnosis: Too little demand in the economy.

“The overwhelming weight of the evidence is that the current very high—and very disturbing—levels of overall and long-term unemployment are not a separate, structural problem, but largely a cyclical one. It reflects the fact that we are still feeling the effects of the collapse of demand caused by the crisis. Indeed, at one point I had tentatively titled my talk “It’s Aggregate Demand, Stupid”; but my chief of staff suggested that I find something a tad more dignified,” Ms. Romer said in  remarks prepared for a conference at Princeton University today.

It doesn’t have to be this way, she argued, essentially making the case for more government stimulus to help the economy. “We have the tools and the knowledge to counteract a shortfall in aggregate demand. We should be continuing to use them aggressively.”
The first problem with Romer's analysis is that she simply fails to recognize the role unemployment "insurance" plays in keeping unemployment high. I simply find it bizarre that Romer thinks that without this unemployment prop that unemployment would be at the same levels. If you pull that prop and people have to decide between starving and taking a job, they might decide to take a job. My comment is not an attempt to be harsh on the unemployed. It is merely stating a fact. Unemployment insurance keeps the unemployment situation much higher than it would otherwise be. Second, minimum wage laws are preventing many low level employees from entering the job market. That's what the unemployment situation is about.

As for "counteracting a shortfall in aggregate demand," this simply means government spending, which means taxing the public, i.e. the public will have  less to spend, or it means borrowing money to spend, which means crowding out the private sector or simply printing money, which is inflationary as hell. The taxation route is simply a transfer of money, and politically unpalatable now. Government spending is so out of control that I have to think Romer is totally clueless as to how dangerous the world debt situation. It could explode anywhere at any time. For her to call for greater government spending, coded: "increasing aggregate demand," especially in the current environment, is simply astounding.

Bottom line: Any further increase in government spending "increasing aggregate demand" will mean an increased deficit that will require even further money printing by the Fed pouring more fuel on a fire that is surely eventually going to result in the Great Inflation.


  1. Wenzel your analysis is sound but you're using a different calculus than Romer and her political bosses. They see tremendous spending potential as soon as they implement a national VAT. And like Prez Obama said after signing the health care bill: "I looked around and noticed the sky wasn't falling like my critics thought..." With that kind of "logic" your analysis means nothing to them.

  2. To be quite frank Ms Romer is an educated idiot putz who lacks enough life skill to pour piss out of a boot. But, to be honest, with Summers as a peer she looks to be a genius to Barack.

  3. Did she say "we have the tools"? I thought she meant "we have the fools" (i.e. the American taxpayer).

    As you note, the govt has three choices to finance "stimulus":

    1) higher taxes - the "fools" have to pay for it.
    2) higher borrowings - the "fools" have to pay for it.
    3) printing money - the "fools" have to pay for it.