- The Washington Times - Monday, February 15, 2010

Proudly referring to herself as “Miss Rosy,” Christina Romer, chairman of the White House Council of Economic Advisers, strongly defended the Obama administration’s economic policy during its first year, but acknowledged that today’s economic climate leaves much to be desired.

“The economic challenges in many ways have never been greater,” she said, noting the “terrible” economic and financial crises the administration inherited.

While the unemployment rate has increased from 7.7 percent in January 2009 to 9.7 percent last month, Ms. Romer argued that the $787 billion economic stimulus package the Democrat-controlled Congress passed a year ago had a significantly positive effect on the economy. Without the stimulus, the U.S. economic situation would have been “dramatically worse,” she told reporters at a Friday breakfast hosted by the Christian Science Monitor.

In January 2009, however, Ms. Romer co-authored an economic analysis that predicted a stimulus package “slightly over” $775 billion would prevent the unemployment rate from rising above 8 percent.

Nevertheless, she argued last week that the unemployment rate would have been much higher than 9.7 percent last month without the stimulus. She noted that the economy shed just 20,000 jobs last month, compared with the 779,000 jobs that were lost in January 2009.

“The trouble is: That’s not an easy sound bite,” she said. “For someone who is unemployed, that doesn’t feel like progress.”

The current situation is not acceptable, she acknowledged. “No question, where we are now is not good.”

Indeed, since the recession began in December 2007, the U.S. private sector has lost more than 8.5 million jobs. Private-sector employment, which declined by nearly 700,000 jobs during the eight-year Bush administration, is now lower than it was at the end of 1998.

In terms of the unemployment rate, it is not likely to get much better any time soon, the administration warned in its first annual Economic Report of the President, which was released Thursday.

The jobless rate, which averaged 9.3 percent for 2009 (up from 4.6 percent in 2006 and 2007 and 5.8 percent in 2008), is projected to rise to 10 percent this year and barely decline to 9.2 percent in 2011, according to the administration’s latest forecast.

The White House projects that payrolls will increase by about 95,000 jobs per month this year, but that is not enough to absorb the 100,000 workers that enter the labor force each month, according to estimates by Federal Reserve Chairman Ben S. Bernanke.

Employment will not increase in amounts comparable to previous recoveries from steep recessions because the economy will not bounce back nearly as swiftly as it did after the big contractions of 1973-75 and 1981-82, said Ms. Romer, who is an expert on both the Great Depression and the Fed’s monetary policy.

“The vast majority of postwar recessions, like the ‘82 recession, were caused by tight monetary policy,” she explained. This occurs when the Fed ratchets up short-term interest rates as it did in 1980 and 1981, when it lifted the overnight federal funds rate above 20 percent to quash roaring inflationary pressures.

Once inflation is defeated, the Fed can lower short-term rates. That “sets loose construction and a lot of interest-sensitive spending,” she said. “Because this is a different recession, caused by a financial crisis, we very quickly got to the zero nominal boundary on interest rates, and you don’t have that obvious [option] that gets you springing back.”

The Federal Reserve reduced its short-term target interest rate to near zero 14 months ago.

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