2nd UPDATE: CEA's Romer: Economic Stimulus Is Working
August 06 2009 - 9:19AM
Dow Jones News
One of President Barack Obama's top economic advisers said the
federal stimulus package is helping stabilize the wounded U.S.
economy but cautioned that full recovery is still a "tremendous
distance" away.
"The bottom line is that we are no doubt in for more turbulent
times," Council of Economic Advisers Chairwoman Christina Romer
said in remarks prepared for delivery to the Economic Club of
Washington. But she added that "the actions we have taken,
particularly the American Recovery and Reinvestment Act, have
clearly changed the trajectory we are on."
Speaking a day before the government releases new figures for
the U.S. labor market, Romer rebuffed critics who complain that the
26-year high unemployment rate is evidence that the $787 billion
Recovery Act has failed to create jobs or goose the economy. She
called that argument "just plain silly," comparing the situation
with a doctor prescribing an antibiotic to a patient.
"Sometime after you get the prescription, and maybe even after
you take the first pill, your fever spikes. Do you decide that the
medicine is useless? Do you conclude the antibiotic caused the
infection to get worse? Surely not," she said. "You probably
conclude that the illness was more serious than you and the doctor
thought, and are very glad you saw the doctor and started taking
the medicine when you did."
Romer said one estimate of the Recovery Act's effects, which
uses gross domestic product and employment data from 1990 to 2007,
suggests that employment is about 485,000 jobs above what it would
have been in the second quarter without the stimulus. She pointed
to analysts' estimates that the stimulus has added between two and
three percentage points to real GDP growth in the last quarter.
The unemployment rate is expected to have risen again in July
and Romer repeated the administration's view that growth in jobs
will lag the anticipated economic recovery. She said that recovery
could begin in the second half of the year, pointing to
private-sector forecasts based on recent data.
But she warned that the economy, which contracted 1% in the
second quarter, remains "far from healthy," creating uncertainty
around the strength of any turnaround.
"The strength will depend on a range of factors, including how
fast the economies of our trading partners recover; whether
American consumers decide to increase their savings rate even more
than they already have; and how quickly financial markets and
business confidence return to normal levels," Romer said.
Over each of the next five quarters, Romer said, the economy
will receive around $100 billion in fiscal stimulus, the impact of
which will increase because of the multiplier effect.
Answering audience questions after her speech, Romer said she
isn't worried about an outbreak of inflation because the economy is
"far from overheating" and reiterated that the White House isn't
considering raising taxes on the middle class to address the record
budget deficit. She said Obama is committed to tackling the
country's deteriorating finances through health care reform.
Romer declined to answer a question on the dollar's prospects:
"I know more than to speculate on what the dollar's going to do,
especially in front of five TV cameras."
She also declined to discuss the administration's plans for
Fannie Mae (FNM) and Freddie Mac (FRE), the subject of mounting
speculation in Washington.
"Of course, something we're going to be thinking about is where
do we go from here," she said, adding that she didn't want "to get
ahead of the process," which is just beginning.
-By Henry J. Pulizzi, Dow Jones Newswires; 202-862-9256;
henry.pulizzi@dowjones.com