By Bill Wilson — Former White House Council of Economic Advisors head Christina Romer apparently never thought the $800 billion “stimulus” that was supposed to turn the economy around would work, a new book shedding light on the early days of the Obama Administration says.
A memo brought to light in “The Escape Artists” by Noam Scheiber shows Romer originally proposed a spending plan that totaled $1.8 trillion, but the figure was dismissed as politically infeasible by Larry Summers, Director of the White House Economic Council. Romer came back with a watered down proposal of $1.2 trillion, but that was left out of the final proposal brought before Barack Obama himself.
Nonetheless, even though the final proposal was a full $1 trillion short of what she thought would work, Romer penned the political document that justified the $800 billion figure. Romer’s “The Job Impact of the American Recovery and Reinvestment” warned that “The recovery plan needs to be large to counter the tremendous job loss that is likely to occur.”
Based on her methodology, she wrote, “the package contains enough stimulus that we can have confidence that it will create sufficient jobs to meet the President-Elect’s goals.”
Then Obama was promising to “save or create” 3 million jobs, a promise he fell way short of. Since he took office, the labor force participation rate has dropped from 65.7 percent to 63.7 percent, resulting in over 4.7 million people have been dropped out of the civilian labor force.
In fact, there were almost 142.2 million people employed when Obama took office. Now, that number dropped to a low of 137.9 million in Dec. 2009 and has only risen to 141.6 million since then. The economy is not even keeping up with the growth of the population, let alone reclaiming a single one of the lost 8 million jobs in this recession.
Romer’s call for more “stimulus” was similar to that of New York Times columnist Paul Krugman. In 2009, he claimed that the Obama “stimulus” was too small to fill a $2.1 trillion hole. So, with the sorry state particularly of the labor market, were Romer and Krugman right?
When actions by the Federal Reserve to expand its balance sheet are taken into consideration — it purchased $1.25 trillion of mortgage-backed securities, $150 billion of Fannie and Freddie debt, and $1.191 of trillion treasuries since Jan. 2009 — the total “stimulus” issued by government has totaled nearly $3.4 trillion.
That exceeds what Romer and Krugman called for by over $1 trillion — with little to show for it. Romer had claimed if the “stimulus” passed that unemployment would be down to 6 percent by now.
Not only did it pass, but the Fed threw $2.6 trillion on top of it for good measure. Yet, a true measure of unemployment that takes into account the drop in working age adults from being counted by the government shows that rate is at 11.01 percent. Those underemployed at 17.6 percent.
All together, that’s 28 million people that cannot find full time work in the Obama economy —in spite of the trillions of dollars the government threw at the problem.
“The Escape Artists” provides a convenient narrative for Obama apologists, following an old dictum from Britain: “The king can do no wrong.” If the king made any poor decisions, it was because he received poor advice.
In this case, Larry Summers is portrayed preventing Obama from ever seeing Romer’s original memo calling for $1.8 trillion in “stimulus”. The evidence, sadly, shows that it would not have made a difference — because the whole concept was flawed from the get-go.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.