Christina D. Romer, readying to retire from the Council of Economic Advisers, delivered a farewell address at the National Press Club yesterday, called "Not My Father's Recession: The Extraordinary Challenges and Policy Responses of the First Twenty Months of the Obama Administration."
In the speech, Romer reiterates what she has said before: "The current recession has been fundamentally different from other postwar recessions."
This is not my father’s recession. Rather than being caused by deliberate monetary policy actions, it began with interest rates at low levels. It is a recession born of regulatory failures and unsound practices that contributed to a housing bubble and eventually a full-fledged financial crisis. Precisely what has made it so terrifying and so difficult to cure is that we have been in largely uncharted territory. An all-out financial meltdown in the world’s largest economy and the center of the world’s financial system is something the world has experienced only once in the past century -- in the 1930s. Thus, the President took office in the midst of a recession of historic proportions, but for which history provided little guidance.
Toward the end of her address, she talked about "unfinished business" and called on policymakers to "take sensible actions to increase confidence."
While we would all love to find the inexpensive magic bullet to our economic troubles, the truth is, it almost surely doesn’t exist. The only surefire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less. In my view, we should be moving forward on both fronts.
Romer plans to return to Berkeley, where she is a professor at the University of California.
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