Stunning Revelations From Christina Romer, Obama’s Economic Advisor
In the article below, written for the New York Times, Christina Romer, first chair of President Obama’s Council of Economic Advisors, recommends that the Federal Reserve adopt an overt policy of driving up inflation. She even has the chutzpah to suggest that this would somehow mirror Paul Volcker’s dramatic move against inflation thirty years ago. This is chutzpah because the job of the Fed, as stated in its legislative mandate, is to control inflation. Of course the Fed has rarely in fact controlled inflation. When the Fed was formed in 1913, a dollar bought about as much as it did at the founding of the Republic. Today, after almost a century of the Fed, the dollar has lost over 97% of it purchasing power.
Romer talks about driving up the nominal value of gross domestic product. This nominal growth is achieved by a combination of real economic growth and inflation. In effect, she is saying that if we can’t get real economic growth, we can make do with phony growth via inflation. She does not explain how printing more money and fueling more debt will solve a crisis caused in the first place by reckless printing of money and fueling more debt.
Romer’s emphasis on nominal GDP is also very revealing of her mindset. As she sees it, it is quantity of GDP, not quality that matters. The truth is that the quality of economic growth is the all important variable. In order to get people back to work, the US doesn’t need more debt-fueled spending. It needs thoughtful spending, especially sound investment, and this should be propelled by real savings, not by ersatz Keynesian “savings” printed by the government.
Keynes wrote at one point that, if we can’t give workers real growth, we must give them ” green cheese” produced by a “green cheese” factory at the Fed. Romer is just offering more the same green cheese. Her ideas are almost totally unrelated to the real world in which jobs are created and economies thrive. Even her historical references are fairy tales. She suggests that Roosevelt ended the Depression in 1933 with policies not unlike what she is suggesting. The truth is that the Depression did not end in 1933; unemployment remained at very high levels until World War 2. Roosevelt’s policies actually deepened the suffering. If he had let wages decline with prices, massive lay-offs might have been averted and the crisis brought to a speedy end. He did the reverse and millions starved as a result.
Hunter Lewis 10-31-2011