The invisible hand 5

Obama’s chief economic adviser, Christina Romer, admits that the Keynesian economic policy she (among others) advised Obama and the Democrats to adopt and implement, which they did eagerly as it was the redistributionist policy they wanted, was wrong and has failed.

The Washington Post reports:

Christina Romer, chairman of President Obama’s Council of Economic Advisers, was giving what was billed as her “valedictory” before she returns to teach at Berkeley, and she used the swan song to establish four points, each more unnerving than the last:

She had no idea how bad the economic collapse would be.

She still doesn’t understand exactly why it was so bad.

The response to the collapse was inadequate.

And she doesn’t have much of an idea about how to fix things.

What she did have was a binder full of scary descriptions and warnings, offered with a perma-smile and singsong delivery: “Terrible recession. . . . Incredibly searing. . . . Dramatically below trend. . . . Suffering terribly. . . . Risk of making high unemployment permanent. . . . Economic nightmare.” …

At week’s end, Romer will leave the council chairmanship after what surely has been the most dismal tenure anybody in that post has had: a loss of nearly 4 million jobs in a year and a half. … She was the president’s top economist during a time when the administration consistently underestimated the depth of the economy’s troubles – miscalculations that have caused Americans to lose faith in the president and the Democrats.

Romer had predicted that Obama’s stimulus package would keep the unemployment rate at 8 percent or less; it is now 9.5 percent. … The economy lost 350,000 jobs in June and July. …

When she and her colleagues began work, she acknowledged, they did not realize “how quickly and strongly the financial crisis would affect the economy.” They “failed to anticipate just how violent the recession would be.”

Even now, Romer said, mystery persists. “To this day, economists don’t fully understand why firms cut production as much as they did or why they cut labor so much more than they normally would.” Her defense was that “almost all analysts were surprised by the violent reaction.”

That miscalculation, in turn, led to her miscalculation that the stimulus package would be enough to keep the unemployment rate from exceeding 8 percent. Without the policy, she had predicted, unemployment would soar to 9.5 percent. The plan passed, and unemployment went to 10 percent. …

The truth is that the Obama administration is pretty much out of options. … “What we would all love to find – the inexpensive magic bullet to our economic troubles – the truth is it almost surely doesn’t exist,” Romer admitted.

Okay, there is no magic bullet – but there is the invisible hand.

It’s also called the free market.

Free marketeers would lower taxes, remove the minimum wage and the multifarious bureaucratic burdens on employers, and above all forbid government interference in the market. That is to say, they would reverse the policy of high spending by the state which Romer advised, Obama and the Democrats wanted, and even President Bush was seduced into attempting.

Economically wise conservatives have been telling liberals for decades, Keynes was wrong, Hayek was right.

Will the Republicans remember that when they regain Congressional power in November?

Posted under Commentary, Economics, United States by Jillian Becker on Thursday, September 2, 2010

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