Christina Romer, the White House’s chief economist, said the U.S. economy can emerge from the worst recession since the 1930s into a “better normal” era of higher economic growth.
“Could good economic policies lead to economic growth that is stronger and more durable than before,” Romer, chairman of the Council of Economic Advisers, asked in a paper presented yesterday at Princeton University in Princeton, New Jersey. “The answer to this question is yes. There are a number of policy actions that can help ensure that we not only return to normal, but return to a better normal.”
Romer’s address was the keynote at the 2010 Princeton Colloquium on Public and International Affairs titled “The ‘New Normal?’ American Policy Making After the Great Recession.”
President Barack Obama’s administration is working to pull the country out of the worst recession since the 1930s and avoid a prolonged period of high unemployment and low growth -- conditions that Pacific Investment Management Co.’s Mohamed El- Erian has called the “new normal.”
“I find it distressing that some observers talk about unemployment remaining high for an extended period with resignation, rather than with a sense of urgency to find ways to address the problem,” Romer said.
In her speech, Romer called for “targeted stimulus” to aid a recovery of the private sector. Romer said the economy needs additional funds to support state and local governments, an extension of unemployment insurance benefits, a $30 billion program to boost small business lending and a program to subsidize energy-efficiency renovations for homes.
‘Targeted Policy Actions’
“These targeted policy actions are what the economy needs to ensure a more rapid return to full employment,” Romer said.
The U.S. economy added 162,000 jobs last month, the biggest increase in three years, according to an April 2 report from the Labor Department. The job growth is a sign that the recession has ended, according to economists such as Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee. In March, 15.7 million Americans remained unemployed.
Romer said that the administration must create a long-term plan to address the budget deficit, which has swelled during the recession. The deficit has risen to 10.2 percent of gross domestic product for the last 12 months, according to data from the U.S. Treasury.
“Once the economy has returned to normal, high budget deficits would raise interest rates and discourage investment,” Romer said. “We should be taking concrete steps now to ensure that as we recover from the recession, we get our fiscal house in order.”
Romer pointed to a bipartisan fiscal commission and cost- control mechanisms in the recent health-care legislation to reduce the deficit.
Rebalancing the economy for a “better normal” would mean “a higher-saving, higher-investment economy than that of recent decades,” Romer said. “Consumer caution, sounder lending practices and pro-saving policies are likely to lead to higher personal saving.”
Romer also repeated the administration’s commitment to new financial rules for Wall Street and future investment in education and basic science.
Romer, 51, was an economics professor at the University of California at Berkeley and co-director of the Program in Monetary Economics at the National Bureau of Economic Research before joining Obama’s economic team in November 2008. Romer’s paper is titled “Back to a Better Normal: Unemployment and Growth in the Wake of the Great Recession.”
To contact the reporter on this story: Joshua Zumbrun in Princeton, New Jersey at firstname.lastname@example.org;