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« Strategy Memo: Out of Towners | Blog Home Page | RNC Targets Blue Dogs »

Romer Defends Stimulus Ahead Of Unemployment Report

Council of Economic Advisers chair Christina Romer said that despite another round of grim unemployment news expected tomorrow, the stimulus program is indisputably working and has likely saved a half-million jobs.

Romer said she had no sneak peak at tomorrow's unemployment report, with some predicting that for the first time the jobless rate will top 10 percent.

"Market experts are telling us is that we will lose hundreds of thousands of jobs," she said at a breakfast hosted by the Economic Club of Washington today. "It does emphasize the economy is still in a recession. We do think we are improving the trajectory, but there is just no denying the fact that we are still in tough times for the American people."

Romer gave a vigorous defense of the American Recovery and Reinvestment Act, likening the plan to treatment one would receive for strep throat. To critics who point to continued increases in the jobless rate, she furthered the analogy.

"Sometime after you get the prescription, and maybe even after you take the first pill, your fever spikes. Do you decide that the medicine was useless? Do you conclude the antibiotic caused the infection to get worse? Surely not," she said. "You probably conclude that the illness was more serious than you and the doctor thought, and are very glad you saw the doctor and started taking the medicine when you did."

Romer cited several estimates that indicated that without the stimulus, the GDP decrease in the second quarter might have been several points higher. In fact, it improved from a more than 6-point decline to just 1 percent. To put it another way, as Romer did: "The rise in GDP growth from the first quarter to the second was the largest in almost a decade, and the second largest in the past quarter century."

Romer also predicted the impact of the spending program will only grow as payouts continue for infrastructure and other projects. She said the early stimulus "was weighted more heavily toward tax changes and state fiscal relief."

"Going forward there will be more direct government investments. These direct investments have a short-run effect roughly 60 percent larger than tax cuts," she said.

During a Q&A with the audience, Romer was asked if there was any "wiggle room" on the president's promise not to increase taxes on the middle class, a topic that was the subject of controversy earlier this week.

"Can I go now?" she joked at first. But she clearly got the memo. "The president has made it very clear through the campaign that middle class families have really gotten a bum deal, not just in this recession but probably for at least the last 10 years, and that's why he does not want to do anything that burdens middle class families. No one is talking about raising taxes."