good evening I’m Diane by sturm I’m the
director of the Carrie Chapman Catt Center for women in politics at Iowa
State University and on behalf of the center it’s my great pleasure to welcome
you to tonight’s lecture of the 22nd Mary Louise Smith chair and women and
politics noted economist dr. Christine Romer the
chair was announced in 1995 to honor the Iowa native and longtime political and
civic leader Mary Louise Smith the first and only woman to chair the Republican
National Party was a mentor friend and role model to many in the world of
politics and civic government and community affairs through the chair the
Kat Center is able to bring prominent women leaders such as dr. Romer to
campus once or twice a year to speak with members of the university community
in the local communities to inspire us and to engage us in the political
process dr. Romans presentation tonight is co-sponsored by the Committee on
lectures which is funded by the Government of the student body and as
part of the women’s leadership series here at Iowa State out of the office of
the senior executive vice president and provost introducing dr. Romer is jarred
Knight a junior in political science from Mount Vernon Iowa during his time
at Iowa State jared has been involved in the government of the student body and
currently serves as vice president he also has been active in the University
Honors Program admissions and in the cat’ centers leadership certificate
program jared participates in youth mentoring programs in the ames community
and please join me in welcoming jared who will introduce dr. Romer Thank You Diane tonight it’s my distinct
honor and privilege to welcome dr. Christina Romer to Iowa State University
as the 22nd Mary Louise Smith chair in women in politics as a professor of
economics at the University of California at Berkeley dr. Romer is one
of the most respected minds in her field and is among the foremost scholars in
the area of Great Depression history and monetary and fiscal policy her expertise
led her to the White House where she served as the chair of the Council of
Economic Advisers from January 2009 until September 2010 as chair of the CEA
dr. Romer met with President Obama daily to design a policy response to the Great
Recession she played a large role in both financial and health care reform
and shaped budget and macroeconomic policy she was also the administration’s
primary spokesperson on the economy and frequently appeared on the evening news
the financial press as well as Sunday morning talk shows along with her
professorship at Cal Berkeley dr. Romer currently serves as the co-director of
the program in monetary economics at the National Bureau of Economic Research and
is a contributor to many many publications including the New York
Times Bloomberg television and many scholarly
journals with the Iowa caucuses quickly approaches approaching and the national
political focus centered squarely on the economy I can’t think of a more
appropriate time or place for this lecture and I certainly can’t think of a
more appropriate person to give it so without further ado it’s my pleasure to
welcome the 2011 Mary Louise Smith chair and women in politics dr. Christina
Romer well thank you it is indeed an honor and
a pleasure to be here this evening it’s particularly nice to be here as the Mary
Louise Smith chair on the Thursday night before the first Friday of the month now
you asked me why is that well the first Friday of the month is actually a very
big deal if you’re the chair of the Council of Economic Advisors because
that’s the day when the employment and unemployment numbers come out so
tomorrow morning we’ll get the unemployment numbers for November and
one of the jobs of the see a chair is to actually get all of the numbers that are
gonna be released to the public on the economy the night before and so one of
my Jobs was to let say the secretary of the Treasury or the chairman of the Fed
know if it might be something that would cause a market reaction and of course my
job was to brief the president as well so we were inevitably working late on a
night like tonight now as you might imagine when the economy is in the grip
of a terrible recession the employment report is of particular interest and
this actually gave rise to a couple of awkward situations now one like I was
only authorized obviously to tell a very small number of people what was in the
report but that didn’t stop Rahm Emanuel who was the president’s
first chief of staff from starting to call me at about 4 o’clock on the day
before the employment report was going to come out and Rahm would pretend to
make small talk now believe me that is not something he normally did so I would
pick up the phone and I’d hear so how are things and he was just gonna see if
I would I would accidentally let something drop another time I got an
email message from the president’s body man Reggie love who was the president
was traveling and he was emailing me to say the president was in his limo and
would I call him and give him the employment report so I dialed the number
and I hear a very familiar hello but you can’t really say are you the president
right so I proceeded to you know give him the employment numbers and I hang up
the phone and I suddenly said Oh My heavens have I just played into the
biggest scam ever and given someone on Wall Street the employment numbers so I
quickly emailed Reggie who said no that really was the president that I had been
I had been talking to so the bottom line is I would be delighted to be at Iowa
State any night of the year but I am particularly happy to be here on this
particular one and to be the Mary Louise Smith chair and not the CEA chair all
right Carrie Chapman Catt centers focus and the focus of this lecture is on
women and leadership and this lecture has actually been a chance for me to
branch out a little bit and to think about the role of leadership in
successful economic policy and the police I found myself starting is what
do we even mean by leadership and I think many people tend to think of
leadership in pretty narrow terms I the ability to get people to follow you to
get people to do what you want them to do and that’s of course a part of
leadership but it occurs to me that a much more fundamental issue is not can
you get people to follow you but where do you lead them do you convince people
to do good and sensible things and for this what matters is much less the
leaders dynamism or their powers of persuasion but rather the quality of his
or her ideas I think in the case of economic policy what matters is does the
leader have a good understanding of how the economy works and policy
prescriptions that are based on strong economic evidence let me give you an
example of what I think is the the central importance of economic of ideas
in economic leadership if you go back to the 1930s I think almost everyone would
agree that Herbert Hoover was not a very successful leader on the economy in the
early 1930s I think it’s tempting to think that
that’s because he lacked personal dynamism or the ability to rally people
to his policies but the truth is President Hoover was actually quite
effective in that narrow form of leadership
he actually got Congress to pass a number of significant pieces of
legislation in response to the Great Depression I think the problem is that
President Hoover’s ideas just weren’t very good that in the midst of the worst
depression in American history he believed that two things were the most
important one was to stay on the gold standard and the second was to balance
the budget now most economic research as we were
discussing at dinner actually identifies the gold standard as one of the key
sources of the worldwide depression of the 1930s and it shows that countries
that abandon it sooner like Great Britain actually recovered much more
rapidly and almost any macroeconomics textbook will tell you that balancing
the budget when the unemployment rate is 25 percent as it was back in the early
1930s is virtually impossible and almost surely counterproductive and yet one of
President Hoover’s signature accomplishments was the Revenue Act of
1932 which was at that time the biggest peacetime tax increase ever so I would
argue that his failure of economic leadership was fundamentally a failure
of his economic ideas well tonight what I want to do is to talk about the
policies taken in response to our most recent recession which unfortunately I
think is appropriately named the Great Recession because the United States and
indeed the entire world economy has been through just a horrific downturn the
financial panics surrounding the collapse of Lehman Brothers in the fall
of 2008 sent the American economy into freefall the unemployment rate as we all
know though I understand it’s not nearly as bad here in Iowa but it has risen
dramatically from less than 5% for the country as a whole before the recession
to over ten percent at its highest and this rise in unemployment has hit every
demographic group including the college-educated a segment of the
population that traditionally weathered recessions more easily but of course
some parts of our society have been particularly devastated so young people
for example especially those with a college education have just been
severely affected the unemployment rate for young people is 25 percent and for
African Americans it’s 16 percent perhaps even more distressing than the
severity of the downturn has in fact been the weakness of the recovery though
we started to grow in the fall of 2009 hard to believe that was two years ago
now growth has been painfully anemic and as a result the unemployment rate has
just barely inch down from maybe 10.1 percent to now nationally 9 percent and
as I said we’ll get a new number on that tomorrow morning well the United States
and other countries tried numerous policy responses to stop the freefall
and to try to accelerate that rate of a cup recovery everything from monetary
policy to housing policy to fiscal policy I thought what I do this evening
is to talk about the role of ideas behind those various policy responses
what I’m gonna try to argue is that the key determinant of the actions that were
taken was not the politics or the personal dynamism of our leaders but
rather their ideas about how the economy worked and perhaps even more important
I’m gonna suggest that whether policies were successful or not
fundamentally depended on the quality of the ideas behind them but I think
sensible empirically accurate ideas generally led to useful policies whereas
less accurate ideas I think have led to policy shortfalls all right well let me
start this discussion of economic policy and leadership in the most recent
recession with monetary policy because I think this is an area where we’ve had
some of the earliest and most important actions where we’re even having action
big actions yesterday as we’ve been discussing and it’s an area where I
think economic ideas have played just a fundamental role in determining what has
been done and what hasn’t been done alright so first what what is the Fed
done to deal with the recession and and how well
it worked well first is the economy actually started to slow down now way
back in 2007 and early in 2008 the Fed did the conventional thing they lowered
interest rates and in fact by December of 2008
they’d pushed the federal funds rate that main interest rate that they
control basically down to zero in addition to lowering interest rates the
Fed took all sorts of extraordinary actions to try to keep credit flowing so
for example when nobody was buying commercial paper the bonds that
corporations use to kind of cover working capital and some short-term
borrowing needs the Fed said fine we’ll create a special purpose vehicle and buy
the commercial paper ourselves to try to keep credit flowing in the economy I
think by almost all accounts the early monetary policy actions were incredibly
important and effective I think there’s actually a good reason why Ben Bernanke
the chairman of the Fed was named Time magazine’s Person of the Year back in
January of 2009 what he did through lowering interest rates and flooding the
financial system with liquidity helped to stop the panic which believe it or
not could have been far worse than it actually was
now since the extraordinary actions of late 2008 and early 2009 frankly I think
the feds been much less aggressive they’ve taken a couple of rounds of
quantitative easing and in case you’re not up on the lingo quantitative easing
just means that the Fed buys a large amount of kind of unusual assets things
they wouldn’t normally buy like mortgage-backed securities or long-term
government bonds and the idea is to try to push down any interest rates that are
already to zero like mortgage rates or long term borrowing rates and the other
is is that those actions have been at least somewhat helpful but I think in
terms of the feds own guideposts monetary policy today is clearly not
succeeding you know the Federal Reserve Act says that the feds supposed to care
about both inflation and unemployment and the feds the Fed so-called dual
mandate and the Fed has for years said that it thinks inflation of 2% or a
little less is reasonable and unemployment
should be at its normal sustainable level which the Fed itself estimates is
about five and a half percent today right
by those criteria the Fed is pretty clearly not doing very well inflation
the main measure they look at is actually below somewhat below their
target and their forecasts are that it’s gonna remain there and unemployment is
obviously about twice what the Fed thinks is it’s normal sustainable level
and it too was expected to stay very high for a long time so how do we make
sense of this what explains the feds behavior
why was the Fed so much more aggressive and successful early in the crisis then
perhaps it’s been in the past year and a half or so well let me tell you what I
don’t think it is right I don’t think it’s that the members of the Federal
Reserve care more about banks than they do about ordinary people right so they
took extraordinary actions when the financial system was on the line but not
when unemployment was high if you read the speeches of Chairman Bernanke and
other members of the Federal Reserve they seem to care passionately about
unemployment and I do believe they’re deeply concerned about their failure to
meet their dual mandate likewise I don’t think the answer has to do with a
failure of that narrow type of leadership that I talked about earlier
the ability to get people to follow you I don’t think that the problem is that
somehow Chairman Bernanke was a forceful leader in 2008 and somehow has lost his
leadership mojo I think the key difference I think has to do with the
quality of the ideas guiding policy I’d say early in the crisis two ideas were
paramount one financial crises are destructive and preventable and to
credit availability is essential to economic activity now these two ideas
are bad as fundamental as you can get in macroeconomics and the research behind
them I think is well regarded and rigorous so Milton Friedman and Anna
Schwartz’s classic book a monetary history of the United States showed that
unchecked banking panics in the 1930s had been a central cause of the Great
Depression and that better monetary policy could
have stemmed the panics and prevented the worst economic crisis in our history
likewise a large modern literature much of it written that are inspired by
Chairman Bernanke’s own research on the depression showed that credit absolutely
is essential to the normal spending of households in the operation of
businesses and if you read the speeches of Fed officials or descriptions of
their policy deliberations it’s just clear that these basic ideas drove their
response to the crisis and in my view the policies were largely successful
because the ideas behind them were strong and sensible but I’d say more
recently ideas are still determining Fed policy but they’re unfortunately
somewhat less sensible so a substantial number of Fed members appear to believe
that much of the unemployment that we’re facing is due to a mismatch between
workers skills and the jobs available that is that the unemployment of nine
percent is largely structural in fact there’s a very colorful statement by the
head of the Philadelphia Fed charlie placer who said you can’t change a
carpenter into a nurse easily and you can’t change the mortgage broker into a
computer expert very easily monetary policy can’t fix those problems and this
reasoning has been repeated by many other Fed members and I think this view
is clearly leading at least some Fed policy makers to oppose any additional
actions to help the economy but I’d argue that it’s not very well founded
those ideas aren’t well-founded in economic research of course there’s
always a degree of skills mismatch in a dynamic economy we’re always coming up
with new things and new ways of producing them and that makes some jobs
obsolete and others growing but the evidence does not suggest that there’s
substantially more mismatch today than there was back when say the unemployment
was 5% or lower that most of the unemployment the research says that
we’re currently experience is still due to cyclical factors particularly just
way too little aggregate demand which is something that monetary policy
absolutely can help to fix even Fed members who don’t agree that
the current unemployment is due to structural factors have expressed I
think some questionable ideas about the the usefulness of additional action so
if you’ve watched by any chance chairman Bernanke’s recent press conference he
said of additional actions are those tools likely to be sufficiently
effective or do they bear costs and risk that would make them less effective and
not worth using I think reading between the lines they’re worried that what they
can do just won’t be very helpful I think from my tone you could probably
sense that I don’t think that idea that economic idea is correct and in fact it
goes against what I learned from studying the Great Depression because in
that episode much like today interest rates were down at zero and yet
aggressive monetary action absolutely helped it seemed to have made people
feel more optimistic and they started buying things again they started buying
cars and trucks and industrial machinery and that this helped to foster the
recovery so I’d say the feds tools may not be powerful enough to return the
economy quickly to full employment while keeping inflation close to 2% but I do
think the evidence from economic history and a much of economic theory it’s clear
that the Fed could be doing much more at achieving at stated goals so the bottom
line from this discussion is that monetary policy is absolutely determined
in large part by economic ideas and the success of those policies I think
depends on the very quality of the ideas behind them okay so that’s one area of
policy the second one I want to think about is housing policy right because
obviously house price movements and housing in general have played a big
role in this recession the rapid rise of house prices just led to an incredible
boom and homebuilding and a huge increase in household debt then when
house prices started to fall in 2007 that put pressure on both homeowners and
lenders who are holding lots of this mortgage debt defaults rose home
building ground to a halt and eventually all
those defaults led to a loss and confidence in our financial system that
was holding so many of the bad loans and we had the first genuine financial
crisis that we’ve had in this country for a good two generations but you know
the story of how important housing is doesn’t end with the collapse of Lehman
Brothers back in 2008 because since the beginning of 2008 there have now been
more than three million foreclosures which is obviously devastating families
but it’s also devastating the economy and further depressing home prices today
another at least 11 million homeowners are what we’d say are underwater on
their mortgages which means they owe more on their mortgage than their house
is currently worth and those underwater homeowners are obviously at a bigger
risk of defaulting on their mortgage but we also think they seem to be hesitant
to spend until they dig out from underneath this mountain of debt and
finally we built so darn many houses in the early 2000s during the boom that we
have a significant oversupply right now so we’re not going to be needing to
build houses in many areas for unfortunately quite some time so the
bottom line is that housing has been and continues to be I think a big source of
our economic troubles all right so what housing policies have we pursued and how
well if they worked and here I’d say the inst the administration absolutely
implemented a number of programs but I think it’s fair to say they’ve worked
less well than people had hoped and and I think this has certainly been a source
of frustration to everyone in the government including the president the
main program was the Home Affordable Modification Program or HAMP I think one
thing we could all agree on these programs could not have had worse names
but I think what the program did was to try to encourage a servicer or a bank
holding a mortgage to modify it to make the payments lower for a troubled
homeowner and the Treasury Department would help them do that by giving them
an incentive payment and covering part of the cost and of about the four
million homeowners that we thought were at risk of four
closure and could benefit from this program only about a million have moved
on to get a permanent modification so it’s absolutely helped some but not as
many as one would have hoped the other big housing program is one that allows
those underwater homeowners that I talked about to refinance at lower rates
one of the problems was even as mortgage rates came way down if you didn’t if
your house wasn’t worth as much as your mortgage you couldn’t get a new loan and
so the administration has tried to make it easier and change the program to so
that that people who were underwater could still get an interest rate of a
refinance at a lower interest rate and again about a million people have gotten
a refinancing through this program which is a big improvement but again I think
we’ve been hoping that more like four or five million people would be helped now
importantly essentially none of these existing programs do much of anything to
get rid of that negative equity right what we don’t have is any kind of a
widespread program where we actually write down the principal on a mortgage
that’s underwater and it’s kind of very different than what we had say back in
the Great Depression where we did have a program that did that and as a result
one of the things that’s going on is there is just a whole lot of negative
equity out there if you want to put a number on it American homeowners on it
you know as a group Oh about seven hundred and fifty billion dollars more
on their mortgages than their homes are currently worth so that’s a lot of
negative equity all right so what accounts for the housing programs that
we pursued and what I think we’d agree was they’re somewhat limited success why
was this path taken and not others and here too I can tell you from firsthand
experience that ideas were just incredibly important so my colleague at
they at the Council of Economic Advisers Austan Goolsbee play just a tremendous
role during the transition and formulating our housing policy and at
that time what the best academic evidence showed was that very few
underwater homeowners actually defaulted most people that even
if they owe more on their house than then the house is worth keep making
their payments they stay in the house and what you find is that what pushes
people over the edge what actually ends up pushing them into default is usually
something bad happening in their life they lose their job somebody gets sick
there’s a divorce and so what this analysis suggested was that if we wanted
to reduce foreclosures the important thing to do was to reduce mortgage
payments for these people that get into trouble to help them get through these
rough patches and so that was the logic behind that that beautifully named HAMP
program that that lowered people’s payments if they got into trouble well
one of the things that we ran into that actually went into where we had trouble
was in the implementation it turns out it was a good idea but we had very few
carrots and even very few sticks by which we could make financial
institutions actually modify people’s mortgages a more fundamental limitation
is I think we designed a program that only forcus only focused on part of the
problem so we were focused on preventing foreclosures
that’s absolutely very important but I think new research shows that household
indebtedness matters even separate from the risk of foreclosure in fact here I’d
tell you about some great new research by my colleague atif Meehan and his
co-author Amir Sufi who look at household debt and household spending
across all the counties in the United States and what they find is that
consumers and counties that had a big run-up in household debt before the
crisis have been much more hesitant to spend to buy cars to do home repairs all
those things than people living in counties probably like a lot of the
counties in Iowa that didn’t run up those big those big amounts of debt when
it appears to be the case is that heavy debt load to negative equity really do
seem to be a bigger problem I think that economists had realized and it suggests
that policies need to be more focused on reducing principal on troubled mortgages
and less unjust reducing payments now now I don’t
actually think it’s the government who should absorb this negative equity so
that is we described would be really expensive we’re talking seven hundred
and fifty billion dollars and as we discussed it a meeting with some of the
students this afternoon I’d be nervous about spending a whole bunch of
government money on people who are at least rich enough to own houses right so
they’re already at the upper part of the income distribution but I think there
are some very sensible ways that we could encourage or even force financial
institutions to do the right Downs on their own dime for example we could
modify the bankruptcy law to allow judges to modify mortgages right now
they can write down the principal on a car loan or other loans but not on
mortgages it seems to me housing is a case where policy was driven by sensible
ideas but implementation problems reduced its effectiveness and it’s a
place where new research suggests that the driving ideas may have been too
limited and certainly what I hope is that policy responds to this new
research and the emerging consensus that principal writedowns are desperately
needed all right well that’s housing we’ve done monetary policy I’ve saved
kind of the biggest one for last that’s the ever-popular fiscal policy
cuz fiscal policy refers to anything having to do with the government budget
whether it’s tax changes spending changes anything that affects the budget
deficit it includes these measures that are aimed to help to reduce the
unemployment rate the so-called fiscal stimulus but it also covers spending and
tax changes to deal with our long-run budget problems
so let’s start with what we’ve done with fiscal policy since the Great Recession
started and and how well is it worked and here I’m gonna branch out a little
bit and talk not just about the United States but also some other countries
because as we know from what’s going on in Europe fiscal policy is a huge issue
not just in our country but obviously in the the troubled countries of Europe and
even in a number of emerging economies such as China and Brazil fiscal stimulus
was an AB the essential part of the the policy
response to the Great Recession and here I think it’s important for people to
realize it actually started in the Bush administration the economic stimulus Act
of 2008 was signed way back in February of 2008 actually just two months after
what we now date is the the start of the recession and it provided a tax cut for
about $1200 for a typical family much of which came in the form of a rebate check
mailed to families that year now President Obama obviously continued the
fiscal response the American Recovery and Reinvestment Act of 2009 was passed
just one month after his inauguration and it’s 787 billion dollars it was the
largest counter-cyclical fiscal stimulus in American history
now one thing that people may not realize is it actually it was it took
various forms roughly about a third of it was more tax cuts about a third of it
was spending increases on things like infrastructure and renewable energy and
about a third of it was payments to either state and local governments to
help them through the crisis or to people who have been directly hurt like
through unemployment insurance or Supplemental Nutrition importantly many
other countries also took aggressive fiscal action so Germany for example had
a very aggressive program of plane of paying employers to keep workers working
but the government would would would carry the bill China spent about six
hundred billion dollars on infrastructure which may not sound so
big until you realize there are only about a third as big an economy as we
are so that’s really a huge number and I think the best available research points
strongly to the conclusion that all that rapid fiscal stimulus worldwide played
an important role in stopping the freefall if that’s a really interesting
study that we did at the Council of Economic Advisers looked at the outcome
across countries and what we found is that countries that did more fiscal
stimulus like China Korea Japan actually did better relative
to what people have been predicting before the stimulus then countries that
did a lot less like Italy and Switzerland and in that study the US was
kind of in the middle we did a moderate amount of stimulus given our size and we
did moderately better than expected now the notion that the economic stimulus
Act of 2008 and the Recovery Act of 2009 were helpful in the United States has
actually been backed up by a number of recent studies one of the the few silver
linings to this terrible cloud that we’ve been living under is that there’s
been a blossoming of new research on macroeconomic policy and especially on
the effects of fiscal policy and almost all of it finds that expansionary fiscal
policy does increase demand and increase employment relative to what it otherwise
would have been for example a really nice new study that that economic
stimulus Act of 2008 won a nice new study found that that people actually
absolutely did spend it and in fact many of them behaved like my father who I
remember was waiting for his check to come in the mail and then immediately
went to the Honda dealer and and bought a new car believe me the check did not
did not begin to cover it likewise there are several studies that
show the Recovery Act had an impact so for example I’ll just give you one but a
study by Daniel Wilson who’s at the Federal Reserve Bank of San Francisco
looked at the variation in Recovery Act spending across states and what he
concluded is that the Employment Act raised employment or the Recovery Act
raised employment relative to what it otherwise would have been by about three
million as of mid 2010 that not surprisingly as music to my ears since I
predicted it would raise employment by roughly 3 million but it’s nice to see
it confirmed by a very different kind of study
now since the Recovery Act the United States has taken a handful of additional
actions but so far we haven’t done another big round of fiscal stimulus and
indeed both here and in in the United States and especially in Europe much of
the focus of fiscal policy has really changed from stimulus and reducing
unemployment to concern about the budget deficit
you know that the Greek debt crisis which again hard to believe we’ve been
living with this nightmare for now almost a year and a half it began back
in the spring of 2010 I think that helped to wake everybody up to the fact
that many countries including our own are not on a sustainable fiscal path so
many advanced countries both here in Europe Japan are looking at just
enormous budget deficits going out and sort of that that dual problem of the
the baby boom generation retiring and rising healthcare costs continue to come
together the response in many European countries to the to the Greek debt
crisis and concern about the deficit was to move immediately from fighting the
recession to dealing with the deficit and country after country cut government
spending and raised taxes now some countries like Greece and Spain and
Portugal basically had no choice right if they wanted help with their debt
crises places like the IMF and other European countries said they had to cut
their budget deficits but others like the United Kingdom and Germany chose to
do this because they thought it was the best policy I think the outcome in
countries adopting what we call for a strong fiscal austerity that immediate
aggressive deficit reduction I think frankly has not been very good if you
look at the true problem children of Europe right they find themselves caught
in just a terrible circle so a country like Spain where fiscal austerity causes
unemployment when unemployment goes up tax revenues go down so their budget
deficit doesn’t actually fall so then they have another round of fiscal
austerity and what we see happening in a country like Spain but you could put in
Greece you could put in Italy you could put in Ireland is that what you see as
their unemployment rates have gone up and hard as it is to believe the
unemployment rate now in Spain is some twenty two point six percent and their
deficit you won’t be surprised as a disaster precisely because of it now
here in the United States we’re talking a lot about the deficit and heavens
knows we’re fighting a lot about the deficit we’re not actually doing all
that much you know this summer president the
President and Congress eventually agreed we were going to reduce our deficit over
the next ten years by about two trillion dollars and then we learned just before
Thanksgiving that the supercommittee that was set up by the legislation to
actually figure out how we were gonna do sit by two billion two trillion dollars
couldn’t come to agreement so our long-run fiscal situation is still very
unsettled well once again we can talk about where these various fiscal
policies came from and once again I think the evidence points very strongly
to a central role for economic ideas so take those first two big fiscal stimulus
actions the tax rebate under President Bush and the Recovery Act under
President Obama now in both cases the president’s leadership was important so
having watched the process up close I know it takes a lot to shepherd even a
pretty popular bill to completion so I don’t want to sell short the persuasion
and the personal leadership that both presidents provided likewise in the case
of the Recovery Act the two women senators from Maine Susan Collins and
Olympia Snowe I think both also showed extraordinary personal leadership they
made a very tough decision to support the Recovery Act despite the opposition
from their party’s leadership because they thought it was the right thing to
do but I think a far more important source of these actions were in fact the
prevailing economic ideas again it may feel hard to believe this now but given
how acrimonious the discussion of stimulus has become but what are the
most widely accepted principles of economics is that tax cuts and increases
in government spending can help to heal a troubled economy indeed one of the
things that the economics team did when we came first came to Washington in
December of 2008 which to just call a large number of respected
macroeconomists of both parties to ask them what we should do we figured we
could use all the help we could get and what we found is that Republicans and
Democrats differed some in the form of stimulus that they recommended so
Republican macro economists tended to tax cuts more and democratic economists
tended to prefer increases in government spending but there was incredibly
widespread support for aggressive fiscal expansion
likewise ideas played a key role in why the rest of the world passed aggressive
fiscal stimulus as well but importantly ideas have also played a huge role and
why it’s been stopped you know here in the United States if you are listening
to any of the discussion it’s clear many policymakers have become convinced that
fiscal policy fiscal stimulus doesn’t work to create jobs and believe me I
understand the temptation right you say we spent seven hundred and eighty seven
billion dollars and the economy is still weak so obviously the stimulus didn’t
work right but where that reasoning fails is that it doesn’t take into
account the fact that the economy was headed into a tailspin
when the Act was passed so it could still have been very helpful even if we
still have a long way to go before we’re fully recovered and as I described a
number of careful studies have in fact concluded that the stimulus did work now
in Europe ideas have changed even more radically a key idea that took hold
there is the notion that a fiscal contraction can actually be expansionary
right that is that getting the budget deficit down could actually raise output
and the mechanism is supposed to be a confidence effect that people would be
so reassured by the improvement the deficit but the private sector would
take off and you can see why this idea is very appealing to policy makers they
could deal with both their problems at one time right high unemployment the
budget deficit all we have to do is get the deficit down both problems will be
solved and it caught on very strongly particularly in the United Kingdom and
in Germany I think the main problem with the idea is it just doesn’t seem to be
right now one study thought they’d found this in the data but a much more careful
study done by the IMF actually showed pretty convincingly that fiscal
contractions were in fact contractionary hey and what they did they used budget
documents to identify every time they went through 15 countries over 30
years identified every time the countries were actually trying to do a
fiscal contraction and what they found is not surprising to most macro
economists that output typically fell and unemployment rose after such fiscal
contractions now actually back in May of 2010 the administration was actually
pretty concerned about this the spread of this notion of expansionary fiscal
contractions and and the move to fiscal austerity in Europe and we were afraid
it could derail the recovery and so actually secretary of the Treasury
Geithner and I went to Europe to try to convey the message that maybe countries
should you know take turns are a more varied approach rather than everybody
moving immediately to austerity now as an aside I will tell you that the flight
itself was a bit of an adventure so we were flying in a military plane
with with unfortunately had one lovely cabin and though we were both cabinet
members believe me the secretary of the Treasury outranks the the chair of the
Council of Economic Advisers because his position was created in 1789 and mine
wasn’t created until 1946 and that meant that he got the bed well at one point on
this flight we actually hit terrible turbulence and I saw Tim security detail
rushed to his cabin now being a nervous flier I kind of when they came out I
stopped them and said what’s wrong is the plane going down and they said no we
were afraid the secretary might have fallen out of bed so I figured it was
his it was it was justice well when we got to Europe what we tried to explain
was that fiscal austerity might absolutely be necessary for some
countries particularly those with the largest deficit or under attack by
financial markets but then other countries like the United States and
France and Germany could wait until the recovery was more formally established
before they got their budget deficits down we clearly weren’t very successful
because austerity has continued to be the main policy prescription in Europe
and frankly I think it’s not working to my mind what’s desperately needed both
in Europe and here in the United States is
much more comprehensive fiscal policy based frankly on better more accurate
ideas because fiscal stimulus does help an economy grow in the near term I think
there is a strong case to be made for doing another significant round as the
president has suggested at the same time I feel strongly we can’t just ignore the
deficit the budgets for the United States and frankly for lots of other
countries are on a completely terrible and unsustainable path and you just have
to look from some of the projections coming out of the Congressional Budget
Office to know that that this is a problem that absolutely has to be solved
but I think a sensible way to deal with both the fact we have high unemployment
now and a terrible budget deficit over the longer term is to pass a
comprehensive plan that has more stimulus now but also a plan to get the
deficit down gradually over time and we should make that decision right now
what’s spending are we going to cut whose taxes are we going to raise but
then we should phase in the actual contraction only gradually as the
economy actually recovers that way we’ll be able to do what we need to do for the
economy today but we’ll reassure everyone I think including ourselves
that we’ll be solvent over the long haul well the key message of my talk this
evening is that when it comes to economic policy I think ideas about how
the economy works are just a key determinant of policy actions and the
success of the policy depends on the soundness of the ideas and that has
certainly been true of the policy response to the Great Recession monetary
policy housing policy and fiscal policy actions have all had their roots in the
prevailing economic ideas and the policy responses that have been most successful
when the ideas behind them are based on strong empirical evidence and careful
economic theory so what’s just the idea what does the
key link between ideas and policy tell us about leadership well to my mind what
it suggests is that true leadership is indeed much less about personal dynamism
and the ability to motivate other it’s about the strength of one’s ideas
it’s about where you lead people not just whether you can get them to follow
you and I think this view of leadership has implications for universities such
as Iowa State or Berkeley where I teach and it trains so many of our future
leaders I feel we need to install instill in our students a passion for
ideas and a deep respect for evidence I think we can do the most to train them
to lead by training them to think and to never stop learning because I think the
ability to critically evaluate ideas and empirical evidence is a skill future
leaders need most to acquire I think this view of leadership also has
implications for all of us as voters each one of us needs to learn to look
past the superficial attributes such as charm and charisma and we need to focus
on kind a candidate’s ideas I think in the realm of economic policy we need to
demand that our potential leaders explain their views of how the economy
works and asked them to defend the soundness of their ideas well early on I
somehow got pegged as the optimistic member of the economics team and I still
haven’t forgiven the San Francisco Chronicle who wrote an otherwise very
lovely profile but then put the headline Obama’s sunny economic forecaster
personally I just think anybody looks cheerful next to Larry Summers it’s not that I don’t see the
difficulties facing our economy of course I do our economic challenges as
I’ve described are larger than they have probably ever been since our parents or
even our grandparents were born but my optimism comes from a belief that said
that sensible policies can indeed help to solve our economic problems as long
as they’re based on sound ideas and rigorous evidence more fundamentally I
think my optimism is born actually have a very deep respect for American voters
who I think are hungry for a serious discussion of our economic challenges
and an honest debate about economic ideas and for all our sakes I hope that
candidates from both parties will give voters the straight talk and the
substantive discussion of economic ideas that they so desperately need and
deserve thank you thank you so much dr. Romer I think that
was all not only very informative thought-provoking entertaining and
really does say as Jared said in his introduction really sets us up I think
for the Iowa caucuses and the important role Iowans play and maybe holding these
candidates more accountable for their economic ideas and their understanding
of the economy we’re going to take some questions from the audience as you can
see Pat Miller back there has her visited by the center Mike when you ask
a question please keep your questions as brief as possible so that we can take as
many questions as we have time for and then following the question-and-answer
session you are all invited to join us at the back of the hall for refreshments
so we’ll get started okay this may not be brief I’m going to address the role
of women okay I’ve read Ron Susskind’s book carefully and between the lines and
I think you alluded to it a little bit all right
there were some strong women in this administration or within government at
the time Sheila Bair Elizabeth Warren previously Brooksley born yourself and
probably some others it’s not really clear that they were all treated very
well but secondly it seemed that the women could be straightforward in their
criticisms and be direct and you were apparently direct on a few occasions
which are quoted in the book all right so is there something about the role of
women in this administration which meant that they played this kind of role and
does it say something about the kind of role women can play in administration’s
which are serious and not crackpot so that they bring something that is
different from the men because it’s very clear that Susskind could have followed
this theme in his book because he kept referring to these women and as you know
Brooksley born and I think Sheila Bair got the Profiles in Courage Award at the
Kennedy Kennedy Library thank you sure that’s a that’s a great question you
know I think I told that dinner tonight certainly based on on what I know and
and the discussions I had with Ron Suskind
he gets many things wrong but the ones the one anecdote that he did get right
was my interchange with Elizabeth Warren he actually describes you know frankly
from what I’d read and heard I was a little bit nervous about about hiring
her and so I actually had asked to meet with her and we had a very intense hour
back and forth where actually she just blew me away and I actually became one
of her biggest supporters but in the course of that we had exactly your same
discussion of people like Sheila Bair Brooksley born and all of that and I did
say something to the effect of why is it always the women that do seem to stand
up and it was a little more colorful than that so but but I won’t repeat that
um but that the main in you know that’s a gross generalization cuz I met lots of
brave men starting with President Obama right on town but I was impressed at the
degree to which the women I worked with were not afraid to stand up and to say
to say what’s what was right and what was true sometimes in very difficult
situations and so so I know and I shall give you another example I mean so the
other thing that has often struck me and again it’s a crude generalization is the
degree to which you know women can somehow you know can work together and I
see this somewhat in Congress I was quite struck I spoke recently at a
women’s Senate Network and what was striking is the degree of mutual respect
between the Republican and Democratic women senators and you know I think
that’s how the whole Senate used to be at one point in time and I think that
that’s a model for all of us in terms of what’s true in the White House you know
I think someone described it very well as saying the women have lots of power
and they feel kind of crummy and I don’t know if that is so it’s absolutely the
case that nancy-ann DeParle was absolutely central in passing health
care reform and Carol Browner played an incredibly important role in climate
change and I absolutely felt listened to on economic policy things I think women
were front and center in in the biggest policy decisions being made and
I think you know some of it is you know I think just some of the personalities
in the White House you know just not sure it was it was anything to do with
gender it’s just somehow maybe it bothered us more and one of the things
that really struck me when the president got a sense that the that there was
unhappiness or concern I remember it vividly because he called a dinner with
about ten of the center senior women and they in the you cannot in the
administration and said what can I do better and I think isn’t that what we’d
all want in our boss for someone to say I see what what might be a problem or at
least it’s a problem I want to nip in the bud and I think he tried to be you
know very proactive and make us make sure that we felt valued and empowered
so you know I think what I have trouble disentangling is it’s a tough
environment you know before I ever went somebody said there’s a lot of
testosterone in the West Wing right I think it is it’s traditionally
been a tough environment I think if anything what’s different this time is
there so many women there that actually we were a critical mass and and after a
while we actually told the president we didn’t need to meet with him we needed
to meet with one another and we started going out together and actually sort of
having that form of mutual support but you know it’s an issue I think we face
in our society we want all the best people in policy positions and that
means empowering you know a cross-section of the country and it’s
important to make sure that we do that my question for you is you know you’re
chair of the Council of Economic Advisors and that’s obviously a position
that requires you to be in the political realm quite a bit what advice would you
give to someone if he or she were coming into that position you know and like
yourself an academic how do you prepare for that kind of world I’m not sure you
ever can mean one of the things that was nice about being mean I mean anyone
who’s in the administration has to be somewhat political one of the things
that was a blessing for me I think to see
tries to be sort of the least of the political I mean with that very much I
tried to always argue from the evidence and and not just you know kind of say oh
those Republicans bad ideas right it’s actually trying to to stay balanced I
think that’s really important for the CEA chair and to actually to not get too
much drawn into into political things you know I think the I think the general
rule for the advice I’d give someone is the advice I think I’d give anybody
going into position that as much as you can right that argue from ideas and
argue from evidence and not impugn each other’s motives actually I’ll tell you
one of the funniest things might as long as my husband who took this the worst
right so when people would write things it just make him so mad and especially
when someone there was someone a very distinguished economist who wrote
something about well it’s clear Christina Romer doesn’t actually believe
this stuff but she had to make up numbers and just like David wanted to
strangle him and so he got the way he ended up dealing with this he started
writing letters where he’d you know you won’t believe you and then they haven’t
seen show it to my chief of staff would say David that’s a fine letter you know
you can’t send it but but anyway I think that actually is probably really good
advice is to say you know kind of think about how it makes you feel when someone
impugns your motives and prunes impose your values rather than argues with you
on the facts on the evidence or what is it about the theory you don’t like let’s
let’s talk about that let’s not talk about I think you’re a bad person and I
think that’s the the best advice both how you react to people and how you deal
with it is to say there must be something wrong with them because I’m
not a bad person and we’re gonna just assume they were having a bad day but it
definitely is tough thank you dr. Romer we’re hearing lots
of debate going on yet today about what caused this huge downturn in 2007 and
2008 I’m hearing it’s people on Social Security it’s
Medicare is people that got homes that couldn’t afford them and then you hear
well the banks did it and I know that the banking people are still doing
extremely well are making more money than they ever have so what is your take
what has caused this mess we’re in that’s that’s a great question I think
the first thing we can I want to take off the table it’s not Social Security
and it’s not Medicare right that is something that’s that’s certainly a part
of our long-run budget problem I won’t tell you that that’s not a big part of
why looking forward 20 or 30 years it’s hard to imagine how we’re gonna pay for
everything because because more people are retiring and health care costs are
going up so that’s a problem and frankly we are gonna have to either as a society
say we’re gonna rain those things in or we’re as a society to have to say okay
taxes enough to pay for it what isn’t going to be okay is to say let’s still
have all those benefits and not pay for it that’s the thing that can’t be on the
table but it’s not the reason we’re in the terrible recession that we’re in as
I suggested I mean I think you know the proximate cause is absolutely the
bubble-and-bust of housing prices and what that did the bubble caused a whole
bunch of over building it caused people to take on a lot of debt
it caused banks to make a whole lot of questionable loans and then when prices
came down all that kind of worked in Reverse that suddenly people were
defaulting banks were having trouble because they had all these bad loans and
people have all this debt and they don’t want to spend so that’s kind of the the
proximate cause how you divvy up blame like should banks of mean of course
banks should have been you know more cautious our regulators I think led us
down so somebody should have been watching the banks more closely and
saying boy this only makes sense if house prices always go up so I think
that gets some blame and surely there’s some homeowners that get some blame that
we’re taking on mortgage that they probably couldn’t afford may have known
they couldn’t afford there’s certainly some unscrupulous lenders who were
encouraging people to take on loans that they knew they couldn’t afford so I
think there’s there’s plenty of blame to go around you might put a little blame
on the federal maybe they kept interest rates too low
for a while and that’s part of what caused housing prices to go up so
there’s I think like many serious things there’s no one culprit I mean I often
tell people if you’re an economic historian and you go to cocktail parties
someone who doesn’t know anything they’ll say so tell me what caused the
Great Depression and you start to say well do you have an hour because there’s
no one simple answer and that’s the same anything as bad as what we’re living
through now it’s not gonna surprise you that there a number of factors that that
are mattering I think for where we are now the thing that frustrates me is so
much of the political discussion is about things that I don’t think are
really the cause of our problems so where we are now we just have a huge
shortfall of demand we just really aren’t demanding enough to keep our
factories all going and everybody employed and why we’re not demanding
enough some of it is we built too many houses so nobody’s building houses so
that’s a big chunk of demand that’s gone we have these over levered consumers so
they’re hesitant to spend so that’s part of the problem and businesses are still
kind of nervous I think mainly cuz they’re looking at Europe and saying oh
my heavens what’s coming down the line alright so they’re not doing much
investing instead what everybody’s talking about is you know what we need
are more trade agreements or what we need are you know you know worker
training and and those things actually I support both those things but they’re
not gonna get the unemployment rate down from 9% back to 5%
those are things that’ll be good for our long-run growth when we’re back to
normal I’d love to talk about those and and
doing more of those but I want people to be saying let me tell you how I’m gonna
get you know millions of Americans back to work because that’s really the the
fundamental question and I feel that’s a lot of what’s been missing in the
discussion first of all thank you for coming and thank you for your work with
CEA my question is can you talk about a forecast for how you see a recovery
playing out especially with our current focus on austerity and things like that
do you see a path to back to normal this is when I wish I could be optimistic
Christie I was hoping I was gonna contain your
hair I mean the the sad thing it mean it is very hard to see an optimistic
scenario for where we are now right so that basically you know I think that the
most likely outcome is we put her along like we’re doing now for at least
another year or two and so you know this time next year if we’re lucky the
unemployment rate is in the mid eight and you know to me that’s just like I
can’t imagine you know the president of the Chicago Fed is my current hero of
all the monetary policymakers his famous line is we should be acting like our
hair is on fire right and that’s kind of how I feel that nine percent
unemployment we should be acting like the world’s coming to an end and not
saying well maybe we can deal with the budget next year right it’s just like
it’s a it’s an incredibly horrible situation but my best guess is we’re not
gonna do very much so we’re not gonna do more fiscal stimulus I don’t see the Fed
actually gearing up to do something more dramatic and now we’ve got this giant
Europe sitting out there which if we’re lucky won’t implode so just that the
number of we have lots of things holding us back and nothing that I can see
actually you know giving me a lot of hope so rather than beat but then so let
me let me try so if I want so that’s my point estimate is you know if we’re
lucky we don’t get worse is kind of my my fear if I wanted to be optimistic so
if I was going to try you know so you know what is a little bit surprising is
despite all the things that are going on in Europe the last month or two you know
we went through a really rough patch this summer with the debt ceiling debate
and the the downgrade the numbers have been surprisingly good since then like
consumer confidence has come back up Black Friday by all accounts was like a
really good spending so maybe despite all of our guesses American consumers
are saying heck I think the world’s gonna be okay so that that’s the one
thing that that could be a source of hope so that
that if we see that happening that could help things another thing maybe just
maybe the Europeans will get their act together so I was talking at dinner
earlier you know about the the only path forward is if the European Central Bank
says ok we’re gonna buy a lot of Italian debt we’re gonna buy a lot of Spanish
debt we’re gonna get these interest rates stabilized and and help these
countries if they do that and they kind of have I think most people think we got
like a month and if they do that that could maybe be a lot of help so you
could imagine the optimistic scenario is we keep having a good holiday season
the Europeans finally do something there was a as I was walking through the
Denver Airport last night I saw Republicans might be supporting the
president’s suggestion of expanding the payroll tax cut so maybe we’d get a
little more fiscal stimulus oh you can you know that there it’s not without
hope but I don’t have a lot miss I’m afraid that the truth
thank you hi dr. Romer thank you so much for being here this evening
and I guess one part of your talk that I really appreciate it was your focus and
ideas and I think that’s something that’s surly lacking in her current
discourse and so I was wondering during the course of the internal deliberations
within the administration and how to deal with the crisis was there ever a
situation where even amongst the experts like yourself it wasn’t very clear what
the good the best idea was where or was it always this situation where well you
guys knew what the good idea was but it may not be politically feasible to
implement so were there ideas where it was like I really honestly don’t know
what’s best it’s a great question and absolutely there were times when we
didn’t know what the what the best idea was and you know again I’m not gonna be
telling any secrets we fought like cats and dogs right that there was there were
differences of opinion about the evidence and you know to the degree you
know I actually you know Larry Summers and I have a complicated relationship
but the truth is I admire him deeply and I often describe the thing that made me
feel best is when he decided I was worth arguing with right that that it was like
and when when he decided he didn’t have to just you know not listen to me that
we actually would fight back and forth and so in terms of concrete things pray
the most concrete fight we had was in the fall of 2009 so he’s just it’s not a
big one but it’s a it was about so here Larry and I were on the same side about
wanting more fiscal stimulus but we were disagreeing about what was the best way
to do it right so I think Larry was on the side of let’s do just do more
infrastructure and I was kind of worried that was pretty expensive and tended to
be slow and we’ve done a bunch of research at the CEA so here’s a just an
example of what a good policy process is like we had like swung into action
gotten data written you know computer programs all this stuff trying to say
what we thought a new jobs tax credit would do so we got kind of excited that
maybe a very cost effective way to get a lot of employment was maybe if we gave
employers an incentive for hiring and it’s actually a part of what the
president proposed in his his American Jobs Act he has a payroll tax cut for
employers but tied to the increase in your
payrolls if you increase your payrolls you put people on or you raise people’s
wages then you get the tax cut and that was an example where there wasn’t much
you know research on that topic and Larry was determined that it wouldn’t be
helpful and I had you know my staff had done these things and we thought it
would be so and that’s one you know we still don’t really know because we
haven’t really tried it in a big way but that’s that’s a place where even the
experts you know doing the best that they can came to a very different very
different conclusion so it’s not always easy sometimes like I think I’m on
fiscal on that and the big picture on fiscal policy today I feel it’s at some
level it’s easy right we need kind of both fiscal stimulus and a really
sensible probably a bold Simpson kind of grand bargain on the long-run fiscal
situation that that’s kind of a comprehensive package and I would think
you’d probably get a lot of agreement among both Republican and Democratic
macro economists that that would be a sensible policy it seems to be
impossible politically but that’s one where the experts
line up and say that makes a lot of sense and and it just can’t seem to get
done but there are certainly others where there’s a lot more disagreements
and and even even people with very you know good values and and good interest
in ideas just come to the evidence and and and read it a different way yeah
hi dr. Romer you kind of started answering my my question just now but
kind of as a young person just watching the news and you know gonna be out on my
own a full-fledged citizen in a couple years always seemed here is that there’s
so much gridlock and we can’t seem to get anything done in Washington so we
might have a surplus of great ideas but it seems like there’s no way to
accomplish those ideas so I just was wondering if you see any sources of kind
of hope or any ideas for what we could maybe change about the structure of
Washington and so maybe we start getting some things moving forward
it’s an incredibly great question you know at some level right I was so lucky
right because I was in Washington kind of at the beginning of the
administration when things when things actually passed you know my husband tell
us the story my very first economics paper so if you’re a professor right you
have to write papers and it goes to journals and my very first paper I sent
it to a journal and it came back we love this we want to publish it never
happened after that right so normally you send a paper to journal first it
gets rejected then somebody says well if you change it all these ways you know
well I felt the same about the government the first thing I felt really
strongly about the Recovery Act we worked on it a month after it there it’s
passed its law I thought this is great right yeah this is this is how the
world’s supposed to be and it’s obviously not like that the reason the
reason for that story is I mean obviously sometimes Washington does work
right so sometimes we actually people do put aside partisanship and all that
things and they just do what’s right and that’s why you know when I was really
meant what I said about we never would have gotten the Recovery Act if the two
Republican senators from Maine hadn’t said you know we convinced you know
we’re convinced and you changed it in the ways that we thought
were important so we’re going to support it and so the question is can we get can
we get back there I think the best answer is the fact that this is a
democracy and I think at some point no matter how much politicians want to have
a spitting match they have to listen to us and so I think as a young person I
think the main thing is to demand that they actually do the stuff that you
think’s important and they talk to you about their ideas you know it’s not a
short-run fix it takes time but I think that is ultimately the the main power
that that we have so the main thing is I you know I love coming to Iowa precisely
I you know no place in the world or in the country do people take their
politics as seriously and actually have the discussion about ideas with politic
with politicians and so I think it’s you know I think the main hope is that
people like you and every one of us says we’re not going to take it anymore and
you’ve got to solve our problems that’s why we put you there all right we’re
gonna take one more question that’s gonna say Diane I didn’t expect you here
I’m back I’ve had plenty of time to ask questions they we’re gonna take one more
question and then I do again invite you to join us for some treats in the back
but here’s our last question have to feel any pressure anything this question
may be like look from coming from left field but um how do you feel about the
u.s. involvement and the role and the efficiency in investing in development
projects abroad specifically with foreign aid and global health
initiatives that is certainly a change of pace you know I think that the most
important thing is you know I think from the fact that you’re asking this
question you’re an informed person that understands you know I think the the the
surveys where most Americans think we spend you know fifteen percent of the
budget on foreign aid right in truth the numbers are very small and and if
anything you know as any I think anyone who looks around the
world at the amount of suffering there is in
many places you know certainly from my point of view that seems money pretty
well spent so I certainly know that we have huge problems here at home and we
obviously need to be taking care of Americans but I think we can also I
think all of us and our personal lives desperately care about people that are
suffering and in Africa or other countries so you know I think the
important thing is to think about how to spend that money well and we were
talking earlier today I think one of the really neat areas of economics these
days is the research on development spending what’s the best way to help a
country help itself and you know the research of things like you know how do
you get farmers in Kenya to use fertilizer what’s the you know what’s
the thing that helps them the most is it credit is it information my colleague
Ted Miguel at Berkeley did some just some fascinating work on you know if you
if you help children in Africa get rid of worms do they stay in school more and
he actually you know worked with a non-governmental organization to do an
experiment that actually where you kind of randomly assign people and found it
mattered that it really improved people’s lives I think that kind of
research is very helpful in thinking about any money that we are going to
spend how do we spend it in the way that actually helps people the most and that
is is I think again a something where where the evidence is what matters right
it’s not just you know what do you think or or you know what are your politics or
whatever it’s actually the ideas what seems to work what’s the evidence and
then following those so alright well thank you it’s been such an honor to be

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