Freedom Line Blog

The White House has made the decision that debt, all $12 trillion worth of it, no longer matters in America.  Instead of attempting to lower the $1.4 trillion annual budget deficit, the White House is looking for another round of stimulus pork.

According to White House Economic Advisor Christina Romer, it would be “suicide” to focus on deficit reduction to the exclusion of “job creation.”  Her solution, of course, is to repeat the past two/three failed stimulus bills and spend another $50 billion on infrastructure.   In Washington, D.C. that means $5 billion on infrastructure and $45 billion on pork and other preferred government handouts.

Romer’s solution is odd considering this paper she authored with her husband in April (after she began working at the White House) that concluded each dollar of tax cuts historically raised Gross Domestic Product (GDP) by $3, greater than many similar estimates of government stimulus spending.

Romer also concluded that tax increases can easily lower GDP.  As she wrote, “Our results indicate that tax changes have very large effects on output.  Our baseline specification implies than an exogenous tax increase of 1% of GDP lowers real GDP by almost 3%.”  There appears to be a big difference between Doctor of Economics Romer and White House employee Romer.

With all this knowledge about the virtues of tax cuts and the harm of tax increases, Dr. Romer should pay a visit to the West Wing occasionally and remind President Obama that his policies will continue to shrink GDP and impede job creation.