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Christina Romer: A Weaker Dollar Is Good For America

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Frustrated by "the suffering of real families," President Obama's former top economic adviser recently called for action: "If I have a complaint about policy these days, it's that we're not doing enough," Christina Romer said in a speech last month at Vanderbilt University. "I think there are tools we have tools we have that we can use, and I think it's shameful that we're not using them." (See: Former White House Economist Blasts Inaction On Jobs)

With unemployment still near 9% and the "real" unemployment rate at 15.7%, "we can't afford not to do more," Romer tells me in the accompanying video. "For heaven's sake with this many people unemployed — think of what it's doing to government revenues and support payments. If all you're worried about is the budget deficit, it's really important" to put people back to work.

In terms of specific policies, Romer recommends a payroll tax holiday for corporations - rather than workers. Because "firms respond to incentives", making it less expensive would encourage them to do more hiring.

Romer also wants more action from the Fed, which has already taken extraordinary measures to boost the economy and financial markets.

"What I'd like is for the Fed to come at the unemployment problem with the same passion as when the financial system was in such distress," she says.

It's a "mistake" for the Fed to end QE2 in June as planned, Romer continues. "The evidence is it's been very effective. I don't understand why we'd be dialing back that tool."

Despite the recent rise in Treasury rates, QE has been effective at lowering long-term rates, she says, citing academic research such as a new report from the NY Fed entitled: Large-Scale Asset Purchases Were Effective at Lowering Borrowing Rates.

Lower rates encourage corporations to make investments and individuals to borrow, "which tends to encourage spending which puts people back to work," Romer says.

More controversially, Romer lauds QE for helping to weaken the dollar. A weaker dollar makes U.S. goods more competitive overseas, boosting exports and GDP growth, and ultimately hiring. While that's true, she seems to overlook the impact a weak dollar has on ordinary Americans in terms of falling buying power and punishment for savers and those living on fixed-incomes.

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