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U.S. Economy Needs More Fiscal Stimulus: Christina Romer Defends Keynesian Economics

Aaron Task
Editor in Chief
Daily Ticker

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The stock market is near multi-year highs, unemployment is down 2% from its peak and consumer confidence is on the rise. But good news on the economy is not benefiting President Obama, judging by recent polls.

According to the latest NY Times/CBS News poll, President Obama's approval rating has fallen to 41% vs. 47% a month ago; 54% of people disapprove of his handling of the economy and 63% say the country is the on the "wrong track."

An ABC News/Washington Post poll this week showed similar trends. Still, one of Obama's former top economic advisers says the President deserves credit for his handling of the economy, not criticism.

"I have no doubt without the actions President Obama took and actions Chairman Bernanke and the Fed took we would be in a much, much worse situation," says Christina Romer, former chair of President Obama's Council of Economic Advisers. "This had all of the makings of terrible depression and the fact we are struggling but coming out is a tribute to the President's policies."

Specifically, Romer says the Recovery Act and other measures taken by the administration "made a difference, helped to strengthen growth and bring down the unemployment rate."

Of course, Romer was one of the architects of those policies and, according to multiple reports, lobbied for even more stimulus than the $800 billion package signed in 2009.

True to form, Romer is still lobbying for more and is an ardent believer in the power of fiscal stimulus, a.k.a. Keynesian economics.

"I absolutely think more fiscal stimulus would be very helpful," she says. "We need faster growth [to bring down unemployment]. Fiscal stimulus could help do that."

Notably, Romer believes short-term stimulus should be tied to long-term plans to bring down the deficit, the huge growth of which -- along with the more recent rise in gas prices -- explains a lot of the public's displeasure with Obama's economic policies. Unfortunately, there is little indication "of Congress being willing to go along with that very sensible, rational policy - what would be effective and what the economy needs," Romer laments.

Such views are clearly in the minority in Washington and much of the economic punditry these days is seemingly dedicated to the notion that more government spending to help boost the economy -- a.k.a. Keynesianism -- is the absolute wrong prescription. (See: Europe's "Going in the Wrong Direction," Forbes Says: "The Worst of Both Worlds")

But Romer dismisses and (politely) challenges the skeptics.

"Fiscal stimulus absolutely can and does help the economy," she says, citing "unbiased" academic research and recent history. "Countries that did more stimulus in 2009 recovered more quickly from the downturn than those that did less," Romer declares.

And, yes, that very much includes the United States -- even if growth isn't what it "should" be and even if President Obama is seemingly getting very little credit for the recovery to date.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com