The $787-billion economic stimulus act that Congress approved in February at the urging of President Obama has helped “change the trajectory” of the nation’s economy, White House economic adviser Christina Romer said Thursday, and the administration is on track to spend 70 percent of the money by the end of the next fiscal year.
Nevertheless, Romer said, “we are no doubt in for more turbulent times.”
Citing a monthly report on unemployment due Friday that is certain to show “hundreds of thousands” of jobs lost in July, she said any turnaround in the job market will lag behind a turnaround in the recessionary decline of the nation’s gross domestic product, which should show growth by the end of the year.
The administration’s robust defense of its stimulus comes amid criticism from Republicans in Congress that the White House is piling debt upon debt with its economic initiatives and its plans for health care reform. As unemployment continues rising, Republicans are asking, “where are the jobs?” — the 3 million that the administration promised to create or save with the stimulus.
“Over the spring and summer, there has been a lot of chatter about what the Recovery Act was doing and how well it was working,” Romer, chairman of the president’s Council of Economic Advisers, said in an address to the Economic Club of Washington, offering what she called “a clear-eyed assessment of what it has accomplished and what we can expect going forward.”
“The trillion-dollar stimulus bill has so far been short on job creation and long on government debt,” said Senate Republican leader Mitch McConnell, R-Ky. “And while any sign of the recession slowing is welcome news, it would be a mistake to credit $1 trillion in new government debt rather than the resilience and productivity of the American worker.”
The most recent report on gross domestic product — down 1 percent during the last quarter — provided “a clearer sense of the depth of the recession over the previous five quarters,” she said.
“The Recovery Act, together with the actions taken by the Treasury and the Federal Reserve to stabilize financial markets and the housing sector, is helping to slow the decline and change the trajectory of the economy,” Romer said. “It is providing a crucial lift to aggregate demand at a time when the economy needs it most. And, we anticipate that the effects will build through the end of this year and the beginning of the next. “
In a recession that started in December 2007, she said, “the initial downturn was relatively mild.” The GDP declined by 0.7 percent, at an annual rate, in the first quarter of 2008 and about 100,000 jobs were being lost each month. Subsequent declines in housing and stock prices last summer and a pullback in consumer spending “sent shock waves through our financial system,” she said, and the collapse of Lehman Brothers in September “set off a genuine financial panic.”
“Just how sick the economy would prove to be and how fast it would fall were still unclear,” Romer said. “But there was no question in our minds that the economy was in its most precarious position since the Great Depression.”
Obama, she said, was advised in December “to hit the financial crisis and the burgeoning recession with as much force as possible.”
“In the past few months, some have tried to portray fiscal stimulus as an exotic tool with a questionable pedigree,” she said. “In fact, it is a tried and true remedy widely supported by economists across the political spectrum. To use a medical analogy, fiscal stimulus is a well-tested antibiotic, not some newfangled gene therapy.”
“There is also ample evidence that fiscal stimulus works,” Romer said.
“The president aimed for a package that was large and got good employment bang for the fiscal buck,” she said. “It was designed to provide a lift for at least two years.
“The money is absolutely going out the door quickly. As of the end of June, more than $100 billion had been spent,” Romer said. “Those numbers are rising each week, and we are on track to have spent 70 percent of the total by the end of the next fiscal year.”
The rate of decline in the GDP has slowed considerably — from 6.4 percent in the first quarter of this year to 1 percent in the second quarter, she noted.
“To be sure, the economy is far from healthy, and we obviously have a tremendous distance to go,” she said. “Real GDP, after all, is still declining. But economies don’t switch from rapid decline to robust growth all at once.”
For those who question the impact of the Recovery Act on this, she said, it’s necessary to project what would have happened without it. Historical trends suggest that the decline during the last quarter would have been more than double what it was without the infusion of spending.
The Recovery Act also will have an increasing effect in coming quarters, she said, and the GDP is likely to show positive growth by the end of the year.
Employment will “almost certainly lag,” however, with the monthly job report coming Friday certain to show that “hundreds of thousands of jobs” were lost in July.
“Given how far the economy has declined, recovery will be a long, hard process,” Romer said. “Even if GDP growth is relatively robust going forward, it will take a substantial time to restore employment to normal and bring the unemployment rate back down to usual levels.”
“The bottom line is that we are no doubt in for more turbulent times,” she said. “The actions we have taken, particularly the American Recovery and Reinvestment Act, have clearly changed the trajectory we are on. … And, I firmly believe that when the history of this period is written, the Recovery Act will be seen as the beginning of the end of this terrible economic crisis.”
(c) 2009, Tribune Co. Source: McClatchy-Tribune Information Services.