Romer: More QE2 and a payroll tax cut for business

At least President Obama picked the right advisor:

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.”

Pity he didn’t listen to her views.



32 Responses to “Romer: More QE2 and a payroll tax cut for business”

  1. Gravatar of W. Peden W. Peden
    13. July 2011 at 15:30

    She also has done some very interesting work suggesting that the 1870-1913 period in the US was much more stable than previously thought. We need more economists like her.

  2. Gravatar of Alexander Hudson Alexander Hudson
    13. July 2011 at 16:20

    Obama should appoint her to the Fed. Like, right away. And then spare no expense getting her confirmed.

  3. Gravatar of Aidan Aidan
    13. July 2011 at 16:35

    I guess I’m not sure how Obama could have singlehandedly put these two recommendations into action.

  4. Gravatar of marcus nunes marcus nunes
    13. July 2011 at 17:07

    I agree that she´s good. Her big mistake was to join in on the fiscal stimulus bandwagon (1.5 multiplier) in early 09.

  5. Gravatar of Gary Gary
    13. July 2011 at 17:24

    Before this cycle is over, nobody will believe that the Federal Reserve is capable of doing anything to improve the “unemployment problem.” It seems crystal clear to me already.

  6. Gravatar of John John
    13. July 2011 at 18:03

    Isn’t she the one that predicted unemployment would peak at 8 percent with the stimulus package? Why does the government keep recycling the same people who didn’t see the crisis coming and/or advocated the current crippling policy mess? I’m looking at you Bermanke, Romner, Goolsbee. Your all a bunch of failures. Obama is also a failure for appointing this carosel of losers.

  7. Gravatar of Scott Sumner Scott Sumner
    13. July 2011 at 18:21

    W. Peden and Alexander, I agree.

    Aidan, Tell Congress that if they don’t do a vote, he’ll do an recess appoint. FDR would have said there was a national emergency; move, or get out of the way.

    Marcus, I agree.

    Gary, I disagree.

    John, Those officials are forced to say that. In any case, it’s not an economist’s job to forecast unemployment–no one can do that. It would be like hiring a statistician based on whether they could predict which number will come up in the lottery.

  8. Gravatar of Gabe Gabe
    13. July 2011 at 18:22

    Because the only other alternative is to hire people who make “politically unrealistic” suggestions like eliminating the Fed and replacing it with an NGDP targeting algorithm or letting JP Morgan go bankrupt, getting rid of the primary dealer system, having a free market in currencies, not having a centrally planned monetary system.

    TPTB are not going to off themselves, the people of this country have to do it for them. Most of the people are sitll ignorant so TPTB can keep appointing idiots like Bernanke who thought the housing market was fine in 2007. If the NFL season is delayed this fall then it could be dangerous for the financial oligarchy. I predict the lockout gets resolved.

  9. Gravatar of Mike Sandifer Mike Sandifer
    13. July 2011 at 18:29

    This very much mirrors my thoughts.

    By the way, cutting only the employee half of the payroll tax is an example of liberal economic stupidity.

  10. Gravatar of Mike Sandifer Mike Sandifer
    13. July 2011 at 18:33


    Mightn’t it have been better if Obama and Congress had gone the whole goat on fiscal stimulus, to the tune of $2+ trillion? Then, either we would have gotten more stimulus, which is good, and/or pro-fiscal stimulus people would have had to explain any failure. Ambiguity is one of the problems with half-measures.

    The same is true of small QE programs, except that given that we had 2 of them, both with impressive result in my view, I’m guessing the case that QE worked is stronger.

  11. Gravatar of John John
    13. July 2011 at 18:45

    There have been economists who were able to predict the housing and financial crises, Peter Schiff probably being the most notable example, yet no one in the government listens to guys like him, Jim Rogers, Robert Murphy, etc. Also, if government economists are “forced” to say things that aren’t true, that doesn’t exhonerate them for saying it. They should resign of they’re forced to lie, they wouldn’t be able to make much impact in such a situation and they can easily make a solid living doing something else.

  12. Gravatar of John John
    13. July 2011 at 18:47

    Also, Scott seems to be saying that economists models are no better at predicting the future than a statistician trying to pick a lottery winner. That doesn’t surprise me, but it should raise some eyebrows among the general public.

  13. Gravatar of marcus nunes marcus nunes
    13. July 2011 at 18:58

    Doing that would have entailed too great a cost just to “shut up” Krugman!

  14. Gravatar of Mike Sandifer Mike Sandifer
    13. July 2011 at 19:06


    Neither Peter Schiff nor Jim Rogers are economists or anywhere near it. The former is a stock broker with an accounting degree who says ridiculous things daily, like an inflationary depression is around the corner, inflation doesn’t cause consumers to move up purchases, the rise in the dollar in late ’08-early ’09 was a “head fake”, that the true measure of value is with respect to gold, that the US will become a net exporter of oil, and on and on.

    Jim Rogers actually goes around saying the Fed is increasing the deficit with “money printing”, so I wouldn’t pay any attention to them. And Murphy might have an econ PhD, but admits he’s been wrong on inflation all along, but still claims it’ll be a problem in the future, despite all evidence to the contrary. He also has very odd interpretations of data, to be kind.

    Plenty of people claimed to see a housing bubble, including Keynesian Dean Baker in 2002, years before the 3 you mention above talked about it. All he did was notice home prices were rising faster than inflation. As Scott points out, that doesn’t mean he was right, and we certainly can’t assume the three above-mentioned were right about anything either.

    My sense is that Schiff had some solid reasons for thinking there were problems in the housing market, but we’re suppose to believe he had a good model to describe what would happen when he was in exactly the wrong investments in ’08-’09? Remember, he predicted decoupling and massive inflation, and we got instead a 31% appreciated dollar and many emerging markets he recommended crashing harder than ours. Take those two factors together, and at least some of his investors lost far more than market indexes, which is failure by any measure.

  15. Gravatar of Mike Sandifer Mike Sandifer
    13. July 2011 at 19:10


    Is it really a greater cost than drifting as we are now, with endless debates over fiscal versus monetary stimulus? Don’t be surprised if we have a President Romney in office soon who pushes another fiscal stimulus measure through a Republican-controlled Congress to try to get the economy moving and save themselves. It may be more than worth the price to go all the way, when you consider the price of ambiguity.

  16. Gravatar of marcus nunes marcus nunes
    13. July 2011 at 20:00

    Probably, the size of FS would still, ex post, have been considered inadequate. The lessons of the Great Depression have not been learned! And the major lesson is that fluctuations (especially deep ones) arise because of “monetary disorder”. At present only those with a QM inclination believe that.

  17. Gravatar of John John
    13. July 2011 at 20:00


    All Schiff’s positions you named make a great deal of sense. I agree he overhypes his claims but you can’t say that it’s a ridiculous proposition that we’ll have an inflationary depression. Jim Rogers is right that the Fed is enabling government borrowing even if try aren’t creating the deficit directly. I think Murphy’s proposal to drop the income tax as fiscal stimulus would have done a lot more to help the unemployment rate than anything our current policymakers have done. These guys were at least able to see trouble brewing while Bernanke was saying everything was fine into mid-2008. Either he’s a liar or an incompetent and either way he shouldn’t have one od the most powerful jobs in the world. Look, bottom line is I’m an “Austrian.” I think mainstream Econ has failed miserably and it’s time for a paradigm shift back to actual capitalism which is completely incompatible with our present banking system.

  18. Gravatar of CA CA
    13. July 2011 at 21:51

    Here is the most thorough and satisfying take-down of Peter Schiff I’ve ever come across.

  19. Gravatar of John John
    13. July 2011 at 23:38

    That “takedown” of Schiff was silly. I do think his positions are exaggerated and alarmist but just because “decoupling” didn’t happen in ’08 doesn’t mean that China isn’t going to eventually back out of the market for US treasuries and allow their domestic consumption to rise instead of following the expiry model. Most importantly gold rapidly recovered since 2008-9 and is making record highs as I’m typing. Your link seems to think that he was wrong because he failed to predict the dollar rally and fall of foreign equities for a few months. Long term investors worry about long term trends and he’s been generally right about those larger trends: rising commodity prices and economic strength moving away from the US. To say he was wrong because a long term investor had a few ba quarters is to misunderstand what long term investors do.

  20. Gravatar of W. Peden W. Peden
    14. July 2011 at 01:51


    I agree with the Austrian School that predictive success isn’t the be-all and end-all of economics. I also don’t think that the continued and embarassing failed predictions of high inflation/hyperinflation from the Austrian School invalidate the great work of Hayek and Von Mises. Nor do I hold the successful predictions of an economic crisis prior to 2008 to invalidate Austrian School praxaeology.

    It amazes me how a school of economic thought that pretends to believe in a priori methodology consistently uses permabear predictions to entice new converts.

  21. Gravatar of Scott Sumner Scott Sumner
    14. July 2011 at 07:56

    Gabe, I hope you are right about the NFL. And I agree that banks are too powerful.

    Mike, Obama got it backward because he didn’t listen to Romer.

    John, Non-economosts are also no better. It’s been shown that market professionals are not consistently right, rather they just get lucky.

  22. Gravatar of flow5 flow5
    14. July 2011 at 08:32

    We need higher ngDp. Before the payroll tax, we need to reinstate usury ceilings for credit card holders. Then the FED needs to drop the remuneration rate & broadly reinstate legal reserve requirements across all deposit liabilities & raise ratios while continuing with QE…

  23. Gravatar of ssumner ssumner
    14. July 2011 at 18:04

    flow5, Usury laws are a terrible idea. So are reserve requirements, which are contractionary.

  24. Gravatar of Mike Sandifer Mike Sandifer
    14. July 2011 at 19:47


    To say modern macro has failed is lazy really, and I made the claim a couple of years ago. It turns out it was out of ignorance.

    Frankly, people like Scott, Krugman, and many others have made strong cases to me that a lot of basic macro theory is ignored by many economists often seen in the media, as well as by policymakers and pundits. Maybe if you actually take some courses in economics, or at least spend some more time reading blogs like this, you’ll understand that there are some economists whose models seem to match up with reality very well and they’re not necessarily trying to sell you anything.

    If you understood something about basic macro, you’d understand that Schiff apparently isn’t even aware of Ricardian trade theory and just assumes that since we’re losing jobs in US manufacturing, that the industry is shrinking here. The truth is quite different. For example:

    Schiff keeps saying we need to manufacture more, and have more Americans in manufacturing jobs, but there’s no reason to believe that’s true, sans maybe as an effect of some monetary stimulus. He wants to bring lower value-added production back here, which is inefficient for our economy. Countries export what minimizes opportunity costs.

    Also, he claims the paradox of thrift is a myth, again that loose money doesn’t spur consumer purchases, claims Say’s Law holds… These are truly fundamental fallacies that anyone coming out of an intro course should reject.

    Just because ideas seem to make sense doesn’t mean they do, and especially with complex fields like macroeconomics, intuition is all too often a poor guide.

  25. Gravatar of Mike Sandifer Mike Sandifer
    14. July 2011 at 19:55


    Have you seen the comments from Summers, Romer, and Jared Bernstein in which they admit that a much bigger stimulus was needed(over $2 trillion, according to the latter two), but that they really didn’t even know how to spend that much money quickly to serve as stimulus?

    Obviously, this is another point that may support your skepticism on the effectiveness of such policies.

  26. Gravatar of flow5 flow5
    15. July 2011 at 04:49

    “Usury laws are a terrible idea. So are reserve requirements, which are contractionary.”

    No, both usury & reg q ceilings are good laws. IORs are both contractionary & induce non-bank dis-intermediation, whereas reserve requirements are only contractionary & an IOR substitute.

  27. Gravatar of Scott Sumner Scott Sumner
    15. July 2011 at 09:48

    Mike, Do you have a link?

    Flow5, Do you like loan sharks breaking people’s legs?

  28. Gravatar of flow5 flow5
    15. July 2011 at 13:49

    “Do you like loan sharks breaking people’s legs”

    Not funny. You know that wasn’t why the legislation was changed. Some people’s legs do deserve to be broken though. Bernanke is one of them. I would go much further. Since no one has the courage, nor the knowledge, to discipline the bankers, the U.S. should nationalize the member banks. It will happen in any event. It’s called a “command economy” and that will be the only way to cope with our future problems.

  29. Gravatar of Mike Sandifer Mike Sandifer
    15. July 2011 at 14:38


    I didn’t save the links. I encountered them earlier this month and last, but I’ll look around.

  30. Gravatar of Scott Sumner Scott Sumner
    16. July 2011 at 09:58

    flow5, Worked fine for the Soviets.

    Mike, Thanks.

  31. Gravatar of flow5 flow5
    17. July 2011 at 09:56

    If you don’t know the answer don’t pretend to. Don’t compare apples to oranges.

  32. Gravatar of Website Website
    26. July 2011 at 04:52


    TheMoneyIllusion » Romer: More QE2 and a payroll tax cut for business…

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