THIS SEEMS TO BE A SHAME

Christina Romer, chairwoman of Pres. Obama's Council of Economic Advisers, has decided to resign. She seems to have been the only one who was correct about how big the stimulus needed to be:

”Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn’t require two trillion dollars of government spending, but Romer’s analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion. The memo to Obama, however, detailed only two packages: a five-hundred-and-fifty-billion-dollar stimulus and an eight-hundred-and-ninety-billion-dollar stimulus. Summers did not include Romer’s $1.2-trillion projection. The memo argued that the stimulus should not be used to fill the entire output gap; rather, it was “an insurance package against catastrophic failure.” At the meeting, according to one participant, “there was no serious discussion to going above a trillion dollars."

It seems that Larry Summers should leave instead of Romer. That may be too harsh a judgment on the Obama Administration because of what outgoing OMB head Peter Orszag said:

“I can personally guarantee you there was a 0.000 probability that it could have been any substantially larger.” That decision, he later conceded, was due to political imperatives that had nothing to do with economic ones.