Reason gives Christina Romer a loveless sendoff

Christina D. Romer is quitting as chairwoman of President Obama's Council of Economic Advisers.

The ordinary function of government is to destroy talented people, but Romer's epic failure has an additional element of tragedy. As an economist, Romer did an excellent job [pdf] of establishing that New Deal stimulus failed to end or seriously mitigate the Great Depression. As an Obama team player (and poignantly, a sunny supporter of the then-senator's campaign), she made a 180-degree turn toward pro-stimulus hocus pocus. Romer will be remembered as the main advocate of the mythical "multiplier" phenomenon, in which every federal dollar spent produces more than 100 pennies worth of economic activity. This is the kind of economics you'd expect to hear from a fine arts major.

Maybe it won't matter on the lobbyist/lecture circuit, but at some point a person must say, "I told all those lies and this is all I get for it?"

If you project what would have happened under the old system, you can always make a new system look like the right answer

Greg Mankiw:

...the fiscal stimulus act passed last year, gave the Council of Economic Advisers an impossible job: measuring how many jobs the act created. Here is the CEA's latest attempt. As far as I can tell, there are two kinds of evidence here.

First, there are model simulations. That is, the CEA took a conventional Keynesian-style macroeconomic model and used those set of equations to estimate the effect the stimulus should have had. Essentially, the model offers an estimate of the policy's effect, conditional on the model being a correct description of the world. But notice that this exercise is not really a measurement based on what actually occurred. Rather, the exercise is premised on the belief that the model is true, so no matter how bad the economy got, the inference is that it would have been even worse without the stimulus. Why? Because that is what the model says. The validity of the model itself is never questioned.

My take, my language: The light blue areas to the right of the vertical line are estimates of how many jobs would have existed in the absence of stimlulus. The dark blue areas above the light blue areas reflect the number of jobs actually added. Because the validity of the model is not questioned, the Council of Economic Advisors has wide latitude in attributing new jobs to the stimulus.