The $787 Billion Question

AuthorMaureen Burke
Positionon the staff of Finance & Development.

People in Economics

When Christina Romer received an e-mail out of the blue in November 2008 from someone wanting to talk to her about the transition team of the newly elected U.S. president, her first instinct was to ignore it. Probably a job seeker who believed she had some connection to Barack Obama’s campaign, she thought. Â

But her husband—and fellow economist—David did an Internet search on the e-mail’s sender, Michael Froman. “You might want to call him back,” he advised his wife, “He’s the head of economic personnel for the transition” between the George W. Bush administration and the new Obama government.Â

Romer and her husband, both professors at the University of California, Berkeley, were staunch Obama supporters. But Christina (known to her friends as “Christy”) had little involvement with the campaign, apart from a few briefing memos she had prepared for Austan Goolsbee, Obama’s top economic advisor. So when she was invited to meet with the president-elect in Chicago to discuss being chair of his Council of Economic Advisers (CEA), the experience was “surreal, and a bit terrifying,” she says.Â

The interview took place against the backdrop of growing financial instability that had spread from the U.S. mortgage market to a near global panic. Two months earlier, the giant investment bank Lehman Brothers had collapsed in the largest corporate bankruptcy in U.S. history. A few weeks later, the New York Stock Exchange suffered its steepest single-day drop in decades. Credit markets were frozen. Then the Bureau of Labor Statistics reported that the U.S. economy had lost 240,000 jobs in October, a sign that the financial crisis was spreading to the real economy.Â

Obama began the meeting by saying that monetary policy had done all it could to solve the crisis, so using fiscal—taxing and spending—policy was the only option. Though Romer agreed that fiscal stimulus was needed, the academic in her couldn’t help disagreeing with the premise of the President’s statement. “The Fed really isn’t out of bullets. There is still more it can do,” even with interest rates approaching zero, she told him. Drawing on her research about how monetary expansion had helped bring the country out of the Great Depression of the 1930s, the two discussed what tools the government had at its disposal and what U.S. President Franklin Roosevelt had done right 75 years earlier. “I was amazed at how much he knew about the 1930s and how incredibly intellectual the discussion was,” Romer recalls.Â

Obama offered her the job on the spot and she accepted. Only three and a half weeks after the election, she left for Washington on November 30. The next month was a whirlwind as the couple uprooted their family and found employment for David, a school for their youngest child, 12-year-old Matthew, and a house to rent.Â

Romer later asked Rahm Emanuel, then Obama’s chief of staff, why she was approached for the post. Emanuel, now the mayor of Chicago, told her, “That’s easy. You were an expert on the Great Depression, and we thought we might need one.”

Turning gold into lead

Like Ben Bernanke, the U.S. Federal Reserve Board chair, Romer has devoted much time to studying the causes of and policy responses to the Great Depression. Although mainly focused on monetary policy, this work has led her to believe that the government has a role in stabilizing the economy. So it’s no surprise that, chairing the CEA during the country’s worst economic crisis since the Great Depression, Romer advocated swift government action that took the form of the massive 2009 stimulus package.Â

Romer’s interest in recessions was shaped, in part, by personal experience. She was born in the St. Louis suburb of Alton, Illinois, to a chemical engineer and a schoolteacher, and later moved with her family to the manufacturing town of Canton, Ohio, in the U.S. industrial heartland. Attending high school there in the 1970s, she witnessed the region’s decline—along with the oil price surges that began in 1973 and the recession and inflation that followed. “Economic issues inherently struck me as important because of what I saw around me,” she says, prompting her to pursue the subject as her major at the College of William and Mary in Virginia.Â

In the spring of 1983, when Romer was in her second year of a...

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