As IF Times

link Examiner Editorial: Time to admit that Obamanomics has failed | San Francisco Examiner.

If a San Francisco newspaper questions the policies and directions of the Administration, you know there is unrest among the plain folk.  Christina Romer, the academic who was brought in to chair the White House council of economic advisers has decided to go back to teaching at Berkeley after almost 2 years of poor results in the nation’s economic numbers.  Hmm.

According to Wikipedia, Romer, jointly with her husband David, worked on the study of how tax policies affect economic growth during their academic careers.  No slouch, she received her doctorate in economics from M.I.T.   The net conclusion?

“…Romer and Romer also find “no support for the hypothesis that tax cuts restrain government spending; indeed … tax cuts may increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases.”However, she notes that “Our baseline specification suggests that an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent…”

I know to most people this is as interesting as the Dewey decimal system, but put very simply, (1) tax cuts can result in higher government spending (eventually) and (2) tax increases reduce GDP by a factor of 3 times according to their work.

While the latter conclusion is rather intuitive and we’ve discussed this in previous comments, the first conclusion is suspect.  No doubt a gripping read, the Romers’ thesis that lower taxes leads to higher government spending implies a rather spurious link (in my opinion )  between the two events.  Government spending always has at its roots, wants, not needs.  Wants are a result of politics and lobbying and to a large degree, prevailing culture.  For example, if someone were to put a number on the amount of government money spent on global warming over the past 5 years, it would skew the spending statistic, but would have nothing to do with tax cuts. 

As fascinating as discussions of economic theory are to everyone, the point of this commentary is to underline the fact again that academics with very little life experience outside of the ivory tower are drawing road maps for public policy.  Some, like Paul Krugman, get Nobel prizes for their theories, while others like Romer, get to actually implement their views.  Over the past 2 years, it’s clear that what looked good on paper, fails miserably in real life.  So, it’s abandon ship and back to the world of academia for her. 

But that begs the question.  If it didn’t work in real life,  is she going back to teaching it?  Will her views on economic theories change now that she’s seen them enacted in real time?  If not, the world had better be leery of Berkeley economics grads years down the road.