Friday, February 27, 2009

The View from the Top

Here is a very readable statement from Christina Romer, the Chair of the CEA (Council of Economic Advisors), about the economic policies of the Obama administration. This looks good. Read the full statement here. Here is a key statement:
...there is strong reason to believe that a recovery in the real economy is salutary to the financial sector. When people are employed and buying things, loan defaults fall and asset prices are likely to rise. Both of these developments would surely be helpful to stressed financial institutions. This is, I believe, a key lesson of the Great Depression. In the Depression, the end of deflation, renewed optimism, and increased employment and output were as crucial to the recovery of the financial system as the more direct actions taken to stabilize banks. Thus, real and financial recovery reinforced each other. So, fiscal policy to raise employment may help to restart lending and in that way generate a more durable recovery.
This has the right tenor and the right focus. This sends the message that the government "gets it" and is working hard to stop the slide and lead a recovery.

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