WASHINGTON (Reuters) - Departing White House economist Christina Romer said on Wednesday the United States needed to find the political will for more economic stimulus, even if it pushed up the fiscal deficit in the short run.
“While we would all love to find the inexpensive magic bullet to our economic troubles, the truth is, it almost surely doesn’t exist,” Romer said in a speech at the National Press Club.
“The only sure-fire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less. In my view we should be moving forward on both fronts.”
Romer said last year’s economic stimulus package had staved off a depression and that despite the debt crisis in Europe, there were “very small” odds of the economy falling back into recession.
“But I desperately hope that policymakers on both sides of the aisle will find a way to finish the job of economic recovery,” she said.
Economic data in the past couple of months have suggested the recovery is faltering and that there is a growing possibility of a “double dip.”
Nevertheless, there is next to no political will in Congress for another stimulus package, with Republicans and many Democrats increasingly concerned about the growth in the fiscal deficit.
The lackluster economy has put pressure on President Barack Obama’s Democrats ahead of November 2 elections that could shift the balance of power in the U.S. Congress.
Obama said this week that he and his advisers were discussing ideas to help boost the recovery. Romer said there was no time to waste.
“The key is that we need to take action and we need to do it quickly,” she said.
White House officials have been debating for months whether to focus on boosting the economy or on reducing the deficit. Romer has been among those arguing for more stimulus.
“Given our long-run fiscal challenges, any additional support should be done in a responsible way.” she said. “But concern about the deficit cannot be an excuse for leaving unemployed workers to suffer.”
The U.S. economy is not growing at its full potential because of a lack of consumer, business and export demand, Romer said, adding that GDP by most estimates was still about 6 percent below trend.
“My prediction is we come through this period of turbulence and go back to steady growth again,” Romer said.
The $814 billion economic stimulus package that Obama pushed through Congress last year has been heavily criticized by Republicans.
They contend it exacerbated the budget deficit -- which is estimated to hit $1.5 trillion this year -- without bringing down the 9.5 percent unemployment rate. Democrats argue the jobless rate would have been much higher without it.
Obama has appointed a fiscal commission to study the deficit challenges facing the country and asked it to report back by the end of the year. Its recommendations are expected to include a mixture of tax increases and spending cuts.
Romer launched a vigorous defense of the stimulus in her speech, saying the recession caused by the 2007-2009 financial crisis was “fundamentally different from other postwar recessions” and required dramatic action.
“Because the final bill was a mixture of hundreds of measures, many of which don’t come with Recovery Act signs or easily identifiable links to the act, it (has) been hard for people to see what the act has done,” she said.
“But it is precisely because it works through existing programs and spreads funds widely that it could get out quickly and reap large benefits.”
Romer announced earlier this month that she would leave her job as chairwoman of the White House Council of Economic Advisers on September 3 to return to her job as a professor at the University of California, Berkeley.
Experts say a Labor Department report due on Friday could show an uptick in the U.S. jobless rate in August to 9.6 percent from 9.5 percent in July, which would add to Obama’s dilemma ahead of the November congressional elections.