ABC News' Matthew Jaffe reports from Arlington, Va.:
Critics have complained the Obama administration has been all doom and gloom about the economy, but in an apparent shift in rhetoric since the President's address to Congress last week, one of his top advisers today predicted the stimulus package will prove even more beneficial than expected in helping the nation out of its recession and ushering in a period of "very rapid growth".
“A common argument is that fiscal stimulus will have less effect because financial markets are operating poorly and lending is not flowing. I want to offer a different view,” said Christina Romer, chair of the Council of Economic Advisers. "I think it is possible that fiscal policy will have even more oomph in this situation. When households and businesses are liquidity-constrained by reduced lending, any money put in their pockets is more likely to be spent.”
In a speech this morning at an economics conference in northern Virginia, just outside Washington DC, Romer, noting that "the deeper the recession, the more rapid the rebound," forecasted that when the country recovers from its current crisis, it will enjoy a period of “very rapid growth”.
“When the economy turns around and confidence returns, the resulting pent-up demands spur rapid growth," she said. "What this means for the current situation is that fiscal policy may have a very large effect at some point. Given how far the economy has fallen, it is clear that sooner or later, we are going to have a period of very rapid growth as things return to normal.”
In fact, Romer said, the stimulus, the financial rescue plan, and the housing plan could combine to become the modern-day version of President Franklin Roosevelt’s New Deal that drove the country out of the Great Depression.
“In my mind, the American Recovery and Reinvestment Act, together with the financial stabilization plan and housing reforms announced over the past few weeks, may provide just such a Rooseveltian moment,” she said. “We could see fiscal policy having more effect than usual by giving American consumers and producers the confidence and certainty they need to get back to spending and investing.”
Romer's optimistic address to the National Association of Business Economists' annual conference came at a time when she acknowledged that consumer and business confidence has been crumbling.
"Concern over what could happen is almost surely greater than perceptions of what is likely to happen," she noted.
Romer later fielded one question expressing concern that the administration's tone on the economy has been too negative, but her comments today were anything but.
Just one day after the Dow dropped to its lowest close in 12 years, Romer said, “We feel very confident that eventually the markets will respond when they understand the policies and when the policies start doing what we firmly think they’re going to do.”
On the administration's budget projections, she acknowledged that she was “more optimistic than average”, but said that this "rosier" outlook was based on her belief that the administration is implementing good policies.
If there was any pessimism from Romer, it was her assessment that the nation is enduring and will endure a difficult first three months of 2009.
Citing last week's second reading of 2008 fourth quarter GDP getting revised down more than expected, Romer warned that “we’re now thinking the first quarter is gonna be pretty lousy.”
One negative prediction on a day when the view from the administration was predominantly positive.
-- Matthew Jaffe