Obama Economist Says Odds of a Double-Dip Recession 'Very Small'

The odds of a double-dip recession "are clearly very small," Christina Romer, outgoing chairwoman of the president's Council of Economic Advisers, said at a Sept. 1 luncheon.

She warned that the greatest threat to the economic recovery is the temptation to withdraw growth-inducing policies too soon. The 9.5 percent unemployment rate is at "an unacceptable level by any metric."

An expert on the Great Depression, Romer cited the example of 1937-38, when recovery from the depths of the early 1930s led to premature removal of economic support and a subsequent economic decline in 1938.

The answer to a range of economic issues - the budget deficit, continuing high unemployment, reluctance of firms to hire and invest and hesitation of consumers to spend - is "to get the economy growing again," she said, but did not imply that this would be easy.

The current recession, Romer said, is "not my father's recession," when he was laid off but found other employment relatively soon.

"Precisely what has made it so terrifying and so difficult to cure is that we have been in largely unchartered territory." she said. "An all-out financial meltdown in the world's largest economy and the center of the world's financial system is something the world has experienced only once in the past century - in the 1930s."

Romer attributed the recession to regulatory lapses and unsound practices.

In many recessions, growth is encouraged by cutting interest rates to spur housing, investment and other interest-sensitive sectors, she said, but this recession began with low interest rates.

"Indeed," she said, "the economy faces numerous headwinds not normally present in recoveries."

Romer listed an oversupply of housing, consumer caution after the crisis they have experienced, and declines in tax revenues for state and local governments. Thus, in this recovery, many of the usual drivers of growth are missing, she said. For this reason, she said, additional recovery measures have been included in the 2011 budget.

Just as the recession was unprecedented, the administration's initial policy response was unprecedented, Romer said. She described the American Recovery and Reinvestment Act, passed a month after the inauguration, as "large, well-diversified, temporary and fast-acting."

But, she said, "we don't want to go back to where were" with unbalanced growth. She said the Council foresees more consumer saving, more investment, and more exports. The future, the Council predicts, would hold a saving rate of 4 to 7 percent, rather than the recent 0 to 2 percent, she said.

-- Lorna Aldrich, [email protected]