In a speech yesterday, Christina Romer, departing chairman of Obama's Council of Economic Advisers, wasn't shy about how much economists don't understand about the nation's economy.
It's always refreshing to hear experts admit uncertainty — even if it's a way to explain earlier predictions that didn't pan out. Here's Romer on how businesses' responded to the recession:
To this day, economists don’t fully understand why firms cut production as much as they did, and why they cut labor so much more than they normally would, given the decline in output.
... we, like virtually every other forecaster, failed to anticipate just how violent the recession would be in the absence of policy, and the degree to which the usual relationship between GDP and unemployment would break down. ...
In the speech, Romer also called for more short-term tax cuts and spending increases. That's in keeping with the Obama Administration line.
In other econ heavy-hitter news, Ben Bernanke spoke today to the Financial Crisis Inquiry Commission.
His speech included a long, wonky explanation about the cause of the crisis, and steps to reduce the risk of future crises (pretty familiar stuff by now).
At the end, though, he dropped in a refreshing statement you're unlikely to hear from politicians, who tend to make "never-again" promises about financial crises (emphasis added):
The findings of this Commission will help us better understand the causes of the crisis, which in turn should increase our ability to avoid future crises and to mitigate the effects of crises that occur. We should not imagine, though, that it is possible to prevent all crises. A growing, dynamic economy requires a financial system that makes effective use of available saving in allocating credit to households and businesses. The provision of credit inevitably involves risk-taking.