President Obama’s former chair of the Council of Economic Advisors, Christina Romer, gave a talk in November entitled “What do we know about the effects of fiscal policy? Separating evidence from ideology.” It poses a particularly relevant question in the context of the coming presidential election, to wit:

These days, the Recovery Act isn’t very popular. A lot of politicians and pundits assert with great confidence that the Recovery Act was useless. If you are a Republican candidate for President, you probably describe it as $787 billion of pork that did nothing. If you press people for why they think this they will probably say something like, “It’s not rocket science—all you need are two good eyes to look around you. We spent all of this money and the economy is still terrible. It obviously didn’t work.”

She goes on to show that it’s not so obvious, and provides a readable review of how the impact of the expansionary fiscal policy might be estimated. She argues convincingly that things would have been much worse without the stimulus measures and that more stimulus is in fact called for (and along the way discounts the empirical support for the fashionable notion of “expansionary austerity”).

At least as interesting is her account of her job interview with the president-elect. “The President- Elect began the discussion by saying that the economy was very sick and there was not much more the Fed could do—so we needed to use fiscal policy,” she reports.“…I started talking excitedly about what more the Federal Reserve could do. Only afterward did my husband point out that the very first thing I did upon meeting the President-Elect was to contradict him.”

At the déclenchement of the crisis, I wrote a short piece in the OECD Observer, asking “Is fiscal policy back?”. The financial crisis was first met with monetary measures and then and only then were fiscal policy measures entertained. I suggested that economists and plenty of conservative politicians in the US are hostile to fiscal policy because it is political and discretionary in a way that monetary policy is not. Romer herself pushed her boss-to-be, who had asked for advice on fiscal policy, to consider further monetary measures. Central banks are (ideally) independent of the executive and follow rules (like interest rate or inflation targets) that limit the risk of their being politically tempted to act in impecunious ways. Fiscal policy, meanwhile, is “pork,” as Romer noted. I argued that fiscal policy’s great and under recognized importance stems precisely from the fact that it is political. Indeed, fiscal policy is a snapshot of the social contract linking citizens and their government.

I’ve been studying these issues with my former colleagues from the OECD in the context of Latin America, but it’s astonishing to me the degree to which so many Latin American scenarios–regarding taxes, spending, inequality and the legitimacy of the state–are unfolding in my own country these days.

I don’t know how I missed the Romer piece at first, but thanks to the redoubtable blogger/emailer Zé Roberto Afonso for spreading the word. Check out his site for remarkable resources on economics, particularly if you’ve an interest in Brazil.