The Great Depression is often used as an economic touchstone when the United States suffers difficult economic times.
Her experience and research in studying the fiscal crisis of the late 1920s and 30s became important to the Obama administration as it navigated the nation’s deep recession.
“The Great Depression informed many of my policy recommendations, but living through another terrible crisis has changed some of my views on what was most relevant or important about the experience of the 1930s,” Romer said during a presentation at the University of Oklahoma’s second Teach In event.
Changes in the government can be helpful during economic downturns, Romer said, with tax cuts putting more money in the pockets of citizens and spending creating demand for goods and services.
Under the administration of Franklin Roosevelt, fiscal policy was somewhat erratic, she said.
“It varied between fairly expansionary one year then contractionary the next,” Romer said.
She also said country’s around the world don’t grasp the cost of fiscal consolidation.
“After the meltdown in Greece in 2010, countries throughout the world started to worry about their budget deficits,” Romer said. “That led to fiscal austerity in a number of countries.”
The reduction in government spending and concern over deficits has led to similar results the U.S. experienced in the 1930s, according to Romer.