The fragile economy is on the path to recovery but is still far from back to normal, White House economist Christina Romer says.
Romer, chairwoman of President Barack Obama's Council of Economic Advisers, said the signs were improving but the economy is still suffering from a shortfall of aggregate demand as it emerges from what has been termed the Great Recession.
"By almost every indicator, the U.S. economy is finally on the road to recovery," Romer recently said at Princeton University in New Jersey. But citing a March jobless rate of 9.7 percent, she cautioned: "When it comes to the economy we are very far from normal."
Obama has made job creation a top priority, mindful that persistently high unemployment could mean heavy losses for his Democrats in November's congressional elections.
While acknowledging serious concern that some Americans face long-term unemployment, Romer pushed back against economists who have asserted that high joblessness is now built into the economy and has become the "new normal."
"The overwhelming weight of the evidence is that current very high and very disturbing levels of overall and long-term unemployment are not a separate structural problem but largely a cyclical one," Romer said in her speech. "That is far from being the 'new normal,' it is the 'old cyclical,'" Romer said.
She also made the case for congressional approval of financial regulatory reform, saying it was needed to "help curb destructive bubbles" that spurred the financial crisis.
Obama, in his weekly radio and Internet address on Saturday, accused Republicans of spreading misinformation about the Democratic financial reform bill, which is expected to come to a vote in the Senate within weeks.
Obama said Senate Republican Leader Mitch McConnell's insistence the bill would lead to more taxpayer-funded bailouts of financial firms was a "cynical and deceptive assertion."
In response, McConnell's spokesman, Don Stewart, said: "It's especially disappointing for the president to attack Senator McConnell for raising concerns about the bailout loopholes in the bill when just last night the White House agreed with Senator McConnell and its own treasury secretary and asked Senate Democrats to remove the $50 billion fund."
The bill proposes setting up a $50 billion fund to pay for liquidating distressed financial firms, a measure not favored by the White House. Republicans have said the fund presents the possibility of continued bailouts.
With debate heating up, regulators charged Wall Street giant Goldman Sachs with fraud on Friday.
Romer said the shortfall in demand reflects lingering effects of the crisis and headwinds the economy still faces. She outlined steps for boosting recovery, including more fiscal relief for states and further extending jobless benefits.
"There are fiscally responsible measures we can take that can make an important difference between so-so recovery and strong recovery," she said.
Romer said reducing the federal budget deficit and getting the government's "fiscal house in order" would be crucial.
"It would be penny-wise but pound-foolish to try to deal with our long-run problem by tightening fiscal policy immediately or foregoing additional emergency spending to reduce unemployment, she said.
"But a credible, comprehensive plan for deficit reduction would create a favorable climate for investment and ensure that the economy remains strong."
Though Obama inherited record deficits, Republican critics have charged that heavy government spending since he took office is digging an even bigger fiscal hole.
© 2014 Thomson/Reuters. All rights reserved.