Romer: Economic Crisis a Wake-Up Call for Americans

Americans have had a "wake-up call" and will probably return to their traditional habits of thrift and saving their money after the current economic crisis eases, says Christina Romer, chairwoman of the president's Council of Economic Advisers. 

"Maybe rather than think that we're going to be changing a lot, we should think that perhaps the several years before the current crisis were the strange ones," Romer told U.S. News. "If you look at the historical savings rate, what you see is that we went through a period when it was unusually low. What is likely to happen is that we will go back more to our historical norms—savings rates at 5, maybe 7 percent. People have had a little bit of a wake-up call. When the economy is back in balance again, we'll probably have less consumption and more investment, which would be very good for the overall health of the economy."

Romer said the economy should start expanding again soon. "Most of the forecasts say probably the third quarter is when we'll turn the corner," she said, "and then we'll start to grow again toward the end of this year and throughout next year. That's a very common forecast."

She noted that one of the public's biggest concerns is rising unemployment, which has hit 9.4 percent and is expected to exceed 10 percent later this summer. "There are two crucial facts about the unemployment rate," Romer said. "One, it tends to lag so it doesn't turn around quite as fast as GDP [gross domestic product], and, two, it actually takes pretty robust GDP growth to bring it down. What's really going to matter is not just are we growing again but are we growing fast enough to bring unemployment down."

The CEA chairwoman defended the government's efforts to rescue the economy. "Based on my work as an economic historian, I think the shocks hitting the economy this time are at least as big as those in the 1930s," Romer argued. "What our economy was up against was just enormous. The only reason we have not gone off a cliff is the policy response. Here I give a lot of credit to [Federal Reserve Chairman] Ben Bernanke and the Fed back in the fall and a lot of credit to the president and the Congress for what we've been able to get done in the last five months."