Show Me The Recovery: What We Tried
MICHEL MARTIN, host:
I'm Michel Martin and this is TELL ME MORE from NPR News.
Later in the program, it's Native American heritage month and we conclude our coverage of the month by telling you about a minority within that minority, so-called black Indians.
But, first, we're continuing our series, Show Me the Recovery. We're doing a couple of things here. Mainly we are talking about the debate over how to get the American economy rolling again. We started yesterday by talking about the presidential commission that President Obama appointed to come up with a plan to reduce this country's enormous long-term budget deficit. That group is scheduled to deliver its report tomorrow.
And our guests gave a rough sketch of the kinds of tough choices this and other groups are proposing to get that deficit under control. The president in fact just yesterday proposed a two-year pay freeze for civilian federal workers.
Today we wanted to ask, what about right now? For this part of Show Me the Recovery, we hear from one of the chief architects of President Obama's recovery plan, Christina Romer. Now she's a professor at the University of California, Berkeley. But then she was chair of the White House Council of Economic Advisers. And in that position, she pushed for the nearly $800 billion stimulus package, which was meant to reignite the economy. And Professor Romer is with us now. Thank you so much for joining us.
Professor CHRISTINE ROMER (University of California, Berkeley): Oh, it's wonderful to be with you.
MARTIN: So, I just wanted to ask, just to sort of set the table for us, do you think that the stimulus package worked?
Prof. ROMER: Absolutely. In the sense that we said it would work, which was that it would help to save or create some 3.5 million jobs relative to where we otherwise would've been. And, you know, I think a wide range of analysts, including most recently the Congressional Budget Office says that it is on track to meet that goal. I think the important thing, of course, is, you know, that goal has to be taken in context.
And given where the economy is and how many millions of jobs we've lost, saving or creating 3.5 million jobs has been a tremendous help, but obviously it hasn't been enough to keep the unemployment rate from being as high as it is. And I think that is certainly a problem.
MARTIN: Why is the unemployment rate as high as it is? And, in fact, according to most recent estimates, you know, it's now estimated that it will remain this high through next year. Why is that?
Prof. ROMER: There are a couple of things. One is certainly the recession turned out to be more severe than almost anybody had predicted, so that the financial crisis and the ensuing drop in investment spending, consumer spending, I think it just hit the economy harder than most people had predicted and that's not surprising in some sense that the people didn't forecast it. You know, it's an unusual event. This is not a normal recession by any means, and so there was a lot of uncertainty.
I think that part of being an unusual recession is also part of why the recovery is unusual. We don't have the usual tools to get us out of this. A typical post-war recession was caused by high interest rates, the Fed tightening monetary policy to get inflation down. And then there was an obvious way to end it, which is the Fed could bring interest rates down.
Well, this recession started with interest rates already pretty low. The Fed took them to zero very quickly, but, you know, we don't have sort of the obvious drivers to pull us out of this. You know, this recession started in housing with the collapse of the housing bubble. Normally housing construction is a big force bringing you out of a recession.
But with a big oversupply of housing now, we're not likely to see that. So I think that's all part of why it's harder to recover from this recession than others. And a part of why the unemployment rate is being as stubborn as it is.
MARTIN: And of course, tomorrow the conversation shifts to the whole question of the U.S. government's long-term structural deficit. The president's National Commission on Fiscal Responsibility and Reform, which is of course being called the debt commission, is expected to release its report. Do you think that this is the right time to focus on the deficit? Do you agree that this an urgent matter?
Prof. ROMER: So I think it is absolutely the right time to be talking about the deficit. It's absolutely the right time to be formulating a plan for getting the deficit down over time. It's not the right time to be actually doing the fiscal contraction that will be called for to get the deficit under control. We are still in the middle of a terrible recession. And for dealing with that we're probably going to need to do more - spend more money, perhaps cut more taxes to try to get jobs created again.
But there's nothing in that that says you can't at the same time be thinking about, how do we deal with the deficit as we return to full employment. I think that would actually be helpful. If you think about what the American people were saying in this election, they were concerned about two things: the state of the economy and the deficit. And I think we can be making progress on both of those if we come up with a sensible plan that has more fiscal stimulus now, but a concrete plan for how we reduce the deficit going forward.
MARTIN: If you're just joining us, you're listening to TELL ME MORE from NPR News. I'm Michel Martin.
I'm speaking with economist Christina Romer. She's the former chair of the White House Council of Economic Advisers. It's part of our series called Show Me the Recovery.
Well, Professor Romer, you know, there are people like you who believe that this is not the time to start cutting. That, in fact, we need more spending right now. A group of people are coming to Washington in January, the new House Republican majority, many of whom campaigned on the promise to stop spending. In fact, some people, you know, want to roll back a number of the proposals that have already taken place, a number of the programs that have already taken place, so they want to curtail them, they want to end them early.
I mean, it sounds to me like this is a recipe for doing nothing. And I wanted to ask you, what are the consequences of doing nothing?
Prof. ROMER: So I certainly think the consequences of doing nothing further to help growth means that we will recover very slowly and are likely to see unemployment rates stay high for an extended period of time. So I think the consequences of gridlock and not taking action, I think, could be very, very consequential for the American people.
You know, one of the things that you mentioned, though, the same people that are coming into the new Congress that have said they want to cut spending have certainly been very adamant that they want to cut taxes, for example, for the very high income earners. So they want to extend the Bush tax cuts not only for middle class families, but for people over 250,000.
Now, it seems to me there ought to be a middle ground. Why don't we say we don't think that extending tax cuts for very high-income people, that really doesn't do much for the economy at all. But maybe there's another tax cut that would be helpful. So, for example, we could have a large payroll tax holiday, that's something that certainly business is very in favor of. I've heard a lot of Republicans speak favorably of that. We could also give more tax cuts to middle-class families. You know, there are good tax cuts that could be very helpful to strengthening the recovery.
MARTIN: You know, one of the advantages of being out of government is that you're free to speak your mind. I wanted to ask, what are you most worried about as you look ahead to the coming year? What are you most optimistic about and what are you most worried about when you think about the economy looking ahead?
Prof. ROMER: Looking ahead, I think the thing that worries is if we have gridlock in Congress, that we don't take additional actions and does this recovery, I don't think, I'm not worried about, you know, a double dip or the economy falling back. But I think the real worry is that we don't grow strongly enough to bring the unemployment rate down. And I think that is a tragedy and something that, really, we just can't as a country and an economy and a society tolerate. So I think that is my greatest worry.
I think that's related to my greatest hope, which is, I think that's everyone's greatest worry, that we don't recover fast enough and that we stay in the very troubled state that we're in now. I think that's the one thing that may help to break the gridlock. Because however you read this election, I think everybody understands that the American people are suffering and are unhappy and upset about the state of the economy. And I think that puts a lot of pressure on both parties and on policymakers throughout the government. And I think that can be a very powerful motivating factor and I desperately hope that people step up.
MARTIN: And, finally, how do you recommend that those of us who are not economists, who have not been thinking about this for years, how do we listen to the debate that will unfold over the next couple of days and weeks and probably months? How will we know what makes sense?
Prof. ROMER: Well, I think one thing is we are all going to need to think beyond our own narrow self-interest. Because what might be in our interest for, you know, next year or, you know, the next couple of years, is not ultimately the interest of our own long-run economic health and certainly our children's long-run economic health.
So we do need to actually be very realistic and take that much broader perspective and not just say, I don't want my taxes to go up or I don't want any of my benefits to grow less quickly. You aren't going to have to be taking the broader perspective. So I think that's going to be something that's so important for people.
And, you know, and I think when you talk to ordinary people, they get that. I mean I have been struck over and over by the degree to which, you know, people are willing to step up when they know it's for a good cause, when they know it is important for, you know, the future of this country that we all love. So I think that's going to be important.
The one other thing that, you know, from my perspective that's going to be so important as we see these proposals coming out, is to ask if they're, you know, realistic in the broad, you know, brush of what needs to happen now. So I'd be very worried when proposals come out and say, we need to in 2011 cut spending by this amount, raise taxes by this amount.
You know, we need to be very careful and realize the economy is still very sick, very tenuous. It's going to need help not just fiscal consolidation immediately. So I think that's something I'll be looking for in the proposal. So, do they have this balance between what we need to do for the economy today and laying out a plan for how we deal with our fiscal situation over a long period of time because that's the key point.
Our fiscal problem has been a long time coming. We've known about it for a long time. We can deal with it over a number of years. We need to get the plan now. We don't need to do the actual tightening this minute when the economy still needs help.
MARTIN: Christina Romer is the former chair of the White House Council of Economic Advisers. Currently she's a professor of economics at the University of California, Berkeley and she joined us from the studios there. Thank you so much.
Prof. ROMER: Thank you, it was great to be with you.
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