A Peek Into The Republican Economic Tool Kit

Weekend Edition Sunday is beginning a series of conversations with economists, asking them to explain their positions and what they think ought to be done to improve the economy. Guest host Linda Wertheimer talks to Greg Mankiw, former chairman of the Council of Economic advisers under President George W. Bush. He's also an informal adviser to the Romney campaign.

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LINDA WERTHEIMER, HOST:

On Friday, the Labor Department released its monthly jobs numbers, yet another incremental development in the long haul after the great recession. It's also an opportunity for experts to disagree. So, in the interest of understanding their views of the economy, we're going to begin a series of conversations with economists at the top of their game, asking them to explain their positions and what they think ought to be done.

First up is Greg Mankiw. He was chairman of the Council of Economic Advisors under President George W. Bush. He's currently an informal advisor to the Romney campaign, also chairman of the Economics Department at Harvard University. Mr. Mankiw, welcome.

GREG MANKIW: Thank you.

WERTHEIMER: The jobs numbers, those are a window, a small one into the health of the economy. When you look at these new numbers, what do you see?

MANKIW: Well, the economy has been limping along for the past year or two. And as a result, we haven't been creating enough jobs to put the millions of unemployed people back to work. I mean, we have the unemployment rate lingering above 8 percent, which is much too high and above what most economists consider normal. Economists think normal rate of unemployment is something like 5 or 6, and 8.3 is just way too high.

WERTHEIMER: Now, the jobs rate has been moving but, as you say, painfully slowly. The Federal Reserve is mulling additional stimulus measures. Do you think that would help?

MANKIW: I think the Federal Reserve has actually been doing a good job. I'm a big fan of Ben Bernanke. Their most powerful tools, which is basically cutting interest rates, they've hit the lower bound of zero. And so, there's not a whole lot more they're they can do. I think there's some things they can do and if the economy slows again, I think they'll try to do that. But I think we shouldn't look too much to the Federal Reserve to save the day.

WERTHEIMER: What do you think that some kind of stimulus might make some kind of sense?

MANKIW: Well, you think there's different kinds of stimulus. I think the word stimulus is very broad. Economists disagree, though, what the best policy prescription is because we just have different ways of viewing the world. And the data is not decisive in deciding which way is right. You should distrust in the economist that doesn't show the requisite humility. We need to be very humble here and recognize that our judgments have to be tentative. And we have to sort of wait until the science is more perfected before we can reach a consensus, a firm consensus.

WERTHEIMER: Now, you're on Mr. Romney's team of economic advisers. Mr. Romney obviously favors tax cuts. He's actually said that the Bush tax cuts should be extended and that there should be more tax cuts on top of that, and that would be good for job creation. Does that make sense to you? I guess it does.

MANKIW: Well, the further tax cuts beyond the Bush tax cuts that he's talking about, would be a tax reform. That would be revenue neutral by lowering rates and broadening the base. So I actually think the Romney plan is a direction I would certainly go. And I think it's also a question of thinking about the short run versus the long run. The Obama approach to the recession has been very much a series of short-run fixes, like the stimulus plan - Cash for Clunkers and that sort of thing - and he hasn't really focused on some of the longer-term challenges that the economy faces.

WERTHEIMER: Well, now there's also the big argument that sometimes the government has spent a lot of money, and that has resulted in prosperity. The G.I. Bill would be an example of that. What about the notion that government spending does sometimes cause things to happen that are good in the long term?

MANKIW: Oh, there's no question that's true and that government has a role. I don't think any serious elected official today would say we want to eliminate the government, and turns back into an anarchy. The real question is whether at the margin, do we want to make government a little bit bigger or a little bit smaller? Mitt Romney is not an anarchist and Barack Obama is not a socialist.

They're both reasonable people who, one wants to make the government a little bit bigger and have a larger role in your life. One wants to make it a little bit smaller and have a somewhat smaller role in your life. There's no question that there's a role for government in creating basic public goods, like schools and highways and other infrastructure.

WERTHEIMER: Now, Republican candidates talk about tax cuts as a way to get things moving. I wonder if there's anything else in the Republican tool kit that do you think might help.

MANKIW: Oh, I think there's a lot of things. I mean, there's a lot of focus on regulation. And these are things that - there's no sort of single big number you can look at. But there's a lot of decisions over, you know, how much power do we give to unions, how much regulations to firms have to jump through to start or expand a business. One thing we know from international experience is that countries differ a lot in how bureaucratic they are; there's how many steps you need to just to start a new business?

And international evidence is very clear that the more hurdles that the government puts in front of the new businesses, lowers economic growth and it lowers the standard of living of the average citizen. So, I think, focusing on regulation is surely one of the things that Mitt Romney will want to do.

WERTHEIMER: There's been a lot of back and forth during the campaign about exporting jobs. The concentration on sending jobs overseas in the campaign is something that is sort of easily understood by lots of folks who live in the Rust Belt. But what do you think? Is that the right way to go?

MANKIW: Well, I think this raises the big question of how the U.S. economy wants to engage with the rest of the world. We shouldn't think of trade as a war where some countries win and some countries lose. Other countries are really - they're much our partners in trade and so when we engage with other countries, we should expect to both import and export. That's going to mean some jobs are going to be lost and some jobs are going to be gained.

And I think it would be a mistake, if the United States retreated from the rest of the world, if we tried to isolate ourselves from international interactions, I think the United States is much better off engaging in an open trading system.

WERTHEIMER: That's Greg Mankiw. He was chairman of the Council of Economic Advisers under President George W. Bush. He is currently chairman of the Economics Department at Harvard University.

Mr. Mankiw, thank you so much.

MANKIW: Thank you. It was good being with you.

WERTHEIMER: And over the next month, we'll be having a series of conversations like this one, giving the floor to well-known economists; some of them leaning right, some of them left. All have ideas on how to solve the big problems Americans are facing every day. We'll ask our visiting economists to defend their positions on jobs, on debt and the deficit, on growth and on taxes. And we'll ask the big question: Are we headed in the right direction?

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