Fred Watkins/AP/ABC News
Austan Goolsbee, chair of the White House Council of Economic Advisers.
Fred Watkins/AP/ABC News
You've got to hand it to Austan Goolsbee, chair of the White House Council of Economic Advisers. He knows when to leave the stage.
He timed his departure from the Obama administration perfectly, on the same day the U.S. Labor Department issued a better-than-expected jobs report for July.
Goolsbee did an exit interview with All Things Considered co-host Melissa Block Friday in which, among other things, he fended off brickbats thrown by Paul Krugman, the Nobel laureate economist and New York Times columnist.
In his Friday column Krugman, as he has done since shortly after President Obama took office, Obama and his economic team for allegedly not reacting forcefully enough and for focusing too much on deficit reduction, not job creation.
To which Goolsbee said:
Everyone knows that we come in at a moment when the economy's losing 800,000 jobs a month and the private sector's in free-fall. There is no alternative at that moment but that the government be the primary driver of expansion or preventer of a depression.
We did avoid some cataclysmic event but we have a long way to go. I don't disagree with Professor Krugman in any way about that.
Then Goolsbee made the point that experts on economic downturns say is critical to keep in mind: economies take considerably longer to recover from recessions caused by the burst of financial bubbles than they do from negative economic growth stemming from other factors:
Most rapid recoveries in the history of the U.S. took place in a context where the economy could just go straight back to what it was doing before the recession began.
And this time, we couldn't do that. We had an expansion that was fueled by a bubble, consumption that we couldn't afford and housing construction that, now that the bubble has popped, we're unlikely to go back to those being the two primary drivers of recovery.
And it does take some time to make the shift to investment, to exports, to innovation. But we are doing that. If you look at the jobs report this month, hopefully it's pointing to some broader based comeback.
Block asked Goolsbee why so many companies were hoarding cash instead of investing it.
Here, Goolsbee made a political, not an economic point. He blamed the uncertainties related to the partisan policy fights over fiscal affairs in Washington that were in full display during the debt-ceiling fight.
But the corporate cash hoarding was occurring long before the titanic game of chicken that took the nation to the brink of default.
No doubt the latest bit of uncertainty from the Capitol Hill food fight didn't help. But weak demand for their products and services have kept many companies from expanding by hiring new workers or investing in new equipment.
Also, in 2008 the market for commercial paper that large companies rely on to fund their daily operations, including making their payrolls, virtually dried up. That was a result of the credit crunch following Lehman Brothers failure, an unintended consequence of the Federal Reserve deciding it needed to show Wall Streeters they couldn't take as a given federal intervention to rescue firms thought to be too big to fail.
If you were a corporate official who experienced that still relatively fresh piece of U.S. financial history, your judgment might be questioned by shareholders if you didn't hoard cash.
Meanwhile, Goolsbee said not to worry about any near-term fiscal drag from the deficit reduction that was part of the debt-ceiling deal.
Of the trillions (of dollars) being cut, something like 1/1000th of it will be in 2012. So there is no sense in which this is going and putting a huge drag on the immediate prospects of the business cycle.
Further evidence of Goolsbee's good sense of timing came late Friday when Standard & Poors credit-rating service downgraded the U.S. debt from its top AAA rating to a AA-plus because of uncertainties related to the nation's deficit-reduction plans.