As Economy Struggles, Experts Look to Obama
MICHEL MARTIN, host:
I'm Michel Martin, and this is Tell Me More from NPR News. Coming up, a Veterans' Day visit with a man with the story to tell. Joseph Stephenson was a buffalo soldier. He shares his memories of service in World War Two with the all black 90 Second Infantry Division. That's in just a few minutes, but first, it's time for our money coach.
More depressing news on the economy, electronics retailer Circuit City has filed for bankruptcy. Delivery service DHL is shutting down its U.S. operations, eliminating 9,500 jobs. Companies as different as money manager Fidelity and toy maker Mattel have announced layoffs, and the government bailout of insurance giant AIG rose from the $85 billion promised in September. The new figure, almost twice that. With the holiday season around the corner, can economic crisis wait until the next president takes office? What can be done right now?
Joining us to talk about all this is our regular contributor on matters of the economy and personal finance, Alvin Hall. Also with us, Marcus Mabry, he's the international business editor for the New York Times, and also from the New York Times, national correspondent Jackie Calmes. Thank you so much for joining us.
Ms. JACKIE CALMES (National Correspondent, New York Times): Thank you.
ALVIN HALL: Glad to be here.
Mr. MARCUS MABRY (International Business Editor, New York Times): Thanks.
MARTIN: Alvin, I want to start with you. The job loss figures, according to the latest numbers, 240,000 jobs lost in October. That brings the year's total job losses to almost 1.2 million. Some people say those numbers could even get worse. Are we in a recession, and were these numbers expected to be this bad?
HALL: Yes, we are in a recession, and I don't think that the government would be honest if it said it did not expect these numbers to be this bad. And they're going to get worse as these businesses show that their core earnings are declining, as they see no new markets in which they can expand, the only thing they can do is to start cutting people.
And with that, there'll be more job losses, and then you'll start seeing the knock-on effect, especially during this Christmas holiday season. I was just walking here, and I saw a sign in the windows of Lord and Taylor that says now hiring. I've not seen many signs like that in New York this year.
MARTIN: Marcus, President-elect Obama has made it clear the economy is job one. I mean, how could it be otherwise? But given the scope of the challenge, the financial sector, the industrial sector, still high foreclosure rates, what do we know about his priorities?
Mr. MABRY: Well, number one, he said that this middle-class tax relief is going to be a priority of his. It's interesting because he right now is debating amongst his advisers whether you just go for this with some small stimulus program. The Democratic Congress will probably get the Republican White House in its lame-duck session of the Congress to approve a stimulus package at least $60 to $100 million dollars, and then a larger package will await President Obama when he gets here.
But the question is, do you stop at this stimulus package, which is basically tax cuts designed to have Americans keep more money in their pockets and therefore feel a little richer and maybe spend that money, and that's a big maybe because right now, as Alvin said, we're looking at the prospect of millions of Americans losing their jobs over the next 12 months as this recession deepens and continues.
And so people do not feel like spending lots of money in that situation. They want to keep that money because these are precarious times, and they don't know how long they're going to keep their own jobs.
The debate for Obama is, do you go with that stimulus package only, or do you also for a big bang, meaning you try to get through a large package of both tax cuts for the middle class, incentives for business, perhaps you hold off on a big tax increase for those making 200,000, $250,000 and above for now, and at the same time try to get perhaps a large energy economy program together, a green economy initiative, which he says is also going to be a priority for him. Then you try to do that in the same way - same time you're trying to help out the auto industry.
So, that would be the big bang theory, and I think they actually are leaning toward that right now. Right now, we are in deep deep pain. We want to take advantage of this time to do all you can to push this economy forward.
MARTIN: And when you say take advantage of this pain, by that, do you mean take advantage of the - whatever consensus or sort of public demand for action to look forward? And the reason I am asking this is, one of the questions I had for you is, how much consensus is there on that priority list. You saw that the Republican caucus was in an uproar over the president's economic stimulus plan. These are people all within his party. So now, with the changed political landscape, is the Democratic caucus pretty aligned with President Obama on his priorities, and what about across the Congress?
Mr. MABRY: Well, the Democratic Congress definitely is, I mean, if anything, it may be the President-elect Obama who's trying to hold back the Democrats, the House Democrats in particular, from going even farther with the stimulus plan, which I think is why they're talking about two parter, a smaller stimulus plan now during the lame duck session that the Republicans - they can get the congressional Republicans and the White House on board with, and then a larger package that maybe the Republicans won't be on board with once President Obama is actually sworn into office.
But what I find interesting is the fact that right now, the consensus among both Republican and Democratic economists is that this is exactly the time you don't worry about the deficit. You spend. You print money because you are in economic crisis. Unless looking forestall to some extent or cushion to some extend the depth and length of this recession, then nothing else matters.
And I think it's important now to realize how long that's going to last once we see an uptick maybe at the end of next year, maybe, if the recession is worse, even in early 2010, perhaps, worst case scenario, right now worst case scenario. Then the Republicans, I think, will quickly turn back to deficit hawking, deficit hawks, especially with a Democrat in the White House saying, you know, let's stop increasing this huge deficit. Now you have to save money and cut spending, but right now, there is consensus.
MARTIN: Jackie, talk about - speaking of spending, talk about the auto industry. Your report in this morning's New York Times talks about President-elect Obama's pitch to President Bush to support some help for the auto industry. What exactly do they want?
Ms. CALMES: Well, they want cash now. Their figures that came out last week from Ford and General Motors, because they are publicly traded companies, show that they're burning through cash at an unsustainable rate. GM in particular is in bad shape, and it will - says it will run out of cash by next year.
And so this program you hear the administration talking about it for 25 billion in loans that was already passed into law earlier this years is actually a long-term program to provide loans over time so the major auto companies can retool to move into the new generation technology, and that's just no help at a time when the car companies just need cash to get them through the hard times while they're trying to retool.
And so, what President-elect Obama is seeking and the congressional Democratic leaders as well is to get the president to agree in a special session next week, the lame duck session, to approve something, or they argue that he can just - the Treasury and the administration can use the authority the president has under the 700 billion bailout law to extend aid to the automakers.
And certainly the auto industry, which, along with its suppliers, has tentacles in every state and affects the jobs of upwards of three million people, argues that it could pose a systemic risk. And remember, it's a misquote certainly, but there is an iconic quote from the 20th century that says what's good for GM is good for the country, and certainly, you know, that we're seeing now that, if GM were to down, not just economics but perception-wise, that would be just a huge blow.
MARTIN: If you're just joining us, you're listening to Tell Me More from NPR News. We're talking about the latest news and the country's economic crisis with Jackie Calmes of the New York Times, Marcus Mabry of the New York Times, and Alvin Hall, our regular contributor, on matters of the economy and personal finance.
Jackie, the same question I asked Marcus earlier, is there a political consensus on this question because bailouts to companies in general are always controversial in this country. People are talking (unintelligible) moral hazard. They say, isn't that what our marketplace is for? If they were making the products that people want, they wouldn't be having these problems. So, what's the thinking in Congress about this on both sides of the aisle?
Ms. CALMES: Well, there's no consensus if you're talking between Congress and the White House, but there is a consensus among the Democrats and certainly some Republicans. Yesterday, the entire Michigan delegation, which certainly includes Republicans, signed a letter to the administration asking them to provide aid to the automakers through the $700 billion bailout program.
President Bush had to swallow hard. He's going out of office having presided over the biggest nationalization of industry, the financial industry, since the Depression, and meanwhile, the Federal Reserve has opened its lending window to any manner of corporations. So, he's really reluctant to take another step for the automakers.
And frankly, as a political matter, the automakers are sort of seen as a Democratic sector of the industry because it's so highly unionized, and President Bush' attitude at this point seems to be, let the Democrats take the lead, and, you know, in return, before I'll commit to doing anything for the auto industry, I want you to commit that you'll approve these trade packs, which are the final little thing he would like for his legacy, with Columbia and Panama and South Korea.
The Democrats oppose those. We remember Obama opposed those during his campaign against Hillary Clinton. But it's the only leverage Bush had, and the Democrats, though, are inclined to call this bluff. But they don't want to go forward with a special session if they're only going to pass something, and he's going to veto it. I mean, you just think about what an economic signal that would send to the markets if our government at this late stage was at loggerhead.
MARTIN: And Alvin, I wanted talk about, Jackie talked about this sort of difference between the help for the financial sector and then the industrial sector and the manufacturing side, and one is seen as Republican; the other's seen as Democrat.
Insurance giant AIG, which was a recipient of an earlier bailout, also reported third quarter losses, something like a $25 billion. And the feds are proposing to boost the bailout package to about a $150 billion. Why did they need more money, and how is this going to end? I don't know if they need congressional authority to do this, but why do they need more money?
HALL: I think the losses were far greater than anybody thought they were going to be. I view this as like renovating an old Victorian house. You get an estimate, and then, when the builders start, they find all these problems that they did not anticipate, and the renovation quickly doubles. That's what has happened.
The regulators did not understand the complexity of these problems the way the people in management at AIG did not. So they need the money in order to stop the company from going into deeper trouble. And, in essence, you see the same thing happening at both Fannie Mae and Freddie Mac, who also reported deeper losses than expected.
These products were very, very complex. And the nation as a whole and the industry embraced these complex products believing that they had found the Holy Grail to low risk high return. It did not exist.
MARTIN: Marcus, do you agree with that?
Mr. MABRY: Oh, absolutely. It was extraordinary. You know, the arguments that we had for a long time, I think, in the economic circles is, you know, well, it's not even an argument anymore, OK. Money was too cheap for too long. The argument will be, whose fault was it?
You know, this has spurred tremendous growth. There is no question about it, globally, the expansion rate we saw around the world. But now, we're about to see a global recession as the kind of a hangover from these good party times we had for the last decade sets in.
To go back to that question about the automakers, I think this is going to be fascinating test. You know, the great thing about Jackie's piece in today's front page of today's paper is that she talks about, you know, this kind of game of political chicken that's underway here between congressional Democrats and the lame-duck president. Does George Bush really want the end of his legacy to be GM running out of money? A lot of Republican orthodox, who are orthodox Republican economists, feel like we've gone too far already.
And right now, the Bush administration to some extent is trying to say, well, this is where we draw the line, as Jackie's piece says in today's paper, is at the auto industry's door. We are not going to bail out companies that are partially in this trouble, not just because of a credit crunch that happened, and certainly, that has added to GM's problems, but they are in this largely because they made products that people didn't want.
So it's going to interesting to see if - I don't think the Bush administration is willing to let GM run out of money and have to shut its doors, file for bankruptcy before this presidency ends, for that to be the last great historical moment of George W. Bush's presidency being the end of General Motors. I can't imagine they're willing to stomach that politically.
MARTIN: And just briefly, Marcus, we have a couple of minutes we have left. China made a big move on Sunday ,unveiling its own economic stimulus program, something like in the $600 billion range. What is that for? What are they going to do with that money?
Mr. MABRY: Well, the Chinese are doing - it's interesting. They are doing some of the things that Barack Obama says he'd like to do. They're going to use $586 billion, the Chinese equivalent thereof. They might actually use dollars since they have them free, you know, trillions of them, almost 2 trillion of them, to actually invest in their own infrastructure, and that's kind of a Chinese jobs program to some extent.
It will be largely infrastructure based. Lots of American companies will benefit from that who actually have infrastructure products over there, people like General Electric, for instance. Barack Obama wants the same thing for the U.S., partially for old-fashioned infrastructure like highways and bridges. At the same time, he wants, again, to convert it to also a kind of - use some of that money to help Detroit convert to more green industry.
MARTIN: Interesting. It will be really interesting to compare the results after a period of time. Alvin, final word to you, putting your personal finance hat on. It's already kind of a depressing holiday season if you consider how many people are - have lost jobs and have lost homes. But what if you're not in that circumstance? What is your advice for people?
HALL: I think you have spend prudently. I think you have to think of what you want and what you need and focus on those things and hold on to as much cash as you can. I had a group of people over to my apartment this weekend, and they really fell into two categories, maybe three. One, those who were hoping it did not happen to them. Whether they were self-employed or employed, they were hoping that they would not get laid off. Then you had a group of people who really fundamentally did not understand what was going on with the economy. They'd never lived through this, and they just couldn't quite grasp it.
And then I had people over who had been laid-off, and all of them said, for the last month, I've been taking one step forward and three steps back because they're unemployed, and they are having a hard time getting jobs. All of them, except the people who did not understand, said they were going to hold onto their cash because that made them feel comfortable.
MARTIN: And you think that's the best course?
HALL: I think that's the best thing. We have to spend on some things, but spend prudently, spend thoughtfully, but hold on to your cash because, if you get laid-off of your job, or you're unemployed, and you don't have long-term unemployment benefits, what are you going to fall back on? Not everybody has a rich uncle, aunt, mother, or father who can loan them money.
MARTIN: So I guess I should just expect a beautiful handmade card from you this year?
HALL: No, I've already bought you a gift. I bought it earlier in the year.
MARTIN: OK. I'm so relieved. At least I'll have one thing under my tree.
HALL: What I did have worked.
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MARTIN: Alvin Hall is our regular contributor on matters of economics and personal finance. Marcus Mabry is the international business editor for the New York Times. They were kind enough to join us from our New York bureau. We were also joined by New York Times national correspondent Jackie Calmes. She joined us by phone from Washington. I thank you all so much for speaking with us.
Ms. CALMES: Great to hear your voice, Michel.
HALL: You're most welcome.
Mr. MABRY: Thank you.
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MARTIN: And now, we want to hear from you. What do you think the president-elect's first priority should be to jump start the economy? And how are you doing? Are you or your loved ones cutting back? Are the financial conditions changing your plans for the holidays? To tell us more, please call our comment line at 202-842-3522, or you can go to the Tell Me More webpage at npr.org and blog it out.