White House Sets Sights On Job Creation

MELISSA BLOCK, Host:

More than 14 million Americans are out of work. Unemployment has ticked up to 9.2 percent and, as we mentioned, there's not much optimism that tomorrow's numbers will be brighter. We're going to hear two economist's views now on the jobs outlook and what might be done to stimulate hiring. Jared Bernstein is a senior fellow with the Center on Budget and Policy Priorities here in Washington. He's former chief economic advisor to Vice President Joe Biden. Jared Bernstein, welcome to the program.

JARED BERNSTEIN: Thanks very much.

BLOCK: And we're joined by Russell Roberts, a research fellow at the Hoover Institution at Stanford. He's also professor of economics at George Mason University. Russell Roberts, welcome to you.

RUSSELL ROBERTS: Good to be with you.

BLOCK: Jared Bernstein, let's start with you. What do you think the single most effective thing is that could be done now by the government to bring about job growth?

BERNSTEIN: First of all, do no harm. It would be a big self-inflicted wound to engage in aggressive spending cuts in the short term while the economy's still trying to get off the mat. And, secondly, measures that help people get back to work, the public factor needs to step into the fray. A couple of ideas would be a tax credit on the employer side to give employers a break in their hiring costs, that would probably generate more hires.

And then there's some good infrastructure ideas percolating around. One, which I like, FAST - fix America's schools today - would help get a lot of construction folks back to work repairing, retrofitting, greening up, basically getting our nation's public school stock back into shape.

BLOCK: Russell Roberts, as a free marketer, would you say there is a government role in stimulating job growth? And if there is, what should it be?

ROBERTS: It's nice to know I agree with Jared about something, which is the, first, do no harm part, the Hippocratic oath. The problem is we're not very good at knowing what harm we do. And although it's nice to be proactive and think that's a good role for government, we've been proactive over the last really three or four years and it hasn't been very successful. There's not a lot of evidence that it's been part of the solution. I think it's - there's evidence that they're part of the problem.

So I'd suggest a couple things. One is that I'd stopped the frenetic fiddling with various parts of the economy in the name of trying to do something, which I think has been counterproductive. We need to get the housing sector healthy and we need to let people get back to taking risks again. Fundamental question is, what is government's role in creating that environment where people are eager to take risks as investors, as employers and as consumers?

And I think borrowing the trillions of extra dollars we've done over the last three or four years has made those risks bigger, not smaller, that make people anxious. And I think that's why I'm an advocate of two things - spending less and, ideally, spending more wisely or taxing more wisely.

BLOCK: What about the payroll tax reduction that has been in place for workers this year? Do you think - Jared Bernstein, you first. Do you think this helps with jobs? Should it be extended?

BERNSTEIN: I think it absolutely helps with the jobs. I mean, remember, we have an economy that's 70 percent consumption, consumer spending. So if people have more money in their pockets at a time like this, they're going to go out and spend it and that's going to help create more economic activity, more jobs. It's called a multiplier effect. And if you let it come out, either the payroll tax holiday or unemployment insurance benefits - which are so important with the unemployment rate this high - if you let them come out of the 2012 economy as they're scheduled to do, you really risk creating an air pocket. Again, there's a situation where you're sure to make things worse.

BLOCK: Russell Roberts, what do you think about that, that payroll tax reduction for workers?

ROBERTS: Well, I don't believe in the multiplier effect that Jared's talking about. I don't see any evidence for it. The tax rebates of the stimulus package were mostly overwhelmingly saved, had no real impact. Now, the payroll tax cut has a little bit more of an impact, potentially. But I think the bigger problem is, is that the payroll tax confuses people as to where their money goes and what it's spent on. I think most people think that the payroll tax goes to their account to pay for their Social Security benefits. It doesn't.

So I think we have a very opaque, non-transparent, lousy tax code. So I'd like to get rid of both, the employer and employee part, and raise the income tax a little bit so that at least either revenue neutral or smaller if we can have some spending cuts to go alongside it. And I think that more transparent tax code would be a much healthier political and economic situation.

BERNSTEIN: So, can I respond to that?

BLOCK: Sure.

BERNSTEIN: Look, during the Recovery Act, I actually worked for the Obama administration. And we would provide a grant to a state, for example. And one of the things I got to do was to go around and see this stuff in action. And what we saw was that school teachers, policemen and women, firefighters, sanitation workers kept their jobs. I mean we had public officials who told us that the pink slip was ready to go, but because of fiscal relief they were able to keep those folks on the job. We saw tons of construction workers fixing roads, fixing bridges, who wouldn't have been there.

This is not that complicated a story. When the private sector is on the mat, as it is now and it's just not generating the kinds of activity you want it to do, certainly complexities in the tax code need to be fixed. That's really important, like Russ says, for long run growth. But in the short-term, if you stimulate more economic growth, if you have people out there doing stuff they wouldn't be doing anyway, you're going to get more employment. We saw it clearly in the Recovery Act. We could see it again now, if we had the political will to go there.

BLOCK: Russell Roberts, Jared Bernstein there is pointing to very specific jobs created by government spending.

ROBERTS: Yeah. And the great 19th century economist Frederic Bastiat said that the essence of economics is the ability to see the unseen. So when you see the jobs that you create with government spending, you don't see the jobs that are lost because of the government spending. The fact is total employment is flat since February 2009, so there's no direct evidence that total employment has been helped by government spending. There's very little indirect evidence.

BERNSTEIN: Well, actually, that's an interesting point. That's a very interesting point. In fact, if you split employment up between the private sector and the public sector, what you actually see is that the private sector is very slowly - way too slowly - adding jobs, about a couple of million jobs since January of last year.

Where you see the big losses are in the public sector with the loss of teachers, firefighters, cops, et cetera, as the very spending that I was just advocating comes out of the system and pulls back. So, again, it's really a pretty simple story, at least in the short run.

BLOCK: Okay. We'll have to leave it there. Thanks to you both, Jared Bernstein and Russell Roberts.

BERNSTEIN: Thank you.

ROBERTS: Thank you.

BLOCK: Jared Bernstein is a senior fellow with the Center on Budget and Policy Priorities here in Washington. Russell Roberts is research fellow at the Hoover Institution at Stanford.

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