White House's Economic Plans Face Gridlock In Congress Republicans are now on top in the House, but the economy's still in a rut. When the new Congress convenes, there will be two very different visions of how to get it unstuck. Guy Raz talks about what's ahead with Greg Mankiw, a former economic adviser for George W. Bush; and Laura Tyson, an adviser in the Clinton administration.
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Obama's Economic Plans Face Gridlock In Congress

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Obama's Economic Plans Face Gridlock In Congress

Obama's Economic Plans Face Gridlock In Congress

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GUY RAZ, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Guy Raz.

Two very different philosophies on how to tackle slow growth and high unemployment are about to collide here in Washington.

President Obama has ideas; so does the newly elected Republican majority under presumed speaker John Boehner.

Senator JOHN BOEHNER (Republican, Ohio): I'm here to tell you tonight that our new majority will be prepared to do things differently, to take a new approach that hasn't been tried in Washington before by either party. It starts with cutting spending instead of increasing it.

(Soundbite of cheers and applause)

RAZ: Right after the election, the Senate's top Republican, Mitch McConnell, emphasized once again his top political priority: to make President Obama a one-term president.

Senator MITCH McCONNELL (Republican, Kentucky): What we've heard loud and clear from the American people tonight - too much spending, too much debt, too many Washington takeovers. What we're sensing tonight is a huge case of buyers' remorse all across America.

RAZ: But despite what Republicans or Democrats say, over the next two years, they'll have two choices: do nothing or work together.

The president says he prefers the latter.

President BARACK OBAMA: I am open to any idea, any proposal, any way we can get the economy growing faster so the people who need work can find it faster.

RAZ: Our cover story today: the areas where the president and Congress might be able to work together to tackle high unemployment. In a moment, we'll hear from former President George W. Bush's top economic adviser, Gregory Mankiw.

But first to President Clinton's one-time chief economic aide, Laura Tyson. In 1995, Republicans retook control of Congress and Mr. Clinton's economic team, led by Laura Tyson, had to scramble to figure out how to work with a new Republican majority.

Dr. LAURA TYSON (Business Administration and Economics, Haas School of Business, University of California, Berkeley): Initially, one of the very first things that happened after the new Congress is that the new Republican majority said they were willing to work with the president on the problems that Mexico was encountering, the financial crisis in Mexico.

RAZ: This is in 1995.

Dr. TYSON: This is in 1995. This is like the beginning of the new Congress. And they came to the White House, said they would work with us. And then within a few weeks, had walked away, leaving the problem to us.

That created a kind of sense we had that they really weren't going to negotiate. Then, of course, throughout that entire spring and into the summer as we were repeatedly going up to the Hill to talk about various ways to come up with a balanced budget plan over a seven- or five-year period, we were being threatened with a government shutdown. So that makes negotiations much more difficult.

RAZ: One of the ways that President Clinton was able to achieve a budget surplus was by doing some things that were unpopular with more liberal Democrats, things like welfare reform.

Dr. TYSON: Yes.

RAZ: Are there ideas like that that President Obama might consider doing?

Dr. TYSON: Well, I think that there are a number of areas of possible work with the business community, perhaps in the area of business taxation. There have been proposals floating around for a payroll tax holiday.

The president has proposed going to an all-expensing of certain kinds of capital investment to making the R&D tax credit permanent. He's also proposed spending more on infrastructure. And actually, there is bipartisan support in the infrastructure areas.

I want to say one other thing that's different from the current situation. There are many things that are different. The economy was actually significantly improving at that point. The budget projections looked better and better. I told the president numerous times in that year that based on the incoming data from the strength of the economy and higher revenues that the way to get the budget to balance in five to seven years was getting easier. The numbers were suggesting the problem was not as big as we thought.

I'm really quite concerned that that's not the case this time around. That because the economy continues to be weak with high unemployment rates and anemic recovery that projections about revenues and the projections about spending on programs that are related to this weakness of the economy, like Medicaid, those projections are not getting better. So it's going to be a harder problem.

RAZ: What happens to the economy if there is political gridlock on Capitol Hill? I mean, will it have much of an impact at all?

Dr. TYSON: In the short run, it depends upon how weak the recovery remains. For those of us, like myself, who believe that in an ideal world, we should have more fiscal stimulus now combined with a credible deficit reduction package for the future. The odds of getting those two things in a gridlock Congress are just about zero. So my ideal fiscal policy scenario is not politically very likely.

In the meantime, if we get neither of those, we have - are relying on monetary policy.

RAZ: Are you optimistic about the next two years over whether the White House and Congress will be able to work together to tackle this unemployment crisis?

Dr. TYSON: I wish I could be more optimistic than I actually feel. I believe, as was true in 1995 with President Clinton, I believe that the Obama administration would reach out and is willing to look for compromises.

The reason I'm not optimistic is when I hear some of the Republican leadership in both the House and the Senate say very clearly and repeatedly that their major objective is to make sure President Obama is not re-elected in 2012. That is not a statement or a policy for improving the U.S. economy over the next couple of years.

RAZ: That's Laura Tyson. She chaired the president's Council of Economic Advisors and the National Economic Council under President Clinton. She's now a business professor at the University of California at Berkeley.

Laura Tyson, thank you so much.

Dr. TYSON: Thank you.

RAZ: Greg Mankiw was President George W. Bush's top economic adviser. He's now a professor at Harvard and a critic of President Obama's stimulus package.

Greg Mankiw, welcome to the program.

Dr. GREG MANKIW (Economics, Harvard University): Nice to be with you.

RAZ: Let me ask you about what many, many economists are recommending in terms of trying to tackle slow growth, high unemployment. Many of them - I know you're not one of them - argue that there should be additional stimulus. Why do you think so many economists support this idea?

Dr. MANKIW: Well, the economy is very weak right now. There's no question about that. And people are looking for ways to get us out of what is a very deep hole. So, I can understand why people are looking for ways to deal with it.

Now those who are proposing more stimulus in the traditional Keynesian sense are sort of relying on a particular view of how the world works, and believe that increases in government spending can stimulate demand and reduce unemployment.

I'm somewhat skeptical of that, because I think it's very hard to come up with ways to spend hundreds of billions of dollars quickly and wisely. And as President Obama said in an interview, there's no such thing as a shovel-ready project.

RAZ: When you look at the way the government will shape up starting in January with a new Congress, a Republican Congress - obviously, the White House and the Senate are still dominated by Democrats - what advice would you give to policymakers on how to tackle the economy? I mean, what could they do?

There seem to be very different ideas from the administration and from Congress. Congress seems to be determined to cut. Is that a good solution in your view?

Dr. MANKIW: I think we have two problems that push you in very different directions. There's a short-run problem and a long-run problem. The short-run problem is that the lingering effects of a very deep recession. And from that perspective, you want to stimulate aggregate demand for goods and services to get unemployment down, so firms start producing and start hiring.

The long-run problem is we have a government that clearly has a budget that's out of control. Even under President Obama's proposed budget, the debt to GDP ratio continues to rise even after the economy fully recovers. So we clearly have a long-term problem as well. And the tricky thing is to try to balance the short-run imperative and the long-run imperative.

What I would like him to try to do is do both. I'd like him to focus on the short-run by doing things to try to incentivize business investment. I think President Obama's proposal for the expensing of business investment is one example of that. And I'd like to also see them tackle the long-run problem, because I think if they do tackle the long-run problem, that would provide some certainty.

RAZ: But how do they do that, I mean, without going after entitlements like Social Security and Medicare?

Dr. MANKIW: They can't.

RAZ: They can't.

Dr. MANKIW: I mean, there's no way to solve the long-run problem by just saying, oh, we're just going to cut out waste, fraud and abuse. There's going to be difficult choices. This can either involve tackling the major spending programs like entitlements or substantial increases in taxes, which obviously the Republicans aren't going to want.

But if you really want to preserve the social safety net that we have now in the form we have it now, you're going to have to raise taxes to levels that we've never seen in U.S. history, comparable to what we see in much of continental Europe.

And my own view is that would be detrimental to the economy. I think there's many different points of view among economists about how detrimental high levels of taxation like we see in, say, France and Germany, how bad an impact that has on the economy.

RAZ: As you know, many of the newly elected members of the House and the Senate are determined to cut the deficit, which may mean some austerity measures. Given the state of the economy now, is that something you would recommend policymakers do to start to cut back on spending in order to cut down on the deficit?

Dr. MANKIW: Well, I think tackling the long-term deficit should be a priority now. We should think now about how we're going to tackle those out-year deficits. Because the problem with the deficit is not that we have a deficit right now, it's we have a deficit right now and there's no end in sight to these deficits.

And they're not even small - moderate deficits are okay. If you get deficits of one or 2 percent of GDP, then live with that forever because the economy's growing. But the deficits never get down to that level under the Obama administration plan. The debt to GDP ratio keeps growing every single year throughout the 10-year budget window according to Obama administration's own estimates. And that's just not sustainable.

RAZ: That's Greg Mankiw. He is the former chairman of President Bush's Council of Economic Advisors and a professor of economics at Harvard University.

Greg Mankiw, thank you so much.

Dr. MANKIW: Thank you.

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