Ten Questions for CEA Chair Austan Goolsbee

Austan D. Goolsbee, an economics professor on leave from the University of Chicago, became chairman of President Obama’s Council of Economic Advisers in September. He talked with John Harwood of the Times and CNBC at the White House recently about the state of the economy and Republican criticisms of the administration’s policies. Here is a condensed, edited version of their conversation:

What does this economy need right now?

The answer is: give certainty so that we don't have a precipitous decline in consumer spending and a big hit on the middle class, and follow through on getting the credit and tax relief to small businesses that the president has been for, encouraging business investment, and encouraging exports and innovation to get us on a growth path. We need to certainly extend the tax cuts for the middle class. We should certainly extend the unemployment benefits.

The independent economist Mark Zandi, who's been an ally of yours on fiscal policy, says, “Yes, extend unemployment insurance.” But he also says it would be a mistake to raise any tax rates, even the top end, with the economy so fragile. Set aside the politics. As a matter of economics, is he right?

I know Mark Zandi, he's a friend of mine. If you ask what has the most immediate impact on the economy, preserving tax cuts for the middle class, versus the high end, it doesn't make sense"¦

But setting aside the comparison. On the simple economic question of whether it would be positive for the economy to leave those rates in place, at least for a short time — it sounds like you agree with him, but just don't want to say so.

I think you're putting words in my mouth. Let's start from what can we afford. I personally do not think that we can afford to borrow $700 billion to pay for tax cuts we know don't work. Didn't work the first time. Will not work now.

It's not $700 billion if you only do it for two years.

You start from what money you have. And then let's do it in order of what has the highest bang for the buck. And I think there's actually pretty bipartisan agreement on what the order of bang for the buck is — the high-income tax cuts are the bottom.

I talked to a couple of your predecessors from Republican administrations, Greg Mankiw and Glenn Hubbard. Both said that the administration was over-emphasizing the wrong thing: stimulating consumer demand, as opposed to stimulating business investment, which is the more important source of recovery at this moment. Hubbard said the administration has a fetish for consumer demand. What's wrong with his reasoning?

There's nothing wrong with the reasoning. We want to encourage business investment.

The principal focus of the program that the president's put forward is about getting the economy to grow. It isn't about just increasing consumer spending. It's very heavily on investments, on both the physical capital factories and equipment side, as well as the human capital side of investing and training of our workers. And trying to get people to build businesses here. That's a different question than: "?Should we completely disregard the fact that, if we go cut off the unemployment extensions for people that are looking for work, their spending is going to drop precipitously?' The data shows us that that's true. And it's not responsible to do that at a moment like this.

Would our economy be in better shape right now if the initial stimulus when the administration took office had been bigger?

I don't know the answer to that for sure. There's a bit of a crystal ball in that. It obviously depends on what the things were.

NYT_VideoPlayerStart({playerType:"blog",videoId:"1248069401061",adxPagename:"thecaucus.blogs.nytimes.com/video"});

Q.

Respond to the argument that the reason the economy is not healthier despite stimulus is that the Keynesian "?multiplier' simply doesn't have the same impact that it once was thought to have.

A.

Well, I'd give you one technical and one broader answer. On the technical answer, if you go look at the quarterly reports on the Recovery Act, they suggest that the overall impact on jobs saved or created is just about what was predicted. The main thing that everybody missed, not just the government, is the base line of "?how bad is the economy.' It was significantly worse than was forecast. So, I think that part is fair.

Q.

Glenn Hubbard said there are some times when contractionary fiscal policy is actually beneficial to growth, and this may be one of those times.

A.

I think there's a deep flaw in that reasoning. That contractionary fiscal policies can be expansionary centers on getting the interest rate reduced. The interest rate — we're hitting the zero lower bound. So, it's hard to see how contractionary fiscal policy, at a moment when we're coming out of the worst recession since 1929 and still in a fragile state, is going to be expansionary.

Q.

Is what Britain is doing right now, with respect to budget cutbacks, the right thing economically for the world? Is it a good model for the United States?

A.

The U.K. is engaged in significant budget-cutting and austerity, and several other countries are advocating austerity as well. As the Recovery Act is winding down, U.S. spending levels are on path to be dramatically reduced. So the U.S. does not need to take lessons in austerity from other countries.

Q.

When you think purely about business, and all of the cash that business is sitting on, and what it would take to unlock that, is what business needs right now more customers? Or, confidence in the future "“ which is perhaps a function of spending levels, deficits, tax rates?

A.

There's about one trillion dollars on the balance sheets of corporations. The question is, why have they not been using that money? And I believe that uncertainty is the most important thing. They have been afraid. By far, the biggest uncertainty has been about demand, and about where will the U.S. economy be now, and in the coming years. Not the policy uncertainty.

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Respond to the argument that the reason the economy is not healthier despite stimulus is that the Keynesian "?multiplier' simply doesn't have the same impact that it once was thought to have.

Well, I'd give you one technical and one broader answer. On the technical answer, if you go look at the quarterly reports on the Recovery Act, they suggest that the overall impact on jobs saved or created is just about what was predicted. The main thing that everybody missed, not just the government, is the base line of "?how bad is the economy.' It was significantly worse than was forecast. So, I think that part is fair.

Glenn Hubbard said there are some times when contractionary fiscal policy is actually beneficial to growth, and this may be one of those times.

I think there's a deep flaw in that reasoning. That contractionary fiscal policies can be expansionary centers on getting the interest rate reduced. The interest rate — we're hitting the zero lower bound. So, it's hard to see how contractionary fiscal policy, at a moment when we're coming out of the worst recession since 1929 and still in a fragile state, is going to be expansionary.

Is what Britain is doing right now, with respect to budget cutbacks, the right thing economically for the world? Is it a good model for the United States?

The U.K. is engaged in significant budget-cutting and austerity, and several other countries are advocating austerity as well. As the Recovery Act is winding down, U.S. spending levels are on path to be dramatically reduced. So the U.S. does not need to take lessons in austerity from other countries.

When you think purely about business, and all of the cash that business is sitting on, and what it would take to unlock that, is what business needs right now more customers? Or, confidence in the future "“ which is perhaps a function of spending levels, deficits, tax rates?

There's about one trillion dollars on the balance sheets of corporations. The question is, why have they not been using that money? And I believe that uncertainty is the most important thing. They have been afraid. By far, the biggest uncertainty has been about demand, and about where will the U.S. economy be now, and in the coming years. Not the policy uncertainty.

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The latest on President Obama, Congress and other political news from Washington and around the nation from the staff of The New York Times.

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FiveThirtyEight's aims to help New York Times readers cut through the clutter of our data-rich world.

Read the Blog » Nate Silver's Methodology » NYT_VideoPlayerStart({playerType:"homepage", playlistId:"1194811622221", adxPagename:"thecaucus.blogs.nytimes.com/video", parentDomId:"1", targetDomId:"VideoPlayerCCol"}); More Politics News Lawmakers Weigh Deal to Extend Tax Cuts for All By DAVID M. HERSZENHORN

Negotiators are discussing a deal to extend all of the Bush-era tax cuts, perhaps for two years, after an Obama plan to let rates rise for top incomes failed in the Senate.

G.O.P. Leader Sees Outline of Tax Deal By JOSEPH BERGER

Sen. Mitch McConnell predicted Congress would retain the Bush-era tax cuts and might extend jobless benefits.

Mounting Debts by States Stoke Fears of Crisis By MICHAEL COOPER and MARY WILLIAMS WALSH

State budget imbalances remind some analysts of the run-up to the subprime mortgage meltdown, or of the crisis hitting Europe.

Pushing a Right to Bear Arms, the Sharp Kind By MARC LACEY

Changes in knife laws in Arizona and New Hampshire have given new life to the knife rights lobby.

News Analysis: Arizona Medicaid Cuts Seen as a Sign of the Times By KEVIN SACK

A decision to eliminate coverage for certain transplants is testament to both the severity of fiscal pressures on the states and the bloodlessness of budget-cutting in Arizona.

Archive Select Month December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 May 2000 Recent Posts

December 05 //

The Biggest ‘Mo’ on Embassy Row

Staffers from the British, Australian and New Zealand embassies had their mustaches judged by players from the Washington Capitals. For charity.

December 04 //

Political Books Best-Seller List

George and Laura Bush both have books on the political best-seller list.

December 04 //

Obama Praises Delayed Trade Deal With South Korea

The trade deal that President Obama had expected to announce while he was in South Korea is finally completed.

December 04 //

22 Republicans Balk at Arms Treaty

Twenty-two Republican senators wrote a letter to their party's Senate leader this week insisting on a long floor debate and plenty of amendments if the treaty is brought to a floor vote in the lame-duck session this month.

December 04 //

The Weekend Word: Weekend Warriors

On Capitol Hill, lawmakers will be at work Saturday, searching for a tax-cut solution that both parties can live with.

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The latest on President Obama, Congress and other political news from Washington and around the nation from the staff of The New York Times.

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Four candidates seeking to lead the Republican National Committee delivered their pitches at an open forum on Wednesday.

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Senate Democrats Voice Frustration Over Bush-Era Tax Cuts

According to Robert Menendez, Democrat of New Jersey, negotiating with Republicans over tax cuts for the rich is “almost like the question of ‘do you negotiate with terrorists?’ “ //

Senator Brown Supports Repeal of ‘Don’t Ask, Don’t Tell’

Scott Brown of Massachusetts is the latest Republican to support changing the law to allow gay troops to serve openly. //

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Professor Laurence H. Tribe’s private 2009 advice to President Obama about filling Supreme Court vacancies contained some pointed remarks about prominent jurists. //

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Demonstrators brought a giant banner with words from the United States Constitution to a rally protesting the Citizens United ruling. //

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Leaked: Obama Mentor’s Blunt Advice on Court Choices

Professor Laurence H. Tribe’s private 2009 advice to President Obama about filling Supreme Court vacancies contained some pointed remarks about prominent jurists. //

The Caucus Click: Washington

Demonstrators brought a giant banner with words from the United States Constitution to a rally protesting the Citizens United ruling. //

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Republicans rode a tide of voter discontent to take control of the House of Representatives and expand their voice in the Senate.

Republicans Will Take Control of the HouseLive Updates: FiveThirtyEight | The Caucus Results: House | Senate | Governor FiveThirtyEight Nate Silver's Political Calculus

FiveThirtyEight's aims to help New York Times readers cut through the clutter of our data-rich world.

Read the Blog » Nate Silver's Methodology » NYT_VideoPlayerStart({playerType:"homepage", playlistId:"1194811622221", adxPagename:"thecaucus.blogs.nytimes.com/video", parentDomId:"1", targetDomId:"VideoPlayerCCol"}); More Politics News Lawmakers Weigh Deal to Extend Tax Cuts for All By DAVID M. HERSZENHORN

Negotiators are discussing a deal to extend all of the Bush-era tax cuts, perhaps for two years, after an Obama plan to let rates rise for top incomes failed in the Senate.

G.O.P. Leader Sees Outline of Tax Deal By JOSEPH BERGER

Sen. Mitch McConnell predicted Congress would retain the Bush-era tax cuts and might extend jobless benefits.

Mounting Debts by States Stoke Fears of Crisis By MICHAEL COOPER and MARY WILLIAMS WALSH

State budget imbalances remind some analysts of the run-up to the subprime mortgage meltdown, or of the crisis hitting Europe.

Pushing a Right to Bear Arms, the Sharp Kind By MARC LACEY

Changes in knife laws in Arizona and New Hampshire have given new life to the knife rights lobby.

News Analysis: Arizona Medicaid Cuts Seen as a Sign of the Times By KEVIN SACK

A decision to eliminate coverage for certain transplants is testament to both the severity of fiscal pressures on the states and the bloodlessness of budget-cutting in Arizona.

Archive Select Month December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 May 2000 Recent Posts

December 05 //

The Biggest ‘Mo’ on Embassy Row

Staffers from the British, Australian and New Zealand embassies had their mustaches judged by players from the Washington Capitals. For charity.

December 04 //

Political Books Best-Seller List

George and Laura Bush both have books on the political best-seller list.

December 04 //

Obama Praises Delayed Trade Deal With South Korea

The trade deal that President Obama had expected to announce while he was in South Korea is finally completed.

December 04 //

22 Republicans Balk at Arms Treaty

Twenty-two Republican senators wrote a letter to their party's Senate leader this week insisting on a long floor debate and plenty of amendments if the treaty is brought to a floor vote in the lame-duck session this month.

December 04 //

The Weekend Word: Weekend Warriors

On Capitol Hill, lawmakers will be at work Saturday, searching for a tax-cut solution that both parties can live with.

Blogroll A-List of Supreme Court and the Law ABC News: Legalities Above the Law American Bar Association Journal American Constitution Society Balkinization BLT, the blog of Legal Times CBS News: Andrew Cohen's Court Watch Confirm Them Constitutional Law Prof Blog Election Law Blog How Appealing National Journal: The Ninth Justice National Review: Bench Memos PBS: Supreme Court Watch Scotus Blog Slate's Jurisprudence The Wall Street Journal: Law Blog Think Progress Volokh Conspiracy Campaign Cash Campaign Disclosure Campaign Finance Information Center Campaign Finance Institute: Guide to BCRA Campaign Legal Center Center for Competitive Politics Blog Center for Responsive Politics Common Cause Democracy21 Equal Vote Blog Heritage Foundation Hoover Institution National Voting Rights Institute Public Campaign Public Citizen's Campaign Finance Site The Brennan Center's Campaign Finance Reform The Brookings Institution The Cato Institute The Color of Money Project The Institute on Money in State Politics The Reform Institute Vote Law WhiteHouseForSale.org General Advice to the President Atrios Attytood Ben Smith's Blog Boston Globe's Political Intelligence Campaign Network Center for Public Integrity City Room CQ Politics Daily Kos Dick Polman's American Debate Election Law Blog Ezra Klein FiveThirtyEight GOP12 Instapundit Jake Tapper's Political Punch Los Angeles Times: Top of the Ticket Marc Ambinder's Blog My DD NBC's First Read Open Left Political Animal Raw Story RealClear Politics Red State Right Democrat Roll Call Taegan Goddard's Political Wire Talking Points Memo TechPresident The American Prospect The Chicago Tribune's The Swamp The Corner The Crypt The Fix The Hill The Hotline The Huffington Post The Nation's Campaign Matters The Note The Page The Plank The Volokh Conspiracy Time's Swampland Town Hall Blog War and Piece Wonkosphere About The Caucus

The latest on President Obama, Congress and other political news from Washington and around the nation from the staff of The New York Times.

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