Washington Post columnist Steven Pearlstein was online to discuss his latest column, which explores the lack of intellectual honesty in Democratic presidential candidate John Kerry's economic plan.
A transcript follows.
Steven Pearlstein writes about business and the economy for The Washington Post. His columns on the economy appear every Wednesday and Friday.
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You write "The president inherited an economy that was already in recession..."
In 1998 the GDP was up 5.3%, in 1999 it was up 6.0%, in 2000 it was up 5.9%. Please define your use of the word "recession", correct the above statistics, or admit that "First, it's -your column] simply not true."
Steven Pearlstein: Well, when I last checked, George W. Bush was sworn in late in January, 2001. The NBER says the recession began in March, although I think that probably is a bit late. But even accepting that start date, it is accurate to say that he inherited a recession. Don't get me wrong. I am not, as some Bush people do, accusing Clinton somehow of causing the recession. President's generally don't cause them or prevent them. Also, your focus on GDP exclusively I think is misguided, which is why I write that the recession really wasn't a short one but lasted at least two years. The NBER dating committee relied excessively on GDP numbers, I believe. Not only is it quite possible that those numbers will be revised, but they do not reflect the realities encompassed by other date relating to employment, income, industrial output, trade, government receipts, corporate profits and investment.
Your discussion about the economic standing of "most" or "the average" American is probably on target; but what really concerns me (and I suspect a lot of people) is close to disaster a lot of us are.
Have you read a book called "The Two-Income Trap"? Its thesis is that raising children today takes two incomes -- largely due to the price of homes in good school district, health insurance and two vehicles (one an SUV).
Most such families have two decent incomes coming in. But the authors thesis is that the sustained loss of ONE of them through illness, job loss or divorce, puts the whole family quickly into disaster mode.
Americans have little savings, lots of mortgage and home equity debt, and live two-paychecks to two-paychecks each month.
For families with kids, middle class status is a tightrope they walk biweekly.
Steven Pearlstein: Those are all good points to make.I do think we have to ask some hard questions about that, however. Why are there no savings? Have people enhanced their lifestyle in the good times to the point that they have put themselves too close to the edge. There is evidence of this, in terms of size of houses and mortgages and number and cost of cars. But there is no question that recent increases in local taxes and health care premiums/deductibles have taken away some of the cushion. Remember, that book, which I did read, calls it a "trap." And the trap was created not only by external factors, but by us, as well.
Can tax cuts that empower the working and middle classes while keeping taxes to the rich higher (in terms of percentage of income paid) really be considered 'widening the gap' between the rich and the poor?
Steven Pearlstein: The main drivers for income inequality are globalization and trade, new technology and the waning importance of institutions like labor unions and norms of behavior that served to keep things more even. The tax code has always been progressive, and redistributed income a bit to close the gap produced by the private economy. It still does, although less so with the passage of certain aspects of the Bush tax cut, particularly the cut in tax rates on dividends and capital gains and the repeal of the inheritance tax. Now you ask whether, say, repealing the tax cut on the rich will help narrow the gap? Obviously it would, to a limited degree. The debate about income inequality can be waged on a before-tax or an after-tax basis, or both, which is probably the way to do.
I would rather take a chance with Mr. Kerry's lack of intelligence over Mr. Bush's any day.
Steven Pearlstein: Well, that's certainly an important factor. Mr. Kerry is quite smart, I can say from personal observation. But I'd be careful about dismissing Mr. Bush as a ninny.
Kerry seems to be painting a pretty grim picture of the economy, at least towards Middle America. Although the data would seem to contradict his assessment, it seems a lot of people believe that the economy is not doing well. My question is do you think even with strong recent job growth and corporate profits rising, the American public will accept Kerry's assessment? He won't need a good plan if people think the economy is in bad shape and feel the need to change directions.
Steven Pearlstein: It is true that voters, as a whole, think the economy is doing less well than the data says it is. There may be a natural lag in these things. Or it may be that people had a hard enough time during the recession that they aren't going to be quick to forget or forgive. I really don't know about that -- its a mystery. But I do know that it is a pretty risky strategy for a candidate to build his economic case on a presumption that things are terrible when the odds are very good that things will continue to get better in very visible ways between now and election day. That's not a very robust strategy.
You have made very informative observations on the candidates' economic policies. This is probably worth a separate column, yet, in sum, how would you compare the candidates' health care policies?
Steven Pearlstein: It is a separate column, which I should be getting to, soon. Bush essentially has no serious health care plan. Kerry's is actually quite good, now that we have the details flushed out. Its probably more ambitious than he wants to let on. And while I might quibble with some of the features, it is reasonable, attacks the big problems, works within the existing employer-oriented insurance system and avoids many of the political and design problems of the Clinton plan, from which it borrows the best ideas.
I'd like you to expand on your comment "In trade policy Bush has allowed China to become the next Japan while sacrificing the interests of manufacturing and service workers to protect farm subsidies." How can the democrats counter this, considering their tendency toward protectionism?
Steven Pearlstein: The essential question now facing world trade negotiators is whether the U.S., Europe and japan are ready to give up on their large agricultural subsidy programs and agricultural tariffs and other barriers to imports. If they are, the third world will be willing to open their markets more fully and quickly to goods and services and even agricultural commodities from the industrialized world. That's where we can really cash in on our competitive advantages. Unfortunately, this opening up of trade is being held hostage by very greedy and undeserving farm interests, such as cotton growers and sugar-beet growers and citrus growers. This is highly political: guess what state citrus growers live in? And while Trade Representative Zoellick has moved us in the right direction in this regard, there is less to our offer than first meets the eye. As I've written before, we should have been on the same side as the Brazilians and Argentinians and Austrailians and Canadians in pushing for elimination of ag. barriers, which would have helped avoid a breakdown of talks at Cancun last year.
In fairness, Steve, when you talk about the stimulative effect of the various tax cuts since the current administration came to power, don't forget that the concept of the early cash rebates originated as the price for the support of Senate Democrats like John Breaux. Because the major cuts are back loaded, how much of the push to the economy now can really be attributed to the structure of the tax legislation? A related and relevant question would be, for the same projected cost (or less) could we have done better with a different mix of cuts, such as the payroll tax cuts moderates have talked about?
Oh, and as for the low cost of food, does your household boycott dairy products, meat, and eggs? My ice cream addiction was cured since I moved here, but I do miss JP Licks Cherry Garciaparra.
Steven Pearlstein: I'm glad you raise this because I want to make clear I would NOT favor making the Bush tax cuts permanent -- in fact, I'd probably repeal all of them at this point. But as temporary stimulus, I think they worked. They weren't perfect, and I'm sure I would have structured them differently. But they prove that, in the right instances, Keynesian fiscal stimulus can be effective. I have a problem with the payroll tax cuts in that I still have this old fashioned notion that we ought to keep those programs somewhat separate and self-sustaining, and the proposal you mention does some violence to that concept. And I also disagree with the traditional liberal argument that its a waste of money to give rich people a stimulus-oriented temporary tax cut because they'll just save the money. I'm not superrich but I live pretty well and I observe that there is still quite a bit of discretionary spending that goes on in the upper middle class.
Don't hear much from Kerry on creating new, high-paying, skilled jobs here in the USA. Hear a lot of hooey but no meat and potatoes as to what specifically HE intends to DO. Can you help us out here?
An America with no one working is no city on the shining hill. And after all, we all can't move to the Hamptons with our golden parachutes and our immigrant help.
Steven Pearlstein: First, let's reiterate the basic point of this column which is that presidents don't create private sector jobs. They can improve the climate, however, for good jobs to be created. Government funded research and development. Sensible telecom policy. Generous funding for education. Good transportation systems. Good macroeconomic policy. Getting a handle on health care costs, half of which are paid for by the government. You probably know the drill. And in this regard, I think he's probably got a lot more to offer than Mr. Bush, which is my other point: why get into the game of exaggerating how bad things are when Kerry has so much else to talk about and offer.
Silver Spring, Md.:
How does John Kerry make the case for reducing the budget deficit, to prevent future inflationary pressure, without being accused by the Bush campaign of favoring increased taxation?
Steven Pearlstein: Well, he is for increased taxation of the rich, and he probably should round this out a bit by being for some additional taxation for everyone until we get the budget deficit in line. He could also do more to flush out and emphasize where in the federal budget he would cut, such as ag. subsidies and spending on silly and expensive defense projects, like Star Wars and unnecessary fleets of F-22 jet fighters. And when some Bush type criticizes his spending cuts, he would have the perfect opening for saying over and over and over again until it finally sinks in: Mr. President, if you don't like my spending cuts, tell us where you would cut, because so far you are missing in action, just like during the Vietnam War."
Decent article today (which is saying something after all of my criticisms of you over the past 6 months).
Do you think Kerry would benefit from developing an economic plan that calls for cutting government by 25% (or even 50% like New Zealand did)?
Steven Pearlstein: thanks for the compliment but no, I suspect 25 percent is too much. I'm not as skeptical about the efficacy of government as you are.
The presidential race has turned into a battle among the party of bad ideas (Republican) versus the party of no ideas (Democrat). I have yet to hear Kerry articulate a measured program with real numbers targeted to get people back to work, jumpstart the economy, etc. etc. FDR's national employment programs were directed to establishing a solid, sustainable national infrastructure (TVA, etc.). I submit the same could be done with our "War on Terror" or "Homeland Security" programs. Where is Kerry's plan? All I have heard is his criticism of Bush.
Steven Pearlstein: He has some reasonable ideas and I wish he'd focus on them rather than pandering to people's notion of how bad things are.
I'm always curious to read economic journalism. May I ask about your background and training in economics, please? Thanks for a stimulating discussion.
Steven Pearlstein: My training in economics consists of running a failed business and writing and editing business and economic news for 20 years. No academic training at all.
Washington, D.C. (Ninny):
I never said ninny, nor am I suggesting Mr. Bush is as dumb as some thing....
I rather simply take a chance with Mr. Kerry's intelligence.....not just him but those whom he would select to work around him. (No more Cheney type personalities)
Steven Pearlstein: Fair point.
Forest Hills, N.Y.:
The reason why "average" people still think the economy is bad is because to them, it is. They are the last to benefit in the trickle-down supply-side economics of the Bush administration. All they know is that its still hard to find a good job with real pay and benefits. It doesn't matter to them that GDP is growing at a good clip and monthly job creation is up. They don't pay any attention to these things and for good reason - they don't squat to anyone but economists, Wall Street, politicians and media commentators.
Steven Pearlstein: It has always been true that the people near the bottom of the economic ladder are, as a group, the first to feel the impact of a slowdown and the last to feel the benefit of a recovery. It is almost tautalogical: the reason they have the least economic leverage/clout is that they have the least economic leverage/clout. This is one of the unpleasant realities about market capitalism. You can impose government policies that mitigate this more than we already do, but if you go too far in that direction, you start to reduce the overall economic growth rate. Where to draw the line is what the economic debate is all about. But if you want to insure a middle class income to all Americans at all times, then you definitely WILL get the economy into the kind of trouble socialist countries did in the 1990s.
I have to complement you on the last couple of articles and chats. After about a month of boring articles and chats that went no where fast you are making a great turn. Inflammatory articles that will make everyone mad and then chats that basically tell everyone else they are bias or stupid really liven things up.
I tend to disagree that presidents don't have a huge effect on the economy. If not directly then at least through the expectations and perception of stability they project. When Clinton was in office there were balanced budgets and relatively straight shooting on economic issues. With Bush you get huge cuts for the wealthy masked by averages as being for everyone. Globalization hype one minute then steal tariffs and farm/energy subsidies the next. The bill to repeal these illegal subsidies in Congress now is an absolute travesty and Bush is silent. Its the perception that he is running the country into the ground to make the rich richer that is important.
Steven Pearlstein: I'm not sure how to take all that but I'll just leave it at that.
The public's perception of the economy is their reality. It matters far less what the GDP and the leading economic indicators say when compared to a household with their wage earner(s) threatened by job loss, benefit cuts, increasing insurance premiums, and stagnating paychecks. Homeland security means little when you have no home. National defense means little when you cannot have your child immunized. Trade agreements mean little when your schools are crumbling.
Steven Pearlstein: Wage earners are always threatened with job loss -- we don't guarantee people jobs in this country. That's true in good times and bad -- the job churn numbers in the United States are truly staggering. But clearly the economy has been generating more jobs than it is destroying in the last 9 months, with pretty good odds that this will continue at least through the end of the year. The rate is about 250,000 a month, which is exactly what Mr. Kerry "promises" if he gets elected ( another of Gene Sperling's silly ideas). But those are real jobs that have filtered down to real people. Incomes are no longer stagnating -- that's just a fact. And at some point, all this is likely to sink in. Immunization, I believe, is offered for free for people who can't afford it in most states (Virginia may be an exception, but I doubt it). Schools in McLean, while maybe not as good as they used to be, aren't exactly crumbling. In fact, they aren't even crumbling in Washington, D.C., although the system here is dysfunctional, albeit for reasons having more to do with politics and competency than money. Get a grip!
Kerry's health care plan is a joke. He wants to dump the uninsured and uninsurable into the Federal Health Care plan. This would destroy one of the few decent benefits we Feds have by jacking up the cost of our health insurance to astronomical levels and driving many of the insurance companies out of the Fed plan. Let the uninsured die!
A DOD employee
Steven Pearlstein: You simply aren't aware of the details of the Kerry plan. It would do no such thing. Separate pools. Read it.
There was an interview on the radio 10 days or so ago. NPR or PRI, I think. A professional man with a multiple of degrees in business had to take a job in Iraq working for a contractor. You see, he couldn't find work in "the best economy in the world." So he took a clerk's job, it was all he could find.
Regardless of the debate about tax cuts and globalization, if a very well educated American has to go to Falujah to work as a clerk, where's the long term hope for the rest of us? The only way up in the old days in America for those of us not connected to the Grand Old Plutocracy, was education.
Doesn't appear to be that way, anymore, now does it? When these stories stop being curious and become wearily routine, there's going to be a reckoning day coming. And Greenspan, Bush, Kerry, and the other well-heeled intellectuals aren't going to be able to contain it.
Then what do we do? Drop back 10 and punt?
Steven Pearlstein: What are you saying? That there aren't tens of millions of professional men who have good jobs? Have some been left out? Sure. But let's not make broad sweeping conclusions on the basis of some guy that some reporter uncovers who's down on his luck. This is a very dynamic economy that has lots of creative destruction involved with it. Over the long run it has produced the highest standards of living in the world. It needs constant attention and tinkering and its not perfect. But your rant doesn't lead anywhere. Again, let me ask: should the government guarantee all Americans a middle class income at all times and in all places? If you think that, then you are proposing a pretty radical solution that has been tried elsewhere, with not great longrun results.
Have you factored in the underlying complex drivers of the dot.com boom and bust that led to the current/recent recession? In my opinion, the "great economy" of the Clinton years was based on a house of cards, and led inexorably to the drastic adjustment we are working through.
Steven Pearlstein: You said better what I meant to suggest this morning. And that boom was based on alot of borrowed money and capital that flooded in from abroad, much of it misdirected. That's why data and economic comparisons to the peak of the 1990s is somewhat specious. That was a mirage, and should not be used as a benchmark for anything other than excess investment.
Silver Spring, Md.:
I understand your point about the low socio-economic ladder. However, today, middle and upper-middle class people are hurting. The middle and upper-middle class can survive for awhile because they have the means to do so. Although, there is a growing concern as to how long will their funds and savings last. We don't want to exhaust our funds waiting for what you term a recovery. We enjoyed a recovery during Pres. Clinton's tenure - a balanced budget, jobs, and the ability to do more with our money. My 401K grew while Pres. Clinton was in office. Now, it's in recovery. How do you explain that?
Steven Pearlstein: This political dating of economic cycles is simply spurious. Just because something happened while President Clinton was in office doesn't mean that he caused it to happen. That doesn't mean public policy doesn't affect the economy in short run, cyclical ways and in long-run ways. It does. And the Clinton team did a pretty good job in those respects, no question about it. But the reason your 401 K took a dive in 2001 and 2002 has NOTHING to do with George Bush. NOTHING. In fact, it took a dive because of the excesses of the late 90s that, in some part, were tolerated by government regulators appointed by Mr. Clinton, including the heads of the Federal Reserve and the SEC.
Steven Pearlstein: Well, our time is more than gone. Thanks folks. See you next week.