Wednesday, September 23, 2009;
LOIS ROMANO: Welcome, Dr. Austan Goolsbee, a member of the Council of Economic Advisers and the chief economist for the President's Economic Recovery Advisory Board. Thanks for joining us.
AUSTAN GOOLSBEE: Thank you for having me.
ROMANO: So I have spent the past couple of days reading all about you, your five page résumé and watching you on "The Daily Show" and "The Colbert Report," and it seems that you're just having way too much fun for a government economist.
GOOLSBEE: I don't know. I don't know that that's the right description.
I mean, it's been exhilarating.
Boy, the last year my thing is if there ever was a dog year, that was the dog year. I mean, to think where it was a year ago to now and all of the unbelievable - I mean, the conditions were terrible when we first came into office. You know, the top jobs were filled, but all of the under layers hadn't been filled with anybody. So everybody's doing sort of three, four different jobs. It was certainly an experience.
ROMANO: And this is your first stint in government?
ROMANO: So what did you find you were naive about?
GOOLSBEE: Pretty much everything. I just keep at it. You ask anybody my catch phrases. "Is this normal?" "Is this what it's always like?" You know, it's been pretty different from being an economics professor, I guess. Let me put it that way.
Well, you know, we're working for the government, but the main differences are the standard of evidence in academics is obviously extremely high, but you also have the luxury of time, and, in general, you don't have the luxury of time in the government and especially in the middle of the deepest recession since 1929, where you're just trying to prevent us from going into meltdown.
ROMANO: Well, what have you learned about the politics of the economy?
GOOLSBEE: Look, I'm still basically a numbers guy, and I worked for really two years on the campaign in Chicago, and David Axelrod was my office mate. And my insights on politics are not anything above amateur at best. So I try to kind of stay out of that side of it and just be the, you know, the numbers and the data and the ideas man.
David Axelrod and Anita Dunn have a certain genius - and one would come in and describe, "Here are the facts on the uninsured," you know, and you go through the numbers, and they say, "So are you telling me that," you know, and then they'd give a statement. "Well, yes, I guess that is right, and that sounds a lot better than the way I described it."
So I actually have a great respect for that translating of content into message that everybody can understand, and, you know, it's been pretty eye-opening to see that and see that in action.
ROMANO: Now, during the better part of the campaign, you were the economic adviser to the candidate, and now you're an economic adviser. How has that transition been, kind of being part of a huge entity?
GOOLSBEE: Well, that's probably the right way to describe it - the main transition has been going from a start-up to working for a, you know, Fortune 50 company, is kind of what it feels like the transition was.
Anybody who was around in the campaign certainly from the beginning but also even partway along, it had a, we were on a mission. We were like NASA trying to put a man-on-the-moon kind of thing, and I think everybody misses that.
But inside the government, as I say, you never wanted to be in the position that we were in coming in, in, you know, January of '09 with the economy melting down, and so there was by far more to be done than there were people to do it. So it wasn't like we were lacking for jobs.
Romano: Okay. So you were born in Waco, Texas.
GOOLSBEE: Yes, I was.
ROMANO: Okay. And grew up in Whittier, California; is that correct?
ROMANO: And tell me a little bit about your family politics. I mean, were they political or not political?
GOOLSBEE: My mom is a real pistol and is very liberal. My dad is somewhat conservative, but they were Democrats.
ROMANO: Were they Yellow Dog Democrats?
GOOLSBEE: Yeah. I'm not sure which kind of dog they were, but, you know, it was a very different time, you know, then they grew up. Everyone was a Democrat in Texas.
They moved to Whittier, and as my mom says in Whittier, California, there were eight booths for voting. There were seven Republican booths and one for Communist Democrats, Socialists, every other every other thing.
ROMANO: So they were in the minority.
GOOLSBEE: So it was a different, it was a different kind of a set-up, but I would say both of them are pretty interested in ideas, and we were sort of a back-and-forth debate kind of family.
I'm an only child, and so the dinner table is kind of the three of us, you know.
ROMANO: Now, you've called yourself a "Jon Stewart Democrat." What does that mean?
GOOLSBEE: Oh, you know, I don't exactly know what it means. I describe my politics as that, just because Jon Stewart is irreverent, and he doesn't necessarily take himself that seriously, but he's also ready to poke fun at hypocrisy and stuff that's not efficient, the government going wrong, and I totally agree with that.
ROMANO: You've been called a "behavioral economist." Tell me what that is.
GOOLSBEE: I have been called that. I'll tell you what it is. It's not a totally accurate description of my own work, but behavioral economics within the academic study of economics over the last 10 or 15 years, there's been a real conflict and sort of an amazing ferment that's taken place on what drives human behavior and how does that play out with, say, the design of regulations or the design of the impact of policy.
A lot of people have a hard time actually going down and saying, "Take money out of my paycheck and put it in the bank," taking their own money and saving it, but if you default them into a savings program, so you have the right to say, "I don't want to save," but if you do nothing - you automatically have money put into a 401(k) - the evidence suggests that for a lot of people that's way more effective than even giving them big tax credits to encourage them to do it because people are too busy.
ROMANO: We saw, just a couple of weeks ago, tens of thousands of people showing up here protesting government spending, saying it's out of control. What do you what do you say to those people?
GOOLSBEE: I think there's some conventional wisdom forming among opponents of the administration that the deficit is getting bigger primarily because Obama is spending like crazy, and it's totally wrong.
If you look at the 10-year budget, the reason that 10-year deficit is getting bigger, it's first and foremost because the economy has gotten substantially worse, and as the current economy gets worse, it makes the 10-year deficit numbers significantly worse also. And that's by far the biggest thing driving it.
The second is the President consciously came in and said, "We're going to stop engaging in a series of budget gimmicks that are used to artificially make the 10-year deficit look smaller," so things like, they put in zero dollars for natural disaster cost each year, even though there's a hurricane season. So you would think that this is a somewhat regular expense.
Each year, they say, "Oh, my goodness. How could we have predicted there would be a hurricane hitting South Carolina this year?" And so the president said, "Look, let's take the average cost for natural disasters. Let's put it in the budget every year. Let's stop saying the R&D tax credit is only temporary. Let's make it permanent because they renew it every year. Let's stop saying we're going to go cut all doctors' salary by 20 percent at the end of the year and then, at the end of the year, saying actually we're not going to do it this year, but we promised to do it all future years," thereby keeping the long-run deficit smaller.
None of those are spending. The president is not spending anything that people were not spending before for all of those budget gimmicks. He is instead saying, "Let's be honest about what the situation we're in," and so I would just encourage that people who are agitated about the spending to do two things.
The first is go look at the 10-year budget and ask how much of the increase in the 10-year deficit is actually due to new programs versus just being honest and just the state of the economy, and the second is, for this year and next year, while we're in stimulus and Recovery Act land, in the face of the stiffest recession since 1929, that is not when you try to tighten the belt. It is extremely dangerous to do that. That is exactly what Herbert Hoover did that got us into the Depression.
ROMANO: Well, why not? Now, see, that's counterintuitive for a lot of people listening to you. They're saying, "Well, we should be tightening our belt."
GOOLSBEE: We should tighten our belts in the sense of getting the savings rate up. Getting long-run fiscal responsibility is going to be quite important, but if you go at everybody and the savings rate went to 25 percent in a day and we went and massively cut government spending right now, it would drive the GDP downward. And this may be a paradox, but in a period of crisis, you can't do that. That's what Herbert Hoover did. They faced stiff recession, big financial crisis, and they said, "You know what we should do, we should try to balance the budget, and let's start raising taxes and cutting spending." And by doing that and by letting the financial systems collapse, they started the Great Depression, which was a spiral that they would not fix itself and really stuck with us for more than 10 years until World War II ends up getting us out as you know, as a big stimulus.
We faced a financial crisis bigger than the one in 1929. We faced a recession, the stiffest since 1929. The stage was set that if we engaged in a series of policy missteps, we're in the Great Depression, and the Fed deserves great credit and this administration deserves great credit as taking actions to prevent that. And one of the actions that was absolutely needed to prevent it was loosening the belt, not tightening the belt, in the face of those things.
ROMANO: How would you advise people to invest right now?
GOOLSBEE: [Laughs.] Going through vetting and for whatever finances that I had coming in, my advice is if you're actually going to work in the government, do what I did and just park it somewhere like cash. As most economists are, to the extent that I have a portfolio, it's basically index funds and money market things.
ROMANO: Talk about the average Joe.
GOOLSBEE: But the average economist has a long-standing view that - and I'm no different - that it's extremely difficult to beat the markets, so you might as well just get the lowest-expense things you can get: index funds and passive investments.
ROMANO: Okay. So name three people you'd love to be advising financially.
GOOLSBEE: It's hard enough advising my own mom. As most people would say, if they could see my own bank account, they'd be like, why am I taking financial advice from you.
ROMANO: All right. I read in the papers the last couple of days that some of the leading economic indicators are on the rise, which is good for you all. But where are the jobs? Unemployment is still creeping up.
GOOLSBEE: Yes. And unemployment is - the unemployment rate is likely to continue to rise. It's a sad fact of the business cycle of a very long standing that new jobs are the last thing to come around. So you got to turn the economy around. Growth has got to be pretty robust before you start generating jobs, and new jobs come after they up the hours of the existing jobs, which you've been a bunch of people got bumped from full time to part time. So they're likely to up the part-timers to full time, start creating employment, you know, new jobs. All of that is going to happen, and the unemployment rate might still be going up because in the unemployment rate, obviously, are a bunch of people who are out of the labor force.
We passed the Recovery Act, and that number gets smaller and smaller. So now it's down to 215,000 or something like that, but still losses. So the job market remains in a tough spot. Historically, it comes with a lag after a recession. It takes some time before you see job growth, and this wasn't a typical recession. This was the deepest since 1929. So it's foremost on the president's head. As I joke, it's a tough spot to be an economic adviser now because every time you see the president and the chief of staff, their thing is kind of, "What have you done today to create jobs," and so our focus is going to be on that, you know, from now from now until forever, but it's going to be tough.
ROMANO: If those rates, though, don't come down, do they run the risk of hurting the economic indicators?
GOOLSBEE: Yes. I mean, if the job market doesn't improve, it could hurt the economic indicators, but it's perhaps the most important indicator in itself, the creating of jobs. So, if we never create jobs, we're not succeeding. We've got to create jobs in the economy. There's no question about that.
ROMANO: The president has laid out an innovation agenda to create jobs, businesses, new industries. How is this any different from what he's been saying for the past nine months?
GOOLSBEE: It's certainly along the thematic lines of what he's been saying for nine months, and before that in the campaign, that investing in entrepreneurs and research and development and science and the skills of our people was going to be crucial to our long-run competitiveness.
I think what was different in the innovation agenda that he just recently put forward, there were a whole lot of specifics of "Here are the ways in which we're having a whole thematic unit," as it were, about getting the economy off of the bubble-and-bust cycle.
Such as the investments in R&D, to raise R&D to 3 percent of GDP and keep it there, the various investments in science, outlining a series of technical - whether it's advanced batteries and advanced vehicle technologies - whether it's green-energy stuff that can be used by utilities and investments, in that area, to the investments of training, the education.
One of the things is, for example, to restore the U.S. to having the highest college graduation rate in the world by 2020 and outlining for each of these things how this would be paid for and not increase the deficit, and I think we've got to do this.
There are definitely new programs that he's outlining, like the Expand the Pell Grants to get the college graduation rate up in the U.S., which for that one funded by cutting the subsidies to big banks for student loans and instead do the money direct through these Pell grants.
ROMANO: AIG. You were among those that criticized the company for the bonuses.
ROMANO: I think the word "evil" was used. What do you think about the new CEO's comments not long ago calling the government officials "crazies," the government who has invested $180 billion [to save the company]?
GOOLSBEE: I don't know what the new CEO is referring to when he's saying the government people are "crazies," but I would just caution them not to be too cheeky because, like I say, I mean, the government and the American people saved the day and prevented the Depression, and they didn't do it because they liked AIG or they thought they were really great guys who deserve hundreds of billions of dollars. I mean, they did it to prevent the economy from melting down, and I think people ought to be a little more circumspect in their pronouncements about the government when, you know, if they become profitable again. Look, I want them to become profitable again. I want them to pay back the money, and you have seen with the TARP, 70 something billion dollars come in, and for the guys who have repaid the money, we made an 18 percent rate of return on those on those investments.
We want them to get back to the situation where they give back. The American people took a lot of the risk, and we want them to pay it back. As we get out of that, you know, I just wish that folks in the financial industry would be a little perhaps a little more circumspect about their critics in the government when we really saved their lives.
ROMANO: The previous chairman and CEO of AIG was taking home a whopping $1 a year in his compensation. But CEO Bob Benmosche is making $7 million a year, his compensation package. What do you tell the taxpayers about that?
GOOLSBEE: Well, look, not being involved in it, there is an executive compensation, you know, analysis being done. There's a person in Treasury whose job is to, you know, go through the books in detail and evaluate whether in these situations where the government is, you know, a major stakeholder in the circumstance with AIG would be one, that we'd make sure that it's appropriate, and so I would just caution everybody to just wait until, you know, that analysis has been done.
Romano: Why is bank regulation taking so long? We've been in a crisis here for a year.
GOOLSBEE: Okay. Look, I don't think there's anything more important for the next 10 years of this country's economic future than that we get bank regulation right and we improve the regulatory system which allowed the AIGs and cities and et cetera, et cetera of the world to kind of squeeze between the regulatory cracks and wreaking terrible damage on the economy.
Now, that said, if you rush into it, you've got to be careful that you don't mess it up. So I think that there was a big effort in the administration in releasing its lengthy white paper overview of what we were looking for in financial regulation. Spend the time to get it right.
On the other hand, I do think you can't just sit and slow-roll this thing forever because there's a brief window, and in some sense, the brief window where my mother in Abilene, Texas, called and asked me, "When are you going to do something to fix credit default swaps?"
There has been a tendency - I don't think anybody would dispute it - within the financial community to kind of look around and say, "Well, we're still alive. Maybe it wasn't so bad. Do we really need to do anything?" And I really think that's dangerous. We've got to make sure that we do financial regulation right, but that we do it, because it doesn't make you anti-capital markets or anti-market at all to be for stronger regulatory oversight. The lag and failure of regulatory oversight deeply undermine public trust in our capital markets and threaten to bring the entire economy to its knees. So I think that's really important, and I think you have seen and will continue to see a big push from the president on that.
ROMANO: Okay. Final question. What are you reading these days? Fun or not fun?
GOOLSBEE: Well, you mean other than memos?
ROMANO: Yes. Other than memos.
GOOLSBEE: I have been reading a book called "The Box," which is a history on the shipping container, which everybody would say, "Wow! Is that boring?!" But it's actually a very exciting book. And then the other thing I've been reading is Us magazine, but don't tell anyone. There's a purely - actually, I'm not reading it at all. My wife's been reading it. I simply carry it home and give it to her.
ROMANO: What's in there? What was in last week's edition?
GOOLSBEE: Actually, it's been a bunch of stuff on reality shows, which I haven't had any time to watch.
ROMANO: Do you have any . . .
GOOLSBEE: It's a lot about the breakup of "Jon and Kate Plus 8" and how they don't like each other. So I haven't been following that.
ROMANO: And he has a girlfriend.
GOOLSBEE: I determined that, two of them, but I haven't been following that as perhaps as closely as the rest of the world has.
ROMANO: All right. Thank you very much.
GOOLSBEE: Thank you.