White House Chief Economic Adviser Ed Lazear Offers Insight on the President's Economic Meeting
Friday, January 04, 2008JEFF YASTINE: More now on the president's big economic meeting. Washington bureau chief Darren Gersh sat down this afternoon with White House chief economic adviser Ed Lazear. Darren began by asking Lazear why the administration says the economic fundamentals are strong, when economists say today's employment data shows we may already be in a recession.
EDWARD LAZEAR, CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: What the president means by a strong fundamental economy is that the structure of the economy is strong. So what he's talking about is that we have flexible labor markets, that we have open capital markets, that we have the ability to adjust to shocks in ways that other economies don't. And that's what he's talking about when he's saying we have a strong, robust economy. So if you look at the history of the economy over the past few years, we've had some pretty severe shocks and yet we've weathered those shocks with a minimum amount of damage. That said, that doesn't mean that there aren't periods during which the economy is growing at a slower rate than other periods and this happens to be one, at least in terms of last month's jobs numbers. We're at the mature part of an expansion. When you're at the mature part of an expansion, it's more difficult for the economy to create jobs and that's basically what we're seeing right now. We had predicted this. We forecast it. That doesn't mean we like it.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: But you don't think the economy is contracting right now because these numbers could be consistent with that.
LAZEAR: Well, we don't think it's contracting. We do think that it's growing at a less-rapid rate than it was in the past. Remember, third quarter was a fabulous quarter. It turned out the third quarter was almost 5 percent growth. No one expected that. Even the day before the numbers came out, we were expecting the rates to be about 2 percent less than that. So that was a terrific quarter. It will be hard to match that quarter. But even over the fourth quarter, if you look at the numbers, you know, it started out people were saying, gee, this could be a negative quarter. Now the forecasts are somewhere in the 1.5 percent range. We'll see what it turns out to be. But I think that most people expect that we will see a positive quarter, but growth that wasn't as pronounced or as good as you saw in either the third or second quarter.
GERSH: The president has said that he's out there listening to people, that he's considering economic remedies, but how do you define the problem? Are we in a credit squeeze or is there a problem with consumption?
LAZEAR: I think the way we tend to think about the problem is that you don't want to focus on any one particular sector or any one particular problem. What we believe is the best way to do anything, if one were to do anything. As the president said, you know, we're keeping all options on the table, but if we were to go in one direction or another, we would tend to favor more neutral approaches. Neutral means that it helps business, it helps consumption, but it does so in a neutral way. You don't want to favor one industry. You don't want to favor one sector. Things need to work themselves out in a market-sensitive way and if you were to move into one particular area, you run the danger of getting that particular industry stimulated to too great an extent. Then it comes back to haunt you later. That's what we're seeing in housing right now.
GERSH: In the past when the administration has talked about doing something, it's always made the argument that a temporary tax cut did not change behavior, that you needed a permanent tax cut in order to change behavior and to get an economic response. Is that the administration's thinking if you do anything?
LAZEAR: I don't think that's quite the statement that the administration made, although I must confess I wasn't around in those days, so some of that language might have gotten out, but if you look, for example, at bonus depreciation that took place in 2004, I believe it was, that was a temporary program. It was consistent with higher levels of investment as the kind of thing that would be good tax policy if made permanent, but it wasn't permanent at the time. So my interpretation of your statement would be that we tend to favor tax policies that are good long-run tax policies, but that doesn't necessarily mean that they would be permanent. This one example that I cited was not permanent.
GERSH: Ed Lazear, thank you for your time.
LAZEAR: Thank you.
