"A Time for Change: The Obama Agenda"-Advisors Offer Their Input About The Obama Strategy
Monday, January 19, 2009DARREN GERSH: So, the big question now is, will the Obama plan work? And who will help him make it a success or a failure? Susie Gharib posed those questions to two economists who have spent time advising the men who used to sit in the oval office.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT CORRESPONDENT: Alan Blinder, Glenn Hubbard, you have both advised many presidents during tough economic times. Let me start with you Glenn. Will Obama's economic plan work?
GLENN HUBBARD, GRADUATE SCHOOL OF BUSINESS , COLUMBIA UNIV.: It can't. First we really do need a significant fiscal stimulus and to work in the next 12 to 18 months it will have to involve both spending increases and tax cuts. But I think it's important to realize that the housing market remains the elephant in the room. The plan needs to address housing.
GHARIB: What do you think Alan?
ALAN BLINDER, PROFESSOR, PRINCETON UNIVERSITY: I agree with that, with the one proviso I would say is that nobody can be sure that this works. It may not be enough as many people have said, even though the scale is enormous, but the main point I really want to agree with Glenn very much on the need, the crucial need to get serious about foreclosure mitigation. We have a tsunami of foreclosures cresting on us right now. The truth is up until now, the government has done relatively little.
HUBBARD: It's not just the foreclosures. It really is the falling house prices and we can do something about that.
GHARIB: I know that you have proposed a rescue plan for people who are having difficulty paying their mortgages. What does the Obama team think of your plan?
HUBBARD: We do need an intervention I think that would lower mortgage interest rates and we can do so without much of a cost to the tax players. And I do think the Obama administration is taking a hard look at the housing market and ways to get mortgage rates down.
BLINDER: Mortgage rates have fallen quite a bit and that's important especially for potential new purchasers. We do have to look back, though, at people that are stuck in contracts that they cannot make.
HUBBARD: Right.
GHARIB: Alan, as you heard in our report, part of Obama's strategy is this anti-fear campaign with the American public. How important is confidence in repairing the economy?
BLINDER: I think it's very important. I would cite in the financial markets where it's really of the essence. They're alternatively ruled by greed and fear. And it's been fear, fear, fear for a long time. We need to get the greed back a little bit and a little bit of confidence would help. I think also, consumers. I mean American people are shaken up. They don't want to spend. Businesses don't want to invest. People need to see a way out of the wilderness, that there's somebody leading the way, that there's a viable plan that has some coherence to it.
GHARIB: What do you think, Glenn?
HUBBARD: I think the key to confidence is trust and President Obama has appointed an excellent economic team who along with Fed Chairman Bernanke, will be seen as economic policy leaders for the country. But the president himself is the storyteller in chief. It's up to him to explain to the American people, how did we get here and what are we going to do about it?
GHARIB: Do these economic advisers have the big ideas to get us out of this mess?
HUBBARD: First of all, no one or two people is going to be able to solve a huge problem, but I do think there are clever and smart people who will work with the energies of the private sector in getting this done and with the Fed.
BLINDER: And they're clearly thinking about this, there's no doubt. We are bandying about numbers like $800 billion that we wouldn't have dreamed about.
HUBBARD: Those used to be big numbers.
BLINDER: Those used to be big numbers. Now we're wondering, is it enough. But I want to emphasize the role of Ben Bernanke and the Fed. The Fed has been in the markets doing all kinds of things that none of us ever imagined it would ever do, never mind they were do all of it in 18 months or so and Bernanke has made clear that he's not finished, that there are more rabbits in the hat that he's ready to pull out.
GHARIB: Will he be here a year from now? Will President-Elect Obama reappoint him when Bernanke's term ends as chairman of the Fed?
BLINDER: I think that's anybody's guess right now. I mean he is a Republican. He was appointed by President Bush. I think it depends tremendously on what happens to the economy over the next year. I do think he is doing a great job under absolutely impossible circumstances and I shudder to think of what would have happened if we had a timid Fed chairman.
GHARIB: So, how will we know if the Obama plan is working, Glenn?
HUBBARD: I think we will know in the next several months whether we have stopped the economy's free-fall and I think at that point, the public's confidence and important business leaders' confidence will either come back or it won't. The stakes are pretty high. People are looking at this like it's Santa Claus or the Easter bunny. We really, really have to frame expectations right.
GHARIB: So is it going to be a matter of months or years?
BLINDER: I disagree a bit about the timing. I certainly agree about the expectations. If you think about the timing of this, the stimulus may pass in February or it may not. It takes some time to get the spending out or the tax cuts in place. It takes longer before anybody feels it. This economy's going to be sliding downhill certainly into the summer and in worse case scenarios right through 2009.
GHARIB: So, Alan, what if the plan doesn't work?
BLINDER: Well, I think if the plan doesn't work, you do one of two things. You come back with more, that is, you conclude there wasn't enough spending or there wasn't enough tax cutting or what else. Or you - and I think in large measure we'll do this -- you start turning it over to the Fed and say, we have done everything fiscally we can do. Now the Fed's just got to start pumping even more money out.
GHARIB: So what's plan B, Glenn?
HUBBARD: Well, first, the right plan can work, but it will be anybody's guess whether what emerges from the administration and the Congress is that plan. But I agree with Alan, the Fed is not done yet. People should understand that there's much more the Federal Reserve can do.
GHARIB: Well, let's hope for the best, Glenn, Alan, thank you so much for your time.
BLINDER: Pleasure.
