NBR Transcripts-May 25, 2009
Monday, May 25, 2009Reviving the Economy: Signs of Stimulus?-Economic Imact
SUSIE GHARIB: As we approach the 100 day milestone of President Obama's stimulus package, has it made any impact on the economy? Suzanne Pratt takes a look.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Since President Obama signed his mammoth economic stimulus package into law in February, most Americans have started to feel its presence. Thanks to the plan, your paycheck is likely plumper because of tax cuts implemented this spring. If you're on Social Security, you've probably already received a one-time $250 payment. It's also courtesy of the president's plan. So is the extra $25 in unemployment benefits coming to laid-off Americans, as well as the 65 percent cut in the cost of COBRA health insurance. The primary goal of the president's fiscal stimulus plan is to stop the economy's free fall by creating a new source of demand. JPMorgan economist, Bruce Kasman, says it's unclear so far whether that's happening.
BRUCE KASMAN, CHIEF ECONOMIST, JP MORGAN: I think it's too hard to trace the numbers and it's too early, in terms of seeing the overall impact. I think we will have to wait until to see both what the consumer sentiment does as well as the consumer spending does over the next three to six months before we can draw any good judgments about how the overall impact of the policy stimulus has been working.
PRATT: Economist Mark Zandi believes the stimulus package is starting to work. In particular, he sees signs the extra cash in peoples' pockets is being spent in the retail sector.
MARK ZANDI, CHIEF ECONOMIST, MOODY'S ECONOMY.COM: There's a lot of things going on. It could be timing of Easter that's playing a roll, weather of course. But, it feels like the stimulus money is having an impact.
PRATT: The stimulus money is also supposed to keep the labor market off life support. The White House says the billions of dollars in funds promised so far to programs and projects is already helping. It claims 150,000 jobs have been created or saved in the last few months and is sticking with the forecast of three and a half million by late next year. But some experts question whether any progress has been made on the jobs front. While weekly unemployment claims have firmed, the April employment report was disappointing. Dean Baker, co-director of the Center for Policy Research says it's simply too early to expect much.
DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC POLICY RESEARCH: If the stimulus is having a positive effect basically it will be seen two, three, four months out from now where the rate of job loss begins to slow. But, what I have to say is that the stimulus, as helpful as it is, is simply not large enough.
PRATT: Economist Brian Fabrri adds, the president's plan is really about preserving jobs not creating new ones.
BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: A lot of the stimulus package is a transfer payment from the Federal government to state and local governments so that the state and local governments that are deeply embedded in deficits in their own state and local budgets won't have to fire teachers and firemen and policemen.
PRATT: Most economists also want to talk about the less measurable effect of the stimulus plan and that's the psychological impact. Many Americans now feel better about the future because they see government taking action to stabilize the economy.
ZANDI: The policy response is more than the dollars and cents. It's really how it makes people feel because, at the end of the day, unless people feel better, nothing is going to turn this economy around.
PRATT: Most economists expect the stimulus plan will do a lot more to boost economic activity this fall. But, others say there's so much downward momentum, the plan will not be enough to turn things around. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Transportation Secretary Ray LaHood Offers His Prediction For Change
DARREN GERSH: With more on the Obama administration's take on the stimulus plan, we're joined by Transportation Secretary Ray LaHood. Let me ask you about the stimulus. We've talked to economists who say that they don't expect the full impact of the stimulus spending to show up until the fall. Is that what you expect? What do you expect?
RAY LAHOOD, TRANSPORTATION SECRETARY: I expect it to show up very soon here. The weather is just now getting to a point in many places in the country where we know there are not going to be any more snowstorms. We've had an enormous amount of rain, but very soon here, you're going to see an enormous number of people working around the country as the construction season really begins in America. And so an enormous number of people are going to be working. Infrastructure in America, for the first time in three of four years, will get a lot of attention and a lot of money. And I believe we're going to see construction job, unemployment numbers there, begin to go down dramatically.
GERSH: Now you've put out -- I think the Transportation Department has about $45 billion to spend.
LAHOOD: We have $48 billion.
GERSH: 48?
LAHOOD: Yes, sir.
GERSH: $48 billion to put out under the recovery plan. How is that money going out? Where is it being used?
LAHOOD: All -- we had a billion dollars for airports. It's all out the door. So there will be runway extensions and rebuilding runways. Highways and bridges, we've got billions of dollars out the door. That's where I think you'll really see a lot of jobs being created and a lot of people coming off of unemployment rolls. On our transit, we had $8 billion. That's for buses and buildings for transit districts. That money is just now going out the door. Again, I think you'll see transit districts either buying new buses or building new buildings. And so we're pushing the money out very, very quickly. We are complying with the letter of the law and Congress gave us some very, very short time tables here.
GERSH: I know there's a balance between getting it out the door fast and targeted. But there have been complaints that it's not very targeted, that's it's not going to areas that really need the money. It's not going to high-unemployment areas. It may be going to areas that are doing better that just have traffic jams and have projects that they need to work on. How would you address that concern, that it's not going where it's needed most?
LAHOOD: I think that's a very unfair evaluation of the program. I think it's not accurate. I think if you look at our map where the money is at, it's going to states like Michigan, that has 12 percent unemployment. And it's also going to states that maybe have a little bit lower unemployment. But people are now just beginning, in the states to award the contracts and people are coming off the unemployment rolls. And so I think if you look at a map and the distribution of the money, it's being distributed very fairly in both areas where there's high unemployment and areas where maybe it's less. Look, Michigan has one of the highest unemployment states (sic) in the country. Other states don't have that much. But the money is getting to the places where it's needed.
GERSH: The other concern is that it's not very transformative, that it's going to resurfacing roads, things that can be done quickly, but it isn't doing, maybe, what the president had hoped it might help do, which is lead to a transformation in our transportation system.
LAHOOD: Well, that's not accurate. In the bill, there's $8 billion for high-speed rail. That's $8 billion times more than we've ever had at the Department of Transportation. For the first time in the history of the country, we're about ready to launch -- in several corridors around the country -- high-speed rail opportunities, some money for studies, some money to put actual rail lines down corridors and we never had that opportunity. That's about as transformational and something that we haven't done at DOT or in this country and it's because of the president's leadership. He's the one that said we're going to have high-speed rail in America.
GERSH: All right, Mr. Secretary, thank you so much for your time.
LAHOOD: Thank you.
Reviving the Economy: Signs of Stimulus?-Economists Weigh In
SUSIE GHARIB: Let's get back now to the question whether the Obama plan is really working and will all that stimulus money create genuine economic renewal? I turned to two prominent economists to get their analysis: Glenn Hubbard, dean of Columbia University's graduate school of business and former economic advisor to President Bush and Alan Blinder, economics professor at Princeton and former vice chair of the Federal Reserve. I began by asking Glenn is the U.S. economy on sounder footing because of the Obama economic plan?
GLENN HUBBARD, DEAN, GRADUATE SCHOOL OF BUSINESS, COLUMBIA UNIVERSITY: Well, we have stopped the free fall in the U.S. economy, which is a very, very healthy thing. And I think the passage of the stimulus package President Obama proposed does get some credit, at least, in changing the psychology here. It will be a while before we know how effective the stimulus package is, of course. I think credit there has to be shared with the Federal Reserve and the Fed's emphasis -- along with the administration's -- on getting financial markets working well is exactly the right thing.
GHARIB: Alan, what do you think?
ALAN BLINDER, ECONOMICS PROF., PRINCETON UNIVERSITY: Well, I certainly agree that we have to share credit with the Fed. A lot of things the Fed has had in motion for a long time and are starting to have some really significant effects on credit markets, which are all to the good. Most of the administration's programs, including the stimulus, are still pretty new. I mean, the tax cut part of the stimulus just started weeks ago, for example. And the spending on infrastructure is just beginning to dribble out. Eventually that dribble becomes a stream and then a river and then a flood, but we're not there yet for a few months. That's going to help as it comes online. But, frankly, relative to a month or two ago, the banking system is looking better. There seems to be some sort of resolution to the auto crisis, though it's not fully baked in the cake, yet. And, you know, in general you're starting to see some signs -- some significant signs I would say of improvement.
GHARIB: Glenn, let me go back to you. How are we going to know if the administration's plan is working? What are you looking at? Is it housing numbers, job losses, something else?
HUBBARD: Well, I think given the structure of the stimulus package, we'll know over the next several months in the response of consumer spending. And we already have seen some improvements in confidence that suggests that might have a positive effect. But the stimulus plan used up a lot of political capital in a relatively ineffective way, but we will know over the next six to 12 months. Housing is, to a first approximation, not really addressed in the stimulus plan.
GHARIB: Alan, we're 100 days into this stimulus package. How long do we stay patient and say, let's give time for it to work? And at what point do we say, it just doesn't go far enough.
BLINDER: Yeah, longer. I mean, in macroeconomics, we don't measure time in days, we measure in quarters. So you're talking about one quarter. Realistically, any stimulus package -- almost regardless of what's in it -- is going to have a negligible effect in one quarter. You've got to go two, three, four quarters through time to see how this plays out. So I would say -- we ought to be seeing some real signs of the effects of the stimulus by the third quarter. I think, also, we ought to be seeing the economy starting to grow rather than shrink by the third quarter. If that's happening, I'm going to start feeling much better about it. If that's not happening, I'm going to start feeling that maybe this wasn't enough or it's not working or we have to try something else.
GHARIB: Glenn, how do you feel on that? Do you think we need more stimulus? Do we need to do something else? If there is more money, where should the government put it?
HUBBARD: Well, I don't think any politically likely stimulus package that's effective is coming. I think the better route would be to continue to rely on the good work of the Federal Reserve and improvements in financial markets. I think continued emphasis on stimulus package might bring some unwanted policy, frankly and in some cases some industrial policy.
GHARIB: Now, one question that many people are asking and it's a new question. It's not about stimulus and it's not about recovery, but about the government's growing involvement in business. And some people say that's a bad development. Alan, what do you think?
BLINDER: You know, I think it's been foisted on the government. I don't see the Obama team coming in and saying, you know, I'd really like to grab hold of the banking industry, the insurance industry, the auto industry. And let's get government influence on those businesses. These businesses are falling into the government's laps. The government has had to rescue AIG, as we know, a number of banks, as we know, sort of rescue Chrysler and General Motors. That seems to be going OK right now, could be better, could be worse, but seems to be going OK. And I think we have to ask the counterfactual, would we have been better off with a laissez-faire approach to these and just let all of these companies fall by the wayside in this environment? I think the answer to that is easy and it's no.
GHARIB: Glenn, where do you stand on this debate about government involvement?
HUBBARD: Well, I would certainly agree with Alan's bottom line that the answer for laissez-faire in this environment is no. Having said that, while the government did inherit this, it needed to be involved. There would have been much more efficient ways -- both in the banking system resolution and in particularly in the auto sector -- to resolve the crisis.
GHARIB: Both of you have advised presidents in the past. In a few words, what advice would you give to President Obama on what he still needs to do to fix the economy? Glenn?
HUBBARD: Well, I think he has to focus on inspiring confidence and changing the pivot away from the free fall to optimism. I think by in large, he's doing a pretty good job with that. But I think he also needs to focus very squarely on getting financial markets and financial institutions working and there it's kind of a mixed bag, some policy successes and some, frankly, failures.
GHARIB: Alan, some quick advice for the president.
BLINDER: I think right now, for the next few months, it's about execution. It took a while for the administration to roll out all its policies. I don't know that they are all rolled out yet, but most of them, in terms of rescuing the economy, are now rolled out. Some of them have just recently been rolled out. And it's about execution. It's about executing the stimulus. It's about executing the foreclosure mitigation. It's about executing the TALF and the TARP and all of this stuff. It's really a question of getting it done.
GHARIB: All right, gentlemen, thank you so much. Alan, Glenn, we really appreciate your time.
HUBBARD: Thanks.
BLINDER: Pleasure.
Indiana Governor Mitch Daniels Accounts For His State's Stimulus Spending
DARREN GERSH: So far, we've heard from the Obama administration about the status of the recovery program and economists have weighed in with their expectations. Now, we turn to progress at the state level. That's where most of the stimulus money is actually being put to work. I recently spoke with Indiana Governor Mitch Daniels and I began by asking him what his state is doing with its stimulus funds.
GOV. MITCH DANIELS, (R) INDIANA: Well, we're trying to use it as intended and as effectively as possible. We're building roads. We're restoring habitats. We're building trails, weatherizing homes. And we're avoiding tax increases, which may be the most important thing of all.
GERSH: Now, I understood that when you got the money you were hoping that you would use it for some big projects that would set Indiana apart. What's the status there?
DANIELS: I think we're making the sort of start we wanted to. We were found, by someone, to be the fastest state in putting highway funds to work. We have 100 projects, over a quarter of a billion dollars already committed, a lot of work happening right now. Incidentally, this is on top of what was already a record road building program that we had embarked on in our state. Then we got over a thousand young people in what we call the Hoosier Youth Conservation Corp., as I said, repairing parks, building trails and restoring wildlife habitats all over Indiana.
GERSH: Is the money actually in the checking account? I mean, is it ready to be sent out? Are you starting to send out checks in large numbers to real businesses and get the employees on the job?
DANIELS: That's certainly true in the case of infrastructure. It's certainly true in the case of these young people who were all on the unemployment list before we offered them these healthy outdoor jobs. They're all being paid right now. So yes, the money will come in installments and when you deal with the Federal government, there's always a degree of delay and uncertainty. But, yeah, some it is flowing.
GERSH: How many jobs do you think you'll create in Indiana?
DANIELS: There's no way in the world to know that. Anybody who tells you otherwise is kidding either themselves or you. But let's just agree that the economy was in a very difficult situation and I for one felt it was worth the effort, appropriate for the president and the Congress to try something here. This isn't the bill I personally would have written. There's a lot in there that won't stimulate anything, but if you think back to the time they were writing it, it was a, I believe, well intentioned. Here in Indiana, we'll do our best to see that it's very well spent and spent on things that do lead to jobs.
GERSH: Well, some of your Republican colleagues, other governors were concerned about the stimulus and even thought about turning it down. Do you think in hindsight that they were just mistaken?
DANIELS: I didn't criticize the bill and I won't criticize those who did. No two states are in the same circumstance, so I'm just going to leave at the fact that to us, this is a fact of life. And here in Indiana, we're going to employ it, we hope, faithfully and we hope effectively and prudently.
GERSH: One of the most controversial things in the bill was the extension of unemployment benefits to people who hadn't gotten them before and expanding unemployment benefits. What are you doing in Indiana, with that money? And are you expanding your unemployment insurance net?
DANIELS: We accepted all the basic unemployment assistance that was in there and we acted in a way that did extend further, for Indiana workers by many weeks, the benefits they were already due to receive. Now there is one very explicitly optional part of the stimulus program that invites states to change for all time their unemployment systems. We're probably not going to take that particular option because it's just a bad business deal. It amounts to accepting $100 this year and next and in return promising to spend $125 every year forever. Bad deal for us. We've already got a system that's very generous and really more than we can afford already.
GERSH: All right, well, Governor Daniels, we'll leave it at that. Thank you for your time.
DANIELS: Thank you very much.
GERSH: And that was Indiana Governor Mitch Daniels.
Reviving the Economy: Signs of Stimulus?-Tracking The Cash
SUSIE GHARIB: When it comes to the $787 billion stimulus package, a big challenge the Obama administration faces isn't funding it, but it's keeping track of where and how the money is spent. The administration has set aside $84 million to do just that. But as Stephanie Dhue reports, tracking all that cash isn't easy.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: With $787 billion on the line, President Obama promises to make sure it's spent wisely.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I have told each of my cabinet, as well as mayors and governors across the country, that they will be held accountable by me and the American people for every dollar they spend.
DHUE: So the administration established the recovery.gov website as a way for Americans to track the money and any jobs created. Congressman Edolphus Towns chairs the House Oversight and Government Reform Committee. He says the effort still has a ways to go.
REP. EDOLPHUS "ED" TOWNS, (D) NEW YORK: We need to get recovery.gov up and running and in order to do that, we have to make certain that the information goes in and that we have it and people can be able to look and follow it. That's not happening yet, so we're concerned about that.
DHUE: Currently, the site only lists total amounts of money available and already spent, along with a map showing allocations for each state. So far the administration requires limited reporting of who eventually gets the money. Craig Jennings is with OMB Watch, a non-profit that promotes government transparency and accountability. He says that means if the money goes to, say New York state and then to New York City, the transparency ends there.
CRAIG JENNINGS, SR. FEDERAL FISCAL POLICY ANALYST, OMB WATCH: Certainly the city of New York is going to be contracting that out to repair schools, potholes and such, but all those contractors, we won't know who those people are and what kind of funds they're getting.
DHUE: Billions of dollars are at stake in getting this right. Earl Devaney, who heads the recovery.gov effort, estimates 7 percent of project spending typically goes to waste, fraud and abuse. Out of $787 billion that would be $55 billion. Towns says he's working to make sure that doesn't happen.
TOWNS: To me, that's a lot of money and of course we want to make certain that we cut down on that number. We recognize that the stimulus package is to stimulate, but the point is because we name it something, it doesn't mean it's going to do it and we have to make certain that people are doing what they're supposed to do.
DHUE: The president has set an ambitious goal to account for every dollar spent, but right now it's far from clear he'll meet it. The administration has set an October 10th deadline to complete the recovery.gov website so it can be a resource for taxpayers to follow their money. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
