President Obama's Economic Advisor Christina Romer Shares Her Boss' Plan
Thursday, July 02, 2009SUSIE GHARIB: President Obama tried to find a glimmer of hope in that dismal jobs report. He called June's job losses quote, less devastating than the previous quarter, adding that it'll take a few more months to turn the economy around. Stephanie Dhue spoke with the president's economic advisor, Christina Romer, about the outlook.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: So we saw unemployment higher than expected, now 9.5 percent, but if you include people who have given up, people who are working part-time when they'd rather work full-time, that number is 16.5. What does that say about the prospects for an economic recovery?
CHRISTINA ROMER, CHAIR, COUNCIL OF ECONOMIC ADVISERS: I think the main thing that it says is that this is a very severe recession which is something that we have known and the president certainly has been very interested in seeing not only the standard unemployment numbers, but the numbers that you mentioned that take into account the discouraged workers and the part-time workers. I think all it does say that we absolutely need to be taking the policies that we're taking to turn this economy around. That is job number one.
DHUE: Many economists are now expecting unemployment to peak at 11 percent, and that won't even happen until this time next year. What are you forecasting for when unemployment will peak?
ROMER: I mainly have been looking at a lot of the private forecasts, and I think most of the private forecasts certainly do have the unemployment rate going up through at least the end of this year. The key thing about the unemployment rate is, it doesn't turn around until you actually have not just positive GDP growth, but pretty robust GDP growth. You need to get it over sort of 2, 2 1/2 percent. And so that's absolutely what we're looking at and concentrating on, is how do we not just turn the corner, but turn the corner and get strong growth?
DHUE: The economic recovery package doesn't seem to have done much to lessen the blows. Do we need to scrap it and start over?
ROMER: I do think we need to be very careful that the stimulus package has absolutely lessened the blow for a lot of workers, extending unemployment insurance, a lot of aid to the states. All of that was very much designed to lessen the blow to individuals. The other thing to realize is we have, as bad as the job loss is this month and the month before, it's less bad than we received back in December, January and February and that's an important step. I mean you have to start having smaller job losses before you actually get job gains.
DHUE: Did the second stimulus package in the cards, do we need to be doing more to stimulate the economy and would you craft that package differently than the previous plan that's taken a while to kick in?
ROMER: Well, of course, what we're concentrating on now is getting the first stimulus package out there and doing what it needs to do for the American people, so spending does ramp up over time and so we have been anticipating that come summer, come fall, that we're going to have more effects on the economy than we saw in the first and second quarter. And so we're going to be monitoring that very closely to see if we're getting the kinds of effects that we were anticipating and hoping for.
DHUE: Did you underestimate how long it will take the agencies to get the money out into the economy?
ROMER: We actually worked back in the transition with the OMB transition team about what's a realistic estimate. What we actually have found is that what we were anticipating is about exactly what's happened. So we did know it would take time. The important thing to realize is we are making crucial steps. I think the number we just had was something like 1900 highway construction jobs have already been started. That's certainly money getting out the door.
DHUE: Longer term interest rates are heading higher with a $3.5 trillion budget deficit. Are we at risk of higher inflation?
ROMER: First thing you have to realize is that a lot of these long- term interest rates, especially on say U.S. government bonds, part of the reason they were so low for a while is because people were scared. Right, and that was what we often call the flight to quality, and so part of the rise we actually think is people saying, you know what, it looks like our financial system is stabilizing and maybe people being less frightened and going back into more risky assets. In terms of inflation, the truth is, you don't really get inflation until the economy is nearing full employment usually and so as we know from today's unemployment numbers, we're at 9 1/2 percent. So I think it's very unlikely that we see inflation develop. It's going to do something, of course the Federal Reserve will be watching as we go forward and when we start to get the kind of recovery we hope for and anticipate, when the unemployment rates starts to get low again, then it's absolutely an issue, but that's a ways away.
DHUE: We've been speaking with Christina Romer, chairman of the Council of Economic Advisers. Thanks for joining us.
ROMER: Great to be here.
