JEFFREY BROWN: And we look at the job situation now and the proposed solutions with two economists: Dean Baker, co-director of the Center for Economic and Policy Research; and J.D. Foster, a senior fellow at the Heritage Foundation.
Well, Dean Baker, first, these new job losses. How do we explain what’s going on? Have we entered some kind of new stage or is this what we expected to come from the last few months?
DEAN BAKER, Center for Economic and Policy Research: Well, it’s a very serious downward spiral. We’re losing jobs at the rate of more than 500,000 a month over the last three months of last year. And I think, actually, there’s some measurement issues. It might have been over 600,000.
It looks like that might even be accelerating. We’re basically in a freefall right now. This is as bad as the economy has been in certainly in my lifetime. And it’s — you know, again, we were in a serious situation last fall. I think it’s even getting even worse right now.
JEFFREY BROWN: Do you see any kind of pattern to the types of companies that are laying off or the types of jobs?
DEAN BAKER: Well, what’s striking is it’s just about every sector. Originally, manufacturing, of course, was hardest hit, but, you know, we had the numbers here today — you had Pfizer, the drug industry, we have Nextel, Sprint Nextel, telecommunications. Yesterday it was Circuit City with 30,000 jobs.
So we’re seeing it in just about every sector of the economy now, so it’s not just manufacturing. It’s not just a narrow sector of the economy. It’s really just about everywhere.
JEFFREY BROWN: What do you see going on, J.D. Foster?
J.D. FOSTER, The Heritage Foundation: Well, what I see is much of what Dean said. The economy is in deep trouble. We are shedding jobs at a very rapid rate.
The hope is that the rate of decline in the economy is going to slow a bit in the current quarter, but we have no evidence for that at all. We are losing jobs across the board. We are losing jobs in exporters, in high tech. Of course, Wall Street’s in implosion. We would be losing more jobs in residential construction, but we’ve already lost most of them that we’re going to lose.
So the economy is in real trouble. We’re going to be shedding jobs for quite some time. I think it will be a very long time, perhaps until 2011, before we see appreciable job recovery, under current policies and on the path we’re on now. And that’s if we have no further bad luck, no further shocks coming from abroad, for example.
So I think we’re in a situation where we’re in trouble and we very much need an effective stimulus package.
Spending money on useful projects
JEFFREY BROWN: All right. Well, let's talk about the stimulus package that is on the table, and the battle has clearly been joined now. Dean Baker, what do you see as the key thing that must happen to get jobs out of the stimulus package?
DEAN BAKER: Well, basically, to put it crudely, you have to spend money. You know, we heard a discussion, is this a good way to spend money, sod on the mall? I mean, I actually don't mind the mall looking nice. But the point is, you're employing people.
Even if it's wasteful, there's a line -- you go back to Keynes -- there's a line where he says, "We could pay people to dig holes and fill them up again. At least we've employed them."
Now, ideally we are employing people in useful things, and we should look it over and try and make sure it's as useful as possible. But the key point is that we want to spend a lot of money, probably actually a lot more than what's talked about in this package. But we want to get that money out there and do it quickly.
And the money to state and local governments I think is right at the center of this, because we're hearing here in D.C., Virginia, Maryland, they're laying off people as we talk. That's going on all around the country. We have to get money to those governments so they don't lay those people off.
JEFFREY BROWN: But you're saying spend a lot of money and almost it doesn't matter what you spend it on, including sodding the mall?
DEAN BAKER: Including sodding the mall. We want to have people do things that are useful, so insofar as we could spend money on useful infrastructure projects, on retrofitting buildings to make them more energy efficient, on needed health care spending, that's the best way to do it.
But the point is, we want to do this quickly. And if we're going to sit around having long arguments and just watch the economy continue to fall, we're going to pay an enormous price for that.
JEFFREY BROWN: What do you see, spend money?
J.D. FOSTER: Well, no, I don't think you want to spend money, but Dean makes an important point. If your goal is to get the economy going and you think spending money matters, then it really doesn't matter where you spend the money. All that matters is you get the money out the door as quickly as possible.
You're obviously -- if you're going to spend the taxpayers' money, you want to get good return on that, so good investments make sense, but it isn't a matter of stimulus. That is a principle you'd want to have under any circumstance, spend money wisely.
But spending money just to spend money is not stimulative of the economy, because the government doesn't just create the money out of thin air. The government has to borrow that money from the private sector.
So in effect what you're doing is you're taking money out of the private sector to put money back into the private sector, thinking that somehow you're going to elevate demand in the economy by doing this. It doesn't work that way. The government cannot simply wave a magic wand and create purchasing power.
DEAN BAKER: Well, actually it can during this time. If you look at...
JEFFREY BROWN: It can wave a magic wand?
DEAN BAKER: Well, in effect, it can. It's called printing money. The Federal Reserve Board is doing a lot of that. We have interest rates that are as low as you can conceivably imagine.
So at this point, the federal government's not pulling money away from the private sector. It's not as though, if we spend -- we're talking $400 billion a year, it's not as though if the government didn't spend that, somehow we'd have Nextel and Microsoft running out and borrowing and investing. They're not doing that. They're laying people off.
So in a certain sense, they can just print money. We're in that situation. It's an unusual situation. We don't want to be there, but that's the situation we're in now.
What role should taxes play?
JEFFREY BROWN: One of the big arguments obviously now and over the next few days is the tax side of this, what kind of -- what role it should play. If you don't like the spending or just spend on anything, what do you see on the tax side? What do you think should be done?
J.D. FOSTER: Well, I think the -- we need to have tax cuts as part of the spending. I think we need an effective spending plan, but there also have to be effective tax cuts.
If you're trying to stimulate the economy, there are effective tax cuts and then there are ineffective tax cuts. Effective ones are the ones that improve incentives to do the basic things that are in our economy: work, save, start businesses, pursue entrepreneurial activities, invest.
JEFFREY BROWN: So what kind of...
J.D. FOSTER: And those are very simple. You reduce marginal tax rates. Reduce the marginal tax rates -- that is, the top tax rate paid by individuals and businesses -- reduce those tax rates, and you give people better incentives to do the things that they would otherwise want to do, like invest, like start a new business.
And that's how you build the economy from the bottom up. You can't create economic prosperity by sprinkling money from on high from government. You have to build it up by the basic activity of our economy, which is these things like starting businesses, working and investing.
JEFFREY BROWN: How big a role do you think tax policy should play in all this?
DEAN BAKER: Well, President Obama has tax cuts in his plan. And they're concentrated on moderate, low-income people that they will get a tax break for working. And I think that's a good thing. They will spend -- they will spend a lot. The evidence on that is they will spend a lot.
But in terms of stimulating the economy, if you create demand, you will create jobs, you will create investment, because firms will invest when they see there's demand for their products. So the key thing is getting the economy growing by creating demand. Then we will see investment follow.
We've had much higher tax rates in years past and the economy was growing very, very well. The problem is not our tax rates being too high.
Juggling several goals
JEFFREY BROWN: One thing I want to ask you about is, there are various goals here. I mean, obviously creating jobs is a key one. The president, we just saw, talking about his energy policy and tying that to creation of jobs.
Is that possible? I mean, is that a good way to approach a stimulus plan, by having one goal over here, changing energy policy, another one, job creation, putting them together?
J.D. FOSTER: Well, if you're going to spend money, you're probably going to want to achieve multiple objectives, if you think it's going to stimulate the economy. I think that's wrong, but if that's your belief, that's one objective.
Another is to do good things with the money, whether it's infrastructure, spending, energy or whatever.
The problem is, he's using these lofty ideas of improving our energy independence, improving our infrastructure in this country, all good things to debate, but he's using these long-term objectives and using those as window dressing for a short-term objective, which is stimulating the economy.
You don't make the stimulus more effective by having good long-term objectives. As Dean said at the outset, if your theory is to dump money into the economy to build up demand, then it really doesn't matter where you spend the money.
JEFFREY BROWN: What do you think? Can you put it together, the long term and the short term?
DEAN BAKER: Well, you certainly can. I mean, again, the point is to spend money, but ideally we want to return three, four, five years out. So one really good example is putting medical records on -- making them electrical, computerizing medical records. The Congressional Budget Office estimates that will save us $90 billion in medical expenses over the next decade.
So we'll spend money today, tomorrow, next year putting people to work, but we're going to get a dividend from that over the next decade. So ideally we don't want to just throw the money out there. Throwing the money out there will create jobs today. But we want to have a return for it where we can in subsequent years.
Is an end to drastic cuts in sight?
JEFFREY BROWN: So in the meantime, this debate is going to happen over the next few days -- but in the meantime, do we expect the kind of drastic job cuts announced today to continue?
J.D. FOSTER: I certainly expect to see significant job cuts. As Dean noted, the economy accelerated its downturn in October, November, December period. We've seen no evidence that that is going to abate at all in the coming months, so I expect we'll see significant job cuts.
The ones that were announced today by Home Depot, by the drug companies, for example, these are not job cuts that occur today. What they're announcing is job cuts that are going to take place over many months, maybe a couple of years, particularly in the case of the pharmaceutical companies that are merging. Those are job cuts they expect to occur over time.
But what it underscores or is symptomatic of is the fact that we are going to see job cuts for a variety of reasons, some of them normal. You know, we have large companies announcing job cuts even when the economy is doing well, because we're constantly restructuring. And part of these job cuts are those kinds of restructuring, but really what we have is a -- is a period in our economy where we're going to see significant job loss for an extended period.
JEFFREY BROWN: OK, got to leave it there. J.D. Foster, Dean Baker, thank you both very much.