TOPICS > Economy

U.S. Economic Recovery Stumbles, Reviving Debate on Way Forward

June 2, 2011 at 12:00 AM EDT
More signs of a stalling economic recovery emerged Thursday. Jeffrey Brown discusses what's working to spur growth in the fragile American economy -- and what isn't -- with Heather Boushey of the Center for American Progress and Stephen Moore, founder of the Club for Growth and economics writer for The Wall Street Journal.

JEFFREY BROWN: The U.S. economy gave fresh evidence today that the recovery may be losing steam, and there were growing questions about what, if anything, the government can do about it.

The latest signs of trouble came from major retailers like Target, reporting consumers pulled back on spending in May. Data from MasterCard pointed to the same concern, showing Americans are shelling out less on everything from furniture to electronics to clothing.

And the payroll company ADP says private employers added just 38,000 jobs last month, the smallest increase since September. American businesses, in fact, cut back orders for computers, cars, and heavy machinery in April. And even the auto industry, which had been helping to lead the recovery, reported an overall decline in sales last month.

Altogether, it was enough to shake up world stock markets this week and provoke a new round of political infighting.

House Speaker John Boehner spoke this morning.

REP. JOHN BOEHNER, R-Ohio speaker of the House: It’s now been nearly a year since the White House declared the beginning of recovery summer. But, all in all, it hasn’t been much of a recovery. The American people are still struggling.

JEFFREY BROWN: A short time later, White House spokesman Jay Carney cautioned against reading too much into recent numbers.

JAY CARNEY, White House press secretary: We are aware of these different economic reports. Obviously, we watch them closely. We’re also aware, and I would point out, that the trends here, the longer-term trends, are quite positive.

JEFFREY BROWN: Some economists do point to temporary factors, like the March earthquake in Japan that caused many auto dealers to run short of models.

Natural disasters, from tornadoes to flooding in the Midwest and the South, may also be contributing to economic woes. Plus, gasoline prices at $4 a gallon have weighed on consumers, but may now be backing down at least a bit. All the same, a depressed housing market remains a huge drag on growth, with no end in sight.

In the meantime, policy-makers seem to have little appetite or ammunition left for new measures. The Federal Reserve’s $600 billion program of buying government bonds to stimulate growth will end this month.

And, in Congress, Speaker Boehner and other Republicans insist more spending is the problem, and not the solution.

REP. JOHN BOEHNER: Now, last week, we put forward a job-creation plan that builds on our Pledge to America, and we asked the president to take a look at it. And this blueprint recognizes that spending, borrowing and regulating our way to prosperity hasn’t worked. And it won’t work.

JEFFREY BROWN: Even the president’s aides are focused on ways to cut the deficit, and not on adding new stimulus.

JAY CARNEY: We need to reduce our deficit, not as an esoteric goal, but in order to prove that we can live within our means, and, by that, show the — create confidence in our economy, and grow the economy and create jobs.

JEFFREY BROWN: More on the outlook for economic recovery comes tomorrow, when the Labor Department releases the unemployment report for May.

There — this afternoon, there was an another development in the battle over debt and the role of government spending, as the rating agency Moody’s warned it could lower the United States’ top credit rating if the debt limit is not raised within weeks.

So, with all of this, what, if anything, can government do to insure growth and new jobs? We get two — two very different perspectives from Heather Boushey, senior economist at the Center for American Progress, a liberal policy group. And Stephen Moore is the founder of the conservative Club for Growth and senior economics writer for The Wall Street Journal.

Welcome to both of you.

STEPHEN MOORE, The Wall Street Journal: Thank you.

JEFFREY BROWN: Heather, first, how worried are you, and how do you define the problem that we face now?

HEATHER BOUSHEY, Center for American Progress: Well, we have had some bad news this week. But we had seen the labor market improving over the past few months.

The rate of growth of jobs over the past few months had been twice as much as it had been over the prior three months. So I think that we should be very concerned, especially about the decline in manufacturing.

We should be very wary, but I personally am very anxious to see what those employment numbers are tomorrow, because that’s really going to tell us, are we at a fork in the road? Are we going to see employment start pulling back, or are we going to see the kind of trends that we had seen over the past few months?

But, importantly, even over the past few months, when we were creating over 200,000 jobs, that wasn’t enough. So, I was worried before, a little more anxious now, but we need more data to really know exactly what is going on.

JEFFREY BROWN: Stephen Moore, how worried, and how do you define the situation?

STEPHEN MOORE: Well, Heather is right that it looked like the economy was starting to expand. I mean, the last year has been pretty good for the U.S. economy. But then we got a first-quarter GDP growth rate which was just 1.8 percent, which is really anemic, given — at this stage of the recovery.

I think, Jeff, my major concern right now is that we should be growing at a much faster pace. If you just look at the natural kind of economic cycle, usually, at this stage of an economic cycle, we would be growing at five percent or six percent. Right now, we’re only growing at two percent.

And the problem with that is it magnifies other problems in the economy. For example, if are you only growing at two percent, you are not going to get the jobs that Heather was talking about. You’re just — employers aren’t going to hire workers.

Another big problem, if we only grow at two percent, you’re not going to bring the deficit down. You are not going to have enough people working and companies making enough profit. So it makes the debt problem even worse.

JEFFREY BROWN: So, why — but why the smaller growth, given all that we have been looking at happening over the last few months, the Fed stepping in, the stimulus — the stimulus plan, why, in spite of those, still slow growth?

HEATHER BOUSHEY: Well, I think actually the question is, we have done so well because of many of those policies.

JEFFREY BROWN: You mean they worked, but not…



HEATHER BOUSHEY: But they weren’t — they haven’t been enough to push us over the edge.

You know, what this administration and the prior couple of Congresses did in terms of the Recovery Act, and what the Federal Reserve has done in terms of expanding the money supply in a variety of different ways certainly pulled us back from the precipice.

Back in early 2009, we were losing jobs at the pace of 20,000 a day. And we have pushed back from that. And now we are adding jobs and we’re growing again. But what we haven’t been able to do is push ourselves over that hump and get back on an accelerated growth path that is going to create jobs.

And a big piece of it is, is, if you don’t create jobs in this economy, you have an American consumer, a middle class here in America that is very constrained. They can’t borrow. Their homes have lost a lot of value. Many of them don’t have jobs. Those that are working have lower incomes, and they can’t be the kind of consumers that we need for growth. We need more demand.

JEFFREY BROWN: Do you read it the same way, that these things that have been put into place did something, they were effective, just not enough?

STEPHEN MOORE: I think they were a complete failure. I mean, this is the area where I think Heather and I disagree.

I think most Americans think they were a failure. I mean, we have really thrown the Keynesian playbook at this recession. We had $2 trillion of additional spending over the last two or three years. We have got the Federal Reserve out, and pedal to the metal on money creation. The monetary basis has doubled.

You have QE2, which is the Fed printing $600 billion and then buying debt with it. So, this is everything the Keynesians have. And here we are, in the third year of a recession, and we have got this kind of anemic growth.

So I think most of these things have failed. And I think the Keynesians need to be held to task for this. Why didn’t it work? Why don’t we have the job growth? Here we are, in the third year of a recession, with a nine percent unemployment rate? That is intolerable.

JEFFREY BROWN: All right, but here we get to the brunt of where to go next, right, because it — depending how you read what has happened so far, you would suggest that we ought to be doing more, I assume, more spending.

HEATHER BOUSHEY: More spending, and keeping on the path that we are on.

I think one point that I would really disagree with you on, Stephen, is that, yes, we did a lot of Keynesian policies, but a lot of the stimulus, about a third of it, was in tax cuts, which is the least efficient way to put money out there. We put — and then we added to that last December, when we gave more tax cuts, especially to the wealthy.

STEPHEN MOORE: Yes, but they were not tax rate reductions. They were not the kind of tax cuts that Ronald Reagan put in effect, which reduced tax rates, which incentivized economies to expand. I was against those tax cuts because they don’t incentivize growth in the economy and more work.

JEFFREY BROWN: All right, so finish your prescription.

HEATHER BOUSHEY: And they didn’t provide as big a bang of the buck as we would have wanted.

STEPHEN MOORE: Right. That’s for sure.

JEFFREY BROWN: So, what would you like to see government do now?

HEATHER BOUSHEY: Well, first of all, what we need to do is do no harm.

Right now, the conversation here in Washington is about whether or not we’re going to increase this debt ceiling limit, which is not helping anything. And it is certainly not going to help the economy if we don’t do it.

We’re also seeing a lot of states paring back on the kinds of policies that have helped. They’re paring back on unemployment benefits. The Republicans have put forth a plan to further reduce unemployment benefits.

We’re seeing states and localities cutting education spending, which I think everyone would agree is not good for us now or for the long-term. So, I think that we need to focus on what’s possible, which is to stop doing these bad things and to make sure that we keep that money flowing, that we don’t stop the kind of spending that we’re doing.

And I’m very concerned that, unless we deal with this debt limit ceiling question, that could really have a big effect on economic growth.

STEPHEN MOORE: Well, Jeff, I think this is the big difference between the two parties right now.

What you are talking about is sort of the president’s position. And I think where I stand on this is that I think we’re — this is a financial emergency, I think this debt, that we have increased the national debt by $5 trillion in the last three years, thanks to these Keynesian policies.

If we stay on the course we’re on right now, we will borrow another $10 trillion. That is — Jeff, that is more money than the United States government borrowed from 1776 through 2005. We can’t afford this.

What we are seeing as a result of this is a weakened dollar that weakens the U.S. economy.

STEPHEN MOORE: So, I have a different…


STEPHEN MOORE: I think this debt ceiling issue is a big deal. I disagree with Moody’s.

I think what would really cause, you know, a calm to the financial markets is if the president and Congress could get together and say, we have got a plan to reduce this debt by $2 trillion or $3 trillion or $4 trillion dollars over the next 10 years. I think you would see a rally on the dollar. I think you would see a rally in the stock market. The worse thing you could do…

JEFFREY BROWN: But what about the economy? What about the growth and jobs?

STEPHEN MOORE: Well, look, I think you need a strong financial system to have jobs. And I think would you get jobs as well.

We need — what we haven’t had in the last two or three years is private sector jobs. We have created a lot of government jobs. We haven’t seen a lot of growth in the private sector.

JEFFREY BROWN: You both — you both watch the policy, but also the policy-making, the politics of this, right?

Given the political realities, when you said what is possible now, I assume that’s what you meant.

HEATHER BOUSHEY: Well, certainly.

The emergency in front of us is the nearly 14 million people out there in America that don’t have a job…

STEPHEN MOORE: That’s for sure. We agree on that.

HEATHER BOUSHEY: … and the millions of families who have seen their incomes fall because they have lower — they have lower hours and earnings.

STEPHEN MOORE: I agree with that, too, right.

HEATHER BOUSHEY: So, I think that we should be focusing on that issue.


HEATHER BOUSHEY: And I think the debt ceiling conversation is a distraction, quite frankly, from dealing with the urgent jobs problem here in front of us.

So I think that the politics right now is sort of getting in the way of dealing with the real fundamental economic problems, which are, we need to be focused on job creation. And we need the private sector to start stepping up to the plate. You know, you have got the private sector with record profits. They’re sitting on a lot of money.

STEPHEN MOORE: But why? That is the real question.

HEATHER BOUSHEY: But they’re not investing. They’re not investing. Why aren’t they investing? Well, you know, every month…

STEPHEN MOORE: Heather, I agree with you.

JEFFREY BROWN: The last word here.

STEPHEN MOORE: Yes, we do — jobs is the number-one focus and getting people’s incomes up. We have got five percent inflation now. Wages are only rising by one percent.

But, you know, why don’t we try to change the strategy? Why don’t we do tax rate reductions? If we can have the kind of growth right now, Heather, that we had in 1983-’84 during the Reagan expansion, we would be growing at seven percent and we would be creating 250,000 jobs a month. That’s the kind of growth we need to aspire to.

HEATHER BOUSHEY: Well, that’s certainly not the way it looked in the 2000s. We cut taxes, and we saw the lowest employment growth of any…

STEPHEN MOORE: We had eight million jobs after 2003.

HEATHER BOUSHEY: But it was the lowest employment growth of any recovery in the post-World War II era.

STEPHEN MOORE: Well, this was one doesn’t — this one is pretty bad.

JEFFREY BROWN: Policy debate and political debate.


JEFFREY BROWN: Stephen Moore, Heather Boushey, thank you very much.


STEPHEN MOORE: Jeff, great to be with you.