Two Experts Discuss Differences in Presidential Candidates’ Economic Policies
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GWEN IFILL: So now for more on both sides of the economic debate this campaign year, I am joined by Robert Reich, secretary of labor in the Clinton administration.
He is now a professor of social and economic policy at Brandeis University. He serves as an informal advisor to the Kerry campaign.
And Robert Barro, an economics professor at Harvard University and a senior fellow at Stanford University’s Hoover Institution; he is not advising the Bush campaign.
Professor Barro, let me start with you. How would you assess overall, given the fact that these two candidates are saying such completely different things, how would you assess the overall state of the economy?
ROBERT BARRO: The economy has been doing quite well of late, particularly the GDP growth has been over 4 percent since early in 2003. Investments grown strongly, productivity has grown strongly.
The labor market was lagging for some period, but of late the labor market has also been doing well in terms of job growth and in terms of reductions in the unemployment rate.
GWEN IFILL: Professor Reich, how would you assess the economy?
ROBERT REICH: Well, although Professor Barro, Gwen, is correct about overall economic growth, the fact of the matter is that with regard to jobs and wages, and also health care, these are things that obviously matter most to average families, the economy has performed very poorly. And the poor performance has continued.
Even last month in August according to the payroll survey, which is the most accurate gauge we have of new job creation, there were only 144,000 new jobs created in the United States. Now, you need 150,000 just to keep up with population growth with regard to eligible workers.
Not only, that but we know also from the Bureau of Labor Statistics that over the last year, production workers wages, talking about 80 percent of the work force, production workers wages have dropped, adjusted for inflation. Health care costs have soared.
So in terms of the things that really matter to average workers and average families, this has been a very, very poor and very anemic recovery.
GWEN IFILL: I want to talk in specific cases about the issues, the components of your assessment of the economy.
But first, Professor Barro, let me ask you a question, picking up on something that the president has said recently. He has said there is a philosophical divide — is the way he described it — right now between him and his opponent, Sen. Kerry, about where the economy is. What would you say the philosophical divide is?
ROBERT BARRO: Let me say first I have to disagree about the recent employment report. The actual increase in payroll employment in the last report was over 200,000 when you take account of the revision from the previous month.
Actually about 100,000 a month now is probably enough to keep up with the labor force growth which is not growing as rapidly over the long run as it has in some previous years. And that’s why the unemployment rate has actually decreased by a full percentage point over a year and a half.
The philosophical divide I think is about the role of government and whether it should be more encouragement of the market, and on the tax side in particular whether there should be further cutting in marginal tax rates and tax rates that affect business investment.
GWEN IFILL: Well, let’s pick up, Professor Barro, with the point you were making a moment ago, your disagreement with Professor Reich about jobs and wages.
Part of the heart of this is that both candidates seem to be competing to appeal to the middle class, and at the heart of that is this notion the middle class is shrinking. Is that true or is that not true?
ROBERT BARRO: Oh, I don’t think there’s any evidence that the middle class is shrinking. Earnings growth have been pretty good over the last few months.
You look over the longer term — of course you have to consider that labor compensation includes a lot in the way of fringe benefits as well as the direct earnings, so earnings doesn’t look bad over the last several months, along with the up-tick in the labor market more generally.
GWEN IFILL: Are wages staying a head of inflation?
ROBERT BARRO: Well, it depends on which period you look at. More recently they’ve been doing pretty well, and when you factor in the fringe benefits which are increasingly important, then they look like they’re keeping up ahead of inflation.
GWEN IFILL: Professor Reich, what’s your response to the first question about the middle class?
ROBERT REICH: Well, Gwen, if you define the middle class as people whose earnings, family earnings are between approximately $25,000 and $75,000, obviously your definition of the middle class is somewhat arbitrary, but seems to me that’s a fair definition.
There are a lot of data suggesting that the middle class is actually shrinking. People at the top were doing very well, even before the Bush tax cuts, most of the benefits of which went to the wealthiest Americans and they were doing exceedingly well.
But average working people, particularly as I said people who are production workers have not. Let me just, if I may, respond to Professor Barro, because there can be no doubt, you know, economists almost all economists are using the payroll survey as their litmus test for where the economy is going and how many jobs are being created, not the household survey which is much smaller.
But even beyond that, there is no question that over the last four years, we’ve actually lost jobs in this country, despite the fact that the population has grown. And people know that, Gwen.
You don’t have to have battling dueling people involved in economic policy to tell average working Americans that in fact they’re not better off today than they were four years ago.
GWEN IFILL: Oh, Professor Barro, I’ll give you one more pass at that and then we’re going to move on.
ROBERT BARRO: Gwen, that’s not quite right. I think the payroll survey is the best indicator of the overall scale of employment. The household survey is actually very good for measuring the unemployment rate. And that number has in fact declined substantially.
Now, if you look over the last three or four years, there is a big discrepancy where the household survey indicates that employment has grown by about 3 million more jobs than the payroll survey does.
I wouldn’t look at the household survey for month to month on that. But over three to four years it is some indication that the labor market has done better than the payroll numbers indicate.
GWEN IFILL: Okay, let’s move on to this question that Professor Reich raised a little bit a moment ago about tax cuts, and in particular President Bush’s tax cuts, which he would like to make permanent and Sen. Kerry would like to roll back. Professor Barro, what is your sense of that, which is the better course?
ROBERT BARRO: I think the tax cutting program of 2003 was very successful, much more than the previous program in 2001.
The important thing about the 2003 program is that it moved forward the reductions in marginal income tax rates and it also cut some of the tax rates on income from capital, particularly in terms of dividends, capital gains.
Thereby I think the 2003 program was very much in favor of incentives, incentives for work, productivity, investment. And as far as one can tell, one can never prove, this but as far as one can tell from the data it was very successful, and since the second quarter of 2003 the economy has done very well.
I don’t see how you could have gotten an outcome over that period that would have been more favorable to saying that the tax cut program of 2003 was effective.
GWEN IFILL: Professor Reich, did the tax cuts work?
ROBERT REICH: Well, it’s interesting, Gwen, that Professor Barro does not refer to the tax cut of 2001 as a success necessarily.
We have seen tax cuts of about $7 trillion over the next ten years; the Bush administration likes to say that they have stimulated the economy. But what an extraordinarily inefficient way of stimulating the economy, when you give so many tax breaks to people who are among the wealthiest in the United States because after all, being wealthy, being rich means you don’t spend the extra tax breaks; you already have spent as much as you want to spend.
That’s the definition of being rich. You’re spending as much as you want to, you don’t need a tax break. So to try to stimulate the economy that way is not only inefficient, but the net result has been a huge deficit, a deficit which the Congressional Budget Office now says this year is $422 billion.
The combination of the tax cuts and spending that even John McCain said is spending like a drunken sailor, has caused this huge, huge deficit and the structural deficit, that is the deficit that’s likely to continue to be there for years to come is much, much too high to maintain economic stability.
GWEN IFILL: Professor Barro, let’s talk about the deficit for a moment.
One of the things that the president has said and Sen. Kerry has said is that they can cut this deficit in half in the next four, or depending who you listen to, five years. Is that a good idea?
ROBERT BARRO: Let me say first, I have some agreement with respect to the 2001 tax cut, but probably for different reasons.
I don’t think it was a very good program. I think it was basically giving money to people in a Keynesian way, it had a phased in schedule of reduced marginal rates —
GWEN IFILL: Excuse me. For those of us who are not economists, what do you mean “in a Keynesian way?”
ROBERT BARRO: It was basically giving money to people in hope they would spend it on consumption and raise demand.
The 2003 tax cut is much more about incentives, incentives for investment, incentives for productivity improvement, incentives for work, and that’s why I think the 2003 program was much more successful.
GWEN IFILL: Okay. What about the deficit?
ROBERT BARRO: But should I say something about the deficit?
GWEN IFILL: Yes, please.
ROBERT BARRO: Part of the deficit I think is perfectly reasonable, that’s the part that has to do with the recession which began in 2001. And the part that has to do with the expenditures related to the national security outlays, particularly Afghanistan, Iraq, other ones.
Part of the deficit comes from excessive spending on other activities, and I would include the — what you might call compassionate programs related to education, agriculture, and now expanded Medicare. So I think part of the deficit was a mistake related to lack of fiscal discipline on the expenditure side.
GWEN IFILL: So, Professor Reich, is this worthwhile spending, is the red ink worth it?
ROBERT REICH: Well, much of the spending, as John Kerry has characterized it, is on corporate welfare, Gwen: Huge tax breaks and also subsidies going to particular industries, and particular sectors of the economy.
If you look at the Medicare drug bill, for example, $535 billion over the next ten years, well, it’s not a very efficient way of giving seniors drug benefits because the bill prohibits the federal government from using its bargaining clout, with drug companies, to get those drug prices down.
This is obviously a sop to the big pharmaceutical industry and it has to be understood as such. You know, that spending under the Bush administration, that is non-defense spending, spending that is not related to either defense or even payment of the national debt, has gone up 8 percent a year on average.
That’s much higher than the Clinton administration where it went up on average per year 4.3 percent.
GWEN IFILL: Professor Barro, you know the deficit or the idea of a balanced budget, that used to be a plank on the Republican platform, as little as four years ago.
Are we now at the point where you think the spending that has created this deficit is worthwhile enough that it should be abandoned as a goal, balancing the budget?
ROBERT BARRO: Well, I actually agree with part of Mr. Reich’s points. I think there was far too much in the way of increase in spending outside of defense in the Bush years. And it’s quite different from the restraint during the Clinton period.
But ironically the big increase in expenditures on the Democratic type programs, which a Republican president put forward, it’s not corporate welfare, it’s on social welfare kind of programs like education and Medicare, and I think those were a mistakes, those are not the kinds of programs I’m in favor of.
The deficit itself I think is of no great importance, I think it doesn’t have much effect on interest rates, it doesn’t have much effect on investment.
The difference between now and the late ’80s and the ’90s is when there was a deficit, it provided a lot of fiscal restraint, holding down spending levels. It doesn’t yet seem to be working that way today, that’s the thing that troubles me.
GWEN IFILL: Final question on the deficit, Professor Reich, do you agree with Professor Barro that people just don’t care about the deficit any more?
ROBERT REICH: Well, it may be that most of the public doesn’t particularly care. But Gwen the deficit is very important. I was privileged to be a member of an administration, the Bill Clinton administration, that faced a $300 billion deficit per year when we came into office and Bill Clinton worked very, very hard to get that deficit down. One of the reasons we had a huge economic expansion and presided over a country that generated 22 million net new jobs over the Clinton administration was because we did exercise fiscal discipline, and that’s what John Kerry wants to do again.
The Kerry economic platform is about fiscal discipline, it’s about shifting spending toward education and health care, and making this country more productive. That’s the only way we are going to be back on the economic track we were on before this administration.
GWEN IFILL: Professor Barro, there are obviously a lot of pressures now coming to bear on the economy and on the decisions that voters will make about which one of these candidates will best carry out what needs to be done.
The poverty rate is up there, questions about new pressures involving entitlement, Social Security. What are the policy implications for the decisions that a candidate will make in the next several years, whichever candidate is elected?
ROBERT BARRO: Again let me say I give Clinton very high marks for fiscal restraint during the ’90s; I think that’s right. Unfortunately his administration ended with the end of the technology boom in the year 2000, which saw a collapse of the stock market and really the on set of the recession that created the Bush administration.
So it didn’t end as well as it was before. It’s also unfortunately the case that Clinton is not running this year. If he were running, I might believe that there would be a program of fiscal discipline, but I have no reason to believe it otherwise. In terms of the policies I think that the Social Security reform is going to be very important in the next administration, particularly if it is a Bush administration.
Things involving health care, tort reform, I see as being important, and I also think it’s important to make permanent the income tax rate cuts that were put into place including the ending of the inheritance tax.
GWEN IFILL: And Professor Reich, what is your sense of the implications for policy?
ROBERT REICH: Well, let me just first of all, Gwen, if I may, respond to Professor Barro. John Kerry is committed to following the same track, the same economic policies that were very successfully followed by Bill Clinton.
He has signaled that by the economic advisors he has chosen to help him, people like Bob Rubin and Roger Altman and Gene Sperling — people who advised Bill Clinton at the same time. Also it’s very clear and it has been said, even today’s Washington Post said it, Goldman Sachs, the investment bank that has reviewed both candidates planks has also said it, that John Kerry’s economic plan is more fiscally responsible.
Now, what’s at stake here, Gwen, is not just fiscal responsibility, obviously. What’s at stake is getting the country back on track with regard to good jobs, good wages, health care, that is now becoming unaffordable for many people, many families, double digit increases in health care costs, the most inefficient health care system we have actually perhaps anywhere in the world and the most costly. Something has got to be done.
We also have baby boomers who are moving toward the shores of retirement at a very, very fast rate. The Bush administration wants to create, kind of privatize Social Security accounts, but has not shared with the public the way they’re going to possibly divert funds away from present and future Social Security recipients, because after all Social Security is a pay-as-you-go system.
GWEN IFILL: All right. Robert Reich and Robert Barro, thank you both very much.
ROBERT REICH: Thank you, Gwen.
ROBERT BARRO: Thank you.