Princeton professor and former vice chair of the Federal Reserve Board of Governors discusses the lack of meaningful national dialogue on the unemployment rate and shares his thoughts on how the U.S. can fix its jobs problem.
Economist Alan Blinder
Tavis: Alan Blinder is a former vice chairman of the Federal Reserve and a former member of President Clinton’s council of economic advisers. He is now a professor of economics at Princeton, where he joins us tonight. Professor Blinder, good to have you on this program, sir.
Alan Blinder: Nice to be here, Tavis.
Tavis: I was struck by your piece just days ago in “The Wall Street Journal” where you tried to, I think rightfully, refocus the conversation in this country now. So much talk over the last few days and weeks about deficit reduction, so much talk about the debt, so much talk about a variety of economic issues that we’re grappling with at the moment.
But in the midst of all that we’ve lost focus on any real conversation about jobs. Top-line for me what you were trying to get across in your op-ed the other day.
Blinder: Well, I think that’s right. To me it’s amazing, actually. I think every politician, if you wake him up in the middle of the night and you ask him what’s the number one issue, he says, “Jobs,” or she says, “Jobs,” and yet we seem to be ignoring it.
All you hear is as you say, deficit, debt ceiling, things like that, and lots of proposals, by the way, that would kill jobs rather than create jobs. It’s a paradox, in a way, but a very sad paradox.
Tavis: What’s the correlation between deficit reduction and jobs, or the lack thereof? Put another way, how much are the American people going to end up taking it on the chin, whatever this deficit reduction turns out to be, because the White House is clearly going to compromise on something, here.
Blinder: History suggests, and there are some exceptions to that which I’ll come back to in a second, but basically history suggests that deficit reduction, which after all either means cutting spending or raising taxes or some combination of the two, reduces jobs, doesn’t create jobs.
Now, how could you get around that? The most obvious way countries have sometimes gotten around that is with expansionary monetary policy. Their central bank lowers interest rates and that puts back as many or maybe more jobs than the deficit reduction took out.
But obviously, we can’t do that now. We’ve got interest rates around zero, and so that’s not an option to us. The other way is a kind of an expectational or confidence-building miracle that markets get so galvanized, bond rates fall and that creates more jobs than the deficit reduction took away.
With bond rates as low as they are, that seems pretty unlikely to me. We can pray for it, and I think people are praying for it, but I don’t think you’d want to bet on it.
Tavis: Well, not only are bond rates, to your point, low already, the reality is that these banks are sitting on over $1 trillion of money and they have not as yet been convinced to pour that money back into the economy. If you are now suggesting to me that deficit reduction most often means that there are going to be even fewer jobs, that is not the answer to the prayer with regard to motivating them to get off of that better than $1 trillion that they’re sitting on.
So the point of this is if I’m listening to you and hearing you correctly, it sounds to me like this is going to get worse before it gets better.
Blinder: Well, here’s what we don’t know, Tavis, and what I’m still hopeful about. The outlines of a deal between the Democrats and the Republicans on deficit reduction, if there will be one, have not really come out. No details have come out. One detail is especially important, which is the timing.
If you look, for example, at the Simpson-Bowles proposal, it carefully delayed the start of deficit reduction, serious deficit reduction, until the economy was stronger. I’m hoping that whatever deal, if there is a deal, is made now will have that same property.
If it starts right away, starts cutting 100, 200, $300 billion a year out of the government budget, that’s going to deepen the jobs problem, no doubt.
Tavis: One of the things I personally always hate about conversations like these, and that is to say conversations about Washington politics, is that people typically do not want to assess blame, and I, quite frankly, am not of that mind-set. Somebody’s got to be blamed for a lack of conversation about jobs in America.
So, where do you place the blame on a lack of even conversation, much less the will to do something about jobs in America right now?
Blinder: Well, I hate to sound partisan, though I am a Democrat. You have to place more of the blame on the Republican Party. They’ve been against everything that would create jobs. They were against the stimulus program at the beginning of the Obama administration. They’re still against it. I think they’ve stopped saying repeal it, stopped calling for repeal because it’s almost over anyway.
They are against tax increases, which is pro-jobs, although somewhat ignoring the arithmetic of how you get the deficit problem done. You remember the compromise that happened last year. President Obama got a cut in the payroll tax in return for extending the Bush tax cuts.
Well, the cut in the payroll tax that the Republicans gave reluctantly in order to get what they want is a job-creator. It does help jobs. So, to a very minor extent, is the continuation of the Bush tax cuts.
But to be honest with you, I think you’ve got to put some blame on both parties. Some members of the Democratic Party are still calling for job creation, job creation, but not enough. Not enough, frankly.
Tavis: Do Republicans, Professor Blinder, not have a point at all? Do they have no point whatsoever about the fact that we do, in fact, have to cut spending at some point, that hard choices need to be made, that deficit reduction is a real issue that at some point we are going to have to grapple with? Is that not a legitimate concern?
Blinder: It’s absolutely legitimate, it’s absolutely correct. My concern is only that we don’t try to do this now, when we have such a weak economy. If you look at the long-run budget projections, and we all know that they’ll be wrong – nobody can foresee what’s going to happen 10, 20, 30 years in the future – but that doesn’t mean they’ll be better than the CBO, say, projections. They could be worse.
If you look at those projections it’s very clear that spending has to be curtailed very substantially, and frankly, it’s mostly healthcare spending.
Tavis: You mentioned earlier that while you hit the Republicans hardest, you did concede that Democrats bear some responsibility as well. The biggest of all Democrats would be the president, Barack Obama. What responsibility does he bear for not being as aggressive, for not being as focused, for not being as – having the kind of linear look about jobs, jobs, jobs that people have complained that’s absent in this White House?
Blinder: Well, I think I agree somewhat with your implicit criticism. I detected criticism in the way the question was answered. I think you’re right in the sense that from the beginning, while he did push the stimulus bill, which was very, very important and absolutely appropriate, President Obama’s attention has been scattered among a lot of different things, including the healthcare reform, which was a very good thing to do.
So it’s not like these were silly running off on tangents. Nonetheless, when he came into office in January of 2009 we were in a jobs catastrophe. Even now I think we’re in a jobs emergency, and that focus on jobs, jobs, jobs hasn’t been there.
It’s not like he’s been doing bad things. I wouldn’t say that at all, not even close to it. Most of what he’s done has been good. But there hasn’t been this sharp focus on job creation.
Tavis: Your colleague there at Princeton, Paul Krugman, has been much, much tougher on this president, though, has he not?
Blinder: He has. I’m much more favorably inclined towards what the president has done than my colleague Paul is.
Tavis: You’ve raised the stimulus now three or four times, by my count, in this conversation, as the best thing that the administration has done. Krugman, Stiglitz and others suggest, and even I think in the coming weeks and months we may hear more about what she really thought, Ms. Romer, when she was in the White House, but there are those who suggest that it was never big enough from the start.
The White House cut a deal that they thought they could get through even when they controlled both houses of Congress, that the stimulus package wasn’t big enough the first time.
Blinder: Right. A couple of things. Let’s remember first of all that it barely got through, so there wasn’t a lot of margin. That’s related to the second point – I’m sympathetic, as a pure economist, to the notion that it should have been bigger.
As a citizen of the United States watching the politics at the time, it didn’t look to me at all obvious that, say, a $1 trillion stimulus could have gotten through the Congress, even though both houses had Democratic majorities. I doubt that it could have.
So we got what we got. The number kept changing, right? You remember it was 787 and now it’s estimated to have been 850 or something like that, as more data came in. It’s not at all obvious to me that we could have gotten it bigger. What is obvious to me is we could have made it better.
It’s lost to history now, but you may remember that in return for almost no Republican votes – whatever it was, three in the House or something like that – the president gave over about $250 billion, something like that, about a third of the stimulus to the tax cuts that the Republicans wanted in the spirit of compromise. Okay, I’ll give you guys this, you give me the rest.
That part of the stimulus was very poorly targeted for job creation, and so in terms of the stuff that was really working on jobs, we were down to only about $500 billion, which certainly was too small.
Tavis: I read, as I said earlier, read your op-ed piece and agree with most all of it, and I appreciated the fact that you put pen to paper to write that. Yet I noticed in the piece that while you did talk about unemployment across the board, which is still sitting at better than 9 percent – these last two jobs reports have been horrific – what you did not mention, which I now want to raise to get your take on what we say to these Americans, specifically are African Americans who are at better than 16 percent unemployment.
They make up the most loyal part of the president’s base. In New York City alone, 42 percent of Black men cannot find a job. We don’t want to talk about Detroit, et cetera, et cetera, and yet this White House – since you said you thought you detected some criticism, let me be blunt about this – this White House has not said anything specific about those persons who are catching the most hell in this economy.
They just happen to be African Americans. They could be white males, it could be white women. They just happen to be Black Americans. What say you, since you didn’t address it in that piece, to these Americans, who are catching the most hell in this economy, sir?
Blinder: Yeah, well, it’s not a coincidence and it’s not just this period of high unemployment. Black Americans have, as long as we’ve had data, always had higher unemployment rates than, say, white Americans. It’s unfortunate, it has roots that go back a long time; in some sense, all the way back to slavery, back to Jim Crow, back to inadequate education for Black people, back to a lot of them live in ghetto areas where prospects are very poor.
They get worse education. Many, many things that are deep in our history, but Blacks have always had higher unemployment rates than whites. Now, when the overall unemployment rate is really low, that’s still true, but it’s not as serious. The Black unemployment rate is higher than the white, but nobody’s having super-high unemployment rates, I guess except young Black males, which really always have it.
When the unemployment rate is high, however, and the Black unemployment rate is a multiple of the white unemployment rate, you have an absolute catastrophe in the Black community and especially in some of those very poor areas that you have mentioned.
So yes, if we could get the national unemployment rate lower, then the fall in the Black unemployment rate, history suggests would be more than proportional to he fall in the white unemployment rate, and that would be a good thing. But it’s not sufficient. There’s still a long, long agenda ahead of this country where that’s concerned.
Tavis: My time is up. I want to ask one, though, quick exit question. I only raise that issue about Black unemployment because I do not ever, as long as I’m sitting here, want those persons who are catching the most hell to get rendered invisible in this conversation because we somehow think it’s just the way things have been and their issues don’t get raised, as was the case in your piece, respectfully.
Having said that, this is unfair to ask you in a minute or so, but how do we create jobs? That’s the ultimate question. What do we do now to create jobs in America?
Blinder: Well, what I suggested in the piece that you mentioned, and it wouldn’t have been my first choice, but we’re getting desperate now, is to try to get on this train that seems to be moving down the track toward a tax rebate for large companies that have made profits overseas and don’t repatriate them because they don’t want to pay a 35 percent tax.
To get on that train, allow the sharply reduced tax rate on those repatriated profits, but only to the extent that they increase their payrolls. That means hire more workers or pay their existing workers more under the Social Security limit, which is about $106,000. You can create a powerful incentive for more hiring by doing that.
Tavis: Economist and Princeton Professor Alan Blinder. Honored to have you on this program. Thanks for sharing your insights. I appreciate it, sir.
Blinder: Glad to be with you.
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