TIME‘s assistant managing editor unpacks the magazine’s cover story this week by detailing myths of the current U.S. economy and explaining whether the private sector can save it.
TIME’s Rana Foroohar
Tavis: But first tonight we begin with the struggling U.S. economy. Rana Foroohar is the assistant managing editor for “Time” magazine and member of the Council on Foreign Relations. She’s also the author of this week’s “Time” cover story that everybody’s talking about. It’s titled, “What Recovery? The Five Myths About the Economy.” I’m delighted to have her join us tonight from New York City. Rana, an honor to have you on this program.
Rana Foroohar: Thank you, honor to be here.
Tavis: Let me just jump right into it. You made this easy for us. I love the cover, I love the way you break the story down. It’s easy for any of us to grasp. So let’s just jump right in.
When you ask “What recovery,” you say that there really are five myths about this economy. Let’s take them one at a time. Number one, that the downturn, this downturn, is really just a temporary blip.
Foroohar: Well, there’s a lot of talk about the bad couple of quarters we’ve had. Folks were predicting growth of about 3 percent, even over 3 percent, and it came in in the first quarter below 2 percent. We’re now talking about the 2 percent economy, which is a very different economy than the 3 percent economy.
The thing is, it’s not going to get better, a lot better, anyway, by the end of the year. This is about real major structural shifts in the way our economy works of the kind that we haven’t seen in hundreds of years.
Tavis: Before I move on to myth number two, to your first point now, Rana, why is it then that the American people were told, like, a year ago, and continue to be told by certain economists, and the spin coming out of Washington, now the Obama administration, is that things are getting better, that the worst is behind us. If you’re telling me this is a temporary blip, then why the spin that things are getting better?
Foroohar: Well, we’re going into an election cycle and the word “double-dip” is a tough one for a politician who’s looking to get reelected to grapple with. People would like to think that it’s just a couple of quarters and that once there’s more certainty in the economy and in the investment climate that money is going to start pouring in back home and there’s going to be jobs.
But it’s not going to be that way. There are about a half a billion people overseas now that can do our jobs, and that’s a real shift. We need to start talking about that.
Tavis: Myth number two is that the Fed can save us.
Foroohar: Right. So, we had two rounds of stimulus and nobody’s saying that the Obama administration shouldn’t have done the first round for sure, and possibly even the second round.
But I think what’s interesting is they didn’t work as well as economists thought they would, and that’s because stimulus of the kind that we’ve been trying to do, where the Feds buying up T-bills in order to try and keep interest rates down so homeowners can get better terms on their loans, well, that works if people have jobs, but if you don’t have a job you can’t make any mortgage payment.
So I don’t think another round of stimulus is going to be some kind of bail-out of the situation.
Tavis: There are Nobel laureate economists like Paul Krugman and Joseph Stiglitz – those two come to mind pretty immediately. Krugman, who we read all the time in the “Times,” of course, has suggested consistently from the very beginning that the stimulus one or two wasn’t big enough. What say you, then, about not just whether or not the Fed can save us, but that what we did get by way of stimulus was never big enough, first round or second round?
Foroohar: Well, I think that there is an argument to be made that you do the biggest hit hard in the beginning, and yes, if I was going to do it all over again I probably would have hit harder in the first round. Then you may not even have needed a second round.
But I think the bottom line is that our economy, again, has changed in ways that we’re not talking about. One of the effects of the stimulus was to drive the stock market way up. A lot of that money went into bubbles and commodities in emerging markets, and that made wealthy people wealthier, but it arguably increased the wage gap in this country.
Again, it leaves folks that don’t have a home, that are unemployed – over 9 percent unemployment rate right now – it leaves them high and dry, still.
Tavis: Your myth number three is that the private sector will make it all better. Two quick asides before I get to your response. In today’s “New York Times,” speaking of “The Times,” I was just reading this earlier today, a front page story about the president meeting with all his friends on Wall Street the other day inside the White House.
So he’s dipping back for money now from the same people that he’s been going at, or allegedly going at. They’re in the White House for a private meeting the other day, the president raising money on the phone after they leave the White House.
Then there’s more news today, of course, as you know, that he met with his jobs group, his jobs committee. So he’s come out again and said that jobs are (audio drops out) story. Why should I believe that the private sector can or will save us?
Foroohar: I was in Washington last week and there was a lot of talk about the fact that American companies are doing very, very well. They’ve got about $2 trillion on their balance sheets at home and abroad, and the administration is really hoping that they’re going to bring it back here and use it to start hiring.
But the thing is the fundamentals have not changed. As you mentioned, there’s a Nobel laureate, Michael Spence, who recently did some really startling research, looking at American companies in the global marketplace.
They have actually created almost no jobs since 1980. It’s only the companies that work here at home in the more protected marketplace, in areas like healthcare, retail, things you really have to do at home, that have created any jobs.
So this is not a three-year lack of economic certainty thing that’s stopping companies from investing. This is a 30-year trend towards globalization and we need to talk about it.
Tavis: I don’t mean to make you political, but how is it, to your mind, that these companies, who did, in fact, money from the American taxpayers to right-size their ships. How is it that they can be sitting on all of this money, trillions of dollars in profit?
Everybody knows they have it. We see it in the paper; we talk about it every day. You can turn on any one of the business channels. They’re talking about it. But they’re sitting on this money. The argument that I hear most often is that they’re sitting on it because they’re certain as to how well this recovery is going to do, ultimately; how fast it’s going to happen, back to your story.
But they’re sitting on a whole bunch of money that ought to be pumped back into the economy. So when they needed us we were there for them, but they’re not now reinvesting that money back in the economy. What do you make of that?
Foroohar: Well, I think you’ve gotten to an important point, which is why do we keep bailing out big companies. For starters, big companies don’t create the majority of jobs in our economy. New businesses, smaller businesses, create those jobs.
I’d be all for a TARP for homeowners at this stage, because the fact that the housing marking is so down is one of the main reasons we’re not in recovery. So we ought to be thinking not about bailing out the largest industries, which are doing just fine, as we know from the numbers, but think about how to support new businesses, small businesses and individuals.
Tavis: Speaking of housing, your myth number four is that we can just simply move where the jobs are, move where the work is.
Foroohar: Right, and this goes to the point that it may be surprising to a lot of folks – there are actually three million job openings in the U.S. right now. It’s not that there aren’t some jobs out there. In fact, there’s quite a few jobs. But there’s really a mismatch between where the jobs are and where the labor is, and in the past we had this idea that you could just pick up and move to wherever the jobs are.
Some of us grew up in families where you moved for dad’s job. It’s not a straight line like that anymore. For starters, the fact that people are underwater with their homes means that you can’t just have an out-of-work auto worker in Michigan pick up and go to let’s say Washington state, where the unemployment level is very low, and get a job as a machinist. He may not be able to get out from under that house.
But beyond that, our labor force has been changing in ways that we don’t really understand, so the rise of two-income couples, Mom and Dad working, has also made it a tougher decision to just move for Dad’s job. So again, these are bigger structural shifts that people don’t talk so much about.
Tavis: Myth number five is that entrepreneurs are our greatest strength. Why is that a myth?
Foroohar: Well, I think that there is this belief in American society that we can elbow-grease our way out of everything. I really feel that that’s used a lot of times to put the onus on the individual when the state could be doing more. It’s interesting to look at the numbers.
We used to be a very entrepreneurial society, but in the early ’80s levels of new businesses starting actually started dropping off and they’ve been dropping and flat over the last decade.
That goes hand-in-hand with the rise of the financial sector, and there’s actually some new research showing that a lot of talent that might have ended up in Silicon Valley or in other entrepreneurial hubs around the country are actually going to Wall Street.
Why? Because they can be paid $400,000 for a starting salary rather than maybe $80,000 or nothing, starting in their garage.
Tavis: I’ve just got 30 seconds left to go, Rana. I’m wondering whether or not, now that we’ve talked about these myths, whether or not to your mind, to your research, there is any reason to believe, any reason to be hopeful?
Foroohar: Well, I think that there is, and I would – it’s interesting. The administration is trying to duck some of these questions, but the Republicans are trying to pin every economic problem on Obama. I think that the general policy vectors of the Obama administration are correct. Invest in education, talk about innovation.
We need to be retraining. We have a youth unemployment crisis. I think that that would be job one. If I were in charge in Washington, really bring down those double-digit huge unemployment numbers by retraining these kids to do jobs that they can take into the future. Otherwise, we’re going to have a generation of people that are just going to be lost to the workforce.
Tavis: Well, maybe you should be in charge in Washington. She’s a brilliant mind (laughter) and a great writer, and I’m honored to have her on the program. Her cover story for “Time” magazine is called “What Recovery? The Five Myths About the Economy.” We’ve just scratched the surface. Dig into it yourself and read a little bit more. Rana, good to have you on. Thanks for your work. Thanks for your time.
Foroohar: Thanks so much, Tavis. Thank you.
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