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Jennifer Dauble



Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Alan Krueger, Council of Economic Advisors Chairman, today on CNBC. Excerpts of the interview will run throughout CNBC’s Business Day programming today. All references must be sourced to CNBC.

STEVE LIESMAN: Alan, thanks for joining us.

ALAN KRUEGER: My pleasure.

STEVE LIESMAN: Okay. Lemme ask you-- as a leading job experts, now the president, now the chairman of The President's-- Council of Economic Advisors, why, in your opinion, aren't companies creating jobs?

ALAN KRUEGER: Well, we've had job growth for the last 20 months, just not fast enough. And I think it's important to step back and look at what the economy's recovering from. We had such a deep hole. At the end of 2008, the economy was contracting at an 8.9 percent annual rate.

The-- recession ended shortly after the recovery act took effect. And-- it took about eight months after then for job growth to begin. That's faster than in-- last two recoveries. We've had 2.8 million private sector jobs added in the last 20 months. But that's not enough, given the deep hole that we're digging our way out of.

We're also losing a lot of-- jobs in state and local government. I think the reason why job growth hasn't been quicker-- is related to the reasons that we got into the economic crisis in the first place. We had a-- enormous bubble in the housing sector. The-- home building industry is-- still quite weak. Residential construction has been completely flat. And ordinarily in recoveries, residential construction is very strong, and that creates lots of jobs, that create lots of demand for new home products.

So that's been a drag on job growth. And on top of that-- as I mentioned, state and local governments have been laying people off-- once-- the support from the recovery act started to fade out. So-- those are, I think-- two of the main reasons why job growth has been weak. And then, on top of that, with consumer balance sheets-- in need of repair, because people had over-borrowed during the boom years-- households have been very cautious in their spending, and consumption growth-- has been modest-- and that's been an overall-- cause of-- of slow-down for growth.

STEVE LIESMAN: You didn't mention two reasons that the critics of this administration mention most often-- excess regulation and high deficits that make businesses uncertain about taxes. Are those reasons why-- we haven't had a strong job growth?

ALAN KRUEGER: I think the main reasons-- have been because aggregate demand has been weak-- because of-- concerns about-- working-- families working their ways-- their way down-- debt that they accumulated. I think if you look at corporate profits, if you look at investment rates-- it's hard to make a case that, because of regulations have caused companies-- to-- be scared about-- about investing or have cut into their profits, which is-- hurting-- their job growth.

I think it-- the main reason is that the companies-- feel that they could satisfy the demand that they face with the workers that they have, or by expanding the payrolls, as they have been. And until they are more confident that consumers are coming back at a greater clip-- that the demand will be there-- I think we'll continue to see-- job growth at the kind of moderate pace that we've seen.

STEVE LIESMAN: What-- what about deficits and whether or not the companies may face or individuals may face much higher taxes down the road?

STEVE LIESMAN: What about the concern about deficits and whether or not that's something that's keeping-- high deficits are keeping-- businesses from hiring?

ALAN KRUEGER: Well-- I think we need to do two things at once. I think we need to strengthen the economy, as well as address our long term-- fiscal budget issues. The president has made a proposal to the Joint-- Committee of Congress-- which gives a path-- to reduce-- the deficit-- by almost $4 trillion dollars over a ten-year period.

I think-- we do need to address our long-term fiscal problems. But if you look at our current situation, interest rates are still remarkably low. I don't see much evidence that-- government borrowing-- is crowding out private sector investment, given how long interest rates are.

STEVE LIESMAN: Do you have concerns about potential outcomes from the Super Committee? What if-- what-- how does it change your economic outlook if the automatic sequestration takes effect?

ALAN KRUEGER: Well-- I think the Super Committee-- should-- do its best-- to reach an agreement. If it doesn't-- as you mentioned-- sequestration is there as an enforcement mechanism. I think-- that should give-- Congress an incentive-- to get the job done. The president has shown them a path-- to put us on a fiscally sustainable-- budget. So I think it's important that they act. But the sequestration is there-- as an enforcement mechanism.

STEVE LIESMAN: But is one economic-- is one deficit outcome worse than another for the economy? If they come up with the $1.2 trillion-- on their own, is that the same economic impact as the sequestration?

ALAN KRUEGER: Well, it depends, of course, on how they come up with whatever number they come up with. And one would have to look at the details before-- making a projection on how that can influence the economy.

STEVE LIESMAN: Republicans seem to have this attitude that the way to fix the housing market is to let it hit bottom, and to let the market do its job. Is that the view of the administration on housing?

ALAN KRUEGER: Well-- I don't agree with that view. I think that-- the crisis began with the housing market because of the enormous run-up in home prices and then the big drop. And I think one can draw a pretty direct connection between the sluggishness of the recovery and the legacy of the housing market problems.

The administration has taken a number of steps to try to strengthen the housing market. I'll give you some examples. The mortgage modification program, the refinance program, just yesterday, additional details were given-- for expanding the refinancing program. The unemployment-- forbearance program for the unemployed for paying their mortgages.

Project Rebuild, which the president proposed as part of The American Jobs Act. A number of other steps, as well. I think this is an area that's so important for the recovery, that it's one-- which is worth continual analysis. And-- for-- continual process, we're looking for additional measures-- that can be taken to try to strengthen the economy. And that-- and that's what the president has asked to do, to continually look for-- measures that might be-- possible to strengthen the housing market.

STEVE LIESMAN: So far, it seems-- the criticism has been that the housing programs put forward by the administration have either reached too few people or are designed to reach too few people. Are you saying that there needs to be an expansion of these housing programs to reach more of the people who are-- have been hurt in this housing crisis?

ALAN KRUEGER: I think we're looking for ways to make these programs more effective. We've been doing that since I started at Treasury in early 2009. We were looking at ways-- to try to make-- the suite of programs that were being announced and implemented-- more effective.

And-- I think if you look at the numbers, there are hundreds of thousands of Americans who have benefited in terms of having their mortgages modified. And while-- I think it would-- it's desirable-- to reach more-- certainly-- you could point concretely to large numbers of families that have benefited from these efforts.

STEVE LIESMAN: I mean hundreds of thousands are definitely the numbers, but the probably, everybody says, is in the millions.

ALAN KRUEGER: That's right. That's why we're looking at ways to try to strengthen these programs and expand them. I think the number is something around 750,000, in that range, for the mortgage modification program. And then there are other modifications-- which we're not directly part of the HAMP program but are-- in many ways-- inspired by the-- steps the administration took.

STEVE LIESMAN: Let's turn to the jobs act that has been proposed by the president. What is your-- how does your economic outlook change if this job act is not enacted by Congress?

ALAN KRUEGER: Think for-- couple of important reasons it's critical that the jobs act-- be passed. First, if you-- look at the world economy today, there are certain risks that we face. You know there are severe-- concerns about Europe. One of the ways in which Europe affects us, if they have a slowdown, it affects our exports. If that's the case, then we need to strengthen demand for our products right here. So that makes-- passing the jobs act very important.

In addition, we have a-- component to the recovery act phasing out. And we also have the payroll tax cut that was passed at the end of last year phasing out. If the jobs act isn't passed-- then the typical American family would see $1,000-- increase in payroll taxes-- at a time when-- the economy needs family to have more after-tax income so they can go out and support the economy and rebuild their balance sheets.

STEVE LIESMAN: Would you say that the jobs act is the difference between recession or not recession-- strong growth and moderate growth? Where would you put that?

ALAN KRUEGER: The way I would view it is that the jobs act is insurance-- against a possibly slowdown coming from headwinds in the world economy. And-- on top of that-- the-- economy has been growing at about 2.5% pace, you know, pretty much around-- around trend. We need faster growth to-- increase employment-- to lower the unemployment rate, to see-- more Americans-- go back to work. So-- I think for all of those reasons, it's critical-- that the jobs act be passed.

STEVE LIESMAN: How do you respond to people there's a large portion of-- of this country that feels like the $800 billion stimulus program didn't do anything, and that additional government support is only going to dig our deficit hole deeper and not really going to help-- turn this economy around?

ALAN KRUEGER: Well, a couple things. I think people realize that we were in a very deep hole-- and that the problems that created that-- crisis-- began-- long before-- President Obama took office. The-- Recovery Act, I think, helped break the back of the recession. We were declining at an unprecedented rate in the post-war period. And then, very soon after the jobs act passed-- we saw-- an end to the recession, and the economy started to expand. Not fast enough. And I understand that frustration. I'd like to see the economy grow faster, as well.

On your second point-- about the jobs act, the jobs act contains-- components that are targeted to what's particularly weak in the economy. Con-- try to strengthen consumer demand by continuing and expanding the payroll tax cut. Try to help the unemployed-- by-- increasing-- by-- by-- continuing the extension of benefits, and also, modernizing the program, allowing states to apply for waivers if they want to try something new in unemployment insurance.

Supporting infrastructure, putting construction workers back to work. Helping state and local governments keep teachers and firefighters and police on the payroll. That's where we've been seeing a lot of layoffs. And, I should add, for those who are concerned about the deficit, the jobs act is paid for. Back in-- mid-September-- the president submitted a fiscal plan which included a way to pay for the jobs act.

STEVE LIESMAN: As an economist, though, you must have some sympathy for the criticism of the jobs act or the tax cut, the payroll tax cut, to say, "You know what? They're temporary. And businesses don't really respond to temporary tax cuts, and that, essentially, they respond to permanent tax cuts." And here we are, actually proving that point, in the sense that we're arguing about whether or not we're going to continue these tax cuts. How do you respond to that, that what's wrong with these tax cuts is that they're temporary?

ALAN KRUEGER: Well, on the consumer side, on the house-- hold side, I don't think that's-- a valid argument. I think it is the case that-- families that-- would see-- their taxes go up by $1,000 next year or so, if we don't-- continue the payroll tax cut, I think that'll have a-- very real impact on their behavior, on their spending-- which would hurt businesses.

The jobs act also does contain-- tax cuts on the employer side-- to reduce payroll. And I think, very importantly, to-- reduce the payroll tax more for businesses that are expanding, experience small businesses that have really been struggling-- in their recovery. I think that-- this type of incremental tax cut, tax cut that rewards companies that are adding employs-- is-- an incentive for companies to speed up hiring. If they were thinking about hiring-- maybe down the line, this is an incentive to bring people on sooner.

And let me just add that the nonpartisan Congressional Budget Office has concluded that tax cuts like the new jobs tax credit, a form-- of which the administration proposed that rewards com-- that reward companies for expanding their payroll-- tend to have the most bang for the buck in terms of increasing employment.

STEVE LIESMAN: But it's only for a year, right? Why would I bring somebody on for many years as an employer if I've got to-- if I only get the tax cut for the single year?

ALAN KRUEGER: Well, I think there are-- many companies that are on the margin now where they're deciding-- whether to expand, because they see-- that we have been growing-- that the economy has been growing, just not as fast as we would like. And this type of-- tax cut can encourage them to make-- bring people on sooner.

STEVE LIESMAN: I'm sure the president asked this question. But tell me if I'm wrong. What do you tell the president and-- when he asks you what this economy's going to look like on election day?

ALAN KRUEGER: You know, he's never asked me that. We do projections as part of the budget process. We're in the middle of that. What the president is focused on is how do we strength the economy? I can tell you he's never asked me, "What is the unemployment rate going to be like in November of next year?" That just not his focus. His focus is on doing what we can to sustain the recovery and to put us on a stronger footing going forward, both in terms of-- the economy, building a stronger foundation, and also, improving our fiscal position.

STEVE LIESMAN: Do you feel like there's anything that can be done now that would affect outcomes for where we're headed right now for-- for November?

ALAN KRUEGER: I won't pick a date like November. But I do think that a lot of-- what-- we're working on, what the president proposed in the jobs act-- can help the economy-- in the near term. I think that, without the jobs act, we would see-- a drag on growth-- next year. That's what-- macro advisors and-- and Moody's-- Economics has forecast.

And then the President's taking a lot of other actions-- by executive action-- to try to act where-- Congress hasn't been acting. So I do think that the steps-- that he has been taking, and the-- proposals that he's made-- can strengthen the economy in the near term.

STEVE LIESMAN: How much concern do you have about Europe and the potential effects on the U.S. economy?

ALAN KRUEGER: I think if one were to make a list of threats-- to the recovery-- Europe would be-- very high on the list, if not top of the list. Europe can affect us in many different respects. I mentioned exports-- exports earlier. There's still also, of course, the financial channel. So I think it's very important that-- Europe act-- to-- reduce-- this threat, not only for us, but for themselves and for the world economy.

STEVE LIESMAN: You know, I-- I want to ask you-- you know-- last question, and I don't know if I can get this on T.V., but I'm really interested in your answering this question. Some day, you're going to go back and teach at Princeton. What are you going to tell them about Keynesian stimulus and whether or not, since it seems to create high deficits, concerns about future taxes, that, at the end of the day, does government stimulus help the economy or not? Are we learning anything new about the-- value of Keynesian stimulus?

ALAN KRUEGER: Well, actually, I have been back for-- at least one semester, where-- where I taught a course called-- The Great Recessions: Causes, Consequences, and Remedies. In my-- confirmation hearing, I made the point of saying that that course is still a work in progress. I think we learned that the crisis-- that-- took place in 2008 and caused the deep recession-- was-- a long time in the making. I think the remedies-- need to be pretty varied. Because the causes-- themselves-- were fairly varied. There's a lot that went wrong to cause the crisis that we went through.

I think it's extremely important that we did the Dodd-Frank Wall Street Reform Bill-- to tr-- to help limit the kinds of risks-- risky behavior that-- helped to create the crisis. I would say that-- lesson that we have learned is that-- we need measures that are particularly focused on the types of problems that we're having, on the weakness that we're having.

So-- one area where the administration have devoted a tremendous amount of attention is the auto sector. And-- you know, go back to cash for clunkers, go back to the-- loans that were made to GM and Chrysler, the support that was given to the suppliers. And-- one thing I hadn't appreciated at the time was how important it was-- to keep the suppliers in business.

Because one of the things I'm hearing now from the auto companies is they're having difficulty getting enough parts in. Partly because of the-- earthquake in Japan. But even apart from that, they're-- they're having difficulty-- because of-- lost capacity of the-- of the suppliers.

And the auto sector has been coming back. We've seen a rebound in auto sales. So-- I think-- when there's time to look back, is-- be very valuable to look at specific components of the recovery act. I think we tried to build on that in-- in the jobs act. The payroll tax cut, for example-- or-- the infrastructure part, kind of trying to focus the limited resources we have-- on the parts of the economy that are particularly weak. Because of the problems that we're coming through-- and-- and to try to get the most bang from the buck-- by focusing on those-- on those components.

STEVE LIESMAN: There's just one-- one more thing I have to ask you, Alan. Your work as an economist seem to contradict, a little bit, this idea of extending unemployment benefits. How do you square that, where some of your work showed that unemployment benefits-- seem to retard job surge or even keep the unemployment rate higher?

ALAN KRUEGER: I don't think there's a contradiction between-- what I and others have found in research in this area. If-- benefits-- are more generous or a lot-- last for a longer period of time, that enables the unemployed to search for a job that's more appropriate for them. It enables them to sustain themselves and their families-- during the period of unemployment.

It may lead to somewhat longer spells of unemployment for some people, while, at the same time-- leads to better job matches and more enduring jobs when people find jobs. And the fact that we're providing benefits-- to-- families when they're going through an extremely difficult time-- helps to support their consumption. That helps to support the economy overall.

Then lastly I would say that recent research has found that this disincentive effect of benefits is actually greatly reduced when we have high unemployment. The-- effect of benefits in terms of affecting people's-- job search-- is not nearly as large as it is when you have four unemployed people for every job-- job opening. So-- I think when one goes through all of the tradeoffs involved, it makes great economic sense to extend benefits-- at a period when-- we have high unemployment, and then, to trim them back when unemployment falls. And that's exactly what-- was proposed in the jobs act.

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