WHEN: Today, December 2, 2010
WHEN: Today, December 2, 2010
WHERE: CNBC's “Closing Bell with Maria Bartiromo”
The following is an unofficial transcript of a CNBC EXCLUSIVE interview with Austan Goolsbee, Council of Economic Advisers Chairman, today, December 2nd on CNBC’s “Closing Bell with Maria Bartiromo.” Excerpts of the interview will air tonight on CNBC’s “The Kudlow Report” at 7pm ET.
All references must be sourced to CNBC.</</p>
JOHN HARWOOD: Austan Goolsbee, thanks so much for joining us.
AUSTAN GOOLSBEE: My pleasure.
JOHN HARWOOD: So, we have an economy that’s closing the year strong. We expect a good jobs number tomorrow. The stock market’s up. What does this economy need right now?
AUSTAN GOOLSBEE: Well, you know, I-- I don’t think we should overstate. We’ve gotten some good news. You never want to take-- you never want to put too much weight on any one number. We have gotten some positive news. But the-- we got a long way to go. I mean, the job market-- is in-- is in a tough spot, most importantly.
You’ve got some risk coming from-- from outside the U.S.-- as we had earlier in the year. I’d say right now, we need to certainly extend the tax cuts for the middle class. We should certainly extend the unemployment benefits. All of these in the space of, "Let’s not have an immediate drop in consumer spending, because of something we had control over. At a moment where the recovery is-- is budding-- but fragile."
And I’d say, looking over the medium run, the President outlined his-- let’s-- let’s do some things to make investment in this country attractive and-- and try to get businesses-- growing again. I mean, I-- I think that kind of twin towers of-- twin tower approach is the way we gotta go.
JOHN HARWOOD: The independent economist Mark Zandi, who’s been an ally of yours on fiscal policy says, "Yes, extend unemployment insurance." But he also says it would be a mistake to raise any tax rates even the top end with the economy so fragile. Set aside the politics. As a matter of economics, is he right?
AUSTAN GOOLSBEE: Well, look, I-- I know Mark Zandi, he’s-- a friend of mine. In the debate about the legislation which is-- is not my area, the-- I think it’s important that we emphasize all of the parties are talking about things where we would be extending tax cuts, but some people’s taxes would be going up. The President has advocated it be cut for 95 percent of workers. The Making Work Pay tax credit. Which-- thus far, the Republicans have been saying, they should not extend that.
And the American Opportunity tax credit, that cuts thousands of dollars off the price of people going to college. I think it’s totally obvious-- from a policy perspective that if you ask what has the most immediate impact on the economy, preserving tax cuts for the middle class versus the vast majority of the country versus the high end, it-- it doesn’t make sense--
JOHN HARWOOD: But setting aside the comparison. On the simple economic question of whether it would be positive for the economy to leave those rates in place, at least for a short time. He says the answer to that is yes. It sounds like you agree with him, but you just don’t want to say so.
AUSTAN GOOLSBEE: Well-- I-- I think you’re putting words in my mouth. What-- what I said is let’s-- let’s start from what can we afford. I personally do not think that we-- can afford to borrow $700 billion to pay for tax cuts we know don’t work. Didn’t work the first time. Will not work now. That-- those are the tax cuts on the very high end.
JOHN HARWOOD: No economic benefit whatsoever?
AUSTAN GOOLSBEE: Well-- I-- I said the weighing off whatever benefits you think there are, against the cost of them. And it costs $700 billion that you have to borrow for a-- which-- which is predominantly money--
JOHN HARWOOD: That’s if you did it for ten years.
AUSTAN GOOLSBEE: --they will not spend. Yes. Which is predominantly money they will not spend. And so--
JOHN HARWOOD: But it’s not $700 billion if you only do it for two years.
AUSTAN GOOLSBEE: I agree with that. So, I think the-- you start from what money you have. And then let’s do it in order of what has the highest bang for the buck. And I think there’s actually pretty bipartisan agreement on what the order of bang for the buck is. And the high income tax cuts are the bottom.
JOHN HARWOOD: We were just at a briefing with some of your colleagues, Jason Furman and Gene Sperling, who were outlining some of the tax provisions that you just mentioned, that the Administration believes ought to be extended. About $150 billion. They said they shouldn’t be paid for, because that would negate some of the economic effect. Is another way of saying that, whatever your policy for the medium and long term, in the short term, for the good of the economy, our deficit should be higher?
AUSTAN GOOLSBEE: Look, you-- you want-- you want to try to-- to continue and reignite and speed up the growth rate of the economy. It’s not just a generic, "Hey we ought-- we just want deficit of-- of any form." As I say, is what you want are what’s got the highest bang for the buck. And I think that the direct programs that are geared to people who will be using the money right away --it’s widely acknowledged that has the highest bang for the buck.
And for-- if-- if somebody’s making a billion dollars a year, the question of how much of the tax cut you give them they’re actually gonna use in the immediate period, the answer is very little. Whereas extending unemployment benefits to-- to give people relief while they’re searching for a new job. Giving middle class tax relief at a time when people are hard pressed and they need the money. It strikes me as far more logical, just from a straight policy perspective.
JOHN HARWOOD: The-- I talked to a couple of your predecessors from Republican Administrations, Greg Mankiw and Glen Hubbard. Both of them said that the Administration was over-emphasizing the wrong thing. That is to say, stimulating consumer demand as opposed to stimulating business investment, which is the more important source of recovery, at this moment. But Hubbard said you have a fetish-- the Administration has a fetish for consumer demand. What’s wrong with his reasoning?
AUSTAN GOOLSBEE: Well I’m a friend of Glen Hubbard’s. I’ve known him a long time. There’s nothing wrong with the reasoning. We want to encourage business investment. And in fact, the President called for in the months running up to the election, several major incentives, through the tax code, for business investment. To try to encourage business investment. That were not supported by the Republicans.
In the summer, the President pushed and finally got passed the small business bill, which was about trying to get credit to small businesses so they can invest. And again, we-- we were going through this unusual period where you’ve got bipartisan bills. Ideas that Republicans were absolutely strongly in favor of for years. Getting into an environment where they’re saying, "No, let’s not do them." So, I-- I think there’s nothing wrong with what he said. We should be for more investment. And we should pass the President’s program, which is about encouraging businesses.
JOHN HARWOOD: But what about the point that the-- the principal focus of your effort should not be on consumers, but should be on business. But should be on--
AUSTAN GOOLSBEE: Well, it’s not--
JOHN HARWOOD: --the investment tax credit, payroll tax holiday, that sort of thing.
AUSTAN GOOLSBEE: The principal focus of the program that the President’s put forward is about getting the economy to grow. It isn’t about just-- increasing consumer spending. It’s very heavily on investments, on both the physical capital factories and equipment side. As well as the human capital side of investing and training of our workers. And trying to get people to build businesses here. That’s a different question than should we completely disregard the fact that if we go cut of the unemployment extensions for people that are working for work, their spending is gonna drop precipitously. The data shows us that that’s true. And it’s not responsible to do that at-- at a moment like this.
That is a very different issue. We’re not saying that our long term recovery ought to be built on trying to increase consumer spending. It’s that while you’re trying to increase business investment, stand up the private sector and grow jobs, you should not go yank the rug out from under the middle class in this country, which is what would happen if you let these expire.
JOHN HARWOOD: Would our economy be in better shape right now if the initial stimulus when the Administration took office had been bigger?
AUSTAN GOOLSBEE: I-- I don’t know the answer to that for sure. I mean, it’s-- there’s a bit of a crystal ball in that. It obviously depends on what the-- what the things were. We want to be for whatever’s got the highest bang for the buck. Now, I believe that-- most-- of the forecasters who are looking at the impact of the Recovery Act, as well as the things that followed it. The small business bill. The Hire Act, to give them incentives to hire longer term-- unemployed workers.
And a series of other measures the President put forward, played a key role in preventing the economy from getting substantially worse than it already has been. You know, we teetered on the edge of depression. Nobody ever wanted to be in that circumstance. The President didn’t come in office saying, "Oh, I hope I’m gonna have to do some kind of stimulus-- and Recovery Act to prevent a depression." That’s not on anybody’s desired to-do list. He did it because we had to so that we wouldn’t go off a cliff.
If you ask now what do we need to do? The answer is give certainty so that we don’t have a precipitous decline in consumer spending and a big hit on the middle class. And follow through on getting the credit and tax relief to small businesses that the President has been for. Encouraging business investment. And encouraging as-- exports and innovation. To get us on a growth path.
The President’s made clear that’s what he wants. That ought to be bipartisan. I think it can be. You’ve heard a lot of Republicans over the years advocating very similar things to what the President’s for. And I hope we can get out of this short run environment where-- you know, it feels like some people are gonna oppose whatever the President’s for, even if it’s something that’s totally sensible and totally bipartisan.
JOHN HARWOOD: Respond to the argument that the reason the economy is not healthier despite stimulus is that the formulas underlying all the models that-- went into the design of your program don’t apply to our current situation. That the-- the-- Keynesian multiplier simply doesn’t have the same impact that it once was thought to have.
AUSTAN GOOLSBEE: Well, I’d give you-- one technical and one broader answer. On the technical answer, if you go look at the quarterly reports on the Recovery Act, they suggest that the overall impact of that on jobs saved or created is just about what was predicted to be when the-- when the act was passed. The main thing that everybody missed, not just the government-- and-- and I think it’s perfectly fair point is the base line how bad is the economy. Was significantly worse than was-- forecast before The Recovery Act went into affect. So, I think that part is fair.
But the impact of the programs is what-- what it was projected. To take a step back and-- and look broader, I don’t think that the-- as I look-- as I talk to business people. As you look out at the data on the economy, I don’t-- buy into the-- to the notion that-- "Hey, look, America’s just not as good as we used to be. And we’re just not gonna come back and the-- the-- fundamentally there are a bunch of programs that can’t be fixed."
JOHN HARWOOD: But the argument I’m talking about is that Keynesian economics isn’t the right answer in the way that it might once have been.
AUSTAN GOOLSBEE: Okay, but-- to use the label Keynesian economics. The President is for a pro-growth, pro-investment package. That’s the backbone of what he’s saying the economy needs right now. We are starting to grow. We’ve added more than a million jobs in the private sector over the last ten months. That’s the way we want to be headed. And it’s got to be faster. It’s not enough. The President’s said that many times. We’re trying to stand up the private sector to help them get back on their feet from the freefall that we were in.
The argument about Keynesian economics and what happened two years ago, I don’t think is what’s relevant for today. What’s relevant today is this growth package that the President is for, we ought to-- let-- let us unite. Let-- the President is open to the ideas-- from any side of the aisle. From business, from workers, from ordinary people. We’re trying to talk to everybody. It’s got to have a growth orientation. And-- I don’t think there’s anything wrong with that. I think that whether it’s-- you call it the-- the theory or the-- the theory is correct on that. we need a growth package. And that’s-- that’s where we should be headed. And that’s where we’re gonna head.
JOHN HARWOOD: What do you specifically think about an investment tax credit and a payroll tax holiday?
AUSTAN GOOLSBEE: Well, the President has outlined for the-- on the investment tax credit. Very similar is the-- what-- what the President calls for, of immediate expensing of capital investment that you could write it off for tax purposes if you build a factory or buy equipment. So, I think it’s-- it’s a very similar concept. The President has actively been for that.
He’s also for research and development kind of investment. Making the R & D tax credit permanent. As well as what we call the human capital investment in-- in training your workers-- through a lot of-- of education-- and other directed investments. So-- so, I think that’s important. As you look at the payroll tax-- holiday side. I know-- people have been looking at. The President’s open to-- to-- as I say, ideas from a lot of different-- areas.
Just-- a temporary as-- without a focus on growth. I think is not as preferable as something that-- that is about growth now and growth in the future. But look, the-- the-- he passed the-- the Hire Act, which was a payroll tax cut to encourage people to hire people that-- that have been unemployed for longer periods. And so, we’re open to looking at anything that works to get this growth rate faster. That-- that’s what the President wants.
JOHN HARWOOD: Glen Hubbard said there are some times when contractionary fiscal policy is actually beneficial to growth and this may be one of those times.
AUSTAN GOOLSBEE: Well, I-- I think there’s a deep flaw in that reasoning. That the contractionary fiscal policies being expansionary centers on getting the interest rate reduced. The interest rate-- we’re hittin’ the zero lower bound. So, it’s hard to how contractionary fiscal policy at a moment when we’re coming out of the worst recession since 1929 and still in a fragile state. It’s hard to see how that’s gonna be expansionary in a direct sense. Or how it’s gonna cut the interest rate in the immediate term.
JOHN HARWOOD: Do you like what the Simpson/Bowles Commission has come out with so far? And is it important to have action on some variant of that package within the next two years?
AUSTAN GOOLSBEE: Well, look, I think the-- what the fiscal commission came out with is important. And it’s important to remember the President set it up. He absolutely thinks it’s critical that we think about these long run fiscal issues. As well as not conflating those with the current trying to come out of a recession. Those are two very different-- aspects. It was over the objections of-- of the President’s opponents that this fiscal commission was set up. If it was up to the President, we would have had an automatic congressional vote on whatever-- they could…
JOHN HARWOOD: But now they’ve come out with something. Do you like it?
AUSTAN GOOLSBEE: They-- they-- it’s not fully out. The-- they asked the President and the Administration to give them the room that they need to try to get to the-- some agreement. I think the President is very much open to looking at the framework for long run deficit reduction, yes.
JOHN HARWOOD: Two things before I let you go. First of all-- is what Britain is doing right now, with respect to budget cutbacks. Is that the right thing economically for the world? And from your perspective, is it a good model for the United States?
AUSTAN GOOLSBEE: Well, I would clarify two points about it. So, the U.K. is engaged in-- significant-- budget cutting and austerity. And several other countries are-- advocating austerity, as well. I would point out that as the Recovery Act is winding down, the U.S.-- spending levels are on path to be dramatically to be reduced. So, the-- the U.S. does not need to take lessons in austerity from-- from other countries. We’re dramatically reducing spending on the presumption that the private se-- as the private sector stands up, the government should be moving back.
The President-- outlined that when-- when he put the Recovery Act in place. We have yet to see what the impact of what’s happening in the U.K. will be. In the U.S., I think that the-- to the extent that-- your question-- if-- if it were should the-- should we not engage in growth-oriented policies. Should we give up tax incentives for investment to build factories or-- or to hire people? Should we not invest in-- in the education or the research and development or the things that we know are gonna be needed to make us competitive in the immediate run? I don’t think we can afford to give that up.
JOHN HARWOOD: Do you think Britain’s at risk of a double dip?
AUSTAN GOOLSBEE: I don’t know. You know, I don’t want to speculate on-- on their situation.
JOHN HARWOOD: Last question. When you think purely about business and all of the cash that business is sitting on, and what it would take to unlock that, get it in service to the economy: Is what business needs more right now customers, or confidence in the future?
AUSTAN GOOLSBEE: That is the puzzle, because I thought those were part and parcel to the same-- to the same thing. Customers now or customers or in the future, is that what you’re asking me?
JOHN HARWOOD: No, customers now or confidence in the future? Which is a function, perhaps, of spending levels, deficits, tax rates, the vision of the foundation of the economy over the long term.
AUSTAN GOOLSBEE: I believe by far the most important thing affecting con-- I-- there-- there’s about one trillion dollars domestic on the balance sheets of corporations. The-- this is an opportunity-- I-- I like to say. Normally, when you come out of a recession, there’s not an obvious source of money to fund business investment. The fact that there is money is an opportunity.
The question is why have they not been using that money? And I believe that uncertainty is the most important thing. They have been afraid. The-- by far, the biggest uncertainty has been about demand and about where will the U.S. economy be now and in the coming years? Not the policy uncertainty. I would highlight that you see this same pattern in many different countries. Of companies having just gone through a terrible credit crisis, as well as the worst recession since the depression.
Being a little uneasy about just going out and spending again. Wanting to make sure that we’re on-- a growth path and trajectory out. And in the U.K., and Germany, and the U.S., we’ve had a lot-- we’ve had very different policy reactions over the past two years. So, the fact that you see similar patterns suggests that it’s really more about the macro economy.
JOHN HARWOOD: So, in your view, it’s not what are our tax rates gonna be? What are our health costs gonna be? What are our regulations gonna be? It’s about where are customers coming from?
AUSTAN GOOLSBEE: Look, all-- all of these issues are important. I’m not-- I’m not meaning to-- to minimize that. But the fact that in places where there was no health plan. There-- they had very different changes about budgets, about taxes, et cetera. You’re seeing the same pattern of-- of firms accumulating cash in their balance sheet. I think is an instructive fact.
JOHN HARWOOD: Thanks for being with us.
AUSTAN GOOLSBEE: My pleasure.
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