Ben Bernanke was chair of the Federal Reserve during what became the worst financial crisis since the Great Depression. An inside look at the meltdown from the former Fed chair and his defense of bailing out Wall Street.
Employers added 96,000 jobs last month, fewer than expected, and the unemployment rate remains above 8 percent. These latest figures serve as pointed reminders of the economy’s lackluster recovery following the 2008 financial meltdown. Still, the economy has been growing since the middle of 2009, and the stock market has largely come back, but many companies are sitting on what’s been described as “piles of cash.” Although many people have suffered economically in recent years, for others, especially those at the top end, it’s remained relatively comfortable. Please join us to discuss economic winners and losers of the Great Recession.
- Dante Chinni director of the Jefferson Institute's Patchwork Nation project, author of the WSJ column, "Politics Counts," online correspondent for the PBS NewsHour and author of "Our Patchwork Nation."
- Betsey Stevenson associate professor of public policy at the University of Michigan.
- Martin Baily senior fellow in economic studies at the Brookings Institution and former chair of the Council of Economic Advisers during the Clinton administration (1999-2001).
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. The economy is the number one concern of voters in the upcoming presidential election. Since the meltdown of 2008, economic pain has been widespread and the recovery weak and uneven. Joining me to talk about who's getting ahead in this economy and who is not: Martin Baily of the Brookings Institution, Dante Chinni of the Jefferson Institute's Patchwork Nation project, and, joining us from a studio at Michigan Radio, Betsey Stevenson, associate professor of public policy at the University of Michigan.
MS. DIANE REHMPlease join in. Give us your comments, questions, 800-433-8850. Send us your email to firstname.lastname@example.org. Feel free to join us on Facebook or send us a tweet. That question, are you better off now than you were four yeas ago, you can send us a tweet, email us at email@example.com or leave a Facebook comment. And we will compile the responses, and they'll be there for you to see. Good morning to everybody.
MR. MARTIN BAILYGood morning.
MR. DANTE CHINNIGood morning.
REHMGood to have you all with us. Martin Baily, if I could start with you, 96,000 new jobs created in the private sector last week. Put those numbers into perspective for us.
BAILYWell, it was a disappointing report, particularly in terms of the employment number. The unemployment number went down a couple of tenths, and that's good news. Sometimes people minimize that, but that is a significant indicator. But...
REHMExplain to us why that number went down, even though we only got 96,000 new jobs.
BAILYWell, these are two separate indicators that come from two different surveys. So sometimes they point particularly from month to month in slightly different directions. People sometimes interpret the decline in the unemployment where they say, well, that's because people left the labor force and stuff like that. I don't think you should actually go down that road. The unemployment survey is designed to measure unemployment. And that's what it does, and that's a perfectly good indicator of that.
BAILYSo if it's going up, that's a bad sign. If it's going down, that's a good sign. But it hasn't gone down very much in the last several months. So if you look over several months, it hasn't been going down much, and that's quite consistent with the relatively slow increase in the number of payroll jobs which, you know, and a good recovery should be well over 200,000 a month, and this recovery has been much less. And as you said, the last month was only just a little bit below 100,000 -- slightly over 100,000 for private jobs, but the public sector jobs are still declining.
PROF. BETSEY STEVENSONDiane, actually, can I jump...
MS. DIANE REHM...there are some positive trends in the economy overall, are there not?
STEVENSONYes, and actually I want to really highlight an important correction. You had said we created 96,000 private sector jobs, and we actually -- it was 96,000 total jobs, 103,000 private sector jobs. And the reason I want to emphasize that distinction is something Martin just said, we're losing public sector jobs. We've been losing public sector jobs for a while now, and the private sector has had to make up for those jobs.
STEVENSONSo every month we're reporting a total number that is lower than the total private, and those are teaching jobs, first responders, police officers. Those are the kind of things that the state and local governments have been cutting back in this recovery. That's an extremely unusual thing to happen in a recovery.
REHMDante Chinni, job growth has been sort of very uneven...
REHM...around the country. What's happening in various regions?
CHINNIIt's actually really an interesting point especially when you talk about public sector versus private sector growth which is, I think, if you live closer to a metropolitan area, you've -- the turnaround has been quicker.
CHINNIThere are -- there's more likely to be jobs available to you. The interesting thing is when you get out to rural locations, what's happened over the past, really not just four years but over the past decade, is there has been a drop in the jobs that are available in all of these small towns and that has to do with the collapse of small manufacturing which, I know, has been in decline for quite some time but really took a big hit with the recession. And the jobs -- the interesting thing is the jobs that are available in a lot of these small towns are the private sector jobs. So as -- or the public sector jobs, I'm sorry.
CHINNISo as the public sector jobs have taken a beating in this recovery, those places in particular have really struggled, and they're going to continue to struggle. It's -- the private sector jobs in those places, it's hard to create them now because, without small manufacturing in those places, what are you going to have? You're not just -- those are communities that are based upon trade, people trading things back and worth with each other.
CHINNIAnd you used to have small manufacturing to kind of give you an influx of cash that would be passed around the community. Without that, you know, influx of cash, you basically just have, you know, the guy who works at the gas station trading money with the guy who works at the grocery store.
REHMSure. And Betsey Stevenson, there was a lot of talk at the Democratic National Convention about President Obama's decision to bail out GM and Chrysler. What's been the effect of that on jobs?
STEVENSONWell, what we've seen is that we've done a lot to try to help the manufacturing sector recover. The manufacturing sector has been in a long, steady decline, but it took as what's just said, it took a big beating in this recession. And it is amazing to say that we've -- over the past 30 months, we've created 500,000 new manufacturing jobs. That's the strongest manufacturing growth we've seen in several decades. And I think some of that is definitely a result of the bailout, the decision to go ahead and support auto manufacturing in the United States.
REHMBecause that really does trickle out to all kinds of people and jobs attached to the automobile.
CHINNIIt's not just gigantic factories...
CHINNII mean, you think of gigantic factories, but it's not just that. It's the small-part suppliers who are just all over the place. We actually mapped it once. If you look at all the people involved in working with General Motors, it's just -- they're scattered all around the country. I mean, they're obviously -- they're happily based in Michigan, Ohio, but they're all over the place.
REHMWhat about age groups? Dante.
CHINNIWell, you know, obviously, as everybody has heard, it's harder for young people to find jobs. I used to -- I've - I'm not doing it this year. But I taught a class at American University. And I'm still in touch with some of my students. And hearing their -- and I see them online, and I'm just -- I always -- if I see them online, I'm like, hey, did you get a job yet? Are you finding -- it's extremely difficult for younger people to find jobs right now, and that's because, you know, the cuts have come.
CHINNIAnd you've got to refill these positions. You're starting from the bottom. These -- they're coming with a lot of skills. There -- so there's a huge people -- there's a huge pool of people available on the labor force right now.
REHMWhat about older people?
CHINNINow, the disadvantage happening on the older end is they're -- they cost -- it costs more money to hire those people. They expect a higher salary, and I think that's why they're having a tougher time at that end.
STEVENSONSo the way I explain this -- oh, sorry.
REHMGo ahead, Betsey.
STEVENSONJust to jump in, the way I explain this is that for older workers, they would be much less likely to experience unemployment, to become unemployed. But actually, if you look at the ones who do become unemployed, they actually have the hardest time finding a job again. They have the longest spells of unemployment condition on having become unemployed. If you look at young people, so many of them and just so many of them will experience unemployment, but they do quickly get back on their feet.
STEVENSONThey find something to do when they get work. The thing I'm most concerned about with younger workers is something that's a little bit more hidden, which is that our economy is not churning the way it should. So they're not getting the promotions, the job changes.
STEVENSONThey're not climbing the job ladder, which is a really important thing to do in your 20s and early 30s and when you -- would not stall for such a long period of time. It's not clear they're ever going to reach the kind of peaks they would have reached if they had been able to experience a good, dynamic job growth economy.
BAILYWell, the old workers -- labor force, I think, participation among old workers is rising, and that's probably because people are concerned about retirement and whether they're going to have the resources to retire. So there's also...
REHMSo you mean...
BAILY...an increase in supply of older workers.
REHMSo they're staying in the job market to the extent they can.
BAILYThey're staying in the job market. And it's true if you get laid off from a good job and you're over 50, particularly the men tend to have a lot trouble finding a new job or finding a job that sort of gives them any sense of meaning or that they want to stay in for any length of time. So that is a tough part of the labor market.
CHINNIThe other thing that I've seen in some of the communities I go to where I talked to older workers is that some have actually tried to re-enter the job market. There was this feeling, you know, they lived off basically investments they had and pension money they had, and they we're living a pretty good life. And then that went away and some of them took a real beating in -- when the stock market come down. Now, you would think older people are invested -- would have been invested very carefully, but a lot of them weren't.
CHINNIAnd when talk to financial advisers, they didn't have their money really kind of -- they didn't have a lot of protection in the way they had their money invested. So you go to some of these older communities and you see people working behind the counter, and they're not great jobs. But, I mean, they're back in the workforce, working behind the counter at the grocery store, behind the counter at the coffee shop, that kind of thing.
REHMSo you and Betsey both talked about the older folks. You've talked about the younger folks. What about those in the middle, Martin Baily?
BAILYWell, I'm optimistic that, eventually, we will get back what's full employment. The reason there are various reasons why this economy is so slow...
REHMAnd what do you men by full employment?
BAILYWell, around 5 percent on employment...
REHMFive percent, okay.
BAILY...and we did get there eventually in this -- the recession -- after the recovery from 2001. Obviously, in the '90s, we got well below that. But the reasons the economy is so slow is partly because of the legacy of the collapse of the housing market, loss of wealth, the high levels of debt and the poor global economy.
REHMMartin Baily, senior fellow in economic studies at Brookings. He's former of chair of the Council of Economic Advisers during the Clinton administration. Short break. We'll talk about stock when we come back.
REHMAnd welcome back. We're talking about the economy: who has done well, who has not, who's out of a job, and who's working. On the line with us from the University of Michigan, Betsey Stevenson, associate professor of public policy. Here in the studio, Dante Chinni. He's director of Jefferson Institute's Patchwork Nation project, author of a column for The Wall Street Journal, "Politics Counts." And Martin Baily, he's former chair of the Council of Economic Advisers during the Clinton administration.
REHMHe's currently at the Brookings Institution. We're going to open the phone shortly. But, Martin Baily, I want to ask you about the stock market. Has it essentially recovered?
BAILYPretty much. It's reached a high of about 14,000 on the Dow, and it's gotten quite close to that now. So, yes, people's IRAs, their retirement funds, if they invested in the stock market, have mostly come back.
REHMAnd that's the question. You said if they invested in the stock market.
REHMWhat percentage of the population invests in stocks?
BAILYI apologize. I don't have that percentage. I think it's probably fairly high. If you say, you know, both direct and indirect, having a retirement fund through a company and so on. But the overwhelming majority of stock is owned by a fairly small segment of the population.
REHMA fairly small segment.
BAILYYes, yes, small, that they have most of the wealth overall and certainly most of the stock market wealth. What most families -- middle-class families have is the value of their house, and that has not come back. It stopped falling and in some areas, it's beginning to rise again. But they lost a lot of -- many of us lost money in the housing market. The housing index went down about 30 percent, and that was a huge loss of wealth and is still having lingering effects on consumption and on slowing the recovery.
STEVENSONSo if you look at...
REHM...what extent has the economic divide in this country widened in the last four years?
STEVENSONWell, let me just add a fact on the retirement accounts.
STEVENSONIf you look across the board the retirement accounts, they're up 35 percent since 2008. So not as much as you would have expected if everybody was in a nice indexed SMP fund with low fees, but still substantial recovery among those retirement accounts. I think that the reason to look at the stock market is not just to, you know, obviously, there's an issue that the top income -- the top of the income has gotten richer in this recovery compared to other folks.
STEVENSONBut I -- the stock market is really a general indicator of how the economy's doing. You know, when Obama came into office, the reason the SMP was, you know, the day of his inauguration, the SMP closed at 805. And the reason it was so low was because we were all really fearful about what was going to happen in the economy. It's a really good barometer of what we expect future growth and the future prospects of our economy to be, and things were pretty bleak.
STEVENSONSo that recovery and the stock market is not just about businesses doing well, but it's also that, overall, we have a much more optimistic view of where the economy's going. We're on a trajectory that makes people feel a lot more confident to invest in the future of companies.
STEVENSONAnd I should say that if you look at subjective well-being data -- so let's ignore all the business investors and let's just look at, you know, Pew surveys that ask people how do you think you're doing these days, we see that that plummeted and has recovered in a way that's very similar to the SMP.
REHMAnd you've seen some of that firsthand, Dante?
CHINNIYeah. I mean, I think the thing to keep in mind -- excuse me -- about the stock market is that -- I think that Betsy's absolutely right. It is people thinking that things are going to be better that's why they invest. But I do think that the thing to keep in mind is the people who invest in that way, who are pulling money out and putting money back in, those are people who, as Martin was saying I think, to -- they have a lot more money.
CHINNISo I think the people at the upper end of this economy do feel better about the general feeling about where things are going. I think on the lower end, there still are a lot of concerns and I think they're valid. The poll numbers do show that looking toward the future, people feel better than they did three, four years ago. But when you take those numbers and you break them out as we do into these different types of communities, it -- you do see in poorer places there is much -- I don't want to say it's a feeling of hopelessness, but much more of a feeling of -- I would say still great uncertainty.
CHINNIAnd obviously, if you just look at the right track, wrong track number, whatever -- that's such a weird barometer -- but it's still overwhelmingly wrong track.
REHMMartin Baily, is it really 99 percent compared to 1 percent, or is that divide less dramatic?
BAILYThere is a pretty dramatic divide. I don't know if it's at 1 percent. I mean, I think the top five 10 percent has been doing reasonably well. Betsey sort of painted a picture that consumer confidence has come back, and I think there are different indicators of that, but, certainly, the straight consumer confidence index is still pretty low. It has not recovered to where it was. On the business side also, you know, companies are sitting on a lot of cash. And the question is, why aren't they investing more?
BAILYYou know, the level of investment -- well, investment has been growing, business investments, so they are investing, but the level of business investment is still relatively low. And certainly, many business leaders feel a good deal of uncertainty about the economy. Now, they'll blame it or, you know, the op-ed writers will blame it on Obama and whatever.
BAILYI think it's just a broader concern that you're not going to strong growth in the United States, and that they are looking overseas and saying, well, maybe we should invest overseas or at least we're just going to sit on our money for now and wait and see what happens in the U.S. before we commit to a lot of new investment. So I think there is that wait-and-see feeling.
REHMBut waiting to see what's going to happen overseas doesn't make too much sense, does it, considering what's happening there now?
BAILYWell, investment in Europe obviously is not so good outside, particularly outside of Germany. So, no, I think it's developed countries generally. So Japan, Europe and the United States are -- or sort of either not growing or growing very slowly. What I think a lot of business people are looking at is the sort of emerging middle-class in China and in India and, to some extent, Latin America. And they're saying that's a huge market because the middle class there is passing a critical point.
BAILYIt's not as rich as the middle class in the United States, but it's still looking to buy cars and houses and move into a different level of consumption. And they see that market and see the potential of that market.
REHMBetsey, at the same time, I've heard many people say that the reason these companies, corporations are holding onto to their cash, sitting on piles of cash, is that they don't know what the regulatory scene is going to be in this country, nor do they know what the tax rates are going to be in this country. So they're waiting until after the election.
STEVENSONWell, I think that there's just very little evidence of regulatory uncertainty driving business decisions. But it's absolutely the case that when businesses have to make a decision to invest, they think, if we invest in making something, are we going to be able to sell it?
STEVENSONAnd with the fiscal cliff coming at the end of the year, not knowing how much money people are going to have in their pockets in the United States, not knowing what the economy is going to be like in Europe -- I mean, some of things Martin Baily said about, you know, emerging markets in other countries, they're just not sure whether if they invest in making it, they're going to be able to sell it. And I do think that causes companies to go a lot slower.
STEVENSONAnd, you know, and I think that with the political -- I mean, I think the main issue we have right now is the political uncertainty, the tax uncertainty. And it makes sense that a lot of companies want to see, you know, how that's going to shake out before they make their decisions. That doesn't mean they they'll necessarily, you know, that they won't expand if one person's elected, and they will if the other one is. But they want to be able to make good decisions based on good information. And, right now, they don't have a lot of good information.
REHMYou talked about...
STEVENSONI did want to actually throw one...
REHM...who some of the big losers have been, those in the older group, those in the younger group. Who have been the biggest winners of the last four years down the road?
STEVENSONSo I wanted to throw a fact out there on the income...
REHMOK. All right, Betsy.
STEVENSON...which was that in 2010, 93 percent of the income gains went to the top 1 percent.
STEVENSONSo they're -- I mean, you asked how stark is that divide with the 1 percent?
STEVENSONIt's pretty stark. In 2010, they got 93 percent of the income gains.
CHINNIYeah. And I think that -- I do think that what we're seeing is it's the people at the top who have benefited from it as the stock market has gone up. Again, as the stock market has gone up. And there's this -- you know, there's -- stock market is an excellent indicator, I think, of -- I mean, I'm just a stupid journalist. But I think it's an excellent indicator of people who have money betting on the long-term future of companies.
CHINNIBut the thing that's really interesting to me about it is that when you bet on a global -- international companies now or American companies, they're all international. So people betting on the long-term health of even General Motors are really ultimately betting on General Motors' growth in China. And so what does that mean for the job creation in the United States? It's -- the people who are at the lower end of this, people without the education and skills, have had a very hard time, and they're going to continue to have a very hard time.
CHINNIAnd it's -- I spent last week at the Democratic Convention, but I took a day and left and just went a half-hour away to this town of Gastonia, N.C. Gastonia, N.C. is just -- it's been hammered. It's lost all its textile, and everybody thinks the big textile flight in this country happened in the '70s, '80s and '90s. Not necessarily. Like, their last big textile manufacturing plant closed in 2009, and there's -- so there's nothing there.
CHINNII mean, it's like the main street of that city, that's where the county government is. And the main street of that city is bail bondsman and lawyers who work for the county courthouse. It's depressing.
REHMWhat about grocery stores? What about clothing stores?
CHINNIAnd you do have -- you have some of that stuff because, two, people do need to buy clothes and buy groceries.
CHINNIBut, I mean, ultimately, they buy less of it, right? I mean, because they just -- they don't...
CHINNIHow do they pay for anything?
REHMMartin Baily, what do you think it would take to get those economic rewards to more people? What is it going to take to move this economy so that more people share in the goodness of it?
BAILYWell, I think the first thing -- and it goes back to a point Betsy made -- is if we can get the overall economy going, if we can get a full employment economy with its growth and demand, then that will help. I mean, anytime you have -- my former colleague, Art Okun, wrote about the benefits of a full employment economy, talking about the 1960s. If you go back to the 1990s, when I had the fortune to be in government, we did see income growth across the board.
BAILYIt rose more at the top, but the folks at the bottom also got some benefit. So I think the number one thing you could do is get aggregate demand going again. Unfortunately, that's proven to be very tough. The Federal Reserve is trying to do it. We tried stimulus package, and that got us part of the way. But if we could get back to a full employment economy, that's the answer. Beyond that, it's going to have to be about skills and education and also mobility.
BAILYPeople in the United States are not moving as much as they used to to find jobs, and they don't always have the skills. And, you know, education, it's sort of not for everyone. I say -- that's a funny thing to say, but, you know, a lot of people who don't much like sitting in classrooms...
REHMAnd being lectured to.
BAILY...and being lectured to...
BAILY...they need sort of on-the-job kind of training and practical training. That's what we need to do more of as well.
REHMMartin Baily of the Brookings Institution. And you're listening to "The Diane Rehm Show." Dante, you wanted to add.
CHINNII just thought it's an excellent point about the loss of mobility. There has been less mobility. And I should say there's been less mobility, and I think of it as a lost mobility because it's really hard to move when you're in the hole in your home, right, or you feel that, oh, my gosh, I'm barely going to be able to pay off my mortgage. Where am I going to move to? That's one factor. And then the other factor that's really made things extremely difficult is if you move to the places where jobs are, the homes are more expensive, which is -- I mean, which has always been the case, I guess.
CHINNIBut when you're leaving a place where you're not getting anything on the home you used to own, it becomes very difficult to move.
CHINNII go to some places where people are just trapped.
REHMWe're going to open the phones.
REHMLet me just take a call here, Betsy, from Winston-Salem, N.C. Good morning, Robert.
ROBERTGood morning. Yes, thank you. I have two comments and a question.
ROBERTOne is that four years ago, the comment has always been about how four years ago President Bush was still in the office at that time, and that's when the TARP was put in by he and Paulson. I also -- you know, the other question I had is that with such high unemployment right now, you know, the market conditions for workers to expect higher wages has just basically been decimated.
ROBERTI keep hearing, you know, that the situation of the market is that there's just no leverage for workers to expect more money when there are so many people looking for work. And I don't know how that's going to change. My question is what the panelists think can be done during this election season at all to try to help this right now. I have a feeling that nothing is going to be done -- and that's where I sort of get the sense -- and how long can we wait?
BAILYI don't think anything much is going to be done until the election, and that's unfortunate, the political system. And, actually, our best hope is that we avoid doing bad things, which is the fiscal cliff that was referred to earlier. So if we can sort that out and avoid that disruption of the cut and spending and -- around taxes -- I don't think it would be a good thing to increase taxes right now. So if we can get through that period, that will be a plus.
BAILYBeyond that, what can be done? Well, I think there could be room for a modest fiscal stimulus. I think we are limited by the budget realities as to what we can do. But to try to, you know, support states and localities that are still losing, I think...
REHMDo you expect the Fed to do that before the election?
BAILYNo, not the Fed. The Fed will do, you know, its third round, probably, QE3, quantitative easing three, to keep long-term interest rates down, and I think that's a good thing to do. I don't think it's going to be terribly effective.
REHMAnd what kind of stimulus are you talking about?
BAILYI was talking about whether one could do a fiscal stimulus, which would be very hard to do politically. It's -- you know, the Obama fiscal stimulus, you know, didn't -- hasn't solved very well. Most people think it wasn't very effective. I think it did help, but it certainly didn't solve the problem. I think there are ways that we could spend some money to help our economy in terms of infrastructure, maybe on education -- as I said, states and localities -- that would be money well spent and would create some jobs and hopefully keep this demand both moving a little faster forward.
REHMMartin Baily of the Brookings Institution, former chair of the Council of Economic Advisers during the Clinton administration. Short break here. When we come back, we'll open the phones. Don't forget to leave your own comments at our website, drshow.org. We'll be compiling your thoughts. Stay with us.
REHMAnd welcome back. Time to open the phones for listener comments. Let's go first to Norwich, Vt. Good morning, Tom. You're on the air.
TOMGood morning. Thanks. This question of whether or not you're better than you were four years ago is based on the premise that the federal government has a large and direct influence on the economy. And I remember in the '80s, there was some pretty healthy debate on that premise, given the huge size of the economy, the limited tools available to the president. Why is that debate no longer happening? It seems to be just taken as red that the president is basically, you know, at the helm of the economy.
BAILYI think that I agree with the thrust of your question, which is that we tend to attribute to the president more power than he really has. I think Clinton said in his speech that no president could have turned things around quickly because the economy was such a mess when Obama came into office, and I agree with that. In fact, in many ways, I think Obama would be better off if he'd come out and said, look, this is such a mess. It's going to be well past my first term before this really turns around.
BAILYBut, at the same time, we expect our presidents to do things to help, and I think there are certainly things that can be done to screw things up. I do think I'd give some blame to George Bush, both for running large deficits during times of full employment. I think that was reckless. And I think the view that you can just deregulate everything, particularly financial markets, that was a mistake.
BAILYWe made some mistakes there, and the Clinton administration, too, but financial markets, excuse me, are prone to instability. And unless you have somebody, a cop on the beat watching them, then you will get bubbles and collapses in.
REHMDante, there is some polling on this.
CHINNIYeah, there's a really interesting poll question that the NBC/Wall Street Journal Poll has for -- we've seen it like over the last 15 months, over the last more than a year, asking the current problems the U.S. economy is having, is it primarily Barack Obama's fault, George W. Bush's fault or Wall Street's fault? Those were the options laid out. And if you break it into whether it's Obama's fault or somebody else's fault, the overwhelming majority thinks it's largely problems Obama inherited that's causing the problem.
CHINNIAnd that's even true in places where they don't really like Obama. So there's this -- there is this idea that voters have, but there is something -- there's something bigger going on. It is -- it does go to the caller's question of there is something of an understanding of the president is not all powerful, but I think, as Martin was saying, it's a question of whether the president did enough is what Barack Obama is dealing with.
REHMBetsy, do you want to weigh in?
STEVENSONWell, I think -- I completely agree with Martin Baily that we expect too much of the president. We think he can do more than he could actually possibly do to drive jobs. But, you know, this particular recession we went through was a culmination of many years of public policy choices, and then, you know, I agree with much of the ones Martin Baily pointed out. We can't run up deficits when we're at times of full employment. We do need to do deficit spending when we're in a hole, and so that's why, you know, you save for a rainy day.
STEVENSONThe -- but I also think that it's worth noting just how difficult this recession has been to get out of and to think about. It's very different from the '80s recession. So he asked, is this the same, you know, in the '80s, we talked about what government can and can't do. Well, Reagan's recovery -- Reagan's recession was largely driven by the fact that the Fed had been raising interest rates, so there was a big role for government to play in bringing interest rates back down.
STEVENSONAnd as a result of that, there was a housing boom that helped drive that '80s recovery. Obviously, a recession that was partially caused by a housing bubble is not going to be -- we're not going to recover from it by having another housing boom. We certainly don't even want that to happen. So the types of actions that have been taken, I think are the, you know, the best that can be taken, and slow and steady job growth seems to be what we can expect from the government.
CHINNIYeah, two things to add on. I agree with everything that's been said. We often also attribute -- we give the president too much credit when things go well as -- that's something to keep in mind, whoever the president is. And the other thing to keep in mind is that when you talk about federal policies that got us in this hole, it's true, it's decades of choices we made at the policy level.
CHINNIIt's also happened at the personal level and -- look, there was a lot of -- when Obama came into office, there was this problem that needed to have more spending. But, at the same time, there were such massive amounts of personal debt, personal debt that people were carrying that, you know, it's really -- we got as far as we could with people financing things through debt, and a lot of that debt had to be paid off, which is another contributing factor in terms of not being able to get consumer spending where we want it.
REHMAll right. To Houston, Texas. Good morning, John.
JOHNGood morning, Diane, panel. How are you all doing?
JOHNLet me go ahead, and I'll try and make this brief. And I'll give you my situation. I work for a company in Houston, Texas in the last four years with the market, and we've done OK. We've paid down our debt, and now we're actually looking to build a manufacturing facility and produce our own product whereas we had been buying it. Now, the problem that we're wrestling with right now is we have the money, we have everything in place that we need.
JOHNBut we are looking at a business environment for taxation and the regulation caused by Obamacare because our own plan is going to do an average of 65 employees with an average income -- or every salary, we estimate at $43,000 per employee. We don't see the value of it right now when we have what were considered a toxic tax environment. We don't see spending that money right now, and we're sitting on it where we could be employing people. We feel that the government is just not being very friendly, you know, for us who want to make that investment. Why should we?
REHMSo -- and you believe that if Mitt Romney is elected, you'll have a more favorable tax environment?
JOHNWell, no, I don't want to get partisan. What I'm saying is I don't care who is elected, but I want to quit having a target drawn on us for being successful when we're creating jobs. You know, Clinton came to the middle of the road with the Republican Congress back in the '90s. We're not seeing that -- the parties coming together and coming up with solutions to encourage us business owners to do anything that's really worthwhile.
BAILYWell, many business --small business owners are very opposed to the Affordable Care Act and believe that it will cost them a lot of money. I think there's a question of whether it really will. There are a number of provisions in that act which actually could help small business and...
BAILYBy giving them subsidies for their employees' health care.
BAILYAnd if you're very small, then you're not subject to the Affordable Care Act either, so quite a few people who complain about it actually would not -- are not subject to it. I had, I have to say, very mixed feelings when Obama decided to do the Affordable Care Act. On the one hand, America really does need a universal health care coverage. Any -- every other advanced country has it, and we've been sort of the outsider on that. We need to cover everybody.
BAILYAt the same time, doing it when we are in the middle of a deep recession, when health care cost are rising, I think it did put a lot of fear into people, small businesses.
REHMSent the wrong signal.
BAILYAnd so it -- I just have very mixed feelings about it. I'm sort of glad we have it, but it may have had some negative effects, you know, just in people's minds, whether it were real or imagined.
REHMOf course, it was fascinating to me...
STEVENSONWell, so I...
REHM...yesterday to hear Gov. Romney on "Meet the Press" with David Gregory...
CHINNIMm hmm. Exactly.
REHM...saying that he would hold on to several aspects of the Obama Affordable Care Act. So how do you know where you're going to come out?
STEVENSONSo I wanted to jump in on the health care.
STEVENSONThe, you know, it was important to do it because costs are out of control in health care, and the Affordable Care Act really did help bringing in some of those costs. The decision that was made, which you may disagree with, was to keep the system as sort of employer-based or associated with employers and employment rather than completely removing it from employers and perhaps having a universal coverage provided by the government and then outside of -- and being completely outside of employers.
STEVENSONSo employers who have no intention of ever offering any kind of health care benefits to their workers, who are large employers, are going to be on the hook for something now. And so I don't know if this is what the caller was complaining about. They were going to hire 65 employees, not offer any health insurance, and now they're going to be forced to have that be part of their benefits package.
STEVENSONBut again, actually, you know, the research on this is that those types of benefits end up coming out of workers' pockets. They affect wages. They don't end up driving up business costs. So we -- people need health care. We have a system in the United States where the health care gets routed to employers. The good news now is that people aren't going to feel trapped to stay with a particular employer because that's where they have their health care.
STEVENSONThey're not going to be trapped to stay with a particular employer because they have a child that has a pre-existing condition, and they're terrified of losing that health insurance policy where the person's grandfathered in. So these things are going to overall improve the job market. I think it improves the job market substantially by giving people the freedom to change jobs without making that decision based on health care.
REHMIt was interesting to hear what Gov. Romney had to say because previously he had said on the first day in office, if elected, he was going to throw out the Affordable Care Act.
CHINNIRight. And the one problem I have with people who want to hold on to parts of the Affordable Care Act is the parts they want to hold on to are the parts that everybody likes because people like the idea of, look, I promise that when I -- I'm going to make sure that, you know, if you have a pre-existing condition, you're going to be covered. I guarantee that I'm going to keep that part of it, you know? And those things are wonderful because everybody like those things, but those are things that costs money.
CHINNIAnd nobody likes the parts that they have to generate revenues somewhere. And it's, you know, when you cover this, it gets maddening after a while.
REHMHere's an email from Ed in Fairfax, Va.: "We are doing a lot better in 2012 than we were in 2008." Pardon me. "Personal investments are up by more than a third. Mortgage rate has dropped 2.25 percent. Our effective federal income tax rate has dropped by two percentage points. We pay less for health care premiums. We are significantly better off than we were in 2008." That's from Ed in Fairfax. Let's go to St. Louis, Mo. Good morning, Susan.
SUSANOh, hi. I'm so glad I have a chance to say something because I'm definitely better off. And I work in health care. And I had seen for myself the direct positive impact of the recovery act and the health care reform act. I bought my first home on my own with help from the government grant just this year, and I bought a car last year, so I'm definitely better off.
REHMSusan, I'm glad to hear it. And you're listening to "The Diane Rehm Show." So it would seem that, you know, some people feel quite well off comfortable, other people don't. But how do we, going forward, ease this deep recession? And it is a deep recession for an awful lot of people. How do we move forward, Martin?
BAILYWe clearly need to solve the long-run budget problem in order to move forward. So we need to try to get past this polarization and political divide which is paralyzing the country. So if the election serves that purpose, that will be something very important. We need to deal with the long-run budget problem and, at the same time, not hit the economy over the head right now because it needs to keep growing, and we need to keep demand growing. Those are (unintelligible)...
REHMWhat do you mean hit the economy over the head?
BAILYWell, we are scheduled to have substantial cuts and spending unless an agreement is worked out. The Bush tax cuts, which I was not a supporter of, but, right now, if they were to expire, that would dampen growth as well. So if we got one of these outcomes, which would be effectively a contractionary fiscal policy, that would hit the economy over the head.
REHMBetsy, do you want to comment?
STEVENSONYeah. So as you say, there's even more tax cuts that are due to expire...
STEVENSON...the payroll tax cut, the AMT fix. Now, we're really talking about potentially thousands of dollars out of each family's pocket at the end of this year. We can't afford that. You know, all this debate about should we late the tax cuts expire for families earning over $250,000 may just came back to the fact that 93 percent of the income gains in 2010 went to the top 1 percent. They're the ones who can actually afford it.
STEVENSONThey're not the ones who are spending the, you know, spending its larger share of their income as the bottom of the distribution. And we need to make sure we're continuing to give the families that are living hand-to-mouth the tax cuts that they need to be able to continue to stimulate the economy and to continue to try to improve their lives.
CHINNII completely agree with that. The one thing I'd say about the fiscal cliff that as -- I think the general feeling -- I think that's a consensus -- is that they're just going to kick the can down the road again because that -- the fiscal cliff is going to have to be dealt with by a lame-duck Congress after the election. I don't see them really being able to get anything down on that time. And I guess the assumption is they'll kick it down another six months, and then we'll have this discussion again.
REHMBut how can that be kicking it down another six months if you got sequestration that's supposed to take effect cutting defense spending?
BAILYThey'll get a temporary fix. I don't think anybody wants to -- nobody wants to have this big cut in defense spending. The Republicans certainly don't want that. So I think they will find a fix to it. The danger is that we started playing with fire. We've got a global recession. We've got a global financial crisis. And here we are fooling around with this partisan politics instead of being clear and straightforward about what needs to be done.
REHMAnd in the meantime, people -- you've seen them -- are out there suffering.
CHINNIWell, and the other thing is that if the concern is really uncertainty, kicking the can down the road another six months does not really do all that much. I am almost certain that's what's going to happen. But maybe after the next six months, we can actually deal with some of the stuff because, you're right, people out there are really hurting. And this won't solve everything, but it'll help.
STEVENSONAnd I want to remind folks that the last time we had a debate over the debt ceiling and we pushed everything to the last minute and everything did pass, everything was "fine," it still cost the economy a lot of money.
STEVENSONEstimates have come out that the cost to, you know, that there -- the cost came in terms of having our debt ratings downgraded, uncertain -- the increase in uncertainty. So having the fight is costly. Having the fight...
STEVENSON...protracted is costly even if we manage to avoid the worst case outcome. So we do need to handle this sensibly like adults and ask more from Congress than they've given us in the past.
REHMBetsey Stevenson of the University of Michigan, Dante Chinni, he's author of a column for The Wall Street Journal, Politics Counts, Martin Baily, senior fellow in economic studies at the Brookings Institution, thank you all so much.
STEVENSONThank you, Diane.
REHMAnd thanks for listening, all. I'm Diane Rehm.
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