“We Have Seen What the Edge of a Cliff Looks Like and It Was Frightening”: An Exit Interview with Dr. Christina Romer

Today was the last day of work at the White House for Dr. Christina Romer, chair of President Obama’s Council of Economic Advisers, who is heading back to the University of California at Berkeley to teach. We caught up with her for a few minutes to talk about August’s jobs numbers and her gig.

TAPPER: Who’s going to replace you?

ROMER: Ah, that’s certainly an important decision for the president to make. And obviously he will announce that when he is ready.

TAPPER: I thought when he announced that you were leaving they said – or you said – that your replacement would be named by today, am I right?

ROMER: Well I think that there were words to that effect, but not from me.

TAPPER: Not from you?

ROMER: You know I think you’ve got this process that just naturally takes some time. He’s obviously taking it very seriously.

TAPPER: Do you think diversity on an economic team is important. In other words, is it not as good if everybody on an economic team is a white man?

ROMER: I think it’s certainly important, you know, to have ideological diversity. I think it’s very important. There’s been a lot of talk about how our team tends to argue and debate and I think that’s been really good for policy-making. So I think anything that brings diversity of viewpoints, diversity of experiences, and certainly diversity in terms of demographics, can affect those two things.

TAPPER: In a good way?

ROMER: In a good way.

TAPPER: What can be done about the economy? Certainly these jobs numbers are not what was anticipated – the net loss in August. I understand that it’s 8 months of positive private sector job growth, but it’s not what you guys have been hoping for. Vice President Biden in April said that in a couple months we are going to see hundreds of thousands of jobs being created. We haven’t seen that.

ROMER: Right, so we do need to be careful that, you know, it was anticipated we’d have a negative number just because we’d known we were losing a lot of temporary Census jobs for these last couple of months. And certainly the 67,000 private sector jobs that have been created, that was a little bit more than certainly most market analysts were expecting.

But, you are absolutely right: it is not good enough. It is a sign of slow, steady recovery, but we need something better than that. And that’s certainly what the president said this morning in the Rose Garden and one of the things that I tried to talk about in a speech I gave earlier this week is the number of headwinds that are special to this recovery. This was not a usual recession, and it’s not a usual recovery. We are fighting against state and local governments that are having a very hard time, we have consumers who have been through a searing crisis and have lost trillions of dollars of wealth. So we are having to dig ourselves out of difficult circumstances and we’re going to have to think about tools we have to help the private sector come back more strongly.

TAPPER: What tools do we have? You said in your speech earlier this week that there are only two things that you know of that can help and one is the government spending more money, more stimulus. And two is cutting taxes.

ROMER: Well I actually tried to talk about – there are other things. I mentioned our national export initiative, I talked about things we could do to increase consumer confidence. Fundamentally what we have now is a lack of demand. That’s the main reason that folks aren’t producing more, that’s why we don’t have employment growing --

TAPPER: Because consumers are not spending?

ROMER: Well, consumers aren’t spending as much as they were before the crisis. We’re not doing as much residential investment that we were doing before the crisis. Firms aren’t doing as much investment as before the crisis. All those things, but they are still at a lower level.

TAPPER: Why do you think consumers and businesses and corporate America are – why do you think they are sitting on money? They are saving, not spending – why?

ROMER: I think as consumers, we do know that consumers lost a lot of wealth, with the popping of the housing bubble and the falling of stock prices. That naturally tends to make them, there’s also thinking about what they’ve been through, we have seen what the edge of a cliff looks like and it was frightening.

And we actually saw this in the Great Depression. The Great Depression gave rise to a whole generation that was higher savings, more prudent investors just simply because they know what a bad downturn looks like. And so that I think ultimately that’s probably a good thing. We were having very, you know, abnormally low savings rates before the crisis.

So moving back to a more prudent, normal kind of savings rate surely is good for the long run health of the economy. But right now when we want people to be buying things so that they – so that firms hire them to produce them.

TAPPER: You originally were pushing for a bigger stimulus package than the one that passed through Congress. You were pushing for something more like $1.2 trillion.

ROMER: Well, certainly I was talking about a range of options, you know. What I certainly said is that this was a very severe crisis and we needed to hit it with all that we had and I believe that what we did was hit it with all that was feasible.

TAPPER: “All that was feasible”? That's not “all that we had.”

ROMER: I think it’s that all that you could plausibly get through Congress. I think that was always our starting point of we knew this was bad, what’s the range of actions that we could get Congress to go along with. As it is, it was the biggest counter-cyclical fiscal stimulus in American history.

TAPPER: If you had your druthers how big would it have been, looking back, in retrospect?

ROMER: I think, you know, right now I’m thinking about where we go from here.

TAPPER: Well okay let’s talk about it, where do we go from here? Everything I hear out of this administration is relatively modest compared to what many economists are pushing and compared to what the original stimulus was. The national export initiative, the $30 billion lending initiatives for small businesses, these are small, relatively small, piecemeal attempts to help the economy here and there. But it’s not a big, bold move.

ROMER; Well the important thing, the overarching thing is that we know actually for this economy to come back, it’s going to have to be the private sector to come back. It’s going to be the consumers; it’s going to be the firms that invest. It’s going to be our exports, that ultimately has to be the driver.

But what you’re asking is what the government can do to help. And with the Recovery Act we gave a big, bold shot in the arm in the middle of the crisis which I absolutely feel has been essential to helping us go from losing hundreds of thousands of jobs to finally grow again. I think what we’re talking about now is not a second stimulus, its targeted measures. But they can make an appreciable difference. You mentioned the small business lending, that is one that we think it may have a small headline cost, almost none because it’s paid for but the important thing is that we think that it can make a big impact, because firms tell us, little firms tell us they’d like to be investing, they’d like to be hiring people, and they just can’t get the credit to do it. And so I think that is an example of something that could have low cost but big bang for the buck.

TAPPER: We were talking and you were dancing around the idea of what you would do, what you think is needed and what you think is politically feasible. Right now – all of the things you’re talking about seem politically feasible. The export initiative, the small business lending initiative. If you could remove that from the equation, Congress, what does the economy need?

ROMER: The ‘removing Congress’ obviously is a very big if. You know, I think what I’ve tried to say in my talk earlier this week is you know I do think we need to come together, both parties, and just say what we need to do for this economy. And it’s going to be truly a range of actions, that’s what the president and his economic team are talking about.

I’m obviously not going to get ahead of him, and he’s going to be talking about what he thinks are the sensible measures. But certainly we can use the kinds of things we hope that we’ve been talking about today. The small business lending, is there – the president has talked about --- how important it is to continue the 2001 and 2003 tax cuts for middle class families as something that is good for them and good for the economy. We are seeing this summer a lot of infrastructure investment through the Recovery Act; I think that what we see today is important, with construction doing better, especially heavy construction. The question is are there measures like that that can help us again, another shot in the arm to help the private sector come back.

TAPPER: But if one of the problems is the psychology of this recovery, if one of the problems is investors, consumers don’t have confidence, “fear itself” as FDR would put it, don’t these small bore measures not help with that? Don’t these small bore measures not have an impact on consumers, or investors, or corporate America?

ROMER: I think the right word is targeted. They are – again, it’s not a second stimulus, but it is targeted at where we see problems.

Let me go back to the additional state fiscal relief for preventing future layoffs that was passed just before the recess. That we think is such an important measure, it’s one of the headwinds that we’re facing – that state and local governments are in terrible budgetary state. We see consistently them laying off workers -- we lost 10,000 workers in state and local employment. Dealing with that area, and obviously helping that area, but it can also be something that gives more confidence, can be something that helps their communities. And so I think these targeted measures can have an impact and the important thing is to be thinking what are the best targeted measures, what’s the range out there – what are the sectors that are having troubles and how can we resolve that.

TAPPER: But do you see consumers, investors, corporate America, Wall Street looking at these targeted efforts and saying, ‘Now I feel good about the economy?’ or do you think it’s almost more likely to have the opposite effect, and to say ‘The Obama administration either doesn’t have the answers or they don’t have the capital to do what really needs to be done’?

ROMER: I think they are going to look at them and say ‘Are these smart measures?’ and I feel confident that they are. I think they will say yes, I see where they are going with that.

And confidence builds on itself, right – so we’ve now had 8 months of private sector job creation, the longer we can keep that going, I think the more that tends to build confidence. I think there’s no question we’ve been through a period of turbulence. If you go back to the early Spying I think we were seeing you know stronger growth, you know certainly stronger private sector employment growth. Clearly conditions in Europe took a toll on confidence. The renewed sort of fall of stock prices took a toll on confidence. We’re working our way through that and I think what we’re coming though now is to get back more on track with something we’re going to be hoping and looking for and maybe the kinds of measures we are talking about will help to do that.

TAPPER: What do you say when you hear Republicans saying the problem is too much uncertainly, too many taxes, too many regulations, that it’s creating a chilling effect for people who create jobs. With corporate America, with small businesses, some of whom worry that their taxes are about to go up with the Bush tax cuts expiring, what do you say to them? What is your response to the Republicans?

ROMER: I say they are wrong. I say that you know the kind – there is some uncertainty out there. I think it is largely the uncertainty about will the demand be there? Will I have consumers for my products? And I think that is the fundamental thing that we need to be working on, and it’s what we’re working on.

One of the things again that I talked about in my talk earlier this week was the regulatory uncertainty question. I think if you actually look at the regulatory record of the Obama administration that in terms of the net benefits, benefits minus the costs, they are higher in our first year for the regulations that we passed than the previous two administrations in their first year.

I think we are certainly being prudent on the regulatory side and then if we want to talk taxes, we have before Congress right now a small business tax cut and lending bill that wants to get rid of capital gains for small business owners that invest in their firms, and big firms as a matter of fact. And that is the kind of tax policy that we’ve been talking about. We think it goes directly toward job creation. And we think it’s the right policy.

TAPPER: What's it like when those job numbers come out and they are just disappointing. There were obviously some months where it was very positive but now as people fear a double dip recession and private sector growth is still growing but very, very modestly, it’s certainly not what you guys projected. What is it like when the Bureau of Labor Statistics report comes into your office and you read the number?

ROMER: It’s, its, I mean, incredibly emotional. You do – you know, it’s not just a number, it’s not about me, it’s not about how we feel. It’s, you know, when you see the unemployment rate tick up to 9.6 your heart sinks because you know there are real people behind those numbers who are suffering, whose life is harder today because that number ticked up.

Or the other side is even when its only 67,000 jobs and you know we know that’s not nearly good enough, but that’s 67,000 people that had a job in the month of August who didn’t have one in the month of July.

And so you always have to think about the people behind this. My one regret is to not be here when I get to say there are 300,000 jobs this month, there are 400,000 jobs this month. That will happen someday. It will be glorious day for the American people.

- Jake Tapper

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