President Barack Obama gestures during a meeting with his economic team, including from left, Counsel of Economic Advisors Chair Christy Romer, National Economic Council Director Larry Summers, and Treasury Secretary Timothy Geithner, in the Oval Office, March 5, 2010

President Barack Obama gestures during a meeting with his economic team, including from left, Counsel of Economic Advisors Chair Christy Romer, National Economic Council Director Larry Summers, and Treasury Secretary Timothy Geithner, in the Oval Office, March 5, 2010

Efforts to prevent a double dip recession. What options remain for the Federal Reserve to support the sagging economic recovery, spur businesses to hire more workers, and stabilize the housing market


  • Michael Greenberger Professor, University of Maryland Law School; director, Center for Health and Homeland Security; and former senior regulator, Commodities Futures Trading Commission.
  • Alan S. Blinder A professor of economics and public affairs at Princeton University and vice chairman of the Promontory Interfinancial Network, is a former vice chairman of the Federal Reserve Board.
  • Alice Rivlin Senior fellow, Brookings Institution, vice chair, Board of Governors, Federal Reserve System (1996-99); director, White House Office of Management and Budget (1994-96); and founding director, Congressional Budget Office (1975-83).
  • Douglas Holtz-Eakin President of the American Action Forum, chief economist and director of the Congressional Budget Office from 2003 to 2006.


  • 10:06:55

    MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Last week saw disappointing numbers in housing jobs and the gross domestic product. Fed Chairman Ben Bernanke gave a much anticipated speech on the less than vigorous economic growth at a Fed meeting in Wyoming. We'll talk about what the Fed can do to stimulate this economy and keep us out of a double-dip recession. Joining me in the studio, Michael Greenberger at the University of Maryland and Alice Rivlin at the Brookings Institution. Joining us by phone, Alan Blinder of Princeton University and Douglas Holtz-Eakin. He's former director of the Congressional Budget Office.

  • 10:07:48

    MS. DIANE REHMThroughout the hour, I'll look forward to hearing your ideas, your thoughts on the economy, where it's headed and what can be done about it. Do join us, 800-433-8850. Send us your email to Feel free to join us on Facebook or on Twitter. Alice Rivlin, good morning to you.

  • 10:08:19

    DR. ALICE RIVLINGood morning, Diane.

  • 10:08:21

    REHMLet me ask you about the tools that Fed Chair Ben Bernanke said he has to use but not yet. What's he talking about?

  • 10:08:34

    RIVLINWell, first, the Fed has done an awful lot already. They took their short-term interest rate, which is their usual tool, down to nearly zero. And then, they went out and started buying all kinds of securities, Treasury securities, long-dated Treasury securities, which they don't usually buy, and mortgage-backed securities, so they have -- they've done a lot. The economy is recovering, but not very fast as the chairman pointed out. So what else can they do? They can buy more bonds, especially treasuries, although they could buy more mortgage-backed securities or other things if they wanted to.

  • 10:09:25

    RIVLINThey can't get the short-term interest rate down lower, but they can make a marginal move on paying the banks to keep reserves at the Fed. If the banks have reserves at the Fed, they are not lending them. So you might think they would take that back to zero and I think they should. And the chairman suggested that was one tool. They can also talk. They can say, we're gonna keep the short-term rate down for a very, very long time. They've already said an extended period, whatever that means. They could make it clearer that they're gonna keep it there for even longer or even give a date. I'm not sure what date it would be, but they could do something like that.

  • 10:10:20

    REHMAlice Rivlin, she's senior fellow at the Brookings Institution, former vice-chair at the Board of Governors at the Federal Reserve System. Turning to you, Alan Binder. Chairman Bernanke rejected the idea of the Fed temporarily increasing its target for inflation. Tell us why and what that means.

  • 10:10:47

    PROF. ALAN BLINDERWell, what it would mean -- first of all, the Fed has an unstated target for inflation of sort of just under 2 percent. And, of course, it depends how you measure inflation, but something like that. And what it means would be to raise that to 3 or 4 percent. The idea is to convince markets that as they look out, inflation will be higher than they now believe so that real interest rates would be lower. Chairman Bernanke rejected that quite emphatically. I think by central banking standards, that was incredibly emphatic on several grounds. One is that -- one that he didn't emphasize so much that I would emphasize more is that it's unlikely to be effective. I mean, the Bank of Japan, for example, has been told they should be doing that for a long time.

  • 10:11:34

    PROF. ALAN BLINDERAnd as people in the markets look at Japan with minus 1 percent inflation, they say, well, how in the world are you ever gonna get to plus three or something like that? And I think we'd have the similar sort of problems, though we're not at minus one, we're sort of at plus one. So there's the question of effectiveness. And then, there's the question of -- you raised -- you put in the word temporary.

  • 10:11:54

    PROF. ALAN BLINDERWhat would be temporary? If this is temporary, you'll create a world in which the central bank keeps changing its -- well, potentially keeps changing its inflation target, which is contrary to what central bankers have been trying to do for a very, very long time. And you also give up what most central bankers believe as the hard-earned gains of low inflation after many, many years of inflation that was too high.

  • 10:12:22

    REHMAlan Blinder, he is a professor of economics and public affairs at Princeton University, vice-chairman of the Promontory Interfinancial Network. He's a former vice-chairman of the Federal Reserve Board. From your perspective, Michael Greenberger, how much can the Fed do considering what Alan Blinder has just said about Japan, for example?

  • 10:12:51

    PROF. MICHAEL GREENBERGERI'm very skeptical that the Fed can really have any direct impact on the crisis we seem to be going through or re-going through. As Dr. Rivlin said, they've already done so much. And their weaponry is, I believe, the pleading. There are these measures they can take. I think they're -- they are measures by indirection that will not really have a direct impact. And a lot of it has to do with lowering interest rates or giving people confidence in low interest rates. And frankly, there just isn't enough credit around or money or need for ability to borrow and some instances need to borrow.

  • 10:13:32

    PROF. MICHAEL GREENBERGERI think there needs to be a much more directed intervention in the economy. It has become politically controversial to say so, but I believe the stimulus, the Congressional Budget Office just demonstrated, I think conclusively, that the stimulus that we had or going through did work. Many people said, even when the legislation passed, that it wasn't enough. There were too many tax cuts, not enough putting people back to work. I know many people say, well, we've had a stimulus and look, we're still in trouble.

  • 10:14:08

    PROF. MICHAEL GREENBERGERBut the -- I think the response, as demonstrated by the Congressional Budget Office, the stimulus was not enough. And obviously, there are political problems. The Republicans are not gonna support a stimulus, so they say. But I think the President and the administration have to say clearly what needs to be done. And I think what needs to be done is, there needs to be directed stimulus to put people back to work.

  • 10:14:34

    REHMMichael Greenberger. He is professor at the University of Maryland Law School, director of the Center for Health and Homeland Security and a former director at the U.S. Commodities Future Trading Commission. And now, turning to you, Douglas Holtz-Eakin, what about that stimulus? Did it work, was it not enough, do we need more?

  • 10:15:02

    MR. DOUGLAS HOLTZ-EAKINWell, thanks for having me on, Diane.

  • 10:15:03


  • 10:15:05

    HOLTZ-EAKINThis is a debate that will feed a thousand PhD theses and go on for a long, long time, but I think a couple of points merit being made right now. I mean, the first is that, as much as I love my old organization, the CBO, the report they put out sheds no real light on whether the stimulus did or did not work. The reports that they've -- they put out, at the request of Congress, basically rerun the same models that they ran in advance of the stimulus. Those models are built in ways that generate estimated employment and output impacts. But the models put out what you program into them, and so there's no new evidence. There's no new data. There's no real reason why those reports shed any light on the overall effect of the stimulus.

  • 10:15:54

    HOLTZ-EAKINPoint number two, I think, is that it's time to get past this debate on the stimulus. I mean, counter-cyclical fiscal policy, “stimulus” in the political parlance, is the domain when the economy is falling and you need an intervention to stop it and that certainly was true at the beginning of 2009. Now, the late 2008, it is a very bad time for the U.S. economy. We have a very different problem right now. We have an economy that is growing. It is growing far too slow for anyone's satisfaction, but it has been growing for nearly a year. And our problem now is that, in the aftermath of financial crisis, traditionally, economies recover slowly because households have lots of debts and their assets have been going down in value.

  • 10:16:37

    HOLTZ-EAKINOur governments have terrible problems with their balance sheets, how much they have promised to spend and their revenues don't add up. And so, there's one sector of the economy that has some help, that's the business sector. We need to think about this with the -- a new eye toward what are things that would give the business sector confidence to go out and spend, what are pro-growth strategies, new trade agreements, cutting the corporate tax rate, real plans to balance the budget so interest rates don't threaten the future. You know, some steps that would give them the ability to go out and spend. That's -- that is the route to faster growth in U.S., but there are no magic bullets. This is going to be a long, slow, slog coming out of this recession.

  • 10:17:13

    REHMDouglas Holtz-Eakin. He is chief economist, director of the Congressional Budget Office from 2003 to 2006, Senior Domestic Policy Advisor to the McCain campaign and a member of the Financial Crisis Inquiry Commission. Alice Rivlin, as former chair of the CBO, how do you feel about Doug saying that the CBO is now shedding no light on the situation?

  • 10:17:48

    RIVLINI disagree. I think the balance of the evidence is that the stimulus did work. It worked in the sense of this very deep recession was less bad than it would have been. It preserved a lot of jobs. Let me make a specific suggestion for what to do now and that would be aiding the state in a major way. They are contributing to further downward pressure on the economy by laying off workers and even raising taxes. The federal government needs to do something about that.

  • 10:18:25

    REHMAnd we'll talk further about aiding the states when we come back. Alice Rivlin is a senior fellow at the Brookings Institution. Do join us, 800-433-8850.

  • 10:20:03

    REHMWelcome back. We are talking about the economy, the state of the U.S. economy, in particular, with Alice Rivlin, Alan Blinder, Douglas Holtz-Eakin and Michael Greenberger. Just before the break, Alice Rivlin, you were talking about aid to the states. I wanna get to that. I also want to get to Doug's point about lower corporate taxes, so let's start with you and the aid to the states that you think would be a great tool.

  • 10:21:04

    RIVLINThe states, in a recession, do all the wrong things because they have to balance their budget. So what they do is cut spending, lay off people and raise taxes or fees if they can. That makes the recession worse. So a good thing to do is to keep them from doing these damaging things. Anyway, the federal government can do that. The Feds have already supported continuation of state Medicaid. That's a good idea. It should continue, but more general grants would help.

  • 10:21:17

    REHMAnd I wonder, Alan Blinder, how you feel about aid to the states.

  • 10:21:24

    BLINDERWell, I agree with Alice very much. I would broaden the principle. Let's take us back to what Michael had said earlier also. What you want to do in the case of digging out of a hole, which is what we're doing, is get money into the hands of people and organizations that will spend it. So states certainly qualify. There are broke or close-broke localities or worse in many cases and if given more money, they will spend it. Now, money is tangible. You may not get exactly what you're expecting, but in some sense, you're not that concerned in a deep recession. You just want spending.

  • 10:21:58

    BLINDERThe problem I have -- I sit here as a citizen, rather than as an economist, and I'm looking at Congress completely tied up in knots and finding it very difficult to believe that Congress can do any -- and I was almost going to say anything intelligent, anything intelligent or unintelligent about these issues, about stimulus or even about long-run deficit reduction, both of which we need to do, by the way.

  • 10:22:28

    BLINDERI'm looking at the struggle Congress had to get a puny $26 billion out to the states and localities, even though all of these people, the members of Congress, have constituents in each of these 50 states. I'm looking at the struggle we have to get unemployment -- extended unemployment benefits pushed back through, extended through November, and all of that makes me very pessimistic about anything serious coming out of the Congress.

  • 10:22:55

    REHMDoug, do you share Alan Blinder's pessimism?

  • 10:23:02

    HOLTZ-EAKINWell, I think Alan's given us a pretty accurate description of the lay of the land in Congress and I don't think that's to anyone's credit, so, you know, part of the problem, I believe, is that we're not really having a serious debate on the merits of the best way to go forward. So for example, I think that the proposals you've heard from Alice and Alan are not the way we should go, but I believe it for the following reasons.

  • 10:23:27

    HOLTZ-EAKINWe should do now things that we would do anyway in the interest of long-run growth and which we will not have to unwind. This country has spent far more than it can afford and will have to scale back, at the federal level, spending policies and may still have to raise taxes even if it does that. You do not want in this moment to do more things that you have to unwind, given politically how difficult that is. Every time you do, you send shivers down the spines of the business communities who, in the end, are the key to making this go.

  • 10:24:00

    HOLTZ-EAKINSo that's why I think the strategy should be what would we like to do anyway? What would we like to sell to the 95 percent of the world's customers are outside our borders? Let's stop being on the sidelines of international trade, give our workers a chance to sell things abroad and get back to work. Let's cut our corporate tax rate, that is deeply uncompetitive, hurts every American and the bulk of that hurt comes down on workers and large corporations, whose benefits are not good and whose jobs are in danger. Let's get the long-run budget deficit in order.

  • 10:24:26

    REHMNow, this debate...

  • 10:24:28

    HOLTZ-EAKINI mean, this are things that we're going to need to do anyway and which would help right now.

  • 10:24:34

    REHMThis debate on lowering corporate taxes has been going on now ever since the Bush administration left off. Michael Greenberger, do you believe lowering corporate taxes is part of the key to restoring the economy?

  • 10:24:44

    GREENBERGERWell, let me preface that by saying that ever since Ronald Reagan took office 1980, we have had one version or another of supply-side -- what I would call supply-side economics, in that it's cutting taxes for wealthy institutions and wealthy people will somehow springboard the economy into utopian recovery and prosperity. And the Bush administration's eight years in office is the poster child for that. We ran up a $6 trillion -- we went from a surplus, when President Clinton left office in the last fiscal year, to a $6 trillion run up because of the tax break.

  • 10:25:33

    GREENBERGERTalk about things that can't be reversed, now with the Republicans screaming for deficit reduction, one of the key ways is to get the top 2 percent of the people to go back and pay what they were paying before President Bush went into office and they are now making that an impossibility. That is not the way to stimulate the economy. I agree with Douglas Holtz-Eakin's theory that we need growth. I believe, if I understand his theory, the way we get growth is to cut taxes and have more free trade agreements.

  • 10:26:03

    GREENBERGERI think we have to have growth by targeted help to those portions of the economy who can create products, inventions, devices that will sell worldwide. Just to give you an example: The first stimulus package threw out a ton of money for medical research. It was unfocused, undirected and there was no policy how to convert the bench science into commercial products. We have medical researchers in this country that can develop countermeasures to fight diseases all over the world.

  • 10:26:38

    GREENBERGERWe have to put our shoulder to the wheel to help those people get the vaccines, the medicines and what have you that will make people live longer and be healthier. My problem with the stimulus is that it was unfocused and not targeted. We need targeted stimulus. I don't think tax cuts and free trade agreements are gonna do anything to correct what is a serious financial problem.

  • 10:27:05

    REHMAlan Blinder, there is a new poll out from CBS News suggesting that 56 percent of Americans say that tax cuts should expire for households earning over $250,000 a year. Now, on this issue of tax cuts, and as Doug Eakin has pointed out, specifically corporate tax cuts, where do you stand?

  • 10:27:41

    BLINDERWell, I think, by the way, if you pull the corporate tax cut (laugh), you will get a lot more opposition to that, but the truth about our corporate tax is that it's a mess and needs reform terribly, as I'm sure Doug will agree, but the other truth is because of that, it doesn’t raise nearly the revenue that a lot of people think. We have disputatively high tax rate, which, as conservatives constantly point out correctly, looks to be higher than other countries. But it's riddled with loopholes and we don’t actually collect that much revenue.

  • 10:28:15

    BLINDERSo I just don't see this -- and the companies know that, that's why they have all these lawyers and accountants. So I don't think they're very afraid of the corporate income tax and that's why I think it's a secondary issue, at best, and probably a tertiary issue. It is -- for the long-run, it would be a lot better to clean it up and make it a more rational system with, by the way, a lower statutory tax rate, but many fewer loopholes so that some of that revenue was actually collected. But to think that that's gonna do anything much for the economy in the next year or two, I think, is to engage in wishful thinking.

  • 10:28:55

    REHMAlice Rivlin, considering the gridlock that currently exists within Congress and likely will exist after November, what about change in this tax rate? Do you see the administration pushing to let the Bush tax cuts expire? Do you see pressure from Republicans pushing to see them maintained?

  • 10:29:28

    RIVLINYes is the answer to that. (laugh) I see, I see both of those things.

  • 10:29:31

    REHMBoth. Yeah.

  • 10:29:32

    RIVLINI am less pessimistic than you are about the gridlock being sustained after the election. I think there's a chance that there will be a much constructive attitude in both...

  • 10:29:47

    REHMWhat leads you to believe that?

  • 10:29:49

    RIVLINBecause we're in a mess. And before an election is the worst time to fix anything. Right after the election -- I'm always an optimist, but I think there's a chance that sensible people in both parties, and that includes the President, will come together, both on what to do in the short run and more importantly what to do in the long run. And here, I agree with, I think, where both Alan Blinder and Doug Holtz-Eakin are, we need serious tax reform that should include lowering rates, including the corporate rate, but broadening the base of the tax so -- and doing the same for the individual income tax, so we raise more money with less rates, with lower rates and we're gonna need that money as we face long run deficits.

  • 10:30:42

    REHMMichael Greenberger.

  • 10:30:43

    GREENBERGERI tend to have agreement on two different points with Douglas Holtz-Eakin and Alice Rivlin. Number one, I think it is irrelevant whether Congress is gridlocked, and I think Douglas Holtz-Eakin made this point, people have to speak clearly about what they want done and not couch or pull their punches because they’re worried it's gonna be rejected in the political stream. And I must say I worry about the Obama administration. One day they are focusing on this deficit commission, the next day they're focusing on helping the states or helping small businesses.

  • 10:31:20

    GREENBERGERAnd there isn't a clear, driven message. And frankly, if I were the -- first of all, this idea that we're in a recovery, things are better, I think in a month we're gonna say, we're back where we were in the fall of 2008 and maybe worse.. And I think that goes to Alice's point that we are in a very serious problem.

  • 10:31:41

    REHMAre you predicting a double-dip recession?

  • 10:31:46

    GREENBERGERWell, for whatever it's worth -- and I don't take myself seriously enough to give it a lot of worth -- I do predict a double-dip recession and possibly something worth...

  • 10:31:55

    REHMAlan Blinder, how about you?

  • 10:31:58

    BLINDERI think a double-dip recession is unlikely, but not as unlikely as I'd like it to be. At this stage of recovery, I should be answering a question like that, Diane, as saying, there's not a snowball's chance in hell that that's gonna happen. That's just not true.

  • 10:32:14


  • 10:32:14

    BLINDERIt may be a 20 or 30 percent probability. To me, that's uncomfortably high.

  • 10:32:19

    REHMAlice, what about you?

  • 10:32:21

    RIVLINI agree with Alan. I think it's unlikely, but it could happen.

  • 10:32:24

    REHMAnd Doug Eakin.

  • 10:32:26

    HOLTZ-EAKINYeah, I think it's unlikely, but you know, we make some mistakes, we could get a double-dip. A lot of people, I think, were fooled by some of the special factors that went on late last year and the first half of this year. There was a big inventory swing, we did census hiring, we had cash for clunkers, sort of home buyer tax credits, a lot of things that distorted the month-to-month data a bit. I think if you strip that out, the economy has been growing at something like one and a half to 2 percent pretty much steadily and it hasn't decelerated recently, which is what made people nervous. It just was never doing that well. And so it gets back to the point about which I think we all agree, the top priority should be faster economic growth and I think the real difference is on strategies to get that in this environment.

  • 10:33:12

    REHMAnd you're listening to "The Diane Rehm Show." On this question of tax credits for new homebuyers, the administration is considering another one. Does that make sense, Douglas Holtz-Eakin?

  • 10:33:30

    HOLTZ-EAKINI don’t think so, quite frankly. I have come to the somewhat pessimistic conclusion that there is no economically rational housing policy that would make a substantial difference and be politically acceptable. You know, my experience on the campaign in coming up with what I thought were economically rational policies, were that people hated them. And they were deeply unpopular politically, so in the end, I believe we are best advised to let the U.S. housing market muddle through. I think it is broadly at its bottom and will no longer be a drag on the economy. It will be neutral and then pick up in about 12 to 15 months and we are dealt that hand. I think it's time to live with it.

  • 10:34:13

    REHMAlan Blinder, what's your view?

  • 10:34:16

    BLINDEROh, I agree with a lot of what Doug just said, but I would come down on a very different place on policy. I think that a grievous mistake or series of mistakes were made two years ago and more about to do either nothing or next to nothing about what was clearly the coming tsunami of foreclosures. Now, we have experienced those foreclosures. They're sort of peaking now at a very, very high peak. We could have done much better to shrink that peak. We couldn't have stopped it, of course, but we could have had a smaller tsunami if that's sounds like a bad -- a wave instead of a tsunami, but we didn't, but I don't think it's too late.

  • 10:35:01

    BLINDERI think there are things that can be done. You see some private sector hedge funds doing right now, buying up mortgages cheaply, refinancing them so that the people in them can actually afford the homes and you'd don't get the foreclosure, which causes terrible losses to both the borrower and the lender. So I think it was a failing of the Bush administration, it's been a failing of the Obama administration not to do more about this and I still, I still think we should.

  • 10:35:27


  • 10:35:28


  • 10:35:29

    HOLTZ-EAKINDiane, if I could -- I'm sorry, I didn’t mean to interrupt. I just wanna say that I think I agree completely with Alan. My point was the political point that while it was economically rational and desirable -- and I could write a list of things down that one might do -- doing it on a big scale was unpopular with Americans. A lot of Americans looked at people in trouble in their homes and said, I didn't do that, I don't wanna help them. And a private sector hedge fund can go in and do it with their own money in a way that the government just can't. And it may not be a credit to the political system, but I think that's -- well, that's what we just we went through and we remain there.

  • 10:35:59

    REHMAll right. Michael.

  • 10:36:00

    GREENBERGERWell, I find it sort of humorous that we are advocating lower taxes for corporations but not giving tax breaks to people who wanna buy their first home. If there was any part of the stimulus package that worked, it was giving tax breaks to people who want to buy their home. The minute it stopped, the housing market collapsed.

  • 10:36:20

    REHMAt the same time, Alan -- pardon me, Michael, many people have raised the question of whether people ought to be buying houses now and whether perhaps some people who cannot afford to buy houses ought to be in rental properties. Alice Rivlin.

  • 10:36:43

    RIVLINI would favor extending the first-time homebuyer's credit, but not with the expectation that it would do a lot 'cause I think a lot of the potential buyers have already bought homes. And without lowering lending standards. We can't go back to the days when the banks were pushing the money out so that it could be securitized and nobody cared whether people could pay back. Those days are over and should be over.

  • 10:37:14

    REHMAlice Rivlin, senior fellow at the Brookings Institution. She's former vice-chair of the Board of Governors at the Federal Reserve System. When we come back, it's time to open the phones, read some of your Facebook comments and your email. I look forward to hearing from you.

  • 10:40:03

    REHMWelcome back. It's time to open the phones, 800-433-8850. First to Lincoln Park, Mich. Good morning, Jeff, you're on the air.

  • 10:40:16

    JEFFWell, hello, Diane.

  • 10:40:17

    REHMHi there.

  • 10:40:17

    JEFFA pleasure to speak to you. I just wanted say, I hear a lot from economists and from the people on Wall Street about how the jobs are the thing that's keeping this economy from moving forward and I keep hearing how businesses are afraid to hire until the economy improves. And I also hear from businesses that government shouldn't be spending any more money or using -- or increasing the debt in any way because that cuts back from their ability to invest. So if they don't feel that the government is the appropriate solution for the economic problem and since they're getting more productivity than they have in history from their employees and since they're still creating profit, maybe the solution is for businesses to hire.

  • 10:41:04

    REHMSimple as that. Businesses to hire. Alice.

  • 10:41:09

    RIVLINYes, that's what we all want. But the question is, why is business not doing more hiring? Partly it's confidence, partly it's not seeing the prospect of more sales and partly it's not having the incentives. Since they are doing quite well, the ones that have cut back and are very productive, they're doing quite well in that situation and they are afraid to take on more workers.

  • 10:41:45

    REHMHere is a comment on Facebook for Douglas Holtz-Eakin, who's president of the American Action Forum. Jeanie says, "Doug's model works if you fondly believe in trickledown. Lower corporate taxes and deregulation? After three decades, we know what that does, it shifts wealth from the middle class to the oligarchs." Doug?

  • 10:42:18

    HOLTZ-EAKINSo the strategy comes from simply process of elimination. If you look historically at financial crises, economies typically grow slow coming out of them. It takes a long time to recover. The U.S. looks a lot like that. Households have had a lot of debt going in, the value of their assets has been badly diminished during this financial crisis and recession. They are going to save more and indeed they are. And the data they're saving, it's popped up to about 6 percent. There are some calculations I've done that suggest that 8 percent wouldn't be crazy.

  • 10:42:47

    HOLTZ-EAKINSo the notion that somehow households are gonna power this economy out by spending money hand over fist is, I think, just misplaced. Whether we'd like it to be true or not, it's just not gonna be. Same is true for the government sector. Badly strapped in many ways, locality states, even the federal government, you can expect them to power it. Process of elimination then says you're either going to have the business community standing or you're gonna sell to customers abroad. The strategy is dictated on that. It's not a philosophy that says trickledown or anything like that, it's we need growth. The millions of Americans out of work are desperate to see the economy grow faster. We should be concentrating on the healthy parts of economy to get them to move it forward.

  • 10:43:27

    REHMAll right. Alan Blinder.

  • 10:43:27

    HOLTZ-EAKINAnd that's an...

  • 10:43:30

    BLINDERWell, I think the prospects for hiring hinge on the prospects for sales mainly. That's always the case. There are taxes and exchange rate and a thousand other considerations, but sales are always the dominant factor. The problem is in this recession and recovery, relative to what happened to sales, which plunged and then recovered weakly, firms fired too many workers. By too many, I mean more than you'd expect from historical experience, that's what I really mean. And on the way up, they've hired fewer than you'd expect through historical experience.

  • 10:44:09

    BLINDERSo what do you do about that? Well, there are ideas for incentives for more hiring, but I think the main thing -- and I support some of those -- but I think the main thing you have to do is put more demands into the economy, which takes us back to the beginning of this conversation. Eventually, with sales buoyant enough, you will see more hiring.

  • 10:44:29

    REHMAll right. To Summit Point, W.Va.. Good morning, Daniel.

  • 10:44:35

    DANIELGood morning. And to be as brief as possible, last week, when I heard the European Central Bank representatives declare that the key to the solution of the world's economic crisis is paying down on debt, I was concerned – well, what that meant between the lines was, were they afraid that they wouldn't get theirs before a major collapse? And the other thing, what would the release of these reserves of the banks and the corporations do to the inflation problems we could be experiencing?

  • 10:45:06


  • 10:45:07

    GREENBERGERWell, we're certainly, I mean, my personal view is inflation is not a problem right now and we haven't -- my own view is we should be more worried about deflation. And deflation means you don't spend money today because things may be cheaper tomorrow, which may explain why corporations are holding onto their money. And I also think Alice's point about a lack of confidence has a lot to do with that. And frankly, I mean, I must say, I may be the dissenter here, but as a state employee who works with states and cities on a daily basis, the -- I see an economy out there that is in dire, dire straits.

  • 10:45:47

    GREENBERGERI think the American people haven't fully been exposed to it yet. Fire departments are going through brownouts and not being able to serve people. Police are being fired, are not allowed to play overtime. Classrooms are being doubled in size. The statistics that come out, and we're gonna have more statistics this week, are frightening. This is a serious problem. And when you rally through the options that Douglas rallies through, it seems to me the only option that has worked is the stimulus. We've tried to rely on corporations and the banks and free trade for at least a decade and maybe more.

  • 10:46:24

    REHMWhy do you think that the stimulus has not provided more observable results than it has?

  • 10:46:34

    GREENBERGERIt was -- from the get-go, people like Joe Stiglitz and Paul Krug – Joe -- both Nobel-worried economists said, it wasn't enough. And now, many, many, people are saying, we need a second stimulus. And the third thing I would say, I think the Obama administration has been dreadful in explaining the CBO report, has put wind at their back at what the stimulus has done.

  • 10:46:58

    REHMAlan Blinder, are we likely to get a push for a second stimulus?

  • 10:47:06

    BLINDERIt doesn't look it to me. I think the stimulus has got a bad name. Indeed, when politicians talk about things that are stimulus now, they don't wanna use the S-word any longer. I think it's a bum rap. As Michael was just saying, I agree very much that, in retrospect, it was too small. It wasn't so obvious at the time, I don't think, but in retrospect, it was too small. And the sort of salesmanship job that's been done by the administration has been inadequate.

  • 10:47:34

    BLINDERBut above all that, there's a big problem in -- when you rely on the counterfactual, that is the predicate of this discussion needs to be, but in the public domain isn't, that things would have been vastly, vastly worse without the stimulus and without some of the things the Federal Reserve and others did. Most all economists, not all, but most all economists believe that, but it's a very hard case to make...

  • 10:47:58


  • 10:47:59 the -- in a public political debate.

  • 10:48:02

    RIVLINI agree with that. I think, though, that we should get away from the word stimulus 'cause it's gotten a bad name and just talk about getting money where it's needed. And I, as I said earlier in the show, agree with Michael's point that the states needed -- those firemen are being laid off or on short wages and we need to make sure that the states aren't doing the wrong things.

  • 10:48:27

    REHMAll right. To Pete, who's in Rochester, N.Y. Good morning. You're on the air.

  • 10:48:33

    PETEGood morning. The reason why the economy is stagnant or in a deflationary state is because average working people haven't seen a raise in 37 years. They have seen their jobs shift offshore, while at the same time, productivity has increased and the wealth created by the working class has been shifted to the owner and investor class, the millionaires and billionaires who don't spend the money. They have seemed they're wealthy. The people at the top -- what is it? The top 10 percent now controls something like 75 percent of the wealth, while the bottom 50 percent has control of 2.5 percent of the wealth.

  • 10:49:12

    PETENow, if we don't start changing the way -- the basics in this country and start making things again, like we did in -- between the '40s and the '70s, we have history that will show us what works for the economy. This country has changed direction over the last 30 years, and this is the result of that inversion of our economic model. Now, Alice Rivlin said something...

  • 10:49:37

    REHMAll right, sir. Thanks for calling. Doug, do you wanna comment?

  • 10:49:43

    HOLTZ-EAKINWell, it -- I think their -- it's useful to think about two different things. And the long-term distribution of both earnings and wealth has unquestionably become more controversial. We know this has been going on since the '70s, through the '80s, '90s and it has a lot to do with skills, the fact that our schools are failing a lot of our children. And I think that's the number one long-term problem the U.S. faces, is a failing school system and what it's wrought on the middle class.

  • 10:50:13

    HOLTZ-EAKINAnd then there's -- what happened in the sharp downturn and how do we get a recovery? And this downturn was, in a large part, a financial crisis. And the Main Street economy, to a remarkable degree, held up against higher oil prices, all sorts of headwinds from the housing market, but when the financial market fell apart and credit dried up, we got a deep recession. And we should be cognitive as we try to get the economy back to full employment and then deal with these long-run problems about the skills of the people that should earn a living. I think that's -- those are two different issues.

  • 10:50:50

    REHMHere is a question for you, Doug, from Marilyn in Severna Park, Md. And she says, "Would you please specify in what areas you would like to see cuts in government spending?"

  • 10:51:09

    HOLTZ-EAKINPersonally, I think we could spend a lot less in government procuring of weapon systems. We continue to both spend money on the enemy that we face at the moment, which is a terrorism kind of threat, and still do the procurement of the last war that we fought, which is a large nation-state war. So it's time to get the purchase programs in the Pentagon lined up with reality. We've spent a lot -- big increases in nondefense discretionary spending. And I think you could pare back almost across the board. And ultimately, anyone who looks at the federal budget knows that going forward, we will have to have less rapid growth in health and in retirement savings program or retirement support programs or it just isn't gonna add up.

  • 10:51:55

    REHMYou were talking about Social Security and Medicare.

  • 10:51:58

    HOLTZ-EAKINYes. Absolutely.

  • 10:52:01


  • 10:52:02

    RIVLINI agree with Doug on the long-run problem. We have to rein in spending in the longer run and raise taxes too -- because we're just growing our debt much faster than it's sustainable. But we can't do it right now. Right now, we need to get out of this recession, get the economy growing again. We can take actions now that will affect the long-run deficit, but not -- we should not be taking ones that will make the recession worse.

  • 10:52:32

    REHMAll right. Tell me what you would do right now, Alice Rivlin, to get us out of this economic recession.

  • 10:52:42

    RIVLINI would do some stimulus, but I wouldn't call it that as I said. (laugh) Aid to the states and some other kinds of spending that, as Michael said, we need or somebody said we need to do in the long run, we can do infrastructure spending. I think the Fed has some tools it could use, but probably won't be terribly effective. And we have to recognize we're in a deep hole and it's gonna be slow coming out.

  • 10:53:09

    REHMAlice Rivlin, senior fellow of Brookings Institution. And you're listening to "The Diane Rehm Show." Let's go to St. Louis, Mo. Mathias, you're on the air.

  • 10:53:23

    MATHIASHi, how are you all?

  • 10:53:24

    REHMFine. Thank you.

  • 10:53:25

    MATHIASI was wondering if perhaps -- it seems like the panel all recommends there's a need for a stimulus package and I'm always hearing the corporations have tons of cash. Is it possible that we could get a, you know, a stimulus package under another name that Republicans might say yes to by just doing aggressive tax credit in the targeted way to unleash this torrent of corporate capital, i.e. to get corporations to spend money at the government's, you know, expense in terms of future tax revenue?

  • 10:54:01

    REHMAlan Blinder.

  • 10:54:03

    BLINDERWell, I think the answer to that is yes. The question is coming up with a plan. The one that's been discussed substantially and done on a very pitifully small scale is the so-called -- what economists call new job tax credit, that's the subsidy which creates an incentive, of course, to increase your employment. So say if your -- if you would raise your 2010 employment over your 29 -- 2009 base, the government would pick up a fraction of the cost, maybe not a trivial fraction. I'm not talking about 2 or 3 percent, but a substantial fraction.

  • 10:54:38

    BLINDERAnd I've long favored that idea. The administration suggested it maybe a year ago. The Congress enacted it under the name the HIRE Act, H-I-R-E, but on a very, very small scale. As far as I know, the evidence on the HIRE Act suggests it'll work pretty well, but it was like giving a quarter of an aspirin to somebody with a big migraine, so it helped a tiny bit because it was a tiny dose.

  • 10:55:02

    REHMAll right. Alan, very briefly, I'd like each of you, now that Alice has already offered her thoughts, I'd like you and Doug and Michael to each offer the one thing you would like to see done now to stimulate the economy. Alan.

  • 10:55:26

    BLINDERI have to do one?

  • 10:55:27

    REHMOne. (laugh)

  • 10:55:28

    BLINDERWell, since I already mentioned the new jobs tax...

  • 10:55:31


  • 10:55:31

    BLINDER...let me mention something like a CCC/WPA program of direct public hiring. A lot of that would have to be at the state and local levels because the federal government, I don't think has the capacity to absorb that many workers, temporary jobs in the public sector.

  • 10:55:50

    REHMAll right. And Doug.

  • 10:55:53

    HOLTZ-EAKINWell, I think Alan said earlier the key is to get spending so the businesses have some sales. I think the key is for those sales be businesses, so I'm all in favor of tax provisions, like the new -- the HIRE Act, which is a bipartisan act to appoint out something we had a hard time getting. Anything that gets businesses spending is gonna be the jumpstart. They've got the cash and they're the key.

  • 10:56:15

    REHMAll right. And finally to you, Michael.

  • 10:56:18

    GREENBERGERWell, I would talk about something we haven't talked about, which is small business which is the real generator of job growth. There's stalled legislation that's pitifully small to help small business in Congress. I would have very big directed loan programs to small business and get them moving again. That's how we'll get jobs.

  • 10:56:37

    REHMMichael Greenberger, professor at the University of Maryland Law School, Alice Rivlin at the Brookings Institution, Alan Blinder, professor of the economics and public affairs at Princeton University, Douglas Holtz-Eakin, president at the American Action Forum, chief economist and director of the CBO from 2003 to 2006. Thank you all so much. Thanks for listening all. I'm Diane Rehm.

  • 10:57:11

    ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture and Monique Nazareth. The engineer is Tobey Schreiner. Dorie Anisman answers the phones. Visit for audio archives, transcripts, Podcasts and CD sales. Call 202-885-1200 for more information. Our email address is This program comes to you from American University in Washington. This is NPR.

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