Inflation is high. The GDP has shrunk. But the job market has never been better. The Washington Post's Damian Paletta helps make sense of the U.S. economy today.
Yesterday President Obama urged Congress to pass his $447 billion jobs proposal with ‘no games, no politics, no delays”. It’s a plan that includes tax cuts for working Americans and small businesses. It also includes spending on teachers, schools, and infrastructure. President Obama says his plan will put people back to work and incorporates ideas from both the left and the right, but some Congressional Republicans raised immediate objections to plans to pay for the bill which include higher taxes on wealthier families. Join us to discuss the ongoing political struggle to find ways to spur job growth
- Jared Bernstein Senior fellow, Center on Budget and Policy Priorities; former chief economist and economic policy adviser for Vice President Biden.
- Jonathan Weisman White House reporter for "The Wall Street Journal."
- Rea Hederman Senior policy analyst, The Heritage Foundation.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. President Obama's nearly $450 billion jobs plan focuses on small business. It includes both tax cuts and new spending. But it remains unclear whether congressional Republicans will go along with all or even a part of his package. Joining me to talk about the latest effort to revive a dismal jobs picture, Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities, Jonathan Weisman -- he's White House reporter for The Wall Street Journal -- and Rea Hederman.
MS. DIANE REHMHe's senior policy analyst at The Heritage Foundation. Throughout the hour, I do invite your comments, questions, 800-433-8850. Send us your email to firstname.lastname@example.org. Join us on Facebook or Twitter. Good morning to all of you.
MR. JONATHAN WEISMANGood morning, Diane.
MR. JARED BERNSTEINGood morning, Diane.
REHMBefore we start with this jobs plan, we've just gotten a new poverty report. Jared Bernstein, what's in it?
BERNSTEINNot such great news as you'd probably expect, given that these are data for 2010. That was, of course, a tough year for the economy and the job market. The official poverty rate in the nation went up to 15.1 percent in 2010 from 14.3 percent last year, so that's a big jump. It's the third consecutive annual increase in the rate.
BERNSTEINThere are now about 46 million poor people, and, you know, that's quite a high level of poverty. What's particularly notable, I think, from the -- what we're going to talk about today, jobs, the current economy, how the middle class is fairing was the quite sharp decline in median household income, the income of the typical household right there in the middle of the income scale. Their income is around the $50,000 range.
BERNSTEINIt fell over 2 percent in 2010, more than $1,000 to around -- from about $50,500 to around $49,500. Interestingly, the number of people with health insurance, which is the third piece of information we get here, didn't change statistically. Or, actually, I think the number without insurance may have gone up some, but the share didn't change.
BERNSTEINBut what we saw is a continuing trend of private employers shedding health insurance coverage of their workers and to some extent, I think, government picking up some of the slack.
REHMJonathan Weisman, do you want to comment?
WEISMANWell, it's just more bad news. I mean, you think about President Obama facing re-election with a terrible jobs market. But now, there's this data point on poverty where 15 percent of this country now lives in poverty. And every time you -- it just drags up that question: are you better off now than you were four years ago? And it's just getting to be the hardest question to answer.
MR. REA HEDERMANI agree with most of what has been said. I mean, this is not good news, no matter what party or political ideology. If you take a look at some of the numbers, they are pretty surprising, specifically the falling median income. But that's not surprising because we know that we've had elevated levels of unemployment, and wages really aren't keeping up right now. And so that's a problem for people who have lost their jobs.
MR. REA HEDERMANIt's a problem with people who have jobs because their compensation is down a little bit. Now, one thing that is important to realize is that a lot of public policies that we have to combat poverty are not being reflected in these numbers. Things like the earned income tax credit, which is one of our biggest anti-poverty programs, doesn't show up in these official numbers.
MR. REA HEDERMANSo, you know, the real picture isn't quite as bad because some of our anti-poverty programs don't count as official money income.
REHMI see. Why don't they show up here, Jared?
BERNSTEINWell, in the case of, say, the earned income tax credit, this is what's called the pretax measure. So it looks at your income before taking account of taxes. But some of the measures do show up. And, actually, as the day goes on -- I think these data came out about five minutes ago -- we'll be doing more analysis, particularly at the Center on Budget and Policy Priorities.
BERNSTEINAnd one of the things we're going to look at is how much, for example, unemployment insurance benefits, which, of course, the administration expanded considerably under the recession, including in 2010, lowered the poverty rate 'cause that is counted. That's part of your pretax income that counts in these measures. And that definitely took millions of people off the poverty roles. That said -- Jonathan is right. It's way too high.
REHMAll right, Jared Bernstein, Jonathan Weisman, Rea Hederman. Jonathan, tell us what's in the president's new plan.
WEISMANWell, the centerpiece of the plan is unemployment insurance -- I'm sorry -- unemployment tax cut. It's an extension of the one that will take us through...
HEDERMANYou mean the payroll tax.
WEISMAN...the current year -- payroll tax cut -- I'm sorry, payroll tax cut that the president and Republicans in Congress and Democrats in Congress signed. For this year, it will expire at the end of the calendar year if nothing is done. The president wants to extend it for another year and expand it.
WEISMANSo it would be, actually, a considerably a larger tax cut for next year. There are job training funds. There is money for road construction, for infrastructure construction, for school construction, and a new round of money that would go to state and local governments to prevent more layoffs. You know, we've really been seeing, every month, how much the retrenchment in state and local governments.
WEISMANLayoffs of cops, firefighters, teachers have really dragged down employment in this country.
REHMWhat about the housing market? How -- there are provisions within this?
WEISMANI think a lot of people were very disappointed in that. They wanted to see a lot more. The fact of the matter, it's a very tough nut to crack. It's perhaps the hardest policy question that we face. But housing is what, at root, is what's holding back a real economic resurgence here. And we're not getting a whole lot of those.
REHMSo there's $15 billion for rehabilitating vacant and foreclosed homes. There's also a lot in the way of airline transportation, the FAA, ground transportation, buses, surface all kinds of transportation projects.
WEISMANRight. There's $50 billion in there for something called immediate surface transportation, which really means roads and bridges and airports, kind of a continuation of some of the infrastructure work that was done in the Recovery Act. As you mentioned, there's $30 billion in there for modernizing schools, 25 for the public schools, something that, in fact, we talked about on this program not too long ago.
WEISMANFix America's Schools Today, this is a great infrastructure program to repair the backlog of maintenance on the public schools, something we stood up pretty quickly. So it's a multi-faceted plan. You know, on the housing point, I just want to point out something that I found kind of remarkable.
WEISMANDuring the speech, the president did talk about some measures that they're working on, particularly one to try to help people refinance and to lower interest rates, and he got a standing ovation. Now, as someone who's followed this obscure area of mortgage finance and housing economics for years, that was kind of a strange moment to see everybody stand up. But, in fact, that would be a tremendous multibillion dollar stimulus for the economy.
REHMRea Hederman, President Obama said he was taking items from both the left and the right to include in this plan. What do you think? How -- what kind of reaction will Republicans give?
HEDERMANRepublicans are going to look at this as kind of like a buffet table, that there's some things they'll like and maybe they'll put on their tray. I mean, the idea that we're going to continue the bonus depreciation for businesses, I think, will be very attractive to Republicans. That's something the conservatives had pushed for a long time, to encourage companies to continue to invest in.
HEDERMANI don't think, you know, Republicans are going to take a look at the payroll tax cut. I mean, this is not going to have a big effect in the margin. But, you know, in terms of bang for the buck, it may be not the biggest thing, but it's some things that is very compatible with elements of the conservative ideology.
HEDERMANI don't think that some of the bigger stimulus bills, kind of a repeat of 2009, infrastructure spending is going to meet with much popularity from the conservative members.
REHMOf course, he never used the words stimulus.
HEDERMANOr green jobs.
REHMHow is he going to pay for this, Jonathan?
WEISMANWell, we got yesterday the rundown on how he was going to pay for it, and it looks very familiar. He is going to limit -- he would like to limit the size of deductions that more affluent taxpayers pay. He will...
REHMTwo hundred and fifty and above.
WEISMANYeah, over $250,000. He -- you know, right now, if you're -- if you give a charitable contribution and you're in the 35 percent tax bracket, you get to write off 35 percent for that. But if you're only in the 28 percent bracket, you'll get to write 28 percent off. His argument is that that's not fair, so we're going to cap it at 28 percent.
WEISMANNow, he's tried it before. Peter Orszag, when he was his budget director, came up with this idea before. And it's one of those ideas that gets a whole lot of kudos from economists and gets nothing on Capitol Hill. It went nowhere.
BERNSTEINRight. But, you know, Jonathan, as you pointed out, I mean, the president proposed this in 2009, 2010. It's always been part of his deficit reduction, but it has no political chance of passing. And it was dead when Nancy Pelosi was speaker of the House. And if there's an adjective for being more dead, I mean, that's where it is right now.
WEISMANMy favorite one was, once again, President Obama is saying he wants to close the carried interest loophole. This is a tax provision in which very, very affluent Wall Street traders, people in the private equity firm, because they get a percentage of the money coming back from their clients in capital gain, they take their income as if it's capital gain.
WEISMANSo these people who literally are earning billions of dollars or hundreds of millions are paying a 15 percent rate on the money that they receive from their client.
REHMSo doesn't that make sense, Rea?
HEDERMANWell, you know, you got to take a look at who exactly are getting it. Some of them are hedge fund managers. Some of it is from the capitol gains. But other elements, you know, Republicans are talking about saying that we believe that low capital in gains encourages investment. We know right now that (unintelligible)...
REHMWe aren't seeing much investment.
HEDERMAN...we happen to business, we're not seeing any business investments -- that's right. And so the idea, you want to raise taxes, raise money on investment is the exact opposite of what you want to do right now.
WEISMANWith great respect for Rea, who's very balanced on these issues, I think that's kind of just muddying the waters. I mean, in this case, we really are talking about a tax rate of 15 percent for people managing hedge funds. And I'm probably not quite as hard-boiled as my colleagues here on this stuff in the following sense. I totally agree with them that it's been in the budget, hasn't gone anywhere.
WEISMANWhat the president is doing now -- I think, probably, the probabilities are that it's very hard to get this over the bar. What the president is doing now is being very clear and explicit with America about two things: fairness in the tax code and, folks, we have a choice. Do we want to protect the income of hedge fund managers, or do we want some jobs?
REHMJared Bernstein, Jonathan Weisman, Rea Hederman. We'll take a short break. We'll be back with more and your calls.
REHMAnd we're back. Jared Bernstein is with the Center on Budget and Policy Priorities. Jonathan Weisman is White House reporter for The Wall Street Journal. Rea Hederman is senior policy analyst at The Heritage Foundation. The other ways that the president talked about, paying for this nearly $450 billion proposal, is through oil -- stopping the oil and gas company tax breaks. Is that going to fly?
WEISMANYou know, I -- all these individual provisions, they've been tried before, and they haven't gone before. Now, that said, there is a bipartisan upswell of opinion that says, we need to start pruning the tax code. So, for instance, right now, the super committee in Congress is looking at the budget and what to do with the budget.
WEISMANAnd if these measures are taken in their totality, and you start looking not just at special tax breaks that the oil and gas industry gets, but special tax breaks that the wind industry gets or that solar gets, if you start looking at it in a broader sense, you can make progress on these things because we need the money.
REHMWhat do you think, Rea?
HEDERMANI think Jonathan's right, that there are special subsidies that industries are getting, that are simply inefficient. I mean, the president is taking a look at some of them and saying, hey, these are good things. Let's eliminate subsidies for oil and gas. But we need to go farther and say, let's get rid of some of these plants, or basic corporate welfare.
HEDERMANI think the other half of the equation, though, is if we go down that road, it makes it even all the more imperative that we start reforming our corporate tax rate structure. The economists for the organization of economic and cooperative development nation say the corporate tax rate is the most inefficient tax structure that we have.
HEDERMANAnd the United States now has the highest statutory rate. As we start to eliminate these deductions and loopholes, we need to make sure that we lower our corporate tax rate to make us more competitive.
REHMYou know, I've heard that phrase before, that the United States has the highest corporate tax rate in the world. There are some questions about that, Jared.
BERNSTEINWell, the idea is that the -- what Rea is correctly talking about is the statutory rate, the rate that's on the books. But, of course, you know, almost nobody pays that. And, in fact...
BERNSTEINBecause of all the loopholes.
WEISMANBut they would pay it if we start getting rid of the loopholes. So when they do, it does have to go together. If you eliminate the loopholes, you got to do something about the rate.
BERNSTEINBut the effective rate that they actually pay is kind of towards the bottom in the international lineup, so -- but here's the point on this. I mean, especially -- I think Jonathan raised points about reforming the tax code, are great points. I'm with you all the way. What I don't like and very strongly disagree with is this idea that I keep hearing from a lot of mostly conservatives that if we want jobs today, we have to reform the corporate tax.
BERNSTEINWe have to cut the corporate rate or let them repatriate all their earnings from abroad. In fact, in the most recent quarter, 2011, Q2, the most recent data we have, corporate profits after tax, as a shared GDP, are the highest they've ever been -- on record, Diane, going back to 1947 when the data begins. I mean, if profitability led to hiring -- after tax profitability led to hiring, we wouldn't be in the mess we're in.
BERNSTEINSo giving corporations more goodies right now won't help on what, to me, is the number one problem in America, which is jobs, unemployment, paychecks.
WEISMANAnd corporate investment, actually, is fairly healthy as well. So...
REHMOkay. Now, one thing I've heard Republicans talk an awful lot about are the regulations that are somehow impeding growth, impeding job hiring. Specifically, what regulations are you talking about, Rea?
HEDERMANSure. Conservatives are pointing to two. Two 2,000-page bills are passed in the past year, which is the Dodd-Frank, which basically re-regulated the financial sector, and then, obviously, the health care bill. And it's not just Republicans.
HEDERMANIf you take a look and you read speeches and read reports from Federal Reserve Bank presidents, when they go out and they talk to business owners, business owners are saying, I'm not hiring anybody till I understand how these regulations are going to affect me.
HEDERMANAnd this is particularly harmful for small businesses who, quite simply, don't have the HR departments, don't have the resources to be able to understand how all these complex regulations are going to affect these businesses.
REHMOkay. So tell me how Dodd-Frank works.
BERNSTEINOkay. It's -- as Rea said, it's complicated. I would say, broadly speaking, it works by re-regulating financial -- the financial industry, particularly banks that have -- and lending institutions, non-bank lending institutions, like investment banks, that have historically been outside the range of regulation.
BERNSTEINSo, for example, they could make -- an investment bank could make tremendous amount of loans, global loans, have great exposure to the global economy, with very little "capitalization," meaning very little money in their...
REHMMoney behind them.
BERNSTEIN...money in their coffers behind...
BERNSTEIN...those loans. So if some loans go bad, they can go down, like Lehman did, and, you know, remember what happened after that. So what I dislike about this criticism is that if you want to try to implement Dodd-Frank and health care reform in ways that are better, please, be my guest. Go right ahead. Let's do it. Let's talk about how to implement them more effectively. But let's not forget that it was deregulatory zeal that got us into this mess.
BERNSTEINWe have very short memories about this stuff. And left to their own devices -- the history shows us from the days of Adam Smith, who, by the way, recognized this very clearly, as did the founders of capitalism, that, left to their own devices, financial markets will continually go off the rail. So you need something like this in place.
WEISMANWell, you know, Dodd-Frank is a really interesting bill because it's massive, and there are lots of things in there that President Obama didn't want, most people didn't want. But they just got slipped in. Let me give you one example. There's a measure in there about conflict minerals. Now, we've all heard about conflict diamonds, these diamonds that are mined in war-torn parts of Africa.
WEISMANWell, Sam Brownback, at that time a conservative Republican senator, who is a religious Christian conservative who was very concerned about the Congo, he slipped in a provision that said that there are four minerals that he wants every company to certify that their equipment doesn't use. I can't even remember which one -- tungsten. And, now, companies like Xerox have to go through and show that none of their tungsten came from the Congo.
WEISMANThis isn't a provision. The provision has absolutely nothing to do with Dodd-Frank. It has nothing to do with the -- re-regulating Wall Street. But it's in there, and, you know, it wasn't put in there by President Obama either. It wasn't even put in there by Democrats.
REHMSo what else? Give me another example of a regulation that must be reformed from the Republican standpoint.
HEDERMANWell, I think you can take a look at a lot of them coming out from the Environmental Protection Agency right now. I mean, President Obama himself, you know, suspended one of the latest EPA regulations, recognizing that, you know, these things have cost.
HEDERMANAnd they have an economic cost, where if you're going to sit and there and say, we're going to more closely regulate industries, you've got to recognize that means industries are going to have to have higher capital costs, going to have additional expenses. So they're going to be less likely to expand and hire new employees.
HEDERMANAnd so taking a look and saying, which of these regulations can we look at and say, from an economic sense, can be cost-effective to get rid of? Take a look at some of the regulations that really hit small businesses pretty hard. I mean, there's constant examples like this that we enact regulations, and they're saying, we're going to try to regulate the lead industry in toys.
HEDERMANSo even, like, a homemade toy industry in the United States, made out of wood, are now subject to additional testing because small businesses, a lot of times, get swept up in the same regulatory net that's really kind of capturing, you know, big toy producers, for example.
HEDERMANAnd these are all combined to make it very costly to start up new businesses, which is one of the reasons that we have not seen small business startups lagging for the last three or four years.
BERNSTEINSo, I mean, I think that the problem with the argument that Rea is espousing is twofold. First of all, there really is no compelling research that I've seen that connects these regulations to job growth. It's kind of interesting. I mean, you -- the way you talk about it, it sounds like every employer is -- you know, has all these people coming into their store, their restaurant, their factory, wanting orders.
BERNSTEINAnd they're saying, you know what? I can't hire anybody 'cause of page, you know, 2,017 of some EPA regulation. I mean, that's just not the way commerce works.
REHMAll right. Let me read...
BERNSTEINOne other point, Diane.
BERNSTEINThe other problem with the way you hear the argument espoused is it's all costs. Believe me, there are benefits to clean air. There are benefits to safe toys. And you've got to factor that in as well.
REHMAnd that's why I want to read you this email that's just come in from Mark, who says, "Does anyone on your panel actually believe that getting rid of environmental and worker protections is better for the country than getting rid of tax breaks for hedge fund managers?"
WEISMANWell, I mean, look. We -- I think Rea, Jared both would agree the real problem here is demand. I mean, come on. Let's go back to Economics 101. The reason people don't hire people is because there is not enough demand for the product they are selling, and there won't be demand until the...
REHMAnd that's because they can't get jobs.
WEISMANAnd -- that's right. It's a vicious cycle, the whole number.
REHMThey can't get jobs. So, Jared, these numbers that came out this morning, how did they play into President Obama's jobs plan?
BERNSTEINThey play directly into it. You know, you just said that's because they can't get jobs. And I think that's exactly right. And, by the way, it's interesting. In these numbers, it's not just that they can't get jobs. It's that the people with jobs are facing declining real pay and, now we know, declining real incomes. You can be at work. But because unemployment is so high, your pay is lagging behind inflation.
BERNSTEINAnd that -- and you're not -- you know, and typically, you may not be able to get as many hours of work as you want, and that's leading to lower annual rates of income. I think all of this creates more urgency for a jobs measure that helps get people back to work. It's...
REHMAll right. And to you, Jonathan Weisman, watching the White House, watching congressional representatives, what are the risks for Republicans as they consider this bill? You've already heard Rea talked about the EPA, Dodd-Frank. You know, are people going to look at this from that perspective or for tax breaks for hedge fund managers?
WEISMANWell, I think that you have to look at the interesting breakdown between how the Republican candidates for president -- for the presidency responded to the president's proposal and how Congress did because the presidential candidates just basically said, it's terrible. I hate it. We don't -- we're not going to touch it.
WEISMANBut, you know, the leaders of Congress, the Republican leaders of Congress are looking at the same polls that President Obama is looking at, which is Washington is extremely unpopular. Congress...
REHMAnd Congress is at 13 percent, yeah.
BERNSTEINI read 13 percent.
WEISMANYeah, nobody likes what Congress is doing, and so they have to look at their own self-preservation and say, you know, just sitting on our hands is not helping us. We need to do something and...
REHMSo they heard that when they went home in August.
WEISMANAbsolutely. Absolutely. I mean, look, Americans like to see people getting along. They like to see their government working. And the reason that Congress is so unbelievably unpopular right now is they just -- the people loathe all the bickering and gamesmanship.
REHMAnd there was a lot of time wasted on this debt ceiling issue, Rea.
HEDERMANThat's exactly right, Diane. I think, you know, you take a look at some of the polls before and after the whole debt ceiling fight. It turns out, you know, from the popularity standpoint, there were no real winners. I mean, both people sit there and said, this is ridiculous. Everybody is acting, like, you know, kind of kids in a classroom throwing food at each other.
HEDERMANAnd so I think that really kind of -- Sam Coleman realized after the Republicans sitting there saying, we need to show that we can govern this country. And I think, you know, Republicans are going to put forward kind of a counter-jobs proposal and say, this is what we stand for. They're going to need something positive, I think, to show people, to say that we can put people back to work as well.
HEDERMANAnd they will look at some of the ideas that the president has put forward like the depreciation.
REHMRea Hederman of the Heritage Foundation. You're listening to "The Diane Rehm Show." We're going to open the phones now, 800-433-8850. Send us your email to email@example.com. First to Hickory, N.C. Good morning, Russell.
RUSSELLGood morning. Good morning. Hey, real quickly. You guys were talking about the poverty numbers earlier, and one of your panel mentioned that it brought back the age-old question, you know, are better off now than you were four years ago? And it's amazing to me how short the memory is of the American public. I mean, where were we four years ago? What were we dealing with?
RUSSELLWhat did President Obama have to deal with when he first got into office? You know, we've been through a lot in this short period of time, and I think he has done an amazing job having to deal with the issues he's had to deal with so far. I believe that he will, given the opportunity, correct this job situation before his term is up, if he gets cooperation from the Republican Congress.
WEISMANYou know, a couple of weeks ago, I was in Youngstown, Ohio, talking to people about this exact issue. And what's really interesting -- and you look in the polling, you see it, too -- people still don't blame President Obama. Generally, more than half, about 62 percent of Americans think that the economy that he's dealing with is what he inherited from the Bush administration. But, as the caller said, they're also impatient.
WEISMANAnd even if they say this really wasn't President Obama's fault, they're still looking for an alternative. Maybe somebody else has a better idea than the president has. So the president's political imperative right now is to say, I know the way forward. I know how to get out of this.
BERNSTEINI think one of the problems that the Republican team has, the candidates, as I've listened to their economic plans, including Mitt Romney's 160-page, 59-point plan, which is quite elaborately articulated, is that it really does look to me -- and I think it's going to look to a lot of voters -- very much like the roadmap that got us into this mess. And it's always...
BERNSTEINIncluding basic -- the deregulatory agenda, the supply side tax cuts. I mean, for example, in Romney's plan, he wants to take the corporate code down like my colleagues were just saying, but with no loophole closures. So that's a big revenue loss. He wants to cap government spending, you know, to shrink government to levels that are really incompatible with even our demographics, our aging demographics.
BERNSTEINThey want to do the voucher plan, for example, on Medicare. And these issues -- and you hear Perry calling, you know, Social Security a Ponzi scheme. That kind of, really, quite radical conservatism on one hand and supply side sort of George W. Bush economics on the other hand, I think, is going to actually strengthen the president's argument as Jonathan...
REHMYou know, it's interesting. This morning, I heard someone say it will be the Tea Party which nominates the next Republican candidate for president, not the GOP. Now, what kind of difference would that make, that is that the Republican Party will not be the one making the decision but the Tea Party will, Rea?
HEDERMANWell, you know, in primary, you always hear that you run to your base. And if your base is out of the mainstream, it's going to make it much easier for President Obama to be re-elected. And so the question is, you know -- is the -- what the Tea Party's espousing, you know, radically different to our former government, the idea that you're going to sit there, we're going to reduce the deficit, we're going to roll back the intrusion of the federal government on a variety of different areas?
HEDERMANIs that where mainstream Americans going to be, where they personally can win the Tea Party nomination, can be elected by a majority of the electoral votes in this country? And that's a question about whether or not the Tea Party is out of step from the rest of America.
HEDERMANI mean, it's important to realize, you know, that we talk about -- there are certain elements, you know, of the George W. Bush presidential administration that are obviously still very unpopular, but the stimulus bill, kind of the complete opposite as applied science economics, is extremely unpopular to American people.
HEDERMANMost people feel that the stimulus bill was a complete failure and a waste of money. So people are taking a look, saying, man, I don't like anything I've heard in the last 12 years.
REHMRea Hederman of the Heritage Foundation. Short break here. And when we come back, more of your calls, emails, your tweets and postings on Facebook.
REHMWelcome back. And here's an email for your consideration from Mark in Little Rock, Ark. And I think this gets to the heart of President Obama's challenge, when he said, no games, no politics, just pass it. Mark in Little Rock says, "Republicans will not compromise, and they won't until the American people actually make them pay for not compromising.
REHM"They've made a conscious political decision that actually doing something does not help them with their base, so they'd rather just talk about job-killing regulations." What do you think?
BERNSTEINI think Mark is quite accurate, and I think that the president understands where Mark is coming from as well and understands the point that Jonathan made earlier, which is that when Congress is pulling a 13 percent, that's probably a little bit above the common cold. You've got a situation where people got an earful in the August recess about getting back to work and helping them get back to work.
BERNSTEINAnd so what Mark is correctly pointing out and what the president -- the playbook the president is following is trying to bring his plan to the people and try to get some bottom-up pressure for Congress to actually sit down and try to do some compromising on this.
REHMRea, will Republicans be willing to compromise?
HEDERMANI think they will. I think they'll take a look at some of the provisions in there, and they will move seriously on them. I think there's few other elements of compromise we haven't mentioned. The free trade agreements that are still on the table that had been successfully negotiated by President Obama, the Republicans have pushed for some of these with South Korea, Panama, Colombia for many years now.
HEDERMANAnd I think that's an element that, you know, that could wrap up that short order along with some of the other ideas the Republicans have traditionally supported, again, the bonus depreciation, taking a look and see if we can work in some areas of compromise of the corporate tax code. That's a big-ticket item, but it's something where you have both some unity on the left and right.
HEDERMANAnd so, I think, those are the elements that Republicans will be eager to work with the White House on.
REHMAll right. To Dallas, Texas. Good morning, Robert. You're on the air.
ROBERTGood morning, Diane. Yes, I just have a question for these guys. Why doesn't the president consider Corps of Engineers, like Roosevelt did back in the '30s with the Depression and everything? I mean, it would put people back to work. They would be paying taxes, and it would make jobs.
ROBERTAnd in a time when there's economic hardships, giving tax breaks to companies and individuals and people that use the infrastructure, the roads and everything, seems ludicrous. I mean...
REHMIt's an interesting point. Jonathan.
WEISMANYeah, Jared knows all about this, too. But when the vice president's office was looking at the lessons of the Depression, you know, they looked at when Roosevelt decided to build Skyline Drive through the mountains of Virginia or when they decided to build the Hoover Dam. You know, at that time, they emptied out whole towns and villages of their working men, put them in tents, gave them shovels and picks, told them to go out and build these things.
WEISMANToday, you know, building Skyline Drive would be 100 guys with a machine. I mean, the world is very different from then. You know, the stimulus bill -- one of the measures in the stimulus law helped build an entire factory to help to build the Chevy Volt batteries, you know, electric car batteries. And, you know, a factory that once might have employed 10,000 people might employ 500 now. Massive work projects don't work the way they did in 1975.
REHMBut still, 500 is better than nothing, isn't it, Jared?
BERNSTEINYeah, I -- yes. And both Robert and Jonathan have a point. And, certainly, there's more productivity, more capital intensivity versus labor intensivity in this work. But Robert's point is well taken and worth -- policymakers ought to think about it. Basically, the closer you're getting to direct job creation, the better off you're going to be in terms of your bang for buck for those job created.
BERNSTEINSo if you're going with tax cuts all the time and you're just sort of crossing your fingers and hoping that people don't save those tax cuts or spend them on imports, which doesn't obviously boost our economy, it's much more indirect than, say, directly -- than, say, giving money to states to hire teachers back to work, to hire cops back to work, the infrastructure work, rebuilding the schools.
BERNSTEINThose measures are more direct. And I think they capture the flavor of what Robert says in a more contemporary sense as Jonathan did.
REHMAll right. To O'Fallon, Mo. Good morning, Jerry.
JERRYGood morning. If anyone's ever attended a business law class, the first thing they basically teach you is that business law, i.e. -- the societies and countries with the most consistent and most exacting regulations and laws generally have the most stable economies and societies. I think this is an example of taking advantage of a crisis.
JERRYA lot of these regulations have been painful, I guess, or at least, that's one of the main goals of the Republican Party is to eliminate regulations that allow -- that will, thus, allow people to essentially poison our air and water at our cost, cost of society. It's an extension of privatizing profit and socializing laws, the same with our -- you know, if our -- I can't think of the executive of the bank that said the regulations were un-American.
JERRYAnd if a bank would like to be unregulated, I think that's fine. But then the taxpayers should not be on the hook via the FDIC when they make bad decisions.
HEDERMANYou know, the keyword he used was kind of consistent regulation. Businesses want certainty. Businesses aren't -- they're trying to estimate what our costs are going to be six months -- they're looking at more six years from now. What happened is, is that we've had a whole bunch of regulations that have come down, which have adjusted how businesses are going to sit there and price out their workers.
HEDERMANIf I can't figure out what my compensation costs are going to be for my employees, that's going to make me more reluctant to hire. And this is what business owners are telling people who interview them, and I think that's showing up in the data as well. And we've had a whole lot of regulations changing, you know, the oil and gas leases being allowed and disallowed after the Deep Horizon oil spill.
HEDERMANAnd so this creates a lot of uncertainty in the business community. And I think businesses are showing up by sitting on their profits, and they're not going out to expand because they're trying to price in these new costs imposed by the federal government.
REHMIsn't business -- isn't becoming involved in business always uncertain? Doesn't it always involve uncertainties?
BERNSTEINYou know, I talked to a small business owner guy who runs a car service, and he was complaining about uncertainty. And I said, oh, what do you mean by that? Because I was interested. I hear that all the time. He's just, I just don't know how many customers I'm going to have next week. I think the story that Rea tells is an interesting one that may have something to do with certain large firms that are looking down the road.
BERNSTEINBut, in fact, what -- especially small businesses will tell you is that, no, it's not the debt-to-GDP ratio according to CBO 10 years from now or page 197 of the Health Care Reform Act. It's how many people I need to serve. The implications of this regulation argument or the kind of points you hear Conservatives make these days is that employers will leave money on the table.
BERNSTEINThey won't hire someone that they need to hire in order to make profits because they're worried about something that's going to happen, maybe or maybe not, years from now. And that's how businesses -- that's how a business would go out of business. It's just not -- it's not the way it works.
REHMAnd here's an email from Harold, who says, "A week ago, New York Times ran a survey of small business owners. Very few of them cited regulations as an obstacle to hiring. Obviously, none of these people are affected by Dodd-Frank. The most frequently cited obstacle was the cost of health insurance." Rea.
HEDERMANRight. Well, two things. First of all, small businesses are being affected by Dodd-Frank to the sense that capital costs are higher. Small businesses are often relying on more of your smaller, more local banks as where primarily small businesses oftentimes get their capital. These are the people who don't have some of the resources of the multinational banks. So I think Dodd-Frank does hurt the availability of credit for small businesses.
HEDERMANSecond of all, they're absolutely right. Health care cost for small businesses is a big concern. And that's exactly why you talk to a lot of small businesses. They're trying to figure out how the Affordable Care Act is going to impact their health insurances. They've got to figure out, you know, if I hire one more worker and I don't offer the right insurance, how much is this going to cost my overall insurance industry?
HEDERMANAnd the reason why this is so painful for small businesses is they don't have lobbyists. They don't have the people that can walk them through the HR implications. A lot of times, this is the entrepreneur running, you know, one or two small businesses or a restaurant owner trying to figure out how is he going to make all these things affordable.
BERNSTEINI'm sorry, Diane. Conservatives always want to cut taxes and cut regulation, and all they're doing now is mapping it on to the current economic conditions. And I think it's very opportunistic, and I think it's wrong.
REHMAll right. To Lansing, Mich., and to Steve. Good morning. You're on the air.
STEVEGood morning, Diane.
STEVEI would like to say that we haven't had a tax increase in this nation in almost 12 years, so I want to know, where are the jobs?
REHMThat's an interesting question. Jonathan.
WEISMANActually, I think it's a very good point. We hear a lot about the tax burden, tax burden. But, in fact, right now we have a tax code that was put in place when the Congressional Budget Office was projecting surpluses of $7 trillion. By now, we weren't actually supposed to have a national debt. We have a tax code that was put in place at such a remarkably different time, and yet, hey, it didn't exactly turn things around.
WEISMANI mean, look at the -- we're talking -- people are talking about maybe cutting capital gains tax rates again or dividends tax rates. I mean, we are at, you know, right now, tax rates -- I mean, as a percentage of GDP, we -- our taxes are about 16 percent of GDP. We have not seen tax intake this low since 1951. It's remarkable. Now, a lot of that has to do with the economy, of course. But we do have low tax rates. We have George W. Bush's tax codes.
REHMAll right. To Malden, Mass. Hi there, Sam.
SAMYeah. Hi. Thanks for taking my call.
SAMI'm a social worker in Massachusetts. And I work with children, and I do groups with kids. And one of the things we have in groups is you have rules. And the first thing the kids say is, we don't need any rules. We want to do everything -- anything we want to do. And inside of 10 or, tops, 15 minutes, these third- and fourth-graders figure out that without rules, you get chaos. Everything turns to chaos.
SAMNone of the games are fun. None of the activities are fun. And by the end of that first meeting, they all agree to rules because they absolutely see how essential they are to having a good time and having fun. And I would like to draw an analogy between my third- and fourth-grade groups to what's happening in the country in terms of banking regulations and financial regulations.
SAMAnd that is that rules and regulations are essentially the same thing. And without rules and regulations, you have a group where the bullies take charge. And that's what these kids got really fast. There's one guy who -- or gal who takes advantage of the rest of the group.
BERNSTEINI love that, Sam. I think maybe if you could spare your kids for a year or so, send them down here, maybe they can straighten things out. Look, I recently wrote an article for The Atlantic called "The Tyranny of Zombie Economics." I'd like to relate that very quickly to what Sam said.
BERNSTEINIf you go back to the -- and I mention just a second -- if you go back to Adam Smith, JS Mill, Ricardo, the folks who actually first fought about the kinds of capitalistic system we have right now, they were absolutely aware that markets fail, especially credit markets. They used to have big bubbles back then just like we have now. They were aware of poverty. We just heard the poverty rate went up to 15-plus percent.
BERNSTEINThey were aware of inequality problems. They were aware of disinvestment in public goods. Somewhere along the way, economics forgot that markets can go off the rails and fail. And what you ended up with was this notion that markets are self-correcting, that, left to their own devices, they'll fix everything. Rational economic actors have all the information they need to always get it right.
BERNSTEINSo let's just deregulate it and let it rip. And we've seen what happened. It was cataclysmic. What's bothering me is that we seem to be forgetting that lesson way too quickly.
REHMJared Bernstein, and you're listening to "The Diane Rehm Show." Rea Hederman, do you want to respond?
HEDERMANWell, you know, it's important that Jared is right, that we do need regulation of certain industries. Nobody is advocating, I think, to set your doorway with all regulation. The question is, how do you do it? Because I don't think anybody disagrees. None of the three of us disagree that regulation has costs. And you've got to sit there and measure what type of benefit are you getting for the cost that you're adding?
HEDERMANAnd the question is -- we've had some massive regulatory changes in the last couple of years, and so business are having to sort through and trying to figure out what are these costs are going to be. And that is having a delaying effect. I mean, the president himself has said he's calling for a regulatory review, so he recognizes that too many regulations are choking off industries and reducing employment.
REHMAll right. To Lebanon, Mo. Good morning, Mathew.
MATHEWGood morning. I just wanted to respond to the comment that Dodd-Frank was affecting the cost of capital, and I don't happen to think that's true. Most banks, smallest banks especially, are sitting on big piles of cash, hungry to lend money to businesses that they can show can repay the debt. And we're all chasing the same good customers. And so it's a great time to borrow money now.
BERNSTEINBorrowing costs are very low. I had the same thought when Rea made that point. And if you look at the 10-year Treasury note, it's at a historic low, less than 2 percent last I checked. Compare that to Greece, for example, where borrowing costs are very high because they're looking at some real solvency problems. Their 10-year bond is trading at about 26 percent. Ours is less than 2 percent. So the caller is right.
BERNSTEINOne thing that Rea -- a point that Rea made, though, that has bearing here, it is true that lenders are being a bit more careful in their review of the credit worthiness of businesses coming through the door. And, frankly, that's really important because if you kind of wanted to come up with one explanation for the whole meltdown we're into, you could call it bad underwriting, bad assessment of risk, lending to folks who simply weren't going to be able to carry those loans.
REHMSo how is the Congress likely to deal with the president's plan?
WEISMANWell, you know, I think that the Senate will -- the Senate is still democratically controlled. It will move forward with the pieces that it can. The -- and the House will, I think -- I agree with Rea. I think they are going to look at the tax provisions. Certainly, they'll look at the -- I think that they will look at, at least, extending the payroll tax cut that we have already.
WEISMANAnd some of these business expert provisions, bonus depreciation that are to -- will try to goose investment, business investment. And then you may actually have an old-fashioned summit, job summit, where the Senate and the House and the White House get together and try to come up with something.
REHMAnd, of course, a lot depends on that super committee, does it not?
HEDERMANAbsolutely. I think one of the things that people in the House are going to take a look at are going to be the pay-fors. I mean, again, this -- President Obama's pay-fors are pretty much a nonstarter. I think it's more of a political document. I mean, this, again, didn't get vote when the Democrats controlled all of Congress. It's silly to think that the House is going to consider these measures.
HEDERMANSo how the Republicans sit there and figure out how you're going to pay for some of these, I think, will be a step forward because you don't want to sit there and throw another log on the camel's back of the super committee.
REHMLast word, Jared.
BERNSTEINI totally get that we need to take the pay-fors seriously. But, remember, you can't pay for these kinds programs right out of the gate, or you'll offset their simulative impulse in the economy. So I would worry less about the pay-fors for now. Worry about that down the road and get these measures at work in the U.S. economy. Bring down that unemployment rate.
REHMJared Bernstein, Jonathan Weisman, Rea Hederman, thank you all so much.
HEDERMANThank you, Diane.
REHMThanks for listening, all. I'm Diane Rehm.
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