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CNN Novak, Hunt & Shields
R. Glenn Hubbard Discusses Expectations for Economic Recovery
Aired October 06, 2001 - 17:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MARK SHIELDS, CO-HOST: I'm Mark Shields. Robert Novak and I will question one of President Bush's key economic strategists.
ROBERT NOVAK, CO-HOST: He is R. Glenn Hubbard, the chairman of the President's Council of Economic Advisors.
Mr. Hubbard, you have said in the past that you expect a recovery in the economy by the year 2002. But at the same time, you have also said that the country badly needs President Bush's stimulus package.
Are you saying that you will not have the recovery in the year in 2002 unless Congress promptly passes the stimulus package as the president proposes it?
R. GLENN HUBBARD, COUNCIL OF ECONOMIC ADVISORS CHAIRMAN: I think the key to talking about the package isn't so much as a stimulus package, but as a confidence-building package and as growth insurance.
When I had indicated that I thought the economy would begin recovering in 2002, that's the consensus of the private sector forecast. But there's actually quite wide range of forecasts. And I'm worried about downside risks.
I think this package is very important both to build confidence and to ensure growth in 2002.
NOVAK: Well, Mr. Hubbard, I didn't quite get the answer to my question. Are you saying that this recovery will occur despite the terrorist attacks, even if we don't have this stimulus package?
HUBBARD: I think the pace of the recovery would be much slower, frankly, without the stimulus package. A more vigorous recovery in 2002 would be enhanced by having a very strong confidence-building package on the business side and on the household side.
Of course the economy ultimately recovers in any event, but the question is how to avoid unnecessary job losses and unnecessary losses of confidence.
NOVAK: One more point on that, if I could ask. There are some people who are not to happy with the shape of the stimulus package. They think too many concessions have been made by the president to the Democrats. Is it the feeling in the administration that it is absolutely necessary, and for the sake of bipartisanship, to go along with the Democratic demands and to shape the package that way, rather than adhere to what you might think is the proper economic formula?
HUBBARD: Well, first, I guess I'd like to challenge you on the proper economic formula. I think the package is very good economics, particularly a focus on business investment decisions and on accelerating the marginal rate cuts that had already been enacted. I think that's extremely sound economics.
It's also true that any package must necessarily be bipartisan. And to have a good punch to growth and confidence, it needs to happen quickly.
So I think this is a very good package on balance.
SHIELDS: Mr. Hubbard, in spite of the fact that the administration has insisted that the stimulus package would be essentially 50-50 spending and tax cuts, about half and half, why is that the tax cuts that are for the -- proposed, anyway, suggested -- for working families and the lower-income people are temporary, that is, the Social Security rebate, and the business tax cuts you've just described are permanent?
HUBBARD: Well, of course the contours of the actual package are to be negotiated with Congress. I think it's important to have as long a lasting business investment incentive as possible if one really wants to restore business confidence and increase capital goods demand.
The contours of a low- and moderate-income package are to be worked out with Congress. It's our judgment in the administration that a temporary boost there is what's in order.
SHIELDS: Actually, I guess, as I'm looking at, temporary expensing, business expense, or accelerating depreciation, isn't it better and aren't I more likely to spend in a hurry and stimulate the economy if I know it's only gong to be on for a year or 18 months?
HUBBARD: I wouldn't agree with that. Part of the problem with very, very temporary packages, say, for one year on business investment, is that you're counting on government's ability to fine tune and micro-manage. I think that's a mistake.
It's better to have expensing be as long as possible. Permanent would obviously be a good tax policy solution, but as least for several years, to permit the best business decision making.
SHIELDS: And finally, the question of 50-50 or roughly half and half in expenditures and tax cuts, isn't that really overlooking the fact that, with those permanent tax cuts, we're talking 90-10; 90 percent of this over 10 years is going to be in tax cuts?
HUBBARD: No, not at all. The tax cuts that are being talked about phase down very quickly in their costs. Let's look at accelerating the marginal rates cuts for example. That's accelerating something that's already on the books. There isn't going to be large out-year costs of that.
Similarly, what's expensing or accelerated depreciation? It's really just pulling forward the capital recovery charges, the very modest, very small long-term consequences of that.
So this is not something that's going to be overly loaded in the future.
NOVAK: Just to follow up quickly on that, Mr. Hubbard, is it true that the administration has agreed not to speed up the rate cuts for the upper-income taxpayers? Is that true?
HUBBARD: No, the president has spoken to trying to get all of the rates accelerated. Anything is possible in terms of dealing with the Congress, but that's our view as to what's the best tax policy.
NOVAK: Sir, the Republican leadership on Capitol Hill, specifically the House Majority Leader Dick Armey, the Senate Minority Leader Trent Lott, are very strong feeling that the best thing you could do for the economy now is have a cut in the capital gains rate, but there's -- they run into a brick wall with the administration.
What is your objection to a cut in the capital gains rate?
HUBBARD: Well, I wouldn't describe it as a brick wall or even as a objection. The question here is, what's the package of policies that you think is the best able to bolster confidence and enact quickly?
There are a variety of tax policy changes, including capital gains tax cuts, that are very good tax policy and ought to be part of any tax reform discussion.
The president's objective here was to focus on confidence and bolstering growth in the short term.
NOVAK: Now, the Democrats feel that the best way to foster growth in the short term is to put money in the hands of consumers in the form of rebates, in the form of tax cuts. The more money you put into people who depend on extra money for disposable income, the better chance you'll have as a recovery.
What's wrong with that argument?
HUBBARD: Well, it is important, obviously, to have a tax cut for consumers, and indeed, much of what the president talked about is exactly that. It's our judgment in the administration that the most potent stimulus would come from accelerating marginal tax rate cuts, although the president did leave open flexibility in tax cuts for lower- and moderate-income families that could be a variety of temporary policies.
But we think accelerating the rate cuts is the best place to start.
SHIELDS: But, Chairman Hubbard, on the very point about accelerating the income tax reductions, would doing it essentially -- at least Secretary O'Neill discussed -- from 28 percent down to 25 percent, that affects only the top one-quarter of highest income and affects most directly and most acutely the top 5 percent.
And these are folks that, we've learned in the past, don't necessarily spend. Just as Bob Novak described Democratic philosophy, that people who are living day to day, week to week, paycheck to paycheck are a lot more apt to spend the money they get than are these folks in the very high income brackets.
HUBBARD: Again, the intent of this package is for bolstering confidence, not simply for, quote, "increasing stimulus" in the very, very short run.
And if you think about it, what's the biggest way to bolster confidence? The business investment decisions for job creation, the safety net proposal the president had mentioned earlier in terms of unemployment insurance expansion, and then finally, the acceleration of the rate cut. So I guess I would dispute the proposition.
SHIELDS: Well, one place where confidence certainly is lacking, Chairman Hubbard, I think you'd have to agree, is in the manufacturing sector of the American economy -- the envy of the world for the longest time; 1.1 million job lost over the last year in manufacturing.
Is it here, now, the time to admit that America's manufacturing future is now behind it?
HUBBARD: Oh, I wouldn't agree with that at all. It is certainly correct that manufacturing has had a decline since, actually, about the beginning of the year 2000. But we know that the manufacturing sector of the United States remains the most productive in the world.
Indeed, part of the goal and hope in this confidence package is that, with investment incentives, in addition to providing a boost to the economy overall, it's help to the manufacturing sector.
NOVAK: Mr. Hubbard, the president has agreed to an extension of unemployment benefits because of this crisis, and every conservative economist I know feels that that does no good for the economy because it just gets the unemployed people to sit at home rather than go out looking for a job.
I wonder if you agree with that. And if you do, why has there been an agreement to extend unemployment benefits?
HUBBARD: Well, I think part of the reason for extending unemployment benefits is, in the situation like this where things are in so much flux, to allow a longer period of time for search to occur.
There's quite a novel part, actually, of what the president proposed in the displaced worker package, which was to have national employment grants, or national emergency grants, which would go to governors and to states for more flexibility to try to avoid too much increases in the pure UI program.
NOVAK: Another liberal proposal that has been talked about is an increase in the minimum wage. But the buzz is that this is not going to be a part of the stimulus package. Is that correct, sir?
HUBBARD: Well, it's certainly true that the president has said he remains open to talking about a minimum wage increase.
But I must say, this would not be a very good time for the economy to seriously contemplate a minimum wage increase in part because many of the sectors very adversely affected after September 11, particularly in the travel and tourism industry, would be even more adversely affected with that change.
SHIELDS: With much fanfare this week, Chairman Hubbard, the president announced this unemployment benefit, extended benefits, that Bob Novak just described, and I thought unfairly of course.
But nevertheless, I think that the president, in making that case, sort of extended a helping hand to those who had been laid off. And yet, upon examination, it turns out that this plan of the president's, if enacted fully, under the same recession terms of 1991, would only mean $5 billion. Contrast that with his father's payments during the last recession 10 years ago, and that was $35 billion.
Do you really think that's going to be enough?
HUBBARD: I think you have to look at the whole package of proposals. The goal here is, again, for confidence building. The displaced workers package will really help underscore the safety net, and there's a much more potent economic policy push here on the confidence-building side than there was in the past recession.
SHIELDS: And I guess -- we talk about confidence so much. One of the places we need confidence, obviously, is in air travel. And Americans are still insecure and concerned about air travel. Yet we've bailed out that industry to the tune of $15 billion.
Isn't it now the time to forget ideology and say, to secure the confidence, to build up the comfort level in Americans flying, that it's time to set federal standards, federal policy, federal training and federal personnel so that anybody flying, from Duluth or Dallas, knows that they're meeting the same standards of safety?
HUBBARD: Well, one of the key things to me as an economist in the president's leadership in the aviation security package, was to make sure that there was a big emphasis as a public good and increasing federal support for safety. I think that's going to do as much to bolster confidence in air travel as in anything else.
I would like to dispute something you said about bailing out the airline industry. I don't see that at all. I think the goal of that package was to bolster confidence in air travel and keep aviation going, not individual airlines. Much of that is for security, very short-term assistance. And in the long run, the airline industry will shake out as it shakes out.
SHIELDS: OK, Chairman Hubbard, Robert Novak and I will be back for with the chairman of the President's Council of Economic Advisers with "The Big Question."
(COMMERCIAL BREAK)
SHIELDS: Chairman Glenn Hubbard, "The Big Question" for you is this:
We have adopted the president's $1.35 trillion tax cut, $40 billion in rebates, now another $135 billion stimulus package, nine successive cuts in the interest rate. And yet our economy, according to you, is in recession.
How many arrows are there left in the quiver if this doesn't work?
HUBBARD: Well, first of all, I think it's too soon to tell whether the economy is currently in recession. Although it's certainly the case that the quarter that just ended in the fourth quarter are likely to be very badly effected by September 11.
I would argue that those arrows that have already been spent will already have a pretty potent effect. Monetary policy works with 12- to-18-month lags. The president's tax cut earlier was a great idea. Congress passed it, but, as you know, a lot of it was phased in quite slowly.
I think a key to making this transition in the short term will be accelerating the tax cut and providing a potent incentive for business investment. I think, with that, we've got growth insurance for 2002.
NOVAK: Chairman Hubbard, President Bush has many times said we are in a state of war against terrorism. But in past wars, when the United States was in all-out war, the economy went to war too. We had rationing, price controls, wage controls, priorities, mobilization.
If you're really at war, why isn't the administration doing those kind of things?
HUBBARD: Well, I don't think we're likely to see the advent of price controls and extreme micro-management of the economy. I think what you will be likely to see is a mobilization on the security front, and funding for homeland security as well as traditional defense buildup. But I don't think you're likely to see anything like price controls or micro-management of American business.
NOVAK: R. Glenn Hubbard, thank you very much for being with us.
HUBBARD: Thank you .
NOVAK: Mark Shields and I will be back with a comment after these messages.
(COMMERCIAL BREAK) NOVAK: Mark, we didn't get Glenn Hubbard to debate the details of economic policy very much, because he was saying what's important is confidence, instilling confidence. I get the idea that Dick Armey and Dick Gephardt had a wide degree of latitude as long as there is a package passed that the American people have confidence in.
SHIELDS: "Confidence" was the key word, Bob.
And I'd add this, that we are listening now to George W. Bush outline an administration package that involves more economic stimulation in a time of 10-year tax cuts, this stimulus package of spending and tax cuts, nine successive interest rate cuts -- more than anything since the Great Depression, than any administration has done -- and have it defended by a conservative economist with conservative credentials.
NOVAK: You know, Mr. Hubbard is a high-ranking policy maker in this administration. America has seen a lot less of him than other people, but they may see a lot more of him, because, unlike other policy makers, when he goes on television, he gives you the administration line, he doesn't freelance with his own personal opinions. And so, we may see a lot more of Glenn Hubbard.
SHIELDS: Well, one good reason of that thought, Bob, is that he talked about not the airline bailout -- it wasn't an airline "bailout" -- it was a safety measure. And I didn't realize that so much of it was dedicated to safety rather than rescuing airlines that were major contributors to politicians.
I'm Mark Shields.
NOVAK: I'm Robert Novak.
Coming up next, CNN's coverage of "Target: Terrorism" continues.
SHIELDS: Thanks for joining us.
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