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CNN Live Saturday

Key Part of Energy Strategy is Conservation, Bush Says

Aired May 12, 2001 - 17:11   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.
STEPHEN FRAZIER, CNN ANCHOR: High gasoline prices and shortages of power are prompting the Bush administration to take action on energy now. The president gave a preview of his new energy plan today. White House correspondent Kelly Wallace has more on the plan which will also include elements of conservation.

(BEGIN VIDEOTAPE)

KELLY WALLACE, CNN WHITE HOUSE CORRESPONDENT (voice-over): In the opening sales pitch for his energy plan, President Bush sends a message to his critics, who charge he is too focused on increasing the supply of energy, and not enough on conserving it.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Pushing conservation forward will require investment in new energy technology, and that will be part of my administration's energy plan.

WALLACE: That plan will include tax credits to encourage consumers to purchase more fuel-efficient cars, like these, known as hybrids, which use gas and electricity, a move Steve Newman says could motivate him to get rid of his gas-guzzling suv.

STEVE NEWMAN: Tax incentives, I think, might be something that would push me toward purchasing a hybrid vehicle.

WALLACE: In addition to providing tax credits for hybrid cars, Mr. Bush will encourage schools, stores, homes and health care facilities to become more energy efficient, and offer tax incentives to businesses to take advantage of innovative combined heat and power technologies, initiatives that would normally please environmentalists. They, however, remain skeptical.

DAVID HAWKINS, NATURAL RESOURCE, DEFENSE COUNCIL: Putting a label of efficiency on his program is not going to be good enough. There has to be reality behind it. You don't want to dance with a donkey just because they put lipstick on it.

WALLACE: Environmentalists charge the plan relies too much on drilling for oil and gas on federal lands, and building more power plants, but these are necessary moves, according to Mr. Bush, who says conservation alone is not the answer.

BUSH: We won't conserve our way to energy independence. We must also increase supply. WALLACE: Until that happens, the president says there won't be any escaping rising prices at the pump, with gasoline already at $2 per gallon in some parts of the country.

(on camera): Polls show more Americans are growing increasingly concerned about the energy situation in the U.S. And White House advisers know their energy plan must begin to address those anxieties. This issue could be the biggest challenge yet to face the administration.

Kelly Wallace, CNN, the WHITE HOUSE.

(END VIDEOTAPE)

FRAZIER: We're going to spend more time now on energy problems and what they cost Americans, and whether the president's plan can help as we look ahead to a busy week economically.

And we're joined by economist Donald Ratajczak, former director of the Economic Forecasting Center at Georgia State University.

Professor, welcome back.

DONALD RATAJCZAK, ECONOMIC ANALYST: Thank you.

FRAZIER: Thanks for joining us on a busy weekend for you. You're here because of course the Federal Reserve Board is expected to meet this week, and all eyes are on them, and what they might do. You have a prediction about what they will do to interest rates.

RATAJCZAK: Well, I think that the Fed will continue the policy of a half point. Basically, because they are going to get a lot of political heat after the increase in unemployment and the drop in jobs, if they don't do something, at this point. This is the wrong political time to shut it down.

FRAZIER: And they have inflationary pressures like the rise in energy costs that they were just talking about in that...

RATAJCZAK: Well, actually, yes, they do have the energy price increase. You take energy out of the equation, and the price increases are relatively tame.

We did have a surprise in the producer price index that computer prices went up. But that is -- that's not going to encourage people to buy capital equipment. That's one of the weak areas we have. So, we need to have more stimulus into this economy and I expect the Federal Reserve will come forward.

FRAZIER: How do you explain what consumers are doing these days? We got surprising numbers on Friday saying that in April they spent even more money. The spending was up a point of -- 8/10 of a point over the month before.

RATAJCZAK: Consumers looking for deals. After Christmas they got deals in January and they spent; February, March, no deals, no spending. April, some deals showed up, they spent again.

Unfortunately, they can't get deals every month. My guess is, next month, they will be back down again.

FRAZIER: We mentioned before you joined us on the set, that people were spending on things like barbecue grills and gardening equipment. It's almost like we really are creatures of the seasons, of the weather.

RATAJCZAK: You're going to have that, you know, when it is the spring time, are there deals on spring stuff? And then, they will react. But I'll guarantee most of those sales had price tags in front of them.

FRAZIER: If people are spending that way and if consumer confidence is up, the way the University of Michigan reported on Friday -- they have that Consumer Confidence Survey that they like -- is that going to tell Alan Greenspan and the governors of the Federal Reserve, as far as consumers are concerned, we don't have to cut interest rates?

RATAJCZAK: I think they are a little bit more comfortable about the consumer. The consumer did not collapse with the stock market, but they do have capital spending in the tank, it does now appear that maybe construction as -- is peaking out, we lost 64,000 construction jobs in April.

So, it is just not yet the right time, although the Fed may put in its language, that it can't continue to cut rates. The rates are now getting to levels that they feel are sufficient for the economy. But I don't think they will stop cutting yet.

FRAZIER: No. And you just said a minute ago, this is the point at which the rates do have a stimulative effect.

RATAJCZAK: Well generally, if you look at the interest rates and subtract out in inflation, we usually consider anything between 1 1/2 and 2 percentage points after that to be neutral. Now, for the most -- we started this cutting at 3 1/2 percentage points. So, we had to cut 2 percentage points merely to get us down to that low level.

Now, this next cut will put us below 1 1/2, that definitely puts us into stimulative territory. Then we can say that's good enough for now. We have to get there or we can't be sure that we're going to keep this employment from continuing to tumble.

FRAZIER: Still in macroeconomic terms, there's a federal budget. Does it call for a lot of spending that might start to gin up the economic engine?

RATAJCZAK: Well the spending is moderate. Obviously -- actually, last year, we had this huge spending, everyone traded off their pork barrels going into the election, and, of course, we had an 8 percent increase in spending appropriations.

The president has just signed a deal that's going to clip that, to 4.9 percent. But, of course, the big hope is that there's going to be a hundred billion dollars of frontended tax cuts. In child credit, in getting that first tax rate lower, so that we'll get money into people's pockets sometime this summer.

FRAZIER: Professor Don Ratajczak, thank you for joining us again.

RATAJCZAK: Thank you.

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