Slow Growth Is Biggest Economic Challenge Facing Incoming President
U.S. employers across various sectors are hiring, signaling slow but steady growth. Still, the unemployment rate rose in October and many Americans continue to leave the labor force completely. Jeffrey Brown talks to two economists, John Taylor and Austan Goolsbee, about what economic challenges the next president will face.
JEFFREY BROWN: On this final Friday before Election Day, there was word that jobs are on the increase, but so is unemployment.
The numbers were seized upon by the presidential candidates as they began making closing arguments on an issue that's been front and center throughout the campaign.
Did an economy in need of a spark find one in October? U.S. employers across nearly all sectors were hiring, for a net gain of 171,000 new jobs. The Labor Department also revised its August and September figures higher, by 84,000.
All told, it signaled slow, but steady growth, and it was news that President Obama wanted to play up in the campaign's final weekend, especially in one critical state.
PRESIDENT BARACK OBAMA: O.H.!
BARACK OBAMA: O.H.!
BARACK OBAMA: O.H.!
JEFFREY BROWN: The president made three stops in the BuckeyeState, starting in Hilliard, just outside Columbus.
BARACK OBAMA: In 2008, we were in the middle of two wars and the worst economic crisis since the Great Depression. And today, our businesses have created nearly five-and-a-half million new jobs.
And this morning, we learned that companies hired more workers in October than at any time in the last eight months.
(CHEERING AND APPLAUSE)
JEFFREY BROWN: And the trend line seemed promising as well. Since July, the economy has added an average of 173,000 jobs per month, up from just 67,000 a month in the spring.
At the same time, though, the unemployment rate ticked up a 10th of a point in October to 7.9 percent, as more people began looking for work again.
In West Allis, Wis., the president's Republican challenger, Mitt Romney, focused on that number, insisting again we can do better.
MITT ROMNEY (R): He said he was going to lower the unemployment rate down to 5.2 percent right now.
Today, we learned that it's actually 7.9 percent, and that's nine million jobs short of what he promised. Unemployment is higher today than when Barack Obama took office.
JEFFREY BROWN: What's more, Romney warned, sticking with the president's economic policies will guarantee gridlock and worse.
MITT ROMNEY: Unless we change course, we may be looking at another recession. You can choose real change.
You know that if the president is reelected, he will still be unable to work with the people in Congress. He has ignored them, he's attacked them, he's blamed them.
The debt ceiling will come up again, and shutdown and default will be threatened, chilling the economy.
JEFFREY BROWN: In turn, the president his opponent of trying to scare voters over their economic futures.
NARRATOR: Who will do more for the auto industry?
JEFFREY BROWN: He pointed to a Romney ad running in Ohio that charges Jeep is shipping jobs to China.
BARACK OBAMA: You have got folks who work at the Jeep plant who've been calling their employers, worried, asking, is it true? Are our jobs being shipped to China? And the reason they are making these calls is Gov. Romney's been running an ad that says so, except it's not true.
JEFFREY BROWN: Chrysler has said it has no plans to move the jobs. The Romney campaign insists it's standing by its claim.
There promised to be much more battling over economic policy, with the race in a dead heat going down to the wire.
And we look now at the jobs picture with two economists with ties to the presidential candidates. John Taylor of StanfordUniversity and the Hoover Institution, he advises the Romney campaign on economic issues.
And Austan Goolsbee of the University of Chicago's Booth School of Business, he served as President Obama's chairman of the Council of Economic Advisers until last year.
Well, Austan Goolsbee, to the extent possible, set aside the rhetoric of the campaign if you can for a moment. Tell us about the bigger picture.
What strikes you most, what worries you most about the jobs picture now and in the coming years?
AUSTAN GOOLSBEE, University of Chicago: Well, I would say any reputable economist says every month don't just take any one month's numbers. Try to take a step back and look at the trend. That's far more accurate and there's less noise in it.
I think if you look at the trend, the overall job creation has been relatively solid for the last three months. The overall growth rate of the economy is the most worrisome thing, that it's been modest, you know, moderate growth, and that that is about the fastest growth rate of all the advanced countries of the world.
I think the underlying fear that we have is, this is not a strong period in the whole world and there are a lot of threats coming from the slowdowns in Asia and in Europe that we're trying to overcome. And we have got to get the growth rate higher if we want to see faster job creation.
JEFFREY BROWN: Well, John Taylor, same question. What is the problem that most needs to be addressed by whoever is the next president?
JOHN TAYLOR, StanfordUniversity: That unemployment rate. It's too high. It shouldn't be this high. And it has increased a bit.
But it's increased even more in states like -- I think Pennsylvania went up from 7.4 to 8.2 over the last few months. And the reason is the weak economy.
We shouldn't be growing this slowly. We have an economy which can do much better. It's done better in similar periods in the past. And with the right policies, it can do much better, get the unemployment down much further.
And there's also people dropping out of the labor force. You know, in Ohio, since the recovery began, 194,000 people just dropped out of the labor force, stopped looking for work. That's another bad sign that I think people should be very concerned about. It's really depressing what's happening with respect to the labor market right now in this country.
JEFFREY BROWN: But how much of it, Austan Goolsbee, back to you, is the immediate economy, the cyclical -- the cycles that we see, and how much of it is what is talked about it as more structural issues, changing technology, globalization, a kind of new normal that we have heard about from many people?
AUSTAN GOOLSBEE: Well...
JEFFREY BROWN: Hold on. Let me go with Austan Goolsbee here first.
JOHN TAYLOR: OK.
AUSTAN GOOLSBEE: OK.
So, two parts, one, of the how much of the unemployment rate is coming from structural, I think not that high. I do think that is the thing that the economy is going to have to do. The fundamental reason why this recession looks a lot like the 2001 recovery and not the 1983 recovery is we can't go back to doing what we were doing before the recession began.
Just, as in 2001, a bubble popped and then you're trying to shift what the economy is doing. So there is some element of that.
But we also have got a significant component, as I say, of the whole world has slowed down. The U.S. growth rate, while not fast enough, is faster than the rest of the advanced world.
So we have got to find a way to get ourselves boosted up where we're not getting any support from being able to increase our exports to other countries, when that is exactly the place that we need to be transforming into. So that is what made it more difficult.
JEFFREY BROWN: John Taylor, what is your answer to that, cyclical vs. structural, when it comes to jobs?
JOHN TAYLOR: I think it's largely cyclical. It's because the growth rate has been so slow coming out of the recession. And you can't blame the rest of the world. The U.S. has had strong growth in the past when Japan has been suffering. And so it's our own problem. It's our own policies that's the trouble right now.
And I think that's what -- why I am so frustrated, why I think it's tragic, quite frankly, because we could have better policies. We could have had this unemployment rate down already with the right policy.
JEFFREY BROWN: Well, staying with you, John Taylor, then what can a president -- we hear a lot of promises in this campaign. What can a president or a president and Congress actually do in terms of magic wands?
What -- when they say they will do something, how much can they do immediately to affect the unemployment rate?
JOHN TAYLOR: I think they can do a tremendous amount.
It's not a magic wand. It's just basic economics.
We saw this in the '80s and the '90s. It's not a partisan issue. When the right policies are in place, when we don't have all the short-termism, the temporary stimulus packages or increases in regulation, the fiscal cliffs, when we get a solid policy that's predictable, the economy grows.
And when we have tax reform, we get tax rate downs, it stimulates incentives for firms to hire people.
It really is basic economics. And, again, that why this is tragic. Applying basic economics, we could do a lot better.
JEFFREY BROWN: Well, Austan Goolsbee, do you want to respond on what the president you worked for has done?
AUSTAN GOOLSBEE: Look, I will just say that we can agree on the basic economics, but I think that Professor Taylor has got his history a little backward on that.
In the 1990s, Bill Clinton raised exactly the high-income tax rates that Barack Obama wants to return the rates to.
And the 2000s, which he didn't mention, when George Bush followed the policies very similar to what Mitt Romney is proposing, they actually added more than one million fewer private sector jobs in George Bush's first term than President Obama has under his first term.
So I really do not think that the basic economics or the history says that just going back to deregulation and high-rate -- high-income rate cuts is the thing that leads to growth.
JEFFREY BROWN: And do you think, Professor... Well, go ahead. Go ahead.
JOHN TAYLOR: We saw two decades, '80s and '90s, with extraordinary growth. Economists called it the great moderation, long boom.
And that's because those stable policies were put in place, the tax reform, if you like, of 1986, a bipartisan reform.
President Reagan worked with Democrats in Congress. That is the kind of thing we need now to get this strong economy back.
JEFFREY BROWN: Back to you, Professor Goolsbee, just this question about...
AUSTAN GOOLSBEE: I agree with that. I think tax reform and a grand bargain-type budget deal, if done in a balanced way, I think that would be a good achievement for both parties.
And whoever is elected on Tuesday, I hope they will do that in 2013.
JEFFREY BROWN: How much -- Austan Goolsbee, back to the question of how much can a president actually do, because we hear so much in a campaign about what will happen, what will happen quickly if one or the other is elected.
AUSTAN GOOLSBEE: Right.
You know, I used to -- I was in the White House for a while and I used to joke, I crawled all around in the basement, I have yet to find that switch down there that you just flip it and then everything gets better.
I think 90-plus percent of what happens in a growing economy has nothing to do with Washington.
What the president and what Washington, in general, can do is try to set the stage and set a groundwork for policy that could encourage growth. And I think the shorter term that you are thinking about, the less can be done specifically by the president.
So if you are asking over a one-month or three-month period, there's very little the president can do.
If you start asking over a five-year, 10-year period, then the policy decisions they make can influence quite a lot the way things go.
JEFFREY BROWN: And, John Taylor, brief last word on that?
JOHN TAYLOR: Well, I think, as we are talking about four years, what is going to happen in the next four years, that is a time where a president can make a tremendous difference.
And we're talking about the past four years. And the president could have made -- agree with Austan -- could have made a much better policy with the unemployment being so high.
JEFFREY BROWN: All right, John Taylor and Austan Goolsbee, thanks so much.
AUSTAN GOOLSBEE: Thank you.
JEFFREY BROWN: And if you're ready for more analysis on the jobs numbers, you will find it, as always, on Paul Solman's Making Sense page online.