Thursday, February 05, 2009

Talking Stimulus with Jared Bernstein

Here's the unofficial transcript of my interview earlier today with my old friend, Jared Bernstein, on Team Obama's stimulus plan. Jared recently accepted a position as Vice President Biden's top economic adviser. Jared is a terribly bright guy. And a good guy. We wish him all the very best. Our interview will air on tonight's show at 7pm ET on CNBC.

Kudlow: First of all, Jared, as I e-mailed you when you got the nod, congratulations on your position. I hated to lose you buddy, but nobody has earned a seat at the high table more than you have.

Bernstein: Well, thank you Larry. You groomed me for this position, so I’m glad I made you happy.

Kudlow: Well, you always made me happy because there was a great product to work with. Let me get down to business. The stimulus package seems to be in a whole lot of trouble right now. The bloom is off the rose. There's a lot of talk that there will not be 60 Democrats, 60 votes in the Senate, Republicans and Democrats, and Scott Rasmussen's poll this morning or yesterday says the public's approval rating of the stimulus is all the way down to 37%. Jared, should this thing be scrapped and redone?

Bernstein: No, I have a very different perspective on this. I don't think you can make much out of these snap polls day day-to-day. When you ask people what's going on in the economy, they absolutely recognize the difficulties that they're facing. You know, we have an unemployment rate over 7 percent, but in some ways more importantly, we have an under employment rate of between 13 and 14 percent. Over 20 million people are either unemployed or can't find the hours they want. That means almost everyone we're talking to knows somebody who is experiencing that downturn firsthand, and this recovery package is absolutely going to shoot right at the heart of that problem.

Kudlow: But, Jared, can we afford it? I don't disagree about the recession. I'm not as gloomy as you, I guess, and President Obama, but be that as it may, I have no disagreement about the difficult recession. However, you saw some recent articles by Republican adviser Martin Feldstein, Democratic adviser Alice Rivlin. They say this thing goes too far. That you're mixing up long-term investments with short-term targeted stimulus and their advice to you, Jared, is to postpone the package for a couple of months until you get your ducks better in line.

Bernstein: Look, I think what -- that kind of comment leads me to hear that you're taking some very important and substantial differences and amplifying them, inflating them to a point where you'd want to actually put the brakes on getting this package out there as quickly as possible, which the President and Vice-President view as absolutely critically important. I'm not saying there aren't disagreements between us and the congress about certain components, but there's broad agreement it has to get out there quickly among economists and policymakers. It's not a derailment discussion.

Kudlow: It may be a thorough overhaul discussion. I want to ask you about another issue. Financing costs of this package. Now, you could be looking with debt expense according to the Congressional Budget Office of $1 trillion. On top of that, the new TARP package, son of TARP, or grandson of TARP, or TARP 5 may come into $1.5 trillion or $2 trillion. Now, look the Treasury announced record borrowing for this quarter. The long-term 10-year Treasury note has run up 100 basis points. Senator Shelby says we cannot have a stimulus package until we know precisely what we're going to have to borrow to support the banks and the credit because that's the heart of the recession. So, Jared, I’m going to ask you again, isn't it time to shelve the stimulus package until we know what we're going to need to heal the banking problem with the new TARP?

Bernstein: Look, Larry, I just don't -- you know I've deeply respected you for a long time, but I just don't get the sense that you understand the urgency of what's going on out there in the economy for working people and working families, the need for 3 to 4 million jobs, and the need for a down payment on the new economy which this package contains. Now I am not, and there's nobody in this building who is going to tell you that we're not going to be doing some borrowing to finance this package. That's well known. CBO knows that. We know that. But –

Kudlow: And that's going to drive mortgage rates up. Once the note goes up 100 basis points you're going to drive up mortgage rates, too, Jared.

Bernstein: Listen, Larry, you know as well as I do the cost of borrowing whether it's the federal government or somebody taking out a mortgage is actually quite low right now and quite favorable to precisely the kind of debt we're going to incur here. Let's face it, if you were to look at our fiscal situation sitting here and say, you know what, we can't afford a robust stimulus package, you would be making a judgment –

Kudlow: But, Jared, look I’m not going to blame you all because you inherited a fiscal mess and George Bush in 2008 had what you might call a real bad year, okay. So this is not politics. This is just economics. But I got to ask you on this issue, what is it that we're financing? Hundreds of billions of transfer payments and social spending. We're going to have gigantic increases in federal aid to the states for Medicaid and welfare. Now, Jared -- you can argue those are good ideas, but they should not be part of the stimulus package…

Bernstein: Let's talk economics because that's where we can have a good discussion on precisely that basis. Do you know according to economist Mark Zandi, what the largest multiplier effect is on any component of our program? It's food stamps. $1.73 of extra GDP for every dollar. A safety net program is not some sort of dismissive welfare thing. Safety net programs are helping a lot of people. Unemployment claims highest since 1982. We learned that this morning. Extended unemployment as part of this package.

Kudlow: I agree, but transfers are not the answer. Infrastructure might be the answer. Tax cuts might be the answer. You talk about multipliers, my friend, your top economist over there, Christie Romer, wrote a paper saying that dollar cut in taxes will give you $3.50 of GDP and she doesn't believe in the spending multipliers at all. So that debate is purely academic. I'm just saying this stuff has -- look, the long run issues, the public expected an infrastructure bill. You know what? I'm sympathetic to infrastructure. But Eisenhower had $550 billion in his infrastructure and highway bill. You all have a lousy $30 billion of which less than half spends out in the next 18 months. The public was deceived. You have given them a Democratic wish list, not a stimulus bill.

Bernstein: Larry, I wrote with Christine Romer an analysis of this paper where both of us very, very robustly supported the job creation embedded within this package. 3 to 4 million jobs. You know as well as I do that this economy has shed 2 million jobs in the past four months. The kinds of bang for the buck effects that this package gets and part of it is unemployment insurance, part of it -- but a much larger part is investment in energy, investment in smart grid, investment in the future in terms of building up precisely the kind of new economy down payments that this president got elected on and that's –

Kudlow: $150 million bucks for the Smithsonian. The Smithsonian. $500 million for improvement projects for the health [unintelligible] $44 million, Department of Agriculture building. $350 million computers. $600 million federal auto to hybrids. This is pork. This is nothing but pork. Now, President Obama said he's willing to accept some reductions in spending. Can you help me here? What reductions will President Obama sign onto? This package has to change markedly.

Bernstein: Obviously, the President and our legislative folks are up in the Congress, in the Senate, talking precisely about these components. We absolutely want the biggest bang for the buck. If there's stuff in there that shouldn't be in there, we're working to make sure that every dollar we put in this package goes towards job creation and to an investment in the future economy, but you pulled out a couple of pieces that --

Kudlow: A couple of whoppers.

Bernstein: You pulled out -- you don't like the way they sound. I didn't hear you talk about a $60 billion for transportation. I didn't hear you talk about over $100 million for infrastructure.

Kudlow: I’m okay with the infrastructure but there wasn't hardly any infrastructure money in there. We needed --

Bernstein: I didn't hear you talk about 10,000 schools that are going to be weatherized. I didn't hear you talk about 75 percent of government buildings that will use energy more efficiently.

Kudlow: Jared, you have to go. I talked -- Jared, let me just say something, buddy. I'm doing my job. You're doing yours. You know I love you. Your contribution to "Kudlow and Company" and to this network is so great and we're so thrilled about your success. Even though I totally disagree with your package, I am your biggest fan. I am your biggest supporter, Jared Bernstein. Jared, I always gave you the last -- I used to give you the last word on the program, so I’m going to give you the last word right now. How much is going to be taken out of this package?

Bernstein: I can't say, Larry. These are ongoing negotiations. The important thing is that this package stays within the range that the President signed off on. I think we're probably looking at a package between $800 billion and $900 billion. You yourself were talking about the trillion-dollar gap we face in terms of output. The loss of jobs. We need a robust package like this to get into the economy quickly.

Kudlow: Jared Bernstein, top economic adviser to Vice President Joe Biden and friend of Kudlow. Jared, all the best, buddy.

Bernstein: My pleasure.