MR. COOK: Okay. Here we go. Thanks for coming everyone. Im Dave Cook from the Monitor. Our guest today is Austan Goolsbee, Chairman of the Presidents Council of Economic Advisors, and also Chief Economist of the Presidents Economic Recovery Advisory Board. While many of our breakfasts are with politicians, in the 45 years weve been holding these sessions, weve been honored to host a number of Mr. Goolsbees predecessors as CEA Chair, starting all the way back with Herbert Stein back in December of `71. Our guest today earned his Bachelors and his Masters degrees in Economics from Yale and his Ph.D. in Economics from MIT. He was a Fulbright Scholar and an Alfred P. Sloan Fellow. Hes on leave from the University of Chicagos Booth School of Business. He brings an unusual skill set. In addition to his professorial prowess, he has toiled in the world of journalism as an economics columnist for Slate and the New York Times, and was voted Washingtons funniest celebrity in 2009. So much for biography. Now on to process. As always, were on the record here. Please, no live blogging or Tweeting or other means of filing while the breakfast is underway. Theres no embargo when the breakfast ends. If youd like to ask a question, please do the traditional thing and send me a subtle, non-threatening signal. Ill happily call on one and all, and well start off by offering our guest the opportunity to make some opening comments, and then well move to questions from around the table. Thanks again for doing this. CHAIRMAN GOOLSBEE: My pleasure. Those columns, when I would have -- I have a deep respect for what you guys do. I found it very difficult to come up with subjects, and then when, fast forward, Im getting ready for confirmation and all the personnel people want to know is what were you thinking? Why did you write that down? MR. COOK: Too much candor, right? CHAIRMAN GOOLSBEE: Exactly. So all I was going to open with is, as you know, this afternoon the Presidents going to have the first meeting of the Jobs Council. They named a number of business leaders, both small and large businesses, labor leaders, academics. Its a new entity. Its replacing the old Economic Recovery Advisory Board, which was the Volcker Board, which was a two-year board that had a focus that was appropriate for that moment, and now it feels to me like we, both the data and the anecdotal information you get from people when you talk to them, suggest we are transitioning from really rescue phase to something like the growth phase. Its very much in keeping with the Presidents State of Union Win the Future motif. This week, we started out in Cleveland with the small business event. We named the members of this Council and the way were going to get out of this worse downturn since 1929 is were going to grow our way out of it. Thats the focus today. I think the President is going to challenge the members of the Council to get him both specific ideas, but also to apprise him over the coming months. Hes going to ask them to go out around the country to have a series of regional meetings, where they talk to small business owners and other business people around the country, and to report back to him what are seeing in the conditions; how can we get the growth rate up and how do we get hiring back, making the U.S. a place, the most attractive place for them to invest. I think growth is not just the most fundamental thing needed to get the job market accelerating; its also the most important thing dealing with our short run getting the fiscal house in order. Its clear that the immediate term deficits are due almost entirely to us coming out of the worse business cycle since 1929. So growth, I think, is the key, and youre likely to hear a great deal from the President on those, in that space, and that I was all I was just going to open with. Im happy to answer whatever questions I can. MR. COOK: Thanks. Let me do one or two myself, and then well move to John Weisman, Miles Benson, Cynthia Tucker and Kevin Hall to start. Let me ask you about, as you might expect, the threat to the economy from the turmoil in the Middle East, and to what extent you worry about oil price hikes suffocating the recovery. There was a piece in the Journal, the Wall Street Journal this morning that said the general view among economists is that oil prices would have to hit $120 a barrel and stay there to seriously threaten the recovery. How worried are you about oil price effects on the economy? CHAIRMAN GOOLSBEE: Well, were obviously monitoring that substantially. I think lets start from the good news. Over the course of 2010, the growth rate increased. We grew the entire year. We added more than a million jobs in the private sector, with the tax deals passage, with the direct incentives for business investment and the payroll tax cut, as well as some of these other tax credits. You saw private sector forecasters rather substantially upgrade their forecasts for growth in 2011. So I think we start from a place of guarded but pretty strong optimism on the part of business. Clearly, youve got to monitor -- we will be monitoring the circumstances in the Middle East and higher oil prices, nobody likes to pay higher fuel costs. One thing to note, comparing the present to say 1979 or periods where dramatic increases in the price of oil had a major negative impact on the economy, is that if you look at energy consumption per dollar of GDP in the economy now, its dramatically lower than it was in 1979. Weve become substantially more energy efficient per dollar of output than we were then. So that is, I believe, why most private sector forecasters are not -- the sensitivity of the economy to fuel prices is not as great as it was in the past, and it is clearly the case that they would have to be, the impact of oil prices comes from long-run sustained increases to price and not from short-run variations. At anything like what were seeing so far, neither we nor the private sector has forecast that that would derail our recovery. So Id say were monitoring is the best description. MR. COOK: One last from me. Let me ask you about the biggest risk to the economy that you see. You were quoted in the Washington Post today as saying your greatest area of concern was a new financial crisis in Europe. Isnt an equally big risk, based upon my reading obviously, not on expertise, but just on reading, that investors wouldnt wait for the U.S. deficit to be brought down. They might beginning shunning U.S. securities and thus drive up rates more than expected? You worry about the European financial crisis more than you worry about that. John, weve got spaces here. CHAIRMAN GOOLSBEE: I would say the question they asked me as you look at the growth rate in 2011, whats the -- what are areas of concern, and I started by saying generally, we have less concern for 2011 than we had a year ago. Conditions have improved, and prospects for the conditions coming up have been better. What happened to us the last time, a little over a year ago, the data was coming in better than expected and the financial bumps in the road in Europe slowed it down. They didnt stop our growth, but they slowed us down, and it doesnt seem like thats resolved. In the U.S., we start from substantially lower debt to GDP ratios than these other places. I believe the Presidents budget that hes outlined is clearly a beginning of bringing the fiscal house in order for the short to medium run. Much of the, as I say, the primary driver of the deficits of last year and this year are the business cycle. The long run fiscal challenge facing the country we have known about for 30 plus years. We do, it is important that we deal with that, but that should not be conflated with the deficits of this year, which are driven by the business cycle. Thus far though, the bond markets, I mean even the long-run Treasury rates are among as low as theyve ever been. You know, the normal long-run Treasury rates might be five, five and a half percent and theyre three and a half percent. So in my view, Im generally optimistic for 2011 of improvement over the growth that we got for 2010, and we continue monitoring all possible things that could slow that down. But my biggest concerns are thinking about Europe, and also thinking about the Middle East. That was the other one that I discussed. MR. COOK: Okay. Off to my colleagues John Weisman, Miles Benson, Cynthia Tucker, Kevin Hall, Michael Warren and Glen Thrush. Well start, John. MONITOR BREAKFAST: Since the Presidents State of the Union address was about winning the future or trying to set the terms for the debate on deficit versus investments, and since then, the whole conversation seems to be -- in Washington seems to be revolving around cuts and deficit reduction. How do you think the President has lost control of this conversation, and do you try to get it back, or do you say all right, lets talk about deficit reduction now? CHAIRMAN GOOLSBEE: Well, Im just a policy guy. Im not in the spin department. I dont know what the -- I dont agree the Presidents lost control of the message. I think his message of Win the Future, out-educate, out-innovate and out-build, hes giving everywhere. Were going around the country. We were in Cleveland. We went to Northern Michigan and in the follow-up to the State of the Union, I think that message is getting out. I think most reasonable people agree that weve got to be growing to get more people back to work, and to get start-ups and entrepreneurs going in this country, that thats the way out of the downturn and mess that weve experienced. I think the Presidents completely right, that we must get the fiscal house in order. We must live within our means, but cutting programs that are fundamentally about getting people back to work and preparing them for the jobs of the future is not sensible. It is not sensible to make that the, to cut your investments that are necessary for growth is not the correct way to do it, and I think thats basically the Presidents position. I believe that hes going to prevail with that message, because it happens to be correct. MONITOR BREAKFAST: Have you seen the numbers on the Houses short-run spending cuts and what effect they might have on the short-term economy? CHAIRMAN GOOLSBEE: No, thats not really the kind of thing that we would do. We have official government forecasts and we update it, obviously, at the mid-session review, based on actual conditions. I think more the private sector folks have been thinking that through. MR. COOK: Miles. MONITOR BREAKFAST: A more general question, but somewhat specific. Can you say with any confidence what the proportion of national wealth held by the top one percent of the earners in this country would be? CHAIRMAN GOOLSBEE: I can get you the exact number. I will give you only the qualitative high. I mean its a significant amount. MONITOR BREAKFAST: Is it as high as 50 percent? CHAIRMAN GOOLSBEE: I dont know. Ill have to get you the exact number. The Survey of Consumer Finances is the normal gold standard of how we, where we get the numbers put out by the Fed. But I can get you the exact number. MONITOR BREAKFAST: Whatever that number is, is the distribution of serious concern to this administration? CHAIRMAN GOOLSBEE: Well, it has gotten seriously concentrated. Weve often said, the President has often said that in the 2000s, we saw the first boom in recorded U.S. history, where not just at the bottom, the middle class families saw its income fall by $2,000 over the boat. So that virtually all of the growth of that growth period was concentrated in a very small number of people. My own view is that that type of unbalanced growth is not sustainable. Its prone to generating asset bubbles when you have a very small number of people chasing a certain class of assets. So I think that thats -- its an important issue that we have broad-based growth in the country, because thats the only sustainable kind of growth that we have had. MR. COOK: Cynthia. MONITOR BREAKFAST: Let me ask you about the Jobs Council and let me play the cynic here. As Democrats are fond of pointing out, there was not substantial jobs growth under George Bush even before the recession, with less regulation and lower taxes. The head of the Jobs Council has presided over a period at his company of downsizing jobs in this country and shifting them overseas. Why would executives, why would CEOs create jobs? Whats in it for them? These companies are thriving with unemployment where it is at the moment. CHAIRMAN GOOLSBEE: Well, I would say a couple of things about that. First, lets start on the second part, why would companies add jobs? We go through a period in the recession in which, as we come out of the recession, the growth rate of the economy is maybe one percent, one and a half percent, and productivity growth is four and a half, five and a half percent at an annualized rate. So very dramatic productivity growth, faster than has been the trend for the last 75 years in the country. A lot of that driven by abject fear on the part of businesses. Theyre in free fall. Theyre getting rid of workers. Theyre trying to save costs in every way. Theyre unstrapping whatever can be unstrapped and selling it. In an environment where were growing this fast and productivity is growing well faster than that, that is a recipe for lots of people losing their jobs, because you dont need as many people to be satisfying output. We have now almost reversed that. So productivity growth is back down to something more normal, like two percent, and the forecast for 2011 are three and a half, four percent output growth. And the answer is the private sector cannot grow four percent a year when productivitys two percent a year without hiring people or for the people they have there, having them work more hours, and you have seen that dynamic begin. So thats why, over the last year, the private sector adds more than a million jobs. GE itself, Jeff Immelt, the head of GE and hes chairing this Jobs Council, you saw them in the last year move jobs back to the United States in their Appliance Division from Mexico and from some other places, and the President talked to Jeff about that, and said why was, you know, how have they made those decisions. You heard from him what you hear from a lot of business people, small and large, which is the comparative calculus, lets call it, of locating in the U.S. is moving in the U.S.s favor. So our productivity remains very high. The wages in some of these other countries have gone up as they get richer and theyre no longer poor countries. It gets more expensive relative to the U.S., and capital is very productive in the U.S., and the capital intensity of a lot of these businesses is pretty high. So the labor share is not as big as it once was. So it makes the U.S. an attractive place. I think the Presidents idea is one major component of the Win the Future agenda is lets make the U.S. an attractive place for people to want to build a factory or buy equipment or expand or start a company. So I dont think -- I know you wanted to be the cynic, but I dont think its that cynical to ask okay well look. Why is it going to be in the interest of business in America to be hiring people, and I actually think it is going to be in their interest, and I think when you talk to the business people, they say look, we want to expand. Were optimistic about growth here, and the U.S. can be a platform for major export growth, as well as for job creation. I mean I think thats the theme of the Council. MR. COOK: Kevin. MONITOR BREAKFAST: I have two related questions, both for your economics hat and for your comedians hat as well. On the oil prices, obviously 120 a lot of people think is the trigger. But discuss the psychological impact. Youve followed consumer behavior for a long time. Were coming out of a recession with a very fragile consumer, in terms of the leverage and everything. Are we understating the psychological impact of gasoline prices, and the second question, separate from all the politics and theater on the Wisconsin issue, the pension issue nationwide is blowing up in a bunch of states. As Ive looked at the details, youve got the cost of maintaining pensions is about the same for the private sector as the public sector. There doesnt seem to be much difference of salary and wages. What is it -- in your mind, to what degree is the pension system broken, and to what degree is this theater? Let me stop with that question. CHAIRMAN GOOLSBEE: Okay. So lets start with the oil prices. First, I should have said when you asked about the $120, the way the economy works is not a cliff. Theres no sense in which, you know, the price of oil gets to 119.99 and when it hits 120 then it goes into recession. Thats not accurate. I do think there are some psychological impacts, not in a -- just the price of gasoline is a very public price. That said, you saw this week the new consumer confidence numbers came out. They were very strong, the highest in three years. Consumer confidence of what the employment situation would be was the highest since 1984, I believe. So we start from a more optimistic place for 2011 than we have been in some time. We continue to monitor the oil price situation. As I say, its not -- that is a factor in the economy, and its one that people see, but it is also fuel costs are something like ten percent or less of consumer expenditures, and overall inflation, consumer price index inflation, remains very low. The Fed continues talking about the risks of deflation. So were monitoring the oil price issue, but it should be taken in the broader context of overall consumer inflation. We have not had substantial consumer inflation outside of certain commodity areas, and so that part is good. On the issue of pensions, I dont want to get into too much detail on what our -- each state is different and there are a lot of complexities associated with what the states themselves have to do that are not Washingtons issue. I believe with pensions, you get in a similar discussion with some of our longer-run entitlement issues at the federal level, and that is lets not conflate short-run deficits caused by the business cycle, with longer-run issues associating with the aging of the population or the acceleration of health care costs. Theyre fundamentally two different things, and there does seem to be some either confusing or conflating of those two things, which doesnt seem to me to be that productive. MR. COOK: Michael. MONITOR BREAKFAST: Last week Secretary Geithner, speaking in front of the Senate committee, said that the Presidents budget was unsustainable, talking about the budget deficits. Is that a view that the White House economic team shares, and if not, can you explain the difference in views? CHAIRMAN GOOLSBEE: Well, I didnt see the testimony youre describing, but I assume he was referring to the current year, and obviously the current year, when youre coming out of the worse downturn since 1929, you would not sustain a deficit at the level, at that level. So I dont think thats particularly newsworthy. In the Presidents budget, theyre getting the -- trying to deal with getting the house in order, the spending freeze, cutting hundreds of billions in spending, and getting deficits down to a level of something like primary surplus, meaning youre covering your costs. The debt to GDP ratio is not rising. That is, by the technical economists definition, sustainable, and thats what the budget is trying to do. MONITOR BREAKFAST: That doesnt include the interest on the debt. I mean isnt that sort of the issue about -- CHAIRMAN GOOLSBEE: No. The issue of sustainable is debt to GDP ratio being at a sustainable level that is not increasing, and it is worth pointing out that from say 1946 to 1978, Im making up those dates, but in that approximate period the U.S. debt to GDP ratio drops by something like 85 percentage points, and I think we only run a surplus four times in that whole period. The predominant way that we do that is sustainable growth. Theres debt and theres GDP, and if you get the GDP growing at a strong, sustainable rate, it makes a big difference. So I think its almost certainly taken a little out of context if Secretary Geithner said the fiscal policy is not sustainable. Hes clearly got to be referring to the current deficits, which cannot be sustained forever, nor would you want them to be. But as you come out of rescue mode and into growth mode, I think thats perfectly normal. If you look at the budget that the President laid out, I would highlight the most the deficit has ever fallen in real dollars, I think, is about 110, 120 billion dollars a year, and the budget hes got in there has got, in the near future, the deficit coming down $400 billion in a single year type of thing. So its a very credible commitment to getting us to something like a sustainable fiscal path. MR. COOK: Were about halfway there. Were going next to Glen Thrush, Brian Tumulty, Damien Paletta, Marcus Stanbaltz (ph), Mike Doerning, Dave Shepardson and Carol Roland to finish. Glen. MONITOR BREAKFAST: Austan, you said earlier that most reasonable people agree growth is really the issue in terms of dealing with a lot of these problems. By that definition, there are a lot of members of Congress who are not reasonable people, and you are about to enter -- the administration is about to enter this very tumultuous negotiation with them. At what point do these cuts -- we heard Speaker Boehner yesterday talk about $2 billion a week on one of the CRs. At what point, whats the red line here, where these cuts actually start impinging on growth, and how much in terms of cuts is the administration willing to swallow? My second question has to do with the Competitiveness Council. Whats the end product here, in terms of what you hope to produce, and what do you say to the critics who say that youre sort of throwing administration critics onto here, Immelt and the Intel CEO, as sort of a public relations exercise? CHAIRMAN GOOLSBEE: Well, these are two totally different things. On the first, it sounded kind of like youre asking of the legislative negotiations or something. I have no -- Im just the policy guy. So I dont have any read on -- MONITOR BREAKFAST: (inaudible) CHAIRMAN GOOLSBEE: As I say, on the legislative negotiation, Im not the -- Im the last person you want to talk about how the game is played. The gaming out of scenarios is the legislative negotiation. Thats not my area. The thing that I said that most reasonable people agree on was specifically if youre going to cut, what should you cut? The answer that the president is putting forward is we must living within our means. Lets do that in a reasonable way that does not cut the education, the innovation and the building that we need to grow. If you go talk to non-partisan people, private sector forecasters and others, or if you just think about it, that is what you should be protecting. Those are the things that you must be doing to set yourself up on a path that five years from now, our kids have the educations they need to be getting the careers that are going forward, that weve done the research and development and weve made these investments to attract companies in the U.S. So that is the mind set that we have to look at at the cuts, and we dont need to -- we should not be conflating long-run fiscal sustainability with short-run deficits that are high, because weve had this business cycle, or because weve signed a short-run tax deal to try to encourage growth in the country. Everyone knew that we were going to pass short run tax cuts to encourage investment, to put money in workers pockets, to keep people in school, that that would have an impact on the 2011 deficit and virtually no impact on the long run fiscal situation, and there's nothing wrong with that. That was a good idea. It was done in a bipartisan way, and we should be trying to do that. On the issue of the Council, look, there are people on the Council who have said critical things about the administration. There are people on the Council who have said very positive things about the administration. There are cases where the same person has said sometimes critical things, sometimes positive things. Thats sort of -- the President is not afraid to hear all sides of the argument on that. That doesnt make it a -- theres nothing untoward about that. Thats what he wants. The end product that I think he would like would be among three different things. One, to actively get the ideas and input from business, labor, academics about how do we get more competitive and how do we grow jobs in the country; that that would entail market intelligence that they might themselves have, that they might get from others when they go out and meet regionally; that -- that was one and a half. I said three, but forget what number I said. MR. COOK: Well take two. MONITOR BREAKFAST: (inaudible) CHAIRMAN GOOLSBEE: I am the policy guy. Im just not the counter. Then the other thing that Id say is that the whether its on the -- I would call it how the public sector and private sector can work together, different from just ideas from what the federal government should be doing for policy, is a third area that is something that they could do. So you started to see things like this in the PRAB, the previous version. They came up with the idea of the Skills for Americas Future, which cost very little money to the government, but it set up a non-profit organization to match private sector companies that want trained workers, and are willing to invest in community colleges and other educational institutions, to have them train for jobs that they want to hire for, and this is matching up potential employees who want to get training in areas that will hire jobs, community colleges that want to create programs that will be of demand to students, and companies that want to hire workers. So the Skills for Americas Future is about kind of a stamp of approval, if you will, where the government says Look. Were backing this no-profit coordination. We went to Schenectady, New York, and there, GE as an example, is funding the -- I cant remember the name of the community college there in Schenectady, for a green jobs manufacturing training program that they want to hire trained workers. The local community college wants to train people for jobs, and the people want to get that, and its been a triple-win across the board. Things like that Start Up America, Skills for Americas Future, which are not directly government policy but are public-private partnership. I would expect that to be a third -- MONITOR BREAKFAST: One follow-up on the first question. MR. COOK: Real quick. MONITOR BREAKFAST: Have the Republican proposals that youve seen so far, the two billion bucks a week, the bill passed by the House, would they have a negative impact on growth? CHAIRMAN GOOLSBEE: Look, as I say, Joe asked me are you gaming out scenarios of those different spending cut packages, and we are not. Thats not what the CEA does. There are private sector folks who are looking at that. MR. COOK: Brian. MONITOR BREAKFAST: On policy, the debt limit will be an issue shortly, and why is it a bad idea to not increase the debt limit? Why is that a wrong way to go? CHAIRMAN GOOLSBEE: Well, if you hit the debt ceiling, its not an argument about the budget. When they argue about the budget, its an argument over what should we be spending resources on or where should we be collecting revenues. The debt ceiling is arbitrary. Virtually no other country in the world has an arbitrary debt ceiling. If you hit the debt ceiling, the government defaults on its obligations, and the implications of the U.S. government defaulting is not good for the economy. So thats why. I dont think that its -- its not a game, and it doesnt make sense to play chicken on the debt ceiling. We should have a discussion about the budget, where the priorities should be in the budget. Thats totally fine. Nobody should be using the debt ceiling as a negotiating tactic. MONITOR BREAKFAST: But its not a way to stop the debt from increasing? CHAIRMAN GOOLSBEE: There are -- even if the budget were balanced, you would still have to raise the debt ceiling. Things like Social Security technically has to borrow from other parts of the government. So its not a good idea to use a thing which involves the fundamental full faith and credit of the U.S. government as a negotiating tactic. I just think -- I mean youve seen the Fed chair say the same thing. Youve seen the Secretary of the Treasury say the same thing. MR. COOK: Damien? MONITOR BREAKFAST: Yesterday, the call out for the ERP came out, and you expressed confidence that Democrats and Republicans were going to get a deal on the -- CHAIRMAN GOOLSBEE: I like that he was on that call. MONITOR BREAKFAST: It was a good call, the CR, and that you know, we shouldnt worry about the issue. But the fact is that if they dont have a deal by a week from tomorrow, there is a government shutdown. Can you just tell -- Im not going to ask you a political question, because I know youll not answer it. But how prepared is the administration for a government shutdown, and what would the economic impact be? CHAIRMAN GOOLSBEE: Look, Id say two things about this. The first is I dont think theres going to be a shutdown, and what I said on that call, I dont think -- the reason you havent seen the -- you havent seen the private sector getting worked up about it, I dont think the evidence is the markets believe theres going to be a shutdown. You saw the leaders of both parties in both houses say, all four of them, theyre going to do what it takes, that they dont think theres going to be a shutdown. So we should have this discussion about the budget, but thats why I dont anticipate that. As a matter of course, the government, I believe, is required, but it has since 1980 always had contingency plans of how is the government funded, how does the government operate, what would we do under various funding scenarios. If theres no funding, how do you do partial shutdown, and we have such contingency planning. Its not a strategic political plan. Its purely mechanical, you know, declaring whos, whats essential and what are non-essential services and how do furloughs work and things like that. So as Jay Carney said, we have that, and thats -- it would be irresponsible not to have that, and so we do. But thats not in any sense like were planning for a shutdown in a strategic way, and as I say, I dont think theres going to be a shutdown. MONITOR BREAKFAST: The economic impact of a shutdown? CHAIRMAN GOOLSBEE: Obviously, it would depend on how long that lasted. I mean we have had multiple shutdowns in the past, and that probably would be the first, that would be the best place to go look at. But were not looking into too much more detail about that. MR. COOK: Ruth. MONITOR BREAKFAST: Austan, in your -- since youre a policy guy, maybe you could expand on something the President has said. He was talking about the Simpson-Bowles Commission, he said he agreed with some parts and disagreed with some parts. Could you tell us what parts he disagreed with? CHAIRMAN GOOLSBEE: Look. The President laid out, in his budget, a number of things that he explicitly wants to do from Simpson-Bowles. MONITOR BREAKFAST: I asked you about the parts he disagreed with it. CHAIRMAN GOOLSBEE: And he laid out the -- I will give you only the level of disagreement that he has. He does not think, for example, that you should be treating Social Security -- I mean Simpson-Bowles were not able to reach agreement. They didnt get their 14 votes, so the view espoused by some of the Simpson-Bowles Commission, that we ought to do Social Security 100 percent off of benefit cuts, for sure he doesnt agree with, and the President has publicly stated that we shouldnt do that. I think to the broader issues of the fiscal responsibility and dealing with the long-run fiscal challenge facing the country, Simpson-Bowles, I think, did several important services. One, raising again how important it is, joining the Ruth Marcus chorus of its importance, but highlighting its the long run that matters. Were not talking about 2011 and 2012. Thats not, you know, in Bowles-Simpson they made perfectly clear that thats not the challenge. The President, in addition to taking some of their ideas about freezes and others, opens the door to lets have an adult conversation about entitlements, because thats fundamentally the key issue. Its an issue weve known about for multiple decades, and its an issue that has not materially gotten worse in the last two years. So the only way to do that is in a bipartisan way. That will not work, of one or the other party just coming forward and saying Well, heres the way we should change entitlements, because that will -- that cant be done. MONITOR BREAKFAST: You raised a straw person about 100 percent of Social Security fix being on cutting benefits, because thats, of course, not what the 11 agreed on. Does the President think that that mix was wrong? CHAIRMAN GOOLSBEE: That what mix was wrong? MONITOR BREAKFAST: The mix that the 11 members of the Commission agreed on. CHAIRMAN GOOLSBEE: The Presidents laid out a responsible budget, thats trying to get us, get our government living within its means. Hes opened the door to let us, in a bipartisan way, deal with entitlements as raised by the Bowles-Simpson Commission. Its certainly not the appropriate venue to negotiate what should happen to Social Security meaning here. MONITOR BREAKFAST: Can I try one more? MR. COOK: Real quickly, and then Ive got to move to your colleagues. MONITOR BREAKFAST: So when hes talked about reforming the tax code and cited Bowles-Simpson, hes talked about the importance of simplifying it. Of course, they talked about the importance of both simplifying it and raising more revenue. Leaving aside the revenue the President would like to raise by letting the upper income parts of the Bush tax cuts expire, does he agree with the concept that we need to simplify the tax code, not just to simplify it but to raise more revenues? CHAIRMAN GOOLSBEE: Well, the President highlighted, in the State of the Union, and we have been in active discussions, starting with the corporate side, and Bowles-Simpson laid out a fairly detailed plan on the corporate side of how to broaden the base and lower the rate, and thats been our main focus on the tax side. MR. COOK: Dan? MONITOR BREAKFAST: So let me follow up on Ruths question. If this issue is not that much of a crisis at this point, A, why did the President feel the need to appoint a deficit and debt commission last year, and having done that, why did he essentially not try to build on it in any more significant way than hes done, barely mentioning it in the State of the Union and everything administration officials have suggested since then is that this is not something that really needs to be dealt with in any real timely way? Give us some insight into why he has done that and what is the real time table, in your estimation, for really doing something about this? CHAIRMAN GOOLSBEE: Well, that was a bit of a loaded way to ask it. I think the President is the one who formed the Commission. He wanted it to be statutory commission. Im sure you remember the episode of the people who were co-sponsors of the bill voting against it once it looked like it was going to pass. Its an important issue. My point is undeniable, however, that we have known about this issue for many decades, and previous presidents of both parties have not confronted that. He set up the fiscal commission because he believes its important. It isnt a 2011 crisis, but its an important issue that we must deal with. Now weve got to still -- we have to do that in the context of the entire Win the Future motif, that weve got to be reestablishing growth, getting the unemployment rate down. But I dont agree with the premise that hes completely ignored the issue of entitlements and long run fiscal balances. That is not the case. He laid out a budget that confronts the near-term bringing the government within its means, to try to get us to a point where the debt to GDP ratio is stabilized, and he opened the door to having an adult conversation about these very issues on entitlements, which is not what previous folks have done. So I think that Bowles-Simpson was not able to reach consensus recommendation did not stop him from saying look, lets -- he formed the Commission for a reason. He continues to be actively interested in finding a way to put us on a fiscally responsible path in the long run. That in the entitlement space is about the aging of the population and health care costs. The health care act saves a trillion dollars for the deficit. It does a whole bunch of steps to try to reduce health care cost inflation, and the President outlines and some of them things straight from the Bowles-Simpson Commission, that we ought to be open to doing more to get costs down and reduce the inflation rate of health care. Ultimately, those are the issues of the Commission. Theyve got to be done in a bipartisan way. So asking the President to just, why doesnt he just produce a partisan plan to deal with entitlements, his whole point that hes repeated again and again is weve seen that that doesnt work. You cant do that in a partisan way. That has to be bipartisan. MONITOR BREAKFAST: Whats the plan? CHAIRMAN GOOLSBEE: I mean it has to be done in a negotiation, with the members of Congress and the administration. MR. COOK: Mike. MONITOR BREAKFAST: Sort of related to the last two questions. Jack Lu had an op-ed piece earlier this week, which presumably you probably read. CHAIRMAN GOOLSBEE: Im sorry. I couldnt hear. MONITOR BREAKFAST: Jack Lu, the budget director, had an op-end piece in USA Today, which I suspect was circulated internally before it was published, that essentially made the argument that Social Security, putting Social Security on a sounder footing is not part of a deficit issue, and should not be dealt with related to that. Im wondering, some people sort of advised me that the correct interpretation for that is that youre not interested in doing a negotiation on Social Security, that that was meant to signal at least that the administration is not interested in doing Social Security right away in the context of these deficit talks, and in fact that seemed to be what the article is saying. Is that a correct interpretation, that the idea of Social Security should not be dealt with as part of these deficits talks right now? CHAIRMAN GOOLSBEE: To the extent that youre -- and what? MONITOR BREAKFAST: And then a totally separate question, if you have time. Last time I looked at my Bloomberg terminal, it said that the median private forecast was that the President will be running for reelection with 8.7 percent unemployment. Do you share that view, and if not, why do you think its wrong? CHAIRMAN GOOLSBEE: Okay. On Social Security, Im not -- if youre asking me is this a sign of what your position is in the legislative negotiations. As I said from the beginning, thats not my area. I dont -- I dont have any answer to that. Jack Lus statement, which is if you look at the numbers, you cannot get away from it being completely correct, is that Social Security is not a major factor in the short-run deficits, and we shouldnt be thinking of Social Security, the entitlement program, as a way to try to balance the budget in 2011. That doesnt, it doesnt add up in that circumstance. His point in the op-ed was this is an important program that we must ensure is there to strengthen -- we must strengthen Social Security and make sure that people have it, that it not be undermined by solvency issues, etcetera, that thats a longer run thing; its not really a short-run deficit issue. I think if you just look at the number, and the President said many times that hes interested in fixes on Social Security that strengthen it, that dont weaken it, that we not privatize it, etcetera. I have no answer to the question of is that a political gesture, is that a signal for the negotiations of A, B or C. Thats not my area. MR. COOK: Jobless rate. CHAIRMAN GOOLSBEE: The jobless rate, we have an official forecast, and Im not going to decline to think anything other than whats in our official forecast, and I believe -- I should have brought it. It has fourth quarter `12. I thought ours is eight. Nan, do you know? This is my executive director, Nan. I thought its 8.3 or 8.4 or something like that. MR. COOK: In the budget, you were saying 8.6. CHAIRMAN GOOLSBEE: Well, but thats for the year 2012. So the fourth quarter of 2012 at the time of the election I think was 8.3. You know, so its somewhat in that range. MONITOR BREAKFAST: Was this developed, though, before the tax cut deal? CHAIRMAN GOOLSBEE: That was before the tax deal, but the tax deal primarily affects 2011. By the fall of 2012, most of the tax deal is expired off. So that might have some impact. But look, its in the range of 8.3 percent, you know. You said what, 8.7? Thats for the fall of 2012 or the year of 2012? MONITOR BREAKFAST: I thought it was for the fourth quarter, but who knows? I could be remembering it wrong. CHAIRMAN GOOLSBEE: Because our year 2012 was 8.6. So it would probably be similar. MR. COOK: Dave Shepardson. MONITOR BREAKFAST: Austan, in March 2009, you were probably the strongest voice in the administration for letting Chrysler fail. I wonder in retrospect do you think that that was the right decision, to save Chrysler? And secondly -- CHAIRMAN GOOLSBEE: Go ahead, give me another one. MONITOR BREAKFAST: Secondly, do you think the government can get on -- MR. COOK: There are no single-part questions here. MONITOR BREAKFAST: Do you think the government can exit GM? They just reported almost a $5 billion profit. Can you get completely out of GM this year? CHAIRMAN GOOLSBEE: Okay, on Chrysler, look. There has been, I wasnt -- I disagree with the premise of the question. I wasnt in any way any public voice of anything on that. There have been reported internal deliberations Im going to decline to express. I am extremely happy to see the recovery of the U.S. auto industry, that theyve been profitable, theyve been adding jobs. Its part of a broader comeback of manufacturing in the country, and the shift of us out of rescue mode into growth mode, and its a great -- thats a great story across the board. The GM profitability, the managing, you know, what GM had to do, I go through some on one of these white boards I do. They had a series of really brutal, tough decisions that they had to make to get costs down, to get more competitive internationally and they did. The government never wanted to be in the business of being majority shareholder of GM. It was only to prevent a wider spillover negative event on the economy. So were trying to get out of that. I think the -- Im not involved in the Treasury or others actual operation of when they sell the shares, but I think the writing is clearly on the wall that the government is getting out of the GM position, and there was some -- there was some public discussion among people in the market of something to the equivalent of should the government be trying to engage in market timing and that, and they generally have not. Theyre just trying to, in whatevers the most reasonable way, phase out the governments involvement. Were not trying to be Warren Buffet and figure out, you know, what the market is doing. I would say there are a couple of -- there were several phases of the rescue of the auto companies, General Motors in particular. Under Bush, they gave them, I think its 17-1/2 billion dollars before the Obama administration got there. Those were loans that there was very little prospect, you know. At the time they made those, it wasnt with the intention of restructuring the companies. It was just kind of extending them to get to the Obama administration. So I believe that were already in a circumstance from where the President took over, the government has not lost money on the auto companies. Now whether it will make so much that it pays back those initial loans that just kept them alive, I dont know. But its certainly been a positive story to come out of Detroit. MR. COOK: My apologies to Carol Roland and John Harwood because were out of time. Thanks to you very much sir for coming. We hope youll come back. I appreciate it. CHAIRMAN GOOLSBEE: Thank you.
