What, If Anything, Will Speed Economic Recovery?

Nov 15, 2011
Originally published on November 16, 2011 7:39 am
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This is MORNING EDITION from NPR News. I'm Renee Montagne.


And I'm Steve Inskeep. Good morning. After all the economic news of the past several years, one big question remains unanswered. That question is: How do we finally get out of this?

MONTAGNE: Two administrations now have made massive and much-debated efforts to stabilize the economy. This year, despite a constant flow of economic setbacks at home and abroad, the economy has been growing, but it hasn't been growing swiftly or adding many jobs.

INSKEEP: So we're asking what could change that. We put the question to two of our regular guests: David Wessel, economics editor of the Wall Street Journal; and his counterpart at The Economist, Zanny Minton Beddoes.

Where could economic growth in this country, substantial economic growth, come from right now?

DAVID WESSEL: Well, the building blocks of the economy are quite simple. It's either going to come from consumer spending, from business investment, from construction, from government, or from what we sell to the rest of the world in the form of exports.


WESSEL: And you can go through that very quickly. Consumers aren't going to spend very readily unless they have jobs, and the value of their houses go up. Government is in the process of cutting back that - the federal, state and local level. Business - fixed investment, the stuff that they - money they spend on computers and the machinery and software, actually has been quite strong, surprisingly strong, given how weak the economy has been. But construction, both houses and commercial construction, has been very weak.

The game plan of the Obama administration was to rely more and more on growth in exports to keep the economy moving, and that was a reasonable strategy until Europe fell apart.

INSKEEP: Well, OK, Europe's falling apart. What does that do to the export market, Zanny Minton Beddoes?

ZANNY MINTON BEDDOES: What I think it means - that there is much less potential there than there was. If Europe's crisis spirals out of control and there's a financial catastrophe, then that has all kinds of other knock-on effects. First of all, it'll hit business and consumer confidence; secondly, it'll mean, probably, that money will pour into the dollar as one of the few safe-havens assets around...

INSKEEP: Mm-hmm.

BEDDOES: ...which will mean a stronger dollar, which will hurt U.S. exports elsewhere.

INSKEEP: Oh, let's explain that. People go to the dollar as a safe haven. We feel kind of good in an abstract way because the dollar is strong; that sounds good. But it actually raises the price of American exports overseas.

BEDDOES: Absolutely. And the other part is that a real catastrophe in Europe would have knock-on effects on growth in the rest of the world. And Europe is a huge export market for the U.S., but other parts of the world matter enormously. The president is talking about, you know, the potential for export growth in Asia. The emerging world is where the hope for exports for the U.S. comes from.

INSKEEP: Let me ask about some of the other items on the list that you began us with, though, David Wessel. You talked about consumer spending, which has been improving in recent months in spite of people's lack of confidence, in spite of all the bad economic news. What's driving that? Is it necessity? Is it impatience - people's cars are breaking down, they have to buy a million more cars?

WESSEL: Yeah, there's some of that. Look, there's a natural tendency of people to want to spend, and we still do have people who have jobs, people who have money. And those people are spending. Yeah, sometimes when your washing machine breaks, your hot- water heater breaks, you have to replace it. Car sales have come back some. Actually, if you look at the numbers, it looks like people are spending less on what are sometimes called discretionary services. They're less likely to buy the movie theater tickets or the entertainment or spas, or something like that.

INSKEEP: Zanny Minton Beddoes.

BEDDOES: Yeah. I wanted to focus on two of the other components that David talked about, because I think there are two areas where we could be surprised - one potentially positively, and one negatively. That's investment in construction, and that's traditionally been the part of the economy that has been the sort of motor of a recovery. In traditional post-war recessions, when the economy turned a corner, construction investment - building of houses - was one of the engines that got the economy going again. This time has been totally different. There's been no construction - it's been flat on its back; the house prices are still way, way, way, way below their peak. I think there is a potential, though, that this could, at some point, turn around. If you look at the rental market, it's tightening. If you look at the potential demand for housing, there's a lot of young people living with their parents.

INSKEEP: Mm-hmm.

BEDDOES: People are not kind of going out and setting up home. There's a lot of demand there that when the economy turns around, could turn into a - sort of positive cycle. The negative that I worry about is government. If government policy is unchanged right now, if Congress does absolutely nothing, we are on track for quite a big budget tightening starting early next year - as the payroll tax-cut extensions expire, as the unemployment insurance extension expires. And that means that there's a drag coming from less government. That means that in the short term, that will pull the economy down. So that's an area I worry about negatively, in the short term.

INSKEEP: I want to ask about some of the buzz phrases that politicians throw out as possible sources of economic growth or specifically, of new jobs. The phrase "green jobs" - how are we doing on green jobs, and how could we be doing on green jobs in a year or two years from now?

BEDDOES: Well, we've...

INSKEEP: The look on your face is priceless...


INSKEEP: ...Zanny, priceless. But go on.

BEDDOES: Green jobs. I'm inherently skeptical of the government's ability to pick a sector, to pick a subset of a sector and to say, this is where the jobs of the future are going to come from. There are plenty of things that governments can and should do to kind of set the stage for growth. But industrial policy, which is really what this is, picking winners, we have historically - every country, virtually, has a pretty bad record of doing this.

WESSEL: I don't disagree with that, but I think that there is an aspect in which people really need hope. People have this idea that we're going to run out of jobs; that somehow, all the manufacturing jobs are going to China, and all the service jobs are going to be computerized, and no one will ever work again. So if green jobs is a metaphor for government subsidies - as it is, and as Zanny said - then that's the right case. But it's also a way to tell people that there are going to be some jobs that we think up that we can't imagine now. And they'll probably have something to do with energy conservation, fighting global warming, and stuff like that.

INSKEEP: OK. Let's talk about another buzz phrase: "drill, baby, drill." Can conventional energy drive some kind of major economic growth in this country?

BEDDOES: In the short term, does the U.S. have potential from shale gas and so forth? Yes, it does. I resist the idea that we should be finding three or four sectors and saying, this is absolutely where the future is. But I so wish the conversation was focused on, let's think about what it is - what is the skill set that is most likely to be useful in this world? Whether it is solar, whether it is, you know, conventional energy, whether it is innovation in information technology - wherever the jobs are, what is it that we can do to equip people to be able to perform them?

WESSEL: Right. At a time when there's a shortage of jobs, people use jobs as an excuse to do the stuff that they wanted to do before. So suddenly, oil drilling is seen as a great job producer. Or suddenly, manufacturing is going to be the source of lots of jobs. And sometimes they do create jobs, but that's not the reason to be doing these things. Do we need some coherent set of energy policies that help make energy as expensive as it should be, in order to resist global warming, provide for the security of the United States? Yes. But should we do something that doesn't make sense because somebody says it'll create 47 jobs? No.

INSKEEP: One more thing - one more buzz phrase that's used a lot: "government is the problem." Can you change a bunch of regulations and quickly change economic performance in this country?

WESSEL: No. Are there regulations that are screwing up American business? Absolutely. But is that the overwhelming problem, the reason we have 9 percent unemployment? No.

INSKEEP: One last thing. Have we all, in your view - as painful as it is to admit - just had the wrong time frame for this entire crisis? Is this something that we maybe should have recognized several years ago, that it was going to take quite a few years to get out of no matter what we've tried?

BEDDOES: I think there's some truth to that. There was definitely a pervasive view in this country towards the - in the immediate aftermath of the financial crash, and in the depths of a recession - that the U.S. traditionally has, after a very deep recession, had a very vigorous recovery. A V-shaped recovery was traditional. And that kind of dominated the debate, in the sense that a lot of people felt that the U.S. would do the same thing again because that's what had always happened. That said, I don't think anybody really planned for A, the kind of policy mistakes that have been made; and B, the fact that the eurozone is likely to blow up - or has blown up.

INSKEEP: David Wessel, I'll give you the last word.

WESSEL: Yes. But with the benefit of hindsight, there are probably things we could have done differently. One of them is housing. I think it's very hard to defend the - both the Bush and Obama administrations for not being more aggressive on housing. We would still have all the problems Zanny said, but we'd be better off if the housing problem were closer to being solved.

INSKEEP: David Wessel of the Wall Street Journal, thanks very much.

WESSEL: You're welcome.

INSKEEP: And Zanny Minton Beddoes of The Economist, thank you.

BEDDOES: You're welcome.


INSKEEP: And Zanny and David are both regular guests right here on MORNING EDITION, from NPR News. Transcript provided by NPR, Copyright NPR.