What’s your take on rating downgrade of the U.S. and the rout that followed in the stock markets?
Go back to some of the comments that Secretary Geithner made: The Standard & Poor’s rating was analytically quite flawed. It didn’t even do the math right. It made a $2 trillion error. And when you correct their math, it actually puts the U.S. into the category of countries that they rate as AAA. The point the President made was that they were making a political judgment. We’ve just come through a very unfortunate four-, five-, six-week period when there was a lot of self-inflicted damage. Thankfully, through the President’s leadership and the work of the responsible leaders of Congress, we were able to avert that disaster.
Do you think the markets plummeted in response to the downgrade?
No, I don’t. Were that the case, you wouldn’t have seen a flight to Treasuries. There are a lot of things happening. Europe is trying to get its fiscal house in order. I think that the irony is that, notwithstanding Standard & Poor’s decision, the safest place in the world to put your money was U.S. Treasury bonds.
Back to that political calculation. How much responsibility lies with the Tea Party?
I think there are members who associate themselves with the Tea Party who have a very different view of political decision-making. There is an absolute notion that their way is the only way. There is a willingness to do things like deny the significance of potential default of the greatest power in the world. You had this group of 70 or 100—I don’t know exactly how many—some of whom affirmatively thought it would be a good thing. Can you imagine what today would have been like had we defaulted and we had a fail to auction, had we not been able to cover the U.S.’s debt? I wouldn’t be sitting here.
How would you characterize what they did?
Raising the debt limit on some levels is a ministerial act. It doesn’t involve any new spending. [The Tea Party] said if you don’t make the policy decision in a way we find acceptable, we’re going to push the car over the cliff.
What about the Democrats who voted against the deal. Were they also willing to push us off a cliff?
Historically, the responsibility for voting on the debt limit has gone to the party in the majority. So I think there was a greater responsibility on the part of Republicans in the House and Democrats in the Senate. A lot of Democrats voted for the compromise, even though many of them were quite unhappy with it, because they thought it was important to raise the debt limit so we would not have this cloud hanging over the American economy. And I think because they fundamentally understood that the kind of decisions we were making were pointing the debate in the right direction.
People who run budgets have to make assumptions. What are yours over the next 18 months?
We see the economy continuing to grow, though not as rapidly as we would like. Current projections are that the second half of the year will be growing … in the 2½ percent to 3 percent range. It’s not the 4 percent that you’d need to really feel comfortable, but the second half of the year is still looking like it will be better than the first.
What about unemployment?
I don’t want to give an estimate on the next 18 months. We have to project the kind of stability that is required for the private sector to come off the sidelines and invest. Businesses in America are sitting on trillions of dollars of reserves, and in the end it’s not going to be the last $50 billion or $100 billion of public money that creates growth, it’s going to be private money.
Has Washington’s behavior given corporations reasons to invest?
Businesses make decisions based on what they are seeing in their order books. It’s demand, which brings me to the question of the payroll tax. We should extend the tax relief for another year; $1,000 [a year] in the average worker’s paycheck is a lot of demand.
How do you see this playing out?
Since there wasn’t a willingness to put revenues on the table, what was set up was a process—but a process with a powerful committee with an enforcement mechanism behind it. That mechanism is not attractive to anyone. It’s $1.2 trillion of cuts, half defense, half nondefense, that would be unacceptable from the perspectives of both the right and left. So this committee has a real challenge to do its work between now and December.