Google Inc. Chairman Eric Schmidt called on U.S. policy makers to use their “big levers” to foster growth through investment and aid to states forced into fiscal tightening by budget rules.
“Where is the demand going to come today if it’s not from some form of government action?” Schmidt, 56, said in an Oct. 1 interview with Bloomberg Television’s Erik Schatzker in Nantucket, Massachusetts, where he was attending a conference. “The government has big levers that it can apply but it needs to do it in the short term.”
American lawmakers have yet to act on President Barack Obama’s $447 billion stimulus plan designed to stoke jobs growth in an economy restrained by 9.1 percent unemployment. The U.S. and Europe face about a 40 percent chance of a prolonged period of stagnation should policy makers fail to restore confidence, according to analysts at Goldman Sachs Group Inc.
“The federal government can spend as much money as it wants because we borrow in our own currency,” said Schmidt, who led the world’s most popular search engine for almost a decade before Larry Page took the chief executive officer post in April. Overseas demand may not help much because “we already have one of the cheapest currencies we ever had and yet we still cannot export ourselves out of this recession,” he said.
Against the yen, the dollar slumped in August to its lowest level in the postwar era. It traded at 76.85 yen as of 6 p.m. in Tokyo, about 1 percent from the Aug. 19 nadir. It has also retreated 7 percent versus the euro in the past two years, to $1.3333.
Cheap to Borrow
Federal borrowing costs have dropped this year even with an increasing fiscal burden as investors flocked to Treasuries as a haven. Yields on 10-year U.S. government notes were 1.88 percent today, compared with an average of about 3.80 percent in the past five years.
Gains in U.S. payrolls in September were probably too small to reduce joblessness and manufacturing almost stalled as concern mounted that the global recovery was losing momentum, economists said before reports this week.
“All of the economists that I know agree that in a situation where there is a strong possibility of a very long-term recession, or at least a structural growth recession, which many people think we’re in, you need to do something now,” Schmidt said. The economy isn’t creating new jobs and the scenario may not change for a “very long time,” he said.
Payrolls increased by 50,000 after no change in August, according to the median forecast of 67 economists surveyed by Bloomberg News before Labor Department data Oct. 7. The jobless rate was 9.1 percent in September for a third month, according to the survey median. Private payrolls, which exclude government jobs, rose 90,000 after a gain of 17,000 in the prior month, economists forecast the employment report will also show.
“Economic growth comes from the private sector with government assistance,” Schmidt said. The government should provide grants to the states to help them through the economic slowdown that has led them to lay off employees, he said.
“The states are restricted to actually having balanced budgets and with revenues going up and down, it’s extraordinary hardship at the state level and that contributes to the economic decline,” Schmidt said. “A simple thing to do would be block grants to the states to help them through this.”
Obama last month proposed a $447 billion jobs plan that economists surveyed by Bloomberg forecast would help avoid a return to recession by maintaining growth and pushing down the unemployment rate next year. The Federal Reserve last month unveiled a plan to bring down longer-term rates by shifting assets on its balance sheet away from shorter-dated securities.
Schmidt, who holds a Ph.D. in computer science and worked for more than a decade as a technology executive before joining Mountain View, California-based Google in 2001, said the U.S. needs a “national agreement on what it means to be competitive.”
“It galls me that other countries are growing so much more quickly than we are because they are investing in the productive parts of their society and they’ve chosen to or don’t have some of the systems that we have that are not very productive,” said Schmidt, who helped develop the Java Internet-programming language when at software maker Sun Microsystems Inc. “We have to have that conversation.”