Speed Dial: The Long Hard Road to Job Creation
(On Aug. 5, the White House said Romer had resigned as chair of the White House Council of Economic Advisers and will return to a post at the University of California at Berkeley as of Sept. 3. Bloomberg Businessweek talked with her on July 22 about U.S. job growth.)
At 9.5 percent, unemployment is higher than the Administration was expecting. Why is that?
The recession is simply worse than just about anyone was anticipating when we made our first forecast [in January 2009, for unemployment to peak at just under 8 percent]. Also, unemployment has gone up more than you'd have anticipated given the fall in gross domestic product. The relationship between output and unemployment broke down. The unemployment rate jumped a point to a point and a half more than you would expect.
Why do you think that is?
My guess is the main reason has to do with…the fact that [the recession] was caused by a financial crisis. Since it was such an unusual event, firms may have reacted more forcefully than was usual out of a fear of the unknown. Also, firms that couldn't get credit may have had to lay more people off than normally.
What needs to be done to make it easier for people to find a job?
We need to get demand up. The biggest part of that is going to be the private sector getting its confidence back and people buying things, firms investing.
Our export initiative is designed to try to get some more demand coming from foreign sources. I was a big proponent of a jobs tax credit, such as is in the HIRE Act—if you hire an unemployed worker, you don't pay any payroll taxes [on them] for the rest of this year. That increases demand and gives firms an extra incentive to hire workers.
Is there a point at which you have to say unemployment is not dropping enough, we have to change policies?
The way we've approached policy is to be constantly reevaluating. That's why last year we did Cash for Clunkers, which seemed to be very successful. We did the HIRE Act. We've been proposing more state fiscal relief and have been desperate to get [passage of] the small business lending bill. We're also constantly thinking of what are the things we could do that aren't more tax cuts or more government spending that could accomplish the same goals. Is it a free-trade agreement with Korea? Is it trying to do more commercial diplomacy—making it easier for businesses to export for the first time?
Are there any lessons you can learn from other countries?
Maybe, yes. If you look at which countries [enacted] the biggest fiscal stimulus in 2009 and how they're doing, you see a pretty strong correlation. Countries like China and Australia that did quite strong fiscal stimulus packages are now doing quite well. The U.S., which had a relatively big stimulus, is growing a lot more strongly than many European countries that had much more moderate fiscal packages.