GLASSMAN:  ` 00:01:34 Welcome to IDEAS IN ACTION.  A television series about ideas and their consequences.  I'm Jim Glassman.  This week, job creation.  The economy is showing some signs of growth, but economists warn that so many jobs have been lost that it will take years to replace them.  So, how do we create new jobs and what roles do the government and the private sector play in the process?

` 00:01:57 Joining me to explore this topic:  Lawrence Mishel, President of the Economic Policy Institute and author of The State of Working America; and, Douglas Holtz Eakin, Director of the Congressional Budget Office from 2003 to 2005 and chief economists for the Council of Economic Advisors under President George W. Bush.  The topic this week:  How to create jobs in America.

ANNOUNCER:  ` 00:02:37 Funding for IDEAS IN ACTION is provided by Investor's Business Daily.  Every Stock Market cycle is led by America's never ending stream of innovative new companies and inventions. Investor's Business Daily helps investors find these new leaders as they emerge.  More information is available at Investors.com.

OBAMA:  [ON TAPE]   00:02:56 One year ago, I took office amid two wars, an economy rocked by a severe recession, a financial system on the verge of collapse and a government deeply in debt. So, we acted, immediately and aggressively. And one year later the worst of the storm has passed.

GLASSMAN:  ` 00:03:19 The economic recession which started over two years ago appears to be waning.  While the number of people being laid off is slowing and wages are growing modestly, unemployment continues to hold steady at about ten percent.

DAVID WYSS: ` 00:03:33 You normally expect things to start turning around now, start seeing some employment gains.  We're not seeing it.

GLASSMAN:  ` 00:03:40 There's growth in certain areas of the economy including education, health and professional services, but two key sectors, manufacturing and construction are still losing ground. 

BRIAN CROOK:  ` 00:03:50 It's terrible, you know.  Every day you're just thinking about whether you're going to have a job, whether you got enough money to pay your bills, your mortgage, your kids. It's not good.

GLASSMAN:  ` 00:04:01 Overall the economy lost over eight million jobs over the past two years.  A fact not lost on the Obama Administration which has pledged a big push for jobs this year.

OBAMA [ON TAPE]:  ` 00:04:12 Jobs must be our number one focus in 2010 and that's why I'm calling for a new jobs bill tonight. 

HILDA SOLIS:  ` 00:04:22 We're going to keep moving ahead and pushing forward on our efforts to get people re-employed, to get people into the safety net if they need to through unemployment insurance and also provide the new training and educational opportunities that are going to be needed to make the transition from the old base manufacturing sectors to a new base renewable energy sector.

GLASSMAN:  ` 00:04:45 Measures include increased spending on roads, building and other infrastructure projects, aid to small businesses as well as incentives for investment in so-called green technologies.  But can federal stimulus create good jobs that last?  Who pays for these programs and what will it take to get private companies to start hiring and put America back to work. Doug Holtz-Eakin, you council a lot of people including Congress.

What do you think is the biggest obstacle to creating new jobs?

HOLTZ-EAKIN:  ` 00:05:17 Well, I think the fact that economy has suffered such great distress over a prolonged period has put everybody in a very uncertain frame of mind.  We're seeing no real evidence of hiring.  We've seen evidence that diminished firing is going on.

` 00:05:34 But for the small businessman, for even some of the larger corporations, what they need to be able to see is a little certainty in the outlook and that includes not just the economy but the policies under which they'll be operating, so that they're willing to pull the trigger, put someone on the payroll and make that commitment.

GLASSMAN:  ` 00:05:47 So, it's what's already happened to the economy, plus this uncertainty you're talking about?

HOLTZ-EAKIN:  ` 00:05:50 Yeah. It's been a terrible recession, there's no question.  There are lots of things going on out there that are still not great. Credit markets remain in a very fragile state, a lot of people can't get the financing they like.

` 00:06:04 Given that, if you're going to get someone to put someone on the payroll, you're going to have to give them a route forward they can count on, something where if they put the worker on they're not going to feel blindsided in a year or two.

GLASSMAN:  ` 00:06:14 Larry Mishel, the same question to you.  What's the biggest obstacle to creating new jobs?

MISHEL:  ` 00:06:18 Customers.  The big recession is because we had a withdrawal of consumer spending and businesses don't invest and hire when there's nobody to sell to.  We're still seeing some growth over the last six months or so, but not fast enough to actually overcome the natural productivity growth that's going on and to see job growth and unemployment decline.

` 00:06:43 So, what is happening is the private sector itself is not generating growth and fortunately the government has stepped in with the recovery package and filled in some of the holes.  It won't be able to do that forever, but right now the private sector looks pretty dead for a while more.  I think the government has to actually do more to generate jobs.

GLASSMAN:  ` 00:07:02 Now, you at the Economic Policy Institute have a five point program to create jobs pretty quickly, four point six million jobs in a year you're saying.  Can you tell us the five points?

MISHEL:  ` 00:07:14 Well, basically we need to continue to provide unemployment insurance which is going give spending to people as well as help them -- victims of the recession. You know that's worth eight or nine hundred thousand jobs right there.  I think we need to provide relief to state and local governments so that they don't exacerbate the recession by cutting back on programs and hurting their suppliers.

` 00:07:34 I think we need to do some direct government job creation and give some money to mayors to do things that need doing.  I think there's infrastructure spending and in particular we favor renovating schools all over America in the summer.  And I think temporarily we should have a jobs tax credit so we can encourage firms who are thinking about hiring to actually hire people in the near term.

GLASSMAN:  ` 00:08:00 Now, there's a big price tag to this.  Four hundred billion dollars is the gross cost before taxes or whatever is going to fill the hole for the four hundred billion dollars.  One of the things I'd really like to get to as we discuss this is can you create jobs without - while at the same time pulling money, tax dollars, out of the private economy?  Won't that depress the kind of demand that you are talking about, the customers that's necessary to actually get things going for a sustained period of time?

MISHEL:  ` 00:08:33 Well, there's no way to create jobs unless we're willing to tolerate a higher deficit right now.  We basically have a problem of demand. If we -- we have to be able to be to do these things.  And it doesn't take tax dollars out of the economy right now. Maybe in the far off future. 

GLASSMAN:  ` 00:08:49 We should borrow?

MISHEL:  ` 00:08:50 We have to borrow.  In fact we - our plan actually over a ten year period is deficit reducing because we recommend a sales tax on Wall Street transactions that starts in the third year and more than would pay for what we would spend in the first two years.

` 00:09:06 So, actually over ten years it would be deficit reducing. In the first two years, you have to tolerate a higher deficit to create jobs.

GLASSMAN:  ` 00:09:13 What do you think about that?  Four hundred billion dollars taxes in the out years. Does that create the kind of uncertainty that you were talking about?

HOLTZ-EAKIN:  ` 00:09:22 I disagree with a lot of what Larry has to say. I think that's why I'm here.  But let me tell you the parts I agree with.  There are clear benefits to what economists have labeled automatic stabilizers, things like unemployment insurance that makes sure that when the economy goes down into a recession some people have the ability to continue maintaining their standard of living.

` 00:09:40 This is a very severe recession, we should beef up automatic stabilizers, those things that inject capacity to spend when the economy goes down, but comes out automatically when it goes up.

GLASSMAN:  ` 00:09:51 So, extend unemployment?  You're in favor of doing that.

HOLTZ-EAKIN:  ` 00:09:54 I think we have to look at that social safety net and make sure it survives this recession. I think that's a real consideration.

` 00:10:00 The place where the track record is really quite poor is the rest, the sort of discretionary efforts to spend money here, cut this guy's taxes there, this was business as usual in the United States and in the western world in the 1960's and the 1970's.  Every year consciously trying to fine tune the economy. The result was consistently bad economic performance.  It didn't work. Also led to consistently high inflation. 

` 00:10:25 So I think we need to really be careful before we go down a path that has a track record of failure and then stop and think, gee, what could we do to make this easier for the private sector.

` 00:10:37 Well right now, what the Obama Administration needs to do is to actually follow through and make jobs the most important thing on their agenda.  Jobs aren't the most important thing on the agenda if at the same time they're passing a health care bill that explodes the deficit and imposes costs on the employers.

` 00:10:54 Jobs aren't the top thing on the agenda if they're going to regulate carbon dioxide through the Clean Air Act, which is going to be very intrusive, huge regulatory invasion. It's scaring businesses to death.

GLASSMAN:  ` 00:11:02 You're saying those things will actually hurt job --

HOLTZ-EAKIN:  ` 00:11:04 [speaking over] the prospect of those things, the promise to raise taxes, the promise for the regulation, the potential for other things.  That's hurting the ability of the businesses to have the confidence to do what we need them to do.

GLASSMAN:  ` 00:11:17 I know Larry wants to get in here, but let me just ask you a question.  Some people would say if the government creates infrastructure jobs through infrastructure spending - there has to be people to work on the roads or building the bridges - that those are jobs that don't exist now.

` 00:11:35 If you're building a bridge next week and you need five hundred people to work on the bridge, those are five hundred new jobs.  What's wrong with that?

HOLTZ-EAKIN:  ` 00:11:44 So, number one, I would agree that we need to have better infrastructure in the United States.  But that's not a stimulus kind of exercise.  That's something where we have to consciously have to figure out how to spend the money well.  We waste a lot of infrastructure money in the US and we have to pay for it somehow.  We can't just run budget deficits as far as the eye can see.

` 00:12:02 So, a long run plan - to have better infrastructure - do it.  Short run stimulus, what do you get, you get what we've seen so far. We passed the recovery act last year - a year ago, promises there are shovel ready jobs, roads, highways, things like that, construction employment still declining.

` 00:12:19 Heavy and civil engineering jobs, the kinds that are right in the middle of that, still declining, doesn't work, takes too long.

GLASSMAN:  ` 00:12:25 How about that.

MISHEL:  ` 00:12:25 Well, the idea that somehow the Recovery Act hasn't done a lot for jobs and stimulated economic growth - I don't know if that's what you're contending - because it turned out that we were in the steepest decline since the great depression in the nine months leading up to let's say March 2009.

` 00:12:44 So, why is it in the second quarter, in the spring we had barely no economic losses.  GDP declined by a little bit and we actually had GDP growing in the summer and the fall. The answer is that's because of the stimulus.  And --

GLASSMAN:  ` 00:12:58 So, you think things would be a lot worse.  Instead of ten percent unemployment, we'd have 12 percent, something like that --

[speaking over each other]

GLASSMAN:  ` 00:13:04 A lot longer.

MISHEL:  ` 00:13:05 Well it's not a great case to make to the American people that we're getting worse at a slower rate.  But in fact we have had economic growth for over six months.  The amount of jobs we were losing in the last part of the year were very little compared to before President Obama's plan took effect - we were losing 600 - 700 hundred thousand a month.

` 00:13:22 The other thing I want to get into - lets' talk about the deficit -

GLASSMAN:  ` 00:13:26 I was going to ask you about that --

[speaking over each other]

GLASSMAN:  ` 00:13:29 Doug is saying you can't spend your way out of this.  You can't pile up and pile up and pile up deficits. At some point there's got to be a reckoning.

MISHEL:  ` 00:13:37 But for me to hear this from Doug, that their problem is -- you know of too much deficit spending - because - for instance we have a very large fiscal deficit in this current year.  There's several reasons we have it.  One is because we have a deep recession and the deep recession is something that was inherited by this administration.  Two, there's some special spending, some relief from FANNIE MAE, the Recovery Act. The third thing is because of the policies that were inherited, primarily tax cuts under the Bush Administration.

` 00:14:05 So, now we have an extraordinary crisis where the people need jobs.  To say that somehow we can't do this because of deficit strikes me as wrong, because the way to get the deficit down is to get people working again to get more taxpayers.

` 00:14:22 So, in fact if we do spend 400 hundred billion dollars, we're immediately going to get back you know 40 percent of that in revenues from people who are working - you know the money that we're borrowing - and it's only for two years.  This is not expenditures that are permanent throughout future history.  This is things that go on this year and next.  We're borrowing at the very lowest interest rates you can possibly have.  This is a great deal for the American people to generate income and jobs, doing these things now, preventing the damage to the economy in the long run by getting investment and innovation going and stopping the scarring that's happening to the American population from high unemployment.

HOLTZ-EAKIN:  ` 00:15:09 I'm not talking about the deficit this year or next year.  Roll the clock forward ten years from now. Under the Obama Administration's budgets after the economy is assumed to have recovered and this recession's memory at best - we're still running deficits that are a trillion dollars a year, 800 billion of that is interest to pay - to be paid on previous borrowings. So, we are on a literally unsustainable trajectory.

` 00:15:34 What do people say we should do? Well, we should build large new temporary spending programs which in the end will never be temporary.  If you look at the Recovery Act - and something we can look at because we know what it looked like, it creates large new mandatory spending programs that will continue. It created a - for example a make work pay tax credit that supposedly will sunset in two years.  And I don't think you believe or I believe that that's going to go away in the next two years, so the deficit is much bigger than it appears on the books --

MISHEL:  ` 00:16:01 It will be paid for though.

[speaking over each other]

MISHEL:  ` 00:16:03 Everything else this administration has done - it's paying for it - it's paying for it's health care bill --

HOLTZ-EAKIN:  ` 00:16:08 No, Larry, look --

MISHEL:  ` 00:16:09 - climate change bill --

[speaking over each other]

HOLTZ-EAKIN:  ` 00:16:13 The climate change bill in their fantasy, which is a budget deficit reducing -- The bill that passed the House is not.

MISHEL:  ` 00:16:18 The CBO that you used to head - it's the health care bill - is deficit reducing, the climate change bill is deficit reducing, so you can make those claims, but I think you're sort of you know not following the score keeper.

HOLTZ-EAKIN:  ` 00:16:32 I actually understand the score keeper since I ran the place and what the CBO has to score --

GLASSMAN:  ` 00:16:36 The Congressional Budget Office.

HOLTZ-EAKIN:  ` 00:16:36 Congressional Budget Office - it says you send me this piece of paper regardless of whether it's politically plausible or not - tell me what the implications are.

HOLTZ-EAKIN: ` 00:16:47 So, in the health care bill for example we're going to cut Medicare by 480 billion dollars over the next ten years.  No Congress has ever cut Medicare anywhere close to that over anything like that sustained period.  I don't believe it will happen.  Personal belief.  Piece of paper says it will.  CBO is obligated to pretend it will and thus say that the bill won't raise the deficit.

` 00:17:06 The bill will raise the deficit.  I think there's little doubt about it.

GLASSMAN:  ` 00:17:11 There's a lot of talk about how banks are not lending to small businesses which are really the engine for generating new jobs.  Is that really a big problem and how do you solve it?

MISHEL:  ` 00:17:27 Well, I think some of the banks are hesitant and I think that small business definitely needs more credit.  I don't necessarily buy that small business is the engine of all growth and all that kind of stuff.  I think that all sorts of firms are responsible for growth and a lot of small businesses do actually trickle down from the big firms.

` 00:17:48 But the fact is - you know, it's true that there should be more lending.  Some of it is because we're in a deep recession and maybe people are not you know worthy of it.  But I think there's other problems that go beyond that and I think the problems of small business are very real and I think we need new policies, taking TARP money, having new vehicles to provide lending to small business. 

` 00:18:08 And I think it's a lot better than all these kinds of tax cuts that Congress likes to throw at people.  I don't want to throw tax cuts at them.  If they're worthy of lending to, let's lend them money.

GLASSMAN:  ` 00:18:17 We're going to get to taxes. 

HOLTZ-EAKIN:  ` 00:18:20 [speaking over] I think the credit thing's real. I do.  I think Larry's got it right in that you should care about new businesses of all size.  It's not necessarily just small ones.  New businesses are the source of vitality in the United States.  The start-ups are important at all scales. 

` 00:18:29 How do you get the credit channels unclogged?  Well, what we've got are a series of banks, large and small that are now faced with two problems.  Number one they have on their books some questionable assets.  We don't know their value.  They could still go south, whether they're mortgages or whether they're credit cards, whatever it might be. And, so, they're nervous and they're not making loans.

` 00:18:53 And their regulators are really, really putting the screws on them.  Every regulator wants to be the toughest cop on the block right now --

GLASSMAN:  ` 00:19:00 Because they're fighting the last war.

HOLTZ-EAKIN:  ` 00:19:02 They're fighting the last war. It's clear that things got out of hand, so they want to come in and fix it.  Happens all the time.  Financial regulations - always like this in a recession - they get tough too late.  And with financial regulation reform up on the Hill, everyone is trying to show off for the Congress, prove they can do their job.

` 00:19:18 The result is I think an unnecessarily tight credit policy.  How do you fix it?  I think the best thing would be to recognize - there's a lot of money out there that would like to make loans to businesses and profit on the - let them start some new banks.  Then we don't have to worry about whether their balances are any good or not.

GLASSMAN:  ` 00:19:34 Who's stopping that?

HOLTZ-EAKIN:  ` 00:19:34 The regulators.  We're not seeing charters granted.  We're not seeing anything like an environment in which someone feels like getting into the banking business is a good idea.  In fact, right now everyone looks at the banks and thinks, oh, my god, my business is going to get run from Washington.

` 00:19:47 So, I'd really like to see some new banks come in, take over a lot of the market.  These older banks who quite frankly did themselves in, I have no particular allegiance to.

GLASSMAN:  ` 00:19:58 A couple of topics I want to hit quickly.  Larry mentioned taxes.  You have said that you think that estate taxes are deterring job formation and - can you explain that?  We're up against a potential major change in the estate tax.

HOLTZ-EAKIN:    ` 00:20:15 I'm just not a big fan of the estate tax.  There's a place for a better tax policy over the transfer of wealth between generations, but it's not the estate tax that we have in the United States.  It's a tax that - it's a tax on capital. It's a tax that disproportionately hits people who start their own businesses and have the entrepreneurial drive that generates jobs in the United States.  It doesn't raise much money.  It's littered with avoidance possibilities, it's littered with compliance cost and the -

MISHEL:  ` 00:20:45 What do you want to replace it with?

HOLTZ-EAKIN:  ` 00:20:47 I'd have a broader base and move us toward a progressive --

[speaking over each other]

HOLTZ-EAKIN:  ` 00:20:54 Everyone's taxes are going to go up in the United States.  The budget is so far out of control that I am skeptical that we can, when we're spending 25 percent of GDP and on track to spend 35 - I'm skeptical that anyone is going to believe that taxes can come down.

GLASSMAN:  ` 00:21:11 Larry another issue that Doug and others have raised is the corporate tax where the United States has by most accounts the highest corporate tax in the world or tied for the highest corporate tax in the world and - with Japan - and a lot of other countries in fact are cutting the corporate tax.  What do you think of that?

MISHEL:  ` 00:21:29 If I had to list my top 50 economic concerns, that would not be near the top of the list.

GLASSMAN:  ` 00:21:38 But isn't it true the corporations look when they make a decision whether to hire people or not what the taxes are going to be on the profits that they generate from those extra hires.

MISHEL:  ` 00:21:46 No, you can get lots of testimony from businesses that they don't actually look at taxes when they think about where they - what state they go to, what country they go to. I think that's you know invoked by people who want to, you know, take more money.

` 00:22:00 We actually relied much less on the corporate tax now than we ever did in our history.  To elevate that as - at this moment in time, to cut corporate taxes is - you know that's not why businesses aren't investing, that's not why they're hiring at all.

` 00:22:17 There's no real reason to believe that the inheritance tax has much to do with job growth over the next year or two.  And I got to challenge this idea that the budget deficit in 2019 is going to be larger than we want. Most of that is from decisions that were inherited by this administration and because of the recession and not because of anything Obama did.

` 00:22:35 To say the Obama budget leads to a budget deficit in 2019 is grossly misleading.

GLASSMAN:  ` 00:22:46 There was a trillion dollar stimulus package and there is this health care bill. 

HOLTZ-EAKIN:    ` 00:22:50 The facts on the ground --

MISHEL:  ` 00:22:50 The Bush tax cuts that I imagine you favored and he favored had far more to do with that deficit than a trillion dollar spending or even the TARP money.

HOLTZ-EAKIN:  ` 00:23:01 It's their budget.  It's what they're choosing to do. They could do anything, but the policies they're choosing - they write it in their budget - on an economy that they show as having recovered, so it's not a recession, it's gone.  This is their choices for the future on an economy that has come back to full employment.

` 00:23:22 The deficit is five and a half percent of the GDP. It's a trillion dollars.  And, so, I don't think you give them a pass on that.  It's the future they have chosen to plan.  I think it's a dangerous future.

` 00:23:32 I want to go back to the corporate tax because I actually think you should put this higher on your list.  There are a lot of competing demands, but the evidence is that a dollar of corporation taxes - 70 percent of it is being borne by workers.

` 00:23:43 I think the corporation income tax is a bad thing for the American workers.  There's a lot of evidence that it's a particular structure. High rates, taxation on worldwide income - which we are the last country on the planet that does that - leads headquarters to be placed in other countries.

` 00:23:59 So, we are losing, for example, a Budweiser.  Big manufacturer, big employer.  It's now owned by InBev, headquarters is outside of the US.  Next thing, R&D goes outside of the US.  And the evidence is once you lose the headquarters in the R&D, the manufacturing plants go too.

` 00:24:13 I think those decisions, the decisions that we are leading corporations to make, that drive all that stuff out of the US are dangerous to the American worker. 

[speaking over each other]

MISHEL:  ` 00:24:23 Here we are talking about the corporate tax rate and you haven't raised the issue of the gross inequalities that led to this recession and that we have going forward.  We have a situation where the last 20 years prior to the recession - that the bottom 90 percent got only around 16 percent of all the income growth.  And going forward, we're not going to be able to actually grow unless we actually correct that.

` 00:24:47 So, it's kind of funny to come to a place where we have people in pain, they don't have jobs and what gets raised is the corporate income tax.

GLASSMAN:  ` 00:24:59 You think the recession was caused or prolonged by a disparity in income?

MISHEL:  ` 00:25:03 Absolutely.  The reason we had growth over those two decades in spite of that growing inequality - because people took on debt and because we grew based on asset bubbles.

` 00:25:15 Now, the fact is that those bubbles burst, both the housing and the stock and people are de-leveraging.  They can't afford that kind of debt.  Moving forward, if we don't have better income growth of people so they can support their consumption and we have better consumption growth, we're not going to be able to have stable long term growth.  So, here we are talking about corporate tax rates.

HOLTZ-EAKIN:  ` 00:25:38 I think you've hit exactly on an important point which is, we've had a severe recession and we're going to see the household sector be weak for a long time.  This is a household sector that came in highly indebted, it's lost a lot of net worth, 12 trillion dollars, 14 trillion dollars, unlikely they're going to spend us out of the recession.  Government is not going to spend us out of the recession, can't.

` 00:25:55 But it's got to do a U-turn at some point, because the deficit is literally a threat to our international lenders.  That leaves you with two candidates, the business community. So, what are we going to do to make sure that they feel like spending money on workers and on cap equipment and exports, the trade.

GLASSMAN:  ` 00:26:11 So, what would each of you recommend that the Obama Administration do now very simply to create jobs?  Larry?

MISHEL:  ` 00:26:20 Well, recognize that that is the major problem.  We need to provide benefits for people who are unemployed and allow them to spend, relief to state and local governments so that they don't exacerbate the recession by cutting services, provide direct job creation by government - it's actually the most cost effective way.  Build some schools, renovate schools in the summer and provide a temporary jobs taxes credit for people - for companies so they hire over the next two years and recognize that the path towards fiscal responsibility and deficit reduction is first putting people back to work, creating more taxpayers.

HOLTZ-EAKIN:  ` 00:26:58 Make it the top priority.  Stand down on a health care bill that's dangerous.  Stand down on having the EPA regulate CO2, stand down on enormous deficits as far as the eye can see.  Show a path to fiscal solvency, stop promising to raise taxes at a time when the economy is very weak and go forward on trade.

` 00:27:13 Do some things that don't cost a lot of money, get out of the way of the businesses that want to hire and have every reason to if they have some confidence and get the economy going.

GLASSMAN:  ` 00:27:25 Thank you Doug Holtz-Eakin, thank you Larry Mishel.  And for IDEAS IN ACTION, I'm Jim Glassman.

ANNOUNCER:  ` 00:27:44 For more information visit us at ideasinactiontv.com.  Funding for IDEAS IN ACTION is provided by Investor's Business Daily.  Every Stock Market cycle is led by America's never ending stream of innovative new companies and inventions. Investor's Business Daily helps investors find these new leaders as they emerge.  More information is available at Investors.com.

` 00:28:10 This program is a production of Grace Creek Media and the George W. Bush Institute, which are solely responsible for its content.