From the White House: What's Going on With the Economy

Markets tumbled and pundits panicked last week when the latest U.S. monthly jobs numbers turned out lousy.

But during a visit to the first-ever White House Online Personal Finance Summit on Wednesday, Council of Economic Advisors chairman Austan Goolsbee rightly pointed out that while we're in a very "troubled jobs market," one lousy jobs report doesn't make or break the recovery.

The event, which included 20 or so fellow financial writers and editors from sites across the Web, gave us access to Goolsbee, National Economic Council director Gene Sperling, Chief Technology Officer Aneesh Chopra, and, in a surprise visit, even President Obama himself.

So what is going on with the economy? White House officials shared their opinions, but let's set the stage first.

The context
We have a long way to go. The worst financial crisis since the Great Depression set our economy much farther back from full employment than previous recessions, as pictured below:

Source: Calculated Risk.

What's more, consumers are reluctant to spend because they're unemployed, indebted, or unconfident. Without their demand for products, businesses are reluctant to hire, which perpetuates the unemployment-debt cycle. That catch-22 explains why the recovery is taking so long.

The traditional response would be to reduce consumers' debt burden (perhaps through mortgage modifications and modest inflation) while boosting demand (with stimulus spending and tax cuts). That's what the 2009 stimulus bill did, and it almost certainly helped to prevent a Depression.

But we can't count on a repeat performance, beyond a few modest ideas like a new payroll tax cut. Perhaps the Administration doesn't think that any plan it might conceive could muster bipartisan support in Congress, or perhaps it doesn't believe that additional stimulus would help. Whatever the case, it's clear from our meeting with Administration officials that they aren't gunning for significant additional short-term fiscal juice to accelerate the recovery.

What are they gunning for?
It's possible to take a more charitable view than economics commentator Ryan Avent's interpretation, which argues that the Administration has essentially given up on the need to boost aggregate demand in search of that ever-elusive confidence fairy. Instead of the sort of "boom-and-bust" consumer- and construction-driven recovery of 2001 -- remember all that "it's patriotic to shop" hoopla? -- the goal this time is to build a recovery on business investments that improve American economic competitiveness, particularly in IT and alternative energy.

Goolsbee suggested that "business investment is [also] demand-side." The United States' first-ever CTO, Aneesh Chopra, discussed with us many of the intriguing innovations that the Administration is partnering with firms like Blackstone (NYSE: BX  ) to sponsor. Energy Deputy Assistant Heather Zichal described loan guarantees to help finance production plants for alternative energies and advanced batteries.

From a long-run perspective, this makes complete sense. I don't know about you, but every time I read an article in 2009 reminding us that consumer spending makes up 70% of the economy, I shuddered. That doesn't seem sustainable. As a country, we need to get back in the business of making and exporting, rather than borrowing and shopping.

But it's also true that in the long run, we're all dead. By the Administration's forecast, we'll average 9.3% unemployment this year. It'll take at least until 2015 for unemployment to drop below 6%. Even for that to happen, the Administration is counting on the private sector to step up its game by investing enough to make the recovery self-sustaining.

I'm stumped. With interest rates at rock-bottom lows, large numbers of people looking for work, and the economy screaming for investment, it would make economic sense to increase federal spending on high-bang-for-the-buck investments like education, R&D, and infrastructure in the short term, even while prodding the private sector to do the same.

But the political climate in Washington could be summed up by a comment from Goolsbee: "The government has shifted out of rescue mode to transitioning to private sector growth." Fiscally, the choice in the bipartisan deficit negotiations is between Republicans' desire for massive spending cuts and the more gradually phased-in deficit reduction plan that President Obama and Gene Sperling spoke in favor of, arguing that, "When you have to lighten the load of an airplane, you don't kick out the engine."

If you'd like me to keep you up to speed on what's going on these days in financial reform, you can send a blank email to imoscovitz@fool.com.

Ilan Moscovitzdoesn't own shares of any companies mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On June 10, 2011, at 6:10 PM, ynotc wrote:

    "it would make economic sense to increase federal spending on high-bang-for-the-buck investments like education, R&D, and infrastructure in the short term, even while prodding the private sector to do the same"

    I don't understand why anyone still beleives that governement investment of any kind will do more than create a short term, unsustainable, one time increase.

    You don't prod the private sector you provide incentives for them to put thier capital at risk. The ever present specor of higher taxes is a disincentive.

    Why risk any of my capital to increase profits onlyto give more back in taxes to an irresponsible government that can't manage its own fiscal affairs?

  • Report this Comment On June 10, 2011, at 8:43 PM, maiday2000 wrote:

    Anyone who says or believes we can "improve American competitiveness" by boosting government spending in "alternative" energy clearly just doesn't get it. Please, for the love of God, get it through your head that these technologies are years away from being cost competitive and currently are actually hurting our economy.

    All of the regulations to stifle development and usage of cheaper energy are causing us to import more oil, driving up the cost of utility bills, and creating wealth destruction.

    Goolsbee was so confident in the Obama economic prescription he finally just up and quit to return to academia. Doesn't sound like a vote of confidence to me. Or maybe he just realized that his fairy tail economic policies will be more successful being fed to 18-22 year-old students with no common sense than to the American public who have seen the failure first hand.

  • Report this Comment On June 10, 2011, at 9:23 PM, TMFDiogenes wrote:

    "I don't understand why anyone still beleives that governement investment of any kind will do more than create a short term, unsustainable, one time increase.

    You don't prod the private sector you provide incentives for them to put thier capital at risk. The ever present specor of higher taxes is a disincentive. "

    Data? The most-recent NFIB survey was pretty clear: businesses aren't hiring because of weak economic conditions -- not the threat of the possibility of tax rates they enjoyed during the Clinton boom -- by at least a 5:1 margin.

    http://krugman.blogs.nytimes.com/2011/06/05/business-expansi...

  • Report this Comment On June 11, 2011, at 12:04 AM, maiday2000 wrote:

    TMFwhoeveryouare, the data you quote is about as clear as mud. Quoting former economists turned political hacks like Krugman are not likely to persuade anyone, especially when it comes to some poorly worded, overly broad survey like the one conducted by the NFIB.

    So "economic conditions" is the reason businesses aren't hiring? Really? You think maybe expected tax rates, regulations, or some giant health care bill disaster affect people's expectations and thus the ever elusive "economic conditions?" Just maybe?

  • Report this Comment On June 11, 2011, at 12:48 AM, georgetag wrote:

    This is a very disappointing article. Sounds very partisan. Government doesn't have money to invest. They forcibly take the working person's money.

  • Report this Comment On June 11, 2011, at 2:35 AM, ershler wrote:

    ynotc,

    One reason someone may believe government investment may lead to positive results is the success of multiple countries compared to the US since 1980. Also, Hoover Dam or the US involvement during WWII would be good examples.

  • Report this Comment On June 11, 2011, at 11:12 AM, newageinvestor wrote:

    Anybody who DOESN'T believe in government spending during economic downturns, ESPECIALLY in things like science education and renewable energy is profoundly lost in the 20th Century. Obama has been too conservative. I'm with Krugman.

  • Report this Comment On June 11, 2011, at 11:30 AM, TMFDiogenes wrote:

    "Quoting former economists turned political hacks like Krugman are not likely to persuade anyone, especially when it comes to some poorly worded, overly broad survey like the one conducted by the NFIB."

    No need to resort to name-calling. I've written about that survey too -- he just has a link to the page I had in mind.

    If you want a page that's narrower, read page 18 of the report. "Poor sales" is still much higher than regulation and red tape, though the spread has narrowed considerably.

    If it makes you feel better though, Chopra conducted a survey of businesses that's resulting in a reexamination of 200 regulations.

  • Report this Comment On June 11, 2011, at 12:55 PM, David369 wrote:

    Reexamination of 200 regulations sounds good except when you realize it will probably take at least 2 years of public hearings and comment periods to eliminate or change any of them, and that's conservative. Nope, I don't feel better and I don't believe that they are here to help me. What road was paved with good intentions?

  • Report this Comment On June 11, 2011, at 3:00 PM, TMFDiogenes wrote:

    "Reexamination of 200 regulations sounds good except when you realize it will probably take at least 2 years of public hearings and comment periods to eliminate or change any of them, and that's conservative. Nope, I don't feel better and I don't believe that they are here to help me. What road was paved with good intentions?"

    Damned if you do, damned if you don't.

  • Report this Comment On June 11, 2011, at 4:19 PM, kkconway wrote:

    Motley Fool and its employees (or whatever euphemism du jour they go by for people who work at 2000 Duke Street) might best focus on personal finance and investing ideas, if they are not going to balance the tone of their political articles to give equal time to Austrian School or other conservative economic and political ideas to balance the declamations of stale agitprop recited verbatim -- in concept at least -- from leftist college professors. Or have I missed TMFMiltonFriedman or some similar avatar? Please let me know if I'm wrong about this.

  • Report this Comment On June 11, 2011, at 7:25 PM, TMFDiogenes wrote:

    I didn't really think of this as a political article. We were invited to the White House, so I reported on what they had to say about the economy, and then gave my economic take on it based on pretty orthodox macroeconomic principles -- primarily, that expansionary fiscal policy (tax cuts and spending) is expansionary for the economy, while contractionary fiscal policy (tax hikes and spending cuts) are contractionary.

    If I made a mistake in the analysis, feel free to explain why. I'm not infallible.

    Ilan

  • Report this Comment On June 11, 2011, at 10:01 PM, rfaramir wrote:

    "As a country, we need to get back in the business of making and exporting, rather than borrowing and shopping."

    This I can agree with. But mainstreamers do comprehend what it means.

    Stimulus requires borrowing, or worse, printing. Printing (easing, other euphemism of choice) is worse because borrowing assumes willing lenders. Increasing the money supply without increasing it backing (fiat currency is backed by nothing) steals the purchasing power of the money from every other holder of it.

    A productive enterprise can get away with borrowing to invest in increased production. Some companies overdo it and pay for their mistake, but it is doable.

    Consumers should generally not borrow to spend. The wealthy can get away with it, but for the rest of us it is a path to destruction. Fortunately, the private sector is deleveraging right not, hopefully having learned this lesson. (Doubtless to be forgotten iin a generation or two.)

    The public sector should almost never borrow to spend (maybe in extreme self-defense?). The government has no way to economically calculate what it should spend on. Only political calculations are available to it. It is not a trustworthy debtor nor a competent manager of the money once it gets it.

    Debt is money now for the promise of paying more than the principal later. You have to have a good productive reason to do this, foresight to guess correctly, profit-and-loss motives to keep you on the straight-and-narrow during execution, and it is still an informed gamble. Not only does government fail each of these tests, it seems to have no intention of every paying back the principal!

    (Nice to see the Austrian school represented so well in comments!)

  • Report this Comment On June 11, 2011, at 10:01 PM, rfaramir wrote:

    LOL, "mainstreamers do NOT comprehend" is what I meant.

  • Report this Comment On June 11, 2011, at 10:32 PM, paulstewart2 wrote:

    I find it funny that most no one commenting on the article has a shred of understanding of Economics 101. At times like this the government steps in with direct spending on infrastructure, it gives tax breaks too, to stimulate investment. One thing it does not do is put debt limits on and it does not reduce the deficit. Plain and clear nonsense. The government, if it is a smart one will spend the money in the right places. This is a smart government. It is the political balance in the house and Senate that are the problem. I find the lack of understanding, or perhaps the understanding of this and the willingness by partisans to play with the lives and livelihoods of millions of Americans and with the lives of many millions if not billions of others who are affected directly and indirectly as being incredible and a symptom of what is wrong and got America down on her economic knees so to speak.

  • Report this Comment On June 12, 2011, at 12:45 AM, Frankydontfailme wrote:

    That's one of the worst, and most inaccurate paragraphs I've ever seen paulstewart2.

  • Report this Comment On June 12, 2011, at 1:01 AM, xetn wrote:

    ershier: Please explain how any expenditures on war are productive. All that happens to the production of war material is a complete waste of resources.

  • Report this Comment On June 12, 2011, at 1:14 AM, whereaminow wrote:

    "and then gave my economic take on it based on pretty orthodox macroeconomic principles"

    Ilan, this is where you started to go horribly wrong. Orthodox macroeconomics is nothing but fancy guesswork.

    David in Qatar

  • Report this Comment On June 12, 2011, at 11:32 AM, NovaB wrote:

    It still all comes down to right-wing obstructionism. It has become their way of life and the bane of the United States economy and society.

    Plainly put, you can't grow anything, including an economy, if half the participants want it to shrink instead.

  • Report this Comment On June 12, 2011, at 1:27 PM, 123spot wrote:

    Can it be, in its desire to recapture the White House and its knowledge that a ruined economy makes the incumbent weaker , that the very Congress we entrust to make us whole is going to continue standing on this country's neck for its own political goals? Yes, it can be. We are watching it happen every day. This is a calculated derailing of a nascent recovery because we have no statesmen left, just politicians vying for personal gain at the expense of struggling people who elected them to a position of trust in a time of national need. Spot

  • Report this Comment On June 12, 2011, at 1:53 PM, xetn wrote:

    Here is some of that "big bang for the buck":

    http://blog.mises.org/17272/a-grim-look-at-how-college-worke...

    Not to mention that many of these grads are stuck with huge education loans that will take many years to repay.

  • Report this Comment On June 12, 2011, at 5:34 PM, skypilot2005 wrote:

    Ilan wrote:

    "But it's also true that in the long run, we're all dead. By the Administration's forecast, we'll average 9.3% unemployment this year. It'll take at least until 2015 for unemployment to drop below 6%. Even for that to happen, the Administration is counting on the private sector to step up its game by investing enough to make the recovery self-sustaining."

    Did you ask the President if he thought the looming approach of Obama Care was affecting the amount the private sector is currently investing?

    Sky Pilot

  • Report this Comment On June 13, 2011, at 12:29 PM, TheoryMeltFool wrote:

    The government already spent $1,400,000,000,000 on stimulus. And you want them to spend more?

    "Plainly put, you can't grow anything, including an economy, if half the participants want it to shrink instead."

    Growing an economy and growing a bureaucracy are two totally different things. We all want the economy to grow, but it's tough or impossible with thousands and thousands of laws, regulations, departments and red tape in the way. It takes weeks or months and thousands of dollars in licensing and registration in order to even start a new business. Existing businesses have to spend millions of dollars on lobbying, rather than spending that money on R&D or other things that help their business grow.

  • Report this Comment On June 15, 2011, at 12:08 AM, TMFDiogenes wrote:

    "The government already spent $1,400,000,000,000 on stimulus." Where is that number from?

  • Report this Comment On June 15, 2011, at 2:16 AM, ASKRCK wrote:

    What regulations, exactly, stifle development, cause us to import oil, drive up energy prices and "create" wealth "destruction?"

    Was not the failure of regulation the cause of the wealth destroying financial crisis, and the earlier Enron-driven spike in California energy prices just like the current unregulated commodity speculation that drove up gas and other commodity prices?

    Is regulation bad and unbridled corruption good?

  • Report this Comment On June 17, 2011, at 1:10 PM, bribytes wrote:

    At least now we know the White House has some sort of plan. I do think I note some grudging acceptance of the need to drill for our own energy needs, instead of importing it all or giving loans to Brazil. I think the wealth of energy available in the USA and the companies willing to drill for it will negate Obama's goal of leveling the playing field (turning us into a 3rd world country).

    The resistance to budget cuts only delays the real work of getting our financial house in order and passes the pain and suffering to future generations. The question is when to cut. There seems to be growing opposition to keep printing money as baby boomers see the impending devaluation of the dollar turning their retirement nest eggs into pocket change.

  • Report this Comment On June 17, 2011, at 1:22 PM, Happymspage wrote:

    yes consumers are reluctant to spend ,even like myself with no mortage,no debt,retired and good income from both pension and stocks and bonds.

    I see the financial market jirate all over the place and scare the hell out of us investors.

    I don't equate spending to being patriot ,but many would go on spending sprees if they weren't maxed out on their cards.We are not maxed out but very conseritive in spending.

    Right at the moment we are about to slowly go to stores and buy canned foods as we see runaway inflation coming soon withthis carzy goverment in halk to ther hairlines.

    Richard

  • Report this Comment On June 17, 2011, at 2:42 PM, Geoffreypatrick wrote:

    it would make economic sense to increase federal spending on high-bang-for-the-buck investments like education . . .

    Unfortunately, investment in education is not the same thing as intelligent investment in education. There is a huge amount of information and research that suggests that the "Race to the top" is heading in precisely the wrong direction. So some "investment" in education produces very, very low bang-for-the-buck.

  • Report this Comment On June 20, 2011, at 2:45 AM, S1gmund wrote:

    In the best and fastest way to stimulate the economy would be to become energy independent. Alternative energy is neither practical nor possible at this time it maybe 30 or 40 years at least before much of this technology is economically viable. Instead let us switch to natural gas where possible and drill for oil wherever practical. Reduce the regulatory burden to a reasonable and sustainable level with the requirement that all reviews including lawsuits be completed in a reasonable time, perhaps 1 to 2 years after the submission of final permit requests.

  • Report this Comment On June 20, 2011, at 4:19 PM, critter88 wrote:

    Unlike past stimulus spending, a lot of that money goes overseas. For instance, our company did accelerate the installation of wind turbines. The motors were made in Korea and the blades were made in India. Yes, we did hire some locals to pour the concrete pad. More importantly, my company only accelerated a couple investments, not make new investments. When there is so much idle factory capacity and vacant buildings, we weren't about to build another one regardless of the tax incentives.

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