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RUSH TRANSCRIPT, SAM SEDER INTERVIEW WITH JARED BERNSTEIN

Q [Sam Seder]: Is this your first time to Netroots Nation?

A [Jared Bernstein]: It is!

Q: And coming appropriately enough as a blogger.

A: That’s right, that’s right. I’m trying to get a better feel for the environment that I plunked myself into.

Q: Well I have to say I’ve been enjoying your blog almost since the day you started it. But I want to first ask you just sort of in a broad sense about your experience. Because it’s rare — well first off,it’s simply rare these days to be talking to someone who was working in the administration or the government in general and is now not sitting on the board of Citigroup or some other major corporation.

A: Did I mention I was on the board of Citigroup?

Q: [Laughs] Uh, I don’t wanna a…

A: No. I’m not on the board of Citigroup.

Q: So…

A: AIG, maybe.

Q: I’m curious as to what your experiences were [in the White House] and what it’s like to transition back out of.

A: It was a great experience. I know that, as someone who’s coming at economics from more of a progressive perspective, I think some people view that my experience as having been a contentious one, and I was always, you know, fighting with the rest of the team. Couldn’t be further from the truth. Any group of economists are going to have different ways to approach different problems but the folks I worked with were absolutely great. When I think back to my work with Austin and Larry and Christy and Jason and Gene [Ed. NOTE: names may not all be spelled right] — I mean the Keynesian imperative, which was so important when the economy was in deep recession, was something that was universally shared not just by the economic team, but by the president and vice president as well. And it was a great moment — a great and somewhat terrifying moment — to try and really pull this economy from a potential depression back from the cliff. Which I thought we did effectively and efficiently. Could we, should we have done more? is absolutely an argument we’ll be having for a long team. Could we do more right now? Should we? Absolutely, yes.

Q: I think you’re perceived as one of the last — maybe it’s slightly in-artful to say — liberal vice or more progressive or more Keynesian voices — to be at the WH and to leave the White House. This is looking from an outsider, but let’s talk about that notion — because there’s been much written, particularly lately, about that dynamic. About that idea that there needs to be some type of Keynesian reaction to the crisis. And there certainly was one. But what people are discussing now was the idea that simultaneously, there was some very real concern that down the road, you may be affecting inflation in such a way that bondholders might get a little nervous.

A: Not really. There was not so much a concern about inflation in that regard, because I think we all viewed the economy as suffering from a classical demand contraction, which typically leads inflation to be pretty low. And that happens to be very much the case, especially what we call the core inflation (you take out the volatile food and energy components). Where people worry about the bond market is much more in the debt and deficit side of the ledger, where there are always going to be concerns that if bond markets become spooked by the level of debt that the government is carrying, they’re going to insist on a very high interest rate premium when they go into the market to buy treasury bills.

Q: And so there was this concern that if we spend too much money, we increase the debt too much; if we spend too much money in the context of actually straight-on stimulus — or.. as spending as opposed to tax expenditure — that that was one of the arguments as to why you wouldn’t provide too much. I think at one point Tim Geithner’s quoted as saying that’s too much sugar for the economy. Do you think at one point that notion of balancing that concern about that long-term problem with bonds overcame the argument for—

A: Maybe to some ex- You know, it’s very dynamic. I don’t think that the White House is by any stretch of the imagination — I’m sure what I’m about to say is tree — the White House is not out of the job-creation business. The White House was just the other day talking about some tax measures that look to me very much like something that you would do in a mode of stimulating more growth in the economy.

Q: Is this the moratorium on payroll taxes–

A: That’s right. The president talked about a payroll tax credit the other day. I think you’re going to hear talk about extending unemployment compensation, because theunemployment rate is still so high people need that. And there’s a big multiplier with that. Those folks, you can imagine, spend the money, and that ripples through the economy in a positive way. So the White House is not out of that business. Your word “balance” is exactly the right word. Balance means a couple of things. It means that you don’t spend hand over fist without regard for bang for the buck. Or making sure you’re spending effectively and efficiently, and it means you don’t lose sight of your unsustainable budget over the longer term. But balance also means you don’t act too soon. We have a fragile recovery. We have a recovery which is, in my view, a pretty amazing thing, given where we were. But it’s a recovery that looks like recession to most people in the middle and lower income brackets. So it’s much too early to be going to any kind of fiscal contraction or austerity or spending cuts. But it’s not by any means too early — it’s just the right time — to be plotting the path to that sustainable budget.

Q: And it’s looking more likely that we’re going to actually have some of those austerity measures, doesn’t it? I mean–

A: Well we are going to have some of those measures, no question about it. And frankly,if you look at the budget deficit in the out years, no matter who’s scoring it — whether it’s the White House or the Congressional Budget Office — you really will see unsustainable path where debt as a share of the economy just keeps growing. What do they say, “unsustainable trends can’t be sustained”?

Q: How do you—?

A: But let me just finish. My point is that yes, there will be — but it’s a matter of when they start. Bernanke himself, who is no wild-eyed Keynesian radical said the other day it’s a fragile recovery and if you start going austere too soon, you’re going to choke it off. Look at what’s going on in the UK.

Q: Exactly. How do you reconcile the idea that our 10-year Treasury Bonds, the interest rate, I think it dipped under 3 the other day. I’m at Netroots Nation so I lose track of time.

A: Not following the T-Bills.

Q: Right. But I think we’re looking at some historic lows in terms of rate.

A: That doesn’t surprise me.

Q: But I mean how do you reconcile that with the fear that the debt is going to be problematic and the deficit is going to be problematic down the road?

A: That’s a great question and I think I can help you answer it. First of all, you know the concept of Occam’s razor — I think that’s how you pronounce it — which is sometimes the simplest explanation is the best one? We have an economy with very deep excess capacity. The labor market has 9 percent unemployment, but about 16 percent under-employment. That’s over 20 million people who either can’t find work or can’t find enough work. The — if you look at payrolls, they’re growing, but they’re not growing as fast as they need to. Inflation as we’ve mentioned is pretty quiet. So— industrial capacity is below its historical average, so there’s a lot of capacity. And that means two things in the bond market. One, it means people don’t necessarily have to insist on an inflation premium, because inflation erodes the value of your bond holding. So they don’t need to be, have a premium for that when they’re buying the bond — they don’t need the interest rate to be higher in that regard. But also there— when the economy is kind of in a weaker mode like this, interest rates tend to be low because the Federal Reserve has them at about zero. So there’s all kinds of reasons associated which any Keynesian economist would look at and see a weak demand. So that’s one side of the answer.

The other side, so why the fear? Why all that fear? Why don’t people just say “weak demand, ergo low interest rates, ergo nothing to be worried about.” The fear is based on the fact that that could change pretty quickly. That if investors believe that their investments in U.S. Treasury Bills — whether it’s the 50 percent of Treasury Bill buyers who are domestic or the 50 percent who are abroad, often in Asian countries — if they believe that those investments are not safe, they will insist on a higher interest rate premium. And that can turn quickly. But I am of the mindset that it’s much more the former than the latter.

Q: To get off more to the experience you had in coming out of the White House and now to blogging. […] What does that do for you from an intellectual perspective?

A: Well, with respect to my job at the White House, which as I said earlier, was the job of a lifetime. And working with the president, the vice president, and economic team — having gone through what we went through — truly an amazing experience (laughs). I ought to write a book about it. So with respect to that, I would say that what I’m doing now is truly intellectually liberating. When you’re part of a big message machine like that, it absolutely makes sense for nobody to go out and be a cowboy and say, you know, “Well actually I kind of disagree with the president on this aspect of what he’s saying.” You can’t do that in the White House. You can do it internally — and lots of us did. But you need to put a unified face forward, obviously. So being on the outside — and really one of the reasons I left — was because I was frustrated. Not with what was going on inside the White House — I think the president has a great vision for this economy. But he doesn’t have any running room, any oxygen, because of the incredibly screwed-up economics debate we’re having right now, where people can get out there in the news, in the media, in the blogosphere and say “up is down” and completely get economics and the political economy totally wrong. And so it felt like this would be a good place to try to help give poli- — good politicians, progressive politicians — like President Obama a little more running room.

Q: Well Jared Bernstein, thank you so much for joining me. I really appreciate it.

A: My pleasure. Thank you.