Transcript: Alan Greenspan

Oct. 4, 2009 — -- ABC NEWS, THIS WEEK WITH GEORGE STEPHANOPOULOS INTERVIEW WITH FORMER CHAIRMAN OF THE FEDERAL RESERVE ALAN GREENSPAN AND SENATOR CHARLES SCHUMER AND SENATOR JOHN CORNYN.

SPEAKERS: GEORGE STEPHANOPOULOS, HOST STEPHANOPOULOS (voice-over): Good morning, and welcome to THIS WEEK. Jobs, jobs, jobs. UNIDENTIFIED FEMALE: We're not going to be able to pay our bills

STEPHANOPOULOS: Almost two straight years of cuts.

UNIDENTIFIED MALE: But we are in a tremendous hole that's going to take a number of years to dig our way out of.

UNIDENTIFIED MALE: For most Americans, the way they judge the economy is, what is the unemployment rate?

STEPHANOPOULOS: Fifteen million Americans out of work.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We're going to need to grind out this recovery step-by-step. STEPHANOPOULOS: When will the jobs return? Should government do more or get out of the way? Will health care reform help or hurt?

Questions for our exclusive headliners, former Fed Chair Alan Greenspan, plus Finance Committee senators Chuck Schumer and John Cornyn, our THIS WEEK debate.

Then Olympic letdown. Did Obama overreach? That and the rest of the week's politics on our "Roundtable" with George Will, Cokie Roberts, former Bush strategist Matthew Dowd, and Katrina Vanden Heuvel of The Nation.

And as always, the "Sunday Funnies."

JAY LENO, HOST, "THE JAY LENO SHOW": The International Olympic Committee voted and Chicago didn't win, which, hey, I can understand that, it's October, Chicago never wins in October.

(LAUGHTER)

ANNOUNCER: From the heart of the nation's capital, THIS WEEK with ABC News chief Washington correspondent, George Stephanopoulos, live from the Newseum on Pennsylvania Avenue.

(END VIDEOTAPE)

STEPHANOPOULOS: Think back to December 2007, George Bush was in the White House. Hillary Clinton was the favorite to replace him. Unemployment was 4.9 percent. Today it's double that. America's economy has lost jobs for 21 straight months, the longest stretch in 70 years, more than 7 million jobs gone. There are six Americans competing for every open job. Yesterday, President Obama promised to make that problem his top priority. (BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I'm working closing with my economic team to explore additional options to promote job creation. And I won't let up until those who seek jobs can find them, until businesses that seek capital and credit can thrive, and until all responsible homeowners can stay in their homes. (END VIDEO CLIP)

STEPHANOPOULOS: And with that, let me bring in the man who has known more about the American economy for more time than just about anybody in the country, former Fed Chair Alan Greenspan. Welcome back. ALAN GREENSPAN, FORMER CHAIRMAN, FEDERAL RESERVE BOARD: Thank you.

STEPHANOPOULOS: You know, for most Americans, this jobs issues is the one that hits home the hardest. And that report on Friday was a surprise, much worse than people expected. What should Americans expect right now? How much worse is this job situation going to get for how long?

GREENSPAN: Well, it's very difficult to make judgments at a time like this, largely because we don't have so many incidents in history to be able to compare it to. But basically I think the issue is this. The job report was pretty awful, no matter how you looked at it. Indeed, not only, of course, did the unemployment rate go up, but I was particularly concerned about the number of Americans who have been unemployed for six months or longer. And that went up...

STEPHANOPOULOS: Five million Americans.

GREENSPAN: But that went up sharply in September. And remember, the reason that is a problem, obviously, other than the obvious personal difficulties that families have in such a context, is that the economy loses skills. And people who are out of work for very protracted periods of time, lose their skills eventually.

And remember that what makes an economy great is a combination of the capital assets of the economy and the people who run it. And if you erode the human skills that are involved there, there is a real and in one sense an irretrievable loss. STEPHANOPOULOS: So what do we do about it? GREENSPAN: Well, the issue is essentially economic activity. And the reason I say that is that there is a silver lining in that particular report. And it's difficult to find one. It's that American business after Lehman Brothers collapsed and the whole financial system imploded, business expected that the economy would go down far more sharply than it in fact did. The result was they laid off a very substantial number of people to the point that the actual hours worked fell even more than the economy. So that what we're getting is artificial numbers which give us productivity gains of horrendous amounts, meaning the amount of labor input per unit of output has been going down and down. And that can't continue. So that silver lining is at some point we're going to start to see an improvement in employment. But remember that unless there is a monthly increase of more than 100,000 a month, you've still got the unemployment rate continuing to rise.

STEPHANOPOULOS: And that's why the administration's projections show more than 8 percent unemployment through 2011. You saw the president yesterday say now he's going to look at new ideas to spur job creation. What should he be doing now? What would you advise him to do?

GREENSPAN: Well, I think the focus has got to be on trying to get the economy going, but you also have to be careful that in trying to do too much you can actually be counterproductive. And we are in a recovery, and I think it would be a mistake to say the September numbers alter that significantly.

It is true, the last couple of weeks that some of the numbers that are coming in have been a little bit soft. But this is what a recovery looks like. In retrospect we always look back and we see the ups and the downs and the ups and the downs, and we just visually (ph) go right through it.

It's premature to act on this type of information.

STEPHANOPOULOS: No new stimulus?

GREENSPAN: Oh, no new stimulus for two reasons. One, only 40 percent of the first stimulus has been in place. And there is a considerable debate going on in the economics profession about how effective this stimulus package is. And so mainly because of the fact that as broad as it is and as effective as it will turn out to be, it still has got 60 percent left to go. So in my judgment it's far better to wait and see how this momentum that has already begun to develop in the economy carries forward. STEPHANOPOULOS: Back in August, you thought you would see about 2.5 percent growth in this quarter. Do you still hold to that or do these numbers make you change that view?

GREENSPAN: No. The numbers are coming in higher than that.

STEPHANOPOULOS: Higher than that?

GREENSPAN: Oh yes. It looks as though it's going to be 3 percent, maybe even possibly even higher. The problem with knowing what the third quarter is going to look like is we won't get all of the data for several months. So a lot of -- there is a lot guesswork involved. But it's on-track, at this stage, for more than 2.5 percent.

STEPHANOPOULOS: So more than 2.5. So does that mean we're heading towards a situation where you could actually see an end to the job loss or not quite yet?

GREENSPAN: Well, no, I think we're getting close to that. But remember, the end of the job loss is not the same thing as if the unemployment rate is going to start down. My own suspicion is that we're going to penetrate the 10 percent barrier and stay there for a while before we start down.

STEPHANOPOULOS: Given that, even though you're not for any major new stimulus, what about extending unemployment benefits for people who are out of work? We're going to have more than a million people lose their benefits by the end of the year. Also the idea that there should be some tax credits to make sure that unemployed people are able to maintain their health insurance?

GREENSPAN: Oh, this is an extraordinary period and temporary actions must be taken, especially to assuage the angst of a very substantial part of our population. So I don't actually consider those types of actions stimulus programs. I think that they are essentially programs which support people -- essentially their living standards in part. I grant you it has a stimulus effect, but that would be my primary focus.

STEPHANOPOULOS: How about one other idea. One of the things that I saw in the employment report that surprised me is that how many of the cuts are coming from state and local government. We know they've really been crunched. Would it make sense given that for the federal government to step in with more aid for state and local governments?

GREENSPAN: Well, basically there is a good deal of that in there. What has happened, unfortunately, is that over the last 10, 15 years, state and local governments have picked up their budgets very considerably, and they, having fiscal difficulties, which the federal government itself can't really resolve, I have no view one way or the other, but I do think that will happen.

If you're asking me as a forecaster as distinct from whether it's desirable or not, I think the pressures to do that will be there. But it's a very tricky political (inaudible).

STEPHANOPOULOS: How about on health care? We see the Senate Finance Committee about to pass, we think, their health care reform. And there is a big debate, it has now become a partisan debate of whether or not this is going to help or hurt the economy, help or hurt the deficit, help or hurt on job creation. From what you see the Senate doing right now, what's your view?

GREENSPAN: Well, I've always had the view that the real problem that we have existed before these reform proposals came in. In other words, we have a huge fiscal hole out there which is best measured by the fact that Medicare benefits are only 50 percent funded going all the way out. And what that implies is a very significant issuance of Treasury securities to meet the ever-growing and very indeterminately large federal deficit. You cannot continue to increase the federal debt. Of course, remember, over the generations, we have been very careful to keep the total level of debt well below the borrowing capacity of our economy so far as federal issuance is concerned. That cushion is now being tested. And I'm getting a little concerned and I don't want to find out where the upper levels are.

And the reason it's important is it will affect long-term interest rates. And long-term interest rates are very critical.

STEPHANOPOULOS: But are these proposals going to make that problem -- are they going to help it or hurt it?

GREENSPAN: Well, it depends on what the CBO writes on the Senate Finance Committee bill. We don't know what those numbers are going to look like yet. But I would say revenue neutral is not adequate. In other words, we have to not only have a revenue neutral reform program, but simultaneously recognize that we have to address the longer term. STEPHANOPOULOS: Mr. Greenspan, thanks very much. GREENSPAN: My pleasure.

STEPHANOPOULOS: We're going to go straight to our debate as the senators take their seats. Take a look at a long week on health care from the Senate Finance Committee.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The insurance companies, in my judgment, are determined to protect their profits. The government is not a fair competitor. It's not even a competitor.

UNIDENTIFIED MALE: So you don't want Medicare?

UNIDENTIFIED MALE: It's a predator.

UNIDENTIFIED MALE: We have to settle down and find ways of living within the promises that have been made.

UNIDENTIFIED MALE: No one has been able to show me how they can count up to 60 votes with the public option in the bill.

UNIDENTIFIED MALE: Aye.

UNIDENTIFIED MALE: No.

UNIDENTIFIED MALE: Aye. UNIDENTIFIED MALE: No.

UNIDENTIFIED MALE: I'm looking around, and there's some pretty tired senators here.

(END VIDEO CLIP)

STEPHANOPOULOS: The final vote was supposed to be on Tuesday, and we had deliberations all week long in Washington. We'll bring you two of the senators who were there: Democrat Chuck Schumer of New York, John Cornyn, Republican of Texas. I want to get to health care, but let's begin with the economy. You heard Chairman Greenspan there: no long-term stimulus, but he thinks that unemployment benefits have to be extended. The House's passed a bill. Will the Senate act this week?

SCHUMER: Yes. We're going to pass a bill this week, put it on the floor. I believe it will pass. It will extend unemployment benefits for four weeks for all states and another 12 or 13 weeks for all states above 8 percent...