'This Week' Transcript: NEC Director Larry Summers

The problem the president has -- has had is, since he's been in office, the economy has lost 4 million private-sector jobs. We are not going to gain back, as far as I know, which I would love for it to happen, that in any -- any distant future right now to gain that back, and so the Democrats who now have an unpopular health care package, that they have -- that now don't have time to sell before the election and probably want to get off of it as soon as possible, they have an economy where the public thinks they are not performing well on, the only interesting issue that the president seems to be doing well over the Republicans on is terrorism, which is actually a reverse from what it was four or five years, when the president, President Bush, was behind Democrats on the economy and ahead on terrorism. Now that the economy's the dominant issue, Democrats are behind.

REICH: And, look, the key point, I think -- and the Democrats are hoping for this -- is that, despite the high level of unemployment, which is almost inevitably going to be with us going into November and possibly also with us going into the general election, that the direction is correct and that the public is looking and will look more at the direction of the economy than at the absolute level of how bad it is.

We don't know. We don't have data, because we haven't been here before, as to whether that hypothesis is correct.

WILL: But economics, Bob, is always a science of single instances, that is, you're -- you only need economics as a science particularly urgently when you're in a situation you've never been in before. So we are at sea here.

So we look around for what we can predict. You've predicted one thing, which is interest rates will not be essentially zero forever, and when they change, they'll go up, and that has to be somewhat adverse to economic growth.

There's another thing about to happen, absolutely certain, in less than nine months, we have a huge tax increase hits the economy, as the Bush tax cuts expire, and that's not going to be helpful.

REICH: Well, that tax increase is only on the people who have only $250,000 or more in earnings. And let me just say, demand in the economy, where it comes from is the middle class, people who are earning anywhere between $40,000 and $90,000 a year. They have been hit extraordinarily hard. They will not get hit hard by a tax increase. Their medical bills will be lower. And hopefully, they will feel a little bit more confident.

WILL: Which is to say, most of those affected by the Bush tax cuts are going to still get the Bush tax cuts, is what you're saying.

REICH: No.

TAPPER: But if I could move on to one thing, I know one thing that they're worried about at the White House right now is this concept of hyper efficiency, that is, that the companies have shed jobs and they are learning how to function without these employees, which might mean even more prospect of a jobless economy. How concerned are you about that?

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