The following ten questions were asked of Secretary of the Treasury Timothy Geithner on Fahreed Zakaria’s CNN television show “GPS” —Global Public Square—on Sunday, Jan. 29, 2012, in Davos, Switzerland at the World Economic Forum.
U.S. Treasury Secretary Timothy Geithner.
Q1: What is the United States economy going to grow at this year?
A1: “There are no oracles in economics and it’s still a pretty uncertain world, but I think the conventional view of the US now is that we’re growing between 2 and 3%, and I think that’s a realistic outcome for the U.S. economy, as long as we see a little more progress in Europe, and as long as we don’t see a lot of risk come up from Iran and the oil front.”
Q2: That scenario of 2 to 3% growth seems a little different from what Ben Bernanke thinks growth is going to look like. If you read the statement Ben Bernanke put out — to put out a statement almost guaranteeing that rates are going to remain where they are until almost the end of 2014 suggests that they don’t see any growth, any robust growth, for a long time. Are they wrong at the Fed?
A2: ” I’m not a forecaster, so my views aren’t worth much, but I think if you look at both the Feds forecast and the consensus of private forecasters in the business economy among economists, if you look in that cluster, it’s still pretty dependent on how the world unfolds. Again, I think it’s worth recognizing that we still face tremendous challenges in the country. We’re still repairing the damage left by a devastating financial crisis. Unemployment is still very high. Housing is still very, very weak, construction is still very weak. People still have too much debt. We’re bringing that down. That’s still gonna’ take a while to repair. That still has had a great impact on the fortunes of ordinary Americans.”
Q3: There is a very well-established narrative now among the business community in the United States that there would be a much more robust recovery, the U.S. economy would be recovering faster, if there were greater certainty, if people were willing to invest and the reason they are not is that there is sort of a tsunami of regulations, uncertainty about the tax policies, uncertainty about the deficit and above all that the economy is being thrown this huge array of legislation, that this is what is holding the economy is back.
A3: “I don’t think there is much basis for that line of thought. It’s true that we are putting in place tough new guidelines in the financial sector, we are trying to change the way the health care system works, and we are trying to change the ways Americans use energy and those are necessary, desirable, and very important for the long-term recovery of the United States. But I think if you look at the evidence about how the economy is doing and about how the business economy is doing, in particular, the reality does not justify that sense, so just look at the things you can use to measure basic health, business health. Profitability across the American economy is very, very high—higher than the pre-crisis peak—if you look at investment as a measure of confidence…private investment in equipment and software…it has grown more than 30% since the trough in the first part of 2009. That puts it up 22%. There is broad-based investment in energy, in agriculture, in manufacturing. Not just high tech manufacturing, but in heavy manufacturing. I was at a Seaman’s plant, a new plant, in North Carolina this week, which is building Seaman gas turbines and generators for export, and they’re doing that because they see in the basic fundamentals of the productivity of the United States, even with all our challenges, this pretty compelling competitive advantage relative to where else they are produced. So, I think if you look at the basic health of the American business sector it’s much stronger than anyone would have thought at the peak of our crisis, and stronger than many of us hoped.”
Q 4: While business productivity is up, manufacturing is up, unemployment still remains a huge challenge. Many businesses have become more productive because they’ve taken costs out of the system, they’ve managed things better. How do you get the American job machine going again?
A4: “The biggest drive of how fast the unemployment rate comes down is how fast we grow. And the biggest determiner of how fast we’re going to grow now is really going to depend on these two fundamental factors. One is what’s going to happen in the world, meaning in Europe and in the Gulf because of oil and, frankly, just to be direct about it, if the Republicans in Congress decide they want to legislate things that are good for growth in the short term. So what we think the right economic growth for the country is is to legislate a set of investment incentives that encourage things that are going to be good for long-term growth: rebuilding America’s infrastructure, education, more spending on innovation, basic science, better skills for Americans, tied to long-term fiscal reforms that restore sustainability. If we were able to legislate for those things in the short term that would make a big difference for confidence, that would make a difference for this rate of growth of the American economy in the short run. But, to be realistic, it’s going to take a long time still for us to repair the damage, particularly on unemployment, that caused the crisis. But the private sector has created 3.2 million (new) jobs and job growth has resumed. That’s actually pretty strong recovery in the job sector compared to the last 2 recoveries; it’s pretty strong, given the aftershocks of the crisis. We all want it to be stronger, though.”
Q5: Most people who look at the American tax code, which is, with regulation, 10,000 pages long, one of the most complicated in the world, believe that the key to reforming the tax code is broaden the base, eliminate the deductions and loopholes, lower the rates. Isn’t the president’s proposal in the State of the Union message taking us in exactly the opposite direction?
A5: “Not at all. The president’s proposals, which are focused on a set of investment favorable reforms in the investment sector, focusing on manufacturing and investment, and on a modest but necessary increase in the effective tax rate paid by the richest Americans, those 2 things I think are going to come, realistically, in the context of broad reform. What we’re going to try to do is to lay the foundation for tax reform, we can produce a more simple system (lower rates, broader base, more simple, less distortions….
(Fahreed, interrupting, “Why not just propose tax reform?”)
A6: “Because we have to start with principles for a framework and we have to be specific about those things which should dominate the debate. Again, I wish it were different for us, but the basic crude fiscal realities of the United States now, (and we have to recognize that we have to govern within those limits), means that when we do tax reform, we’re going to have to be helping contribute to deficit reduction. We don’t have the ability to offer the American people or the American business people a net tax cut. That is beyond the capacity of anybody realistic about our constraints, but again, just to put it in perspective, our fiscal problems are daunting for us, in the long run, but they are much more manageable problems than faced by almost any economy around the world. And it’s important not to lose sight of the fact that, given the high level of unemployment, given the very bad outcome for median income in the United States over the last 30 years, 20 years, 10 years, given the just appallingly high rates of poverty in the United States, given the competitive challenges we face that are going to require pretty significant investments in infrastructure, and in education, you have to take a much broader approach and we’re not going to solve our problems in this country by thinking they are about how we restore fiscal sustainability. That’s part of it, but it’s not the dominant challenge we face as a country.”
Q7: Does that suggest that austerity is not a path to growth?
A7: “I think the debate over austerity is mostly exaggerated. The people who talk about economic problems as being things you can fix by austerity get the main things wrong. It’s true, however, that in most of Europe, there are going to be significant budget reductions. They will not work if there is not a stronger commitment standing behind the European endeavor and, you’re right, the country will face the fact that austerity will feed the decline.”
Q8; Did you talk about the US/China trade in a way that you think will see results?
A8: “We’ll have to see. We measure people by their actions. China does provide a unique problem. They are still overwhelmingly dominated by the state and they still keep their exchange rate below fundamental and have for some time. Although China is, in many ways, is beginning to have a manufacturing presence that is major, they are supporting that presence in ways that are very damaging, not just to the economic factor, to the trade but to the political support around the world in order to support a more fair system around the world. I do think that China believes that it’s in its interests to try to make this broader system work. Of course it depends a lot on its access to our market and to other markets around the world and we hope that these markets are enough of an incentive to them to make more progress in these reforms.”
Q9: You announced recently that you would be leaving at the end of Obama’s first term. Was that your idea or his?
A9: “An excellent way to pose that question. Generally, anybody who takes these jobs serves at the discretion of the president. And at a time when we face so many challenges, so much pressure, and you have these things, you have to do them. And when he asked me to stay, when I thought it was the right time to leave, I agreed I would stay, and I agreed I would stay until the balance of his term, and he accepted that aspiration of mine. And that’s where it’s gonna’ come out, I think.”
Q10: What are you going to do next?
A10: “That feels like a long way away. Again, we’re in Europe and I know the eyes are all on Europe, but here living with terribly challenging and hugely consequential economic choices, we have a lot of unfinished business, even on the financial reform side and a lot of foundation laying on the things that are good for growth and investment in the United States, not just for the long-term fiscal economy, so I feel like we have a long year of hard work. It’s a political moment in the United States and people are skeptical if we can do anything but our judgment is that we still have a chance in some of these areas to make some progress, and I’m going to focus on that as long as I can.”