Kevin Hall: Bernanke’s testimony suggests unemployment at high levels for close to a decade
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay, coming to you today from our studio at the McClatchy offices in Washington, DC. On Wednesday, Ben Bernanke, head of the American Federal Reserve, reported to Congress about the American economy, and on everyone’s minds was jobs. And here’s a bit of what he had to say.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: FOMC [Federal Open Market Committee] participants continue to anticipate a moderate-paced economic recovery, with economic growth of roughly 3 to 3.5 percent in 2010 and 3.5 to 4.5 percent in 2011, consistent with modern economic growth. Participants expect the unemployment rate to decline only slowly, to a range of roughly 6.5 to 7.5 percent by the end of 2012, still well above their estimate of the long-run sustainable rate of about 5 percent.
JAY: Joining us now to unravel Bernanke is Kevin Hall. He’s the national economics correspondent for McClatchy Newspapers. Thanks for joining us, Kevin.
KEVIN HALL, ECONOMICS CORRESPONDENT, MCCLATCHY NEWSPAPERS: Thanks for having me.
JAY: So we were talking earlier off-camera, and I was saying when I was a kid, you know, 3, 4 percent unemployment was considered the norm. If it got to 5 percent, it was serious. As we got forward in years, we would hit 5, 6, 7 percent, and then 5, 6 percent became kind of the norm. Bernanke says we might get to 7 percent by 2012. There’s other predictions that if there isn’t something more drastic, we might not get down to 5 percent till 2018. Are we seeing a fundamental shift in the structure of the American economy that 8 to 10 percent unemployment’s going to be considered normal?
HALL: Well, I’m not sure if it will be considered normal, but I think what is clear is that it looks like we’re heading down a path in which we have a higher level of unemployment that’s viewed as the rate of full employment. That’s a rate. “Full employment” is a term that has shifted over the years. Right now, the last decade or so, it’s been considered around 5 percent. It got as low as 4 percent in 2000. But clearly there’s a new “now”. I think for the next decade, people are looking at, you know, a range of 7 to 10 percent, in the most optimistic forecasts a return to full employment of 5 percent around 2018. That’s pretty close to a decade from now if it happens.
JAY: Now, I didn’t follow the whole hearing, so I’ll have to ask you: did anyone ask Bernanke when in his predictions of unemployment is he taking into account this enormous shoe that’s going to be dropping over the next few months of these federal subsidy to states and cities running out, and the perhaps layoffs of thousands of state and municipal workers?
HALL: Well, I think they didn’t get that level of specificity. They talked more generally about—he cautioned more generally about the danger in forecasting and reading too much into forecasts. That’s an inexact science. I think you raised one element there. There’s also a softness globally. You know, what happens in Europe and the slowdown there may affect our employment rate. The weakening euro may hurt US exports, may slow the manufacturing. There are a lot of variables at play here that could go into what happens to the employment rate. But right now the White House is estimating about 85,000 jobs per month this year as an annual average for 2010. That is a bit of a darker number than what the Fed and others are looking at, about 100,000.
JAY: Now, the Republicans are talking about the deficit, and Bernanke’s already telling Congress, you’d better get ready to make some big cuts, ’cause if you don’t do them now, you will have to do them later.” Cut what? It winds up being entitlement programs, doesn’t it?
HALL: Well, he was real cautious, as his predecessor was as well, when asked this question, to not tell Congress how to do its job. What was different today, or what was different in the hearing, was he was a little more active in pushing this. In the past he’s kind of as a professor said, well, you know, it’d be good if—it’d be better that you dealt with these things now. Today he used a much more active voice of you need to do this, it needs to get addressed. He acknowledged that there is a very real chance that bond markets could—he was pressed repeatedly in kind of a leading question, as if it was a lawyer grilling him, isn’t it possible that, you know, the US could default on its debt if the debt mounts to certain levels? He said he saw that as pretty unlikely. But what he did see was much more likely is the mounting US debt, and years of deficits, and the inability to do something about them could lead the bond markets to demand a higher rate of return in exchange for purchasing US debt, and that would raise the cost of borrowing considerably, considering that right now projections are for 2020, if nothing changes, which—people expect a change, but if nothing changes, interest on the debt will be the fourth largest expenditure in the federal budget.
JAY: Now, one of the ways to reduce deficit is to increase government revenues, and taxation is the only obvious way. There’s one—the question of the Bush tax cuts, whether or not they’re going to be renewed or not, did that come up at all?
HALL: It did not come up. More broadly, he was asked how could you—what would you recommend us as lawmakers to do? And he’s usually steered clear of that. Today he did take a stab at it, but he pleased both sides. He said, well, state and local aid to state and local governments, which addresses the point you raised. He said infrastructure spending as well. And these things create jobs. They’re not long-lasting, but they fill this gap right now. And he said, on the other hand, you know, lowering corporate taxes to make corporations more competitive could increase hiring. So he threw both sides a bone, and he seemed to suggest that a mix of spending and cuts, which was what happened last year, another trip down that road is kind of what he advocated.
JAY: Now, the predictions we’ve seen is that if there isn’t something really serious done, this 2018 figure might be reached of, you know, 5 percent in 2018. But the issue of getting credit into the economy to small businesses, what’s being passed now, it seems like a little pebble in an ocean. You’re talking an economy over $1 trillion, and, you know—what is it?—$38 billion of credit to small business. It doesn’t seem to touch it.
HALL: Well, the FDIC, the Federal Deposit Insurance Corporation, issued its annual report on Tuesday that looked at lending last year, 2009, found that it contracted 7.4 percent. That’s the biggest drop since 1942. Nineteen forty-two was the first complete year that the US engaged in World War II. So, clearly, last year was a pretty turbulent year. Part of this problem is not just that banks aren’t lending, but people who don’t have jobs obviously can’t go borrow, and people who do have jobs are worried that they may not have them and aren’t willing to borrow.
JAY: And small businesses don’t want to get into debt, ’cause they don’t know there’s any real market out there.
HALL: And they depend on commercial loans, and small banks are the ones who tend to deal with small businesses, and they’re in trouble because of commercial real estate. So everything points to another bad year, both for lending, for small banks. It’s pretty clear that 140 bank failures last year is going to be surpassed this year as well.
JAY: And there’s a five-letter word that I never get heard mentioned at these hearings, and that word is “wages”. If they’re all worried about demand, the issue of higher wages never gets discussed. Did it get discussed today?
HALL: Did not get discussed that I heard, and I was listening pretty carefully. The administration has talked about tax incentives. And I may be wrong, and as I think it stated [inaudible] in the bill that got through the Senate, the jobs bill, which was giving a tax subsidy, either a credit or a subsidy, depending on the hiring for—if you hire new workers and/or raise wages of your workers. How you document that is going to be kind of an interesting task, but I think that was really more from a moral standpoint a kind of signal: we want to incentivize wage increases, ’cause wages have been flat for a decade.
JAY: Yeah. If there’s no increase in demand, then what’s the real solution here?
HALL: Well, clearly productivity. I mean, one of the—.
JAY: But the thing is you have increases in productivity and wages don’t go up.
JAY: Which is the story of the last 30 years.
HALL: The half-full, half-empty scenario kind of applies here. I traveled with Treasury Secretary Timothy Geithner last week, and one of the things that he was optimistic about, he thinks we’ve gotten pretty close to the end of this productivity jump, and that at some point you can’t just keep doing more with less; at some point demand increases enough that you have to hire workers and you have to raise wages of workers or risk losing them. So he was more optimistic, I think, than some of the people I’ve talked to. It’s definitely half-empty, half-full. We’ll see who wins.
JAY: Well, for a lot of America it’s half-empty, and they’re also fully furious. Thanks for joining us.
JAY: And thank you for joining us on The Real News Network from the McClatchy Newspaper office in Washington.