Fixing the weak U.S. economy requires more long-term policy
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Kai Ryssdal: We’ve been talking a lot about the pattern that seems to be repeating itself again this year. Another promising spring followed by a sluggish early summer. Unemployment has ticked up again. Manufacturing is slowing again. And Europe, well, again. We talked to Paul Krugman about why and what we should do yesterday.
Today, Stanford economist John Taylor, formerly with the Bush administration. Good to have you with us.
John Taylor: It’s great to be here, thank you.
Ryssdal: So as has been remarked upon many times, this is the third year out of three now that the economy isn’t necessarily going the place we thought it was going to go. What’s happening? What’s going on?
Taylor: It’s a steadily weak recovery. It began weak, it has continued weak. People have different guesses, but I think it’s largely the policies that have been put in place haven’t been the right ones.
Ryssdal: It sounds as if you’re more worried about what we are doing to ourselves policy-wise than anything that’s happening in Europe. I mean, the headlines over there are pretty dire.
Taylor: They are, but I am, I think this is mainly things that we’ve done and we could have done better. The recoveries from deep recessions in the past have been much sharper, growth over 8 percent — we never got above 4 percent in this recovery. And it’s definitely the case that there’s dangers from a serious recession in Europe hurting us, but in the meantime, they would hurt us less if this economy were growing much more strongly and unemployment was down.
Ryssdal: So if the government’s policies aren’t working, if the stimulus package three years ago didn’t work, and if everything that’s happened since in Washington isn’t working — what would work? What do you think?
Taylor: I think a policy which is more steady, reliable, more predictable. Fiscal policy has had these temporary reductions in taxes or temporary payments to individuals for their Social Security. All these temporary things — temporary cash for clunkers, we paid people the little bit to buy cars for a month or two. And those I think have not had a long-term, sustainable effect, if any effect at all. So the alternative really is to lay out a longer-term strategy and get started with it.
Ryssdal: But let me ask you this, Professor: You worked in Washington, you know political Washington, right? So does any of this temporary-ness surprise you?
Taylor: Well in a way, it does. Let me tell you why: Because we had roughly 25 years without this. We started in the 1980s, got away from the stimulus packages of the ’70s, got away from the temporary actions, got away from wage and price setting and controls and put in more long-term tax reform, welfare reform, monetary policy, which was more steady. So it was quite a difference, and I thought it was working well. So it is a surprise to me, we’ve moved back to this, but you’re right — Washington does tend to have to do something sometimes, and sometimes it makes things worse.
Ryssdal: So if you were fresh out of graduate school with a brand new economics Ph.D today in 2012, or if you’re a retiree in this country — what do you do? What sense do you make of what’s happening in the global economy and here in the states?
Taylor: Well I think what I would emphasize is these policy problems, and that is in a sense an optimistic view because if policy is causing them, a change in policy can fix them. So for someone who’s trained in economics: get in there and try to make it happen, try to get these changes. For someone who’s retired of course, retirees are struggling with these nearly zero interest rates. I would say that’s part of the problem we have. Articulate those views.
Ryssdal: Are you optimistic?
Taylor: I am.
Ryssdal: You are? That this stuff can be fixed?
Taylor: Because we’ve had difficult problems in this country before, and we’ve changed things. We address those problems; people, our democracy responded. And I think, that’s what I hope will happen now. We have evidence that it’s made these changes in the past, and I think we’ll make them in the future.
Ryssdal: John Taylor, professor of economics at Stanford University. His most recent book is called “First Principles.” Professor, thanks very much for your time.
Taylor: Thank you.
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