TEXT OF INTERVIEW

Steve Chiotakis: We’re set to get a big employment report tomorrow from the Labor Department, and a lot of folks will use it to gauge the pace of the economic recovery. Now employment may be a key, but there many other factors to look at when forecasting the economy in 2010. Former Labor Secretary Robert Reich is with us this morning to give us his take on how the year will fare. Good morning, Bob.

Robert Reich: Well Happy New Year to you, Steve.

Chiotakis: So put on your soothsayer’s cap and tell us what you think’s going to happen to the economy this year.

Reich: Ah, well if I knew that, I’d be a very wealthy man. What I can tell you is the recovery is not likely to be as vigorous as we normally get. Over the last three decades, the typical recession was brought on by the Fed fighting inflation but overshooting and raising rates too high. And so all the Fed needed to do was reverse course and economy would expand. But this time, because the Great Recession of 2009 came when the housing bubble popped, the damage to the economy has been much more severe. With the housing glut, for example, home prices are unlikely to recover for years.

Chiotakis: Yeah. But factory orders are up, and the stock market is up, so maybe a boom this year?

Reich: Well possibly. But remember, Steve, this economy is still on steroids — short-term interest rates are low, the Fed is still buying up lots of debt, including mortgage-backed securities, and the fiscal stimulus still hasn’t even peaked. The real question is what happens when the Fed tightens and the stimulus ends? And to tell you the truth, my biggest worry is aggregate demand; consumers are still traumatized, boomers have to start saving for retirement big time — firms won’t even be making major investments if they’re worried about who’s going to buy the stuff they produce. Most of all, 1 out of 5 Americans is unemployed or underemployed.

Chiotakis: Yeah, that’s the sticking point of course is jobs. I mean, when do you think we’re going to see some major job growth in this country?

Reich: Not until the end of this year. But we have a very long way to go, given the economy now has 7 million fewer jobs than it did two years ago — along with an additional 2 million people who’ve wanted to join the labor force but never got in. So even when we’re back to 200,000 net new jobs a month, which would be a normal, solid recovery, it’s going to take years to shrink this mountain of unemployed.

Chiotakis: And so what does the government do, Bob? I mean less involvement, more involvement by Uncle Sam? Where’s Uncle Sam in all of this?

Reich: Well, there’s a great ideological debate right now, but it’s really a matter of timing. If the stimulus ends and the Fed tightens too soon, we could be back in recession. But if they go on too long, we face inflation, for the foreseeable future. But the biggest danger, in my view, is a fallback into recession. So hopefully, the stimulus will keep going and the Fed will keep a loose reign.

Chiotakis: All right. Former Labor Secretary Robert Reich, current professor of public policy at the University of California Berkeley. Bob, thanks.

Reich: Thanks, Steve.