Is Obama’s Jobs Act is our best defense against a double-dip recession? Cecilia Rouse says it is.

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Oct. 19 2011 6:51 AM

How To Avoid Another Painful Recession 

An interview with economist Cecilia Rouse: Why she’ll argue for the motion, "Congress should pass Obama’s jobs plan—piece by piece,” at the Oct. 25 Slate/Intelligence Squared U.S. debate.

Cecilia Rouse will argue in favor of President Obama's jobs plan at the Slate/Intelligence Squared debate
Cecilia Rouse will argue in favor of President Obama's jobs plan at the Slate/Intelligence Squared debate

Cecilia Rouse was an undergraduate at Harvard University when the American unemployment rate skyrocketed to 10.8 percent in the early 1980s. Rouse was mesmerized by the turbulent economy of that decade. The 10.8 percent helped crystallize her career track, leading her into a career as an economist and ultimately to a stint on President Obama’s Council of Economic Advisers. "It was really that high unemployment [rate] that drew me to the field [of economics]," she recalls. Back then, reducing the unemployment rate was a simple task. "We understood what we did [to raise it]," she says. "It was a monetary problem. The Fed had increased the federal funds rate too fast, so they lowered it. The unemployment rate shot up above 10 percent, and it came down like a rock."

Today, our unemployment woes can't be fixed as easily. But Rouse still believes that President Obama's American Jobs Act is the best way to get started. She'll argue for the motion, "Congress should pass Obama's jobs plan—piece by piece,” at the live Slate/Intelligence Squared U.S. debate on Oct. 25 at NYU's Skirball Center. I caught up with the Princeton University economics professor last week for a conversation about why she considers the legislation to be an insurance policy against a double-dip recession, and what she wishes the president had included in his act. Excerpts from the interview are printed below.

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Slate: You were a member of the Council of Economic Advisers from March 2009 until February 2011. Did you see any of your influence or ideas in President Obama's American Jobs Act?

Cecilia Rouse: Policymaking is a group effort. There are certainly things I worked on that I very much support as part of the American Jobs Act, but it's hard for me to say 'oh, that was something I did.'

Slate: What was your initial reaction to the Jobs Act?

CR: One of the things I was pleased to see in the president's jobs plan was him beginning to focus on individuals who have been unemployed for over six months. I'm concerned about the individuals who have been unemployed for the longest because we know that as we recover, they're still going to be the ones who have the hardest time finding a job.  A program that I think could make a meaningful difference to some workers is encouraging states to take up a program called Self Employment Assistance. It’s a program that allows workers to set up a business while they’re on unemployment insurance; Typically that’s precluded while you’re on UI. This is a program that would allow workers during this time of displacement to get some training in running a business, setting up a solid business plan, and [then] to try it out.

Slate: In an interview with ABC shortly after the president unveiled the Jobs Act, you mentioned that you wished he had included ideas to expand on services to help the unemployed find jobs. What expansions were you referring to?

CR: We need some badly needed reforms in our employment services. The Workforce Investment Act is up for reauthorization. It's really important that it become reauthorized so that we can continue to make investments in those services that help match unemployed workers to employers that are seeking workers.

Slate: In that same ABC piece, former director of the Office of Management and Budget David Stockman condemned the jobs plan, calling it "Keynesian poison." He told ABC: "Obama lectured us about the simple math, but the part of that he still doesn't get is that Uncle Sam is broke, and that we can't afford one more dime for his stimulus 6.0 plan. ... The money will go through the economy in a flash and leave nothing behind except a half-trillion dollars of more debt to our children." What's your response to his analysis?

CR: We've had 19 months of positive private sector employment growth, so we are in a recovery, but it's a recovery with a small “r.” It's a recovery that is fragile, and we still have 14 million workers who are seeking work. So I think that there's a role for government when you have an economy that is hobbling along and not really sailing. It's not a long-term role for the government, but I think it is the proper role for the government at this time. In terms of adding to the debt that we can't afford, I do believe that this effort will make a difference.

Slate: Critics of this bill say the 2009 Recovery Act—which bears similarities to the Jobs Act—didn't make a difference. Why should this one be any different?

CR: The way you judge these things is not by looking at the level that exists later, it's by asking oneself, what would have happened had we not done it? Unfortunately we can't observe that since we did do [the 2009 Recovery Act]. But economists looking at it in a variety of ways have found that the Recovery Act did make a difference in terms of employment and in terms of GDP growth. So I believe the American Jobs Act would do that as well, and that it provides a kind of insurance.

Slate: Opponents also complain that this new legislation lacks innovation.

CR: There are some innovations. There is the tax credit for employers, for hiring workers. There's the infrastructure bank and some of the reforms to unemployment insurance. But as I grade the jobs plan, I'm not sure that having completely new ideas is more important than effectiveness. So to me, whether the ideas are old or new [is less important]. If they're good ideas, they're good ideas. That's not the most important dimension on which to grade it.

Slate: Can you give us a sneak peek of what you'll argue on Oct. 25? 

CR: The Jobs Act is an insurance policy. We've got a fledgling recovery, and there are significant risks out there that could put us into a double dip recession. If we end up back in recession, the long term costs far outweigh the costs in my mind of acting now. A lot of the program [is comprised of] things that should provide immediate relief for families—both those that are working and those that are not working—through the extension of the unemployment insurance system and through tax relief. That income relief will have multipliers through the economy, so I think it's effective for a short term boost to the economy. And it's paid for. We can argue about whether we like how it's paid for, but it's paid for. And in the long haul, it's not adding to our federal deficit.

Slate: Do you have any previous debating experience?

CR: Not really. They can run circles around me (laughs).

Elizabeth Weingarten is the associate editor at New America and the associate director of its Global Gender Parity Initiative.

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