Economist Mark Zandi says we won’t reduce unemployment by Election Day unless we pass a significant part of the…

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Oct. 18 2011 1:14 PM

A 40 Percent Chance of Economic Doom

An interview with economist Mark Zandi: why he’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.

Economist Mark Zandi
Economist Mark Zandi

Photograph by Brendan Smialowski/Getty Images for Meet the Press.

Mark Zandi has never had any formal debate training. But the chief economist of Moody’s Analytics is confident that he’ll win the Oct 25. Slate/ Intelligence Squared U.S. debate with his formidable informal arguing skills. “I have four siblings, so my whole life was a debate,” laughs Zandi, who will argue for the merits of President Obama’s American Jobs Act and the motion, “Congress should pass Obama’s jobs plan—piece by piece.” Zandi’s job, too, required an outspoken response to the Jobs Act, the president’s recent legislative proposal aimed at creating jobs and reviving the economy. In Zandi’s analysis of the bill, he warns that there’s a 40 percent chance of a double-dip recession in the next six to 12 months if Congress doesn’t pass certain components of the Jobs Act. Last week, I spoke with Zandi about the most critical parts of the president’s legislation, a potential pitfall of the bill, and the fourth-grade project that determined his career path. Excerpts from the interview are printed below.

Slate: Which aspects of the American Jobs Act must pass in order to significantly drop the probability that we’ll enter into a double-dip recession in the next year?

Mark Zandi: The extension and expansion of the payroll tax holidays for workers would be number one on my list and key to avoiding recession.

Slate: How likely is it that the Republicans will pass those measures?

MZ: I’m counting on it. If I thought they wouldn’t, then I would say that I think we’re rolling into a recession. I expect them to do it.

Slate: Some in the Obama administration say that the legislators fighting the Jobs Act are only doing it to weaken the president. They claim this fight is about politics and not about the bill’s merits. Is that an accurate portrayal?

 MZ: I’m sure there are all kinds of motivations. But I’m more inclined to give the opponents of this legislation the benefit of the doubt. I can see a different perspective. I don’t agree with it and I think it’s wrong. I think it would be a greater error not to extend and expand the tax holiday for employees. But I’m not going to ascribe darker motivations to opposing it. There is no slam-dunk policy step here. There’s no silver bullet. I can see the perspective that people feel that other similar efforts to this did not live up to their expectations. From my perspective I think the policies worked well, but I can see the other argument.

Slate: In your analysis of the Jobs Act, you pointed to a potential pitfall of the legislation: “The plan also results in weaker growth in 2013, as most of the tax cuts and spending increases are temporary and fade during the year. Presumably the economy will be strong enough to handle it by then, but that is far from certain.” Is there a way to alter or change the plan so that growth doesn’t wane so quickly?

MZ: What that means is we need policymakers to do more. They can’t just pass parts of this and stop. They do need to be thinking about what policies will help the economy [in the] longer-run, and the president’s doing that, as are the Republican proposals. In fact, most if not all of the Republican proposals are good ones, but they’re focused on the longer-run. They’re not focused on “how do I avoid a recession in the next few months?” So I think we need to pursue other policies. That [includes] everything [from] ensuring that our long-term fiscal situation is in order, to tax reform, to the other proposals about regulatory reform and trade policy. It’s very important for policymakers to pass this near-term help for the economy and make sure we don’t go back into a recession. If we do, then all other problems will become much more difficult. But [it’s] also [important] to focus on these longer-term policy issues so we can help the economy in 2013, 2014, or 2015.

Slate: A lot of folks are focused on what will happen to the unemployment rate and the economy between now and November 2012. How much will things change if Congress passes the minimum of the act to avoid recession?

MZ: I don’t think it will result in a low unemployment rate by the election if [the minimum is] all that they do. To get the unemployment [rate] moving south quickly, they’ll have to pass more of what the president has proposed. There are some things that have some bipartisan support that I think are less likely, but it is possible they’ll get through. Like the payroll tax holiday for employers, or some additional money for the unemployment insurance program with some reforms the president has proposed. Those things would also add juice to the economy next year and increase the odds that unemployment will be moving definitively lower by Election Day. But at this point, I give less-than-even odds that this gets through the political process.

Slate: What are some of the reforms the president has proposed to the unemployment insurance program?

MZ: He’s proposing work share, which has been very popular in Germany, and is credited with helping Germany navigate through their recession in a very graceful way. The Georgia Works program has also been thought of quite highly by people from all kinds of political spectrums. That’s another part of the proposed U.I. reform.

Slate: Say Congress doesn’t pass a single component of the Jobs Act. Is the worst-case scenario that we fall back into a recession? Is there anything worse that could happen?

MZ: There are different flavors of recession. You can get into some pretty dark scenarios pretty quickly. A lot depends on other variables like, for example, what happens in Europe over the course of the next few weeks. If the Europeans don’t take a few steps in the next few weeks, their economy is going to suffer a very severe recession and that’s going to drag us down as well. It’s important to point out that if you go into recession, the cost to taxpayers will be enormous because tax revenues will start falling again. They’re rising pretty strongly right now. Government spending will increase because more people will be unemployed and they’ll get unemployment insurance benefits like food stamps, Medicaid, and a whole range of other income support programs. It’s very important just from a purely fiscal perspective that we not go back into recession.

Slate: Some Republicans argue that the Jobs Act is problematic because it will make government bigger. But based on what you’re saying, it seems like if we don’t pass the act, government spending would increase even more as a result of the recession.

MZ: I don’t buy the argument that it makes government bigger. All of the proposals are temporary. All of the temporary proposals are being paid for. So it’s not adding to the deficit, or the debt, or to the size of government. But if you go into recession, then yeah, the deficit will be a lot larger, and government measured by spending will be bigger.

Slate: Let’s step back from the Jobs Plan. What originally attracted you to economics?

MZ: In the fourth grade, my history teacher gave us a project: Why was the auto industry located in Detroit, Michigan? I didn’t know I was going to be an economist [at the time], but I knew I was going to do something that was involved in answering questions like that one because I thought that was a fascinating question.

Slate: So why is the auto industry located in Detroit, Michigan?

MZ: There’s a lot of iron ore that’s located nearby with coal, so you needed that to produce steel which is key to the auto industry. And it’s centrally located, so you can distribute the vehicles to the Northeast, which at that time was the key source of demand. You also had Chicago, and it was cheaper than producing in the Northeast and Chicago. I’m trying to think of other reasons; those are the key ones.

Slate: That’s pretty good. I don’t think I remember most of my fourth-grade projects.

MZ: I remember that very vividly. It was a group project, and there were four of us. I know I had an A on my part of the project. But [then the teacher] asked a question of another member of the team, so I answered it, and I got an A+. That sealed the deal for me. I was going to be an economist.

Slate: There’s always a slacker in those group projects.

MZ: You know, that person probably turned out to be a professional football player or something. We all have our talents (laughs).

Slate: Just one other question. I know you debated in an Intelligence Squared debate a couple of years ago. Did you win?

MZ: Absolutely! Are you kidding me? We won. I’m in this to win.

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