State of the Economy: Q&A with Austan Goolsbee

Two days after President Obama’s State of the Union last week, the White House invited new-media outlets to ask questions of Austan Goolsbee, Chairman of President Obama’s Council of Economic Advisors.  

For nearly 40 minutes, the administration fielded questions crowdsourced from Mint.com, Examiner.com, and MSN Money readers. The emphasis on social media was evident in the State of the Union itself, which namechecked both Google and Facebook, a first for a U.S. administration. Below is a recap of the issues discussed, and above is a video of the event.

Social Security concerns

Goolsbee opened by echoing the theme of the State of the Union — winning the future by out-innovating, out-educating, out-building and bringing rationality and thought to the economy. While he emphasized the U.S. was the richest country in the world, and with the most productive workers, he acknowledged the concerns of Mint.com readers like Ana Marina Soriano who face an uncertain economic future in a time of high unemployment, threats to social security, and a lack of incentives for long-term saving.

Soriano asked, “”I don’t really have much faith in social security benefits for my generation. What is in place to keep the system up and running?”

“We’ve known for decades about the fiscal challenge associated with the aging of the population and rising healthcare costs,” said Goolsbee, but “the deficit size is not primarily due to discretionary spending.” Going on to say that the forthcoming Obama budget will bring discretionary spending to levels that “have not existed since Dwight Eisenhower was president,” he expressed a willingness on the part of the administration to consider any plan for social security that ensured its survival and prevented it from being privatized. “It’s the most popular government program that has ever been and it has helped assure the safe and secure retirement for millions and millions of people.” Goolsbee stressed that social security is something that requires long-term solutions not short-term fixes.

Unemployment fears

On jobs, Goolsbee said we need to get the job engine running and must now move out of what he called a “rescue phase” and into a growth phase. “It isn’t the case that all the jobs are growing internationally. There were 1.3 million new private sector jobs in the U.S. in the last year. That’s a good start, not near enough but we’re coming into 2011 with a little bit of momentum.”

Still Mint.com readers like John Harvey are concerned with the spending freeze. He asked: “How will spending freeze not result in massive jump in unemployment as in 1937?” While Goolsbee cautioned against comparisons to 1937, he did say that it was important to proceed with more caution than the administration did at that time.

“At this moment, you want to be careful yanking the rug out from what is a fragile recovery. The reason the deficit is large last year and this year is not from the long-run fiscal challenges facing the country, it’s because we just went through the worst recession in virtually all of our lifetimes. When that happens, the automatic stabilizers such as tax revenues go down, spending on unemployment benefits, on a variety of cyclical factors, go up. That’s the main thing driving the business cycle in the short run. The spending freeze on discretionary non-security that the president outlined is over the next five years.”

Still not all of the adminstration’s efforts are aimed at long-term fiscal policy alone. “The president’s tax deal at the end of last year was specifically designed to get more activity in the here and now,” said Goolsbee, “as you look out over the next five years, we’ve got to make tough choices to keep the fiscal situation from deteriorating. It’s a bit of a balancing act. Your reader is exactly right. We want to be mindful not to do things that drive up the unemployment rate in the immediate term. It’s 9.4 percent. It’s way too high. We’ve got to do everything we can to get that down.”

Retirement saving questions

On retirement saving, user “phillip24” (no full name disclosed) wanted to know, “Will the administration be announcing new initiatives related to retirement saving?”

“We have tried over this period to reduce taxes and give incentives for people to save,” said Goolsbee, “Most of the new programs and incentives we have now are about trying to encourage the private sector to get their employees to save.” One such program encourages companies to make automatic 401(k) enrollment the default option so that even busy people will get the benefit of 401(k) savings plans without too much effort.