How Will President-Elect Obama Get the Economy Back on Track?
CHRISTINE ROMANS, CNN HOST: Welcome to YOUR MONEY. I'm Christine Romans. Ali Velshi is off this week. President-elect Obama's top priority is the economy and the future of your money. What he does as president could affect the security of your job, your savings and your home. To rescue the economy, Obama wants middle class tax cuts, aid money for state and local government and spending for safety net programs like Medicaid and food stamps. And the most controversial plan, major infrastructure programs. How much will all of this cost? Estimates say the price tag could run as high as $700 billion, but will it be enough to get the economy on track? We're joined now by Kenneth Rogoff, professor of public policy and economics at Harvard University as well as a former chief economist at the IMS. Diane Brady is a senior writer of "Business Week." And Stephen Leeb he president of Leeb Capital Management, also the author of the soon to be released book, "Game Over" about the financial crises. Welcome, everybody. I want to start with you, Ken because I'm so interested in your perspective on what the president elect can do to get this economy on track. You told me our economy is having a heart attack. Is he the cardiologist that is going to fix things or he just going to have to try to keep the patient alive?</s>KENETH ROGOFF, PROFESSOR OF PUBLIC POLICY AND ECONOMICS, HARVARD UNIVERSITY: Well, I mean he's going to perform resuscitation and let's hope. I mean, I think we, they're coming in with big plans. They're looking at the whole picture so I think this is going to be a big boost this moment and we'll hope it's enough.</s>ROMANS: Will it be enough? We are talking about major, major numbers. The president-elect himself has said, Diane, we can't worry about deficits right now. This is about spending money big right now, at the right time and the right time is to get the economy on track.</s>DIANE BRADY, SENIOR WRITER, "BUSINESS WEEK: " I think the money is important but you have to also make sure that you disburse it in a way where the job losses actually are. There aren't that many people who can actually work in infrastructure, building a bridge, fixing a bridge, actually takes some skills. We have to make sure that some of that goes toward white collar jobs, service sector jobs where a lot of the jobs right now are being lost.</s>ROMANS: We lost construction and manufacturing jobs there is no doubt. But the job losses we're seeing right now are in banking and NFL, NPR, Dow Chemical, all different kinds of companies this week announcing job cuts.</s>STEPHEN LEEB, PRESIDENT, LEEB CAPITAL MANAGEMENT: I think the critical thing is to get more money people's pockets and I think the tax cut part of it, Christine, is probably going to be the most important and I think what they've said, not in so many words, is that they will spend whatever it takes to get the economy going. President- elect Obama has used I think words almost exactly like that. My guess right now is the number is higher than $700 billion; they are probably already talking about $1 trillion, maybe even north of that. I think that they absolutely realize the magnitude of the problem. It's unprecedented. All you have to do is look at key bill yields, they're zero. Money market yields may fall to zero or below, which means you'll be paying these funds to harbor your money. They know this. Larry Summers is one of the most brilliant economists alive, he knows all this data and he knows how dire the situation is. So I think every time you get a horrible piece of data like yesterday with unemployment insurance claims, the price of the stimulus goes up, and I really think you're talking north of $1 trillion now.</s>ROMANS: Let's talk about Larry Summers; he is a former colleague of yours, someone that you know. Is Larry Summers going to be able to lead this big infrastructure spending, economic rejuvenation? What do you think is on his mind right now?</s>ROGOFF: Well, I think he's thinking outside of the box. This is an incendiary problem and you do have to look at the whole picture, I completely agree with Diane, how it's spent and also what else you're doing, putting tax cuts in people's pockets, they have to do something about the financial system, if you leave that bleeding, the way it is, things aren't going to get better. You need to do something about housing. I think that has to be approached on many fronts. But an infrastructure has the advantage that it has long life. Because this isn't going to be one year. This isn't going to be two years. This is going to have to be a sustained push by the government to get in, and then hopefully get out at the end of it.</s>ROMANS: That's the trick, is the getting out at the end of it and all of the polls keep showing the American people are concerned about all of this intervention in the financial market, all of this intervention into the economy. They are saying wait a minute if there's suppose to be boom and bust cycles in economics, what are we doing throwing all this money trying to fix this. It's bigger than that. It's not about trying to stop economic cycles. It's trying to stop Armageddon some would say.</s>ROGOFF: I'm afraid so. Armageddon I don't know, but we're certainly looking at the worst recession we've seen since World War II and there is a material risk that it could be worse than that. We could just see something really incredible if they don't act coherently.</s>ROMANS: What about spending money to get out of this problem? Can you spend money to fix this problem?</s>BRADY: I think the answer is spending, because one problem with tax cuts right now is you're dealing with a mind-set of a consumer who if you give them an extra $200 they're not going to run out to Target or Wal-Mart to spend it. That has been an assumption we've worked on for many years. Right now, you have to spend. You have to spend wisely because there are also types of spending like in the green states; you do a lot of R&D.; The work goes overseas. The U.S. actually hasn't been that good about doing the types of protectionist economy jobs that you see in other countries and that's what we have to start doing.</s>LEEB: I would take a little issue with Diane on this one. I think that Americans will spend. This is a 30 or 40-year habit that's well-ingrained and I have a heard about the death of the American consumer for as long as I've been in this business. I don't really think it's true and some recent data, housing, mortgage applications doubled two weeks ago.</s>ROMANS: And then fell again after that.</s>LEEB: About seven percent after going up about 110 percent, they fell back 7 percent. Housing -- and that came on the heels of near record housing affordability. I mean, there is the desire to spend and to own homes and to own things in this country but there's a massive amount of fear and that's what you've seen with all of this liquidity locked up.</s>ROMANS: Let me talk about infrastructure spending again. Because there is a lot of talk about bridges and roads and the like, if you're not going to put the out of work retail employees and that restaurant employees and the hotel employees without some massive retraining out there to build a bridge. You're just not going to --</s>BRADY: Well --</s>ROMANS: Well, there's also this concern, you know, I'll bring in Governor Blagojevich story.</s>BRADY: Yeah, we need to talk about Blagojevich.</s>ROMANS: To say there is this concern about politics and it's a feeding frenzy in local politics and in state politics frankly for all of this money that could be coming down.</s>BRADY: Just look at what the mayors came forward with, it was tennis centers, swimming pools, not the sort of thing that you really need for the economic health right now. Yes, these things, but one important initiative, health care, education, if they put equal focus on that, I think you'll see a lot of jobs where we actually need them, jobs that are in the service sector and will be dealing with more white dollar employees.</s>ROMANS: Ken let me ask you, how well has the government done in your view in the past in actually being a good steward of taxpayer money and trying to get intervening in the economy? Have we done it withal in the past?</s>ROGOFF: If we're talking about the distant past, I mean the results are mixed obviously. One of the reasons we're so successful as an economy usually is that we don't have too big a government and we haven't run by the government. A lot of the rest of the world has been growing from China to Sweden, they've been shrinking their government and here we're blowing it up. That's a concern over the longer term. Nevertheless I don't quite see what else to do. I think we need to move on both fronts, the tax front and urban spending in part because we don't know what's going to work. It's speculative. We don't see this.</s>LEEB: Christine, what I heard when I heard president-elect Obama speak, I think he is going to focus more on increasing productivity, putting more technology in the health care sector, which it desperately needs. Put just building up the technology infrastructure, and hopefully that has some productivity after-effects. It will continue. I think it's going to put less money into bridges for all of the reasons that we're discussing, because he knows that's a recipe for pork. He doesn't want to do that, but if you're trying to hire more tech workers, educate tech workers that's a wonderful thing to do and also we desperately need it if we're going to solve this resource problem. We need massive research into resources.</s>ROMANS: I think it's interesting, talking about infrastructure and thinking of bridges is very last-century thinking. We could be talking about health care and there is a lot of other things that infrastructure means. Diane, Ken, Stephen, stick around. Putting people to work sounds great but isn't it just throwing money into a black hole of local politics?