Obama's top economic adviser sees 'make or break moment for middle class'

Alan Krueger, chairman of President Obama's Council of Economic Advisers, gave his first speech as chairman Wednesday in Charlotte. Addressing a World Affairs Council of Charlotte luncheon, Krueger spoke on "Finding Economic Certainty in an Uncertain World." After the speech, he took questions from the media, including yours truly, in a hallway of The Westin hotel uptown.

Here's a transcript of that Q&A session:

Q: How do you think the speech went?

Krueger: Well, for me, it was a great opportunity to come to Charlotte. It's the first time I've made an official trip outside of Washington, in my position. I had a message I wanted to deliver because we're at a particularly important moment in the U.S. This is a make-or-break moment for the middle class. I think we need to build on the strengths that have made this such a great country. I think we have an opportunity to do that. I think this gave me a chance to say where the economy is now, but also take a step back and say if we make wise decisions, we can build a brighter future based on historical strengths of the U.S.

Q: Do you think your speech was too political?

Krueger: The president when he nominated me for this position said he counts on the chairman of the Council of Economic Advisers to provide him unvarnished advice about the state of the U.S. economy and how to strengthen it and create more jobs in the future, and that's what I tried to do in my remarks.

Q: Several CEOs in this town said earlier this week that there's not an atmosphere out there that makes them want to hire. How do you change that? How do you build up the confidence again?

Krueger: Well, there's a mixture of problems we face in the U.S. I think the top problem we have is a direct result of the recession, financial crisis that we had. American families overborrowed during the 2000s, and now they're paying down debt. State and local governments are struggling, and the residential construction industry is having trouble. The fundamental problem is weak demand. The president proposed extending the payroll tax cut to give families more after-tax income so they can go out and buy essentials, pay their mortgage and reduce the number of foreclosures that way, pay the rent to help support the economy that way.

He also proposed maintaining the extension of unemployment benefits, which the Congressional Budget Office has concluded provides the biggest bang for the buck in terms of creating jobs and strengthening economic growth more generally. But there's a whole suite of things I mentioned in the speech that the administration has been doing, like the look-back exercise to look at regulations that might be unnecessary.

Fundamentally, I think strengthening demand in the economy so people go out and buy the goods and services that the country is capable of producing, that companies can produce, is what we need to do. I think we've seen beneficial effects from the payroll tax cut over the last year. It helped households cope with rising gas prices because of turmoil in the Middle East and helped to sustain the recovery. It's important to keep that going in the future.

Q: Can you explain perceived uncertainty?

Krueger: Well, my point in the speech is that we live with uncertainty. That's the nature of economic life. What we can try to do as individuals is to minimize the effects of uncertainty such as having a diversified portfolio in our economic investments. As a country, we can reduce the effects of uncertainty through programs such as Social Security, unemployment insurance, the FDIC, which protects bank depositors, smart regulation like the Wall Street Reform Act.

There are ways we can reduce the uncertainty in the economy. We shouldn't allow uncertainty to paralyze us from action. We can take steps to strengthen the economy. I think a very big step, a very helpful one, would be to extend the payroll tax cut. If we don't extend the tax cut, the typical American family will see a $1,000 tax increase starting with their next paycheck in January.

Q: Some small businesses complain about too much regulation. How do you balance that?

Krueger: If you look at some surveys, the number one concern that businesses list is that they don't have enough customers. I think that relates to the issue of inadequate aggregate demand for the U.S. economy. The way to address that is to look for ways to strengthen household balance sheets, ways to encourage people to  spend the payroll tax cut responsibly.

We need to have smart regulation in this country. We need to strike a balance. The president has said we need no more regulations than necessary to ensure the safety and health of the American people. I think that's a very sensible approach. We started a process to look at unnecessary regulations, which is unprecedented. But clearly we've also seen the effects of having inadequate regulation in the U.S. The financial regulatory agencies failed during the financial crisis, and we're still digging our way out of the problems from inadequate regulation, so we have to strike a proper balance.

Q: What's your outlook for 2012?

Krueger: The economy is at a point now where it's been expanding for the last two and a half years, but the recovery is not as strong as one would like. The administration makes forecasts twice a year as part of the budget process. The Council of Economic Advisers leads that process, but we're not going to release that forecast until the budget comes out, so I'm not going to be more precise.

But if you look at private forecasters, you see the expectation that the economy will continue to expand, but it's capable of expanding more quickly if we pursue policies that will support demand such as by maintaining the payroll tax cut and extending unemployment benefits.

Q: What are the prospects for getting a deal on the payroll tax cut?

Krueger: I don't comment on the politics. My job is to advise the president on the best economic policies to pursue to strengthen the recovery, to create more jobs, to improve the fiscal situation of the United States. I leave it to others to handicap the politics.

Q: What do you tell President Obama when you're alone with him? Is it all economic theory? Things are tough out there. What do you tell him?

Krueger: There's no question that the country is going through a difficult period. The recession that began at the end of 2007 is the worst recession we've had in the post-war period. The president is very interested in all ideas. He's very pragmatic, but he's interested in ideas to help strengthen the economy. When he offered me this position, he told me he was offering it so I could provide the best advice about how to strengthen the economic recovery and create more jobs. He's quite pragmatic about what will work and what won't work.

He's also, as you probably noticed, gotten to the point where he can't wait for Congress to act. He's taken a number of steps on his own, such as the announcement last month to help families refinance their mortgages, help for student loans and so on. So this whole process is going on to look for executive actions that the administration can take because as a country we can't wait for Congress to act. We need to take every step we possibly can.

Q: A lot of banks are pushing back about having to hold more capital, that Dodd-Frank will hurt the economy. What do you think of that argument?

Krueger: We have to strike the right balance when it comes to financial and other regulations. I think we are in a stronger position now to weather some of the risk we're facing from sovereign debt issues in Europe because the banks were required to improve their balance sheets and raise additional capital. We have to strike the proper balance in this area.


So, what do you think of Krueger's comments? (Sense a theme on the payroll tax cuts?) Tell me here.