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Media Conference Call: President Obama's Upcoming Speech on Job Creation

Speakers: Edward Alden, Bernard L. Schwartz Senior Fellow, CFR, and A. Michael Spence, Distinguished Visiting Fellow, CFR
Presider: Christopher Alessi, Associate Staff Writer, CFR.org
September 8, 2011
Council on Foreign Relations

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CHRISTOPHER ALESSI:† Hi, everyone.† Welcome to this Council on Foreign Relations media conference call.† I'm Christopher Alessi, the associate staff writer for economics with CFR.org.

We're privileged to have with us today two distinguished experts to discuss President Obama's forthcoming speech to Congress tonight and his expected proposals for addressing the United States' ongoing unemployment situation.† Those two experts are Michael Spence, a CFR distinguished visiting fellow, and Edward Alden, CFR's Bernard L. Schwartz senior fellow.

I would like to ask you -- both of you to start off with a brief overview of why the U.S. unemployment remains stuck above 9 percent and what the implications of that are for both the U.S. economy and the global economy.† Mike, would you like to start?

MICHAEL SPENCE:† Thank you, Chris.† This is Mike Spence.

Well, let me be very brief.† I think our problem is that -- the structural part of our problem -- I mean, obviously there's a cyclical part, but the structural part is that most of the employment in the last couple of decades has been -- by that -- by most I mean 98 percent has been generated in what you might call the nontradable sector of the economy, that is the sector that doesn't compete directly in the global economy.† And the tradable sector has many healthy parts that are growing nicely, but there's a decline in employment in the lower value-added parts of the manufacturing global supply chains and -- that nets out to pretty close to zero over that period.

So very large growth in employment in the nontradable side, I think, you know, fueled by large growth in government, in health care.† And a -- and a pattern of excess consumption fueled by excess leverage sort of hid this problem from view.† And now I think what happened after the crisis is that we have, actually, the structural problem that we had all along.† But it's evident.† And so we're not -- we're -- if we look at the current situation, we have a shortfall in domestic aggregate demand, which means that the whole nontradable sector is kind of stalled out as a growth in employment engine.† And on the tradable side, there's some growth because of its exposure to the growing parts of the global economy, namely the emerging markets, but that tends not to generate a lot of employment.

So I think we have a kind of -- the best way to think of what we got on the employment side is as -- is a -- as a structural employment problem.† It -- you know, it obviously can be exacerbated by, you know, an implosion in the -- in the domestic economy because of a shortfall of demand or some shocks, but I -- but I think that's the main challenge we face.

Chris, why don't I stop there and turn it over to you.

ALESSI:† OK.† Ted?

ALDEN:† Yeah, I would -- I would agree with Michael's analysis and just add two other things.† One, we don't just have a jobs problem in the economy.† We've got an income problem as well.† This comes out of work I've been doing with Matthew Slaughter of Dartmouth, who's also an adjunct fellow at the council for trade task force that -- the report that we're going to be releasing fairly shortly.

But we've seen not just, you know, stagnant job growth -- basically the same number of jobs in the economy now that we had back in 1997 -- but also stagnant income growth, falling real incomes for everyone in the U.S. economy except the most highly educated.† So that -- so it's not just a jobs crisis here.† There's an income crisis as well, which goes some of the way to explaining the lack of domestic demand problem that Michael Spence referred to.

The second thing I just want to note in the CFR context is that we're not seeing multinational companies invest in the United States in the way they used to.† If you -- if you go back and look at the data from the 1990s, U.S.-headquartered multinationals added almost 4 million jobs in the United States and a slightly smaller number abroad.† Over the last decade those same companies have shed about 3 million jobs in the United States while adding roughly 4 million abroad.† So the U.S. is simply not getting the share of multinational investment that it used to, which means we're not just losing jobs in numbers, we're losing good jobs, high-wage jobs, often jobs involving advanced technologies, R&D.

And the same picture holds true with respect to foreign investment.† The U.S. share of foreign investment relative to other similar economies, to the Germanys and the U.K.s and the Canadas, has also been falling over the past decade.† So the United States has not been an attractive place for big companies to expand.

ALESSI:† OK.† And before I turn it over to reporters for questions, could you both just speak for a moment about what policy remedies we should both expect and hope for from President Obama's speech this evening?

Mike?

SPENCE:† I think the hopes and expectations are really two very different things, and -- as investors know well.† You know, I think the best hope is that there would be a pretty comprehensive statement of how, over time, we're going to tackle these problems, including the short run with some stimulus in the form of, you know, forbearance on reducing deficits with a -- with a continuing plan to restore fiscal balance on the one hand and then some significant level of investment.† I think the president, if he goes that route, is going to have to convince the American people to the point where they can put pressure on the political various sides in the equation and sort of break the gridlock, because, you know, at the moment we're just sort of badly divided on what the problem is and how to go about it.† So that would be the hope.

If I had to say what does that mean, a good starting point for understanding it would be the framework that underpins the Bowles-Simpson commission which took on head on the growth (unemployment/and employment ?) challenge in many respects, at the same time, you know, proposing an intertemporal plan for fiscal reduction.† I guess I'm no political analyst for sure, but I guess I expect a less-than-complete version of that.† One can always hope it will be fairly complete.† And I think if it's less than complete, it will be vulnerable to political attack from people who disagree about the role and size of government and other things.† And so our best guess is we probably won't accomplish much.

ALESSI:† And Ted?

ALDEN:† You know, I think I expect what everybody else on the call expects, which is a number of smaller measures, an extension of the payroll tax cut that's been in place for a while, the continued expansion and continuation of unemployment insurance benefits, probably some talk about infrastructure investment.† I think the jobs impact of these is likely to be small, though some are certainly worthy initiatives.† I support the extension of UI, and I would like to see a much bigger focus on infrastructure.† There are people working on proposals in Congress for a national infrastructure bank that would work to funnel private capital, both domestic and international private capital and infrastructure investment.† And I'd love to see the president embrace that enthusiastically.

And what I hope for is, I guess, a broader kind of strategic vision -- again, sort of focusing on the international sides where my work has been, a broader strategic vision that talks about a new trade strategy going forward.† I mean, this is something that I think Republicans would support.† I've been working on -- we have a task force report that's coming out in about 10 days that was chaired by Tom Daschle and Andy Card and included a number of prominent Republicans and Democrats.† I think an aggressive trade strategy that says we need to play to American strengths in advanced manufacturing and services and intellectual property, opens up opportunities in big markets -- I think that has a potential for bipartisan support.† I mean, it's time to get past, you know, the three trade agreements that were negotiated.† We need to get those done, through Congress and then move on to a trade strategy for the future.

I'd like to see a focus on attracting foreign investment.† You know, we're going to call in this report for a national investment initiative, a concerted national effort to attract foreign investment, which is something the United States has never done before.† I mean, we're the underperformer in the OECD in terms of investment promotion in the U.S.† So I'd like to see the president lay out some longer-term strategies for restoring and strengthening the U.S. competitive position alongside some of the short-term measures that I think we will see.

ALESSI:† Great.† Thank you both for framing the issues.

Let's open it up for questions.† Are there any questions, Operator?

OPERATOR:† OK, at this time we will open the floor for questions.† (Gives queuing instructions.)

Our first question comes from Evan Lehmann from ClimateWire.

QUESTIONER:† Hi, thanks for having this call.† Can you please talk about clean energy and the potential that the president might talk about that in terms of jobs?† And if you could point to some specific areas in that sector that are ripe for growing, please do so.† Thanks.

SPENCE:† Do you want me to take that, Chris?† Or Michael, do you want to do that?

ALESSI:† Ted, why don't you go ahead?

ALDEN:† Sure.† You know, we talk about this a little bit in the -- in the task force report that we've got coming out.† I don't think there's a -- you know, there's a lot of evidence that green jobs, per se, is going to be a big jobs engine.† But I do think it's clearly important that the United States be a leader in the development of clean-energy technologies.

I mean, these are -- this is a key part of the advanced manufacturing of the future.† And if we -- you know, if we as a country lose the solar industry, lose the wind industry to China, for instance, if we're not competitive in those industries, that's going to hamper us in a range of other sectors and, I think, retard our capacities and economy going forward.

I don't think -- and Michael can correct me if I'm wrong here -- I don't think there are any economists who believe that the clean-energy sector itself is going to produce great numbers of jobs that will in any significant way deal with the employment crisis.† I think it's an important area to invest in for a whole bunch of reasons, not the least are the environmental concerns, but I don't think anybody sees it as a big jobs generator.

ALESSI:† Mike, do you want to add to that?

SPENCE:† Yeah, (though ?) I think I agree with Ed.† Let me just simply add, I -- with a kind of slight variation, which is, I think if you focus narrowly on clean energy, especially in the short run, you know, you get exactly what Ed said.† if you focus in the longer run, then you get a whole bunch of areas where we've built some technology and, you know, skills that when you add them up make a difference.† So, you know, we don't want to sort of set these aside, because -- I mean, if you look at the German economy, where advanced manufacturing -- any given one is a little, tiny thing and they add up.

The other thing I guess I would add very briefly is that I do think that on a kind of list of things that you would want to have a sort of thoroughgoing sort of sustainable growth strategy for the country would be a really sensible energy policy, which would include pricing and incentives that go along with that that include technology and the way we build infrastructure, cities and so on.† And that, I think, you know, if we manage to get that done, you know, sometime, could make quite a large difference over time.

ALESSI:† OK.† Shall we go forward with the next question, please?

OPERATOR:† Thank you.† Our next question comes from Vicky Smeltzer (ph) from -- (inaudible) -- International.

QUESTIONER:† Yes.† There's been some renewed talk in the last few days of a Homeland Investment Act II, and whether it would be announced tonight or in the next few weeks.† I just wanted to see what you thought the chances are of this Homeland Investment Act II being announced.† And also, just whatever you're thinking in terms of what kind of tax reform might be realistically announced.

SPENCE:† Ed started last time.† It's Mike.† I don't -- I don't know any details on a homeland investment act, but as Ed said a moment ago, rectifying a pattern of under-investment on the public sector side, you know, because it complements the private sector investment and increases the returns, is important.† And, you know, so that (was a ?) little overlap with the infrastructure and the technology base of the economy.† So I guess I'm not sure we're going to hear anything about that.

Tax reform, you know, has figured in virtually every sensible proposal, comprehensive proposal, to deal with both the fiscal situation, on the one hand, and the incentives for investment savings and foreign investment, as Ed described, and growth.† You know, it's hard to know on what time horizon that will be undertaken.† I mean, yes, there's the political judgment about whether or not to get on with it, but on the economic merits it, you know, deserves to be high on the list.† So if we're in the hope rather than expect mode, I would hope that would be part of it, or a process to deal with it.

ALESSI (?):† Vicky (sp), just to double-check here, you're talking about the one-time repatriation?† Was that the initial Homeland Investment Act?

QUESTIONER:† Exactly.† Exactly, the Homeland Investment Act of 2004, where they brought the money back in 2005.† And then also it was more on corporate tax reform, was my question.

ALDEN:† No, I mean, you know, there's obviously some support for that; I mean among them, you know, Andy Stern (sp), who is on this trade task force that I talked about is coming out in about 10 days.† I think, you know, all of the evidence on the last go-around was that it didn't succeed in doing what it was supposed to do, which was to generate job-creating investments in the economy.† A lot of the money just went back to shareholders.

And I think if you look at the current climate, there's no shortage of investment capital.† Money is cheap to borrow.† There's -- you know, corporations are sitting on huge piles of cash because they can't find investments that they think will return high enough to generate the investment.† So it seems to me the notion of a one-time repatriation generating job-creating investment in the United States -- it didn't work last time; I see no reason to think it'll work this time.

I think the more fundamental challenge is to get our corporate tax system into a more competitive position than it is right now.† I mean, you know, the basic rate -- I realize most companies don't pay that rate, but the basic rate is too high; it's not internationally competitive.† I think you -- we need to be talking about corporate tax form -- reform -- that makes the United States an attractive place to invest on an ongoing basis.

The other thing, just quickly, you know, I mentioned infrastructure.† One of the most obvious investments right now in this economy is infrastructure.† We have, you know, hundreds of billions of dollars of infrastructure that we need to build out, either to repair things that are falling apart or to invest in new infrastructure, like broadband and other, you know, future capabilities.† And we need to find vehicles to allow private money to partner with the public sector to make those investments.† We -- you know, this is not all going to come from the public sector; and so again getting back to the infrastructure bank proposal, for instance, that Senators Kerry and Hutchison have been advocating.† It's a pretty low-cost way to begin to bring some of that private money off the sidelines and get it invested in long-term projects that promise a return to those investors but also real gains for the U.S. economy in terms of its ability to compete going forward.† So I hope the president does talk about that tonight.

ALESSI:† OK.† Next question, please.

OPERATOR:† Thank you.† Our next question comes from Alex Privitera from N24-TV.

QUESTIONER:† Yes, thanks for taking my question.† My question goes to the general assumption -- Michael Spence at the beginning said that too much growth in the employment has been in (no tradable ?) sectors, and stressed the structural weaknesses of the American economy.† And I'm wondering, given that, does it mean that the U.S. is now entering, definitely entering, a Japanese decade?† And if that is so, have the last three years been wasted, because not much has happened in shifting the focus in the economy?† Or are there other explanations?† Thanks.

SPENCE:† Well --

ALESSI:† Michael, yeah, you go first, please.

SPENCE:† OK.† No, I don't think we're -- certainly not yet in the Japanese situation, for a number of reasons.† What we have to remember, Japan had, you know, an absolutely mammoth, you know, leverage debt bubble, making both ours and Europe's look rather modest in comparison.† And the -- and the decline in asset values was just stunning, you know, when the bubble burst.† I mean, I think the Japanese stock market declined by, you know, a factor of five or something like that.† So that the wealth -- the apparent wealth disruption was enormous.† And we do not have the same pattern of sort of leaving lingering balance-sheet damage, at least in the financial sector, there.† There are other differences in the economy.† So I don't think we should dismiss the Japanese case, but I don't think we should assume that we're on that track.

I mean, you know, the end goal, you know, for the American economy, as we decline in share of the global economy -- which is virtually inevitable, as a result of the emerging economies' growth -- is to have a highly competitive, you know, entity at the top end, competing with a growing group of others who are also highly competitive and talented and innovative.

And so I think the challenge is to get there, and to deal with the distributional issues that Ed mentioned.† I mean, it seems fairly clear that a combination of labor-saving technology and the movement of global supply chains has either produced unemployment or downward pressure on income growth in the middle-income group.† And you can see the same thing in other countries.† I mean, the Germans, that went after this problem, you know, of productivity and competitiveness, you know, have, among other things, you know, freed up their labor markets and done a bunch of things, but muted income growth to make sure that they didn't end up with an employment problem rather than, you know, a muted income problem.† They have ways of sharing that burden that's different from what we have in the United States.† We may have to invent something there.

I do, on your last question, think there was an element of waste.† I think that failing to appreciate the length of the deleveraging process, on the one hand, and the longer-term structural issues, on the other -- which, combined, you could think of as sort of structural aftermath of the crisis and its -- and its -- and its runup -- you know, caused some damage.

I mean, we -- first of all, we underestimated the fiscal challenge because we overestimated growth.† You know, the markets are setting down, and we're having a kind of negative wealth effect experience from that, and I think we probably delayed in getting on with some of the things that Ed and I are both talking about.

So I think we should probably plead guilty to that one -- late arrival at a reasonable problem definition.

ALESSI:† Ed, do you want to weigh in?

ALDEN:† That was a great answer.† I have nothing to add to that.

ALESSI:† OK.† Let's move to the next question, please.

OPERATOR:† Thank you.† Our next question comes from Dienyet Jing (sp) from China's Xinhua News Agency.

QUESTIONER:† Thanks for holding the call.† Your perspective:† Will Obama's measures be smoothly passed by Congress, as many GOP congressmen are still concerned about new deficits?

Secondly, as the -- one key problem for the economy is a lack of a private demand, do you think the small-scale measures from the administration will be effective in jump-starting the economy and housing sector?† Thank you.

ALDEN:† Chris, why don't I take the first part, since I'm in Washington, watching the mess up on the Hill all the time.

ALESSI:† OK.† Go for it.

ALDEN:† So, you know, I would say anybody who predicts smooth passage of anything through Congress these days is probably going to be proven wrong.

I -- certainly the Republicans have indicated support for the extension of the payroll tax cut.† I think that will probably happen.† I think there's a good chance that unemployment insurance will be extended, though there will be fights over whether there have to be offsetting spending cuts in other areas to pay for the cost of either the tax cuts or the unemployment insurance extension or both.

But no, I don't think -- you know, there hasn't been a single significant initiative in the past couple years that's had an easy ride through Congress, and I don't think that anything the president proposes tonight is going to -- is going to move easily through a divided Congress.

ALESSI:† Mike, do you want to weigh in?

SPENCE:† Yeah.† No, I -- I mean, Ed knows more about this than I do, and I completely agree with that.

And the comment about the absence of private demand is right, and we can't beyond a certain point fill it in with public demand, net.† So I think the reasonable conclusion is that we can't solve the growth and employment challenges that we have in the short run, and we have to attempt to -- that you shoot for a kind of medium- and long-term solution in which we basically rebalance the aggregate demand the economy serves in favor of foreign demand and consistent with some of Ed's earlier points as well.

ALESSI:† Just piggybacking off that, as was as made evident during the debate over the debt ceiling, the U.S. does face a mounting deficit, as the reporter mentioned, and how might the president spend more to generate employment while also tackling long-term deficit reduction?

ALDEN:† Michael, you want to start, or --

SPENCE:† Oh, I'm sorry.† I didn't -- that -- I -- Ed, start, because I missed the --

ALDEN:† No, no problem.† I don't know why that was just -- it was a question about with the deficits, jump-start -- I mean, you know, the issue here -- you've got this difficult situation where the United States obviously needs a medium- and long-term strategy for getting its fiscal house in order.† And I don't think anyone questions that.

The problem is the short term, and when you've got the aggregate demand problem as serious as it is, then, you know, short-term deficit cutting measures are going to retard economic growth.† There's no -- there's no question about it.

I mean, you know, not to keep hammering the infrastructure point, but you know, if you read Martin Wolf's column this morning in the -- you know, in the FT, he points out that, you know, bond rates are at historic lows.† It's never been cheaper for the government or other entities to borrow.† So it's a sensible time to borrow long term, to invest in areas that are going to pay long-term gains for the U.S. economy in terms of improved competitiveness.† And I wish the debate on the Hill would adjust to recognize what the markets are telling us, which is that borrowing cheap makes sense, and now is the time to do it.

QUESTIONER:† OK.

SPENCE:† Yeah, I agree with that.† I would -- completely.† It -- and -- but sort of that's the long term.

You know, part of the -- the hard part of the economic challenge we face is the fiscal stabilization.† And that, viewed sensibly, is what's the time path of deficit reduction, and how do you do it?† And we're just very badly divided, you know, politically.† Some people think the faster we can make the government smaller, the faster we'll fix the problem, and other people think that, you know, if we do it too fast, we'll kick the legs out from underneath the economy on the aggregate demand side.† I tend to the latter view.

But the -- but this is something that, you know, it would be nice if we could have a kind of reasonable discussion, hear all points of view and have the president sort of make a choice and be backed on it.† But that doesn't seem to be the course we're on.

And you know, it matters, once you've decided on the time path of deficit reduction -- hopefully with not too much too soon -- then you've got to decide what -- how much of that is going to be cuts in spending, how much of it's going to be tax increases.† My own view is if you sort of precommit in advance to having no tax increases, even transitory ones to make some of these investments, then you have kind of tied your hands behind your back and make it a lot harder to restore growth in the longer term.

ALESSI:† Next question, please.

OPERATOR:† Thank you.† Our next question comes from Denise Tristan (sp) from A Estado (ph).

QUESTIONER:† Thank you for this conference call.† I wanted to know, you were -- Professor Michael was talking about the divided political ambience we have nowadays.† But I wanted to know more specifically, how much does ambitions -- electoral ambitions for 2012 can interfere in the discussion we will have -- (inaudible) -- tonight in the Congress?

ALESSI:† Ed, do you want to take that?

ALDEN:† Yeah, sure.

You know, it's -- I would almost say that the United States is now essentially in permanent election mode.† You know, it used to be -- you know, I've been in Washington for a number of years.† It used to be we would talk about, you know, things that were hard to do in election years because, you know, in the year or whatever leading up to a presidential election that it was more difficult for the political parties to cooperate and harder to take tough decisions that might not draw favor from the electorate.

I would say now that we are essentially in permanent campaign mode, so that we've reached a position where it's never easy for the two parties to reach compromise; it's never easy for them to cooperate.† All of that's exacerbated by the rules, particularly in the Senate, which require a supermajority for passage of legislation.† So I think the answer is that electoral calculations are shaping everything that's being done on Capitol Hill with respect to the jobs issue and most other issues.† And I think that's one of the reasons, you know, that we're having, as a country, such a difficult time of charting a sensible path out of this crisis.

QUESTIONER:† Mm-hmm.† Yeah.

ALESSI:† Mike, would you like to weigh in on that?

SPENCE:† No, I -- that sounds just exactly right.

ALESSI:† OK.† Let's move to the next question, then.

OPERATOR:† Thank you.† (Gives queueing instructions.)

Our next question comes from Lena Liu (sp) from Xinhua News Agency.

QUESTIONER:† Thank you.† Two questions.† Number one:† It's considered that Obama's stimulus packages are short-lived.† How long do you expect that the effect of new round of stimulus plan will last?† And secondly, imagine that new trade strategy, which may get bipartisan support, but put it an international context.† Will this strategy lead to more protectionism?† Thank you.

ALESSI:† Mike, why don't you take that to start.

SPENCE:† OK.

Yes, I think it's fair to say that the stimulus -- that what we hear might be proposed as a stimulus is -- has a short-lived effect.† So the argument for it would be the cyclical one, that you're waiting and hoping that the private sector and the healing process and the deleveraging process and other things need more time to get completed, and you're buying time for that to happen, you know, by preventing an otherwise sharper fall in aggregate demand.

And I think that, you know, that argument is, broadly speaking, sensible.† The Europeans are sort of taking care of liquidity problems, you know, in the hope that, you know, real growth and fiscal stabilization plans in the -- both in the periphery and in a couple of major countries, namely Spain and Italy, will actually get done.† And if all of that comes to pass, it will look like, you know, it was a wise way to get from the present to the future.† But otherwise I think, you know, stimulus can't be defended as -- I've never believed in this sort of escape-velocity argument -- particularly, I think it ignores the structural things.

On the trade strategy side, I think that probably the biggest risk in terms of a protectionist set of actions on the American side would come from a very prolonged period of unemployment, which we can't get our arms around and start to solve.† That I would guess would translate into political pressures to do something about it using the blunt instrument of trade protection, which I don't think most of us or certainly not most economists would like to see.

ALDEN:† And let me just add, Chris, quickly on the -- on the trade side.† I think one of the -- one of the astonishing things about the financial crisis and the recession has been how little protectionism there's been.† You know, the WTO has looked into this every year, and very few countries have taken protectionist measures in response to what was an incredibly deep downturn, and at least in the early stages, a very sharp contraction in global trade.† I mean, global trade has actually rebounded in the last couple of years very sharply, more rapidly than we have seen.† There's a nice graphic up on the Center for Geoeconomic Studies website that was just put up at the cfr.org website -- you know, looking at this recession compared to other post-war recessions.† And on pretty much every measure we're doing worse in the recovery than in other post-war recessions.† The one measure we're doing better is the recovery of world trade volumes, partly because the decline was so deep.

But I think we've actually seen very little protectionism.† I believe that there is greater scope for a proactive American trade policy that includes, you know, tough enforcement of trade rules without going down that slippery slope into protectionism.

ALESSI:† OK.† Let's move to the next question, please.

OPERATOR:† Thank you.† Our next question comes from Nina Singh (ph) from Fortune.† Nina, you can go ahead.

QUESTIONER:† Hi, Nina Singh (ph) with Fortune.† Sorry, I jumped on the call a little bit late, so excuse me if you've already covered this.† But I was wondering if somebody could talk about operations with some sort of -- the policy option was implemented back in the 1960s, but I was curious if it were -- if the Fed decided to go ahead with something like this today, how is -- how is -- how is implementing something like this today different from, you know, the way it was done back then, sort of what are -- obviously what are the challenges and if it could have the same effect as it did back then?

ALESSI:† Mike, do you want to comment on that?

SPENCE:† Yeah, but I missed which Fed policy.† I mean, is it the quantitative easing?

QUESTIONER:† The operations with sort of trying to further push long-term interests rates.

SPENCE:† Yeah.† There's a very interesting FT op-ed yesterday by Bill Gross saying that one of the effects of successfully flattening the yield curve may be to cause credit to dry up, because the -- a key part of the financial system borrows short and lends long, and that's how they make their return.† If you crush that difference, then you might have an unintended side effect, which is not the one that you wanted.

But generally, I think the Fed has, you know, some powers to deal with some fragile sectors like housing, for example, and the financing of housing, which is -- which is a danger zone for the economy because if it -- if it sort of heads south, it'll damage household balance sheets and therefore almost directly consumption.† But beyond that, I think this is, according to Chairman Bernanke at the Jackson Hole, the main action here has to be on the fiscal and then ultimately on the growth side and it's -- it involves policy instruments that the Fed doesn't really have.

OPERATOR:† Thank you.

ALESSI:† Ted, do you want to weigh in on that?

ALDEN:† No, no.† I'm -- I'll stay away from all things Fed, so that was a good answer.

ALESSI:† OK.† Let's move to the next question, please.

OPERATOR:† Thank you.† Our next question comes from -- (name inaudible) -- from Phoenix News.

QUESTIONER:† Hi, thank you for hosting this.† My question is, President Obama started talking about job creation since he took office.† What makes people to believe his speech will be different than the previous ones?

And also, Dr. Spence, would you please elaborate how to solve the employment structure problem?† Thank you.

ALESSI:† OK.† Mike, why don't you start with that?

SPENCE:† The first part was why is this speech going to be any different?

QUESTIONER:† Yeah.

SPENCE:† I think it's -- I think if there's a -- if -- lookit, I wouldn't want to bet my kids' savings that it's going to be different, but -- (laughs, laughter).

ALDEN:† (Laughs.)† Me, neither.

SPENCE:† (Laughs.)† But if there's a reason it's -- I think it's a growing awareness that wasn't there a couple of years ago, as Ed described earlier, that this isn't just a cyclical problem; that it's a cyclical rebound combined with a very -- some structural underpinnings that are -- keep chopping away at the -- at the growth rebound.† And so I think that's -- I think that's an important part of it.

You know, from my point of view -- and I don't want to overstate this -- you know, in the end, I think we're going to, even if we don't know exactly how to do it and it may take some subdued growth in incomes at various points -- I think we have to expand the -- turn the tradable sector into an employment engine again, which it has not been for a while.† And that means keeping the healthy parts of it and finding, through a combination of public policy and reforms and investment on the one hand, and private sector, you know, investment and dynamism on the other, places where we can invest and compete.

And we don't have to move the needle, you know, very far in relation to the global labor market.† I mean, 10 -- you know, 10 percent unemployment, or something like that, in the United States -- or even more, if you count the people who have given up:† you know, if we solved the problem overnight, you know, we don't have to take many jobs away from somebody else in order to do that.† And so I think this is a problem that has a solution, you know, that isn't a zero-sum game with the rest of the global economy and the emerging markets.† But I don't think there's a solution other than that.† There's a limit on the employment and growth potential of the nontradable side of the economy.

ALESSI:† Mike, can you comment on the tradable sector?† Sorry, Ted, would you comment on the tradable sector?

ALDEN:† Oh, I -- yeah, I was just -- I was just going to add one thing to what Mike said, which I -- which I very strongly agree with.† I mean, if you just look at the growth rates that we have seen in recent years, and that we anticipate continuing to see, in the big emerging markets -- in the Chinas and the Indias and the Brazils -- the United States is going to have to find a way to produce from a domestic base for those fast-growing markets, to be part of the global supply chain that's feeding growing demand in those markets.

And that -- you know, that really -- that's not a zero-sum situation.† You know, those countries need goods and services that the United States is capable of supplying.† That's where the fastest growth is going to take place.† And I -- and I think that that is going to be a big part of the solution to our employment problem.† I don't think that we're going to generate domestic growth at the sort of rates that we're going to need to generate to sop up that labor.† I think a lot of the answer is going to need to come from global markets, so -- you know, the United States is a much more trade-intensive economy than it was the last time we had a really deep recession, which was in the early '80s.† And I think the global markets are going to be much more a part of the solution this time than they have ever been before.

ALESSI:† OK.† Let's move to the next question, please.

OPERATOR:† Thank you.† (Gives queuing instructions.)† (Pause.)

There are no further questions at this time.

ALESSI:† OK.† Then let me just ask if we could go back to something that you were speaking about earlier, Ted, which is the infrastructure bank:† if you could speak a bit how that would work, and whether it would generate employment in the short term.

ALDEN:† Well, I mean, I think, you know, I'm -- there are others out there who are more expert on the mechanics of it than I am, but the idea is to essentially have some up-front federal seed money that would encourage private investors to become involved in a variety of infrastructure projects -- you know, be it highways or rail or broadband or (sewers ?) or other things -- with the promise of, you know, long-term, steady returns to these investors.

There are -- you know, there are a lot of entities, from public pension funds internationally to, you know, public pension funds at home, to sovereign wealth funds internationally, that would be interested in these sorts of investments.† So, I mean, the United States -- it's a strange thing, you know, because we hear a lot of talk about, you know, the problems of big government; and yet, you know, there's a reluctance to invest in infrastructure.† And one of the strange things about the United States is that most of our infrastructure spending comes directly out of the public purse.† We're well behind the rest of the world in developing these public-private partnerships that'll allow you to bring in private funds for these sorts of investments.

So I just -- it works elsewhere in the world.† It's long overdue.† There's bipartisan -- there's some element of bipartisan support on the Hill. I mean, the bill on the Senate side was co-sponsored by, you know, Senator Kerry, the Democrat from Massachusetts, and Kay Bailey Hutchison, the Republican from Texas.† So you would like to think that this is one area where the parties might be able to find common ground.† That is exceedingly hard in Washington these days, but it seems to me it has the potential there.

ALESSI:† Mike, do you want to comment on the infrastructure bank at all?

SPENCE:† I agree with everything Ed said.† You know, the truth is it makes me wince, you know, that we call it a bank.† It should be an ongoing part of what we do in government.† And it sounds like a kind of special-measures thing.

I do think that, you know, if we have chosen to constrain ourselves by limiting what we can commit by way of public funds to infrastructure, the value of the investments are still pretty high, and so the idea of finding the right public-private partnerships is a good idea.† And, you know, there's a growing body of experience of this in other parts of the world.† We're not unique in this.† India has a huge infrastructure deficit which they're scrambling to fill using public-private partnerships with limited government capacity on the way through.† So I think that's an entirely positive direction.

ALESSI:† And more broadly, to either of you, what -- in terms of our infrastructure being quite subpar at the moment, some might say, how is that affecting our ability to compete in the global economy?

ALDEN:† I mean, just quickly, you know, I think it has a serious effect.† I mean, you know, just to take one example, you know, time to market really matters in the modern world.† You have a lot of companies that are operating, you know, just-in-time supply chains.† And, you know, we've got serious backups in our port facilities.† Our port facilities are not modern by international standards.† It raises costs for companies that are using the United States as part of their global supply chains, that are exporting from the United States.† And, you know, you can multiply that, you know, across other forms of transportation.† I mean, these are the backbone of a modern economy.

And, you† know, most of the U.S. infrastructure now was built several generations ago.† Anybody who travels internationally can see how, you know, much of -- many, you know, U.S. airport and U.S. highways and others are really aging compared to a lot of the rest of the world.† So there's a definite need here, and it would pay big benefits in terms of competing in international markets.

ALESSI:† Mike, do you have any thoughts on that?

SPENCE:† Again, complete agreement.† I think it's important to remember that, you know, given that comparative advantage -- you know, which is to some extent malleable and to some extent a function of the state of development of the economy -- is an important factor.† We compete, you know, in this world for economic activity, and infrastructure is one of the ways we compete by increasing the attractiveness and, put more precisely, the rate of return on private sector investment, both domestic and foreign, in our economy that leads to economic activity and employment.

And the other effect I would flag is productivity.† You know, I flew -- in the last three weeks flew into LAX and into JFK, and I was just stunned at the amount of time of some 250 people onboard two full airplanes was used, you know, because there were enough jetways to pull up to, there weren't -- you know, the customs hall was so full that it took 40 minutes to exit once you had your baggage.† I mean, you can do a calculation.† Suppose we do that every day to, you know, 10 or 20 flights coming into the country.† You know, it really adds up

I like to contrast it with -- you know, in the old days in California, where I used to live, you know, most of us had two or more cars and we had to spend half a day away from work during the week to register each of these cars.† So that's a day a week for pretty much every family that has workers in California, and now we do it, you know, in approximately 15 seconds on the Internet.† So that would be an example of an enormous productivity increase.† And I think what we're getting on the infrastructure side is the sort of reverse.† We're just imposing costs that affect -- that affect, you know, the attractiveness of this as a place to put parts of the global supply chain.

ALESSI:† OK.† Are there any further questions at this time?

OPERATOR.† Yes.† We have one final question from Alex Privitera from N24 TV.

QUESTIONER:† Yes, thank you.† It's basically just a follow-up question.† If infrastructure is such an important component of getting the American economy up to speed for the globalized economy and putting it back on track in terms of global supply chain, which other areas do you see should be addressed and could be addressed by Washington to make things easier for foreign companies to invest in the U.S.?

ALESSI:† Ed, why don't you take that to start.

ALDEN:† Yeah, I mean, I'll take a couple.† I mean, one, I'd --there needs to be a federal facilitating role.† You know, most other countries have federal agencies that help foreign companies that want to invest in their country; that explain to them, you know, how to work their way through the regulations, what the investment opportunities are.† We don't do that in any serious way at the national level.† So there's an investment promotion function that simply doesn't work well.

Second, that I've highlighted in a lot of my other work, is our -- you know, our visa policies -- and we're almost the 10th anniversary now of 9/11 -- have been a huge hindrance.† And it's just become far too difficult for people -- and in this context it's businesspeople who really matter -- to travel in and out of the United States.† I hear this repeatedly from state and federal officials who are involved in trying to attract foreign investors.† People don't want to come here because it's a difficult place to come to, you know, not just the problem of the inadequate jetways at JFK, but when you get here the lineups to see a Customs and Border Protection official who's going to let you into the country and the hassles associated with that.

Those are two things, I think, that could make a big difference that the administration could do without any action from Congress.† The tax reform that we talked about earlier I think could make a difference as well.† That's a heavier lift, would have to involve Congress in a fundamental way.

I think -- you know, finally, we haven't really talked about it much, but you know, I think education and training initiatives of different sorts, there's -- you know, there's a lot of ground that we don't have time in this call to talk about.† But I think, you know, making sure that we have a high-skilled workforce here in the United States is absolutely critical.† There's an immigration component.† You know, apart from the visa problems -- we've made it harder for high-skilled immigrants to come here -- but there's also a domestic education problem.

So I think all of those are areas in which the federal government could do an awful lot more than it's doing now.

ALESSI:† OK.† Mike, do you want to weigh in?

SPENCE:† Yeah, I was -- I was going to say what -- just Ed's last point, which I think is right.† We don't want to overemphasize the infrastructure.† I think one of the reasons it's figuring in the discussion right now is that if we can find a way to fund it, it has the dual benefit of generating employment in the sort of short to mediumish run, and then -- and increasing the attractiveness of the economy from the point of view of investment and growth in the longer term.† So it has a -- it has a potential what we might call medium-term stimulus component, and that's probably why it's getting more attention than the crucial education and technology things that Ed referred to.

ALESSI:† OK.† Are there any other questions?

OPERATOR:† There are no further questions.

ALESSI:† OK.† Well, then I'd like to thank everyone for joining us for this Council on Foreign Relations media conference call.† Thank you to CFR Distinguished Visiting Fellow Michael Spence and Bernard L. Schwartz Senior Fellow Edward Alden.† A reminder that the audio and transcript of this call will be available later on the council's website, cfr.org.

Thank you all for joining us today.

ALDEN:† Thanks very much.

SPENCE:† Thank you.

OPERATOR:† Thank you, ladies and gentlemen.† This concludes today's conference.† You may disconnect your lines now.

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