WOLFFE: Robert Rubin says the Bush administration “dismissed mainstream views” about the harm caused by big deficits. What’s your response?
FRIEDMAN: We believe the deficits are quite manageable. No one is pleased by the deficits. The president has laid out a strong plan to cut the deficits in half within the next five years. We think the way to do it is by pro-growth policies and by spending discipline in Washington. The deficits that we face now are because of the recession we inherited and giving the military what it needs to fight the war and protect us.
Republicans in Congress say you’re planning a big tax cut every year. Is that right?
What the president has said is that he wants to make permanent the tax cuts. That is the only policy that has been enunciated.
The job statistics seem to be moving in the right direction, but that still leaves more than 2 million jobs lost since 2001. There’s some way to go, isn’t there?
We’re obviously pleased with the announcements that came out this week. The numbers exceeded what economists were speculating about. But I would characterize our mood as cautious optimism, guarded optimism. We want to see sustainability. The president has an intense focus on job creation, making sure there is a job available for every American who wants that. The expectation is that we will have robust job growth, but we want to watch and see the expectation being realized. In that context, the president places a great deal of emphasis on what economists call the microeconomic aspects.
Can you give some examples of that?
When I talk to business people, one of the things you constantly hear is about healthcare costs. It reduces the incentive to hire workers when health-care costs are rapidly growing and unpredictable. The president has proposed associated health plans which would give small businesses the ability to pool together to produce health-care coverage for workers, so they would then have some of the bargaining power of bigger businesses to buy insurance at lower rates.
You’ve cited the stock-market recovery as a factor in the stronger economy. What happens if the stock market stagnates?
If you look at the third quarter–and it’s clear that one quarter doesn’t make for a complete picture–you could see that growth was driven by strong private-sector consumption and by business investment. Those were exactly the targets of the tax cut. I’m not going to get into predicting about the stock market. But business investment is clearly substantially higher than it was a number of months ago. You can see in the various indices of confidence–and it’s very clear when you talk to business people–that is higher, too. One thing that is positive is growth in the last quarter was at 7.2 percent, but demand was actually something like 7.8 percent. Businesses were working down their inventories and it appears as if they were somewhat taken by surprise by the strength of demand. Sooner or later, there’s going to be a need to do more restocking. And that should give an extra help to the economy going forward.
Should we be concerned about the prospect of rising interest rates?
I would leave that subject to the Fed and chairman Greenspan. But I would say that some reports have talked as if the fiscal stimulus was all there in the third quarter and then it fades away. That is actually a misconception. There is still quite a bit of fiscal stimulus in the pipeline. The first half of 2004 should have roughly double the stimulus of the second half of 2003.
