The following is a rush transcript of the March 15, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.
CHRIS WALLACE, HOST: With President Obama sounding more upbeat about the economy and the stock market having its best week in months, where do we stand in getting America's financial house in order?
We'll ask all our guests today, starting with Austan Goolsbee, a key member of the White House Council of Economic Advisers.
And, Mr. Goolsbee, welcome to "FOX News Sunday."
AUSTAN GOOLSBEE, WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS: Thank you for having me.
WALLACE: Let's start with the latest news — and there's a bunch this morning. The insurance giant AIG, which received big taxpayer bailouts, has announced that it plans to pay about $165 million in bonuses to some of its top executives today, over the objections of Treasury Secretary Geithner.
Can the government stop it? Will the government try to stop it?
GOOLSBEE: The — I'm not an employment lawyer so I don't know what the — what the legal parts of the contracts are, but it's clear, though Secretary Geithner has — has been in Europe, he was really upset by the — by the news.
He stepped in and berated them, got them to reduce the bonuses following every legal means he has to do this.
I don't know why they would follow a policy that's really not sensible, is obviously going to ignite the ire of millions of people, and we've done exactly what we can do to prevent this kind of thing from happening again.
I think the root of the problem has been some of the people have things written in their contract that say, "Look, you sell this much life insurance, you get a bonus of X," and it's in their contract and that part can't be changed.
WALLACE: Do you worry about a backlash that when this kind of thing happens — here's a company that has gotten $170 billion in taxpayers' money and it's now giving out $165 million in bonuses — it's going to make it harder for you to get the rest of your financial plan up on Capitol Hill?
GOOLSBEE: Yes. You worry about that backlash, but you're also angry that that — that this would happen at the — at an institution that, you know, has been so troubled and you're trying to save. So I think that's perfectly fair.
WALLACE: Then there's a report that President Obama is open to congressional proposals to tax some employee — excuse me — employee health benefits.
Now, during the campaign, candidate Obama called John McCain's idea for that the biggest middle-class tax cut in history — tax increase in history. So why the change in attitude about the idea of taxing employee health benefits?
GOOLSBEE: I saw this — the article you're talking about. I thought that was highly overstated. That is not in the president's budget. The president's budget — you have it there on the table. It does not include this provision.
This appears to be coming from — the administration and representatives of the administration went to Congress and said, "We are open to all ideas to talk about health reform." He put forward a vision.
There are some people in Congress who are pushing this, but that is not the president's idea.
WALLACE: Well, I know it's not the president's idea. It says this is an idea and we know it's come from Senator Max Baucus, who's the head of the Senate Finance Committee. Is the president open to it or not?
GOOLSBEE: Look. As I said, he's — he is open to all ideas. He said, "Let's put all ideas on the table." That is not the president's idea. It's not in his health plan. It's not in his budget.
WALLACE: I mean, we play this game on Sundays, but listening to your answer, you — you are leaving the door open that he is...
GOOLSBEE: I'm not leaving the door open. What he has said and what each of the officials quoted in this article said is, "We're open to examining any of these options and to see if they work." The principles that the president...
WALLACE: Including taxing health care benefits.
GOOLSBEE: They — as they said, in the hearings, we are open to examining any policy.
The president has laid out a series of clear principles on the health plan that we will do whatever it takes to get affordable quality coverage to all Americans.
And he's outlined a more than $600 billion cost-saving program that will get costs down so that we can afford to reform the health system. And if the — if these ideas can fit in with those principles, then we'll consider them. And if we go through and they don't, then he won't consider them.
WALLACE: The president is also set to announce tomorrow billions of dollars in federal aid to open up lending to small businesses. What do you hope to accomplish?
GOOLSBEE: The — the market for credit to small businesses is completely frozen in an already terrible credit crisis.
This has been one of the most devastating aspects for job growth — is that small businesses which previous to this crisis had the funding they needed to grow jobs have completely lost that.
And so we're trying to reignite through direct intervention the small business credit market so that they can — so that they can expand. That's coupled with the pieces in his budget that are geared toward small business specifically — setting the capital gains rate to zero for anybody that starts a small business; a series of other credit measures that will allow them to grow.
In this thing — we can go into the details if you want. It's through a series of Small Business Administration loan programs that will enable 2 to $4 million of credit.
WALLACE: Let's — but let's step back and talk about the overall economic picture, because it was a mixed picture this week.
There was good news. The stock market went up almost 600 points, but overall numbers on unemployment and growth are still bleak.
Last month you gave a magazine interview in which you said that we should see signs the stimulus plan is working within six months, and one of the key indicators, you said — and let's put it up on the screen — is if unemployment rises to the 8 percent range rather than the 11 percent that some are predicting.
Mr. Goolsbee, we're already at 8.1 percent at the end of February, which led our guest in the next segment, economist Mark Zandi, to make the following statement about the need for another stimulus program. Let's take a look.
(BEGIN VIDEO CLIP)
MARK ZANDI, CHIEF ECONOMIST AT MOODY'S ECONOMY.COM: We are going to need more taxpayer money up front. I think another stimulus package is a reasonable probability given the way things are going.
(END VIDEO CLIP)
WALLACE: What's your revised estimate now that it's already 8.1 percent for unemployment this year? And are — what do you think of the possibility — Zandi says the probability — of the need for another stimulus package?
GOOLSBEE: Well, you've got — there are three major issues in there.
First, let me say that in the interview that I was quoted, the thing that you would see in the first six months, I said, from the stimulus is you want to see the money getting out the door, that the tax cuts would have taken place, and that they would have mailed the checks, that the beginning of the stimulus spending would have started getting into the system.
I agree we've gotten some bad news on the labor market front, so that the — trying to keep the unemployment rate in the 8 percent range — we're already in the 8 percent range.
I still think it is vital that by the end of the year that we try as hard as we can, through whatever means that we have — and the president has tried to do so — to keep the unemployment rate from getting into the multiple double-digit range that people were forecasting before that policy.
Now, we have just passed...
WALLACE: So you're talking under 10 percent.
GOOLSBEE: Ten, 11 percent people were forecasting — what would happen without any policy intervention. Now, we have passed — in the first 51 days of this president, the administration has passed a series of really dramatic moves — the biggest financial rescue package that we have seen in decades, the largest stimulus probably in the history of the country, the biggest home foreclosure prevention and mortgage assistance program since the Depression.
Those three actions together are really very dramatic. They have just — the first checks from the stimulus haven't even gone out, so I think that it's, in my view, premature to be talking about what else is going to be necessary until we see how those things have worked.
WALLACE: All right. Let me turn to what I think the whole world is waiting to see, and that is the administration's plan to deal with the banks and the trillions of dollars in toxic assets they still have on their books. The key, according to what we've been — heard from the administration, is that you're going to have these public-private partnerships in which the government partners up with big investors to finance — to get these assets and take them off the books.
Do you have firm commitments from private equity, from hedge funds, that they are willing to participate in these private — public-private investment funds?
GOOLSBEE: I'm not going to speculate or reveal what private information exists or doesn't exist. What I'm going to say is you're right, that is a key component to the plan, but that is not the only key component.
The first step in this plan and in any broad-based rescue of the financial system effort has got to be, one, a thorough examination of what situation the banks are in, so the biggest problem that we've had is massive uncertainty over which institution has what and in what situation is each institution.
WALLACE: All right, but after the stress tests, you have to have an answer.
GOOLSBEE: So we are in — we have been in office for 51 days. This is not a thing that can be rushed out. You've got to get this done right. We are in the middle of those bank examinations.
After that, I don't think that any reasonable person would disagree with the view that the administration has put forward that it's better to do this jointly with private capital than it is to have the government and the American taxpayer pay for the whole thing.
WALLACE: But do you have a reasonable expectation...
GOOLSBEE: I believe there is a reasonable expectation that people will participate, yes.
WALLACE: And how much will the government have to spend in guarantees against losses to get those private investors to buy these toxic assets? I mean, Geithner, at a...
GOOLSBEE: I'm not going to speculate on...
WALLACE: Well, let me just say, Geithner at a hearing talked about another trillion dollars. In the president's budget, he has a placeholder of $750 billion.
Are we talking about a program in the 7, $8 trillion dollar range?
GOOLSBEE: I'm not going to speculate on that number, because we haven't done the bank — we have not completed the bank examinations that allow us to answer that question.
WALLACE: But does this mean another, in effect, TARP III, another big relief program?
GOOLSBEE: I'm not going to speculate on that. We have to do the bank examination to answer that question.
WALLACE: Finally, I want to get into a little bit of the Obama budget with you — $3.6 trillion, which calls for major tax increases on the wealthy.
And I want to read you something from — and this is — this is it right here — the president's budget. "While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not."
Mr. Goolsbee, it's a blanket statement from the administration. People who make money have not played by the rules?
GOOLSBEE: I think you're stretching a little bit the blanket statement. It's not saying that it's been illegal. It's saying the rules of the game that the American economy has followed for decades is that the core strength of the economy is middle-class workers.
Over the last eight years before this president came into office, we saw an unbelievable squeeze on the middle class like nothing we have seen in decades.
We go through the first boom in recorded economic history of the country where the median family's income falls by $2,000 while corporate profits and overall GDP rise dramatically.
WALLACE: But — but — but...
GOOLSBEE: The president is saying in his budget that he's carrying out in the recovery package and in the budget giving a tax cut to 95 percent of working people, and that people who make more than $250,000 a year will go back to the rates as they were at the end of the '90s, that if they pay a bit more, that isn't going to bring the economy down, and that style of thinking, that it's going to trickle down and we should just keep cutting taxes at the top, got us where we are today. It didn't solve the problem.
WALLACE: But — but, Mr. Goolsbee — and again, I'm quoting directly from the president's budget here. This is page five of the president's budget. Again, he's saying those at the commanding heights of our economy — I assume that means people who are more than middle class — have not played by the rules.
And then, again, let's go to this statement from page five — there's nothing wrong with making money, but there is something wrong when we allow the playing field to be tilted so far in the favor of so few.
And again, I guess what I'm asking is there seems to be a moral argument here that somehow people who have made money have done something wrong and need to pay for it, and — and — and what you're saying — you say there's something wrong when we allow the playing field to be tilted. The argument seems to be there's something wrong when the government allows people, rich people, to keep their own money.
GOOLSBEE: Well, we cut taxes by trillions of dollars for people making more than a quarter million dollars a year over the last eight years. That wasn't a magic elixir for growth. It was a very weak recovery, and we stumbled into the worst economic crisis in multiple generations.
WALLACE: But why make the — I understand the economic crisis.
GOOLSBEE: His statement is not...
WALLACE: Why make that a moral argument, something wrong? People at the commanding heights of the economy have not played by the rules — why the moral argument?
GOOLSBEE: Well, you're — you're taking a line from the introduction that sets the stage for the discussion, which is we need to go back to an issue of balance. So in the '90s we had a more balanced view. We've gotten out of balance.
People at the commanding heights of the economy with incomes over $250,000 a year have been receiving trillions of dollars of tax cuts, while the middle class has been squeezed like never before.
That squeeze on the middle class is what got us into this crisis. It's why the president is committed to renewable clean energy that makes us secure from foreign — from foreign energy dependence, for reforming the education system, for health care.
All of those things are about relieving the squeeze on the middle class so we don't get into this again.
WALLACE: Simple question — do you think maybe this was overwritten?
GOOLSBEE: I think it's very well written.
WALLACE: Did you write it?
GOOLSBEE: No.
(LAUGHTER)
WALLACE: All right. Mr. Goolsbee, we're going to have to leave it there. Thank you so much for coming in.
GOOLSBEE: Thanks for having me.
WALLACE: Please come back, sir.
GOOLSBEE: Any time.
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