The following is a rush transcript of the March 22, 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: Well, it's been quite a week in the nation's capital — congressional outrage over those AIG bonuses, a new estimate of trillion-dollar budget deficits as far as the eye can see, and the White House about to finally unveil its financial rescue plan.
Here to discuss it all is Christina Romer, chair of the White House Council of Economic Advisers.
And, Mrs. Romer, welcome to "FOX News Sunday."
ROMER: Great to be here.
WALLACE: The non-partisan Congressional Budget Office came out with its projection, its analysis, of the Obama budget on Friday — and let's put up the staggering numbers, and you can see them right there.
The CBO says the deficit will be $9.3 trillion over the next decade. There are a lot of zeros there. That's 2.3 trillion more than the Obama White House is saying. The president's budget director says those kinds of deficits are not sustainable. Will the president scale back his budget?
ROMER: All right. Well, there are a couple of things to say. One is that there are actually some questions about the numbers, right? When you actually say, "Why are the Congressional Budget Office numbers different from ours," a big part of that is their estimates of long-run growth.
When you get out five, 10 years, they're assuming that real GDP is only going to grow about 2.2 or 2.3 percent a year, and that's just lower than private forecasters. It's lower than the Federal Reserve. And we think it's just too pessimistic.
So I think a big part of why they're getting such different numbers are just some of these technical issues.
On the bigger issue, though, I think in some sense, the president is addressing this, right? He absolutely said he's going to cut the deficit that we inherited in half, and that is a commitment that is as strong as it — as it ever was.
The other thing is taking on health care. One of the biggest things that he's taking on is something I would guess the Congressional Budget Office is our biggest fan, because they have said for the last many years that the thing that is going to bankrupt us, that's going to make that deficit get bigger and bigger, is the fact that health care costs are rising very, very quickly.
WALLACE: But, Ms. Romer, the chairman of the Senate Budget Committee — and that is a Democrat — the Democratic chairman of that committee says that the CBO projections mean there must be cuts beyond what you've already talked about in the Obama budget. Let's watch.
(BEGIN VIDEO CLIP)
SENATOR KENT CONRAD: When you've got a new forecast of this magnitude, you've got to make hundreds of billions of dollars of changes to make it all work.
(END VIDEO CLIP)
WALLACE: Are you just going to ignore him?
ROMER: The president has said from the beginning that he is absolutely committed to working with Congress. We've suggested cuts. We've suggested changes in revenues. He's — he's...
WALLACE: But he's talking about billions of dollars of cuts beyond what you've suggested.
ROMER: I think — I think, again, we're going to need to work with them. I would also just keep coming back to the kind of things that the president has in the budget, right?
He's got health care reform. He's got energy. He's got education. All three of those he said are just too big to wait, and especially come back to those long-run growth numbers that I told you about, right?
What's going to make those be bigger is if we invest in our kids and do good things with education, if we get off foreign oil and get a more vibrant domestic energy system.
WALLACE: But, Ms. Romer, let's look at the economic forecast that you're talking about. We'll put them up on the screen. The White House projects 2.8 percent annual growth over the next decade. CBO says 2.5 percent. And in fact, the Blue Chip consensus is even lower than CBO and much lower than yours, 2.3 percent.
So in other words, the CBO projection is more in line and is even higher than the private forecasts, and certainly much closer to them than the White House is.
ROMER: You've got to be careful. Those are deficit — those are decade-long numbers, and what — what we...
WALLACE: Well, that's what you were just talking about.
WALLACE: These are growth numbers.
ROMER: Yeah, but they — they actually — something like the Blue Chip has very negative numbers for the next year or two, but then when you get back to normal, when you get back to normal growth, they're up there at 2.6 or 2.7, whereas the CBO only comes back to, say, 2.2.
WALLACE: Well, I don't want to get into a numbers game, but the point is that there — people have criticized your budget, and I'm sure you were involved in it as the head of the Council of Economic Advisers, for having a rosy scenario of growth.
CBO says it's going to be lower than you, and the private estimate is even lower than CBO.
ROMER: Again, you've got to be careful. It actually has to do with the pattern of growth, right? What we have is we know that the next two years are going to be rough, but then we think we come back quite strongly to a fairly good, robust level of growth. So unlike — the CBO actually follows us. They have us coming back quickly but then leveling off at a really, I think, unrealistically pessimistic long-run growth.
WALLACE: Bottom line — at this point you don't plan to make any cuts, unilateral cuts, in the Obama budget.
ROMER: We're committed to working with Congress to doing what the president said he was always going to do, which is cut the deficit in half over the — over his first term.
WALLACE: But no new cuts.
ROMER: We'll — again, we're working with Congress and we'll see where it all comes out.
WALLACE: The Treasury Department will announce its plan tomorrow to buy toxic assets to get financial institutions lending again, but the plan depends on getting private investors — hedge funds, private equity companies — to partner up with the government to buy those assets.
Question: How much damage has the furor over AIG, hauling these members up before Congress, this 90 percent tax passed by the House — how much damage has that done to getting private investors to partner up with the government?
ROMER: I think we ought to be careful for a minute, right? So the — we ought to — we have to acknowledge that the outrage is genuine. It's something that we all feel. And absolutely, what the president has said is what's happened at AIG is completely unacceptable. So that's crucial to get on the table.
In terms of what — you know, I think we're going to have a sensible strategy going forward. The president has very much drawn a distinction.
We understand firms that at some level are only in existence today because the government has stepped in and supported them — the kind of restrictions you'd put on them for executive comp. All right? That's — the taxpayers are involved and, absolutely, that — that makes sense.
What we're talking about now are private firms that are kind of doing us a favor, right, coming into this market to help us buy these toxic assets off banks' balance sheets. And I think they understand that the president realizes they're in a different category, and I think they are going to have confidence that they're going to be able to come into this — into this program.
WALLACE: And they will be treated differently.
ROMER: I think, you know, we certainly are going to apply all the laws that we have to apply. But they should know that the president understands they are in a different category. They are firms that are being the good guys here, are coming into a market that hasn't existed to try to help us get these toxic assets off banks' balance sheets.
WALLACE: Are you prepared to say right now that the president won't sign a 90 percent tax or even what's talked about in the Senate, a 70 percent tax on these bonuses?
ROMER: That obviously is a decision for the president. What he has said is that he's going to look at any legislation. And I'm sure he will do that.
The other thing I think is so important — the president's really been very — I think very wise in saying we all feel this tremendous anger towards AIG, but let's channel that in a sensible way.
And he's already gone to Congress to talk about resolution authority, about saying the next time we've got a company like AIG, we need a mechanism where there is a judge in control, like a bankruptcy judge who can say, "We're breaking this contract, we're not going to do this," and that's really what's been missing this time, and that's why we're in this mess.
WALLACE: What do you say? You said, "Well, the companies should have confidence. They're going to — they're in a different category. They'll, in effect, be treated differently."
What do you say to the head of a private firm who looks at the last week, who looks at being hauled before Congress, who looks at Congress changing the rules — the House — the deal that was made, and now taxing bonuses at 90 percent and says, "Why on earth would I want to do business with the government?"
ROMER: I think the key thing that you would say is what the president has said, which is, you know, these are firms that — you know, he talks about changing the culture, right? We understand. We're fans of the market. We understand that when a firm's going well, people deserve to be paid well.
But he said there's got to be a new culture, that when firms are in trouble, when the government is having to step in, in that case, for heaven's sakes, don't go out in your same old way, paying great big bonuses.
And so I think they're going to understand that that's — that's got to be the cultural change that the president has talked about.
WALLACE: And what do you say to taxpayers about why the government should partner up with Wall Street fat cats — we're talking about private equity firms, hedge funds where people make a lot of money — and allow them to get even richer in a situation in which the government puts up most of the money and takes most of the risk?
ROMER: Because — right. The key thing, right — we've got trouble in our — let's do the big picture, right? We've got banks with a lot of these toxic assets. What toxic means is they're just highly uncertain. And because they're on banks' balance sheets, we think banks aren't lending. They're afraid to lend. And private equity or private capital is afraid to come in, right?
And so that is certainly the big picture here. And so I think we're - - we're just — that's going to be the main reason for doing this.
WALLACE: We need them.
ROMER: We just — right. We simply — we simply need them. We need them — you know, we've got a limited amount of money that the government has to go in here, so we need to partner, not just with private firms, but with the FDIC, with the Fed, to leverage the money that we have.
The other thing is we think the private sector is going to be very helpful here. We don't want the taxpayers on the hook for paying too much for these assets. And so part of what we're doing is using that expertise that the private sector has and going in as their partners.
WALLACE: There are growing calls — relatively small, I grant you, but growing — for the resignation of Timothy Geithner. What would the impact be on the financial markets and the president's recovery plan if Geithner were to step down and we didn't have a treasury secretary for the next few months?
ROMER: I think — I think all of this discussion is — is really silly. Tim Geithner is an excellent secretary of the treasury. He has been dealt an unbelievably difficult hand to deal with. But he's actually doing a fantastic job, right?
He announced back in February an overall plan for how we're going to deal with the financial system. And just remember, what he's been doing in the last several months is just filling in all the pieces.
We've had the housing program. We've had the small business program. We've gotten the consumer and business lending initiative going. Just last week we...
WALLACE: But there are growing calls building up there on Capitol Hill for him to step down. So it isn't silly.
ROMER: I think he is — you know, the crucial thing is he is doing an excellent job. He has the complete support of the president. And he's going to keep doing an excellent job.
He's going to — we're going to — as you pointed out, we're going to be announcing how we're going to get the toxic assets off banks' balance sheets, and there'll be other pieces to come as well.
WALLACE: A couple of final questions I want to get into with you. While everyone was focused on AIG, it went almost unnoticed that the Federal Reserve is pumping another $1 trillion into the financial system.
Do you have any worries as an economist that pumping all of that money into the system is going to drive the value of the dollar down and lead down the line to inflation?
ROMER: No. Actually, I have to say I — I think starting back with Paul Volcker in the early 1980s, the Federal Reserve has shown itself completely capable of keeping inflation under control. And I have every confidence that they will continue to do that.
I think what we're seeing coming out of the Fed is the same thing we're seeing coming out of our administration and the Congress, of a sense that we have a big problem and we need to take bold actions to deal with them. We've done that on the fiscal side, and the Fed has done that on the monetary side.
WALLACE: And finally, before you came to Washington, you and your husband were experts, leading experts, on business cycles and the recession. You have written that monetary policy alone, what the Fed does in lowering interest rates and pumping money into the economy, is enough to end recessions. You don't need big government spending programs.
And you've also written that tax increases can reduce growth. So my question is, given all of that, what's a nice girl like you doing in the Obama White House?
ROMER: A nice girl like me — the crucial part of my research has actually said that aggregate demand, fiscal policy, monetary policy — all those things have big effects on the economy.
And what I've said is sort of historically, monetary policy did most of the work. In most of our post-war recessions, it's what ended them. What we've seen this time is we had aggressive monetary policy. It wasn't enough, right? And that's exactly why it was so crucial that we did the fiscal...
WALLACE: But some would say you didn't give it enough time, that it always takes six months to a year, and when we get to that point it will do the — do the trick.
ROMER: The signs were absolutely that the economy was getting worse rather than getting better.
And the other thing to say — you know, again, historically, when we've tried fiscal policy, we never did it at the right time. And what's so impressive this time is we got that fiscal policy, that big stimulus package passed right at the heart of the recession, right when it could actually start doing some good.
WALLACE: So in 15 seconds, how confident are you that if we sat down here a year from today — and it's a date — that you'll be able to say, "You know what? Our policies have worked?"
ROMER: Incredibly confident. I — I truly believe — that's why we're taking them. We absolutely think that they are going to do the job for the American economy, and so I'm happy to see you a year from now.
WALLACE: And that a year from now we'll see the signs.
ROMER: We will — I feel very confident we'll be seeing the signs that the economy is — has turned around and is growing again. Of course, it will take time before we're really back to normal, but I think we will absolutely see signs that everything is working.
WALLACE: Ms. Romer, thank you. Thanks for coming in. Please come back, hopefully in less than a year, but in a year it's a date.
ROMER: It is a date.
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