Why isn't the economy doing better?

Former Obama adviser Austan Goolsbee explains why the economy hasn't bounced back the way White House officials hoped

This is a rush transcript from "On the Record," August 9, 2012. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: President Obama has made lots of promises about the economy. He promised to cut the deficit in half and he said the stimulus would keep the unemployment rate below 8 percent. But right now, the unemployment rate is 8.3 percent and the U.S. is facing crushing debt. So why isn't the economy doing better?

Austan Goolsbee is the former chairman of President Obama's Council of Economic Advisers. He joins us. Nice to see you, Austan.

AUSTAN GOOLSBEE, FORMER CHAIRMAN, WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS: Great to see you again, Greta.

VAN SUSTEREN: OK, Austan, what would you do? If you were in charge, how do we rev up the economy to get it more aggressive, more robust? What would you like to do?

GOOLSBEE: Well, what we have to do as an economy -- and it's not something that's driven by Washington, it's got to be driven by the private sector, is we got to shift from building houses and consuming more than we're earning, which is what drove the growth in the 2000s -- we got to have more manufacturing, got to have more exports, got to have more investments, stuff that's sustainable.

So there are a number of policies in each of those areas that you'd pursue. But the fact is, anybody who has to shift what they're doing, it's always a long, tough process. Now, we did know that -- I mean, if you look at the forecast made by the CEA in the fall of 2009, after the initial, really, beginning of what could have been a depression had -- after we'd gotten through that, the forecast three years ago for what the unemployment rate would be now was 8.2 percent. And you know, that's for the fall of 2012.

So I mean, the -- we are progressing at about the speed that was expected three years ago. It's just that's a slow pull out of a deep downturn.

VAN SUSTEREN: Which is why -- I mean, it's, like -- and I'm not going to quibble with you with all -- I know that people quibble, like, you know, with the president and with you and everything on these policies. I'm more concerned with how -- how we get to the next step, how we do better.

I'm curious -- let me just identify manufacturing. How do we improve or increase manufacturing in this country in light of the fact that you can buy things cheaper other places, in other countries? I mean, how -- how do you -- how do you reconcile that? Why would anyone want to build anything in this country if you can get -- if a consumer can buy it cheaper someplace else?

GOOLSBEE: Well, look, I think that's a great question. And the thing that's not well understood by people when they look and they say, Well, geez, somebody in China makes, you know, 5 bucks a day or something, why are they going to ever make something in the U.S.? You got to remember our workers are the most productive in the world by far. The U.S.'s problem has never been a problem of quality. Our problem has been other countries had half the productivity we had, but at one fifth the price.

So what has happened is, number one, we got more productive. Number two, a lot of those places have come up from the, really, basement floor of wages that they used to have. And number three, we have good rule of law and enforceable property rights on intellectual property here, so you don't have to worry about people stealing your blueprints and stealing your stuff.

And so you've seen in the last two years, although the job market's been pretty tough overall, manufacturing's actually had its best two years in several decades. And so I think we're heading the right way, and a lot of sectors, they are recovering. It is just that it's a tough process shifting the direction of what the economy's doing. And as I want to emphasize, that's not primarily driven by Washington, D.C. I mean, that's got to be driven by the private sector.

VAN SUSTEREN: Well, except that -- I mean, the -- it's a little more complicated than that. Yes, it has to be driven by the private sector, but the private sector has to have the freedom to be the private sector without being, for instance, overregulated. I mean, there are other questions about that. I mean, it does require Washington leadership on a lot of that.

But let me ask you -- let me go back to this manufacturing thing. Let me just go back to the simple question, though, is that, is that it still remains the problem, if you can buy it cheaper someplace else, you're just not going to build it here. I mean, that -- I mean, that is a fact!

(CROSSTALK)

GOOLSBEE: Ask yourself, what if it's worse? OK, so it's cheaper, they ship it over here, it's cheaper, but it's no good. The fact is, we have a pretty high level of demand. Our exports have been growing on a path to double about every five to six years over the last couple of years here.

It's what we should have been doing in the 2000s. It's what a lot of nations we compete against were doing. They were growing their exports. They were growing their investments. And we weren't. So we got to shift to doing that.

VAN SUSTEREN: All right. Well, OK, let me then go to Germany, which is the most robust economy in Europe. Germany is now beginning to feel the pain from its relationship with all the other countries. So I mean, even a successful manufacturing company is now feeling the pain. What in the world is Germany going to do in light of its problems because their problems eventually become our problems, they infect us?

GOOLSBEE: Yes. Look, you're on to something here, Greta, because the problems of Europe are really deep-seated and they really go back to the formation of the euro itself. So they're locked in a currency that I think Germany is going to eventually have to choose, either they're going to subsidize to hold the thing together, or else it's going to blow itself apart.

Now, the ironic thing is that as much as we're struggling to get out of the doldrums in the U.S., we actually have the highest growth rate of all the advanced world.

So for people saying they think it has to do with policy or anything specific to the United States why the growth rate isn't higher, I think the challenge for those people is to explain why is the modest growth rate in the U.S. above the growth rate in Germany and the U.K. and Japan and a bunch of places where they're following policies that are totally different than the ones we're following her.

VAN SUSTEREN: And our -- and our growth rate this last quarter was dismal. It was 1.5 percent.

GOOLSBEE: Yes.

VAN SUSTEREN: So it's -- I mean, there's not -- we don't even have any bragging rights on ours. Austan, thank you. I hope you'll come back. It's enormously complicated, very -- all hooked up...

(CROSSTALK)

GOOLSBEE: Any time.

VAN SUSTEREN: Yes. Thank you, Austan.

GOOLSBEE: We Midwesterners got to stick together, Greta.

VAN SUSTEREN: Indeed. Indeed.