Obama Adviser: Private Sector is Key to Economic Recovery

FILE: In this May 25, 2011, photo, people fill out job applications at the Jobapalooza job fair at Lake Erie College, in Painesville, Ohio. (AP)

The Obama administration has shifted from the "rescue phase" to encouraging private sector development to push the economy off the slow burner, one of President Obama's key economic advisers said Sunday, arguing that the latest reports of a faltering economy are not a trend in the making.

Austan Goolsbee, chairman of the president's Council of Economic Advisers, said the government has moved from efforts focused on saving the economy to a phase in which policies are aimed at "trying to leverage the private sector and give incentives" for growth.

Speaking on ABC's "This Week," Goolsbee said a review of agency regulations to ensure rules aren't too costly, onerous or outmoded and a Social Security payroll tax break are encouraging businesses to continue adding to its record of 1 million new jobs in the past six months.

On top of that, free-trade agreements, increased exports and investment in an "infrastructure bank" to leverage government investment against private capital are critical to moving the economy forward.

"We passed a tax policy in December, which has come into place this year and will continue over the course of this year, to put -- to give a payroll tax of $1,000-plus to 150 million workers and to give direct incentives for business to start investing. And they've accumulated money on their balance sheet," he said.

"Our effort now as a government should be to get the private sector, to help them stand up and lead the recovery. The government is not the central driver of recovery," Goolsbee added.

Goolsbee said he counsels Americans not to look at one month's worth of economic activity -- bad or good -- as a trend, but acknowledged that the positive trajectory of the economy has leveled off.

"The overall direction is, yes, somewhat slowed from the stiff headwinds of gas prices, of the events in Japan, of some of the events in Europe," he said. "Every economist knows that the monthly numbers are highly variable, so you want to look at a little bit more than just one month before concluding on a trend."

But several economists disagree about whether the private sector can pull the country out of its malaise.

Alice Rivlin, a former Office of Management and Budget director, told CNN that the stimulus worked, "but it ended." She said the private sector hasn't picked up where the federal government let off, and additional aid to state and local governments would help, even though that's unlikely to come.

Former Congressional Budget Office Director Doug Holtz-Eakin, appearing on the same show, said that paying governments that have ballooned their deficits is "a big mistake."

The government could bolster a growth trend with tax reforms, long-term policies that aid growth and trade agreements, he said.

Holtz-Eakin added that the "big social safety net programs" of Medicare, Medicaid and Social Security "are bleeding red ink right now," and the only way to get the nation's economic house in order is to start slashing spending and reducing debt.

"I think you have to cut discretionary spending. I think you have to get the deficit under control quickly. And I don't think I've ever seen a Congress cut so aggressively that it endangers the economy. I live for that moment," he said.

Martin Regalia, of the U.S. Chamber of Commerce, said the best prescription would be for the administration to back off trying to tweak the economy.

"This administration has tried to boost this economy in fits and starts by addressing a pinpoint here and a pinpoint there. The fact of the matter is, the economy is broad and diverse.  And what this government has to do is get out of its way.  And if it gets out of its way, the business confidence will return," he told ABC's "This Week."

Goolsbee said deficit and debt reduction are top on the president's agenda. He suggested a debt deal could be reached in the next month.

"The U.S. is a nation that pays its bills, and ultimately we're not going to decide that we refuse to pay the bills that we already have," he said, adding that the deadline for raising the debt ceiling is not to be toyed with.

"This is not an alarm clock. It would be extremely dangerous to get right up to the edge or -- you've seen some people even saying, well, it'd be OK if we defaulted for a short period. That's not true; we shouldn't do that. We should resolve this over the next month," Goolsbee said.