Following is a transcript from Fox News Sunday, November 25, 2001.

TONY SNOW, HOST, FOX NEWS SUNDAY: Earlier today I talked with White House economic advisor Lawrence Lindsey. I began by asking him if we're in a recession.


LAWRENCE LINDSEY, WHITE HOUSE ECONOMIC ADVISOR: Tony, I don't know. That's a statistical question. We won't know for many months.

The important point is too many people are losing their jobs. We have to get another dose of stimulus into this economy. We have to get other legislation through that's key to reversing the effects of 9-11, such as anti-terrorism legislation.

There's action that has to be taken whether we're in a recession or not.

SNOW: So if that action is not taken, joblessness is likely to continue and economic prospects are likely to remain bleak?

LINDSEY: I think so. I think that the big lesson we had from the third quarter numbers was that the textbook works. The first economic stimulus package, coupled with the Fed's actions, actually prevented a recession. It looks like the third quarter would have been positive absent Usama bin Laden.

Well, if the textbook worked last time, it ought to work again. And what we ought to have is continuing action by the Fed and, again, another stimulus package by the Congress.

SNOW: Continuing action by the Fed. Another rate cut?

LINDSEY: Well, I think they've already, you know — the Fed's gone pretty far. I think the Fed is doing its job. I'm not going to fine-tune their job for them.

SNOW: All right. Now, in terms of spending, a lot of people are saying, look, if we have a good holiday shopping season, that ought to help turn the economy around. Are they right?

LINDSEY: Well, that may help. But, again, there's a lot of businesses out there that have really lost confidence. One reason that the president proposed a tax cut that was focused on capital spending, investment spending, was that that's the area of economy that's now the weakest.

And so, some form of accelerated depreciation seems to be exactly what the economy needs to shore up the business sector.

SNOW: All right. Before we get to that, I want to talk a little bit about a phenomenon in the economy a lot of shoppers are aware of: 0 percent interest rates. We're getting it on cars and other things.

Is that a sign that we're going through deflation?

LINDSEY: Well, deflation, I don't think — is probably a bit strong.

Certainly we have low inflation. The Fed has done its job for this decade. It's brought inflation down. Prices are falling for raw materials.

It's unclear whether we've actually had an economy-wide deflation, and certainly that's not in consumer psychology yet. It is something to be watchful for, but I don't think we're there now.

SNOW: We're not there now. Why don't you explain to people what deflation is and why it's bad.

LINDSEY: Well, deflation is when prices actually are falling. You know, what's wrong with that if you're a consumer? I should say prices and wages are falling.

And what happens is, if you think that everything is going to be cheaper tomorrow, why would you spend your money today? And if you don't spend your money today, the economy starts to slide.

Japan is facing that problem now. Prices are falling 2 to 3 percent a year. Everyone's holding their money in cash, and the economy there continues to decline.

SNOW: Now, you said the Congress needs to act if we're going to get the economy moving. If it doesn't act, bad things are going to happen.

Democrats are saying that they want to make sure that the people at the bottom of the income ladder get some tax relief. In particular, they're talking about some relief on Social Security taxes, because many of these people don't pay income taxes but they have Social Security withdrawn.

What's wrong with that argument?

LINDSEY: Well, I don't think we should touch the Social Security trust fund. I think it's very important to protect that.

Look, the president, though, is very much for tax relief and help for everyone — people who are employed, people who are unemployed. He proposed that now nine weeks ago, and we're still waiting for the Senate to act. The House acted very promptly.

What we need to do is we need to provide relief for the unemployed, people who have been displaced by their jobs. We need to provide help for consumers. But we also need to provide jobs, and the best way to provide jobs is incentives for capital formation.

SNOW: Democrats have said repeatedly on this program and others that the best economic stimulus is something that is temporary, not permanent.

LINDSEY: Well, again, I would go by the textbook. The best economic stimulus is something that's permanent, not temporary, is what the lessons of history have had to say.

They are right on one point: We do not want to put long-term, big-spending commitments out there that cost us lots of money year after year after year that will be a permanent burden on the public sector.

We have to correct some things. We have to pick up the pieces from 9-11. The president has proposed spending of almost $60 billion to do that just this year alone.

But enough is enough. Now is not the time for a whole bunch of new entitlement programs such as the Democrats are providing, or a whole bunch of new subsidies such as bison meat production that somehow now is a national emergency and had to be put in the Senate bill.

No, I think what we have to do is target tax relief to the sectors of the economy that need it the most, that can use it the most, put more money in consumers' pockets and avoid this excessive spending binge that some people in the Senate seem to be on.

SNOW: Is the president going to veto bills that he thinks involve what you just described as a spending binge?

LINDSEY: I don't know what the Senate — what the president is going to do. I know that his senior advisers are certainly going to recommend that.

We cannot afford to have the budget be blown away by spending on everyone's pet project, and that seems to be where the Senate is headed now.

SNOW: We're going to have a deficit this year, not a surplus. How long are we going to see deficits?

LINDSEY: Well, I don't know whether we're going to have a deficit this year and not a surplus. We'll see when the numbers finally come out.

I think we're going to return to surplus rather quickly, but the key is that we have to get the economy growing again. We have to start creating paychecks instead of unemployment checks. We have to start encouraging capital investment. That's why we need the president's program through.

SNOW: All right. Now, another thing that — another proposal that's made the rounds on Capitol Hill but hasn't been voted on is the idea of having a moratorium on the sales tax through the Christmas spending season. Good idea, bad idea?

LINDSEY: Well, again, the Senate is too late to do that. What it would take is the Congress to act, and then state legislatures to act. The Congress doesn't impose the sales tax, state legislatures do. And they're not around right now. So...

SNOW: Purely symbolic.

LINDSEY: I think it would be purely symbolic.

SNOW: All right. Another concern a number of businesses around the country have, insurance. They fear that if they go ahead and try to either start a business or continue what they're doing, if they don't have insurance coverage, especially over potential catastrophes, they could go out of business. Congress is thinking about some proposals on it.

What's the president's view?

LINDSEY: Well, the president very shortly after 9-11 proposed a terrorism insurance bill.

Now, this is not a hypothetical problem. People are having their insurance yanked. It's not that you can self-insure. The bank that provides the mortgage for your property says you've got to have it. So your mortgage is technically in default.

A lot of these insurance policies you're going to come up January 1.

Unless we get a terrorism insurance bill through, we've got real problems.

Now, the president worked one out. We worked one out with Senator Sarbanes and Senator Gramm, who tend to be on opposite sides of those issues, but we came along. Unfortunately, the Senate leadership, Democratic leadership is not letting that bill be marked up.

SNOW: Why?

LINDSEY: You'd have to ask the leadership. I think it's because the trial lawyers have enormous sway over the Democratic Party.

SNOW: Does the bill limit the kind of lawsuits people can file and the damages they can recover?

LINDSEY: It puts some very modest limits on.

Senator Sarbanes is a tough negotiator. We asked for four limitations, because, you know, after all, if a terrorist hits America, there is absolutely no reason why we should bankrupt some American company with punitive damages, or what have you, on top of the damage that the terrorist does.

So we've asked for no punitive damages. We've asked for a single court of jurisdiction. Both of these pieces passed in the airline bill.

We asked for a little bit more. Senator Sarbanes said no. We cut a deal, but so far there's no permission to mark up the bill.

SNOW: What's the danger if this bill doesn't pass?

LINDSEY: If this bill doesn't pass, there is a chance that every mortgage in America could be in technical default next year.

SNOW: Final question. The Social Security commission, it's going to come up with recommendations. A lot of people are skittish about the stock market. Is it still wise, in your view, to have some private investment component in Social Security?

LINDSEY: Yes. What we're talking about here is diversifying your risk. If you'd put $2,000, say, in the stock market every year for the last 20 years, and Monday the stock market was to be cut in half, you would still have a higher rate of return than Social Security gives you.

So, yes, you definitely want to do some diversification.

SNOW: And will the president have a proposal like that before Congress next year?

LINDSEY: I think what we want to do is, we want to see what the commission comes up with. I think the commission's going to come up with a variety of proposals that cover the field. And let the debate proceed.

I think the president definitely wants this. Whether next year or the year after is the right timing, let's see what the commission comes up with first.

SNOW: All right. Lawrence Lindsey, thank you.

LINDSEY: My pleasure.

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