HH: So pleased to welcome now Austan Goolsbee. He’s of course an economist. He’s the Robert Gwinn professor of economics at the University of Chicago’s Booth School of Business. You know him as a former member of the President’s cabinet and as the chairman of the Council of Economic Advisors to President Obama. Austan Goolsbee, welcome, it’s great to have you on the Hugh Hewitt Show.
AG: Oh, they let me on? I was calling to crank call you, Hugh, and they just put me right through here. I’m on the show?
HH: I’m so glad they did, first time caller, long time listener, right, Austan? Is that it?
AG: That’s right.
HH: Hey, I have a first question, very basic question as an economist. Are we going to run out of the ability to borrow on October 17th?
AG: I don’t think so. I certainly hope not, but we’re inching close to it on legal grounds only, obviously. The market would lend us the money, but the debt ceiling law sometime between the 17th and I think of it as maybe the end of October is when we would run out. But you know, remember that scene in Star Wars where the trash compactor is about to crush Luke Skywalker and everyone?
AG: You’re going to do some contortions not to get squished right at the end. And that’s where I think we are.
HH: Now Secretary of the Treasury, Jack Lew, said this weekend, and it’s a quote, “I’m telling you that on the 17th, we run out of our ability to borrow.” Now is he telling the truth there? Or is that just theater?
AG: Well, he is, but he’s clarified what that meant. They run out of the ability to borrow, and they have some, I forget what level of extraordinary we’ve gotten to of the Treasury has extraordinary measures, and super extraordinary measures. And so you’re down to the last fumes of gasoline. And he’s basically saying look, you cannot push on the accelerator once past that point. We are going to be coasting, we’re going to try this and that. That is the responsible thing for him to do. You want him to say here’s when we run out, and I think they’ve publicly said they have something on the order of $30 billion dollars of cash or something that they can access after that. But they won’t be able to borrow anymore.
HH: But it reminded me, Austan Goolsbee, on the Sunday shows with Jack Lew running around saying the sky is falling on the 17th, of Susan Rice after Benghazi running around saying it was the video on all five shows, saying something that’s definitely not true and then walking it back later, contributing, I think, to a very debilitating credibility crisis for the administration. Your thoughts?
AG: I thought you were going to say it reminded you of the whole discussion about the sequester, and whether the sequester would be really negative on the impact on the economy, and then some argument breaks out after of how negative it was, but it certainly didn’t blow up the world. I don’t think you could, I mean, you wouldn’t want the Treasury to say we’ve picked a day, and then oh, whoops, it turns out it was the day before the day we thought it was. This is not a, there’s not a certain day. They have to identify to the best of their ability what the day is that they run out. And you don’t want them, you want them to shade it a little to the whatever you want to think of that as to the left or to the right. You don’t want them to say oops, we made a mistake, and so the country defaulted. I mean, that would be crazy.
HH: Well yeah, but I’m going back to my comparison, Susan Rice emphatically, on all five Sunday shows, saying it was the video, we don’t know if it was terrorism…
AG: Oh, no, hold on. I’m not a foreign policy guy, but I did watch at least one of those shows when Susan Rice went around, and she repeated we don’t know, here’s what we think as of this moment, blah blah blah. So it was not, I am definitively telling you this is the exact cause.
HH: She brought up the video in all of those interviews.
AG: Yeah, she did bring up the video, but she did not say definitively, absolutely, this is what it was.
HH: But we knew it wasn’t the video.
AG: She most definitely said as of what we know, this is what we think.
HH: But my point, good economists that you know, patterns repeat. And if the American public sees Susan Rice say it’s the video on five Sunday shows, and then they see Jack Lew say October 17th we can’t borrow anymore, both of those statements not true. Doesn’t that lead to a credibility crisis for the administration?
AG: Hugh, you’re saying both of those statements not true. I agree that like the sequester, I wouldn’t call that a credibility problem as much as I would call it a fuzziness problem, the fuzziness being what the Treasury has stated is correct. They will not be able to borrow starting on that day. They have very small few means to go about continuing operations, $30 billion dollars of which, which they’ve publicly said here’s all we have. That won’t get us very far. But they will not be able to borrow more. It’s just that they’ll be using some other sources of money to continue spending that do not entail borrowing.
HH: I’ll be right back with Austan Goolsbee, former chairman of the President’s Council on Economic Advisors from the University of Chicago Business School on the fuzziness problem. I call it the credibility gap of the Obama administration.
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HH: Austan Goolsbee, let me play for you from today President Obama talking at the White House during a press conference, cut number 16:
BO: Warren Buffett likened default to a nuclear bomb, a weapon too horrible to use. It would disrupt markets, it would undermine the world’s confidence in America as the bedrock of the global economy, and it might permanently increase our borrowing costs, which of course ironically would mean that it would be more expensive for us to service what debt we do have, and it would add to our deficits and our debt.
HH: Now do you think it’s like a nuclear bomb, Austan Goolsbee?
AG: If they defaulted on the Treasury bonds? Oh yeah. It’s the economic nuclear bomb, for sure. It means worse than anything Lehman…
HH: Now wait a minute.
AG: I mean, I’ll give you an example. The biggest banks and the safest banks in the United States have huge piles of Treasury bonds that are their safest assets on their books. There is no, if those Treasury bonds were in default, there is no bank in America that would not be instantly insolvent.
HH: Now Austan Goolsbee, I know you know that’s not true. You know the market discounts this. You know the market would not believe anything other than a temporary default was going on. You know that. How can you say even qualifying it like an economic nuclear bomb?
AG: Well, because look, the question that you should be asking is would they have to stop payment on everything, or could they just pay some things and stop other ones? And if they could pay the bonds, couldn’t they avoid what I’m describing?
HH: No, Austan…
AG: If they could not, if they literally missed a payment on the bonds, we now have these credit default swaps which say they’re like a life insurance policy on bonds. And if you don’t make the payment, then that’s a so-called CDS event. They have to pay out trillions of dollars. I mean, it would be unbelievably catastrophic.
HH: Okay, Austan Goolsbee, like a nuclear bomb?
AG: Like an economic nuclear bomb.
HH: But the President…
AG: I agree, there’s two ways in which that statement is almost literally a perfect analogy, is there would be a huge explosion of direct damage, and then there would be a whole lot of economic nuclear fallout in regions that are far from the first location of the bomb. I think that’s a perfect analogy.
HH: Now you know, Godwin’s rule, right? The first person to invoke the Nazis or Hitler loses, right? Godwin’s Law?
AG: Like an old debate from my old debate days, does it end in nuclear war, yes.
HH: Right, you know that law, right? And so I think the first person that imports nuclear weaponry into economic talk has violated Godwin’s Law. I really…
AG: Okay, but it sounded like you’ve got to take that up with Warren Buffett, not with somebody else.
HH: Yeah, but the President repeated it, and I want to ask you sincerely. Do you think the President is helping anyone out here by this silly brinksmanship? It’s not the 17th. We’ve got plenty of cash. We’re not going to default.
AG: No, hold on. The 17th is the day at which we cease being able to borrow, and we’re just using what cash we have on hand, okay? So if you lost your job, it should not make you feel better that like, well, we haven’t gone through the couch cushions, yet. We might have all kinds of money laying around.
HH: But Austan Goolsbee, that’s not…
AG: Look, there is a very limited amount…
HH: This is the…
AG: …of money starting October 17th.
HH: …president of the…
AG: They’ve been totally clear on that.
HH: This is the president of the United States talking about the sovereign credit of the United States. It’s not about a guy losing a job. It’s not about going through the cushions. It’s about reckless rhetoric.
AG: Yeah, that’s even worse. Hugh, how could you, you can’t possibly be saying that you think that this is worthy of the policy debate in the country that we’re going to have it in the context of we want you to give us concessions or else we’re going to threaten to default the U.S. government. I mean, this is like Nuttyville.
HH: I am saying the President is ratcheting up the rhetoric, and being extremist, extremist in his conduct of the presidency in an unprecedented display of brinksmanship, actually doing the sort of hostage taking that he is accusing the Republicans of doing.
AG: Because, I mean, this is like excuse someone to be so rude is to keep talking after you interrupted them. I mean, you’re accusing him of brinksmanship when they have told him that they don’t consider default to be so bad. I mean, whoa, what? I’m like, they’re like waiting for it to happen.
HH: They have not told him that. That is not true. Austan, that is not, the Speaker has set out repeatedly he didn’t want to shut down the government. He said he doesn’t want a default.
AG: Yes, the Speaker, I agree with you. The Speaker has been measured in tone. But as we know, the Speaker is not the only person speaking in the Republican Party, and there are a large number of people saying things that are way radically brinksmanship. And I don’t see how the President…
HH: Okay, let’s play some of those. Let’s play some of those. This is…
AG: How would you have the President react?
HH: Let’s have you react to some of that brinksmanship. Cut number 17, the montage from the Hannity show last night.
NP: They’re legislative arsonists. They’re there to burn down.
ES: The Republican inmates are running the aslym.
HH: Ed Schultz.
DP: What we’re not for is negotiating with people who have a bomb strapped to their chest.
HH: Dan Pfeiffer.
BO: We can’t do it with a gun held to the head.
DB: But if you can have one child who has cancer, why wouldn’t you do it?
HH: Harry Reid.
HR: Why would we want to do that?
CS: Taking hostages.
HH: Chuck Schumer
CM: The hostage taker.
CB: Hostage taking.
BB: Taking their teddy bear and their blanky and saying if I don’t get my way…
HH: Barbara Boxer. So you get the sense here, Austan Goolsbee. Your party’s unhinged.
AG: Wait a minute. I thought you were going to stop with the hostages and…
HH: Those were all Democrats.
AG: But then she said the thing about that teddy bear and the blanky. I mean, how is that a brinksmanship.
HH: Well, that was Barbara Boxer. I can’t explain Barbara Boxer. You know, that. No one can. I know what you really think about Barbara Boxer.
HH: So Austan Goolsbee, here’s my question. Why doesn’t the President pick up the phone and call Bob Gates, who’s the guy, the last guy left in America that both parties respect, drag him up to Washington, and get down to negotiating? Let him mediate.
AG: I thought that was an interesting idea. I saw you say that. You know, and I know Bob Gates, and I deeply respect him. He’s not a budget guy, bet he’d have no interest in that, but you know, a Gates, a Paul Volcker, a something like that. Now the reason that doesn’t happen, unfortunately, is that’s what Simpson-Bowles’ fiscal commission was. And they had, they brought a bipartisan group together, and they said let’s try to come to some grand bargain. And both sides, really, but certainly Republicans, not wanting any new revenues, make it very hard to make any grand bargain compromise.
HH: Oh, you want taxes. Okay, look, stick around one more segment.
AG: So I don’t see how you would mediate it. You need a mediator, but it’s a non-binding mediation. That won’t work.
HH: During the break, think about this. If it was really a nuclear event, or even like a nuclear event, would the President be conducting himself this way, Austan Goolsbee?
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HH: Austan Goolsbee, if we were nine days from a nuclear event, do you think the President would be engaged in name-calling?
AG: Yeah, wait, it’s not name-calling. It’s, you’re saying that he should be, what, making concessions to avoid nuclear war? I mean, let us recall the Cuban Missile Crisis and how we dealt with the Ruskies. I mean, this is, you can’t just surrender because somebody’s got some very powerful weapon.
HH: I know, I read 13 Days just like you did. I know Graham Allison’s book just like you do. And President Kennedy did not act like President Obama in the remotest way. It was calm, it was reason. They were not hurling epithets at Khrushchev. Do you think the President is acting responsibly, Austan Goolsbee? Is it the way you would advise him to act?
AG: Well, he didn’t seem to be ranting and raving. He seemed perfectly calm. And in fact, the reaction on Twitter was does he have some gear that sounds more afraid, because he seems to be very calming, and is that really what he wanted to be conveying in a moment like this?
HH: Would you advise him to continue on in exactly the course that he’s on right now?
AG: I don’t know what exactly the course means.
HH: So he’s not making sense to you?
AG: …going forward.
HH: He’s not making any sense to you?
AG: I don’t think he should be volunteering to negotiate about the debt ceiling.
HH: Is it coherent?
AG: Now if it’s me, I actually like talking to folks like you. I would be having a conversation, if not an explicit negotiation. If not him, I’d be having somebody over talking to somebody, one of my people talking to one of their people. I bet that that is happening.
HH: So that’s, I agree with your advice. He should have a negotiation underway. That’s your advice to the President?
AG: No, not a negotiation. I only make the distinction with the word negotiation, because I don’t think he should be negotiating about the debt ceiling. I think that’s deeply irresponsible.
HH: But he should be, are you saying he should be meeting…
AG: He should be having negotiations about the grand bargain. I do think that that would be good for the country.
HH: He should be? That’s your advice? So he should end his boycott of conversation?
AG: Well, I don’t know that he has a boycott of conversation. I like your Bob Gates idea where it’s not bringing in outside respected experts from both sides to talk about something bigger than the fight about the debt ceiling or that negotiation. I think that’s a good idea.
HH: 30 seconds, Austan. Rahm Emanuel’s gone, David Axelrod’s gone, you’re gone. The President’s got the D team in place here.
AG: I appreciate you putting me in at least the C team.
HH: So do you think he ought to restaff with some people who might know what they’re doing?
AG: I don’t think it’s fair to say these people don’t know what they’re doing. These people, many of them have been around for a long time. And they are bringing in new people. Gene Sperling’s leaving, this guy, Jeff Zeints is coming in, who’s a very smart private sector guy. So I think that’s a little unfair.
HH: They need some help, though, don’t they?
AG: We all need some help.
HH: Thank you so much, Austan Goolsbee. I’ll talk to you again soon.
End of interview.