Transcript
NEAL CONAN, HOST:
This is TALK OF THE NATION. I'm Neal Conan. This afternoon, House Democrats and Republicans are meeting separately to consider the Senate-approved deal that would avert automatic tax hikes and spending cuts known as the fiscal cliff. Some House Republicans indicate they'd like to amend that bill and send it back to the Senate, which if it doesn't get done tonight could invalidate the negotiated deal. It would then become a problem for the next Congress, which takes office on Thursday. As of now, no vote is scheduled.
So how is all this political uncertainty affecting your plans and your decisions? Give us a call, 800-989-8255. Email us, talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.
Let's get a caller on the line. This is Kathleen(ph), Kathleen with us from South Bend.
KATHLEEN: Hey, how are you today?
CONAN: Good, Happy New Year.
KATHLEEN: Thank you, same to you. My husband and I are going to be expanding our community garden, planting more vegetables, and we're also going to cut down to one car. We both live on a bus line, and I can easily walk or ride my bike to work. So that's how we're going to address this.
CONAN: One car? How is that going to affect your mobility? That's obviously going to limit it.
KATHLEEN: Just a little, just a little. We live pretty close to town. So it's going to affect us that much. But it's certainly a luxury that we've gotten accustomed to. So it'll take some adjustment to get down to just the one car. But I think we can do it.
CONAN: And community garden, obviously cutting down your grocery bill.
KATHLEEN: Exactly, exactly, and we do a lot of canning and freezing. So that'll help us in that end.
CONAN: Well, good luck, Kathleen, and I'm making a leap here, but you're from South Bend, go Notre Dame.
KATHLEEN: Thanks.
CONAN: All right, bye-bye. Joining us now is Marilyn Geewax, of course our senior business editor for NPR, as our guest. Let's bring in Yale professor and economist Robert Shiller, who joins us by phone from his office, and thanks very much for being with us, and Happy New Year to you, too.
ROBERT SHILLER: Thank you.
CONAN: And we were making a presumption that the housing market seemed to have found a bottom back in 2012 and been on the way up, at least the indications have been that way. How does this political uncertainty affect that?
SHILLER: Well, political uncertainty affects confidence, and we saw confidence indexes drop. Remember in 2011 when the U.S. couldn't agree on a budget or a debt ceiling increase, and we saw the U.S. debt downgraded? It's a fundamental psychological shock. It shames us. We feel embarrassed. We feel that our government has failed us. And we become uncertain about the future.
CONAN: Would you expect if there is no ability to reach a deal on this fiscal cliff, which was set up by that failure to reach an agreement on the debt ceiling in 2011, if that happens, would you expect that the U.S. credit ratings would be downgraded again?
SHILLER: Well, I think that's always a risk. The rating agencies feel embarrassed by their failure to downgrade some subprime mortgages some years ago. They're on the ball. I think they're doing their job. And I think, you know, the likelihood of a default by the U.S. government, a serious default, is virtually zero.
You know, they have to be honest, and they have to show the gradations. And I think that it's possible.
CONAN: And as you look at the housing market, confidence is obviously a huge factor, and that reminds us just how big a part of the economy housing is.
SHILLER: Well, it depends on how you define it. The construction of new homes has been between four and six percent of GDP. But I think that our optimism about housing affects a lot of our decision making, you know, our decision whether to buy - we just heard Kathleen say a decision whether to go grocery shopping seems to be affected by overall confidence.
And, you know, you might not buy a new sofa, or you might not buy new curtains. All these are related to housing.
CONAN: And Marilyn Geewax is with us here in the studio. It's not just the house. If you buy a new house, you're buying new furniture, you're buying rugs and paint and lots of other stuff, too.
KATHLEEN: That's right, the home buying is a real economic generator and especially new home building. When you just move into an existing home, there is some economic bump, but really what economists would be looking for this spring is a surge in home building. And remember we really haven't been building very many houses since 2006, 2007. There's been a real drop-off.
MARILYN GEEWAX, BYLINE: And meanwhile the population continues to grow. People do just get older. They get married, they have kids, and they need a new house. So - and not to mention some of the population shifts, for example a lot of people are moving to North Dakota now. There are needs for new homes to be built.
So all around the country, there are communities that need to have new homes built, and everyone is looking for this sense of confidence to spring to, you know, for the ground to get soft and let's get going, and that generates jobs for landscapers, for furniture makers. It's a good thing for the economy to see those new homes coming back.
This is very scary, and, you know, we're really just literally hours away from seeing what some market reactions will be. If this doesn't go through, Asian markets are going to be opening in just a matter of hours.
CONAN: And Robert Shiller's back with us, and I wanted to ask: Through all of this turmoil, interest rates have remained amazingly low. Is this likely to change now?
SHILLER: You know, this is an interesting thing because interest rates have actually been negative if you look at TIPS, the inflation-protected securities. Something's wrong when people are willing to put their money out for 10 years, even, at a negative real interest rate. It's a sign of malaise in the economy.
So, you know, when I heard Kathleen speak, that's exactly the kind of thing. People are pulling back and worried, and they don't even think they can make any money on a safe investment. And now that's been going, now, for over a year - or low interest rates, even longer than that.
I don't think that we're at a major turning point on that, and I don't think it's going to change, whatever happens today.
CONAN: Let's see if we can get another caller in on the conversation. Let's go to John(ph), excuse me, and John is on the line with us from Portland, Oregon.
JOHN: Yes, I'm about ready to retire within the next six months or so, and I'm going to go from a salary to Social Security, which is a great deal of difference, and we're dependent on our - going to be dependent on our investments. And we've diversified and tried to do the best we could to protect them, but if the stock market crashes, we're too old to wait 10 years for it to come back. So we're really going to be hurt by this.
And that's our chief concern, that and the fact that I might have to continue working. My job is not in jeopardy, I'm a medical professional. I can work until I drop dead if I want to. But I've been doing this for 40 years, and I'd like to retire. And I don't want to have to keep working because my investments are - have disappeared.
CONAN: Marilyn Geewax, in fact it was a pretty good year for stocks, though at the same time small investors seem to be getting out of the market faster and faster.
GEEWAX: You know, the stock market, in general, had a good year, something like 13 percent. So that was, you know, terrific. But we're still really not seeing those small investors. Individuals are still hanging back. They don't have that confidence in the market. So there are big funds, big pools of money that, you know, pension funds and that sort of thing.
But individuals are still clearly spooked by the whole market, and if we wake up tomorrow morning and see that the market is dropping dramatically, that does not set a good tone for the year. And here's the thing that is really frustrating about all of this is that there's lots of reason to believe that the economy could actually do very well in 2013.
Most economists were predicting something of a slower start at the first half of the year but that the pace would pick up, and a lot of that was based on the idea that housing was going to have a pretty strong spring, that we really had hit the bottom and that we were starting to see home prices rising.
A lot of it also was tied to excitement about the energy sector. Agriculture, a lot of people are out there buying farmland. It looked like there were sectors of the economy that would come back strongly in 2013. And now all of that, really this is a politically self-inflicted catastrophe. It's kind of gone beyond wound, if this goes on too much longer because it really is undermining that consumer and home-buying confidence.
And it'll be interesting to see how it plays out, but if the markets take this poorly in the next couple of days, that could be a bad sign.
CONAN: Robert Shiller, would you agree that this is a political crisis, that the underlying fundamentals of the economy are not that bad?
SHILLER: Well, it depends on what you mean by underlying fundamentals. This is classic. Herbert Hoover said there's nothing wrong with the fundamentals as we launched into the Depression. The problem is that confidence is part of the fundamentals, if you interpret it correctly.
I'm thinking back to 2008. We had the Lehman crisis. And remember Secretary Paulson wanted the TARP program, and at first Congress was balking, and it was the same sort of anxiety: Is this government going to get through and do some stimulus or not? And that's when the stock market fell really low, down into 2009, and then it kind of recovered with President Obama's stimulus package. And the same thing, that is the risk that will get this conclusion that the government is just - if this fiscal cliff doesn't work out well, the government isn't capable of handling our problems, and it could cause another drop in the stock market.
CONAN: John, thanks very much for the call, and we wish you the best of luck.
JOHN: Well, thank you. I appreciate you providing us with this information, and I hope things work out for everybody.
CONAN: I wish we had better information to provide.
(LAUGHTER)
CONAN: Here's an email we have from Dale: We aren't spending. The fiscal cliff is the beginning of a process. There is no political will to start spending reductions, tax increases and financial discipline which has been absent for decades. We'll need to be credibly started to reduce the federal deficit. I think it's going to take no one buying treasury bills for Congress to get serious. Robert Shiller, a lot of people say, well, it's not just Americans who are buying treasury bills. International investors look around the world, and they say where are we going to put our money, and Europe doesn't look so good. It doesn't seem to be a lot of good alternatives.
SHILLER: You got it. That's the sign of our times, not any clear great investment. It's because we're in a semi-depressed world. It's - you mentioned Europe. I can tell you China is looking weak. I was just visiting India last month, and their economy seems to be slowing down. And there's worry about a possible worldwide recession. And at that point, people all over the world start cutting back on their expenditure and it becomes a self-fulfilling prophecy. I'm not saying it's going to be horrible, but we could have economic weakness next year, and it is something to be concerned about.
CONAN: Marilyn?
GEEWAX: And, Neal, there's something that I think is kind of disturbing in all of this is that so much of what we're describing here, this is all again political problems. I mean Europe has had a terrible problem working its way out of government debt. Those are not natural disasters. There wasn't a meteor that came out of the sky and slammed into Europe. These weren't because of earthquakes. This was because of political lack of will to keep budgets in order and to work out compromises to solve the problems once they existed.
So Europe has a crisis that's political. A lot of the problems in India, in China, they're really political stalemates. There's corruption problems or various problems that could be solved by political leaders. And yet, here we are with so many swaths of the world; the United States, Europe, China, India, all these places that really need to provide the growth for the world are tied up in political knots, and that's very disheartening.
CONAN: Robert Shiller, what sign will you look for in the next week or so to give you an indication which way this might go?
SHILLER: Ha. I don't know if we'll know in a week. Certainly, getting - we might find it today. I think it was inspiring that the Senate did come up with a proposal and voted overwhelmingly for it. So there could be some inspiration coming today. I'm still hopeful.
CONAN: Nice to hear some optimism. Professor Shiller, thank you very much for your time today and again, Happy New Year.
SHILLER: Same to you.
CONAN: Robert Shiller is an economist, the Arthur M. Okun Professor at Yale University, co-creator of the Case-Shiller home price index. You're listening to TALK OF THE NATION from NPR News. Let's go next to John. John is on the line with us from Kansas City.
JOHN: Hello.
CONAN: Hi. Happy New Year.
JOHN: Same to you. I'm a dairy farmer, and I'm kind of caught in the middle of this very peculiar situation. It's - one side of the argument is that we're going to go back to permanent pricing, and milk is going to go to $48 a 100 or end up being $8 a gallon in the store, and that's going to hurt everyone. At the same time, my product is - the price on it is somewhat controlled by the federal government. My security for the work that I do is also somewhat controlled by the federal government.
And there's a lot of political wrangling going on in Washington right now from both sides, and I understand it completely, that's the way our system works. It is a real poke in the eye that both sides could come together and agree not to do anything for the guy that's making the milk. I'm blown away by that.
CONAN: And how would that affect you if milk went that high?
JOHN: You know, I honestly don't know. I've tried to read as much about it as I can - in between milking the cows - and there's just not a lot of information out there. Mostly what I've seen is really nothing would happen, that by the time we got to the point where parity pricing kicked in, it wouldn't really trickle down to the dairy farmer. It wouldn't ever really happen. So I'm thinking nothing would happen. I'm just stunned by both sides coming together and say, well, we're not going to find out.
(LAUGHTER)
CONAN: John, good luck. Thank you very much for the call.
JOHN: You bet. Thank you.
CONAN: So long.
JOHN: Bye.
CONAN: And, Marilyn, it's that parity price that he was talking about. That is another one of those mechanisms that Congress built in. We're going to build in something so awful, so unthinkable that, of course, will force a compromise before the eventuality occurs. Well, it looks like that might occur as well. The fiscal cliff is the same kind of a thing. When they couldn't agree on the debt ceiling deal, they said, right, a year and a half we'll impose something so horrible, of course, we'll come to a compromise rather than see this - rather than fall off the fiscal cliff.
GEEWAX: It's some kind of a crazy game. It's like Russian roulette combined with like a game of chicken of the highway.
(LAUGHTER)
GEEWAX: I don't know what to even compare it with because they keep setting up these crises for themselves. The idea is that Congress is so dysfunctional that they have to have a crisis to push themselves to do something. So whether it's these automatic spending cuts, milk price hikes, all of these things are sort of traps they set for themselves to make sure that they take action. And then they get there, and they still - right now, it just seems like they can't get there. No matter how many times they push themselves into a corner, they just keep coming up with more ways to delay these decisions.
And let me just back up for a second with all of this and just mention that all of these problems that we're looking at are fundamentally about, how do we pay for all the services that we have promise to people through Medicare, through Social Security? There are lots of promises out there. And we've known for a very long time that we needed to address how we were going to fund that as baby boomers aged.
Now, boomers have been around since the '40s, '50s, early '60s, so it's not a surprise. This has been coming all along, pretty long time now. And there are about 78 million baby boomers who keep aging every year. And so we really should have been addressing this, certainly, by the late 1990s.
In 2001, we should have been taking some action, but, you know, we had the terrorist attacks, then we had the Afghan War, the Iraq War, a big recession. So all of these things had been delayed. And now, they all come together, and they can't keep delaying. Something has to be done here.
CONAN: We'll end with this email from Maria. So far, I held on to my house through unemployment and re-employment. I now make less than needed for my bills. Facing thousands more in taxes will make this year very iffy. Many people are barely hanging on, and this deduction should be left alone.
Marilyn Geewax, thanks very much.
GEEWAX: You're welcome.
CONAN: After a short break, we'll come back with a look at the history hidden behind all the floats of Rose Parade. Stay with us. It's the TALK OF THE NATION from NPR News. Transcript provided by NPR, Copyright NPR.
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