STEPHANOPOULOS: The White House was hoping that some good news in last Friday's jobs report would help turn the corner on what's been a tough first week of 2010, but it wasn't meant to be. The jobs engine stalled again. We'll get to the political fallout from that downside surprise, the failed Christmas bombing, and the rash of Democratic retirements in just a bit on our powerhouse roundtable.

But we begin with the White House take on why the economy is still losing jobs with the president's top economist, Dr. Christina Romer, chair of the Council on Economic Advisers.

Welcome to "This Week."

ROMER: Great to be with you.

STEPHANOPOULOS: So what went wrong? Most economists were expecting either very small job loss in December or a slight increase.

ROMER: Well, I mean, I think what is true is it was somewhat of a setback. We now know in November we actually added some jobs and, in December, we lost, as you put, 85,000.

You know, I think it is important to put them in context, because they are, I think, still part of this overall trend towards greatly moderating job losses. I mean, I'll give you one statistic. In the first quarter of 2009, when we first came in, we were losing on average 691,000 jobs per month. With these new numbers in the fourth quarter, we were losing 69,000 jobs.

STEPHANOPOULOS: That's true, but we still saw 660,000 people leave the workforce. And we have a real problem now of long-term unemployed. Forty percent of the unemployed have been out of work for more than two years. The long-term consequences of that are devastating, aren't they?

ROMER: Oh, you will get no argument from me. When I was just saying, you know, the job losses are moderating, that's still -- you know, it's still terrible. We're still losing jobs, and we absolutely have to go from losing any jobs at all to -- to adding them at a -- at a robust rate.

And you're right. The consequences for families across the country, especially with these long-term unemployment rates, are devastating. That's why the president -- I can tell you, from the day he took office -- has been saying it's jobs, jobs, jobs.

STEPHANOPOULOS: You know, it was reported that the president gave you a big hug after the November jobs report. What was his reaction on Friday?

ROMER: Well, you know, he -- I mean, he was, of course, subdued. He was disappointed. We all were, right? You know, that's -- that's just simply -- you know, I think it's a tribute to just how much he focused on this, that this is -- you know, the first Friday of every month is this incredibly tense day. We're all desperate to see progress, because we know how important it is to the economy and the people.

STEPHANOPOULOS: How big of a setback is this? Some economists look at these numbers and see a real prospect of a double-dip recession. I think Paul Krugman has put it at about 30 percent. Stephen Roach of Morgan Stanley has put it at 40 percent. What are your odds?

ROMER: I think we -- I think we are on a path of -- you know, of steady progress, that by all accounts, you know, GDP, which grew in the third quarter of last year, is going to grow even more strongly when we get the numbers for the fourth quarter. And I think, you know, if you look at basically every forecast, they are saying steady GDP growth over 2010. The real question is going to be, is it going to be strong enough to really add a lot of people back into employment? And that is what we are focusing on, and I think that -- you know, that's got to be the top priority.

STEPHANOPOULOS: I talked to Secretary Geithner a few weeks ago, and he said that job growth would begin by spring. Has that timetable been set back?

ROMER: I think that's still a very realistic estimate.

STEPHANOPOULOS: So when -- what -- what kind of job growth are you expecting? And when exactly do you think it'll begin?

ROMER: So, you know, as I've said, with this -- this pattern of moderation that we've seen, I think we are getting close to stability in -- in employment. And then the next step is, obviously, to finally start adding jobs. You know, there's...

STEPHANOPOULOS: But you don't know the magnitude?

ROMER: You don't know the magnitude. I think, you know, we'll get a lot better read as we see what's happening to GDP, because sort of a -- a precursor for job growth, you've got to get economic growth, and we're certainly seeing that. And I think the whole question is going to be how strong it is.

You know, the big variable in all of this is the private sector. The government has been doing a lot to -- to hold up demand. I think the Recovery Act has been incredibly important in that regard. And the -- the whole question is, when does the private sector get its sea legs again?

STEPHANOPOULOS: You don't think they're doing enough?

ROMER: You know, what's been true -- consumers have been nervous, businesses have been nervous. We've been starting to see the confidence numbers come back. And I think, you know, what the president was talking about in December at his jobs summit is, what are the actions we can take now for this stage of the recovery that might help to take those firms that are thinking about hiring to get them to hire faster?

STEPHANOPOULOS: Well, that is the next big question, and there's a big debate among economists -- some -- some, like Mark Zandi, look at the situation and say that unless we have another $125 billion in stimulus right away, we're going to dip back. He says, "If we don't do it and we slide back into recession, that's going to exacerbate the deficit even more." Yet others, like Michael Darda, say, no, let's just have some patience. If we just have a little bit of patience, we'll start to see monthly increases of 200,000 to 300,000 jobs within six months.

What's closer to your view?

ROMER: Oh, I -- I -- I think the -- the sense that we need to do more is -- is overwhelming, that we know there are things that have been working in the Recovery Act that are expiring, like some of the provisions for longer unemployment benefits, some of the state fiscal relief. I think that's going to be critically important to making sure we -- we keep making progress.

But then the president also talked about, there are some smaller, targeted things that we think will -- will genuinely move the dial, things like, you know, tax incentives for small businesses to hire, or the so-called cash for caulkers, right, a kind of program that could jump-start energy retrofits, or the president just announced the -- the tax credits we were making for clean-energy manufacturing. He said we want to do $5 billion more of that. That's the kind of targeted thing, but we think at this stage in the recovery could really leverage some private capital.

STEPHANOPOULOS: All of those -- all those targeted programs, but still the kind of big response that Mark Zandi is talking about, that's necessary now?

ROMER: Well, I -- I think we -- we definitely need a range of options, both the continuing the things that have been working that are expiring and some targeted actions, yes.

STEPHANOPOULOS: More than $100 billion?

ROMER: Well, I think, you know, if you think about -- look at what the House just passed before they left. It was $75 billion of some things like infrastructure and some targeted aid for the states, so some programs like that, and another chunk of money for expanding U.I. We've got the COBRA program that...

STEPHANOPOULOS: Health care for the unemployed.

ROMER: ... helps unemployed people keep their health insurance, and -- and we think that's something that needs to be extended.

STEPHANOPOULOS: Senator Harry Reid , though, the Democratic leader in the Senate said that has to wait until health care is done and the negotiations between the House and Senate have begun this week. The president weighed in with the leaders on behalf of this so- called Cadillac tax, the excise tax on high-priced health insurance plan. That is facing some real resistance in the House. Here's Congressman Joe Sestak .

(BEGIN VIDEO CLIP)

SESTAK: They're not just pulling the Cadillac. They're pulling the Chevrolets. By 2019, because they index it to a wrong inflation rate, we're going to have one-third of all the workers in employer- based plans paying a middle-class tax. No, this has to change.

(END VIDEO CLIP)

STEPHANOPOULOS: He and labor leaders like Gerry McEntee say this is going to be a middle-class tax increase that could hit up to 40 percent of union workers. ROMER: All right, so the -- the important thing the president has said that he thinks that this excise tax on Cadillac plans is important. He's been convinced by experts across the ideological spectrum that say this is one of those things that genuinely slows the growth rate of costs, and anybody that's worried about the budget deficit knows that we've got to -- to do that.

You know, what the president has said is, you know, he's always open to -- you know, there are design issues here. He's going to be continuing to -- to work with the Congress to say, are there ways to -- to make it work better? But we want to maintain that -- that crucial focus on cost containment.

STEPHANOPOULOS: Even if it's a middle-class tax increase?

ROMER: You know, I think that the numbers that you were hearing, you know, that the levels where this is being set -- I think the current number is something like $23,000 for a plan, a family plan -- that's a very high level and -- and exempts an awful lot...

(CROSSTALK)

STEPHANOPOULOS: Well, except union leaders say it's not. They say that at $23,000, it affects 1 in 4 union members. If you raise the threshold to $27,000, it'll be 1 in 14. Are you willing to raise that level?

ROMER: No, you -- you absolutely -- I think you've got to be very careful on the numbers. They're actually, as it's being developed -- they're being, you know, changes made to make sure that, if you've got just older workers and that's why your costs are higher, or things like that, if you're a first-responder, so we've been very receptive to -- to, you know, arguments like that, and, also, the -- you know, sort of the -- the level at which you set.

I think the important thing is the -- you know, the incentives that it provides to genuinely slow the growth rate of costs (ph). If this thing works just right, nobody hits it, right, because -- precisely because it slows the growth rate of costs.

STEPHANOPOULOS: Well, that's because insurance plans might be dropped, as well. But, still, even with this in there, the Senate bill, your own chief actuary of Medicare and Medicaid says that this is going to increase health care costs by $222 billion over the next 10 years.

ROMER: All right, so you need to be very careful. There are lots of estimates out there. I think, you know, the Congressional Budget Office...

STEPHANOPOULOS: But that's your own actuary.

ROMER: The -- the actuary is independent, right, and the Congressional Budget Office is nonpartisan, highly respected organization, as well. They have said that the Senate bill as it came out would genuinely reduce the deficit over the 10-year window and, even more important, said that it would slow the growth rate of costs so that those -- that deficit reduction was going to be growing over time.

So I do think you need to -- to -- to look at the range of estimates. And we, certainly, have looked very hard at the CBO estimates and -- and think they're very reasonable.

STEPHANOPOULOS: We're just about out of time. It is now bonus season again on Wall Street. It's going to begin this week. Banks are poised to pay record bonuses this year. Do you see any sign that the big banks are going to demonstrate the kind of fundamental constraint the president has called for?

ROMER: I sure hope so, because, you know, the American people...

STEPHANOPOULOS: But you're shaking your head, "No."

ROMER: We have had to provide so much support for the financial system -- it was the right thing to do for the American people, because we know that when credit stops, the economy stops. But we've provided extraordinary aid, and the -- and the idea that, as the financial system heals, they just go back to business as usual is -- is simply outrageous.

STEPHANOPOULOS: So what if they do? What is the president going to do?

ROMER: What we're going to do is redouble our efforts on financial regulatory reform, because that has in it sensible things like say on pay, so at least the shareholders are minding the store, sensible things like saying, for heaven's sakes, compensation should be focused on -- on long term, so that you don't have rewards for short-term risk-taking. And we just simply have to put in place rules of the road so that this system doesn't bring the economy to the edge of collapse like it did a year or so ago.

STEPHANOPOULOS: Dr. Romer, thanks very much.

ROMER: Great to be with you.