BLITZER: And joining us now from the White House, the president's economic adviser Austan Goolsbee.

Austan, thanks very much for coming in.

AUSTAN GOOLSBEE, WHITE HOUSE ECONOMIC ADVISER: Great to see you again, Wolf.

BLITZER: I see a little smile on your face, but a lot of people are very upset about the direction of the economy right now. It's not where you had thought it would be, where the White House thought it would be, where it really should be. What went wrong?

GOOLSBEE: Well, we got some -- we clearly made progress from when we took over and we were losing 600,000, 700,000 jobs a month, but we have now encountered a pretty tough spot. There have been some headwinds coming from Europe, that they have had problems. You've got some other headwinds coming from prolonged difficulties out of the state fiscal situations and the housing market.

And I think the reality is, you know, when you start down in the deepest hole since 1929, you just got to keep on climbing your way out. That's the only way we have got to do it.

BLITZER: I'm looking at this report. It came out in January 2009. Christina Romer, the economic adviser, another economic adviser to the president, said that, if the stimulus package was passed, unemployment wouldn't go above 8 percent. It's now at 9.5 percent and going up. And the other day I interviewed Mark Zandi. You know him. He's a well-known economist. And he said this.

(BEGIN VIDEO CLIP)

MARK ZANDI, CHIEF ECONOMIST, MOODY'S: We're at 9.5. I suspect we'll be back into double digits by the end of the year, early next at the latest.

(END VIDEO CLIP)

BLITZER: Do you expect unemployment to be in double digits? AUSTAN GOOLSBEE, WHITE HOUSE ECONOMIC ADVISER: You know, I try to stay out of the forecasting game, because the -- it seems like all you can do is get in trouble. In the report that you're citing of Romer-Bernstein, I think the thing people miss there is yes, it said stimulus, it would stay at 8 percent, but with no stimulus it would be 9 percent.

Everyone, not just the government: all the private-sector forecasters and Mark Zandi himself missed the fact that the baseline was substantially worse than they could see than it was going to be in January of 2009.

The first quarter of 2009, before the recovery act ever went into effect, was devastatingly bad for the economy, one of the worst performances in the last half century.

BLITZER: Yes.

GOOLSBEE: That is the deep hole I'm talking about we have to climb out of.

BLITZER: It is a hug hole, and I'm looking at the report right now. And she clearly has a line with the recovery plan. The stimulus plan passed with this point in 2010. According to her chart, unemployment should have been about 7.5 percent. It's clearly 9.5 percent and appears to be going even higher in the coming months, if you believe, at least, Mark Zandi. We'll see on Friday what the latest numbers are.

GOOLSBEE: As I said, it's a little misleading, because you're -- she, the government, the Congressional Budget Office and all the private forecasters made the same mistake, which is what would happen with no stimulus was substantially worse.

The president's focus is let's try to release credit to small business. Because at least one of the big things that has happened that made the economy worse than anyone predicted then is that credit market catastrophe had a disproportionate impact on small business, which is normally an engine for growth in a recovery and now is limping along.

So the president has been pushing very hard. Let's pass the small business credit enhancement bill so small business can get back on its feet.

BLITZER: Here's what Paul Krugman, the economist for "The New York Times," Nobel Prize winner, wrote in an article entitled, "This is Not a Recovery": "Tim Geithner, the treasury secretary, says that 'we're on the road to recovery.' No, we aren't. Why are people who know better sugar-coating economic reality? The answer, I'm sorry to say, is that all -- that it's all about evading responsibility." And he goes on to say, "It's time to admit that what we have now isn't a recovery, and do whatever we can to change that situation."

Is he right? GOOLSBEE: Look, I have a lot of respect for Paul Krugman. I've known him for many years. I think that Paul Krugman's argument of the doom and gloom and there ought to be substantially bigger stimulus, there are people then arguing on the opposite side, don't do any more stimulus. Do the opposite and cut spending as quickly as possible.

I think everybody's got to take a step back and take a deep breath. Let's note that, when you start in a deep hole, it is important we identify what are the barriers to getting us out of this hole? And we've got to start working at relieving those barriers.

No. 1 barrier, small business needs to be unleashed. We've got to get that...

BLITZER: Let me interrupt you, Austan, for a second. Is it fair to say that the $800 billion or so economic stimulus package that you got passed did not work out the way you wanted it to?

GOOLSBEE: No, I don't think that that's a fair statement. If you look at the independent Congressional Budget Office, they believe that the -- if it were not for the stimulus, there would be more than 3 million additional people out of work. And that's very much in the range of what was predicted. The thing that we did not understand was that the underlying economy was even worse than they projected it to be in January of 2009.

BLITZER: Let's talk about home sales for a moment. Existing home sales, down 27 percent, the lowest in 15 years. New homes, down 12.4 percent, the lowest on record. Will you ask Congress to pass another tax credit for a home buyer?

GOOLSBEE: Well, look, obviously just taking one month when a thing expired, the point of it was to have an increase. And with its expiration -- and it was effective for that part. With its expiration, it goes down. I don't think you can judge what the long- run state of the housing market is just looking at the one month after the credit expired. I think we need to get a little bit of a longer view on that.

BLITZER: How worried are you about a double-dip recession?

GOOLSBEE: I don't think we will have a double-dip recession, but it's clearly anybody should keep their eye on that. You saw at the Jackson Hole Fed conference in Wyoming, that the Fed is eyeing that. The central bankers from around the world are paying attention to it.

I think if we pass a small business recovery bill, if we do what the president is asking and extend the middle-class tax cuts, and if we go with his export initiative -- he's outlined various ideas to promote exports -- I don't think we will have a double-dip recession. But it's clearly something we've got to -- we've got to be mindful and we've got to prevent.

BLITZER: Austan Goolsbee, joining us from the White House. Thanks very much.

GOOLSBEE: Great to see you again, Wolf.