Odd Lots - Jared Bernstein on Taxes, Spending, and Why President Biden Wants to 'Pay for It'

Episode Date: May 13, 2021

Jared Bernstein has been a longtime advisor to President Joe Biden. He was his advisor while Biden was Vice President, and today he serves on the Council of Economic Advisors. On the latest Odd Lots, he joins us to talk about the current state of the economy, inflation, and, more importantly, the White House's vision for taxing and spending. In particular, he explains President Biden's philosophy on taxes, and why he thinks that further spending plans should be matched with tax hikes rather than running up the deficit.See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Oddlots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, I'm very excited about today's episode, obviously. You know, we talk a lot about economic theory on the show. We talk a lot about how like changes have in economic thinking have changed from, you know, now and pre-crisis and so forth. We talk about the sort of condition of the macro economy quite a bit. But, you know, not as much on the actual, I guess, specific policymaking side. Yeah. Well, today is a chance for us to put theory into practice, I guess. And we've been talking basically a year now about this idea of the handoff to fiscal policy, this movement from monetary

policy to fiscal stimulus being more important for economies post-COVID. And now is our chance to actually dig into how fiscal policy is enacted and how people, in power are thinking about it. Yeah, exactly right. So like that is, of course, a huge theme, a huge discussion, the sort of the post, I guess I would say, you know, the lesson of the last year is that fiscal firepower has been incredibly effective at reviving the economy. And there's certainly an increased openness. It feels like politically and also intellectually to really take a more expansive view of what government spending and taxation, power is capable of in terms of building a new economy and sort of not leaving all of so many of

so much of the decision making to the central bank. Yeah, I think that's exactly right. And we are seeing even, you know, if you think back a couple of years, even the idea of massive fiscal spending, things like direct payments to Americans, were kind of on the fringe. But now not only have we seen that happen, but people are talking about other things for future crises, such as automatic stabilizers, things like that. Yeah, exactly right. It feels like it's a time of openness to new ideas, which often is the case after a big crisis. Anyway, I want to jump right into our discussion today, because we have the perfect guest with a perfect perspective to talk about all this. We're going to be speaking with Jared Bernstein. He is a member of the White House's Council of Economic Advisors,

right now advising the president on economic policy, and he was the previously, he was the chief economist and economic advisor to then vice president, Joe Biden, coming out of the great financial crisis. She is truly an extraordinary purge, extraordinary position, great perspective to talk about today and the past and everything that's going on. Jared, I thank you so much for joining odd lots. Well, thanks so much for inviting me. I think the right way to start is to say, time listener, first time caller, as they say. That's great. I love hearing that.

I've taken many a jog accompanied by the two of you, which has both helped, you know, burn calories and learn something while I'm running. So, uh, thanks for that. We're all about physical fitness. Yeah, you're the second person recently to actually cite our podcast in contributing to burn calories, which is, you know, it's nice to be listened to by influential people and stuff, but we really want to help people lose weight. So that really means a lot. But, you know, I want to start actually with something kind of specific. So we're in this, I think, pretty extraordinary moment. Economic growth is much faster than I think a lot of people would have guessed. The willingness of the government over the last year, both under the last administration and this one, to engage in aggressive fiscal expansion is truly historical. But there is this other bill or possibly set of bills. that the White House is aiming to pass later this year, and I want to get into those.

But right now, everyone's talking about inflation, lumber prices, gas prices, and so forth. We know that the Fed is planning on basically really looking through that, understanding it's transitory. But from a political perspective and thinking about the task ahead of you this summer and sort of building support for more aggressive fiscal firepower infrastructure, is that a political challenge, you know, this sort of thinking about, okay, We need to convince members of Congress and the Senate to spend a lot more money at the same time. The news is filled with stories about rising prices. Well, I think any thing you undertake in Washington, given the legislative environment, is a political challenge. But you're very much correct to think about this, at least from my perspective and that of our economic team, from the perspective of political economy or the intersection of politics and the kind of

economics concerns embedded in your question. From the inflation perspective, it's really, really important to separate the American Rescue Plan from the Families and Jobs Plan, because the former is very much in the spirit really of relief more than stimulus. And that's a subtle difference, but one that I think it probably isn't lost on this audience. where stimulus is often about trying to quickly address a demand shock and get people back into the economy where relief is more about helping people and businesses get to the other side. But putting that distinction aside for a second, there's a big difference between direct impact payments or the checks you were just referencing and enhanced unemployment benefit,

PPP loans, things like that. And a set of investments that spend out over eight to 10 years, from both, from the perspective of kind of the political economy or the kind of the politics of those different initiatives and to your question from the perspective of inflation. I think it's actually quite a non sequitur to talk about the jobs and the family plan and the kind of monthly inflation reads that we're digging into right now that are very much driven by base effects, by what we we believe to be transitory supply demand misalignments by some of the pent-up demand and the elevated savings rates and investments in long-term clean energy initiatives, advanced manufacturing,

standing up a care sector, measures which I'm sure we can get into from the families and jobs plan, pretty different creatures from the perspective of price pressures. Well, just on that subject, is there anything the administration could do, to expand capacity for things that are in short supply. So I'm thinking, you know, lumber is obviously important for housing. Horn prices have also surged an important source of food, animal feed. Semiconductors have already been discussed by the administration as being strategically important. But is there more that you could do?

Would you be inclined to do more? So let me begin my answer there with a very first. firm statement, which may sound a little tangential to your question, Tracy, but I don't think is, which is that when it comes to managing inflation, that is first and last, beginning and end. I don't know how to, I want to just really emphasize this, the remit of the Federal Reserve, not the White House. Clearly, we are tracking, carefully monitoring inflationary developments. And by the way, not just in the data, which we're doing with the regular data, the high-frequency data, but also anecdotes. I mean, this is something we're tracking extremely carefully.

But when it comes to managing price pressures, that's the job of the Federal Reserve. Yeah, so that kind of independence of the Fed is a huge value of, of course, our administration. That said, you raise a perfectly legitimate question that is addressed by some of the measures in the jobs plan in particular. you mentioned semiconductors. So there's a $50 billion investment in the jobs plan to help promote and onshore some critical supply chain aspects, including semiconductors. But this is not something that happens right away. I mean, as I was mentioning to Joe, obviously, unlike the rescue plan, the jobs plan still has to be legislated. But it takes a couple of years to stand up a semiconductor plant. When it comes to addressing what we're looking at as transitory misalignments

between supply and demand and some of the sectors you mentioned, I think right there we have to think about the sort of elasticity's or response functions that occur in markets where demand for lumber sends a signal to sawmills to activate lines that have been dormant. And there are misalignments that evolved throughout the course of the pandemic where I think some key actors took down production, not foreseeing that it would come back as quickly as it did and those sorts of things. That's not necessarily a position for an administration to intervene in, but we'll see how that evolves as time unfolds. Well, on that note, and this is a theme that we talk about a lot, which is the, you know, supply and demand sometimes get discussed as if they're like these sort of

very distinct separate things and two lines intersect on a chart. There's the price. But of course, as you basically just alluded to, you know, we've lost a lot of supply in part because of weak demand. And so we lost sawmill demand over the last decade after the great financial crisis with the mediocre housing recovery. And tech capex hasn't been impressive. In your thinking about investment, and, you know, again, the longer-term investment, do you think about basically this idea of maintaining demand, whether it's direct purchases of equipment or incentives to keep, you know, growth high such that private sector actors will be incentivized to continue to build out capacity

and now just look at the current moment as a sort of short blip? Yeah, generally, I would say more yes, then no, although nobody, I wouldn't use the phrase short blip because you just don't know. Right. Fair enough. We and others have packed a lot into this word transitory, but I think what it really means is that we expect these misalignments to correct, although I don't know that any of us really have a great feel for the timing of that because we haven't been through this before. Like you said, Joe, earlier, this is a remarkable period. We essentially shut the economy off and we're turning it back on. That's not something that we have a lot of time series evidence on.

I think that theoretically, the theory of the case is kind of this law, and this is very traditional kind of Keynesian economics, is this recognition that the world works much more in Keynesian term than in Say's law term, meaning that it's not correct to believe that supply creates demand, it's more correct to believe that demand pulls in supply. That theory of the case is very much embedded in my, and I would argue, our thinking in the administration. However, that said, if you look at our plans, particularly the jobs plan, but also the family's plan, the longer term investment plans, what you see there is not a kind of acceptance that it's, it's, you know, completely up to the market to align supply and demand and deliver whatever

outcomes the market delivers full stop and we'll just stand on the sideline and observe. There's much more intention there about, for example, not just job creation, but the quality of the jobs that are created, ensuring that those jobs are union jobs that pay a good middle class wage. That's one of President Biden's most important marching orders to us. It's recognizing that there are serious missing markets in this economy. The care area is one where that's really pronounced, where unlike most other advanced countries, we simply don't have an affordable, accessible care sector for people who are providing elder care or child care, which those people are disproportionately women and moms,

to be able to find a clear path into the job market if that's what they want to do. So we have to help stand up that sector. the economy will underinvest in research and innovation, particularly when the returns from those investments are longer term. The economy will underinvest in clean energy at tremendous existential cost to our survival. And so there are areas where we have to make sure that our investment meets those missing markets and helps to create demand that will lead to better quality jobs and investments in underinvested sectors. So we have so much to get through, and I want to make sure we have time for everything.

So if I could shift gears slightly to one of the big questions hanging over, you know, Biden's spending plans, which is how are they actually going to be paid for? So I would love to know you're thinking about the deficit, I suppose. And also the proposed package includes, I think, tax hikes, well, enormous tax hikes. for the rich, you know, something equivalent to 1% of GDP per year. Why tax hikes to fund this particular package? And the reason I ask that is because, you know, Joe and I talked a little bit about economic opinion, maybe changing in political circles, this idea of stuff like modern monetary theory, making inroads in the administration.

So are the tax hikes because you're actually worried about funding the spending plan and deficits, or is it more about seizing a political opportunity that's arisen from this extraordinary time, as Joe mentioned, to actually tackle inequality? Okay. Another great set of questions to unpack. Sorry. I know this will only take about three and a half hours, but I'll do my way. I'll try to be succinct. First of all, though, I want to challenge an adjective use, which is enormous. Oh, I need. Yeah, sorry. I knew you were going to say that. Well, it's not just saying that. I happen to be looking right now at a new paper that just came out by the economist Mark Zandi.

And in chart three of that paper, he shows the building back better, that is American Families and Jobs Plan tax hikes in context. And he has a bar chart of all the tax hikes that have occurred, you know, since the 1930s, really. It's really a lot of work went into this chart. And the one at the very bottom is the one we've proposed. So I think you have to recognize two things about- I rescind my adjective. Okay. And I think the reason you get that result is twofold. One is that many cases we're resetting rates to where they've been before or not even in the case of the corporate rate. Of course, the Trump tax fed took the corporate rate from 35 to 21. We take it to 28. That's our proposal. So that's kind of right in the middle. But also,

And this is most important for listeners to recognize that these tax increases do not hit anybody under 400,000 family income. And if we're talking about the capital gains tax increase, it's only above one million. So it only affects the top 0.3%. Okay. So now that we got that out of the way, let's get to the kind of meaty part of your question around how we're thinking about deficits and debt. It is the president's view that longer term or more permanent proposals should be paid for. I think that makes sense. And I think one way to recognize the sense that that makes is to look at the disinvestment in the things that the jobs plan in particular, as well as the family's plan, invests in.

Research and development, innovation, the kinds of long-term return. investments that private firms often won't make because it simply doesn't fit the kind of schedule that they have to report on to their investors. If you look at infrastructure, everything from from public education to replacing pipes that have lead in them, you know, there's hundreds of thousands of kids who are still exposed in today's America to let in their water. That's completely unacceptable to this administration. Again, I talked earlier about a care agenda, but even traditional stuff, roads and bridges. Those investments have really suffered over the long term.

And if you look at the share of GDP invested, for example, in R&D and innovation, it's gone from about 2% in the 60s to about half a percent now, a big and portentous drop. Reversing those investments is the point of the building back better agenda. And one of the reasons why those investments have failed is because they don't have any reliable funding sources. So while I completely understand and have in fact contributed to the literature that understands deficits in debt in a new and different and you could call it a more progressive way, I'd probably call it a more economically and empirically sound way, I'm very much moved by that work. I also think you have to recognize that the effects of

not having funding sources for permanent programs show up all the time in their disinvestment and their insufficient upkeep. By contrast, look at Medicare and Social Security, which have held up relatively well in that space because they have dedicated funding sources. We need to keep unpacking this because I kind of get that and I kind of don't. With the so-called entitlements or Medicare Social Security, yes, they have dedicated funding sources, but they also just have laws that say these programs will exist. And they're not sunsetted, they're not temporary. They weren't five-year health programs. They were at 10-year, there were permanent legal fixtures. And yes, they did come with dedicated funding sources,

payroll taxes, and so forth. But what makes the programs exist forever is the fact that the laws say they have to exist forever. With some of these things that you describe, and we agree, agree, you know, or most many people would agree they have been underinvested. How much is this, a, just a, just the need to pass a law that says this will always be here? So if we're talking about child care, some sort of family leave thing to make it permanent, seems like it should just be a law saying this is a permanent benefit or it seems like it could be solved that way. And so when you draw the connection to Medicare and Social Security, is it that those taxes are needed for the programs to exist or are they needed to get the votes such that politicians are willing to make

them permanent? No, I mean, I really think on this one, the way I kind of laid it out is, is, you know, that sounds more snarky than I mean, is more correct than the way you just laid it out. But let me just explain. That's fine. It's fine. You know, you could do that. You're the gut. We actually have something called the Highway Trust Fund. Right. This is a federal accounting device, wherein resources are supposed to flow to fund our highway system. And its main source of income is a nominal tax on gas that hasn't been changed in like 35 years or something. And even as, you know, obviously inflation has increased and the efficiency of the auto fleet has increased, the highway trust fund is always in massive trouble. And it's one of the reasons why our transportation

infrastructure, including mass transit, by the way, mass transit, which, by the way, is in the rescue plan and the jobs plan quite deeply, that trust fund has failed to support that. And the reason is it's a law on the books, you know, and, you know, according to your theory, a law on the book should be all that it takes, but it isn't. It takes more than that. I actually think if one wanted to make a better, you know, kind of an argument against having to fund these building back better plans, it would be that the return on the investments should be greater than the cost of borrowing. And, you know, that is true. And it makes sense to me. And you'll hear economists, you know, some of my economists friends make that point. They say, hey, look, you're going to get a return on

these investments that are greater than your borrowing costs, which of course are historically low. So why pay for them? And I totally get the economics and the public finance. finance kind of the G greater than our thinking behind that. But what I don't, what I think it misses is, is the political economy of the sustainability point that Joe Biden just intuitively understand. So I actually wanted to ask a big picture question on this topic. But do you think that economists grasp the political realities of putting theory into practice? And what I mean by that is, For instance, it's one thing to say, you know, if you're an MMT person, that deficits are only limited by inflation, but it doesn't necessarily help you get to a place where people are

enacting more fiscal spending if everyone can't agree on, you know, what to spend the money on. I think, let me answer it this way. I won't name names, but I was trying to, I was trying to draft an economist to come in and work with us, who's a someone I'm, I'm really fond of their work. And he's a private sector person. And what I said to him is, if you really want to understand how the economy and the nexus of the economy and government work, and I would include theory in that nexus, Tracy, you've got to work for the government.

You can't understand it if you don't. So I do think that there is a kind of empirical gap between what a lot of theoretical economists sort of write about and even some empirical economists write about and a kind of tangible, granular understanding of how economic policy really works. I think you mentioned MMT. That's a good example because in MMT, there's a belief that if inflation were to take off, this is kind of a timely point, I think. If inflation were to take off, don't worry and don't assign much to the Fed, because that's just not part of the kind of cosmology there, you can just raise taxes to take money out of the economy. Well, you know, that's a cogent theoretical point. But when applied to the real political

economy and the legislative timing involved therein and the partisan squabbling involved therein, that's not, you know, a very, I think, realistic solution, especially when you have a central bank whose independence allows it to get outside of that political constraints there and do what needs to be done for, you know, very good, sound economic reasons. So I do think that there can be a gap between theory and practice, not unlike the one I just talked about to Joe, in terms of why I think President Biden's view on pay force for the investment programs make sense. Every answer you give, I have like a billion other questions. I want to ask. I want to another version, though, kind of related to the MMT question. But, you know, I mentioned in the

beginning, and as anyone who's followed your career, you were the chief advisor to then Vice President Biden coming out of the great financial crisis. All else aside, and I think there are a lot of lessons from that period, particularly the first two years. I think it's pretty clear that in both sort of the intellectual sphere and the media sphere, there is much less concern about deficits these days than there was 10 years ago or 11 years ago or 12 years ago. And I'm curious if from a policy perspective in the White House thinking about, okay, what is, you know, what is the best stimulus to do? What is the best way to structure spending for the next 10 years, et cetera? That new sort of environment, and if you don't think that exists, then let me know, but it feels like it does.

That new environment creates more political space, creates more flexibility to achieve your goal. Yeah, that environment does exist more, there's more fiscal space and there's more political space to wield that fiscal space. Right. Now, the fiscal space existed before, but here's an area where I think kind of empirical public finance economics has made real strides, say from the last time I was in government dealing with a downturn in the great recession after the housing bus. And now, and interestingly, as you point out, the current president was the vice president there.

And I think one of the lessons he learned is go big or go home is not just important fiscal policy when you're punching back against a globally threatening pandemic or last time against a globally harmful financial slash housing bus. But there's also not only the fiscal space to do so, but there's actually good research that shows if you fail to wield fiscal policy with enough power to offset the contraction, your debt to GDP ratio can actually worsen because you've done too little to boost the denominator, GDP. And again, there's I think some pretty solid research that makes this case. So I think the urgency and the intersection of good policy, a good policy and politics boosted by high-quality economic research has all landed us in a moment

where we've recognized greater fiscal space. On the topic of 2008 versus 2020, after the financial crisis, we did see a lot of emphasis on trying to fix problems in the housing market that had contributed to the financial system melting down. So, for instance, there's a lot of focus on GSE reform. One of the things that was left out in Biden's proposal were substantial changes to health care. And I'm just wondering what the thinking was there because I guess coming out of 2020, having experienced a massive health crisis and also needing to stimulate the economy, it seems like health care would be a really good area in some ways to focus on. But so far Biden seems to have shied away from that.

Well, again, I think if you look at a couple of different places, you'll find that the president has leaned into that and not really shied away. So in the joint address, there was a very important paragraph where the president spoke about how important the health care agenda is going to be for our administration. There's also some similar language in the fact sheet around the family plan. I feel like we've been here for about 10 years already, but in fact, we've only been here for a few months. I think we just hit the first hundred days. So we have to move the freight on different cars at different times. But if you look back to the campaign, you'll see many areas that the president has leaned into. And he is just ticking through them with alacrity, with power, with legislation, and with, you know, I think really quite here. I'm somewhat patting some of my fellow deputies here in the administration on the back

here with, I think, some pretty well-developed policy plans. So health care is, of course, it's going to be in the mix. It's 17, 18 percent of the economy. And it fits right into the discussion we were having before about the public-private mix and the importance of getting that right. So even if it's not in the actual spending bill now, you're confident that some substantial is coming down the line? I'm not going to lean into something substantial because that begs the question of what you're talking about and we have to run an extensive process before we, you know, I don't front run the president, which is why I still have my job.

But look at what he said. It's actually worth reading. You know, look at what he said in the joint address and the family's plan because he really does lean into what we're going to be planning to do. in that space. I want to pivot a little bit the conversation towards the Fed. And of course, obviously the Fed's independent. We all know that. But you mentioned that there's the Fed's remit to think about inflation. And of course, the White House has a role in shaping who is who is on the Fed now and who is going to be on it in the future. So I want to ask a couple of questions on that.

But to start with, you know, thinking about the question of Powell, he's obviously had this sort of Pretty, I think a lot of people would say fairly radical shift for the Fed to really focus on labor, to not try to preempt inflation to commit in a way that we haven't seen to not snuffing out the recovery prematurely. That seems to be a shift. And he also seems to have won the respective financial markets quite a bit, which is rare. When you think about the question of a potential reappointment or replacement, is that respect that he has among financial markets? Do you think that's an important thing? Well, I'm definitely not going to say anything about bed personnel. You know, this is sure. I used to be a gum-flapping chin music-making pundit who talked about all this kind of thing all day long.

And it's hard to draw that line now and remember that I'm in the White House. We're going to try. My goal used to be to make news. Now my goal is to not make news. So I'm not going to make news. Let me say instead the following. I talked a second ago about what I think is one of the most important advances in political economy, which is the recognition of true fiscal space, a recognition that I think was

significantly fogged up by views on crowding out how public borrowing would crowd out, private borrowing and pressure interest rates that has long been unsupported by the empirical record. Well, there's another important, the other, you know, equally important economic development that I would put, you know, really in the stratosphere of ways that economists are better understanding how economies really work is, of course, the relationship between unemployment and inflation. And, you know, in this regard, I think one of Powell's most important speeches was, I believe, was the Jackson Hole speech when he talked about how, because there's so much uncertainty around. what we call the star variables, Y star, U star, R star, potential GDP, the natural rate of unemployment, the natural rate of interest. These are all theoretical concepts that, you know, I don't know if maybe it's too strong to say that can't be, but are extremely hard to be reliably estimated, by which I mean estimated within a policy relevant confidence interval, that I think, you know, going back to Bernanke, Yellen, Powell, that the recognition that the confidence

interval around those estimates is far, far wider than was realized before and that it's beyond our empirical scope to nail them down, has led to a much more data-driven approach to both fiscal and monetary policy. And that's a really great advance, particularly from the perspective of tightening labor markets. And there you've heard, again, this dates back before Powell, there you've heard the Federal Reserve make critically important connections. By the way, most of my research agenda before I took this particular job was in this space that I'm about to mention, the really important connection between achieving full employment and pushing back on racial inequities, on economic inequality, providing folks and communities are typically left

behind with the kind of economic opportunities they need and deserve, that is very much linked up to achieving persistent, stable, full employment. And getting to persistent, stable, truly chock full employment is itself closely related to these important insights about both fiscal and monetary policy. So this is something that I wanted to ask you about. So you wrote, I think it was just last year, that the Fed should consider targeting not the overall unemployment rate, but the black rate. And now we have this idea of an inclusive and broad-based employment framework from the Fed. But in your opinion, what does that actually mean? And does the central bank need to go further by perhaps setting explicit targets for black unemployment, for instance? Yeah. So when I wrote that

I wasn't in the administration, and, you know, I felt that that was, so I was, again, I was playing chin music all day, about things that I don't sing about now. And by the way, I think if you look back, at least what I was trying to say was not so much as the Fed should target black unemployment, but that racial equity and monetary policy are linked in the way that I was describing a minute ago. Because if you look at who benefits disproportionately from tight labor markets, it's people and communities of color. So, and actually, you could see. this in a way that was fascinating to me. I was writing, you know, empirical papers about this, crunching the heck out of every number I could find showing how persistently low unemployment

was providing labor market opportunities on so many different margins, not just the extensive margin, which is pulling people into the job market who weren't there before, but as much and even more so, the intensive margin, giving those people way more hours of work, if that's what they, that's what they wanted. And the changes for, say, African Americans in the bottom quintile. I did a paper with a guy named Keith Bentley on this, which you can find out there somewhere, are economically really large. So those connections, you know, what I can talk about is what I mentioned in my last comment, is the intersection between critically important new insights in fiscal space and in the relationships between unemployment and inflation. the linkage between those insights and the ability to maintain full employment with such deep

benefits to groups that are too often left behind. So I want to explore this point further, but I think, you know, one of the particularly tragic things about the timing of the coronavirus crisis and this setback was that right prior to it, we were seeing an impressive level of compression between, say, the white unemployment rate and the black unemployment rate as, you know, the economy continued to improve. And so obviously there's a hope that we can get back there really fast. But it also, on the other hand, seems like unfortunate that, okay, that was a desirable state. But that came after 10 years or, I don't know, nine years of a very disappointingly wide gap and a sort of labor market that was almost nobody's. idea of tight. How do you think like, okay, like we want to get back that. But, and I guess this

gets to the question of like, what is your, what is President Biden's vision of like the future? Can we have that sustainably? Can we have that so that we always have a tight labor market and it's not just like a special treat that comes at the end of every expansion? Yeah, that's a great question. Let me talk about it from my economist's perspective and then shift to the president's vision here because it's a, the latter is way more important, because he's the president. Here's a statistic that I haven't cooked up lately, but, uh, so it may, this, this number changes, as you'll see, uh, but I think I'm in the right ballpark. If you look at the percentage of quarters, starting around 1980, which is the period when job markets have been persistently

to slack, if you look at the percentage of quarters where the unemployment rate has been above the CBO's estimate of what the natural rate is, that is the lowest unemployment rate consistent with full employment, that ratio is 6.66, you know, 0.7, maybe 0.75, and depending on the end points that you choose, that is most of the quarters or most of the years since 1980, this economy has been slack, and that's by a measure, which, you know, probably in many years, pitches the natural rate too high. So it's probably even worse than that. So the foundation of your question is exactly right. We have not had tight enough labor markets. And that's one of the great insights of recent federal reserves. And again, links back to the importance of recognizing fiscal space.

Now, Joe Biden is not an economist, but I've been talking with him about this since we sat down in his house in November of 2008 and talked about me perhaps coming on as his chief economist. The very first thing we talked about, he pulled out a graph that I'd made with Larry Michelle, which showed the gap between productivity growth and median compensation. Okay, so productivity growth grows, grows, grows, not as fast as we'd like, but it does grow, you know, a percent, percent and a half per year on trend. and the median compensation, the compensation work was right in the middle of the scale, was flat, flat, flat for, you know, not all of those years.

And in fact, in the latter 90s, when the job market really tightened up, precisely like my earlier theories, you know, were trying to predict, then you saw some action at the median. But for the most part, and by the way, Larry and Michelle and Josh Bivens have a forthcoming paper on this, which is really elucidating. You need to get them on here and talk to them about. it. And Joe Biden, who's the vice president-elect then, pointed to that graph and said, this is what I want us to work on. I want middle-class people to get a fair shake. I want to think

about the policy agenda that's going to, in my words, relink median compensation and overall economic growth. And that agenda is a deep one. And now that you see what the president is up to, that's what he's doing. So unions, are part of that because the, as Bivens and Michelle will show, have shown in various papers, and it's going to be part of this new one as well. The loss of bargaining power for workers in the middle class has certainly put downward pressure on wages. The absence of persistent full employment, as Joe's question suggested, is very much in that mix. The inaccessibility for women to, in particular, caretakers, to have a clear line of access into the job market because

there's a child care sector that's affordable and accessible. The absence of investment in good middle class jobs in new expanding areas of the economy, including advanced manufacturing, clean energy, electric vehicles, these are all parts of the plan, and at least from a kind of macro labor perspective, it's all about trying to reconnect middle-class working families to the overall prosperity in the economy. And then I'll finish up. That's why, you know, we started this conversation saying, boy, we're getting some good growth numbers. You know, GDP north of 6% in Q1, that's great. We're all for it. It does not obviate the work that I just described. Because at the end of the day, if this administration achieves high GDP growth, low unemployment,

a booming stock market, but it doesn't reach the middle class in the way that the president has set out for us, we will have failed to march to his marching orders. And that's not something I want to do. Just on the subject of the Fed more widely, so you've emphasized in this conversation a number of times the importance of the central bank being independent from government. But we're also talking about the importance of fiscal space. I'm wondering, do you see scope for monetary policy to enhance or work in some way together with fiscal stimulus? How do you see those two things interacting? Well, I think that they just naturally interact all the time. And I think that what we've seen in the current recovery largely from a macro sense is the importance of the one-two punch of

fiscal and monetary policy. There is a risk going back to games if you're relying on monetary policy alone of pushing on a string. That is, you can make credit as accessible as you want, but if people don't have direct impact payments or checks, you know, money in their pockets, they won't have the resources to take advantage of those low rates. So I think one of the lessons of the last couple of downturns is that fiscal and monetary have to work together. By the way, one way to just underscore this point is to go back and listen to what Ben Bernanke was saying to Congress back in 2009, 2010, when he was going up to Congress saying, we're doing everything we can to make sure that credit markets are, fluid and that borrowing costs are low, but unless people have the resources that they need,

which is going to involve temporary fiscal policy because the economy is still climbing back slowly, we'll be pushing on a string. So there's that. I also think that if properly implemented, fiscal policy and monetary policy can be complementary in terms of a regime wherein the Federal Reserve is not always looking over its shoulder. at the lower, at the zero lower bound. You have robust fiscal policy, and you have a monetary regime that looks less like what we've seen over the last, you know, decade or even more, where the interest rate is, you know, at zero most of the time.

I want to ask you another question, and I kind of have a feeling you might have to answer in two ways between your economist, pundit self versus your employee of the White House self. But when thinking about creating a sort of sustained high level of activity and not having these downturns that create slack that take years to overcome, should we have automatic stabilizers so that we don't have to hope that the political alignment of Congress is such that they can pass a bill like the CARES Act when there's a downturn, but rather that checks automatically go out to start balancing, counteracting a downturn right away. Well, actually, this is something that the president, has leaned into on occasion. In some of his speeches, he's talked about the importance of that. And there have been various pieces of legislation. I think the, again, I think the political economy of that is challenging because there's discretion that Congress likes to hold on to. But I think there are politicians quite a few prominent folks. I don't remember names right now,

because this is in some bills that agree with this proposition and that recognize that when you hit a downturn, when the economy hits a shock, it could be a, you know, whether it's a housing or a financial bubble or a pandemic or the kind of thing that hits us hard and fast, sometimes the political process can be too cumbersome. So the idea of these triggers is something that the president, as I've mentioned, has talked about on occasion. But I think that where we go from there, I can't speak to at this point. Do you think there's an expectation now that having, you know, sent out direct payments recently that in the next crisis or the next time the economy falters, people will expect that kind of

stimulus again? I guess what I'm asking is, do you think there's a sea change in attitudes among U.S. voters towards fiscal stimulus and especially direct payments? I think there might be, but just for the record, we should recognize that this isn't the first time we've done that by a long shot. And in fact, I remember checks going out under George Bush before the financial crisis and earlier checks as well. I think what happened this round is that they got out really quickly and they were of a magnitude that made a real difference to people. And the president was talking, you know, I think before he was president in November and December, after he won the election, he was talking about how important it was to not just get these checks out, but to get another round of checks out. So I think your prediction about future expectations is probably correct. And I think one thing that complements that prediction is the fact that

the IRS infrastructure was stood up, I think, pretty handily and quickly to get out at this point over 160 million checks. So it's made a real difference. All right. I just have one more question. There's a topic very near and dear. To me, maybe it's my only single thing that I really care about. If there's ever another debt ceiling impasse, is the president prepared to mint a trillion dollar coin to get to circumvent it or at a minimum at least take advantage of this brief window where there's control of both houses of Congress to at least abolish the debt ceiling permanently? Yeah, that's one of those things I'm not going to lean into. But it's a fair question.

Had a feeling. All right. Well, Jared, thank you so much for joining us. We really appreciate you taking your time to come on Adla. My pleasure. Thanks for inviting me. That was great. Thanks, Jared.

Really enjoyed that. Tracy, I thought that was really awesome getting to speak to Jared on that. You know, the term that he kept using over and over again was political economy. And I think that's what our discussions that we keep having are really all about. It really is about it's like, okay, we know what the theory is. What does it actually take to get something passed or make something sustainable in D.C.? And I feel like Jared just by dint of his career just has such a great perspective on all that. Yeah.

It's kind of a shame we didn't really get into the debt ceiling. But in one way, it's the perfect example of that, right? So the suspension is supposed to end by August. And, like, clearly it's going to have to be dealt with at some point. But for years now, Congress has been suspending rather than actually raising the limit. So even if someone can make a rational argument for why they should permanently raise the limit, there's already, you know, people are clearly reluctant to do that. And it's going to be interesting to see how that plays out. Yeah.

Well, it's also like, even more importantly, almost everyone will agree, especially in. especially if they're not in politics, that the law is bad, that the idea of like a statutory debt ceiling that's disconnected from the budget is not a good system. But it's the, but we can't, but we can't get rid of it. And there's various reasons we can't get rid of it. And there's various reasons no one has ever tried to like actually, there's been no real attempt to abolish it. But I do think, you know, again, it speaks to the capital P politics of all this,

that here's this thing. it gets it away. It almost created a crisis in 2011 when people might think that it was going to lead to a default on the U.S. debt. So it's kind of this weird little annoying thing, but it speaks to where there is this conflict between what makes sense on paper economically versus political will. It goes back to that theory versus practice point, which was sort of the foundation of our conversation, you know, this idea that even if you have a big new economic, thought, actually putting it into practice and coming up with specific policies to enact it might be more difficult and does require, as Jared said, an intimate knowledge of the political economy and the way things actually work. Yeah, exactly right. And of course, so it's like this microcosm, but the bigger, you know, the bigger story is this sort of question of what can get passed on the spending side. And it's interesting to hear sort of Jared's perspective and

also his, I guess, I guess I would say translation or insight into President Biden's thinking about, okay, like, if you want to like do this, like maybe economists can make this case and they probably can that a lot of this spending, particularly the investment spending, doesn't need to, quote, be paid for in the traditional sense. But it's interesting to hear the sort of the politics perspective. Yeah. That on some level, yes, it does. But I guess that's, it's, it's, I thought that very useful. Yeah, I'm also curious to see what happens on healthcare because that's another topic that's politically loaded. There seems to be consensus building in the states that there is something wrong with the U.S. healthcare system, but actually fixing it, I mean, as we've seen

over and over and over again, tends to be much more difficult. So that's also going to be an interesting thing to watch. Yeah, no, it should be an interesting summer to see like what eventually, But eventually, you know, it seems like that's the timeline that we're looking for, okay, next few months of negotiations and then maybe something gets passed at September or after that. So should have an interesting few months ahead of us watching to see like what these policies get put into place. And as Jared said, you know, like, okay, we had the stimulus. But it does feel like to some extent, the legacy of the Biden administration will be much, you know, less about the recovery and more about what the what the sustained future economy. looks like after that. Yeah, absolutely. On that happy note, shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast.

I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our guest on Twitter, Jared Bernstein. He's at Econ Jared. Follow our producer, Laura Carlson. She's at Laura M. Carlson.

follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at Podcasts. Thanks for listening.