Today, Explained - Is the economy great again?

Episode Date: August 3, 2018

The US economy is booming, unemployment keeps dropping, and the country is in the midst of one of the longest economic expansions in our history. Guest host Ezra Klein talks with economist Betsey Stevenson about what's driving this growth — and whether President Trump deserves credit for it. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hello? Brie! Gotcha! We did it! We did. Brie, Uber is moving forward. Yes, it is. They've designed new features to take the stress out of pickup,

and you can find out more about them at uber.com slash moving forward. I'm so happy Klein, filling in for Sean Ramos' firm. You've probably heard President Trump talking about the economy. He is stoked. And he's not the only one. The report showed that the U.S. economy, measured by the country's gross domestic product, grew at an annual rate of 4.1 percent. The best reading since 2014. U.S. markets are getting a big boost on this news. The unemployment rate did tick down, that's good, to 3.9 percent from 4 percent. That is the lowest we have seen since 2000. Another tenth of a percentage point there, and you have the lowest

unemployment rate since 1969. Not quite there yet, but these are very good numbers. So there's a lot of signs for optimism in the economy right now. The economy is incredibly strong right now. Incredibly strong. It's incredibly strong. And I think what's incredible about it is just how steady the pace of growth in the labor market has been for so many years. Betsy Stevenson was a member of the Council of Economic Advisors during the Obama administration. She's one of the best labor economists in America. We have had pretty steady economic growth since January 2010.

And, you know, we're now halfway through 2018. That's a long expansion. I called Betsy to talk about the economy because I wanted to put it in some kind of context. How good is this economy really, and why? What's driving this growth? You know, I took a look at the job growth in both two ways, thinking about it like how many jobs have we added per month, but then also what's sort of the percentage growth. And over that eight-and-a-half-year period,

we've added 192,000 jobs per month on average. And when you plot the data and you look at it, it's just a straight upward sloping line, and it looks like the slope was the same between 2012 and 2014 as it was between 2014 and 2016 as it was between 2016 and 2018. So it's just this remarkably steady growth. In 2012 and 2014, the line on the economy, the thing you heard everywhere was, yeah, look, we're adding about 200,000 jobs a month, but that's not enough to make up for the damage of the Great Recession.

So did we just outpace that through steadiness? Because we're still adding roughly the same number of jobs. We're very much in the same growth pattern. But people's attitudes towards how good the economy is have changed quite a lot. Right. And that's because we want to add jobs and we want to get back to where we were quickly. Well, we didn't do it quickly, but we did do it by a long, steady, continuous growth. So, you know, it's a little bit of the tortoise and the hare. We ended up with a tortoise economy.

But you know, in that fable, the tortoise wins. I have heard that. Yeah, the turtle always wins. How does he do it? But that is what really sort of happened here. You're right, in 2012, there were a lot of people who were really suffering. If you want to break it down,

jobs plummeted between 2008. 2.6 million jobs were cut from the economy last year. That's the greatest decline since 1945. In 2010. The economy has lost nearly 8 million jobs in the Great Recession. And Harry, since last August, just 2% of those jobs have been recovered. That's a lot of jobs to lose. So what is it going to take to get this economy to really catch fire again?

It took until the early spring of 2014 just to get back to the level, the number of jobs we had had in 2008. So in 2012, of course we're complaining because we don't even have the number of jobs in 2012 that we had in 2008. And of course, the population's continuing to grow. So you feel like you're struggling and you're racing towards a goal line, but the goal line keeps moving a little bit and you're not hitting it. What happened, though, is by early 2014, we had added all those jobs back.

And yet, this is where the shocking part comes. And yet the pace continued at the same pace for four and a half years after that. So it's the four and a half years after that, we not only made up for what we lost in the recession, but we added a lot of jobs on top of that. The labor market continues to strengthen. Job gains were strong on average in recent months. Unemployment rate has stayed low. And household spending and business investment

both have, quote, grown strongly as well. And what's behind this expansion? I don't think I know the answer to that. I'm not sure anybody knows the answer to that. Donald Trump said it was his tax cuts. That certainly doesn't explain all the job growth that happened before his tax cuts. If you take a look at President Obama's second term, he was adding 217,000 jobs a month, to be specific. And since Trump assumed the presidency, he's been adding 189,000 jobs per month. You know, I'd say those are roughly around the same ballpark, but I don't think Trump should be bragging that he's somehow doing something that President Obama wasn't doing.

You know, a reasonable person could ask tax cuts, and finding themselves blocked. And then Donald Trump took office and Republicans agreed to spend a lot more money on the government and they passed massive tax cuts and they didn't pay for it and they stopped worrying about deficits. Is that helping the economy that fiscal stimulus they passed, even if it seems to many people a little bit hypocritical? A fiscal stimulus like that mechanically is going to strengthen the economy in the short run. The question is, what are the long run consequences. It's pretty unprecedented to attempt a fiscal stimulus at a time in which the economy is pretty much at capacity. Because the question then is, what's going to happen with all those extra resources if the factories are already running at capacity if people are already fully employed. You know, there's a short run and a long run question. So in the short run, what we did was we gave a bunch of money back to people through tax cuts.

And we didn't stop the government spending that would normally come with a cut in revenue if you were going to, say, have a somewhat balanced budget. Of course, that's going to provide some sort of short-term stimulus. You know, the question is whether some of that encourages further investment in the economy that creates long-term growth, and that's where the evidence is definitely not present yet. We don't have any sign that that's going to contribute,

I think, to long-run growth. And I think we see some evidence that companies are handing the money back to people rather than increasing their investments. Our conversation about the economy is so much about job growth, and it is so much about overall growth. But what most people experience, because most people have a job, is wages and wage growth. What is the story on wages in the past couple of years? So, you know, wage growth has been really tepid. It's sort of barely kept up with inflation.

It just defies economics to see this low a level of employment, this tight a labor market, and yet no real wage inflation. You know, there was a little bit of strengthening at the end of the Obama administration, and that sort of continued, but it's not enough that anybody's taken an extra vacation this year. So wage growth is really weak, and what we see is that there hasn't been the kind of growth in employee compensation that there was at the beginning of the century, you know, in 2000, 2001, 2002. So despite the low unemployment rate, despite a lot of hiring over many, many years, it hasn't been enough to really pressure employers

to spend more on their workers. And that's the real puzzle in this economy. The economy is so complex and there's so many things going on in it that when you say, how's the economy doing? Well, you could look at the unemployment rate and say, great. You could look at wage growth and say, eh, tepid. You can look at overall economic growth and say, hey, it's pretty good. You can look at inequality, which seems to me to be continuing to go up and say, oh, it's really bad.

Depending on what conclusion you want to reach and what data is most important to you, there are a lot of different stories you could tell about it. That's true. Whenever you're talking about data, you can always sort of pick the narrative that you're looking for. I think it's useful for us to think about the difference between business cycles. And so when people talk about whether the economy is strong or not strong, I'm sort of thinking about where are we relative to our potential output? How strong is the economy relative to the best the economy could be. That's not the same thing as talking about sort of structural problems

in the underlying U.S. economy. So when I think about the structural problems, things like inequality or a lack of mobility, those aren't changed very much by whether we're in a boom or a bust. Now, they're changed a little bit. So one of the things about this really long boom that we've had is that it's really only just in the last couple of years started to benefit the most vulnerable people in the labor market.

People who are harder to place, maybe people with criminal backgrounds, people with disabilities, people who have really been out of the labor market for a while or have spotty employment histories. Those are people where employers are now willing to take more of a chance on them. But I think it doesn't really address the structural problem of inequality. Eight straight years of economic growth. But does that have to end sometime? Is it going to come to a screeching halt? That's in a minute. This is Today Explained. Brie, I'm so glad I finally got a hold of you so I could tell you about the new ways Uber is moving forward. And they have that feature, right,

where they can tell who I am by my description that I give? Yeah, what would you say? I'd say I am a 5'9", African-American woman with a 90s bomber on in Burgundy. Yeah. The metro is kind of shutting down. They're doing construction on the blue line and most other lines. And they said the delay will be slowed down up to 50 to 80 percent and they said don't take the train unless you absolutely necessarily have to so i don't want to drive in so i'm going to

look up uber and see what they're doing to move forward yeah you can go to uber.com slash moving forward i always try and like do with you. Can't keep up. There's this line in economics that expansions don't die of old age. If we're going to go into recession, something has to happen to push us there. Are there risks you see on the horizon? It is such a good point you raise because it really is counterintuitive. Like you feel like it's got to be reaching its climax. And so then the question are, what are the risks on the horizon? And there are risks.

Global trade war, that's a big potential problem. A decrease in the market size for our exporters would be problematic. You know, there's also obviously the risk of government debt. What happened with the tax cuts was we already are pretty lean for a developed country in terms of what we spend. It also makes it hard for us to cut our spending much further because a lot of our spending is on things that we committed to do, like Social Security or Medicare. What does that mean when we've cut taxes?

It means that we're going to continue to borrow. And, you know, we're sort of relying on global financial markets to make sure that we can continue to borrow at low rates. What happens if the rates we borrow start to go much higher? That will cause its own set of problems. And of course, the more the government borrows, the more it crowds out money that could be invested in the private sector to invest in things that contribute to economic growth.

And then, aside from political risks, again, being a global economy, we have to think about what's happening in the rest of the world because if there's a problem elsewhere, it could be a problem for us. There's something here that I find really strange. I covered the 2016 election, and I remember the big narrative of it being economic anxiety, that the economy was so bad that millions and millions of Americans were willing to take a chance on someone like Donald Trump. And now we're a couple of years later and the economy has been improving at roughly the same rate it was before. And so it's a little bit better than it was, but it's not a huge difference.

And Donald Trump talks about the economy that he was saying was a disaster. Now he calls it a miracle. There's this huge gap between how Republicans feel about it and how Democrats feel about it. And that gap is flipped. Democrats used to be more confident in how Republicans are. In politics, I feel like we assume that people's understanding of the economy is really about how they are experiencing it. And it seems now to me that a lot more of their understanding of the economy is filtered through partisan and other lenses. I have come to that same conclusion.

You know, if you look at the data, we've seen the Trump economy looks a whole heck of a lot like the Obama economy. But when I talk to Trump supporters, they say, well, you got to give them credit for the economy. Look at how strong it is. When you say, well, actually, it's doing the same as it was under Obama. They're like, no, no, no, no, no, it's much stronger under Trump. And then when I talk to people who really do not support the current president, they find a lot of flaws in the current economy. Now, there was a lot of people wanting to point out, you know, 4.1% GDP growth that just came out.

You know, maybe that was due to the surge in exports before the tariffs. Maybe, but actually, we saw a lot of evidence that consumers are confident and they're spending like crazy, and it had nothing to do with the tariffs. So people, I think, on the left are reluctant to give Trump any credit, and people on the right think that there's been some sort of miracle, and that's partially got to be due to their political beliefs. I do think there's something else about how people experience the economy, which is that a long boom is different. Even though it's been the same growth rate, the levels were different four years ago. And so people are experiencing the levels. They look around and they see fewer

of their friends unemployed, fewer of their friends unable to find a job. And they say, hey, you know, four years ago, two years ago, it was a little bit harder to find a job. There were a bit more of my friends who didn't have jobs. And so that change in the levels they're attributing to Trump, even though what's been happening is, you know, the rate of improvement has stayed the same. So do you buy the narrative, that dominant political narrative, that economic anxiety is what allowed Donald Trump to win the election? I have never believed that. And I think that the further we go,

the more we see that that wasn't actually what was fueling his election. Because to the extent that people felt truly anxious, what they want is somebody who's going to provide them a safety net and some real sense of security. And they didn't really feel like they needed that. And I think that's because the economy was strong. But they were really angry. And this was a guy who was going to provide them an outlet for that anger. And you sometimes have to feel financially secure enough to be able to act on those feelings of retaliation. I think it's a mistake to think that people voted for Trump because they didn't think they were doing well enough and they thought they would do better under him. I don't think Trump would have won in 2008. I think people were scared out of their heads in 2008 about how bad the economy was.

And they wouldn't have elected somebody as volatile as Trump under those really scary economic times. It was the fact that we were six years into an economic expansion that they felt like they could express that kind of anger. Betsy Stevenson was a member of the Council of Economic Advisors during the Obama administration. She's a professor of public policy at the University of Michigan. I am Ezra Klein. Sean Match's firm will be back on Monday. This is Today Explained. I'm doing Sean Match's firm.

It's a joke for the audience. You guys are full of Easter eggs. Can't have me on and be like, oh, you can't be any fun. Where are you right now, Bree? I'm with Catherine in a theme. Oh, are you out by the desks? Yes. Put Catherine on for a second.

All right, Catherine. Hello? Hey, Catherine, it's Sean. Hey, Sean. Hey, I just, I don't know if Brie told you, but Uber's moving forward. They're adding all these new features to the app to make pickup easier, and you can find out more about them at uber.com slash moving forward. How lovely.

Great to talk with you. Always a pleasure.