This week, Nick and Goldy have a wide-ranging conversation with Jason Furman, who served as Chairman of the Council of Economic Advisers under President Obama. Furman brings a wealth of experience to the discussion, which covers America’s post-pandemic recovery, the global inflation crisis, and reviving industrial policy. He also provides insight into the overall impact of President Biden’s policies on the broader economic landscape.
Jason Furman is a prominent economist who served as the Chairman of the Council of Economic Advisers under President Obama from 2013 to 2017. He is currently a Professor of the Practice of Economic Policy at the Harvard Kennedy School and a Senior Fellow at the Peterson Institute for International Economics. Furman is known for his expertise in economic policy, particularly in the areas of tax policy, healthcare, and labor markets.
Twitter: @jasonfurman
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
Speaker 2:
It’s time to build our economy from the bottom up and from the middle out, not the top down.
Nick Hanauer:
Middle-out economics is the answer.
Speaker 2:
Because Wall Street didn’t build this country. Great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Speaker 3:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Speaker 4:
There’s been a lot of debate and very little consensus amongst economists, Nick, over the state of the economy the past year or so, its prospects and the role of President Biden’s policies on the economy and pretty prominent, at least in some of the online. The social media debate has been a former Obama economist, Jason Furman.
Nick Hanauer:
That’s Right.
Speaker 4:
You know Jason, right?
Nick Hanauer:
Yeah, I do know him a little bit. And he’s a very prominent economist who served as the chairman of the Council of Economic Advisers under President Barack Obama from 2013 to 2017. He’s currently a professor of the Practice of Economic Policy at Harvard Kennedy School, and he’s also a senior fellow at the Peterson Institute.
Jason, obviously, has been in the economics game for a long time, has been a sometime critic of the Biden administration, sometimes supportive, but I think it will be really interesting to get his aggregate take on how they’re doing and what’s going on.
Speaker 4:
Because it’s very easy to take a critique out of context and go after it, and he opens himself up to that, because especially when you’re on, I won’t call it X, it’s Twitter. I don’t care. Elon Musk can sue me for that if he wants. But I’m never calling it X. When you’re on Twitter and you only have so many characters, it’s easy to pick on those. So, yeah, I’m curious to hear what he has to say.
Nick Hanauer:
Okay, so let’s go talk to Jason.
Jason Furman:
Jason Furman, I am a professor at Harvard University and I used to chair the Council of Economic Advisors for President Obama.
Nick Hanauer:
So, Jason, we’re going to do this interview backwards from our usual approach. We have a benevolent dictator question that we ask at the end usually, which is if you were in charge and could do anything, what would it be? But let me create a little context, obviously.
So, the Biden administration has been at it for whatever it is, three and a half years, and by I think most objective measures you would say has accomplished a lot on the economic policy front from the American Rescue Plan, CHIPS, IRA, infrastructure, the pro-competitive executive orders that are so consequential, the rest of it.
But obviously, some of it you agree with, some of it you may have problems with. You have been from time to time critical on social media of some of these things. We want to start by just giving you a way of expressing your view on what they’ve done and what you would’ve done differently if you had been in charge. I know that’s a lot to chew, but let’s start there.
Jason Furman:
Sure. So, first of all, if I had an up or down vote on the entire Biden agenda, I would very happily vote up. Second of all, he hasn’t done everything he wanted to do, and there’s a lot of things he’s proposed, hasn’t gotten through Congress that I’d be like, he would be thrilled about. Higher taxes on high-income households, expanding childcare, paid leave, all of that.
If I had to choose and was doing it, Blue Sky, would’ve addressed climate change with a carbon tax, would’ve used the money to create a greater degree of redistribution, would do their entire high-income tax agenda, but would also do a broader tax increase to pay for a broader set of benefits so we’d make ourselves look fiscally a little bit more like Europe.
Nick Hanauer:
Interesting. Let’s just start with the IRA, the Inflation Reduction Act, which is the centerpiece of the climate agenda. So, you think a mistake was made by not imposing a carbon tax?
Jason Furman:
I don’t think it was a mistake. For all I know, the White House would’ve rather done that. I don’t know exactly what they were thinking.
Nick Hanauer:
Yeah. I didn’t phrase that right. I didn’t phrase that right. Yeah.
Jason Furman:
So, do I think the first best is a carbon tax? Yes, because it penalizes you for using dirty energy, which is something you don’t get out of the Inflation Reduction Act. It also has differential penalties. It has more of a penalty on coal than natural gas. So, part of what a carbon tax does is it ensures that the transition is a little bit more efficient and less costly by shifting people from coal to natural gas, and it raises money that you can then use for whatever it is you want.
Nick Hanauer:
But just to be clear, there are two issues at play here. One is, is it truly a better policy? And the second is even if it is, could you have gotten it through Congress?
Speaker 4:
Could you have gotten it past Joe Manchin?
Nick Hanauer:
Yeah, the answer to that is no. So, it was sort of-
Jason Furman:
Yeah, you couldn’t because a carbon tax is basically a coal tax. And so, I don’t blame President Biden at all for not doing something that I don’t think he could have done. It’s just you asked me as an economist what I think the best thing Blue Sky is, and I think 85% of the answer to climate change is a carbon tax, and then we can haggle about exactly what’s in the other 15%.
Nick Hanauer:
All right, interesting. How about the American Rescue Plan? What’s your view on that?
Jason Furman:
The biggest issue with the American Rescue Plan is that it failed to make, especially the child tax credit permanent. It was a temporary piece of legislation. I think it was too large, and so at the margin, more of those dollars showed up in inflation than output. But even if you disagree with that, the sad thing there was it didn’t plant the seeds for any long-term change.
And what President Biden has not been able to accomplish is any legislation effectively on the individual side, like expanding tax credits for children, Earned Income Tax Credits, paid leave. Those are all things directly for individuals, and that part of his agenda hasn’t gotten done. I think maybe in part because it was front loaded into the American Rescue Plan. There was a lot of inflation, fairly or unfairly. It was blamed on that sort of stuff, and then no one wanted more of it.
Nick Hanauer:
So, let’s talk about CHIPS. What’s your view on that?
Jason Furman:
The interesting thing about the CHIPS Act is it gave a lot of discretion to the administration and they could have implemented it really well or they could have implemented it really badly. Right now, it’s looking a lot closer to really well than to mediocre or even really badly.
So, I’m pretty hopeful that a relatively small amount of money compared to the research and investment budgets of these firms is going to be enough to catalyze a lot of change, get a lot of stuff relocated and done in the United States that might not otherwise have been done here, increase our resilience, and that this could really go down as one of those industrial policy triumphs that you don’t see every day.
Nick Hanauer:
Yeah.
Speaker 4:
Well, you haven’t seen in the US in a long time, even the attempt of it.
Nick Hanauer:
You definitely see routinely in China and other places.
Speaker 4:
This is a victory for just the notion of attempting industrial policy, that it’s something that can and should be done if it’s done right.
Jason Furman:
I think it should still be very targeted. You should ask yourself, are there other ways to do it? So, for example, with the COVID vaccine, the biggest thing we did was promise companies that we would buy the vaccine for them at a certain price, that type of guaranteed purchase. Having broad tax credits that subsidize an activity like clean energy, that’s another more neutral way to go about things.
But every now and then, we should consider a chip style program, but we should be pretty nervous. We’re sending billion-dollar checks to a hundred, hundred billion dollar companies. We don’t know if for sure if that’s going to their shareholders, their workers, to the goal we want. As I said, I think it’s good, but I don’t want to get too excited about sending grants to companies.
Nick Hanauer:
Yeah. I would agree with you that it is fraught and yet it’s very clear that industry dominance, certainly more recently from some of our competitors, take the EVs in China as an example, that wasn’t accidental. That was the product of an intense, extraordinarily well-financed effort that you would call industrial policy.
Whether it’s battery technology or subsidies to the EV manufacturers over there, they are not troubled by the same levels of accountability that we are here, and that has given them a big advantage in coming to scale on some of these industries in the way that we haven’t. Would you agree with that?
Jason Furman:
I think China has used industrial policy to grow its EV industry. I think its EV industry is super successful. China has had a lot of industrial policy failures itself as well. Overall, its economic growth is a bit on the disappointing side. They have a lot of levers. We don’t have control of the entire financial system.
But sure, if you are giving money to poor children, whether through housing vouchers, Medicaid, EITC, what have you, there’s probably better and worse ways of doing it. But if you screw it up, you’re getting money to someone that needs it. If you’re giving billion-dollar checks to corporations, you have to be really sure that you’re doing it right.
Nick Hanauer:
Yes, that you’re getting something-
Jason Furman:
So, you do that wrong, it’s not that robust error-proof a strategy.
Nick Hanauer:
That’s right. And there are so many examples, certainly from our own state, a lot of subsidies to Boeing that obviously did nothing. It was just that-
Speaker 4:
You don’t think those Boeing tax breaks paid off, Nick?
Nick Hanauer:
No, clearly not.
Speaker 4:
I’m curious, Jason, since you have this perspective within the Obama administration, and then as an outside observer of the Biden administration, do you see a big shift in economic philosophy and strategy between the two administrations? And if so, how much do you attribute that to a different philosophy with Biden and his advisors versus just changing circumstances?
Jason Furman:
I see a little bit more changes in degree. Some of them natural evolution, some of them I think overshots. Then, I see a fundamentally different philosophy. I read a piece recently that said, President Biden is doing this brand-new thing, which is middle-out economics. That, of course, is a phrase that President Obama used.
Nick Hanauer:
Be nice.
Jason Furman:
And when he got it, I… that’s a phrase President Obama used and he got it from Nick.
Nick Hanauer:
Yeah, he did.
Jason Furman:
So, that’s a great idea. I’m totally for that. It’s just not new to this president. Obama had proposals that he wanted to do that I think of as people proposals and staff proposals. He came in and wanted to do the Affordable Care Act, but he also wanted to do infrastructure. He decided to prioritize the Affordable Care Act.
I remember the meeting where he sat down and told his transportation secretary that until he got the ACA done, he just wasn’t going to put much effort into infrastructure. So, when you look at what he got, he got done this enormous redistributive positive thing on the individual side, but didn’t get a whole lot done on the stuff side.
President Biden is the reverse. He proposed both. He wanted to do both. I think he personally prioritized the staff more than the people, and Congress probably prioritized the staff more than the people. And so, the infrastructure plan got done, but none of the individual-facing things really did. So, to some degree-
Nick Hanauer:
Yeah. We haven’t been able to raise the minimum wage, for example, being a people thing.
Jason Furman:
Yeah. Well, that wasn’t something President Obama got done either. But the amount it’s eroded due to inflation and time is just way higher than it was back then. Antitrust, we were getting more serious about it at the end of the administration than the beginning. Hillary Clinton included it in her campaign platform the first time I remember it in a campaign platform in a long time in 2016.
President Biden has gone even further with it. It’s an area where frankly, I think he’s moved in the right direction, but overshot the mark, or at least his antitrust enforcers have, especially at the FTC where I think they’re going to be losing a lot of cases. And some of that will create some bad precedents that’ll make enforcement harder in the future.
But it’s partly a continuation, partly an overshoot. Trade is where I see the biggest difference. President Obama was instinctively a free trade or market oriented person internationally, and President Biden is just not.
Nick Hanauer:
Yeah. What’s your view on that? This is definitely a place where circumstances are changing, but what do you think about what our trade policies should be?
Jason Furman:
Broadly, I’m a card-carrying free trader. That’s what we’re indoctrinated in economics. I’ve overcome some of my indoctrination when I think the evidence warrants. In this case, I don’t see a whole lot of reason to do that. What does that mean right now? Do I think new free trade agreements of the world is the most important thing?
No, but I’d rather we not be raising costs on American consumers. And a lot of people have criticized Trump for having these taxes that would show up and inflation show up in prices, et cetera, that he calls tariffs. And President Biden is basically in favor of a smaller version of those same taxes or tariffs on American consumers.
Speaker 4:
But you would agree there’s a tradeoff. Obviously, there are benefits to trade and there are downsides to trade specifically for individuals in industries who end up having their particular jobs offshored. You had positive things to say about how the industrial policy is working so far with the CHIPS Act.
Part of the goal of that is to bring semiconductor manufacturing back home. It’s a technology that we created. We lead in designing it. We’ve offshored the manufacturing. Again, in terms of price, it might be cheaper to import the chips, but wouldn’t you agree it made our economy less resilient?
Jason Furman:
So, I like the CHIPS program for national security. I like it, as you just said, for resilience. I don’t think it’s much of a job creator, if at all. I wouldn’t be giving checks to Intel and TSMC if I wanted to create a lot of jobs in America. Moreover, it’s driving up interest rates, which is a small spread of job reduction everywhere else.
It’s raising construction costs, a small amount of job reduction everywhere else. So, I think something like the Chips Act is changing the composition of investment in the United States more than the level of investment in the United States. So, if you tell me you have a goal other than just GDP and jobs, absolutely, industrial policy might be a way to do that.
If all you care about is GDP and jobs, I just don’t think you’re going to do a whole lot better with trade restrictions. And sometimes you’ll do even worse when they raise, for example, costs of intermediate inputs, you raise the cost of steel or tires, makes it harder to make cars in the United States, for example.
Nick Hanauer:
Yeah. How should we think about this very real tradeoff between investing in the industries of the future here and protecting them to a certain extent until they can get to scale and be globally efficient and effective versus just saying to hell with it, let’s just import the cheapest stuff we can from wherever it comes?
Because just to be clear, the Chinese definitely protect their markets until they’re at scale. They’re not shy about making sure that their markets are protected. Why shouldn’t we?
Jason Furman:
I don’t think we want to do whatever it is China does.
Nick Hanauer:
No, that’s true.
Jason Furman:
Microchips are something we have a real interest in. Solar panels, I just don’t care a whole lot whether they’re made in the United States or made somewhere else. I want them to be as cheap as possible. I want them to be as widely deployed in the United States as possible. I’d say the same thing about washing machines or television sets. We don’t make televisions in the United States anymore. That doesn’t really bother me a lot.
Nick Hanauer:
Yeah. But you really don’t see the benefit of making sure that the industries of the future will continue to be vital here.
Jason Furman:
I guess I don’t know what the industries of the future are. A lot of those industries that we’re best at that have more jobs, that is where most of our economy is employed is the services sector. Increasing our productivity is an important part of raising wages, so is things like labor unions and improving bargaining power and the like.
But expanding the size of the pie is a big part of it. And if there’s a specific objective, as I said, like national security, great, government gets involved. We wouldn’t have a defense industry here without the government. We’re a safer country for our defense industry, but when it comes to washing machines, yeah, we should just buy the cheapest ones wherever they’re made in the world and not worry a whole lot.
And by the way, look, manufactured goods are a bigger part of the budget of low- and middle-income households than from high-income households. So, if you look at the benefits of trade and take into account the distribution of benefits on the spending side and the consumer side, it’s actually can be really quite progressive.
Nick Hanauer:
Yeah. That, of course, is true.
Speaker 4:
But consumers are also workers. And over the past 40 years, we saw manufacturing communities wiped out across the countries. The jobs moved overseas.
Jason Furman:
Well, the biggest thing they got wiped out by is productivity improvements, but trade was part of it. We’re making way more manufacturing stuff than we ever have before. It just doesn’t take that many workers to make this stuff. That’s again why the CHIPS program is not a great jobs program. It’s a great program for making microchips.
Nick Hanauer:
Yeah. Let’s go to infrastructure. What’s your view on the bill that passed and the approach we’re taking?
Jason Furman:
I am wildly enthusiastic about infrastructure. So, broadly speaking, I like the bill that passed. I think there’s a lot of permitting obstacles that are still there. And it’s a shame that that part of the legislation didn’t pass. And I’m not sure. Some days it looks like the administration is doing what it can to streamline permitting.
Other days, it looks like maybe they’re giving in to some of the different democratic constituency groups and putting obstacles in the way of permitting. But other than that, I’m enthusiastic. If you ask me the Blue Sky question here, I would’ve loved to have seen more R&D funding as part of it too. The rate of return of that is super high.
There’s a lot more we could do, NSF, National Science Foundation, National Institutes of Health, all that broad basic science. But that’s in the, would’ve been even better category, not a criticism of what would’ve actually done.
Nick Hanauer:
Would spending an R&D naturally fall within infrastructure? I’m not asking a rhetorical question, I just don’t know. Is that how you would ordinarily do it?
Jason Furman:
This wasn’t an ordinary infrastructure bill. Normally-
Nick Hanauer:
That’s true.
Jason Furman:
… it’s a highway bill that falls within one committee, and goes out through one agency and all of that. So, this was much broader. It had, for example, reducing lead in pipes. I wouldn’t be surprised if that was the highest return thing in that particular piece of legislation. So, it was a bit of a hodgepodge of stuff for infrastructure more broadly.
It had electric charging stations, all these things I like by the way. So, it’s just by way of saying could have imagined this is a invest in our future productive capacity bill. Well, what else would you want? Once you think of it that way, you probably want some more R&D.
Nick Hanauer:
Some more R&D, for sure. Yeah, I completely agree with you, the more, the better on that side, at least to a certain extent. So, let’s go to the competition executive order and the various deployments throughout the agencies. You mentioned that you thought that the FTC was overreaching in some places, but what I want to understand about that comment is do you think that they’re overreaching because they’re unlikely to be successful or they’re overreaching because they’re going down the wrong path?
Speaker 4:
Right. Is it bad economics or is it simply they can’t get these policies past the current Supreme Court regardless of what the statute-
Nick Hanauer:
The merits, yeah.
Speaker 4:
… actually says or the economic logic of it?
Jason Furman:
Yeah. I think it’s a little bit of both. They come at it a bit more from big is presumptively bad rather than trying to understand why something became big and the consequences. And sometimes it’s because it was good, that’s why it grew. Sometimes it’s because it was bad and that’s why it grew. So, there’s a little bit more of a presumptive, which I think is wrong on the economics and can make it harder to win some of the cases.
But I do think our courts are too restrictive. And so, I’d like to see Congress pass legislation that changes some of the presumptions. There’re a lot of gray areas in the current antitrust that get systematically resolved in favor of mergers. I’d like to see more of those resolved, giving more of a shot at blocking mergers, for example.
Nick Hanauer:
Yeah. So, you substantially agree that industries are generally too concentrated and that less concentration is better?
Jason Furman:
It depends on the industry. I think retail, for example, I’m not that worried about concentration. And in fact, I’m more worried that we’re going to raise prices on consumers by protecting small businesses through something like the Robbins-Patman Act that the FTC has been talking about reviving. So, retail to me is things grew because they were efficient. Hospitals, things definitely did not grow because they were efficient. That cost people a lot. Tech is somewhere in between the two.
Nick Hanauer:
Why are you sure that the consolidation in retail is good for consumers?
Speaker 4:
For example, we’re looking at that Albertsons-Kroger merger in the Seattle area, that’s most of the supermarkets here are Albertsons or Kroger under different brand names. So, it would pretty much eliminate competition. There’d be one circular every week instead of two.
Jason Furman:
First of all, I would distinguish where I have a higher degree of confidence. Something like Walmart grew organically, didn’t grow from mergers. And so, the only reason they were able to open a new store in a new area was because it had lower prices or a more appealing selection for consumers.
And that’s a lot of the retail we’ve seen. When you look at studies of the retail industry, you’ve seen efficiency has gone up as they’ve become more concentrated and markups have not gone up. Markups tend to be quite low in that industry.
So, to date, I’m reasonably confident in my reading of the evidence on a going-forward basis, that particular merger, I agree, you’d want to look at markets and ask yourself where this will create a lot of concentration and raise prices for consumers and where it shouldn’t. I have a broad presumption that organic growth is usually good and Merger growth is something you want to ask a tougher set of questions.
Nick Hanauer:
Yeah. I would substantially agree with that view that if you’re growing your business the old-fashion way, which is customer by customer, it’s very hard to push back against that. If you’re growing your business in the private equity modern way, which is you’re just using levered money to gobble up competitors and hope for the best that generally isn’t something that warrants a lot of support. So, for example, one of the new rules which just published is the prohibition against non-competes. Do you think that’s the right track?
Jason Furman:
I think it’s on the right track. It was an issue I was championing back when I was in government. I am, again, a little bit worried on the combination of economics and surviving in court about how sweeping and completed is. The place where I’m frankly most confused is at the upper end with the high-skilled workers, where there’s both a more compelling argument for non-competes and that maybe people actually do have some firm-specific capital.
You want firms to invest in people, invest in their skills, trust a wider range of workers with what’s going on so they can all innovate together. But that’s also the area where maybe it’s getting in the way of mobility, innovation and the like. So, I see the evidence there as pretty unclear.
The theory is pretty unclear. And the question is, do you want to go and regulate brand new in an area where you’re not completely sure? The lower end of the wage scale, the evidence to me is a lot clearer. In the upper end, it might be there, I just don’t know.
Nick Hanauer:
Yeah. I would disagree with you on that. I think that, first of all, we were regulating. We didn’t choose to regulate. We were regulating and the regulation was companies can force employees to sign non-competes. That was the regulation.
Speaker 4:
We were letting the employers regulate the ability of their employees to switch jobs.
Jason Furman:
Having run lots of these businesses, capitalism provides a ready answer to the problem of how you prevent people from taking the knowledge that they have gained working from you to another place, which is you can pay them a shit ton more and treat them better then they won’t leave. But of course that cuts into your profits, which you would prefer not to do.
And the thing about non-competes is it’s simply a profit maximization lever because now the skills that people have cannot be used any other place. They can only be used with you. And so, you get to pay them minimally and maximize your profits. And of course, one of the challenges in the economy today is the expansion of corporate profits and the decline of wages generally as a percentage of the economy.
So, again, I don’t have any sympathy for people who feel like they can’t operate without requiring people to indenture themselves permanently to them. I think the economy will work much, much better in the absence of this constraint. And I absolutely believe we’ll have a lot more innovation because companies, of course, won’t want to pay people more.
They will let them go and off they’ll go to start new companies, which is always better for the economy. Having been in the role so much, it just has given me much more visceral feeling for it than some of the things that we look at.
Nick Hanauer:
We will see. I hope you’re right.
Speaker 4:
I’ve got a question, Jason. Well, I don’t know, it’s all kind of related. The last few years have been weird. The economy has been very strange. There’s been a lack of consensus amongst economists on a number of issues, particularly on inflation argument. Would these policies be inflationary? What caused the inflation? How long the inflation would last? What we needed to do to address inflation?
And I’ve said on the podcast a number of times that I’m now a member of that nobody knows nothing about nothing school of economics, because there just doesn’t seem to be a consensus in terms of how to forecast these things. I’m wondering if the experiences of the last four years or so has changed the way you teach economics to undergrads at Harvard?
Jason Furman:
Certainly have changed some of the macro, even things like used to emphasize countercyclical policy to get out of recessions didn’t talk a lot about getting high inflation down. Certainly, I tell people that things like the Phillips Curve and I told them that before, I probably tell them even more pointedly now. This is something.
There’s a certain amount of evidence for this in theory, there’s a certain amount of evidence for this in practice, but it’s incredibly, incredibly imprecise, uncertain and debated. So, you have to be very careful in how far you take it. Do you think though there’re some things that we talked that were right?
I don’t think you could have had the huge increase in nominal GDP that we’ve had in our country without people having more money through some combination of an expansion of the money supply and fiscal policy. The fact that we got inflation this time and didn’t get inflation last time when we did extraordinary monetary policy after the financial crisis maps very neatly into back then, the money supply actually didn’t expand.
This time, the money supply did expand. Why did it expand? Well, not just the Fed, but people wanted more money in their checking accounts because they got checking money from the government. So, there’re some places where it actually fits in and corroborates some of what we were thinking and teaching before as well.
Speaker 4:
Well, one of our PED issues and for Nick, more than a decade has been the minimum wage. You’re experiencing $15 and higher minimum wages passed across the country. It certainly seems to have been successful here in Seattle. Has that changed the way you teach minimum wage? Because I’m familiar with your textbook, with the Manku textbook, and it doesn’t seem to see much role for a minimum wage.
Jason Furman:
So, we actually use a different textbook, but you would see the same thing in the textbook we use. You would not see it in our lecture. Our lecture, we teach two different theories of the labor market. One is the competitive model supply demand. That’s a model in which the minimum wage leads to involuntary unemployment.
And then, we teach what we call the institutional model, where bargaining power matters, where there are search frictions, where you have monopsony power on the part of employers. And in that model, you can get a minimum wage that increases employment, a very large one, which still decrease employment in that model.
And then, we tell people that the theory doesn’t settle this question. You have to look at the evidence and show them a range of the evidence that at the very minimum, the employment effects of raising the minimum wage are smaller than you used to think. And some of the evidence, but it’s contested, and I don’t take a side in class on how to read the evidence, is that it even increases employment. So, we teach labor markets very differently than the normal textbook approach.
Speaker 4:
Interesting. That’s good to hear. That is good to hear.
Jason Furman:
And by the way, I think both those models are useful. I don’t think you want to be like, it’s all bargaining power. You can pay anyone whatever you want. There are things that have higher marginal products, people contributing more to companies. They’re going to be paid more. So, I think the bargaining power is a plus or minus, but it’s not the only thing.
And I think supply and demand sets very, very broad parameters, but doesn’t give you a precise exact answer either. So, you really need both of these perspectives, and I’m a little bit agnostic in my own life and in my teaching about the relative importance of them in different situations and for evaluating different policies.
Nick Hanauer:
Given your broad perspective on all this stuff, what do you think we should be thinking about or talking about? What are your top of mind concerns about the economy and the issues facing the country?
Jason Furman:
We’re going to have a hard time getting where we want to go without a lot more productivity growth. Maybe some of the seeds of it there with AI, how do we manage that, ensure that that works, don’t get in the way of some of the good things it might do? To me, that’s one of the big questions.
But I do think another big question is the one I began with, which is how to have a fiscal system that is not just taxing the rich, and then being skimpy with the benefits, and phasing them out sharply as your income goes up? Instead, having a broader, more universal set of benefits paid for, though, by a broader and more universal set of taxes.
I don’t think we can get there tomorrow, but knowing and agreeing on what that North Star is, will help inform a lot of the decisions between now, tomorrow and the far future.
Nick Hanauer:
Yeah. And that obviously is going to become a very salient issue here in the next year as the Trump tax cuts sunset and obviously, lots of folks are going to have a lot to say about it. Maybe you’ll come back on the podcast when that fight is in full swing, and give us your perspective on what we should do and where we should go.
Jason Furman:
I’d love to come back.
Speaker 4:
Final question, Nick.
Nick Hanauer:
Final question. Why do you do this work?
Jason Furman:
I think it’s really important. I think it sometimes occasionally makes a difference and boy, is this a fun, challenging, interesting set of issues to think about.
Nick Hanauer:
That’s for sure. That’s for sure. It’s never dull, is it?
Jason Furman:
Never dull.
Nick Hanauer:
My impression talking to Jason is that he’s generally supportive of the ambitious economic agenda of the Biden administration. And as he said, there was a lot of things that they would’ve loved to have gotten done but couldn’t have or couldn’t with-
Speaker 4:
That’s the political reality-
Nick Hanauer:
That is the political reality
Speaker 4:
… of this congress.
Nick Hanauer:
Yeah. Although, they did get a lot done, a lot more done, I suppose, than you and I ever expected they would. But when you’re evaluating the Biden economic agenda, you have to hold two thoughts in your head at once. One is what did they do and what did they wish they do, but they couldn’t to fairly analyze what they’re trying to do.
Jason acknowledged that there were a bunch of things that should have gotten done, but couldn’t because of mansion and cinema, et cetera. But generally supportive of most of the things they’re doing with some quibbles here and there.
Speaker 4:
Yeah. One of those quibbles is a big one, Nick, and I think one that I would’ve liked to have pushed back harder on, and that has to do with trade. You and I have not written a lot about trade, I don’t think we’ve… have we had a podcast on trade? But we’ve spent a lot of time thinking about it and we come at it from slightly different perspectives.
You, having actually been in a manufacturing business that was severely impacted by the China shock, and me on just a more theoretical basis, coming at it more from the political science perspective than the economic one. Jason basically said that he doesn’t care who’s making these things. It’s not really important where these things are being manufactured. And I imagine from where you came in the business world, do you care?
Nick Hanauer:
I do. Upon reflection, I really do think that’s wrong. I do think it matters a lot where we make things for a variety of reasons. The first order bit is just acknowledging that the Chinese have industrial policy. They are very, very mercantilist. They know what industries they want to dominate and they do not play by our rules in pursuit of those goals.
I experienced this firsthand for decades when I helped run my family business that did tons and tons of business overseas and just saw, again, firsthand, how the government would… I mean, for example, just in the products that we made, would give a 10% rebate to the manufacturers for every manufactured product that they exported. This is hard to compete with.
It doesn’t matter what your labor costs are. It doesn’t matter how productive your factory is, doesn’t matter how slim your margins are. If the government of your country’s biggest competitor is openly and aggressively subsidizing exports, and it didn’t stop their goal, they subsidized. We were in the bed pillow and down comforter manufacturing business.
And so, home furnishings, home textiles, but it wasn’t just the direct subsidies for the finished products companies that exported the products. It was subsidies for the people who grew the cotton. It was super lax laws regarding the effluent from the mills that finished the fabric. There were just so many unfair advantages that rolled up into a product that was virtually impossible to make in the United States, even under the best of circumstances. And they did that times 10 on electric vehicles.
Speaker 4:
And they do it throughout. They pick these industries that they want to promote and not just promote, that they want to dominate. The goal is to dominate that market and drive everybody else out of the business so that they are one of the only suppliers. And I think this is the thing. So, Jason described himself, basically said he was a free trader and that’s great on paper.
I’ll tell you, one of the most beautiful bits of economic thought ever is David Ricardo’s comparative advantage. It is very simple math. It’s really beautiful. When you lay it out, this elegant idea just makes perfect sense on paper.
Nick Hanauer:
On paper.
Speaker 4:
But in the real world, we make this mistake by assuming we can benefit from trade liberalization with an illiberal partner, which is what China is. And not just an illiberal partner, a huge illiberal partner. It’s not like we’re dealing with South Korea or Indonesia or even Mexico, which is a pretty large country, but a much smaller economy, trade partners that we can dominate, that rely on us and can’t afford to us off.
China is big and very different, and I think we just assume that the policies that worked in rebuilding Europe and Japan after World War II would work on China and they did not. And I do care about where things are made because the people who used to make these things care and the China shock and the lost jobs, however, so-called efficient, that might have been, they immiserated millions of Americans.
And these people are off. And they voted for Donald Trump in 2016 and they voted for Donald Trump in 2020. And a lot of them are going to vote for Donald Trump in 2024 because we sacrificed their jobs for the sake of economic efficiency or as we’ve pointed out before, capital efficiency. It’s a more efficient use of capital to import these goods from overseas than to manufacture them here at home.
And however you think that might be good for the economy, you know what’s terrible for a market economy? It’s destroying our democracy because market capitalism does not survive in its pure form without a liberal democracy. And that’s where I think Jason and his ilk really go wrong is in thinking the economy is this thing separate from the rest of human life and activity.
Nick Hanauer:
Yeah. I think that there’s another issue at play too, which I think most economists don’t recognize enough, and that is that the knowledge and knowhow embedded in making things is what enables you to make the next things. And the problem is, is that if you let your global competitors eviscerate your industries.
It’s not just the jobs that leave, it’s the skills, the knowledge, the knowhow, the capacity to innovate in adjacent spaces. And before you know it, you can’t do anything, except consume. And down that path, I think leads despair. I think that it is not true that aggregate GDP is a good measure of the health of an economy.
I think that a much better way to understand how good your economy is doing are more complex measures like the aggregate number of complex products that your economy is able to build, the complexity of the products you make times the variety of products that you can make. And the more-
Speaker 4:
Economic diversity is where we’re-
Nick Hanauer:
Exactly. And the more resilience and innovation comes from. That’s right. And the more diverse an economy we have, the more likely we will be successful in the future. Because you can’t have globally dominant economy if you can’t make anything because you can’t make anything, can’t do anything.
And so, I think that it is very unfortunate that over the last 10 years, we, for political reasons, let our industries, the industry that manufactures batteries, the components for batteries, electric cars, photovoltaic cells, PV cells, all that stuff that we allowed that to fall behind China, we gave them this big running start. That was a terrible mistake, but two wrongs don’t make a right.
Just because we’re behind doesn’t mean we have to give up and give them all those industries. I think that would be a terrible mistake. I certainly don’t believe that our European allies are going to roll over, and let them dominate, and put all their auto companies out of business either. And I think that China is just going to have to learn to live with a trade regime that is frankly just fairer.
Because it’s not like they made it easy for us to send cars to them. China has been very, very difficult to do business with as an exporter and for obvious reasons. They don’t want to buy products that are made in other places. They only want their people to buy products made in China. And so, for a very, very long time, we have been competing with them not on a level playing field, but on a tilted playing field.
And I think those days are coming to an end, and so are those tariffs that the Biden administration just imposed on electric vehicles going to cost consumers more, yeah, but paying a little bit more-
Speaker 4:
In the short run.
Nick Hanauer:
… in the short run, will be absolutely worth it in the long run if we can get our manufacturing shit together, so to speak. I just think it’s really worthwhile, and I think like you, I reject that economic orthodoxy about free trade. I just don’t buy it anymore. It doesn’t make sense.
Speaker 4:
Well, I hope we have a chance to talk to Jason again sooner, but it would be interesting to talk to him in another four years after we see the outcomes of some of these policies and we can see-
Nick Hanauer:
Yeah. No, absolutely.
Speaker 4:
… who was right and who was wrong.
Nick Hanauer:
Yeah. And let’s just acknowledge where the tradeoffs ended up because it’s all tradeoffs. We are trading off one set of things for another set of things. It will be very interesting to see if we like where we land given this, but one thing we know is that the current strategy hasn’t worked out very well.
Speaker 4:
For some people.
Nick Hanauer:
Well, it worked out for some people. Yeah.
Speaker 4:
A small number of people got really, really rich off of this. And if you made the mistake of working in one of these factories that were shut down, well, you just, moral hazard and all that.
Nick Hanauer:
Yeah, whatever. Anyway, super interesting conversation, as always, we’re really lucky to get to talk to all these folks, such a privilege.
Speaker 6:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer, follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always, from our team at Civic Ventures, thanks for listening. See you next week.