In its quest to combat inflation the Federal Reserve has seemingly done everything in its power to engineer a recession, which would throw millions of people out of work. Rather than question the Fed’s actions, mainstream economists cheered them on, claiming that we need multiple months of high unemployment to bring inflation down. But do we really need to immiserate America’s working class in order to save the economy? Today’s guest, Arnab Datta, and his colleagues at Employ America are producing research that suggests we should instead be using macroeconomic policies to steer the economy to high employment and robust wage growth—which would reduce inequity, spur economic development, and expand the availability of good-paying jobs for all Americans.
Arnab Datta serves as the Senior Counsel for Employ America, which is an organization focused on economic policy research and advocacy that prioritizes full employment, wage growth, and economic stability. Employ America seeks to influence economic policy discussions and shape the narrative around employment and economic well-being.
Twitter: @ArnabDatta321, @employamerica
Website: www.employamerica.org
The Fed Is Trying To Engineer A Recession https://www.employamerica.org/blog/the-fed-is-trying
In The Right Context, Full Employment Can Support A Pickup In Productivity https://www.employamerica.org/blog/in-the-right-context-full-employment-can-support-a-pickup-in-productivity
Website: https://pitchforkeconomics.com
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Nick Hanauer:
We are in a moment right now of effectively full employment. That modality is what we should always be optimizing for.
Arnab Datta:
A full employment economy is one where employment levels translate into bargaining power for a wide swath of workers.
David Goldstein:
The more people you fully include in the economy, the faster and more prosperous it grows for everybody, and that’s what full employment is all about.
Speaker 4:
From the home offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures.
Nick Hanauer:
Goldie, I don’t think there’s been anything that has me pissed off more as we’ve run through coming out of the recession and seeing the phenomenal performance of this middle out economy than people like Larry Summers and other economists effectively calling for the Fed to create a recession and huge amounts of unemployment to deal with the problem that they call inflation. Why? Because, A, they’re completely confused about what the problem is. The problem is not inflation. The problem is higher prices and raising interest rates is not going to solve that problem. It’ll probably prolong it and make it worse. But B, just the savage injustice of it all. The fact that the only policy lever we are willing to look at as a country to deal with higher prices is to throw millions of people out of work and hope that that decrease in demand will push prices down. There are so many other things that you could do to address the issue of higher prices. This whole market fundamentalist, “let the poor suffer” reflex, it just drives me crazy. It drives me crazy.
David Goldstein:
Oh, Nick. Nick, there you go again, Nick. Just hurting the people you’re trying to help.
Nick Hanauer:
I know. I know.
David Goldstein:
I mean, look, if Larry Summers says we need seven and a half unemployment for a couple of years in order to get inflation under control, then that’s just what the economy needs and that’s what’s best for the majority of the American people, is to have massive unemployment. Let’s be clear. Like twice the current rate, more than twice the current rate. Otherwise, we will never get a $2 a gallon gas again or something.
Nick Hanauer:
Or something. Or something.
David Goldstein:
Or something. Yeah, it’s been incredibly frustrating on a number of accounts, Nick, because it seems like our economic, our elite, and by that I mean both the people at the top of the economy and the economists themselves, the elite economists just can’t get their heads out of the 1970s that we had, that period of stagflation back then and the cure. We don’t know that it was the only cure. We just know that this is what appeared to work at the time, was driving up interest rates and causing a severe recession and having very high unemployment for a couple of years that created immense amount of misery in the American public. And yes, afterwards inflation did come down and we had several decades of relatively low inflation. It’s possible that was the only thing that would have worked back then. We don’t know that, that just happens to be what we did, but that doesn’t mean that’s what we need to do now.
Nick Hanauer:
No, absolutely not. And Goldie, we are in a moment right now of effectively full employment and-
David Goldstein:
By historical standards.
Nick Hanauer:
By historical standards.
David Goldstein:
Historically low unemployment rates.
Nick Hanauer:
Yeah. And in a lot of ways, that appears to be benefiting the majority of citizens. And I think there’s a lot of arguments that could be made that that modality is what we should always be optimizing for, a full employment economy. And today on the pod, we get to talk to somebody who caress a lot about that because he works for an organization dedicated to a full employment economy. Our new friend Arnab Datta, who is the senior council at Employ America, which is effectively single-mindedly focused on promoting policies that prioritize full employment.
David Goldstein:
Which you’d think, Nick, would be universally considered a good thing, right?
Nick Hanauer:
Yeah.
David Goldstein:
Full employment. We want everybody to work, both right and left would be satisfied by that.
Nick Hanauer:
No, but for sure we’re not. And obviously, there’s push and pull here, but I feel really strongly that creating giant recessions to hold prices down is not great policymaking and there has to be another way. So with that, let’s talk to Arnab about what he thinks.
Arnab Datta:
My name is Arnab Datta. I am the senior council at Employ America. Please check out our website if you get a chance.
David Goldstein:
And we’ll provide a link in the show notes.
Nick Hanauer:
So tell us a little bit more about what Employ America does and how you define a full employment economy.
Arnab Datta:
So let me start with a full employment economy. I think sometimes there’s a tendency of folks to try to limit a full employment economy to some kind of a number. If you’re at X percentage unemployment or X percentage full employment population ratio, that’s full employment. We tend to think about it a bit more conceptually, but essentially a full employment economy is one that where employment levels translate into bargaining power for a wide swath of workers. And when you see a full employment economy, you see a number of benefits. So I talk about three generally. One is rising wages for all workers, particularly marginalized communities and workers, low wage workers. When you see more bargaining power, that bargaining power translates into better wages. Secondly, and I think a related concept, is that a full employment economy is one where there’s better balance between workers and businesses.
In a full employment economy, you tend to see that businesses have to compete for workers rather than workers having to just compete for jobs. And this tends to bring even more people into the labor market. One of my favorite kind of anecdotes about a full employment economy is, before COVID at the tail end of 2019, employment levels were at such highs that businesses started to go to prisons to recruit for workers and offer them training. And that’s the kind of thing that we love to see. So that’s the second. And then third, there’s productivity benefits and growth benefits that come from a more equitable full employment labor market. In some ways, that is intuitive and even pretty simple, but essentially when you’re utilizing the full potential of the American labor market, if more people are in jobs that they like, they feel fairly compensated in for longer, they tend to be more productive over time. And so these are really the benefits of a full employment economy and that’s what Employ America does and what we strive for.
So writ large, we focus on the macroeconomic policies that matter for full employment. I think there’s two buckets that we kind of put our work into. One is on the demand side. So there’s monetary policy at the Fed. That’s always active, one where we’re really pushing them to ensure that they’re meeting the employment part of their dual mandate. And then also there’s fiscal policy that can lead to more demand. And so I think in the context, for example of recessions, something we really care about is preventing recessions, but also making them not too painful. When COVID hit, we worked a lot on the CARES Act and the American Rescue Plan. So I had been working on unemployment insurance for quite some time. So that was the demand side.
And then the other bucket is on inflation. There’s some folks, folks like Larry Summers for example, who seem to think that the best way to bring inflation down is for the Fed to throw millions of people out of work. We really reject that thesis. We think that we should look at what’s really causing inflation and keep prioritizing workers’ outcomes and making sure they’re on a positive trajectory. And there’s actually a lot of places where the federal government has authorities that it can utilize to manage inflation without throwing millions of people out of work.
Nick Hanauer:
That’s a great overview Arnab. And we’re going to come back to inflation, but one of the things that confuses me a little bit, and I suspect confuses many of our listeners, is the relationship between the unemployment rate and the labor participation rate, right? So there is this apparently group of people who are not in the labor market, and then all of a sudden come into the labor market and when they do, they can effectively drive up the unemployment rate or down as the case may be. Can you speak to that a little bit?
Arnab Datta:
Yeah, I mean, look, I think the important way to think about it is that there are a lot of different ways to measure the health of the labor market. And you can see exactly the dynamic that you described, that there are reasons why people get pulled into the job search. And these are surveys that happen over time. And so in any given month you could see fluctuations where an unemployment rate goes up because the labor market is so attractive that it’s drawing people in and it takes some time to find a job. And so, we tend to take a pretty holistic view and look at all the data to try to get a sense of what the employment rate is looking, what employment levels are looking like.
Nick Hanauer:
But can you just give us an example or some examples of what it is when somebody is not in the labor market?
Arnab Datta:
For any number of reasons, I focus a lot more on our policy side. This is something I think my colleagues spend a bit more time on, but when you look at the data that BLS collects, this is a function of surveys and other data, but someone can be of prime age but they’re not searching work for some reason. They’ve basically said, “I’m not employed and I’m not looking for work.” And that person is classified as out of the labor force, so they don’t count towards the unemployment rate. But if you look at something like employment to population ratio, they are in that. And so, because they’re in the denominator there, the population, and so that’s kind of how someone can be outside of the labor force even if their age and other factors might be counted as if they were.
Nick Hanauer:
And so statistically speaking, the only time you enter the labor market is it when you effectively make yourself “unemployed” and start looking for work actively?
Arnab Datta:
Yeah. Or you enter, or you get a job. You immediately start looking and you look for any kind of job.
Nick Hanauer:
But then you never were unemployed.
Arnab Datta:
Yeah. In some sense it can happen, yeah.
Nick Hanauer:
Okay, interesting.
David Goldstein:
So a good example would be during the pandemic, a lot of women dropped out of the labor force because they didn’t have childcare.
Arnab Datta:
I mean, this is a challenge that you see a lot of these demographic challenges over time. This is one reason why things like childcare are really important. And you do tend to see… Even, I mean, during COVID, this isn’t necessarily even as [inaudible 00:12:43], but a lot of people dropped out because they had to care for people. Period. Right? Whether it was children or not. And so there’s a lot of challenges with really interpreting all of this data and putting a whole picture of it together. That’s a lot of the work that my colleagues do.
David Goldstein:
And of course, to complicate these matters, it’s not like they weren’t doing work.
Arnab Datta:
Right.
David Goldstein:
I mean, had they had childcare available, somebody else would’ve been working to take care of their children and that would’ve counted as a job. Whereas when you drop out to take care of your own children because the childcare centers are closed and the schools are closed, then that’s a loss of a job.
Arnab Datta:
Yeah. And in some ways, look, there’s challenges with all data, but this is one of those places where in survey data for example, people aren’t always as precise to think about their things in the same way that survey people do. I think a lot of this data is collected very thoughtfully and they do a good job, but there are challenges with a lot of those things. And that’s why we try to look at the trends more than any given month for example, because a lot of noisy things that can happen with the data on a given month.
Nick Hanauer:
Yep. Can you speak to the relationship between employment or unemployment and productivity?
Arnab Datta:
Yeah, so essentially there’s a couple of things that happen, I think, when… When you think about productivity, one is what I mentioned, which is that workers who spend more time, you actually tended to see this at the tail end of the last big labor market boom we had, at the tail end of the 1990s where we had a pretty tight labor market for some time and workers just learn things in their jobs when they’re employed for a long time and they tend to get better at things and find ways to improve productivity. You don’t see that as often when people aren’t employed for as long. So there’s one piece of it that’s that. And then when employers also have to compete for workers or when you have more employment, you need to find other ways to find growth in productivity.
And so it actually pushes employers to invest more in certain types of productivity. And you see that happen. And the fruits of that can take time to bear, but as a full employment economy continues for longer and employers tend to invest more in some of those productivity gains, they happen over some period of time.
Nick Hanauer:
Yeah. This is one of the things that sort of drives me crazy about the recent hand wringing over the decline in productivity in the United States, because to me, you can account for 100% of it with the fact that we’ve had really weak labor markets for 30, 40 years with a couple of tiny exceptions. Because again, as a person who runs businesses sort of for a living, the case you just made conforms exactly to what my experience is. If there are zillions of unemployed people and it’s super easy to find people and pay them poverty wages, why would you invest in labor saving processes or equipment? And by the way, if labor’s cheap enough, nobody’s under a lot of pressure to figure out how to do it faster, better, cheaper, right?
Arnab Datta:
Exactly. Yeah.
Nick Hanauer:
Because the neoliberal decades have been ones of basically characterized by relatively high unemployment rates, high unemployment rates, and all sorts of wage suppression-
David Goldstein:
Wage arbitrage.
Nick Hanauer:
Yeah, right? Where if the $2.13 per hour minimum wage for tip workers isn’t low enough for you, well, you could go overseas or whatever it is, right? And that accounts for why productivity gains in the United States fell as we exited the decades before the neoliberal era. It just seems super obvious.
Arnab Datta:
Yeah, it’s interesting, right? I share with your private sector background, one thing we try to think about a lot is what is X encouraging businesses to invest? How are they overcoming the hurdle rates that tend to be pretty high and sticky? And that’s one good example. If there isn’t much of a payoff to investing in some kind of technology, for example, that might make you more efficient, you’re not going to do it. What’s the end point? What’s the point especially if this stuff is pretty capital intensive? And that’s kind of the benefit you tend to see in a full employment economy.
Nick Hanauer:
Yeah, but making processes more efficient and effective is always capital intensive whether you’re buying new equipment or not, right?
Arnab Datta:
Yeah.
Nick Hanauer:
Because any kind of process, to make it work better requires… It takes a heck of a lot of energy to reconstitute a process that has been in place for a long time and try to squeeze more out of it in training people that-
Arnab Datta:
Train people on it. [inaudible 00:17:48] all time.
Nick Hanauer:
Yeah. Exactly.
Arnab Datta:
All of that is time.
Nick Hanauer:
Oh, my gosh. It’s super hard to do that. And it is hard to do it in all sorts of ways. So again, if there’s no real return on that investment, people don’t do it. It’s so interesting, Arnab, because this week some of our team we’re in a call with some of the legislative leaders in the state of Washington talking about the opportunities for making improvements in economic policy in the future. One of the things that these folks raised, so interesting that we have not heard very much before, is the challenges that they are hearing in every corner of our state and from every sector about workforce, about how hard it has become for businesses to find enough people to do what needs to get done.
Again, I’ve run lots of businesses, it sucks when it’s hard to find people, but that is a high quality problem, right? That is the kind of problem on balance that we want to have in this country for a very, very long time. Because what that means is that businesses will be required to offer people more money, they will pay a premium to ensure that they stay for a long time, and they will invest in their processes and their businesses to try to make them more productive and efficient, all of which is to the good.
Arnab Datta:
Yeah. Absolutely.
David Goldstein:
But Nick, they might not be able to do as many stock buybacks.
Nick Hanauer:
That’s true. It will be much harder to do stock buybacks in that environment. But I think a trillion dollars a year in stock buybacks is what accounts for why productivity rates have been so low in the United States. If that money had gone into wages and investments in productivity, increasing processes and equipment, then we’d have higher productivity rates.
Arnab Datta:
Yeah, I think it’s really… We tend to try to think about what are the outcomes we’re seeking here. And if we’re thinking about even if you’re let’s say someone from let’s say the right or the center, I know you guys have had [inaudible 00:20:05] on your show before, folks thinking about what’s going to generate more investment and more employment in the economy. These are really important questions that we should be very rigorous about. I think there’s a tendency to take some of these paradigms from the Econ 101 textbooks and just apply them as like, “Well, if this happens, then this will happen and this will happen.” And we try to take a really thoughtful approach of like, “What’s actually happening here? And what does the evidence show and how can we ensure the most positive policy outcomes dependent on what’s happening?”
David Goldstein:
Really? Isn’t the goal of the economy 2% inflation regardless of how we get there and how much misery we create in the process?
Arnab Datta:
Yeah, exactly. I mean, I think that is certainly not the goal that we see.
David Goldstein:
So I want to talk about that just for a moment because you had brought up Larry Summers earlier and he infamously said we couldn’t get inflation under control without two years of seven and a half unemployment. It turned out he was wrong. I’m old enough to remember the ’70s and the ’80. The Fed seems to have been running itself based on what Paul Volcker did back then. How much of the problem is priority? I mean, I know allegedly the Fed has this dual mandate on inflation and unemployment, but it always seems to be sacrificing employment on behalf of inflation as if inflation is the more important number.
Arnab Datta:
Yeah, look, I think that whether it’s rational or not, there is certainly a generation of policymakers and Fed policymakers who look to the experience of the ’70s and ’80s and think, “This is the most painful outcome,” right? And we kind of ignore. Interestingly, even now, we still ignore the growth that came out of the Great Recession, the anemic growth that came out of the Great Recession. And really the generational effects that that high level of unemployment hat are staggering, things that we’re still wrestling with today and economic outcomes and political outcomes. There’s a lot of really, really nasty stuff that came out of that slow recovery. And part of our work is really thinking more deeply about what’s actually driving inflation right now. I think the fact that we had… A lot of people would go back and we’re going back then to this huge wave of economic stimulus that we had going back to the CARES Act and then the follow-up bills to that, and then the American Rescue Plan as the reason why we have high inflation.
I think when you do a bit more rigorous analysis on that, that story doesn’t really hold up super well. I think the reality is we had this huge inflationary episode coming out of a once in a generation pandemic when we stopped an economy. We stopped the largest economy in the world essentially. And every other economy went through some version of that as well. And it’s kind of, I think, naive to think that we’re going to come out of that without some bottlenecks and some challenges that emerge. And so a lot of our work is really trying to push the federal government to think a bit more thoughtfully about what are more equitable ways to bring down inflation that don’t rely on throwing millions out of work.
And the Fed should be part of that, looking at what’s happening in the economy right now and really trying to understand, is the blunt tool that they have really the appropriate one for what’s happening in the economy right now I think one example is housing, right? If we’re worried about housing prices and inflation down the line, is keeping interest rates at a pretty high level going to help that as we get through this last mile, whether it’s getting back to 2% or not? That’s a challenge that we have to think about the long-term effects of as well.
Nick Hanauer:
Yeah, I mean we’ve often talked on this show about confusing inflation, which is a wage price spiral with higher prices, which is what we have, that we’re a consequence of the global supply chain shock. And raising interest rates is probably the opposite of what you want to do to sort out a global supply chain shock. But if you’re the Fed and your only tool is interest rates, everything looks like a nail, right? All they know how to do is raise rates, and so they’re in a search for relevance.
Arnab Datta:
And it is absolutely true of the Fed, but to be honest, it’s true of policymakers more generally who look to the Fed and say like, “Inflation is their problem. I’m going to focus on what I can.” And that’s really a paradigm that we need to shift, that there are more equitable ways to bring down inflation and that their tool is oriented for a very, very specific challenge that we are simply not in at the moment.
Nick Hanauer:
That’s Right.
David Goldstein:
Yeah. I’ve got a question about that, about what the Fed did and whether it actually had any impact, because we know its ultimate goal was to bring down inflation, but its proximate was to drive up unemployment and it failed at that. Is this just a unique economy we’re in now? Or that tool, that hammer that the Fed has, does it not work any more like it did in 1980 because the economy is so different, is less capital intensive?
Arnab Datta:
Yeah, I want to be careful here for a couple of reasons. I think one thing to just keep in mind is this story isn’t over yet, you know?
David Goldstein:
Right.
Arnab Datta:
The effects have considerable lag sometimes. There are a lot of things happening in the economy that have not happened in quite some time, and I think we need to be very sober about that. So I think I would say first off the bat, it’s still yet to see what the long-term kind of impact of where the Fed has taken us has gone. But I would say I think there’s no doubt that certainly at the margin, there’s an impact that the Fed had. But whether it’s the real defining the most important part of this story, I think that’s a tough case to make.
If you look at the sources of disinflation over the past couple months and going back to last six months to a year, it’s really a supply side. A lot of it is a supply side story. I don’t think there’s a strong case that you can make that that supply side story happened because the Fed raised interest rates. I think it’s a more function of a lot of the investment that we saw in the economy, both as a result of some pretty historic bills that passed in different sectors, but also just kind of a normalization, some response to demand and different things like that. So I think it’s a hard story to say that the Fed was responsible for most of the disinflation that we’ve seen over the past six months or so.
Nick Hanauer:
Tell us about the glorious future. What kind of economy should we be optimizing for?
Arnab Datta:
I think first of all, right now, our biggest thing is we need to make sure that the Fed doesn’t break the labor market. Our goal is trying to make the case that the Fed should not break the labor market, that we should not have a recession, and that we should capitalize on this big jobs boom that we have.
We try to be pretty forward looking as well. The economy is just going through a lot of changes right now, particularly as it relates to the energy transition. That’s something that’s going to be uneven, shaky with new bottlenecks, new potential sources of inflation as we try to get supply for different things online. And if we’re not careful about managing that transition effectively, I think we could really have some challenges going forward. Kind of perversely as we’re navigating those challenges, the Fed is trying to limit inflation through interest rates and it’s going to end up limiting the productive investment that we’re hoping for in the very places that we need to invest and manage that transition.
So I’ll talk about just kind of two examples of things that we’ve been thinking about in the context of the energy transition. One supply bottleneck is in lithium and critical minerals. So we put together a proposal for creating a strategic lithium reserve in the similar vein to the strategic petroleum reserve, something we’ve done some work on as well, that would be integrated with the market. And essentially you could have a mechanism for the federal government to more stably managed prices and still generate a lot of investment so that we have the supply that we need of lithium.
Commodities are a place where the market doesn’t work particularly well. The Econ 101 textbooks of price and supply and demand, those models just don’t work. Investment doesn’t always follow high price increases. You don’t like to see high price increases for this stuff. So we think that’s a place where the federal government should use its authority to manage what is a pretty poorly functioning market when it comes to optimal social outcomes.
Another thing we’ve been doing, we’ve got a series on our website on geothermal energy that is focused on how do we commercialize geothermal energy. The next generation of geothermal energy, really it takes a lot of learnings from the shale revolution. And one thing that happened with the shale revolution was it really accelerated dramatically in terms of production at a time of very low interest rates at the tail end of the 2000s. And we don’t have that now. So understanding that we are not in a low interest rate environment, how are we using policy, fiscal policy, regulatory policy more effectively to ensure that we can commercialize an industry like that that could be really transformative to the energy transition. So those are a couple of things we’re thinking about.
Nick Hanauer:
So couple of final questions. First, the benevolent dictator question. If you were in charge of the economy, politics aside, what would you do?
Arnab Datta:
If I were in charge of the economy, what would I do?
Nick Hanauer:
What would you do? What are the things that you would do?
Arnab Datta:
So I’d love to make a plug for a bill that I’ve worked on for a couple of years.
Nick Hanauer:
Great.
Arnab Datta:
It’s called the Industrial Finance Corporation Bill. It was introduced by Senator Chris Coons, co-sponsored by another six or seven Democrats as well. What that would do is it would create a government corporation kind of in the vein of the Reconstruction Finance Corporation to target supply chain bottlenecks that are related to industries of the future to ensure that if we’re going to be a leader in commercializing industry next generation industries, we need a nimble federal government corporation that can deploy capital a bit more effectively. So that’s a bill that I would love to see pass because I think we are going to need essentially a federal reserve, but for fiscal policy that can deploy capital more effectively and kind of be, I guess, removed from some of the nasty political challenges that we’re seeing now. So yeah, that would be my number one thing.
Nick Hanauer:
Oh, that’s great. And one final question. Why do you do this work?
Arnab Datta:
I’ll give you a couple reasons. I think first and foremost, I get to work with incredible people. At Employ America, we have a really awesome team, people that I learn a lot from. We get to work on creative problems. And being able to work with a great team of people to think about difficult challenges is just really fun. I really enjoy it. I think second, I’m a lawyer and I think I really enjoy the problem solving aspect of taking different authorities and different things and trying to find a solution to a problem. That’s just generally very fun. And, sorry, third one is I think our work has real impact on people’s lives and making it better, and that’s kind of why I got into policy work more broadly. So I enjoy that.
Nick Hanauer:
Well, fantastic. Thank you for being with us, Arnab. It’s great.
Arnab Datta:
Thank you.
Nick Hanauer:
The work sounds great. We wish you the best.
Arnab Datta:
Thank you very much.
David Goldstein:
I’m not sure, Nick, that we’ve had a more middle out conversation on this podcast than we’ve had today.
Nick Hanauer:
Yeah. No, for sure.
David Goldstein:
Because what we always say is that the more people you fully include in the economy, the faster and more prosperous it grows for everybody. And that’s what full employment is all about. It turns out that when you have full employment, when more people are employed, the economy grows faster, wages grow faster, productivity grows faster. What more could you want from an economy?
Nick Hanauer:
Yeah. Well, an endless supply of cheap exploitable labor to drive profits up and executive bonuses.
David Goldstein:
Once again, I apologize for being so self-centered and not seeing it from the plutocrats point of view, Nick.
Nick Hanauer:
Yes, exactly.
David Goldstein:
That the owners of capital-
Nick Hanauer:
Yeah, are disadvantaged. That we are disadvantaged by a full employment economy because paying people more is, God, it’s just terrible.
David Goldstein:
Yeah, it drives you nuts, doesn’t it? And the other thing to point out about this is that I know some people might listen to us and think we’re a couple of lefties, you, a class trader, me, one of those socialists that Donald Trump promises to crush in his next term. But the truth is, there’s nothing more pro-market than the arguments that Arnab made today.
Nick Hanauer:
Yes, absolutely.
David Goldstein:
That in fact, what’s happening is you are allowing the labor market to work better, that you have less of a power imbalance. There’s always a power imbalance between capital and labor for reasons that even Adam Smith points out in the Wealth of Nations that the employer can outlast the employee because they have more resources, whereas the needs of the worker is more immediate because they need to feed themselves and their families. But when you have this full employment economy, workers have more power. They can demand higher wages. They can demand better working conditions. They have more job security. They have more time on the job, longer tenure to learn their job better so they can be more productive workers. This is a labor market working the correct way. You have a competitive market in which there’s more equal competition between workers and capital instead of having workers compete against each other in a downward spiral. And that is the way a market is supposed to work. That is markets doing their job.
Nick Hanauer:
Correct. And again, the only folks who don’t benefit from that arrangement are the owners of capital with a short-term focus.
David Goldstein:
Right. It does work for them in the long run because-
Nick Hanauer:
Of course.
David Goldstein:
… a healthy economy is good for capital.
Nick Hanauer:
Yeah, [inaudible 00:36:44].
David Goldstein:
It just doesn’t allow them to both maximize their short-term profits. And also, I think honestly, there’s a certain amount of sociopathy there. They want to have more power over workers-
Nick Hanauer:
Yeah, for sure.
David Goldstein:
… because they just enjoy having power.
Nick Hanauer:
Yes, it’s true. Well, super interesting conversation and just totally reinforces the basic idea that a thriving middle class causes economic growth.
David Goldstein:
Right. And again, there are links in the show notes to Employ America and some of the stuff they’ve written on this matter.
Speaker 4:
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, @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.