WEBVTT - Alan Krueger Remembered on Masters in Business (Podcast) 0:00:04.120 --> 0:00:07.760 This is a special podcast rebroadcast in the wake of 0:00:07.800 --> 0:00:12.080 the passing of economist Alan Krueger. Earlier this week, we 0:00:12.200 --> 0:00:15.760 learned some unfortunate news. Uh. He took his own life, 0:00:15.840 --> 0:00:19.800 and we were deeply sinned by the loss. I wanted 0:00:19.800 --> 0:00:22.440 to revisit the interview I did with him in the 0:00:22.480 --> 0:00:27.840 spring of It was a fascinating conversation. So much has 0:00:27.960 --> 0:00:32.840 changed since then. Uh, the economy has clearly gotten much better. Uh, 0:00:32.880 --> 0:00:37.320 we're further away from the financial crisis. But we discussed 0:00:37.440 --> 0:00:42.080 his background in economics, the Federal Reserve, his research on 0:00:42.240 --> 0:00:47.440 minimum wage. I was astonished at what a fantastic conversation 0:00:47.479 --> 0:00:50.320 he was and and just privileged to spend time with 0:00:50.360 --> 0:00:55.360 Alan and discussing what he knew best, which was economics. So, 0:00:55.640 --> 0:00:59.640 with no further ado, my conversation with the late great 0:01:00.080 --> 0:01:06.840 Alan Krueger from the spring of my guest today is 0:01:06.959 --> 0:01:11.080 a what can I say about Professor Allan Krueger of Princeton. 0:01:11.720 --> 0:01:14.720 He was the chief Economist for the Treasury Department and 0:01:14.800 --> 0:01:19.160 Assistant Secretary of of Treasury. He was also Chairman of 0:01:19.200 --> 0:01:23.640 the Council of Economic Advisors under President Obama. Professor Krueger, 0:01:23.720 --> 0:01:27.319 welcome to Bloomberg my pleasure. So I didn't want to 0:01:27.319 --> 0:01:31.720 spend too much time waxing eloquent on your curriculum, Vita. 0:01:31.880 --> 0:01:35.160 But suffice it to say, you've pretty much won just 0:01:35.280 --> 0:01:38.240 about every award you can come up with, at least 0:01:38.240 --> 0:01:41.520 in the United States, UH for economics, and you've had 0:01:41.520 --> 0:01:46.160 a number of just really incredible UH posts. When both 0:01:46.200 --> 0:01:49.840 within the government and out in the early nineties, you 0:01:49.880 --> 0:01:53.080 were chief Economist at the Department of Labor. I was, 0:01:55.200 --> 0:01:59.240 and and what does the chief economist for um, the 0:01:59.320 --> 0:02:03.880 Labor Department actually do? That's a good question. Uh. It 0:02:03.960 --> 0:02:08.240 was a new position. Secretary Rice created it, and I 0:02:08.360 --> 0:02:11.080 was the second one to hold it. Uh. I was 0:02:11.200 --> 0:02:13.840 very Who's the first first was my good friend Larry 0:02:13.880 --> 0:02:17.600 Cats from Harvard. Larry did a brilliant job, and he 0:02:17.880 --> 0:02:20.320 left very big shoes to fill. I'll give you an example. 0:02:21.600 --> 0:02:25.040 One of the reasons why Secretary Rice created the job 0:02:25.440 --> 0:02:28.960 was he wanted to have involvement with the National Economic Council, 0:02:29.320 --> 0:02:33.120 which was also Clinton innovation. And the way the NBC 0:02:33.360 --> 0:02:35.800 was set up at that time, Bob Reuben was chairman, 0:02:36.360 --> 0:02:42.760 and Treasury Omb Labor Commerce were the members. So this 0:02:42.840 --> 0:02:44.880 was like a think tank, but with the old government 0:02:44.919 --> 0:02:49.079 representatives who are they would advised the president and the cabinet. 0:02:49.680 --> 0:02:53.880 It was the place that ran the policy process, and 0:02:54.040 --> 0:02:58.000 it's different from a think tank because it produced proposals 0:02:58.000 --> 0:03:03.400 that really mattered and it had a direct connection to 0:03:03.440 --> 0:03:07.120 the president. So the way that Bob Rubin ran this 0:03:07.240 --> 0:03:13.320 process was very organized. UH budget went through the NYC process, 0:03:14.120 --> 0:03:17.760 UM trade issues went through, and ANYC was divided into 0:03:17.800 --> 0:03:21.840 domestic issues and international issues. Other departments had a separate 0:03:21.880 --> 0:03:25.480 person who would represent them on domestic and international issues. 0:03:25.880 --> 0:03:29.720 Larry Katz was so UH skilled that he did both. 0:03:29.800 --> 0:03:31.600 So I had to fill those issues and do both, 0:03:31.639 --> 0:03:36.120 which meant being involved in NAFTA as well as UH 0:03:36.480 --> 0:03:39.760 domestic issues like the minimum wage. So so what were 0:03:39.840 --> 0:03:43.000 some of the policies that came out of that Economic Council? 0:03:43.280 --> 0:03:46.520 So NAFTA clearly was a big issue in the nineties. 0:03:46.680 --> 0:03:49.040 NAFTA was a very big issue the first Clinton budget, 0:03:49.080 --> 0:03:53.160 which was after UH sorry, before I arrived, which I 0:03:53.200 --> 0:03:55.240 think put us on a much stronger path in the 0:03:55.240 --> 0:03:59.520 early nineteen nineties. The one significant domestic policy that did 0:03:59.520 --> 0:04:02.240 not come from it was healthcare reform, and I think 0:04:02.280 --> 0:04:04.920 one of the reasons why healthcare reform in that period 0:04:05.400 --> 0:04:07.280 UH didn't do as well as it should have was 0:04:07.360 --> 0:04:10.400 because it didn't come through the NBC process, in other words, 0:04:10.440 --> 0:04:13.720 the way it was formulated with the thought process of 0:04:14.120 --> 0:04:16.600 what's the impact, what's the cost, what's the benefit? What? 0:04:16.600 --> 0:04:19.600 What is the thinking behind how some of these policies 0:04:19.640 --> 0:04:24.480 are developed. Well. Economists have I think, very systematic approach 0:04:24.560 --> 0:04:27.360 to think about policy. To thinking about policy issues, we 0:04:27.400 --> 0:04:31.000 think about efficiency, we think about equity, we think about 0:04:31.040 --> 0:04:36.159 what's gonna user resources most efficiently, and we think about 0:04:36.200 --> 0:04:39.560 what's fair, and we divide issues quite clearly in that way, 0:04:39.560 --> 0:04:44.120 and we make trade offs and UM, now it might 0:04:44.160 --> 0:04:46.880 mean that uh a lot of our proposals are not 0:04:47.160 --> 0:04:51.080 politically feasible, but I think this is a very coherent framework, 0:04:51.680 --> 0:04:56.000 and the process that was used for healthcare reform was 0:04:56.680 --> 0:05:00.640 UM much more at hoc I would say, not nearly systematic. 0:05:00.920 --> 0:05:04.359 So there's pretty much an ever going trade off between 0:05:04.440 --> 0:05:09.919 what's optimal and what's politically feasible and what's financially doable. 0:05:10.040 --> 0:05:13.000 Is that sort of the factors that that get twisted about. 0:05:13.480 --> 0:05:16.960 Sometimes you hit the sweet spot and good policy is 0:05:17.040 --> 0:05:20.080 good politics and it's nice when that works out. Other 0:05:20.120 --> 0:05:23.960 times you have to make compromises between what's politically feasible 0:05:24.040 --> 0:05:26.239 and what we'll do the most good for the economy. 0:05:26.360 --> 0:05:29.880 And one of the lessons I learned from having served 0:05:30.279 --> 0:05:35.720 in the government for five years in my career is that, 0:05:35.960 --> 0:05:38.920 you know, compromises not such a bad thing as long 0:05:39.040 --> 0:05:42.280 as compromise leads to better policy, to improvement for the 0:05:42.320 --> 0:05:44.960 American people. We shouldn't let the best be the enemy 0:05:45.000 --> 0:05:48.200 of the good. That that's the classic line. So you 0:05:48.240 --> 0:05:51.040 were at the Labor Department, and the Bureau of Labor 0:05:51.120 --> 0:05:59.600 Statistics also has a huge group of statisticians, economists, econometric 0:05:59.720 --> 0:06:03.239 model lers tell for people who may not be quite 0:06:03.240 --> 0:06:06.599 as wonky as some of us are, tell us what 0:06:06.720 --> 0:06:10.680 the BLS actually does over the course of any given 0:06:10.880 --> 0:06:14.760 month or or quarter. The BLS is housed within the 0:06:14.839 --> 0:06:17.680 Labor Department, but it has a tremendous amount of independence. 0:06:17.960 --> 0:06:21.520 For example, there's only one employee of the BLS who 0:06:21.560 --> 0:06:26.600 is a presidential appointee. That's the UM Commissioner. Everyone else 0:06:26.680 --> 0:06:30.160 is a career civil servant. The Bureau of list Labor Statistics, 0:06:30.160 --> 0:06:33.560 together with the Census Bureau, conducts the monthly household Survey, 0:06:33.600 --> 0:06:37.200 the current Population Survey, which produces the unemployment rate. It 0:06:37.279 --> 0:06:41.200 also does a survey of establishments. Nearly four hundred thousand 0:06:41.320 --> 0:06:44.840 establishments are interviewed on a monthly basis. And what is 0:06:44.880 --> 0:06:47.200 amazing to me about the BLS those are its two 0:06:47.279 --> 0:06:50.560 most important products, although it has many others, is that 0:06:50.600 --> 0:06:54.160 on an ongoing basis, it collects analysis and releases those 0:06:54.279 --> 0:06:57.800 data every month. And if you think about one, an 0:06:57.880 --> 0:07:00.880 enormous effort, that is, and to do it as carefully 0:07:00.880 --> 0:07:04.240 as they do it is quite impressive. And I think 0:07:04.440 --> 0:07:07.120 they are given a tremendous amount of respect and they've 0:07:07.120 --> 0:07:09.240 earned a great deal of credibility because they do it 0:07:09.279 --> 0:07:12.480 in such a professional way. They collect other data also, 0:07:13.000 --> 0:07:15.640 I would highlight the Employment Cost Index and I think 0:07:15.680 --> 0:07:18.240 the employment costs in dex. What exactly is that the 0:07:18.280 --> 0:07:21.360 e c I Employment Cost Index is a measure of 0:07:21.840 --> 0:07:25.440 how much it is costing for employers to pay pay 0:07:25.480 --> 0:07:28.560 their workers, and it includes not only wages, but also 0:07:29.840 --> 0:07:34.640 health insurance benefits, pension benefits, vacation time. It's calculated very 0:07:34.720 --> 0:07:37.240 much like the Consumer Price Index in that the BLS 0:07:37.320 --> 0:07:40.960 goes back to the same companies quarter after quarter, looks 0:07:41.000 --> 0:07:43.480 at the same jobs and looks at what's happening to 0:07:43.520 --> 0:07:46.680 compensation costs within those very narrow categories. We left will 0:07:46.720 --> 0:07:52.440 earlier talking about UM the Economic Council as chairman of 0:07:52.520 --> 0:07:56.480 the President's Economic Advisors, that's also part of that council. 0:07:56.640 --> 0:07:59.280 Is that? Is that correct? That's right? The chairman of 0:07:59.280 --> 0:08:01.360 the c e A place an important role within the 0:08:01.440 --> 0:08:05.640 National Economic Council. So I think people are aware of, 0:08:05.800 --> 0:08:08.920 UM what the c e A is. They know they're 0:08:08.960 --> 0:08:11.920 the you as the chairperson is the advisor to the president. 0:08:12.200 --> 0:08:14.040 But I don't think people have a clue as to 0:08:14.120 --> 0:08:17.440 how that works either within the White House. Are you 0:08:17.480 --> 0:08:21.920 guys proactively suggesting policy? Is the President coming to the 0:08:21.920 --> 0:08:25.520 Council and saying, hey have a question about this, uh, 0:08:25.560 --> 0:08:27.400 this minimum wage issue? What does it mean if we 0:08:27.480 --> 0:08:29.600 raise the minimum How does that work? What's the back 0:08:29.640 --> 0:08:33.560 and forth with that? It works in both directions. There 0:08:33.600 --> 0:08:38.720 are instances where the Council of Economic Advisors would make proposals, 0:08:39.320 --> 0:08:42.480 typically within the NBC process, where they get vetted and 0:08:42.760 --> 0:08:46.960 reviewed UH and other relevant departments would add to the 0:08:47.000 --> 0:08:50.679 analysis and help put together their proposal. UH. And then 0:08:50.720 --> 0:08:52.640 there are other times where the president says, Look, go 0:08:52.679 --> 0:08:55.000 back to the drawing board, come up with more suggestions 0:08:55.000 --> 0:08:57.880 in this area, or uh, you know. The way I 0:08:57.920 --> 0:09:00.200 think about education is like this, Here's what I think 0:09:00.200 --> 0:09:02.520 you should develop a proposal on. So it works in 0:09:02.559 --> 0:09:05.880 both directions. So I was I mentioned the minimum wage 0:09:05.920 --> 0:09:10.719 earlier and and you have an expertise in not only UH, 0:09:10.880 --> 0:09:14.600 labor economics, but you've studied the minimum wage extensively. Let's 0:09:14.679 --> 0:09:18.720 let's start out with Walmart in February, and then a 0:09:18.760 --> 0:09:21.240 month later it was Target and t J Max. And 0:09:21.240 --> 0:09:24.880 then after that McDonald's just announced an increase in in 0:09:24.960 --> 0:09:29.200 their low wage workers too up the minimum wage. In fact, 0:09:29.280 --> 0:09:31.560 they want to pay a dollar above the minimum wage. 0:09:32.120 --> 0:09:35.600 What does this say about the economy today? What does 0:09:35.600 --> 0:09:37.640 it say about where we are in the economic cycle? 0:09:38.520 --> 0:09:41.280 I think it says a couple of things. First of all, 0:09:41.520 --> 0:09:44.040 when it comes to the labor market, the invisible hand 0:09:44.040 --> 0:09:47.120 doesn't always work perfectly. Sometimes the invisible hand needs a 0:09:47.160 --> 0:09:50.200 little bit of help. In the past, when we're in 0:09:50.200 --> 0:09:53.280 a situation like we are today, where the economy is 0:09:53.520 --> 0:09:57.439 getting stronger, the job market is clearly tightening, a minimum 0:09:57.440 --> 0:10:00.280 wage increase helped the labor market to clear, and what 0:10:00.320 --> 0:10:03.480 we're seeing from companies like McDonald's and from Walmart is 0:10:04.000 --> 0:10:06.600 they are stepping in and they're raising their wages across 0:10:06.640 --> 0:10:08.800 the board. They are stepping into set a minimum wage, 0:10:09.040 --> 0:10:13.240 imposing on themselves. That's not only market forces, that's also 0:10:13.520 --> 0:10:15.679 I think a reflection of the fact that the labor 0:10:15.720 --> 0:10:20.600 market is a social entity and worker morale is important. 0:10:21.240 --> 0:10:23.440 I think these companies will find that when they raise 0:10:23.679 --> 0:10:26.960 when they raise wages, they're going to get greater productivity 0:10:27.000 --> 0:10:31.280 from the workers, will have lower turnover. Uh. So I 0:10:31.320 --> 0:10:33.400 think we're in a situation in the economy now where 0:10:33.400 --> 0:10:37.200 things are getting tight enough that companies are raising wages, 0:10:37.559 --> 0:10:39.839 and I think they're doing it in a very interesting way, 0:10:40.240 --> 0:10:44.520 which is imposing a floor on themselves, which highlights the 0:10:44.559 --> 0:10:49.600 way the job market works, which is uh, social factors 0:10:49.960 --> 0:10:51.960 have a role to play in the job market. So 0:10:52.000 --> 0:10:54.719 there are a couple of interesting things with both Walmart 0:10:54.800 --> 0:10:59.400 and McDonald's. Um With Walmart, the data was that two 0:10:59.440 --> 0:11:02.720 thirds of the are employees already working states that have 0:11:02.760 --> 0:11:06.360 a significantly higher minimum wage than the federal government, so 0:11:06.440 --> 0:11:09.520 this only affected a third of their employees. And with 0:11:09.640 --> 0:11:13.079 McDonald's it was only a company owned stores, which are 0:11:13.960 --> 0:11:17.199 of their all the McDonald's in the country, there's there's 0:11:17.400 --> 0:11:22.640 almost fifteen thousand McDonald's restaurants are are company owned, and 0:11:22.720 --> 0:11:28.120 so of the stores, and assuming the math holds up, 0:11:28.840 --> 0:11:34.040 the employees are not necessarily affected by this company owned mandate. 0:11:34.559 --> 0:11:38.680 So how significant is what these companies are doing? Does 0:11:38.760 --> 0:11:42.480 it vitiate the need for the minimum wage, which is 0:11:42.760 --> 0:11:44.960 still at seven in a quarter and has seemingly been 0:11:45.000 --> 0:11:48.000 there for decades for there to be an increase in 0:11:48.040 --> 0:11:51.640 the minimum wage? And then we'll discuss what does raising 0:11:51.679 --> 0:11:55.640 the minimum wage due to the economy. I think what 0:11:55.760 --> 0:12:00.840 these companies have done is an important step. I think 0:12:00.880 --> 0:12:04.760 it's an important symbol. McDonald's, for example, cannot dictate wages 0:12:04.800 --> 0:12:08.199 to their franchise e's. Uh, there're separate businesses in the 0:12:08.280 --> 0:12:11.360 legal sense, So the same way that they can't dictate prices. 0:12:11.400 --> 0:12:15.760 They always say at participating franchisees, it's the same thing. Now. 0:12:15.840 --> 0:12:19.080 I hope that many of the franchises follow suit. And 0:12:19.240 --> 0:12:21.160 do we do we have any history what happens when 0:12:21.200 --> 0:12:25.800 McDonald's does this do Obviously not every franchise, but you 0:12:25.800 --> 0:12:28.319 would assume that this sort of leadership is going to 0:12:28.520 --> 0:12:32.320 drive a little more action amongst the non company owned stores. 0:12:33.240 --> 0:12:35.760 We don't really have much experience with this. H This 0:12:35.840 --> 0:12:38.959 is an unusual step that they've done. I hope it 0:12:39.000 --> 0:12:43.959 does drive action with franchises. Uh, but it also highlights 0:12:43.960 --> 0:12:46.680 the need for the federal minimum wage to increase. That 0:12:46.800 --> 0:12:48.880 was my My next question is, so what would happen 0:12:48.920 --> 0:12:51.760 if the Feds took the minimum wage up to you know, 0:12:51.800 --> 0:12:54.040 I've seen three numbers get bantied about, and they're all 0:12:54.120 --> 0:12:57.760 kind of interesting. At ten dollars an hour, it's a 0:12:57.800 --> 0:13:00.199 significant increase in the states that haven't read, is the 0:13:00.280 --> 0:13:03.520 minimum wage at twelve dollars an hour? Essentially you get 0:13:03.559 --> 0:13:07.400 the inflation adjusted number from pick your point sixty eight, 0:13:07.480 --> 0:13:10.360 seventy two, whatever it is, and then fifteen dollars an 0:13:10.360 --> 0:13:13.000 hour takes a full time person working forty hours a 0:13:13.000 --> 0:13:15.640 week and pretty much gets them up to a level. 0:13:16.000 --> 0:13:18.280 And we could talk about Walmart as well as the 0:13:18.320 --> 0:13:21.520 fast food industry where they're no longer dependent on state 0:13:21.600 --> 0:13:25.920 and federal aid. I think doubling or more than doubling 0:13:25.920 --> 0:13:27.840 the minimum wage, it's a big step at once for 0:13:27.880 --> 0:13:31.160 companies to absorb what we've seen in the past if 0:13:31.160 --> 0:13:33.000 the minimum wage went up to the equivalent of ten 0:13:33.040 --> 0:13:36.240 dollars an hour, that's something that companies mostly can absorb. 0:13:36.720 --> 0:13:39.120 And in the past when states have raised their minimum 0:13:39.120 --> 0:13:42.240 wage to that level, after adjusting for inflation, we haven't 0:13:42.280 --> 0:13:45.439 seen job losses. In fact, what we've seen is that 0:13:45.480 --> 0:13:47.679 employees have more money in their pockets than they spend 0:13:47.720 --> 0:13:49.640 that money in That tends to help the economy over 0:13:49.679 --> 0:13:53.240 and it's a modest increase in minimum wage or at 0:13:53.280 --> 0:13:56.439 least keeping up with inflation, isn't a job killer, because 0:13:56.440 --> 0:13:59.319 that's always the issue. Right. People always say there was 0:13:59.320 --> 0:14:01.520 a great study done where there was a change at 0:14:01.960 --> 0:14:05.240 a border I think was New Jersey and Pennsylvania, and 0:14:05.240 --> 0:14:07.320 on one side of the border the minimum wage went up, 0:14:07.320 --> 0:14:10.079 and a mile across the border there was another one. 0:14:10.640 --> 0:14:12.920 Describe what happened there, Well, that was the study I 0:14:12.960 --> 0:14:15.960 did in the early nineteen nineties with my colleague David 0:14:16.000 --> 0:14:18.520 cart and to our surprise, I thought we were going 0:14:18.600 --> 0:14:21.000 to find that when New Jersey raised its minimum wage, 0:14:21.200 --> 0:14:24.320 the fast food restaurants would have grown more slowly, fewer 0:14:24.320 --> 0:14:26.520 of them would have opened, and in fact we saw 0:14:26.560 --> 0:14:29.200 the opposite. They grew at least as much probably a 0:14:29.200 --> 0:14:31.480 little bit more than the fast food restaurants on the 0:14:31.480 --> 0:14:33.520 other side of the border. And we also found if 0:14:33.520 --> 0:14:36.480 you look within the state, within New Jersey, the areas 0:14:36.480 --> 0:14:38.640 of the state where the minimum wage was already above 0:14:38.680 --> 0:14:42.120 the new minimum uh and wages didn't rise. Uh, they 0:14:42.120 --> 0:14:44.320 didn't grow as quickly as the parts of the state 0:14:44.320 --> 0:14:46.960 where wages were low and wages were boosted by the 0:14:46.960 --> 0:14:49.920 minimum wage. And I should add Barry that that was study. 0:14:49.960 --> 0:14:52.520 I think that study was a turning point in research 0:14:52.560 --> 0:14:55.320 on the minimum wage. Most of the subsequent studies have 0:14:55.360 --> 0:14:58.280 reached the same conclusion. And there's been some work, very 0:14:58.280 --> 0:15:03.600 careful work looking across count knees using government reported data 0:15:03.720 --> 0:15:07.200 from government tax records, for example, which tends to find 0:15:07.200 --> 0:15:11.400 the exact same result, UH that at modest levels, the 0:15:11.480 --> 0:15:14.160 kinds of levels that we've historically seen in the United States, 0:15:14.240 --> 0:15:17.600 minimum wage increases do not have an adverse effect unemployment. 0:15:17.680 --> 0:15:20.320 Let's talk a little bit about the Federal Reserve. What 0:15:20.720 --> 0:15:26.400 started in the weeks before we recorded this was former 0:15:26.800 --> 0:15:31.040 Federal Reserve Chairman Ben Bernanke launched a blog, Go figure 0:15:31.080 --> 0:15:34.680 the Fed Chairman is blogging and kind of got into 0:15:34.720 --> 0:15:40.960 this epic debate with Lauren Summers, Secretary of the Treasury 0:15:41.080 --> 0:15:44.880 in the first Obama White House, about the concept of 0:15:45.080 --> 0:15:50.320 secular stagnation. So, so let's talk about all this stuff. First, 0:15:50.920 --> 0:15:53.920 what do you think about the FED chief blogging. I 0:15:53.960 --> 0:15:58.520 think it's terrific that Ben Bernanke has started a blog. Um, 0:15:58.680 --> 0:16:01.280 he has I think quite a bit to add to 0:16:01.400 --> 0:16:04.560 the public debate on these issues. Ben was a colleague 0:16:04.600 --> 0:16:07.240 of mine at Princeton for two decades. I learned a 0:16:07.240 --> 0:16:10.440 tremendous amount from him at the university. I worked with 0:16:10.480 --> 0:16:12.680 him when he was chairman of the FED. So I 0:16:12.720 --> 0:16:15.240 look forward to reading what he has to say. So 0:16:15.360 --> 0:16:20.240 and that Princeton Economics department, mur Nankee, Krueger, Krugman, who else? 0:16:20.240 --> 0:16:23.480 Who else is in that department? Alan Binder Blind. I mean, 0:16:23.520 --> 0:16:26.240 that's like the you know, the murders row on the 0:16:26.320 --> 0:16:29.760 Yankees back in the in the old days. So let's 0:16:29.800 --> 0:16:33.880 talk secular stagnation. Larry Summer's thesis, and it's been Bill 0:16:33.960 --> 0:16:36.240 Gross the new normal, and a lot of people have 0:16:36.320 --> 0:16:39.440 said this is, Hey, We've come off a multi decade 0:16:39.440 --> 0:16:43.400 period of growth and expansion and now post crisis, it's 0:16:43.400 --> 0:16:46.360 gonna be ugly for decades. What do you say about that. 0:16:47.240 --> 0:16:50.880 I'm skeptical of of that view. I think the US 0:16:51.040 --> 0:16:55.440 economy historically has managed to grow against a lot of obstacles. 0:16:55.800 --> 0:16:58.320 I think that will happen again. I think the financial 0:16:58.360 --> 0:17:01.720 crisis did have a last effect. On the other hand, 0:17:01.960 --> 0:17:04.159 I put a lot of confidence in the ingenuity of 0:17:04.200 --> 0:17:09.200 American entrepreneurs. You know, the sensation I always had coming 0:17:09.240 --> 0:17:12.879 out of the financial crisis that was very nineteen seventies. 0:17:12.920 --> 0:17:15.639 Like I was a teenager in the seventies and I 0:17:15.720 --> 0:17:19.119 just the word malaise really sums it up. And people 0:17:19.160 --> 0:17:21.959 in the seventies thought America was over. They never regained 0:17:21.960 --> 0:17:24.840 their mojo. And then the next thing, you know, the 0:17:24.880 --> 0:17:30.280 eighties hit and everything from technology to semiconductors to the 0:17:30.280 --> 0:17:35.040 Internet to mobile the universe exploded. And and that it's 0:17:35.040 --> 0:17:38.280 always been a bad bet, says my pal Lowry Cudlow. 0:17:38.359 --> 0:17:41.600 Betting against America? Is that a Is that a fair statement? 0:17:42.160 --> 0:17:44.160 I think that's absolutely right. I mean, if you go 0:17:44.240 --> 0:17:48.960 back UH to uh the end of World War Two, 0:17:49.160 --> 0:17:51.600 there were economists who thought exactly what you just said, 0:17:51.640 --> 0:17:55.000 that malays would set in. Even Paul Samuelis and thought 0:17:55.000 --> 0:17:57.640 we would slip back to a recession, and then others said, 0:17:57.680 --> 0:18:01.200 you know what, we've got very creative entrepreneur oars, they'll 0:18:01.200 --> 0:18:03.160 figure out new products. There was a lot of pent 0:18:03.240 --> 0:18:06.160 up demand coming out of the war. Then immigration helped 0:18:06.160 --> 0:18:08.840 to fuel the US economy, and I think those forces 0:18:09.160 --> 0:18:12.520 can can work again. And you know, you go look 0:18:12.600 --> 0:18:17.040 at the equity markets from y six to nineteen sixty six. 0:18:17.400 --> 0:18:20.639 That's an epic bull market. That's a huge run, only 0:18:20.680 --> 0:18:24.760 surpassed by the next malaise at two to two thousand, 0:18:24.840 --> 0:18:29.360 another epic bull market. So let's turn our attention now 0:18:29.400 --> 0:18:32.720 to interest rates. Rates are low, they seem to be 0:18:32.760 --> 0:18:36.160 going lower. They're low around the world. Germany's interest rates 0:18:36.160 --> 0:18:39.159 are now below Japan's interest rates. If you want to 0:18:39.520 --> 0:18:44.000 buy bonds um from the Swiss, they will charge you 0:18:44.080 --> 0:18:47.680 for the privilege. It's a negative interest rate. We've never 0:18:47.720 --> 0:18:50.680 really seen an environment where rates are this low, and 0:18:51.040 --> 0:18:52.959 what does that mean about the economy and what does 0:18:52.960 --> 0:18:56.720 it say to us about the impact of central banks. 0:18:57.800 --> 0:19:01.040 This has been an extraordinary period. There's no question. It's 0:19:01.040 --> 0:19:03.760 hard to believe there aren't sufficient investments that could be 0:19:04.359 --> 0:19:08.800 taken by private companies or by the government at such 0:19:08.840 --> 0:19:11.280 low interest rates. That that they would make a lot 0:19:11.280 --> 0:19:14.320 of sense. I think we're seeing some big imbalances in 0:19:14.359 --> 0:19:17.280 the world economy. Uh. This is a point that Ben 0:19:17.320 --> 0:19:20.800 Bernanke made about the global savings squat, where we have 0:19:21.320 --> 0:19:24.760 countries which are running up very big current accounts surpluses 0:19:25.080 --> 0:19:29.840 and that's depressing interest rates. Uh. But I think if 0:19:29.880 --> 0:19:33.359 you look at countries like say China, there's tremendous amount 0:19:33.400 --> 0:19:36.320 of scope for them to increase their domestic consumption. I 0:19:36.359 --> 0:19:38.760 think as they slow and I think here Larry Summers 0:19:38.840 --> 0:19:41.639 has done very good work predicting a slowdown in growth 0:19:41.720 --> 0:19:44.840 rates in in China. Uh. I think they're going to 0:19:44.920 --> 0:19:49.560 turn more towards domestic consumption to continue to keep people happy, 0:19:49.600 --> 0:19:52.880 to make them feel like their situation is improving. I've 0:19:52.920 --> 0:19:55.560 heard the complaint that, oh, it's the Federal Reserve that 0:19:55.600 --> 0:19:58.600 has driven rates so low around the world. How do 0:19:58.640 --> 0:20:01.640 you respond to that. The Federal Reserve has carried out 0:20:01.640 --> 0:20:04.520 its dual mandate extremely well. It has a dual mandate 0:20:04.560 --> 0:20:09.480 to try to create maximum employment and stable prices um 0:20:09.560 --> 0:20:14.160 full so create jobs and reduce inflation and keep inflation 0:20:14.200 --> 0:20:17.520 steady and shooting for around two percent. It's not too 0:20:17.560 --> 0:20:20.359 far off of that in the grand scheme of things. So, 0:20:20.840 --> 0:20:23.560 I think the Federal Reserve has helped the economy tremendously 0:20:24.000 --> 0:20:26.280 over the past five years. I think we're in a 0:20:26.359 --> 0:20:29.199 much stronger position than say, Europe because of the actions 0:20:29.200 --> 0:20:32.000 are are central back has taken. You have a background 0:20:32.000 --> 0:20:34.879 in labor economics. You've done a lot of studies, a 0:20:34.880 --> 0:20:39.320 lot of really interesting things UM with labor. So let's 0:20:39.320 --> 0:20:42.760 talk a little bit about the labor force this whole recovery. 0:20:43.240 --> 0:20:45.560 One of the things we hear all the time is, Gee, 0:20:45.600 --> 0:20:48.320 there's a lot of slack in the labor force. What 0:20:48.400 --> 0:20:51.600 does that mean for a lay person? Slack means that 0:20:51.640 --> 0:20:54.560 we're not using all the resources that we can be using. 0:20:55.560 --> 0:20:58.680 And the implication of slack is that it put downward 0:20:58.720 --> 0:21:02.480 pressure on ages, which would then put downward pressure on inflation. 0:21:03.040 --> 0:21:06.600 Are we coming to the end of the slack period 0:21:06.880 --> 0:21:10.240 of of the cycle for for labor? Is that the 0:21:10.359 --> 0:21:13.639 positive reading this? I think we are. I think what 0:21:13.800 --> 0:21:16.919 we've seen with the decline in labor force participation is 0:21:16.920 --> 0:21:20.040 what you would expect giving the aging of the workforce, 0:21:20.440 --> 0:21:23.920 Given that women's labor force participation peaked in the early 0:21:23.960 --> 0:21:27.600 two thousands, UM and given that we had so many 0:21:27.640 --> 0:21:31.240 long term unemployed, it's the natural evolution of the job 0:21:31.280 --> 0:21:33.440 market that they exit the labor force, and that's what's 0:21:33.440 --> 0:21:36.200 been taking place. So so let's describe this. When when 0:21:36.240 --> 0:21:39.359 we look at the population, you have the total civilian 0:21:39.400 --> 0:21:42.680 population in the United States is three hundred and ten 0:21:42.760 --> 0:21:46.119 or so million people. We then have a labor force 0:21:46.720 --> 0:21:50.280 all the people who were either working or essentially looking 0:21:50.320 --> 0:21:53.399 for work at a hundred and fifty five or so, 0:21:53.520 --> 0:21:56.840 where are we Bullpark hundred fifty five million, And then 0:21:57.400 --> 0:22:00.399 you have people who are leaving the labor force. They 0:22:00.440 --> 0:22:04.520 basically said either they're retiring or they just kind of 0:22:04.560 --> 0:22:07.240 give up on looking for a job. And people have 0:22:07.280 --> 0:22:10.720 been making a big deal about the declining participation right 0:22:10.760 --> 0:22:13.840 in the labor force. If I'm hearing you correctly, you're 0:22:13.880 --> 0:22:16.520 saying some of this is a function of just the 0:22:16.560 --> 0:22:19.600 aging of the baby boomers. You have sixty people a 0:22:19.760 --> 0:22:23.240 day retiring, and some of them is just the peak 0:22:23.480 --> 0:22:26.480 participation of women. Explained that a little bit. What had 0:22:26.520 --> 0:22:30.280 been fueling our rise in labor force participation from the 0:22:30.359 --> 0:22:33.840 nineteen fifties up until two thousand was more and more 0:22:33.840 --> 0:22:36.639 women joined the labor force that reached a peak in 0:22:36.680 --> 0:22:41.280 two thousand. The puzzle y labor force participation has since declined. 0:22:41.280 --> 0:22:43.959 For women, it declined in the last recovery, so this 0:22:44.040 --> 0:22:47.520 is not new in the current recovery, and it's declined 0:22:47.560 --> 0:22:51.560 an approach pretty broad base, well educated women as well 0:22:51.600 --> 0:22:54.760 as less educated women, women with children, women who were 0:22:54.840 --> 0:22:57.240 not married and don't have children. So it's been a 0:22:57.240 --> 0:23:00.760 pretty ubiquitous phenomenon and that had been fueling the rides 0:23:00.800 --> 0:23:03.400 in labor force participation, and now we're starting to see 0:23:03.440 --> 0:23:05.840 a little bit of a reversal of that. We've seen 0:23:05.880 --> 0:23:08.200 a little bit of a reversal over the last decade. 0:23:08.680 --> 0:23:12.280 So more recently, the labor force participation rates seemed to 0:23:13.119 --> 0:23:17.080 stop falling and actually started to increase. Is this just 0:23:17.160 --> 0:23:19.640 a little noise in the data series, or or perhaps 0:23:19.640 --> 0:23:23.200 we're seeing that drop come to a halt. I think 0:23:23.240 --> 0:23:25.960 that's noise. I think at best we could say labor 0:23:26.000 --> 0:23:29.200 for its participation is stabilized. Maybe some of the young 0:23:29.240 --> 0:23:31.520