WEBVTT - Professor Alan Krueger: Masters in Business (Audio) 0:00:03.240 --> 0:00:07.560 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:08.119 --> 0:00:10.760 Welcome to the podcast. I'm Barry Ridholts. You're listening to 0:00:10.840 --> 0:00:14.480 Masters in Business on Bloomberg Radio. My guest today is 0:00:14.560 --> 0:00:18.640 really one of the most storied economists, UH in America. 0:00:19.360 --> 0:00:22.360 Other than the Nobel Prize, He's pretty much won every 0:00:22.400 --> 0:00:27.280 award an economist can win. UH. He's a professor at Princeton. 0:00:27.520 --> 0:00:31.600 He was the former chief economist at the Treasury Department. 0:00:31.640 --> 0:00:36.400 He was chairman of the Council of Economic Advisors. UM 0:00:36.640 --> 0:00:40.440 to the President, he was I, I like, the list 0:00:40.520 --> 0:00:42.320 is so long. I could keep reading you this, but 0:00:42.680 --> 0:00:45.680 I'll let you I'll let him tell you in his 0:00:45.720 --> 0:00:50.159 own words. Alan Krueger is a labor economist. He's a 0:00:50.240 --> 0:00:54.880 specialist in how various parts of the economy work, how 0:00:54.960 --> 0:01:00.080 labor interacts with the broad economy. UM. He's just a 0:01:00.120 --> 0:01:07.000 tremendously insightful person when it comes to analyzing economic policy, 0:01:07.240 --> 0:01:11.920 analyzing the data that the economy produces. And he's one 0:01:11.959 --> 0:01:16.360 of those rare birds who can actually explain these things 0:01:17.040 --> 0:01:19.920 in plain English. You know, a lot of what we 0:01:20.000 --> 0:01:22.960 talked about today is a little wonky. Those of you 0:01:23.040 --> 0:01:29.000 who are either economic students or economists, or even just 0:01:29.200 --> 0:01:32.440 portfolio managers who look at the macro world and are 0:01:32.440 --> 0:01:36.640 curious what it means. This is about as plain English 0:01:36.760 --> 0:01:39.120 of a conversation as you're ever gonna want to hear 0:01:39.880 --> 0:01:47.040 relative to really wonky, complex sophisticated subjects. And he makes 0:01:47.080 --> 0:01:51.480 it not only understandable but interesting. And I find that 0:01:51.520 --> 0:01:55.880 to be a very rare quality um in someone who's 0:01:55.960 --> 0:02:00.520 an economist. There there were no digressions into mathematical formulas, 0:02:00.560 --> 0:02:04.840 there were no you know, footnoted abstractions. But see, it 0:02:04.920 --> 0:02:09.519 was just really a fascinating and intelligent conversation. I find 0:02:09.600 --> 0:02:13.880 him to be a really um neat person, very knowledgeable, 0:02:13.960 --> 0:02:19.640 very informative. I think you'll find this conversation really quite interesting. 0:02:20.440 --> 0:02:24.280 Without further ado, here is my conversation with Professor Alan 0:02:24.400 --> 0:02:32.000 Krueger of Princeton. This is Masters in Business with Barry 0:02:32.080 --> 0:02:37.360 Ridholts on Bloomberg Radio. My guest today is a what 0:02:37.440 --> 0:02:41.280 can I say about Professor Alan Krueger of Princeton. He 0:02:41.480 --> 0:02:44.640 was the Chief Economist for the Treasury Department and Assistant 0:02:44.680 --> 0:02:48.640 Secretary of of Treasury. He was also Chairman of the 0:02:48.720 --> 0:02:53.400 Council of Economic Advisors under President Obama. Professor Krueger, Welcome 0:02:53.440 --> 0:02:56.920 to Bloomberg. My pleasure. So I didn't want to spend 0:02:56.960 --> 0:03:01.280 too much time waxing eloquent on your curriculum, Vita, but 0:03:01.440 --> 0:03:04.880 suffice it to say, you've pretty much won just about 0:03:04.880 --> 0:03:07.600 every award you can come up with, at least in 0:03:07.639 --> 0:03:10.960 the United States, UH, for economics. And you've had a 0:03:11.040 --> 0:03:15.760 number of just really incredible UH posts. When both within 0:03:15.800 --> 0:03:19.359 the government and out in the early nineties, you were 0:03:19.520 --> 0:03:24.840 chief economist at the Department of Labor, I was. And 0:03:24.840 --> 0:03:28.919 and what does the chief economist for um, the Labor 0:03:28.960 --> 0:03:33.320 Department actually do? That's a good question. UH. It was 0:03:33.360 --> 0:03:37.760 a new position. Secretary Rice created it, and I was 0:03:37.800 --> 0:03:40.680 the second one to hold it. UH. I was very 0:03:40.760 --> 0:03:43.520 who's the first first was my good friend Larry Katz 0:03:43.560 --> 0:03:47.440 from Harvard. Larry did a brilliant job, and he left 0:03:47.520 --> 0:03:49.680 very big shoes to fill. I'll give you an example. 0:03:50.920 --> 0:03:54.360 One of the reasons why Secretary Rice created the job 0:03:54.760 --> 0:03:58.280 was he wanted to have involvement with the National Economic Council, 0:03:58.640 --> 0:04:02.760 which was also innovation and the way the NBC was 0:04:02.800 --> 0:04:08.720 set up at that time. Bob Reuben was chairman and Treasury, Omb, Labor, 0:04:08.960 --> 0:04:13.120 Commerce were the members. So this was like a think tank, 0:04:13.160 --> 0:04:16.360 but with the old government representatives who it would advise 0:04:16.800 --> 0:04:21.000 the president and the cabinet. It was the place that 0:04:21.120 --> 0:04:24.440 ran the policy process, and it's different from a think 0:04:24.440 --> 0:04:30.359 tank because it produced proposals that really mattered and it 0:04:30.480 --> 0:04:35.000 had a direct connection to the president. So the way 0:04:35.040 --> 0:04:39.559 that Bob Reuben ran this process was very organized. UH 0:04:39.800 --> 0:04:44.720 budget went through the n EC process, UM trade issues 0:04:44.760 --> 0:04:48.080 went through, and anyc was divided into domestic issues and 0:04:48.200 --> 0:04:52.240 international issues. Other departments had a separate person who would 0:04:52.240 --> 0:04:56.039 represent them on domestic and international issues. Larry Katz was 0:04:56.120 --> 0:04:59.480 so UH skilled that he did both. So I had 0:04:59.520 --> 0:05:01.720 to fill though shoes and do both, which meant being 0:05:01.760 --> 0:05:06.800 involved in NAFTA as well as UH domestic issues like 0:05:06.880 --> 0:05:09.599 the minimum wage. So so what were some of the 0:05:09.640 --> 0:05:13.240 policies that came out of that Economic Council? So NAFTA 0:05:13.400 --> 0:05:16.520 clearly was a big issue in the nineties. NAFTA was 0:05:16.520 --> 0:05:19.080 a very big issue the first Clinton budget, which was 0:05:19.240 --> 0:05:22.880 after UH sorry before I arrived, which I think put 0:05:23.000 --> 0:05:25.679 us on a much stronger path in the early ninety nineties. 0:05:26.040 --> 0:05:29.479 The one significant domestic policy that did not come from 0:05:29.480 --> 0:05:31.880 it was healthcare reform, and I think one of the 0:05:31.920 --> 0:05:35.320 reasons why healthcare reform in that period UH didn't do 0:05:35.360 --> 0:05:37.320 as well as it should have was because it didn't 0:05:37.360 --> 0:05:40.120 come through the NBC process, in other words, the way 0:05:40.120 --> 0:05:44.200 it was formulated with the thought process of what's the impact, 0:05:44.240 --> 0:05:46.320 what's the cost, what's the benefit? What what is the 0:05:46.400 --> 0:05:50.760 thinking behind how some of these policies are developed. Well, 0:05:50.800 --> 0:05:54.800 economists have I think, very systematic approach to think about policy. 0:05:54.800 --> 0:05:58.039 To thinking about policy issues, we think about efficiency, we 0:05:58.120 --> 0:06:03.080 think about equity, we think of about what's gonna use 0:06:03.120 --> 0:06:06.040 our resources most efficiently, and we think about what's fair, 0:06:06.400 --> 0:06:08.960 and we divide issues quite clearly in that way, and 0:06:09.000 --> 0:06:13.719 we make trade offs and UM, now it might mean 0:06:13.760 --> 0:06:17.560 that UH a lot of our proposals are not politically feasible, 0:06:18.120 --> 0:06:21.200 but I think this is a very coherent framework, and 0:06:21.360 --> 0:06:25.360 the process that was used for health care reform was 0:06:26.000 --> 0:06:29.240 UM much more at hoc I would say, not nearly 0:06:29.240 --> 0:06:33.000 a systematic So there's pretty much an ever going trade 0:06:33.040 --> 0:06:37.160 off between what's optimal and what's politically feasible and what's 0:06:38.000 --> 0:06:41.200 financially doable. Is that sort of the factors that that 0:06:41.320 --> 0:06:44.680 get twisted about Sometimes you hit the sweet spot and 0:06:45.520 --> 0:06:48.039 good policy is good politics, and it's nice when that 0:06:48.080 --> 0:06:52.039 works out. Other times you have to make compromises between 0:06:52.080 --> 0:06:54.400 what's politically feasible and what we'll do the most good 0:06:54.400 --> 0:06:57.320 for the economy. And one of the lessons I learned 0:06:57.400 --> 0:07:03.280 from having served in UH the government for five years 0:07:03.279 --> 0:07:06.760 in my career is that you compromises not such a 0:07:06.760 --> 0:07:10.800 bad thing as long as compromise leads to better policy, 0:07:10.880 --> 0:07:13.520 to improvement for the American people. We shouldn't let the 0:07:13.520 --> 0:07:15.520 best be the enemy of the good. That that's the 0:07:15.880 --> 0:07:19.160 classic line. So you were at the Labor Department, and 0:07:19.200 --> 0:07:24.800 the Bureau of Labor Statistics also has a huge group 0:07:25.000 --> 0:07:31.600 of statisticians, economists, econometric modelers tell for people who may 0:07:31.600 --> 0:07:35.040 not be quite as wonky as some of us are, 0:07:35.400 --> 0:07:39.200 tell us what the BLS actually does over the course 0:07:39.200 --> 0:07:43.440 of any given month or or quarter. The BLS is 0:07:43.480 --> 0:07:46.000 housed within the Labor Department, but it has a tremendous 0:07:46.000 --> 0:07:50.040 amount of independence. For example, there's only one employee of 0:07:50.120 --> 0:07:55.000 the BLS who is a presidential appointee. That's the UM Commissioner. 0:07:55.320 --> 0:07:58.200 Everyone else is his career civil servant. The Bureau of 0:07:58.320 --> 0:08:01.400 List labor statistics. Together with the Census Bureau, conducts the 0:08:01.480 --> 0:08:05.200 monthly Household Survey, the Current Population Survey, which produces the 0:08:05.280 --> 0:08:09.679 unemployment rate. It also does a survey of establishments. Nearly 0:08:09.680 --> 0:08:12.760 four hundred thousand establishments are interviewed on a monthly basis. 0:08:13.320 --> 0:08:16.040 And what is amazing to me about the BLS those 0:08:16.080 --> 0:08:18.920 are its two most important products, although it has many others, 0:08:19.560 --> 0:08:22.720 is that on an ongoing basis, it collects, analysis and 0:08:22.760 --> 0:08:26.800 releases those data every month. And if you think about 0:08:26.800 --> 0:08:29.480 one an enormous effort, that is, and to do it 0:08:29.520 --> 0:08:32.920 as carefully as they do it is quite impressive. And 0:08:33.160 --> 0:08:36.160 I think they are given a tremendous amount of respect 0:08:36.160 --> 0:08:38.360 and they've earned a great deal of credibility because they 0:08:38.360 --> 0:08:41.120 do it in such a professional way. They collect other 0:08:41.200 --> 0:08:44.560 data also, I would highlight the Employment Cost Index and 0:08:44.600 --> 0:08:47.120 I think the employment costs in DEX. What exactly is 0:08:47.120 --> 0:08:49.800 that the e c I Employment Cost Index is a 0:08:49.800 --> 0:08:54.040 measure of how much it is costing for employers to 0:08:54.160 --> 0:08:57.240 pay pay their workers, and it includes not only wages, 0:08:57.280 --> 0:09:01.960 but also health insurance bun it's pension benefits, vacation time. 0:09:02.880 --> 0:09:05.800 It's calculated very much like the consumer price index in 0:09:05.840 --> 0:09:09.000 that the BLS goes back to the same companies quarter 0:09:09.120 --> 0:09:12.080 after quarter, looks at the same jobs, and looks at 0:09:12.120 --> 0:09:15.360 what's happening to compensation costs within those very narrow categories. 0:09:15.520 --> 0:09:18.200 I'm Barrier Hults. You're listening to Masters in Business on 0:09:18.200 --> 0:09:22.600 Bloomberg Radio. My special guest today Professor Alan Krueger of 0:09:22.800 --> 0:09:27.000 Princeton University and former chair of the Council of Economic 0:09:27.000 --> 0:09:30.880 Advisors to the President. We left or earlier talking about 0:09:31.480 --> 0:09:38.080 UM the Economic Council as chairman of the President's Economic Advisors, 0:09:38.120 --> 0:09:40.600 that's also part of that council? Is that? Is that correct? 0:09:40.960 --> 0:09:43.480 That's right? The chairman of the CEO plays an important 0:09:43.559 --> 0:09:47.720 role within the National Economic Council. So I think people 0:09:47.720 --> 0:09:50.600 are aware of UM what the c e A is. 0:09:51.120 --> 0:09:53.560 They know they're the U as the chairperson is the 0:09:53.600 --> 0:09:56.160 advisor to the President. But I don't think people have 0:09:56.240 --> 0:09:59.080 a clue as to how that works either within the 0:09:59.080 --> 0:10:03.520 White House. Are you guys proactively suggesting policy? Is the 0:10:03.559 --> 0:10:06.079 President coming to the Council and saying, hey have a 0:10:06.160 --> 0:10:09.880 question about this, uh, this minimum wage issue? What does 0:10:09.920 --> 0:10:12.040 it mean if we raise the minimum How does that work? 0:10:12.080 --> 0:10:14.880 What's the back and forth with that. It works in 0:10:14.920 --> 0:10:20.079 both directions. There are instances where the Council of Economic 0:10:20.080 --> 0:10:24.560 Advisors would make proposals, typically within the NBC process, where 0:10:24.559 --> 0:10:28.200 they get vetted and reviewed UH, and other relevant departments 0:10:28.240 --> 0:10:33.360 would add to the analysis and help put together the proposal. UH. 0:10:33.440 --> 0:10:35.480 And then there are other times where the President says, look, 0:10:35.520 --> 0:10:37.320 go back to the drawing board, come up with more 0:10:37.400 --> 0:10:40.760 suggestions in this area, or UH, you know, the way 0:10:40.800 --> 0:10:43.000 I think about education is like this, here's what I 0:10:43.040 --> 0:10:45.400 think you should develop a proposal on. So it works 0:10:45.400 --> 0:10:48.560 in both directions. So I was I mentioned the minimum 0:10:48.600 --> 0:10:52.480 wage earlier, and and you have an expertise in not 0:10:52.640 --> 0:10:56.880 only UH labor economics, but you've studied the minimum wage extensively. 0:10:57.360 --> 0:11:01.600 Let's let's start out with Walmart in February, and then 0:11:01.600 --> 0:11:04.079 a month later it was Target and t J Max, 0:11:04.120 --> 0:11:07.800 and then after that, McDonald's just announced an increase in 0:11:07.800 --> 0:11:11.839 in their low wage workers too up the minimum wage. 0:11:11.840 --> 0:11:13.760 In fact, they want to pay a dollar above the 0:11:13.800 --> 0:11:18.240 minimum wage. What does this say about the economy today? 0:11:18.280 --> 0:11:19.800 What does it say about where we are in the 0:11:19.800 --> 0:11:22.959 economic cycle? I think it says a couple of things. 0:11:23.400 --> 0:11:25.880 First of all, when it comes to the labor market. 0:11:26.160 --> 0:11:29.679 The invisible hand doesn't always work perfectly. Sometimes the invisible 0:11:29.679 --> 0:11:32.400 hand needs a little bit of help. In the past, 0:11:32.640 --> 0:11:35.120 when we were in a situation like we are today, 0:11:35.160 --> 0:11:38.280 where the economy is getting stronger, the job market is 0:11:38.760 --> 0:11:42.079 clearly tightening, a minimum wage increase helped the labor market 0:11:42.120 --> 0:11:45.240 to clear. And what we're seeing from companies like McDonald's 0:11:45.280 --> 0:11:48.320 and from Walmart is they are stepping in and they're 0:11:48.360 --> 0:11:50.840 raising their wages across the board. They are stepping into 0:11:50.880 --> 0:11:54.720 set a minimum wage, imposing on themselves. That's not only 0:11:54.800 --> 0:11:57.840 market forces, that's also I think a reflection of the 0:11:57.880 --> 0:12:01.439 fact that the labor market is a social entity and 0:12:02.080 --> 0:12:05.640 worker morale is important. I think these companies will find 0:12:05.679 --> 0:12:07.920 that when they raise when they raise wages, they're going 0:12:07.960 --> 0:12:13.320 to get greater productivity from the workers will have lower turnover. Uh. So, 0:12:14.160 --> 0:12:16.160 I think we're in a situation in the economy now 0:12:16.160 --> 0:12:20.160 where things are getting tight enough that companies are raising wages, 0:12:20.559 --> 0:12:22.800 and I think they're doing it in a very interesting way, 0:12:23.200 --> 0:12:27.520 which is imposing a floora on themselves, which highlights the 0:12:27.559 --> 0:12:32.560 way the job market works, which is uh. Social factors 0:12:32.960 --> 0:12:34.920 have a role to play in the job market. So 0:12:34.960 --> 0:12:37.679 there are a couple of interesting things with both Walmart 0:12:37.760 --> 0:12:42.360 and McDonald's. Um with Walmart, the data was that two 0:12:42.440 --> 0:12:45.840 thirds of their employees already working states that have a 0:12:45.840 --> 0:12:49.520 significantly higher minimum wage than the federal government, so this 0:12:49.600 --> 0:12:53.720 only affected a third of their employees. And with McDonald's 0:12:53.840 --> 0:12:57.040 it was only a company owned stores, which are of 0:12:57.120 --> 0:13:00.720 their all the McDonald's in the country, they're it's almost 0:13:00.800 --> 0:13:05.839 fifteen thousand McDonald's restaurants are are company owned, and so 0:13:07.000 --> 0:13:11.839 of the stores, and assuming the math holds up, the 0:13:11.880 --> 0:13:17.040 employees are not necessarily affected by this company owned mandate. 0:13:17.559 --> 0:13:21.680 So how significant is what these companies are doing. Does 0:13:21.720 --> 0:13:25.440 it vitiate the need for the minimum wage, which is 0:13:25.760 --> 0:13:28.160 still at seven in a quartern, has seemingly been there 0:13:28.160 --> 0:13:31.080 for decades for there to be an increase in the 0:13:31.080 --> 0:13:34.719 minimum wage, And then we'll discuss what does raising the 0:13:34.760 --> 0:13:38.960 minimum wage due to the economy. I think what these 0:13:39.000 --> 0:13:44.040 companies have done is an important step. I think it's 0:13:44.040 --> 0:13:47.839 an important symbol. McDonald's, for example, cannot dictate wages to 0:13:47.880 --> 0:13:51.920 their franchise's. Uh, there're separate businesses in the legal sense, 0:13:52.240 --> 0:13:54.440 So the same way that they can't dictate prices. They 0:13:54.520 --> 0:13:58.760 always say at participating franchisees, it's the same thing. Now. 0:13:58.800 --> 0:14:02.080 I hope that many of the franchises follow suit, and 0:14:02.200 --> 0:14:04.120 do we do we have any history what happens when 0:14:04.200 --> 0:14:08.760 McDonald's does this do Obviously not every franchise, but you 0:14:08.760 --> 0:14:11.280 would assume that this sort of leadership is going to 0:14:11.480 --> 0:14:15.280 drive a little more action amongst the non company owned stores. 0:14:16.200 --> 0:14:18.720 We don't really have much experience with this. Uh. This 0:14:18.840 --> 0:14:21.960 is an unusual step that they've done. I hope it 0:14:22.000 --> 0:14:26.920 does drive action with franchises. UH. But it also highlights 0:14:26.920 --> 0:14:29.680 the need for the federal minimum wage to increase. That 0:14:29.760 --> 0:14:31.840 was my My next question is, so what would happen 0:14:31.880 --> 0:14:34.720 if the Feds took the minimum wage up to you know, 0:14:34.760 --> 0:14:37.040 I've seen three numbers get bantied about, and they're all 0:14:37.120 --> 0:14:40.720 kind of interesting. At ten dollars an hour, it's a 0:14:40.760 --> 0:14:43.560 significant increase in the states that haven't raised them. Innimum 0:14:43.600 --> 0:14:46.600 wage at twelve dollars an hour, essentially you get the 0:14:46.640 --> 0:14:51.080 inflation adjusted number from pick your point six seventy two, 0:14:51.080 --> 0:14:53.840 whatever it is, and then fifteen dollars an hour takes 0:14:53.840 --> 0:14:56.720 a full time person working forty hours a week and 0:14:56.800 --> 0:14:59.160 pretty much gets them up to a level, and we 0:14:59.160 --> 0:15:01.760 could talk about mart as well as the fast food 0:15:01.800 --> 0:15:05.480 industry where they're no longer dependent on state and federal aid. 0:15:06.920 --> 0:15:09.560 I think doubling or more than doubling the minimum wage, 0:15:09.600 --> 0:15:11.920 it's a big step at once for companies to absorb 0:15:12.880 --> 0:15:14.760 what we've seen in the past. If the minimum wage 0:15:14.800 --> 0:15:16.720 went up to the equivalent of ten dollars an hour, 0:15:17.080 --> 0:15:20.480 that's something that companies mostly can absorb. And in the past, 0:15:20.560 --> 0:15:22.960 when states have raised their minimum wage to that level, 0:15:23.000 --> 0:15:27.720 after adjusting for inflation, we haven't seen job losses. In fact, 0:15:27.720 --> 0:15:29.560 what we've seen is that employees have more money in 0:15:29.600 --> 0:15:31.600 their pockets and they spend that money in that tends 0:15:31.640 --> 0:15:35.000 to help the economy over at it's a modest increase 0:15:35.040 --> 0:15:37.600 in minimum wage or at least keeping up with inflation 0:15:38.200 --> 0:15:41.040 isn't a job killer, because that's always the issue. Right. 0:15:41.120 --> 0:15:43.440 People always say there was a great study done where 0:15:43.480 --> 0:15:45.840 there was a change at a border I think was 0:15:45.880 --> 0:15:48.920 New Jersey and Pennsylvania, and on one side of the 0:15:48.960 --> 0:15:51.840 border the minimum wage went up, and a mile across 0:15:51.880 --> 0:15:55.040 the border there was another one. Describe what happened there, well, 0:15:55.040 --> 0:15:57.200 that was the study I did in the early nine 0:15:57.440 --> 0:16:00.760 nineties with my colleague David cart and to our surprise, 0:16:00.840 --> 0:16:02.440 I thought we were going to find that when New 0:16:02.480 --> 0:16:05.680 Jersey raised its minimum wage, the fast food restaurants would 0:16:05.680 --> 0:16:08.280 have grown more slowly, fewer of them would have opened. 0:16:08.560 --> 0:16:11.240 And in fact we saw the opposite. They grew at 0:16:11.320 --> 0:16:13.320 least as much, probably a little bit more than the 0:16:13.320 --> 0:16:15.360 fast food restaurants on the other side of the border. 0:16:15.600 --> 0:16:17.480 And we also found if you look within the state, 0:16:17.560 --> 0:16:20.200 within New Jersey, the areas of the state where the 0:16:20.240 --> 0:16:23.080 minimum wage was already above the new minimum UH and 0:16:23.200 --> 0:16:26.400 wages didn't rise UH, they didn't grow as quickly as 0:16:26.440 --> 0:16:28.440 the parts of the state where wages were low and 0:16:28.760 --> 0:16:31.400 wages were boosted by the minimum wage. And I should 0:16:31.440 --> 0:16:33.640 add Barry that that was study. I think that study 0:16:33.680 --> 0:16:36.480 was a turning point in research on the minimum wage. 0:16:36.960 --> 0:16:39.440 Most of the subsequent studies have reached the same conclusion. 0:16:39.480 --> 0:16:42.680 And there's been some work, very careful work looking across 0:16:42.760 --> 0:16:48.600 counties using UH government reported data from government tax records, 0:16:48.640 --> 0:16:51.320 for example, which tends to find the exact same result 0:16:51.800 --> 0:16:55.200 UH that at modest levels, the kinds of levels that 0:16:55.240 --> 0:16:58.360 we've historically seen in the United States, minimum wage increases 0:16:58.400 --> 0:17:01.280 do not have an adverse effect on employment. I'm Barry 0:17:01.320 --> 0:17:04.120 rid Hults. You're listening to Masters in Business on Bloomberg Radio. 0:17:04.600 --> 0:17:08.240 My special guest this week is Professor Alan Krueger of Princeton. 0:17:08.640 --> 0:17:11.679 He's the former Chief Economist of the Treasury Department and 0:17:11.840 --> 0:17:16.280 chairperson of the President's Council of Economic Advisors. Let's talk 0:17:16.320 --> 0:17:20.280 a little bit about the Federal Reserve. What started in 0:17:20.320 --> 0:17:25.720 the weeks before we recorded this was former Federal Reserve 0:17:25.800 --> 0:17:29.600 Chairman Ben Bernanke launched a blog, Go figure the FED 0:17:29.680 --> 0:17:34.520 Chairman is blogging and kind of got into this epic 0:17:34.640 --> 0:17:39.560 debate with Lauren Summers, Secretary of the Treasury in the 0:17:39.640 --> 0:17:44.600 first Obama White House about the concept of secular stagnation. 0:17:45.080 --> 0:17:49.240 So so let's talk about all this stuff first. What 0:17:49.280 --> 0:17:52.360 do you think about the FED chief blogging. I think 0:17:52.359 --> 0:17:56.720 it's terrific that Ben Bernanke has started a blog. Um 0:17:56.920 --> 0:17:59.520 he has I think quite a bit to add to 0:17:59.640 --> 0:18:02.800 the public debate on these issues. Ben was a colleague 0:18:02.840 --> 0:18:05.440 of mine at Princeton for two decades. I learned a 0:18:05.480 --> 0:18:08.679 tremendous amount from him at the university. I worked with 0:18:08.720 --> 0:18:10.919 him when he was chairman of the FED. So I 0:18:10.960 --> 0:18:13.480 look forward to reading what he has to say. So 0:18:13.600 --> 0:18:18.440 and that Princeton Economics department ur Nankee, Krueger, Krugman, who else? 0:18:18.480 --> 0:18:21.720 Who else is in that department? Alan Blinder Blind. I mean, 0:18:21.760 --> 0:18:24.480 that's like the you know, the murders row on the 0:18:24.560 --> 0:18:28.000 Yankees back in the in the old days. So let's 0:18:28.000 --> 0:18:32.120 talk secular stagnation Larry Summer's thesis. And it's been Bill 0:18:32.200 --> 0:18:34.480 Gross the new normal, And a lot of people have 0:18:34.520 --> 0:18:37.680 said this is, Hey, we've come off a multi decade 0:18:37.680 --> 0:18:41.640 period of growth and expansion and now post crisis, it's 0:18:41.640 --> 0:18:44.600 gonna be ugly for decades. What do you say about that? 0:18:45.480 --> 0:18:49.119 I'm skeptical of of that view. I think the US 0:18:49.280 --> 0:18:53.680 economy historically has managed to grow against a lot of obstacles. 0:18:54.040 --> 0:18:56.560 I think that will happen again. I think the financial 0:18:56.600 --> 0:18:59.920 crisis did have a lasting effect. On the other hand, 0:19:00.200 --> 0:19:02.399 I put a lot of confidence in the ingenuity of 0:19:02.400 --> 0:19:07.440 American entrepreneurs. You know, the sensation I always had coming 0:19:07.480 --> 0:19:11.119 out of the financial crisis that was very nineteen seventies, 0:19:11.160 --> 0:19:13.879 Like I was a teenager in the seventies and I 0:19:13.960 --> 0:19:17.359 just the word malaise really sums it up. And people 0:19:17.359 --> 0:19:20.199 in the seventies thought America was over. They never regained 0:19:20.200 --> 0:19:23.080 their mojo. And then the next thing, you know, the 0:19:23.119 --> 0:19:28.480 eighties hit and everything from technology to semiconductors to the 0:19:28.520 --> 0:19:33.280 Internet to mobile the universe exploded. And and that it's 0:19:33.280 --> 0:19:36.520 always been a bad bet, says my pal Lowry Caudlow 0:19:36.600 --> 0:19:39.840 betting against America? Is that? Is that a fair statement? 0:19:40.400 --> 0:19:42.400 I think that's absolutely right. I mean, if you go 0:19:42.480 --> 0:19:47.200 back uh to uh the end of World War Two, 0:19:47.400 --> 0:19:49.840 there were economists who thought exactly what you just said, 0:19:49.880 --> 0:19:53.200 that malays would set in, even Paul Samuels and thought 0:19:53.240 --> 0:19:55.840 we would slip back to a recession. And then others said, 0:19:55.920 --> 0:19:59.720 you know what, We've got very creative entrepreneurs, they'll figure 0:19:59.720 --> 0:20:01.879 out products. There was a lot of pent up demand 0:20:01.920 --> 0:20:04.760 coming out of the war. Then immigration helped to fuel 0:20:04.800 --> 0:20:07.879 the US economy, and I think those forces can can 0:20:08.240 --> 0:20:11.760 work again. And you know, you go look at the 0:20:11.800 --> 0:20:16.600 equity markets from to nineteen sixty six, that's an epic 0:20:16.880 --> 0:20:20.239 bull market. That's a huge run, only surpassed by the 0:20:20.280 --> 0:20:25.960 next malaise at two thousand, another epic bull market. So 0:20:26.240 --> 0:20:29.720 let's turn our attention now to interest rates. Rates are low, 0:20:30.280 --> 0:20:32.919 they seem to be going lower. They're low around the world. 0:20:33.280 --> 0:20:36.800 Germany's interest rates are now below Japan's interest rates. If 0:20:36.840 --> 0:20:41.440 you want to buy bonds um from the Swiss, they 0:20:41.440 --> 0:20:44.480 will charge you for the privilege. It's a negative interest rate. 0:20:45.440 --> 0:20:48.359 We've never really seen an environment where rates are this low, 0:20:48.640 --> 0:20:51.040 and what does that mean about the economy and what 0:20:51.080 --> 0:20:54.159 does it say to us about the impact of of 0:20:54.240 --> 0:20:58.520 central banks. This has been an extraordinary period. There's no question. 0:20:59.080 --> 0:21:01.800 It's hard to believe there aren't sufficient investments that could 0:21:01.800 --> 0:21:06.760 be taken by private companies or by the government at 0:21:06.800 --> 0:21:09.280 such low interest rates that that they would make a 0:21:09.320 --> 0:21:12.480 lot of sense. I think we're seeing some big imbalances 0:21:12.520 --> 0:21:15.040 in the world economy. Uh. This is a point that 0:21:15.320 --> 0:21:18.840 Ben Bernanki made about the global savings plot, where we 0:21:18.960 --> 0:21:22.360 have countries which are running up very big current accounts 0:21:22.359 --> 0:21:27.920 surpluses and that's depressing interest rates. Uh. But I think 0:21:27.960 --> 0:21:31.320 if you look at countries like say China, there's tremendous 0:21:31.320 --> 0:21:34.000 amount of scope for them to increase their domestic consumption. 0:21:34.480 --> 0:21:36.680 I think as they slow and I think here Larry 0:21:36.680 --> 0:21:39.520 Somers has done very good work predicting a slowdown a 0:21:39.600 --> 0:21:42.959 growth rates in in China. Uh. I think they're going 0:21:43.000 --> 0:21:46.400 to turn more towards domestic consumption to continue to keep 0:21:46.440 --> 0:21:50.360 people happy, to make them feel like their situation is improving. 0:21:50.880 --> 0:21:52.800 So in the last minute we have in this segment, 0:21:53.280 --> 0:21:56.040 I've heard the complaint that, oh, it's the Federal Reserve 0:21:56.119 --> 0:21:59.160 that has driven rates so low around the world. How 0:21:59.160 --> 0:22:01.800 do you respond to that? It the Federal Reserve has 0:22:01.840 --> 0:22:04.399 carried out its dual mandate extremely well. It has a 0:22:04.480 --> 0:22:08.320 dual mandate to try to create maximum employment and stable 0:22:08.680 --> 0:22:14.160 prices um full. So create jobs and reduce inflation. Let's 0:22:14.240 --> 0:22:17.720 keep inflation steady at shooting for around two percent. It's 0:22:17.760 --> 0:22:19.600 not too far off of that in the grand scheme 0:22:19.640 --> 0:22:23.000 of things. So I think the Federal Reserve has helped 0:22:23.000 --> 0:22:26.600 the economy tremendously over the past five years. I think 0:22:26.600 --> 0:22:29.280 we're in a much stronger position than say Europe because 0:22:29.280 --> 0:22:31.840 of the actions are are central back has taken. I'm 0:22:31.880 --> 0:22:34.399 Barry rid Helps. You're listening to Masters in Business on 0:22:34.440 --> 0:22:39.000 Bloomberg Radio. My special guest today is Princeton's professor Alan Krueger. 0:22:39.080 --> 0:22:43.000 He is the former chief Economist at the Treasury Department, 0:22:43.160 --> 0:22:46.160 at the Department of Labor and chairperson of the Council 0:22:46.160 --> 0:22:49.720 of Economic Advisors to the President. So you have a 0:22:49.720 --> 0:22:53.080 background in labor economics. You've done a lot of studies, 0:22:53.119 --> 0:22:57.280 a lot of really interesting things UM with labor. So 0:22:57.359 --> 0:23:00.240 let's talk a little bit about the labor for this 0:23:00.280 --> 0:23:02.639 whole recovery. One of the things we hear all the 0:23:02.680 --> 0:23:05.240 time is, Gee, there's a lot of slack in the 0:23:05.320 --> 0:23:08.240 labor force. What does that mean for a lay person? 0:23:09.160 --> 0:23:12.040 Slack means that we're not using all the resources that 0:23:12.080 --> 0:23:15.919 we can be using. And the implication of slack is 0:23:15.960 --> 0:23:19.199 that it put downward pressure on wages, which would then 0:23:19.240 --> 0:23:22.600 put downward pressure on inflation. So we mentioned in a 0:23:22.640 --> 0:23:25.879 previous segment that Walmart has raised their minimum wage and 0:23:25.880 --> 0:23:29.720 and McDonald's had done something similar. Are we coming to 0:23:29.840 --> 0:23:33.800 the end of the slack period of of the cycle 0:23:33.920 --> 0:23:37.119 for for labor? Is that the positive read in this 0:23:37.680 --> 0:23:40.280 I think we are. I think what we've seen with 0:23:40.320 --> 0:23:43.160 the decline in labor force participation is what you would 0:23:43.200 --> 0:23:47.520 expect giving the aging of the workforce, given that women's 0:23:47.560 --> 0:23:51.359 labor force participation peaked in the early two thousands UM, 0:23:51.640 --> 0:23:54.520 and given that we had so many long term unemployed, 0:23:55.160 --> 0:23:57.639 it's the natural evolution of the job market that they 0:23:57.680 --> 0:23:59.920 exit the labor force, and that's what's been taking place. 0:24:00.119 --> 0:24:02.520