Jared Bernstein on Taxes, Spending, and Why President Biden Wants to 'Pay for It'

as much on the actual I guess, specific policymaking side. Yeah, well, today is a chance for us to put theory into practice, I guess. And we've been talking basically a year now about this idea of the handoff to fiscal policy, this movement from monetary policy to fiscal eimulus being more important for economies post COVID, and now's our chance to actually dig into how fiscal policy is enacted and how people

in power are thinking about it. Yeah, exactly right. So like that is of course a huge theme, a huge

discussion the sort of the post I guess. I would say, you know that the lesson of the last years that fiscal firepower has been incredibly effective at reviving the economy, and there is certainly an increased openness, it feels like, politically and also intellectually to really take a more expansive view of what government spending and taxation power is capable of in terms of building into economy and sort of not leaving all of so many of so much of

the decision making to um the Central Bank. Yeah, I think that's exactly right. And we are seeing even you know, if you think back a couple of years, even the idea of massive fiscal spend ending things like direct payments to Americans were kind of on the fringe. But now not only have we seen that happen, but people are talking about other things for future crises, such as automatic stabilizers things like that. Yeah, exactly right. It feels like it's a time of of openness to new ideas, which

often is the case after a big crisis. Anyway, I want to jump right into our discussion today because we have the perfect guest with the perfect perspective to talk about all this. We're gonna be speaking with Jared Bernstein. He is a member of the White Houses Council of Economic Advisors right now, advising the President on economic policy, and he was the Previously, he was the chief economist and economic advisor to then Vice President Joe Biden coming

out of the Great Financial Crisis. So he's truly an extraordinary purch extraordinary position, great perspective to talk about today, in the past and everything that's going on. Uh A, thank you so much for joining odd lots. Well, thanks so much for inviting me. I think the right way to start is to say long time listener, first time caller,

as they say, that's great. I love hearing that. I've taken many a job accompanied by the two of you, which has helped, you know, burn calories and learn something while I'm running. So well, we're all about physical fitness. Yeah, you're the second person recently to actually cite our podcast in contributing to burn calories, which is, you know, it's nice to be listened to by influential people and stuff, but we really want to help people lose weights, so

that that really means a lot. But you know, I want to start actually with something UM kind of specific. So we're in this I think pretty extraordinary moment. Economic growth is much faster than I think a lot of people UM would have guests. The willingness of the government over the last year, both onto the last administration in this one, to you engage age and aggressive fiscal expansion

is truly historical. But there is this other bill or possibly set of bills that the White House is aiming to pass later this year, and I want to get into those. But right now everyone's talking about inflation, lumber prices, gas prices, and so forth. We know that the Fed is planning on basically really looking through that understanding its transitory, but from a political perspective and thinking about the task ahead of you this summer and sort of building support

for more aggressive fiscal firepower infrastructure. Is that a political challenge? You know? This, this sort of thinking about, Okay, we need to convince members of Congress and the Senate to spend a lot more money. At the same time, the news is filled with stories about rising prices. Well, I think anything you undertake in Washington, given the legislative environment,

as a political challenge. But you're very much correct to think about this, at least from my perspective and that of our economic t from the perspective of political economy or the intersection of politics and uh, the kind of economics concerns embedded in your question from the inflation perspective, it's really really important to separate the American Rescue Plan from the Families and Jobs Plan because the former the former is very much in the spirit really of relief

more than stimulus, and that that that's a subtle difference, but one that I think it probably isn't lost on this audience, where stimulus is often about trying to quickly address a demand shock and get people back into the economy, where relief is more about helping people and businesses get

to the other side. But putting that distinction aside for a second, there's a big difference between direct impact payments or the checks you were just referencing, and enhanced Unemployment benefit PPP loans things like that, and a set of investments that spend out over eight to ten years from both from the perspective of kind of the of the political economy or the kind of the politics of those different initiatives, and uh to your question from the perspective

of inflation, I think it's actually quite a non sequitur to talk about the Jobs and the Family Plan and the kind of you know, monthly inflation reads that we're digging into right now, that are very much driven by base effects, by what we we believe to be transitory supply demand misalignments by some of the pent up demand, and the elevated savings rates and investments in long term clean energy initiatives, advanced manufacturing, standing up a care sector

measures which I'm sure we can get into from the Families and Jobs Plan, pretty different creatures from the perspective of price pressures. Well, just on that subject, is there anything the administration could do to expand capacity for things that are in short supply? So I'm thinking, you know, lumber is obviously important for housing. Horn prices have also surged, important source of food, animal feed, semiconductors have already been

discussed by the administration as being strategically important. But is there more that you could do? Would you be inclined to do more? So let me begin my answer there with with a very firm statement which may sound a little tangential to your question, Tracy, but I don't think is um, which is that when it comes to managing inflation, that is first and last, beginning and end. Uh. How I want to just really emphasize this, the remit of

the Federal Reserve, not the White House. Clearly we are tracking carefully monitoring inflationary developments, and by the way, not just in the data, which we're doing with the regular data, the high frequency data, but also anecdote. I mean, this is something we're tracking extremely carefully. But when it comes to managing price pressures, that's the job of the Federal Reserve. Yeah, so that that that's that kind of independence of the Fed is a huge value of of course our administration.

That said, um, you raise a perfectly legitimate question that is addressed by some of the measures in the Job's Plan. In particular, you mentioned semiconductors. So there's a fifty billion dollar investment in the in the Job's Plan to help promote and onshore some critical supply chain aspects, including semiconductors. But this is not something that happens, you know right away.

I mean as as I was mentioning to Joe. You know, obviously, on like the Rescue Plan, the Jobs Plan still has to be legislated, but it takes a couple of years

to stand up a semiconductor plant. When it comes to addressing what we're looking at as transitory misalignments between and supplying them in and some of the sectors you mentioned, I think right there, we have to think about the sort of elasticities or response functions that occur in markets where demand for lumber sends a signal to saw mills

to activate the lines that have been dormant. And now there there are misalignments that evolved throughout the course of the pandemic where I think some key actors took down production not foreseeing that it would come back as quickly as it did, and those sorts of things that that's not, you know, necessarily a position for an administration to intervene in.

But we'll see how that evolves as as time unfold. Well, on that note, and this is a theme that we talked about a lot, which is the you know, we supply and demand sometimes get discussed as if they're like these sort of very distinct separate things and two lines

intersect on a chart and there is the price. But of course, as you basically just alluded to, you know, we lost we've lost a lot of supply in part because of weak demand, and so we lost saw mill demand over the last decade after the Great Financial Crisis, with the mediocre housing recovery and tech capex hasn't been impressive in your thinking about investment, and you know, again

the longer term investment. Do you think about basically this idea of maintaining demand, whether it's direct purchases of equipment or incentives to keep you know, growth high, such that private sector actors will be incentivized to continue to build out capacity and not just look at the current moment as a sort of short short blip. Yeah, generally I would say more yes than no, although nobody I wouldn't.

I wouldn't use the phrase short blip because you just don't know right fair enough, We and others have packed a lot into this word transitory, but I think what it really means is that we expect these misalignments to correct, although I don't know that any of us really have a great feel for the timing of that because we haven't been through this before. I mean, like you said Joe earlier, this is a remarkable period. We've we essentially shut the economy off and we're turning it back on.

That's a you know, not something that we have a lot of time series evidence on. I think that theoretically, the theory of the case is kind of this law and this is this is very traditional kind of Keynesian economics. Is this is this recognition that the world works much more in Keynesian term than in Says Law term, meaning that it's it's it's not correct to believe that supply creates demand. It's more correct to believe that demand pulls

in supply. That theory of the case is very much you know, embedded in my and I would argue our thinking in the administration. However, that said, if you look at our plans, particularly the job's plan, but also the families Plan, the longer term investment plans, what you see there is not a you know, kind of acceptance that it's it's you know, completely up to the market to align supply and demand and deliver whatever outcomes the market delivers full stop. And we'll just stand on the sideline

and observed. There's much more intention there about, for example, not just job creation, but the quality of the jobs that are created, um ensuring that those jobs are union jobs that pay a good middle class wage. That's one of President Biden's most important marching orders to us. It's recognizing that there are serious missing markets in this economy.

The care area is one where that's really pronounced where unlike most other advanced countries, we simply don't have an affordable, accessible care sector for people who are providing elder care or wildcare, which those people are disproportionately women and moms, to be able to find a clear path into the job market if that's what they want to do, So we have to help stand up that sector. The economy will under invest in research and innovation, particularly when the

returns from those investments are longer term. The economy will under invest in clean energy at tremendous existential cost to our survival, and so there are areas where we have to make sure that our investment meets those missing markets and helps to create demand that will lead to better quality jobs and investments in under invested sectors. Mhm. So we have so much to get through, and I want

to make sure we have time for everything. So if I could shift gears slightly to one of the big questions hanging over you know, Biden spending plans, which is how are they actually going to be paid for? So I would love to know you're thinking about the deficit I suppose, And also the proposed package includes I think tax hikes well enormous tax hikes for the rich, you know, something equivalent to one percent of GDP per year. Why

tax hikes to fund this particular package? And the reason I asked that is because, you know, Joe and I talked a little bit about economic opinion maybe changing in political circles, this idea of stuff like modern monetary theory making inroads in the administration. So are the tax hikes because you're actually worried about funding the spending plan and deficits or is it more about seizing a political opportunity that's arisen from this extraordinary time? Is Joe mentioned to

actually tackle inequality? Okay, another great set of questions to unpack. Sorry, I know that it's the only take about three and a half hours, but do my. I'll try to be succinct. First of all, though, I want to challenge and adjective views, which is enormous. Um. Yeah, sorry, I knew you too.

And well it's it's not just saying that. I happen to be looking right now at a new paper that just came out by the economist Mark Zany, And in chart three of that paper, we shows the building back better, that is, American families and jobs planned tax hikes in context, and he has a bar chart of all the tax hikes that have occurred, you know, since the nineteen thirties. Really it's it's really a lot of work went into this chart, and the one at the very bottom is

the one we've proposed. So I think you have to recognize two things send my adjective, okay, And I think the reason you get that result is twofold. One is that many cases were resetting rates to where they've been before or not. Even in the case of the corporate rate. Of course, the Trump tax that took the corporate rate of thirty five to twenty one, we take it to eight. That's our proposal, So that's kind of right in the middle.

But also, and this is most important for listeners to recognize that these tax increases do not hit anybody under four hundred thousand family income. And if we're talking about the capital gains tax increase, it's only above one million, so it only affects the top point three percent. Okay, So now that we got that out of the way, let's get to the kind of meaty part of your question around how we're thinking about deficits and debt. It is the president's view that longer term or more permanent

proposals should be paid for. I think that makes sense, and I think one way to recognize the sense that that makes is to look at the disinvestment in the things that the Jobs Plan in particular, as well as the Famili's Plan, invests in research and development, innovation, the kinds of long term return investments that private firms often won't make because it simply doesn't fit the kind of schedule that they have to report on to their investors.

If you look at infrastructure, everything from public education to replacing pipes that have led in them. You know, there's hundreds of thousands of kids who are are still exposed in today's America to let in the water. That's completely unacceptable to this administration. Again, I talked earlier about a car agenda, but even even traditional stuff, you know, roads and bridges, those investments have really suffered over the long term.

And if you look at the share of GDP invested, for example, in R and D and innovation, it's gone from about two percent in the sixties too about half a percent now, a big and portentious drop. Reversing those investments is the point of the building back Better agenda, and one of the reasons why those investments have failed

is because they don't have any reliable funding sources. So while I completely understand and have in fact contributed to the literature that understands deficits and debt in a new and different, and you can call it a more progressive way, I'd probably call it a more economically and empirically sound way. I'm very much moved by that work. I also think you have to recognize that the effects of not having um funding sources for permanent programs show up all the

time in their disinvestment, and they're insufficient upkeep. By contrast, look at Medicare and Social Security, which have held up, you know, relatively well in that space because they have dedicated funding sources. We need to keep unpacking this because I kind of get that and I kind of don't with the so called entitlements or Medicare social Security. Yes, they have dedicated funding sources, but they also just have laws that say these programs will exist and they're not sunseted.

They're not temporary. They weren't five year health programs. They were at ten year, which they were permanent legal fixtures and yes, they did come with dedicated funding sources, payroll taxes and so forth. But what makes the programs exist forever is the fact that they the laws say they have to exist forever. With some of these things that you describe, and we agree, you know, or most many people would agree, they have been underinvested. How much is this a just a just the need to pass a

law that says this will always be here. So we're talking about child care, some sort of family leave thing to make it permanent. Seems like it should just be a law saying this is a permanent benefit, or it seems like it could be solved that way. And so when you draw the connection to metacare and Social Security, is it that those taxes are needed for the programs to exist or are they needed to get the votes such that politicians are willing to make them permanent. No,

I mean, I really think on this one. The way I kind of laid it out is, you know, this sounds more snarky than I mean, is more correct than the way you just laid it out. But let me just explain. It's fun I you know you could do that. You know, the gut we actually have something called the

Highway Trust Fund. This is a federal accounting device wherein resources are supposed to flow to fund our highway system, and its main source of income is a nominal tax on gas that hasn't been changed in like thirty five years or something. And that and and and even as you know, obviously inflation has increased and the efficiency of the auto fleet has increased, the Highway Trust Fund is

always a massive trouble. And it's one of the reasons why our transportation infrastructure, including mass transit, by the way, mass transit, which by the way is in the rescue plan and the Job's plan quite deeply that that trust fund has failed to support that and the and the reason is that it's a law on the books, you know. And you know, according to your theory, a law on the book should be all that it takes, but it isn't.

It takes more than that. I actually think if one wanted to make a better you know, kind of an argument against having to fund these, uh these building back better plans, it would be that the return on the investments should be greater than the cost of borrowing. And um, you know that that is true, and it makes sense to me and you'll hear economists, you know, some of

my economist friends make that point. They say, hey, look, you're going to get a return on these investments that are great greater than you're borrowing costs, which of course are historically low, so why pay for them? And I totally get the economics and the public finance kind of the g greater than our thinking behind that. But but what I do, what I think it misses is the political economy of the sustainability point that that Joe Biden

just intuitively understand. So I actually wanted to ask a big picture question on this topic. But do you think that economists grasp the political realities of putting theory into practice? And what I mean by that is, for instance, it's one thing to say, you know, if you're an MMT person that deficits are only limited by inflation, but it doesn't necessarily help you get to a place where people are enacting more fiscal spending. If everyone can't agree on,

you know, what to spend the money on. I think let me answer it this way. I won't name names, but I was trying to I was trying to draft an economist to come in and work with us who's a uh someone I'm really fond of their work, and what I he's a private sector person, And what I said to him is, if you really want to understand how the economy and the nexus of the economy and government work, and I would include theory and that nexus, Tracy,

you've got to work for the government. You can't understand it if you don't. So I do think that there is a kind of empirical gap between what a lot of theoretical economists sort of right about, and even some empirical economists right about, and a kind of tangible, granular understanding of how economic policy really works. You might I think you mentioned MMT that that's a good example because in m m T there's there's a belief that if inflation were to take off, this is a kind of

a timely point. I think, if inflation were to take off, don't worry and don't assign much to the FED, because that's just not part of the kind of cosmology there. You can just raise taxes to take money out of the economy. Well, you know, that's a coaching theoretical point, but when applied to the real political economy and the legislative timing involved therein and the partisans squabbling involved therein.

But that's not you know, a very I think realistic solution, especially when you have a central bank whose independence allows it to get outside of that political constraints there and do what needs to be done for you know, very good sound economic reasons. So I do think that there can be a gap between theory and practice, not unlike the one I just talked about in terms of with to Joe, in terms of why I think President Biden's view on pay force for the investment programs makes sense.

Every every answer you give, I have like a billion other questions I want to ask another version though, uh kind of related to the mm T question. But you know, I mentioned in the beginning, and has anyone who has followed your career, You were the chief adviser to then Vice President Biden coming out of the Great Financial Crisis all else society, and I think there are a lot of lessons from that period, particularly the first two years.

I think it's pretty clear that in both sort of the intellectual sphere and the media sphere, there is much less concern about deficits these days than there was ten years ago, or eleven years ago or twelve years ago. And I'm curious if from a policy perspective in the White House thinking about, Okay, what is uh, you know, what is the best stimulus to do, what is the best way to structure spending for the next ten years, etcetera. That new sort of environment. And if you don't think

that exists, let me know. But it feels like it does. That new environment creates more political space, creates more flexibility to achieve your goal. Yeah, that environment does exist more there's more fiscal space, and there's more political space to wield that fiscal space. Um. Now, the fiscal space existed before. But here's an area where I think kind of empirical

public finance economics has made real strides. Say, from the last time I was in government, dealing with a downturn in the Great Recession, after the housing bus, and now and and and interestingly, as you point out, the current president was the vice president there, and I think one of the lessons he learned is go big or go home is not just important fiscal policy when you're punching back against a globally threatening pandemic or last time against

a globally harmful financial slash housing bus. Um but there's also not only the fiscal space to do so, but there's actually good research that shows if you fail to wield fiscal power policy with enough power to offset the contraction, your debt to GDP ratio can actually worse it because you've done too little to boost the denominator g d P. And again there's uh there, there's I think some pretty

solid research that that makes this case. So I think the urgency and the intersection of good policy, good policy, and politics boosted by high quality economic research as all landed us in a moment where we've recognized greater fiscal space. On the topic of two thousand eight versus after the financial crisis, we did see a lot of emphasis on trying to fix problems in the housing market that had contributed to the financial system melting down. So, for instance,

there's a lot of focus on GS reform. One of the things that was left out in Biden's proposal were substantial changes to healthcare, And I'm just wondering what the thinking was there, because I guess coming out of having experienced a massive health crisis and also needing to stimulate the economy, it seems like healthcare would be a really good area in some ways to focus on, but so

far Biden seems to have shied away from that. Well again, I think if you look at a couple of different places, you'll find that the President has leaned into that and not really shied away. So in the Joint Address, there was a very important paragraph where the President spoke about how important the healthcare agenda is going to be for for our administration. There's also some similar language in the

fact sheet around the family Plan. I feel like we've been here for about ten years already, but in fact we've only been here for a few months. I think we just hit the first hundred days, so we have to move the freight on on different cars at different times.

But there, if you look back to the campaign, you'll see many areas that the President has leaned into and he is just taking through them with alacrity, with power, with legislation, and with you know, I think, you know, really quite here, I'm somewhat padding some of my fellows deputies here in the administration on the back here, you know, with I think some pretty well developed policy plans. So healthcare is, of course it's going to be into in

the mix. It's the economy, and it fits right into the discussion we were having before about the public private mix and the importance of getting that right. So even if it's not in the actual spending bill, now you're

confident that something substantial is coming down the line. I'm not going to lean into something substantial because that begs the question of what you're talking about, and we have to run an extensive process before we you know, I don't front run the President, which is why I still have my job. But look look at what he said. It's actually worth reading, you know, look at what he said in the UH, in the Joint Address and the Family's plan, because he he really does lean into what

we're going to be planning to do it. In that space, I want to pivot a little bit the conversation towards the FED. And of course, obviously the Fed's independent, we all we all know that. But you mentioned that there's the fed's remit to think about inflation. And of course the White House has a role in shaping who is who is on the FED now and who is going to be on it in the future. So I want

to ask a couple of questions on that. But uh, you know, to start with you know, thinking about the question of Powell, He's have obviously had this sort of pretty I I think a lot of people would say fairly radical shift for the FED to really focus on labor, to not try to preempt inflation, to uh commit in a way that we haven't seen, to not snuffing out

the recovery prematurely. That seems to be a shifted. And he also seems to have um won the respect of financial markets quite a bit, which is rare when you think about the question of a potential reappointment or replacement. Is that respect that he has among financial markets? Do you think that's an important thing? Well, I'm definitely not going to say anything about the personnel. You know, this

is sure. It used to be a gun flapping chin, music making pundit who talked about all this kind of thing all day long, and it's hard to draw that line now. And remember that I'm I'm in the White House, and you know we're gonna try. We're gonna try. Our goal used to be to make news. Now my goal is to not make news. So I'm not going to

make news. Let me say instead the following I talked a second ago about what I think is one of the most important advances in UH political economy, which is the recognition of true fiscal space, a recognition that I think was significantly fogged up by views on crowding out, how public borrowing would crowd out private borrowing and pressure

interest rates that has long been unsupported by the empirical record. Well, there's another important, the other you know, equally important economic development that I would put, you know, really in the stratosphere of ways that economists are better understanding how economies really work is of course the relationship between unemployment and inflation.

And you know, in this regard, I think one of Powell's most important speeches was, I believe with the Jackson whole speech when he talked about how because there's so much uncertainty around what we call the star variables, why star you star, our star potential g d P, the

natural rate of unemployment, the natural rate of interest. These are all theoretical concepts that you don't know, maybe it's too strong to say that can't be, but are extremely hard to be reliably estimated by which I mean estimated

within a policy relevant confidence interval. That that I think, you know, going back to Bernanke yelling Powell that the recognition that the confidence interval around those estimates is far far wider than was realized before, and that it's beyond our empirical scope to to nail them down has led to a much more data driven approach to both fiscal and monetary policy. And that's a really great advance, particularly from the perspective of tightening labor markets. And there you've

heard again this dates back before Powell. There you've heard

the Fellow Reserve make critically important connections. By the way, most of my research agenda before I took this particular their job was in this space that I'm about to mention, the really important connection between achieving full employment and pushing back on racial inequities, on economic inequality, providing folks and communities are typically left behind, but the kind of economically opportunities they need and deserve that is very much linked

up to achieving persistent, stable full employment, and that and getting to persistent, stable, truly chock full employment is itself closely related to these important insights about both fiscal and monetary policy. So this is something that I wanted to ask you about. So you wrote, I think it was just last year that the FED should consider targeting not the overall unemployment rate, but the black rate. And now we have this idea of an inclusive and broad based

employment framework from the FED. But in your opinion, what is that actually mean? And does the Central Bank need to go further by perhaps setting explicit targets for black unemployment for instance. Yeah, So when I wrote that, I wasn't in the administration, and you know, I felt that that was so. I was again, I was playing chin music all day about things that I don't sing about now.

And by the way, I think if you look back at least, what I was trying to say was was not so much as the FED should target black unemployment, but that racial equity and monetary policy are linked in the way that I was describing a minute ago, because if you look at who benefits disproportionately from tight labor markets, it's uh, it's people and communities of color. So and actually you could see this in a way that was

fascinating to me. I was. I was writing, you know, empirical papers about this, crunching the heck out of every number I could find showing how existently low unemployment was providing labor market opportunities on so many different margins, not just the extensive margin, which is pulling people into the job market who weren't there before, but as much and even more so the intensive margin, giving those people way more hours of work if that's what they if that's

what they wanted, and the changes for say African Americans in the bottom quintile. I did a paper with a guy named Keith Bentley on this, which you can find

out there somewhere are economically really large. So those connections, you know, uh, what what I can talk about is what I mentioned in my last comment is the intersection between critically important new insights in fiscal space and in the relationships between unemployment and inflation, the linkage between those insights and the ability to maintain full employment with such deep benefits to two groups that are too often left behind.

So I want to explore this point further, but I think you know, one of the particularly tragic things about the timing of the coronavirus crisis and this setback was that right prior to it, we were seeing um an impressive level of compression between say, the white unemployment rate and the black unemployment rate. As as you know, the economy continue to improve, and so obviously there's a hope

that we can get back there really fast. But it also, on the other hand, seems like unfortunate that Okay, that was a desirable state, but that came after ten years or I don't know, nine years of a very disappointingly wide gap and uh sort of labor market that was almost nobody's idea of tight. How do you think, like, okay, like we want to get back that. But and I guess this gets to the question of, like what is your what is President Biden's vision of like the future?

Can we have that sustainably? Can we have that so that we always have a tight labor market and it's not just like a special treat that comes at the end of every expansion. Yeah, that's a great question. Let me talk about it from my economist perspective and then shift to the president's vision here, because it's that the latter is way more important as he's the president. Here's the statistics that I haven't cooked up lately. But so it may this this number changes as you'll see, but

I think I'm in the right ballpark. If you look at the percentage of quarters starting around which is the period when job markets have been persistently to slack. If you look at the percentage of quarters where the unemployment rate has been above the CBO's estimate of of of what the natural rate is, that is the lowest unemployment rate and system with full employment, that ratio is six point six six, you know, points seven, maybe point seven five,

it depending on the end points that you choose. That is, most of the quarters or most of the years since nine teen eight, this economy has been slacked. And that's by a measure which you know probably in many years pitches the natural rate too high. So it's probably even worse than that. So the foundation of your question is exactly right. We have not had tight enough labor markets. And that's one of the great insights of recent federal reserves,

and again links back to the importance of recognizing fiscal space. Now, Joe Biden is not an economist, but I've been talking with him about this since we sat down in his in his house in in November of two thousand and eight and talked about me perhaps coming on as his chief economists. The very first thing we talked about, he pulled out a graph that I've made with Larry Michelle,

which showed the gap between productivity growth and median compensation. Okay, so productivity growth gros grows, grows, not as fast as we'd like, but it does grow, you know, of percent percent and a half per year on trend, and the median compensation, the compensation workers right in the middle of the scale was flat, flat, flat for you know, not

all of those years. And in fact, in the latter nineties when the job market really tightened up precisely like my earlier theories, you know, we're trying to uh predict that. Then you saw some action at the median but for the most part. And by the way, Larry Michelle and Josh Bibbins have a forthcoming paper on this which is really elucidating. You need to get get him on here

and talk to them about it, you know. And and Joe Biden, who's the vice president elect, then pointed to that graph and said, this is what I want us to work on. I want middle class people to get a fair shake. I want to think about the policy agenda that's going to in my words, relink median compensation and overall economic growth. And that agenda is a deep one and now that now that you see what the

president is up to, that's what he's doing. So unions are part of that because the as as Bibbins and Michelle will show, have shown in various papers, and it's going to be part of this new one as well. The loss of bargaining power for workers in the middle class has certainly put downward pressure on wages. The absence of persistent full employment, as Joe's question suggested, is very

much in that mix. The inaccessibility for women too, in particular caretakers to have a clear line of access into the job market because there's a childcare sector that's affordable

and accessible. The absence of investment in in good middle class jobs, and new expanding areas of the economy, including advanced manufacturing, clean energy, electric vehicles, these are all parts of the plan, and at least from a kind of macro labor perspective, it's all about trying to reconnect middle class working families to the overall prosperity in the economy. And then I'll finish up that. That's that's why well, you know, we started this conversation saying, boy, we're getting

some good growth numbers. You know, g d P north of six percent in Q one. That's great, We're all for it. It does not obviate the work that I just described, because at the end of the day, if this administration achieves high GDP growth, low unemployment, of booming stock market, but it doesn't reach the middle class in the way that the President has set out for us, we have we will have failed to march to his marching orders, and that's not something I want to do.

Just on the subject of the FED more widely, so, you've emphasized in this conversation a number of times the importance of the central bank being independent from government, but we're also talking about the importance of fiscal space. I'm wondering, do you see scope for monetary policy to enhance or work in some way together with fiscal stimulus. How do you see those two things interacting. Well, I think that

they just naturally interact all the time. And I think that what we've seen in the current recovery, largely from a macro sense, is the importance of the one to punch of fiscal and monetary policy. There is a risk, going back to games if if you're relying on monetary policy alone of pushing on a string. That is, you can make credit as accessible as you want, but if people don't have direct impact payments or checks, you know, money in their pockets, uh, they won't have the resources

take to take advantage of those low rates. So I think one of the lessons of the last couple of downturns is that fiscal and monetary have to work together. By the way, it One way to just underscore this point is to go back and listen what ben Burnanki was saying to Congress back in two thousand nine, two thousand ten, when he was going up to Congress saying, we're doing everything we can to make sure the credit

markets are fluid and that borrowing costs are low. But unless people have the resources that they need, which is going to involve temporary fiscal policy because the economy is still climbing back slowly, we'll be pushing on a string. So there's that. I also think that if properly implemented, fiscal policy and monetary policy can be complementary in terms of a regime we're in. The Federal Reserve is not always looking over its shoulder at the at the at

the lower at the zero lower bound. You have robust fiscal policy, and you have a monetary regime that looks less like what we've seen over the last you know, decade or even more, where where the interest rate is uh, you know, at zero most of the time. I want to ask you another question, and I kind of have a feeling you might have to answer in two ways between your economist pund itself versus your employee of the

White House self. But when thinking about creating a sort of sustained high level of activity and not having these downturns that create slack to take years to overcome, should we have automatic stabilizers such that so that we don't have to hope that Congress, that the political alignment of Congress is such that they can pass a bill like the Caaras Act when there's a downturn, but rather that checks automatically go out to start balancing contacting a downturn

right away. Well that really this is something that the President has leaned into on occasion. In some of his speeches, he's talked about the importance of that, and there have been various pieces of legislation. I think the again, I think the political economy of that is challenging because there's the discretion that Congress likes to hold onto. But I think there are there are politicians, quite a few, um

prominent folks. I don't remember names right now, because this is in some bills that agree with this proposition and that recognize that when you hit a downturn, when the economy hits a shock, it could be a you know, whether it's a housing or a financial bubble, or a pandemic, or the kind of thing that hits us hard and fast. Sometimes the political process can be too cumbersome. So the idea of these triggers is something that the President, as

I've mentioned, has talked about on occasion. But I think that where we go from there, I can't speak to it this one. Do you think there's an expectation now that, having you know, sent out direct payments uh recently, that in the next crisis or the next time the economy falters, people will expect that kind of stimulus again. I guess what I'm asking is, do you think there's a sea change in attitudes among US voters towards phiscal stimulus and

especially direct payments. I think there might be, But just just for the record, we should recognize that this isn't the first time we've done that by a long shot. And in fact, I remember checks going out under under George Bush before the financial crisis, uh, and earlier checks as well. I think what happened this round is that they got out really quickly, and they were of a

magnitude that made a real difference to people. And and and the president was talking, you know, I think before he was president, in November and December, after he won the election, he was talking about how important it was to not just get these checks out, but to get another round of checks out. So I think your prediction

about future expectations is probably correct. And I think one thing the compliments that prediction is the fact that, uh, the I R. S infrastructure was was stood up, you know, I think, pretty pretty handily and quickly to get out at this point over a hundred sixty million checks. So it's it's made a real difference. All right. I just have one more question. There's a topic very near and dear to me. Maybe it's my only single thing that

I really care about. If there's ever another dead ceiling impasse, is the president prepared to mint a trillion dollar coin to get to circumvented or at a minimum at least take advantage of this brief window where there's control of both Houses of Congress to at least abolish the dead sailing permanently. Yeah, that's one of those things I'm not going to lean into, uh, but it's a fair question, fair question. Had a feeling. All right, Well, Jared, thank

you so much for joining us. We really appreciate you, uh, take your time to come on oddline, my pleasure. Thanks for inviting me. That was great. Thanks. Jared really enjoyed that. Tracy. I thought that was really awesome getting to speak to Jared on that. You know, the terms that he kept using over and over again was political economy, And I think that's what our discussions that we keep having are

really all about. It really is about It's like, Okay, we know what the theory is, what does it actually take to get something past or make something sustainable in d C? And I feel like Jared, just by dint of his career, just has such a great perspective on

all that. Yeah, it's kind of a shame we didn't really get into the debt ceiling, but in one way, it's the perfect example of that, right, so the suspension is supposed to end by August, and like, clearly it's going to have to be dealt with at some point. But for years now, Congress has been suspending rather than

actually raising the limit. So even if someone can make a rational argument for why they should permanently raise the limit, there's already you know, people are clearly reluctant to do that, and it's going to be interesting to see how that plays out. Well. It's also like, even more importantly, almost everyone will agree, especially if they're not in politics, that the law is bad, that the idea of like a statutory debt ceiling that's disconnected from the budget is not

a good system. But it's the But we can't but we can't get rid of it. And there's various reasons we can't get rid of it, and there's various reasons no one has ever tried to like actually or there's been no real attempt to abolish it. But I do think you know, again, it speaks to the capital p politics of all this that here's this thing. It gets in the way. It almost created a crisis inn when people might think that it was going to lead to

a default on the US debt. So it's it's kind of this weird, little annoying thing, but it speaks to where there is this um conflict between what makes sense on paper economically versus political will. It goes back to that theory versus practice point, which was sort of the

foundation of our conversation. Uh, you know, this idea that even if you have a big new economic thought, actually putting it into practice and coming up with specific policies to enact it might be more difficult and does require, as Jared said, an intimate knowledge of the political economy and the way things actually were. Yeah, exactly right. And of course, so it's like this microcosm, but the bigger, you know, the bigger story is this sort of question

of what can get passed on the spending side. And it's interesting to hear sort of Jared's perspective and also his I guess, I guess I would say translation or insight into President Biden's thinking about Okay, like if you want to like do this, like maybe economists can make this case and they probably can that a lot of this spending, particularly the investment spending, doesn't need to quote

be paid for in the traditional sense. But it's interesting to hear this sort of the politics perspective that on some level, yes, it does, but I guess that's it's uh. I thought that was very useful. Yeah, I'm also curious to see what happens on healthcare because that's another topic

that's politically loaded. There seems to be consensus building in the States that there is something wrong with the US healthcare system, but actually fixing it, I mean, as we seen over and over and over again, tends to be much more difficult. So that's also going to be an interesting thing to watch. Yeah. No, it should be an interesting summer to see, like what eventually what aventers, you know,

that's it seems like that's the timeline that we're looking for. Okay, the next few months of negotiations and then maybe something gets passed in September or after that. So should have an interesting a few months ahead of us watching to

see like what these policies get put into place. And as Jared said, you know, like okay, we have the stimulus, but it does feel like to some extent, the legacy of the Biden administration will be much you know, less about the recovery and more about what the what the sustained future economy. Uh looks like after that? Yeah? Absolutely, on that happy note. Should we leave it there? Let's see it there. This has been another episode of The Odd Lots Podcast. I'm Tracy Alloway. You can follow me

on Twitter at Tracy Alloway, and I'm Joe Wisntal. You could follow me on Twitter at the Stalwart. Follow our guest Twitter, Jared Bernstein. He's at econ Jared. Follow our producer Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesco Levi at Francesco Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.