Freakonomics Radio Episode 634: “Fault-Finder Is a Minimum-Wage Job”

Release Date: May 30, 2025
Host: Stephen Dubner
Guest: Austan Goolsbee, President and CEO of the Federal Reserve Bank of Chicago

1. Introduction and Background of Austan Goolsbee

Timestamp: [00:04] – [07:22]

Stephen Dubner begins by recounting his two-decade-long acquaintance with economist Austan Goolsbee, highlighting Goolsbee's unique blend of academic prowess and unconventional pursuits, such as debate and improvisational comedy. Dubner reflects on his initial underestimation of Goolsbee’s potential, only to witness his ascent to prominent roles, including serving as the Council of Economic Advisors in the Obama administration and his current position as the President of the Federal Reserve Bank of Chicago.

Notable Quote:
"If you had told me back then that Goolsbee would go on to run the Council of Economic Advisors in the Obama White House... I would have thought you had the wrong guy."
— Stephen Dubner [00:04]

2. The Federal Reserve and Its Functions

Timestamp: [01:49] – [02:53]

Dubner introduces the Federal Reserve, emphasizing its foundational role since 1913. He outlines the Fed’s primary functions, including monetary policy, financial stability monitoring, serving as the lender of last resort, supervising financial institutions, and managing financial services such as cash distribution.

Notable Quote:
"It does monetary policy, and that is a big part of the job. But underneath the monetary policy part, there's monitoring financial stability and we're the lender of last resort."
— Austan Goolsbee [02:25]

3. Current Economic Indicators and Challenges

Timestamp: [02:53] – [03:29]

The discussion shifts to the current state of the U.S. economy, highlighting low inflation (2.3% as of April) and low unemployment (4.2%). However, Dubner points out the economic uncertainty introduced by the Trump administration’s aggressive tariff policies, which have led to volatility in stock markets, treasury bonds, and the dollar.

Notable Quote:
"And as a result, the US Stock markets and treasury bonds and the dollar have all taken wild swings lately. This puts the Fed on alert."
— Stephen Dubner [02:53]

4. Fed's Monetary Policy and FOMC Meetings

Timestamp: [09:10] – [17:41]

Goolsbee elaborates on his role within the Federal Reserve System, describing the Federal Open Market Committee (FOMC) meetings where interest rates are debated and set. He characterizes the FOMC as a highly deliberative body, emphasizing the collaboration among diverse members from various regional backgrounds. Goolsbee refers to his approach as being a "data dog," focusing on empirical evidence over ideological leanings.

Notable Quote:
"I believe that the FOMC is in the 21st century, the world's greatest deliberative body."
— Austan Goolsbee [11:06]

5. Fed Independence and Political Pressures

Timestamp: [28:25] – [31:43]

Dubner raises concerns about the Trump administration’s attempts to undermine Federal Reserve independence, citing direct attacks on Fed Chair Jerome Powell. Goolsbee underscores the critical importance of the Fed’s independence, asserting that it is essential for maintaining long-term price stability and employment maximization. He warns that political interference could lead to detrimental economic outcomes, echoing historical lessons from periods when the Fed’s independence was compromised.

Notable Quote:
"There's unanimous agreement among economists that it's critically important that the central bank be independent of political interference when setting the interest rate."
— Austan Goolsbee [29:34]

6. Impact of Tariffs and Trade Policies

Timestamp: [33:59] – [35:21]

The conversation delves into the potential economic repercussions of the Trump administration’s tariff policies. Goolsbee expresses concern that significant tariffs could disrupt supply chains and reignite inflationary pressures reminiscent of the early 2020s pandemic period. He differentiates between traditional economic models of tariffs and the complex, real-world implications that include retaliatory actions and prolonged supply chain issues.

Notable Quote:
"They thought the pure platonic tariff with no retaliation, no escalation and no spillovers on the supply chain was hopelessly naive."
— Austan Goolsbee [35:21]

7. Fed’s Balance Sheet and Monetary Tools

Timestamp: [39:19] – [43:31]

Dubner inquires about the Federal Reserve's balance sheet, particularly regarding quantitative easing measures implemented post-Great Recession and during the COVID-19 pandemic. Goolsbee explains that the Fed’s expanded balance sheet is a strategic choice to navigate low-interest environments and ensure financial stability. He defends the Fed’s operational decisions, emphasizing the importance of maintaining robust financial services and payment systems.

Notable Quote:
"If you abolish the Fed, what would happen? People haven't thought it through."
— Austan Goolsbee [42:27]

8. Role of Economic Research and Public Sentiment

Timestamp: [44:58] – [53:41]

Dubner raises concerns about the diminishing influence of traditional economic research in policy-making, particularly in light of changing societal attitudes and critiques from figures like incoming FTC Commissioner Mark Meter. Goolsbee responds by advocating for the continued relevance of empirical economic research, stressing that while sentiment indicators like consumer confidence are valuable, they must be balanced with hard data. He highlights the limitations of sentiment data in accurately predicting economic outcomes in volatile periods.

Notable Quote:
"Economic research imposes a discipline... it's super important."
— Austan Goolsbee [52:38]

9. Inflation, Dual Mandate, and Central Bank Management

Timestamp: [53:41] – [57:17]

The discussion turns to the Federal Reserve’s dual mandate of maximizing employment and stabilizing prices. Goolsbee defends the 2% inflation target, explaining its role in ensuring price stability and preventing unanchored inflation expectations. He recounts how, during the 2023 economic cycle, the Fed successfully reduced inflation without triggering a recession—a notable deviation from historical trends and economist predictions.

Notable Quote:
"We have to keep it around that target... it's the only place that aligns with our dual mandate."
— Austan Goolsbee [54:10]

10. Closing Remarks on Counterfeit Money

Timestamp: [59:05] – [60:20]

The episode concludes with a light-hearted exchange about counterfeit money detection at the Federal Reserve. Goolsbee humorously warns against attempting to pass counterfeit bills through Fed facilities, emphasizing the minimal incidence of counterfeit detection but maintaining strict security protocols.

Notable Quote:
"If you are a banker listening to this program, I strongly advise you not to do that because you're going to get in big trouble."
— Austan Goolsbee [59:26]

Key Takeaways

1. Federal Reserve’s Multifaceted Role: Beyond setting monetary policy, the Fed ensures financial stability, supervises institutions, and manages extensive financial services, including cash distribution.

2. Economic Stability Amid Uncertainty: Despite favorable indicators like low inflation and unemployment, external factors such as tariff-induced uncertainties challenge the Fed’s ability to maintain economic equilibrium.

3. Importance of Fed Independence: The autonomy of the Federal Reserve is paramount for unbiased economic decision-making, free from political pressures, ensuring long-term stability over short-term gains.

4. Complexity of Modern Economic Challenges: Traditional economic models sometimes fall short in addressing contemporary issues like unexpected trade policies and their cascading effects on the economy.

5. Balancing Data and Sentiment: While consumer and business sentiments offer valuable insights, they must be integrated judiciously with empirical data to inform effective monetary policy.

6. Adaptive Monetary Policy: The Fed’s strategic adjustments, including managing an expanded balance sheet and leveraging interest rate tools, demonstrate its adaptive approach to evolving economic landscapes.

Notable Quotes Compilation:

• "I believe that the FOMC is in the 21st century, the world's greatest deliberative body."
  — Austan Goolsbee [11:06]

• "If you abolish the Fed, what would happen? People haven't thought it through."
  — Austan Goolsbee [42:27]

• "Economic research imposes a discipline... it's super important."
  — Austan Goolsbee [52:38]

• "We have to keep it around that target... it's the only place that aligns with our dual mandate."
  — Austan Goolsbee [54:10]

• "If you are a banker listening to this program, I strongly advise you not to do that because you're going to get in big trouble."
  — Austan Goolsbee [59:26]

This episode offers an insightful exploration into the intricacies of the Federal Reserve’s operations, the delicate balance of economic indicators, and the enduring significance of empirical research in shaping sound monetary policy. Austan Goolsbee’s candid discussion provides listeners with a comprehensive understanding of the challenges and responsibilities inherent in steering the nation’s economic future.