Heather Boucher (2:38)

Thank you. It's a real pleasure to be here with you today.

Barry Ritholtz (2:40)

Well, it's a pleasure to have you here. Let's start a little bit with your background. BA in Economics from Hampshire College, then a PhD from the New School, also in economics. What was the original career plan? Ooh.

Heather Boucher (2:54)

Well, I. I actually wanted to be an economist and run a think tank someday and get to do things like this. I grew up in the Pacific Northwest in a place called Muckletail, Washington.

Barry Ritholtz (3:07)

Seattle. Near Seattle.

Heather Boucher (3:08)

Near Seattle. It's north. It's Right next to Everett, Washington. My dad worked at the big Everett Boeing plant where when I was a kid, they made the 747s. When I was a kid, it was the largest landmass building in the world, has now been overtaken the Tesla Gigafactory. And in the early 80s, I lived in a community with a bunch of cul de sacs, all new houses that had basically been built for the workers and for the families of Boeing. And in the early 80s, every kid at my bus stop had one or two parents that were pink slipped, they'd been laid off. It was the early 80s, what I know now to be the Volcker recession. And at the time I was really just struck by how much power this company had over my life and the lives of my friends. And I was really good at math. And over time I realized that economics was the field that was supposed to have answers to questions like how is it that you can have that economic security that I as a kid wanted and wanted for my family?

Barry Ritholtz (4:10)

So formative years as a kid, watching what the company town, how it progressed when layoffs came. Is that what led your focus to the intersection of economic growth and inequality?

Heather Boucher (4:22)

Probably. I think the question that I have asked my entire career, what creates that opportunity for economic security for America's middle class? How do you make America's middle class grow and thrive? And what stands in the way? And so I've spent a lot of time thinking about government policy, thinking about how we can encourage firms to create those good middle class jobs, what government needs to do when those jobs aren't available, or when those jobs don't provide childcare or unemployment benefits or whatever it is that families need.

Barry Ritholtz (4:53)

So it's such a partisan era these days. When you were working on the, as an economist for the Joint Economic Committee of US Congress, was it that partisan or was there some cooperation? Hey, we all have the same goals. We just differ in our means of getting there. What years were that? What was it like when you worked there?

Heather Boucher (5:15)

So I was there in 2008, 2007 into 2008. And so it was, you know, the financial crisis. And there was not a lot partisan happiness, you know, in that, in those years on the Hill. I will say over my career, I've testified over three dozen times for Congress and the, you know, early on in my career, I felt like people on both sides of the aisle were much more polite, much more cognizant of the fact that, you know, as someone who's a researcher and you show up and you've you've spent all week preparing this testimony, and you're ready to ask questions, but you're doing this. You're volunteering your time. You're not being subpoenaed. You're just there to share information. And people on both sides of the aisle would generally be respectful of that. And I definitely have noted over time that people on the other side of the aisle now are less likely to be polite to me when I'm testifying. I mean, I haven't testified in a number of years, but I've seen that over my career. So that partisanship has really drilled down into how we treat experts and people who are volunteering, people who are just sharing information. And that is just one of the many indications in our society of how partisan it is.

Barry Ritholtz (6:24)

So a lot of us and them, a lot of tribalism. Let's talk about when you were on the Council of Economic Advisers in the last administration. What sort of work did you do? What was that like?

Heather Boucher (6:36)

Well, it was very exciting. I joined Joe Biden during his campaign in March of 2020. I started advising him and strictly economic and policy analysis, strictly economic. And, you know, what do we do about COVID and what do we do about the economic recovery and how do we think about the economic agenda? I advised Hillary Clinton as an economic advisor. I was the chief economist for her transition in 2016. So I had some experience in that role when I started helping the Biden campaign. But after he was elected, he announced his econ team. It was the second group of announced hires that he made. And immediately we were announced in early December. And the first question that we had to deal with was, what do we do about COVID What do we do about the recession? How do we get people back to school? How do we make sure everyone is safe but can get the economy back on track? And, you know, the president had said throughout the campaign that he didn't want to just build back from the pandemic, but that he wanted to build back better and had this really robust economic agenda. And so when we started out at the Council of Economic Advisors, we were thinking a lot about, will there be a new variant to the virus? What will that mean for the economy? How does that affect global supply chains? How does school reopenings affect, you know, labor supply? A bunch of questions we were thinking about there. And then we also did a lot of work thinking about, well, what does. What do all these pieces of build back better mean? How do we craft a set of economic policies that can support and grow America's middle class. That's Joe Biden's North Star. It's what he wanted his economic agenda to really focus on. How do we do that? How do we help people understand how all the pieces of that agenda fit together? So that's what, that's a lot of what we did. And quite frankly, a lot of what the Council of Economic Advisors does is help people understand the data. So anytime there's an economic data release, we were there writing a memo for the president, you know, getting on television, talking to the, you know, folks on the radio and podcasters, like, this is what those numbers mean. This is, this is how to explain the economy and, and what's going on around us.

Barry Ritholtz (8:53)

So. So we'll hold off on the current administration for a while. I want to talk about. Let's talk about COVID for a minute. So here we are. We're recording this at the end of the summer in 2025. You started mapping out a plan for Covid just about five years ago. Here we are, it's five years later. Some things seem to have worked out well, some things not as much. We still see lots and lots of people not returning to office. There are a lot of people have been dislocated. The pandemic very much revealed a lot of stress fractures in society. But give yourself a grade. What did you do well in the response to the pandemic, and where do you wish policy had been more robust or more successful?

Heather Boucher (9:43)

What a great question. So I think first off, you have to remember that when Joe Biden took office, you know, Americans didn't have access to the vaccine yet. And so the very first thing that we had to do was to get those shots in arms. The vaccine was available. It was ready to go, but had to make sure that it was distributed and distributed as quickly as possible. And the people got those two rounds of shots so that, you know, we could get things, you know, start to get people back in school and work and all the different things. And you also have to remember that what a, what a bizarre start to a presidency, for sure. Like, we were remote, right? You had all of these workers who, you know, were telecommuting. You didn't have. You didn't have any inauguration parties. There were no, you know, you didn't have any of the normal trappings of a new administration. And you had all these people coming in who we had to do all of that, while also dealing with the pandemic internally and then making sure that the president and the senior advisors and the cabinet officials themselves didn't get sick. So when I look back, those first few months were so courageous and incredible. I look at what my colleagues across the administration did to get those shots in arms, to get schools reopened, to get all the support that folks needed. And on top of that, to have passed this really important, historic legislation, the American rescue plan, that gave all of the support to communities all across the country to make sure that there were enough resources to weather any future variants that we could imagine over the. The next couple of years.

Barry Ritholtz (11:19)

I vividly recall getting my first shot at the Javits center in Manhattan.

Heather Boucher (11:25)

Wow.

Barry Ritholtz (11:26)

Which was crazy because it was set up with military precision. I don't know if it was the army or the National Guard, but there were literally military troops just running it like it was military operation. Incredibly effective, incredibly efficient. They must have processed tens of thousands of. Of people a day. That was like, oh, so someone's on top of this. It felt like someone really had been very proactive and had thought this through.

Heather Boucher (11:54)

Well, and that is what. That is what folks were spending all of their time, you know, initially, let's, let's make that happen. But then after that, you still had all of this recovery. And I think if you think back to before Biden took office, you know, to 2020, when the pandemic was happening, and we were talking about what it meant to shut the economy down, and there were some economists, I tried to be very careful in my language about this, that, you know, what kind of recession we were having. Right. You know, you saw, you know, at the beginning of the pandemic, things shut down, unemployment spikes, and it was like, well, but unemployment was spiking because we, we needed people to take that step back. Right. And that's a different kind of recession. And as you noted, it uncovered all of these fragilities. You know, over the preceding decades, we have allowed, we have enabled private actors to create these very complex global supply chains focused on just in time production and not building in resiliency or, you know, duplicity, like having, you know, multiple suppliers for a single good. No, let's make sure that it's. It's the most efficient, but not thinking about what happens when stuff goes wrong. And, you know, so our first couple years in the White House were all about, oh, there's another thing that doesn't work anymore. There's another thing where after the pandemic, businesses couldn't just not get back up on their feet. And so a lot of the resources for the American rescue plan were about helping small businesses, communities, schools, all These different entities get back up on their feet. And as we were uncovering, and it really did feel like a, not a whack, a mole because we weren't whacking things down, but like a, you know, a pop up of all of these different challenges that emerged. You were realizing, I mean, I came, I came out of that experience understanding how important it is to have competent, dedicated public servants who are getting up every day saying, that is a problem we need to solve. That's one we maybe don't need to solve. But these are things that can affect American lives, American communities, American health, safety, the economy, and just how important that leadership is. So in terms of lessons learned, the pandemic really showed that you need good governance because in an emergency, that's what's going to, that is what's going to make the difference. And so the military precision of getting shots in arms, that, you know, thinking through all the different pieces of the policy, I think a lot about how we saved so many small businesses in America, particularly care businesses, childcare centers, long term care facilities, gave them an infusion of funds to help them keep going through the pandemic. And that meant that other people could then get back to work. You talk about, you know, people, not necessarily all coming back to office. We have seen that as a trend in the labor market for some families that may be really helpful for addressing their care challenges. But one of the things that really helped millions of people get back to work was the federal government stepping in and helping them deal with their care crisis because their childcare center wasn't open. And oh well, we can solve that problem. That helps that employee come to Bloomberg every day. So those are, those were really big, I think, because I know you'll ask about it next. So I just want to get to this. Of course, you know, one of the challenges was that that period led to the highest inflation that we've seen in the United States rates since the 1970s. You know, inflation. Anybody under the age of 40 had never seen that kind of inflation before.

Barry Ritholtz (15:18)

We get to inflation because I, I think people don't understand. You either had to choose high inflation or, or high persistent unemployment. And, and as unpleasant a choice that is, I think most people would prefer high inflation to not having a job. And so that was the Sophie's Choice that was made. And by the way, it wasn't any one thing. It was lots and lots of things, including, you know, the biggest fiscal stimulus since World War II under the previous president, the first President Trump term. But then there were A lot of other factors, including legislation on the Biden administration. What I want to ask about is getting the shots out that was. That was a huge gain. Making sure that a lot of the economy began to reopen was important. But with the benefit of hindsight, what do you think were missed opportunities? What. What didn't get a high score? What communication failures were there that could have been handled better? And again, a lot of this is 2020 hindsight.

Heather Boucher (16:28)

It's a lot of. I think that helping people understand the role that the fragility of supply chains played in the challenges of getting goods to their local supermarket or their local store that was affecting inflation. I don't think we did a good enough job helping people understand all the things that the pandemic had uncovered. Right? So. And I want to step back just one, because one thing that always struck me at the beginning of the pandemic, and we were all like, what is this going to look like? And, you know, I had heard, of course, about the flu, the Spanish flu, like, sort of back in my mind, I had never read anything about, you know, what that had happened in, you know, in the teens, back in the 19 teens, 19, 18. And, you know, one thing, though, that I had learned during the pandemic was that that huge pandemic had happened. And then it was like, nobody wrote about it, you know, the Spanish flu. It's like, oh, this thing happened. And then it just. It was like people wanted to forget it. And I feel that there was a little bit as we were going through the pandemic, people were so traumatized that the idea that it was uncovering how our economic system was so fragile also got a little bit. I feel like people kind of wanted to paper over that and just move past it. We just everyone to get back to normal without kind of wanting to stop and say, actually, the way that we're doing American business just isn't working. And I think a lot about, like, semiconductors, for example, you know, I think we all learned a lot about semiconductors during the pandemic because all of a sudden we couldn't get them right. The global semiconductor shortage affected every, you know, all of us, right? A factory closes in Malaysia or in Taiwan, and then all of a sudden you can't buy something or prices are going up. So that how we talk about that and how we communicate that, I think was something that was really hard to do amidst the health crisis. And so if I were to kind of wave a magic wand and go back in time, I think I would try To I would want to figure out how we could spend more time helping people understand those fragilities that we were uncovering, which was hard because people were so wrapped up in the consequences of it, which was high prices that they were seeing at the store and which were being blamed on the simplest explanation, which was obviously government spent too much. That kind of fits into our, our everyday narratives when. Yet when you uncovered it, it was like, no, actually it was because of the fragility of these supply chains and the decisions that all of these businesses have been making for decades. And we need to hold them accountable. We need to ask businesses to be more resilient. And that's going to require rethinking our economy. That's a big structural change that, you know, the Biden administration really started to push. But how people understood that and did we do a good enough job talking about that? I think that's something that I wish we had done better.

Barry Ritholtz (19:25)

Let's do it. Talk about another communication issue, which is the pushback to vaccines. And I was always kind of surprised by not just the Trump administration, but by Trump himself, who deserves a lot of credit for Operation Warp Speed. And yet of all the things he takes credit for, he kind of let that slide. Could we have communicated better that, hey, we didn't just create these vaccines overnight. This has been 10 years in the making and it's safer, especially for people at risk, over pick a number, 50, 60, 70, than not having it. I'm curious as to your thoughts about communication around that. There have been a lot of pushback about closing schools. And as it turns out, kids are fairly safe relative to Covid. It doesn't seem to have the same impact on them. Should we have, should we have left schools open? Should we have tried different things, communicated? How do you, how do you look at those two areas?

Heather Boucher (20:27)

Well, I think fundamental to those questions are we hadn't had a pandemic in a long time.

Barry Ritholtz (20:35)

Centuries.

Heather Boucher (20:36)

Right. We didn't know how bad it would get. And you had this. We were in a moment where already America had become a lower trust environment. Right. People had less trust in government than they had, you know, decades before. Less trust in business, less trust in experts. So you're already kind of walking into a situation where you're trying to explain to people what the health risk is. And you have to really, did everybody do a good enough job thinking about what the trust, how much trust the listener was going to have from the get go? The problem is that you don't know how it's going to turn out. So you want to make sure that you are protecting people to the best of your ability, but you don't have all the answers. And so, you know, but saying to people, well, we suggest that you do this, but maybe we don't know if that's going to work. That doesn't go over very well as a, you know, in a public health crisis. So I think part of the way that we've seen the vaccines and the school closures and all these things play out is that that has further eroded the trust that people have in the institutions around them, even as we know that it saved millions of lives and millions of dollars in healthcare costs because people didn't get sick and all the rest for people to be able to get the vaccine. And so, so that was a, was that a problem we could have fixed amidst the pandemic, or is this something that we should be kind of taking a step back and saying, huh, maybe we should have been focusing years ago on why is it that trust was eroding? And that leads to something that I really want us to really focus on in our conversation today is that really toxic role that inequality has played in our economy and our society, which we know is connected to this failure of people to trust, and particularly to trust experts to trust that people are acting in their best interest. So Operation Warp Speed, it's incredible achievement of the Trump administration, but yet pushed aside because communities all of a sudden became, I mean, I can't speak for how those communities felt, but they became fearful and distrustful. Schools closing, and you still continue to hear that debate on both sides. Some people still frustrated that their schools were open, and some people saying, oh, they closed for too long. And there's been health, you know, learning, not health losses, but learning losses among children. These are really important questions and we should spend time dissecting what we know now. But we didn't know. We didn't have all the answers at the beginning.

Barry Ritholtz (23:16)

Last question before we get to wealth and income inequality. How did, in total, the United States do relative to other modern democracies? How well do we do compared to other countries?

Heather Boucher (23:30)

Well, I'll focus on the stats that when you ask that question, I can see clearliest clear list in my head, so I can see a couple of charts. So number one, we early on had very high death rates relative to other countries as a proportion of our population. So we were able to turn that around. When you look at the economic data, the United States had one of the strongest economic recoveries coming out of the pandemic relative to our economic competitors in the other advanced economies on virtually any metric. So yes, the United States saw high prices. We saw inflation go up, but the prices didn't go up as high as they did in some other advanced economies economies. And then our prices started coming down and, you know, look quite good. We saw stronger economic growth, we've seen stronger employment. So when you look at our ability to take this health crisis, to be able to get it under control enough so that people could get back to work, so businesses could get back up on their feet, so the kids could get back up and, you know, back to school and then have your economy get back on track. I mean, even the Economist, and I can't remember exactly what the COVID was, the exact words were, but it was one of those, you know, like, wow, even the Economist has said, you know, we really knocked it out of the park in terms of the economic performance of the United States coming out of what could have been a very deep and long recession. Kind of like what we saw after the global financial crisis.

Barry Ritholtz (25:08)

And you know, we difference being huge amount of fiscal stimulus versus almost no.

Heather Boucher (25:12)

Physical well and operation warp speed and getting shots in arms and all the things that we did to contain the pandemic.

Barry Ritholtz (25:18)

So you talk about the mortality rate and I've seen other people point to a lower vaccination rate. I'm curious if some of the European criticism of the United States response was, and I've heard some of this from other corners of, of various partisan arguments, lot of preexisting conditions. The United States entered the pandemic with not an especially healthy population. How much truth is in that claim?

Heather Boucher (25:54)

Well, I'm not a health expert, but certainly we know that the United States population does have higher death rates from a lot of preventable diabetes, obesity. So certainly that it doesn't surprise me that people are saying that about how we entered the pandemic. And then we know of course that some of the after effects of Long Covid and how that affects people, particularly around some of these health issues, is important.

Barry Ritholtz (26:27)

Coming up, we continue our conversation with Heather Boucher, senior research fellow at the Harvard Kennedy School discussion discussing the impact of wealth and economic inequality on growth. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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Barry Ritholtz (29:09)

I'm Barry Ritholtz. You're listening to Masters of Business on Bloomberg Radio. My extra special guest this week is Heather Boucher. She is a Senior Fellow at the Harvard Kennedy School. Previously she was an economist for the Joint Economic Committee of US Congress and Chief Economist to the President's of Invest in America's Cabinet. So let's talk a little bit about wealth and income inequality. And the first question is, what is the impact of this on sustainable growth? Does wealth and income inequality create a dragon to faster, more widespread growth?

Heather Boucher (29:48)

That is such a fantastic question. And I feel like it's a little bit of a leading question because as you know, I wrote a book on how economic inequality constricts our economy and what we can do about it. And a Number of the scholars that I've looked to over time actually just got the Nobel Prize last year in 2024. Duran Acemoglu and Simon Johnson and James Robinson for their work looking at how institutions affect long term growth. And I start there because part of what economic inequality does, part of what wealth concentration does, is it destroys the institutions that foster broadly shared growth.

Barry Ritholtz (30:26)

Explain what you mean by that. Because you know, we've had wealth inequality during the Gilded Age, we have certainly in the 90s, 2000s and beyond, increasing wealth inequality primarily due to publicly traded equity, a lot of concentrated ownership. How does that destroy institutions?

Heather Boucher (30:46)

Well, think of it this way. So one of the things that the United States was an early leader in was making sure that kids had access to free public education. Something that US communities started to do early on. They used, they raised taxes to do this. And you know, we were a global leader in the early primary school movement. And that's a really important foundational institution for economic growth because we know that talent and entrepreneurship and skill, not, you know, skills can be learned, but all of these things are, they're normally distributed, they affect, they're distributed across the population. Right. It isn't just rich children who have access to the best schools that have the best ideas or are the most talented in everything. Right. And so if you have a society where you are, are making sure that children across different income groups, across different racial groups and you know, both girls and boys have access to learning and, and skill building, then your society is going to benefit from them being able to find the right fit as they go through life. They're going to find the right role, oh, I'm really good at this or I'm really good at that. They'll have those opportunities and our economy, our society will benefit from those productivity gains. Very famous economic study by Raj Chetty and his colleagues many years ago now. But they had data on third graders here in New York City and they were able to match this data on the third graders and their test scores on math and English. But we're just going to focus on math. And they were able to then match those third graders to their parents income and to their future income and whether or not they ever applied for a patent. That's just one measure of, it's not the end all bit, but just one measure of some kind of success in the world. And what they found was that the children who did the best in third grade on these standardized math tests, those kids were more likely to grow up and get a patent. Totally makes sense but when you looked at those children by the income group that their parents were in, by their race, by their gender, you saw something very strange happen when you just looked at the top kids in terms of the math scores. So this group that was most likely to go on and get a patent, the children in that group who came from the richest families, who were boys or were white, were far more likely than the children from lower income families, than girls, or were black children to grow up and get a patent. So what that tells you is that our economy, our society has been denied all of this. These new ideas, these new things we could be buying or new ways that our world could be changing because those children who were highly talented didn't have that opportunity across their life. So what helps a low income child get that education that gives them that opportunity? Well, it is, is it's having a good public school system and good public universities and that are affordable, that give that kid an opportunity. Having equal opportunity laws that allow, you know, girls and people of color to have those opportunities that hinges on having institutions that are fair and that are enforcing anti discrimination laws. And so that is just one, that's just one pathway through which inequality or equity or lack thereof affects our potential for economic growth, affects the kind of growth that we have.

Barry Ritholtz (34:26)

I want to push back on that slightly in that. So is this an inequality issue or is this a, hey, we have pretty mediocre public schools, especially in cities, and that leads to exaggerating or amplifying some inequalities that are already in existence. Like, is this a tax issue? Is this a competency and expertise issue? Like, why are suburban schools in wealthy suburbs so much better reputations and higher acceptance rates at Ivies and all the other usual measures of success. Is it strictly money or is it, some of it was just a flight of experts to higher pay, I guess. Which comes back to my, how do we explain, hey, the kids are in school, they're just not really learning a whole lot.

Heather Boucher (35:23)

Well, I mean, there's so many, there's so many directions we could take that question. The whether or not you are funding those public institutions that enable a wide range of people to have access to opportunity. That, that's, that's sort of the first part of that answer, right? Are they properly resourced? Well, the answer, of course we know, is that they haven't been. And there's, there's a lot of things happening, but two that are really fundamental. Number one, in the United States, public schools are primarily financed by local property taxes, which is inherently Unequal. Right. That means that people that are living communities with wealthier homes have higher tax bases and so those school districts have more resources, which is exactly the opposite of what you should be doing to create more equity, more opportunities.

Barry Ritholtz (36:12)

Isn't there a chicken and egg situation there in that? I'm just thinking of all the bedroom communities 30 minutes outside of Manhattan. They became destination suburbia because, hey, it was quieter, it was, was cleaner, it was neater. And as it became more and more desirable, the school started doing better. Like you've created. We've created a situation where of course, these wealthy suburban school districts are going to do better. That's why people pay higher home prices and higher taxes in those districts, because they want a higher quality public school. How do you deal with underfunded urban schools when people are voting with their feet and their tax dollars?

Heather Boucher (37:07)

Well, I mean, so the obvious answer is we should be thinking about how we are financing public schools. Right? Should we be, should it all be about local? I mean, and this is a local issue, obviously it's different in different places. That is an answer. But when you then zoom up to the federal level and you think about the question of whether or not we are properly resourcing the institutions that we need, the answer is, of course, we've seen a half century now of primarily Republicans selling the American people on the idea that if we lower taxes, particularly on the rich, that's going to benefit them and their communities. And of course, that's not what we've seen. Trickle down economic hasn't worked, it hasn't delivered stronger growth overall. And what it's done is starved our government of the resources that it needs to then address some of these inequities, you know, at the federal level or, you know, or, you know, potentially at the state level, depending on.

Barry Ritholtz (38:05)

So ultimately, it's a tax question of.

Heather Boucher (38:07)

And it's a question though, of why have we decided to starve government in order to give money back to the richest in our society. So you can see time and again these massive tax packages, the most egregious, of course, being the one that passed this year that Donald Trump signed.

Barry Ritholtz (38:26)

Is this one really more egregious than the 2017 tax and jobs Act? It is difficult because I hear the exact same complaints. And it's. What is it? It's eight years later.

Heather Boucher (38:39)

There is no justification for the kinds of tax cuts that we've just given to the richest people in our society while gutting Medicaid, denying families and children and new parents access to health Care which will make it that much harder for our society to thrive, you know, for decades to come. People are going to be sicker, they're not going to have access to health care, they're going to go into bankruptcy. All of the hospitals are going to close. So the damage that we are doing to communities because of that tax legislation is truly phenomenally.

Barry Ritholtz (39:15)

So let's explore that a minute because you talked about trickle down and I think that's so long ago, I don't know if people voted for that. The thing that's been.

Heather Boucher (39:26)

Well, he did say, I mean, let's be clear, President Trump did tell people during his campaign that he would not cut Medicaid.

Barry Ritholtz (39:34)

That's true.

Heather Boucher (39:34)

So he did tell people he would raise tariffs, but he did not, he said he would not cut Medicaid. And he did that. That was one of the first things that he did.

Barry Ritholtz (39:41)

Here's the thing that is the big surprise to me is that we're seeing the impact of the tax package falling in a surprising way on a lot of red states. Farmers, rural communities. There have been number of stories about rural hospitals are closing left and right. There are going to be people that are going to have to drive three, four or five hours if to have a baby delivered. And if there's a heart attack, I got some bad news. You ain't going to make that.

Heather Boucher (40:10)

Well, the baby may not make it. Well, I mean to the hospital.

Barry Ritholtz (40:13)

To the hospital for sure. So, so the question is, and I don't have an answer for this, are people just voting tribally? They're voting for what their party affiliation is? Because it doesn't seem like a lot of people realize and this true on both sides of the aisle, but it's especially true given what we've seen in some of the redder parts of the country. And I keep coming back to all these rural hospitals closing. Are people just not voting in their own interest? Are there other factors driving this? And I know you're not a political economist and that's not your focus, but.

Heather Boucher (40:55)

I think that people, is my personal view, that people are voting for somebody that they believe is on their side. And when you take the long view and you look at the US Economy, what you see is a half century of rising economic inequality, the top pulling further and further apart from the rest. The middle class being squeezed harder to go from being low income into that secure economic middle, a rise in economic concentration. And by that meaning in, you know, across industries in the United States, there are fewer and fewer businesses. You talk of Hospitals. There's been massive consolidation in the hospital sector. Right. So in many communities already, there might have been a number of hospitals, but they're all owned by the same company. Right. Which creates lower wages for the workers, the nurses and the doctors that work and the janitors that work at those hospitals, creates that what we as economists would call monopsony labor market. And we know that they're less likely to be resilient in situations like this. So these are long standing brewing crises that this most recent legislation has then just sort of lit the match under and said, well, we're not going to give those communities the money they need for these hospitals. But it is on top of this rising economic inequality that I think has made so many people unclear of who's on their side. And for some reason they believed that Trump was. He goes out there and he says he's on your side, but his actions really haven't been. And I think that's what's so. It's so hard and frustrating to watch. But I think the truth of that, the truth in there that we need to be very thoughtful about is, is if you want people to vote for you, if you want people to vote for people that are actually going to support and grow America's middle class, how are we showing that? How are we demonstrating that actually our goal isn't just more elites making more money, but is actually making sure that communities thrive, that there are good jobs, that there is the kinds of institutions, you know, good schools and healthcare and all the things that communities are we actually delivering that.

Barry Ritholtz (43:07)

So if we look at the 2000 and tens, the Post Financial crisis era, not a lot of fiscal stimulus, almost all monetary policy, quantitative easing, zero interest rate policy rates were super low, inflation was under 2%. We look at the post pandemic era, the 2020s, they've been pretty much all fiscally driven. We had CARES Act 1 and 2 under President Trump, CARES Act 3 under President Biden, the infrastructure bill, the semiconductor bill, the build back better bill, the most recent big beautiful bill, and all the tax cuts there. The 2000s really feels like it's fiscally driven, whereas the previous, I don't know, 15, 20 years was all monetary. What does that do to the issue of wealth and income inequality in the entire 2000 and tens and 2000 and twenties? Stocks, bonds, real estate businesses all seem to have done pretty well. Doesn't matter if it's monetary or fiscal, if you own capital based assets, any sort of stimulus seems to work.

Heather Boucher (44:24)

Well. It's a really Interesting question. I think it's. To my mind, the answer goes back a little bit to something I said earlier about the importance of having good leadership. Fiscal policy requires that you actually have people that are thinking about what is it that you want government to do? What is government spending money on? How are we thinking about setting rules of the road for businesses so that they are encouraged to behave in ways that's going to benefit communities, not strip them of their value or create bad jobs or create negative implications for the environment. And monetary policy, on the other hand, is very hands off. We set the interest rate. There is financial regulation, of course, and that's a big piece of it. But often when we're talking about addressing the business cycle, it is about the interest rate policy. And I think what you've seen, especially post global financial crisis, has been a sense that, that hands off policy. And again, I would kind of put that a little bit in my brain that goes into the trickle down mentality that markets, we're kind of going to take our hands off because we believe that markets are perfect. So if we get out of the way, then everything will just work out hunky dory. And that hasn't worked out. It certainly did not work out in the recovery post global financial crisis, which left Americans languishing in high unemployment, massive labor market scarring for so many, many young people that never really found that good start, you know, the loss of wealth for millions of Americans and it took so long for us to work its way through the system. The fiscal policy option allows policymakers to step in and be more active and to say, actually this is what we, this is the direction we need to go. So the bipartisan infrastructure law that invested money in communities in every part of America in creating roads and bridges, that standard infrastructure, but also, you know, taking steps to bring broadband to every family, taking steps to make sure that schools that wanted to put in electric school buses to reduce the pollution and the noise for kids riding that school bus every day, that they had resources to do that. So infrastructure as we traditionally thought about it and you know, these new forms of infrastructure, infrastructure that are really important, government really stepping in and saying, hey, there are certain sectors that we need as a country to be investing in. High technology, like semiconductors, clean energy, that these are the industries of the future that we want America to be and we need American businesses to be competitive in. That was why we were making those investments. And we believe that if we encourage businesses in the right way that can create good jobs and economic security for communities all across the country. So that active policy that is saying here's what really matters to us as a society, I think is a part of this trend, because we can all see with our own eyes that 50 years of saying we'll let markets take it, you know, that we don't really need to intervene has left too many Main Streets devastated, has left too many families without economic security, and hasn't delivered the kind of economy that Americans want, need and deserve.

Barry Ritholtz (47:37)

Coming up, we continue our conversation with Heather Boucher, senior Research Fellow at the Harvard Kennedy School, discussing what we can do to help narrow the gap between the haves and the have nots. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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Heather Boucher (49:00)

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Barry Ritholtz (50:04)

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My my extra special guest today is Heather Boucher. She was the economist for the Joint Economic Committee of US Congress as well as a member of the Council of Economic Advisors under President Biden. She's currently senior research fellow at the Harvard Kennedy School. So we've been talking about how the past 40 or 50 years has seen both wealth inequality expand and income inequality. So much dates back to the 80s and 90s, which so younger folks may not really remember. I want to, I want to start by asking you about unintended consequences. And I have a recollection of legislation passed under the Clinton administration that said, hey, you can't pay your CEOs tens of millions of dollars. It just seems ridiculous. Instead we're going to cap the pay and allow you to pay them in stock and stock options. And as the stock market has gone higher and higher over the past, you know, 30 years, it seems like a well intentioned attempt to reduce wealth inequality helped create more. How can we respond to those sorts of things when and it seems the private sector is clever enough to kind of figure its way around whatever legislative challenges are put in their way?

Heather Boucher (51:42)

Always vigilant. Right? I mean, I think that it starts by, I mean it starts with taxation, right? So what we have done over decades is lower tax rates at the top.

Barry Ritholtz (51:57)

We've made it for corporate corporations or for individuals because both corporations as a percentage of total tax paid and the actual corporate tax rate, they both seem to have drifted down over the past few decades.

Heather Boucher (52:10)

All of the above. And we've done that while not doing the things that we need to do to fix the transfer of wealth across generations. So we haven't imposed the kinds of inheritance taxes that I think would be really important, important to make sure that that wealth isn't calcified over time in families. And that has really made it so much easier for those who worked really hard, did good not having to give back through not having to pay those taxes on their highest income, but it also has allowed wealth to calcify. There's this really important book that came out a number of years ago that, that I feel like we don't talk about anymore by Thomas Piketty on called capital in the 21st century. And there are huge.

Barry Ritholtz (52:56)

That book was headlines for weeks.

Heather Boucher (52:58)

It was for weeks. For weeks. And, you know, one of the things that, that really was so important about that book was the way that he showed through all of this data the way that income, high income inequality, quality calcifies into high wealth inequality. And that once wealth becomes congealed. Right. Once a smaller and smaller number of people have access to that, it becomes very difficult to unpack that, to share that and for society as a whole to benefit from it.

Barry Ritholtz (53:28)

So let me push back a little bit and say, hey, we have 50% estate tax. And the way you could get around that is by donating it to a philanthropy, a foundation, what have you. Yeah, there are various trusts and things you can set up to avoid paying some of the taxes, but the taxman gets his due eventually. We're not like the UK that has this esconse. Gentrified nobility still. The, the upper class there is, you know, just generations of landowners or isn't the United States different from other countries or.

Heather Boucher (54:08)

But we have.

Barry Ritholtz (54:08)

Do we have landed gentry here the way the UK does, I would argue.

Heather Boucher (54:13)

I mean, so first off, on the data, we have so much higher economic inequality than our European, other European countries, and we don't see the kind of movement across income groups.

Barry Ritholtz (54:27)

We used to, we used to have pretty good post World War II economic mobility was pretty high in the United States.

Heather Boucher (54:32)

Right. So if you were born in the 1940s, your chance about earning your parents was about 90%.

Barry Ritholtz (54:39)

Right.

Heather Boucher (54:39)

But if you're born in the 1980s.

Barry Ritholtz (54:41)

Yeah.

Heather Boucher (54:42)

Only one in two of us has grown up to outearn their parents. So that's, that is a remarkable shift, a remarkable constraint on upward mobility over time. And it is because you've seen this high, these high incomes calcify into wealth inequality. That's sticky. Right. You talked, we talked earlier about people moving into, you know, wealthier enclaves, you know, with, with better schools. Well, that is a way of. It's one way that it works its way through society, that those kids will have more opportunities. You are able to keep that wealth in that family. And then you don't see those economic benefits kind of flowing throughout your society, and you don't see that economic opportunity flowing through.

Barry Ritholtz (55:26)

So we talked a little bit about what the pandemic revealed with fragile supply chains and how many crucial things like just the masks and gowns and gloves that aren't made in the United States. What's the genesis of this? How much of this can we blame on Walmart and how much of this can we blame on just, hey, technology and transportation allowed manufacturing to go to the lowest cost provider.

Heather Boucher (56:01)

That's a big question with a lot of answers, but I think there's a few really important points there. Right? So once you had the capacity for an idea to happen in one place, the innovation, the engineers, the plans happen in one place and the production of something to happen someplace else because you could send those plans via the Internet or to a different place, it made it possible for us, for companies all across the United States, around the world to outsource that production. And we did that at a time when we were making those rules easier. Right. We had decades of trade agreements that made it easier for firms to have overseas production to become multinational companies. We wanted to trade, we wanted to have more trade. We believe that would make it safer. It would, you know, you're not going to go to war with somebody if you're trading with them. Right? You're going to create these positive benefits for our geopolitics. And yet what we've seen is that what that's done is it's really stripped production from the ideas and the innovation and sort of left the United States with kind of assuming that we could be the ideas people, but that the production of things could happen in places where wages were lower and where we didn't have to worry about messy things like the environmental consequences. So you took the hard stuff out of all the things that we make and use and yet you outsource that. And that's left our economy very fragile because as it turns out, when things get rough, when there's a pandemic, and you know, I'm spending a lot of time these days thinking about, well, one of the crises coming down the pipeline at US is climate change and the energy transition that that will require. That's going to create these ongoing challenges for our economies and our societies. If you have this global production, where's the resiliency? What is that going to do? Are you going to be, are we literally going to be safe as a nation? Let alone the economic consequences that we've seen for decades that that kind of global production system has hollowed out American communities. And I'm not saying that it was caused by policy, but it was facilitated. There was this very important role for technology, but we didn't step in and sort of say not enough. Policymakers stepped in and said, hey, this might not be good for us. We may want to make sure that we have the capacity to make the most important things. Because if you can't make them, then you're going to be vulnerable in a geopolitical sense. And now we're kind of quite frankly stuck behind the eight ball a little bit where some of the most important things we don't have the capacity, capacity to make. And again, we saw that in the pandemic with the simple things, with the masks. We also saw that with the ventilators, we couldn't get enough of those and we saw that. Another example that I've thought a lot about recently, I talked to a lot of people when I was in Cambridge this year. Drones, which, you know, virtually all of those are made in China. So when China started partnering with Russia, that made it hard for the Ukrainians to get the drone parts and to get the drones they need to fight their war. That's a, that, that was a technology problem that very quickly became a very important national security issue. And are we, are we getting ahead of those kinds of questions?

Barry Ritholtz (59:22)

So Nassim Taleb wrote a book called Antifragile, all about resiliency and how to make sure that you're, you're not merely relying on just one element, that you're diversified and broadly exposed. How can government policy drive that if, if it's in the shareholders interest to reduce costs, A maximum amount increased profits, maximum amount. Who's responsible for creating this anti fragility? How does government build resilience into the economy?

Heather Boucher (60:04)

Well there's, it's a tough question, but there are some tools. I mean, so first off you have to define it and what do you mean by resiliency is that you want to have domestic production, production with, you know, in the, during the Biden years we called it friend shoring or you know, production within allies that you feel really comfortable with. But fundamentally it comes down to do you have various options if there's a, if something happens with this part of your supply chain, are there other ways to that you can get what you need? We live in a continent spanning economy and you know, with you know, 330, 340 million people, there is a lot of opportunity to create resiliency domestically. But we also, there's a lot of benefits to global trade. So how do we think about making rules that encourage that? And the thing, and the nut of this is, is that that's going to be a little bit costlier in the short term. But what are the costs over the long term? What are the costs during a crisis? How much money did the federal government had to spend during the pandemic to help companies get over Their supply chain challenges. How much extra money did Americans pay because firms were able to charge higher prices than even perhaps they needed to because of the crisis. So there are, and, and, and we know that there will be future crises coming. So it's government's job to make sure that we're, you know, protecting the welfare of the nation. This certainly needs to be a part of the question. So what are all the tools in our toolbox? So maybe some of those tools are about how we think about our trade policy, how we think about our antitrust policy. Maybe we're using procurement policy, but there's a wider range of tools that government should be using. So it, I wouldn't get too wrapped up in the one solution, but that this is the question that we need to be asking ourselves.

Barry Ritholtz (61:48)

So I was fascinated by some research you, you did at the time. There was this concept that highly educated women were dropping out of labor force because of the motherhood movement. I think the news media picked that up and ran with it. Turns out the data really didn't support it. Tell us about your research into what was going on with the she session that, that people had been talking, talking about.

Heather Boucher (62:16)

Well, this comes up time and again where you see, and it's happening now actually, and it happened in the, in the early 2000s that you'll see these moments where women, their labor supply goes down or they don't recover from a recession and people start saying, oh well, it's definitely because she, because women don't want to be in the labor market, they'd prefer to not be working. And so this is good or this is, you know, women's preferences. And then when you start scratching the surface and you look at the data, you see that actually it tends to be more about demand side issues that those jobs weren't available or they weren't providing the supports that families need to deal with care issues. So that was the research that I did on opting out in the early 2000s and I've been hearing a lot about this more recently with what's happened post pandemic and is a lot of big businesses are demanding return to office, but with the paring back of the American rescue plan and the inability of the Biden administration to get all of the care pieces of our agenda across the finish line. You know, Senator Manchin stopped the investments in long in home health care for the aged. He stopped those investments that we wanted to do for childcare. So a lot of those businesses have really struggled in the past couple of years. You're now seeing that have an effect on women's labor force participation and people are again talking about this as voluntary when I think we need to really be looking what kinds of supports are we making sure that families can address their care issues and still participate in the labor market.

Barry Ritholtz (63:52)

Thank you Heather for being so generous with your time. We have been speaking with Heather Boucher, Senior Research Fellow at the Harvard Kennedy School and her most recent recent book, Unbound How Economic Inequality Constricts Our Economy and what We Can do about that. If you enjoy this conversation, well be sure and check out any of the previous 550 we've done over the past 11 years. You can find those at iTunes, Spotify, Bloomberg, YouTube or wherever you find your favorite podcast. Check out my new book, how not to Invest the Ideas, Numbers and Behavior that Destroy wealth and how to Avoid Them how not to Invest at your favorite bookstore. I would be remiss if I did not thank our crack team that helps put these conversations together each week. Alexis Noriega and Anna Luke are my producers. Sean Russo is my researcher. Justin Milner is my audio engineer. Sage Beck is the head of Podcasts at Bloomberg. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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Heather Boucher (66:43)

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