Myths That Built Trickle-Down Economics: Productivity Doesn’t Trickle Down (with Preston Mui)

Summary

Podcast Summary
Pitchfork Economics with Nick Hanauer
Episode: Myths That Built Trickle-Down Economics: Productivity Doesn’t Trickle Down (with Preston Mui)
Release Date: July 21, 2026

Overview

This episode concludes the “Myths That Built Trickle-Down Economics” series by tackling a central myth: that economic productivity and growth automatically increase when the government “gets out of the way.” Today, with artificial intelligence touted as the next great productivity driver, the discussion explores what truly creates sustainable, widely shared prosperity. Host Nick Hanauer, co-host David “Goldy” Goldstein, and guest Preston Mui (Senior Economist at Employ America) break down the conditions behind the robust productivity boom of the late 1990s and what policy levers are necessary to repeat that success. The conversation centers on dispelling the myth that prosperity and productivity “trickle down,” instead arguing that deliberate policy—centered on full employment, investment, and supply stability—drives real, shared growth.

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Key Discussion Points and Insights

1. Defining Productivity and Full Employment

[06:31 – 07:21]

• Preston Mui defines full employment as a condition where “people are able to find jobs easily, when wage growth is high, when workers have bargaining power, and can leave bad jobs for better ones.”
• Productivity is “real output per worker” (typically measured as non-farm labor productivity by government statistics).

2. Lessons from the 1990s Productivity Boom

[07:25 – 10:01]

• Three Critical Conditions (“Three Legs of the Productivity Stool”):

  • Full Employment: High employment rates and wage growth empower workers and fuel productivity.
  • Boom in Fixed Investment: Particularly in tech (computers, software), leading to structural growth.
  • Stable Supply: Low costs for essentials (energy, housing, healthcare) keep inflation low and support further growth.

• The 1990s are unique in having all three concurrently; other periods, like the 2010s, lacked this synergy.

  “The late 1990s were a good time in terms of oil prices, healthcare prices, things like that… the 1990s were unique in that they had all three [legs].” — Preston Mui [09:43]

3. The Role of Policy - Then and Now

[10:01 – 12:56]

• Renewed policy focus in the Biden Administration echoes 1990s strategy: investing in infrastructure, energy, and workers.

• Emphasis on not relying on “luck” (as in the 1990s with low energy/healthcare inflation) but engineering desirable macro conditions through action.

• Examples: Inflation Reduction Act, efforts to control costs in sectors like housing and healthcare.

  “Luck isn’t something we should be trying to rely on… We should be actively trying to engineer those conditions.” — Preston Mui [10:24]

• Concrete suggestions: Ramping up investments in nascent technologies (like geothermal), using government reserves to guarantee supply chains for critical minerals (e.g., lithium), ensuring thorough implementation of new legislation.

4. Why High Wages and Tight Labor Markets Drive Growth (Not Suppress It)

[16:57 – 20:34]

• Full employment yields productivity in three main ways:

  • Upward Labor Mobility: Workers move to higher-productivity, higher-paying jobs as the market tightens.
  • Strengthened Demand: Higher wages boost consumer spending, supporting business investment.
  • Innovation Incentive: Rising labor costs force businesses to invest in technology and capital to stay competitive.

  "If the labor market is super soft and wages are low, there's very little incentive for owners of capital to deploy it… It is only that constant upward pressure... that creates a cycle of investment." — Nick Hanauer [19:30]

• Persistent myths—like “robots are coming for your jobs!”—misunderstand that labor-saving innovation is good for the economy, provided gains are shared.

5. Current Challenges and Policy Recommendations

[23:18 – 26:16]

• Despite strong fixed investment in certain sectors, areas of concern persist:

  • Housing investment is down due to high interest rates.
  • R&D investment has been negative in recent quarters, likely hindered by tight monetary policy (high interest rates).

• Suggested remedies include normalizing (lowering) interest rates and more strategic government interventions.

  “As inflation falls… the interest rate is going to rise and it’s going to tighten monetary policy… So I think it's really important that we normalize Fed policy.” — Preston Mui [25:18]

• The federal government can also curb cost volatility in sectors like healthcare and education, and prepare reserves for supply shocks.

6. Sustaining Shared Prosperity: Virtuous Cycles and Political Risks

[29:31 – 36:17]

• The classic example of Henry Ford’s $5 day illustrates how higher wages reduce turnover, boost productivity and quality, and expand demand, benefiting both businesses and workers.

• Widespread prosperity depends on productivity gains being shared, not monopolized by capital owners; otherwise, growth cycles break down.

  “…Productivity growth is good and sustainable as long as the benefits… are largely shared or widely shared… if the owners of intellectual property and the owners of capital get to monopolize all the returns… that’s when this whole virtuous cycle collapses.” — Goldy [35:08]

• The 2024 election’s consequences are noted: a potential reversal of investment in infrastructure, technology, and clean energy if middle-out policies are not continued.

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Notable Quotes and Memorable Moments

• “Productivity is not about squeezing more work out of fewer people. It is about building an economy that helps people produce more value.” — Greg, Producer [00:30]
• “…the middle class is the source of growth, not its consequence.” — Goldy [01:33]
• “When labor becomes more expensive, this could incentivize businesses to invest in labor saving technology, which would also improve productivity.” — Preston Mui [19:10]
• “We want them to invest in labor saving technology. What we got in the 2010s was low productivity because… there was zero incentive for corporate America to invest in labor saving technology… because they had cheap labor.” — Goldy [32:52]
• “It’s a pretty good news story. All we have to do now is not screw it up.” — Nick Hanauer [36:14]

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Timestamps for Key Segments

• Defining Productivity and Full Employment: [06:31 – 07:21]
• The 1990s Productivity Boom & Its Three Pillars: [07:25 – 10:01]
• Policy Action Today - IRA and Stable Supply: [10:01 – 12:56], [12:56 – 14:53]
• Why High Wages and Tight Labor Markets Raise Productivity: [16:57 – 20:34]
• Investment Booms, Bottlenecks, and R&D Concerns: [23:18 – 24:48]
• Policy Recommendations, Interest Rates, and Supply-Side Security: [25:18 – 28:21]
• Virtuous Cycles, Ford Example, and Sharing Productivity Gains: [29:31 – 36:17]

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Conclusion & Takeaways

• Shared productivity gains drive economic growth, not top-down “trickle-down” policies.
• Three conditions are necessary for a real productivity boom: full employment, large-scale investment, and a stable, affordable supply of essential goods and services.
• Today's policies and investments can replicate the broad-based growth of the 1990s—but only if they are properly implemented, maintained, and the benefits are distributed broadly, not hoarded at the top of the economic pyramid.
• Political continuity and thoughtful, proactive policy are crucial to sustaining this new model of growth.

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For further reading, see Preston Mui’s report: The Dream of the 90s is Alive in 2024: How Policy Can Revive Productivity Growth (link in show notes).

Transcript

[A]

Hi there, Pitchfork listener. I'm Greg, a producer here at Pitchfork Economics. This week we're closing out our series Myths that Built Trickle Down Economics with the myth that productivity and economic growth simply happen when government gets out of the way. Today, artificial intelligence is being sold as the next great productivity revolution. But technology alone does not create broadly shared prosperity. And productivity is not about squeezing more work out of fewer people. It is about building an economy that helps people produce more value. So what separates a real productivity boom from another wave of hype? In this conversation from the Pitchfork archive, Nick and Goldie talk with economist Preston MUI about the three conditions behind the late 1990s productivity, full employment, sustained public investment, and a stable supply of the essential goods and services people and businesses rely upon. And he explains why high wages and tight labor markets do not hold back economic growth. They push businesses to invest, train workers, and innovate. It's a fitting conclusion to the series. Prosperity does not trickle down. Productivity does not happen by accident. We build both through our policy choices.

[B]

The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.

[C]

The last five decades of trickle down economics haven't worked. But what's the alternative?

[B]

Middle out economics is the answer.

[C]

Because the middle class is the source of growth, not its consequence.

[B]

That's right.

[A]

This is Pitchfork Economics with Nick Hanauer,

[C]

a podcast about how to build the

[A]

economy from the middle out. Welcome to the show,

[B]

Goldie. Today we're gonna focus our attention on the show on the issue of productivity.

[C]

Are you saying I've not been productive enough, Nick?

[B]

That's for sure.

[C]

Are we having this conversation again? Is it my annual review live on air?

[B]

Yeah. Productivity, as you know, Goldie, is output per worker and sometimes your output per hour. Your output often is very, very low. But in general, we want it to be high. We want people to produce a lot of stuff relative to the number of hours that they work. Because that is not a perfect, but a directionally correct way to assess if the economy is moving in the right direction. Is all the effort we're putting in increasing our welfare overall.

[C]

Yeah, let's be fair. Let's clarify this. It's not just quantity, it's quality.

[B]

That's right.

[C]

It's a harder part of productivity to measure. So in my defense, very high quality, not necessarily the quantity you want.

[B]

Correct. But just like it is difficult to manage you, it is difficult to assess using merely productivity numbers, the actual quality of the output of the economy. Because you're absolutely right, Goldie. Quality is hard to assess. And when we look at the productivity numbers, obviously the number of, for example, phones produced per worker per year says nothing about the quality of the product like how many features it has and so on and so forth. And all of that makes it much more complicated. But in any case, suffice it to say that if productivity is rising, that's probably generally a good thing and it's something that economic policymakers should keep their eye on. And today we're going to talk to Preston Moy, who works effectively exclusively on that issue, who's an economist, senior economist at Employ America Macroeconomic policy shop that focuses on sustaining full employment. And he's going to talk about, they have a recent report out called the dream of the 90s is alive in 2024 how policy can Revive Productivity Growth. What's cool about that, I think, is that it harkens back to the last time the economy was unambiguously on fire, which was in the late 1990s under the Clinton administration when everything in the economy was flying.

[C]

And importantly, up until this moment in time, it was the only extended period of the past 40, 45 years in which the majority of workers saw a substantial rise in real wages.

[B]

That's right.

[C]

Second half of the 90s.

[B]

That's right. And I mean there were all sorts of things amazing about the 90s. One of them was, is that we were actually paying down our budget deficits. Right.

[C]

No, we're not doing, not doing that today. No, not after the Bush and Trump tax cut.

[B]

No. But you know, President Clinton, a Democrat, remains effectively the only fiscally responsible president that we've had. If you want to use that, if you want to use that way of understanding it in, well, I mean, I can't even remember since, I mean, Reagan was the one who invented deficits, of course, a little known fact. So again, we are definitely on the cusp of another 90s or I would argue even 60s style productivity boom as a consequence of the middle out policies the Biden administration is enacting. But anyway, I think we should talk to Preston about what he thinks. Obviously he's thought pretty carefully about it.

[D]

My name is Preston Moy. I am a senior economist at Employ America. We are a research and advocacy group dedicated to promoting full employment. I just recently released a report called the dream of the 90s is alive in 2024 how policy can Revive Productivity Growth, where I look at the macroeconomic conditions that supported productivity growth in the late 1990s and how, whether and how we can return to that situation today.

[B]

That's awesome.

[C]

I'm looking at our list of questions here, but I thought maybe, Preston, we should start with some definitions.

[B]

Yeah.

[C]

What exactly is full employment? And also, let's talk about what exactly is productivity?

[D]

So full employment is when people are able to find jobs easily, when the level of employment is high, when the level of wage growth is high, when workers feel empowered and have a lot of bargaining power at the table, when they're able to leave bad jobs for good jobs and negotiate raises at their current jobs. There's a lot of sort of aspects of full employment. It's not well captured by any one statistic. You have to look at a number of different measures, but that's what we're looking for, productivity. When I talk about productivity, I'm specifically talking about what the government publishes as non farm labor productivity, which is basically a measure of real output per worker.

[C]

Great.

[B]

Preston, tell us about your report, the dream of the 90s.

[D]

Yeah, so the last time we saw really strong productivity growth was the 1990s. During the late 1990s, non farm labor productivity grew at a rate just above 3%. To give you some context, during the whole of the 2000 and tens, which was a low productivity time of growth, productivity grew just over 1%. And most recently in 2023, we saw productivity growth tick up to 2.6%. So this has a lot of people wondering whether or not we might be able to return back to the productivity growth of the 1990s. And so what my report does is we look at, narratively speaking, what made the 1990s unique from macroeconomic standpoint. And we think that there are basically three really important things going on. We call it the three legs of the productivity stool. The first one is full employment. So after the recession of the early 1990s, the economy rebounded, the labor market rebounded. We saw the highest prime age employment rates we've ever seen in the 1990s.

[B]

Wage growth, if I could interject, that was during the Clinton boom years, correct?

[D]

That's correct, yeah.

[B]

Yeah.

[D]

So we saw employment grow to record highs. We saw really strong wage growth. We saw really, really low unemployment. And we think that was part of the story. The second leg of the productivity stool is a boom in fixed investment. Everyone remembers the 1990s as an era of a really strong investment, particularly in computers and software. And that was a really important part of it. And then the third leg of the productivity stool is a stable supply. So relatively speaking, the late 1990s were a good time in terms of oil prices. Healthcare prices, things like that. If you look at personal consumption expenditures, the share of personal consumption expenditures going to housing, food, medical care and energy was lowest it's ever been. And what this meant was that inflation was low, growth was not sort of diverted into responding to these supply shocks, and the Fed was able to keep interest rates low, which helped build upon the boom that happened in the late 1990s. So we think that those three ingredients which the 1990s had and other recoveries had maybe one or two of these legs, but the 1990s were unique in that they had all three of those. And we think that if we want to return to that situation today, we are going to have to work to make sure that all three legs of the productivity stool are stable.

[B]

Interesting. So I guess our perspective, and certainly my perspective was when I read your report, was that the policy interventions, I mean, with the exception of the Fed holding interest rates too high at this point, certainly what the Biden administration has been doing is basically what you recommend, is it not?

[D]

I think that's a big part of it. If you look back at the 1990s, you know, you mentioned the Fed and the Fed was able to keep monetary policy relatively loose back then, and that was definitely a big part of it. But a big part of the 1990s was luck, especially on the supply side. We got very lucky with health care inflation, we got really lucky with energy shocks. If you look forward to today, luck isn't something that we should be trying to rely on. We should be actively trying to engineer those conditions. And a lot of the Biden administration's policies are geared towards that. The biggest example, of course, is the Inflation Reduction act, which has massive investments in our energy infrastructure. That's really important. It's not the only thing. There's, there's, there's a lot of other things that the administration should be looking at, or, you know, the government in general should be looking at trying to tackle things like housing costs, energy costs, medical care costs, education costs. It's going to take a whole suite of policy responses, but I think that the Biden administration has done a really good job of trying to promote supply side stability as well as fixed investment in those areas.

[B]

Yeah. And obviously the labor market has rarely been tighter.

[D]

Yeah, the recovery has been amazing. I mean, it's the fastest recovery from a recession ever. And I think that fiscal policy has a huge amount to do with that as well as the monetary policy response. I think it's, you know, from that perspective, we're doing a lot better than say the 2000 and tens when we had a recession and we had a very slow and sluggish recovery in the labor market.

[B]

Right. So you know, the sort of middle out approach the Biden administration is taking of empowering workers, investing in America and promoting competition seems highly consilient with your view. And obviously the administration has no control over the, of the Fed and interest rates, which I think is the one problem area. And as we've said on the podcast many times, the Fed mistook higher prices as a consequence from a global supply chain shock for a wage price spiral, which is what inflation is. And since their only tool is interest rates, they raised them when they probably should have kept them lower or the same. But with that notable exception, with respect to our policy response at this point, what else could the Biden Administration be doing to generate higher levels of productivity growth?

[D]

Well, so I think that the policies that the Biden administration has implemented are a really good start. But passing the Inflation Reduction act, for example, is not sufficient. It still relies on good stewardship from the administration or future administration of being able to actually implement these policies. And there's a lot that federal authorities can do to make sure that the Inflation Reduction act and the Bipartisan Infrastructure act are well implemented. One such example that we've worked on at Employ America is that we think that the Department of Energy should be helping make investments in nascent technologies and next generation geothermal. So that's, that's something that can be done through various authorities at the Department of Energy. We think that the administration should take a look at establishing a strategic resilience reserve. So the administration has done a lot of work using the Strategic Petroleum Reserve to keep oil prices stable. There's going to be a lot of critical minerals that are going to be necessary for a successful green transition. And we think that using those powers and those authorities that they've used in petroleum could be used to secure, for example, the supply of lithium, which is a critical mineral used in solar panels and batteries.

[B]

I just have to ask, when you were talking about nascent technologies that deserve investment and you use the example of geothermal, why did you choose that?

[D]

Well, it's just one example of a technology that has a lot of potential, but that the market is not necessarily able to deliver on for various reasons, financial constraints in credit markets. It's a highly risky investment, but it's the kind of thing that the public sector can take on and can reduce risk and investment in and we think is a good place to look at.

[B]

I asked the question because I happen to agree with you. I have some friends who are engaged in a new tech geothermal thing called Quaise where they hope to be able to drill 10 or 12 kilometers, 10 or 12 miles down and superheat steam. And it is, it is at the end of the day, just an engineering challenge which will require a lot of money. And it's not clear that the market is the right way to get that done. So I've just, I was just interested in that. It's interesting.

[D]

Yeah. Well, the other thing about geothermal is that there's a lot of work that can be done to build geothermal on publicly owned land.

[B]

Yeah.

[D]

I think actually this is a really good example of there's a lot of publicly owned or publicly involved space out there that can be used to help build on fixed investment supply side. So for example, I used to live in Berkeley, California when I was getting my graduate degree and I lived near one of the transit stations over there. They're building a ton of housing on the parking lots that are not really full. So there's a lot of public resources that can be leveraged to help with investment and securing the supply side.

[B]

And Preston, can you give us a little bit more context about the history of productivity growth? To my memory, in this century, in the last century, that the peak levels of productivity were in the 60s, were they not?

[D]

We did have strong productivity growth in the 1960s in the range of 4%, wasn't it? Yeah, yeah, we did. I think if you go back in time, you find that a lot of the productivity growth is due to changes in things like demographic factors. So people get more educated, you have women entering the workforce, there's obviously still improvements that we can do there, but it's sort of harder to get more productivity growth out of that as you have more women enter the workforce and people get more educated. So it's, you know, you pick the low hanging fruit first and then it's harder to get that higher hanging fruit.

[C]

Yeah. This gets to another thing in your report which I found fascinating, which is you initially get this productivity growth when you're expanding the workforce and getting closer to full employment. But of course there's a limit as to. We can talk about what that full employment number is. They used to consider it to be much higher. Now we're under 4%. Clearly full employment is under 4%. But once you've got this high percentage of working age people working, you say that you start to get more productivity growth by increasing wages even with the existing workforce. How does that demand side part of the equation work.

[D]

I think it would be helpful if I went through the reasons why I think that full employment is conducive to promoting productivity growth. The first one is as you get closer to full employment and the longer you stay at full employment, the further workers climb up the job ladder in terms of productive jobs, high quality jobs, high paying jobs. So you can think about jobs as on a ladder. During a recession, workers fall off the ladder, they're unemployed, they'll take whatever job they can get, and then over time, they will move to better and better jobs. And I think that's part of the productivity story. Early on, during recoveries, productivity is low because people get new jobs. They're maybe not great jobs, they're getting used to these jobs, but over time they get better jobs, higher productivity jobs, and they get better at those jobs. So the longer you stay at full employment, the more workers get trained in these better jobs. And that's going to be reflected in wages. Right. Because as they go to better jobs, those jobs will likely be higher paying. The second reason I think full employment is really important is because employment and wages create income, and income supports consumer demand. And ensuring that there is strong aggregate demand is really important for encouraging businesses to invest in capital, in productive improvements in technology. You know, businesses have to be able to justify their investments. And if there's not enough demand, you're not going to see that investment in productivity. And this is something that we saw in the 2010s. We had a really anemic recovery. We had really anemic investment. And as a result, productivity growth was really low. And then the third reason is that when labor becomes more expensive, this could incentivize businesses to invest in labor saving technology, which would also improve productivity.

[B]

Yeah. That last point is the one I think that businesses feel most acutely, which is if the labor market is super soft and wages are low, there's very little incentive for owners of capital to deploy it. Yeah, to save, to save on wages. It is only that constant upward pressure, the expectation, in fact, that wages will be higher next year. That creates a cycle of investment. And it's a muscle that you have to develop as a business owner to try to keep wages, the aggregate wages, manageable as you grow your business.

[D]

Yeah, absolutely. It matters on both the demand side and the cost side.

[B]

And the cost side.

[D]

Yeah, exactly.

[B]

And so it is all about creating that virtuous cycle of increasing wages, which increases aggregate demand, which increases the pressure to invest in productivity, increasing equipment and processes that generates the kind of economy that you really want.

[D]

Yeah, absolutely. And when it comes to today, we've had this really tremendous recovery in the labor market. If we want to see productivity growth going forward, it's imperative that we maintain the labor market gains that we worked really hard to get back so that aggregate demand stays strong. And you mentioned the Fed earlier and how they were concerned about wage price spirals earlier and things like that. And I think to their credit, they have really gone back on that story. If you look at the latest projections from the Fed, 17 out of 19 members see the unemployment rate rising no more than 0.2% from here. So I think there's been a lot of improvement in the way that the Fed is looking at the labor market, and hopefully that translates later in this year to normalization of policy that protects the labor market.

[C]

See, there you go. It just proves your point. The more experience these Fed governors have on the job, the better they. They get at it. They're just being more productive.

[D]

That's true. I think it really was a lot of learning from the 1990s when the natural rate of unemployment was estimated to be five and a half percent and you saw it go down to 4%. And the Fed was really confused about that. And also learning from the 2010s. And I think, yeah, there's been a huge shift in the way that the Fed looks at the labor market over the past few decades. And that's a good, really great, to

[C]

be fair, who thought that you could bring prices down without causing immense suffering for tens of millions of workers?

[D]

Yeah, yeah.

[C]

I mean, that's the whole point.

[D]

I spent all of 2023 arguing about that.

[B]

So it feels a little bit wrong to not inflict that kind of pain, doesn't it?

[C]

It's the whole purpose of capitalism, isn't it, Nick? The reason, the sole reason why you became wealthy was so that you could inflict misery on others, right?

[B]

Yeah, exactly. Why join the Fed board if you're not going to infl Misery? So one of the things that I, in reading your report, Preston, I was a little bit confused by, is that it feels like to me, the country in aggregate is in a remarkable and almost unprecedented investment boom and will be for the next five, seven years, assuming that we implement the IRA and the rest of it, right. When you add up chips, ira, the infrastructure bill, what am I forgetting? You know, the rest of it, the aggregate investment going into the country is going to be in the trillions of dollars. Now, business investment is slightly behind that, but it is A lot of investment, right?

[D]

Yeah. So I'm going to do the economist thing and say, you know, on one hand, on the other hand. On one hand, yes, there is tremendous fixed investment, especially in things like non. Residential construction is doing really well specifically because of these fiscal programs. But there are areas that we really should be concerned about. If you look at housing investment, for example, new starts and permits for multifamily housing have really fallen off a cliff over the past year. And if you think about what that might do to rents down the road, maybe in a few years when these apartments would have been coming online, you know, that's. That's a cause for concern.

[B]

Yeah.

[D]

If you look at growth in research and development, real growth and research and development has actually been negative for the past two quarters. And if you think about that investment as supporting, you know, technological improvement, that's something to be concerned about.

[B]

Interesting. So why do you suspect? Well, I mean, the housing thing is obvious. That's interest rates. Right. If the Fed lowered the interest rates, that all comes back. How about R and D? Is that private sector R and D investment?

[D]

Yes. Yes.

[B]

Okay.

[D]

Most R and D investment is private sector. So if you look at it overall, it's not that different.

[B]

Okay.

[D]

Why do I think that's the case? I think it does have to do with tight monetary policy. If you think about a business has to think about the risks that it's going to take on versus the return. High interest rates, you know, increase the cost of making those investments and it becomes harder to find projects that achieve that hurdle rate.

[C]

God, if. If only there they could find like a trillion dollars of money that, you know, on stock buybacks that. Yeah, that might be used for things like R d. Yeah, yeah.

[B]

20. A 20% or 30% tax on stock buybacks might bring all that investment in R and D back in a minute. One of the questions we always ask is the benevolent dictator question. Preston, if you were in charge, what would you do in particular, what would you do differently than we're doing now as a country?

[D]

Yeah. I'll start with the Fed. I think it's really important that the Fed normalizes interest rates soon. I sort of understand that they are waiting to have more confidence about inflation, but as inflation falls sort of in real terms, the interest rate is going to rise and it's going to tighten monetary policy. So I think it's really important that we normalize Fed policy. Employee America has a piece where we write about how we think Fed policy should be conducted in 2024. And we argue for faster and front loaded rate cuts to prevent against deterioration of labor market. So that's sort of our take on the Fed.

[C]

And when you say normalize, what type of interest rate because you don't mean like return to the previously near 0% rates of the post recession great recession period.

[D]

Yeah, yeah. So what we mean by normalize is to get back to neutral in the sense that right now monetary policy is tight. The Fed acknowledges that it's tight and that it's tight because they want to fight inflation. But as that problem goes away, it becomes more imperative for them to get out of that tight position. As to where monetary policy eventually ends up. I think there's a lot of uncertainty about where the neutral rate of interest is, but it's certainly not 5.5% or what we're at now. So I think it's important that we get back to normal. It might be higher than what it was before, and I think that's fine. We're gonna have to find out where that neutral rate is, but it's important that we start trying to, trying to reach that destination sooner. In terms of the rest of the government, I think it's really important that we secure the other two legs of the stool, the supply side stool and the fixed investment stool. So as I said before, making sure that these programs are well implemented is going to be really important. But I think there's a lot of work to do on securing the supply side and helping tame inflation so that monetary policy doesn't have to take on the burden of using interest rates to fight inflation. So we've talked a lot about energy today, but there are a lot of places where the federal government can use its powers to implement cost control in a way that's equitable. So for example, the federal government spends a lot of money on education and healthcare. And there are things that the federal government can do to help make sure that costs of health care and inflation remain stable. I mentioned before establishment of a strategic resilience reserve to make sure that we are secure from supply shocks for critical inputs to production. I think something that we've really learned over the past four years is that we really can't take the supply side for granted. We got lucky in the 1990s, but we're going to have to make sure that this supply of critical minerals is stable for the next five years as we do the green transition.

[B]

And one final question, Preston, why do you do this work?

[D]

Yeah, well, I'm a bit younger than you, but I graduated in high school in 2009 and college in 2013. So I remember my dad got laid off during the Great Recession and we ended up okay. But it was a stressful time. And I remember watching colleagues and friends of mine in college trying to enter that labor market. And entering a loose labor market is really tough and has long lasting consequences for those workers. And part of the reason why Employee America was founded was we looked at that situation and we said, this can't happen again. So I think it's really great that we managed to avoid it this time and it's imperative that we keep those gains.

[B]

Love it. Well, thank you for being with us

[C]

and our apologies for how our generation screwed up yours.

[B]

Yeah, yeah.

[D]

Well, you know, onwards and upwards. And something about the long bend of the curve. Something, something.

[C]

Yeah, something like that. A couple of things jumped out at me from our conversation with Preston Nick. And one of them, I guess the great example, and we've talked about this before, everybody knows about Henry ford and the $5 day where he essentially doubled the wages for some of the workers at his auto plant. There's a myth about that in which he claimed that he did it so that his workers could afford to buy the cars that they were making. And then there's the truth about it, which is how he sold it to the board. And that was they had something like 360% turnover at this huge facility that they built and they were just not able to utilize it to run those assembly lines at full speed, which led to very. All that turnover, led to very low worker productivity, very low quality, et cetera. And when he doubled those wages, they slashed the turnover rate from nearly 400% to about 40%. And productivity went up, quality increased, the number of cars coming off the line increased. And yes, by the way, it did turn out driving that demand side because it drove up wages across the industry and across industries. And yes, suddenly industrial workers could afford to buy the products they made, which led to even more expansion. And I bring this up because it gets to the two things about full employment and higher wages that drives productivity or at least two of the things. One of them is, you know, as Preston mentioned, when you have full employment and people are on the job longer than they get better at the job, there's no such thing as unskilled labor. Everything is a skill. Everybody gets better the longer they are on the job, including, as we pointed out, the Federal Reserve governors, they seem to be getting a little better as they learn from experience too. And the other is that very important point that increasing wages, increasing labor costs and actually leads to higher productivity in and of itself, partially because those higher wages allow these workers to express their innate demand, which actually allows the employers to realize the full potential of their capital investments. And at the same time, because wages are higher, incentivizes them to invest in labor saving technology, which increases productivity. And that, by the way, Nick, gets to the heart of just the confusion about productivity and wages that we constantly hear this. No, the robots are coming for your jobs. If we do a $15 minimum wage, then fast food restaurants are going to invest in, you know, order taking kiosks and so forth. And you know what? That's a good thing.

[B]

Absolutely.

[C]

We want them to invest in labor saving technology. What we got in the 2010s was low productivity because employment was soft because wages were low. There was zero incentive for corporate America to invest in labor saving technology, to invest in innovation that would increase productivity because they had cheap labor. Why would you do that? What we're getting now with the higher wages and increasing real wages is this incentive to invest in the thing that makes our economy grow. Because let's be clear, there's only two ways you grow gdp. It is, when we talk about GDP growth, it is productivity per hour of labor. So you're either growing the workforce or you are growing the productivity of those workers. That's how you get that GDP growth. And once you're at full employment, your opportunities to grow the workforce decrease. There's only so many people available to work. So if we want to have the 3 plus percent GDP growth that we've been experiencing over the past couple years, which is a good healthy rate and all the benefits that come with it, we need to increase productivity.

[B]

Yeah, absolutely. And again, I think that Preston's rubric for that, the three legs of their stool, I think, make pretty good sense and are obviously completely aligned with what the Biden administration is presently trying to do. You know, I think we've talked about on the show before. I'm incredibly bullish on the future of the American economy. If we can just get all of these things implemented. I think that it's extremely likely that you're going to see productivity growth rates go through the roof as we implement the Inflation Reduction act, the chips and the rest of it.

[C]

Yeah. Which again, gets to the point of how consequential this election is. Because if, if we know, if there's one thing to know about Donald Trump, it's that he's, he's vindictive.

[B]

Yeah.

[C]

And he will attempt to dismantle everything his predecessor did, you know, regardless of whether it's working or not. So if we want these investments to actually pay off in the long run, we need to continue the program. It's. And I think the other thing, and this is really important when we talk about, about wages, is again, that idea about how productivity growth is good. It's good and it's sustainable as long as the benefits of productivity growth are largely shared or widely shared. It's great if the robots are coming for our jobs as long as we all benefit from the implementation of these robots. But when the owners of intellectual property and the owners of capital get to monopolize all of the returns from these productivity enhancements and they're not shared with workers, well, that's when this whole virtuous cycle collapses.

[B]

That's right. That's absolutely true. It's a pretty good news story.

[C]

Yeah.

[B]

All we have to do now is not screw it up.

[C]

Yeah. And again, if you want to read more from Preston, there's a link in the show notes to Employee America's recent report, the dream of the 90s is alive in 2024 how policy can Revive Productivity Growth.

[E]

Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to follow, rate and review us. Wherever you get your podcasts, find us on other platforms like Twitter, Facebook, Instagram and Threads. Itchfork Economics. Nick's on Twitter and Facebook as well. Ickhanhauer for more content from us, you can subscribe to our weekly newsletter, the Pitch, over on Substack. And for links to everything we just mentioned, plus transcripts and more, visit our website, Pitchfork economics.com as always from our team at Civic Ventures, thanks for listening. See you next week.