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- [00:01]
A
Some of the economic explanations for populism puzzle me because you know Billy Joel's lyric, we're living here in Allentown, where they're shutting all the factories down. That was in 1982. So there would have been good reason for a populace to have won an election in 1981, 1980 or 1984 or 1988. In some ways almost a better reason for them to win in those years than the more recent years. At least if all you're looking at is job location and rising inequality as your economic source of populism.
- [00:34]
B
And now the good fight with Jasia Monk. My guest today is Jason Furman. Jason was the chair of a council of economic advisors under Barack Obama and is now a professor at the John F. Kennedy School at Harvard University. Jason and I talked about all the interesting questions about the economy right now. We did a retrospective assessing the successes and the failures of Joe Biden's economic policy. Jason has a recent article in Foreign affairs that is very critical of Biden nomics, arguing that the Biden administration's decision to dismiss a lot of economic orthodoxy ended up biting it in the foot, ended up with lower raises for the wages of a lot of Americans than expected. It contributed to the Biden administration being the first democratic administration in 100 years to fail to expand the American welfare state, artificially increased inflation, and may have helped to re elect Donald Trump. That brings us to the second half of the conversation, the part of the conversation in which Jason is even more critical about the current policies of the Trump administration, in which he explains why it is that tariffs will not achieve the supposed goals, in particular of increasing the number of high quality manufacturing jobs for Americans. The part of a conversation in which he assesses the extent to which Republicans really are trying to build a multiracial working class coalition with their economic policies. While they are making some important symbolic gestures in that direction, John, Jason argues they are not actually transforming the main thrust of budgetary policy. And finally, in the part reserved for paying subscribers, I push Jason a little bit on the case for tariffs. Why exactly we should reject the idea of tariffs and probe how likely it is that we're going to experience a recession. Some Democrats seem to be hoping that Trump's economic policy is going to be so disastrous, but that is what will reverse their political fortunes. Jason, I think, is a little skeptical of that idea. If you want to hear him talk about that, please support this podcast. Please go to yashamonk.substack.com please become a paying subscriber. Jason Furman, welcome back back to the podcast.
- [03:20]
A
It's great to be back with you again. A lot has happened since we last
- [03:24]
B
talked, and to give readers a little bit of context, it is April 3rd as we are recording this, and we last talked in a different world on March 28th of 2025. And we were going to release this episode now that you're listening to it, on Saturday. And we thought a week between recording and releasing the episode should be just about fine, nothing that major might happen in between. But of course, we have now had Liberation Day. Jason, what just happened?
- [03:55]
A
Liberation Day was breathtaking. In some sense it shouldn't have been. This is what he announced on his campaign. We're now in quite a similar place. 10% tariffs on every country in the world, roughly 60% on China when you add all the different pieces together and then a lot of extra tariffs on top of that. But I never quite thought he'd go as far as he said he'd go. Even as recently as a week ago, I thought there would be some shrinking from it. And in some ways his economic team is out there actually admitting the market is going to go down, we're going to get more inflation. There may be a lot of short run pain. They're incorrectly saying that this is on the road to long run gain. But I've never seen a president willing to in some sense undertake this big a trade off instead of pain on the basis of a theory. It's just a shame that it's on the basis of such a misguided theory that he's doing this.
- [05:02]
B
How did the administration go about setting those tariffs? Is there any logic behind why some countries have a 10% tariff and some countries have a much higher tariff? And I've seen suggestions on social media that what they literally seem to have done was not, as they claimed, to calculate what kind of tariffs different countries around the world on average charge the United States and then charge them 50% in return, which would have a certain kind of internal logic, but rather they seem to have literally just taken America's trade deficit and used this as the guide for how big a tariff to put up. Do you believe those theories on social media? Do you have any sense of what guided the particular rates they charged? And is there any logic that is defensible to that at all?
- [05:47]
A
Yeah. So first of all, let's understand. If you truly did reciprocal tariffs, which I don't think you'd want to do, but if you truly did them, the average tariff rate the United States has on other countries is about 2%. The average tariff rate other rich countries have on the United states is about 2%. So you wouldn't do anything with them. And then when you come to countries like China and India, they tariff more like 5 or 6% on the United States. So maybe you do an extra 3 percentage point surcharge. So the big announcement if you were literally equalizing tariffs would have been a few countries would have seen a 1, 2 or 3 percentage point tariff increase. That obviously isn't what the announcement was. Instead, the numbers that were on the table the President released that said, here's the tariffs these other countries already have, and then generously, I'm only going to do tariffs of half of that. That was based on a formula. That is, how much would you need to raise tariffs in order to eliminate the trade deficit with the country? Now, there's three issues with this. Number one, that's not a reasonable goal. No country has balanced trade with every single other country in the world. There's 170 countries you would expect you have trade deficits with some trade surpluses with others, and they were trying to find the tariff that gets you to balance. The second thing is those trade deficits and trade surpluses are completely unrelated to tariffs. They're related to things like where does a country make a raw material we need? Or where is there a country that has a raw, you know, needs a raw material that we have? And then the third thing is they actually messed up when they did the formula. They used the wrong elasticities to get quite technical. And most importantly, it's a formula that would give you the answer to the question of how much do we need to raise tariffs on one small country to get to balance with them. When you try to use the formula simultaneously for every country in the world, all of a sudden things like exchange rates and what economists call general equilibrium, how it affects your economy as a whole, start to matter. So it's not even the correct use of the formula, and you shouldn't even be thinking this way in the first place.
- [08:14]
B
One of the things that's confusing about this, beyond just the sheer apparent amateurishness of how they determine those tariffs and so on, is that there's actually two very different signals that members of the administration are giving about what the long term goal is. It seems that some of them want to basically end the global regime of relatively free trade we've had for a long time, have a United States that is much more autarkic, potentially have revenue from tariffs replace a lot of the revenue from income tax, and so therefore have a real sort of economic revolution in how our taxation system works as well. And then others are saying that this is all a kind of bargaining chip to make sure that the unfair tariffs and the unfair practices that are used to constrain American exports supposedly come down and so that we end up in a world of even freer trade. Is it obvious to you what the actual vision and goal of the administration is and how big a risk do we now have of a trade war in which other countries follow suit and we just get a very rapid decline in the overall level of volume of global trade?
- [09:23]
A
Yeah. So I don't know the answer to your question for sure. I'm not sure Donald Trump knows the answer to your question. But I tend to think a bunch of these tariffs, but not all of them, are here to stay as a permanently remaking the global trade system and a let's raise revenue in a way that they think is fairer and better, although I think they're wrong about that. But just to unpack and go a little bit deeper, first of all, I'm trying to decide between those two hypotheses. The this is a permanent change versus a temporary bargaining thing on the way to freer trade. I would place no weight on what the economic in the Trump administration say. I mean, they have made many statements about tariffs that within hours or days are completely contradicted by the President. Just last week, for example, Scott Besant said that these tariffs would be on 15 countries, the Dirty 15. Instead, they're on almost every country in the world, plus places none of us had heard of before that are small penguin inhabited islands in the Antarctic. So his economic officials are clearly either wishcasting or hoping or misleading or, you know, they believe what they're saying. I have no idea what it is, but whatever it is, there's no relationship to what the administration does. So you have to really listen to Donald Trump and he pretty much comes back to over and over again more and more over the years, frankly, this belief that this is a great way to raise revenue and America was better when this was a core part of our tax system. Now, if you look at this particular announcement, there was two pieces this 10, 10% on every country, and there's the extra thing on top of it. My guess is a lot of countries will be able to strike deals to lower that extra bit, and they probably won't even need to do very much because it's so damaging to the United States that we're going to want to be able to declare victory. So, you know, lower one tariff here, lower one tariff there, how you get rid of that 10% across the board that I think is probably here to stay. And you know, that itself is just by itself about four times larger than all the tariffs the United States had when Trump walked in the door.
- [11:43]
B
What is the likely impact of this going to be on the United States? Is it going to raise a lot of revenue? Does it significantly increase your estimation of how likely a recession is from what you were saying a week ago? As listeners will hear in the rest of this conversation, what will the long term transformation of the US Economy be if that actually becomes the new normal and some form of these elevated tariffs stay in place for the coming years?
- [12:14]
A
So short term, everyone has upgraded their inflation forecasts and lowered their growth forecasts and inflation rates above 3, above 4, some people have it at 5%. I'm skeptical it would get that high. And lowering their growth forecast to numbers for the year like half a growth or 1% growth, it increases the recession probability. And the issue is the models do a good job of capturing a sort of input output dynamic of how much more is this price, how much less do you buy it, how many fewer people do you employ because of that? They don't capture very well the impacts of uncertainty, consumer confidence, the wealth effect that happens through a declining stock market, which makes people poorer and not want to spend money. So if we go into a recession, it will be because of all of that type of stuff. Over the longer term, this is going to lead to some things will want to be in the United States because of these tariffs, but a bunch of things will not want their supply chain to be in the United States. They'll want to move it outside the United States. Countries like Canada are already figuring out how they can integrate more closely with Europe. So you're building a global economy around the United States. A global economy in which the United States is less specialized and you know, we're doing making more of our own sneakers and maybe we're even trying to figure out how to make coffee and bananas because those were tariffed too. And if we made them here, it would be even cheaper. Of course, that would not be a great use of our limited resources in our country.
- [13:58]
B
Yeah, I was really struck by that. I get that you might want to impose tariffs on countries which are directly competing on high value goods for all kinds of reasons. I'm sure you'll tell me that would be a bad idea as well. But at least I get the kind of logic behind it. But why? You look at a country like Vietnam, say, which exports a lot of lower value goods to the United States, a lot of T shirts, a lot of other kinds of things, and say because our trade deficit of Vietnam is particularly high, we want to put particularly high tariffs on that country, seems really a mystery to me. I mean, the idea that you're going to get wealth and affluence in manufacturing back to the United States by turning the American heartland into producers of cheap T shirts is beggar's belief. And of course, one of the interesting themes of a conversation we had last week is that to some extent, bad government policy can translate into economic pain that actually makes you unpopular, and that inflation is especially likely to do that. So it really is astonishing how willing the Trump administration is, after clobbering Biden very effectively over inflation for four years, to increase inflation significantly in the United States. We'll see how that works out. Let's go to a global picture just for a moment as we round off this addition to our conversation. How big do you think a chance there is of economic pain for other countries around the world? Is this going potentially to global recession? Or do you think actually other countries around the world might benefit from this because they can hoover up trade and so on that used to go through the United States? And how do you think those countries should respond? I mean, if you were the prime minister of Japan or the chancellor of Germany, what would you do? Do you just accept those tariffs and do nothing in return? Do you enter a trade war? Do you impose reciprocal tariffs in the hope that there's a bargaining chip? Do you look for leverage somehow? What's the appropriate response here?
- [15:52]
A
So, on your first question, this is negative for most countries in the world. There are countries, I've talked to, people in the UK who think they were really savvy. They kept the tariffs to only 10% on the U.K. well, that's about 10 times higher than the tariffs were before. In fact, the Trump's trade war in his first term culminated with about 10% tariffs on average on China. So the UK is being treated the way he treated China in his first term. So no country is going unscathed by these tariffs. Latin Americans also, some of them are happy we only got 10% tariff. A lot of them are commodity exporters. When we slow growth in China, we're going to slow China's demand for the types of things made in Latin America. Those prices will go down, be negative for their terms of trade. So I don't think this is good for anyone, although it's differential in its badness in terms of the response. Here's the tricky thing. The retaliation hurts the countries doing the retaliation. And there's modeling, for example, that shows that Canada's retaliation and Canada wasn't included in this round. But Canada's retaliation based on the earlier round might hurt its economy even more than the US Tariffs do. So what other countries need to do is figure out how to maximize the political leverage relative to the economic cost to themselves. So if you're Canada, you're no longer going to buy Kentucky bourbon. What does that mean for your citizens? It means they need to drink Canadian rye instead of Kentucky bourbon. To me, they both taste totally gross, so it doesn't seem like any loss to me. But, you know, but, you know, somebody else may feel differently, but it puts a lot of political pressure on a certain state in the United States. So it's finding things like that where you can substitute away from the United States so that it doesn't really. You're not giving up that much. But it really hits, say, you know, a red state, something like that. And that's what countries need to be smart about. The other thing is, I hate to reward a bully, but, you know, if I were running a country, I'd be figuring out what small baubles and trinkets I could present to the global emperor, Donald Trump, in exchange for it. You know, Vietnam. I don't think they can afford to stand on principle and just fight, fight, fight. They do need to find a few things to give him and hope that they can get out of something that otherwise would be extremely destructive to.
- [18:34]
B
I think we'll have an interesting conversation before we get into it. I guess I want to step back for a moment and wonder whether we are in a change not just of political dispensation, but of economic dispensation. It feels like there was with two genuine sides that often disagree with each other about very important things, a kind of broad policy consensus from, let's say, the 1980s until 10 or 15 years ago. The first Trump administration seemed to undermine that in a number of key ways, like tariffs. The Biden administration itself actually billed itself as economically heterodox in important ways, not just keeping those tariffs, but engaging in industrial policy and other kinds of things. And now it feels like the Trump administration possibly is pushing those things even further. Do you think we're at an inflection in our sort of economic dispensation, or do you think news of that has been oversold?
- [19:21]
A
I worry that we're at an inflection as someone that thinks that policy was not perfect prior but was decently good and put the United States in a better place. The most visible thing and the thing that gets the most attention is trade. And you do have pretty much a free trade orientation, by and large by presidents, at least up through Obama. That changed a lot in President Trump's first term. President Biden continued that. And now President Trump is quadrupling or quintupling. Down on the break from trade, But I think it's not just trade. I think it's a general sense that there's something annoying about economists and their trade offs and their budget constraints and the unintended consequences and all the things they want you to think through in lots and lots of different domains of policy and instead embracing a certain populism or political approach to policymaking rather than a technocratic style.
- [20:36]
B
Great. I want to get back deeper into that question, but I thought we'd sort of preview that part of the conversation. Then perhaps it makes sense to actually dive into what that means. Concretely. The Biden administration thought of itself as in some ways deviating from what it described as orthodox or neoliberal economics. And the hope was to bring a lot more manufacturing back to the United States to increase the wages, especially of less affluent Americans. And obviously, in the sort of last years of the Biden administration, there was a big debate about the extent to which it succeeded. A lot of the messaging from Democrats was the economy is going amazingly and it's only because the media ecosystem is hostile to us or because voters are somehow ungrateful that they're not recognizing all of the things that we've done for the country. You've recently published an article in Foreign affairs that is, you know, really quite pessimistic about the record of the Biden administration. Tell us a little bit about sort of how the Biden administration thought that it was going beyond neoliberal orthodoxy, as it described it, and how his policies worked out.
- [21:42]
A
So first of all, let me just say, you know, we'll get to the Trump administration. I think they're much worse. But I don't think that means one shouldn't also dive into and try to understand the mistakes that in some ways brought us to this place with Donald Trump and that I would love to see corrected in the future. And I think it is perfectly possible to have a two track conversation. And my hope is that, Yasha, you and I will model that in our discussion here. The second thing to say is The United States does have really strong economic assets. We have tremendous productivity growth. We have a really successful tech industry. Immigration has been a very, very mixed thing politically for the United States, but economically it has been a real blessing as well. And one needs to wrestle with how to get the best of the economics while minimizing the worst of the politics. So there's a number of good things there. But when you look at both the goals that the Biden administration set, the way they went about those goals, and for me, almost it bothers me the most the way they talked about how they went about those goals. I think there were a whole set of issues. So one goal was to run the economy really hot. And that was an explicit goal to downplay the risk of inflation, you know, upplay employment. And the United States did have a rapid recovery, but all the other advanced economies had rapid recoveries too. And the United States pace of recovery was about in the middle. It got much more inflation earlier on. Other countries did catch up in terms of inflation, but a lot of that was because they faced a much, much worse shock from the Russian invasion, which drove up natural gas prices much more in Europe and around the world than they did in the United States.
- [23:45]
B
So for people who are struggling to recall the economics 101, when you're saying that they're aiming to run the economy hard, what was the purpose of that? And what are some of the dangers that come from running an economy hard?
- [23:55]
A
So the idea is you don't just want to get the unemployment rate back down to something like the normal unemployment rate of 4, but you want to push it even further than that. And the hope is that that will give workers greater bargaining power to get larger wage increases. And that actually worked. The problem is it also gave businesses larger power to do price increases. And so there was this race between workers doing price increases and businesses doing price increases. And for the most part, the businesses won, and real wages for several years in a row fell. Which is to say that wages did not grow as quickly as inflation. And by the end, they had caught up and were a bit ahead of inflation, but only a very little bit, and much less wage growth, adjusted for inflation, than you had seen in the years running up to Covid.
- [24:52]
B
And one of the striking facts that you point out in your Foreign affairs article is that as a result, yes, there was some significant nominal wage increases for people in the lower quadrants of income. And it is in fact true that their wage increases were faster during the Biden administration than those of the people at the top who actually on average had a decrease in their wages. But in real terms, in inflation adjusted terms, the five years over four years of the Biden administration ended up doing less well than the four years just pre Covid. So actually the real wage increases for Americans were slower after Covid than they were before.
- [25:31]
A
And one interesting thing that a lot of people don't actually realize and I didn't see sort of at least left Twitter, where I spend too much of my time highlighting, was that starting around 2014, wage inequality started narrowing. So starting about that year, wages started growing faster for low income workers than for high income workers. That continued through the Trump years. Basically every Trump year you saw gains for the bottom relative to the top. But in 2019, there was not a lot of discussion about, you know, we're going through this historic wage compression. Then in the last couple years there was a lot of discussion about this historic wage compression. In some sense that discussion was correct, but it miscontextualized it as this thing that started on January 20, 2021, when it started sort of towards the end of Obama, continued through Trump and went through Biden. And just to be super clear, I'm not claiming this is like Obama turned a dial and made this happen or the Trump turned a dial. There's a lot of different underlying economic forces, many of which economists actually haven't written about and studied enough. Understand that was what was going on here.
- [26:48]
B
I want to come back to the Biden administration in a moment, but I think this is actually an opportunity for a good little sidestepping. In the 2010s, there was this quite broad consensus that inequality is not just a very serious problem that is going to increase over time. There's obviously Thomas Piketty's claim that the returns to capital are higher than the returns to labor. And therefore, unless there's very strong government policy or a catastrophe like a war, inequality is just going to keep going through the roof. You know, there was things like the elephant curve by Branko Milanovic which suggested that the gains from globalization are particularly high for the richest around the globe and particularly low for many lower income people. And including sort of at the 70th 80th percentile. You know, think of working class people in Michigan and so on. There's a sort of particular trough where it's really not helping people. And those claims by David Autour, that sort of the middle of a wage distribution in America is really suffering and giving away. And it seems to me that there's been a real kind of revision of thinking about this, that each, you know, that piketty has been criticized in a number of ways. You know, some of his data seems to have relied on not sort of returns to billionaires, but very high increases, for example, in the prices of apartments and homes owned by upper middle class people in big cities like London and New York and Paris and so on. Milanovic updated his elephant curve and it ended up actually showing much higher increases in incomes for less affluent people. And it was same methodology, just new data for more recent years. And then we have now seen in the United States, as you're saying for about 10 years that income seems to have been growing faster for lower income people and for high income people. I mean, is it time to sort of unlearn all of the assumptions we had about globalization and inequality that became received wisdom over the course of the 2010s?
- [28:47]
A
I think it's time to unlearn some of them for sure. And some of the researchers in this space are biased and they make a lot of assumptions under the hood and they make every assumption to help support their story. And by the way, each assumption might be defensible, but it might be like a 90, 10 thing. And they take the side of the 10 and that it compounds in other cases there's what information is presented. So you mentioned David Autor. His research at the China shock I think is quite good. But there's two pieces to it. One is he estimated the wage impact of the China shock and that wage impact was actually quite small. So you could have highlighted his paper as saying it showed that the China shock did not lead to very much of an increase and inequality, but that wasn't really what was featured and taken away from it. Moreover, I think his paper was just part of the story and it got to the role that imports played in the US economy, didn't do all the benefits that came from the export side. And as other economists like Feenstra that have told I think a better version of the complete story. But more broadly, yeah, if you look, there was much more inequality in the 20 years prior to 2000 increase in inequality in the 20 years prior to 2000 than there was in the 20 years after it. And there was more job turnover and dislocation in the 20 years before than after. And 2000 is an important date because that's when China PNTR happened, when China entered the World Trade Organization. And so yes, there are all sorts of problems, but in some ways those problems were worse before. And it's something that by the way, I mean this is more your thing than mine. Some of the economic explanations for populism puzzle me, because Billy Joel's lyric we're living here in Allentown, where they're shutting all the factories down. That was in 1982. So there would have been good reason for a populist to have won an election in 1981, 1980, or 1984, or 1988. In some ways, almost a better reason for them to win in those years than the more recent years. At least if all you're looking at is job location and rising inequality as your economic source of populism.
- [31:12]
B
As a member of the International Union of Podcasters, one of my statutory obligations is to follow up on statements like some researchers are biased. Which is to say which researchers are biased?
- [31:24]
A
Jason I think the Piketty, Saez and Zucman data, they're really smart. They really have pioneered new ways of thinking about things that has made an important intellectual contribution. But every time they make a choice, they make it in a way that highlights additional inequality. And I think that's an issue because if you're doing analysis or writing opinion pieces have tons and tons of opinions. If you're creating a data set that people are widely relying on to tell us the facts about the world, I have less a patience for the way in which opinion might intrude into the construction of that data set.
- [32:09]
B
What are some of the examples of those kind of choices? At the risk of becoming technical for a moment?
- [32:13]
A
Sure. I mean, the issue is that they take income data from tax returns, but only about half of the income data shows up on tax returns. There's a bunch of data income that people don't report, and they have to figure out where in the income distribution is it? Is it a plumber who's not paying his taxes or a billionaire who's not paying his taxes? And the ratio of the plumbers to the billionaires affects inequality. Another thing is a bunch of that income goes to corporations, and you need to decide which person benefited from that corporate income. So choices they make about everything that doesn't show up on the tax returns end up affecting the numbers. And again, just to be clear, it's not fraud. And this is not, you know, every one of the choices is defensible, but every one of them goes in the direction of taking all the income that's basically missing and that we don't observe and attributing it to people at the top of the income distribution rather than in the middle or the bottom.
- [33:17]
B
I was struck by your quoting Billy Joel, I've observed that. Well, I mean, the famous statement that if all you have is a hammer, everything you're going to see is a nail. And I think that's often true in the social sciences, where sociologists tend to attribute the rise of populism to cultural causes, and economists nearly always tend to attribute the rise of populism to economic causes. A possible implication of you invoking that belligerent line and pointing out when it was written is, is that you are a little bit skeptical that it really is economic causes that are the main explanation of the rise of populism. Sort of. Do you think there's something to this observation that economists tend to emphasize very strongly economic causes more than other researchers in the social sciences? And do you think that we should give a little bit less weight to those economic causes than other economists? Or would you defend the primary role of the economy in explaining this broad political transformation where we see not only in the United States, but in many other developed democracies and developing democracies around the world as well?
- [34:17]
A
So, you know, I think some economists are the, you know, carpenter with the hammer. So everything looks like a nail and they think the economic explanation. I think there's others that might have the opposite bias. Maybe if you've been involved in public policy, you don't want to be blamed for the rise of populism, so you want it to be someone else's fault, the person handling the cultural issues, so you have clean hands. So the biases go different ways. I tend to be skeptical. To be clear, I think the economy matters. So there's a lot of evidence that historically, following financial crises, there is a reduction in faith in institutions. There can be a rise in populism, same thing following very high inflation. So I think the financial crisis and the burst of inflation almost certainly affected the elections and the politics that followed. But that's a bit different than saying it's 50 years of neoliberalism and the decline of manufacturing and the expansion of trade in China. So I'd have a role for economic stuff, but it would be more these episodes than these longer term structural trends.
- [35:27]
B
So you said two things in one breath there. Right. Which is sort of. And that's because that's a lot of the standard story that the left tells, which is neoliberal policies led to the decline of manufacturing. And so neoliberal policy is to blame for the rise of populism because that is sort of the causal chain. Now we can disentangle those two things. Right? There's a Real question about what kind of share manufacturing would have continued to have in the United States even if you had very non neoliberal policies. And of course in some ways many of those companies may have failed if you'd had extremely strong rules protecting unions and pushing up wages and so on. You know, in the same way, a lot of the loss of manufacturing is due to automation and other technological factors rather than to trade with China. Right. So sort of taking the liberal policy out of it for a moment, do you not think that there has been a very significant transformation where high school graduates with strong mechanical skills could command very comfortable wages and had relatively stable lives? And because of a decline of manufacturing, it's become much, much harder for high school graduates to both have a middle class income supposedly and to have the kind of stability, the kind of certainty about their own economic future that they might have felt in the 70s and 80s. Perhaps, as your Billy Joel quote indicates, that is kind of a caricatured version of a golden age that never really existed. But what role do you think the objective decline of manufacturing as a share of US economy and particularly as a share of the jobs of Americans has played in this?
- [37:06]
A
So I do think compared to 50 years ago, inequality is higher. There is less of an ability for somebody without a college degree to command a real wage premium. There's less of an obvious pathway for people using manual skills to have a high paid job. So I absolutely agree with all of that. What I was questioning and thought was quite important was the timing of that. That that has been a process that's been going on continually, as you said. I think it has more to do with technology, much, much more to do with technology than it has to do with trade. It's something you see in countries with large trade surpluses have also seen big declines in manufacturing employment. I think it's something that no politician has figured out how to stop. Donald Trump and Joe Biden emphasized manufacturing much more than their predecessors, but you didn't really see a dent made in the employment share in manufacturing. But then also importantly, I do think that if there is a golden age, maybe it was like in the 1950s and 1960s and it was pretty much gone by the 1980s. So what I was questioning was the timing. It's not like the pace of the increase in inequality has picked up, the PA of the dislocation has picked up, the pace of the manufacturing job loss has picked up. In fact, a number of those different things have actually gotten better or less bad in the last 25 years. Than in the 25 years before them. Yeah.
- [38:39]
B
And I think one of the strange things about the story that is sometimes told about the kind of rise of quote unquote, neoliberal policy is that it makes it, and I have a bias towards that myself, as somebody trained originally intellectual history, it makes it out to be purely a matter of ideas. Right. Like Margaret Thatcher and Ronald Reagan came in and they were relying on the bad, bad ideas of people like Hayek and so on. And then they transformed our political economy. And this is really coming out of nowhere in the material world. And there was no serious problems that interceded it. But of course, when you look at the 1970s in the United States, and especially in the United Kingdom, those were economically very troubled decades. And a lot of the post war settlement that worked very well in the 1950s and 1960s was starting to come apart, as it seems. And then you can have sort of different opinions about the extent to which the reaction to that by people like Thatcher and Reagan was the right one. Perhaps there would have been a better one that was different. But to sort of pretend that we could have gone on with what the economic dispensation had been before them without very significant changes is, I think, not taking seriously both how bad the 1970s were economically and what very genuine economic and budgetary constraints were at the time when those people entered the political scene.
- [39:55]
A
Yeah, I'm not going to disagree with you on any of that.
- [39:58]
B
Let's get back to Biden. So the Biden folks come in, as you were saying, sort of convinced that there is this rapid rise in inequality. There was the consensus in the 2010s, convinced that there had been this sort of 40 year neoliberal consensus. And perhaps that was at the root of some of the underlying problems, including the rise of populism and so on. And what we're going to do is run the economy hard. Do industrial policy, increase manufacturing? One of the obvious ways that that story went wrong is the rise of inflation. You spoke a little bit to this earlier, but how big a share of the blame of a rise in inflation in the United States did the Biden administration have? And why did it not take concerns about what inflation might do to the economy and to the prospects of ordinary Americans and the electoral prospects of the Democratic Party more seriously than it did?
- [40:51]
A
Look, I mean, first of all, the world was uncertain in the beginning of 2021. Covid was surging. So you don't fully understand what's going on, and no one did. We'd had a couple decades without any serious inflation problems. You can understand a little bit how this happened in terms of the share of blame. Peak inflation in 2022 was absolutely heavily exacerbated by Putin's unprovoked invasion of Ukraine and what it did to things like oil and wheat prices. But by 2023, we still had a lot of inflation, even though the oil price increases had fully reversed. And by that point, I think almost the entire elevation inflation was the result of the overly expansionary policies that were not just pursued in 2021, where things were really confusing. But let's remember in the summer of 2022, when inflation was roaring, they unilaterally canceled about $500 billion of student debt in a way that was not at all authorized in the law. The Supreme Court eventually blocked it, and then they found partial ways around that. But $500 billion, that's an enormous, enormous sum of money.
- [42:13]
B
And of course, ironically, that policy is not redistributive, but rather the inverse, right? Given that, on average, people who graduate from college make better wages and more affluent than those who don't. This was actually an upward economic redistribution.
- [42:27]
A
Yes, it's an upward economic redistribution. It was macroeconomically horribly timed. It wasn't legal. And, you know, this isn't my expertise, but it sent a message that we're the party of not just college students. But, by the way, a lot of beneficiaries of it were or would have been law students, business school graduates, medical school graduates. They're some of the people with the very highest debt, and they were included in it. So it sent a message about, you know, who the Democratic Party was fighting for. And maybe it's not the message that they most would have liked. So you did that. The Inflation Reduction act, the original version of it actually was deficit reducing up front from the very beginning. But then in Congress, it got changed, and everything that cost money got pulled forward and everything that saved money got pushed back. And so in the first five years, it also added a lot to the deficit, as did the infrastructure and chips bills, which were not really paid for. So you had multiple pieces of legislation that were upfront adding to the deficit, administrative actions all following up on the initial round of enormous stimulus, and that propelled inflation up through the end of Biden's term.
- [43:44]
B
One of the striking things you say in your article is that Biden was the first Democratic president. I forget the exact time we were since the beginning of the 20th century or since the New Deal or something like that. 100 years in 100 years that didn't add a permanent feature to the American welfare state. What is it that Biden did do to improve conditions for poorer Americans? Why did that prove to be temporary? And that really is a very striking indictment. That administration comes in saying we're going to end the era of orthodox neoliberal economics. Not only ends up with less of an increase in real wages than Americans had had prior to the pandemic, but not actually helping to sort of complete the American welfare state. But in important ways, if you think of things like child credits and child benefits that are standard across Western European economies or generous parental leave policies and so on lags significantly behind those other developed economies.
- [44:47]
A
Yeah, so partly this is not his fault. This is the fault of Republicans who didn't want to pass things like an expanded refundable child tax credit. But I do think there is a sense in which either it's his fault or the fault of the movement that he represented. He advanced to Congress a plan called Build Back Better that had two halves. One was the American jobs plan and that was about stuff, microchips, infrastructure building, climate related things. The other was the American family's plan that was about people paid leave, child credit, childcare, et cetera. The first one passed largely intact. The second one, not a piece of past. I think some of that reflected his prioritization, some of that reflected congressional and Joe Manchin prioritization. And it ended up though, what really bothered me being rationalized by people that said we don't need to do these things for children because we're creating millions of jobs and we're rebuilding manufacturing and we're transforming the economy. You see that in climate change rather than. And this, I don't blame them because you couldn't have done it politically. But rather than doing a carbon tax and then redistribute the proceeds, there's this sense of like, oh, we'll just create green jobs and that will help people through the transition. Well, at best a couple hundred thousand people will get green jobs, maybe a million, by the way, a bunch of other people will lose jobs. So I think the net is zero. But at the best case you're talking a very small number of jobs, you know, infrastructure, small number of jobs, manufacturing. I think there were basically no jobs. There's not a lot of people being hired to work in microchip factories in hard hats. But so I think it sort of was a category mistake to think that you had tools that were large enough on so called pre distribution that you didn't need to continue to emphasize and obsess over what economists would call redistribution. But people in the political system have politer names for.
- [46:57]
B
It's interesting that you mentioned Joe Manchin. He was obviously a huge point of contention during the Biden administration because he was one of the key senators needed to pass a lot of those economic bills, and he was quite recalcitrant about them. You know, one answer to those criticisms is to say that, you know, he's the best Democratic senator that Democrats will ever get from the state of West Virginia, at least in the foreseeable future. And so his value above replacement is extremely high for Democrats because now that he's retired from the Senate, there obviously is a Republican senator from West Virginia, and that senator is not even going to entertain any of the kind of bills that Biden was trying to get through. I'm more interested, though, in the substantial questions. What points was Manchin right on and what points was he wrong on? Do you think that he, on some points, pushed the Biden administration towards better policy, or do you think that on the whole, the criticisms of Manchin's substantive positions were correct and he foiled things that would have been right and important?
- [47:52]
A
Yeah, I think he got one really big thing right, which is the version of Build Back better that emerged from the House was a massive, massive deficit increase in the first couple years that would have taken inflation up a lot more than it actually went up. Part of what happened was the House took some of the Biden proposed tax increases and scaled them back, and then they were completely incapable of prioritizing. They couldn't say, we want to help families. What's the most important thing? They included everything for every caucus from the House. And Joe Manchin looked at that and he balked. And I think the country and the party is lucky that he balked on that, so that I think he got absolutely right. What I wished he had pivoted to was saying correctly, you can't do all eight of these things, so let's do this one thing. Probably refundable child tax credit would have been my top priority. So, you know, in some sense he was 90% right in deleting things, but unfortunately he deleted 100% of things rather than just what I would have preferred, which was 90. Another important thing he was right on, by the way, which is, I think, an important part of this, and it's been a theme in a recent book by Ezra Klein and Derek Thompson, which is the importance of permitting reform and building. It's not just the amount of dollars you put but it's all the obstacles. That's especially true for things like electrical transmission lines, which have to take the electricity from where the wind and sun makes it to where people need to use it. And those are extremely difficult to build. And he had a permitting reform that the White House ostensibly supported but was never able to get through that would have made a real difference.
- [49:44]
B
There's been a lot of talk about permitting. There's a great viral clip in which Ezra Klein explains some of the kind of permitting process of Build Back better to Jon Stewart, and John Stewart sort of absolutely loses his mind over it. And there's also a broader question about the kind of abundance agenda that parts of the broadly Democratic coalition have now been pushing intellectually for about 10 years. And obviously it's been in the conversation a lot with a recent publication of Ezra Klein's and Derek Thompson's book Court Abundance. How big a part of the substantive solution and how big a part of the communication solution do you think that that set of policies is? Can Democrats reinvent themselves by saying, we have a party that actually recognizes that government is too constrained in being able to build things, that private individuals are too constrained in being able to build things, and we're going to be the party that pushes for a lot of new housing, a lot of new infrastructure, a lot of renewable but very cheap energy. Does that give a big part of a substantive answer to how to make America more prosperous in the future? And do you also think that that can be part of a kind of Democratic Party rebranding exercise which helps the party beat whoever Trump runs in 2028 and sort of build a more coherent electoral majority over time?
- [51:04]
A
So I have no doubt that this abundance agenda is a very important part of governing and governing better in the future. It might even be an important part of getting reelected by showing that you're getting results and doing things for people. I have no doubt that while lots and lots of people have known lots of pieces of it, it has not been prioritized in the way it needs to be. And their book and this broader movement, I think, will help that prioritization as a substantive matter. It's definitely only one tool in the kit. There's a lot of other things that are needed, and that's not a criticism of anyone. I don't think there's anyone who argues that this is all that's needed on the political side. I said it might help with your reelection if you get results with your election. I'm not entirely sure. I think the piece of it that I'm the most sympathetic to is that it presents an optimistic, positive sum vision of the world, which notwithstanding some of the success of Donald Trump and some of the negativity, I do think at its heart is a deeply patriotic, deeply American, and should be central to anything in terms of the specifics, going out and giving lots of speeches about zoning reform. That's how you get my vote. I'm not sure how many other people that's how you get their vote.
- [52:29]
B
Yeah, I think I've been thinking about this and I think I roughly share that assessment, which is to say that substantively, the difficulty of doing something simple like building high speed rail between Los Angeles and in San Francisco is just a huge drag on the US Economy. Our inability to build housing, you know, even in many very desirable rural places that are hubs of economic opportunity and that are wonderful places to live, but that where it's so difficult to construct any kind of housing that it's incredibly expensive to live there, not to speak of places like New York City and San Francisco, et cetera, is a huge drag on the economy. And I do buy the story that one of the reasons for the recent conservative tilt in American public opinion is that red states have been governed much better than blue states, which both has led to people looking at those states and saying, well, perhaps Republicans have something right if Texas seems to be working better in many ways than California is, and also just for the effect of growing those states, making more Americans move to places that already have a kind of more conservative leaning political consensus. And rather than turning those states blue, what seems to have happened is that it turned out people who move to those states more red and more conservative. I think I'm slightly skeptical about how important a place this can play in political rhetoric, both for the reason that you outlined that somebody like Barack Obama didn't talk about permitting reform. He talked about a grand vision for what he wanted America to look and feel like. And that's what earned him those huge crowds in his first presidential run. A lot of the time this is going to be too technocratic. Secondly, I think it's going to be hard to but for Democrats to have credibility on this, I think even a Democratic presidential candidate who talks about this is going to take real time for people to believe that he's going to be willing and deliver on this kind of agenda. And that's probably better done in government than it is on the campaign trail. And third, because in purely electoral term, I worry that this sort of nimbyist instinct is very Very strong on substantive terms. I have completely on the NIMBY side as a piece of electoral strategy. I'm just struck by the extent to which even in perhaps particularly people who are sort of left leaning and progressive in all kinds of ways, cry murder the moment that there's any kind of proposal for expansion in what they do. I'm visiting a friend in Jackson, Wyoming as we're recording this conversation, and I heard about Wilson, Wyoming, one of the most affluent and one of the most liberal leaning places in a very red state in Wyoming. And there was apparently a proposal to build a stretch of sidewalk in this town. You know, just one stretch of small sidewalk to connect a few of the businesses in that town. And there was a huge rebellion against this because it would supposedly, you know, end the rural character of Wilson, Wyoming. You know, home of more billionaires per capita than probably anywhere else in the United States. And there's no sidewalk until this day. So this instinct, I think politically is very strong. You're an avid Goodreads reviewer. You once very kindly reviewed my book the People vs. Democracy on Goodreads. You recently reviewed Abundance. And one of the parts of your review went a little bit viral on social media where you're talking about the idea that, you know, it's exaggerated to say that personnel matters and that that really determines everything that happens in government, but that often Republicans end up being able to better deliver, for example, in state welfare agencies because they're more likely to hire people of business experience. Tell us a little bit about that.
- [55:57]
A
Yeah, I mean, this was a. I mean, this is something I've observed a number of times. But, you know, I cited a friend of mine who has worked very closely with state welfare agencies in dozens of states and cities across the country for probably 20 years now. And you know, his version was in a Democratic state, you take someone that ran the local nonprofit and they're like a do gooder and they're really well intentioned and they're a wonderful person. And you put them in charge of a big complicated bureaucracy and they don't always do such a great job. In a Republican state, you may not have the most bleeding heart policies, but when it comes to hiring, you're more likely to do actually national search, not just a local search. You're more likely to get someone who's had some success in business in the past, and then they're just better able to manage and deliver the services effectively for people. So that's just one type of government. And what's striking there is that's the type of government you'd think Democrats would care the most about. They're the people that care about people. Republicans, they don't care about people. They hate people. That's not what I think, by the way, but I'm just saying that's a certain impression. If you care about people, you probably want someone from the business community who knows what they're doing to execute on your policies. And by the way, this does relate back. You know, I hate to keep harping on the Biden administration, but it relates back to them, too. They had very few people with substantial business experience there. And some of that was certain senators like Elizabeth Warren really objecting to anyone. You know, once upon a time, Goldman Sachs was a great credential for government. Now it's become a no go thing. I think some of that's fine. And maybe you don't want all the finance controlling everything, but it went way, way, way far. So I knew people who had worked for Google who couldn't get jobs that were totally unrelated to the tech sector because they had worked for Google. And that's just not the way to have the very best talent running your government.
- [58:10]
B
All right. Part of the art of podcasting is to keep people in suspense, and I'm sure a lot of listeners have been kept in suspense throughout this conversation about what's going on economically right now and what your views are of the emerging economic policy of the Trump administration. To start with, a general question. Is there any coherence to it? I mean, is there any kind of animating logic that connects all the different parts of Trump's economic policy, or is it a kind of inchoate bundle of instincts that doesn't really fit into a coherent whole?
- [58:40]
A
There was an attempt to make a coherent whole of it by a guy named Steve Miron, who is a very good economist. He's now chair of the Council of Economic Advisors, the job that I had under President Obama. And back in November, he wrote something called the User's Guide to Restructuring the International System, a title very close to that. And he came up with this sort of economically coherent version of across the board tariffs and redoing the entire global order. The only problem was that his coherent plan required the United States to control the policies of every other country in the world. So he said, we're going to do these tariffs and we're going to make military threats to stop other countries from having retaliatory tariffs. We're going to do these and oh,
- [59:33]
B
okay, well, that's easy to do.
- [59:34]
A
Exactly. We're going to do this. And yes, you might worry what it does to US interest rates and the US dollar, but don't worry, we are going to force all the other countries in the world to basically swap the money they lent us for much lower interest rate, 100 year debt. So, you know, it's a little bit like saying, yeah, you know, I have this great plan to help the United States. Step one is take over Canada. You know, it might be true that if you took over Canada, that would help the United States. I think probably not. I don't really like, I don't really like the imperial conquest, but anyway, it's just not going to happen. And so, you know, this attempt to, you know, put lipstick on a pig or, you know, do something coherent, I think in some ways just shows how utterly incoherent it is because the conditions you'd have to believe, you know, it's almost like, you know, in economics sometimes theory is useful because it says, here's what you need to believe in order for this proposition to be true. And it says, oh wait, those prop, you know, those conditions are just so ridiculous. I don't even believe the proposition anymore. So I think it's an inchoate mess.
- [60:42]
B
In my one very brief stint working as a management consultant, one summer we were supposed to develop a new business line for this business that we were consulting. And halfway through the project we had a meeting with the CEO and the senior partner asked the CEO something along the lines of how much annual revenue would this line of business have to bring in for you to actually consider pursuing it? And the CEO said something along the lines of $1 billion. And by our estimates, the most that could possibly come for this business line was 100 million. And we should have stopped the project right there, but instead what happened is that we relabeled all of our slides, what you'd have to believe and assumed that this business would be able to capture 80% of some imaginary market. So yeah, what you'd have to believe is often a good exercise in pointing out how impossible it is, even for the more honest thing, is to say this is not going to work. So there is a kind of blueprint that you are pointing to about how this would all work. It was never going to work because all these other countries weren't going to go along with what it required. What elements of that blueprint are actually being put in place? I mean, is sort of what's happening some kind of piece by piece version of that blueprint? Or is the actual policy that Trump pursuing nearly wholly unrelated to that blueprint.
- [61:58]
A
It's only partly related to that blueprint. I mean, first of all, there is a perfectly coherent idea that we need to take the threat from China more seriously. And in the first Trump term, that's largely what he did. I don't think it was the best design tariffs on China. It focused too much on things that consumers cared about. His goal was too much reducing the trade deficit by getting them to buy more stuff. But at least it was sort of pointing into the right direction, even if it didn't get the exact target correct. Canada, though, that's just sort of nuts economically as a country to focus on geopolitically, as a country to focus on. And by the way, it will hurt, not help our efforts to really build a coalition and build support to take on some of the really important issues around China. So the prioritization of all of this has been just downright bizarre from the perspective of economics, from the perspective of geopolitics, and maybe can only be understood with sort of grievance politics and personal pique rather than any coherent theory beyond that.
- [63:21]
B
Yeah. And I've been struck by what seems to be the personal animus against Canada and against Europe in much of the administration's public communications. And I was very struck by it. And I wrote about it in some of particularly J.D. vance's private comments in that leaked signal messaging group. I mean, I understand that Americans are frustrated in the European case with the fact that Europeans don't spend enough in the military and don't make enough military contribution to NATO. That is something that Barack Obama was frustrated by, that Joe Biden was frustrated by. That is perfectly reasonable. I don't share, but I at least find sort of, I can understand the structure of a thought when people like J.D. vance seem to think that, you know, the natural political allies in Europe are the populist far right. And so, you know, they have these ideological bones to pick with the more moderate political parties that are governing in Europe. I don't agree with it, but I get the logic of where that comes from. And they're probably right that politically they're closer to those right wing populist parties than to center right parties like the Christian Democrats in Germany. But somehow they seem to have an animus against many of America's traditional political allies that goes beyond either the kind of rational concern about free riding or the sort of ideological preference for more extreme parties. Those two things don't quite seem to add up to what is driving that administration's policy. So why is it that they're picking these tariff fights with Canada, with the European Union? Is there any economic logic behind it? Do you think it comes from that ideology, from animus? I mean, what's your best attempt at explaining it?
- [65:00]
A
Yeah, I don't know. I mean, just economically, almost every forecaster has marked their growth down by about half a point, which is $1,000 a household. It's real money. They've marked inflation up by about half a point. Consumer confidence has plunged. Business uncertainty is higher than any time except the pandemic. I mean, rarely have I seen just someone come in and just make a set of decisions that turned everything so rapidly on a dime.
- [65:37]
B
And
- [65:40]
A
the auto one is a good example. If we wanted a larger auto industry in the United States and we were willing to have American consumers pay higher auto prices, there is a policy that could accomplish that. I wouldn't think that was a good policy because I think it would be like a million dollars of cost for every extra auto job saved or something like that. But if you want to pay a million dollars per auto job saved, you could do it.
- [66:06]
B
What would that policy be? Just to help us understand?
- [66:08]
A
Yeah, that would largely be on the vehicles themselves, but it would try not to interfere with the supply chain. And so the parts that are coming from Canada and Mexico, they're critical to the success of the US Auto industry and our ability to make cars. And so you'd be much smarter about how to exempt those. You probably wouldn't want to raise the price of steel in the way they have, which is adding to the cost of cars. So it's all the things that are making it harder to be part of this integrated market. Europe doesn't make cars in one country. It has integrated supply chains largely within Europe. Same thing in Asia. They have supply chains within Asia. Well, how do we make cars in America? We have a supply chain with Canada and Mexico. So starting by blowing that up. And by the way, we're still allowing, although I assume we'll, I guess we just changed it. But at first we were allowing cars to come in tax free from Korea while taxing them from, from Canada and Mexico. So I don't even think this is a good strategy to protect American auto jobs.
- [67:20]
B
Thank you so much for listening to this episode of the good fight. In the rest of this conversation, Jason responds to the Steelman case for tariffs, explaining why tariffs are not going to help improve the lives of ordinary Americans. We talk about how likely it is that a recession is around the corner and why even harm to the American economy that falls short of a recession would have very significant impacts on the affluence of ordinary Americans. And finally, I asked him about a political theory that I've heard a lot in the last weeks or months. A political theory that Trump will damage the economy so much that Americans are going to turn against him, and that's what's going to be the downfall of this presidency. I asked Jason about how likely it is that economic policy choices actually have those kind of electoral consequences. To hear that part of the conversation to support this podcast, Please go to jashamunk.substack.com and become a paying subscriber. Yashamunk.substack.Com thank you so much for listening to the Good Fight. Lots of listeners have been spreading the word about this show. If you two have been enjoying the podcast, please be like them. Rate the show on itunes, tell your friends all about it, share it on Facebook or Twitter. And finally, please mail suggestions for great guests or comments about the show to goodfightpodmail.com that's good. Fightpod.
- [68:54]
A
This recording carries a Creative Commons 4.0 International License. Thanks to Silent Partner for their song Chess Pieces.