Latest / Masters in Business / Heather Boushey on Rebounding From Covid & Biden's Economic Policies

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Heather Boushey on Rebounding From Covid & Biden's Economic Policies · Masters in Business

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Masters in
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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
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Speaker 2: I'm Barry Ridholts. You're listening to Masters in Business on
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Speaker 2: Bloomberg Radio. My extra special guest this week is Heather Bouche.
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Speaker 2: She is a senior research fellow at the Harvard Kennon
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Speaker 2: School working on the Reimagining the Economy project. Previously, she
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Speaker 2: co founded the Washington Center for Equable Growth in twenty thirteen.
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Speaker 2: She has been an economist for the Joint Economic Committee
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Speaker 2: of the US Congress and on the Council of Economic
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Speaker 2: Advisors for President Biden. She became Chief Economists to the
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Speaker 2: President's invest In America Cabinet. Politico twice named her one
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Speaker 2: of the top fifty thinkers Doers in Visions Transforming American Politics.
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Speaker 2: Our most recent book is Unbound, How Economic inequality constricts
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Speaker 2: our economy and what we can do about it. Heather Bouchet,
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Speaker 2: Welcome to Bloomberg.
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Speaker 1: Thank you.
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Speaker 3: It's a real pleasure to be here with you today.
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Speaker 2: It's a pleasure to have you here. Let's start a
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Speaker 2: little bit with your background. BA in economics from Hampshire College,
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Speaker 2: then a PhD from the New School, also in economics.
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Speaker 2: What was the original career plan?
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Speaker 3: Oh well, I actually wanted to be an economist and
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Speaker 3: run a thing tank someday and get to do things
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Speaker 3: like this. I grew up in the Pacific Northwest in
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Speaker 3: a place called Michael Teale.
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Speaker 2: Washington, Seattle, near Seattle, near.
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Speaker 3: Seattle, it's north, It's right next to Everett, Washington. My
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Speaker 3: dad worked at the big Everett Boeing plant where when
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Speaker 3: I was a kid they made the seven forty sevens.
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Speaker 3: When I was a kid, it was the largest land
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Speaker 3: mass building in the world, has now been overtaken by
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Speaker 3: the Tesla gigafactory. And in the early eighties, you know,
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Speaker 3: I lived in a community with a bunch of cul
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Speaker 3: de sacs. All new houses had basically been built for
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Speaker 3: the workers and for the families of Boeing. And in
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Speaker 3: the early eighties, every kid at my bus stop had
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Speaker 3: one or two parents that were pink slipped. They'd been
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Speaker 3: laid off. Is the early eighties what I know now
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Speaker 3: to be the Volca Recession, And at the time I
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Speaker 3: was really just struck by how much power this company
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Speaker 3: had over my life and the lives of my friends,
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Speaker 3: and you know, I was really good at math, and
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Speaker 3: over time I realized that economics was the field that
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Speaker 3: was supposed to have answers to questions like how is
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Speaker 3: it that you know you can have that economic security
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Speaker 3: that I as a kid wanted and wanted for my family.
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Speaker 2: So formative years as a kid watching what the company town,
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Speaker 2: how it progressed when layoffs came. Is that what led
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Speaker 2: your focus to the intersection of economic growth and inequality?
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Speaker 3: Probably? I think the question that I have asked my
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Speaker 3: entire career is what creates that opportunity for economic security
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Speaker 3: for America's middle class? How do you make America's middle
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Speaker 3: class grow and thrive? And what stands in the way?
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Speaker 3: And so I've spent a lot of time thinking about
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Speaker 3: government policy, thinking about, you know, how we can encourage
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Speaker 3: firms to create those good middle class jobs, what government
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Speaker 3: needs to do when those jobs aren't available, or when
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Speaker 3: those jobs don't provide childcare or unemployment benefits or whatever
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Speaker 3: it is that families need.
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Speaker 2: So it's such a partisan era these days. When you
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Speaker 2: were working on the as an economist for the Joint
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Speaker 2: Economic Committee of US Congress, was it that partisan or
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Speaker 2: was there some cooperation? Hey, we all have the same goals,
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Speaker 2: we just different our means of getting there. What was it,
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Speaker 2: What years were that, What was it like when you
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Speaker 2: work there?
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Speaker 3: So I was there in two thousand and eight, two
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Speaker 3: thousand and seven into two thousand and eight, and so
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Speaker 3: it was, you know, the financial crisis, and there was
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Speaker 3: not a lot of partisan happiness. You know that in
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Speaker 3: those years on the hill. I will say over my career,
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Speaker 3: I've testified over three dozen times for Congress and the
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Speaker 3: you know, early on in my career I felt like
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Speaker 3: people on both sides of the isle were much more polite,
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Speaker 3: much more cognizant of the fact that you know, as
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Speaker 3: someone who's a researcher and you show up and you've
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Speaker 3: you've spent all week preparing this testimony, and you're ready
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Speaker 3: to ask questions. But you're doing this, you're volunteering your time,
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Speaker 3: you're not being subpoened. You're just there to share information,
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Speaker 3: and people on both sides of the aisle would generally
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Speaker 3: be respectful of that. And I definitely have noted over
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Speaker 3: time that people on the other side of the aisle
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Speaker 3: now are are are less likely to be polite to
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Speaker 3: me when I'm testifying. I mean, I haven't testified a
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Speaker 3: number of years, but I've seen that over my career,
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Speaker 3: so that partisanship has really drilled down into how we
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Speaker 3: treat experts and people who are volunteering, people who are
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Speaker 3: just sharing information, and that, you know, is just one
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Speaker 3: of the many indications in our society of how partisan
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Speaker 3: it is.
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Speaker 2: So a lot of us in them, a lot of tribalism.
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Speaker 2: Let's talk about when you were on the Council of
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Speaker 2: Economic Advisors in the last administration. What sort of work
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Speaker 2: did you do? What was that like?
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Speaker 3: Well, it was very exciting. I joined Joe Biden during
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Speaker 3: his campaign in March of twenty twenty. I started advising him.
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Speaker 2: And strictly economic and policy analysis.
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Speaker 3: Strictly economic and what do we do about COVID and
5:29
Speaker 3: what do we do about the economic recovery? And how
5:31
Speaker 3: do we think about the economic agenda. I had advised
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Speaker 3: Hillary Clinton as an economic adviser. I was a chief
5:37
Speaker 3: economist for her transition in twenty sixteen, so I had
5:40
Speaker 3: some experience in that role when I started helping the
5:44
Speaker 3: Biden campaign. But after he was elected he announced his
5:50
Speaker 3: ECON team. It was a second group of announced hires
5:53
Speaker 3: that he made, and you know, immediately we were announced
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Speaker 3: in early December, and the first question that we had
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Speaker 3: to deal with was what do we do about COVID,
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Speaker 3: What do we do about the recession? How do we
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Speaker 3: get people you know, back to school and work. How
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Speaker 3: do we make sure everyone is safe but can get
6:09
Speaker 3: the economy back on track? And you know, the President
6:13
Speaker 3: had said, you know, throughout the campaign that he didn't
6:16
Speaker 3: want to just build back from the pandemic, but that
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Speaker 3: he wanted to build back better and had this really
6:21
Speaker 3: robust economic agenda, and so when we started out at
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Speaker 3: the Council of Economic Advisors, we were thinking a lot
6:27
Speaker 3: about we will there be a new variant to the virus?
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Speaker 3: What will that mean for the economy, How does that
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Speaker 3: affect global supply chains, How does school reopenings affect you know,
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Speaker 3: labor supply. So a bunch of questions we're within about there.
6:40
Speaker 3: And then we also did a lot of work thinking about, well,
6:43
Speaker 3: what does what do all these pieces of build back
6:45
Speaker 3: better mean? How do we craft a set of economic
6:49
Speaker 3: policies that can support and grow America's middle class. That's
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Speaker 3: Joe Biden's north star, It's what he wanted his economic
6:57
Speaker 3: agenda to really focus on how how do we do that,
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Speaker 3: How do we help people understand how all the pieces
7:04
Speaker 3: of that agenda fit together. So that's what That's a
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Speaker 3: lot of what we did, and quite frankly, a lot
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Speaker 3: of what the Council of Economic Advisors does is help
7:12
Speaker 3: people understand the data. So anytime there's an economic data release,
7:16
Speaker 3: we were there writing a memo for the president, you know,
7:20
Speaker 3: getting on television, talking to the you know folks on
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Speaker 3: the radio and podcasters like this is what those numbers mean,
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Speaker 3: this is this is how to explain the economy and
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Speaker 3: what's going on around us.
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Speaker 2: So we'll hold off on the current administration for a while.
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Speaker 2: I want to talk about let's talk about COVID for
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Speaker 2: a minute. So here we are, we're recording this at
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Speaker 2: the end of the summer in twenty twenty five. You
7:44
Speaker 2: started mapping out a plan for COVID just about five
7:48
Speaker 2: years ago. Here we are, it's five years later. Something
7:52
Speaker 2: seem to have worked out, Well, something's not as much.
7:55
Speaker 2: We still see lots and lots of people not returning
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Speaker 2: to office. There are a lot of people will been dislocated.
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Speaker 2: The pandemic very much revealed a lot of stress fractures
8:06
Speaker 2: in society, But give yourself a grade. What what did
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Speaker 2: you do well in the response to the pandemic and
8:14
Speaker 2: where do you wish policy had been more robust or
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Speaker 2: more successful?
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Speaker 3: What a great question. So I think first off, you
8:23
Speaker 3: have to remember that when Joe Biden took office, you know,
8:27
Speaker 3: Americans didn't have access to the vaccine yet, and so
8:30
Speaker 3: the very first thing that we had to do was
8:33
Speaker 3: to get those shots in arms. The vaccine was available,
8:35
Speaker 3: it was ready to go, but had to make sure
8:37
Speaker 3: that it was distributed and distributed as quickly as possible,
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Speaker 3: and that people got those two rounds of shots so
8:43
Speaker 3: that you know, we could get things, you know, start
8:44
Speaker 3: to get people back in school and work and all
8:46
Speaker 3: the different things. And you also have to remember that
8:50
Speaker 3: what a what a bizarre start to a presidency. For sure,
8:55
Speaker 3: like we were remote, right, you had all of these
8:59
Speaker 3: workers who you know, were telecommuting, you didn't have you
9:03
Speaker 3: didn't have any inauguration parties, there were no you know,
9:05
Speaker 3: you didn't have any of the normal trappings of a
9:08
Speaker 3: new administration and all these people coming in who we
9:12
Speaker 3: had to do all of that while also dealing with
9:14
Speaker 3: the pandemic internally and then making sure that the President,
9:17
Speaker 3: the senior advisors, and the cabinet officials themselves didn't get sick. So,
9:22
Speaker 3: you know, when I look back, those first few months
9:24
Speaker 3: were so courageous and incredible, and you know, I look
9:27
Speaker 3: at what my colleagues across the administration did to get
9:30
Speaker 3: those shots and arms, to get schools reopened, to get
9:34
Speaker 3: you know, all the support that folks needed, and on
9:38
Speaker 3: top of that, to have passed this really important historical legislation,
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Speaker 3: the American Rescue Plan, that gave all of the support
9:45
Speaker 3: to communities all across the country to make sure that
9:48
Speaker 3: there were enough resources to weather any future variants that
9:51
Speaker 3: we could imagine over the you know, the next couple
9:54
Speaker 3: of years.
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Speaker 2: I vividly recall getting my first shot at the Javits
10:00
Speaker 2: in Manhattan. Wow, which was crazy because it was set
10:04
Speaker 2: up with military precision. I don't know if it was
10:06
Speaker 2: the Army or the National Guard, but there were literally
10:10
Speaker 2: military troops just running it like it was a military operation.
10:14
Speaker 2: Incredibly effective and incredibly efficient. They must have processed tens
10:18
Speaker 2: of thousands of people a day. That was like, oh,
10:23
Speaker 2: so someone's on top of this. It felt like someone
10:27
Speaker 2: really had been very proactive and had thought this.
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Speaker 3: Through well, and that is what that is what folks
10:32
Speaker 3: were spending all of their time. You know, initially, let's
10:34
Speaker 3: let's make that happen. But then after that you still
10:38
Speaker 3: had all of this recovery. And I think if you
10:40
Speaker 3: think back to before Biden took office, you know, to
10:43
Speaker 3: twenty twenty, when the pandemic was happening, and we were
10:46
Speaker 3: talking about what it meant to shut the economy down,
10:49
Speaker 3: and there were some economists. I always tried to be
10:51
Speaker 3: very careful in my language about this that you know,
10:53
Speaker 3: what kind of recession we were having, right. You know,
10:56
Speaker 3: you saw, you know, at the beginning of the pandemic,
10:58
Speaker 3: things shut down, unemployed spikes, and it was like, well, bit,
11:01
Speaker 3: unemployment was spiking because we needed people to take that
11:06
Speaker 3: step back, right, And that's a different kind of recession,
11:10
Speaker 3: And as you noted, it uncovered all of these fragilities.
11:13
Speaker 3: You know, over the preceding decades, we have allowed, we
11:17
Speaker 3: have enabled private actors to create these very complex global
11:21
Speaker 3: supply chains really focused on just in time production and
11:26
Speaker 3: not building in resiliency or you know, duplicity like having
11:31
Speaker 3: you know, multiple suppliers for a single good. No, let's
11:34
Speaker 3: make sure that it's it's the most efficient, but not
11:36
Speaker 3: thinking about what happens when stuff goes wrong. And you know,
11:39
Speaker 3: so our first couple of years in the White House,
11:41
Speaker 3: we're all about, oh, there's another thing that doesn't work anymore,
11:44
Speaker 3: there's another thing where after the pandemic, businesses could just
11:49
Speaker 3: not get back up on their feet. And so a
11:51
Speaker 3: lot of the resources for the American Rescue Plan were
11:53
Speaker 3: about helping small businesses, communities, schools, all these different entities
11:58
Speaker 3: get back up on their feet. And as we were uncovering,
12:02
Speaker 3: and it really did feel like a not a whack
12:04
Speaker 3: a mole because we weren't whacking things down, but like,
12:07
Speaker 3: you know, a pop up of all of these different
12:10
Speaker 3: challenges that emerged, you were realizing. I mean, I come
12:14
Speaker 3: out of that experience understanding how important it is to
12:19
Speaker 3: have competent, dedicated public servants who are getting up every
12:23
Speaker 3: day saying that is a problem we need to solve.
12:25
Speaker 3: That's when we maybe don't need to solve, but these
12:27
Speaker 3: are things that can affect American lives, American communities, American
12:31
Speaker 3: health saved the economy, and just how important that leadership is.
12:36
Speaker 3: So in terms of lessons learned, the pandemic really showed
12:40
Speaker 3: that you need good governance because in an emergency, that's
12:44
Speaker 3: what's going to that is what's going to make the difference.
12:46
Speaker 3: And so the military precision of getting shots and arms that,
12:50
Speaker 3: you know, thinking through all the different pieces of the policy,
12:52
Speaker 3: I think a lot about how we saved so many
12:55
Speaker 3: small businesses in America, particularly care businesses, childcare centers, long
13:00
Speaker 3: term care facilities. Gave them an infusion of funds to
13:03
Speaker 3: help them keep going through the pandemic, and that meant
13:06
Speaker 3: that other people could then get back to work. You
13:08
Speaker 3: talk about, you know, people not necessarily all coming back
13:11
Speaker 3: to office. We have seen that as a trend in
13:13
Speaker 3: the labor market for some families that may be really
13:16
Speaker 3: helpful for addressing their care challenges. But one of the
13:19
Speaker 3: things that really helped millions of people get back to
13:22
Speaker 3: work was the federal government stepping in and helping them
13:25
Speaker 3: deal with their care crisis because their childcare center wasn't open,
13:29
Speaker 3: and oh, well we can solve that problem. That helps
13:31
Speaker 3: that employee come to know Bloomberg every day. So those
13:35
Speaker 3: those were really big, I think, because I know you'll
13:39
Speaker 3: ask about it next, so I just want to get
13:41
Speaker 3: to this. Of course, you know, One of the challenges
13:44
Speaker 3: was that that period led to the highest inflation that
13:47
Speaker 3: we've seen in the United States since the nineteen seventies.
13:49
Speaker 3: You inflation, anybody under the age of forty had never
13:52
Speaker 3: seen that kind of inflation before.
13:54
Speaker 2: We get to an inforcation because I think people don't
13:57
Speaker 2: understand you either had to cheer use high inflation or
14:03
Speaker 2: high persistent unemployment. And as unpleasant a choice that is,
14:11
Speaker 2: I think most people would prefer high inflation to not
14:14
Speaker 2: having a job. And so that was the sophie's choice
14:18
Speaker 2: that was made. And by the way, it wasn't any
14:20
Speaker 2: one thing. It was lots and lots of things, including
14:24
Speaker 2: you know, the biggest fiscal stimulus since World War Two
14:27
Speaker 2: under the previous president, the first president Trump term. But
14:32
Speaker 2: then there were a lot of other factors, including legislation
14:36
Speaker 2: on the Biden administration. What I want to ask about
14:39
Speaker 2: is getting the shots out that was a huge gain.
14:44
Speaker 2: Making sure that a lot of the economy began to
14:47
Speaker 2: reopen was important. But with the benefit of hindsight, what
14:51
Speaker 2: do you think were missed opportunities, What didn't get a
14:55
Speaker 2: high score? What communication failures were there that could have
14:59
Speaker 2: been handled better? And again, a lot of this is
15:02
Speaker 2: twenty twenty hindsight, it's.
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Speaker 3: A lot of I think that helping people understand the
15:09
Speaker 3: role that the fragility of supply chains played in the
15:15
Speaker 3: challenges of getting goods to their local supermarket or their
15:20
Speaker 3: local store that was affecting inflation, I don't think we
15:24
Speaker 3: did a good enough job helping people understand all the
15:30
Speaker 3: things that the pandemic had uncovered. Right, So, and I
15:34
Speaker 3: want to step back just one because one thing that
15:36
Speaker 3: always struck me at the beginning of the pandemic, and
15:38
Speaker 3: we were all like, what is this going to look like?
15:40
Speaker 3: And you know, I had heard, of course about the flu,
15:44
Speaker 3: the Spanish flu, like sort of back in my mind,
15:46
Speaker 3: I had never read anything about, you know what that
15:48
Speaker 3: had happened in you know, in the teen, back in
15:51
Speaker 3: the nineteen teen, nineteen eighteen. And you know, one thing
15:55
Speaker 3: though that I had learned during the pandemic was that
15:58
Speaker 3: that huge pandemic had happened, and then it was like
16:03
Speaker 3: nobody wrote about it. You know, this the Spanish flu
16:06
Speaker 3: was like oh, this thing, this thing happened, and then
16:07
Speaker 3: it just it was like people wanted to forget it.
16:10
Speaker 3: And I feel that there was a little bit as
16:12
Speaker 3: we were going through the pandemic. People were so traumatized
16:14
Speaker 3: that the idea that it was uncovering how our economic
16:19
Speaker 3: system was so fragile also got a little bit. I
16:23
Speaker 3: feel like people kind of wanted to paper over that
16:25
Speaker 3: and just move past its. We just everyone to get
16:27
Speaker 3: back to normal without kind of wanting to stop and say, actually,
16:31
Speaker 3: the way that we're doing American business just isn't working.
16:35
Speaker 3: And I think a lot about like semiconductors, for example.
16:39
Speaker 3: You know, I think we all learned a lot about
16:40
Speaker 3: semiconductors during the pandemic because all of a sudden we
16:43
Speaker 3: couldn't get them right. The global semic conductor shortage affected
16:48
Speaker 3: every you know, all of us. Right A factory closes
16:50
Speaker 3: in Malaysia or in Taiwan, and then all of a sudden,
16:53
Speaker 3: you can't buy something or prices are going up. So
16:57
Speaker 3: that how we talk about and how we communicate that,
17:01
Speaker 3: I think was something that was really hard to do
17:05
Speaker 3: amidst the health crisis. And so if I were to,
17:07
Speaker 3: you know, kind of wave a magic wand and go
17:09
Speaker 3: back in time, I think I would try to. I
17:12
Speaker 3: would want to figure out how we could spend more
17:14
Speaker 3: time helping people understand those fragilities that we were uncovering,
17:19
Speaker 3: which was hard because people were so wrapped up in
17:21
Speaker 3: the consequences of it, which was high prices that they
17:23
Speaker 3: were seeing at the store and which were being blamed
17:26
Speaker 3: on the simplest explanation, which was all obviously government spent
17:30
Speaker 3: too much. That kind of fits into our everyday narratives,
17:33
Speaker 3: when yet when you uncovered it was like no, actually,
17:35
Speaker 3: it was because of the fragility of these supply chains
17:37
Speaker 3: and the decisions that all of these businesses have been
17:40
Speaker 3: making for decades, and we need to hold them accountable.
17:42
Speaker 3: We need to ask businesses to be more resilient, and
17:45
Speaker 3: that's going to require rethinking our economy. That's a big
17:48
Speaker 3: structural change that you know, the Biden administration really started
17:52
Speaker 3: to push that. How people understood that, and did we
17:56
Speaker 3: do a good enough job talking about that? I think
17:58
Speaker 3: that's something that I wish we had done better.
18:00
Speaker 2: Let's do it. Talk about another communication issue, which is
18:05
Speaker 2: the pushback to vaccines. And I was always kind of
18:08
Speaker 2: surprised by not just the Trump administration, but by Trump himself,
18:14
Speaker 2: who deserves a lot of credit for Operation Warp Speed,
18:19
Speaker 2: and yet of all the things he takes credit for
18:22
Speaker 2: he kind of let that slide. Could we have communicated
18:27
Speaker 2: better that, Hey, we didn't just create these vaccines overnight.
18:30
Speaker 2: This has been ten years in the making, and it's safer,
18:34
Speaker 2: especially for people at risk over pick a number, fifty
18:38
Speaker 2: sixty seventy than not having it. I'm curious as to
18:42
Speaker 2: your thoughts about communication around that. There have been a
18:45
Speaker 2: lot of pushback about closing schools, and as it turns out,
18:50
Speaker 2: kids are fairly safe relative to COVID, it doesn't seem
18:53
Speaker 2: to have the same impact on them. Should should we
18:56
Speaker 2: have left schools open? Should we have tried different things? Communicated?
19:00
Speaker 2: How do you how do you look at those two
19:02
Speaker 2: areas well?
19:03
Speaker 3: I think fundamental to those questions are we hadn't had
19:08
Speaker 3: a pandemic in a long time century, right, We didn't
19:13
Speaker 3: know how bad it would get, and you had this
19:17
Speaker 3: this we were in a moment were already America had
19:22
Speaker 3: become a lower trust environment. Right, People had less trust
19:27
Speaker 3: in government than they had, you know, decades before, less
19:29
Speaker 3: trust in business, less trust and experts. So you're already
19:32
Speaker 3: kind of walking into a situation where you're trying to
19:35
Speaker 3: explain to people what the health risk is and you
19:39
Speaker 3: have to really did we did, did everybody do a
19:43
Speaker 3: good enough job thinking about what the trust, how much
19:45
Speaker 3: trust the listener was going to have from the get go.
19:48
Speaker 3: The problem is that you don't know how it's going
19:51
Speaker 3: to turn out. So you want to make sure that
19:52
Speaker 3: you are protecting people to the best of your ability,
19:56
Speaker 3: but you don't have all the answers and so, you know,
19:59
Speaker 3: but saying to people, well, we suggest that you do this,
20:02
Speaker 3: but maybe we don't know if that's going to work,
20:04
Speaker 3: that doesn't go over very well as a you know,
20:06
Speaker 3: in a public health crisis. So part of the way
20:12
Speaker 3: that we've seen you know, the vaccines and the school
20:15
Speaker 3: closures and all these things play out, is that that
20:18
Speaker 3: has further eroded the trust that people have in the
20:21
Speaker 3: institutions around them, even as we know that it saved
20:24
Speaker 3: you know, millions of millions of lives and millions of
20:27
Speaker 3: dollars in healthcare costs because people didn't get sick and
20:29
Speaker 3: you know, all the rest for people to be able
20:32
Speaker 3: to get the vaccine, and so that was a was
20:37
Speaker 3: that a problem we could have fixed amidst the pandemic
20:40
Speaker 3: or is this something that we should be kind of
20:42
Speaker 3: taking a step back and saying huh, maybe we should
20:46
Speaker 3: have been focusing years ago on why is it that
20:50
Speaker 3: that trust was eroding? And that leads to something that
20:54
Speaker 3: I really want us to really focus on our conversation today.
20:57
Speaker 3: Is that really toxic role that inequality has played in
21:00
Speaker 3: our economy and our society, which we know is connected
21:02
Speaker 3: to this failure of people to trust and particular to
21:05
Speaker 3: trust experts, to trust that people are acting in their
21:10
Speaker 3: best interest. So Operation Warp Speed. It's incredible achievement of
21:16
Speaker 3: the Trump administration, but yet pushed aside because communities all
21:21
Speaker 3: of a sudden became I mean, I can't speak for
21:26
Speaker 3: how those communities felt, but they became fearful and distrustful
21:29
Speaker 3: schools closing, and hear you still continue to hear that
21:32
Speaker 3: debate on both sides, some people still frustrated that their
21:35
Speaker 3: schools were open, and some people saying, oh, they closed
21:38
Speaker 3: for two longs and there's been healthful you know, learning,
21:40
Speaker 3: not health losses, but learning losses among children. These are
21:43
Speaker 3: really important questions and we should spend time dissecting what
21:47
Speaker 3: we know now. But we didn't know. We didn't have
21:50
Speaker 3: all the answers at the beginning.
21:51
Speaker 2: Last question before we get to wealth and income inequality.
21:56
Speaker 2: How did in total the United States do relative to
22:00
Speaker 2: other modern democracies, How well do we do compare it
22:04
Speaker 2: to other countries.
22:05
Speaker 3: We'll focus on the stats that when you ask that question,
22:08
Speaker 3: I can see clearlyst clearlest in my head, So I
22:12
Speaker 3: can see a couple of charts. So number one, you know,
22:15
Speaker 3: we early on had very high death rates relative to
22:18
Speaker 3: other countries. You know, it's a proportion of our population.
22:21
Speaker 3: So we we were able to turn that around. When
22:27
Speaker 3: you look at the economic data, the United States had
22:32
Speaker 3: one of the strongest economic recoveries coming had, you know,
22:35
Speaker 3: coming out of the pandemic, relative to our economic competitors
22:39
Speaker 3: in the other advanced economies on virtually any metric. So, yes,
22:43
Speaker 3: the United States saw high prices. We saw inflation go up,
22:47
Speaker 3: but the prices didn't go up as high as they
22:50
Speaker 3: did in some other advanced economies. And then our prices
22:53
Speaker 3: started coming down and you know, look quite good. We
22:56
Speaker 3: saw stronger economic growth. We've seen stronger employment. So when
23:01
Speaker 3: you look at our ability to take this health crisis,
23:05
Speaker 3: to be able to get it under control enough so
23:08
Speaker 3: that people could get back to work, so businesses could
23:10
Speaker 3: get back up on their feet. So the kids could
23:13
Speaker 3: get back up back to school and then have your
23:15
Speaker 3: economy get back on track. I mean, even the economist
23:20
Speaker 3: and I can't remember exactly what the cover was, the
23:23
Speaker 3: exact words were, but it was one of those you know,
23:26
Speaker 3: like wow, even the economist has said, you know, we
23:29
Speaker 3: really knocked it out of the park in terms of
23:31
Speaker 3: the economic performance of the United States coming out of
23:34
Speaker 3: what could have been a very deep and long recession,
23:39
Speaker 3: kind of like what we saw after the global financial crisis.
23:43
Speaker 2: And you know, we difference being huge amount of fiscal
23:46
Speaker 2: stimulus versus almost no.
23:47
Speaker 3: Physically well and operation warp speed and getting shots and
23:51
Speaker 3: arms and all the things that we did to contain
23:53
Speaker 3: the pandemic.
23:54
Speaker 2: So you talk about the mortality rate, and I've seen
23:58
Speaker 2: other people point to a lower vaccination rate. I'm curious
24:05
Speaker 2: if some of the European criticism of the United States
24:09
Speaker 2: response was, and I've heard some of this from other
24:13
Speaker 2: corners of various partisan arguments, a lot of pre existing conditions.
24:20
Speaker 2: The United States entered the pandemic with not an especially
24:24
Speaker 2: healthy population. How much truth is in that claim.
24:30
Speaker 3: Well, I'm not a health expert, but certainly we know
24:35
Speaker 3: that the United States population does have higher death rates
24:41
Speaker 3: from a lot of.
24:41
Speaker 2: You know, preventab.
24:45
Speaker 3: So certainly that it doesn't surprise me that people are
24:48
Speaker 3: saying that about how we entered the pandemic. And then
24:52
Speaker 3: we know, of course that you know, some of the
24:54
Speaker 3: after effects of you know, long COVID, and you know
24:57
Speaker 3: how that affects people, particularly around some of these how
25:00
Speaker 3: this is is important.
25:02
Speaker 2: Coming up, we continue our conversation with Heather Bouche, senior
25:07
Speaker 2: research fellow at the Harvard Kennedy School, discussing the impact
25:12
Speaker 2: of wealth and economic inequality on growth. I'm Barry Ritolts.
25:17
Speaker 2: You're listening to Masters of Business on Bloomberg Radio. I'm
25:31
Speaker 2: Barry Dults. You're listening to Masters in Business on Bloomberg Radio.
25:36
Speaker 2: My extra special guest this week is Heather Bouche.
25:39
Speaker 1: She is a.
25:39
Speaker 2: Senior fellow at the Harvard Kennedy School. Previously, she was
25:43
Speaker 2: an economist for the Joint Economic Committee of US Congress
25:47
Speaker 2: and Chief Economists to the Presidents of invest in America's Cabinet.
25:52
Speaker 2: So let's talk a little bit about wealth and income inequality.
25:57
Speaker 2: And the first question is what is the impact of
26:01
Speaker 2: this on sustainable growth? Does wealth and income inequality create
26:06
Speaker 2: a drag to faster, more widespread growth.
26:10
Speaker 3: That is such a fantastic question, and I feel like
26:14
Speaker 3: it's a little bit of a leading question because, as
26:16
Speaker 3: you know, I wrote a book on how economic inequality
26:19
Speaker 3: constricts our economy and what we can do about it,
26:22
Speaker 3: and a number of the scholars that I've looked to
26:26
Speaker 3: over time actually just got the Nobel Prize last year
26:28
Speaker 3: in twenty twenty four Durana Simoglu and Simon Johnson and
26:32
Speaker 3: James Robinson for their work looking at how institutions affect
26:37
Speaker 3: long term growth. And I start there because part of
26:41
Speaker 3: what economic inequality does, part of what wealth concentration does,
26:45
Speaker 3: is it destroys the institutions that foster broadly shared growth.
26:49
Speaker 2: Explain what you mean by that, because you know, we've
26:51
Speaker 2: had wealth inequality during the Gilded Age, we have certainly
26:56
Speaker 2: in the nineties, two thousands and beyond, increasing inequality, primarily
27:01
Speaker 2: due to publicly traded equity and a lot of concentrated ownership.
27:07
Speaker 2: How does that destroy institutions?
27:09
Speaker 3: Well, think of it this way. So one of the
27:12
Speaker 3: things that the United States was an early leader in
27:15
Speaker 3: was making sure that kids had access to free public education.
27:21
Speaker 3: Something that US communities started to do early on. They
27:24
Speaker 3: used they raised taxes to do this, and we were
27:27
Speaker 3: a global leader in the early primary school movement. And
27:32
Speaker 3: that's a really important foundational institution for economic growth because
27:38
Speaker 3: we know that talent and entrepreneurship and skill not you know,
27:43
Speaker 3: skills can be learned. But all of these things are
27:47
Speaker 3: they're normally distributed, they affected, They're distributed across the population. Right.
27:52
Speaker 3: It isn't just rich children who have access to the
27:55
Speaker 3: best schools that have the best ideas or are the
27:58
Speaker 3: most talented in everything. Right, And so if you have
28:01
Speaker 3: a society where you are making sure that children across
28:06
Speaker 3: different income groups, across different racial groups, and you know,
28:09
Speaker 3: both girls and boys have access to learning and skill building,
28:13
Speaker 3: then your society is going to benefit from them being
28:16
Speaker 3: able to find the right fit as they go through life,
28:18
Speaker 3: they're going to find the right role. Oh I'm really
28:20
Speaker 3: good at this, or I'm really good at that. They'll
28:23
Speaker 3: have those opportunities and our economy, our society will benefit
28:27
Speaker 3: from those productivity gains. Very famous economic study by Raj
28:32
Speaker 3: Shetty and his colleagues many years ago now, but they
28:36
Speaker 3: had data on third graders. You're in New York City
28:40
Speaker 3: and they were able to match this data on the
28:43
Speaker 3: third graders and their test scores on math and English,
28:47
Speaker 3: but we're just going to focus on math, and they
28:49
Speaker 3: were able to then match those third graders to their parents'
28:53
Speaker 3: income and to their future income and whether or not
28:57
Speaker 3: they ever applied for a patent. It's just one measure
29:00
Speaker 3: of it's not the end all bit, but just one
29:02
Speaker 3: measure of some kind of you know, success in the world.
29:06
Speaker 3: And what they found was that the children who did
29:09
Speaker 3: the best in third grade on these standardized math tests,
29:14
Speaker 3: those kids were more likely to grow up and get
29:16
Speaker 3: a patent. Totally makes sense. But when you looked at
29:20
Speaker 3: those children by the income group that their parents were in,
29:23
Speaker 3: by their race, by their gender, you saw something very
29:27
Speaker 3: strange happen when you just looked at the top kids
29:30
Speaker 3: in terms of the mass scores. So this group that
29:32
Speaker 3: was most likely to go on and get a patent,
29:36
Speaker 3: the children in that group who came from the richest families,
29:40
Speaker 3: who were boys or were white were far more likely
29:44
Speaker 3: than the children from lower income families than girls or
29:48
Speaker 3: were black children to grow up and get a patent.
29:51
Speaker 3: So what that tells you is that our economy, our
29:54
Speaker 3: society has been denied all of this, these new ideas,
29:57
Speaker 3: these new things we could be buying, or new ways
30:00
Speaker 3: that our world could be changing, because those children who
30:03
Speaker 3: are highly talented didn't have that opportunity across their life.
30:06
Speaker 3: So what helps a low income child get that education
30:11
Speaker 3: that gives them that opportunity? Well, it is it's having
30:14
Speaker 3: a good public school system and good public universities and
30:17
Speaker 3: that are affordable that give that kid an opportunity, having
30:20
Speaker 3: equal opportunity laws that allow you know, girls and people
30:24
Speaker 3: of color to have those opportunities. That hinges on having
30:27
Speaker 3: institutions that are fair and that are enforcing anti discrimination laws.
30:33
Speaker 3: And so that is just one. That's just one pathway
30:36
Speaker 3: through which inequality or you know, equity or lack thereof
30:41
Speaker 3: effects are our potential for economic growth effects the kind
30:46
Speaker 3: of growth that we have.
30:47
Speaker 2: Yeah, I want to I want to push back on
30:49
Speaker 2: that slightly in that So, is this an inequality issue
30:55
Speaker 2: or is this a Hey, we have pretty mediocre public schools,
30:59
Speaker 2: especially in cities, and that leads to exaggerating or amplifying
31:07
Speaker 2: some inequalities that are already in existence, Like is this
31:12
Speaker 2: a tax issue? Is this a competency and expertise issue? Like,
31:16
Speaker 2: why are suburban schools in wealthy suburbs so much better
31:24
Speaker 2: reputations and higher acceptance rates at Ivy's and all the
31:29
Speaker 2: other usual measures of success. Is it strictly money or
31:34
Speaker 2: is it some of it was just a flight of
31:37
Speaker 2: experts to hire pay I guess which comes back to mind,
31:40
Speaker 2: how do we explain, Hey, the kids are in school,
31:43
Speaker 2: they're just not really learning a whole lot.
31:46
Speaker 3: Well, I mean, there's so many there's so many directions
31:49
Speaker 3: we could take that question that whether or not you
31:54
Speaker 3: are funding those public institutions that enable a wide range
31:58
Speaker 3: of people to have access to opportunity. That's that's sort
32:01
Speaker 3: of the first part of that answer, Right, are they
32:04
Speaker 3: properly resourced? Well, the answer, of course we know is
32:07
Speaker 3: that they haven't been. And there's a lot of things happening.
32:10
Speaker 3: But two that are really fundamental. Number One, in the
32:13
Speaker 3: United States, public schools are primarily financed by local property taxes,
32:19
Speaker 3: which is inherently unequal.
32:21
Speaker 1: Right.
32:21
Speaker 3: That means that people that are living communities with wealthier
32:25
Speaker 3: homes have higher tax bass, and so those those school
32:28
Speaker 3: districts have more resources, which is exactly the opposite of
32:30
Speaker 3: what you should be doing to create more equity, more
32:34
Speaker 3: opportunities is.
32:34
Speaker 2: In there're a chicken and egg situation there in that.
32:38
Speaker 2: Like I'm just thinking of all the bedroom communities thirty
32:40
Speaker 2: minutes outside of Manhattan. They became destination suburbia because hey,
32:51
Speaker 2: it was it was quieter, it was cleaner, it was neater,
32:54
Speaker 2: and as it became more and more desirable, the schools
33:00
Speaker 2: are doing better. Like you've created, We've created a situation where,
33:06
Speaker 2: of course these wealthy suburban school districts are going to
33:09
Speaker 2: do better. That's why people pay higher home prices and
33:13
Speaker 2: higher taxes in those districts because they want a higher
33:16
Speaker 2: quality public school. How do you how do you deal
33:23
Speaker 2: with underfunded urban schools when people are voting with their
33:28
Speaker 2: feet and their tax dops.
33:30
Speaker 3: Well, I mean, so that the obvious answers we should
33:34
Speaker 3: be thinking about how we are financing public schools, right,
33:38
Speaker 3: should we be? Should it all be about local? I
33:40
Speaker 3: mean this and this is a local issue. Obviously it's
33:43
Speaker 3: different in different places. That's that is an answer. But
33:46
Speaker 3: when you then zoom up to the federal level and
33:49
Speaker 3: you think about the question of whether or not we
33:51
Speaker 3: are properly resourcing the institutions that we need, the answers.
33:55
Speaker 3: Of course, we've seen a half century now of primarily
33:59
Speaker 3: Republicans selling the American people on the idea that if
34:03
Speaker 3: we lower taxes, particularly on the rich, that's going to
34:06
Speaker 3: benefit them and their communities. And of course that's not
34:09
Speaker 3: what we've seen. Trickle down economics hasn't worked, it hasn't
34:13
Speaker 3: delivered stronger growth overall. And what it's done is starved
34:17
Speaker 3: our government of the resources that it needs to then
34:20
Speaker 3: address some of these inequities, you know, at the federal level,
34:23
Speaker 3: or you know, or you know, potentially at the state level,
34:26
Speaker 3: depending on the multiple tax question of and it's a
34:30
Speaker 3: question though, of why have we decided to starve government
34:34
Speaker 3: in order to give money back to the richest in
34:37
Speaker 3: our society. So you can see, you know, time and
34:40
Speaker 3: again these massive tax packages, the most egregious, of course,
34:45
Speaker 3: being the one that passed this year that Donald Trump signed.
34:48
Speaker 2: Is this one really more egregious than the twenty seventeen
34:52
Speaker 2: tax and jobs? Actually it is different. So I hear
34:54
Speaker 2: the exact same complaints and it's you know, what is
34:58
Speaker 2: it it's eight years later?
35:00
Speaker 3: It is there is no justification for the kinds of
35:06
Speaker 3: tax cuts that we've just given to the richest people
35:09
Speaker 3: in our society while gutting Medicaid, denying families and children
35:16
Speaker 3: and new parents access to healthcare, which will make it
35:19
Speaker 3: that much harder for our society to thrive. You know,
35:23
Speaker 3: for decades to come, people are going to be sicker,
35:25
Speaker 3: They're not going to have access to healthcare, They're going
35:27
Speaker 3: to go into bankruptcy. All of the hospitals are going
35:29
Speaker 3: to close. So the damage that we are doing to
35:33
Speaker 3: communities because of that tax legislation is truly phenomenally.
35:38
Speaker 2: Let's explore that in a minute, because you talked about
35:41
Speaker 2: trickle down, and I think that's so long ago. I
35:45
Speaker 2: don't know if people voted for that. The thing that's
35:49
Speaker 2: been well he did say.
35:50
Speaker 3: I mean, let's be clear. President Trump did tell people
35:53
Speaker 3: during his campaign that he would not cut medicaid.
35:56
Speaker 2: That's true.
35:57
Speaker 3: So he did tell people he would raise tariffs, but
35:59
Speaker 3: he did not. He said he would not cut medicaid,
36:01
Speaker 3: and he did that. That was one of the first
36:03
Speaker 3: things that he did.
36:04
Speaker 2: Here's the thing that is the big surprise to me
36:07
Speaker 2: is that we're seeing the impact of the tax package
36:14
Speaker 2: falling in a surprising way on a lot of Red
36:17
Speaker 2: States farmers rural communities. There have been number of stories
36:21
Speaker 2: about rural hospitals are closing left and right. There are
36:24
Speaker 2: going to be people that are going to have to
36:25
Speaker 2: drive three, four or five hours if to have a
36:28
Speaker 2: baby delivered, and if there's a heart attack, I got
36:31
Speaker 2: some bad news. You ain't gonna make that well.
36:33
Speaker 3: The baby may not make it well.
36:34
Speaker 2: I mean to the hospital, to the hospital for sure.
36:36
Speaker 2: So the question is, and I don't have an answer
36:41
Speaker 2: for this, are people just voting tribally? They're voting for
36:45
Speaker 2: what their party affiliation is, because it doesn't seem like
36:50
Speaker 2: a lot of people realize. And it's drue on both
36:53
Speaker 2: sides of the aisle, but it's especially true given what
36:58
Speaker 2: we've seen in some of the redder parts of the country.
37:02
Speaker 2: And I keep coming back to all these rural hospitals closing.
37:08
Speaker 2: Are people just not voting in their own interest? Are
37:11
Speaker 2: there other factors driving this? And I know you're not
37:14
Speaker 2: a political economist, now it's not your focus, but.
37:18
Speaker 3: I think that people is my personal view, that people
37:22
Speaker 3: are voting for somebody that they believe is on their side.
37:25
Speaker 3: And when you take the long view and you look
37:27
Speaker 3: at the US economy, what you see is a half
37:32
Speaker 3: century of rising economic inequality, the top pulling further and
37:35
Speaker 3: further apart from the rest, the middle class being squeezed
37:39
Speaker 3: harder to go from being low income into that secure
37:42
Speaker 3: economic middle arise in economic concentration, and by that meaning
37:47
Speaker 3: in across industries in the United States, there are fewer
37:50
Speaker 3: and fewer businesses. You talk of hospitals, there's been massive
37:54
Speaker 3: consolidation in the hospital sector, right, So in many communities
37:59
Speaker 3: already there might have been a number of hospitals, but
38:01
Speaker 3: they're all owned by the same company, right, which creates
38:06
Speaker 3: lower wages for the workers, the nurses and the doctors
38:09
Speaker 3: that work and the janitors that work at those hospitals,
38:11
Speaker 3: creates that what we as economists we call them knopsity
38:13
Speaker 3: labor market, and we know that they're less likely to
38:18
Speaker 3: be resilient in situations like this. So these are long standing,
38:24
Speaker 3: brewing crises that this most recent legislation has then just
38:28
Speaker 3: sort of lit the match under and said, well, we're
38:31
Speaker 3: not gonna We're not going to give those communities the
38:34
Speaker 3: money they need for these hospitals. But it is on
38:37
Speaker 3: top of this rising economic inequality that I think has
38:40
Speaker 3: made so many people unclear of who's on their side,
38:45
Speaker 3: And for some reason they believed that Trump was. He
38:48
Speaker 3: goes out there and he says he's on your side,
38:50
Speaker 3: but his actions really haven't been. And I think that's
38:53
Speaker 3: what's it's so hard and frustrating to watch. But I
38:56
Speaker 3: think the truth of that, the truth in there that
38:58
Speaker 3: we need to be very thoughtful about, is if you
39:02
Speaker 3: want people to vote for you, if you want people
39:05
Speaker 3: to vote for people that are actually going to support
39:08
Speaker 3: and grow America's middle class, how are we showing that.
39:11
Speaker 3: How are we demonstrating that actually our goal isn't just
39:15
Speaker 3: more elites making more money, but is actually making sure
39:18
Speaker 3: that communities thrive, that there are good jobs, that there
39:21
Speaker 3: is the kinds of institution, you know, good schools and
39:25
Speaker 3: healthcare and all the things that communities need. Are we
39:27
Speaker 3: actually delivering that.
39:30
Speaker 2: So if we look at the twenty tens, the post
39:32
Speaker 2: financial crisis era, not a lot of fiscal stimulus, almost
39:37
Speaker 2: all monetary policy quantitative easing, zero interest rate policy rates
39:42
Speaker 2: were super low, inflation was under two percent. We look
39:47
Speaker 2: at the post pandemic era, the twenty twenties, they've been
39:52
Speaker 2: pretty much all fiscally driven. We had Cares Act one
39:56
Speaker 2: and two under President Trump, Cares Act three under President Biden,
40:02
Speaker 2: the Infrastructure Bill, the Semiconductor Bill, the Build Back Better Bill,
40:07
Speaker 2: the most recent Big Beautiful Bill, and all the tax
40:10
Speaker 2: cuts there. The twenty twenties really feels like it's fiscally driven,
40:16
Speaker 2: whereas the previous fifteen twenty years was all monetary. What
40:21
Speaker 2: does that do to the issue of wealth and income inequality?
40:27
Speaker 2: In the entire twenty tens and twenty twenties, stocks, bonds,
40:32
Speaker 2: real estate, businesses all seem to have done pretty well.
40:37
Speaker 2: Doesn't matter if it's monetary or fiscal. If you own
40:42
Speaker 2: capital based assets, any sort of stimulus seems to work well.
40:46
Speaker 3: It's a really interesting question, I think it. To my mind,
40:50
Speaker 3: the answer goes back a little bit to something I
40:52
Speaker 3: said earlier about the importance of having good leadership. Fiscal
40:59
Speaker 3: policy require buyers that you actually have people that are
41:02
Speaker 3: thinking about what is it that you want government to do,
41:04
Speaker 3: What is government spending money on. How are we thinking
41:07
Speaker 3: about setting rules of the road for businesses so that
41:11
Speaker 3: they are encouraged to behave in ways it's going to
41:13
Speaker 3: benefit communities, not strip them of their value, or you know,
41:18
Speaker 3: create bad jobs, or you know, create negative implications for
41:20
Speaker 3: the environment. And monetary policy, on the other hand, is
41:24
Speaker 3: very hands off. It's you know, we set the interest rate.
41:27
Speaker 3: There there is financial regulation, of course, and that's a
41:30
Speaker 3: big piece of it. Bit often when we're talking about
41:33
Speaker 3: addressing the business cycle, it is about the you know,
41:36
Speaker 3: the interest rate policy. And I think what you've seen,
41:40
Speaker 3: especially post global financial crisis, has been a sense that
41:44
Speaker 3: that hands off policy. And again I would kind of
41:46
Speaker 3: put that a little bit in my brain that goes
41:47
Speaker 3: into the trickle down mentality that markets were kind of
41:51
Speaker 3: going to take our hands off because we believe that
41:53
Speaker 3: markets are perfect, so if we get out of the way,
41:54
Speaker 3: then everything will just work out honky dory, and that't
41:57
Speaker 3: that hasn't worked out. It certainly did not work out.
42:00
Speaker 3: The recovery post global financial crisis, which you know, left
42:03
Speaker 3: Americans languishing and high unemployment, you know, massive labor market
42:07
Speaker 3: scarring for so many young people that never really found
42:10
Speaker 3: that good start, you know, the loss of wealth for
42:14
Speaker 3: millions of Americans, and it took so long for us
42:17
Speaker 3: to work work its way through the system. The fiscal
42:20
Speaker 3: policy option allows policymakers to step in and be more
42:24
Speaker 3: active and to say, actually this is what we this
42:27
Speaker 3: is the direction we need to go. So the bipart
42:29
Speaker 3: is an infrastructure law that you invested money and communities
42:34
Speaker 3: in every part of America in creating roads and bridges
42:37
Speaker 3: at standard infrastructure, but also you know, taking steps to
42:41
Speaker 3: bring broadband to every family, taking steps to make sure
42:45
Speaker 3: that schools that wanted to put in electric school buses
42:49
Speaker 3: to reduce the pollution and the noise for kids riding
42:51
Speaker 3: that school bus every day, that they had resources to
42:54
Speaker 3: do that. So infrastructure as we traditionally thought about it,
42:57
Speaker 3: and you know these new forms of structure that are
43:00
Speaker 3: really important. Government really stepping in and saying, hey, there
43:04
Speaker 3: are certain sectors that we need as a country to
43:08
Speaker 3: be investing in high technology like semiconductors, clean energy, that
43:13
Speaker 3: these are the industries of the future that we want
43:15
Speaker 3: America to be and we need American businesses to be
43:19
Speaker 3: competitive in That was why we were making those investments.
43:22
Speaker 3: And we believe that if we encourage businesses in the
43:25
Speaker 3: right way, that can create good jobs and economic security
43:29
Speaker 3: for communities all across the country. So that active policy
43:32
Speaker 3: that is saying here's what really matters to us as
43:35
Speaker 3: a society, I think is a part of this trend
43:39
Speaker 3: because we can all see with our own eyes that
43:41
Speaker 3: fifty years of saying we'll let markets take it, that
43:45
Speaker 3: we don't really need to intervene, has left too many
43:49
Speaker 3: main streets devastated, has left too many families without economic security,
43:53
Speaker 3: and hasn't delivered the kind of economy that Americans want,
43:58
Speaker 3: need and deserve.
44:00
Speaker 2: We continue our conversation with Heather Bouche, Senior Research Fellow
44:04
Speaker 2: at the Harvard Kennedy School, discussing what we can do
44:08
Speaker 2: to help narrow the gap between the haves and the
44:10
Speaker 2: have nots. I'm Barry Ritults. You're listening to Masters in
44:14
Speaker 2: Business on Bloomberg Radio. I'm Barry Ridults. You're listening to
44:27
Speaker 2: Masters in Business on Bloomberg Radio. My extra special guest
44:31
Speaker 2: today is Heather Bouschet. She was the economist for the
44:34
Speaker 2: Joint Economic Committee of US Congress as well as a
44:39
Speaker 2: member of the Council of Economic Advisors under President Biden.
44:43
Speaker 2: She's currently Senior Research Fellow at the Harvard Kennedy School.
44:47
Speaker 2: So we've been talking about how the past forty or
44:51
Speaker 2: fifty years has seen both wealth inequality expand and income inequality,
45:00
Speaker 2: which dates back to the eighties and nineties, which so
45:04
Speaker 2: younger folks may not really remember. I want to I
45:07
Speaker 2: want to start by asking you about unintended consequences. And
45:12
Speaker 2: I have a recollection of legislation passed under the Clinton
45:18
Speaker 2: administration that said, Hey, you can't pay your CEOs tens
45:24
Speaker 2: of millions of dollars. It just seems ridiculous. Instead, we're
45:27
Speaker 2: going to cap the pay and allow you to pay
45:31
Speaker 2: them in stock and stock options. And as the stock
45:36
Speaker 2: market has gone higher and higher over the past you know,
45:39
Speaker 2: thirty years, it seems like a well intentioned attempt to
45:44
Speaker 2: reduce wealth inequality helped create more. How can we respond
45:49
Speaker 2: to those sorts of things when it seems the private
45:54
Speaker 2: sector is clever enough to kind of figure its way
45:57
Speaker 2: around whatever slative challenges are putting their their way.
46:04
Speaker 3: Always vigilant, right, I mean I think that it starts
46:09
Speaker 3: by I mean, it starts with taxation. Right. So what
46:15
Speaker 3: we have done over decades is lower tax rates at
46:19
Speaker 3: the top.
46:19
Speaker 2: We've made it for corporate corporations, are for individuals, because
46:23
Speaker 2: both corporations, as a percentage of total tax paid and
46:26
Speaker 2: the actual corporate tax rate, they both seem to have
46:29
Speaker 2: drifted down over the past.
46:31
Speaker 3: Few All of the above, and we've done that while
46:34
Speaker 3: not doing the things that we need to do to fix, uh,
46:39
Speaker 3: the transfer of wealth across generations. So we haven't imposed
46:42
Speaker 3: the kinds of inheritance taxes that I think would be
46:44
Speaker 3: really important to make sure that that wealth isn't calcified
46:49
Speaker 3: over time in families. And and that has been that
46:54
Speaker 3: has really made it so much easier for those who
46:58
Speaker 3: were who you know, worked really hard, did good not
47:01
Speaker 3: having to give back through you know, not having to
47:03
Speaker 3: pay those taxes on their highest income. But it also
47:06
Speaker 3: has allowed wealth to calcify. You know, there's this really
47:09
Speaker 3: important book that came out a number of years ago
47:11
Speaker 3: that I feel like we don't talk about anymore by
47:13
Speaker 3: Thomas Picketty, on Capital in the twenty first Century, and
47:17
Speaker 3: they were huge.
47:17
Speaker 2: That book was headlines for weeks.
47:20
Speaker 3: It was for weeks for weeks, and you know, one
47:24
Speaker 3: of the things that really was so important about that
47:28
Speaker 3: book was the way that he showed through all of
47:30
Speaker 3: this data the way that income high income and equality
47:34
Speaker 3: quality calcifies into high wealth inequality, and that once wealth
47:38
Speaker 3: becomes congealed, right, once a smaller and smaller number of
47:43
Speaker 3: people have access to that it becomes very difficult to
47:45
Speaker 3: unpack that, to share that, and for society as a
47:48
Speaker 3: whole to benefit from it.
47:49
Speaker 2: So let me push back a little bit and say, hey,
47:52
Speaker 2: we have fifty percent a state tax and the way
47:56
Speaker 2: you could get around that is by donating it to
47:59
Speaker 2: a philanthropy of ACA Foundation, what have you. Yeah, there
48:01
Speaker 2: are various trusts and things you could set up to
48:04
Speaker 2: avoid paying some of the taxes, but the tax man
48:09
Speaker 2: gets his due eventually. We're not like the UK that
48:14
Speaker 2: has this esconce gentrified nobility. Still the upper class there is,
48:21
Speaker 2: you know, just generations of landowners or is in the
48:26
Speaker 2: United States different from other countries or seen we have
48:31
Speaker 2: landed gentry here the way the UK.
48:33
Speaker 3: Does, I would argue. I mean, so first off on
48:36
Speaker 3: the data, we have so much higher economic inequality than
48:41
Speaker 3: our European other European countries, and we don't see the
48:46
Speaker 3: kind of movement across income groups they used to.
48:50
Speaker 2: We used to have pretty good post World War two
48:51
Speaker 2: economic mobility was pretty high in the United States.
48:54
Speaker 3: Right, So if you were born in the nineteen forties,
48:57
Speaker 3: your chance about earning your parents with about ninety percent. Right,
49:01
Speaker 3: But if you're born in the nineteen eighties, only one
49:04
Speaker 3: in two of us it's grown up to out earn
49:08
Speaker 3: their parents. So that's that is a remarkable shift, a
49:12
Speaker 3: remarkable constraint on upper mobility over time. And it is
49:15
Speaker 3: because you've seen this high these high incomes calcify into
49:19
Speaker 3: wealth and equality. That's sticky, right. You talked, we talked
49:22
Speaker 3: earlier about people moving into you know, wealthier enclaves, you know,
49:27
Speaker 3: with you know, better schools. Well, that is a way
49:30
Speaker 3: of you know, it's one way that it works its
49:33
Speaker 3: way through society that those kids will have more opportunities.
49:36
Speaker 3: You are able to keep that wealth in that family,
49:41
Speaker 3: and then you don't see those economic benefits kind of
49:43
Speaker 3: flowing throughout your society, and you don't see that economic
49:46
Speaker 3: opportunity flowing through.
49:47
Speaker 2: So we talked a little bit about what the pandemic
49:52
Speaker 2: revealed with fragile supply chains and how many crucial things
49:58
Speaker 2: like just the masks and gowns and gloves that aren't
50:03
Speaker 2: made in the United States. What's the genesis of this,
50:08
Speaker 2: How much of this can we blame on Walmart, and
50:11
Speaker 2: how much of this can we blame on just Hey,
50:15
Speaker 2: technology and transportation allowed manufacturing to go to the lowest
50:20
Speaker 2: cost provider.
50:22
Speaker 3: That's a big question with a lot of answers, but
50:24
Speaker 3: I think there's a few really important points there. Right, So,
50:29
Speaker 3: once you had the capacity for an idea to happen
50:34
Speaker 3: in one place, the innovation, the engineers, the plants happened
50:39
Speaker 3: in one place, and the production of something to happen
50:42
Speaker 3: someplace else because you know, you could send those plans
50:46
Speaker 3: via the Internet or you know, to a different place.
50:50
Speaker 3: It made it possible for us for companies all across
50:53
Speaker 3: the United States around the world to outsource that production.
50:56
Speaker 3: And we did that at a time when we were
50:58
Speaker 3: making those rules easier. Right, we had decades of trade
51:03
Speaker 3: agreements that made it easier for firms to have overseas production,
51:08
Speaker 3: to become multinational companies. We wanted to trade. We wanted
51:12
Speaker 3: to have more trade. We believe that would make it safer,
51:14
Speaker 3: it would you know, you're not going to go to
51:17
Speaker 3: war with somebody if you're trading with them, right, You're
51:19
Speaker 3: you're going to create these positive benefits for our geopolitics.
51:25
Speaker 3: And yet what we've seen is that what that's done
51:28
Speaker 3: is it's really stripped production from the ideas and the innovation.
51:34
Speaker 3: And so I have left the United States with kind
51:37
Speaker 3: of assuming that we could be the ideas people, but
51:39
Speaker 3: that the production of things could happen in places where
51:43
Speaker 3: wages were lower and where we didn't have to worry
51:45
Speaker 3: about messy things like the environmental consequences. So you took
51:49
Speaker 3: the hard stuff out of all the things that we
51:51
Speaker 3: make and use, and yet you outsource that, and that's
51:55
Speaker 3: left our economy very fragile because, as it turns out,
51:58
Speaker 3: when things get rough, when there's a panda, and you know,
52:01
Speaker 3: I'm spending a lot of time these days thinking about, well,
52:04
Speaker 3: one of the crises coming down down the pipeline at
52:09
Speaker 3: US is climate change and the energy transition that that
52:11
Speaker 3: will require. That's going to create these ongoing challenges for
52:16
Speaker 3: our economies in our societies. If you have this global production,
52:20
Speaker 3: where's the resiliency? What is that going to do? Are
52:23
Speaker 3: you going to be Are we literally going to be
52:25
Speaker 3: safe as a nation, let alone the economic consequences that
52:28
Speaker 3: we've seen for decades. It's that that kind of global
52:31
Speaker 3: production system is hollowed out American communities. And I'm not
52:36
Speaker 3: saying that it was caused by policy, but it was facilitated.
52:39
Speaker 3: There was this very important role for technology, but we
52:42
Speaker 3: didn't step in and sort of say not enough policy
52:45
Speaker 3: makers stepped in and said, hey, this might not be
52:48
Speaker 3: this might not be good for us. We may want
52:51
Speaker 3: to make sure that we have the capacity to make
52:53
Speaker 3: the most important things, because if you can't make them,
52:56
Speaker 3: then you're going to be vulnerable in a geopolitical sense.
52:58
Speaker 3: And now we're kind of frankly stuck behind the eight
53:01
Speaker 3: ball a little bit, where some of the most important
53:04
Speaker 3: things we don't have the capacity to make. And again
53:06
Speaker 3: we saw that in the pandemic with the simple things
53:08
Speaker 3: with the mass We also saw that with the ventilators,
53:10
Speaker 3: we couldn't get enough of those, and we saw that
53:15
Speaker 3: Another example that I've thought a lot about recently. I
53:18
Speaker 3: talked to a lot of people when I was in
53:19
Speaker 3: Cambridge this year. Drones, which you know, the all of
53:24
Speaker 3: you know, virtually all of those are made in China.
53:26
Speaker 3: So when China started partnering with Russia, that made it
53:29
Speaker 3: hard for the Ukrainians to get the drone parts and
53:31
Speaker 3: to get the drones they need to fight their war.
53:34
Speaker 3: That's a that was a technology problem that very quickly
53:38
Speaker 3: became a very important national security issue. And are we
53:42
Speaker 3: are we getting ahead of those kinds of questions.
53:44
Speaker 2: So on the siem Teleb wrote a book called Anti Fragile,
53:49
Speaker 2: all about resiliency and how to make sure that you're
53:55
Speaker 2: not merely relying on just one element, that you're diversifying
54:00
Speaker 2: and broadly exposed. How can government policy drive that? If
54:09
Speaker 2: if it's in the shareholder's interest to reduce costs a
54:12
Speaker 2: maximum amount, increased profits maximum amount, who's responsible for creating
54:19
Speaker 2: this anti fragility? How does government build resilience into the economy.
54:26
Speaker 3: Well, there's it's a tough question, but there are some tools.
54:30
Speaker 3: I mean, so first off, you have to define it.
54:32
Speaker 3: And what do you mean by resiliency is that you
54:35
Speaker 3: want to have domestic production, production with you know, in
54:39
Speaker 3: the during the Biden years we called it friend shoring
54:41
Speaker 3: or you know, production within allies that you feel really
54:44
Speaker 3: comfortable with. But fundamentally it comes down to do you
54:47
Speaker 3: have various options if there's a if something happens with
54:51
Speaker 3: this part of your supply chain, are there other ways
54:53
Speaker 3: that you can get what you need. We live in
54:55
Speaker 3: a continent spanning economy and you know, with you know,
54:59
Speaker 3: three hundred and thirty three hundred and forty million people,
55:01
Speaker 3: there is a lot of opportunity to create resiliency domestically,
55:06
Speaker 3: but also there's a lot of benefits to global trade,
55:08
Speaker 3: So how do we think about making rules that encourage that.
55:11
Speaker 3: And the thing in the nut of this is is
55:12
Speaker 3: that that's going to be a little bit costlier in
55:16
Speaker 3: the short term, but what are the costs over the
55:18
Speaker 3: long term? What are the cost during a crisis? How
55:20
Speaker 3: much money did the federal government had to spend during
55:23
Speaker 3: the pandemic to help companies get over their supply chain challenges.
55:28
Speaker 3: How much extra money did Americans pay because firms were
55:32
Speaker 3: able to charge higher prices than even perhaps they needed
55:34
Speaker 3: to because of the crisis. So there are and we
55:40
Speaker 3: know that there will be future crises coming. So it's
55:43
Speaker 3: government's job to make sure that we're protecting the welfare
55:47
Speaker 3: of the nation. This certainly needs to be a part
55:49
Speaker 3: of the question. So what are all the tools in
55:51
Speaker 3: our toolbox? So maybe some of those tools are about
55:54
Speaker 3: how we think about our trade policy, how we think
55:56
Speaker 3: about our anti trust policy. Maybe we're using procurement policy.
56:00
Speaker 3: But there's a wider range of tools that government should
56:03
Speaker 3: be using. So I wouldn't get too wrapped up in
56:05
Speaker 3: the one solution, but that this is the question that
56:08
Speaker 3: we need to be asking ourselves.
56:10
Speaker 2: So I was fascinated by some research you did. At
56:14
Speaker 2: the time, there was this concept that highly educated women
56:18
Speaker 2: were dropping out of labor force because of the motherhood movement.
56:23
Speaker 2: I think the news media picked that up and ran
56:26
Speaker 2: with it. Turns out the data really didn't support it.
56:30
Speaker 2: Tell us about your research into what was going on
56:34
Speaker 2: with the she session that people had been talking about.
56:38
Speaker 3: Well, this comes up time and again where you see
56:41
Speaker 3: and it's happening now actually, and it happened in the
56:46
Speaker 3: early two thousands. They'll see these moments where women their
56:50
Speaker 3: labor supply goes down or they don't recover from a recession,
56:53
Speaker 3: and people start saying, oh, well, it's definitely because she,
56:56
Speaker 3: because women don't want to be in the labor market,
56:58
Speaker 3: they'd prefer to not be working, and so this is
57:01
Speaker 3: good or this is women's preferences. And then when you
57:04
Speaker 3: start scratching the surface and you look at the data,
57:07
Speaker 3: you see that actually it tends to be more about
57:11
Speaker 3: demand side issues, that those jobs weren't available or they
57:14
Speaker 3: weren't providing the supports that families need to deal with
57:20
Speaker 3: care issues. So that was the research that I did
57:23
Speaker 3: on opting out in the early two thousands, and I've
57:26
Speaker 3: been hearing a lot about this more recently with what's
57:29
Speaker 3: happened post pandemic, and is a lot of businesses are
57:32
Speaker 3: demanding return to office. But with the pairing back of
57:36
Speaker 3: the American Rescue Plan and the inability of the Biden
57:39
Speaker 3: administration to get all of the care pieces of our
57:42
Speaker 3: agenda across the finish line, Senator Mansion stopped the investments
57:47
Speaker 3: in home health care for the aged. He stopped those
57:51
Speaker 3: investments that we wanted to do for childcare. So a
57:54
Speaker 3: lot of those businesses have really struggled in the past
57:58
Speaker 3: couple of years. You're now seeing that have an effect
58:01
Speaker 3: on women's labor force participation, and people are again talking
58:04
Speaker 3: about this as voluntary, when I think we need to
58:06
Speaker 3: really be looking what kinds of supports are we making
58:08
Speaker 3: sure that families can address their care issues and still
58:12
Speaker 3: participate in the labor market.
58:14
Speaker 2: Thank you, Heather for being so generous with your time.
58:16
Speaker 2: We have been speaking with Heather Bouchet, Senior Research Fellow
58:20
Speaker 2: at the Harvard Kennedy School and her most recent book, Unbound,
58:25
Speaker 2: How economic inequality constricts our economy and what we can
58:29
Speaker 2: do about that? If you enjoy this conversation, well, be
58:33
Speaker 2: sure and check out any of the previous five hundred
58:36
Speaker 2: and fifty we've done over the past eleven years. You
58:40
Speaker 2: can find those at iTunes, Spotify, Bloomberg YouTube, or wherever
58:44
Speaker 2: you find your favorite podcast. Check out my new book
58:48
Speaker 2: How Not to Invest The ideas, numbers, and behavior that
58:51
Speaker 2: destroy wealth and how to avoid them How Not to
58:54
Speaker 2: Invest at your favorite bookstore. I would be remiss if
58:58
Speaker 2: I did not thank our crack team that helps put
59:01
Speaker 2: these conversations together each week. Alexis Noriega and Anna Luke
59:06
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59:12
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59:15
Speaker 2: podcasts at Bloomberg. I'm Barry Ritolts. You're listening to Masters
59:19
Speaker 2: in Business on Bloomberg Radio.