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Today’s read: 11 minutes.
I interviewed Vice President Joe Biden’s former chief economic adviser Jared Bernstein (pictured below with President Obama), who is currently advising the Biden campaign. Plus, some quick hits.
Jared Bernstein and President Barack Obama high five in the oval office after a meeting in 2010. Photo: White House
In the last few months, the United States has experienced one of the greatest economic disruptions in its history.
Before the coronavirus pandemic, the record for weekly unemployment claims in America was 695,000 in 1982. In late March, there was a week where 6.9 million people filed for unemployment — 10 times the previous record. Since then, we’ve had consecutive weeks with millions of new unemployment claims, all pre-pandemic record highs. Today, The New York Times estimates that 30 million workers are collecting unemployment. Speaking frankly: we’ve never seen anything like this, at least not since the Great Depression.
In response, the federal government has been pouring money into the economy in a way we’ve also never seen. The first COVID-19 relief bill, which sent $1,200 checks out to Americans making less than $75,000 a year, funded hospitals and local governments, created a small business relief fund and threw $600 a week on top of state unemployment benefits, cost the government $2 trillion. Interest rates — the amount a lender charges someone on an annual basis to borrow money — have been slashed to encourage people (and the government) to take out loans. And right now, Congress is debating a second bill that could be as large as the first.
Throughout this time, as we’ve bled an untold number of jobs, as businesses have been forced to close down and as Americans have been asked to quarantine, the stock market has essentially recovered. Far from the doomsday declines we saw in March, the market has roared back and corporate profits in many corners of the economy have stabilized.
Making sense of this insanity is not easy. Over the last few weeks, questions have poured into Tangle about the economy. How can the government spend this much money? How is the stock market doing so well when we’re losing millions of jobs a week? What is the actual cost of the federal government spending this money? How do we get out of this mess?
To get some expert feedback on these questions, I went through my digital rolodex of economists who have worked in the federal government. The first to respond was also one of the most relevant for this moment: Jared Bernstein. Bernstein has been an economist in Washington D.C. since the 1990s, and he’s worked for two Democratic administrations: Bill Clinton’s and Barack Obama’s.
But most importantly, Bernstein was the chief economic adviser for Vice President Joe Biden, who could be President of the United States in a few months.
Given the current state of the polls, and if history is any indication, that means Bernstein is likely to be one of the most important economic voices in America come January 2021, when Joe Biden will potentially be sworn in as president — and he would be at the top of the list to join his administration
For now, Bernstein is an informal economic adviser to the Biden campaign, which is another interesting twist to this interview. Biden has been secretive about who is advising his campaign on the economy, so much so that The New York Times ran an entire story about it. The headline was: “Biden’s Brain Trust on the Economy: Liberal and Sworn to Silence.” Bernstein is one of the few advisers who was actually named in the story and it was confirmed by the campaign that he is regularly briefing Biden.
I spoke to Bernstein over the phone on Thursday afternoon about everything that’s going on, the prospect of him being in a Biden administration and what Biden would do differently than President Trump.
The following interview has been lightly edited for clarity and length. I have also annotated parts of the interview with asterisks when I felt additional context was important.
Tangle: I guess maybe a good place to start would be if you could just tell my readers a little bit about your background and your experience working in the federal government and in the economic space.
Bernstein: Sure. I've been an economist in Washington D.C. since the early 1990s actually, and have worked for various think tanks, and I've gone in and out of government working for the labor department during the Bill Clinton years and then as the chief economic adviser to Vice President Obama — I’m sorry [laughs] — as the chief economic adviser to Vice President Biden during the Obama years.
Tangle: Let's just jump right in. The last few months have been arguably the greatest economic disruption we've seen since the Great Depression and I think one of the big recurring questions that I keep getting from readers is: We're losing all these jobs and the stock market is going through some fits and spurts, but it's also climbing. It's bounced back really high since this huge drop-off in March. A lot of that seems to do with the feds just pumping money into this thing. So are we just printing money? I mean, what's happening right now? How is it that the market seems so divorced from the jobs reports we’re seeing right now?
Bernstein: Well, first of all, part of what’s increasing the stock market are expectations about the future. I think in a general sense, the stock market has a relationship with the economy, but it's certainly not one for one or day-to-day as we can see. Basically, the stock market is trying to look around corners and think about how profitable the companies whose shares comprise the market will be around those corners. And that's a very, very hard exercise to do these days. Everything is fraught with uncertainty.
That's why when you see even an obscure news story about perhaps a vaccine showing promise in some corner of China or something, the stock market goes on a tear, because they're thinking this will be a plus for corporate profitability down the road. So that's one reason. And in that sense, I certainly wouldn’t trust the stock market's ups and downs, and particularly its ups lately, because there's a kind of — what did Greenspan call it? — the “irrational exuberance” to part of that.*
I wouldn't really call it irrational, more like just a discounting of the extent of the uncertainty out there. I think the market is kind of evincing more optimism than is probably warranted at least in the near term. And then there's the fact that there are a couple of companies, and they are big companies, that are doing really quite well in the pandemic. If you think about some tech companies, if you think about Zoom or Amazon or if you think about grocery stores, not every company has been slammed by the pandemic. Certainly, some have. But for others, their profitability is legitimately up and the market reflects that as well.
*Alan Greenspan is the former chairman of the Federal Reserve Board. In a speech given at the American Enterprise Institute during the dot-com bubble of the 1990s, Greenspan famously said the market had an “irrational exuberance,” which many interpreted to mean he thought it was overvalued. The speech was being televised live, and the markets in Tokyo were open at the time. They reacted with a sharp decline and closed down 3%, and the rest of the world market followed.
Tangle: I guess maybe more specifically, in terms of the federal plans that we're seeing — the response plans that we're seeing right now — we're talking about bills that are a trillion dollars, three trillion dollars, second rounds of bills in that ballpark. How can the federal government afford this? I mean, can they? What's the mechanism for them in layman's terms to pump this kind of money into American society and send everybody, you know, $1,200 stimulus checks or $600 unemployment benefits a week?
Bernstein: Well, if you think about times when our country or really any other country has faced a real crisis, there's always a certain amount of borrowing in order to get you to the other side of the crisis. So, you know, I wonder if we'd be having this same discussion about anxious spending on deficits and debts in the public sector if we were in the middle of a war? People would be kind of “yeah, of course, we're borrowing and spending, we have to!” Well, we're in a war, against a microbe, and it is a truly devastating one. I think there are important ways in which that war is being terribly mishandled in terms of controlling the virus and preventing it. There's definitely a real failure of leadership in play here, but that's a somewhat different discussion.
In terms of borrowing and spending, I think it makes a lot of sense in order to offset this pandemic-induced recession. It's through no fault of their own that lots of businesses and households are really struggling right now. That's a national policy to help reduce the spread.* That begs the question: “what will be the impact of all of this borrowing?”
Well, there's no question that our credit card bill, which in public finance means our debt and our budget deficits — the debt just being the accumulation of all the deficits that we have** — are growing to historical proportions. But the reason why that's not particularly worrisome right now is that interest rates have been so low. That is servicing this large stock of debt that we're collecting, which will not be particularly burdensome unless interest rates were to rise. And they could, but expectations are for that not to be a very likely scenario. And in no small part because the Federal Reserve, as you mentioned earlier, is keeping interest rates very low.***
I guess the last thing I'll say about this is that if you want to get worried about the federal budget, it's not temporary measures like these relief bills that should spook you. They tend to come and go as needed and as long as interest rates stay low and are steady we can service that debt. The problem we have in our fiscal accounts, which are far from rosy — I don't mean to paint too pretty a picture here — is that we have these structural imbalances. That is, even when the economy was doing really well, our deficit was growing. Meaning that we weren't collecting enough in revenue to support our spending, and that's a structural problem that eventually will become — I think —really important, and needs to be addressed.
*The “national policy” Bernstein is referring to here is the closure of businesses — the stated goal of which was to slow down the spread of the virus.
**The deficit is the difference between how much money the U.S. government takes in from taxes and how much money it spends over the course of a year. If the government spends $100 and collects $90 in taxes, then the deficit is $10. The debt is the total amount of money the U.S. government owes — or the accumulation of past deficits.
***The federal reserve is the central banking system of the United States. It determines things like the interest rates to try and stabilize and grow the U.S. economy.
Tangle: Not to harp on it too much, because I know it is a little bit of a dead horse to be beating, but I am curious… and I think this is something most Americans kind of struggle to understand. Even for me, as a politics reporter, the economics of this stuff is not my strong suit. What's the actual risk of blowing up the debt or the deficit? I mean, we owe ourselves money, you know? Who cares? Is that really the risk? I think people have a hard time getting their hands around why that is such a big deal. What's the practical risk?
Bernstein: I can answer that I think. Or try to. First of all, it is true that most of the debt that we owe is to “ourselves,” meaning other Americans. And that's not particularly problematic because people who lend the government money will be paid back and spend it within our economy. On the other hand, it used to be the case that the vast majority, about 90% of our borrowing, was from Americans. Now, it's more like 60%, meaning like 40% of our debt is owed to foreigners.* So it kind of leaks out of our economy and I don't think that's particularly great.
Secondly, when you have a very large stock of debt, meaning that you've accumulated all this debt over so many years so that you're looking at really big numbers that are almost the size of the economy, or even bigger in terms of the debt that is held by the public today… that means when interest rates do go up, it costs you a lot more to service the debt, and that's money that you can’t spend on things that people need and want, including Social Security and Medicare and education and childcare and nutritional support and all kinds of things that the government does.
You're diverting money to service your debt. So that's another risk. Now, as we said, some of that money is going to people and that's all well and good, and some of those people are Americans so that's fine, we're okay with that, but it is a constraint on government spending when you have to channel significant mass into debt service. Again, just as long as interest rates stay low, I don't see that as a challenging scenario anytime soon.**
*Bernstein basically nailed this off the top of his head. According to the Council on Foreign Relations, more than 40% of debt is now held by foreign investors and governments. China and Japan each own more than $1 trillion of U.S. debt.
**Bernstein is relatively well-known for this position. He’s one of a few mainstream economists who contend that concerns over debts and deficits are overblown, and that we have a lot of time to right the ship. In 2018, Bernstein warned of a “deficit attention disorder” that caused too much focus on the issue of debt and deficits. “We’ve been so outspoken about the downsides of these deficits, and they haven’t materialized,” he said then.
Tangle: Got it. So, I have to ask: You mentioned at the top you served previously as a chief economic adviser to Vice President Biden. I guess two questions for you related to that: One, do you imagine you'll be a part of the administration if he's elected? And two, if you were a part of that administration or if you were advising him right now at this moment, what would you be doing differently than the current administration?
Bernstein: Well, on the first point, I'm just not going to speculate what's going to happen —because who knows? On the second point, I do informally advise the Biden campaign right now, and most of the conversations are really about two things. One is, what kind of relief efforts does the vice president think are most important to get us to the other side of this crisis?
Once we're there, the second thing is a much broader and I think a more lasting agenda. And he's really been focused, as you can see, in the things that the campaign has published in recent weeks,* what are the set of policies that are needed to have a much stronger and more resilient economy on the other side of this pandemic?
The American economy has just been battered by all of these shocks over the past few decades. Whether it's a financial crisis, and so we bail out the banking sector, or then 10 years later we're bailing out a bunch of other sectors. Whether it's the pandemic that is testing the healthcare system, which really isn't up to the task. Whether it's hundred-year floods that seem to come every year. Whether it's racial inequities that are so persistent and so pernicious, there are structural, really, flaws I think, in the kind of nexus between economic policy and the economy.
And they're exposing too many Americans, particularly middle class and lower-income people, to very high levels of insecurity and volatility. And that's an area that the vice president really wants to attack if he's fortunate enough to become president.
He's been releasing policies just in the past few weeks in areas like clean energy, “Buy American,” on-shoring supply chains, manufacturing innovation and education jobs, including child care. And I think in every case, he's trying to build that resiliency that is so conspicuously lacking, particularly from the current administration, that in my view is just really very bad at basic governance and is very good at making noise and trying to convince people that they're doing things that they think people want to see. But in terms of actual governance, I think many Americans just really aren't liking what they're seeing right now.
*This week, Biden released a $700 billion “Buy American” plan meant to create at least 5 million new jobs in manufacturing and innovation.
Tangle: I guess sort of related to that, one of the really big questions right now is what to do on this next stage of relief and very central to that debate seems to be whether the federal government should keep up this $600 enhanced unemployment benefit. I'd love to hear your perspective about the pros and cons of something like that. I mean, I know for many Americans, because of the way wages are in the country right now that they're kind of making more money than they were when they were employed.* And that's good in one sense, it’s a sign of how horrible wages are in another, and then a little bit complicated when it comes to the efficacy of getting people back to work and getting the economy going. So what’s sort of the up and down on that specific topic for you guys and what you think Vice President Biden would do?
Bernstein: I'm gonna leave Biden out of this because I'm not sure — what's more relevant right now is really what Congress is going to do, because they're debating this literally as we speak.** The thing that you want to be concerned about, if you're nervous that paying people more on unemployment insurance than they can get from work, if you're worried that that is a work disincentive and it's going to keep people out of the job market when we need them to come back… I think that at some point, I hope that at some point, that becomes a really important and valid worry, but it isn't right now.
The problem is that the labor market is like this really unforgiving game of musical chairs with way too many people and way too few chairs. Meaning it's oversupplied. People can't find the work they need, and there's lots of evidence that not only is this the case — but that it's actually getting worse, not better.
July looks much worse for the labor market than May or June did and I wouldn't be surprised if when we learn about the July jobs on August 7th, if it's a very low number or even a negative number. We can see in all kinds of data releases whether it's small businesses, whether it's consumer spending, whether it's people’s rental situations, just a ton of stress out there.
And all of this is because of course we really lost control of the virus. And that thread, as simple and as obvious as it is, gets lost in this discussion way too quickly. I mean the chair of the Federal Reserve, Jay Powell, the other day said something to the effect of “let's get the sequencing right here.” If we don't control the virus, there will be no economic recovery to speak of.*** And that's kind of what we're looking at. So we need to do everything we can to make sure unemployed people can continue to put food on the table and pay their rents.
Now, is $600 the magic number or is it something else? We can certainly debate that and again that debate is occurring. What we can't debate is that it would be somehow okay to allow that enhanced benefit to expire or to go back to the regular status quo where people get about half their wage in terms of UI (unemployment insurance) replacement.
That's way too low, and that is a recipe for evictions, for hunger, literally for bank failures. Because once people stop paying their rent, then their landlords can’t pay their mortgages, and if you follow that chain along it goes right to the financial system. So this is really important stuff.
*One recent study suggested 68% of unemployed workers who can receive benefits are eligible for payments greater than their lost earnings.
**Our call took place on Thursday, July 23rd, as Republicans and Democrats in Congress are negotiating what will be in the next COVID-19 relief bill.
***Jerome “Jay” Powell, the Federal Reserve chair, testified before Congres about the economy at the end of June. “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” he said. “A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”
Tangle: And it seems very much like a product of the fact that so many Americans are sort of living on the edge of a livable wage. They don't have savings. I often write and reference in this newsletter a statistic that shocks me every time I consider it, which is that nearly half of the country's workers are in low-wage jobs making a median income of about $18,000 a year. I know in the next administration, if it is a Biden administration, solving some of that and sort of bringing back a strong middle class is going to be a priority. I've been reading through Biden’s economic plan and there's been some things in there like a federal minimum wage increase and supporting unions that seemed to sort of bolster this focus on getting wages up. I'm curious for you what you see as being key to that if we get back on stable ground?
Bernstein: Well, certainly increasing the minimum wage is key to that. Allowing people to be able to form unions and join unions and improve their bargaining power. For as long as we have the data that's been historically associated with significant wage premiums because you're giving workers more bargaining clout.*
Then there's Biden's jobs agenda. The thing that really delivers to workers — among the other kinds of things we're talking about — is when the labor market really tightens up and workers have more bargaining power. Of course, the unemployment rate is stuck at around 11 percent right now,** so Biden's jobs agenda — which they argue they’re going to create millions of jobs in manufacturing sectors and child care and education and clean energy — that's critical as well. But as you suggest, job quality is a major issue as well.
And I think where his agenda is interesting is around the manufacturing sector, using government procurement. The government procures over $600 billion a year in goods and services and Biden proposes putting another $400 billion on top of that. This government procurement both can be good jobs or they can be offshore jobs. His buy American proposal is obviously targeted to trying to onshore those kinds of job opportunities.
I think that the solutions to these problems are a higher minimum wages, stronger unions and more robust job creation, particularly good quality or higher value-added jobs.
*This is not settled fact. The debate over how unions impact wages is hotly contested amongst economists, though recent studies do seem to suggest the weakening of unions has contributed to accelerating income inequality.
**Before the coronavirus, the unemployment rate was below 4%, which would have been a key metric of success for the strength of the Trump economy.
Tangle: One last thing, before I let you go, something that sort of popped up on my radar recently as maybe a more radical proposal, is about devaluing the U.S. dollar,* which my understanding is it seems like a little bit of a fringe idea. I don't really know whether there's any mainstream consideration for something like that, but I was curious if maybe you could speak to the risk of a move like that and whether you think it might function as a stimulus?
Bernstein: Putting aside this notion of whether a country would want to try to devalue its currency, although in fact many countries have done so and some are doing so,** the economics of that are actually that if your currency is worth less relative to those of your trading partners, then the things you export to them are cheaper than the things they export to you.
So if you want to have a more positive trade balance, which is a plus for growth particularly in exporting industries like manufacturing, but also many of our services like finance and entertainment, you actually might pull for a weaker currency because that helps. It also can help kick up inflation a lot. We had very low inflation which isn't always a good thing.
However, I don't think that the U.S. is going to engage in any major initiatives to weaken the dollar. I think what's probably more important in this space is that we push back aggressively against countries who manipulate their currencies** so that they have the kind of advantage I was just talking about and there are lots of good ideas about ways to do that. None of them have to do with broad tariffs. They don't really do anything in this space and much of it has to do with negotiating with other countries not to engage in currency manipulation and making it cost more for them to do so by essentially penalizing those kinds of activities.
*Economist Hugh Hendry recently made waves by arguing the U.S. could “change the world” by devaluing the dollar. Hendry argued that the huge stock market sell of in March was partially due to investors having to sell assets to create dollars and pay off debt.
**Major U.S. partners, including China, have been accused of devaluing their currency. The debate over whether or how they are devaluing the currency is robust.
Tangle: Got it. Jared, thank you so much for the time. I really appreciate it and I'll be keeping an eye on you guys. I'm very curious to see how the next few months play out [laughs], but let's keep in touch and maybe we can link up again.
Bernstein: My pleasure, Isaac. Good talking to you. Take care.
Editor’s note: A previous edition of this transcript noted that Bernstein formally advised the Biden campaign. Bernstein reached out to Tangle after publication to note that he informally advised them, not formally. We’ve updated the transcript to reflect this.
Friday editions are for paying subscribers only — and I try to mix up the content with original reporting like this and unique newsletters that dive into different topics. Let me know if you enjoyed this interview or want more of it — or if there is someone out there you want Tangle to speak to. I’m good at getting folks on the phone.
Yesterday, President Donald Trump canceled the Republican National Convention that was scheduled for Jacksonville, Florida. “It’s not the right time,” President Trump said. Trump had initially forced the convention to move from Charlotte to Jacksonville in order to avoid strict regulations over the coronavirus. Trump said he plans to replace the convention with online or television rallies.
Florida Gov. Ron DeSantis, Texas Gov. Greg Abbott, Arizona Gov. Doug Ducey and Georgia Gov. Brian Kemp — all Republicans — saw their approval ratings plummet this month after large coronavirus breakouts in their states. The recent data suggests that COVID-19 and its prevalence is having a major impact on how voters view their leaders, even at the local and state level.
Yesterday, The Great American Outdoors Act passed through Congress with bipartisan support. The bill garnered rare, enthusiastic support across the political spectrum and will act as a historic conservation of public lands. Conservationists say it’s the most significant bill passed in 50 years. Under the bill, the Land and Water Conservation Fund (LWCF) will receive $900 million of annual funding from offshore oil and gas revenues, meaning it won’t come out of taxpayer pockets. The president still needs to sign the bill.
Senior Republicans in Congress are struggling to overhaul the emergency unemployment benefits that send $600 a week to unemployed Americans. The fraught negotiations are leading to a surprising delay in the introduction of the GOP’s $1 trillion stimulus package, which was expected to be released this week and set off negotiations with Democrats. Republicans say they want to cut but not limit the enhanced unemployment benefits but can’t seem to agree on how to do that. The benefits expire next week.
China retaliated against the U.S. for closing its Houston, Texas, consulate by ordering the closure of a U.S. consulate in the southwestern Chinese city of Chengdu. The Chinese Foreign Ministry also responded in kind with nearly identical claims to the ones the U.S. made against China earlier this week, accusing U.S. consulate staff in Chengdu of “having interfered in China’s internal affairs and damaged the country’s security interests,” according to The Wall Street Journal.
See you Monday.
Tangle is a Monday-Thursday newsletter, with Friday editions for paying subscribers only. Enjoy the weekend, take a break from politics and we’ll see you on Monday.