 Good afternoon and welcome. I'm Susan Collins, the Joan and Sanford Wildean here at the Gerald R. Ford School of Public Policy. And it's always a little bittersweet to have our last policy talks of 2016. But I'm delighted to welcome all of you here for that. And I'm also thrilled that we're ending on a very high note. So it's my great honor to welcome today the chair of President Obama's Council of Economic Advisors, Jason Furman. We're delighted to have you here. Actually, before we begin, I just wanted to thank you. You spent the entire day with us. You have gone to classes. You've met with PhD students. You've met with some of our faculty. You've already had a really full day. Thank you. We appreciate it. For his policy talks, Jason will reflect on experiences in the Obama White House and also public policies role in reducing poverty, which is a really important topic to all of us, especially as the university has just launched the Poverty Solutions Initiative. You can read about Jason's background in the program today. And so I'm just going to give a very brief introduction. As most of you know, the Council of Economic Advisors, or the CEA, provides objective empirical research for the White House and prepares the annual economic report of the president. Jason Furman has served as CEA chair since 2013. And he served, as you can see in the program, in a variety of economic policy posts previous to that appointment. He's also known as a really data savvy strategist and also as someone who is very good at explaining economic concepts to economists and non-economists alike. And so I know that many of you, like me, have been looking forward to hearing from him today. I'd also like to take this opportunity to highlight his many connections to us here at the Ford School. So first of all, we have two faculty who have previously served in the Council of Economic Advisors, Marina von Neumann-Whitman, who I don't think is here with us today, but our very own Professor Betsy Stevenson, who served in the Obama administration for two years and also with Jason Furman. Second, Jason was a student of our very own John Leahy, the Sinai Professor of Macroeconomics and Policy. And I'm especially pleased to recognize a Ford School alum, Andy Taverna, who is the chief of staff for Jason Furman and is with us today. Andy, we're really pleased and we're proud of all of the great work you're doing. So congratulations. Following Jason's remarks, we'll open to questions from the audience. And you should have received a card as you came into the room. We'll have staff who are walking the aisles, starting in about half an hour or so. And Professor Josh Hausman, together with two Ford School students, Sam Geller and Farah Mandic, will facilitate the question and answer session. If you're watching online, please tweet the questions into us using the hashtag PolicyTalks. And so with no further ado, I am delighted to welcome Jason Furman to the podium. Thank you. So thank you for that introduction. Thank you for covering much of the Michigan connection, but at Linda Tzar as well as a senior economist. My mother is a graduate of the University of Michigan and always wanted me to go here and I finally succeeded in doing that. That's why I want to spend the whole day here. And my special assistant is also a Ford School graduate, Jeff Goldstein, so played a disproportionate role in the Council of Economic Advisers in the last several years. And I don't think that's an accident, because this is a place that really thinks about public policy, that thinks about it empirically and is grounded in the world, but does it in a manner that's really rigorous and serious. And so I think you've helped me and helped the country more broadly and will continue to do so. My talk today is going to be pretty broad ranging. Actually, I was originally going to focus more specifically just on poverty and decided to broaden it out and make that an invitation. Also in the discussion we have to discuss really whatever anyone here wants to discuss, including you can ask questions that are a little more political and I will choose whether or not to answer them. So what I want to cover is the recent good in terms of what's happened in the economy, then step back and put that in the context of the longer term trends that we've faced, which go under the analytically rigorous heading of bad. And then talk about the sources, a decomposition of that in terms of productivity, inequality, and labor force participation. I'm required to talk about our policies wherever I go, but I think it's actually quite important because they're larger quantitatively, I think, than many people appreciate. And we'll be subject to debate for many years to come. So I think it's important to understand them and then finally want to talk about issues with sustainability and resilience going forward. So this will put a lot of stuff on the table and then we can continue following up on whatever parts you all want to follow up on. So starting with the recent good. The first thing I would start with, any time we want to think about the economy over the last eight years, is where we started. And we all know there was a financial crisis. We all know there was a great recession, but a lot of people don't appreciate, given that we know how it turned out, was just how bad and scary it was at the time. If you look at household net worth, households lost more than 15% of the net worth. If you compare it to the Great Depression, it's multiples as large. And that's because the stock market decline was the same as what we had in the Great Depression. The loss of value of housing was larger and more people owned their houses. The collapse in global trade was larger than the collapse that helped precipitate the Great Depression. The loss in employment was about the same and GDP was a little bit more moderate. And I remember, and I see Michael here was there and scared at the time, Michael Barr, as well. I used to look at this chart every day that tracked the stock market and it had the Great Depression as 100 at the beginning, us at 100. We were basically following right exactly the same path up through March of 2009. So it was this enormous and terrifying event. To look at where we've come since then, it's useful to, if you're assessing whether a drug works to cure a patient, the thing you'd wanna do is look at a few different patients who have the same problem, give one of them one drug and give another one a placebo or a different drug. In some sense, that's what we've did. This shock hit a lot of countries and this shows the United States, Japan, the United Kingdom and the Euro area. And all of these areas took different strategies. The United States was the one that cut interest rates the furthest, most sustained basis and did the most sustained balance sheet expansion. This was all done independently in terms of monetary policy. The United States had the most vigorous fiscal response in the initial years of the crisis, although pivoted to fiscal consolidation too soon, than we would have liked to. And also did the most to immediately recognize the problems in the banking system and recapitalize. And you look, we reattained our per capita GDP on a sustained basis before any of the other major economic areas. We're growing at about the same or faster rate than any of them still today. And this is all done on a per capita basis. I'll steal this, sorry, more flexibility. You, the strongest indicator of what's happened in the economy and the thing that matters the most to people is the unemployment rate. And the dotted lines show you the forecasts at different points in time. So in 2010, you thought the unemployment rate was gonna, oops, come down slowly and eventually get to about 6%. 2012, you had another forecast. We obviously came in ahead of all of those forecasts on the slightly more partisan and humorous way to put that was the famous comment that Mitt Romney promised that if he was elected after four years, the unemployment rate would get to 6%, you know, good thing we didn't have to wait that long. Probably not entirely accurate economically, but captures some of what happened with the unemployment rate. Of course, you know, what people have focused on is not just unemployment, but wages. And there's a standard pattern you expect to see in an economic recovery. First, you see GDP growth, which started in 2009. Then you see employers being confident enough to start adding jobs, which happened in 2010. And then they start raising wages, which happened in 2013. And if you look at the pace of wage growth since the end of 2010, it's 1.4% per year. That compares to essentially flat wages in the decades before 2007. And it's more wage growth in that four-year period than we saw in the several decades cumulatively prior to 2007. Now, part of that is a strengthening labor market. Part of that is also that this is adjusted for inflation. And inflation has been low because the price of gasoline is low. Although in the initial period of the increase, it's the labor market. And in the last part of the increase, it is as well. If you look at this business cycle as a whole at real wage growth, this next chart tries to do something which gives you comparable periods of time because wages get moved around a lot by recessions and expansions. And depending on which period you look at, you can distort that. But it looks at the peak of the business cycle in November 1973 to the peak of the business cycle in January 1980. And then it compares all the business cycles. And what you can see is, again, real wage growth over the course of this business cycle has exceeded the real wage growth for any previous business cycle since the early 1970s. And I should, by the way, define what this is. It's in the note in tiny print, decent size print. This is wages for what are called private production and non-supervisory workers. So these aren't managers. It's about 80% of workers. And it's roughly the bottom 80% of workers. And the average for this group isn't that different from the medium overall. And in fact, if you look at the distribution, I'm switching now from wages to income. So income is what the whole household gets and not just from the labor market, you see that last year, you saw income gains at every part of the income distribution. The largest gains at the bottom, pretty strong gains at the middle. And the only one of these gains that isn't the largest ever recorded, that 7.9 is larger than any number ever in those data go back to the 1960s, the only one of those bars that's not a record is the one for the 90th percentile, but at 2.9% adjusted for inflation, probably not a whole lot for that group to complain about either. So the last thing to give a sense of the labor market recovery and where we are in it and where there's still more work to be done on what I would call a cyclical basis, which relates to aggregate demand in the economy, is to look at the unemployment rate broadly defined. And this is a measure called U6. Sometimes people call this, I think, inaccurately, but sometimes they call it the true unemployment rate. So the blue bars are the official unemployment rate and that shows the percentage of people who are looking for a job but can't find one. That averaged 5.2% before the recession, it's 4.8% now. The next bar, the orange bar, includes people who are discouraged, they've given up looking for a job, or people who are marginally attached. Those are people who basically say they'd take a job if one came to them, but they're not actively looking for one right now. That actually hasn't changed very much. The place where we continue to see a certain amount of elevation and that indicates that the recovery isn't complete is the people who are working part-time for economic reasons that, I don't know what color that is, that people who would like a full-time job but can't find a full-time job, that went up really rapidly during the recession. It's come down pretty steadily since then but hasn't come back to where it was before the recession. So that remains an issue that additional strengthening of demand would help and as does some issues around the participation rate which I'll come back to later. But the bigger issue I'm concerned about is less where we are in the wake of the great recession and financial crisis and how our economy is recovering from it and more about the longer-run trends that we've been facing as an economy and the challenge that it's been posing for the middle class and for families working to get into the middle class. And that's this longer-term bad. And I want to present what it is, present a little bit what I think some of the sources of it are and then talk about that because it helps inform but doesn't definitively answer where the remedies are. So the fact itself is one that is not particularly difficult to comprehend. The left bar is the average annual growth rate of median family income from 1948 to 1973. The right is 1973 to 2015 and you see an enormous slowdown. You can do a lot of debating over these numbers. There's some issues for example in households are increasingly small. Oops, sorry, keep doing this in the second period. And so that's 0.4 maybe it should be 0.5 or 0.6 if you adjust for that. This is income doesn't include the expansion in some government programs and changes in taxes. If you include that, it helps that second bar a certain amount and raises it a little bit. There's a whole debate which we can talk about if people want to about whether inflation is being mismeasured. My bottom line is we probably are mismeasuring inflation. The quality of things people buy is going up in ways the statisticians don't track but that that was always true. So that three should be a bit above three. The 0.4 should be a bit above 0.4. But none of these things are gonna change the magnitude of the slowdown. There's a lot of different things that go into the slowdown but I like to think of three major factors that you can look at in trying to understand it. The first is that productivity growth has slowed. Productivity is the amount you can produce with an hour of work and in theory that's how much we could afford to pay you that if you make $15 of stuff each hour we could pay you $15 and everything would sort of add up in the end. That or you could think of it as just the size of the pie. So the size of the pie was growing about 2.8% per year from 1948 to 1973. Since 1973 that slowed to 1.8 a year and it's fluctuated. It was better than that from 95 to 2005 as the internet spread. It's been worse than that since 2005 in part I think in the wake of the recession and the impact that's had on business investment. At the same time that the pie was growing more slowly the share of income going to the bottom 90% has changed quite a lot. So in that first period it went from, it was basically unchanged, two thirds of the income went to the bottom 90% of households in 1948 and in 1973. From 1973 to 2015 it's gone from two thirds of the income to half the income. So the pie is growing more slowly at the same time it's being divided increasingly unequally. And then finally and this matters more recently more like in the last 15 years is the labor force participation rate and I'll come back to this. But for men you see it declining in both of those periods. For women it's increasing in both of those periods but that masks that for women since 2010, since 2000 it's been falling and men it's always been falling. So you can think of this as everyone's wages are going up more slowly but you make up for it by having two people on your household work rather than one person work. That works less well when the labor force participation rate isn't rising as much. I did a thought experiment to put some magnitudes on these different factors and I set out to do this without really knowing what it would show but just out of curiosity. And I think it's interesting, relevant but doesn't 100% answer what's relevant for policy. And that's this. The first row here is the question what if total factor productivity which is a key component of productivity had grown at the same rate after 1973 that it grew before 1973. So we didn't have the productivity slowdown that we had. The answer is that but then you distributed it you're the same increase in inequality. So inequality didn't get any worse because of this but didn't get any better. The answer is that incomes would have been 65% higher in 2015 or an extra $37,000. The second thought experiment was let productivity growth slow as it did in reality but let's freeze the share of income going to the bottom 90% at the roughly two thirds that it was in 1973. So you don't have any increase in inequality. Then incomes would have been 19% higher or $10,000. And finally what if the female labor force participation rate had continued increasing after 1995 rather than peaking and starting to decrease the answer is 6% or $4,000. I can tell you the lessons I draw from this. One is it's not like the $61,000 was available to us that some of the things that happened in the post-war period were the one-time effect of innovations that we made to fight World War II that we ended up commercializing like the jet engine nuclear power. But some of it I think probably should be a wake up call for policy that we also invested more in infrastructure and research. We did a whole range of things then for on productivity but there's no reason we couldn't continue to do now. So I don't think we could have had 61,000 if we'd made different choices but I think it's well above zero. The second lesson I draw is all three of those is large numbers. I mean 37,000 is larger than 10,000 but 10,000 is a decent amount of money too. So I think it motivates all of these. If you were overly, if you were obsessed exclusively with inequality, you should maybe look at this and think, aha productivity growth actually matters when the pie isn't growing that quickly. It's hard to have sustained wage and income gains but if you were just cared about growth and had never thought about inequality, you should think 10,000 is a decent amount. The last thing of course is it's not just what the cause and decomposition of the slowdown is for policy you need to know which of these we can solve. So maybe the whole fault is productivity but we don't have any policy that can raise it. Inequality may not have been very responsible but we may have huge policies that can deal with that or vice versa and I'll try to talk a little bit about that and I don't fully know the answer but to some degree the biggest takeaway I take from this is we have quite a big problem in terms of incomes. Probably has a lot of causes and it probably has a lot of solutions and I wouldn't obsess over trying to find the one magic bullet. I'd obsess over trying to leave no stone unturned in doing something about it. So I wanna dig a little bit deeper into some of the causes of these different things. Productivity, the most important thing to know especially about the recent productivity slowdown is just how global it is and this just shows you the G7. Every G7 country has seen its productivity slow over the last, productivity growth slow over the last decade and it's also true of the rest of the advanced economies with one exception. The United States has had the best productivity growth which I show you because a bunch of the other things we're gonna be the worst at so I wanted to have at least one thing that I was positive about in contrast to everyone else and yeah, now part of the slowdown as I briefly alluded to before I think is a consequence of the recession. The impact the recession had on business investment and business investment is an important part of productivity growth and you can quantify that just in a mechanical way across these seven countries and we could certainly talk about that but there's some other things going on as well. I think one may be demography that to be a little self-promotional there's a certain amount of research that I personally find extremely compelling that a society is more productive to the degree it has a lot of 41 to 49 year olds in it. Might be 40 year olds to 49 year olds in it and our demography has gotten somewhat older population and that may be playing a role and that may be something that's happening in Japan and then there's something that I think has gotten too little attention and is a little bit puzzling and potentially a little bit troubling which is the decline that we've seen in the dynamism of firms. A lot of productivity growth isn't a firm figuring out how to do something better. It's a new firm coming along that does it better in displacing the old firm or maybe a new firm coming along and challenging the old firm so the old firm needs to get better at it but we've seen firms entering at a slower rate they've exited at about the same rate slightly lower and as a result the average firm age is older the average firm size is larger and this is consistent with other evidence that competition has declined in the economy. You also see something similar going on in the labor market and there's a lot of different ways to show this. This shows from the employer's perspective when you create jobs and when you destroy jobs has also been trending down as long as we've collected the data but it's also true that people move less from job to job move less from place to place move less from industry to industry et cetera and this plays a role I think not just in productivity but also potentially in the next thing I'm gonna talk about which is inequality. So inequality, this is another one where the United States is number one and not just higher than everyone else in terms of the share of the top 1% but also has seen a faster increase in inequality for the top 1% than other countries. There are two general classes of explanations for this. The one that has gotten the most attention and that I think captures a lot of what's going on is a competitive explanation and that goes under the heading of two things happening. One, the demand for skilled workers has gone up because you have things like computers that complement people with skills and substitute for people with less skills so you want more skilled people. At the same time, we had a lot of increase in education in the 30s, 40s, 50s, 60s as we expanded high school, created and expanded subsidies for college but that that came to an end and that now educational attainment is increasing but it's increasing at a slower rate than it did before so the combination of less supply of skilled people, more demand for them has meant that the price of skills or here the college earnings premium has trended up. We have also looked at CEA at another class of explanations which go under a non-competitive explanation and this relates to, first of all, changes in bargaining power so the idea that in every employment contract there's some surplus and the way it gets divided depends on the respective bargaining power of the two sides in that contract and the graph you see here on the left shows you there was a big increase in unionization starting in the 30s that coincided with a big increase in the share of income going to the bottom 90% and then you've seen that in reverse since the 1970s. Now, the causation probably runs both directions as you have manufacturing that lends itself both to good wages and to unionization as manufacturing goes away that makes both of those go away but there's a decent amount of literature on a union wage premium as well and then the other thing is the real value of the minimum wage peaked in the late 1960s and broadly speaking has declined since then. The reason you see such a jagged picture is we've never adjusted it for inflation so that every now never index it to inflation on a regular basis so every now and then we raise it then we let it decline for a while then through inflation and then we raise it again. I've also with Peter or Zag and then some others have been speculating about another hypothesis for inequality that may not jump out at you immediately from this picture but the story is not that way you divide the pie between labor and business which is what the minimum wage and unions are about but also how some businesses have become increasingly successful some have become less successful the successful ones share their success with the employees and vice versa so the way to think about this is reduction in competition in the economy which I mentioned before means some firms can be super successful so I think of Google, Pfizer and Goldman Sachs the issue in those firms isn't that their managers get paid a lot more than their line workers everyone who works for those firms no matter what they do gets paid better than the same occupation working for a firm at say the 25th percentile and you've seen this massive dispersion in returns and an increased persistence of those returns so they don't seem to be accounted for by risk that could also be playing a role in inequality. The third factor is one that we've spent a lot of time on at the Council of Economic Advisers Betsy Stevenson helped us do a lot of the work for the first two years of our thinking on it and we've continued to puzzle over it since then and I think people will continue to after it and this is because labor force participation in part I think has gotten less attention than it should in part because it's played this role in the slowdown of incomes but also because it goes beyond just incomes because there's something to work that really affects your dignity your participation in society and a lot of evidence that when people are out of the labor force for sustained periods of time it leads to much higher level of pain of pain medication and other opioids of impacts on their children and a range of other outcomes. So in terms of labor force participation the big picture fact is that it was increasing for decades it peaked around 2000 and it's been decreasing pretty much steadily ever since. This aggregate though masks oh it's been stable since 2013 Q4 and I just note that because that's when I, roughly when I started in my job. But this masks what's going on for a lot of different subgroups and there's issues with what's going on with young people, with old people but I'm gonna focus again on the group that I'm a proud part of which in this case is 25 to 54 year olds or what I didn't invent the term is called prime age. So for prime age men their labor force participation rate peaked in the early 1950s and has declined pretty much steadily ever since going from 2% of men out of the workforce to 12% of the men out of the workforce. But the labor force participation rate is the percentage of people who either are in a job or actively looking for a job. So if you're not in the labor force participation rate it says you've given up and if you look, most of the people who aren't participating haven't worked at all the previous year. So these are people who are pretty much out of the labor market, out of the economy. So it's been declining since the 1950s. For women you saw this big increase and that's what caused the overall increase but that stopped around 2000 and has declined since then and there's a huge gap between the trend we were on and what has happened since then. It's instructive to look at who this is and just for men in the 1960s your participation in the workforce wasn't particularly dependent on the amount of education that you had. For the most part around 95, 96% of people worked regardless of the amount of education they've had. Labor force participation has dropped for every group but it's dropped most precipitously for people with a high school degree or less. If you look at women, the pattern's a little bit more complicated but since the decline began in 2000 it looks roughly like this as well. It's also instructive to look at the United States compared to other countries and you may not be able to read the names of all the other countries but the main thing that you should be seeing here is that the United States which is the red one is way to the right which means our labor force participation rate for prime age men is roughly tied with Italy's ahead of Israel's and behind every other country and for women the countries that we're ahead of are countries that are culturally different in their norms towards women working. Countries like Italy, Korea, Mexico and Turkey and we're behind all of the other countries. The other thing here that this graph shows is the dots are where countries were in 1990. So the gap between them has changed since 1990. For men our decline is the second largest of any of these countries since 1990. For women if you look almost all the dots are down below the bars. So most countries have seen the percentage of women participating in the workforce increase since 1990. Japan is particularly striking. It's the country right next to us and that's where they were in 1990. That's where they are now. Then you look at the United States that's where we were in 1990 and I can't hold my hand still but if I could that's where we are now. It hasn't moved at all. We've tried to look at a lot of explanations for this. Demand, a supply of labor doesn't seem to explain a lot. It's not that people are married to someone else working so they don't need to work. Disability insurance has played a role but a very small role because it hasn't increased that much. Demand has played a role, the same thing that has reduced the demand for less skilled workers, it results in lower relative wages for them and lower amounts of work. But I think part of the answer is also to be found in our institutions because all of these economies had the same shock in terms of reduction in demand for less skilled workers. It hit the United States harder and what's interesting about that is you look at different measures of our policies for labor markets. A hundred is, you know, this is percentile so you compare us to other OECD countries and we have the least labor market regulation. We have the least employment protection. We have among the lowest minimum wages and among the lowest degree of unionization. So the classic orthodox recipe for what you do to have a well-functioning labor market we have and in a sense that was always the bargain we thought we had. We're willing to tolerate more inequality but we'll have really flexible labor markets that won't get in the way of everyone getting a job. What we've done quite badly at is nationwide paid leave where we're at the 0th percentile because we don't have it and everyone else does. Expenditures on active labor market policies so this is things like job search assistance or training that we spent 2% in GDP that's lower than everyone but Chile and Mexico. Our childcare subsidies are low and we have a high tax on people returning to work. Looking at that set of institutions and challenging some of the previous notions we had about labor market flexibility and understanding the need for supportiveness is part of the answer here. Wanted to just quickly put down on the table some of our policies because it's not like we've just been sitting here describing the set of problems for the last eight years and not trying to do anything about it. Now of course our policies are less than we wanted to do and in almost every one of these the answer was to do more but wanna put them down on the table relatively quickly. The first is the fiscal expansion I mentioned earlier. The Recovery Act as a share of GDP is the blue part of that bar that's what we passed at the beginning of 2009. What is often underappreciated is that after that we passed 12 subsequent fiscal expansions for things like payroll taxes, tax credits for infrastructure, housing, unemployment, insurance, et cetera. Those increases the Recovery Act shrank so we averaged about 2% of GDP for those four years and then there were automatic stabilizers. You add this all up and it was on par with the fiscal response to the Great Depression and larger than what you saw over this period of time for any of the other major economies in the world. The Affordable Care Act, people, economists spend lots of time worrying about whether something was causal or not causal and diffs and diffs and regression discontinuities, et cetera. I'm reasonably comfortable with the decline we see after the dotted line there which represents 20 million people being a causal result of the Affordable Care Act. At the same time, we've seen an enormous slowdown in per enrollee spending. We've seen it both in private insurance and we've seen it even more starkly in Medicare and that has translated for people. If you look at overall premium growth in the decade before the Affordable Care Act, it was 5.6%. In the years after it's been 3.1%. If you look just at what workers contribute to their premium plus their out-of-pocket costs, their deductibles, et cetera, the slowdown has been even larger. Now, this has a lot of different causes. It's not just the Affordable Care Act but there's a number of ways in which the Affordable Care Act contributed both by changing reimbursements in Medicare and through delivery system reforms, many of which have been mimicked and adopted by the private sector. At the same time, minimum wage, we have not raised the minimum wage at the federal level in this administration. We've certainly tried very hard. When we launched the strategy for a higher federal minimum wage, we were very conscious that Congress might not go along and so we made a real effort to get states to act, to get localities to act and to get employers to act. And if you look at that blue bar, I personally think the minimum wage could go a lot higher. You still see that decline relative to where it used to be but we've at least at the state level, including states like Michigan, prevented the erosion of the minimum wage. There's a large academic literature that's looked at what happens in neighboring counties or neighboring states when one raises the minimum wage, one doesn't. At CEA, we've reproduced that analysis and found that states that have raised the minimum wage since 2013 have seen large increases in earnings growth. Sorry, this is for retail, leisure and hospitality workers, whereas job growth hasn't been different. If you look at the trend before the increase of the minimum wage, it's about the same and you look at higher income workers, the trend is about the same. So this does seem consistent with what we thought before that reasonable increases in the minimum wage result in higher earnings and don't result in reduced job growth or hours. We've seen, thanks to James Cavall, who I've done a lot of work with on this topic, over the years a big increase in support for higher ed. This is in the form of Pell expenditures and this has an impact on that competitive explanation of inequality in the long run. If you look at after tax income inequality, this shows you the percentage change in after tax incomes as a result of the Affordable Terract and the tax changes we've had. This is the largest shift in income to the bottom 99% as a result of tax policies of any administration since at least 1960 and it's the largest dollar investment in inequality since the great society in the late 1960s. So that adds up to be quite large and the ACA is a really important part of that inequality story. Now, none of that needless to say is mission accomplished but almost all of that is in the vein of things we need to do more of like minimum wage, college and a more progressive fiscal system. Wanted to end by saying that all of this matters but there's nothing that hurts incomes more than a big crisis and so sustainability is really important. You don't wanna prop up incomes today at the expense of the future. And wanted to say one thing that a lot of economists are worried about now is that if you look at past recessions, we've responded to them by cutting interest rates by five or 600 points. Interest rates now are really close to zero which makes it pretty hard to cut them by five or 600 points and work that Linda did at CEA is consistent with the idea that while interest rates might rise they might continue to be pretty low and so our scope for conventional monetary policy may be more limited in the future. To me that says we need to make sure we're engaged in robust fiscal policy in the future that we're ready to do that. The fiscal situation has improved. In 2011 the debt was rising more than it's rising now that's in part because of changes we've done to taxes for high income households because if you stood in number before 2011 you'd see the Affordable Care Act brought this down even more but debt is still rising as a share of the economy. In my judgment this isn't some immediately urgent threat to our economic growth next year but it's something that over time would chip away at our growth and chip it away at our ability to engage in the fiscal policy that we need to and so should be dealt with over the medium and long term. Thanks too so I can give credit to everyone in this room that played a role in all of this. Michael Barr on the financial sector is more resilient and you look at tier one common equity ratios sort of how much of a cushion you have if you lose money to make sure you don't go bankrupt and that's considerably more robust than it was before the crisis but this still risks in our financial system and then finally all of these are some things moving in the right direction but more work remains to be done and this is no exception. It's a pretty amazing thing if you look at carbon emissions for a long time they were increasing they've been decreasing for some time now and the decrease got pretty steep. Now part of that steep decrease was the recession which is not the world's best way to solve climate change but it's continued on balance since then and we estimate about half of it is due to policies. The baselines have come down a lot. We, our commitment is to get to that gray bar which is what we've promised under the Paris agreement to get to. If you just continued policies based on the last estimate from the EIA we wouldn't quite get there we need to do some additional policies although some of the estimates since then suggest that the baseline would come down further absent policy changes which we can talk about in the Q&A. So in summary I think we have made a lot of progress in the last many years. I don't think you wanna throw out or deny that progress because I think that progress contains in it the lessons of what we need to do going forward which in many cases is a lot more of what we've done over the last eight years but I don't think you wanna look at that progress and say that we've solved the problem. A couple of years of decent real wage growth doesn't make up for decades of subpar wage growth and the fact that the participation rate has been stable under my tenure as CEA chair doesn't make up for the 10 percentage point decline in the decades before the country was fortunate enough to have me as CEA chair. So I think there's a lot more to do going forward. Obviously some of that is making sure that one doesn't go backwards on some of the things I've talked about but a lot more room or need to go forward on them as well. So thank you. Thank you again Mr. Chairman for joining us this afternoon. My name is Sam Geller. I'm a second year master's student at the Ford School here with the interest on housing transportation and public finance. Hi and I'm Farah Mandage. I'm also a second year MPP student here and my interests lie primarily in economic policy and sustainability policy. Great. We have a ton of questions here to get through. We'll see how many we can tackle. But there may not be room for more questions but I should say happy to do the topic I just talked about but if people have broader issues or personal advice that I don't have any good advice for. Happy to do that too. Excellent. So our first question from the audience is what state and federal education policies do you see as potential mechanisms for addressing some of the systemic issues with productivity, labor and inequality that you identified? So I think education is really important and is disproportionately important relative to the number of unique insights I have into it. So there's others in the room. It's probably true of every question that's gonna be asked here but probably more true here in both directions. If you look at us at the United States and you look at the number of years people were in school which is obviously an imperfect measure of education it was rising at I think about 0.4 years every five years. Now it's rising at about 0.15 years every five years so it's rising at one third the rate. There are two margins that you could improve that on. One is start people in school earlier and if you look at the share of three and four year olds sorry I'm trying to look at who asked the question but that wasn't you. If you look at the share of three and four year olds in school in the United States were 22nd in the OECD and countries like Chile and Mexico that aren't nearly as rich as the United States have a higher fraction of their students in school so there's room to expand on that margin. I don't think there's any overly cheap way to do that but I don't think you could talk about reform for preschool or whatever else. A lot of us we just don't spend a lot of money on it and certainly don't spend a lot of money to help families who have a hard time affording it go to school so we just need to expand the subsidies and by the way that has a side benefit of the labor force participation issue I was talking about of enabling making it easier for parents, disproportionately mothers to work. We could also expand the number of years at the other end in terms of college and the number of people both going to college but also a big emphasis that we've had in the administration on college completion and that when people get there making sure they are staying in and completing that also is to some degree a function of money and the subsidies you have for college and there's a whole set of ideas around that but I think it's also things that we did an expansion of income based repayment that James literally was the mastermind of or the main conspirator in getting it done that says if your income isn't as high as it was your debts get deferred and then ultimately forgiven that's still more complicated than it should be there's places like Australia which I've learned from Betsy is where all interesting policies happen. At first I thought Betsy by the way was a really insightful smart person because she always had examples from other countries of how policies work and then I realized they were all Australia. But anyway, but making it more automatic the way it happens there and then in between K through 12 I suspect there's a lot that could be done in terms of reforms but I'm not as knowledgeable about them so I'll leave time for more questions. So the next question we have is do you think universal basic income will be a necessary response to jobs lost to technology and if so how far away are we from needing this policy? So my answer to the question is no and let me explain why. First of all, universal basic income it's a little bit hard to define because everyone who likes it wants to be in favor of something that sounds big and exciting and they never quite tell you what it is but I assume it means universal which means everyone gets it I assume it means basic which is just sort of a certain amount of money that's almost flat and that it's income which means that it's cash. It has two flaws as an idea. The first flaw is the basic premise itself. I don't think our problem is that we have so much productivity growth that it's gonna replace everyone's ability to work and there won't be jobs for people. First of all, we don't have enough productivity growth right now but second of all, even if we do remember that picture I showed you of labor force participation rates in different countries. Switzerland has almost everyone participating in the workforce. Italy has a low labor force participation rate. That's not because in Italy they have really great robots that are doing jobs so people don't have jobs and in Switzerland they're stuck doing manual labor and like making the cuckoo clocks themselves. The problem is that they have different labor market institutions and they have different policies and I think that matters an enormous amount by 10 percentage points or more in terms of the fraction of people that are working. So I don't think technology tells you what fraction of your population can work. I think your policies do and universal basic income to me is giving up on the idea that people can work which I think is both analytically wrong is inconsistent with hundreds of years of technological progress and is a problem in a world where a lot of the esteem that people get derives from their job not just from the dollars that they have. The second problem with universal basic income is I think we have a limited ability to sustain revenue in the United States to either sustain our current revenue levels or sustain additional revenue levels. And I think we need more infrastructure. We need more investment and basic research. We need to more fully fund some low income programs like housing vouchers that we know work well. We need a more, we need also to deal with their existing obligations even before we talk about those new ones like Social Security and Medicare which are gonna rise as a shared GDP. So I think if you took a lot of money and gave it to people in a flat basis who made $60,000 a year that means you'd have to do less of all the other things I just said or you'd have to cut a bunch of well targeted programs for low income households. So I don't love it as an idea. In your opinion, how significant has the growing racial diversity in the workforce affected inequality and participation rates? In some ways you've seen in incomes a reduction of disparities by income. I showed you the top 1% doing well relative to others but if you look at the black, white earnings differential or labor market opportunities now compared to decades ago that has improved. If you look at labor force participation Hispanic men participated higher rates than white men although black men participate at significantly lower rates and then the unemployment rate is higher for African-Americans and for Hispanics than it is for white. So there's still a substantial amount of disparity and inequality by race. I think that's an important dimension to look at and understand the problem. To some degree some of the solutions don't necessarily have race in them. So you look at the Affordable Care Act for example. African-Americans are much higher ratio of health uninsurance than whites. The Affordable Care Act didn't have any provision for African-Americans. It had a provision for people at a hard time getting insurance and you look at the result of it the uninsured rate declined much more dramatically for African-Americans than it did for whites. I showed you the overall. You look at the recovery act that again for the most part was an overall macroeconomic policy and the unemployment rate for African-Americans and Hispanics fell more quickly than it did for whites because we're sort of all familiar with the first fired in a recession but it also as you strengthen the economy can be helped. So I think some of it is a useful prism and it's important to understand discrimination and the role that that's played in labor markets but some of the solutions are broader ones as well. So you mentioned that the administration's response to the financial crisis was correct but that we pivoted too soon. Can and can or should we correct this now and if so, what will the effect be on inflation? Right, so the too soon was we launched something called the American Jobs Act in the fall of 2011 and we called for about a $500 billion second round of stimulus. We ended up getting about 150 billion of that 500 and then at the end of 2012, we didn't want the payroll tax cut to go away. We didn't want extended unemployment insurance benefits to go away and those both went away. So you had these two different places where we wanted to either have affirmative new policies or we wanted to continue our existing ones and not have them go away so quickly. So that created more of a fiscal headwind than we should have had. Monetary policy partially compensated for that. They saw what was going on with us. They realized we weren't doing everything we were supposed to do and they helped make up for it which is part of what has limited the consequences. In terms of where we are now, I don't think we're all the way recovered but I think we're most of the way there in a cyclical sense, structural sense we still have this big challenge in terms of incomes but our unemployment rate are part time. All of that is most of the way there. It's not all of the way there. I think additional demand would be welcome and helpful but I don't think we need a huge amount of it to come from fiscal policy at this stage. I think a little bit of it would help. I think it would be especially useful if it was not just fiscal policy for the sake of demand but it was something like infrastructure that was helping to build up our supply and our productive capacity over time and in the future. If we did a lot of fiscal policy there's a chance that that would mean more inflation but there's also a chance that the Fed would just see that offset it and we'd have higher interest rates and a different mix of the way we were getting to the same level of aggregate demand. So I think for the most part we're in a world now where monetary policy will offset a decent amount of fiscal policy but not completely. It seems quite possible that the next administration will see a substantial increase in the deficit. What do you think are the economic consequences both in the short and long term? In terms of the approach that I think I would take to the deficit is the most important is do no harm and then the second most important is to start to make some progress over the medium and long run. So we in the beginning of 2009 restored something called statutory pay go that said any change you made to tax or spending you had to fully offset and we pretty consistently applied that to everything medium and long run. We didn't apply it to things like the recovery act that were designed as temporary emergency provisions but when we did the affordable care act I can't tell you the amount of pain we went in because it didn't just need to pay for itself over the first decade but need to over the second, third, fourth and then there was this bill that amended it that also needed to do the same thing and we went to great strides to make sure that it would do that. So I think unfortunately there has the rules around statutory pay go were repealed when Republicans took control of Congress and they don't abide by the same you need to pay for everything while you do it. The paying for everything while you do it has the advantage of not making the problem worse. I think that's for the most part sufficient in the short run but in the long run we're gonna need to actually deal with the long run deficit. So if it does go up over the next couple of years that's something I'd be concerned about. Not predicting a crisis that would result from it. I think we have a lot of people that wanna lend the United States money and lend us money quite cheaply and I don't think that's gonna change but I mean interest rates will go up but I don't think they'd change in some dramatic fashion but I think it more chips away at our national savings, chips away at our ability to either invest or to fund our investment domestically which means the benefits of future growth would go to repaying our creditors rather to us and put us in a worse position over time. Some contend that it's getting harder to accurately measure GDP and GDP growth due to increases in technology or whether or not this is the right measure for economic well-being in general what do you make of this claim? It's always been hard to measure GDP. Robert Gordon has a book on the rise and fall of American growth and it's great examples of the statisticians I think didn't include cars until something like five years after Ford introduced the Model E car and just missed all of these huge quality improvements and expansion in it and it's really, I think our statisticians rather do a great job. They're among the best in the world but it's really difficult to figure out if something cost more this year than last year is it because that thing is better than it was last year in which case GDP went up or is it that someone wanted to raise the price of it in which case it didn't. I think there's a bit of evidence that there may be more parts of our economy where that's harder today than in the past but there's things that go the other direction so one of the places it's hard is in computer hardware we don't make a lot of computer hardware so insofar as we're making an error in measuring quality growth in computer hardware that was a bigger deal 15 years ago when we made more of it here than it is now and 1995 to 2005 which some of the people in this room remember that period that period began with if I made a social plan and my friend didn't show up I went and found a, I'm sorry, 1995 to 2005 in 1995 I made a social plan with a friend that didn't show up I'd go find a pay phone and call my answering machine and press a bunch of buttons until I could get to the message by 2005 I had a cell phone, I had email I had a whole bunch of things so there's a lot of progress in that decade and we actually, a lot of it didn't show up in the statistics in some ways maybe more was missing from the data in that decade than in the decade since then and there's some research people have done that's shown that so I think we've always had an issue my guess is that issue's always gone in one direction so that's what I said before I think income growth used to be faster than three today it's higher than 0.4 I'd shift them both up with a huge amount of uncertainty by about the same amount maybe one a little bit more than the other but not radically changing the conclusion in terms of GDP as well-being absolutely it's not well-being but it's pretty, and Betsy has done a lot on this it's pretty well correlated with it that richer countries people tend to be happier and having more GDP helps alleviate a lot of problems it tends to lead to higher incomes it puts you in a better position to engage in public programs to help either share the benefits of the society or invest more in your growth and it reduces even just the amount of fighting over scarce resources so it's not at all sufficient we need to look at a wider range of things and I was focusing not on GDP but median household income which I think in some ways captures it even better what you want but that's pretty related to GDP and pretty important to people so I don't think on a quarter to quarter basis and worrying about the macro economy I think looking at GDP is not such a terrible thing to look at do you feel the Obama administration failed to develop or publicize effective policies to address middle class stagnation and rising inequality would better communication have stemmed the probability of what some consider a demagogue winning the most recent presidential election? No comment on the last part the first part President Obama has said exactly that before and I always have mixed feelings when I'm sitting with my colleagues because I'm like oh so it wasn't my fault it was the communications director's fault if only she had done a better job it would all be fine and that feels to me I don't know overly self-indulgent and probably not a fair conclusion to reach I don't know it's very hard to break through on stuff I've had a lot of experiences where someone's like he should only give a speech where he says blank and I'm like yeah he said that in every one of his last eight speeches but it wasn't covered on the evening news so you wouldn't know about it and I don't blame anyone for not reading speeches from beginning to end so some of this is hard to break through on and hard to communicate about some of it I showed you that graph at the beginning that showed you the United States ahead of Japan the UK and the Euro area but that's grating on a curve anyone sitting out there isn't comparing to those they're saying I can't remember what the number is but we're four or five percent ahead of where we were before the recession on a per capita basis that isn't great we should have had faster growth and they're not satisfied with it so I think there's some legitimate reasons that I think there's a lot of legitimate reasons people are concerned I think there have been a lot of legitimate improvements and we've tried and I think it's hard I don't know that didn't fully answer your question but maybe that's evidence of the premise being correct so trade agreements are predicated on the belief that winners will gain enough in surplus to be able to compensate the losers for their losses are we doing enough to ensure that these transfers of surplus are happening if not what should we be doing so I think we should be doing more to share benefits and in some ways the fiscal changes I showed you over the last eight years are a huge change you see a nine percentage point increase in the tax rate for the top one-tenth of one percent and an 18 percent increase in the after tax income of the bottom 20 percent so I don't think nothing has happened a decent amount has happened but we should be doing more to help people to help people especially not just in terms of incomes but finding jobs through search through training through assistance for housing and for mobility as well as something that we've proposed called wage insurance which when you take a new job if it doesn't pay as much as your old one would pay you some of the difference in terms of compensation I'm positive that trade causes diffuse benefits and concentrated costs that's very well documented and a reasonably obvious thing I'm much less sure that trade contributes to inequality trade does contribute to may contribute to inequality on the production side where it's part of what has maybe favored more skilled workers and enabled them to earn more relative to less skilled workers but I don't think we should sneer at thinking about the consumption side of the equation and tradeables and manufactured goods are a larger fraction of the consumption bundle of low income households and moderate income households and high income households and so on the consumption side it's played a big role otherwise and put another way if I asked anyone in this room to design a policy to reduce inequality your idea probably wouldn't be that if you had a backpack made of nylon or some other man-made fabric it would have an 18% tariff a backpack made of leather it would have a 10% tariff and a backpack made of cotton it would have a 6% tariff and those numbers are a little bit wrong but they're close to right you also wouldn't have if you had a stainless steel spoon that you wanted to buy that you would pay I believe it's a 10% or 15% tariff on all stainless steel spoons made abroad but this one is literally true and exactly right if you want to buy a silver spoon for your child that is tariff free so I don't think I think that's a really crazy way to think that you should deal with inequalities through a patchwork set of tariffs that were set in random ways by lobbyists for a variety of industries that raise prices for the things that people pay so I think we should do the compensation I think we should be concerned especially about the concentrated loss I think we should be really concerned about that but I'm less convinced about the inequality so knowing what you know now and knowing that President-elect Donald Trump will be taking office in two months how would you approach economic policy differently for the Obama administration if you could do it all over again? All of it, no you know, the one, this is like I would have entered the same way without Hillary Clinton was put in Home President next and actually on this one I might even have been more worried in that regard just politically not economically that I am worried about not where we are cyclically right now I think we're in good shape in terms of the rising rail wages I showed you consumers are confident they're spending a lot so I'm not worried about a recession tomorrow what I am worried about is there will be some bad thing that happens in the global economy or the U.S. economy at some date, at some point in the future that we have less monetary ammunition to deal with it and so fiscal policy has to play a bigger role what I'm worried about is there's a lot of controversy over that role for fiscal policy and I told you in 2011 and 12 we were blocked from what we wanted to do I wish when we did the Recovery Act that maybe we had put in place more automatic things so when the unemployment rate goes up you get to stay on unemployment insurance for longer when the economy goes down it hurts state budgets, state contract and that hurts the economy we should automatically raise the amount of Medicaid money that states get that maybe you even look at other things on the tax and spending side that improve what are called the automatic stabilizers things that happen automatically in a recession and what's nice about those is there's a real complementarity if you give money to people when they need it it helps them smooth their consumption and ensure them at an individual level against shocks and because they're smoothing their consumption they're spending more and it helps the overall economy so I think that's something that if we had done probably would last forever would help us deal with recessions better in the future other things you can't if I'd known Donald Trump was going to be president or I'd known Hillary Clinton had been president in either one of those cases I would have wanted to pass the Affordable Care Act with 50 or 60 votes in the Senate depending on how it's done you can change the Affordable Care Act so there's nothing you can do maybe I regret it wasn't a constitutional amendment but in fairness I didn't think of that at the time I guess you could have skipped the whole Supreme Court thing too if you had done it as a constitutional amendment so the more I think about that yeah maybe I'll make that my idea for what we should have done differently this will be the last question what are your plans for after January 20th? I love working on the policy issues that I've worked on I started out as a graduate student in economics and I think John Leahy who is my advisor could tell you I think I was pretty much as narrow as anyone else who was a graduate student and then I sort of accidentally ended up in Washington and discovered that I liked a wide range of policy issues I like to combine a little bit of politics and economics to figure out how you could navigate to get something done not just what the pure best idea on paper was and I like talking about and communicating those ideas I've had the best job in the world to do that set of things for the last three and a half years so I will have to go off and find the second best job in the world that allows me to do the same things but I'll be writing, researching, thinking, speaking about et cetera, the types of issues that we've all been talking about today I just will have like four people in the audience rather than all of you so thank you for being here today. Thank you Jason that was indeed very wide ranging it was also very substantive so we very much appreciate that I'd also like to thank all of you for joining us today while this is the last policy talks of 2016 we do have a pretty strong lineup for 2017 so I encourage you to take a look at our website and we hope to see you again next semester we also hope that you'll stay to continue the conversation and enjoy some refreshments out in our great hall there is a reception there so please stay and join us and please join me in a final round of thanks to Jason from us.