Red Pen Edit: Brian Deese on the economy
The New York Times interviews the outgoing director of the National Economic Council
David Leonhardt, a New York Times journalist whose independent thinking has moved him up my speed dial in the last two years, recently interviewed Brian Deese, the outgoing head of the National Economic Council. Brian Deese has been involved with most of President Biden’s biggest legislative accomplishments over the past two years. As Mr. Deese has a unique role as part-policy-crafter and part-politician, I was interested in hearing what he had to say.
Full interview here.
Deese: There’s been a lot of focus on the strong labor market performance and the resilience of the labor market, even through a set of uncertain events — a lot of focus on the 3.4% unemployment rate, historically low. I think there has been less appreciation for the ways in which a strong and fast labor market recovery generates really important outcomes for the country.
This is a refrain that’s going to be repeated ad nauseam during the next Biden campaign. The recovery from April 2020 has been the fastest ever. The problem is that the Covid Recession can’t be compared to any other recession and the recovery can’t be compared to any other recovery. Of course the economic recovery was stronger and faster in 2021 and 2022 than previous recoveries. The cause of the biggest spike in unemployment history in 2020 wasn’t economic! It was the government response to a deadly pandemic. So once the government lifted Covid restrictions, the economy was going to rebound quickly. Just look at this graph that shows monthly unemployment. Can you tell when Biden took office? Mr. Deese is just doing his job here and putting the type of spin on good numbers any politician would, but this needs context.
Leonhardt: You describe it as a strong and equitable recovery. The data I’ve seen suggests that wages for low-income workers outpaced inflation, but the wages for middle income workers have trailed behind inflation.
Deese: It depends on different measures and different wages. I think that if you look at disposable income, this recovery is unique in that the largest gains have been for the bottom two quartiles of the income distribution.
This has been one of the main economic high points over the last three years. It still early going, but there’s evidence that inequality in the United States may have peaked and is currently declining. Stay tuned for more.
Leonhardt: Inflation obviously was higher than the administration expected, than private forecasters expected, than the media expected. Does that mean that when you look back you nonetheless think that the rough size of that bill was correct, both with the information you had then and in hindsight?
Deese: It leads me to believe that it was the right policy and it was the right priorities. It was the right policy to prioritize a strategy that had the potential of leading to a strong labor-market-centric recovery, and to provide insurance against risks, particularly given that there was a pandemic at the center of this crisis.
This is where Deese needs to take the loss. The third Covid stimulus package was too big. Republicans said it would cause inflation. Some Democrats said it would cause inflation. Biden said that thinking was “bizarre”. He was wrong. I wish someone in the administration would say, “Listen. We were in uncharted territory. We didn’t know what would happen with Covid. The world economy was still sputtering. Some people said the American Rescue Plan would cause inflation. Others, including the Trump-appointed head of the Fed, said it wouldn’t. Nobody really knew what would happen. Now we know that it was probably too big, but passing a stimulus package that is too big is better than passing one that is too small, and we made the best decision with the information we had.”
What can I say, I’m an idealist.
Leonhardt: O.K. On the campaign for public investment, when you look at the numbers about the percentage of our G.D.P. we spend on investment, the decline from the mid to late 20th century is clearly alarming.
Deese: Yeah.
I have mixed feelings about this point. On one hand, Leonhardt and Deese are factually correct:
There’s been a downward trend in government investment since the 1960s. On the other hand, this gets to the bias of Leonhardt and Deese: they both view more government investment as inherently a good thing. That isn’t to say they would view all government investment as beneficial, but that is certainly their default opinion. It’s just a correlation, but the decline in the 1990s certainly didn’t correspond with bad economic outcomes.
Leonhardt: …there is concern that a number of people have — Noah Smith expressed it pretty well in a recent piece where he said, basically, Spending money isn’t enough. The U.S. system for getting things done, for building things, is so broken — in terms of how costly and how many delays and choke points there are — that simply passing legislation that puts more money in without the other reforms is actually going to be quite disappointing.
This is a great question by Leonhardt and something that is getting overdue attention. It is impossible to build in the United States. If you accept that the US government pouring billions of dollars into making computer chips and clean energy is a good thing, then the next question is whether the money will be spent effectively. The evidence given our current building woes is a firm no. Deese tries to make a point that there’s a specific bridge project that is going well but doesn’t address the bigger issue.
Leonhardt: Antitrust was the third accomplishment that you mentioned…What it seems to me that the new antitrust enforcers are struggling with is to define what their clear standard is. This extends well beyond your office, but the antitrust push is having some early successes, but it’s also having a bunch of early failures where judges are throwing cases out. I’m interested in your big picture sense of, is it possible to design a new standard that actually is clear but also is less damaging than the old standard?
Deese: My answer, which I both hope and believe is true, is yes. There has to be more care, and more nuance applied than an approach that is both clear and wrong.
Among the problems with the effort that took root, and over decades became the dominant perspective, was this lack of understanding of a sort of full definition of consumer and societal welfare. The increasing evidence showed that people are harmed by anti-competitive behavior, both on the labor side and on the price side. It’s wages and prices.
This will hopefully become a major economic question in the coming decades. Anti-trust efforts of the government have been on the decline for a century now. While some of this is good and some bad, I think most would agree that the system needs significant changes. This is going to be a decades-long conversation however, and will necessarily involve the president, congress, and the judiciary.
Deese: …other competition-related efforts also have very practical retail appeal. Hearing aids — we finalized a rule to say that hearing aids can be sold over the counter without a prescription. That does two things: One, it drives prices down and makes things more convenient for consumers because you don’t have to go to a doctor, you don’t have to get a prescription, you can just walk into a Walgreens, or a CVS, or a drugstore or Costco. Two, it creates more competition, it creates new innovation opportunities.
100% yes. I just wish Leonhardt would have asked the obvious follow-up: If this was such a good thing with hearing aids, why not expand it to similar products? Why do I have to see an optometrist every year to get a contact prescription? Why can’t I just buy contact lenses or glasses from a vending machine? There are many, many, pharmaceuticals that should not require the approval of a pharmacist and definitely don’t require a visit to the doctor.
Leonhardt: A second thing: It was a reasonable theory that if you pass a big child tax credit, it would prove so effective and popular that Congress would not be able to get rid of it. But it didn’t prove out. How do you think about the very temporary success of that policy and the failure to get it codified?
Deese: I think it’s an extraordinary policy success, not only in reducing child poverty, but also reducing economic anxiety, encouraging positive labor market outcomes that happened coincident to this strong rebound in labor force participation, in stark contrast to some of the completely unfair caricatures of that policy.
Really surprised Deese didn’t take this opportunity to criticize Republicans here. The child tax credit was a popular policy that halved child poverty in one year. Most economists were behind it. Republicans opposed it, and it didn’t get renewed.
Leonhardt: There’s an analogy there to health care: It took many decades to get a health care bill passed. Are you saying he sort of pushed things so that it’s more likely in the future?
Deese: Absolutely. Which is why I think it is a misinterpretation to say that he says he’s the most pro-labor president, but in fact it’s otherwise. In fact we have labor market outcomes that are really different, but also are shaping a national conversation in ways that are different as well.
In an otherwise very articulate interview, even Leonhardt’s clarity edits couldn’t save Deese from a very Kamala Harris-esque answer. I really don’t understand what he was trying to say. Is Biden an anti-labor president? What is he saying is different? Help me here.
Leonhardt: Here’s a good place to end. The bills the president signed on clean energy and infrastructure, the health care bill that President Obama signed, they were possible because of years of background work people had done. People at think tanks, academics, people on the Hill. As you leave this job, what would you urge people to work on, not for 2023 or 2024, but down the road? What needs more attention so that there can be good legislation four or 10 or 15 years down the line?
Deese: One of the biggest pieces of this president’s agenda that is yet to be done falls in this category that you’re raising: How to effectively and efficiently build out what we’ve referred to as the care economy — as society ages, the basic structure of how you orient a family to provide care for elderly parents and children at the same time, how we reduce the cost burden of that for families and do so in a way that builds out a work force and a labor force that is creating career pathways for the millions of service employees that will be employed in that area. We need to solve that as a country.
This is the politician-Deese overriding the policymaker-Deese. Biden initially labeled the care economy as one of his core issues, and so far he hasn’t made much progress, so Deese is following his marching orders. My answer would be either entitlement reform or permitting reform. Both are issues decades in the making, are going to take decades to fix, and a failure to fix them will result in a much poorer America in the long term. The first is the third rail of American politics (so good luck), but the second is something that should get bipartisan support.
Overall I thought this was an insightful look into the workings of the Biden administration. Mr. Deese does a good job articulating the administration’s priorities, puts an understandable amount of spin on things, and provides an idea of what we should expect over the next two (or six) years.