(Bloomberg) — On this episode of Odd Lots, we speak with Jared Bernstein, who’s been a longtime advisor to President Joe Biden. He was his advisor while Biden was vice president, and today he serves on the Council of Economic Advisors. He talks about the current state of the economy, inflation, and more importantly, the White House’s vision for taxing and spending. You can find the episode here. Transcripts have been lightly edited for clarity.
Joe:
Hello and welcome to another episode of the Odd Lots podcast. I’m Joe Weisenthal.
Tracy:
And I’m Tracy Alloway.
Joe:
Tracy. I’m very excited about today’s episode. Obviously we talk a lot about economic theory on thid show, we talk a lot about how changes in economic thinking have changed from now and pre-crisis and so forth. We talk about the sort of condition of the macro economy quite a bit. But, you know, not as much on the actual specific policy-making side.
Tracy:
Yeah, well today is a chance for us to put theory into practice, I guess. And we’ve been talking basically a year now about this idea of the handoff to fiscal policy — this movement from monetary policy to fiscal stimulus being more important for economies post-Covid, and now’s our chance to actually dig into how fiscal policy is enacted and how people in power are thinking about it.
Joe:
Yeah, exactly right. So that is of course a huge theme, a huge discussion, the sort of the post-, I guess I would say, the lesson of the last year is that fiscal firepower has been incredibly effective at reviving the economy. And there’s certainly an increased openness, it feels like, politically and also intellectually to really take a more expansive view of what government spending and taxation power is capable of in terms of building a new economy and not leaving so much of the decision-making too the central bank.
Tracy:
Yeah, I think that’s exactly right. Even if you think back a couple of years, even the idea of massive fiscal spending — things like direct payments to Americans — were kind of on the fringe, but now not only have we seen that happen, but people are talking about other things for future crises — such as automatic stabilizers — and more things like that.
Joe:
Exactly right. It feels like it’s a time of openness to new ideas, which often is the case after a big crisis. Anyway, I want to jump right into our discussion today because we have the perfect guest with the perfect perspective to talk about all this. We’re going to be speaking with Jared Bernstein. He is a member of the White House’s Council of Economic Advisors, right now advising the president on economic policy. And he was previously the chief economist and economic advisor to then-Vice President Joe Biden coming out of the great financial crisis. So he has truly an extraordinary perch, extraordinary position, a great perspective to talk about today and the past and everything that’s going on. Jared, thank you so much for joining Odd Lots.
Jared:
Well, thanks so much for inviting me. I think the right way to start is to say long-time listener first time caller, as they say,
I’ve taken many a jog accompanied by the two of you, which has helped to burn calories and learn something while I’m running.
Tracy:
Ah well, we’re all about physical fitness.
Joe:
Yeah, you’re the second person recently to actually cite our podcast in contributing to burn calories, which is, you know, it’s nice to be listened to by influential people and stuff, but we really want to help people lose weight. So that really means a lot.
But you know, I want to start actually with something kind of specific. So we’re in this, I think pretty extraordinary moment of growth. Economic growth is much faster than I think a lot of people would have guessed. The willingness of the government over the last year, both under the last administration and this one, to engage in aggressive fiscal expansion is truly historical. But there is this other bill, or possibly set of bills, that the White House is aiming to pass later this year, and I want to get into those. But right now everyone’s talking about inflation, lumber prices, gas prices, and so forth. We know that the Fed is planning on basically really looking through that, understanding it’s transitory, but from a political perspective, and thinking about the task ahead of you this summer in building support for more aggressive fiscal firepower, infrastructure — is that a political challenge? You know, sort of thinking about, okay, we need to convince members of Congress and the Senate to spend a lot more money at the same time the news is filled with stories about rising prices?
Jared:
Well, I think any thing you undertake in Washington given the legislative environment is a political challenge. But you’re very much correct to think about this, at least from my perspective and that of our economic team, from the perspective of political economy or the intersection of politics and the kind of economics concerns embedded in your question.
From the inflation perspective, it’s really, really important to separate the American Rescue Plan from the families and jobs plan because the former is very much in the spirit really of relief, more than stimulus. And that that’s a subtle difference but one that I think probably isn’t lost on this audience. Where stimulus is often about trying to quickly address demand shock and get people back into the economy, where relief is more about helping people and businesses get to the other side. But putting that distinction aside for a second, there’s a big difference between direct impact payments or the checks you were just referencing and enhanced unemployment benefit, PPP loans, things like that. And a set of investments that spend out over eight to 10 years, from both from the perspective of kind of the political economy or the kind of the politics of those different initiatives.
And to your question from the perspective of inflation, I think it’s actually quite a non-sequitur to talk about the jobs and the family plan and the kind of monthly inflation reads that we’re digging into right now that are very much driven by base effects by what we believe to be transitory supply and demand misalignments, by some of the pent-up demand and the elevated savings rates. And investments in long-term clean energy initiatives, advanced manufacturing, standing up a care sector, measures which I’m sure we can get into from the families and jobs plan, are pretty different creatures from the perspective of price pressures.
Tracy:
Well, just on that subject, is there anything the administration could do to expand capacity for things that are in short supply? So I’m thinking, you know, lumber is obviously important for housing, corn prices have also surged, they’re an important source of food, animal feed. Semiconductors have already been discussed by the administration as being strategically important. But is there more that you could do, would you be inclined to do more?
Jared:
So let me begin my answer ther with a very firm statement, which may sound a little tangential to your question, Tracy, but I don’t think is. Which is that when comes to managing inflation, that is first and last, beginning and end — I want to just really emphasize this, the remit of the Federal Reserve, not the White House. Clearly we are tracking, carefully-monitoring inflationary developments, and by the way, not just in the data, which we’re doing with the regular data, the high-frequency data, but also anecdotes — I mean, this is something we’re tracking extremely carefully. But when it comes to managing price pressures, that’s the job of the Federal Reserve. So that kind of independence of the Fed is a huge value of, of course, our administration.
That said you raise a perfectly legitimate question that is addressed by some of the measures in the jobs plan. In particular, you mentioned semiconductors. So there’s a $50 billion investment in the jobs plan to help promote an onshore, some critical supply chain aspects, including semiconductors. But this is not something that happens right away. As I was mentioning to Joe, obviously unlike the rescue plan, the jobs plan still has to be legislated. But it takes a couple of years to stand up a semiconductor plant.
When it comes to addressing what we’re looking at as transitory misalignments between supply and demand and some of the sectors you mentioned, I think right there, we have to think about the sort of elasticities or response functions that occur in markets where demand for lumber sends a signal to sawmills to activate lines that have been dormant. And now there are misalignments that evolved throughout the course of the pandemic where, I think some key actors took down production not foreseeing that it would come back as quickly as it did, hose sorts of things. That’s not necessarily a position for an administration to intervene in, but we’ll see how that evolves as time unfolds.
Joe:
Well on that note, and this is a theme that we talk about a lot, which is the, you know, supply and demand sometimes get discussed as if they’re these sort of very distinct, separate things, two lines intersect on a chart, there’s the price. But of course, as you’ve basically just alluded we’ve lost a lot of supply in part because of weak demand. And so we lost sawmill demand over the last decade after the great financial crisis with the mediocre housing recovery and tech capex hasn’t been impressive. In your thinking about investment, and again the longer-term investment, do you think about basically this idea of maintaining demand whether it’s direct purchases of equipment or incentives to keep growth high such that private sector actors will be incentivized to continue to build out capacity and not just look at the current moment as a sort of short blip?
Jared.
Yeah. Generally I would say more yes than no, although…