Michal Rozworski: There’s been a big debate recently around Bernie Sanders’s economic ideas. It was precipitated by Gerald Friedman’s claim that Sanders’s plans would lead to 5 percent nominal economic growth over a certain period, substantial working- and middle-class income growth, and massive job creation. Pretty quickly, liberal economists like Paul Krugman or former chairs of the Council of Economic Advisors attacked this paper as unrealistic. What is your argument here?
JW Mason: So far, until now I think in the campaign the core questions of macroeconomic policy — whether we can or should want to see a higher level of GDP and employment or faster growth going forward — haven’t really been central on the Democratic side and Jerry’s paper really raised those issues.
Now I don’t think we want to get caught up in the specific strengths or weaknesses of that paper or the plausibility of particular numbers. I think that there are some problems with the paper. If you were to do the same exercise more carefully you would probably come up with lower numbers.
I think it would be foolish to defend the specific estimates that Friedman put out there, but I also don’t think that there is any real need to do so because the fundamental issue, as you say, is not this number or that number. Obviously things evolve under the pressure of events.
Economic forecasting is a very imprecise science in the best case. The question is whether there is good reason to think there is space for a substantially more expansionary policy. Is there good reason to think that a big expansion of public spending could substantially boost GDP and employment?
And I think that there the answers are clearly yes. This paper and the debate that it has sparked has actually been very productive in getting people to engage that question and getting a number of more mainstream Democratic-associated economists to agree that there is actually space for substantial additional expansionary policy.
What does this debate say about the diminished expectations about the economy that we have? Is this what you’re saying that it’s fundamentally about?
That is what it’s about. The position on the other side, the CEA chairs and various other people who’ve been the most vocal critics of these estimates, has been implicitly or explicitly: “This is as good as we can do.”
We’re not talking about core macroeconomic policy issues because they’re not a problem right now that we have 5 percent unemployment, which is full employment. The economy is at potential, more or less. There isn’t any aggregate demand problem to solve. That’s implicitly or explicitly the position of many people on the other side.
I think that’s really a problem and very unfortunate. First of all, I think there’s very little reason to think it’s true. It’s really a kind of disturbing vision of the world that that comes out of.
There was a story the other day about the number of people in the US who are living on disposable cash incomes of two dollars a day or less. It’s shocking that this is a large and growing number. The political implication that a lot of people drew out of this is that this is a result of welfare reform and a sign of what a terrible choice that was, which is certainly true.
In this context I have to wonder, do you really, honestly think that there are so many people who are incapable of doing anything of any value to society that would be worth more than two dollars a day?
Are there so many people working at these extreme low wage jobs — are they doing those jobs because they simply lack the skills, they lack the human capital, they lack the work ethic to do something more productive, more valuable for society? I certainly don’t think so.
Look at the slowdown in labor productivity that we’ve seen. Does that reflect some technological or human incapacity or does it instead reflect a lack of demand in spending and growth that has condemned a huge number of people to just scrape by doing crappy jobs for little pay?
People who are perfectly capable of doing something much more productive, valuable, and rewarding for society and for themselves in an economy that was functioning in a higher level. That to me is ultimately what’s at stake here.
The critics of higher potential growth have pointed to long-term structural changes in the US economy: the fall in the employment rate due to an ageing population, and this seemingly permanent fall in productivity growth. Underneath, though, it seems there’s something very political in their position, a reflection of the technocratic, neoliberal consensus. You’re saying that we should really question all of this, but if regular people aren’t getting the benefits of growth, then why talk about growth at all?
Well, they aren’t getting the benefits because we don’t have enough of it. The last time we had a real compression of wages — the last time we had a lot of people entering the workforce who normally are the absolute last people to be hired, people coming out of prison, people without high school diplomas — and the last time we saw market wages rising was in the late 1990s.
Why? Because this is what happens when you have a really strong booming economy, when you have a tight labor market, when you have a high-pressure economy, an overheating economy. What happens is people get drawn into the labor force, into higher wage jobs that they’re not going to be able to reach otherwise.
The best way to raise wages is to push unemployment way down and push growth up. The notion that people’s wages just depend on some inherent characteristics, a personal property of theirs like individual productivity, is absurd. It’s insulting to all people doing low-wage jobs and it’s also contradicted by history.
We see very clearly when you have really strong growth you have a lot of rising incomes at the bottom. A lot of people who society tends to give up on, turn out to actually be capable of doing useful work.
On whose terms should we be having this debate? Should the focus of the debate shift from growth to the distribution of gains, the quality of work, the quality of policy?
That’s absolutely right. The bigger question here is whether we can imagine an economy that is dramatically better for ordinary people than the kind of economy we have now. The implicit message from the CEA chairs is no, this is as good as it gets.
I think we can imagine better. I don’t care personally about growth in itself. I don’t care how much stuff is being produced in terms of GDP but I know from history that a full-employment, rapidly-growing economy is much better for working people.
It gives more bargaining power to people in the workplace. That has an immediate effect of higher incomes, but it also has a longer-term effect, in terms of power and hierarchy in society.
I think there’s a persuasive argument that a lot of the new social movements of the sixties and seventies were the fruit of an extended period of very rapid growth and very low unemployment. You had a setting in which people didn’t worry about getting fired because there were tons of jobs for people without credentials. You could say to your boss, “take this job and stuff it,” walk out and get another.
You read this stuff about the early seventies and it’s a different world. There’s space for other kinds of politics, other kinds of transformations in the workplace if people are not in a constant state of fear that their basic material needs are not going to be met.
That’s the actual stakes in this debate over growth rates. It’s not what the number of GDP is going to be, but are we going to have an economy that’s running at a strong enough pace that it needs enough workers to create a stronger bargaining position and that sense of security.
That brings out why their responses came so quickly, right?
Yes! I’ve been writing about this around monetary policy. By the way, that’s the real stakes here, I think. People say, it doesn’t matter what your stimulus might be able to accomplish because the Republicans are never going to pass it.
Well that might be true, but it might not be. You don’t know what the situation is going to be in two or four years. So if you know in general where you want to go, you can adjust your course along the way in response to circumstances. If you don’t have a goal, on the other hand, then you can’t take advantage of openings when they do appear.
The second thing is that presidents can make appointments. They also have a lot of regulatory power. Maybe you can’t do a big stimulus of exactly the kind Sanders is proposing, but there are a lot of things you can do through various regulatory channels if your goal is to boost demand. Again, though, you have to have a clear goal in mind.
Brad DeLong put up a blog post that was his big statement on this, saying roughly “no you can’t wave a magic demand wand and get back the recovery that we missed out on in 2009.” So you could’ve done it then; you can’t do it now.
But it comes down to just those first three words, “No you can’t.” That’s the other side here: all the reasons for why you can’t do anything. Just give up! Then this notion that Republicans make everything impossible is just another bit of ammunition for “No you can’t.”
But the truth is there is a lot of space and you actually have to make a positive case for how you want to use that space. There’s still going to be somebody running the Fed, appointed by the president and they have to take a position on how fast the economy can grow.
Right now, we have a system that says as soon as wages start rising, you have to throttle back demand. In many ways, the people running the show don’t necessarily want very fast growth.
They prefer an economy that’s sort of sputtering along because it’s one that involves a lot of insecurity and a lot of weakness for working people. When there’s a chronic oversupply of labor people can’t rock the boat.
So it’s fundamentally about bargaining power and distribution of gains. If you’re able to get a large chunk of even relatively low growth, then that might be better than creating a situation where people have the gall to demand more.
That’s absolutely right. I think that it’s been a little hard for centrists to defend the idea that this is as good as it gets when they’re actually put on the spot and have to defend it.
There is this deep-rooted idea that higher growth and employment are good things.
There’s one counter-argument that says yes, we could’ve had a bigger stimulus back in 2009 and if we’d done it then, we would be better off now. We would have higher employment and we would have had faster growth. But we missed our chance and it’s too late. All of these people left the workforce, businesses just didn’t invest so we missed out on all the innovation and improvements we would have had and people’s skills atrophied.
Sure, there is some truth there. The failure to do an adequate stimulus in 2009 did have lasting consequences, but you can turn the argument around. If that’s true, then it goes the other way too.
A really big expansion of public spending today doesn’t just boost incomes and spending today, it also draws people back into the labor force.
It’s a little hard to justify the view that the persistent slowdown relative to where we were ten years ago really is the best possible.
The question is then how to use these kinds of debates to help this concrete political campaign and the broader social debate rather than that only among wonks.
When it’s just wonks arguing over numbers, that’s not very interesting. But you can put out the real question: do we want to have a commitment — by the executive, by the federal government, by whoever we are looking at — to do better? Or are we going to let them say this is the best we can do?
That’s really the debate here. Can we have a much better economy in terms of growth, of course, but, more importantly, in terms of employment, income, and security for ordinary people? That’s the question.