Fiscal policies (taxes, government spending, deficits and debt): I’m leading with this because it’s an area where I’ve argued economics has made real progress. The key things we’ve learned are:
— Under conditions that prevail today and are expected to persist — specifically a fragile economy with families struggling and interest rates very low — borrowing to finance spending on virus control, productive public goods and inequality-reducing policies (as opposed to regressive tax cuts) is more than warranted. It’s essential.
— Arguments that such borrowing will push up interest rates and hurt the economy get little support from the data. That doesn’t mean deficits don’t matter: Any country carrying a high debt burden is more exposed to an unexpected rise in interest rates, a risk that shouldn’t be ignored. But that risk must be weighed against the avoidable suffering that can be obviated with robust fiscal relief.
— Especially since the enactment of the Trump tax cuts, which broke the linkage between overall growth and revenue flows into the Treasury’s coffers, our main problem isn’t spending; it’s too little revenue.
— I’ve argued that fiscal austerity is, at this point, more of a political than an economic argument, one used to block policies that partisans don’t like and quickly forgotten when those same partisans want to move deficit-financed policies they do like (for more on the contemporary economics of public debt, see here and here).
Monetary policies (interest rates and the Federal Reserve’s actions): Because the Fed plays such a key role in economic outcomes, I’ve spilled a few barrels of digital ink on how its policies have evolved; here again, economics has made real progress.
— I’ve applauded from the sidelines as the Fed has moved to being a lot more comfortable with allowing low unemployment. That is, in pursuing its mandate to balance the trade-off between inflation and labor-market tightness, it has elevated the critical fact that persistently low unemployment poses less of a threat to low and stable inflation than it thought. The current Fed chair, Jerome H. Powell, gets high praise for applying this wisdom, and so does one of my likely new colleagues in the Biden administration, Janet Yellen, who will be nominated to serve as the treasury secretary.
Trade policy: Like a growing number of economists, I’ve tried to stress ways in which our profession has gotten a lot wrong when it comes to globalization.
— The fundamental assumption that increased trade flows benefit everyone (which, for the record, is not what trade theory really predicts) elevates consumers over workers, when most of us are both.
— The theory also ignores the reality that when it comes to expanding trade, Congress has too often “written trade deals and tax laws that have benefited international investors and corporate interests rather than workers.”
— I’ve tried to argue (often with help from economist Dean Baker) that the way forward involves a much more representative crowd sitting around the trade-deal table, greater investment in American manufacturers and paying a lot more attention to ways in which other countries make their exports cheaper in dollars and our exports more expensive in their currencies.
How economics can improve: Finally, I’ve tried to identify ways in which economic policymaking must evolve to meet the challenges we face. We see that in new thinking about deficits, monetary policy and trade. But there are still important ways in which key economic assumptions undermine social justice.
— As I wrote this summer, when people criticize the field of economics for its failures around issues of race, the most common critique is the extent to which Whites dominate the profession. It’s an important point and surely one reason economics has done far too little to address racial gaps. But there’s something foundational in the structure of economics that is too accepting about embedded racial injustice: the assumption that markets, left alone, settle into optimal conditions. The problem is that it is impossible “to observe the empirical record of Black economic outcomes and not conclude that market failure is pervasive. Their equilibrium is disequilibrium.”
— Especially as I undertake this next chapter, I’ve been thinking about “can-do-economics.” This approach to economic policy rejects the view, still too pervasive in the field, that addressing problems such as inequality, climate change, wage stagnation, financial excesses, racial injustice and underinvestment in public goods will backfire by guiding what should be the invisible forces — the free hand — of unfettered markets.
We should all know by now that sometimes the free hand is all thumbs. Even a quick glance at the Biden/Harris agenda — which I informally advised this year, before I agreed to join the administration — shows a thorough rejection of the notion that we can’t meet the challenges ticked off above. It’s impossible to miss the urgency in President-elect Joe Biden’s voice when he asserts that virus control is but the first step of the agenda. The next step is building an economy on the other side of the crisis that’s far more resilient to shocks from pandemics to climate-change-induced floods and fires. It is to craft an agenda that takes on inequality, racial injustice and the struggle for working families to get and stay ahead.
It’s been a privilege to explore these challenges in these pages in recent years, but I’m now privileged to try to use what I’ve learned with a team of like-minded, highly diverse economists in the service of an ambitious, exciting new executive branch.
Let the next chapter begin!