Editor's Note: This transcript was automatically transcribed, so mistakes are inevitable. You can contribute by proofreading the transcript or highlighting the mistakes. Sign up to be amongst the first contributors.
Hello and welcome to the 538 Politics podcast. I'm Galen Truk. As we discussed earlier this week, House Democrats plan on passing a one point nine trillion dollar American rescue plan by the end of the week.
Maybe they've passed it actually, by the time you're listening to this next, the bill will go to the Senate, potentially be amended, then potentially back to the House. But eventually it will likely be sent to President Biden's desk by mid-March. On Monday, we talked about some of the political considerations Democrats and Republicans are making with regards to the plan. And today we want to get into the details of what is in the plan and why. And to do that, we're going to go straight to the source, the White House.
Here with me is Heather Boushey, a member of President Biden's Council of Economic Advisers.
Welcome to the show, Heather.
Thank you, Galen. It's a pleasure to be here today and also to explain to listeners exactly what your role is. According to the White House website, the Council of Economic Advisers was established by Congress in nineteen forty six and advises the president on economic policy based on data, research and evidence. Those are three things that we also really like here at five thirty eight. So please feel free to get wonky as you see fit to kick things off.
What are the biggest challenges facing the economy right now as you see them?
Well, so the biggest challenge continues to remain the pandemic. We have to continue to wrap our arms around this, get it under control. That means getting those vaccines out to everyone as fast as possible. And it means, in the meantime, making sure that people have the protective gear, the testing, all the things they need so that businesses can open safely, schools can open safely and the like. So that is the first thing because we have seen over 20, 20, that if you do not have that under control, then the economy can't function as usual.
And so while we are doing that, the second most important thing for the economy is to make sure that all of the people and businesses and state and local governments and communities are kept whole while we get the pandemic under control. So that means making sure that the millions of people who can't be at work because of the pandemic have income support. It means making sure that families have some extra cushion because of this enormous tragedy across our society and our economy.
That means making sure that states and local governments have the resources they need to cope with the pandemic and get schools open and keep, you know, make sure that they have all the things to have the testing facilities, get those vaccines out and all the like, making sure businesses have the support they need.
So this is about making sure that we are really attending to the very real crisis that continues to be in front of the American people overall is the goal of this package to restore the economy to where we were pre pandemic, or is the goal to push us in a different direction and create a different economy from the one that we had before the pandemic?
So really, what we need to do is make sure that that relief is getting out there. And so that is the first most important thing. Now, while we're doing that, there's been a lot of attention in this package, especially to making sure that we focus on the hardest hit, that we make sure that we address economic inequalities, that we do things like raise the minimum wage, make sure that we're attending to differences across different communities. So there's an element here where we're really trying to focus on addressing some of the inequities in the economy, but that is in service of addressing this very real crisis in front of us.
I want to dig into some of the details on the plan. And I'll just say upfront that as we talked about on the podcast earlier this week, this plan is popular with the public. However, of course, economists on the left and the right, the center, progressives and so on, all take issue with certain parts of the plan. And I want to really drill into some of the questions that they've posed and we can get wonky along the way, as I mentioned.
So one of the first questions here is January's job numbers were really bad. And, of course, the Biden administration said that we really need this plan to get the economy back on track because they were so bad. There are signs now the economy is turning a corner. Unemployment claims are falling faster than expected. Retail sales are rising. And then on top of that, Americans are sitting on, you know, excess savings because of past stimulus and not being able to spend during the pandemic.
And essentially, one of the arguments is that really the goal should just be getting the pandemic behind us, not really putting additional stimulus into the economy, because we already have a lot of pent up demand. And once you just get the pandemic behind us, there's going to be booming economic growth even without a lot of the spending in this bill. How do you respond to that? A few things, I think that that argument really does ignore some of the reality on the ground.
So there's about four or five facts I want to go through here with you. So first off, even though the reported unemployment rate has fallen, it's six point three percent.
Maybe that doesn't mean that's high. Maybe it's not so high. But here's the reality. Because of the unique nature of this crisis, there is strong reason to believe that that number vastly undercounts the true number of the unemployed. Millions of people have dropped out of the labor force. They've given up searching because, quite frankly, their job isn't available for them. If you ignore your professional waiter right now or you're maybe a professional actor, your job just is it's not coming back until we've dealt with the pandemic.
So those folks may not are not being counted in the unemployment numbers among a few other sort of survey issues that are specific to the pandemic. So what we think at the Council of Economic Advisers is that the unemployment rate is actually closer to 10 percent, a little over somewhere between nine and 10 percent rather than six point three percent. And in fact, we actually think that given what we're seeing in those changes in labor force participation and employment rates, that actually that discrepancy is much larger for women than for men.
So while the reported unemployment rates right now, but even for men and women, when you count in the people that have dropped out of the labor force, they actually are much higher for women than for men, but almost a full percentage point higher. And then similarly, they're extremely high, especially for black Americans and for Hispanics. So thing one, that the unemployment rates that we hear about on the news are really underreporting the true crisis out there in ways that are unique to the pandemic.
The second point I want to make is while we did get news that the number of people filing for unemployment benefits is down, let me be very, very clear. This was the forty ninth week of record breaking applications for unemployment benefits prior to this crisis. We have never had a week with such high benefits as we have had for forty nine weeks in a row. Just sit with that for a minute. Forty nine weeks of record high, over seven hundred thousand people applying each week.
This is incredible and this cannot be understated. So, yes, it's great that the number came down, but seriously, it's still really, really bad. So those are a few things. And so it's great that retail sales are coming back and it's great that people have savings that. Here's the thing. We know that the experience of this pandemic is been very unequal, that those folks there are a lot of folks who've lost their jobs and we see exceptionally high unemployment rates still over 16, but about about 16 percent in the leisure and hospitality industry where they've lost over about 40 percent of their jobs over the past year.
That is that it remains a crisis. And so a lot of what we're trying to do here is to keep people afloat. The targeted resources are going to go to those most in need. And we need to make sure that cushion is there because we don't know which families specifically are the hardest hit by the, you know, the the the health effects of this pandemic. So those are three reasons why this remains an urgent issue.
So I think there's a little argument from many economists that there are urgent needs for people who are unemployed, for people who have been hit hard by the pandemic.
But then there's this question of, you know, if it is all about the urgent requirements of the economy, why is there so much spending that will be drawn out over the coming years? For example, when it comes to schools, one hundred twenty billion dollars is going to K through 12 schooling. The Congressional Budget Office estimates that six and a half billion will be spent this year. Thirty two billion in twenty twenty two. And the remainder of that one hundred twenty eight billion would be spent through twenty twenty eight.
So is this kind of progressive priorities or is this about an urgent response to people who've suffered under this pandemic?
Well, so let's let's remember one little fact about the Great Recession. Right. So thinking back to the you know, the financial crisis in 2007, 2008 and the kind of damage that left, what we saw was that employment in local education and state education. So sort of both higher ed and school districts that did not recover to its prerecession peak until twenty nineteen, twenty twenty. So we took an incredibly long time because those losses were so sharp. What we are seeing now is this incredible challenge for school districts all across the country.
We've had to have teachers take on a whole new pedagogies, whole new ways of teaching their students on top of now as they try to get back into schools. Seeing so many teachers doing both that in-person learning and the online learning schools are having to change their air filtering systems, do these these major overhauls so that you make sure that children can be socially distance and all the like, all of that costs money. And the way that schools budget means that, you know, they have had these urgent needs.
And we need to make sure that they have those resources moving forward because of this enormous expense from 20, 20 and into twenty twenty one and maybe even twenty twenty two, depending on what their specific school district needs. So I don't think we can actually understate the enormous challenge that schools have been under, the enormous challenge that teachers have been under, and that these resources are going to go to help them cope with that. And so the spend down, you know, it has to do with how budgets are done, how they do their planning.
But those those resource needs are real and and they've been ongoing for the past year.
There's some debate, I think, among even economists on the left about how much the lessons from the 2008 financial crisis apply to this situation. There's a lot of agreement that the Obama administration did not put enough stimulus into the economy in order to get us back to pre crisis levels fast enough. And that was a long, drawn out, painful process for Americans as a result.
But a lot of people argue that this is a very different crisis because of the nature of the pandemic.
And so some economists probably don't have to tell you this, but most notably, Larry Summers, of course, federal President Obama's director of the National Economic Council has said that he is worried about creating inflation by essentially stimulating the economy beyond its ideal output, beyond its ideal level of employment with this plan. And essentially, does this ultimately drive up costs for consumers and have a negative impact on everyday Americans as a result? And then on the on the tail end, once we experience that inflation cause a recession.
So how do you respond to concerns about inflation that have been expressed?
Well, it's it's a really important question to ask. Right. And I've read the pieces that Larry Summers put in The Washington Post, of course. And, you know, and he made the case that he was concerned that this would be a little inflationary. But then he did a second piece where he really clarified his views, that he's also wants to make sure that we have resources left over to make the long term investments to address the structural challenges in the economy.
And so I want to put it into this larger context. So here's the thing, the argument that you started with feeling that, OK, so we've got this pandemic. It is unique and different. One hundred percent. This is a supply side recession. Right. Because what the pandemic meant was that we could not go about business as usual and OK, so that's a very different. Now, had we been able to contain the pandemic quickly last spring and then get back to normal, then maybe a small infusion or even a big infusion of cash to keep families and businesses holding steady for a few months, then getting back to normal.
That might have been true. But here's the thing. At this point, you've seen so many small businesses close. You have so many families that have been unable to pay their rent or their mortgage for months on end or their student debt. Now, of course, we've given them some some relief and said, OK, you don't have to pay that for a while or we're going to cover the interest and depending on the different programs. But those bills are going to come due.
And so we have this overhang, that part of what the American rescue plan is designed to deal with is, is to cope with some of those challenges had been left in the wake of the fact that this crisis is gone on for so long. Again, you know, if you have forty nine weeks of record breaking numbers of people applying for unemployment benefits, that's a lot of economic pain out there. That's a lot of people that haven't been able to pay their bills.
And so a lot of pent up need. So that gets to this issue of inflation. So what's inflation? Right. That's when the economy is at this full capacity. And that means that all the resources, all of the factories are running at full speed and everybody who wants a job is out there working. And even if you double their pay, you know, you're not going to pull more people into the labor market. If you would have to double, you'd have to really increase height.
That's what inflation is. And that's what's going to lead prices to go up. I would say a few things. First off, employment rates did not recover to their you know, we have we have seen 20 years of the nation's employment rates, sort of they go up and down, but they haven't recovered to their peaks of the late 1990s, early in 2000, before that early 2001 recession. So that to me is a signal that there is more capacity out there.
Again, I look at the numbers of the millions of women who've dropped out of the labor force because of the need, because without care, without schools, they can't get to work. Well, that's. Unmet, that's a capacity out there that we can draw on and pull into the economy. So I think that there is a lot of capacity out there, at least on the labor market side. And then I want to just point out that the last time that we saw serious inflation in the 1970s, a very different kind of economy than we had now.
It was also connected to an oil shock that was sort of out of the control of our of our domestic government. And that's not really what we're looking at today. In fact, what we're looking at is the need to address climate change so we can put ourself on it on a more sustainable energy path, but that we have different risks.
And so the risk here, I think, is less out of control inflation and more that we allow a whole generation to flounder in the wake of this national tragedy and do not help them get back up on their feet. If we don't help schools, that's going to burden this generation of schoolchildren if we don't help and ensure people don't get evicted. We know from all of this research that will have effects on families and children and and their ability to keep their jobs and stay in their communities.
So the risks of inaction are enormously high. And, yes, we need to be concerned about the risk of inflation, but we have to balance all of the risks together. And I think that this package gets that balance is as good as we could do.
Considerations about inflation mean that because so much money went into this package that there's maybe less money to spend for infrastructure down the line?
I don't think so. They're very, very different needs. Right. So this package is about relief. It's about it's about rescuing the economy. It's about making sure that businesses and families are whole so we can get to that other side of an economy where we can all get back out there and engage with people, get this pandemic under control. But that does not change the fact that we have these long standing needs. We know that we need to shift the way we produce things away from fossil fuels.
And that's going to require a I mean, it's a transformation our economy is undergoing. And we need to make sure that that's managed well. We need to make sure that we're that we're sort of shifting resources in a way that is sensible for communities all across the country. That's going to require resources, but that is going to be resources well spent. We also know that we have this long term needs to invest in infrastructure. We have a community that I grew up in.
There was a bridge that fell down a number of years ago. These things are scary. And yet we live in one of the richest countries the world has ever seen. We need to make those investments. And then I'll note that, you know, 2020 really showed us that we must invest in our economy. In fact, it was exciting this week to hear Chairman Jay Powell talk about that and in his remarks before Congress this week about how, you know, if we make those investments in child care that will improve labor force participation of women, that'll be good for our economy over the long term, it'll increase the capacity.
And that's the kind of investments that we're going to need to make to be competitive in the 21st century.
And I want to ask you about that specifically, which is maybe one of the areas where this plan gets a little more criticism from the progressives, which is that the American rescue plan dedicates 110 billion dollars to a child tax credit that would provide parents with three thousand dollars for each child over the age of six and thirty six hundred dollars for each child under the age of six.
But that would only last one year. If this is something that's so important for the economy, why only provide it for one year?
Well, I think the logic there is that this is, you know, as we've been talking about, there's a rescue plan. So it's an important thing to do now. It's probably an important thing to continue to do, but we're going to leave that decision for another day. But I do want to stress that it is that policy among a whole host of others. That is why this package will cut child poverty in half in this year. And that is a remarkable achievement, super important, but especially in a year of a pandemic when school children and kids have been so hard hit, and especially in communities of color, that cutting child poverty in half through these investments could go a long way towards undoing some of the damage that 20, 20 years.
So to to be a little blunt here, The New York Times editorial board wrote a piece about this plan and they called it essentially a political gambit by saying that this plan would provide Americans with a taste of these as as Democrats would describe important funds to help encourage child rearing and account for child care. But there would only last for a year. And then Democrats basically plan on running on this issue in the midterms to say, OK, Americans, if you want to keep this, you have to reelect us, as opposed to actually figuring out a way to make this a long term solution.
Was that criticism fair?
I mean, really, what is going on here if it is a such an important issue?
You know, it's a great question. So I'm an economist. I'm not. Political strategist necessarily, but here's the thing, we have this moment where we need to get out there and help the American people, and we know that families with kids have been especially hard hit. So it made sense to give them extra benefits that they needed right now. And I take your point, this is probably something that we should be doing over the long term, especially if it helps reduce poverty, especially if it helps working families.
But that's a decision that we have to leave for another day. And if the American people find it compelling, then I'm sure we'll continue to talk about it.
One of the other issues you've mentioned here is that this pandemic has hit particularly hard. Americans of color and data from before the pandemic even started showed that black Americans have two and a half percent of the nation's wealth and make up 13 percent of the population. They now face a steeper unemployment rate than white Americans. Does the Biden White House and the Council of Economic Advisers support economic interventions that would target black Americans in particular? And if so, what would they be?
It's a great question and it's so important. I mean, this year has just so unmasked the very real racial inequalities in our economy, in our society. And just focusing in on that, the economic aspects, the fact that African-Americans were both first in line for those, but for many of the job losses, they lost so many more jobs in the beginning than white Americans did. And yet, on the other hand, they also disproportionately in those essential jobs where their lives were on the line, especially in those early months where there was far less attention to the protective gear issue.
We didn't know that we should all be wearing masks or double masking now, as we've been told. So this has been an incredibly tough year and that is why this package focuses so much on, again, containing the virus that's going to help black communities. And there's certainly targeted efforts to make sure that the vaccine gets out there, that that there is that their health centers out there in every community that are that are helping to contain that virus and make sure that there's testing and all that available.
And then there's other policies like the minimum wage, which disproportionately is earned. The people that would get that increase in the minimum wage if we raised it from where it is now, up to fifteen dollars an hour disproportionately, those that would be most affected would be workers of color and particularly black Americans. So these are policies that are going to go a long way to help and to help close those gaps. I mean, there's so many other ones.
And let me just add one other. We know that when women owned businesses, they tend to own businesses that provide services, especially to their communities. So women disproportionately owned childcare centers. And in fact, it's women of color who disproportionately on those. So we have money in the American rescue plan that provide support to child care centers and reopen to do that, to recover from this virus. And that, too, is going to disproportionately help those black owned businesses that are so important for their communities.
I guess I hear the what you just said. We don't know if the 15 dollar minimum wage is going to make it in the final package. That's in part up to the Senate parliamentarian. It's in part up to Joe Manchin, Krysten Sinema.
But at the same time, that's not specifically targeted to black Americans trying to account for the wealth gap and the increased unemployment rates. Are there things that the Biden administration thinks that are appropriate to to do that target specifically black Americans?
Well, certainly there's been a number of executive orders, a number of things that the administration is ready to put out there that specifically target these questions around racial justice. And I mean, we're talking about the rescue plan today. We're talking about what's good for the economy overall. And I just want to stress that as we built this plan from the ground up, thinking about the racial justice, pieces were front and center because it's so core to the challenge in front of us.
And the only way that we're going to come together as a nation to solve it is to make sure that those folks that had been the hardest hit, which are disproportionally in communities of color, get the aid and support and the benefits they need. So that that has been front and center to this plan.
One more question here that I think, you know, is particularly been on the minds of progressives in assessing this package is, you know, last fall, the speaker of the House, Nancy Pelosi, suggested that the bill, the Democrats would eventually password retroactively give people enhanced unemployment benefits. And at one point that was six hundred dollars increase. It's currently three hundred dollar increase. And in this package, it's a four hundred dollar increase. It doesn't look like in this package there are going to be retroactive benefits for people who've been unemployed this whole time.
Why not the.
It's a great question at this point as I watch the debates happening, I'm certainly hoping that we get what was in the proposal, which was the four hundred dollar bump up. But let me actually also stress something that is so urgent and so important, the additional benefits that we're a part of the December package, they expire in mid-March. So this issue that we're talking about here today is actually quite urgent. It's almost the end of February, but there is a short month.
We've only got a couple more weeks before benefits will start expiring. So this issue that you're raising of people not getting those benefits could happen again. I think that moving forward, what's really important is we make sure that people get those extended weeks. It's now the case that 40 percent of the unemployed have been out of work and searching for a job for at least six months, which makes them what we call long term unemployed. That's extremely high. And if this package doesn't pass, many of those long term unemployed workers will lose access to benefits.
So really putting front and center those unemployment packages is is a number one priority. Got it. So let's talk about, you know, paying for all of this, and I know that concerns about the debt and deficit have always oscillated based on who was in power in Washington. Republicans under Trump dramatically increased deficit spending. So let's kind of maybe ignore Republican critiques for a moment and talk, you know, more from from the Biden administration's perspective.
Forget the politics for a second. Is there a point at which the debt does become a problem? And if there is, what is that point?
This is this is a question that keeps economists fully employed. So here's what I would say.
We have right now an urgent economic issue that if we do not deal with it, it will lower productivity and growth for decades to come. If we allow schools to suffer and school children to not get educated, for example, that's going to have a long term effect on our economy and a short term effect.
So you have to weigh the uses of funds that you're that you're trying to do with the long term costs. Now, there's a lot of things that we increase the deficit for in the past, like the twenty seventeen tax cuts and Jobs Act that were not uses of government resources that we're going to need are where the evidence shows are increasing our long term productivity and growth. So I think we need to be very, very smart about that. But in this crisis, in this moment, the cost of inaction is just too high.
So your question is, Will, when do we need to worry about it? I mean, we always need to be concerned about how we use taxpayer resources. We need to be concerned about whether or not the amount of revenues we're bringing in or matching the needs of the nation and have sensible national conversations about that. But we cannot allow that to handicap us in our hour of need. And so the time to have that conversation is after we get through the pandemic, after we've addressed the crisis.
And we're sort of we're we're back in a good economy like we were pre pandemic. That is the moment to start thinking about how we get on that war, that that path for the future. But right now, that is not the issue. But at the same time, raising taxes on the wealthy is it's popular and the president ran on it, so why not raise taxes to pay for this package?
Well, I think that that is the president did talk about that. He's got a lot of plans that were laid out during the campaign to raise taxes for folks making more than four hundred thousand dollars a year. And there's a robust agenda there and it is popular and it is really important. But this package for relief is not the place to focus on pay for us. So there'll be other other things that we need to spend on coming down the pipeline that we can focus on that.
But when you're thinking about this kind of emergency, you just need to act and act quickly and with intent. All right, so it sounds like we can expect some tax bill coming down the pike at some point. I know we have to wrap up here. So I just want to ask kind of more broadly, when we evaluate the Biden administration's handling of the economy in twenty point two or twenty twenty four, you know, what metrics should we use?
Because in many ways, the administration is making big economic interventions here. And so politically, Biden will now own the economy. How should we judge you and the Biden administration at the end of all of this?
It's a great question. So here's what I'm going to focus on and what I'm going to be watching as we execute on these plans are going to look for the unemployment rate to come back down. I'm going to look for the employment rate to go up. That is the share of people with a job to look at whether or not we're able to pull those women back into the workforce. We're going to track things like, you know, that the containment of the pandemic and vaccines and all that.
But, you know, making sure that we're also tracking that kids are going back to school and that that that's an important metric as well. But I think also a really critical piece to watch is what's happening with wages and incomes, right? Ah, do we continue to see inequality widen or do we or do we see folks at the bottom in the middle see their their income stabilize, go up as we get to this, get to an economy that's back to normal?
These are the questions that I think we need to be asking ourselves each and every day and whether or not these economic gains are distributed across the economy, not just in terms of bringing women back in, but especially by race, looking at it across different communities and across different parts of our society geographically. So I think making sure that we dig below the aggregate numbers to look at what it looks like across communities is a really important thing that I'll be watching.
All right. Well, let's leave it there. Thank you, Heather. Thank you, Galen. Heather Boushey is a member of President Biden's Council of Economic Advisers. My name is Galen Droog and a Rothschild edited the video version of this podcast. You can get in touch by emailing us at Podcast's at five thirty eight dotcom. You can also, of course, tweet us with any questions or comments. If you're a fan of the show, leave us a rating or review in the Apple podcast store or tell someone about us.
Thanks for listening and we'll see you.