Ryan Avent, Cardiff Garcia, and Heather Long on Lessons from the Great Recession

The past decade has been a rollercoaster for the US and global economy in the wake of the Great Recession, and there are a multitude of lessons we can learn for the future.

Macro Musings is celebrating its 100th episode, and for this special occasion, we have an all-star panel of guests joining the show! Heather Long is an economics correspondent for the Washington Post and formerly was a senior reporter at CNN. Ryan Avent is a columnist for the Economist Magazine and author of several books including his most recent work, *The Wealth of Humans: Work, Power, and Status in the Twenty-first Century*. Cardiff Garcia is the co-host of NPR’s The Indicator from Planet Money and was formerly with the Financial Times. They join the podcast to discuss the top economic issues and lessons in last 10 years since the Great Recession, and what predictions they’ve made that haven’t come true. They also discuss the current trends of stagnant wage growth, the economic insecurity of the American workforce, and the dramatic change in the structure of labor markets.

Read the full episode transcript:

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: Today is a very special edition of Macro Musings. It is the 100th episode of the podcast. And to help us celebrate it, we have three special guests joining us today. First we have Heather Long, who is an economics correspondent for the Washington Post and formally was with CNN. Welcome to the show, Heather.

Heather Long: Good to be here. Happy 100th birthday. I like celebrations.

Beckworth: I do too. I'm glad to have you onboard. We also have Ryan Avent, a columnist for the Economist Magazine and author of several books, including his most recent one, The Wealth of Humans: Power, Work and Status in the 21st Century. He is also a previous guest on the show. So, welcome back.

Ryan Avent: Thank you, David. Good to be here.

Beckworth: Glad to have you on again. And finally, we have Cardiff Garcia, who is the cohost of NPR's The Indicator from Planet Money. Cardiff was formerly with the Financial Times and is also a previous guest on the show. Welcome back.

Cardiff Garcia: David, 100 episodes. Are you suffering from extreme cognitive dissonance from the variety of viewpoints that you've heard here?

Beckworth: I'm loving all of it.

Garcia: Okay. All right. So, I'm going to take that as a yes.

Beckworth: I treat this almost like a classroom. I learn as much as my guests do and my listeners presumably as well. So we're going to spend time doing what I call a big think, looking back at some of the issues and trends over the past decade. I will also have our guests peer into their economic crystal ball and give us a glimpse of the future, and that will be a lot of fun. Also, somewhere along the way we'll have a time of confession. I mean, a couple of period where we can confess those instances where you may have been wrong in the past. But let's begin by first looking back at the past decade and thinking about the major themes that emerge. So, what do you see as the big themes that emerged over the past decade? Who wants to go first?

Economic Themes of the Past Decades

Garcia: Should we just start throwing them out there?

Beckworth: Yeah, go ahead. Ryan seems really good.

Avent: A few things come to mind, one is inequality. I think the rise in inequality began before the last decade, but I feel like it's in the past decade that we've entered this world where a book by a French economist about the subject can sell millions of copies, which is weird. So I think inequality definitely is one of the main trends. The slow down in growth across rich countries and the debate about what that means, whether it's about technological progress or global imbalances or something else, but that whole story, I think, is pretty interesting. And then related to that, stagnant wages and just the general seemingly impossibility of developing good opportunities for a lot of the workforce, and how do we solve that. And to me, those are the big things. I don't know. What do you guys think? Good, we covered it.

Long: I would concur with that. Wages were definitely at the top of my list. I think I would add the rise of behavioral economics. How many Nobel prizes in economics in the last few years have gone to behaviorist. And when you tell someone who is not an economist about this trend, that humans are not always rationale and that other things influence their decisions, they are like, "Duh, of course that's true." But it just took a surprisingly long time for the field of economics to come around to really take this seriously.

Long: I can remember sitting in economics classes in the late '90s and early 2000s, and again we were still looking at the world through very much a prism that people are rationale decision makers. It's almost like a black box look at the world, and it's just amazing. Thanks to Richard Thaler and Daniel Kahneman and others who've probably been on this podcast. It's really been turned on its head. And I think too, in monetary policy, there's been a huge change in how we regard the federal reserve and other central banks around the world, and their role as saviors in the last decade. And has been really dominant change in macroeconomics.

Garcia: I think, and this is related to all of those other ones, a radical rethinking of post-recession economics, and one that had to actually be tested in the real world and honestly not always passing the test. You know what I mean? I was trying to think of a reasonable analogy for the economics intellectual landscape since the crisis, like anticipation in this episode. I came up with we are living in the medium place. If you've ever seen The Good Place from NBC, the medium place is like its representation of purgatory, where you get a bunch of good stuff and all the good stuff always comes with bad stuff.

Garcia: So you can always have your favorite beer, but it always has to be warm, that kind of thing. And it's like, we have a rethought monetary policy quite a bit, but we haven't actually implemented it. We still basically have the same 2% inflation targeting framework. The only real change is that there might be more acceptance of some unconventional measures, but the actual thing itself, the basic framework remains in place.

Long: I don't know. I debate that a little bit. I mean, to have the federal reserve grow its balance sheet from... To buy so much debt, to be such a big player in the markets. Going from 800 billion to over 2 trillion holding, that's a huge change. And that was hugely debated. It was at the time. I mean, people forget in 2008, 2009, there were Congress people, and even people in the Bush White House and early Obama, also thought that was a terrible idea, and thought that this was total, almost communist intervention in the economy. And now it's accepted. Europe and Japan ultimately followed what the Federal Reserve did. So I think-

Garcia: It is a big deal. But what I would just say is that, the particular tragedy to me of the post recession response was that, we did something like that. So we avoided the worst possible outcomes of another great depression. But it didn't really spark the economy to where it was before. We've had this incredibly sluggish stagnant recovery. That's now going on eight or nine years. It did just enough. And even a lot of those unconventional measures, there's still debate over whether or not they were a good idea in the first place.

Garcia: I happen to think they were a good idea in the absence of a more radical, new framework. But those are still debated. And I think it's frustrating.

Avent: I might go even farther. And I think it's really striking how incomplete the intellectual revolution that you might have expected to happen after a crisis of that magnitude has been. There was a lot of radical action taken at the time to put out the fire, at least keep the fire under control. And there were a lot of conferences and stuff where people said, "Maybe we need to rethink macro economics." But no one really knew what that meant or what might replace what everyone was working with. I was really struck in January when we had the annual meetings of the American Economic Association, how many of the same papers are being presented out there. A lot of the young economists are doing their same old new Keynesian thing. And the wilder ideas get relegated to the heterodox panels and things like that. So I think there was a moment when we might've really started to reinvent economics, and actually it just stalled out.

Beckworth: I want to get back to your observation, Heather, that at the time it was very radical, seemed radical. And I've had many guests on the show. I've made the same point that in some ways it wasn't as effective as it could have been or should have been. But it was perceived as radical, even if some of us think it wasn't done effectively. And that radicalness seemed like a large fiscal stimulus at the time, the blow back you mentioned from Republicans, just the general sense of malaise that also emerged.

Beckworth: The radicalness, the malaise, the slow recovery gave rise, arguably, to another phenomenon, and that's populism. I know you've talked about this before happened in some of your shows. So is populism and part of the story as well?

Garcia: I think so. I should note for the listeners, you were pointing at me when you were…

Beckworth: Yeah, one of your past podcast, in fact.

Garcia: I think it very likely was right. I mean, there's all kinds of work trying to disentangle, whether it's the rise of populism was generated primarily by economic grievances versus identity politics and things like that. That's a hard thing to ascertain. I don't think it made it any easier. Again, it's like a kind of purgatory. Maybe the rise of populism also had to do with the fact that, in the aftermath of the crisis, there was no reckoning... Well, there was some reckoning for the financial sector, but it feels comparatively mild when you compare to what happened to most normal people.

Beckworth: We had just the show.

Garcia: The chicken chick club. I think Breaking The Cursing Barrier, I think. But only because we were bringing title-

Beckworth: That's the title of the books, so it's non…

Garcia: ... it is. But there was that, there was the fact that it took a while for people to understand that austerity probably was a bad idea in the immediate aftermath of a recession. And there was some intellectual understanding of what was going on. That has advanced, I think. But in terms of how it was tried, it came late, at least in Europe. You look at some institutions like the credit rating agencies, for instance, it's just completely skated. So anyway, so to me, the absent reckoning has been the big theme of the last 10 years for me. So I'm encouraged by what's happening. Intellectually, I think people are attacking this stuff, but not enough I think has been implemented.

Beckworth: It's interesting though. I think you're right that in the US the discussion is very much about, is it about identities, is it about economics? It's interesting how little I think... And I'm going to end up discriminating a bit, I guess. But it's interesting how little of the discussion about the rise of populism, I think, is oriented toward the recovery from the crisis, that a lot more of it has been about, did we underreact to opening up global trade, do we underreact in terms of helping people deal with the China shock and things like that.

Beckworth: And I think it's both the massive disruption that globalization had and the trauma of the global financial crisis. And all these things affected lots of countries and lots of countries have struggled with the populism. But certainly that's a legacy of the past decade, and it's one that's not done by any means.

Avent: Okay. So on a related... Go ahead, Heather.

Long: ... well, I'll just wait. I'm sure we'll talk about this a little bit more later. But I think the other part of the populism rise that were under reported is the dramatic change in the structure of labor markets in this country in the past 20 plus years. And I spend about half a year during the election season traveling around the country for CNN in particular to places that were in [inaudible], if you will. And people were frustrated with wages, for sure, and inequality.

Long: But what they were really frustrated with was insecurity, these feelings that they could work five, 10 years for a company and just be brushed aside immediately. That they would just get some pink slip and nobody would even come and talk to them or thank them for the work that they had done. And one of the more shocking things I think in the United States that's happened in the last 20 to 30 years, is that people don't move as much. We used to be this country of immigrants and migrants, either forced or willingly moving for opportunities.

Long: And we don't do that anymore. We move at half the rate that we used to 30 years ago in this country. I was living in New York at the time. When I would go back to New York, all my Wall Street friends would be like, "Well, when you go to Ohio, or you go to Michigan, you go to these places where they just closed the auto plant, just ask these people, why don't they just move? They're clearly living in a place that looks like the 1950s when you drive down the street, why don't they move?"

Long: But when you go and you talk to these people and you say, why don't they move? Part of the reason is they say, "Well, I just lost my job at GM Plant or whatever plant here in Lordstown, Ohio. But if I move somewhere else, I'm probably going to lose my job two or three years down the line there. There's just this total insecurity and anxiety that underlies a lot of America's workforce today.

Garcia: Did you find that to be like a condescending reaction though, too? It's like, you just lost your job and the response from the Wall Street people you were talking to was like, "Why don't you move?" It's like, it's just a trivial thing to get your kids out of the school they've been in for years and years. And leave the place-

Avent: Leave your family.

Garcia: ... leave your family and the place you've lived forever that feels like home. It sounds like such a-

Avent: The average cost of an interstate move is $6,000. So if you're earning 30 grand, that's a massive share of-

Garcia: Not a lot of money.

Avent: ... and if you're earning zero, because you've been laid off, it's even [crosstalk].

Long: It has been again, when you think about the argument, is it any more strenuous to do those things today than it was for our grandparents generation? So again, all those concepts existed, all those barriers existed to a certain point 30 years ago. So why are people today moving at such a lower rate than they did.

Beckworth: And that's a nice segue into the next question I had. And that's, what was the most surprising development or developments? And I agree, I became aware of this decline in labor mobility across states recently. I was shocked because I was... Coming up as a student I was told, you're going to have so many different jobs get used to it, accept it, and the transaction go in the other direction. And in fact, you mentioned the China shock. One of the interesting implications come out of that is, not that the China shock was so big, which was a big point, but that people didn't move.

Beckworth: People in those towns that were affected by China shock, they stuck around, they're unemployed for the reasons maybe you mentioned earlier. But people are willing to tolerate the pain. I guess the trade off was better to stay than to move. But any other surprises... We've touched on a number of developments. Anything that was particularly surprising over the past decade?

Surprising Trends in Economic Development

Garcia: There was one to me, I think it's largely a positive trend. It was the US becoming the swing producer in global oil markets.

Beckworth: Interesting.

Garcia: It was actually seeing a technological innovation come to fruition in a way that in fact impacts everybody. You know what I mean? It felt like it had been a while since something like that had happened, and the promise paid off. And I still think that its importance is underappreciated by people who look at economics in general. I think it's a massive thing. I wouldn't say it's a total surprise, but it left quite an impression on me that it happened when it did.

Beckworth: It was interesting. I heard him gentlemen interviewed from the Wall Street journal who followed this. And he wrote a book about that whole development, and how it was almost like a frontier town in many places. Risk taking people will lose money to gain money, but that American spirit of entrepreneurism was alive, the adventure. And then the other bigger point, I think you're making is the big change to the youth economy that we're able to produce oil and become one of the largest producers.

Garcia: The oil price goes up, and it's an almost a neutral event for the US. You know what I mean? That's astonishing.

Beckworth: And you've mentioned before they can quickly come online. So if prices drop, not a big deal, and they come back up, they can...

Garcia: Yeah, I wouldn't say it's a big deal. I mean, everything requires some planning. But compared to off shore drilling, which takes 10 years of planning and all these things, this is why I think some people refer to it as menu fracturing. It's like turning on a light switch on and off. The price goes up, these guys come back online. And that, again, mitigates at least the rise in the oil price. It doesn't stop it completely. There are some things happening.

Beckworth: But lower transaction cost.

Garcia: Yeah, it mitigates.

Long: You're right on. And going alongside that, really the busting of OPEC. I mean, you think about the role that OPEC played in prior crises certainly in the '70s in the United States. And now it's basically notarized as a force in the global economy, because the United States has become such a player into a lesser extent countries like Russia that aren't as tied to OPEC. But yeah, it's a dramatic transformation of the global economy. I would also toss out one new business formation. We always think of ourselves as a country of entrepreneurs, as a country of startups, we glorify Silicon Valley. We have TV shows about it. And yet, new business formation, this country's at a 30 year low.

Long: And I think that that, to me, is one of the more surprising and under reported factors. We don't really fully understand why people aren't taking these risks, aren't starting small businesses. And what's basically happened in the economy is, we've seen larger businesses get larger. And larger businesses become a bigger, bigger player as employers. It used to be more people were working for small businesses. Now we've seen that flip, more people are working for large businesses. Because we haven't seen this growth in small businesses in the past certainly decade.

Long: And I think it's a dramatic... Again, another one of these dramatic shifts that's very different psychologically to how we organize ourselves and very different in how the economy plays out.

Avent: I'd just add to that. I mean, there have been a lot of surprising things in looking at the technological sector. You know what? I think a decade ago, the tech sector looked a lot more dynamic in terms of its ability to create these upstart companies. You think about social networking, how many of there were just popping up. And now here we are in this world where it's really about the big five and that's it. And there's all this discussion about industrial concentration and the power that these guys wheeled. And I think that caught a lot of people by surprise.

Avent: I mean, on a slightly different note, I think it's been surprising how quickly machine learning and artificial intelligence have improved. Eight years ago when my daughter was about to be born, I made a bet with a friend about whether she would have to get a driver's license when she turned 16. And I felt like I was really going out on a limb and betting that she wouldn't need to. But now, we basically are almost at the point where you can hail driverless cars with an app. And I think it happened a lot more quickly than a lot of people expected.

Avent: The other big surprise, I think, would be the fact that China has not been a disaster. I think for the last five, six, seven years, people have been expecting there to be as sharp slowdown in Chinese growth, for there to possibly be some reckoning associated with its debt or with its markets. And they've-

Garcia: Every year we say the word yet, and then they…

Avent: ... right. Exactly. And they just kept plugging along. I mean, it's nice that we haven't had a massive financial crisis as a result of China. But you do feel like any moment, but maybe not. I don't know. That's surprised me consistently.

Beckworth: So it truly was different this time with China.

Avent: Yeah, so far. Capitalism is China's [crosstalk].

Garcia: So far yet. As in, falling apart yet.

Beckworth: Okay. We've touched on this a bit, but any stories that were under reported? Heather, you already shared a few. But any others you think that were under reported, but were important?

Underreported Economic Events of the Past Decade

Garcia: Under reported, that's a tricky thing to gauge itself.

Avent: Probably the rising insecurity of employment in the media industry. Spoken from the heart.

Garcia: …way more people should know about that.

Avent: A lot more attention paid to that.

Beckworth: That was your pain panelists. We're here to listen in support. Well, let me throw one out there. And maybe for this group, it won't be an under-reported. But I think it's an under reported aspect. But I do believe that the Fed was effectively too tight over the past decade. That even though it did all these radical policies, it failed to persistently hit its target, and I think that's something that was not-

Garcia: We did our best.

Beckworth: ... I know you guys did. But I just think in general, there's this lack of appreciation. My sense is if you ask the average person on the street, they're like, "What's the big deal?" If you ask many people in finance are like, "What's the big deal." In fact, we see the opposite of this. This week, CPI just went above 2%, just a little bit. And it's like all hell broke loose. Where was this energy on the other side for the past eight years? And that to me, I guess, is the under-reporting. But that's just me. I'm a money guy and I care about those issues.

Avent: No, I think that's right. And I think if you were to go grab the man on the street and say, "Why did things play out as they did over the years after the recession?" Basically none of them would mention the persistent excess optimism of people at the fed, and the fact that they didn't try overshooting for once, I think, was a big mistake.

Garcia: Have you mentioned that before?

Avent: No, it's the first time I said that.

Garcia: Wow.

Beckworth: It's okay. On my show, you can say that as often as you want.

Long: But again, I think you can argue that most Americans did feel that something was wrong, and that hasn't returned, and that played out in the 2016 election.

Beckworth: That's true. I can't put the thing on it exactly.

Long: Right. They might not have mentioned the fed, I agree. They wouldn't have known who Jenny Allen [inaudible] is right now.

Beckworth: That's a good point.

Long: But they knew something was wrong. And I never forget in early 2016, calling a woman in Alaska. And she was around 30, a millennial. And she had actually just gotten a massive raise and promotion. She didn't have a college degree. She'd worked her way up from bank teller to being some marketing officer in a local bank in Anchorage. And so she seemed to be making it. I mean, this was late 2015, early 2016. I thought, "Wow, you've sort of won the jackpot. Your salary went up over $5,000 in the last year."

Long: And yet, all she wanted to talk about was how scared she was. And how I think it was just this belief that one wrong turn, a car accident, a bad health incident, could totally disrail her and her husband's future. And that they'd had the sense that they were just one bad turn away from disaster. I mean, that was the language they were using disaster. And I'm thinking, "You're going on holidays, you just bought new cars. You're living the middle class dream and yet you're talking about disaster." And so people had to sense this feeling that it hadn't returned to normal, even if they personally were okay.

Beckworth: Yeah. You mentioned that earlier, this insecurity. I was thinking, why is this awareness more acute now. People had similar challenges in the past. I wonder to some extent if that's related to the increased financialization of the economies, more household debt maybe, more susceptibility, more leverage. I don't know. Maybe it's just something else that drives that insecurity.

Garcia: I mean, we did just go through a fairly deep... Not fairly deep. The recession was a nontrivial event for a lot of people.

Beckworth: Many people.

Garcia: And again, to me, the surprise goes in the other direction, which is that I thought this would be a generationally tectonic shift. That I thought that in the aftermath of the great depression, You would see a different approach to the financial sector towards savings and consumption, and investment, and all that stuff. That it would lead to a much more radical-

Beckworth: At the individual level too.

Garcia: ... at the individual level, and at the institutional level, and at the level of policy. It didn't really happen. And for me, part of the reason is because the response did enough to avert the actual calamity that you had in the great depression, but it didn't do anything close to enough to get labor markets healthy again. And so, we ended up in this middling situation. The next thing I'll... To answer your question more directly though, David, about the underreported thing, this is more just a gut feeling. I have no data to back this up. So feel free to dismiss it if you like.

Garcia: But there have been long stretches of time, for instance, where the fed didn't have all of the governors in place. This included during the Obama years, it was a frustrating time. And in general, that thing would get a lot less covered, I think, than would whatever Congress was thinking about passing or the latest presidential budget or whatever. You know what I mean? And so it seems to me, fiscal policy, or the absence of it, or whatever, was reported more aggressively, or at least people were more aware of it, I should say. I'll take that back. People were more aware of that thing, because it involves politics and drama and all that stuff, than whatever happened to be going on at the federal reserve. And that was probably a lamentable.

Beckworth: Okay. What about the other side? What are the stories that were over reported relative to their importance?

Overreported Economic Events

Long: I'll start. I mean, stock market. I can tell you having worked for several years at CNN and CNN Money, I mean, one of the biggest drivers on that website was people looking up stock tickers and people reading stock market stories. And again, I think some of it was driven out of fear, out of this fear that in any time you would put up three red flags right now. I mean you could have written that in 2015, even when the markets were still doing very well, likely to go up. I mean, there was still this just amazing amount of clicks that would come on any story out of this fear that there was going to be a repeat of 2008 and early 2009.

Long: People were just more and more hungry for that content. And obviously optimism would have been the best course for any investor in the last 10 years. And we probably should have all just put our money away in the markets and forgotten about it, and we'd all be much better off than this constant incessant checking of our stock quotes every day.

Beckworth: Cryptocurrencies? I've probably read about as much on that as I care to. Immigration, in a lot of different ways-

Garcia: Like demographics, you mean?

Beckworth: ... well, there's the demographic side. I mean, there's the fact that people continue to obsess about illegal immigration, particularly from Mexico, illegal immigration fell to almost nothing. I think during that period after the crisis actually reversed, and there was net migration into Mexico from… But then also the worry about crime and these sorts of things, actually is not a... I don't think people understand what the basic facts are about the effect of immigrants on the economy. I think it's much worse than it is. And that's unfortunate.

Garcia: This to me is maybe the easiest question…

Beckworth: Okay. Here we go.

Garcia: ... especially in the few years after the crisis. The deficit.

Beckworth: Yeah. I understand.

Garcia: It's usually over-reporting thing. And the over-reporting, I think, fed back into an actual worry amongst policymakers who should have had a radically different set of priorities at the time. And you can see that, because now we have to have much higher deficits, a national debt trajectory that is much higher than it was. I mean, the pace of it's increased as much higher than it has been since the crisis. I'm not saying that people are finding it acceptable or unacceptable. I'm saying that when this thing was reported about in 2010, 2011, whatever, it was a huge waste of everybody's time, and worse than that really. It was something…


Well, I mean, there was the Rogoff-Reinhart, 90% worry, there's the bond vigilante worry. And the fact that now it's going to be even bigger, and we haven't seen huge spikes in treasury bills. And so if this really were a legitimate concern, not only politically we're not seeing big blow back, but the markets aren't overly worked. The yields are going up a little bit, but not enough where you think is the 1970s, I guess.

Garcia: Yeah. They've gone back to where they were in 2014.

Avent: Relatedly, I think, in the years after the crisis, there was massive over coverage of all these stories that turned out to be completely wrong, about why unemployment was high and things of that nature. I mean, there were worries about policy uncertainty, isn't policy uncertainty such a big thing holding back the recovery, or structural unemployment. People came up with all kinds of crazy stories about why folks who had lost their job were not going to come back into the workforce. I mean, it turns out that quite a lot of them haven't. So I think we should have spent less time worrying about those things.

Beckworth: Okay, well, let's transition into a more sober timing of the show, and that's the confession time, the [inaudible]. So was there anything that you as journalists got wrong over the past decade that you're willing to confess to the public?

Confessions of Incorrect Economic Predictions

Garcia: Just definitely silence now. I mean, this is something I alluded to earlier, but the absent reckoning that I was discussing. I really thought that there would be something more along the lines of, I guess, a fallout for the worst players in the crisis. It didn't come anywhere close to that. I also had a very naive view, especially in 2011 and 2012, that we would find a more precise way to measure policy, and specifically the combination of fiscal and monetary policy. This was when I started writing about the safe asset shortage.

Garcia: I think I was pretty early in popularizing that framework. I still find it to be an incredibly useful framework. But it is not the case that, for instance, you can look at the traditional measures of money and then take institutional money and add it all up, and think that that is going to tell you exactly how the money supply needs to be growing in response to whatever the economy is doing. I think figuring out how to actually calibrate the policy is really, really hard. And you have to judge it based on actual outcomes rather than on some kind of projections. So that was a naive view I had early on. Also, I didn't think Donald Trump could win.

Beckworth: I remember that. You've confessed that several times.

Garcia: I did it. It's the wrongest I've been about anything.

Beckworth: Okay. Don't worry. You weren't alone there.

Long: Well, I guess if I'm telling off that, I sometimes have the story nominated for the fake news awards. So when I was at CNN Money, I wrote a story that unfortunately had the headline that Trump win would sink stocks, what about Clinton? And this was in October of 2016. And it was based on a lot of these reports that were coming out that predicted a similar reaction to a Brexit, that there would be, some even said eight, nine, 10% drop if Trump became president.

Long: And so, the article also talked about the stocks would go down if Clinton won. So it wasn't exactly like I was really, really pushing one side or the other. And I had done a series in that month. I was looking at several stock market metrics and what they pointed to. And actually one of the most famous stock market metrics, where you look at the change in just SNP 500 between August 1st and October 31st. And if it's up, it protects the incumbent party. And if it's down in that three month period, it predicts the other party will win. And sure enough, it predicted Trump would win.

Long: And so, I kept writing about that as well. But of course, everybody only looks at that headline. And so of course, I wish I had phrased it differently in that headline. Let me put it that way.

Avent: Well, similar to Cardiff, I was repeatedly wrong in being optimistic or confident in policymakers, in getting things right, or in fixing things that had led to the crisis. It took a long time for me to finally become a cynic and lose my faith. And so that was certainly one thing. I was pretty sure the Euro crisis wasn't going to end well, that someone would leave or it would all blow up. I was very pessimistic about that, and was surprised at how successfully they managed to muddle through.

Garcia: You might have just been early.

Avent: We can revisit that later, but I was definitely surprised about that. I also thought that after the... During the crisis, there was a collapse in trade. There was a collapse in growth rates among emerging markets. Then there was a little bit of a bounce back, but I thought that that was the end of it. That we were going to see another period where developing countries grew much more slowly, where trade... I thought trade had hit the wall, trade growth would hit the wall. And as it turns out, for now, it's just trucking along. Maybe the Trump administration's new trade barriers will end that. So in those instance, I was a little too pessimistic.

Beckworth: I'll have a confession to make as well. I was way optimistic on QE, particularly QE two, QE three. QE two is probably the worst one. But I think QE one-

Garcia: The worst misfire for you, you mean?

Beckworth: ... yeah. Well, there's many misfires. The ones I'll confess anyhow. I think QE one did make a difference because the markets were freezing up, even if it wasn't done in the most efficient way. But I wrote a piece for the national review of all things, the conservative case for QE two. And I just praised it, and told how it was going to solve all these problems, and it didn't. I mean, we had sluggish growth. And QE three, I was even more enamored because it was not tied to a particular date. And I was sure this was... We're going to get back to 2% inflation, we're going to have robust growth, and didn't happen.

Beckworth: And since then, I've gone back and read the literature a little bit. And Michael Woodford commented on this, if you don't do it right, if you don't want to get out in the weeds of permanent injections, if you don't have a level target, you don't have commitment to overshooting, QE is going to be limited. It had some effect. I'm not saying it had no effect, but I've vastly oversold what it was going to do. Okay. Well, with that off my chest, let's move on.

Garcia: Deep breath.

Beckworth: Okay.

Garcia: You want to talk about we did right?

Beckworth: Let's do that.

Which Economic Predictions Were Correct?

Garcia: That would be fun.

Beckworth: Let's give you a chance to shine, time to shine. Who wants to go first?

Avent: Well, I have been... There's so much to choose from, in terms of getting it right. I don't know where to start…

Garcia: Just for these next six minutes, we're all out to be arrogant jerks here.

Long: The viewers can't see the head inflating here.

Avent: I feel like I've been really pressuring in saying that we should not expect a wage growth to accelerate. That there's been, for the last five years, a lot of people saying, "Anytime now. It's right around the corner. We're going to get a big jump in wage growth." And my view has always been that, no, there are a lot of structural reasons why that's not going to happen. And I hold my breath every time we get a new data release, thinking this is going to be the one where it pops in it's 5% year on year and I'm wrong. But no, it's been a great source of... It's horrible for the economy, and it's horrible for people not getting raises. But in terms of gloating on Twitter, it's been just fantastic. That's important in life.

Garcia: It is.

Avent: All right.

Long: I guess the two that I would point to are that economic anxiety and what a role that would play in 2016. I showed up in Ohio, in Southern Ohio, in maybe late summer of 2016. And we wrote a piece about how we didn't think Clinton was going to had a chance in Ohio, which was a little bit of an extreme call at the time. But I just remember everywhere I walked, people could quote verbatim to me what Hillary Clinton had said months before about coal. Basically that she thought that we should be moving towards green energy and lowering coal usage.

Long: And I would be talking to owner of a motorcycle shop. And I was like, "You don't even work in coal, why does this matter so much to you?" He was like, "But my grandfather did." It was just part of this cultural fabric. And so I think we recognized early on both those economic anxieties and also that some of the issues that were not even part of the day to day talk, economic talk, or political talk in the campaign, or what people would really grab and resonating with this time. And the other one that I'm really proud of is in 2015 in the market had a bobble after China revalued its currency in early August of 2015. And that caused the last downturn in the last proficial correction before this recent one.

Long: And I wrote a piece that was basically like, stay in the markets, don't panic. This is not the end. And I got zero hedge. That blog that is always negative-

Garcia: That's a bad…

Long: ... and written by several hedge funders. And anyway, they wrote a piece about how Polly and I were out of touch. And sure enough, if you put your money in 2015, you were very happy.

Beckworth: Why are you journalists? Go into financial industry and make some money.

Avent: Buy the dip.

Long: Well, at least in that point, it was pretty clear.

Garcia: Mine is related to Ryan's, which is that four or five years ago is when I started seeing people talking about labor market slack, and how we might be nearing full employment. And this seemed really, really premature to me. And I started writing about how, number one, there are certain measures showing that that's just not the case, especially if you look at the prime age fluctuations. And number two, there was also just a peculiar set of global forces in place at the time that seemed like it would be disinflationary. Not that we would end up with either deflation or lower inflation in the US, but that certainly would stymie the rise of inflation or whatever inflationary forces were there.

Garcia: So we had the rise of global supply chains and we had the frackers finally starting to really come online in a big way, driving down oil prices, which was a delightful supply side shock that we really needed at the time. You had a really slow growth in emerging markets. And I looked at all this and I thought, it is really, really unlikely, number one, that the labor market is anywhere close to full employment right now. And number two, that even if it were, it would still take a while for that to feed through into actual prices.

Garcia: And what we've had since then is disappointing below target inflation and disappointing below target or below what we wish were the target, nominal wage growth as well. Nominal wages, they have been suddenly consistently rising since the aftermath of the crisis. But they went so low that they're still nowhere close to where they were before the crisis. And so you look at all that and you think it is nuts for people to think that we should be preparing for an economic reality where we are at full employment, wage growth is taking off, people start complaining legitimately about a shortage workers in this or that industry.

Garcia: I think all that stuff seemed to me way premature. And I've been writing that ever since. And I mean, it's four or five years later. So I think I can [crosstalk]-

Long: Take some credit.

Garcia: ... victory at this point.

Beckworth: Just as an aside, you think part of the confusion there is that people get growth rates versus the levels? Looking at the inflation this week, 2.1%, everyone's worked up as opposed to looking at the level that... The overall trajectory.

Garcia: Maybe. But I think the bigger problem is actually that they fear the wrong thing, that they fear the 1970s, that they think that inflation is to use... What was Marvin good friend's term? That it is some kind of financial... What was his phrasing again? It was certainly anarchy, I think is what he called it, financial anarchy. They fear the wrong thing. They fear accelerating inflation getting to the point where it can't be controlled. And it leads to all other societal problems, instead of fearing a world where you have chronic unemployment, chronic underemployment, horribly stagnant wage growth, and all in the context of continually rising income inequality. So I think they feared one thing rather than the other.

Avent: I mean, it's really amazing to me how low people's expectations have gotten for things. I mean, like you said, 2.1% inflation and people flip their lids. And the 10 year treasury yield touches 2.9, and they're like, "We're at the doorstep of a fiscal crisis," and we're like, "Come on." Three years ago we were well above this level. I think people are happy with wage growth when it gets up to 2.8, 2.9%, even though by the standards of any prior recovery, that would have been a really dismal. And I think we have totally reset our sense of what the right levels for all these different things are. And that makes us more pessimistic than we need to be.

Long: Yeah. It feels like Paul Krugman wrote that book about Age of Diminished Expectations about two decades too early, but we seem to be in it now.

Beckworth: Well, you guys have hinted at, maybe even spoke about, but let's be explicit here. What has been your hobby horse this past decade?

Hobby Horses of the Past Decade

Garcia: The labor market, I guess.

Beckworth: Labor market?

Long: I have been one of the people worried about debt, and probably sometimes wrongly. But I just foresee a real intergenerational conflict that's going to go on. We're starting to see a play out in politics, with both the Democrat and Republican parties having so many older lawmakers who seem to have a no sense of what the world might look like 30 years down the road. And I think for millennials, and I'm one of them, that the debt crisis is going to come home to roofs at some point. And I think I was probably too early, 10 years early started to write about it. But I do have a lot of concerns right now.

Long: And then the second one I would add is payday lending. I was working in a small paper in Pennsylvania when I got my start, called the Patriot News in Harrisburg. We found out that the payday lenders were trying to get back into Pennsylvania. This was right around the time of the crisis, of course, and that they had paid a bunch of lawmakers to try to pass this overnight in the darkness, like 1:00 AM in the morning, which seems pretty normal in DC. That was not normal in Pennsylvania at the time.

Long: And we did a big campaign around it to try to stop it, and we did stop it. But it really blows my mind that in America that we know that this payday lending is so wrong, and yet they've been able to make inroads again in this country, and possibly now at the federal level too. It's unbelievable to me.

Avent: Well, so one of my hobby horses has been the demand side stuff. The idea that we're helpless to try to make the economy grow faster. The idea that, as Cardiff said, there's not much slack left. I've been trying to point out how wrong that seems. The idea that if we overshoot it all, that it's going to be hugely costly. All these arguments have been driving me crazy consistently since 2009, 2010. And unfortunately, I don't think my being hysterical about it has made any difference at all. But that's one of them.

Avent: I think something I've been talking a lot more about recently is about how we should expect technological change to affect the economy. And so, you have this horrible conversation where people are, on one side they're saying, "Technology is getting a lot better and it's going to cause all this economic havoc." And on the other side, people are like, "Well, no. I mean, look, unemployment is really low, employment is really high. So obviously that's wrong." And I think both of those are missing the big picture, which is that the way technology affects the economy depends a lot on what the institutions are. And there's a lot of ways other than mass unemployment that we might expect something like AI to disrupt the economy. That also I've been very unsuccessful in changing anyone's mind.

Beckworth: I'll add one more thing to your list, which I appreciated. And this is maybe tied into your first point, but you were beating the drums of nominal GDP level targeting. And I've really appreciate your efforts over the past decade or so, even though, like you said, they haven't... I take that back. We're having more conversations now about the new frameworks for monetary policy, which wasn't possible before.

Garcia: It's happened solely, but the intellectual space for it is there for it to be accepted eventually. You know what I mean? It doesn't mean it will be. I'm saying that is now part of the landscape of economic discussions taking place in all the legitimate circles too, not just on the fringy blogosphere or whatever.

Long: And I think Trump probably becoming chair and not being an economist, who's grown up in PhD programs. And with all these notions that were from 20, 30, 40 years ago, it was really helpful. And he made it a point in his opening remarks to call out that he wants more interaction with economists and he wants more debates.

Avent: No, that's a great point. He comes with an open slate. He's a clean slate. He's also interacting... We saw that in the news, interacting with junior staffers, bypassing the barons. They call them the fed. And I know there's some junior staffers who are listening right now. So you keep talking to Jay about nominal GDP targeting.

Beckworth: Very smooth to hear. And while you're at it mentioned this podcast, Macro Musings. Here's the URL.

Avent: Tell Jay, in my book, he should be reading my book.

Garcia: Reading with the book.

Beckworth: Tell Jay to subscribe on iTunes and rate it for me, just while you are at it. Okay. Well, we've had a great time looking at the past. I want to ask you guys to bring out your crystal balls now, peer to the future. And tell me, what do you see as the big issues moving forward?

Significant Economic Issues Moving Forward

Long: Well, I'll start. I mean, we haven't mentioned women in this conversation. But I think whenever country, and I hope it's the United States, can figure out better ways to get women into the labor market and stay in the labor market, we'll win the economic race in the next 10 years. Because it's huge untapped potential. And there's study after study that talks about how beneficial it would be to keep that talent.

Garcia: And US is pretty bad at it right now.

Long: It's dismal. Even countries like Saudi Arabia are starting to awaken to this potential and starting to try to find ways to bring women in. And so I really fear that the US might be behind the curve on this, and really wake up and realize.

Beckworth: So you're not very hopeful then?

Long: I'm trying to be hopeful. I mean, again, if I look over 10 year period, then I would like to be more hopeful. I think we're going to... I think another thing we haven't talked about is just one of the more... I agree with Bill and Linda Gates. One of the more under reported stories in the last decade or two has been the phenomenal leap forward we've made as a globe and eliminating poverty, extreme poverty.

Beckworth: Yeah. That's a great point.

Long: It's going down by half since 1990. And when people at the UN first made that goal in 1990, of reducing people living in extreme poverty under about $1.50 a day in the next 10 or so years, people laughed. It was seen as undoable. And so I'm hopeful that we can make another great leap forward on inequality.

Beckworth: Global and equality.

Long: Global, I think we have a very good chance of it. I think we will continue to bring people out of extreme poverty to bring people, more going from earning just a few dollars a month to earning several hundred, or those who are earning several hundred now to do what China and India does, and have more of those people earning a couple thousand a month. But we'll also have to address it inside countries. So I'm hopeful in the United States that we're going to figure something out in the next 10 years.

Avent: Well, I guess on a somewhat optimistic side, I think that we are approaching the point where a lot of the fancy AI technologies that people have been talking about over the last five years, really are close to being deployed and finding their way into actual use and in a way that's going to be sci-fi in a lot of cases. We're in a world where in a lot of places you can hail a driverless car and it shows up, and there's no one in there and pick you up, I mean, that's a potential for economic and social changes. The result of that is enormous. And I think we're getting pretty close. So that's going to be something that is potentially very good over the next few years. On a lot of other things, I have to say I'm really pessimistic.

Avent: I mean, I think that our institutions have not done a great job in responding to the challenges that have been thrown up since 2000 or so, in terms of managing trade shocks, in terms of managing the recession. They could have done worse. But I think a lot of the underlying instabilities are still there. And that we just are going to have a lot of... There's a lot of the high potential for serious crises, not necessarily financial, but geopolitical.

Beckworth: …wars.

Avent: Wars, yeah. A lot of political instability within countries, a lot of social unrest related to inequality, to disparities in power.

Beckworth: Otherwise populism, is something of this that you see around the world.

Avent: It is, yeah. And I guess, my perspective on this is, I think people think it is a temporary phenomenon, that it's a hangover from China or from the crisis. And that is probably, the fever will break and people will start voting more sensibly in the future. And I don't think that's right. We now in a lot of countries have viable nationalists, populists parties that are just there, waiting for another downturn or another serious geopolitical crisis to break out. And I think we're actually in a much more vulnerable position for populace to have a lot of sway over things than we were recently. I'm not super optimistic about the next 10 years, unfortunately

Beckworth: All right, Cardiff. Do you have something positive to say positive to say or not?

Garcia: Positive-ish, you've settled for that at this point.

Beckworth: Okay. I'll take it. After Ryan, I don't know. [inaudible] bring down.

Garcia: First, in the US, we're about to have, however badly targeted, a big injection of fiscal demand. And I am curious to see if that does in fact get us to full employment, which I actually still don't think we're at yet. But I think we're in striking distance, possibly even within a year or two. And if that happens, I think there's a real potential to learn an awful lot about the economy. That's really hard to learn in the absence of full employment. A lot of the things that are attributed to structural problems in the economy might just be a problem of the economy not having been at full employment for the better part of 20 years. Because remember even before the crisis that was considered to be quite an unimpressive jobless recovery. I am curious to see what happens there.

Garcia: And the second part and not unrelated to this is something that Ryan just mentioned, which is, there are often lags in between when in really impressive underlying pools of technology or technological advancement end up coming to the surface and become commercializable, I guess, or at least applicable to the masses. And that's when you actually start to see it feed into productivity growth as we measure it. I'm curious to see if that will happen. And I think the fact that the economy is where it is might even help that along. I think one thing that economists has done a decent job of investigating the last few years is whether the supply and demand side really are separable.

Garcia: I don't think they are. It's possible that more demand now really does set the conditions for higher potential supply later. It is conditioned on keeping demand fairly robust. But if it happens, I'm curious to see if we do, in fact, start to get the kinds of innovations and the kind of productivity growth that we've hoped for for a very long time. And on that point, I actually am a little bit hopeful. I've never bought into what Robert Gordon says about the next generation of productivity growth resembling the last one. Wrote a beautiful book about productivity growth in the last 150 years, but I don't necessarily buy his projection for what's going to happen for the next 10 or 20 years.

Long: Yeah, I would just dovetail on that. I mean, I think we've talked a little bit here about the AI revolution, but what we haven't mentioned is the biotech revolution. And that's going to be huge, if not even bigger, I think, already in the United... It's really the United States versus China. I mean, it's like the space race of the next 10 years. It's going to be who controls the biotech, I think, in addition to AI, which is more well-known what's going on there. The ability right now, the United States pioneering this CRISPR technology. I'm not a scientist, but the basic-

Garcia: But it sounds pretty cool.

Long: .... the basic ideas is you can edit people's genes now. And not just in the womb and the brave new world, 1984 designer, baby-esque idea, but that you can actually cure some adult genetic diseases now. And again, you can just see that making leaps and bounds in the next 10 to 20 years in our capabilities of what we'll be able to do as humans as we merge these AI and computer worlds with the innovations in the genome. And you put that together and it's crazy and scary about what the next phase of evolution is, but it could have a huge impact on the economy.

Beckworth: There will be cyborgs with incredible-

Long: Basically if the United States wins some of that race, that would totally leap us forward.

Beckworth: ... well, let me ask a related question to this positive message, which I'm liking as here. We'll tune Ryan out for a minute. But Ryan can be a part of the conversation too.

Avent: Thank you, David.

Beckworth: So let's assume we do have this best case scenario, where we do see this singularity, this rapid growth take off. Are we worried about heightened, structural employment related to that? So again, in long run it's a good thing. People lose their jobs, eventually their children and they can be retooled in the right ways. But if that does happen... Number one, will that happen? And two, if it does happen, will we see stuff like universal basic income become more acceptable, and even put into policy?

Avent: That is the question, isn't it?

Beckworth: Mm-hmm (affirmative).

Avent: If it's not structural unemployment, it could be structural underemployment. As I read in a great book called the Wealth of Humans. I forget the name of the author.

Beckworth: Not important.

Avent: Yeah, not important. But in any case, that's the thing to watch for though, is the policy response. Again, I'm taking your premises for granted here. If we end up in that world, we should celebrate that progress first of all. And at the same time, we should fear that the policy response to it will be inadequate.

Long: Yeah. I think it's hugely concerning. In my mind, there's really three Americas. There's that upper echelon, the top 1% that are just thriving globally. Then there's this struggling middle, which could go either way, good or bad, the next 10 years for them. And they tend to live in urban centers or just around places that look up to date, or at least look like they've been... And then you have that third America that is truly living in places that just visibly, still look like the '50s and '60s, if not even earlier, some of the towns I've been to.

Long: And I worry hugely about those people. The bottom 40% of this country has not recovered in the last crisis. And I think even with these technological advances going forward, it's very easy to see a dystopian to America scenario, where the designer babies of the rich and the middle class, and they're the alpha humans. And then you have beta humans who do not have the same access to that healthcare and that technology. And that's very scary to me, and that's where you need a scenario like universal basic income, for sure. I hope we don't get there. I hope we can find ways to ensure that all parts of society benefit. But we sure haven't done a great job in the last 20 years.

Avent: Well, I think about it in terms of what happened with the industrial revolution, and that's my model for this. And if you take a very long run perspective, it worked out great. We're all a lot richer. We live a lot longer. It was a really, really good thing. But the process of getting from the pre-industrial world to that good place was a really bumpy, messy one. We made a lot of policy mistakes. There were depressions, and wars, and disasters, and things like that. And that's where I am. I think AI is going to be an amazing thing. It's going to allow for fantastic productivity gains. It'll it should eventually free us to spend much more time doing the things we want to do, rather than what we feel like we have to do to keep the economy running.

Avent: But if you don't work right now, you don't really get an income. I mean, there's some cushion there, but not much. And so, if we're moving toward that world, that has to change at some point. And it's not going to change because you have a bunch of benevolent people sitting in Washington being like, "You know what? I really do feel like paying more in taxes now and giving that money to someone else there." It's going to be a fight that has to take place. And so, my feeling is that we've got a lot of social unrest coming before we can get to that point where we have... I don't know if it's going to be a universal basic income, and that might be part of it. But whatever the solution is, it's not going to just fall out of the sky, like manna from heaven.

Beckworth: Okay. Well, on that note, we are out of time. Our guests today have been Ryan Avon, Heather Long, and Cardiff Garcia. Thank you all for being on the show.

Long: Thank you.

Avent: Thank you for having us. It's been great.

Garcia: Pleasure.

Avent: We'll see you after 100 more.

Beckworth: At the 200th episode we'll come back and see if our projections have come true.

About Macro Musings

Hosted by Senior Research Fellow David Beckworth, the Macro Musings podcast pulls back the curtain on the important macroeconomic issues of the past, present, and future.