Heather Boushey on Rebounding From Covid & Biden's Economic Policies

Barry speaks with Heather Boushey, a member of the White House Council of Economic Advisers under President Joe Biden. She is also a senior fellow at the Harvard Kennedy School. In this episode, they discuss the economic rebound from the COVID-19 pandemic, Biden's economic policy, and economic equality in the US.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. This is Masters in
Business with Barry Ritholts on Bloomberg Radio.

Speaker 2 (00:17):
I'm Barry Ridholts. You're listening to Masters in Business on
Bloomberg Radio. My extra special guest this week is Heather Bouche.
She is a senior research fellow at the Harvard Kennon
School working on the Reimagining the Economy project. Previously, she
co founded the Washington Center for Equable Growth in twenty thirteen.

(00:40):
She has been an economist for the Joint Economic Committee
of the US Congress and on the Council of Economic
Advisors for President Biden. She became Chief Economists to the
President's invest In America Cabinet. Politico twice named her one
of the top fifty thinkers Doers in Visions Transforming American Politics.

(01:03):
Our most recent book is Unbound, How Economic inequality constricts
our economy and what we can do about it. Heather Bouchet,
Welcome to Bloomberg.

Speaker 1 (01:14):
Thank you.

Speaker 3 (01:14):
It's a real pleasure to be here with you today.

Speaker 2 (01:16):
It's a pleasure to have you here. Let's start a
little bit with your background. BA in economics from Hampshire College,
then a PhD from the New School, also in economics.
What was the original career plan?

Speaker 3 (01:29):
Oh well, I actually wanted to be an economist and
run a thing tank someday and get to do things
like this. I grew up in the Pacific Northwest in
a place called Michael Teale.

Speaker 2 (01:41):
Washington, Seattle, near Seattle, near.

Speaker 3 (01:44):
Seattle, it's north, It's right next to Everett, Washington. My
dad worked at the big Everett Boeing plant where when
I was a kid they made the seven forty sevens.
When I was a kid, it was the largest land
mass building in the world, has now been overtaken by
the Tesla gigafactory. And in the early eighties, you know,
I lived in a community with a bunch of cul

(02:05):
de sacs. All new houses had basically been built for
the workers and for the families of Boeing. And in
the early eighties, every kid at my bus stop had
one or two parents that were pink slipped. They'd been
laid off. Is the early eighties what I know now
to be the Volca Recession, And at the time I
was really just struck by how much power this company

(02:27):
had over my life and the lives of my friends,
and you know, I was really good at math, and
over time I realized that economics was the field that
was supposed to have answers to questions like how is
it that you know you can have that economic security
that I as a kid wanted and wanted for my family.

Speaker 2 (02:45):
So formative years as a kid watching what the company town,
how it progressed when layoffs came. Is that what led
your focus to the intersection of economic growth and inequality?

Speaker 3 (02:58):
Probably? I think the question that I have asked my
entire career is what creates that opportunity for economic security
for America's middle class? How do you make America's middle
class grow and thrive? And what stands in the way?
And so I've spent a lot of time thinking about
government policy, thinking about, you know, how we can encourage

(03:19):
firms to create those good middle class jobs, what government
needs to do when those jobs aren't available, or when
those jobs don't provide childcare or unemployment benefits or whatever
it is that families need.

Speaker 2 (03:29):
So it's such a partisan era these days. When you
were working on the as an economist for the Joint
Economic Committee of US Congress, was it that partisan or
was there some cooperation? Hey, we all have the same goals,
we just different our means of getting there. What was it,
What years were that, What was it like when you

(03:50):
work there?

Speaker 3 (03:51):
So I was there in two thousand and eight, two
thousand and seven into two thousand and eight, and so
it was, you know, the financial crisis, and there was
not a lot of partisan happiness. You know that in
those years on the hill. I will say over my career,
I've testified over three dozen times for Congress and the

(04:11):
you know, early on in my career I felt like
people on both sides of the isle were much more polite,
much more cognizant of the fact that you know, as
someone who's a researcher and you show up and you've
you've spent all week preparing this testimony, and you're ready
to ask questions. But you're doing this, you're volunteering your time,
you're not being subpoened. You're just there to share information,
and people on both sides of the aisle would generally

(04:33):
be respectful of that. And I definitely have noted over
time that people on the other side of the aisle
now are are are less likely to be polite to
me when I'm testifying. I mean, I haven't testified a
number of years, but I've seen that over my career,
so that partisanship has really drilled down into how we
treat experts and people who are volunteering, people who are

(04:54):
just sharing information, and that, you know, is just one
of the many indications in our society of how partisan
it is.

Speaker 2 (05:00):
So a lot of us in them, a lot of tribalism.
Let's talk about when you were on the Council of
Economic Advisors in the last administration. What sort of work
did you do? What was that like?

Speaker 3 (05:12):
Well, it was very exciting. I joined Joe Biden during
his campaign in March of twenty twenty. I started advising him.

Speaker 2 (05:22):
And strictly economic and policy analysis.

Speaker 3 (05:26):
Strictly economic and what do we do about COVID and
what do we do about the economic recovery? And how
do we think about the economic agenda. I had advised
Hillary Clinton as an economic adviser. I was a chief
economist for her transition in twenty sixteen, so I had
some experience in that role when I started helping the
Biden campaign. But after he was elected he announced his

(05:50):
ECON team. It was a second group of announced hires
that he made, and you know, immediately we were announced
in early December, and the first question that we had
to deal with was what do we do about COVID,
What do we do about the recession? How do we
get people you know, back to school and work. How
do we make sure everyone is safe but can get
the economy back on track? And you know, the President

(06:13):
had said, you know, throughout the campaign that he didn't
want to just build back from the pandemic, but that
he wanted to build back better and had this really
robust economic agenda, and so when we started out at
the Council of Economic Advisors, we were thinking a lot
about we will there be a new variant to the virus?
What will that mean for the economy, How does that
affect global supply chains, How does school reopenings affect you know,

(06:37):
labor supply. So a bunch of questions we're within about there.
And then we also did a lot of work thinking about, well,
what does what do all these pieces of build back
better mean? How do we craft a set of economic
policies that can support and grow America's middle class. That's
Joe Biden's north star, It's what he wanted his economic

(06:57):
agenda to really focus on how how do we do that,
How do we help people understand how all the pieces
of that agenda fit together. So that's what That's a
lot of what we did, and quite frankly, a lot
of what the Council of Economic Advisors does is help
people understand the data. So anytime there's an economic data release,
we were there writing a memo for the president, you know,

(07:20):
getting on television, talking to the you know folks on
the radio and podcasters like this is what those numbers mean,
this is this is how to explain the economy and
what's going on around us.

Speaker 2 (07:29):
So we'll hold off on the current administration for a while.
I want to talk about let's talk about COVID for
a minute. So here we are, we're recording this at
the end of the summer in twenty twenty five. You
started mapping out a plan for COVID just about five
years ago. Here we are, it's five years later. Something

(07:52):
seem to have worked out, Well, something's not as much.
We still see lots and lots of people not returning
to office. There are a lot of people will been dislocated.
The pandemic very much revealed a lot of stress fractures
in society, But give yourself a grade. What what did
you do well in the response to the pandemic and

(08:14):
where do you wish policy had been more robust or
more successful?

Speaker 3 (08:19):
What a great question. So I think first off, you
have to remember that when Joe Biden took office, you know,
Americans didn't have access to the vaccine yet, and so
the very first thing that we had to do was
to get those shots in arms. The vaccine was available,
it was ready to go, but had to make sure
that it was distributed and distributed as quickly as possible,

(08:40):
and that people got those two rounds of shots so
that you know, we could get things, you know, start
to get people back in school and work and all
the different things. And you also have to remember that
what a what a bizarre start to a presidency. For sure,
like we were remote, right, you had all of these
workers who you know, were telecommuting, you didn't have you

(09:03):
didn't have any inauguration parties, there were no you know,
you didn't have any of the normal trappings of a
new administration and all these people coming in who we
had to do all of that while also dealing with
the pandemic internally and then making sure that the President,
the senior advisors, and the cabinet officials themselves didn't get sick. So,
you know, when I look back, those first few months

(09:24):
were so courageous and incredible, and you know, I look
at what my colleagues across the administration did to get
those shots and arms, to get schools reopened, to get
you know, all the support that folks needed, and on
top of that, to have passed this really important historical legislation,
the American Rescue Plan, that gave all of the support

(09:45):
to communities all across the country to make sure that
there were enough resources to weather any future variants that
we could imagine over the you know, the next couple
of years.

Speaker 2 (09:54):
I vividly recall getting my first shot at the Javits
in Manhattan. Wow, which was crazy because it was set
up with military precision. I don't know if it was
the Army or the National Guard, but there were literally
military troops just running it like it was a military operation.
Incredibly effective and incredibly efficient. They must have processed tens

(10:18):
of thousands of people a day. That was like, oh,
so someone's on top of this. It felt like someone
really had been very proactive and had thought this.

Speaker 3 (10:29):
Through well, and that is what that is what folks
were spending all of their time. You know, initially, let's
let's make that happen. But then after that you still
had all of this recovery. And I think if you
think back to before Biden took office, you know, to
twenty twenty, when the pandemic was happening, and we were
talking about what it meant to shut the economy down,
and there were some economists. I always tried to be

(10:51):
very careful in my language about this that you know,
what kind of recession we were having, right. You know,
you saw, you know, at the beginning of the pandemic,
things shut down, unemployed spikes, and it was like, well, bit,
unemployment was spiking because we needed people to take that
step back, right, And that's a different kind of recession,
And as you noted, it uncovered all of these fragilities.

(11:13):
You know, over the preceding decades, we have allowed, we
have enabled private actors to create these very complex global
supply chains really focused on just in time production and
not building in resiliency or you know, duplicity like having
you know, multiple suppliers for a single good. No, let's

(11:34):
make sure that it's it's the most efficient, but not
thinking about what happens when stuff goes wrong. And you know,
so our first couple of years in the White House,
we're all about, oh, there's another thing that doesn't work anymore,
there's another thing where after the pandemic, businesses could just
not get back up on their feet. And so a
lot of the resources for the American Rescue Plan were
about helping small businesses, communities, schools, all these different entities

(11:58):
get back up on their feet. And as we were uncovering,
and it really did feel like a not a whack
a mole because we weren't whacking things down, but like,
you know, a pop up of all of these different
challenges that emerged, you were realizing. I mean, I come
out of that experience understanding how important it is to

(12:19):
have competent, dedicated public servants who are getting up every
day saying that is a problem we need to solve.
That's when we maybe don't need to solve, but these
are things that can affect American lives, American communities, American
health saved the economy, and just how important that leadership is.
So in terms of lessons learned, the pandemic really showed

(12:40):
that you need good governance because in an emergency, that's
what's going to that is what's going to make the difference.
And so the military precision of getting shots and arms that,
you know, thinking through all the different pieces of the policy,
I think a lot about how we saved so many
small businesses in America, particularly care businesses, childcare centers, long

(13:00):
term care facilities. Gave them an infusion of funds to
help them keep going through the pandemic, and that meant
that other people could then get back to work. You
talk about, you know, people not necessarily all coming back
to office. We have seen that as a trend in
the labor market for some families that may be really
helpful for addressing their care challenges. But one of the
things that really helped millions of people get back to

(13:22):
work was the federal government stepping in and helping them
deal with their care crisis because their childcare center wasn't open,
and oh, well we can solve that problem. That helps
that employee come to know Bloomberg every day. So those
those were really big, I think, because I know you'll
ask about it next, so I just want to get
to this. Of course, you know, One of the challenges

(13:44):
was that that period led to the highest inflation that
we've seen in the United States since the nineteen seventies.
You inflation, anybody under the age of forty had never
seen that kind of inflation before.

Speaker 2 (13:54):
We get to an inforcation because I think people don't
understand you either had to cheer use high inflation or
high persistent unemployment. And as unpleasant a choice that is,
I think most people would prefer high inflation to not
having a job. And so that was the sophie's choice

(14:18):
that was made. And by the way, it wasn't any
one thing. It was lots and lots of things, including
you know, the biggest fiscal stimulus since World War Two
under the previous president, the first president Trump term. But
then there were a lot of other factors, including legislation
on the Biden administration. What I want to ask about

(14:39):
is getting the shots out that was a huge gain.
Making sure that a lot of the economy began to
reopen was important. But with the benefit of hindsight, what
do you think were missed opportunities, What didn't get a
high score? What communication failures were there that could have

(14:59):
been handled better? And again, a lot of this is
twenty twenty hindsight, it's.

Speaker 3 (15:04):
A lot of I think that helping people understand the
role that the fragility of supply chains played in the
challenges of getting goods to their local supermarket or their
local store that was affecting inflation, I don't think we

(15:24):
did a good enough job helping people understand all the
things that the pandemic had uncovered. Right, So, and I
want to step back just one because one thing that
always struck me at the beginning of the pandemic, and
we were all like, what is this going to look like?
And you know, I had heard, of course about the flu,
the Spanish flu, like sort of back in my mind,

(15:46):
I had never read anything about, you know what that
had happened in you know, in the teen, back in
the nineteen teen, nineteen eighteen. And you know, one thing
though that I had learned during the pandemic was that
that huge pandemic had happened, and then it was like
nobody wrote about it. You know, this the Spanish flu
was like oh, this thing, this thing happened, and then

(16:07):
it just it was like people wanted to forget it.
And I feel that there was a little bit as
we were going through the pandemic. People were so traumatized
that the idea that it was uncovering how our economic
system was so fragile also got a little bit. I
feel like people kind of wanted to paper over that
and just move past its. We just everyone to get
back to normal without kind of wanting to stop and say, actually,

(16:31):
the way that we're doing American business just isn't working.
And I think a lot about like semiconductors, for example.
You know, I think we all learned a lot about
semiconductors during the pandemic because all of a sudden we
couldn't get them right. The global semic conductor shortage affected
every you know, all of us. Right A factory closes
in Malaysia or in Taiwan, and then all of a sudden,

(16:53):
you can't buy something or prices are going up. So
that how we talk about and how we communicate that,
I think was something that was really hard to do
amidst the health crisis. And so if I were to,
you know, kind of wave a magic wand and go
back in time, I think I would try to. I
would want to figure out how we could spend more

(17:14):
time helping people understand those fragilities that we were uncovering,
which was hard because people were so wrapped up in
the consequences of it, which was high prices that they
were seeing at the store and which were being blamed
on the simplest explanation, which was all obviously government spent
too much. That kind of fits into our everyday narratives,
when yet when you uncovered it was like no, actually,

(17:35):
it was because of the fragility of these supply chains
and the decisions that all of these businesses have been
making for decades, and we need to hold them accountable.
We need to ask businesses to be more resilient, and
that's going to require rethinking our economy. That's a big
structural change that you know, the Biden administration really started
to push that. How people understood that, and did we

(17:56):
do a good enough job talking about that? I think
that's something that I wish we had done better.

Speaker 2 (18:00):
Let's do it. Talk about another communication issue, which is
the pushback to vaccines. And I was always kind of
surprised by not just the Trump administration, but by Trump himself,
who deserves a lot of credit for Operation Warp Speed,
and yet of all the things he takes credit for

(18:22):
he kind of let that slide. Could we have communicated
better that, Hey, we didn't just create these vaccines overnight.
This has been ten years in the making, and it's safer,
especially for people at risk over pick a number, fifty
sixty seventy than not having it. I'm curious as to

(18:42):
your thoughts about communication around that. There have been a
lot of pushback about closing schools, and as it turns out,
kids are fairly safe relative to COVID, it doesn't seem
to have the same impact on them. Should should we
have left schools open? Should we have tried different things? Communicated?
How do you how do you look at those two
areas well?

Speaker 3 (19:03):
I think fundamental to those questions are we hadn't had
a pandemic in a long time century, right, We didn't
know how bad it would get, and you had this
this we were in a moment were already America had
become a lower trust environment. Right, People had less trust

(19:27):
in government than they had, you know, decades before, less
trust in business, less trust and experts. So you're already
kind of walking into a situation where you're trying to
explain to people what the health risk is and you
have to really did we did, did everybody do a
good enough job thinking about what the trust, how much
trust the listener was going to have from the get go.

(19:48):
The problem is that you don't know how it's going
to turn out. So you want to make sure that
you are protecting people to the best of your ability,
but you don't have all the answers and so, you know,
but saying to people, well, we suggest that you do this,
but maybe we don't know if that's going to work,
that doesn't go over very well as a you know,
in a public health crisis. So part of the way

(20:12):
that we've seen you know, the vaccines and the school
closures and all these things play out, is that that
has further eroded the trust that people have in the
institutions around them, even as we know that it saved
you know, millions of millions of lives and millions of
dollars in healthcare costs because people didn't get sick and
you know, all the rest for people to be able

(20:32):
to get the vaccine, and so that was a was
that a problem we could have fixed amidst the pandemic
or is this something that we should be kind of
taking a step back and saying huh, maybe we should
have been focusing years ago on why is it that
that trust was eroding? And that leads to something that

(20:54):
I really want us to really focus on our conversation today.
Is that really toxic role that inequality has played in
our economy and our society, which we know is connected
to this failure of people to trust and particular to
trust experts, to trust that people are acting in their
best interest. So Operation Warp Speed. It's incredible achievement of

(21:16):
the Trump administration, but yet pushed aside because communities all
of a sudden became I mean, I can't speak for
how those communities felt, but they became fearful and distrustful
schools closing, and hear you still continue to hear that
debate on both sides, some people still frustrated that their
schools were open, and some people saying, oh, they closed

(21:38):
for two longs and there's been healthful you know, learning,
not health losses, but learning losses among children. These are
really important questions and we should spend time dissecting what
we know now. But we didn't know. We didn't have
all the answers at the beginning.

Speaker 2 (21:51):
Last question before we get to wealth and income inequality.
How did in total the United States do relative to
other modern democracies, How well do we do compare it
to other countries.

Speaker 3 (22:05):
We'll focus on the stats that when you ask that question,
I can see clearlyst clearlest in my head, So I
can see a couple of charts. So number one, you know,
we early on had very high death rates relative to
other countries. You know, it's a proportion of our population.
So we we were able to turn that around. When

(22:27):
you look at the economic data, the United States had
one of the strongest economic recoveries coming had, you know,
coming out of the pandemic, relative to our economic competitors
in the other advanced economies on virtually any metric. So, yes,
the United States saw high prices. We saw inflation go up,

(22:47):
but the prices didn't go up as high as they
did in some other advanced economies. And then our prices
started coming down and you know, look quite good. We
saw stronger economic growth. We've seen stronger employment. So when
you look at our ability to take this health crisis,
to be able to get it under control enough so

(23:08):
that people could get back to work, so businesses could
get back up on their feet. So the kids could
get back up back to school and then have your
economy get back on track. I mean, even the economist
and I can't remember exactly what the cover was, the
exact words were, but it was one of those you know,
like wow, even the economist has said, you know, we

(23:29):
really knocked it out of the park in terms of
the economic performance of the United States coming out of
what could have been a very deep and long recession,
kind of like what we saw after the global financial crisis.

Speaker 2 (23:43):
And you know, we difference being huge amount of fiscal
stimulus versus almost no.

Speaker 3 (23:47):
Physically well and operation warp speed and getting shots and
arms and all the things that we did to contain
the pandemic.

Speaker 2 (23:54):
So you talk about the mortality rate, and I've seen
other people point to a lower vaccination rate. I'm curious
if some of the European criticism of the United States
response was, and I've heard some of this from other
corners of various partisan arguments, a lot of pre existing conditions.

(24:20):
The United States entered the pandemic with not an especially
healthy population. How much truth is in that claim.

Speaker 3 (24:30):
Well, I'm not a health expert, but certainly we know
that the United States population does have higher death rates
from a lot of.

Speaker 2 (24:41):
You know, preventab.

Speaker 3 (24:45):
So certainly that it doesn't surprise me that people are
saying that about how we entered the pandemic. And then
we know, of course that you know, some of the
after effects of you know, long COVID, and you know
how that affects people, particularly around some of these how
this is is important.

Speaker 2 (25:02):
Coming up, we continue our conversation with Heather Bouche, senior
research fellow at the Harvard Kennedy School, discussing the impact
of wealth and economic inequality on growth. I'm Barry Ritolts.
You're listening to Masters of Business on Bloomberg Radio. I'm

(25:31):
Barry Dults. You're listening to Masters in Business on Bloomberg Radio.
My extra special guest this week is Heather Bouche.

Speaker 1 (25:39):
She is a.

Speaker 2 (25:39):
Senior fellow at the Harvard Kennedy School. Previously, she was
an economist for the Joint Economic Committee of US Congress
and Chief Economists to the Presidents of invest in America's Cabinet.
So let's talk a little bit about wealth and income inequality.
And the first question is what is the impact of

(26:01):
this on sustainable growth? Does wealth and income inequality create
a drag to faster, more widespread growth.

Speaker 3 (26:10):
That is such a fantastic question, and I feel like
it's a little bit of a leading question because, as
you know, I wrote a book on how economic inequality
constricts our economy and what we can do about it,
and a number of the scholars that I've looked to
over time actually just got the Nobel Prize last year
in twenty twenty four Durana Simoglu and Simon Johnson and

(26:32):
James Robinson for their work looking at how institutions affect
long term growth. And I start there because part of
what economic inequality does, part of what wealth concentration does,
is it destroys the institutions that foster broadly shared growth.

Speaker 2 (26:49):
Explain what you mean by that, because you know, we've
had wealth inequality during the Gilded Age, we have certainly
in the nineties, two thousands and beyond, increasing inequality, primarily
due to publicly traded equity and a lot of concentrated ownership.
How does that destroy institutions?

Speaker 3 (27:09):
Well, think of it this way. So one of the
things that the United States was an early leader in
was making sure that kids had access to free public education.
Something that US communities started to do early on. They
used they raised taxes to do this, and we were
a global leader in the early primary school movement. And

(27:32):
that's a really important foundational institution for economic growth because
we know that talent and entrepreneurship and skill not you know,
skills can be learned. But all of these things are
they're normally distributed, they affected, They're distributed across the population. Right.
It isn't just rich children who have access to the

(27:55):
best schools that have the best ideas or are the
most talented in everything. Right, And so if you have
a society where you are making sure that children across
different income groups, across different racial groups, and you know,
both girls and boys have access to learning and skill building,
then your society is going to benefit from them being

(28:16):
able to find the right fit as they go through life,
they're going to find the right role. Oh I'm really
good at this, or I'm really good at that. They'll
have those opportunities and our economy, our society will benefit
from those productivity gains. Very famous economic study by Raj
Shetty and his colleagues many years ago now, but they
had data on third graders. You're in New York City

(28:40):
and they were able to match this data on the
third graders and their test scores on math and English,
but we're just going to focus on math, and they
were able to then match those third graders to their parents'
income and to their future income and whether or not
they ever applied for a patent. It's just one measure

(29:00):
of it's not the end all bit, but just one
measure of some kind of you know, success in the world.
And what they found was that the children who did
the best in third grade on these standardized math tests,
those kids were more likely to grow up and get
a patent. Totally makes sense. But when you looked at

(29:20):
those children by the income group that their parents were in,
by their race, by their gender, you saw something very
strange happen when you just looked at the top kids
in terms of the mass scores. So this group that
was most likely to go on and get a patent,
the children in that group who came from the richest families,
who were boys or were white were far more likely

(29:44):
than the children from lower income families than girls or
were black children to grow up and get a patent.
So what that tells you is that our economy, our
society has been denied all of this, these new ideas,
these new things we could be buying, or new ways
that our world could be changing, because those children who
are highly talented didn't have that opportunity across their life.

(30:06):
So what helps a low income child get that education
that gives them that opportunity? Well, it is it's having
a good public school system and good public universities and
that are affordable that give that kid an opportunity, having
equal opportunity laws that allow you know, girls and people
of color to have those opportunities. That hinges on having

(30:27):
institutions that are fair and that are enforcing anti discrimination laws.
And so that is just one. That's just one pathway
through which inequality or you know, equity or lack thereof
effects are our potential for economic growth effects the kind
of growth that we have.

Speaker 2 (30:47):
Yeah, I want to I want to push back on
that slightly in that So, is this an inequality issue
or is this a Hey, we have pretty mediocre public schools,
especially in cities, and that leads to exaggerating or amplifying

(31:07):
some inequalities that are already in existence, Like is this
a tax issue? Is this a competency and expertise issue? Like,
why are suburban schools in wealthy suburbs so much better
reputations and higher acceptance rates at Ivy's and all the

(31:29):
other usual measures of success. Is it strictly money or
is it some of it was just a flight of
experts to hire pay I guess which comes back to mind,
how do we explain, Hey, the kids are in school,
they're just not really learning a whole lot.

Speaker 3 (31:46):
Well, I mean, there's so many there's so many directions
we could take that question that whether or not you
are funding those public institutions that enable a wide range
of people to have access to opportunity. That's that's sort
of the first part of that answer, Right, are they
properly resourced? Well, the answer, of course we know is

(32:07):
that they haven't been. And there's a lot of things happening.
But two that are really fundamental. Number One, in the
United States, public schools are primarily financed by local property taxes,
which is inherently unequal.

Speaker 1 (32:21):
Right.

Speaker 3 (32:21):
That means that people that are living communities with wealthier
homes have higher tax bass, and so those those school
districts have more resources, which is exactly the opposite of
what you should be doing to create more equity, more
opportunities is.

Speaker 2 (32:34):
In there're a chicken and egg situation there in that.
Like I'm just thinking of all the bedroom communities thirty
minutes outside of Manhattan. They became destination suburbia because hey,
it was it was quieter, it was cleaner, it was neater,
and as it became more and more desirable, the schools

(33:00):
are doing better. Like you've created, We've created a situation where,
of course these wealthy suburban school districts are going to
do better. That's why people pay higher home prices and
higher taxes in those districts because they want a higher
quality public school. How do you how do you deal

(33:23):
with underfunded urban schools when people are voting with their
feet and their tax dops.

Speaker 3 (33:30):
Well, I mean, so that the obvious answers we should
be thinking about how we are financing public schools, right,
should we be? Should it all be about local? I
mean this and this is a local issue. Obviously it's
different in different places. That's that is an answer. But
when you then zoom up to the federal level and
you think about the question of whether or not we

(33:51):
are properly resourcing the institutions that we need, the answers.
Of course, we've seen a half century now of primarily
Republicans selling the American people on the idea that if
we lower taxes, particularly on the rich, that's going to
benefit them and their communities. And of course that's not
what we've seen. Trickle down economics hasn't worked, it hasn't

(34:13):
delivered stronger growth overall. And what it's done is starved
our government of the resources that it needs to then
address some of these inequities, you know, at the federal level,
or you know, or you know, potentially at the state level,
depending on the multiple tax question of and it's a
question though, of why have we decided to starve government

(34:34):
in order to give money back to the richest in
our society. So you can see, you know, time and
again these massive tax packages, the most egregious, of course,
being the one that passed this year that Donald Trump signed.

Speaker 2 (34:48):
Is this one really more egregious than the twenty seventeen
tax and jobs? Actually it is different. So I hear
the exact same complaints and it's you know, what is
it it's eight years later?

Speaker 3 (35:00):
It is there is no justification for the kinds of
tax cuts that we've just given to the richest people
in our society while gutting Medicaid, denying families and children
and new parents access to healthcare, which will make it
that much harder for our society to thrive. You know,

(35:23):
for decades to come, people are going to be sicker,
They're not going to have access to healthcare, They're going
to go into bankruptcy. All of the hospitals are going
to close. So the damage that we are doing to
communities because of that tax legislation is truly phenomenally.

Speaker 2 (35:38):
Let's explore that in a minute, because you talked about
trickle down, and I think that's so long ago. I
don't know if people voted for that. The thing that's
been well he did say.

Speaker 3 (35:50):
I mean, let's be clear. President Trump did tell people
during his campaign that he would not cut medicaid.

Speaker 2 (35:56):
That's true.

Speaker 3 (35:57):
So he did tell people he would raise tariffs, but
he did not. He said he would not cut medicaid,
and he did that. That was one of the first
things that he did.

Speaker 2 (36:04):
Here's the thing that is the big surprise to me
is that we're seeing the impact of the tax package
falling in a surprising way on a lot of Red
States farmers rural communities. There have been number of stories
about rural hospitals are closing left and right. There are
going to be people that are going to have to

(36:25):
drive three, four or five hours if to have a
baby delivered, and if there's a heart attack, I got
some bad news. You ain't gonna make that well.

Speaker 3 (36:33):
The baby may not make it well.

Speaker 2 (36:34):
I mean to the hospital, to the hospital for sure.
So the question is, and I don't have an answer
for this, are people just voting tribally? They're voting for
what their party affiliation is, because it doesn't seem like
a lot of people realize. And it's drue on both
sides of the aisle, but it's especially true given what

(36:58):
we've seen in some of the redder parts of the country.
And I keep coming back to all these rural hospitals closing.
Are people just not voting in their own interest? Are
there other factors driving this? And I know you're not
a political economist, now it's not your focus, but.

Speaker 3 (37:18):
I think that people is my personal view, that people
are voting for somebody that they believe is on their side.
And when you take the long view and you look
at the US economy, what you see is a half
century of rising economic inequality, the top pulling further and
further apart from the rest, the middle class being squeezed

(37:39):
harder to go from being low income into that secure
economic middle arise in economic concentration, and by that meaning
in across industries in the United States, there are fewer
and fewer businesses. You talk of hospitals, there's been massive
consolidation in the hospital sector, right, So in many communities

(37:59):
already there might have been a number of hospitals, but
they're all owned by the same company, right, which creates
lower wages for the workers, the nurses and the doctors
that work and the janitors that work at those hospitals,
creates that what we as economists we call them knopsity
labor market, and we know that they're less likely to
be resilient in situations like this. So these are long standing,

(38:24):
brewing crises that this most recent legislation has then just
sort of lit the match under and said, well, we're
not gonna We're not going to give those communities the
money they need for these hospitals. But it is on
top of this rising economic inequality that I think has
made so many people unclear of who's on their side,

(38:45):
And for some reason they believed that Trump was. He
goes out there and he says he's on your side,
but his actions really haven't been. And I think that's
what's it's so hard and frustrating to watch. But I
think the truth of that, the truth in there that
we need to be very thoughtful about, is if you
want people to vote for you, if you want people

(39:05):
to vote for people that are actually going to support
and grow America's middle class, how are we showing that.
How are we demonstrating that actually our goal isn't just
more elites making more money, but is actually making sure
that communities thrive, that there are good jobs, that there
is the kinds of institution, you know, good schools and
healthcare and all the things that communities need. Are we

(39:27):
actually delivering that.

Speaker 2 (39:30):
So if we look at the twenty tens, the post
financial crisis era, not a lot of fiscal stimulus, almost
all monetary policy quantitative easing, zero interest rate policy rates
were super low, inflation was under two percent. We look
at the post pandemic era, the twenty twenties, they've been

(39:52):
pretty much all fiscally driven. We had Cares Act one
and two under President Trump, Cares Act three under President Biden,
the Infrastructure Bill, the Semiconductor Bill, the Build Back Better Bill,
the most recent Big Beautiful Bill, and all the tax
cuts there. The twenty twenties really feels like it's fiscally driven,

(40:16):
whereas the previous fifteen twenty years was all monetary. What
does that do to the issue of wealth and income inequality?
In the entire twenty tens and twenty twenties, stocks, bonds,
real estate, businesses all seem to have done pretty well.

(40:37):
Doesn't matter if it's monetary or fiscal. If you own
capital based assets, any sort of stimulus seems to work well.

Speaker 3 (40:46):
It's a really interesting question, I think it. To my mind,
the answer goes back a little bit to something I
said earlier about the importance of having good leadership. Fiscal
policy require buyers that you actually have people that are
thinking about what is it that you want government to do,
What is government spending money on. How are we thinking

(41:07):
about setting rules of the road for businesses so that
they are encouraged to behave in ways it's going to
benefit communities, not strip them of their value, or you know,
create bad jobs, or you know, create negative implications for
the environment. And monetary policy, on the other hand, is
very hands off. It's you know, we set the interest rate.

(41:27):
There there is financial regulation, of course, and that's a
big piece of it. Bit often when we're talking about
addressing the business cycle, it is about the you know,
the interest rate policy. And I think what you've seen,
especially post global financial crisis, has been a sense that
that hands off policy. And again I would kind of
put that a little bit in my brain that goes

(41:47):
into the trickle down mentality that markets were kind of
going to take our hands off because we believe that
markets are perfect, so if we get out of the way,
then everything will just work out honky dory, and that't
that hasn't worked out. It certainly did not work out.
The recovery post global financial crisis, which you know, left
Americans languishing and high unemployment, you know, massive labor market
scarring for so many young people that never really found

(42:10):
that good start, you know, the loss of wealth for
millions of Americans, and it took so long for us
to work work its way through the system. The fiscal
policy option allows policymakers to step in and be more
active and to say, actually this is what we this
is the direction we need to go. So the bipart
is an infrastructure law that you invested money and communities

(42:34):
in every part of America in creating roads and bridges
at standard infrastructure, but also you know, taking steps to
bring broadband to every family, taking steps to make sure
that schools that wanted to put in electric school buses
to reduce the pollution and the noise for kids riding
that school bus every day, that they had resources to

(42:54):
do that. So infrastructure as we traditionally thought about it,
and you know these new forms of structure that are
really important. Government really stepping in and saying, hey, there
are certain sectors that we need as a country to
be investing in high technology like semiconductors, clean energy, that
these are the industries of the future that we want

(43:15):
America to be and we need American businesses to be
competitive in That was why we were making those investments.
And we believe that if we encourage businesses in the
right way, that can create good jobs and economic security
for communities all across the country. So that active policy
that is saying here's what really matters to us as
a society, I think is a part of this trend

(43:39):
because we can all see with our own eyes that
fifty years of saying we'll let markets take it, that
we don't really need to intervene, has left too many
main streets devastated, has left too many families without economic security,
and hasn't delivered the kind of economy that Americans want,
need and deserve.

Speaker 2 (44:00):
We continue our conversation with Heather Bouche, Senior Research Fellow
at the Harvard Kennedy School, discussing what we can do
to help narrow the gap between the haves and the
have nots. I'm Barry Ritults. You're listening to Masters in
Business on Bloomberg Radio. I'm Barry Ridults. You're listening to

(44:27):
Masters in Business on Bloomberg Radio. My extra special guest
today is Heather Bouschet. She was the economist for the
Joint Economic Committee of US Congress as well as a
member of the Council of Economic Advisors under President Biden.
She's currently Senior Research Fellow at the Harvard Kennedy School.
So we've been talking about how the past forty or

(44:51):
fifty years has seen both wealth inequality expand and income inequality,
which dates back to the eighties and nineties, which so
younger folks may not really remember. I want to I
want to start by asking you about unintended consequences. And

(45:12):
I have a recollection of legislation passed under the Clinton
administration that said, Hey, you can't pay your CEOs tens
of millions of dollars. It just seems ridiculous. Instead, we're
going to cap the pay and allow you to pay
them in stock and stock options. And as the stock

(45:36):
market has gone higher and higher over the past you know,
thirty years, it seems like a well intentioned attempt to
reduce wealth inequality helped create more. How can we respond
to those sorts of things when it seems the private
sector is clever enough to kind of figure its way

(45:57):
around whatever slative challenges are putting their their way.

Speaker 3 (46:04):
Always vigilant, right, I mean I think that it starts
by I mean, it starts with taxation. Right. So what
we have done over decades is lower tax rates at
the top.

Speaker 2 (46:19):
We've made it for corporate corporations, are for individuals, because
both corporations, as a percentage of total tax paid and
the actual corporate tax rate, they both seem to have
drifted down over the past.

Speaker 3 (46:31):
Few All of the above, and we've done that while
not doing the things that we need to do to fix, uh,
the transfer of wealth across generations. So we haven't imposed
the kinds of inheritance taxes that I think would be
really important to make sure that that wealth isn't calcified
over time in families. And and that has been that

(46:54):
has really made it so much easier for those who
were who you know, worked really hard, did good not
having to give back through you know, not having to
pay those taxes on their highest income. But it also
has allowed wealth to calcify. You know, there's this really
important book that came out a number of years ago
that I feel like we don't talk about anymore by
Thomas Picketty, on Capital in the twenty first Century, and

(47:17):
they were huge.

Speaker 2 (47:17):
That book was headlines for weeks.

Speaker 3 (47:20):
It was for weeks for weeks, and you know, one
of the things that really was so important about that
book was the way that he showed through all of
this data the way that income high income and equality
quality calcifies into high wealth inequality, and that once wealth
becomes congealed, right, once a smaller and smaller number of

(47:43):
people have access to that it becomes very difficult to
unpack that, to share that, and for society as a
whole to benefit from it.

Speaker 2 (47:49):
So let me push back a little bit and say, hey,
we have fifty percent a state tax and the way
you could get around that is by donating it to
a philanthropy of ACA Foundation, what have you. Yeah, there
are various trusts and things you could set up to
avoid paying some of the taxes, but the tax man
gets his due eventually. We're not like the UK that

(48:14):
has this esconce gentrified nobility. Still the upper class there is,
you know, just generations of landowners or is in the
United States different from other countries or seen we have
landed gentry here the way the UK.

Speaker 3 (48:33):
Does, I would argue. I mean, so first off on
the data, we have so much higher economic inequality than
our European other European countries, and we don't see the
kind of movement across income groups they used to.

Speaker 2 (48:50):
We used to have pretty good post World War two
economic mobility was pretty high in the United States.

Speaker 3 (48:54):
Right, So if you were born in the nineteen forties,
your chance about earning your parents with about ninety percent. Right,
But if you're born in the nineteen eighties, only one
in two of us it's grown up to out earn
their parents. So that's that is a remarkable shift, a
remarkable constraint on upper mobility over time. And it is

(49:15):
because you've seen this high these high incomes calcify into
wealth and equality. That's sticky, right. You talked, we talked
earlier about people moving into you know, wealthier enclaves, you know,
with you know, better schools. Well, that is a way
of you know, it's one way that it works its
way through society that those kids will have more opportunities.

(49:36):
You are able to keep that wealth in that family,
and then you don't see those economic benefits kind of
flowing throughout your society, and you don't see that economic
opportunity flowing through.

Speaker 2 (49:47):
So we talked a little bit about what the pandemic
revealed with fragile supply chains and how many crucial things
like just the masks and gowns and gloves that aren't
made in the United States. What's the genesis of this,

(50:08):
How much of this can we blame on Walmart, and
how much of this can we blame on just Hey,
technology and transportation allowed manufacturing to go to the lowest
cost provider.

Speaker 3 (50:22):
That's a big question with a lot of answers, but
I think there's a few really important points there. Right, So,
once you had the capacity for an idea to happen
in one place, the innovation, the engineers, the plants happened
in one place, and the production of something to happen
someplace else because you know, you could send those plans

(50:46):
via the Internet or you know, to a different place.
It made it possible for us for companies all across
the United States around the world to outsource that production.
And we did that at a time when we were
making those rules easier. Right, we had decades of trade
agreements that made it easier for firms to have overseas production,

(51:08):
to become multinational companies. We wanted to trade. We wanted
to have more trade. We believe that would make it safer,
it would you know, you're not going to go to
war with somebody if you're trading with them, right, You're
you're going to create these positive benefits for our geopolitics.
And yet what we've seen is that what that's done

(51:28):
is it's really stripped production from the ideas and the innovation.
And so I have left the United States with kind
of assuming that we could be the ideas people, but
that the production of things could happen in places where
wages were lower and where we didn't have to worry
about messy things like the environmental consequences. So you took

(51:49):
the hard stuff out of all the things that we
make and use, and yet you outsource that, and that's
left our economy very fragile because, as it turns out,
when things get rough, when there's a panda, and you know,
I'm spending a lot of time these days thinking about, well,
one of the crises coming down down the pipeline at

(52:09):
US is climate change and the energy transition that that
will require. That's going to create these ongoing challenges for
our economies in our societies. If you have this global production,
where's the resiliency? What is that going to do? Are
you going to be Are we literally going to be
safe as a nation, let alone the economic consequences that
we've seen for decades. It's that that kind of global

(52:31):
production system is hollowed out American communities. And I'm not
saying that it was caused by policy, but it was facilitated.
There was this very important role for technology, but we
didn't step in and sort of say not enough policy
makers stepped in and said, hey, this might not be
this might not be good for us. We may want
to make sure that we have the capacity to make

(52:53):
the most important things, because if you can't make them,
then you're going to be vulnerable in a geopolitical sense.
And now we're kind of frankly stuck behind the eight
ball a little bit, where some of the most important
things we don't have the capacity to make. And again
we saw that in the pandemic with the simple things
with the mass We also saw that with the ventilators,
we couldn't get enough of those, and we saw that

(53:15):
Another example that I've thought a lot about recently. I
talked to a lot of people when I was in
Cambridge this year. Drones, which you know, the all of
you know, virtually all of those are made in China.
So when China started partnering with Russia, that made it
hard for the Ukrainians to get the drone parts and
to get the drones they need to fight their war.
That's a that was a technology problem that very quickly

(53:38):
became a very important national security issue. And are we
are we getting ahead of those kinds of questions.

Speaker 2 (53:44):
So on the siem Teleb wrote a book called Anti Fragile,
all about resiliency and how to make sure that you're
not merely relying on just one element, that you're diversifying
and broadly exposed. How can government policy drive that? If

(54:09):
if it's in the shareholder's interest to reduce costs a
maximum amount, increased profits maximum amount, who's responsible for creating
this anti fragility? How does government build resilience into the economy.

Speaker 3 (54:26):
Well, there's it's a tough question, but there are some tools.
I mean, so first off, you have to define it.
And what do you mean by resiliency is that you
want to have domestic production, production with you know, in
the during the Biden years we called it friend shoring
or you know, production within allies that you feel really
comfortable with. But fundamentally it comes down to do you

(54:47):
have various options if there's a if something happens with
this part of your supply chain, are there other ways
that you can get what you need. We live in
a continent spanning economy and you know, with you know,
three hundred and thirty three hundred and forty million people,
there is a lot of opportunity to create resiliency domestically,
but also there's a lot of benefits to global trade,

(55:08):
So how do we think about making rules that encourage that.
And the thing in the nut of this is is
that that's going to be a little bit costlier in
the short term, but what are the costs over the
long term? What are the cost during a crisis? How
much money did the federal government had to spend during
the pandemic to help companies get over their supply chain challenges.

(55:28):
How much extra money did Americans pay because firms were
able to charge higher prices than even perhaps they needed
to because of the crisis. So there are and we
know that there will be future crises coming. So it's
government's job to make sure that we're protecting the welfare
of the nation. This certainly needs to be a part

(55:49):
of the question. So what are all the tools in
our toolbox? So maybe some of those tools are about
how we think about our trade policy, how we think
about our anti trust policy. Maybe we're using procurement policy.
But there's a wider range of tools that government should
be using. So I wouldn't get too wrapped up in
the one solution, but that this is the question that
we need to be asking ourselves.

Speaker 2 (56:10):
So I was fascinated by some research you did. At
the time, there was this concept that highly educated women
were dropping out of labor force because of the motherhood movement.
I think the news media picked that up and ran
with it. Turns out the data really didn't support it.
Tell us about your research into what was going on

(56:34):
with the she session that people had been talking about.

Speaker 3 (56:38):
Well, this comes up time and again where you see
and it's happening now actually, and it happened in the
early two thousands. They'll see these moments where women their
labor supply goes down or they don't recover from a recession,
and people start saying, oh, well, it's definitely because she,
because women don't want to be in the labor market,
they'd prefer to not be working, and so this is

(57:01):
good or this is women's preferences. And then when you
start scratching the surface and you look at the data,
you see that actually it tends to be more about
demand side issues, that those jobs weren't available or they
weren't providing the supports that families need to deal with
care issues. So that was the research that I did

(57:23):
on opting out in the early two thousands, and I've
been hearing a lot about this more recently with what's
happened post pandemic, and is a lot of businesses are
demanding return to office. But with the pairing back of
the American Rescue Plan and the inability of the Biden
administration to get all of the care pieces of our
agenda across the finish line, Senator Mansion stopped the investments

(57:47):
in home health care for the aged. He stopped those
investments that we wanted to do for childcare. So a
lot of those businesses have really struggled in the past
couple of years. You're now seeing that have an effect
on women's labor force participation, and people are again talking
about this as voluntary, when I think we need to
really be looking what kinds of supports are we making

(58:08):
sure that families can address their care issues and still
participate in the labor market.

Speaker 2 (58:14):
Thank you, Heather for being so generous with your time.
We have been speaking with Heather Bouchet, Senior Research Fellow
at the Harvard Kennedy School and her most recent book, Unbound,
How economic inequality constricts our economy and what we can
do about that? If you enjoy this conversation, well, be
sure and check out any of the previous five hundred

(58:36):
and fifty we've done over the past eleven years. You
can find those at iTunes, Spotify, Bloomberg YouTube, or wherever
you find your favorite podcast. Check out my new book
How Not to Invest The ideas, numbers, and behavior that
destroy wealth and how to avoid them How Not to
Invest at your favorite bookstore. I would be remiss if

(58:58):
I did not thank our crack team that helps put
these conversations together each week. Alexis Noriega and Anna Luke
are my producers. Seawan Russo is my researcher. Justin Milner
is my audio engineer. Sage Bauman is the head of
podcasts at Bloomberg. I'm Barry Ritolts. You're listening to Masters

(59:19):
in Business on Bloomberg Radio.