US economy

Heather Boushey: ‘The guardrails have come off the US economy’


This is part of a series, ‘Economists Exchange’, featuring conversations between top FT commentators and leading economists about coronavirus economic recovery

Heather Boushey, a member of US president Joe Biden’s Council of Economic Advisers and one of the architects of the administration’s approach to everything from corporate concentration to inequality, climate change and the caring economy, is in some ways the embodiment of the president’s “work, not wealth” slogan. “My dad was a machinist at Boeing,” she says. “I was very lucky. He was in a union. He had great healthcare . . . That foundation allowed me to get to college and to graduate school.”

The fact that this paradigm hardly exists now is one of the things that motivates the 51-year-old economist, who previously ran the Washington Center for Equitable Growth. “If you walk into a basic economics class, the professor is likely to say that the economy is a three-legged stool: it’s land, it’s labour, and it’s capital . . . [but] we didn’t think as much about the human side.” Her mandate is to find a way to fix the big four crises in America right now — healthcare, economic growth, the climate and racial justice — by rebalancing the stool so that capital no longer has such disproportionate advantage over labour. 

Boushey’s 2019 book Unbound: How Inequality Constricts Our Economy and What We Can Do About It explained why equality and prosperity not only can but must go hand in hand. She is now part of a cadre of young appointees and Washington insiders who are embracing the political part of the political economy. They are moving beyond neoliberal, laissez-faire, consumer-oriented thinking to look critically at the power structures that underpin (and all too often undermine) the country and its citizenry. 

Like many of these progressive, Gen-X economists, Boushey takes inspiration not from the Chicago school but from people such as Janet Yellen and Joseph Stiglitz, who, like her, grew up in places where it was all too obvious that markets weren’t always efficient. 

“Economists like to talk about perfect competition, that the market has these optimal outcomes and we just need to tweak around the edges,” says Boushey. She wouldn’t agree: “I think that one of the things that has become really apparent, especially since the financial crisis, is that at some point along the way, the guardrails have come off.” 

Fixing them will mean making the US look a bit more like Europe in some ways, even as Biden’s “build back better” programme puts the country’s domestic workforce front and centre. Below, Boushey discusses the shifts in the American economy since the 1970s with the Financial Times’s Rana Foroohar and why these shifts require a sea change in American economic policy.

Heather Boushey is a member of US president Joe Biden’s Council of Economic Advisers © Chip Somodevilla/Getty

Rana Foroohar: A lot of us think that we’re at a major economic pivot point. Are we going back to the 1970s? Are we entering the post-financialisation era? Are we in some new era of globalisation or regionalisation? At the highest level, I wonder how you think about the pivot that we’re in right now in the US economy but also to a certain extent globally.

Heather Boushey: Three big things come to mind. One, over literally most of my life, not all of it but most of it, we have seen this growing economic inequality. We’ve seen this growing gap between how well the economy is doing and US productivity and what has happened to wages. That just underpins so much of all of the other [things that are happening now]. You can use that as an entry point into understanding, how well does the economy perform for people and families? Who is taking home the gains of growth and for whom is the economy working?

So I always start there by just thinking about that basic visual and what that means. How do we make productivity and wages grow together? How do we reduce inequality? One of the things I think that has become really apparent, especially since the financial crisis, is that all of us are going down the superhighway [that is the economy] and at some point along the way the guardrails have come off.

We’ve allowed some to reap the gains of growth and we’ve allowed the economy to shift in a direction that isn’t good for people and families. We can see that in how we’ve been enforcing our notion of what is a fair market, how we’ve been taxing and who we’ve been taxing and who is paying their fair share to the tax system, and what we’re doing to the planet in climate change, which is ultimately destabilising.

[We see it in] how well we are making sure that everyone benefits from growth, and how much of that happens at the workplace through unions or the lack thereof in the United States. And how much of that happens through social policies that protect people and families from unemployment or make sure that they have a secure retirement or make sure that they can have a family that they love and care for while also holding down a job, knowing that their loved ones are being well cared for.

So I think that all of those things go together. Economists like to talk about perfect competition, that the market has these optimal outcomes and we just need to tweak on the edges. But we stopped really thinking about those guardrails that make sure that the economy is delivering [for everyone]. That is certainly what I have been focused on and what the president has been focused on. 

RF: I’m curious if within the last few decades there are two or three tweaks that stand out to you as having really, really changed our economic system?

HB: There are. For me it is, “are we making sure that markets work, that they’re open, that they’re competitive, that capitalism can bring us all the good things without just a very small number of businesses taking the gains and then that not leading to the kind of investment that we see in a much more competitive economy?” So I think competition policy is one.

Making sure that we are thinking about a fair and just tax system is another. At the beginning of the 20th century, the United States was a frontrunner in taxing incomes at the top. Now we have come so far from that and of course now at the top the laws on the books aren’t even being enforced. That degrades all of our trust in the system. 

Other things you have to think about — do American workers have the right to organise? Also, this isn’t in my lane, but do they have the right to vote? I think that is a piece of the puzzle. Are they able to tap into systems that give them support when they need it? Does our unemployment insurance work? Does our retirement system work?

So I think it isn’t just one thing. We need to make sure that capitalism is delivering.

RF: The breadth of the executive order around corporate concentration that the president just came out with is phenomenal. There are 72 different points. They touch almost every agency, every department. How do you create cohesion across government around something as broad as these competition orders? How will that happen?

HB: It’s a great question. The competition executive order is truly a whole-of-government approach, looking inside every agency and asking them, what can you do? What have you not been doing? Where are the opportunities to make sure that the markets in your jurisdiction are competitive? [It involves] dusting off old rules and laws from decades ago that nobody had been given the bandwidth or the wherewithal or the support to really think about and enforce. 

And the number of orders kept growing, which was exciting. In the first iteration, it was going to be 43 or something like that. 

When you have such a clear vision about the economic outcome you want to see, it makes it easy for you to hire a bunch of people and say, “OK, what are you going to do in your area to make sure that we deliver for the American people?”

RF: You talk about four crises that need to be tackled — healthcare, the economy, climate and racial justice and equality. Is there a unified field theory to dealing with all those things within the administration? Is there a theory for the “work, not wealth” era that is emerging that you could articulate as an economist?

HB: All of these challenges have their roots in the idea that we allowed the purpose of the economy to not be focused on that core outcome of delivering for a stronger middle class with more economic opportunity.

So if you think about the racial justice piece, we know from reams of economic research that an economy that is more open, especially one that is paying attention to making sure that talent is being brought in, making sure that we are bringing everyone along in an inclusive way, including by race — that’s good for growth! It’s good for all of us. It’s good for the economy.

Likewise, when you think about the climate crisis, you have to think about whether we are creating and supporting the industries that are going to allow the United States to be competitive for decades to come by investing in climate innovation. But you also have to make sure that we are bringing communities along [as part of that effort]. So those communities that are in extractive industries, like automobile factories producing internal combustion vehicles, we’re making sure that we’re bringing them along.

Again, the goal isn’t just to address climate. It is certainly to do that but to do so in a way that brings people along and strengthens America’s middle class. 

If you walk into a basic economics class, the professor is likely to say that the economy is basically this three-legged stool: it’s land, it’s labour and it’s capital. One way of thinking about the crises that the president identified is that for the past 40 or so years we’ve really placed a lot of emphasis on making sure that capital had a lot of freedom.

We didn’t think as much about the human side — from the care economy, to an inclusive economy, dealing with issues around race or gender, or paying attention to what we were doing to the planet.

Quite frankly, it’s unsustainable, and it’s also not competitive to not be thinking about that. So I think that part of what we’re doing is levelling the playing field between land, labour and capital and saying, you all have your proper place and it’s not either/or.

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RF: When you talk about land, you’re obviously thinking about climate. What else might you be thinking about?

HB: As I worked with the folks on this climate executive order, we thought a lot about agriculture. You think about the ways that concentration has affected what we are producing and how we are producing and the damage that is doing to the environment but also to workers and to the animals. So thinking about that is really important. I’m sure someone else would bring in housing, but I haven’t thought that one through.

RF: As you are rebalancing the three-legged stool, you are obviously moving away from some neoliberal ideas — things like corporate share price as a core metric of value. But one thing that share price has got going for it is that it’s simple, right? So how do you start to come up with new ways of looking at economic wellbeing that don’t get too politicised or too complex?

HB: Well, therein lies the issue. It’s funny that we would say share price is simple and yet finance is one of the most complicated sectors of our economy.

Mere mortals feel that they can’t read the finance pages because it’s too complicated by design. When you start to look at it, a lot of the measures and metrics we use now are ones that we created almost a century ago. So the data that we have now tells a story about the economy that I think in many ways is misleading.

Take gross domestic product, which since the late 70s has increasingly not been a good indicator of what’s happening to the average American or the average American family. If you look at the period from the middle part of the 20th century up until the late 70s, if GDP grew by 3 per cent, then it was the case that most Americans were seeing their incomes grow by about 3 per cent. So we were really a country that was growing together and GDP meant something.

Since the 1970s, GDP has increasingly indicated more what’s happening at the very top [of the economic spectrum] in an odd way. Those in the bottom 80-90 per cent of the income distribution are experiencing income growth that’s less than the average GDP growth . . . But those at the top may be seeing 6 per cent growth in their income.

So because of inequality, that metric that we still report every quarter doesn’t mean what it used to mean and it’s confusing. It’s not the experience of the vast majority of Americans.

What we need to do is to actually disaggregate GDP. So when we get the numbers each quarter, we would see what that looks like across the income distribution. I do think having those metrics would give us a lot more insight.

RF: All the focus on the care economy — healthcare, education, childcare — is a big part of [discovering what works for working people]. These jobs are mostly high-touch and harder to outsource. They’re also bifurcated. You’ve got a lot at the top and a lot at the bottom. Can the care economy become the new manufacturing, in terms of generating middle income jobs? How do you make that happen? 

HB: It’s such a great question. Here’s the thing. If you want to address living standards of American workers and families, you have to address the care economy, full stop, and on both sides of the ledger. So the reality is that if you’re a working parent, you need childcare. You need early-childhood education. You need to make sure that if your ageing or disabled loved one needs care, they have those services. All of those are inherently expensive and it’s hard to dial back how much you pay.

When you look at the math on that in the care economy, it really does speak to an important need for public subsidy of these really important services both because of the time in life when people need to use those services, at the beginning of their careers and older Americans, but also because we need to make sure that every family can afford that high-quality care. It means everything to America’s future.

One interesting statistic that I just learnt from a research paper is that when the unemployment rate falls, because jobs in nursing homes are so low-paid and because those workers can find other jobs at the same skill level, deaths actually go up because you have this increasing turnover [in care facilities].

RF: Of course, more public spending raises questions about inflationary pressure. We want higher wages, but we need that to happen in a smoothish way, rather than all at once. There’s a lot of investment into technology right now. That’s going to be job-disrupting, but if we get education right, you could have a golden era — productivity goes up and wages go up. 

It’s complicated and a lot of it may go in ways that are different than what analysts would actually think. What are we missing? What do you think we’re getting wrong in this inflation debate but, in a larger way, what do we need to understand about the pivot that this administration is trying to make between what is essentially an asset-based, neoliberal, laissez-faire economy, towards a more work, income-based, possibly Germanic in some ways, regionalised or even localised economy?

HB: Let me start with the inflation issue. Sixty per cent of inflation last month in June was due to cars. Another significant chunk was what we’re calling pandemic-related services, airfare, hotels, things related to people being like, “Hey, we’re back.” When you take those out of the equation, inflation only increased by 0.2 per cent last month, which is well within the bounds of normal.

The bigger question moving forward is: how do we put in place the structures to make sure that we are paying people better, especially at the lower end of the labour market, closing that inequality gap? If we implement the agenda that the president laid out through the Build Back Better agenda, we’ll be doing things like improving the wages of childcare workers and homecare workers, expanding the child tax credit, making sure that we have this thriving electric vehicle sector, all of these things that are focused on the immediate but also built for the long haul.

They’re not helicopter drops of money. They are investments that will put us on a more wage-oriented growth path. This is not a stimulus package. This is a package to shift our economy on to a saner, more stable path. 

My dad was a machinist at Boeing, since retired. One of the things that I think about every day as I’m doing this work and have throughout my career is, “How do you make sure that people have economic opportunity?” I was very lucky. My dad was in a union. He had great healthcare coverage. 

That stable middle-class life has increasingly become a rarity for American families — that foundation that allowed me to get to college, that allowed me to get to graduate school. We’ve seen that dissipate over the past 40 years for far too many, but at the crux of it is making sure that people have good jobs.

The above transcript has been edited for brevity and clarity



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