Livinglies's Weblog

Donald Trump is at heart a nostalgia president, promising Americans the rebirth of a particularly iconic class of vanishing coal and factory jobs. “The mines are starting to open up,” he said last week, announcing he was pulling the United States out of a global climate accord. “They’re having a big opening in two weeks, Pennsylvania, Ohio, West Virginia, so many places. A big opening of a brand new mine. Unheard of. For many, many years, that hasn’t happened.”

Most serious economists will tell you coal jobs aren’t coming back in any great number, unless natural gas prices spike unexpectedly. There’s more debate over how many manufacturing jobs could return but very little expectation that the industry could return to 1950s levels, when three out of every 10 US employees worked in a factory. (It’s less than one in 10 today.)

Ben Bernanke writes starkly about this in a new afterword to the paperback version of his book The Courage to Act, which is a memoir of his chairmanship of the Federal Reserve through the financial crisis and its aftermath. Trump’s economic promises “were aimed at invoking his supporters’ yearning for a (partly mythical) past,” Bernanke writes. But “the problem with promising to roll back the clock is that, whatever its symbolic attractions, it’s hardly practical.”

Bernanke doubled down on that point in an extended interview last month, from his post-Fed offices at the Brookings Institution think tank. He painted a picture of an economy that has evolved past Trump’s retro vision — and which probably doesn’t need the massive tax cut stimulus that the president has made the centerpiece of his revivalist pitch.

“We’re just simply never going to go back to the 1950s and the 1960s in terms of coal mining jobs and assembly line jobs in the auto industry and so on,” Bernanke said, “because technology and the global markets have moved on from that. And so I think it’s a mistake to try to restore jobs that may have been good jobs in the past.”

Over the course of a 75-minute interview, Bernanke pronounced the economy to be near full employment; worried about partisanship coloring confidence surveys; proclaimed slowdowns in productivity and economic mobility the great challenges of the era; assessed Trump’s tax and health care proposals; and riffed on the Laffer Curve and his newfound pleasure in blogging.

The interview is edited for length. But it’s still long, wonky, and fun.

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Jim Tankersley

Since the election, the surge in economic optimism has been striking. Do you buy into it?

Ben Bernanke

I’ve written about the puzzle that people’s attitudes about the economy seem very closely tied to their partisan identification.

Before the election, on one hand we had people being reasonably confident about their own personal financial situations and about the near-term course of the economy, but being extremely negative on broader questions like the direction of the country and things of that sort, which suggests underlying anger or dissatisfaction. Now, interestingly, after the election, even though the economy is progressing more or less along the same track that it had before, we see that Republicans are much more optimistic about the economy, and much more upbeat about even the near-term economy, whereas Democrats [are] in the reverse. So we see this remarkably strong influence of partisan team membership on people’s perception of the economy.

I wrote in my afterword that I thought the boom in the markets after Trump’s election was probably overstated, for one basic reason, which is that despite the fact that the government is now controlled by a single party — House, Senate, and White House — as we’ve already seen with the health bills, there’s actually quite a bit of political disagreement even within the Republican Party. And with the Democrats also having 48 votes in the Senate, I expressed a view in my afterword even before the inauguration that the big changes in fiscal policy, tax cuts, infrastructure, those things if they occurred at all would be delayed and smaller than they anticipated.

So I did think that both the market reaction and the zoom, the big increase in confidence, was somewhat overdone. And we’re seeing now, I think, some coming down to earth. The economy is still doing well, we saw a very solid job number [in April], but it seems to be basically on the same track it’s been on for a while. And the hard numbers, the actual spending and reduction numbers, have not kept up with the so-called soft numbers, the sentiment indicators and the like.

Jim Tankersley

Do you believe the sentiment numbers will lead the hard numbers?

Ben Bernanke

Well, there is some evidence that sentiment is at least a predictor of activity. We know there’s a literature that says that increases in consumer sentiment tend to lead to increased consumer spending. Likewise, when business are more optimistic, they tend to invest more. So there’s some reason to think there’s a connection. But what we’ve seen so far is that, for example, in the first quarter, and despite the big upcharge in consumer sentiment, consumer spending was actually quite moderate.

So in this most recent episode, I think it remains to be seen whether the sentiment numbers will translate into activity. Again, to the extent it depends on the rapid passage of broad fiscal changes, I think the sentiment is probably overdone.

It’s probably fair to say that looking at the markets and the economy globally, there are some positive trends. We’re seeing, for example, pretty good performance in China, we’re seeing some pickup in Europe, even Japan is doing better. So the increased optimism, including the optimism in markets, is not solely due to the expectations of the new administration’s policies. It’s due in part to a somewhat broad-based improvement in the global economy.

Jim Tankersley

You write in the afterword about some less positive developments in your view in the global economy, and the global political economy in particular: the surge in populism here and in Europe, Brexit. Can you unpack a little more your concerns about those trends and where you think they’re going?

Ben Bernanke

Well, sure. Let me start with the United States. In my afterword, I stress the, not paradox exactly, but the distinction between what appears to be a pretty strong cyclical recovery from the crisis and the great recession — including, [in the April jobs report] we see 4.4 percent unemployment, 16 million jobs since 2009, low inflation, markets are up, confidence is up — so a lot of positive indicators in terms of the cyclical recovery. And yet paradoxically the election went to the candidate who was most dystopian and was very negative about where we are as a country and as an economy.

And some of that I think has to do with partisan perceptions and fear of social change and things of that sort.

But from an economic perspective, even as the economy has done well in its recovery, there are some long-term, disturbing trends which affect a lot of people in the country, and those include widening inequality and declining social mobility. I just read Robert Putnam’s book Our Kids which is about social mobility from working-class or lower families, and it’s much harder today for a working-class kid to make it to the upper-income sections. So those problems of inequality of mobility; slow productivity growth, which is affecting wages and living standards; low participation — we’ve seen remarkable declines in labor force participation among prime-age men.

There’s a lot of longer-term trends — Angus Deaton and Anne Case were here at Brookings a few weeks ago at the Brookings Papers, and they did the follow-up to their work on “deaths of despair” and the opioid epidemic, and mortality rates and so on. So there’s clearly a lot of economic distress and problems among particularly less educated people, but in a lot of parts of the country. Clearly those longer-term trends, which are in some sense under the surface and somewhat separate from the near-term recovery, have created a lot of dissatisfaction, and that’s showing up in the politics.

The other area of the world where populism and this kind of dissatisfaction is most pronounced is Europe, including the UK, of course, where they just voted last June to leave the European Union. I think some of the same economic factors are at work, including loss of manufacturing jobs, slow growth, high unemployment for a lot of countries, particularly in Europe. But it’s interesting that it does vary a lot across countries.

For example, inequality and mobility are actually not as troubled in, say, France as [in] the United States. But nevertheless the same resistance to change, the feeling that the government is populated by elites who don’t respond to the needs of the ordinary person — both social and economic — is an issue for Europe as well as the US, and we saw that in Brexit, we saw that in France, we’ve seen it in the Netherlands and other places where populist politicians are getting more attention.

So it’s a very challenging period. And you have to give Donald Trump credit that he did tap into some underlying dissatisfaction and anger, which is an important reason why he won the election.

Jim Tankersley

We’ve seen cycles like this before over history. When you assess this particular moment of dissatisfaction, of people feeling left behind by government and the economy, how different do you think it is from those previous cycles?

Ben Bernanke

Well, there’s similarities and there are differences. I mean, we’ve had populist waves before, and they usually arrived when a large part of the population feels behind. So in the 19th century, William Jennings Bryan represented the people in the Midwest who felt they were being taken advantage of by Eastern financial interests. In the Great Depression, there was a lot of populist politics related to the fact that so many people were suffering economically for such a long period of time.

In some ways, the immediate postwar period of the United States was a unique period in that because the United States was such a dominant player in the world economy with our major competitors being nearly destroyed in World War II, and with the backlog of technological and commercial opportunities from the Depression and the War that was now available for exploitation, it was a period of extraordinary and broad-based growth. The GI Bill and other programs allowed a lot of people to move up the ladder. So it’s remembered, I think, very nostalgically as a period of prosperity and broad-based gains. Although, of course, maybe African Americans may not agree with that, for example.

But that was a unique period. I think to the extent that — there are many things we could do better to improve people’s lives, but going back to the 1950s and ’60s was a unique period and simply not going to be a realistic goal.

Jim Tankersley

Is anything different with the role of technology in this particular moment than in the past?

Ben Bernanke

I think technology is one of the biggest sources of change. And in fact, I would argue that, say, in terms of the loss of middle-class manufacturing jobs, for example, that technology has been the most important factor. The share of US output that is in the form of manufactured goods has not declined that much, really, but what’s happened is that manufacturing has been so productive it requires many fewer workers to produce the output, and generally more skilled workers than was the case in the past. So technology has been disruptive. It has forced changes in the mix of jobs available and the mix of industries.

I think so far, technological change has operated as it always has. I mean, you go back to the classic example of the Luddites in England, where they broke the looms because they were afraid of losing their jobs. And they were right; they did lose their jobs to new technology. And the history is that, of course, new technologies from internal combustion engine to electricity have greatly changed the economy and destroyed many traditional jobs while opening up lots of new opportunities.

And so right now, I think that technological change has been one of the factors that has created the sense of rapid change in our economy and has dislocated some people. Thus far, it has operated the way technological change has operated in the past, in that it hasn’t led to mass unemployment. It’s simply been disruptive, but it doesn’t mean there are large numbers of people who are unemployable. And of course the unemployment rate is 4.4 percent.

Looking forward, it’s an interesting question whether or not new technologies which can achieve physical objectives but can substitute for human intelligence in some cases — artificial intelligence, self-driving cars — whether some of those technologies might have a different impact on society whereby it could be that perhaps the new jobs might not come in the same way they did in the past. But we don’t know; this is very speculative. That hasn’t happened yet. If it does happen, we’ll have some important social decisions to make.

So again, in the past, technological change has disrupted people, disrupted industries, destroyed existing human capital. But where it’s closed a door, it’s always opened a window … for new jobs and new opportunities. Whether that pattern will persist in the future, we don’t know. I don’t think, though, that the permanent displacement of workers has been a big factor up to this point in the US economy.

Jim Tankersley

One way to look at Donald Trump is that while many previous workers have looked at displaced workers and said, “We’re going to help you adapt to the new jobs; we’re going to make the rules more fair so you can compete better in this environment,” Trump came in and said, “Don’t worry, we’re going to change the environment to give you the old jobs back.” Is there a danger in that?

Ben Bernanke

I don’t think that’s feasible. We’re just simply never going to go back to the 1950s and the 1960s in terms of coal mining jobs and assembly line jobs in the auto industry and so on, because technology and the global markets have moved on from that. And so I think it’s a mistake to try to restore jobs that may have been good jobs in the past. Instead, we should be looking forward and trying to figure out what industries, what professions, what skills are needed for the future. So in that respect, I think it’s important to be forward-looking rather than backward-looking.

Now, in fairness, while it is true that economists have always said the right way to deal with technological change or opening trade is not to block it but rather to help it adjust, in fairness I think that as a society we haven’t done as much as we should have to actually achieve that. It’s easy to find communities where the factories have shut down and the mine is shut down, and nothing has really replaced that source of income, and the communities are badly depressed and people are either not working or having great difficulty making it.

So yes, in theory, in principle, the right way to deal with change is to help people adjust to it and not try to prevent change. And indeed, a concerted effort to block technological change or global trade would eventually condemn you to very slow growth and a poor economy. But there is a case for helping people adjust and to get the new skills or move to new locations, and I think we’ve talked a pretty good game on that, but we as a society haven’t delivered to the extent that we probably should have.

Jim Tankersley

So many of the folks who have felt left behind in the economy and in the recession felt particularly left out in the early, and middle, and even later parts of the recovery. When you’re in the midst of a crisis, it can be hard to think about longer-term structural trends, but looking back, are there things you wish you and other policymakers had been keeping more in mind to make that recovery more broadly based?

Ben Bernanke

Well, because of the long-term trends in terms of slow growth at median incomes, greater inequality, reduced mobility, the financial crisis and the Great Recession — which were very sharp, severe events — obviously were very painful. A lot of people didn’t have the financial resources to navigate that period. And so that was sort of [adding] insult to injury — it came on top of some long-term trends.

Now, I, of course, was at the Federal Reserve. The Federal Reserve has a limited set of tools. The tools it has are aimed at trying to help the economy use the resources that it has, and at the same time, trying to keep inflation at the Fed’s target, which is currently 2 percent. And that was what we were focused on, and people can debate whether we could’ve been a little more aggressive or a little less aggressive. Even now, in retrospect, there’s a lot of debate about exactly which monetary policies were most effective and the like.

But the fact is that between 2009, which was the peak of the unemployment rate, and today, the economy has recovered in a cyclical sense, very successfully, with very extensive job creation and sharp declines even faster than expected in the unemployment rate. And the deflation fears proved unfounded. Inflation fears proved unfounded; inflation has been low and stable and close to the Fed’s target. So within the set of objectives that the Fed could reasonably set for itself given the tools it has, I think those have been largely accomplished.

Now, the Fed doesn’t have the tools to address issues like social mobility and skill acquisition and adjustment to trade impact and those sorts of things. So it simply was out of the range of what the Fed could reasonably address. Fed officials have occasionally talked about those issues — I talked about inequality, and Janet Yellen has talked about inequality. But that requires some care, because the politicians view [that] the Fed should stay on a nonpartisan track and not get itself too involved in these issues.

So these other issues in terms of skills acquisition and the like, I think those are issues that should be addressed not by the Fed but by Congress and fiscal policymakers. And Jason Furman, the [Council of Economic Advisers] chair, wrote a piece about inequality during the Obama administration, and he made the case that there was some improvement on that front.

But whether you agree or disagree with his analysis — and I think the fact is that the effect of the crisis and the Great Recession was just to exacerbate and make more difficult the longer-term trends, which go back as far as the ’70s — you can identify the slowdown in median wage growth, increased inequality, and the disruptions caused by globalization.

Jim Tankersley

But you don’t think, particularly in those first moments of the crisis when Fed officials and Treasury officials were trying to work together to stop the bleeding, there weren’t more things that could have been done for homeowners, for folks who were just those underwater people that you mentioned in the very beginning of your answer.

Ben Bernanke

Again, I focused first on what the Fed could do. The Fed has a certain set of tools. We were successful in stabilizing the financial system after the crisis. We were successful in getting the economy back on a recovery track, as we’ve seen. Now the specific example you give is homeowners — that was the responsibility of the Treasury, although we were very interested in that at the Fed; we had many conversations with the Treasury about what they were doing.

I think the Treasury made a pretty serious effort on that front. There was money appropriated under the TARP to help homeowners, and the Treasury set up programs both to help people refinance their mortgages and to modify or restructure troubled mortgages. And some millions of people were helped by those programs.

My perceptions of that effort, though, speaking from someone who was outside of that policy effort, was that there were two big sets of constraints. One was that it’s just a lot harder than you think to, for example, to modify or restructure mortgages when the borrower is possibly unemployed, possibly not interested in talking to the bank or participating in a program. It was awfully difficult as a practical manner to manage the restructuring programs.

But the other part was that, people don’t remember this necessarily, it was actually very politically unpopular to help troubled homeowners. And Congress put lots of restrictions on what could be done, and tried to make sure there wasn’t any significant subsidy, for example. So within the inherent logistical difficulties, which were substantial, and the political constraints from Congress, the Treasury was hampered, I think, in its efforts. It did make, I think, a good-faith effort, and it did help millions of people.

Again, whether a bigger effort would’ve had more effect on the recovery, I’m not sure that it was a first-order issue. It certainly would’ve helped a lot of individual people, a lot of families. From the political point of view, it cuts both ways. The story is that the Tea Party was triggered not by anger necessarily at the financial players, but at the idea that the government would be helping people who had “overborrowed” or been irresponsible in taking out mortgages.

Jim Tankersley

To zoom back out to sort of a more macro level of — we’re through the crisis. We’re at 4.4 percent unemployment today, which is extraordinarily low historically. How do you assess the overall challenges the economy faces right now? What are the things that remain that need to be improved by policy, and what are the things that are working well?

Ben Bernanke

Well, the thing that’s working well is that from the perspective of economic recovery, we’ve had a very substantial recovery and one that is indeed the envy of other major industrial economies. I don’t think Americans really appreciate that the Europeans, for example, and the Japanese very much would like to have the economy that we have here.

But there are lots of longer-term challenges, and I think the two I would focus on: the first is productivity. Productivity growth has slowed, and it’s slowed — I’m sure some of the slowdown is due to the effects of the financial crisis — but economists who’ve looked at it suggest that the slowdown began before the crisis. And slow productivity growth puts limits on how fast total outputs and living standards can grow. And the challenge of getting productivity back up is a very tough one, but I think that’s an essential objective.

The other one, which I’ve referred to already, is social mobility. People seem to be okay in general with a certain amount of inequality. I remember reading about the 1930s, people would like to go to the movies and watch Fred Astaire dance around in a tuxedo, and the fact that there were rich people wasn’t necessarily a source of anger in the ’30s. Rather, people can accept inequality — they go to the ballpark and see the salaries the baseball players are making — but they want to feel that the system is fair. They want to feel that everybody has a chance to move up, has a chance to express their skills and abilities in the economy.

The evidence is that while the period after World War II was perhaps a bit unique because of the situation following World War II, for a variety of reasons, social mobility in the US is currently not very high, or not as high as we’d like. That creates a lot of frustration, because there are people who work very hard but just feel that their way upward is blocked. And after a certain amount of time, they give up, which is bad not only for them obviously, but [also] for the economy as a whole if there are people who could be much more productive but, for one reason or another, instead maybe they end up being a burden on society.

Jim Tankersley

On the question of productivity and growth, obviously the big coming economic debate in Washington is going to be about tax reform. To what degree do you think the current tax code, particularly the corporate code in the United States, holds back productivity?

Ben Bernanke

I think it’s a moderate factor. In terms of the fiscal plans being discussed, I think that a sensible corporate tax reform could probably create more investment spending, which in turn would generate more productivity. So I think that complex, distortive, and inequitable tax systems are negative for growth. And it seems to me like the lowest-hanging fruit might now may be the corporate tax code.

The other area, and I think this is something people can take different points of view on, but my perception is that we’re at a point where improvements in our infrastructure — our roads, our bridges, our schools, our airports — could have some real returns in terms of economic productivity. Just think about all the hours you and I or everybody spends in traffic, or with flight delays, because the infrastructure is not what it should be. So I think there would be some benefit there.

I think, however, that the biggest sources of potential improvement in terms of productivity are first in technology — so we need to continue to support basic science, to encourage advanced training in science and technology — so developing skills. I think we need to be sure to encourage highly skilled immigration. So technology and adaptation of technology to commercial purposes are, I think, critical in a medium term for productivity gains.

And the other one is just broad skills development. That’s not just people who are inventing new machines; that’s also people who are capable of working with new machines, for example in manufacturing, where many workers are at very high levels of skill because of the complexity of the machines they have to operate.

So I would have no objection to trying to improve our tax code and to do better investment in public infrastructure. I think that skill improvement and technology are probably the two highest return areas in terms of where productivity is concerned.

Jim Tankersley

One of the big drivers of inequality that we saw over the last few decades was the rise of high, high compensation on Wall Street, which clamped down during and after the crisis but we’re beginning to see again. We’re beginning to see a lot of job creation in finance, we’re seeing a lot of bank stocks on the rise, in particular, as a part of the stock rally post-Trump election. Do you have concerns at all in the current environment about signs of a bubble — any regulatory concerns about what’s happening on Wall Street?

Ben Bernanke

I think there’s a lot of parts to that question. I think a lot of progress was made in regulating Wall Street after the crisis. And while I’m sure there are many elements of Dodd-Frank and Basel III that could be improved … there was a broad movement in the direction of trying to ensure that the system as a whole is more stable and more resilient against potential shocks. So I would note the big increases in capital requirements, the tougher oversight particularly of the bigger firms, the closing of important gaps.

You know, before the crisis, firms like AIG and Lehman only had very limited supervision. The introduction of the resolution authority, Title II of Dodd-Frank, the OLA — orderly liquidation authority — that allows the Fed and the FDIC and the Treasury to unwind a failing firm without bringing down the financial system. And just generally, what is described as a macroprudential approach, whereby the Financial Stability Oversight Council and the Fed and other agencies are no longer focused only on individual bits and pieces of the system, but trying to look at the system as a whole. So I think all those things are very positive.

I don’t think the exchanges overall have significantly reduced the ability of the banking system to provide essential services, to provide credit. There’s no doubt many things that could be done to make the system more efficient and less costly, but I’d be very unhappy to see a rollback of Dodd Frank broadly speaking. In particular, again, I think I’d focus on the strong capital and liquidity requirements for large institutions, which make them safer and more resilient, and I’ve written on my blog about the Title II, the orderly liquidation authority, which the CHOICE Act that was introduced (in Congress) would repeal that and force all firms through bankruptcy. I think there’s some circumstances in which a judge-managed bankruptcy is not going to be adequate to prevent the failure of a firm from having severe consequences to the broader financial system.

So that’s my biggest message. A lot of people have come out and pointed to areas that we want to make improvements. The one everyone agrees on is that we want to reduce the burden on small and medium-size firms. The Volcker Rule, a number of people have suggested, that could be significantly simplified or cut back. So there are areas where — stress testing, probably it’s time now to simplify stress testing and reduce the burden of capital stress testing on banks.

Again, I don’t want to claim that everything is perfect and no changes should be made. That’s not at all what I mean. But I think the major thrust of Dodd Frank was constructive, and I hope that we don’t forget now, only nine years after the crisis … how bad it was and how much damage it did to the economy.

Jim Tankersley

Do you think there is some irrational exuberance on Wall Street right now expecting that kind of loosening?

Ben Bernanke

As I said earlier, I think there may have been in some— that the optimism about major changes, immediate large changes, under the Trump administration both on the fiscal side and on the deregulatory side, I think that was a little bit overdone. And I think the markets, including the bond market, are adjusting to the fact that whatever changes do occur will probably take longer and be smaller than some initially expected. So you’re seeing that in these bank stocks, for example, they’ve cooled off some after rising a lot after the election.

But as I also said, the global economy does look to be doing somewhat better independent of what’s happening in the United States. And so you see at the Federal Reserve, you see a lot more confidence about the near-term prospects in terms of the economy. At least some of the optimism in markets seems to be justified both by policy expectations and [by] global conditions.

Jim Tankersley

It’s often said that economic expansions don’t die of old age. But we do have a very old expansion, historically speaking. If this one does die, does turn into recession, what will cause it?

Ben Bernanke

It is a pretty long expansion, I think we’re just a couple years away from breaking the all-time record, and in some ways the relatively moderate pace of recovery has actually also supported a longer recovery. There’s not any obvious problem that would lead to, that would cause this recovery to end. So in particular in the early part of the postwar period, a lot of recoveries ended because the Fed had to raise rates to control inflation. Right now, of course, inflation looks to be very moderate, and the Fed is tightening policy but very cautiously and carefully.

There’s not obvious imbalances in the housing market, for example. The housing market is recovering, and it’s an important part of the ongoing expansion. But there still seems to be some room for continued growth in residential construction before we reach levels which are not sustainable.

You always want to pay close attention to financial developments; those are very hard, obviously, to anticipate. But we’ve had pretty stable financial conditions for some time, and the banking system in particular seems well-capitalized and pretty healthy, particularly the United States. Global conditions, which have been a big source of uncertainty for the US recovery since the crisis, including the various problems in Europe and so on, are still an issue, but they seem a little less threatening right now.

So it’s hard to identify a near-term risk, but of course in any given year there’s always historically one chance out of six or seven that there’ll be a recession coming from some source. And one factor is that because the population is growing very slowly and because productivity has been only moderate to weak, the underlying growth path of the economy is relatively slow, and so it would take a smaller shock to knock the economy off of that growth path. In other words, it doesn’t have the forward momentum that it would have if the underlying growth rate was bigger, stronger. So that’s a bit of a risk.

But right now, again, economists are notoriously bad at forecasting recessions. But there’s very little that would suggest that a recession is imminent.

Jim Tankersley

Let’s flip the question: How close do you think we are to full employment, and how much space is there for extra growth with a deficit finance tax cut or infrastructure plan?

Ben Bernanke

I think of full employment as sort of a zone rather than as a single number. We’re pretty close to full employment, and we are beginning to see signs of shortages in labor markets, some moderate upward pressure on wages. But as I say, it’s a zone, and I don’t have a precise sense of how much more we can expand. Some of the other indicators, like the broader measures of unemployment and participation, clearly all suggest a little bit more slack than the basic unemployment rate does. But I would say tangentially that the low participation rate is due to a lot of factors other than the cyclical recovery — I think there’s some longer-term issues going on there.

So with the fiscal plans, with every tax change or spending change, there’s both supply-side and demand-side effects. Most fiscal policy — either tax cuts or spending increases — do have positive demand effects in the short run. And as I’ve said, we could have used more help on the demand side three or four years ago. Whether we’re at full employment or not, we’re certainly much closer to full employment than we were, so we don’t really need a big demand-side push.

That being said, to the extent that there are fiscal changes that could make the system more efficient, fairer, simpler, and promote growth in the medium term, I think the Fed could manage the demand-side effects if in fact there were also some medium-term supply-side benefits. In that respect, again, I think it seems to be that the highest supply-side benefits would come from a smart reform of the corporate tax system and infrastructure spending that focused on high-return projects.

Jim Tankersley

Do you have thoughts on where we are on the Laffer Curve and how likely it would be that such a tax cut could pay for itself?

Ben Bernanke

The Laffer Curve is a very high standard, and it says basically if you cut the tax rate by 10 percent, you need 10 percent more output in income to actually not lose any revenue. That’s a very high standard. I don’t think, particularly when you’re starting at full employment, I don’t think there are many economists who’d argue that we’re at the wrong side of the Laffer Curve at this point.

But that’s not the only criterion. I think that even if a tax cut increases the deficit somewhat, if it had sufficient growth benefit it still might be worth considering. And I’m talking now about longer-term, sustainable growth, not necessarily short-term demand stimulus. So I think that’s the criterion on which you should evaluate these fiscal proposals. Do they give us some meaningful increase in productivity and potential output in the medium term? If so, then you might be willing to tolerate some loss of revenue in order to get those benefits.

Jim Tankersley

I’m sure you are looking forward to that exact framing of the tax reform debate for the next several months — “is this boosting productivity such that it will increase long-term growth?”

Ben Bernanke

But it’s a weaker criterion than a “pay for itself” kind of criterion. Like I said, you could have a policy that didn’t completely pay for itself if it did help improve productivity and if it achieved other objectives, like moving the distribution of income in ways that people want to see it go.

Jim Tankersley

Has anything surprised you so far out of the economic policies of this administration and Congress?

Ben Bernanke

Not too much, actually. My general perception as I described it in the afterword — which was written in December — was that it’s going to be a much more slow and uneven process than some thought. And thus far, between the fact that the new administration is quite inexperienced in terms of its leader and its chief architects, and also the fact that they haven’t filled a lot of policy positions, and because of the difficult political situation even within the Republican Party, it was my expectation that this would be a slow and uncertain process. And for that reason, I think from a purely economic point of view, it remains something still of an open question as to how much change we’re actually going to see in policy.

Jim Tankersley

I don’t know what the accepted standards are for former Fed chairmen — do you talk with people in the political arena still? Did candidates seek you out during the last election cycle?

Ben Bernanke

There’s no reason why they couldn’t. I generally try to stay out of politics. I’m always happy to discuss policy, and I’ve had some discussions with people in Congress about issues, particularly issues related to my previous responsibilities, including the Fed and financial regulation. So I’ve met with Gary Cohn once in the White House, I’ve met with some members of Congress, I’ve talked with some members of Congress on the phone. I’m happy to try to provide my insider advice to anyone who wants to think about these policy issues.

I was of course appointed originally by George Bush and reappointed by Barack Obama. And while there’s been some antagonism to the Fed on the Republican side in the last few years, I still feel like I have a lot of contacts on both sides of the aisle. And I’m not involved in lobbying or trying to apply pressure, but if anyone wants to talk to me about the substance of policy debates, I’m eager to do that. And as you probably know, I contribute through my blogging and writing and speaking as well. So I’m happy to be participating in the general debate on some of these issues.

Jim Tankersley

What do you like best about blogging?

Ben Bernanke

What I like about it is the immediacy. I mean you can put something out, you can read something, or there can be a series of events, and you can write something about it and put it out in my case in a couple of days probably. And you get a quick reaction. So relative to — you know, my background is as an academic, and when I was coming up in academia, the process of doing research papers and getting them reviewed and published and then having comments on those and follow-up papers was a very, very slow process. Now, of course, with the internet, you can put your working paper online and you can write a blog post about it, and you can get a very quick reaction. So the debate and the discussion can be much more real-time, much quicker.

And I find that — I think it’s important to have a long-run perspective as well. Not everything is about today’s news, and you want to think about longer-term issues and do research which is related to those longer-term issues. But getting rapid exchanges with other people interested in the topic is I think a very useful way to move quickly to some new implications of what you’re working on.

Jim Tankersley

I had wanted to ask you about academia, particularly about the economics profession. We’re at a time when obviously much of this populist uprise is a backlash against experts. What do you think is the state of the economics profession right now, and how do you think about that in the context of the populist backlash?

Ben Bernanke

I’m less down on the economics profession than some are. First of all, only a small part of the economics profession is macroeconomics and monitor economics. And there’s an enormous amount of interesting work throughout economics in a variety of interesting fields. And just one example would be the work by Case and Deaton on mortality and morbidity among white working-class Americans.

Secondly, while macroeconomics didn’t forecast the financial crisis or the great recession, there’s been, I think, a very active response to it in terms of new work trying to understand what happened, trying to think about implications for the future. And my impression is that there’s a lot of really good young people in academia right now working on issues of financial stability and monetary policy and economic growth as they are in other areas working on issues of mobility and inequality as well. There’s a very high level of vitality in the field. Particularly among young scholars, I think there’s a very active and interesting response to the issues that arose in the last decade.

Jim Tankersley

Do economists have a responsibility or an avenue to try to bridge that trust divide with Americans who have lost faith in experts?

Ben Bernanke

Well, there’s different kinds of economists. There’s academic economists, many of whom view their responsibility as doing good research and trying to understand the issues … and then can communicate with the public or not depending on their proclivities and opportunities. Brookings is an example which tries to be a place where economic research can be directly related to policy. But policy economists are just one part of the profession. Just like you have in science, you have people doing basic research who have no interest communicating their latest findings to the public, and then you have people trying to apply those findings to new technologies who do have an interest in the public reaction.

The other kinds of economists, of course, are those in places like the Federal Reserve, where there is a direct policy implication, and I talked about this in my book and in my last speech when I was leaving at the Fed at the AEA; it’s really important — the Federal Reserve is technocratic, but it wields a lot of power. The leadership of the Fed is appointed by the president and confirmed by the Senate but is obviously not directly elected. So it’s very important for policy makers at the Fed and other agencies to explain themselves, be accountable, explain what they’re doing, be as transparent as possible.

And I tried. Obviously as chairman, I was thrown into the battle against the financial crisis and the Great Recession, so that took a lot of my energy, but one of my primary goals in going into the Fed — and I think I accomplished this to some extent — was to try to open up the Fed, to make it more transparent, improve communication. And in particular, not to communicate simply to financial markets or to narrow elites, other economists, but when I was there, I went on 60 Minutes a couple of times, and I visited Army bases and factories.

I tried the best I could given my skill set to make the Fed more open and approachable from the perspective of the average person. I’m sure much more could have been done and can be done, but particularly for economists who are part of the policymaking world, and who are involved in implicitly making decisions for the public in terms of economic policy, it’s extremely important to engage with the public, to hear what they have to say, to hear their concerns, explain what you’re doing and why you’re doing it.

And to try to demonstrate that the policy actions you’re taking are advancing the goals given to you by Congress and are in the interest of all Americans. So I think that’s very, very important. But again, that responsibility doesn’t necessarily extend to every single professor in every university, but for people who are in the policy world, it certainly does.

Jim Tankersley

One place where policy economists seem very disconnected with their view of an issue with, for example, the coalition that elected the president is on immigration. How do you view the economic impact of the administration’s immigration policies, and how would you convey that to people who believe immigrants are taking jobs and holding back the economy?

Ben Bernanke

It’s not like economists are completely one-sided on this issue. There are some prominent economists — George Borjas and others — who have argued that immigrants can displace domestic workers. And it’s really an empirical question. I think it’s pretty clear — can you imagine America without immigration? I mean, American history is to a large extent about immigration, going back of course to the 17th century but through the waves of immigration since then. So you can’t really imagine the American polity or economy without ongoing immigration. And generally speaking, it’s been very important to our growth to have immigrants.

But it’s certainly possible, and there’s no logical reason why immigration — especially if it’s particularly intensive for a period — might not be disruptive, in the same way new technologies and trade patterns can be disruptive. So it’s an empirical question, and the same principle applies, though, as we talked about before, with technology and trade, which is that a certain amount of change is inevitable if you want your economy to continue growing and prospering.

But change doesn’t benefit everybody necessarily. And if you want change to be feasible and accepted, then you have to do things that help those who are adversely affected adapt to the change. It’s perfectly reasonable to think about immigration policy — are we too focused on unskilled labor, for example? Would we be better off changing our balance from less unskilled to more highly skilled labor? I’ve always thought that our restrictions on very highly skilled labor were sort of not very productive, because highly skilled immigrants create tremendous benefits in terms of advancing technology and creating new industries, which create jobs.

I think you can think about immigration policy in terms of who do you admit and how fast and so on; that’s perfectly reasonable to do. But you certainly don’t want to make America unattractive for foreigners in general, or to immigrants in particular. You want people who can contribute to have the chance to come. But it’s perfectly reasonable to try to address the concerns, both economic and also political security concerns of domestic folks as immigration continues.

Jim Tankersley

Do you have an opinion on the health care bill that passed the House?

Ben Bernanke

Well, I think it was passed in a partisan spirit. I mean, I think they’re looking for a win. The Republicans are looking for a win. But I haven’t heard too much defense of the bill as a bill. And it’s clear, if they’re going to have a workable approach, it’s going to take a lot more effort before they can get there. And I think the best way to look at it is that maybe it’s a first step.

But by itself, for example, I think they’re torn between folks who just want to go back to the status quo before the ACA — which was sort of the conservative wing — and those who want to preserve the preexisting coverage from ACA. What they have doesn’t really do either one of those things; it’s kind of a cross between the two. So a lot more work will be needed to get a coherent program out of that.

Jim Tankersley

And then the corollary to that is, do you think the outline of a plan that the administration has put forth on tax reform is a sensible, responsible way to deal with the tax system?

Ben Bernanke

I don’t think we need at this point a big demand stimulus, as the economy slows to full employment. I think, again, my priorities would be first on the fiscal side; I would put a higher priority on tax reform as opposed to just tax cuts, particularly of the corporate tax code which I think is inefficient and probably impedes capital investment. And I think again my preference in terms of creating more productivity gains and output growth in the medium term would be a focused infrastructure program.