Beyond the Bubble | Sept. 17
Economics professor Alan Krueger served as the chairman of the Council of Economic Advisers from November 2011 until August 2013 after being appointed by President Obama. He previously served as the Assistant Secretary of the Treasury for Economic Policy and the Chief Economist of the Department of Labor.
Daily Princetonian: In your view, what is the role of the Council of Economic Advisers?
Alan Krueger: The CEA advises the president on all economic issues, and the chairman has the principal responsibility for conveying advice from the Council. The CEA works together with other departments and agencies within the government. But the CEA is unique … President Obama was clear that he wanted the CEA’s role to be to provide him with objective, unvarnished advice based on the best evidence. Other departments have constituencies. The Agricultural Department has the agriculture industry as its constituency; the Labor Department has labor unions as its constituency. We could kind of stay above the special interests, and that’s a nice feature of the job. I think the president appreciated that. It also means that sometimes people don’t welcome your advice because they view things through a different lens. But I think the way I interpreted the job, and the way my predecessors did, is anything that has any significant economic impact was within our realm. So that involved energy policy, jobs and economic growth, the European debt crisis, even the economic effects of the drought last summer.
DP: How was your experience with the CEA different from your time with the Treasury and Department of Labor?
AK: They were all different. Working directly for the president was different. First of all, President Obama was a great person to work for. But I found that also when I worked for the labor secretary and the treasury secretary, that they were also very good people to work for. I worked on a wider range of issues at CEA. At Labor it was obviously labor issues; at Treasury it was a broader set of issues because it included housing as well as employment and taxes, and at CEA it was all of those issues. And that taught me a lot, but it also forced me to learn a lot in different areas. It was a very different scope … Here, as my role as chairman of the CEA, I could provide advice, and it was up to others to follow it. I could give the president my advice, and sometimes he would take it, and sometimes he wouldn’t.
DP: What would you say was the greatest success, in terms of economic policy, during your last tour of duty in government?
AK: I think the biggest success was that the recovery continued. When I started in the fall of 2011, there was a lot of concern about a double-dip recession, and I think the continuation of the 2 percent payroll tax cut provided support for aggregate demand. So we’ve now had 42 months of private sector job growth in a row since the recession ended and job growth turned positive. I think the most important thing we achieved was a continuation of the recovery.
DP: How closely did you work with Ben Bernanke during your time in government?
AK: The Fed is an independent agency, and we never publicly comment on Federal Reserve policy. There is a tradition which has gone on for decades, where the chairman and members of the CEA have a monthly meeting with the Board of Governors, so we had lunch once a month down at the Fed. More generally, we benefited from interactions with the economists at the Fed. They have a large staff and a tremendous amount of expertise. So, if you want to understand an issue — how they’re modeling the effect of the sequester versus how we’re doing it, for example — it was very helpful to interact with them.
DP: Is unemployment the best way to measure progress away from a recession?
AK: I think the unemployment rate continues to be an important indicator. I think it’s one of many indicators. I think it still is indicating that the labor market is not yet back to full health, although we’ve made progress.
I wrote an article for Bloomberg before I took my job … where I said the unemployment rate is going to continue to edge down, but we also have to be concerned with labor force participation. People may drop out of the labor force. So another indicator to keep an eye on is the fraction of the population that’s employed — the employment-to-population ratio. I think there are multiple measures of the health of the job market.
DP: How do you respond to critics who argue that measures like the stimulus package and quantitative easing will be difficult to unwind, creating a drip-fed economy?
AK: I think the Fed has the tools to unwind and do it in a way which is at the right pace for the economy. I think that we heard a lot of crying wolf about inflation — that Federal Reserve policy would cause inflation — that never materialized. I think a bigger risk is deflation than inflation.
DP: What advice did you give Jason Furman, your successor?
AK: Jason had been around long enough that he didn’t really need that much advice. But there are a range of issues that the chairman needs to address, from managing the agency to knowing how to do IPA arrangements, where people go on leave from universities and nonprofits to work in the government, to substantive economic issues.
Jason had been Principal Deputy Director of the National Economic Council, so he was extremely familiar with budget and tax issues. I thought it was useful nonetheless to go through some of the mechanics of the processes we go through on releasing statements on the jobs report or GDP, some of the positions the CEA had taken on various policy issues in the past. I think it’s probably helpful, not a requirement but helpful, for the CEA to be consistent over time. I kind of explained where I stood on certain issues that he might not have known — most issues he probably already knew — or where Austan Goolsbee had been, and why I thought it useful to continue supporting various policy proposals.
DP: Will your experience in government have an impact on your research and teaching here at Princeton?
AK: I think there’s no doubt it will enrich my teaching. When I returned to Princeton after the Labor Department stint and after working at the Treasury, I think it helped my teaching by providing better examples of how things work in Washington. As far as my research goes, I think it will probably cause me to focus on some of the central challenges the economy currently faces, like long-term unemployment, and will probably cause me to move away from some of the more peripheral issues I’d worked on, like the economics of terrorism.
I think the two main challenges the economy faces are long-term unemployment and the large increase in inequality of opportunity that we’ve seen in the United States. I think those are the areas I’ll focus my research on.
DP: What are you most looking forward to upon your return to campus?
AK: I think I’m looking forward to being able to concentrate on a few issues at my own pace, as opposed to having to cover the waterfront. I’m sure that if I were still in Washington, my time would be totally absorbed by the budget negotiations and the debt ceiling — and I hope that gets worked out smoothly — but I think it’ll be nice to be able to focus on some of the long-term issues that affect the economy and not the short-term drama that Congress creates.