Ex-Biden aide condemns GOP economic policy

“The government has to play a smart investment role in expansion and economic recovery, or we’ll be facing a new normal,” said Jared Bernstein, former chief economist and economic policy adviser to Vice President Joe Biden, before a crowd of roughly 80 students, faculty and local residents yesterday in Dodd Auditorium.

According to Bernstein, America has been stuck in a “shampoo economic cycle” following the mantra of “bubble, bust and repeat” for the past few decades, as seen in the dot com burst of 2001 and the real estate crisis of 2008. The current economic model, which has dominated policy since the defeat of Keynesianism in the ’70s, espouses rational expectations of government and coincides with supply-side, trickle-down policies. The model assumes that markets are self-correcting and that the only thing government can do is “screw up how the market functions,” Bernstein said.

This model has led to destruction, yet America cannot move toward a policy favoring both fiscal and monetary growth, he said. The government continues to support contraction of fiscal policy and growth of monetary policy — and worse, politics threaten to “lock” the nation in policies that are contractionary. Bernstein listed several reasons the country is stuck in this situation.

“There are politicians who want the president to fail and have expressed such sentiments openly,” he said. “I think that is despicable; it’s a terrible way to do policy.”

He also discussed how abuse of the filibuster has created a dysfunctional politics. “I have never seen a period like this, where the ability of our nation, our policy makers, our government, to self-correct is threatened. The inability to self-correct is fundamentally threatening to our democracy.”

Bernstein also cited individuals who don’t believe that fiscal policy works and have a hard time accepting counterfactuals, as well as irrational fears of budget deficits, as reasons why America has failed to adopt a beneficial policy of fiscal and monetary growth.

“Short term spending like Obama’s Recovery Act will contribute nothing to the debt,” he said, explaining that the injected funds remain in the economy for a brief period. “The problem [spenders] are those that keep on giving, like the Bush tax cuts. If the Bush tax cuts were to sunset, we would be on the right track.”

The solution to the jobs dilemma will come from changing the failed model and reexamining common explanations of why the current recession is so severe, Bernstein said.

“In the 2000s, the employment growth rate dropped from over 20 percent in the previous 50 years to just 4 percent and then started to become negative — what happened?” Bernstein said.

Referring to a graph, he observed that the national productivity rate and employment rate have widely diverged in the past 15 years. The two trends closely followed each other for 50 years, but since the early 2000s, productivity has increased while the employment rate has decreased. This change resulted in part after China joined the World Trade Organization in 2001, he explained. After that year, increased import penetration from China led to more than half of the jobs lost in manufacturing.

Bernstein added that legislation and political small-talk involving the value of small businesses needs to be reevaluated. “Small businesses would love to say that they are the engines of job growth,” he said. “But what studies have found is that age really matters; 40 percent of startups die in the first five years. In the 2000s, we had as many startups as we usually do, but they couldn’t survive because they couldn’t get enough venture capital ... There was so much froth going on with the housing market and the economic recovery was short and never felt like much of a recovery for families.”

Bernstein ended his lecture with a number of ideas to move the economy forward.

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“FAST, Fix America’s Schools Today, is the simple idea of taking a problem and marrying it with a solution,” he said. The proposed program would allocate $30 billion to employ repairmen and engineers to help rebuild America’s schools, many of which are falling apart and in desperate need of modernization.

Bernstein also mentioned a recent bill to force China to manage its currency, that, if passed, would encourage China to allow its currency to appreciate and lower the American trade deficit.

While under Vice President Biden, he proposed spending less of the country’s resources on financial engineering and instead allocate more toward markets that could result in an actual economic boom.

Unfortunately, Republicans have blocked or rejected all of these proposed measures in Congress, he said.

“We need to get back to a place where facts matter,” Bernstein said. “There is no way for our economy to survive if we subscribe to this yo-yo, do it on your own economy. I recall Herman Cain saying that if you are not employed, that is your own fault, and that if you go to the emergency room and die with insurance, maybe everyone should just stand around and clap.”

“Maybe this is just Tea Party rhetoric,” he added, “but there is a germ of something in there that is infecting America. It is important to remember that at the end of the day, we are all together; if we as a nation can accept that reality, then we will all be okay.”

“I enjoyed the lecture, especially the fact that he had a long-term economic vision for where the United States should go,” said Rahul Subramanian ’15, who is considering majoring in economics or electrical engineering.

Subramanian agreed with Bernstein that government creation of jobs may be the first step towards ensuring sustainable employment. “I’m from Wisconsin; one of the things that happened in my state was that a high-speed rail project got turned down by our governor.”

Subramanian explained that he felt this was a shame because such measures are part of what is really needed to get the country going.

“Infrastructure helps bring people together, is good for business and is also a way to get people employed,” he added.

The discussion, titled “The Jobs Dilemma: Moving from Talk to Action,” was part of the Wilson School’s “Economic Recovery: Perils, Politics and Possibilities” lecture series.