She’s From the Government, and She’s Here to Help (Ep. 466)

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Cecilia Rouse, the chair of the White House Council of Economic Advisors, is as cold-blooded as any economist. But she admits that her profession would do well to focus on policy that actually helps people. Rouse explains why President Biden wants to spend trillions of dollars to reshape the economy, and why — as the first Black chair of the C.E.A. — she has a good idea of what needs fixing.

Listen and subscribe to our podcast at Apple Podcasts, Stitcher, Spotify, or elsewhere. Below is a transcript of the episode, edited for readability. For more information on the people and ideas in the episode, see the links at the bottom of this post.

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Do you ever find yourself thinking hard about the relationship between pure economics and economic policy? Our guest on the show today has done that thinking.

Cecilia ROUSE: I’m somebody who believes in markets. I believe in incentives, and I believe in prices. But I also believe that most of our markets are not perfect markets and that there are imperfections and that there’s a really important role for government. 

In late April, President Joe Biden addressed a joint session of Congress.

SERGEANT AT ARMS: Madam Speaker, the President of the United States.

This wasn’t technically a state-of-the-union speech — it’s not called that in a president’s first year. But, technicalities aside: how goes the Union?

Joseph BIDEN: Now, after just 100 days, I can report to the nation: America is on the move again.

Emerging from this Covid-19 pandemic — it’s like checking yourself in the moments after a car crash or a bike crash. What’s broken? Where’s that blood coming from? Who else is hurt? Even if the damage is not as bad as you feared — you’re shaken up. As Biden noted, there is plenty of reason for optimism: Covid cases and deaths are way down; we have at least three successful vaccines; the shutdown is opening up. But as the dust settles, what comes into view are a variety of economic scars — some old ones, exacerbated or exposed by the crisis; and some new ones.

NEWS: Early indications suggest that the virus is ushering in the greatest rise in economic inequality in decades.

NEWS: Deficits as far as the eye can see.

NEWS: Businesses are grappling with these sharp price increases and these supply chain distortions on a daily basis.

NEWS: Job listings in sectors like manufacturing, live-event production, restaurants, and construction are going unanswered, forcing companies to sweeten the pot.

With so many pressing issues, who does President Biden turn to for sensible, evidence-based, economic advice?

ROUSE: My name is Cecilia Rouse and I’m a professor of economics and public affairs at Princeton University, and I’m also currently serving as the chair of President Biden’s Council of Economic Advisors

Stephen DUBNER: Now, most people, I would say, would have led with the C.E.A., but you chose not to. Was that accidental or on purpose? 

ROUSE: Well, I am very proud and honored to be serving as the chair of the C.E.A. But I do see myself as an academic who is serving the government rather than as a policy person.

DUBNER: And we should say this is your third stint in D.C., correct? 

ROUSE: This is my third tour of duty, yes. 

Rouse also served on the C.E.A. during the Obama Administration, though not as the chair. That term coincided with the Great Financial Crisis, which was pretty good training for a post-pandemic economy. The C.E.A. was established in 1946; it is essentially the White House’s in-house, real-time, economic think tank.

ROUSE: We’re trying to look at the data. We’re trying to say, “Just the facts, ma’am.”

Earlier, during the Clinton Administration, Rouse served on the National Economic Council, which was established by Clinton. The N.E.C. is inherently more political than the C.E.A.; its job is to coordinate economic policy across government agencies. Still, as chair of the C.E.A. now, Rouse does routinely consult President Biden directly.

ROUSE: I may meet with him once a week or so. Having had the experience of having these briefings with President Obama, I am keenly aware of trying to present the president with information he may not already have. And I would say that the president — and usually the vice president is also present — are very engaged. They have read the material ahead of time. The last meeting was remarks review before he addressed the nation on Friday, after we got the employment report. 

BIDEN: This morning, we learned that in May, our economy created 559,000 new jobs, unemployment rate fell to 5.8 percent, and wages went up for American workers.

Despite those improving numbers, the labor market — at least to an economist’s eye — is still messy. Roughly 2 percent of the U.S. population left the workforce during the pandemic and has failed to rejoin. In an episode we put out last year called “Which Jobs Will Come Back, and When?” we named this period the Great Labor Reallocation of 2020. It looks like that reallocation is still going strong in 2021. But a messy economy also provides the opportunity to try new things, to make changes you wouldn’t make when things are running smoothly. At least that’s how Rouse sees it.

ROUSE: I did not expect to do another tour in Washington. But I saw this as a moment, a time in our country where we could make some fundamental progress in what the public sector could do for all Americans and especially for people of color. 

So, today on Freakonomics Radio: why Joe Biden is doing his best F.D.R. impression and taking such big swings.

ROUSE: These are ambitious ideas. There’s no question about them.

We’ll hear some of those ambitious ideas — and others, we won’t hear about.

ROUSE: Okay, this is going to be one of those things that I just can’t talk about.  

And: what does this moment look like in the arc of history? 

ROUSE: That was a big question, but okay. 

Cecilia Rouse, the 30th chair of the Council of Economic Advisers — and the first Black economist in that job.

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DUBNER: So we are recording this conversation at around 11 a.m. on a Monday morning. If you weren’t talking to us right now, what would you be doing? 

ROUSE: I start my Monday mornings — I start most mornings — with a meeting that the White House chief of staff holds to get us oriented.

DUBNER: And these are in-person yet or still virtual? 

ROUSE: They are still virtual. And then day-to-day at the C.E.A., what we do is we participate in policy processes. So right now, there is a full-throated concern about supply chains, both in the long run and in the immediate term.

DUBNER: I understand lipstick is a big problem at the moment, yes? 

At a recent White House press briefing, Rouse took the podium.

ROUSE: Okay, hello!

And pointed out that supply chains that had struggled to adapt to pandemic needs are now struggling to normalize.

ROUSE: In just one day, we now anticipate an oversupply of masks and an undersupply of lipstick. I don’t know about you guys, but that’s what I thought of this morning.

But there are more troubling concerns than a lipstick shortage. Semiconductors, for instance — around 80 percent of which are made in Asia. They are in short supply here due to a combination of supply-chain issues, trade frictions with China, and increased demand thanks to the pandemic itself, and our intense reliance on digital and other technologies. The Senate just passed a bill that would set aside $52 billion to fund U.S. production of semiconductors. But even if that comes through, manufacturing capacity doesn’t appear overnight. Meanwhile, the economy is glutted with face masks and toilet paper. Such is the nature of a crisis like this: you put out one fire, another starts up. The Council of Economic Advisors typically issues forecasts that are expected to last a year; these days, they’re much more perishable. So there is a lot of attention being paid to the research that’s coming out of Cecilia Rouse’s office.

ROUSE: What I learned in my first tour is that academic evidence goes so far. It doesn’t answer every single question that needs to be answered in order to make a decision. And so there’s a point at which people are bringing instinct, intuition, anecdote — or the latest, anec-data — to the table. But then there’s a point at which we are all flying by where our morals take us, where our priorities are. It’s like a medical doctor, right? The drugs and procedures that have been rigorously tested only go so far. They haven’t been tested on children or women or pregnant women or people with this form of depression, rather than that form of depression, right? There’s a point at which medical doctors are working off of experience and instinct and knowing their patient and from their own experience in the field. So there’s a point at which politics comes into play. I, actually, view this as what economists should do well, which is to maximize under constraints. And I think politics and the political realities are a constraint. And our job is to say, “Well, that is fine and we recognize that you have your priorities, but this is what the economics field has to say, and therefore, this is what we advise.” 

It’s no secret that economists see the world differently from politicians; they especially think about problem-solving differently. Economists tend to favor incentives that encourage or discourage certain behaviors; politicians tend to favor top-down solutions that often splash around large sums of money, in a way that can seem indiscriminate to economists (and others). So far, the Biden Administration has triggered the nearly $2 trillion American Recovery Plan Act of 2021, which includes — among many other things — stimulus checks and increased unemployment benefits. This type of aid was also a cornerstone of the Trump Administration’s own $2 trillion CARES Act, from earlier in the pandemic. Biden has proposed two more spending programs in the $2 trillion range: the American Families Plan and the American Jobs Plan, which is commonly referred to as the “infrastructure plan,” even though it contains a lot of stimulus that isn’t infrastructure. The Biden Administration’s recently proposed federal budget would represent a larger share of G.D.P. than even our budgets during World War II.

Austan GOOLSBEE: Look, in World War II, that part is the right analogy. 

That is Austan Goolsbee. He was a C.E.A. chair during the Obama Administration.

GOOLSBEE: Nobody in World War II was like, “How do we make World War II revenue-neutral?”

This is what Goolsbee told us at the start of the pandemic shutdown, in an episode called “Is $2 Trillion the Right Medicine for a Sick Economy?”

GOOLSBEE: The thing to do is make sure civilization survives. And then come back and sort out, okay, now we have some debt. We got to pay down the debt, and that sort of thing. 

So that was the first $2 trillion package coming out of Washington. How does Cecilia Rouse feel about continuing this massive infusion of government spending?

ROUSE: So I got my Ph.D. at Harvard and I was very much trained to worry about disincentive effects and about inefficiency.  

DUBNER: Like: if you pay people really big unemployment insurance, they may not want to come back to work when restaurants need employees? 

ROUSE: For example. So worrying a lot about disincentive effects. Under Obama, when you think about the housing and the mortgage foreclosures, really we have to make this a very targeted intervention. And what I have really come to understand is that when you try to target so beautifully — so that the six people who are truly deserving in some definition of truly deserving get it — you’ve made it too complicated and it doesn’t help anybody. I think we’ve overemphasized efficiency over just helping people. That has actually been an evolution for me, that I would rather overshoot and be more generous with some people, that our notions of inefficiency I think are too narrow and that they end up not helping enough people.  

The historically large spending proposals coming out of the Biden Administration have been met with cold stares by Republicans, not surprisingly. But the objections aren’t purely partisan. Larry Summers ran the Treasury Department under Bill Clinton and the National Economic Council under Barack Obama. Here he is, talking to Wall Street Week, about Biden’s first stimulus package.

Larry SUMMERS: I think this is the least responsible macroeconomic policies we’ve had in the last 40 years. I think fundamentally it’s driven by intransigence on the Democratic left and intransigence and completely unreasonable behavior in the whole of the Republican Party.

But Joe Biden isn’t part of the supposedly intransigent Democratic left. So why is he proposing such massive economic reforms? Why is he pushing for an American Jobs Plan and an American Families Plan that make even Clinton and Obama look like incrementalists? I asked Cecilia Rouse if Biden is leveraging the reset that comes with a pandemic, or if this was what Biden would have wanted without a pandemic.

ROUSE: The American Jobs Plan and the American Families Plan really reflect President Biden’s conviction that we have lost faith in the importance of the public sector. The pandemic only highlighted that, right? By definition, you need a strong public sector to deal with a pandemic. We needed a strong health system and needed a strong public-health system in order to trace and figure out the most effective strategy. And we needed coordination. Having 50 states go at it in very different ways when you have a virus that knows no states bounds. And then when you layer on top of that the racial-justice reckoning and the economic crisis, it just made all the more important the role for the public sector and the kinds of investments that the president was proposing. 

The Jobs Plan and the Families Plan are, for the moment, just that: plans. Congress has yet to pass a version of either of them, and negotiations are underway that might fundamentally limit their scope. Still, this moment is starting to feel like a total rebuke of the view expressed most memorably by President Reagan.

Ronald REAGAN: The nine most terrifying words in the English language are: “I’m from the government, and I’m here to help.” 

Those nine words could practically be the motto of the Biden Administration. I asked Rouse if she’d been surprised by the sheer reach of the Biden proposals.

ROUSE: These are ambitious ideas. There’s no question about them. If you want to talk about some of the evolution in economic thinking, what we have observed over the last decade, if not the last two decades, is that the federal government can be borrowing at very low interest rates. Many of us believed that during the Obama administration. We still thought, “Okay, is inflation around the corner?” And it never emerged. 

DUBNER: And the fear of inflation kind of kept the ask smaller then and many Democrats came to regret that later, yes? 

ROUSE: Exactly. And so I think what we know is that the federal government can tolerate a larger federal deficit. This does not mean that the federal government should be fiscally irresponsible. Obviously, it needs to have revenues and it has to be thinking about its budget in a bigger context. But in the shorter term, it can tolerate somewhat higher deficits, especially to address very important investments. For President Biden, the proposal is for the American Jobs Plan outlays for 10 years, but if we combine that with the revenue proposals, they would be paid for over 15. Which is the way that a business would make an investment decision as well. 

DUBNER: But Republicans are seizing on the size and the reach of these things to say this is another big Democratic tax-and-spend situation. So let’s say the president comes to you and says, “Cecilia, I need the C.E.A. to back me up with some data, with some argument, for why this is a great investment in, let’s say, universal pre-K, tuition-free community college, paid-leave program, childcare, etc.” How does that work?

ROUSE: So we did that. We’ve got a plan for that. So the C.E.A., actually, wrote a report. It’s meant to be very accessible. But there’s a lot of backup evidence behind our arguments, where we laid out the economic arguments underlying the American Jobs Plan and the American Families Plan. And you can find that on the Council of Economic Advisors website.

DUBNER: So economists do believe in markets and you are an economist, but there’s also such a thing known as market failure. I’m curious where you would say the markets have failed in the past 20 years. 

ROUSE: So one place where I think markets have failed is in the labor market. Economists are increasingly starting to understand the ways in which there is something we call monopsony power. And that’s where employers actually have more power to set wages, to compete for workers in a way that allows them to pay lower than market wages. Many people believe that’s some of the source of income and wage stagnation we’ve seen. And why, for example, in a lot of places, the evidence is when we raise the minimum wage, we don’t see a lot of unemployment, because we think that employers actually had more market power. So that increasing concentration, it can show up in funny ways — non-compete clauses can create a kind of monopsony power. The decrease of unions has probably not helped here.  

The wage stagnation that Rouse is talking about here is a big problem for many millions of Americans. Especially because the cost of housing and education and healthcare haven’t stagnated at all. So the American Families Plan is on many dimensions a response to that wage stagnation. It proposes generous funding for childcare, paid leave, universal pre-K — and more than $100 billion to fund tuition-free community college.

BIDEN: Twelve years of education in 2021 is not enough to compete in the 21st century. In my view, we need 16 years of public education, guaranteed.

ROUSE: I would say almost all economists would agree that over a lifetime, we see that additional years of schooling is a good investment. It’s probably one of the best investments. 

DUBNER: On an earlier episode of this show, the economist Melissa Kearney told us that, quote: “We know that the rates of completion are particularly low in nonselective schools and community colleges. You make those schools free and they have even fewer resources to devote. So it seems an obvious unintended consequence is we’re going to diminish the quality.” You, Cecilia Rouse, during the Obama Administration said, “Only about one-half of those who enroll in an institution of higher education complete a certificate or a degree within six years. Moreover, completion rates are much lower among those who begin their post-secondary education in a community college, even among those students who aspire to complete a four-year degree.” So hearing that, I wonder: why is free community college across the board a good way to spend $100 billion

ROUSE: Well, the purpose of the free community college plan is to recognize the important role that community colleges play in our higher education system. Roughly half of students, when they start, they’re starting in a community college. As we think of coming out of this pandemic, which we know is causing a lot of dislocation, we will turn to community colleges for training programs and other short-term certificates in order to help those workers adapt to the changing labor market. Recognizing, however, that some community colleges really struggle with quality and that many students who started in a community college do not complete, the administration is also proposing about $60 billion in retention funds, which we know can be effective at improving completion rates.

DUBNER: You’ve done research that looks at whether student-loan debt leads graduates to pursue jobs that pay a lot versus jobs that might be in the public interest. Can you just summarize what you learned there and what you’d like to do about that? Because on the one hand, you want people to do what they want to do, including make a lot of money if they want to. But also as a society, I guess you don’t want your best and brightest all going into finance careers, right? 

ROUSE: Well, that’s probably right. We want a portfolio, it takes a village. So this was research done not in a full cross-section of institutions in the United States. It was done at a particular institution that was not named in the paper —.

DUBNER: But you’ll tell us now? 

ROUSE: — that did away with requiring that students that enroll take out student loans. And what we observed is that it did increase the percentage of the graduates that were going into lower-income occupations, such as teaching and public service. That tells us student loans can tilt, at least in the early years, the occupational choices of students. It’s presumably so that they can pay back their student loans. 

DUBNER: Should there be some kind of premium for going into public-interest occupations? I want to say that Australia has some sort of model where the student-loan debt is discounted based on salary level and/or tax rates can be adjusted based on occupation.

ROUSE: Yeah, so I think we actually do student loan forgiveness over I think it’s five, 10 years if you go into certain occupations. It has not been implemented in a way that I think has been particularly effective. We hear these stories of teachers, in particular, who discover ex-post that they didn’t qualify. And so I think it’s important that we make those programs functional because we do need people who are willing to go into the public sector, which we know is not a high-paying sector, but does so much that’s so important for society. 

DUBNER: Where do you stand on the cancelation of student debt? 

ROUSE: Okay, this is going to be one of those things that I just can’t talk about.  

The progressive wing of the Democratic Party has been pushing for the cancelation of college debt. Most economists believe that is a terrible idea, for a variety of reasons. The biggest one: it would direct a huge amount of money to a population that needs it much less than others. The economist Justin Wolfers, who’s fairly progressive himself, here’s what Wolfers wrote on the Freakonomics blog several years ago: “If we are going to give money away, why on earth would we give it to college grads? This is the one group who we know typically have high incomes, and who have enjoyed income growth over the past four decades. The group who has been hurt over the past few decades is high school dropouts.” Here’s what Cecilia Rouse will say on the topic:

ROUSE: So the administration recognizes the enormous burden that student loans are placing on so many million Americans. And especially in light of the economic crisis of the pandemic, has been fully supportive of pausing student loan payments. And the president is fully committed to considering ways of addressing the student loan crisis. He has said that if Congress were to present him with a student-loan cancelation bill, he would sign it. In the meantime, he is very much in favor of finding ways to make some of the student loan forgiveness programs much more effective, especially for those going into public service, for making our income-based repayment programs stronger and more effective as well. 

In the modern economy, education offers a massive return on investment. But as Rouse points out, this wasn’t always the case — as recently as the 1970s, for instance.

ROUSE: The G.I.’s that came back from the Vietnam War were flooding into our schools of higher education. There was a large supply of people in our colleges and universities and there wasn’t the demand for that. 

What changed? 

ROUSE: What you saw in the 80s and 90s was this increasing use of technology, which was going to prove advantageous to those who had higher-level skills, which you typically obtain with more schooling. In addition, that probably combined with the opening up with China and the start of the decline in manufacturing, which meant that the opportunity cost, meaning if you don’t go to school, the well-paying employment opportunities were starting to diminish.

DUBNER: So what are your, or the profession’s, best ideas for reconciling the growth of automation and technology with the potential for massive job loss? Because this is something I don’t hear the administration talk about very much. It’s nice to talk about jobs. It’s nice to talk about reshoring some manufacturing. But the fact is, the direction of automation and technology is quite clear by now. Here’s a radical way to look at it. One could argue that not just the Biden administration, but even the Trump administration, treated the pandemic, the tragedy, as an opportunity to have a little bit of a side-door U.B.I., universal basic income, right? There’s some unconstrained money going to different parts of the population: underemployed people, families with children, and so on. So I’m curious whether that side-door U.B.I. along with the massive onslaught of automation technology, might change your thinking or this administration’s thinking about a U.B.I. proper or some other programs like that? 

ROUSE: What I would say is the Biden administration is very aware that it’s important that people have well-compensated jobs. So at the moment, we’re focused really a lot of that innovation on addressing climate change, which involves not just the most advanced technology and replacing everybody with robots, but there’s just some machines that have to be built. Wells that need to be capped. We also know that if we’re going to remain competitive and lead the world as we all deal with the existential threat of climate change, we’re going to have to change direction and change direction rather hard. We need to very quickly be making investments towards clean energy.

DUBNER: So climate change policy strikes me for the administration as a stone that can maybe kill a few birds, right? 

ROUSE: Exactly. Anthony Carnevale and his team at Georgetown have done some analysis of the types of occupations that the American Jobs Plan contemplates and finds that most of them go to people who don’t have a B.A. Because, again, it’s just going to require us to build things. So that doesn’t solve the problem forever. But there’s no question that in this transformation, there are a lot of good-paying jobs that many people already have the skills to do. But you’re raising an existential question that I wrestle with, myself, and that we will have to take one day at a time. 

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Cecilia Rouse has taught at Princeton since 1992. She’s done a lot of fascinating research over the years — including a study showing that when orchestras do blind auditions, they end up hiring many more female musicians. But most of her research has been focused on education: the returns to education and how to improve educational outcomes. Before agreeing to run President Biden’s Council of Economic Advisers, Rouse had been serving as dean of Princeton’s School of Public and International Affairs. Until last year, it had been known as the Woodrow Wilson School of Public and International Affairs. Here’s what Princeton president Christopher Eisgruber wrote at the time: “The trustees concluded that Woodrow Wilson’s racist thinking and policies make him an inappropriate namesake for a school or college whose scholars, students, and alumni must stand firmly against racism in all its forms.”

DUBNER: So the economics profession has historically been very white and very male. And you are a Black female economist who’s reached the highest levels. I can’t imagine that success has been without its frictions.

ROUSE: Yes, I would say it’s had its frictions, but I came from a family — my parents were very committed to education. My dad, we think, was the first or among the first Black Ph.D.’s. I think he may have been the first to get a Ph.D. in physics from CalTech or among the first. My mom was a school psychologist. So you see the blend between some mathematical rigor and caring about social issues. Both of them were politically active in the civil rights movement.

DUBNER: I feel like I read that your father had encountered discrimination, racism, when he was trying to get the kind of jobs he wanted to because he was a physicist, but a Black man in America at a time when that was very uncommon. I’m curious, how would you compare your path forward in a very white profession to his a generation earlier? 

ROUSE: I am so cognizant of the fact that I stand on his shoulders. My sister is a professor of anthropology here at Princeton, as well. And my brother was an assistant professor at U.C. Davis. He didn’t get tenure and he now works in software, but a very talented physicist. So we all three have Ph.D.’s, which is unusual. I so feel the frustration of young students today about we’re not making progress fast enough, far enough. But I also recognize the progress that we’ve made. I know I would not be here today if it were not for people like my father. 

DUBNER: Du Bois wrote about this notion of the talented-tenth among Black Americans, being the educated, the intellectual, the elite cultural Black Americans from, let’s call it a century ago, who he argued would set an example that would lead all Black Americans to aspire to those same things. And I don’t know what the literature at the time said, but I know that now there are those who argue that that’s a poor model for achievement because it essentially establishes a sort of elite and doesn’t concern itself directly, at least, with the other 90 percent or even 99 percent. You come from a family, at least two generations that would certainly have been considered part of the talented tenth or maybe the talented 1 percent. And I’m really curious now in your role at C.E.A., when you look around at the U.S. economy and you look at employment and you look at poverty and so on, and you see Blacks disproportionately represented, whether through racism or other functions, I’m really curious how you see your role, again, not just as an economist who’s running the C.E.A., but as a Black economist from the kind of family you come from with that level of achievement and how that translates into your concerns to lift the tide for the other 90 percent. 

ROUSE: That was a really big question. 

DUBNER: It was gigantic. I apologize.

ROUSE: That was a big question, but okay. What I would say is that as an African-American economist, I recognize the ways in which many of our models are built on very strong assumptions. So when we get to that first best equilibrium, in many cases, it’s in a market that doesn’t actually exist in the real world and that when we start to think about the constraints and where we have the market imperfections, that’s a lot of what impacts people of color. There’s a really important role for government. This is not big government for big government’s sake. It’s government helping to make our markets work better. There’s a second track, though, that is the role- model track. I don’t think it’s Du Bois. I don’t think this is “either/or” it’s “both/and.” One has to also be able to see that it’s possible to achieve and to do what one wants to do. 

The Biden Administration has proposed a variety of reforms to address racial inequities — in criminal justice, in voting rights; Biden has also proposed direct investments in minority communities to address the wealth gap. Economic research has made clear that a huge share of generational family wealth is acquired via real estate.

BIDEN: Today, I’m directing the Department of Housing and Urban Affairs and Urban Development to redress the historical racism in federal housing policies.

But of course racial inequality is not the only inequality in an economic system that provides outsized rewards for capital and relatively weak rewards for labor. The promise of American capitalism was that increasing prosperity would be relatively well-distributed. The reality is that there are big winners and big losers. To many economists, this became apparent only well after the U.S. embraced the sort of global trade that sent millions of manufacturing jobs to China and elsewhere.

ROUSE: I think what’s happened over the last 20, 30 years is if we take global trade, the theory is clear, but the real world doesn’t quite work the way the theory does. The winners have not been compensating the losers. So we’ve had an increasing concentration of winners and the losers just keep falling further and further behind. Trade-adjustment assistance is meant to compensate the losers. If you have a job that was affected, you lost your job because of trade and we can tie it to trade, you’re supposed to get a nominal allowance to help you get retraining and moving. But one, I think that the eligibility was fairly stringent. You had to show that you were affected by trade. And two, turns out people don’t want to leave their neighborhoods and their homes and their communities in search of a job. And while I believe in training and I think we know that a lot of training is effective, it may not compensate for the loss of, especially, a really well-paying unionized job.

DUBNER: Well, considering the standard economics position on things like wages from global trade and general prosperity benefiting most people, I don’t think it takes a real cynic to look back at the last 30 or 40 years of economists’ predictions and then look at the current situation with wage stagnation and income inequality and a variety of inequalities that we don’t even think about as income inequality, but these foundational inequalities that make it really, really hard for the average American to really get caught up and certainly get ahead. I don’t think you have to be that cynical to think that maybe economists shouldn’t be listened to as closely as they’ve been listened to. No offense. 

ROUSE: And none taken. So, I guess the way I think about it is I believe in my profession. And I believe that economics has a lot to contribute to policy discussions. Because in the end, incentives do matter. In the end, prices matter. We have to think about costs. We have to think about opportunity cost. One thing that’s important for economists to be doing is looking at data for all people. Not just the average, but looking at all parts of the distribution, looking at different parts of the country, for different demographic groups to understand the impact of policies. So I think economics has a lot to contribute, but I don’t think we have a monopoly. Now, okay, I mentioned earlier my sister is an anthropologist. And so I have been schooled. I like analyzing big sets of data but anthropologists by actually going and doing the observation and getting to know a smaller number of people, they can put our bigger understanding of the global data or the macro data in context. 

DUBNER: As somebody put it to me once when I was going on about some big aggregate-data conclusion, they said, “Well, on average, everyone in the world has one breast and half a penis.”

ROUSE: Exactly, exactly. Who’s that!? Any policy, any decision that’s getting made, especially from the White House or from the federal government, is often applying across an entire United States, which has 50 states, very different situations, very different income levels, education levels, political orientations. And so the way it gets applied and the considerations under which it’ll be applied, the academic research can’t speak to all of that.

DUBNER: I have to say, you don’t sound as hubristic as most economists seem expected to sound. 

ROUSE: I have been humbled over my years. 

DUBNER: But, there is a sense — among many economists at least — that, “Look, we’re very, very smart people and we have this blend of tools — mathematical and logical — that most people can’t really compete with.” And therefore, I feel they often miscalculate the degree to which their research will be applied. It sounds like you’ve come to appreciate — whether it’s through Washington experience or just a life lived — the way things actually work a bit more. Do you feel a bit of an outlier in the economics profession in having that balance? 

ROUSE: I don’t feel that I’m an outlier among economists who have spent time actually trying to do policy. I think it is something that one learns and comes to terms with. I will also say, though, as an academic, as a policymaker, I love hearing different perspectives. Many times when we are sitting, whether it’s in our little offices in the academy or in the White House, we are coming at the world from one vantage point. We may not understand the constraints in people’s lives and the struggle that people are going through. If you have to take six buses in order to get to your three jobs and that you’re rarely seeing your kids, do you really understand what a minimum wage might actually do for you? In terms of making it only two jobs and three buses? So I think that that’s why it’s really important to get out and talk to real people and to talk to a variety of people to understand their viewpoint.  

DUBNER: That appetite for a full view sounds, to me, like the opposite of what’s been going on a lot in our country in the last, whatever, 10, 12, 15 years, where more and more people are very, very, very sure of their opinions or even sure of their own set of facts, even if there’s a different set of facts that might dispute them. Do you have any advice for the layperson, who says that they want to hear a breadth of opinions and voices and even facts, but more and more and more of us retreat to our little tribal groups? Do you have any advice for how to be more self-critical and open-minded?

ROUSE: Do I have advice? I guess what I would say is that there’s nothing to be afraid of. Why I enjoy hearing and value hearing from others is to make my own arguments better. And to make my own approaches more effective. Just because someone is bringing a different piece of data to the table doesn’t mean I have to in the end accept it. But I can examine it and understand whether that’s something I need to take into consideration or not. But there’s really nothing to be afraid of. 

That, again, was Cecilia Rouse, head of the Council of Economic Advisors in the Biden Administration.

*      *      *

Freakonomics Radio is produced by Stitcher and Renbud Radio. This episode was produced by Zack Lapinski. Our staff also includes Alison CraiglowGreg RippinJoel Meyer, Tricia Bobeda, Rebecca Lee Douglas, Mary Diduch, Brent Katz, Morgan Levey, Emma Tyrrell, Lyric Bowditch, Jasmin Klinger, and Jacob Clemente. Our theme song is “Mr. Fortune,” by the Hitchhikers; the rest of the music was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple PodcastsSpotifyStitcher, or wherever you get your podcasts.

Here’s where you can learn more about the people and ideas in this episode:

SOURCE

  • Cecilia E. Rouse, professor of economics at Princeton University and the 30th Chair of the White House Council of Economic Advisers.

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