Jared Bernstein

In a perfect world, all popular economics writing would be as clear, fact-based, and useful as this short work. Few things are as important to society as sound macroeconomic policies, but the subject suffers from the twin disadvantages of being deadly boring to outsiders and needlessly contentious among insiders. Baker and Bernstein are both first-rate economists of a liberal bent who have devoted much of the past several years to advocating policies to combat high unemployment, which, more show more than high inflation or the federal budget deficit, they see as the main economic problem confronting the US. They offer a brief diagnosis of the causes of high unemployment, as well as several detailed suggestions for reducing it; this is one of those rare economic policy works where the solutions section is as long as the problems section!

In popular media, complaints about the Federal Reserve usually focus on some imagined hyperinflation just around the corner as a result of the various rounds of Quantitative Easing. In reality, the Federal Reserve's sins have less to do with supposedly raising inflation, which has been well below target for years now, and more to do with their failure to keep unemployment down, which is the second half of their official mandate. As Baker and Bernstein point out, full employment is "essential for reducing the income stagnation that has beset the middle class, reducing poverty rates among working-age families, pushing back against economic inequality, and improving our fiscal outlook." They take a look at the current unemployment rate and why it's so high, finding that there's really not much wrong with the US labor market aside from persistent weak demand - i.e. "structural unemployment" is much less of a big deal than is assumed.

There's an interesting section on full employment during the Clinton boom, which in their view was driven not so much by fiscal policy as by the Fed's loose monetary policy and the stock market bubble. This should worry people, as it implies not only that the much weaker "Bush boom" was driven by the housing bubble, which may mean deeper troubles in the economy, but also that fiscal policy might need much more help from the Fed than it's getting to restore full employment. The important conclusion is that American workers did not suddenly become less skilled or less productive in 2008, we're suffering from weak demand, and spending time worrying about nonexistent high inflation ("Crying 'Fire! Fire!' in Noah's Flood", in Hawtrey's famous phrase) instead of actual high unemployment is a waste. Getting back to full employment would not only be a boon to the unemployed, since after all the single least productive job you can have is none at all, but would be about the single best way to restore balance to the budget. More jobs means more tax revenue.

After determining that the current high unemployment rate is essentially a deliberate policy choice rather than some mysterious affliction, they propose two broad packages of solutions: trade policy and jobs policy. Baker and Bernstein suggest that the current US trade imbalance is a big problem, artificially raising the value of the dollar and hurting our exports. Periodically the US complains at China for artificially keeping its currency devalued, which increases our trade deficit. While currency and trade wars often take a misleadingly zero-sum approach to the world, it's undeniable that in a situation of slack demand, imbalances cost jobs (one need only read Paul Krugman's work on the internal imbalances within the Eurozone to get the gist of this model). There are powerful interest groups calling for a high-valued dollar, but we should try to think of workers as a whole and not specific industries.

As far as direct jobs policies are concerned, they recommend three distinct packages: greater public investment, more public jobs, and a greater focus on work sharing. For the first item, more infrastructure of the sort that was in the stimulus would be great (check out Michael Grunwald's superb The New New Deal for more on the lasting benefits we'll be seeing from that much-maligned bill). For the second, they hold the little-known TANF jobs program funded by the stimulus as a model, but merely rolling back the immense job losses of state and local governments after the recession would be useful as well. For the third item, they praise Germany's Kurzarbeit work-sharing program, since by cutting hours instead of cutting jobs, workers still receive paychecks, still develop skills, and still stay in the labor force, all of which are tremendously important.

This is an excellent contribution to the debate that will be sadly overlooked, since our current national conversation revolves around dealing with the latest absurd Republican spasm of pique. However, there's a lot that policymakers could take from this work, and use to craft a set of programs that would truly lift us out of this historically weak recovery. Baker's previous book, The End of Loser Liberalism, is of similarly high quality and is also worth a look. show less

The Reconnection Agenda provides economic policy proposals from a key economic advisor to Joe Biden. The goal is to come to a full employment economy which should help raise wages for people in the middle class. Although his proposals are worth reading, he writes this book in an overly chatty style that frequently made it difficult to follow. The nicest thing about the book, however, is that it is offered for (almost) free.

I heard about this book on Leonard Lopate's radio show on NPR. He described it as a wonderfully simple guide to practical questions about the economy and how it works. When I started reading it, I was a bit put off by the informal jokey tone and the obvious gimmicks ("snappy summary crunchpoints" and economic haikus at the end of each chapter). But I decided to give it a chance and it certainly improved after the first two sections when Bernstein finally gets into policy questions. The show more concluding section is particularly interesting with its practical suggestions for how things can be changed for the better. This is a book most of us could learn from although you may not be able to restrain yourself from occasionally rolling your eyes at the over-the-top prose. show less

An inside look at a liberal economist's view of the nature of the American economy up to and including the housing and debt crises of 2008.