Nation's Top Economist Speaks at IPR
Economy "slowly healing," education vital to future
Alan Krueger, chairman of President Obama's Council of Economic Advisers, answers a question from IPR director David Figlio (left) about the state of the macroeconomy.
In a wide-ranging conversation that covered the state of the economy, the role of education, the policymaking process, and his job, among others, Alan Krueger--the nation's top "economic consultant"--spoke to a crowd of nearly 350 students, faculty, community members, and local high school students at IPR's 2012 Distinguished Public Policy Lecture on October 8 at Northwestern University.
Krueger is one of the nation's top labor economists and chairman of President Barack Obama's Council of Economic Advisers, the three-member council that advises the president on domestic and international economic policy.
"I think everyone recognizes that the economy has a little bit to do with discussions going on over the next few weeks before November, so it is nice to hear about these issues first hand," said Northwestern Provost Daniel Linzer, who introduced him.
The State of the Economy
"Slowly healing" is how Krueger described the general state of the economy in response to IPR Director David Figlio's first question on general economic trends.
As evidence, Krueger cited a steady improvement in the unemployment rate and a gain of 5.2 million private sector jobs over the past 31 months.
"We are recovering from the worst recession we have had since the Great Depression," Krueger said at the start of the 75-minute conversation.
More than $15 trillion in household wealth was destroyed during the recession, or about 20 percent of America's total wealth, Krueger continued. But in a sign of America's burgeoning economic health, he said more than 70 percent of it has been regained through stabilizing home prices and rising stock prices.
Still, Krueger acknowledged that it was "important to stay on the path of recovery." He reproached Congress for failing to pass many of the president's proposals--which he sees as the "right medicine for the economy"--including the American Jobs Act that President Obama proposed last fall, which included new tax cuts for small businesses to invest and hire new employees.
Krueger also emphasized the unusual nature of this recession. Propelled by the housing bubble and the subsequent decimation of jobs in the highly cyclical construction sector, the recession tightly constrained local and state budgets, resulting in layoffs for half a million teachers, firemen, and other state and local government employees. "The economy has undergone a tremendous amount of adjustment," he said.
Education has been hit particularly hard, with all of the gains from teachers with smaller classes being erased due to teacher layoffs, he said.
When Figlio asked Krueger to elaborate on which solutions he sees as being important for 2020 and 2030, Krueger mentioned balancing short- and long-term economic objectives and achieving a sustainable fiscal path.
Krueger said that he tries to find the policies that "have the most bang for the buck," that will use taxpayer dollars as efficiently as possible, and that are appropriate to the state of the economy.
"No president would ever want to rescue the auto industry," he said. "It was only because we were in an acute crisis that the President stepped in."
Importance of Improving Education
Fundamental long-term success hangs upon improving America's education system, not just in K-12 schools, but also in access to higher education, to raise skill sets and create jobs, Krueger said.
Alan Krueger answers a question from a Northwestern undergraduate
after the lecture.
"Why was the U.S. economy doing poorly even before the recession?" Krueger asked. He pointed to the years between 2000 and 2007, noting that it was the only time in U.S. history where fewer working-age adults were employed at the end of that period than at the beginning. Comparing the U.S. job growth rate with that of Canada, Krueger remarked that the country created more jobs over the same period, which he attributes to Canada's continued efforts to expand educational attainment.
"Rising inequality is reducing opportunity for those students from disadvantaged backgrounds," Krueger said, referring to the administration's recent battle with House Republicans to keep student loan interest rates low and its work to expand access to four-year and community colleges.
From Professor to Policymaker
Citing IPR's mission of conducting and disseminating high-quality social science research to policymakers, academics, and the public, Figlio asked Krueger, who has held three government jobs--first in the Department of Labor, then the Treasury, and now in the Council of Economic Advisers--about the differences between working in academia and policymaking.
Krueger noted that the two had very different missions, and the issues that he worked on in government were much wider than in academia. He also had to get used to the idea of the layers of hierarchy involved in government jobs. Memos are just not sent directly to the president. "Anything that goes to the president is screened," he said.
The only predictable thing about his day was that it started at 7:45 a.m., Krueger laughed.
"I am an economic consultant and I have one client and that is the president," he said. "So I spend a lot of my time thinking about how I can best serve the president, and what is the best way to get him the information that will allow him to do his job in the best way that he can."
IPR Director David Figlio and IPR economist
Charles F. Manski (center) walk with Alan Krueger
across Northwestern's campus.
Research in Policymaking
Figlio, who is Orrington Lunt Professor of Education and Social Policy and of Economics, followed up by asking Krueger whether it was difficult to adjust to the pace of policymaking and what one did when there was little or no research on an issue.
Giving the example of the auto industry rescue, Krueger noted that some of the research undergirded what was eventually put in to place. "But these were issues that we had not confronted before," he emphasized. While research is very good at describing the past, Krueger discussed how it falls short at forecasting, especially in evaluating policy development when a policy change has to take place in order to assess what happens.
He also cited the establishment of "Build America Bonds," or BABs, instituted as part of the president's American Recovery and Reinvestment Act, where there had been some first-rate research. Bond markets had frozen over at the end of 2008 and beginning of 2009, effectively stalling or even halting local and state infrastructure projects. BABs were created to provide local and state governments with a 35 percent federal subsidy for a portion of their borrowing costs on regular, taxable bonds.
Krueger estimated that issuing BABs saved state and local governments around $15 billion over a two-year period. And he pointed out that they didn't supplant traditional bonds, as they were often floated at the same time.
But research, Krueger cautioned, is only one "input" into the policymaking equation. Policymakers have to take in a much broader set of considerations, while learning to communicate and collaborate in a team-based environment, where everyone has a different skill set to contribute.
Service to the Nation
At an event later that evening, Northwestern University President Morton Schapiro commended Krueger, who is on leave from Princeton University where he is Bendheim Professor of Economics and Public Affairs, for his decision to put his academic life on hold to take on government positions.
"It would have been easy for you to stay at Princeton and have a nice, quiet life, but you chose to go to Washington, D.C., and serve your nation not once, not twice, but three times--first at the Labor Department, then at the Treasury, and now at the CEA," Schapiro said. "We honor you for that service."