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Jason Furman is the Aetna Professor of the Practice of Economic Policy jointly at Harvard Kennedy School (HKS) and the Department of Economics at Harvard University. Previously Furman served as Chair of the Council of Economic Advisors under Barack Obama.
In this week’s conversation, Yascha Mounk and Jason Furman discuss the economic record of the Biden administration, whether the abundance agenda is the way forward—and what the recent news about tariffs really means.
This transcript has been condensed and lightly edited for clarity.
Yascha Mounk: To give readers a little bit of context, today is April 3, and we last talked in a different world on March 28, 2025. We were going to release this episode on Saturday, and we thought, a week between recording and releasing the episode should be just about fine. Nothing that major might happen in between. But of course we have now had “Liberation Day.” Jason, what just happened?
Jason Furman: Liberation Day was breathtaking. In some sense, it shouldn't have been. This is what Trump announced in his campaign. We're now in quite a similar place. 10% tariffs on every country in the world, roughly 60% on China when you add all the different pieces together, and then a lot of extra tariffs on top of that. But I never quite thought he'd go as far as he said he'd go—even as recently as a week ago, I thought there would be some shrinking from it. In some ways, his economic team is out there actually admitting the market is going to go down. We're going to get more inflation. There may be a lot of short-term pain. They're incorrectly saying that this is the road to long-term gain. But I've never seen a president willing to undertake this amount of pain on the basis of a theory. It's just a shame that it's on the basis of such a misguided theory.
Mounk: How did the administration go about setting those tariffs? Is there any logic behind why some countries have a 10% tariff and some countries have a much higher tariff? I've seen suggestions on social media that what they literally seem to have done was not, as they claimed, to calculate what kind of tariffs different countries around the world on average charge the United States and then charge them 50% in return, which would at least have a certain kind of internal logic, but that rather they seem to have literally just taken America's trade deficit and used this as the guide.
Furman: First of all, if you truly did reciprocal tariffs, which I don't think you'd want to do, but if you truly did them, the average tariff rate the United States has on other countries is about 2%. The average tariff rate other rich countries have on the United States is about 2%. So you wouldn't do anything with them. Then when you come to countries like China and India, they tariff more like 5 or 6% on the United States. So maybe you do an extra 3 percentage points surcharge. So if you were literally equalizing tariffs, a few countries would have seen a 1, 2 or 3 percentage point tariff increase. That obviously isn't what the announcement was. Instead, the numbers that were released were based on a formula to calculate how much you would need to raise tariffs in order to eliminate the trade deficit with the country.
There are three issues with this. Number one, that's not a reasonable goal. No country has balanced trade with every single other country in the world. There are 170 countries. You would expect to have trade deficits with some, trade surpluses with others.
The second thing is that those trade deficits and trade surpluses are completely unrelated to tariffs. They're related to things like which countries make certain raw materials that the United States needs, or which countries need certain raw materials that the United States has.
Then the third thing is they actually messed up when they did the formula. They used the wrong elasticities, to get quite technical. Most importantly, it's a formula that would give you the answer to the question: How much do we need to raise tariffs on one small country to get to a balance with them? But when you try to use the formula simultaneously for every country in the world, all of a sudden things like exchange rates and what economists call general equilibrium—how your economy as a whole is affected—start to matter. So it's not the correct use of the formula, and you shouldn't even be thinking this way in the first place.
Mounk: One of the things that's confusing about this—beyond just the sheer apparent amateur-ness—is that there are actually two very different signals that members of the administration are giving about what the long-term goal is. It seems that some of them want to basically end the global regime of relatively free trade we've had for a long time. This would potentially mean that the revenue from tariffs replaces a lot of the revenue from income tax. And so therefore there’ll be a real economic revolution in how our taxation system works.
Others are saying that this is all a kind of bargaining chip to get rid of the unfair tariffs and the unfair practices that are used to constrain American exports, and that we’ll end up in a world of even freer trade. What’s the actual vision and goal of the administration?
Furman: I don't know the answer to your question for sure. I'm not sure Donald Trump knows the answer to your question. But I think a bunch of these tariffs—though not all of them—are here to stay. But just to unpack and go a little bit deeper: first of all, in trying to decide between those two hypotheses—is this a permanent change or a temporary bargaining chip?—I would place no weight on what the economic officials in the Trump administration say. I mean, they have made many statements about tariffs that within hours or days are completely contradicted by the president.
Just last week, for example, Scott Bessent said that these tariffs would be on 15 countries, the dirty 15. Instead, they're on almost every country in the world, plus places none of us had heard of before that are small penguin-inhabited islands in the Antarctic. So, his economic officials are clearly either wish-casting or misleading or, you know, they actually believe what they're saying. I have no idea what it is, but whatever it is, there's no relationship there to what the administration actually does. So you have to really listen to Donald Trump. And he pretty much always comes back to this belief that this is a great way to raise revenue, and that America was better when this was a core part of our tax system.
Now, if you look at this particular announcement, there were two parts. There's 10% on every country, and there are the extra amounts on top of that. My guess is that a lot of countries will be able to strike deals to lower that extra bit. And they probably won't even need to do very much, because it's so damaging to the United States that we're gonna want to be able to declare victory. But that 10% across the board—that, I think, is probably here to stay. By itself that is about four times larger than all the tariffs the United States had when Trump walked in the door.
Mounk: What is the likely impact of this going to be on the United States? Is it going to raise a lot of revenue? Does it significantly increase your estimation of how likely a recession is?
Furman: In the short term, everyone has upgraded their inflation forecasts and lowered their growth forecasts, which increases the recession probability. The issue is that the models do a good job of capturing a sort of input-output dynamic—how much more is this price? How many fewer people do you employ because of it?—but they don't capture very well the impacts of uncertainty, consumer confidence, or the effects of a declining stock market which makes people poorer and not want to spend money. So if we go into a recession, it will be because of all of that type of stuff.
Over the longer term, a bunch of countries will not want their supply chain to be in the United States. Countries like Canada are already figuring out how they can integrate more closely with Europe. So we’re building a global economy in which the United States is less specialized. And we're making more of our own sneakers and maybe we're even trying to figure out how to make coffee and bananas, because those were tariffed too. Of course, that would not be a great use of the limited resources in our country.
Mounk: Let's go to the global picture just for a moment as we round off this addition to our conversation. How big do you think the chance is of economic pain for other countries around the world? Is this going to potentially cause a global recession? How do you think other countries should respond? If you were the prime minister of Japan or the chancellor of Germany, what would you do? Do you just accept those tariffs and do nothing in return? Do you enter a trade war? Do you impose reciprocal tariffs? What's the appropriate response here?
Furman: So on your first question, this is negative for most countries in the world. I've talked to people in the UK who think they were really savvy, as the Trump administration kept the tariffs on the UK to only 10%. Well, that's about 10 times higher than the tariffs were before. In fact, Trump's trade war in his first term culminated with about 10% tariffs on average on China. So the UK is being treated the way he treated China in his first term. No country is going to be unscathed. Latin Americans, also—some of them are happy, we only got 10% tariff! But when we slow growth in China, we're gonna slow China's demand for the types of things made in Latin America. Those prices will go down and be negative for trade. So I don't think this is good for anyone.
In terms of the response, here's the tricky thing. The retaliation hurts the countries retaliating. Canada wasn’t included in this round, but there’s modeling that shows Canada's retaliation based on the earlier round might hurt its economy even more than the U.S. tariffs do. So what other countries need to do is figure out how to maximize their political leverage relative to the economic cost to themselves. So, if you're Canada, you're no longer going to buy Kentucky bourbon. What does that mean for your citizens? It means they need to drink Canadian rye instead of Kentucky bourbon. To me, they both taste totally gross, so it doesn't seem like any loss to me.
Mounk: Hash words, Jason.
Furman: But you know, somebody else may feel differently. It puts a lot of political pressure on a certain state in the United States. So, there are examples like that where you can substitute away from the United States—and you're not giving up that much—but it really hits, say, a red state, something like that. And that's what countries need to be smart about. The other thing is that I hate to reward a bully—but if I were running a country, I'd be figuring out what small bubbles and trinkets I could present to the global emperor Donald Trump. Vietnam, for example—I don't think they can afford to stand on principle and just fight, fight, fight. They do need to find a few things to give him and hope that they can get out of something that otherwise would be extremely destructive to their country.
Note: The below conversation was recorded on March 28, 2025.
Mounk: I think we'll have an interesting conversation. Before we get into it, I want to step back for a moment and wonder whether we are in a change, not just of political dispensation, but of economic dispensation. It feels like there was a broad policy consensus from the 1980s until 10 or 15 years ago between two sides that often agreed with each other about very important things. The first Trump administration seemed to undermine that in a number of key ways, like tariffs. The Biden administration actually billed itself as economically heterodox in important ways, by not just keeping those tariffs, but engaging in industrial policy and other such things. Now, it feels like the Trump administration is pushing things even further. Do you think we're at an inflection point in our economic dispensation, or has news of that been oversold?
Furman: I worry that we're at an inflection point. I'm someone who believes that while policy wasn't perfect before, it was reasonably good and left the United States in a better place. The most obvious thing is trade. You do have a free trade orientation by and large by presidents up through Obama. That changed a lot in President Donald Trump's first term. President Joe Biden continued that. Now, President Trump is quadrupling or quintupling down on the break from trade.
But I don’t think it's just trade. It's a general sense that there's something annoying about economists—their trade-offs, their budget constraints, their unintended consequences, and everything they want you to think in lots of different domains of policy. Instead, there's now an embrace of a populist or political approach to policy making, rather than a technocratic approach.
Mounk: The Biden administration thought of itself as deviating from what it described as orthodox or neoliberal economics in some ways. The hope was to bring a lot more manufacturing back to the United States and increase wages, especially of less affluent Americans. Obviously, in the last years of the Biden administration, there was a big debate about the extent to which it succeeded. A lot of the messaging from Democrats was that the economy is going amazingly and it’s only because the media ecosystem is hostile or because voters are somehow ungrateful that they're not recognizing everything Biden did for the country. You've recently published an article in Foreign Affairs that is quite pessimistic about the record of the Biden administration. Tell us a little bit about how they thought they were going beyond neoliberal orthodoxy, and how those policies worked out.
Furman: First of all, let me just say that we'll get to the Trump administration. I think they're much worse, but I don't think that means one shouldn't also try to understand the mistakes that in some ways brought us to this place with Donald Trump. I think it is perfectly possible to have a two track conversation. My hope is that you and I will model that in our discussion here.
The second thing to say is that the United States does have really strong economic assets. We have tremendous productivity growth. We have a really successful tech industry. Immigration has been a very mixed thing politically for the United States, but economically it has been a real blessing as well, and one needs to wrestle with how to get the best of the economics while minimizing the worst of the politics. So, there are a number of good things there.
But when you look at both the goals that the Biden administration set, and the way in which they went about those goals, for me, what is most bothersome is how they talked about the latter. One goal was to run the economy really hot—an explicit effort to downplay the risk of inflation and prioritize employment. And the United States did have a rapid recovery, but so did all the other advanced economies. Our pace of recovery was about in the middle. We got much more inflation earlier on, which other countries did catch up to, but a lot of that was because they faced a much worse shock from the Russian invasion, which drove up natural gas prices much more in Europe and around the world than they did in the United States.
Mounk: For people who are struggling to recall Economics 101, when you say that they were aiming to run the economy hot, what was the purpose of that, and what are some of the dangers?
Furman: The idea is you don't just want to get the unemployment rate back down to something like the normal unemployment rate of four percent, you want to push it even further than that. The hope is that this will give workers greater bargaining power to get larger wage increases. That actually worked. The problem is it also gave businesses greater power to do price increases. So, there was this race between workers and businesses. And for the most part, the businesses won. Real wages fell for several years in a row, meaning that wages did not grow as quickly as inflation. By the end, they had caught up and were slightly ahead of inflation, but only by a small margin and with much less inflation-adjusted wage growth than what you'd seen in the years leading up to COVID.
Mounk: One of the striking facts that you point out in your Foreign Affairs article is that, as a result of this, there were some significant nominal wage increases for people in the lower quadrants of income. And it is true that their wage increases were faster during the Biden administration than those of the people at the top, who, on average, saw a decrease in their wages. But in real, inflation-adjusted terms, the four years of the Biden administration ended up worse than the four years just before COVID. So, real wage increases for Americans were slower after COVID than they were before.
Furman: One interesting thing that a lot of people don't actually realize was that starting around 2014, wage inequality started narrowing. So, around that year, wages started growing faster for low-income workers than for high-income workers. That continued through the Trump years. Every year under Trump, you saw gains for the bottom relative to the top. But in 2019, there was not a lot of discussion about the fact that we were going through this historic wage compression. Then, in the last couple of years, there was a lot of discussion about it. In some sense, that discussion was correct, but it was miscontextualized as having started on January 20, 2021, when it actually started towards the end of Obama, continued through Trump and went through Biden. Just to be super clear, I'm not claiming that Obama turned a dial and made this happen, or that Trump did so. There's a lot of different underlying economic forces, many of which economists actually haven't written about and studied enough to understand.
Mounk: I want to come back to the Biden administration in a moment, but I think this is an opportunity for a little side-stepping. In the 2010s, there was this broad consensus that inequality is not just a very serious problem, but that it's going to increase over time. There's obviously Thomas Piketty's claim that the returns to capital are higher than the returns to labor, and therefore, unless there's very strong government policy or a catastrophe like war, inequality is just going to keep going through the roof. There were things like the elephant curve by Branko Milanović, which suggested that the gains from globalization are particularly high for the richest around the globe and particularly low for many lower income people, including the 70th to 80th percentile of working-class people in Michigan. Also, there were claims by David Autor that the middle of the wage distribution in America was really suffering.
It seems to me that there's been a real revision of thinking about this where Piketty has been criticized in a number of ways. Some of his data seems to have relied on not returns to billionaires, but very high increases, for example, in the prices of apartments and homes owned by upper-middle-class people in big cities like London, New York and Paris. Milanović updated his elephant curve and it ended up actually showing much higher increases in incomes for less affluent people. We have now seen in the United States, as you're saying, that for about 10 years income seems to have been growing faster for low-income people than for high-income people. Is it time to unlearn all of the assumptions we had about globalization and inequality in the 2010s?
Furman: I think it's time to unlearn some of them, for sure. Some of the researchers in this space are biased, and they make a lot of assumptions under the hood to help support their story. By the way, each assumption might be defensible—but it’s often a 90-10 kind of thing, and they side with the 10. Those choices compound. In other cases, it is about the information presented. You mentioned David Autor. His research about the China Shock, I think, is quite good, but there are two pieces to it. One is that he estimated the wage impact of the China Shock, and it was actually quite small. So, you could have highlighted his paper as showing that the China Shock didn’t lead to much of an increase in inequality—but that wasn’t really the part that was taken away from it. Moreover, I think his paper was just part of the story regarding the role that imports play in the U.S. economy. It didn't talk about all the benefits that came from the export side, and there are other economists like Robert Feenstra who have told a better version of the complete story.
But more broadly, there was a higher increase in inequality in the 20 years prior to 2000 than there was in the 20 years after it. And there was more job turnover and dislocation in the 20 years before than after. 2000 is an important date because that's when China’s Permanent Normal Trade Relations happened, when China entered the World Trade Organization.
So, yes, there are all sorts of problems, but in some ways those problems were worse before. This is something that, by the way, is more your thing than mine. Some of the economic explanations for populism puzzle me because of Billy Joel's lyrics, we're living here in Allentown where they're shutting all the factories down, which was in 1982. So, there would have been good reason for a populist to have won an election in 1981, or 1980, or 1984, or 1988—in some ways, a better reason for them to win in those years than in more recent years, at least if all you're looking at is job dislocation and rising inequality as your economic source of populism.
Mounk: As a member of the International Union of Podcasters, one of my statutory obligations is to follow up on your earlier statement that some researchers are biased, by asking, which researchers are biased, Jason?
Furman: I think the Thomas Piketty, Emmanuel Saez and Gabriel Zucman data is biased. They're really smart and have made an important intellectual contribution. But every time they make a choice, they make it in a way that highlights additional inequality. And I think that's an issue because if you're doing analysis or writing opinion pieces, it is okay to have tons and tons of opinions. If you're creating a data set that people are widely relying on to tell us the facts about the world, I have less patience for the way in which opinion might intrude.
Mounk: What are some examples of those choices?
Furman: The issue is that they take income data from tax returns. But only about half of the income data shows up on tax returns. There's a bunch of data that people don't report, and researchers have to figure out where in the income distribution it is. Is it a plumber who's not paying his taxes or a billionaire who's not paying his taxes? The ratio of the plumbers to the billionaires affects inequality. Another thing is that a bunch of that income goes to corporations and you need to decide which person benefited from that corporate income. So, choices they make about everything that doesn't show up on the tax returns end up affecting the numbers. Again, just to be clear, it's not fraud, and every one of the choices is defensible—but every one of them goes in the direction of taking all the income that's basically missing and that we don't observe, and attributing it to people at the top of the income distribution rather than to people in the middle or the bottom.
Mounk: I was struck by your quoting Billy Joel. The famous statement is, if all you have is a hammer, everything you're going to see is a nail. And I think that's often true in the social sciences, where sociologists tend to attribute the rise of populism to cultural causes, and economists nearly always tend to attribute the rise of populism to economic causes. A possible implication of you invoking that Billy Joel line and pointing out when it was written is that you're a little bit skeptical that it really is economic causes that are the main explanation of the rise of populism.
Furman: Yeah, I think some economists are the carpenter with the hammer so everything looks like a nail, and they always use the economic explanation. But I think there are others who might have the opposite bias. Maybe if you've been involved in public policy, you don't want to be blamed for the rise of populism, so you want it to be someone else's fault—the person handling the cultural issues. So, the biases go different ways. I tend to be skeptical.
To be clear, I think the economy matters. There's a lot of evidence that historically, following financial crises, there is a reduction in faith in institutions and there can be a rise in populism. The same thing follows very high inflation. So, the financial crisis and the burst of inflation almost certainly affected the elections and the politics that followed. But that's a bit different than saying that it’s 50 years of neoliberalism, the decline of manufacturing and the expansion of trade in China. I’d have a role for economic stuff, but more for these episodes than for longer-term structural trends.
Mounk: Let me ask one more follow-up question. You said two things in one breath there, which is that neoliberal policies led to the decline of manufacturing. So neoliberal policy is to blame for the rise of populism because that is the causal chain, and that is a lot of the standard story that the left tells.
Now, we can disentangle those two things. There's a real question about what kind of manufacturing would have continued to happen in the United States even if you had very non-neoliberal policies. Of course, in some ways, many of those companies may have failed if you'd had extremely strong rules protecting unions, pushing up wages and so on. In the same way, a lot of the loss of manufacturing is due to automation and other technological factors, rather than trade with China. Taking the liberal policy out of it for a moment, do you not think that there has been a very significant transformation where high school graduates with strong mechanical skills could command very comfortable wages and had relatively stable lives, and because of the decline of manufacturing, it's become much harder for high school graduates to both have a middle-class income, and to have the kind of stability and certainty about their own economic future that they might have felt in the ‘70s and ‘80s?
Perhaps that is a caricatured version of a golden age that never really existed. But what role do you think the decline of manufacturing as a share of the U.S. economy has played?
Furman: I do think that, compared to 50 years ago, inequality is higher. There is less of an ability for somebody without a college degree to command a real wage premium. There is less of an obvious pathway for people with manual skills to have a high-paid job. So, I absolutely agree with all of that. What I was questioning was the timing. That has been a process that's been going on continually. As you said, I think it has much more to do with technology than it has to do with trade. It's something you see in countries with large trade surpluses. They have also seen big declines in manufacturing employment. I think it's something that no politician has figured out how to stop. Donald Trump and Joe Biden emphasized manufacturing much more than their predecessors, but you didn't really see a dent made in the employment share of manufacturing. But then also importantly, I do think that if there was a golden age, maybe it was in the 1950s and 1960s, and it was pretty much gone by the 1980s. It's not like the pace of the increase in inequality has picked up, or the pace of the dislocation and manufacturing job loss has picked up. In fact, a number of those different things have actually gotten better in the last 25 years than in the 25 years before that.
Mounk: I think one of the strange things about the story that is sometimes told about the rise of “neoliberal policy” is that it makes it out to be purely a matter of ideas, and I have a bias towards that myself as somebody trained originally in intellectual history—Margaret Thatcher and Ronald Reagan came in and they were relying on the bad, bad ideas of people like Hayek and then they transformed our political economy. This is really coming out of nowhere in the material world and there were no serious problems that preceded it.
But of course when you look at the 1970s in the United States and especially in the United Kingdom, those were economically very troubled decades. A lot of the post-war settlement that worked very well in the 1950s and 1960s was starting to come apart. You can have different opinions about the extent to which the reaction to that by people like Thatcher and Reagan was the right one. Perhaps there would have been a better one. But to pretend that we could have gone on with what the economic dispensation had been before them without very significant changes is, I think, not taking seriously both how bad the 1970s were economically and what the very genuine economic and budgetary constraints were at the time when those people entered the political scene.
Furman: I'm not going to disagree with you on any of that.
Mounk: Let's get back to Biden. So, the Biden folks come in, as you were saying, sort of convinced that there is this rapid rise in inequality. There was a consensus in the 2010s that there had been this 40-year neoliberal consensus, and perhaps that was at the root of some of the underlying problems, including the rise of populism.
How big a share of the blame for the rise in inflation in the United States did the Biden administration have? And why did it not take concerns about what inflation might do to the economy—to the prospects of ordinary Americans and to the electoral prospects of the Democratic Party—more seriously than it did?
Furman: First of all, the world was uncertain at the beginning of 2021 with COVID surging. No one fully understood what was going on. We'd had a couple of decades without any serious inflation problems. You can understand a little bit how this happened. In terms of the share of blame, peak inflation in 2022 was heavily exacerbated by Putin's unprovoked invasion of Ukraine, and what it did to things like oil and wheat prices. But by 2023, we still had a lot of inflation, even though the oil price increases had fully reversed. By that point, I think almost the entire elevation in inflation was the result of the overly expansionary policies that were not just pursued in 2021, when things were really confusing, but also in the summer of 2022, when they unilaterally canceled about $500 billion of student debt in a way that was not at all authorized by law. The Supreme Court eventually blocked it, and then they found partial ways around that. But $500 billion—that's an enormous sum of money.
Mounk: Ironically, that policy is not redistributive, but rather the inverse. On average, people who graduated from college make better wages and are more affluent than those who don't. This was actually an upward economic redistribution.
Furman: Yes, it was. And it was macroeconomically horribly timed. And this isn't my expertise, but it sent a message that we're the party of not just college students, but law students, business school graduates, medical school graduates, who are some of the people with the highest debt. These would have been beneficiaries as well. So, it sent a message about who the Democratic Party was fighting for, and maybe it's not the message that they most would have liked.
The original version of the Inflation Reduction Act actually was deficit reducing upfront from the very beginning—but then in Congress it got changed. Everything that cost money got pulled forward and everything that saved money got pushed back. So, in the first five years, it also added a lot to the deficit, as did the infrastructure and CHIPS bills, which were not really paid for. You had multiple pieces of legislation that added to the deficit, administrative actions all following up on the initial round of enormous stimulus. That propelled inflation up through the end of Biden's term.
Mounk: One of the striking things you say in your article is that Biden was the first Democratic president in 100 years who didn't add a permanent feature to the American welfare state. What is it that Biden did do to improve conditions for poor Americans? Why did that prove to be temporary? That really is a very striking indictment. An administration comes in saying, we're going to end the era of orthodox neoliberal economics, and not only ends up with less of an increase in real wages than Americans had had prior to the pandemic, but also does not even help complete the American welfare state. If you think about things like child benefits or generous parental leave policies that are standard across Western European economies, America lags significantly behind those other developed economies.
Furman: This is not completely Biden’s fault. It is also the fault of Republicans who didn't want to pass things like an expanded refundable child tax credit. But I do think there is a sense in which either it's his fault or the fault of the movement that he represented. He advanced to Congress a plan called Build Back Better that had two halves. One was the American Jobs Plan, and that was about stuff—microchips, infrastructure, and building climate-related things. The other was the American Families Plan. That was about people—paid leave, child credit, childcare, etc. The first one passed, largely intact. The second one, not a piece of it passed. Some of that reflected his own prioritization. Some of that reflected congressional and Joe Manchin’s prioritization. What really bothered me was, it ended up being rationalized by people who said, we don't need to do these things for children because we're creating millions of jobs, we're rebuilding manufacturing and we're transforming the economy. You see that in climate change—rather than doing carbon tax and then redistributing the proceeds, there's the sense of just creating green jobs and thinking that will help people through the transition.
I don't blame them for this, because you couldn't have done it politically. At best, a couple hundred thousand people will get green jobs, maybe a million. But, by the way, a bunch of other people will lose jobs. So I think the net is zero. There's not a lot of people being hired to work in microchip factories in hard hats. I think it was a category mistake to think that you had tools that were large enough on so-called pre-distribution that you didn't need to continue to emphasize and obsess over redistribution.
Mounk: It's interesting that you mention Joe Manchin. He was obviously a huge point of contention during the Biden administration because he was one of the key senators needed to pass a lot of those economic bills, and he was quite recalcitrant about them. One answer to those criticisms is to say that he's the best senator that Democrats will ever get from the state of West Virginia, at least in the foreseeable future, so his value is extremely high for Democrats because now that he's retired from the Senate, there obviously is a Republican senator from West Virginia, and that senator is not even going to entertain any of the bills that Biden was trying to get through. I'm more interested, though, in the substantial question: What points was Manchin right on and what points was he wrong on? Do you think that he, on some points, pushed the Biden administration towards better policy, or do you think that on the whole, the criticisms were correct and he foiled things that would have been right and important?
Furman: I think he got one really big thing right. The version of Build Back Better that emerged from the House was a massive deficit increase in the first couple of years that would have taken inflation up a lot more than it actually went up. Part of what happened was the House took some of the proposed Biden tax increases and scaled them back. They were also completely incapable of prioritizing. They couldn't say, we want to help families, what's the most important thing? They included everything for every caucus from the House. Joe Manchin looked at that and he balked. I think the country and the party is lucky that he balked at that. What I wished he had pivoted to was saying correctly that you can't do all eight of these things, so let's do this one thing. Probably, the refundable child tax credit would have been my top priority. In some sense he was 90% right in deleting things, but unfortunately he deleted 100%. By the way, another important thing he was right on was the importance of permitting reform and building, which is a theme in a recent book by Ezra Klein and Derek Thompson. It's not just the amount of dollars you put in, it's all the obstacles. That's especially true for things like electrical transmission lines, which have to take the electricity from where the wind and sun makes it to where people need to use it. Those are extremely difficult to build and he had a permitting reform that the White House ostensibly supported, but was never able to get through. That would have made a real difference.
Mounk: There's been a lot of talk about permitting. There's a great viral clip in which Ezra Klein explains some of the permitting process of Build Back Better to Jon Stewart and the latter absolutely loses his mind over it. There's also a broader question about the abundance agenda that parts of the broadly Democratic coalition have now been pushing intellectually for about 10 years. Obviously, it's been in the conversation a lot with the recent publication of Ezra Klein’s and Derek Thompson’s book, Abundance. How big a part of the substantive solution and the communication solution do you think that set of policies is? Can Democrats reinvent themselves by saying we have a party that actually recognizes that the government and private individuals are too constrained in being able to build things, and we're going to be the party that pushes for a lot of new housing, new infrastructure, and a lot of renewable but very cheap energy? Does that give a big part of a substantive answer to how to make Americans more prosperous in the future? And do you think that that can be part of the Democratic Party’s rebranding exercise, which helps the party beat whoever Trump runs in 2028 and build a more coherent electoral majority over time?
Furman: I have no doubt that this abundance agenda is a very important part of governing better in the future. It might even be an important part of getting re-elected by showing that you're getting results and doing things for people. I have no doubt that while lots of people have known many pieces of it, it has not been prioritized in the way it needs to be, and their book with this broader movement will help that prioritization. As a substantive matter, it's definitely only one tool in the kit. There's a lot of other things that are needed. That's not a criticism of anyone. I don't think there's anyone who argues that this is all that's needed. On the political side, I said it might help with re-election if they get results. With election, I'm not entirely sure. I think the piece of it that I'm the most sympathetic to, is that it presents an optimistic, positive-sum vision of the world, which, notwithstanding some of the success of Donald Trump and some of the negativity, I do think at its heart is deeply patriotic, deeply American, and should be central to anything. In terms of the specifics, going out and giving lots of speeches about zoning reform is how you get my vote. I'm not sure if that’s how you get the votes of many other people.
Mounk: I've been thinking about this and I think I roughly share that assessment. Substantively, the difficulty of doing something simple like building high speed rail between Los Angeles and San Francisco is just a huge drag on the U.S. economy. Our inability to build housing, even in many very desirable rural places that have economic opportunity and are wonderful places to live, makes it incredibly expensive to live there. Not to speak of places like New York City and San Francisco, etc. being a huge strike on the economy. And I do buy the story that one of the reasons for the recent conservative tilt in American public opinion is that red states have been governed much better than blue states, which has led to people looking at those states and saying, well, perhaps Republicans have something right, if Texas seems to be working better in many ways than California is. Also, the effect of more Americans moving to places that already had a conservative-leaning political consensus, rather than turning those states blue, seems to have turned people who moved to those states more red and more conservative. I think I'm slightly skeptical about how important a place this can play in political rhetoric, both for the reason that you outline—that Barack Obama didn't talk about permitting reform, he talked about a grand vision for what he wanted America to look and feel like, and that's what earned him those huge crowds in his first presidential run. A lot of the time, this is going to be too technocratic.
Secondly, I think it's going to be hard for Democrats to have credibility on this. I think even a Democratic presidential candidate who talks about this is going to take real time to gain people’s trust on delivery on this kind of an agenda. That's probably better done in government than it is on the campaign trail.
And third, in purely electoral terms, I worry that this NIMBY-ist instinct is very strong. On substantive terms, I am completely on the YIMBY side. As a piece of electoral strategy, I'm just struck by the extent to which particularly people who are left-leaning and progressive cry murder the moment there's any proposal for expansion in what they do. I'm visiting a friend in Jackson, Wyoming, as we're recording this conversation. I heard about Wilson, Wyoming, one of the most affluent and liberal leaning places in a very red state, Wyoming. There was apparently a proposal to build a stretch of sidewalk in this town. Just one stretch of small sidewalk to connect a few of the businesses in that town and there was a huge rebellion against this because it would supposedly end the rural character of Wilson, Wyoming, home of more billionaires per capita than probably anywhere else in the United States. There's no sidewalk until this day. So, this instinct politically is very strong.
You’re an avid Goodreads reviewer. You once very kindly reviewed my book, The People vs. Democracy on Goodreads. You also recently reviewed Abundance and in one of the parts of your review, which went a little bit viral on social media, you talk about the idea that, while it's exaggerated to say that personnel really determines everything that happens in government, often Republicans end up being able to better deliver, for example, in state welfare policies agencies because they're more likely to hire people with business experience. Tell us a little bit about that.
Furman: This is something I've observed a number of times, but I cited a friend of mine who has worked very closely with state welfare agencies in dozens of states and cities across the country for probably 20 years now. His version was that in a Democratic state, if you take someone that ran the local nonprofit, they're a do-gooder, they're really well-intentioned, and they're a wonderful person, and you put them in charge of a big complicated bureaucracy—they don't always do such a great job. In a Republican state, you may not have the most bleeding heart policies, but when it comes to hiring, you're more likely to actually do a national search, not just a local search. You're more likely to get someone who's had some success in business in the past, and then they're just much better able to manage and deliver the services effectively for people. That's just one type of government. What's striking there is that's the type of government you'd think Democrats would care the most about. They're the people that care about people, unlike Republicans. That's not what I think, by the way, I'm just saying that's a certain impression. If you care about people, you probably want someone from the business community who knows what they're doing to execute on your policies. I hate to keep harping on the Biden administration, but it relates back to them too. They had very few people with substantial business experience there. Some of that was certain senators like Elizabeth Warren really objecting to anyone. Once upon a time, Goldman Sachs was a great credential for government. Now it's become a no-go thing. I think some of that's fine and maybe you don't want finance controlling everything, but it went really far. I knew people who had worked for Google who couldn't get jobs that were totally unrelated to the tech sector because they had worked for Google. That's just not the way to have the very best talent running your government.
Mounk: All right, part of the art of podcasting is to keep people in suspense. And I'm sure a lot of listeners have been kept in suspense throughout this conversation about what's going on economically right now and what your views are of the emerging economic policy of the Trump administration. To start with a general question, is there any coherence to it? Is there any animating logic that connects all the different parts of Trump's economic policy? Or is it an incoherent bundle of instincts that doesn't really fit into a coherent whole?
Furman: There was an attempt to make a coherent whole of it by a guy named Stephen Miran, who's a very good economist. He's now chair of the Council of Economic Advisors, the job that I had under President Obama. Back in November, he wrote something called “A User’s Guide to Restructuring the Global Trading System.” He came up with this economically coherent version of across-the-board tariffs and redoing the entire global order. The only problem was that his coherent plan required the United States to control the policies of every other country in the world. So he said, we're going to do these tariffs and we're going to make military threats to stop other countries from having retaliatory tariffs. You might worry what it does to U.S. interest rates and the U.S. dollar, but don't worry. We are going to force all the other countries in the world to basically swap the money they lent us for a much lower interest rate. It's a little bit like saying, I have this great plan to help the United States. Step one is to take over Canada. I don't really like imperial conquest. But anyway, it's just not going to happen. And so this attempt to put lipstick on a pig or do something coherent, I think in some ways just shows how utterly incoherent the policy is. In economics, sometimes theory is useful, because it says, here's what you need to believe in order for this proposition to be true. And those conditions are just so ridiculous, I don't even believe the proposition anymore. So I think it's an inchoate mess.
Mounk: In my one very brief stint working as a management consultant one summer, we were supposed to develop a new business line for a company. Halfway through the project, we had a meeting with the CEO and the senior partner asked the CEO something along the lines of, how much annual revenue would this line of business have to bring in for you to actually consider pursuing it? And the CEO said something around $1 billion. By our estimates, the most that could possibly come from this business was $100 million. We should have stopped the project right there. But instead, what happened was that we relabeled all of our slides, What you'd have to believe, and assumed that this business would be able to capture 80% of some imaginary market. So what you'd have to believe is often a good exercise in pointing out how impossible it is. An even more honest thing is to say that this is not going to work. There is a blueprint that you are pointing to about how this would all work. It was never going to work because all these other countries weren't going to go along with what it required. What elements of that blueprint are actually being put in place? Is what's happening some kind of piece by piece version of that blueprint or is the actual policy that Trump is pursuing nearly wholly unrelated to that blueprint?
Furman: It's only partly related to that blueprint. First of all, there is a perfectly coherent idea that we need to take the threat from China more seriously. In the first Trump term, that's largely what he did. I don't think it was the best-designed tariffs on China. It focused too much on things that consumers cared about. His goal was too much to reduce the trade deficit by getting them to buy more stuff. But, at least it was pointing in the right direction, even if it didn't get the exact target correct. With Canada, though—it is just nuts, economically and geopolitically, as a country to focus on. By the way, it will hurt, not help, our efforts to really build a coalition and build support to take on some of the really important issues around China. So, the prioritization of all of this has been just downright bizarre from the perspective of economics and geopolitics, and maybe can only be understood with some sort of grievance politics and personal pique rather than any coherent theory beyond that.
Mounk: I've been struck by what seems to be a personal animus against Canada and against Europe in much of the administration's public communications. I wrote about it—in some of JD Vance's private comments from that leaked signal messaging group. I understand that Americans are frustrated by the fact that Europeans don't spend enough in the military and don't make enough military contributions to NATO. That is something that Barack Obama and Joe Biden were frustrated by as well. That is perfectly reasonable. JD Vance seems to think that his natural political allies in Europe are the populist far right. They have these ideological bones to pick with the more moderate political parties that are governing in Europe. I don't agree with it, but I get the logic of where that comes from. They're probably right that politically they're closer to those right-wing populist parties than to center-right parties like the Christian Democrats in Germany. But somehow, they seem to have an animus against many of America's traditional political allies that goes beyond either the rational concern about free-riding or the ideological preference for more extreme parties. Those two things don't quite seem to add up to what is driving that administration's policy. Why is it that they're picking these tariff fights with Canada and the European Union? Is there any economic logic behind it? Do you think it comes from ideology? From animus? What's your best attempt at explaining it?
Furman: I don’t know. Just economically, almost every forecaster has marked growth down by about half a point, which is $1,000 a household. It's real money. They've marked inflation up by about half a point. Consumer confidence has plunged. Business uncertainty is higher than at any time except the pandemic. Rarely have I seen someone come in and just make a set of decisions that turned everything so rapidly on a dime. The auto one is a good example. If we wanted a larger auto industry in the United States and we were willing to have American consumers pay higher auto prices, there is a policy that could accomplish that. I wouldn't think that was a good policy because I think it would be a million dollars of cost for every extra auto job saved or something like that. But if you want to pay a million dollars per auto job saved, you could do it.
Mounk: What would that policy be, just to help us understand?
Furman: Yeah, that would largely be on the vehicles themselves, but it would try not to interfere with the supply chain. The parts that are coming from Canada and Mexico are critical to the success of the U.S. auto industry and our ability to make cars. So, you'd be much smarter about how to exempt those. You probably wouldn't want to raise the price of steel in the way they have, which is adding to the cost of cars. It's all the things that are making it harder to be part of this integrated market. Europe doesn't make cars in one country. It has integrated supply chains largely within Europe. Same thing in Asia. They have supply chains within Asia. Well, how do we make cars in America? We have a supply chain with Canada and Mexico. So starting by blowing that up—while allowing cars to come in tax free from Korea and taxing them from Canada and Mexico, although we just stopped that. So I don't even think this is a good strategy to protect American auto jobs.
In the rest of this week’s conversation, Yascha and Jason discuss how tariffs work–and why they’re not the answer. This part of the conversation is reserved for paying subscribers…
