32 minute read
Biden era. Annual Economic
THE ECONOMY IN 2021
Is it time to head to Wall Street or break the piggy bank? Our experts look at what to expect as a new administration in Washington tries to bring the country out of the pandemic crisis.
EVELYN DILSAVER: Every president assumes office with a crisis in hand, but nobody’s ever assumed it with maybe four or five crises at the same time, with COVID, the vaccine distribution, our economic devastation, especially with the small businesses, 10 million fewer Americans employed than before COVID, and two-thirds of our children cannot attend school in person. I would love to hear your perspective on a president coming in to that kind of a setting. And one other caveat: Most presidents only have 100 days to get something done before they run into the buzz saw, so if you were to give him advice today, what advice would you give him to try to accomplish in those first 100 days? MICHAEL BOSKIN: Let me just start by saying that generally when there’s a party change, [the party that gets elected has] been running against a previous president and what he, or maybe eventually she, has done, they focus on what are perceived to be the weaknesses at targeting the voters they think they can get, and then they have many pronouncements of things they’re going to do, generally hyperbolic, to some extent. In this case, of course, Joe Biden, who was a moderate—a center-left candidate in the Democratic field—fended off the so-called progressives. I’m not sure I would [say] what they want to accomplish I would call progress, but in any event he fended them off, but he made a variety of accommodations with them. Most of his policies move—to oversimplify—halfway to some of their more extreme policies.
He did that and retained some strong unity, in addition to some voters voting because they didn’t want another four years of Trump, even if they didn’t particularly care for the policies [Biden] was proposing. He has to deal with that. He has to deal with a closely divided Congress and evenly split Senate, although Kamala Harris will be able to cast a tie-breaking vote in 50/50 votes. He will be able to get some things passed with 51 votes, the budget reconciliation [process], if he chooses to go that route, but there are a variety of ways he could work with Republicans on a
THE ECONOMY IN 2021 A LOOK AT WHERE THE U.S. AND global economies are headed and what should be done to keep them on track. From the January 22, 2021, online program “Michael Boskin and Laura Tyson: Bank of America Annual Economic Forecast.” This program was underwritten by Bank of America. Dr. MICHAEL BOSKIN, Ph.D., Professor of Economics and Senior Fellow, Hoover Institution, Stanford University; Chair, President George H.W. Bush’s Council of Economic Advisors Dr. LAURA TYSON, Ph. D., Professor, Haas School of Business, University of California, Berkeley; Chair, President Bill Clinton’s Council of Economic Advisors EVELYN DILSAVER, Chair, Commonwealth Club Board of Governors; Former Executive Vice President, Charles Schwab; Former President & CEO, Charles Schwab Investment Management— Moderator
variety of things. That might have him settle for partial victories, but victories rather than having things blocked and debated for a long time and never passed.
Laura served with President Clinton, who did an admirable job of that in ’95, ’96, ’97, working with Republicans in the Congress to reform welfare and to balance the budget. That would be my advice to him. I don’t know if he’ll take it. He has this delicate political act to deal with with the left side of his party, but I think it’s also important to understand where we are, how we got here and what to do about it. We have an unprecedented economic situation brought on by a once-in-a-century [pandemic], hopefully it will be another century before anything like this again. We had a very, very sharp downturn.
The downturn was brief, but extremely sharp. There was a partial, rapid rebound that slowed late in the third quarter through the fourth quarter of this year, but still was fairly substantial. We have difficulties in figuring that out. For example, the New York Fed believes the fourth quarter, with the data we have ending in December, grew at 2.5 percent; the Atlanta Fed thinks it was 7 percent. There’s a lot of confusion about exactly what has happened. There’s optimism about the future. I think as a base case, it’s fairly well taken, but that doesn’t mean something else bad couldn’t happen that disrupts things independent of the evolution of the virus and the response to it.
But the economy is intimately intertwined with the evolution of the virus and the economic policy and public health response. We’ve had a massive stimulus, both from a monetary and fiscal side. We’ll probably get an additional stimulus, probably less than President Biden would like and hopefully more carefully
targeted to those really in need. But the hit was very uneven and the recovery has been very uneven, hitting particularly low-wage workers and service industries and retail and travel and leisure and hospitality and things of that sort—people who finally late in the last expansion actually saw their wages grow more rapidly than the general population and things pick up for them with very low unemployment.
There’s optimism warranted for the second half of this year and perhaps late in the spring if the virus vaccinations go according to plan. We have problems in the rest of the world, which is lagging behind us. They’ve had a larger hit to their GDPs. Most of the developing world and Europe, for example. China has recovered a bit, growing very slowly, if you believe the data. Taiwan and South Korea weren’t hit nearly as hard and are recovering. But in general, the Europeans are lagging behind us in the virus vaccine rollout because they wanted to rely on European vaccines from AstraZeneca and Sanofi, so their ability to vaccinate the bulk of high-risk groups and the bulk of the general population is lagging a quarter or two behind ours. That’s late in the year rather than in mid-year.
That’s going to be a problem in the rest of the world, and the pressures that creates in a variety of ways. Then we have a variety of structural issues in the economy, some of which were revealed and heightened by the COVID crisis. For example, we revealed that more families than I think most people realize were living quite hand-to-mouth and had very few reserves even to be able to weather three months of disruption. The capacity of government, but especially state and local governments and sadly, perhaps
—MICHAEL BOSKIN
almost worst, California to actually do and exercise its most core responsibilities—we have a misnamed Employment Development Department [EDD] that still has 800,000 backlogged initial claims for unemployment insurance, which is 10 months after COVID. Obviously it takes some time to gear up, but it’s just remarkable.
There are many other examples, including our poor [vaccine] roll out. There’ll be a lot of issues that will have to be dealt with. An education deficit from kids who’ve been out of school, whether they can catch up, whether they would naturally or whether we can help them catch up. Fiscal deficits, which were already a big problem prior to COVID. President Obama ran the largest full-employment budget deficits of any administration since World War II until President Trump, who managed to top that in an even stronger economy. We’ve added a lot of debt now, and I think much of it was well-designed on a humanitarian and to some extent economic basis to try to weather this crisis and bridge to the other side.
We’ll have the future of work to deal with. We’ll have to especially deal with policy exits by the Fed and the federal government at some point to get back to some normalcy. I don’t think that’s in the cards in the short run, but in a year or so people are going to have to turn their attention to sensible policies to do that, and the timing and the pace and the nature of that will really be a very large part of how the economy does in 2022 and [2023].
But for right now, I’m cautiously optimistic about later this year. LAURA TYSON: I’ll start with a general statement that there’s much that Michael has said that I completely agree with. We had a strong U.S. economy going into the COVID recession. We had remarkable, unprecedented fiscal and monetary stimulus, which helped us have a partial recovery into the fall of 2020. Then we saw that the recovery started to falter, and that led to the second stimulus, the $900 billion that has been passed, and to now a proposal of an additional almost $2 trillion of emergency rescue. I wanted to emphasize the importance of those policies and emphasize the emergency rescue nature of this, because this was a very uneven recession—nothing like it in the past. This was not a recession that started in manufacturing. This started in services. Then you look within services, you see a tremendous number of low-wage workers in the service industries that were hit.
Related to services, you see the restaurants [and] all those small businesses that were actually involved in producing products and services for much of the workforce that was going into the urban centers to those office buildings. All that is gone. One of the questions is going to be, Does it come back? Anyway, there’s a very uneven nature. [Governor Gavin Newsom’s former chief economic advisor] Lenny Mendonca and I called it a dual recession. Some people call it K-shaped recession. The bottom fell, the top didn’t fall. It actually stayed level and went up. I want to say, again, think about the emergency nature when you think about, “Well, what do we need to spend money on? What do we need to continue government spending on?” Unemployment insurance, small business lending, PPP.
We need to help state and local governments, and this is actually where the Congress starts to divide. How can you have a national coordinated distribution plan for the vaccine without support for state and local governments? You can’t; they can’t do it. They don’t have the capacity to do it. I really want to emphasize a very important part of what the Biden administration is doing right as a beginning is to say we have this massive plan to distribute the vaccine; to make sure we don’t have any production shortfall, we will rely upon the possibility of using the Defense Production Act if we have to. We’ve got to deal with production; but distribution—that takes resources, that takes help to state and local governments. That’s been controversial.
You said what would I think the Biden administration should do? I look at the stimulus package. I agree with Michael that maybe a little bit better targeting of some of this could be helpful, but the bulk of the money is related to this dual recession and to the emergency of getting COVID under control. The outlook for the second half of 2021 depends completely on getting the distribution of the vaccine right. Otherwise, it won’t happen. That wonderful recovery, which is sitting there waiting to happen if you can unleash the economy from the lockdowns, won’t happen.
Let me say a couple other things about where I disagree with Michael. I think he’s very unfair to the state of California. Yes, the state of California has had a significant problem and it recognizes it, with this Employment Development Division. It recognizes it. It is doing whatever it can to [deal with it]. But think about this: California went into the recession with a very significant reserve, a very healthy fiscal situation. I’ve been part of a massive set of grants and small business loan facilities. We are successfully rolling out to much of the small business community access to capital, which is essential for them to survive. I can talk about other things. . . . I could talk about the fact that in California we are running the biggest Medicaid establishment in the country, and we are doing it efficiently. Covered California is working for millions of Californians. I just feel it’s unfair to hit the state hard.
I’ll talk a little bit about the future, because this is an area where Michael and I could possibly disagree. I was struck by some recent numbers I saw. Public opinion polls—this was one that was done for a presentation, I think, at a JPMorgan event. There’s been a significant increase among Americans in their expectations of the role of government. If you look at the situation in 2010, in the middle of the global recession, and you look now, good heavens, almost half of Americans think that government should be doing more to solve problems. Almost half of young Americans think that capitalism is a problem and socialism isn’t a problem. Almost half think that business should be more regulated, not less regulated.
I just want to say that when we’re thinking about policy, let’s think about the fact that people want [and] expect more from their government. They expect more from the public health delivery system, they expect more from the infrastructure, an area that probably Michael and I agree upon. Democrats and Republicans have always disagreed on the size of government. I just want to say that these polls are suggesting that most Americans think, “We want highquality government. We want government that [successfully delivers] services. We are not so fixated anymore on just keeping government [small]. Small government is not the problem.”
I’ll say one other thing related to this, because again, both Michael and I, macroeconomists at heart, there is a debate among economists about what economists are now calling fiscal space. How much space does the federal government have—because at the state level, [there are] balanced budget constraints, so we can’t talk about fiscal constraints. At the level of the federal government, many economists are saying we have a huge amount of fiscal space. We can run these larger deficits. We can run this larger debt, because the real interest rates are negative. It’s better to borrow now and pay back later. We should use that fiscal space both to invest in our future—that’s the infrastructure, education, health care argument—and in the short run to create enough fiscal stimulus to get us out of this recession and vaccinate so we can get out of it for good. We could debate the size of the fiscal space, but it’s interesting to me that Americans in general think right now more government is probably something desirable. DILSAVER: I’d love to hear from you, Dr. Boskin about— BOSKIN: Laura stated her case well, as usual. I view the fact that so many young people prefer socialism to capitalism a problem in our education system, which also is a state and local responsibility. That’s number one. Number two, anybody who thinks California and its cities are well-run should have walked down the street in San Francisco or Los Angeles. We have lots of problems. The problems are immense. What we’ve done thus far to deal with many of them—homelessness, for example—hasn’t worked. Perhaps some of it has been counterproductive. I could go on and on. With respect to the EDD and other failures, this isn’t just something that’s at the current governor and legislature’s doorstep, it’s gone on for a long time. We’ve greatly under-invested— TYSON: We’ve under-invested. BOSKIN: —in infrastructure of computer systems, for example, in technical capability. TYSON: I agree. BOSKIN: There’s just an immense set of those things. Also, while you might believe, as Laura believes, that . . . all these things have done fabulously well, they’re modest in size compared to the federal government intervention. On the fiscal space issue, I’ve written extensively on this; this is not going to end well. Yeah, I totally agree that right now there is not a fiscal capacity problem in a short run, so I support borrowing to make sensible spending decisions now, but every dollar of that, that isn’t sensible, that doesn’t have much of an effect to improve the economy or to greatly cushion people who are in desperate need, whether that’s small business owners or workers who are unemployed or whatever it happens to be, is something that will have to be dealt with later.
Everyone’s saying, “Interest rates are really low. They’re going to stay low.” Well, to give you an example of how poorly economists and private markets forecast interest rates, in the last crisis, when the Federal Reserve lowered interest rates to zero, they were expected to stay there for nine months. They stayed there for seven years. I just think a sensible risk management would say, “We need to be a little cautious about telling our politicians, ‘There’s a free lunch, spend away, borrow all you want, the Fed will buy all the bonds, and there’ll never be any reckoning.” Well, the Federal Reserve buying all the bonds is just a way of avoiding the government sending it straight to the banks, because [it] winds up in the excess reserves in the banks. [I would rather] we start thinking about that sometime this year, how we come out of this a year or two later, than just pretend that it won’t happen and just hope in a run of luck that nothing ever happens and somebody else will have to pay for it on someone else’s watch. The last thing I would say is many of the same economists that Laura has been referring to say that the capacity of the economy is very, very modest and that growth is going to be
low for a long time because of all sorts of reasons they give. That may or may not be right, only time will tell, but it also suggests that if the growth of the economy is going to be low, each generation is going to be only a little bit wealthier than the one that preceded it, and therefore, piling on debt to them in the future that they’re going to have to wind up repaying is going to be less and less equitable [for the next] generation. Just FYI. A word of caution about running wild on debt. DILSAVER: Americans have saved $1.6 trillion in excess savings at least as of midDecember. What happens to our economy when they start to unleash that and spend it, from an inflation point of view, if anything? BOSKIN: I think inflation and inflation expectations are somewhat subdued right now, . . . but the fact of matter is there’s a pentup demand for lots. People haven’t been able to spend on lots of things. You haven’t been able to go out to have a meal in a restaurant with your friends, for example, or go to a movie theater safely, or get on an airplane and travel to Europe, for example, without having to worry about all the problems there and then coming back and having to quarantine.
There’s a pent-up demand that for a little bit of time, in a couple of quarters, would probably be good for the economy, but we do have to pay attention. The one thing that could cause the Fed to change its mind fairly abruptly about raising interest rates sooner than people expect right now would be an unexpected increase in inflation and inflation expectations. I’m not predicting that, I don’t think it’s in the cards this year, but it is something that we should have to pay attention to and keep an eye on, is all I’m saying. I’m sure [Federal Reserve Chair] Jay Powell will. DILSAVER: Dr. Tyson? TYSON: I know that the Federal Reserve Board will. I know that there’s a large amount of uncertainty about inflation, certainly in the medium term. I don’t think there’s much in the short term, in the next few years, the next couple of years. I think the same is true of interest rates. I do agree with Michael. The economist profession did not predict the trend in interest rates, for least the last decade. Basically we better keep that in mind, because the trend could change in an unpredictable way. I want to emphasize that.
I will go back to your question of savings. I want to go back to the dual nature of what we have been living through, because those savings are building up in the top—say, 40 percent—of the income distribution, not in the bottom 60 percent. Essentially, if you look at things like what happened to the cash stimulus payments that have been made already, what happened to the unemployment compensation payments that were made—if you were in the bottom 20 percent or the bottom 40 percent, those were consumed, those were spent because you know what? These are necessities. They’re not taking those trips to restaurants. They’re not taking those vacations. They’re not going to the stadium for a big sporting event. They’re necessities.
Now we could very well see that there’s going to be an unleashing of some of the savings on demand. I would look to patterns of demand. What sectors? Are these all going to be a lot of luxury goods? Are they going to be a lot of luxury trips? I actually am worried. Let’s go to transportation. The airlines have had to really reduce their capacity dramatically. What happens if all of a sudden people feel okay about jumping back on planes? Boy, the capacity constraint shortterm, and maybe the pricing that results from that. I think we have got to look at who has the savings, what are they likely to consume? And think again about the dual nature of [the pandemic recession].
The relief here in the short run—we’ve got to help state and local governments get the vaccine distribution done. We’ve got to worry about small businesses through the PPP. In California, we have these great grant and loan programs. We have to help people who can’t get a job with unemployment compensation. The cash assistance checks, I think we have to think about the targeting of those.
But now let’s go to the next range of things. There’s a Biden agenda here which is longerterm. That emergency relief is not really the Build Back Better. The Build Back Better is infrastructure. The Build Back Better is a climate policy. It’s green infrastructure. It’s climate change and what we do about that. And what can we do to enhance our training and skill development and education system?
Usually what the federal government [says is] they work with the states, they’re not running the programs themselves. But we have learned more and more about skill development programs that do work. President Biden is committed to providing more federal funding for that. Build Back Better in the future. But those things all cost money. They are investments, they are more spending. Then the question becomes, does the U.S. government have the fiscal space? I believe it does. But the issue of keeping that question in mind is very important.
I just want to point out, a very unlikely group of economists agreeing, and I know because I work with all of them. Bob Rubin, Peter Orszag and Joe Stiglitz, you can not think of a combination like that. They just did a really interesting— BOSKIN: [Mostly on the left] of the spectrum, sure. On the right of the spectrum, they won’t agree with any of them. TYSON: Well, Bob Rubin to Joe Stiglitz, I think a pretty broad [range]. Anyway, I would say they came up with some really interesting things to think about going forward in fiscal policy, which is we really need to do much better with automatic stabilizers. We link much more of our relief, when it’s rescue or emergency, to the state of the economy. You could even do that with infrastructure plans. You could make them contingent in a way so they’re counter-cyclical as opposed to procyclical. I think we’ve got to think about how we’re going to make fiscal policy. I personally have always thought there might be a value to taking at least the infrastructure budget and making that a capital budget taken out of the operational budget of the government. But we are going to have to worry about those kinds of things. DILSAVER: Great. Let’s turn to global for a second. BOSKIN: Quickly—a couple of things about that. The nation and California certainly have infrastructure needs. Some of those are appropriately governmental, many are better private. For example, we have a cell phone infrastructure that [could be handled] privately much more efficiently than the government would ever do it. Some of that is appropriately federal; some of it probably [should stay] local.
But we’ve seen a lot of infrastructure spending that’s very poorly targeted and does poorly. California launched an idiotic, ex-ante
—LAURA TYSON
idiotic, so-called high-speed rail program that wound up becoming unfundable at three or four times the cost originally projected, and perhaps even distorted to the voters who approved the bonds. And it’s now mixedspeed rail, because it’s using a lot of existing rail, if it ever gets funded. Mr. Biden wants a national network of those. There’s probably in the Northeast quarter maybe dense-enough traffic that makes sense.
We have to be careful about just calling something infrastructure without doing a real careful cost-benefit analysis. The highspeed rail project thus far has been a negative return, not even zero return. DILSAVER: Can we turn global for a second? What do you think is the outlook for trade policy in the coming year and the residual impact of Trump’s previous trade policies? TYSON: I would say that the evidence which was there before us—these trends will continue. Before COVID, we had a slowdown in global trade relative to global output, so that very heady period of trade growing two, three times as fast as global GDP, I don’t think so anymore. We’ve also seen a shift in the growth dynamics of trade to Asia; so much more South- or inter-Asia trade going on. We’ve seen more near-shoring going on. A lot of firms have gotten concerned—and COVID underscored these concerns—they didn’t have resilient supply chains. They were too concentrated. They were relying on a few suppliers, very concentrated in a few areas. They’ve decided they need to diversify that.
There’ll be different patterns of trade. [Regarding] U.S. trade relations, I would say the following. The U.S. is very intent—I know this, the Biden administration has been very clear about this—they would very much like to have trade negotiations going on with I would think we would call likeminded market trading nations. That means primarily with Europe. I think there will be trade negotiations going on. I think that you heard President Biden already indicate that there are still significant bipartisan concerns about trade with China. My sense is the patterns that existed pre-COVID have not been fundamentally changed, they’ve been reinforced, and all of those things are reinforced.
The China dilemma for the United States is that many of our companies have significant investments in China and they sell significant amounts of what they produce in China. Those are major markets for China. Much of what China exports to us comes from quasi-private firms, where if you look at the underlying structure, the underlying structure oftentimes has a foreign firm and a U.S. firm involved. We have huge economic interests in getting trade with China right and trying to get it on a sounder path than it has been on under the Trump administration, but this will be a massive negotiating challenge.
Finally, I’m going to end on a positive note here. To go back to climate, there’s a real possibility here [with the] U.S. rejoining [the Paris Agreement]. A lot of the discussions around climate have to do with trade and what should be the case for dealing with carbon-intensive products as they move across borders. This is an area—and also on research and development in carbon—where I actually think we could work a lot with China. If you go back to the history of the Paris Agreement, it was first an agreement between the U.S. and China on climate that led to the unleashing of that agreement. I’m optimistic that we can find a way back to a healthier relationship with China, both on trade and on climate. BOSKIN: My view is largely congruent with Laura’s on the trends, many of which go back prior to Trump, although everybody focused on the Trump tariffs part. I think that one of the big mistakes that President Trump made policy-wise was to draw attention to China and to confront some of China’s abuses [on our own]; I think he should have worked with our European allies, for example. That was something that didn’t happen, unfortunately. I do think it’s worthwhile pointing out that the global economy has changed a lot and countries that were very poor a long time ago aren’t so poor now. China’s GDP has quadrupled since it joined the World Trade Organization [WTO]. If you go back to why NAFTA occurred, I was involved with that, we wanted to help the reformers unleash prosperity on our Southern border for many reasons, including some on the far Right were worried about more mass immigration; but just in general, we thought we’d have a healthier hemisphere with a more prosperous Mexico. I think the gains from trade were there, some people were hurt by it, etc. There were changes made in the [NAFTA replacement] USMCA; you can argue. I think in general, they were not large changes.
Going back to China though, when they were brought into the World Trade Organization, the going-in thought by economists and policymakers was, “If we help them, they will gradually adhere to the WTO rules. It won’t happen overnight, and they won’t be transformed necessarily into a parliamentary democracy like Canada or a totally free-market economy, but it will accelerate that trend, and that will also have internal political benefits in China and geopolitical benefits.”
It turns out that worked for a little bit [when] Zhu Rongji was premier, for example. Definitely it stalled when Wen Jiabao and Hu Jintao came to power. President Xi basically has reversed that. I think that’s why we have so many different constituencies focused on different issues—from human rights to defense, to trade abuse, to many other issues—forming a constituency to get tough on China that has little to do with Trump, that some people like what he did, some people don’t, some of it worked, some of it didn’t, etc. The question is how to manage
that relationship, including on climate. In 2015, the Paris climate accords gave China a 15-year pass. Of course, there’s no guarantee in 2030 that they’ll show up and say, “Okay, now we’re going to abide by [the rules].”
They’re doing some things, but they’re still generating a lot of coal. They’ve become by far the largest emitter. It’s a complicated question, but we should stop thinking about these other countries in the way we did when [we had] the immense, broad-based, bipartisan consensus that America should lead the world on reducing the immense barriers to trade after World War II, that it will be good for everybody, including the U.S.
Access to U.S. markets is more important to other countries than [our access] to them, but generally we all prosper together. The world has changed a lot since then. It’s changed a lot since China joined the WTO. The WTO has been proved to be a pretty creaky organization.
It’s unclear how we’re going to be able to have a better trade relationship with China in some of these key areas—intellectual property theft and some other things. They’ve pledged to buy some more U.S. agricultural products, and bought some of them, but just in general.
The last thing I would say, it’s important to understand that there’s a big misunderstanding about the U.S. trade deficit, which focuses on unfair practices in other countries. Actually it’s mostly due to the difference between our production and our consumption in the United States. It’s basically the saving investment imbalance macroeconomically, as it’s a mirror image, our current account deficit. That doesn’t mean we shouldn’t be dealing with these problems. It doesn’t mean we should try to deal with them in a quick way, but in a civil and constructive way to the extent we can. I just don’t think it’s going to be easy to manage this relationship in a constructive way that will yield large results quickly.
I think that there may be some agreements made, but we’ll see if they actually pan out. I think it’s a very, very deep structural problem inside China, politically and economically, and not easy to change given the Communist Party’s desire to maintain a very strong control over the economy, and their very large control over many businesses, which may be listed on the Stock Exchange but still have a majority of state ownership. DILSAVER: Sure. TYSON: I just want to add a few additional remarks on this. Look, the Europeans just negotiated a foreign direct investment deal with China. China just had all of the Asian economies, including South Korea, including Japan, sign up to their RCEP, their regional trade agreement. There is room for the U.S. to negotiate with China, to liberalize some trade and liberalize some foreign direct investment. We haven’t done it. We focused on the U.S. alone. We basically focused on that trade deficit, which as Michael said, was the wrong measure of the relationship anyway. We didn’t even use the WTO. We did not. When we wrote our own rules for getting China into the WTO, we had the right to do a lot of adjustment assistance for those communities and firms in the United States that were hit by the China import surge that occurred. We didn’t do anything. That was our decision. Yes, I completely agree that Xi has taken China in a different direction; there’s more state control, not less.
By the way, I think we should all recognize it from China’s point of view. When did this start to happen? It started to happen when the Western capitalist systems caved in the Great Recession. We brought that on. They saw the vulnerabilities of the capitalist financial system play out to a multi-year recession. And they were able to use their own stimulus policy, their own protection from those capital markets disruptions, to continue to grow. DILSAVER: Brexit—now that they have an agreement, how does that affect us? BOSKIN: Very modestly. There’ll be some great diversion. We may or may not end up negotiating a treaty with the Brits. But I do think that Brexit is part of a very larger global trend that relates to some of the things we’re seeing, which is a tremendous growth in two things. One, a growth in the tensions among different levels of government. We’re all citizens of a city, a state, a country, the world, obviously. In the Brexit case, between a sovereign nation and a supranational identity organization, EU, but then they add Scottish devolution and attempt a vote on secession; there may be another one so they can join the EU. You have the Catalans; you have Venice and Veneto saying they might exit. We’ve had Calexit desires off and on in California for many years, intensified during the Trump presidency. We have a lot of those same tensions here among different levels of government.
We have different areas of different sates with different laws, because on the one hand, cities and states have declared themselves sanctuary states, don’t cooperate with ICE. Some of the towns in those states said, “We’re going to cooperate with the federal government, not the state law.” Same thing with these gun-banning laws and the Second Amendment free zones and other cities and states, and cities inside of those states saying, “We’re not going to go through with the state rules.” One of the things that would be really, really good for American democracy would be to get a better sense of clarity about responsibilities and resources and rights between our national government and our sub-national governments. TYSON: I completely agree, and as you may or may not know, for many years during the Trump administration, I was working a lot on federalism and the notion of what states can do if they want to strengthen their social safety net or they want to strengthen their community college system or they want to strengthen their worker training system. By the way, not all of this is in a “progressive” state like California. If you take a state like Indiana, for example, a lot of really interesting training stuff has gone on at the level of the state, because people look to the state governments for a lot of economic development issues, and those are related to talent issues and to training issues.
The federalism of the United States is actually a tremendous strength of the U.S. system. The problem is when you [need a national plan]. I have thought about COVID from the beginning as the best analogy, as it’s a war with a virus. In a war setting, you actually need a national response. You actually need the Defense Production Act. You actually need FEMA. You actually need [vaccine] distribution. One of the things that President Biden is proposing now, and I can’t imagine why we haven’t said this before, we’re going to have to set up major vaccination centers. We are going to have to have some of them be mobile to get to places in states where there is no vaccination center. There are certain times you have a national challenge, and the national challenge requires a national solution.
