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As the year comes to a close, we look back at the past decade in the American economy -- the first without a recession since record-keeping began in the 1950s. While unemployment remains at a historic low, wage growth has been sluggish, and inequality continues to divide the country. David Wessel of the Brookings Institution and The Washington Post’s Catherine Rampell join Jeffrey Brown.
At the end of 2019, it's worth remembering how 2010 began.
The U.S. economy was sputtering, struggling to correct in the aftermath of the Great Recession. Consumer confidence had reached record lows. And hiring was at a near standstill.
As Jeffrey Brown reports, no one then could predict how 2019 would close.
Consider this: The U.S. economy is still in the longest expansion on record, more than 126 months and counting. The 2010s were the first decade without a recession since record-keeping began in the 1850s, and the official unemployment rate hovers at a 50-year low.
But wage growth, even with some recent gains, has been sluggish for most of the decade. And the continuing rise of wealth inequality is a major factor driving our politics, as the richest Americans reap the most from a stock market that continues to reach new highs.
We look at some of the most significant economic stories of the 2010s with David Wessel, the director of the Hutchins Center at the Brookings Institution, and Catherine Rampell, an economics writer and columnist for The Washington Post.
And welcome to both of you.
David, you and I did sit here 10 years ago. Things were not looking — well, they were getting better, but we weren't sure.
That's right. It's really remarkable.
I don't think either of us foresaw what happened. The 2010s were really the decades of the three lows. We had very low unemployment, start of the decade, nearly 10 percent. Today, it's at 3.5 percent. It's been very low inflation. In fact, inflation is so low that the Fed is struggling to try and get it up to its target.
And partly for that reason, interest rates have been very low. At the beginning of the decade, the Congressional Budget Office predicted that the yield on 10-year treasuries, which is kind of a benchmark, would be 5 percent, on average, in the 2010s.
Today, it's 1.9 percent.
Nobody would have predicted this. Right?
And it means it's good for people who borrow, including the federal government. It's not so good for people who save, having very low interest rates. And it makes the Fed's job a little tricky, because, if we have a recession, they don't have quite as much room to cut interest rates as they once did.
Catherine, pick up on that, because it's also — we're living in an era of high debt and deficits. These are things that, in the past, we thought, those were bad. Those would hurt the economy. They don't seem to be.
So there's a change in economic thinking and behavior.
So, the general trend after World War II has been that, as the economy has improved, as unemployment has fallen, deficits have fallen too, or, in some periods, in fact, they have flipped into fiscal surpluses.
Instead, what we saw in this past decade is that, as unemployment continued to fall, deficits instead grew. They got bigger. And, today, neither party seems terribly concerned, at least at the moment, about fiscal responsibility, about getting deficits and debt back in line.
Maybe that'll change, of course, if we see a change in the White House or we change in power in Congress. But we have also seen an evolution, I would argue, amongst economic thinkers, so those who are not as wedded to politics about, whether we should care as much about deficits as we have historically, that maybe we were overly concerned about keeping red ink to a minimum.
And that said, you know, as David pointed out, interest rates have been very low, which has enabled us to have our debt continue to grow, because debt servicing at low interest rates is cheaper today than it would otherwise be if, in fact, we had 10-year treasury interest rates at 5 percent, say.
But, as you pointed out — as you started to point out, David, because they are so low, that takes away one of the chief tools of the Fed if and when things do turn down.
Right. That's absolutely right. They just don't have as much room to cut interest rates as they used to have.
And that means the recession will be harder to fight off and we will — if we have another recession, we will start from a place where the federal government already has quite a bit of debt.
What about the wealth, the stock market, the rise in inequality…
… which is a long-term trend, but really exacerbated…
It definitely continued.
So, look, the stock market had a terrific decade. The S&P 500 rose nine out of 10 years. The S&P 500 is up nearly 30 percent this year, just this year alone. And half the stock market wealth in America is held by the top 1 percent of people.
So, as you point out…
That's astounding. I mean, it's worth repeating, right?
Half of it…
Half is held by the top 1 percent.
So, what we have seen is that the trends began before this decade, but they continued. And a growing share of all the wealth in America is held by a small number of people. So, the top one-tenth of 1 percent, the people who Bernie Sanders likes to talk about, it's about 130,000 households, holds 15 percent of all the wealth in the country.
And that has been creeping up for some time.
So, Catherine, how much has that gotten into our — I don't know, into our bones, into our national discussion? How much is it changing the way people think about the economy?
I think one of the overwhelming themes of the past decade is the rise of economic populism, partly in response to the trauma of the Great Recession, which ended, of course, before this decade officially began, but had lingering effects, as we had this very, very slow recovery coming out of the Great Recession, and partly because of that greater concentration of wealth at the very top.
And so you saw, both on the left and the right, a lot of frustration with the way that the economy had been working with things that had been taken for granted, including the relentless march of globalization, for example, including the relentless march of wealth towards the very top of the distribution.
And so you saw the rise of things like Occupy, right, more so on the left than on the right. You saw a lot of frustration with our trade policies, manifesting themselves with greater protectionist impulses both on the left and the right, which we saw enacted, of course, under this administration, undertaken by a Republican administration, which is historically unusual to see more protectionism.
But I think the trade wars, as well as other demand for a change to the way things had been running, had been structured, are a direct outgrowth of that frustration.
Now, whether that economic populism has actually won out in terms of different policies is debatable. Certainly, with the trade wars, the protectionist, isolationist, more populist impulses have gained steam, again, in the Republican Party, as well as the Democratic Party.
But in terms of, let's say, the tax code, we just had this very top-heavy tax cut that passed a couple of years ago. And one could argue that that would cut against that populist impulse.
So there have been mixed actual policy gains for that movement.
I want to ask you both something that looks back and forth, because, in many people's minds, the most existential crisis of the moment — or coming moment — is the environment, climate change.
How does — and a lot of people would wonder, can our economics keep up with or how will it be shifted by what's happening environmentally?
David, what do you…
Well, I think it's a huge challenge.
There are two possibilities. One is, we do something about it. And that will cause great dislocations for the fossil fuel industry and the auto industry. Some of that's beginning. The other is, we don't do anything about it, and, you know, we lose half of Florida to coastal flooding and stuff like that.
Either way, there's economic impacts.
I think that the question is, will we do something about it? And will we do something about it in an economically intelligent way? Economists like the carbon tax, for instance. Or will we kind of do it in ad hoc emergency measures, fighting one hurricane at a time?
Catherine, what do you see?
I would agree with David that there is almost unanimous support amongst economists for a carbon tax.
However, you would see very little evidence of this amongst, for example, the 2020 Democratic candidates who are currently running for president. There is nary a mention of — or at least very little emphasis on a carbon tax, which economists think is the most effective tool that we have available to fight climate change.
Instead, there's a lot of discussion of a Green New Deal, which means different things to different people. And I think the real question is, how much is America willing to sacrifice? How much pain are we willing to endure to deal with this existential crisis?
To argue that there will be a free lunch and it will be completely painless to try to get climate change under control, I think, is unrealistic. But that is sort of the tenor of the debate right now.
Of course, the other way to think about this is that we are already paying a carbon tax of sorts. It's just being paid disproportionately by places like Puerto Rico and Florida and Texas and coastal areas.
All right, Catherine Rampell, David Wessel, thank you both very much.
Happy new year.
Happy new year to you.
Thanks. Thanks for having me.
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