The Federal Reserve has cut interest rates for the second time in three months in a bid to keep the U.S. economy growing. What indicators are driving the recent rate reductions, and what is the larger influence of economists on U.S. fiscal and monetary policy? Judy Woodruff sits down with Binyamin Appelbaum of The New York Times, author of “The Economists’ Hour,” to discuss growth vs. inequality.
Notice: Transcripts are machine and human generated and lightly edited for accuracy. They may contain errors.
Judy Woodruff:
The Federal Reserve cut interest rates for the second time in seven weeks today.
Let's take a look at some of the latest thinking behind this cut, the reaction to it, and the role the Fed plays, and, more specifically, the role economists play, in the economic fortunes and stability of the country.
The current chairman of the Federal Reserve, Jerome Powell, may not be an economist, but he is the exception. Nearly all his predecessors since the 1970s have been. And the influence the profession wields in key areas of American life has grown dramatically in that time.
Binyamin Appelbaum writes on business and economics for The New York Times editorial page. He is the author of the new book "The Economists' Hour," which tracks the rise of a number of prominent economists.
Binyamin Appelbaum, welcome back to the "NewsHour."
Binyamin Appelbaum:
Thank you for having me.
Judy Woodruff:
So, today, the Federal Reserve voted to cut the Federal Funds Rate by a quarter of a point. What was the reason they gave for doing this?
Binyamin Appelbaum:
Jerome Powell, the Fed's chairman, said basically that they're worried about the impact of uncertainty around global trade, that it is discombobulating the economy, causing concern, making corporations hesitate before investing, and weighing on economic growth.
Judy Woodruff:
And why do you think it wasn't more of a rate cut than it was, than a quarter of a point?
Binyamin Appelbaum:
It takes a lot for the Fed to move more than a quarter-point.
A move of more than that basically says it's an emergency, we need to do something really big. And Powell today really sought to project a message of calm. He said, we think that this is an appropriate and sufficient measure. We will do more if we need to, but we don't think we need to at the present time.
Judy Woodruff:
So the vote of the Fed Board was 7-3. It's somewhat unusual to see that kind of a division among — how unusual is it?
Binyamin Appelbaum:
It is, and not just that there was dissent, but that there was dissent on both sides.
They had one member of the board saying, we should be doing more, and two saying, we should be doing less.
You're really seeing some significant divisions inside the Fed about how to confront the situation. Everyone agrees that trade is a problem, but it's not clear how much monetary policy can help. And it's not clear how much help the economy needs.
And it's really causing a lot of debate inside the institution.
Judy Woodruff:
So we reported earlier President Trump clearly unhappy that they didn't cut rates any more.
Is there a way to read how much this pressure — public pressure from the president, how much of an effect it's having on these Fed Board members?
Binyamin Appelbaum:
I think that the job of running the Fed is not easy, even if the president is sitting quiet.
You face huge questions about the economy and its future course, a lot of uncertainty. But this additional pressure is clearly causing issues for the Fed. It's putting it under a spotlight. It threatens its independence.
It puts it under pressure to justify its actions to Congress and to the nation. It makes a difficult job that much harder.
Judy Woodruff:
But even setting that aside, is there any kind of consensus out there about whether the Fed is getting the economy right or not?
Binyamin Appelbaum:
No, just as there are divisions inside the Fed, there are divisions outside the Fed.
There's this broad disagreement right now both about where the economy is headed and about how much the Fed can do to help. If your problem is trade uncertainty, if businesses are hesitating because they don't know what's going to happen in negotiations with China, lowering interest rates by a quarter-point may not really affect whether or not they make investments, and that may not help the economy.
Judy Woodruff:
Well, let's use this as a chance to segue to your new book, which I mentioned just a minute ago, "The Economists' Hour."
The title is "False Prophets of Free Markets Fractured Our Society," in which you lay out the consequences of giving a lot of power to economists spread through government of the last few decades, who put a lot of stock in the belief that free markets are the answer to everything.
Just explain for us for a minute, Binyamin Appelbaum, what was that theory all about? How did they go overboard? And what do you believe the consequences have been?
Binyamin Appelbaum:
My book is the story of a revolution that began in the late 1960s and the early 1970s, where economists started playing a much larger role in shaping public policy, and specifically in urging that the government should step back from active management of economic conditions, stop regulating airlines, stop regulating the financial sector, cut back on taxation, and let markets sort things out.
And the real consequence of that has been a tremendous rise in inequality. The government stopped intervening to prevent inequality. It stopped viewing inequality as a public policy problem. And, as a consequence, we have ended up with a lot more inequality.
Judy Woodruff:
And you're saying this was the result of the influence of a number of prominent economists who worked in different places in the federal government?
Binyamin Appelbaum:
That's right.
So as they start to influence policy-makers, they come in, in the late '60s and early '70s and start basically saying to policy-makers, listen, the goal should — the focus should be on growth, and, if you're trying to deal with inequality, it will come at the expense of growth.
So instead of redistributing, what you want to do is get out of the way, let businesses concentrate and prosper, reduce taxation, reduce regulation.
And the effect of not trying to prevent inequality is that you end up with a lot more of it.
Judy Woodruff:
So what are you saying has to be done now to redress where we have been and what's happened?
Binyamin Appelbaum:
I think our problem is inequality. It has proved to be bad for both people who are suffering from a lack of opportunity and for the economy as a whole, because it prevents them from contributing as much as they could.
And, therefore, the answer is to do something we haven't done in more than a generation, which is to make reducing inequality a specific focus of public policy, to be asking of our public policies, are they leveling the playing field? Are they giving Americans a chance?
One easy example of this is universal pre-kindergarten, an area in which we know that, if you're investing and allowing children to get into the classroom, you improve their prospects in life. That's the kind of policy that we need.
Judy Woodruff:
And we're hearing that, aren't we, from some of the Democratic candidates for president? I mean, they're talking about policies to attack inequality, including things like universal kindergarten, but other ideas as well.
Binyamin Appelbaum:
I think this period in which the ideas of economists, and specifically their emphasis on markets, was dominant really came to an end in 2008 with the financial crisis.
And since then, we have been in a period of reappraisal. One view, which we have seen embodied by the president, is to sort of do away with the technocrats and emphasize a "kind of curl up in your turtle shell" nationalism.
Another approach is to try and take a more aggressive response to inequality. We're hearing that from a lot of the Democratic candidates.
Judy Woodruff:
Are you — are you — is it your sense that we have — that the country has turned the corner, that the idea of free markets, capitalism above all else is truly behind us when it comes to economic thinking, or there's still a battle under way about this?
Binyamin Appelbaum:
I think there's a growing consensus that we need something different.
But I think we are in a period again, as we were in the 1930s and the 1970s, where it's not clear what comes next, where there's still a profound debate about how we move into the next thing, what types of restraints we should place on markets, what role government should be playing in the market and in society.
And I think this presidential election is going to be substantially about those questions.
Judy Woodruff:
So, you're saying we're having those debates right now?
Binyamin Appelbaum:
Yes, indeed.
Judy Woodruff:
Binyamin Appelbaum, his new book is "The Economists' Hour."
We thank you for talking to us about that and about what the Fed did today. We appreciate it.
Binyamin Appelbaum:
Thanks for having me.
