Transcript: MIB Alan Krueger of Princeton, CEA.



Alan Krueger served as Chairman of the President’s Council of Economic Advisers, was a Cabinet Member from November 2011 to August 2013. He was Chief Economist of the U.S. Department of the Treasury in 2009-10, and as Chief Economist at the U.S. Department of Labor in 1994-95. He was a professor of economics and public affairs at Princeton University.

Listen to the full podcast at Bloomberg, on Apple iTunes, Overcast, Stitcher, or SoundCloud. All of our earlier podcasts are now available on iTunes. A few fond words in his memory are here.



BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This is a special podcast rebroadcast in the wake of the passing of economist Alan Krueger. Earlier this week, we learned some unfortunate news. He took his own life, we were deeply saddened by the sudden loss. I want to revisit the interview we did with him in the spring of 2015. It was a fascinating conversation, even though so much has changed since then. The economy has gotten better; we’re further away from the financial crisis, but we discussed the backdrop in economics, the Federal Reserve, his research on minimum wage.

I was astonished at what a fantastic conversation it was, and just how privileged I was to spend time with him discussing what he knew best. So with no further adieu, our conversation with the late, great, Alan Krueger from the spring of 2015.

My guest today is, what can I say about Professor Alan Krueger of Princeton? He was the Chief Economist for the Treasury Department and Assistant Secretary of Treasury. He was also Chairman of the Council of Economic Advisers under President Obama. Professor Krueger, welcome to Bloomberg.


RITHOLTZ: So I didn’t want to spend too much time waxing eloquent on your curriculum vitae, but suffice it to say you’ve pretty much won just about every award you can come up with, at least in the United States are for economics, and you’ve had a number of just really incredible posts when – both within the government and out. In the early ’90s you were Chief Economist at the Department of Labor.

KRUEGER: I was, 1994, 1995.

RITHOLTZ: And what does the Chief Economist for the Labor Department actually do?

KRUEGER: That’s a good question. It was a new position. Secretary Rice created it and I was the second one to hold it. I was very —

RITHOLTZ: Who’s the first?

KRUEGER: The first was my good friend Larry Katz from Harvard.


KRUEGER: Larry did a brilliant job and he left very big shoes to fill. I’ll give you an example. One of the reasons why Secretary Rice created the job was he wanted to have involvement with the National Economic Council, which was also a Clinton innovation. And the way the NEC was set up at that time, Bob Rubin was Chairman and Treasury OMB, labor, commerce where the members – so this was like a think tank but with all government representatives who are there to advise the President and the Cabinet. It was the place that ran the policy process.


KRUEGER: And it’s different from a think tank because it produced proposals that really mattered and it had direct connection to the President. So the way that Bob Rubin ran this process was very organized, the budget went through the NEC process, trade issues went through, and NEC was divided into domestic issues and international issues. Other departments had a separate person who would represent them on domestic and international issues.

Larry Katz was so skilled that he did both, so I had to fill those shoes and do both, which meant being involved in NAFTA as well as domestic issues like the minimum wage.

RITHOLTZ: So what were some of the policies that came out of that economic council. So NAFTA clearly was a big issue in the ’90s.

KRUEGER: NAFTA was a very big issue. The first Clinton budget which was after – I’m sorry, before I arrived which I think put us on a much stronger path in the early 1990s. The one significant domestic policy that did not come from it was healthcare reform. And I think one of the reasons why healthcare reform in that period didn’t do as well as it should have was because it didn’t come through the NEC process.

RITHOLTZ: In other words, the way it was formulated with the thought process of what’s the impact, what’s the cost, what’s the benefit, what is the thinking behind how some of these policies are developed?

KRUEGER: Well, economists have, I think, very systematic approach to think about – to thinking about policy issues. We think about efficiency. We think about equity. We think about what’s going to use our resources most efficiently and we think about what’s fair. And we divide issues quite clearly in that way and we make tradeoffs and – now, it might mean that a lot of our proposals are not politically feasible, but I think this is a very coherent framework.

And the process that was used for healthcare reform was much more ad hoc, I would say.


KRUEGER: Not nearly as systematic.

RITHOLTZ: So there’s pretty much an ever going tradeoff between what’s optimal, and what’s politically feasible, and what’s financially doable. Is that sort of the factors that get tossed about?

KRUEGER: Sometimes you hit the sweet spot and good policy is good politics and it’s nice when that works out. Other times, you have to make compromises between what’s politically feasible and what will do the most good for the economy. And one of the lessons I learned from having served in the government for five years of my career is that, you know, compromise is not such a bad thing. As long as compromise leads to better policy to improvement for the American people, we shouldn’t let the best be the enemy of the good.

RITHOLTZ: That’s the classic line. So you were at the Labor Department and the Bureau of Labor Statistics also has a huge group of statisticians, economists, econometric modelers, tell – for people who may not be quite as wonky as some of us are, tell us what the BLS actually does over the course of any given month or quarter.

KRUEGER: The BLS is housed within the Labor Department, but it has a tremendous amount of independence. For example, there’s only one employee of the BLS who’s a presidential appointee. That’s the Commissioner. Everyone else this career civil servant. The Bureau of Labor Statistics together with the Census Bureau conducts the monthly household survey, the Current Population Survey which produces the unemployment rate. It also does a survey of establishments, nearly 400,000 establishments are interviewed on a monthly basis.

And what is amazing to me about the BLS, those are its two most important products although it has many others is that on an ongoing basis, it collects, analyzes, and releases those data every month. And if you think about one – an enormous effort that is and to do it as carefully as I do it is quite impressive. And I think they are given a tremendous amount of respect and they’ve earned a great deal of credibility, because they do it in such a professional way.

They collect other data also. I would highlight the Employment Cost Index and I think the —

RITHOLTZ: Employment Cost Index, what exactly is that?

KRUEGER: The ECI, Employment Cost Index, is a measure of how much it’s costing for employers to pay their workers and it includes not only wages, but also health insurance benefits, pension benefits, vacation time. It’s calculated very much like the consumer price index and that the BLS goes back to the same companies, quarter after quarter, looks at the same jobs and looks at what’s happening to compensation costs within those very narrow categories.

RITHOLTZ: We left off earlier talking about the Economic Council, as Chairman of the President’s Economic Advisers, that’s also part of that Council, is that is that correct?

KRUEGER: That’s right. The chairman of the CEA plays an important role within the National Economic Council.

RITHOLTZ: So I think people are aware of what the CEA is. They know that you as the chairperson is the adviser to the President, but I don’t think people have a clue as to how that works either within the White House. Are you guys proactively suggesting policy? Is the President coming to the council and saying, “Hey, I have a question about this.” This minimum wage issue, what does it mean if we raise the minimum? How does that work? What’s the back and forth with that?

KRUEGER: It works in both directions. There are instances where the Council of Economic Advisers would make proposals typically within the NEC process where they get vetted and reviewed and other relevant departments would add to the analysis and help put together that proposal. And then there are other times where the President says, “Look, go back to the drawing board. Come up with more suggestions in this area.” Or, you know, the way I think about education is like this, here’s what I think you should develop a proposal on, so it works in both directions.

RITHOLTZ: So I was – I mentioned the minimum wage earlier and you have an expertise in not only labor economics but you’ve studied the minimum wage extensively. Let’s start out with Wal-Mart in February and then a month later was Target and TJ Maxx and then after that McDonald’s just announced the – an increase in their low wage workers to up the minimum wage. In fact, they want to pay $1 above minimum wage. What does this say about the economy today? What does it say about where we are in the economic cycle?

KRUEGER: I think it says a couple of things. First of all, when it comes to the labor market the invisible hand doesn’t always work perfectly. Sometimes the invisible hand needs a little bit of help. In the past when we’re in a situation like we are today where the economy is getting stronger, the job market is clearly tightening, a minimum wage increase helps the labor market to clear. And what we’re seeing from companies like McDonald’s and from Wal-Mart is they are stepping in and they’re raising their wages across the board. They are stepping into set a minimum wage imposing on themselves.

That’s not only market forces. That’s also, I think, a reflection of the fact that the labor market is a social entity. And worker morale is important. I think these companies will find that when they raise wages they’re going to get greater productivity from the workers, they’ll have lower turnover. So I think we’re in a situation in the economy now where things are getting tight enough that companies are raising wages and I think they’re doing it in a very interesting way which is imposing a floor on themselves which highlights the way the job market works, which is social factors have a role to play in the job market.

RITHOLTZ: So there are a couple of interesting things with both Wal-Mart and McDonald’s. With Wal-Mart, the data was that two thirds of their employees already working states that have a significantly higher minimum wage than the federal government. So this only affected a third of their employees and with McDonald’s, it was only at company-owned stores which are 10 percent of their – all of the McDonald’s in the country. There’s almost 15,000 McDonald’s restaurants, 1,500 are company-owned and so 90 percent of the stores and assuming the math holds up, 90 percent of the employees are not necessarily affected by this company on mandate.

So how significant is what these companies are doing? Does it vitiate the need for the minimum wage which is still at seven and a quarter and has seemingly been there for decades for there to be an increase in the minimum wage? And then, we’ll discuss what does raising the minimum wage do to the economy?

KRUEGER: I think what these companies have done is an important step. I think it’s an important symbol. McDonald’s, for example, cannot dictate wages to their franchisees. They’re separate businesses in a legal sense so the same way that they can’t dictate prices, they always say a participating franchisees …


KRUEGER: … is the same thing. Now, I hope that many of the franchise’s follow a suit and —

RITHOLTZ: Do you have any history? What happens when McDonald’s does this? Do – obviously, not every franchise, but you would assume that this sort of leadership is going to drive a little more action amongst the non company-owned stores.

KRUEGER: We don’t really have much experience with this. This is an unusual step that they’ve done. I hope it does drive action with franchises,
but it also highlights the need for the federal minimum wage to increase.

RITHOLTZ: That was my next question. So what would happen if the feds took the minimum wage up to – you know, I’ve seen three numbers get bandied about and they’re all kind of interesting. At $10 an hour, it’s a significant increase in the states that haven’t raised their minimum wage. At $12 an hour, essentially, you get the inflation adjusted number from – pick your point, 68, 72, whatever it is. And then $15 an hour takes a full time person working 40 hours a week and pretty much gets them up to a level and we could talk about Wal-Mart as well as the fast food industry where they’re no longer dependent on state and federal aid.

KRUEGER: I think doubling or more than doubling the minimum wage is a big step at once for companies to absorb. What we’ve seen in the past, if the minimum wage went up to the equivalent of $10 an hour, that’s something that companies mostly can absorb. And in the past, when states have raised their minimum wage to that level after adjusting for inflation, we haven’t seen job losses. In fact, what we’ve seen is that employees have more money in their pockets and they spend that money and that tends to help the economy overall.

RITHOLTZ: Net net it’s a modest increase in minimum wage or at least keeping up with inflation isn’t a job killer, because that’s always the issue, right? People always say, “There was a great study done where there was a change at a border, I think it was New Jersey and Pennsylvania. And on one side of the border, the minimum wage went up and a mile across the border there was another one.” Describe what happened there.

KRUEGER: Well, that was a study I did in the early 1990s with my colleague David Card. And to our surprise, I thought we were going to find that when New Jersey raised its minimum wage the fast food restaurants would have grown more slowly, fewer of them would have opened. In fact, we saw the opposite. They grew at least as much, probably a little bit more than the fast food restaurants on the other side of the border.

And we also found if you look within the state, within New Jersey, the areas of the state where the minimum wage was already above the new minimum, and wages didn’t rise. They didn’t grow as quickly as parts of the state where wages were low and wages were boosted by the minimum wage. And I should add, Barry, that was a study – I think that study was a turning point in research on the minimum wage.

Most of the subsequent studies have reached the same conclusion and there’s been some work, a very careful work looking at cross counties using government reported data from government tax records, for example, which tends to find the exact same result that at modest levels the kinds of levels that we’ve historically seen in the United States, minimum wage increases do not have an adverse effect on employment.

RITHOLTZ: Let’s talk a little bit about the Federal Reserve. What started in the weeks before we recorded this was former Federal Reserve Chairman Ben Bernanke wants to blog, go figure the Fed Chairman is blogging, and kind of got into this epic debate with Lawrence Summers, Secretary of the Treasury in the first Obama White House about the concept of secular stagnation, so let’s talk about all of this stuff. First, what do you think about the Fed Chief blogging?

KRUEGER: I think it’s terrific that Ben Bernanke he has started a blog. He has, I think, quite a bit to add to the public debate on these issues. Ben was a colleague of mine at Princeton for two decades. I learned a tremendous amount from him at the university. I worked with him when he was Chairman of the Fed. So I look forward to reading what he has to say.

RITHOLTZ: So – and that Princeton the Economics Department, Bernanke, Krueger, Krugman, who else is in that department?

KRUEGER: Alan Blinder.

RITHOLTZ: Blinder. I mean, that’s like the, you know, the “Murderers’ Row” on the Yankees back in the in the old days. So let’s talk secular stagnation, Larry Summers’ thesis and it’s been a Bill Gross, the “New Normal” and a lot of people have said this is, “Hey, we’ve come off a multi decade period of growth and expansion and now post-crisis it’s going to be ugly for decades.” What do you say about that?

KRUEGER: I’m skeptical of that view. I think the U.S. economy historically has managed to grow against a lot of obstacles. I think that will happen again. I think the financial crisis did have a lasting effect. On the other hand, I put a lot of confidence in the ingenuity of American entrepreneurs.

RITHOLTZ: You know, the sensation I always had coming out of the financial crisis, that was very 1970s like. I was a teenager in the ’70s and I just – the word malaise really sums it up and people in the ’70s thought America was over. They never regain their mojo and then the next thing you know the ’80s hit and everything from technology to semiconductors to the internet to mobile, the universe exploded and that – it’s always been a bad bet, says my pal Larry Kudlow, betting against America. Is that a fair statement?

KRUEGER: I think that’s absolutely right. I mean if you go back to the end of World War II, there were economists who thought exactly what you just said that Malays (ph) would set in, even Paul Samuelson thought we would slip back to a recession and then others said, “You know what, we’ve got very creative entrepreneurs. They’ll figure out new products. There was a lot of pent up demand coming out of the war then. Immigration helped to fuel the U.S. economy.” And I think those forces can work again.

RITHOLTZ: And you know you go look at the equity markets from 1946 to 1966, that’s an epic bull market. That’s a huge run, only surpassed by the next Malays (ph) and 1982 to 2000 another epic bull market. So let’s turn our attention now to interest rates. Rates are low. They seem to be going lower. They’re low around the world. Germany’s interest rates are now below Japan’s interest rates. If you want to buy bonds from the Swiss, they will charge you for the privilege. It’s a negative interest rate. We’ve never really seen an environment where rates are this low and what does that mean about the economy and what does it say to us about the impact of central banks?

KRUEGER: This has been an extraordinary period. There’s no question. And it’s hard to believe there aren’t sufficient investments that could be taken by private companies or by the government at such low interest rates that they would make a lot of sense. I think we’re seeing some big imbalances in the world economy. This is a point that Ben Bernanke he made about the global savings clot where we have countries which are running up very big current account surpluses and that’s depressing interest rates.

But I think if you look at countries like say China, there’s tremendous amount of scope for them to increase their domestic consumption. I think as they slow and I think here Larry Summers has done very good work predicting a slowdown and growth rates and in China. I think they’re going to turn more towards domestic consumption to continue to keep people happy to make them feel like their situation is improving.

RITHOLTZ: I’ve heard the complaint that, “Oh, it’s the Federal Reserve that has driven rates so low around the world.” How do you respond to that?

KRUEGER: The Federal Reserve has carried out its dual mandate extremely well. It has a dual mandate to try to create maximum employment and stable prices. Full – so create jobs and reduce inflammation, that’s really —

RITHOLTZ: And keep inflation steady.


RITHOLTZ: It’s shooting for around 2 percent. It’s not too far off of that in the grand scheme of things. So I think the Federal Reserve has helped the economy tremendously over the past five years. I think we’re in a much stronger position then, say, Europe because of the actions or central bank has taken. You have a background in labor economics, you’ve done a lot of studies, a lot of really interesting things with labor, so let’s talk a little bit about the labor force, this whole recovery. One of the things we hear all the time is, “Geez, there’s a lot of slack in the labor force.” What does that mean for a lay person?

KRUEGER: Slack means that we’re not using all of the resources that we can be using and the implication of slack is that it put downward pressure on wages, which would then put downward pressure on inflation.

RITHOLTZ: Are we coming to the end of the slack period of the cycle for labor? Is that the positive read in this?

KRUEGER: I think we are. I think what we’ve seen with the decline in labor force participation is what you would expect given the aging of the workforce, given that women’s labor force participation peaked in the early 2000s, and given that we had so many long-term unemployed. It’s the natural evolution of the job market that they exit the labor force and that’s what’s been taking place.

RITHOLTZ: So let’s describe this one. When we look at the population, you have the total civilian population in the United States is 310 or so million people. We then have a labor force all the people who are either working or essentially looking for work at 155 or so, where are we ballpark – 155 million and then you have people who are leaving the labor force. They basically said either they’re retiring or they just kind of give up on looking for a job, and people have been making a big deal about the declining participation rate in the labor force.

If I’m hearing you correctly, you’re saying some of this is a function of just the aging of the baby boomers, you have 60,000 people a day retiring and some of them is just – the peak participation of women explain that a little bit.

KRUEGER: What had been fueling our rise in labor force participation from the 1950s up until 2000 was more and more women joining the labor force. That reached the peak in 2000, the puzzle why. Labor force participation has since declined for women. It declined in the last recovery, so this is not new in the current recovery and it’s declined an – pretty broad base, well-educated women as well as less educated women, women with children, women who are not married and don’t have children. So it’s been a pretty ubiquitous phenomenon and that had been fueling the rise and labor force participation.

RITHOLTZ: And then we’re starting to see a little bit of a reversal of that.

KRUEGER: We’ve seen a little bit of a reversal over the last decade.

RITHOLTZ: So more recently the labor force participation rate seem to stop falling and actually started to increase. Is this just a little noise in the data series or perhaps we’re seeing that drop come to a halt?

KRUEGER: I think that’s noise. I think at best we could say labor force’s participation has stabilized. Maybe some of the young people who left the labor force to go back to school are coming back. I think that’s a positive sign, but that’s against the backdrop, as you said, of increasing number of baby boomers reaching the retirement age and retiring.

RITHOLTZ: So we’ve been talking a little bit about baby boomers and we’ve been talking about that post World War II era, let’s talk a bit about the middle class which based on what we’ve seen recently almost appears to be a post World War II phenomena, following World War II, you had everybody come back, you had all of these service men come back on the GI Bill and it seemed we had this giant multi decade boom and the middle class just exploded in terms of size and wealth, and that seems to be unwinding, what’s really going on with the middle class these days?

KRUEGER: The middle class has been under a lot of pressure and we’ve seen the middle class shrink. I think that’s unhealthy for the economy. I think it it’s one of the reasons why we are facing problems when it comes to aggregate demand, because the middle class tend to spend their income unlike very high income people who have a higher savings rate. And I think it’s bad for the country because I think our country works better when we have a broad middle with a common interest.

RITHOLTZ: So when we look at the people who are doing best in the country, the top 1 percent has done really well. Top 10 percent has done pretty well, but when we take the top 1 percent of the top 1 percent the 0.01 percent, they’ve done phenomenally well. What is behind that trend?

KRUEGER: They’ve done well in part because there are people there who come up with new products, very innovative people in part because there are people who inherited wealth. And increasingly that top 10th of 1 percent are going to be those who inherited their wealth as opposed to those who were successful entrepreneurs. But also, we’ve seen enormous changes in the bottom 99 percent. You know, if you look along education lines, I find the following calculation quite revealing.

If you took the top 1 percent and said, “We’re going to keep their income at the same shares.” It was 1979 and redistributed that to the bottom 99 percent, if one could, that would raise the average family’s income by about $7,000 a year. But if you then compare a family where you have a household headed by a college graduate versus a household headed by a high school graduate, the difference in earnings since 1979 has increased by $23,000 over three times as much.


KRUEGER: So it’s not only the top 1 percent that’s causing the shifts and inequality that we’re seeing and putting pressure on the middle class.

RITHOLTZ: You know, one of the fascinating stats I saw related to that was the unemployment rate amongst people with college degrees and then the unemployment rate amongst people with graduate degrees or science, technology, engineering mathematics degrees, it was low, low single digits, even when the unemployment rate was 8 percent, 9 percent. It was in the twos. Quite amazing that there’s a such a strong demand for those sort of employees.

KRUEGER: Increasingly, the U.S. economy has been demanding workers with higher levels of skills and you see that really throughout the distribution, not just graduate degrees but if you compare people who have skills in manufacturing skills and welding, they’re doing better than people who have just a high school degree and not a specific training in an area.

RITHOLTZ: BLS, one of the things we talked a little bit about the Bureau of Labor Statistics earlier, I found that anytime I had a question about a report or anything that came out, I had the ability to pick up the phone and actually get that economist on the phone who would walk me through what they did. Is this pretty standard operating procedure there? I was astonished by that.

KRUEGER: BLS is a very transparent organization. They’re there to help. They want people to understand what it is that they’re doing. They don’t want people to misinterpret their data, so they’re very open in that way.

RITHOLTZ: What is it like producing the sort of data they crank out every month? How many economists and statisticians work there and what is the process like creating those models?

KRUEGER: Well, it’s more data than models. You know, it’s really more interviewing households, interviewing businesses. For that unemployment report, the Census Bureau on the behalf of the BLS goes door to door to over 50,000 households.

RITHOLTZ: That’s every month?

KRUEGER: Every month. Now, they don’t go door to door every month, they go door to door the first time they interview them and then they say, “Next month, is it OK if we call you?”


KRUEGER: But on a rotating basis they’re interviewing over 50,000 households a month, giving them a short questionnaire, and then they’re processing the data, screening out mistakes if somebody misreported their income, for example. And then producing the unemployment rate and related statistics. This is all done by career employees. They don’t inform the administration about the results until the night before the data are released to the public.

RITHOLTZ: So the President gets a phone call, “Hey, tomorrow is nonfarm payroll, 125,000.” He finds that out 12 hours before everybody else.

KRUEGER: The President receives a visit from the Chairman of the Council of Economic Advisers.

RITHOLTZ: Oh, really?

KRUEGER: With a memo in hand describing what the next day’s report will be. The Chairman of the Federal Reserve receives a one page sheet called the Chairman’s data sheet with some of the key statistics that are going to come out the next day and also provided by the Chairman of the Council of Economic Advisers as does the Treasury Secretary.

RITHOLTZ: So I picture someone with the briefcase that’s handcuffed to the secret agent walking into the Federal Reserve, walking into the White House. It’s really not that cloak and dagger is it?

KRUEGER: Well, this is secure facts.

RITHOLTZ: A secure facts. Oh, that’s fascinating. And one of the things I found fascinating about the BLS was about 10 years ago, maybe a little longer, they changed the birth-death model and this caused all sorts of mayhem amongst the tin foil hat types. For people who aren’t economic wonks, what is the birth-death adjustment?

KRUEGER: Well, this is really inside baseball. But in the establishment survey that the BLS does every month, they don’t do a very good job bringing in new companies where if a company has failed, they don’t know for sure that it failed. Maybe it just failed to respond. It doesn’t mean necessarily it’s gone out of business. So to adjust for the births and the deaths, they have an additive factor. It could be positive, it could be negative. And that’s based on information that’s coming in from payroll tax records where the BLS could judge how far off it’s been in recent months and use that to make an adjustment.

I think the outside world tends to focus a lot on the birth-death model as opposed to the data that’s coming in. And the data that’s coming in from the establishments are really much more important than the birth-death adjustment.

RITHOLTZ: We had terrible news this week with the passing of the great economist Alan Krueger. It was my privilege of speaking with him in the spring of 2015. And this is a continuation of that conversation where we get more in depth and get into the weeds about economics, the Federal Reserve, and the labor markets.

My guest today, Professor Alan Krueger, not Krugman, not Alan Blinder, Professor Alan Krueger. People get that wrong all of the time. Don’t they?

KRUEGER: All of the time. Krugman and I we get each other’s mail.

RITHOLTZ: True story, about 10 years ago, I – my office was 300 Park Avenue, I have a cousin with the same name as me, Barry Ritholtz, he’s a lawyer. He was working for GoldenTree Mutual Funds. There’s no T at the end of his name, so he’s O-L-Z, and we’re in the same building and we would get each other’s mail. What are the odds that someone with the same name – and it’s not as – you know, if you’re John Smith, statistically …

KRUEGER: It happens all of the time.

RITHOLTZ: … right, but it was just always sort of fun. So Krueger, not Krugman, I have so many other things I want to talk to you about before we have to send you on, on your way. We talked a lot of a lot of misconceptions, a lot of errors people have, what do you think about economics or the BLS data or whatever? What do you think is the biggest misconception about economics out there?

KRUEGER: Well, I don’t know about the misconception. There’s kind of a paranoia that the BLS is a tool of the administration and is pressured to come up with particular results.

RITHOLTZ: And, you know, former, I’ll say this former GE CEO Jack Welch right before the November 2012 election, there was a fairly decent employment number and he infamously tweeted out, “Hey, those Chicago guys will do anything to win the election. They doctored these numbers.” And people were really astonished about it. He ultimately ended up getting pissy with Fortune quitting, storming off, how often do you run into, “Oh, the President is manipulating these numbers.”

KRUEGER: What was unusual about that episode, and I remember it very well it was October of 2012. The unemployment rate fell from 8.1 percent to 7.8 percent and he —

RITHOLTZ: Not a giant drop. A fairly – a healthy fall, but not anything ridiculous, certainly not unprecedented.

KRUEGER: Look at it with hindsight, it’s now 5.5 percent. We were clearly on a path then when the economy was getting better and he was denying it. And I was asked to respond to what he said and I said then what I’ll say today, “No serious person doubts the credibility of the Bureau of Labor Statistics.”

RITHOLTZ: That it’s a civil servant group. It’s not political appointees. Only one person in BLS is a presidential appointee.

KRUEGER: That’s true.

RITHOLTZ: You said earlier the Commissioner and all of these people are just lifetime economist, statisticians, and others. Look, the numbers may not be perfect, but it’s not some grants. The President is telling – now, we – to be fair, we’ve seen massive changes in the way things are done that have had a tendency to have an upward bias. We talk about the civilian labor force when you had a chain – was it – I don’t remember if it was Korean War or Vietnam – Vietnamese war. Somebody changed how that was counted to not include military and it had a beneficial effect. There have been tweaks like that.

KRUEGER: Look, when the Bureau of Labor Statistics makes changes, it does it in a very deliberate fashion usually with an outside group giving it advice. It made a major change in 1994 when it redesign the survey, which probably raised the measured unemployment rate. So it certainly makes changes to try to keep up with changes that are going on in the economy or to improve its measures, but it would not make a change in the middle of an election.

RITHOLTZ: And I’ve noticed that whenever they make a change, there’s an – there’s a footnote six months before we’re reviewing this, we’re taking comments about that. Here’s the proposed set of changes. I’ve been critical of the over focus on the BLS number because it’s a series and everybody obsesses about each month when you really have to look at the long term trend and you could have a really good number, a really bad number in any given month that’s still within that channel and being off of the average, very often it’s just noisy and as you’ve mentioned, the upward revisions.

So the most recent nonfarm payroll, I believe, was a pretty soft number and some of the revisions were kind of negative also. Now, is that the beginning of the end or does that look just like it’s a noisy data series?

KRUEGER: I thought we were due for a zinger and, you know, what are the odds that you’d get 12 months in a row over 200,000 if the true underlying growth was over 200,000. It’s not all that high. So it’s not a surprise to me in a way that we see one number which is out of line and —

RITHOLTZ: We get two or three more in a row, “Hey, that’s a problem.”

KRUEGER: Two or three more of unemployment insurance claims start to pick up if some of the other indicators come in. I mean, we —

RITHOLTZ: Let me jump in on that because – in my office we were previewing these numbers and talking about this conversation. And my head of research said, “Hey, be sure to say to Professor Krueger, see if he’s familiar with the fact that we’re at some crazy record low for initial unemployment claims. I think he said it’s back to 99. We haven’t seen lows like this in 15 years, is that accurate?

KRUEGER: Weekly initial claims are very low. I think we have seen them this low in the recovery, but they’re at the lowest point that they’ve been in the recovery. You know, one thing I’ll add, Barry, when I worked in the administration, I reached the conclusion that the UI claims are very informative and we haven’t changed the information that are coming out with the UI claims in 50 years. Why don’t we try to extract more from it, which industries are laying off people, what education groups, which age groups, and that’s something which the Labor Department has been looking into doing.

RITHOLTZ: So in other words take the data and try and slice it a little finer by sector, by education level, by geography.

KRUEGER: Exactly.

RITHOLTZ: What else do you look at there?

KRUEGER: Well, those are the main things and they do produce it by geography already. They do that with a week delay, so that’s already available. But I think we could learn a lot from industry because we know that manufacturing and construction tend to be more cyclical industries and in some sense, they’re a leading indicators. So I think we can extract more from these data and also knowing about the demographics I think would be very helpful.

RITHOLTZ: So let’s talk briefly about the nonfarm payroll, you know, it’s considered a coincidental or lagging indicator, it lags the business cycle. But there are parts of it that I always find fascinating within the nonfarm payroll data. I’ve always found the numbers for temp help to be very insightful because if companies are unsure about where we are in the economic growth cycle, but they’re starting to see a slight uptick in demand, they might hire a bunch of temp workers, and hey, if it works out, they become full time workers.

I’ve argued that that’s a little bit of a leading indicator. How wrong am I?

KRUEGER: I was going to say you’re pretty much in line with the research.


KRUEGER: And the research has found that temporary help trends are leading indicator.

RITHOLTZ: And then, what about an hour’s work? That’s another thing when you start to see the hours tick up, it’s always easy to say to somebody who’s got 20 or 30 hours, “Hey, here’s a little more time instead of going out and hiring a brand new person.”

KRUEGER: Well, hours worked are extremely important for a number of reasons. One, because it says how much labor is being utilized in production and that could be more important if you have a two-tenths, three-tenths of an hour increase in weekly hours that could be more important than the headline jobs number in terms of total labor input. It’s also important to people because it affects the income that they’re receiving. So I closely watch hours worked. And one thing I’ll mentioned which I don’t think it’s gotten enough attention is everyone is focused on the slack that’s coming from workers who are part time who want to be full time. But hours worked, they’re actually reasonably high and back to where they were before the recession.

RITHOLTZ: That was the question – so we’re hours work – because I remember ’09, ’10, when you’re coming out of it, we were in like 30.1 in that run. I don’t remember if we got below 30, but it was really the bottom of the 30s, where hours work now?

KRUEGER: They’re back to where they were in 2008 and if you draw a …

RITHOLTZ: Pre crisis.

KRUEGER: … pre crisis, 2007, they’re back to where they were in 2007.

RITHOLTZ: How many is that per week on average?

KRUEGER: It’s in the 30s but I couldn’t tell offhand.

RITHOLTZ: Up of 30s, mid 30s, because I normally should know this off the top my head and I don’t. So he’s going for the secret facts that he got from the Labor Department.

KRUEGER: No, that was on …

RITHOLTZ: Well, we just saw this on …

KRUEGER: … Tom Hinshaw (ph), I got some blue sheets which had it but I don’t recall …

RITHOLTZ: I’ll put it up while we’re talking.

KRUEGER: It’s 30 something.

RITHOLTZ: So – but it’s a significant improvement and we’re back to pre crisis level.

KRUEGER: It’s a significant improvement and it’s back to the trend that we were on prior to the crisis.

RITHOLTZ: So in other words, it’s going higher.

KRUEGER: It’s actually a little above that trend. Yes.

RITHOLTZ: So we’ve returned to trend and – so that’s kind of fascinating.

KRUEGER: So I don’t think there’s that much hidden slack in terms of work hours.

RITHOLTZ: So you had mentioned, let’s talk a little bit about the Fed, you had mentioned you thought the Fed had done a really good job. You know, what didn’t happen in this recovery whether it’s the Fed or Congress or what have you that would have made it better, faster, stronger?

KRUEGER: Well, I think Congress made a major mistake with the sequester. We cut back discretionary spending. We did it in arbitrary way.
we should be investing more in research and development, more in infrastructure, more in education, and Congress cut that back. On top of that, I think Congress could have extended the payroll tax cut into 2013. We had it in 2011 and 2012.

RITHOLTZ: Why? Is this still that just mad pursuit of austerity, that misguided pursuit of austerity? Has that argument been laid to rest when you see the austerity put in place by Europe and the much more moderate austerity in the United States how the two regions that recovered?

KRUEGER: I don’t know if it’s been put to rest, but I certainly take that as pretty strong evidence that the U.S. is doing better because we pursued a different fiscal policy and in different monetary policy for that matter.

RITHOLTZ: But we were pretty – in terms of historical, fiscal stimulations, you had the stimulus plan, but it was different than previous stimulus plans and that a big chunk of it was temporary, it was temporary tax cuts, it was temporary unemployment extensions. It wasn’t like a massive infrastructure build out and then you had all of these ongoing layoffs at the state and local level, so net net up until only a few months ago, total government hiring has been a dread on employment.

KRUEGER: Absolutely. You know if you look at the big picture which is government spending, including state and local together with the Federal, the stimulus only lasted about three quarters. It was just the end of 2009, early 2010. And since then it’s been phasing out. One might have said in 2009 that a risk of this stimulus was that it would become permanent, but that hasn’t happened, and if you look at state and local governments, while they were receiving support from the Recovery Act, from the stimulus bill, they weren’t laying off teachers and firefighters and police and it was only after that money ran out that we saw layoffs reach really historically high levels in the state and local government sector.

RITHOLTZ: Right and when we look at the 2001 recovery that was a huge additive to what the economy was doing.

KRUEGER: 2001 and the early ’80s, so only Democrats seem to be precedent when fiscal policy is working against the recover.

RITHOLTZ: Well, my argument has long been that the party out of power and I hope I’m not engaging in any false equivalency here, but the party out of power always complains about budgets and deficits and, you know, they’re arguing – what they’re really doing is arguing against the policy of the opposing party. And Republicans do it and Democrats do it, it just seems that this time with this President it was an effective argument that had gained traction from people who previously were the first thing in the world from deficit hawks.

You know if you supported Medicare Section D and unfunded tax cuts and a war of choice in Iraq, you’re spending a lot of money. I’m not arguing about those policies. You’re not a deficit hawk, if you’re going to deficit spend for those things. When the roles reverse who’s in the White House, suddenly you become very concerned about debt and deficits. It seems a little disingenuous.

KRUEGER: Oh, it’s even worse than that. And that – it wasn’t only the war that was costing money, it was also adding Medicare Part D prescription drugs without paying for it.


KRUEGER: And cutting taxes in large measure for high income earners and also without offsetting that was spending cuts elsewhere. So I guess I took a somewhat more partisan view having worked for President Clinton and President Obama. You know, President Clinton signed a Balanced Budget Act fiscally responsible act, President Obama wanted to address the drivers of our deficit which is healthcare costs and entitlements. That was part of the Grand Bargain negotiations —

RITHOLTZ: Along with military spending was a big issue that had an impact in the sequester.

KRUEGER: Right. That’s right. But military spending is winding down on its own. It’s been coming down on its own as we reduce our engagement in the Middle East. So, you know, actually if you look at the trends it’s quite remarkable because we saw a pretty sharp decline in military spending in 2012, 2013, and that was a drag on the economy. Ultimately, I think it’s better for those resources to be used for civilian purposes. But we haven’t really addressed the drivers of the deficit in spite of the emphasis on austerity because we haven’t done much to address the long run entitlement costs and healthcare costs.

RITHOLTZ: So that seems to be a partisan policy debate where the philosophies are so far apart, there’s almost not a, you know, normally, you can horse trade a little bit back in the days of Ronald Reagan and Tip O’Neill. There was a lot of back and forth and they weren’t so far apart that I got something you got something, all right, we come up with some – a policy that everybody can live with, declare victory, and move on to the next thing. As the parties get further and further apart and I don’t know if I would argue that both parties aren’t moving away from the center at an equal pace. As a former Republican, I could tell you that the right has moved further away from the middle much faster than the left has.

I haven’t changed my – you know, I grew up with Jacob Javits, a Republican, which today puts me too far to the left of, you know, anybody who’s a Democrat and half of the – anyone who’s a Republican and half of the Democrats. By the way, I just pulled up the BLS data manufacturing work week decrease at 0.1 hours to 40.9.

KRUEGER: Manufacturing work week is always longer.

RITHOLTZ: And then total employees on private nonfarm payrolls, 34 declined 0.1 to 34.5.


RITHOLTZ: So – but that’s still substantially above where we began.

KRUEGER: Thirty-four and a half is normal.

RITHOLTZ: Yes. That’s about the average?

KRUEGER: That’s, I would say, that’s about where you would predict we should be based on the trend before the recession.

RITHOLTZ: Factory overtime, 3.4 hours. Is that considered substantial with —

KRUEGER: It’s high. That’s high. And, you know, the durable goods sector has made a remarkable recovery, you look at the auto sector, it’s made a remarkable recovery in this economic climate.

RITHOLTZ: So let’s talk about that because it brings to mind a really fascinating conversation I had with Jonathan Miller who is one of the best known real estate appraisers. He’s on all of the time with Tom (ph) and others. Wherever credit is tight, that sector is doing poorly and wherever there’s loosening of credit, such as automobiles, people are now saying, “Hey, we have a subprime problem in automobiles.” We’re on a pace to sell 17 million automobiles in the United States. That’s a record number even as total miles driving still – I think, are we still below where we were pre crisis?

KRUEGER: I think so.

RITHOLTZ: There was a huge dip, we’ve recovered some of it. I think we’re about halfway back. But that’s a massive number 17 million.

KRUEGER: It’s remarkable. I mean, it shows how much pent up demand there was and it also shows I think that our auto companies are doing a better job. They’re producing better cars. If you look at Chrysler today, they’re totally different kind of car.

RITHOLTZ: And now owned by Fiat instead of – and same thing with GM. When you look at GM, I’m not a GM guy, but I have to tell you, the Cadillacs that have come out are really nice. The new Corvette is a spectacular car and their competition for the Camry and the Accord, it begins with an L and I’m not accessing that word.


RITHOLTZ: No. No. No. The Chevy Lumina is it, maybe it’s Lumina? Oh, no, it’s the Impala. The new Impala. When you think of Impala, you think of a giant car, but it’s their Camry/Honda Accord competitor. They’re winning all sorts of awards. It’s amazing how far the U.S. auto industry has come post bail out.

KRUEGER: Absolutely. I actually just wrote a new study together with Austan Goolsbee who is my predecessor as Chairman of the CEA on the auto bailout and it has been far more successful than we expected in 2009.

RITHOLTZ: I find Austan to be a fascinating guy. I was on a panel with him in Las Vegas some years ago about the bailouts and the conversation was, “Why don’t we do for the banks what we had done for GM and Chrysler?” You know, it always seems that when there’s a Wall Street person as Treasury in the Chief Treasury Department, Wall Street gets treated well. When you get a – like you did in most of the prior century, when you have an industrialist or a manufacturer or somebody from that side of the economy, Wall Street doesn’t seem to get bailed out, the manufacturers get bailed out. Is that just the nature of people protecting their own industry or to ask differently, why did we not treat the banks the way we treated GM and Chrysler?

KRUEGER: Well, it’s a very good question. First of all, I was involved when Tim Geithner was Secretary and Tim really is not a wall street person. He was a public servant. He spent his whole career at that Treasury or the IMF, then the New York Fed.

RITHOLTZ: But people have accused him as President in the New York Fed being very close to Wall Street. Is that not an accurate description?

KRUEGER: You know I think he should be judged by his actions and I think he was consistent in the principles that he applied to the bailout to the extent that he could have been. He was constrained by the law. I think he did a remarkable job protecting taxpayers. You know, all of the money came back and then some, the money that went to the financial sector during the bailout. He protected our system of the hierarchy for investors and bond investors and senior creditors.

And I think our recovery is a lot stronger because of the very difficult decisions that he was forced to make. The role of banks I think is pretty special in the economy, so I think one could make a case for treating the financial sector differently in the midst of a financial panic. The problems that the auto companies were facing were very long in the making. And they needed to restructure. It was not just a temporary problem that they were facing because of a run on banks which was in some sense the issue in the financial sector.

So I think one could fault the financial bailout. Personally, I would have liked to have seen us put more restrictions on the banks when it came to lending. I would have liked to have seen some requirements which eventually were put on that were done, for example, in the small business lending fund to encourage banks to lend more to small businesses. I would have liked to have seen the executive compensation restrictions last longer. But having said that, I think the stress tests and the use of TARP funds did rescue the system, did make it possible for the recovery to begin.

RITHOLTZ: So two bullet points, one observation, and then a question I have to ask you. I’m an automotive enthusiast. I love cars. My mother will tell you car was literally the first word I ever said. And one of the sites I used to read all the time, I mean, long before the financial crisis was called “The Truth About Cars” and they had a segment called “GM Bankruptcy Watch” part one through, you know, 200. And they were saying, “Here’s the math. It’s unsustainable.” GM can’t keep generous pension, generous healthcare, nine levels of executives, they can’t operate like this. It’s a house of cards that has to collapse and it turned out that that was accurate.

But – so the restructuring and the bailout and the resurrection of GM and Chrysler turned out to be a great thing for the economy, a great thing for the auto sector. So here’s the question I always ask about the banks. Yes, banks are important, banks are special, and that’s why we can allow insolvent banks to put the entire system at risk. We can’t allow crazy leverage. We can’t allow reckless spending and lending and speculation to put the economy at risk.

So here’s what the counterfactual I want to ask is, what would have happened early in the financial crisis if – so let’s refresh people’s timeline. You had March ’08, you had Bear Stearns go under, and the Federal Reserve essentially guaranteed to JPMorgan they would backstop Bear’s books, and it was sold for $2 a share and then $10 a share. It turned out to be a phenomenal acquisition for JPMorgan, a huge home run.

Then, as we worked our way through the summer, things started to get a little dicey. We had issues with Fannie and Freddie and the GSEs. I’m still not convinced that the American taxpayers made whole, they were tax waivers given, and offsets, and Fannie and Freddie’s – have been throwing off a lot of money. I don’t know if that’s breakeven. I think AIG is now breakeven, even including the tax benefits they got. I’m not positive about that.

So we’re almost but not quite made whole. We certainly didn’t get the benefits of that very risky investment. If I was an investor, “Hey, here’s billions of dollars one day I hope to breakeven on it.” Not what Wall Street typically looks for, but the counterfactual is what would have happened if we would have said to Citibank, “OK, you guys have had problems every 20 years, it seems. Let’s temporarily put you into receivership with Uncle Sam acting as the debtor, you know, creditor in possession, the provider of – the creditor acting as – offering all of the debt funding during this reorganization. We’ll wipe out the shareholders. We’ll give a haircut to the bondholders. We’ll fire that top level of senior management who clearly have driven the bus off the road into the lake and we’ll spin them out as a brand new entity.”

Same thing with Bank of America. The argument I used to say is we’ll clean up Merrill Lynch, we’ll get rid of their debt. We’ll spend them out as a free standing entity. We’ll take Countrywide, the biggest mortgage underwriters. We’ll clean them up. We’ll spend them out. They’re not a free standing debt free clean company. We’ll take Bank of America same thing, then we’ll take all of this what people are calling toxic debt which is on toxic assets which is really a bit – that’s toxic at 100 cents on the dollar.

But there are some price 10, 15, 20 cents where that’s a good investment and we’ll auction that off. And net net we’ll go – we’ll tear the band aid off, we’ll go through this painful process, but we’ll be much healthier on the other side. What’s wrong with that counterfactual?

KRUEGER: I think there are a few things and fortunately, the economy didn’t get so bad that that was necessary. It was something —

RITHOLTZ: How close are we to that point, though? People have said we were – the phrase I heard from Ben Bernanke was, “We were staring into the abyss.”

KRUEGER: We were staring into the abyss. There’s no question we were staring into the abyss. How close did we come? Well, the turning point was the stress tests. So had the stress test shown that Citi wasn’t as insolvent as you’ve suggested. I think a different course of action would have been taken. But given that the stress test help things to turn around, given that the stress tests provided investors with the information that they needed and the confidence they had, that they can invest, given that Citi was able to raise money at that time, was able to —

RITHOLTZ: Well, raise money from the government or …

KRUEGER: No, private money.

RITHOLTZ: … which stress test are we talking about?

KRUEGER: The stress test was at March of ’09.

RITHOLTZ: But I’m talking October, in October when the when the TARP was first passed.


RITHOLTZ: If that money didn’t go to these banks, they were toast.

KRUEGER: The money go to the banks, but had we pursue the strategy that you laid out, taxpayers would have paid much, much more instead of actually making money on these TARP investments. They would have lost hundreds of billions of dollars and I —

RITHOLTZ: Where would those losses have come from?

KRUEGER: The losses would have come from wiping out the debt that you’ve mentioned from recapitalizing the banks with government money. On top of that, I think you would be looking at least five years, maybe a decade of having those companies under government receivership.

RITHOLTZ: That long. It’s not a 12-month or an 18-month process, clean them up, and then take them public again.

KRUEGER: Look at some of the bank failures that we’ve seen. They’ve taken years and that’s banks that are 100 as large as Citi. On top of that had Treasury done what some people were in my view irresponsibly urging the Treasury to do which was to take over those banks, we would have seen a run on other banks and it would have made the problem much worse. If you’re going to wipe out the shareholders of Citi, what are you going to do if you’re a shareholder of Bank of America? You’re going to sell. That’s going to make Bank of America’s problems much worse and then so on down the line.

So I think we would have seen a wave of bank failures which would have cost the taxpayers billions of dollars and which would have set the recovery back years.

RITHOLTZ: So you think this was the healthier way to proceed. So I always look at —

KRUEGER: I think in retrospect there’s no question.


KRUEGER: I mean you could say that it was a mistake because it cost taxpayers so much money, but it hasn’t in the end.

RITHOLTZ: Well, the taxpayers had a lot of money at risk and now we know what the benefit of hindsight. All or nearly all or maybe even a little more than all have – has been recovered. So net net the cost to the taxpayers was not great. The risk to taxpayer money was fairly high. So the question I want to ask is, you know, pre crisis we had and I understand Sweden as much more than United States, but we had the Swedish approach which was throw everybody into receivership, clean them up, spend them out. And then we had the Japanese approach which is, “Hey, we have these vertically stacked Koritsus, you can’t kill back a Mitsubishi, because you have Mitsubishi Heavy Industries, and Mitsubishi aerospace, and Mitsubishi real estate on top of that.” And to go Swedish in the United States would have wiped out Goldman Sachs, Macy’s …


RITHOLTZ: … General Motors, right, they would have mean that sort of collapse. But why did this sort of thing work in other countries with financial crises? Is it just that Sweden is so much smaller than us, their financial crisis was just so much more, you know, manageable or what is philosophically different there?

KRUEGER: I think Sweden had maybe four major banks. You know, it’s just a totally different scale. And don’t delude yourself, taxpayers would have been at tremendous risk if the government would have taken over the major banks in the U.S. So it’s not as if a risky strategy was pursued and it paid off, and you got to take into account the cost of the risk, there was risk on either side.

RITHOLTZ: So it was a choice amongst risky strategies.

KRUEGER: It was the least bad solution.

RITHOLTZ: The least bad solution. So let’s go back to the Fed a second, what else should the Fed have done? And I have to remind people, there were many very creative, very innovative policies put into place if anybody was going to be the perfect Fed Chairman, it was the guy who was the student of the Great Depression and who was committed to not repeating those mistakes. So it – what else could or should the Fed have done post crisis?

KRUEGER: A couple of things and first of all I think the Fed could have done more to prevent the crisis. It could have raised lending standards and that’s something that Ed Gramlich had …

RITHOLTZ: Absolutely.

KRUEGER: … and get floored within the Fed. And I think it had to do with the mindset of the Fed which is probably still there that the banks could regulate themselves and it didn’t need to be very proactive.

RITHOLTZ: So let’s back – let me interrupt you right here. Ed Gramlich was a Fed Governor who had gone to Alan Greenspan who was the Fed Chairman and said, “We have a problem. We have a problem with subprime lending. We have a problem with predatory loans. We have banks mending – making loans to people who clearly can’t pay them back and when this default it’s going to cause a domino cascade.” And Ed unfortunately passed away before the crisis, but it turned out all of his warnings were tremendously prescient. He was 100 percent correct.

KRUEGER: That’s absolutely right and the Fed had it within their purview to say, “We’re going to require a 10 percent down payment.” And if you had 10 percent down payment, the value of a house falls by 6 percent to 7 percent. The owner is not underwater and you’re in a very different situation than if you have loans with nothing down or 1 percent, 2 percent down.

RITHOLTZ: There were actually cash out home purchases where you could buy a house and take a second at the same time, so you walk into the house $50,000 richer, no skin in the game, and every incentive to walk away.

KRUEGER: That’s right. So I do hold the Fed responsible for a very core component of the crisis.

RITHOLTZ: Not exclusively but they certainly were a major factor.

KRUEGER: Look, I mean, if the private sector didn’t have the collective delusion that home prices would continue to grow, we wouldn’t have had the crisis too, so that there were many factors that led to the crisis. I don’t think that one could say there was a single cause. On the recovery, I think where I would fault the Fed was in prematurely ending quantitative easing.

RITHOLTZ: You would have extended it further.



KRUEGER: But say QE2. So I would have had a more continuous QE2. I think they took their foot off the gas a little bit too soon and that’s led to this stop and start in terms of the QW.

RITHOLTZ: So I know we don’t have you for very much longer. Let me ask you one more related question on the Fed. Bill Gross had an interesting observation about Fed rates and he said, “You know, if the Fed didn’t take rates down to zero, had they stopped at 1 percent, it would have allowed the economy to appear a little more normal. It would have allowed them to have a little more flexibility and then all of the screaming about zerp and zero-bound and everything else would have gone away and the process of normalizing Federal Reserve policy would have been a little easier.” What are your thoughts on that?

KRUEGER: I find that argument hard to accept, given that the Taylor rule says we should have negative rates. So the Fed went as far as it could go and then it actually reinvented the playbook by going to quantitative easing. So to me that argument doesn’t make much sense and I think we’ve seen some countries make that mistake and then they decide to go all the way down to zero or as close as they can go.

RITHOLTZ: So in the final few minutes we have, let me ask you one or two more questions and I have my favorite question I asked everybody. First, what shifts do you see coming up? What are people not really thinking about that they really might – should be aware of?

KRUEGER: Well, I’m sure people are thinking about it but demographic shifts are having a tremendous effect on the U.S. Slower growth in the working age population, slower rate of immigration to the U.S. I think we missed the major opportunity to reform our immigration system. I’m disappointed that Congress wasn’t able to pass the bill, the Senate bill, which was not a perfect bill, it would have been a big improvement over our current system.

And I think businesses need to give a lot of thought to how the aging of the U.S. population, the slower or decline in labor force participation of women, how that’s going to affect their business model, how can they make work more flexible so they can attack more workers.

RITHOLTZ: And then my final question I ask everybody the same thing and I’ll ask you this. What do you know about your profession, about economics today that you wish you understood when you first started out?

KRUEGER: Oh, there are a lot of things. You know, the economics profession is an amazing field. Economics for me was attractive, because it’s about people. It’s about what matters in people’s lives and I don’t think there’s anything more important than having a job, so you can support the family, so that’s why went into labor economics.

I think we don’t have enough diversity of views in economics. I think people cling very tightly to their views and maybe that’s human nature. People are slow to update, to change their mind in spite of evidence. And I think it would be healthier for economics if we took a broader view, just one very simple areas, more economic history. We tend not to emphasize economic history in graduate education in economics. And the crisis that we live through had many elements in common with past financial crises and I think one would have done very well to understand Charles Kindleberger’s work on “Manias, Panics, and Crashes,” understand the Great Depression. So I’d like to see economic history become part of the core in economics.

RITHOLTZ: You know, there’s the old quote “Wall Street people are notorious about failing to learn from the past,” and there are all sorts of variations of that. If someone wanted to find your work, where would they go, how do they track down the things you’re producing?

KRUEGER: I have a web page which has all of my research on it; www.krueger – K-R-U-E-G-E-R – and the link there will bring people to my research.

RITHOLTZ: So that was my interview with Alan Krueger from the spring of 2015. Earlier this week, we’ve learned some unfortunate news. He took his own life and we were deeply saddened by the loss. It really was a privilege being able to sit down with him. One other thing I have to share about Alan Krueger, I was fortunate enough to have lunch with him before my interview with Serena Williams where he fed me a bunch of questions.

I’ve only been playing tennis a few years. He’s been playing for a lifetime. And he was just so generous with his time and so kind and helpful. He helped make not only his interview great, but the interview that I did with Serena that much better. Just a charming, generous, wonderful man, and he will be greatly missed. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.


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