Obama Adviser Jason Furman on Biden, Neoliberalism, and Keynesian Economics
"I would love an intellectual ecosystem in economics that was more ideologically balanced than what we have now," the Harvard professor tells Reason.
Jason Furman is one of the most influential Democratic economists of the past two decades. From 2013 to 2017 he chaired President Barack Obama's Council of Economic Advisers, where he helped shape tax, trade, and labor policy during a period of slow but steady postrecession recovery. Before that, he played a key role in crafting the 2009 stimulus. Today he is a professor at Harvard and a senior fellow at the Peterson Institute for International Economics. He's been in the news for his withering critique of former President Joe Biden's dismal economic record and his two-fisted attacks on President Donald Trump's trade policy.
Furman is perhaps best known for his technocratic approach to economics—he defends markets, trade, and budget discipline within a framework of pursuing broadly progressive goals. That makes him something of an outlier in today's Democratic Party, which moved sharply toward industrial policy, protectionism, and deficit-financed spending under Biden. In a recent essay titled "The Post-Neoliberal Delusion," Furman critiques this pivot and defends the "neoliberal" consensus as a coherent, rigorous, and beneficial way of thinking about economic policy.
In April, Furman went on The Reason Interview With Nick Gillespie and discussed why the Biden administration's marquee initiatives—from the American Rescue Plan to student loan forgiveness to the CHIPS Act—failed to deliver on their promises. He explains why populism has eroded confidence in markets, why tariffs are bad economics no matter who imposes them, why serious budget reform remains politically elusive, and why he is now optimistic about artificial intelligence. He also reflects on what it means to be a market-friendly Democrat in an era of big-government revivalism.
Reason: You recently wrote a piece called "The Post-Neoliberal Delusion," talking about the failure of Bidenomics. How do you define neoliberal?
Furman: It's often defined in the negative. If I had to do it in the positive, it is [someone who], one, understands gains from trade—that when you have markets, when you have exchange, you can end up with more for everyone. Two, respects that decentralized decisions can result in the best outcome. Three, [knows] that scarcity is at the heart of all interesting public policy problems, and you have to respect tradeoffs. At a macro level, that means you have to worry about the budget deficit; at a micro level, that means you have to do cost-benefit analysis. Finally, something that follows from all of that, [a neoliberal doesn't] have an automatic, easy answer to any question. You really have to do the analysis and figure it out—so there's some technocratic mindset associated with it as well.
Neoliberal is often invoked as a term of derision. When did it start getting used in that way?
It really exploded about a decade ago because there wasn't, at least on the Democratic side, a very well-articulated alternative to it. In some ways there isn't, but there's a set of them. Modern Monetary Theory, [which says] deficits don't matter. A neo-Brandeisian approach to antitrust that says big companies are presumptively bad. The focus on greed as a cause of inflation and stopping greed as a solution to inflation. And industrial policy. These are different strands, but they all combine together in a rejection of gains from trade, decentralization, and the importance of taking tradeoffs seriously.
This is a pretty lonely place you're occupying as somebody who identifies with the Democratic Party, right?
It's not totally lonely. President Obama put a lot of effort into negotiating the Trans-Pacific Partnership, a free trade agreement with our friends in the Pacific. He had a proposal that I spent a lot of time on—corporate tax reform that would've lowered the corporate tax rate. And he was, I think, pretty sympathetic to the markets.
At this point, it's mixed. It's not like people don't listen to economists. But in the Biden administration, the policy took a turn against this, and the rhetoric took a massive pivot against this. In some ways, the language turned even more than the policy did.
It mostly blindsided me. Obama is quite cerebral—he comes at things from the perspective of ideas and policy—and may end with a big dose of politics. Biden pretty much starts and ends with politics. He has certain things he likes. He definitely likes labor unions quite a lot, so that part was not a surprise. But the degree to which he adopted something that was much more toward the left within the Democratic Party, that did surprise me after he ran in the primaries as the centrist.
There's a shift on the right, also. Trump is post-neoliberal. He does not like global trade. He does not like market forces. To some degree he's more pro-business than others, but he's antagonistic toward the liberal project. Since the collapse of the Soviet Union and the creation of the World Trade Organization, life has improved for the vast majority of people in America. Why do people not see that, and why are they captivated by more protectionism?
President Trump, in some ways, is an even bigger rejection of anything resembling economic analysis, and for the most part has eschewed any intellectual rationalization of it. Some people like Oren Cass attempt to provide some intellectual foundations for it, but for the most part that's actually not what Trump is interested in.
In the wake of the tariff announcements, I thought it was striking how many people from the administration, including the Treasury secretary, went out to talk down big business as a globalist project, as something for the elite. "We don't care about the stock market, we don't care about the businesses." They're pivoting pretty quickly away from business.
So what's the commonality here? There's always the sense that things used to be better—if we could just get back to the golden age that was. That's been a powerful thing throughout humanity. That siren song has been more powerful in the wake of financial crises. That's where populists often arise. When Trump first rose, we weren't that far past a financial crisis. We've just had another enormous amount of dislocation in our country, both from COVID and through a set of extremely rapid cultural changes. So I tend to blame that, rather than looking at the statistics on median family income, which has grown quite strongly, or even wage inequality, which has actually fallen.
Biden spent a lot of money on big bills.
Let's tick through five quickly. There's the American Rescue Plan, $1.9 trillion, and the main thing we got from that was inflation. It's possible there was a slightly faster recovery, but the U.S. recovery wasn't actually much faster than any other place, at least in 2021 and into 2022.
Second, student loan relief. This, to me, in many ways, was the most egregious. This was done in August 2022. Inflation was raging, the deficit was high, interest rates were high, and another $500 billion was poured on top of that without Congress authorizing that money, in a way that I think is quite abusive of presidential authority.
Third, infrastructure. Here, I have a mixed view. I think it's a noble, worthwhile goal, but it was accompanied with so many new rules and restraints on how the money would go out. Moreover, so much money was spent so quickly in an economy that was already overstretched that it ended up driving prices up rather than getting more infrastructure.
Fourth is climate. Here, I like a lot of it. I would love a carbon tax. To me, that's the simple solution. You can't pass one. That's not Biden's fault. There was a combination of subsidizing the use of wind and electricity. I think that's OK. Those use less carbon. But there was also a lot of remaking American industry, so we would make solar panels in the United States. That's where I'd get off the train. I'd rather just buy the cheapest ones from around the world.
And finally there's the CHIPS program. From an economic perspective, I think we're going to get worse microchips and not create great jobs. National security and resilience, I think it will be a plus. And that plus outweighs, for me, the economic minus. I'm willing to pay a cost in terms of efficiency to have microchips made here, instead of all in Taiwan.
And that's where the cost-benefit comes into play. If you tell me that you think your microchip plan is going to create more jobs and better jobs and increase economic growth, I'm not going to believe you. If you come and tell me, "You know what? It's going to cost some money. It's going to be a little bit inefficient, but here's what the national security benefit is," then we can go back and forth. How big is the economic cost? How big is the national security benefit? Is it worth it?
Is it just simply political posturing that Democrats are not going to admit that policies that their guys pursued caused inflation, just in the same way that Republicans won't admit it when it's their guy?
I think there's a real problem with the way information is aggregated and transmitted. There were some people I know when that first stimulus bill passed who were emailing me, "Hey, this is really too large, but I don't want to undermine Biden by saying that." Or in the student loan case, "This is a bad policy, but I don't want to get destroyed the way I saw you get destroyed on Twitter."
I've had people reach out to me who have said, "Hey, aren't the Trump tax cuts going to cause inflation, Jason? You should write about that." I'm like, "Weren't you the same person that a couple of years ago told me the Biden fiscal expansion wasn't causing inflation?"
It's hard to think outside your own bubble and your own ecosystem, and all of this creates a false sense of what people actually think when a lot of people aren't saying what they think.
What is wrong with the way that Trump is imposing tariffs?
Basically, every step of Trump's mentality on trade is wrong. First of all, imports are good. We like to import coffee. We like to import cars. We like to import the inputs we need for American manufacturing. Second, trade deficits don't reflect other countries' tariffs and trade policies. There's countries with huge tariffs that run large trade deficits. There's countries with low tariffs that run trade surpluses. Third, our retaliation against them is going to shrink imports, but it's also going to shrink exports. And that hurts consumers on the import side; it hurts American workers on the export side. Every step of his reasoning and fixation on trade deficits is just the wrong way to think about trade.
Trump went so far that I think he discredited it for even many people on the protectionist side. People like free trade more than they ever did before. But he has shifted the Overton window enormously. He did this initial reciprocal tariff announcement. Then he took away some of the so-called reciprocal part. That left the United States with tariff rates that are the rates that prevail in Iran, Venezuela, and a bunch of other countries that aren't nearly as economically successful as Iran and Venezuela. And that's now become the reasonable, moderate, decent position. The Overton window has shifted, and I'm not sure how we can shift it back.
Do you think there's any chance in hell that we're going to get back to a budgeting process where any of this is actually taken seriously?
I think there's three broad ways that we could get back to that. One is higher interest rates could start to put pressure on politicians to take the debt more seriously. Even with the interest rate increases we've seen over the last couple of years, we're nowhere near the mortgage rates we had 40 years ago. Second is the Social Security and Medicare trust funds get exhausted. And there's no real economics there—the government could just pass a law saying ignore the trust fund, but it has a sort of magical significance, and that's a good thing, and we should want to hold onto that. So that could force action. The third thing is just, for whatever reason, voters could start to care more about it. In 1992, Ross Perot centered his third-party presidential bid around debt and deficit.
But how do voters get motivated to care about this rather than that?
I'm never sure how much of these issues are already out there in the electorate and a skilled politician discovers it, vs. a skilled politician helps change people's minds and convince them that something is an issue. Did the people cause Ross Perot, or did Ross Perot cause the people? Either way, Ross Perot did cause Bill Clinton to take deficit reduction more seriously and campaign on it, and resulted in him doing more deficit reduction than he probably otherwise would've done.
How do we get a handle on things like Social Security and Medicare? What is your preferred solution to deal with entitlement problems?
If I had to write it on a specific Social Security plan, I would extend the payroll tax to cover health insurance—the employer contribution to health insurance. You would lose the exclusion for it, so you'd get more revenue in.
I would then take steps that would cut Social Security benefits from their current growth path for, say, the top one-third of beneficiaries. Doing more of that with the retirement age, both delaying when you can start getting benefits, which has been at 62 for a very long time, and the normal benefit age, and I would even strengthen what they do to reduce poverty. But these are all tweaks.
It needs to be bipartisan. Neither party is going to want to do this on their own. But anything that's real requires pain. Anything that requires pain, both parties need to be involved with.
Has anything shaken your faith in Keynesian economics or the idea that the government should be managing overall supply or demand?
As an economic matter, nothing has shaken my faith in a Keynesian approach. In fact, if anything, I think we've seen that it really can make quite a big difference.
At the level of politics and human decision making, I'm now less enamored by the expertise and genius of our Congress. And also the Fed I think has done on balance a good job, but there have been times I think it has gotten things quite wrong. The error of recent years has been keeping interest rates on the low side.
I think monetary and fiscal policy really matter, but I think people often misapply them. I would like more rules. Automatic fiscal rules. The unemployment rate goes up, money goes out; the unemployment rate comes down, money comes back. Same thing with interest rates—basically, a formula to set interest rates. I would have the Fed chair, every time they do something different from what the formula said, get up there and say, "Here's what the formula said to do. Here is why I went out and chose to do something different than that formula." So you'd make it more of the default. I now have more sympathy for policy rules.
John Taylor, who's in some ways an heir to Milton Friedman, came up with the Taylor rule. And for a long time, Republicans were like, "Hey, this is the thing you should do." I now have a little bit of the conservative understanding and skepticism of the wisdom even of the very best experts. A dumb formula isn't perfect, but it probably is at least less biased than you might get from people.
Do you feel like economics as an academic discipline is becoming more and more tainted by politics and ideology?
I think the process of refereeing, of debate, etc., is healthier than it is in most of the social sciences. That being said, if you look under the age of 50 in the economics profession, most people are on the left. They're not on the right. And that does affect the questions that people ask, the moral approach that underpins their work, and maybe the amount of effort they put into trying to find errors.
I would love an intellectual ecosystem in economics that was more ideologically balanced than what we have now. I don't think it's terrible. There's certainly not discrimination. A lot of the key institutions are run by people that are older and Republican. But I think we'll get better answers to the questions we care about with people coming at it from different perspectives. And the main different perspective that we're missing is one that's skeptical of government, skeptical of the wisdom of the people turning the knobs.
A few years ago, you wrote that you didn't think artificial intelligence would be that big a deal or very disruptive. Now you seem to be much more bullish on AI. Can you explain why?
First of all, I still have the same view I had before, which is our core problem now is that we have too little AI, not too much. Productivity growth, in some ways, is a measure of how many things people used to do that machines can now do, and it's not nearly high enough. I'd like to see it much higher.
On the disruptive side, I also continue to think that AI is going to make new types of jobs, that it's only going to replace parts of some types of jobs, that it's going to make us richer, so we're going to want to consume more services. So, in broad strokes, I still think the same thing. I'm just much more optimistic because they made breakthroughs at a pace that a lot of the experts in this area didn't think they would.
Now, another piece of AI that I think has been really interesting to me is how you think about the digital giants and about competition in the digital space. I continue to be concerned. I think antitrust enforcement is important because I think competition is the source of innovation.
Talk about AI and the fear that we're going to wake up tomorrow and whole industries will be gone, and there won't be any jobs left for certain types of people. This is a classic example of people thinking of technology as something that robs us of work. Why are we prone to think that a new technology that actually makes things more productive is going to put people out of work?
We have hundreds of years of experience with this. No one could have imagined what would happen in a world where most people weren't working on farms. What do they all do? What else is there to do other than food? Our imagination isn't that great, but it also doesn't need to be that great, because that's the beauty of the market. Everyone's out there—the businesses, the individuals trying to find new things, trying to start a new business, trying to figure out a new job. And the central planners don't figure that out. It's sort of a Hayekian spontaneous order, and it's worked out pretty well for a long time now. So that would be my best guess going forward.
There's also disruption. The Luddites weren't wrong. These machines were bad for the Luddites. They were good for society as a whole, but not for them. And so part of why people are nervous is because they don't understand what's going to happen, and if only somebody could explain it to them, they'd be thrilled. Part of why they're nervous is because they do understand that it won't be good for them, and it's hard to make the longer-term positive-sum case for the world. But if you constantly make whatever decision is loss-minimizing over the next minute, but has costs that grow over time, you'll end up more like Argentina over time and less like the United States.
This interview has been condensed and edited for style and clarity.