In February of this year the United States was enjoying its longest economic expansion in history, a record-breaking period of rising markets and falling unemployment. Economists were beginning to sound alarms about an inevitable market correction, but what seemed equally inevitable — and more concerning to many — were the impending consequences of climate change. Oceans were warming, wildfires were raging in California, Australia, and the Amazon, and experts were warning of unprecedented disruptions.

That month I read an article in The New Yorker about the “degrowth” movement, which suggests that hypercapitalist impulses are contributing to climate disaster. Proponents of degrowth say that rising gross domestic product (GDP) in some countries is endangering an already crumbling ecological system. They see further economic expansion as a threat to us all.

As an example of a different point of view, the article’s author mentioned Dietrich Vollrath, chair of the economics department at the University of Houston. Vollrath’s book Fully Grown: Why a Stagnant Economy Is a Sign of Success, published this past January, presents the argument that there’s no need to slow growth down — we’ve already done so. His research shows that our GDP has stagnated as a result of demographic changes and consumer choices: by shifting more income toward service-based industries, we’ve moved away from manufacturing and are producing less, which isn’t a bad thing in his eyes.

Curious to ask Vollrath how his research might apply to the climate question, I arranged to interview him in Houston in March. Then the coronavirus outbreak reached the U.S., and my trip was canceled. As the economy imploded and the first wave of unemployment numbers rolled in, Vollrath and I decided to talk by phone, and the conversation shifted to how fragile our economy still is twelve years after the mortgage crisis.

Vollrath grew up on a dairy farm in rural Wisconsin — “milked cows, fed chickens, the whole shebang,” he says. “Could not get away fast enough.” A self-proclaimed nerd, he enjoyed math, and the economic situation in his community gave him an early understanding of fiscal matters: When the Federal Reserve hiked interest rates in the 1980s, mortgage rates for farmers became crippling. His mother worked part-time at a bank that provided loans to farms, and dinner conversations were often about financial struggles.

Entering college at the University of Michigan as an engineering major, Vollrath soon grew bored with wave mechanics. Economics appealed to him, and he says the questions asked in class sounded “cooler” than “How do I make sure this circuit gets the proper amount of voltage?” He switched majors, went on to get his PhD from Brown University, and has worked at the University of Houston since 2005.

For someone whose life’s work involves crunching data, Vollrath is a surprisingly unstuffy, jovial conversationalist. We spoke on four occasions between March and June, each time revisiting the same essential points: What has the pandemic exposed about how our economy is structured? When will the financial distress end? And — as George Floyd’s death at the hands of Minneapolis police officers resulted in protests in every state against systemic oppression — how can we make the economy more equitable for all Americans?


536 - Dietrich Vollrath


Cohen: What are your thoughts about how we might recover from what the pandemic has done to our economy?

Vollrath: The rough consensus is that this isn’t what people call a V-shaped recession, where in August everything will bounce back and by the end of the year the country will basically be operating the way it was before. That seems really unlikely. When are the majority of people going to feel safe going back to movies and restaurants and shopping centers? It’s probably going to be a year, year and a half before everyone is comfortable doing that again. I’ve been talking to a faculty member who’s older than I am and has had some medical issues, and it doesn’t matter whether they open our campus or not — he’s not coming back and teaching in a classroom. It’s just too risky for him.

But I’ve obviously been paying a lot of attention to the protests that are happening. The motivating force is George Floyd and Breonna Taylor and other black people murdered by police, but other frustrations are bubbling up, with racial income disparities and wealth disparities and educational differences and redlining [systematically denying loans and government services in black neighborhoods — Ed.]. All those things are now coming together. So what will it change? I don’t know. But I hope it changes something.

What’s interesting about the protests is that the virus just disappeared off the collective radar in some sense. But it hasn’t gone away. This is very economist of me, but there are costs and trade-offs to everything. And for protesters the injustice of George Floyd’s murder has outweighed the risks of being exposed. Until now a lot of people were choosing to stay home and stay healthy. But now something became important enough for them to take the risks.

Cohen: There are calls for “defunding the police” and redistributing some of the money currently being used for police departments.

Vollrath: It’s a question of priorities. We’re going to have to use tax dollars to provide certain public goods. Why are cities spending such a large percentage of their budget on cops? If we flipped the spending disparity around and spent more on social services, we wouldn’t need as many cops. Let’s talk about our city budgets or our county budgets and how we want to be policed. Nothing about making changes to those budgets is going to destroy capitalism or the American way of life. The question of how we want people to be treated transcends any ideological concerns about whether we’re mucking around in the market.

Cohen: With 40 million people unemployed, and black communities disproportionately affected by the virus, it feels to me like, if the government isn’t going to step in, we as individuals need to make a moral decision to start to spend our money differently, beginning with donations to organizations dedicated to social justice.

Vollrath: My wife and I are trying to spend our money to make things more equitable. I’m all for it. But if you want to distribute money to people efficiently, the federal government’s the logical way to do it. Having lots of people make individual decisions to donate is great, but it’s kind of like waiting for the local rich guy to decide when we’ll get a new school in town. All of us making lots of small donations is not going to affect some of the disparities. It’s a start, and I think it’s making people conscious of those disparities. We also need to be more conscious about voting and about making noise in our communities. Maybe people will be willing to accept higher taxes if the money is being used to address these disparities. That’s more efficient than having lots and lots of small donations. Some of these problems that need to be addressed are big. Bail funds are awesome. My wife and I donated to one of these bail funds. But that doesn’t address the disparities. What addresses the disparities is voting to end cash bail.

One of the values of these protests is that they are making a lot of people like me, who are in really comfortable positions in life, step back and see that there are tons of little cuts and nicks and bruises everywhere, and there aren’t enough band-aids. This is bigger than our sending a hundred dollars to a bail fund. This requires systemic change.

Cohen: But even when the immediate political and health crises in our country subside, it’s not likely that many people will be coming out of this with spending money to put back into an economy.

Vollrath: This crisis demonstrates how much economic activity is dependent on everyone’s participation. Students pay tuition, which pays me. My income was their expenditure. And my expenditures become the income of a local business owner. If I’m not willing to spend my money at his restaurant, then he’s not paying his employees, and so on. We can’t all hold on to our cash and hope the economy recovers: “You guys go first and get everything up and running, and once I see things are going well, I’ll start spending my money.” Without all of us doing it at once, the economy is going to remain stagnant.

But the federal government can step in and help out by absorbing a bunch of debt and paying it off later. It can give money to state and local governments so they can, for example, pay firefighters and not have to fire people. Even if you believe in laissez-faire governance, in this critical situation we need a central coordinating body to deal with the pandemic and prime the economy. The government needs to start spending so that everybody can start spending.

Instead the president has said out loud — not muttered under the breath at all — that the states are on their own in this crisis. [Laughs.] Which I think has been the attitude on the Right for a long time. If there’s one redeeming quality to the current presidency, it’s that things that have been muttered under the breath for a long time are being said out loud. You don’t have to speculate about their motives.

In Denmark the wage supplement gave companies the money for their employees’ wages within forty-eight hours. . . . In the U.S. the aid has to move in indirect ways: “Let’s prop up the stock market and hope that has ripple effects.”

Cohen: You mean things that have been muttered under the breath by other administrations or by this one?

Vollrath: I mean this decades-old idea that the government is the problem, not the solution. In the 1980s Ronald Reagan joked, “The nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’ ” But even Reagan wouldn’t have told the states they’re on their own, and the federal government was not going to bother coordinating efforts. What was a good political joke in the past became embedded in the ideology of much of the Right, and now we’re seeing the consequences.

Cohen: The first time the virus really got this administration’s attention was when the markets began tanking, not when experts predicted a million people could die. It seems like, as a country, we’ve embraced the idea that the stock market needs to be protected. Even the Obama administration’s response to the 2008 crisis was essentially to bail out the markets and the financial players who’d created the problem, while most people suffered. And in this particular case, people will suffer far more severely.

Vollrath: The habit of looking just at the financial markets — the stock market, the bond market, the derivatives market, and so on — is not unique to any single part of the ideological spectrum. Anybody involved in the federal government has tended to look at markets more than is probably appropriate. Here’s the problem with that: Say there’s a thermometer in my house that tells me what the temperature is. If I feel cold, the solution is not to put my lighter next to the thermometer and say, “Hey, look, the thermometer went up. Now it’s eighty in here.” The solution is to turn up the furnace. Too many people view the thermometer — the Dow Jones Industrial Average or the S&P 500 or whatever — as some reliable indicator of the economy, and it’s just not. It’s one piece of information. The economy and the financial markets are two different things and don’t always move in the same direction or respond to the same remedies.

One major flaw in the federal government’s response to this pandemic has been its failure or inability to assist people directly. The ultimate goal is to assist households and families and individuals, but that seems really hard for our government to do. Sending checks to people is technologically difficult, and state unemployment-insurance systems are struggling to meet demand. It’s easy for the government to give a loan to a large company that has an established relationship with a bank, but it’s hard for it to give a loan to a local restaurant. So the federal government deals with big entities and hopes that the relief rolls down and reaches the people who need help. This means the money has to move through these intermediate institutions — through the market, through large corporations. And that’s inefficient. The money gets blocked up, and the relief effort doesn’t have the desired effect. So we saw Congress debating how to put rules in the stimulus legislation to make sure companies use the money to support their employees. We wouldn’t need to negotiate the rules of the loan program if we just sent money to people.

Denmark and Switzerland instituted stimulus programs of a similar scale, but they were more efficient. In Switzerland if a restaurant applied for a loan, it got the money two days later. And in Denmark the wage supplement gave companies the money for their employees’ wages within forty-eight hours. The aid went right to the people who needed it without having to go through this torturous process. In the U.S. the aid has to move in indirect ways: “Let’s prop up the stock market and hope that has ripple effects.”

You might say we have a plumbing problem. We need pipes that carry the money directly where it needs to go. Instead we have something like a Rube Goldberg machine: you add money here and hope it has an effect over there. If you really want to help households, why not just send them a check every month? Then people’s choices about what to buy will influence companies’ value on the stock market. The boost to the stock market will be the residual effect.

I’m starting to wonder if the answer to making the economy more equitable isn’t something like a universal basic income (UBI) — or, at least, in situations like this, we’d want the ability to make timely direct payments. There are a lot of studies of which interventions improve health and welfare and education in poor countries. Much of the research says the most effective strategy is to give money to individuals. Rather than build a school, for example, give everybody in the village money, and ultimately a school gets built, but people also buy, say, cell phones, which allow them to earn more money from the things they produce, which brings in even more money, which means they build a bigger school.

Cohen: Where’s the money for something like UBI going to come from? If you were to raise taxes here to the level they are in Denmark, you would probably have armed rebellion in certain states.

Vollrath: It’s not primarily about raising taxes. It’s more about how taxes are spent. I would argue that we should take the dollars the government collects now and pass more of them through directly to households, in an efficient way, with no strings attached. That would be more effective in supporting people than the ridiculously complicated machinations we have to go through when we subsidize industries. We help farmers by buying up any crops that go unsold, which is a recipe for large corporate farms to game the system. Why not just send checks every month to each individual farmer?

Cohen: In many ways, American life operates through debt. Wouldn’t money sent to households just be gobbled up by whoever is holding the debt on those families: payday loans, medical bills, mortgage payments, car payments, student loans?

Vollrath: Let’s say I’m sending you a thousand dollars a month. If you use that to pay off existing debt, it means you’re not using your wages to pay off that debt. More important, that thousand dollars a month means you don’t have to go into more debt when your car breaks down or your kid gets sick. That’s how people end up in debt spirals. Maybe they can pay bills and cover the rent, but anything that blows the normal budget means they have to take out a payday loan. So now they’re $1,200 in the hole. What are they supposed to do next month? They can’t pay off the full amount, so the interest balloons over time. If we give money directly to people, they can get through that car breakdown or can afford a medical treatment. And if every bank knows you’re getting a thousand dollars a month, you can take out a reasonable loan as opposed to payday lending.

But are people in a lot of existing debt? Absolutely. Most households are operating on the edge and don’t have a lot of free cash available at all. If people get laid off, after a week they’re broke.

Cohen: How did we get to this point?

Vollrath: It’s not clear that most households were all that financially sound in the past. People say, “Yeah, but in the sixties, families had a month’s worth of savings.” Well, which families do you mean? That would have been true for a lot of white, middle-class families supported by union jobs, but it ignores African American families and Hispanic families, many of whom would have been operating on the edge back then, too. So I’m not 100 percent convinced we’re in a unique situation compared to the past.

There have been some systemic changes in the last twenty or thirty years, such as low interest rates and the availability and marketing of easy consumer credit. When things get cheaper and easier to get, people buy more of them. Part of me wants to say that if people took out more credit once it got cheaper, that means they had a need for more credit before that. But I think the increased availability of credit has definitely led to the point where most people carry too much debt, which puts us in a precarious situation: we’re counting on disasters not occurring, so that the debt payments will continue. In 2009 we saw what happens when people don’t pay their mortgages. The danger this time is if everybody stops paying rent.

If we look at people’s response to the availability of unemployment insurance or food assistance over the years, we see that the effect that extra money has on their willingness to work is really small — so small that it’s effectively zero.

Cohen: Early on in this pandemic Senator Lindsey Graham of South Carolina pushed back on increases to unemployment insurance, essentially saying he didn’t want to incentivize people not to work. If I were a conservative and you floated the idea of monthly payments to every U.S. citizen, I would use the word welfare.

Vollrath: It is welfare!

Cohen: But that’s seen as a negative on the Right.

Vollrath: Absolutely! The conservative philosophy is: “You don’t deserve it. You have to work for it. And what if some guy takes that thousand dollars and uses it to buy drugs?”

Well, some people are going to buy drugs with it, and personally I’m OK with that, because if we look at people’s response to the availability of unemployment insurance or food assistance over the years, we see that the effect that extra money has on their willingness to work is really small — so small that it’s effectively zero. Most people want to work. They want something to do. And if a thousand dollars a month is enough for some people to live on, that’s OK. If businesses need those people to go back to work, they could raise wages to try to attract them. But as an economist, I’ll tell you that fixed costs and fixed payments theoretically have no effect on people’s willingness to work.

Now, if we made the payment a wage subsidy instead — say, an extra two dollars for every hour that you work — then you might work a little more because you want the extra money, or you might work a little less, because now you’ll make what you need in fewer hours. But if I just dump a thousand dollars into your bank account every month no matter what you do, then standard economic theory says that payment is irrelevant to your decision-making, because your actions won’t change the outcome.

All the evidence we have says that giving people money has very little effect on their willingness to join the labor market or the number of hours they work. Of course, a UBI is not going to free everybody from debt. If you’ve got eighty thousand dollars in student-loan debt, it won’t be gone tomorrow.

Cohen: I want to get back to something you said earlier about fixing the “plumbing” that carries money where it needs to go. What would that look like?

Vollrath: Look at where the plumbing does work. We’re really good at sending money to seniors. Social Security is hyperefficient: funds come in to the federal government from everyone’s paycheck, and my grandma gets money every month. It’s straightforward. What we’ve seen in the early months of the pandemic is that we have no clue about how to do that for everybody else. It should be simple: Congress wants to send $500 billion in cash aid to families and individuals. The Treasury Department issues $500 billion in bonds to the market, and a day later they transfer the money into everybody’s bank accounts.

The fact that it currently takes weeks or months, and the IRS has a website where the only way some people could get status updates on their stimulus checks was to enter their address in all caps — that’s just mind-boggling. Any second-year computer-science student could have told you not to make that case-sensitive!

The federal government knew a lot of those $1,200 checks wouldn’t get to people right away, so it also bumped up unemployment benefits. But you have to apply for unemployment insurance at the state level, and most of those systems are slow and hard to navigate. It shouldn’t take weeks to start getting unemployment insurance. There shouldn’t be a backlog. You shouldn’t have to fax anything! If the unemployment plumbing were efficient, the government wouldn’t need a loan program where small- and medium-sized companies could borrow money to support their employees’ wages. To do that, Congress had to make rules. For example, if you take out one of these loans, you can’t use the money to pay stockholders dividends or buy back shares or raise executive pay. Now we’ve got sixty-two pages of rules, and the Los Angeles Lakers still got a loan! [The NBA team was criticized and later sent it back. — Ed.] The loan program was a stupid way to accomplish the goal. We should have sent the people who work for the Lakers checks. No, don’t send them checks — Venmo them each six hundred dollars! [Venmo is a direct-pay app for smartphones. — Ed.] Get better at sending money to people. I think that would have a profound impact on our ability to ensure equitable outcomes.

Cohen: This leads me to a topic that made me want to interview you in the first place, which is the concept of “degrowth” — the idea that we need to turn away from the unquenchable capitalist thirst for growth entirely and actually shrink the gross domestic product (GDP) to ease the impact on the climate. Do you think that’s feasible?

Vollrath: I wouldn’t lump myself in with the degrowth movement. I agree we have to be more careful about how we use resources and what impact we have on the environment. And we must come up with an economy that allows for more-sustainable use of the earth. But that doesn’t mean that growth has to become negative, or even has to be zero.

The argument I have with the degrowth movement is that they take for granted the fact that oil use — or any kind of resource consumption — correlates with GDP growth: GDP goes up; we use more resources. But there’s no physical law there. There’s nothing about increasing GDP that necessitates using more energy. In the past the two were highly related, in part because we weren’t very good at producing goods. Factories a hundred years ago were inefficient. And so, as the economy grew, we used more and more resources, which made prices go up, because these resources are expensive. Over the past fifty years, however, our per capita resource use has tailed off. It’s been flat for the last fifteen to twenty years.

It’s entirely possible to continue to decrease our use of certain resources while at the same time allowing GDP to grow. In fact, GDP may grow because we are actively coming up with more-sustainable ways to fuel the economy — solar, wind, things like that — which generates new economic activity even while we’re shedding fossil fuels. In that sense I think the degrowth movement overstates its point.

Let’s say we do a perfect substitution, and our energy needs are now met by solar as opposed to oil: We’re still inventing new products. Our economy is still growing. And we’re actively reducing the amount of oil we use. That’s completely within the realm of possibility.

I could even argue that if we have some kind of breakthrough in, say, battery technology, the GDP might grow faster for a little while, and the solar sector wouldn’t just absorb workers from the oil sector; it would drag in workers from other sectors, too. We’d be building out the initial infrastructure with batteries and panels as opposed to oil wells and derricks.

Cohen: So the concept of growth isn’t inherently negative; it’s that we’re using the wrong resources to grow?

Vollrath: Right. I think the degrowth movement attributes the growth of the economy to the mentality of consumption, which also creates the debt spirals we were talking about, when people take out loans they can’t repay. Advocates of degrowth want to change our attitude of “consume, consume, consume.” And they’re right that, if we bought less, we would absolutely use fewer resources. Look at the pollution numbers during the pandemic: they’re way down everywhere. If you shut down a lot of economic activity, pollution drops. But that’s not sustainable over the long run. People are willing to accept this kind of economic shutdown for a short period of time and for a known reason. But if you ask, “Hey, how would you like to do this forever?” my guess is that the answer will be no.

The sustainable way to keep resource use falling and pollution low is to turn toward alternative methods to achieve our goals. Get everybody to buy into solar energy. Otherwise you’re asking people to make a choice they’ve never willingly made before in history, which is to stop working and producing and inventing. Technological innovation is going to work slower than a shutdown, but in the long run I think it would work.

Cohen: It strikes me that the degrowth concept is similar to the argument people make sometimes about how capitalism is evil and should be abolished. You’re saying it’s not that the system itself is evil. It’s the way that sociological and political parameters interact with it.

Vollrath: I never quite understand what it means when someone says, “Capitalism is evil.” To me, it’s a little like saying, “History is evil.” Evil things happened. History is just an accounting of that. People did evil things. Our economic system, as it is, isn’t inherently evil or good. High or low prices aren’t moral statements. They’re information. It’s quite possible to have an economic system that uses price signals for good: that provides universal health care; that provides paid sick leave; that provides more generous unemployment insurance; that provides UBI. Whatever you feel defines a good economic system, there is a price system that can achieve that. It’s just a question of putting the parameters in place such that the price system delivers that outcome. What history shows us is that trying to dictate those outcomes never works. There are so many moving pieces that you can’t possibly dictate everything that should happen. The price system is a mechanism for sending signals out to everybody about how we’d like to get organized. And then people self-organize around those signals, and we see the prices moving up here, or down there. “Oh, it turned out people were less excited than we thought about having solar panels on their roofs. OK, well, maybe we’ll have to adjust for that.” Or “Holy cow! Everybody got really on board with this. People are buying solar panels like crazy. We don’t need to subsidize them anymore.” The signal gives us continuous information.

There’s nothing inherently right or wrong about using price signals, but as an economist I’d argue that it tends to be the most efficient way for this information to get out there. Trying to dictate exactly what happens without using the price system generates massive dislocations in some parts of society. It’s not feasible to say, “Everybody has to install these solar panels on their roof.” What about people in places where it’s cloudy all the time? Their panels aren’t going to generate as much electricity. What about people whose roofs aren’t structurally sound enough? What about old houses that don’t have modern wiring? There are a million possible complications that we can’t anticipate. Using price signals would allow all those million different decisions to be made. Perhaps in some places not quite as many solar panels will get installed. Maybe Arizona would install a bunch and sell energy to other places. The price system accounts for all those idiosyncrasies in a way that a central planner could never do.

Cohen: The protests have really made me think about the difference between small-c capitalism, which is a mechanism for distributing resources, and Big-C Capitalism, which is a free-market ideology that has created the level of inequality people are currently protesting against. Do you agree with that distinction?

Vollrath: I agree that we should separate the system of using prices and markets to move goods and services around from a specific set of beliefs about how to run that system. That’s a legitimate distinction. It’s a mistake to use the same word for those two things, but because they emerged together, it’s hard to separate them.

There’s a lot of frustration with Big-C Capitalism, particularly the way we’ve conceived of it in this country, where it’s led to massive inequality. But let’s not throw out small-c capitalism because we’re frustrated with the Big-C ideology. We can have a small-c capitalist system that’s efficient but also run fairly, in which people aren’t screwed over.

Frustrations are spilling over because the Big-C ideology has pushed small-c capitalism to extremes and used it to justify injustice. I think the Big-C ideology pretends we can’t place conditions on a capitalist system and instead just pushes for a pure, platonic version of capitalism that doesn’t actually exist.

Cohen: One argument for capitalism is: “In the market system everyone has equal opportunities.” But the playing field in the U.S. was never level to begin with.

Vollrath: If you live in a community that lacks good schools and is polluted and is in a food desert, then maybe conceptually you can participate in the market system, but you don’t have equal opportunity. That, I think, is an abuse of small-c capitalism that the Big-C ideology made. Small-c capitalism doesn’t imply that people have to be unequal or that you can’t fix inequality. The ideology, on the other hand, claims that if you mess with the system to make it fair, it all falls apart. Big-C capitalism says that if the government raises taxes on the rich to clean up the lead from drinking water, it’s “interfering in the market,” which will ruin everything. No. This just isn’t true. Capitalism is just a decentralized market where people buy and sell using prices as information. Nothing about capitalism says we have to absorb inequality or huge disparities in living conditions. It’s perfectly plausible to have a capitalist system in which everybody shares equally in the ability to participate. There are ways to address those disparities that would really screw with the capitalist system. We could guillotine every rich person in the country, for example. That would be a poor way of alleviating disparities. But that doesn’t mean there are no good ways.

Cohen: Wages have stagnated over the last four decades, leading to greater inequality of income and wealth. Is this a result of the slowed GDP growth you mentioned?

Vollrath: Inequality started to increase before growth slowed down. The median wage began to lag behind overall growth in the eighties or nineties before stalling out when we hit the 2000s, which is when the growth rate began slowing down. So I don’t think there’s a necessary correlation between the growth rate and median wages. It’s perfectly possible for the median wage to grow faster than the overall growth rate for a while. We’ve seen the median wage grow slower than the average wage for a couple of decades, which is a result of widening inequality: large increases at the top have raised the average while the median, or midpoint, shifted toward the bottom.

The problem with using GDP as an economic indicator is that there’s nothing about making the pie bigger that ensures that your piece is going to get bigger. For a couple of decades the pie has gotten bigger, but the size of a lot of people’s piece has stayed the same. We should maybe worry less about how fast the pie is growing and more about how big the pieces are for most of us, which has a lot to do with wages and policies about housing and health care and environmental issues.

Low wages, poor housing, bad environmental conditions, and poor nutrition all feed on one another. It’s stunning the effect that lead poisoning and air pollution have on people’s mental and physical health. If you live in a high-pollution area and breathe crappy air, you’ll be more likely to do poorly in school, which leads to lack of economic opportunity, which leads to an inability to leave your polluted community for a cleaner one. And that’s a result of choices that we make. Those problems are fixable. And they’re fixable whether GDP grows really fast or really slow.

Cohen: You say, “choices that we make,” but some people don’t have any choice there.

Vollrath: I mean “we” as a country. I’m not pinning this on the people in those communities. You put any of us in that community, and we’re going to struggle. The rest of us have looked the other way or even actively pushed for policies that allow those problems to persist. We could, as a society, decide it is unconscionable that people have lead in their water. Our new $2 trillion infrastructure plan could include cleaning up all the lead in this country. We could do that, but we don’t, because we haven’t collectively put forth the desire to do it.

It’s the same with air pollution. More and more evidence is coming through about the day-to-day strain air pollution puts on people — and on kids, in particular. Why do we not install high-quality air-filtration systems in every school? We could do that, but we don’t. These are choices made by all of us when we spend our money and cast our votes. We should change the dynamic in those poor communities to allow people access to healthier outcomes and better education.

Cohen: Why don’t we pursue these policies instead of funneling money to the top?

Vollrath: You’d probably want to talk to a political scientist or sociologist about why people in both major political parties have taken positions that generate these outcomes. Having said that, I think there are ways economically to influence this. It goes back to the plumbing. If you’re the lawmakers, and the only way you can address pollution in these communities is through loan programs and subsidies for big companies, then most of that money won’t make it down to the people, because the rules won’t be perfect, and corporations will lobby and game the system. But if you can work directly with the people — direct payments, direct assistance — then maybe you can change the outcome. If the plumbing were available to improve people’s household finances directly, maybe that would shift the political discourse. The next time there’s a hurricane here in the Houston area, instead of putting together a relief package to assist a refinery on the east side of Houston, in hopes that it will support employment, the federal government could send everybody in the affected zip codes some money.

In this crisis, instead of arguing about which industry we should be subsidizing, we could be arguing about how large people’s monthly payment should be, and how to help all households equitably. But we’re not having that argument, in part because we don’t have the means to quickly make direct payments to households. I think the pandemic is changing people’s idea of what the federal government should and could do. It’s definitely made them frustrated with what it can’t do.

Cohen: How did we get to where the only way the government knows how to respond to crises is by looking at the market and trying to nudge that needle?

Vollrath: I think one could spend a long time writing a history of the connections between the federal government and the economy. My guess is that some deliberate choices were made to avoid direct payments to people and instead intervene in financial markets. But some of it would also come down to the difficulty of connecting to households at the federal level. I think you would need a chapter on how Social Security got started, and what an administrative nightmare that was. It’s amazing they were even able to figure out how to do it in the fifties and sixties. How did people update their bank account with the government? What happened if they moved and the check missed them? Think of all the issues that would be involved in sending every family in the United States a check.

Denmark and Switzerland and other places have figured it out. They have incredibly dense person-by-person information systems that people in the U.S. would be loath to sign on to. Like: “Whoa, you can’t know everything about me!” A lot of research papers use the “Danish data” because it’s not a sample of people from Denmark; it’s every single person in Denmark, with their income, their job, their number of kids, their education. They know which company you work for, how much money you make — everything. We don’t have that capacity. We just never built that infrastructure.

The buttons and levers our government entities have to push and pull are skewed toward financial markets. When you lack additional buttons and levers, you’re going to push and pull the ones you have and hope for the best. So politicians and government appointees are pushing those buttons, and people involved in the markets are reporting back, “The market’s back up. Economy’s good. Everything’s fine.” There’s little incentive for the government to build buttons and levers for all households, because it isn’t hearing those voices.

Cohen: It’s hearing only the voices of the people who are benefiting from the way the system works now.

Vollrath: You fix the things you can observe, right? The squeaky wheel gets the grease.

Let’s look at the Great Depression. They didn’t know back then how far GDP had fallen, because they didn’t calculate GDP. So economist Simon Kuznets came up with the concept and built the accounting structures and started to collect the data to give us that information. And once we had that information, we got really focused on it. We could observe the stock markets and interest rates easily. Ninety years later we’re arguing about whether we’re too focused on GDP and don’t care enough about unemployment and the distribution of income.

In some sense finance has the advantage of being very visible and easy to measure. And the needle moves in real time. We can see things happening quickly, so we follow it closely.

We’ve never built a robust information system to gather real-time economic data on people. The closest we’ve got is week-by-week employment data. We should be investing more in indicators like that. If we had, along with the Dow Jones and the S&P 500, some kind of daily employment data or “median-wage index,” then maybe we would pay more attention to that. But that would be hard to build.

Cohen: I think “we” got addicted to the idea of a market system, especially those who realized how much it could benefit them.

Vollrath: We bought into the ideology that the market delivers material prosperity — and for a long time it did. Since World War II the market system in the U.S. has delivered material prosperity to the majority of people who live here — to a level that was unimaginable to my grandma when she was a kid. So it has worked. There are reasons we got excited about markets as a way of organizing economic activity. But the Dow Jones Industrial Average is just one of the many millions of markets in the U.S., and it gets way more attention than it should. We act as if it indicates how the rest of those smaller markets throughout our society are doing, but it doesn’t. The Dow Jones doesn’t tell us about, say, the labor market for high-school-educated workers. If we had a separate index of labor conditions for those workers, one that changed minute by minute, then maybe we would be more conscious of what was going on for them. Instead we go searching for reasons why the Dow Jones is up or down. Financial Times might run a story about how “the Dow Jones is up today on hopes for remdesivir,” or whatever. If we had a high-school-educated-workers index, then maybe there’d be a report on how the California Service Employees International Union failed in its talks to get a wage increase.

Cohen: It’s pretty wild that, with historic unemployment and tens of thousands of protesters filling the streets of American cities in every state, the market has been sort of on a tear. [This was in early June. — Ed.]

Vollrath: It’s almost back to where it was in late February and early March. But that clearly isn’t an indicator of anything other than projected future valuations of companies. And it’s not even about rational projected future valuations of companies. It’s investors’ belief about what other investors believe about the future. It’s not a relevant indicator for how the whole system is working for people. Who cares if the market’s made up all those losses? Cops are beating the crap out of people, the unemployment rate is the highest it’s been since the Great Depression, and there’s a ton of underemployment and possibly permanent layoffs. So who cares that the Dow Jones is back up?

Cohen: What do you think the pandemic exposes about the global economy and how interconnected and vulnerable we are?

Vollrath: Let’s look specifically at the supply chain for medical equipment, how we couldn’t get enough masks or reagents to run tests. It exposes the source of a lot of products we depend on. The globalized economy has made medical masks cheaper in normal times, but in an emergency we’re at the mercy of another country’s decision to keep its factories running. India produces some ridiculous percentage of the chemicals used by pharmaceutical companies to make drugs. In January and early February the initial worry was just that China would slow production: How would the remaining manufacturing firms in the U.S. continue to produce? How would Walmart stock its shelves if China wasn’t shipping goods? That was going to have significant economic impact even if the virus didn’t reach us. Other crises have exposed those supply chains before. The 2011 Fukushima nuclear meltdown in Japan shut down a huge industrial area, and a bunch of West Coast manufacturers had to stop production for a couple of weeks because no microchips showed up.

I think this particular crisis has made people think more about economic strategy. After World War II there was a push to maintain a certain U.S. manufacturing capability, to produce enough steel that we could make tanks and such. Now the question is: Do we need to accept higher costs in order to have a domestic manufacturing base for ventilators, so that we’re not having to scramble to build them out of truck parts? I don’t know, but this definitely reveals these supply-chain connections.

We took a big financial return by globalizing and driving prices down, but has that exposed us to the possibility that when one link shuts down, the whole supply chain goes? There could come a point where all of a sudden another country says, “We’re not going to sell you these masks or ventilators, because we need them,” and we don’t have the capability to make them. This has highlighted one argument about the dangers of globalization: It’s efficient, but are we losing capabilities?

I think the pandemic is changing people’s idea of what the federal government should and could do. It’s definitely made them frustrated with what it can’t do.

Cohen: Global supply chains literally require crossing oceans or large sections of land. Climate-related interruptions could make that more difficult in the future.

Vollrath: A threat like climate change or another pandemic definitely tells us we shouldn’t be relying on Korea or China to produce a necessary product. There’s a real possibility that, in response to COVID-19, we will rethink the degree to which we are willing to accept the risks of globalization and decide that having slightly lower prices on a bunch of goods isn’t worth it.

The situation could create an odd alliance between economic nationalists who say we need to protect ourselves by maintaining the capability to produce these things at home, and people from the environmental side who say that the unseen environmental costs of running these global supply networks are too great. Maybe they will end up arguing together to bring manufacturing back home.

Cohen: An economist at the University of Michigan recently said he’d been on a conference call with a dozen economics professors who were adjusting how they’re going to teach introductory economics this fall as a result of the protests, to incorporate the concept of inequality. Will you do this?

Vollrath: I’m teaching a class on economic growth for undergrads this fall, and I’m going to swap out some material that I had been considering and add literature on what I would call “missing innovation.” There are disparities between black and white Americans in terms of who can innovate, who gets patents, and whose work gets copyrighted. And there’s research by Dr. Lisa Cook that relates this to the prevalence of lynching in certain areas — areas where historically black Americans were beaten down to the point where they were unable to participate in high-level innovation even decades later. Other papers show income disparities in innovation: most people who earn a patent come from the high end of the income distribution, with parents who are relatively rich and well educated. So a lot of people who potentially could be innovating don’t get the opportunity, and that’s a loss for us as a society.

Most introductory econ books are silent about disparities. They teach, “This is the market for apples, and there’s a farmer, and there are some consumers,” and that’s it. The assumption is that those consumers are all the same — they all have ten dollars. The texts are agnostic or silent on distributional issues. It wouldn’t surprise me if professors in the fall are going to be much more explicit about disparities along racial, ethnic, and gender lines. We do offer a course on gender in economics, but it’s an upper-level class for one semester.

We need to be a lot more up-front about what those disparities are. There’s been a trend toward this within economics over the last couple of years, but it wasn’t moving very fast. The protests are like an accelerant. Maybe this is the gasoline that fuels the fire and makes a lot of economists rethink what we are teaching. We should be more conscious of what we’re saying. Right or wrong, we get listened to.