and the effectiveness of the state department itself because that affects all of the above. how would you rate the relationship of the ig the state department, the state department leadership? are you getting what you need? you mentioned resources twice. talk to us just a little bit about -- you said i.t. i dependence. you also talks about getting access to investigations to help you do a better job. i'm looking at really in this line of questioning, what have you found operationally inside a state department that we need to be aware of as we look at this reauthorization. >> well, in terms of the relationship with the department, i mean, i have a very good working relationship with the deputy secretary, and i meet with the secretary periodically as well. i just met with him last friday. and they are open to oversight. they recognize it's important, and they recognize the unique role of the i.g. so they've been responsive to resource investment in both of the requests that i have in my

testimony. they're aware of and they've been, you know, the deputy secretary has been working on. so i think that works well, and we also try to meet regularly with other senior leaders in the department as well, so that relationship is important. you need that good working rels ship, because we can't force them to comply with working relationships. in terms of operationally, you know i would say that the secure -- the implementation of the the recommendations is something that has been a department. but it's something we're working on now and monitoring. it's one of the bigger issues. i really think that they're -- they need to step up their oversight of contracts and grants. so i would say that is probably

extremely important priority. and the it infrastructure. after all we've heard about hacking in the news and so forth. this is a very serious issue. there's a lot of sensitive information on the networks. and we need to make sure the information security system is protected. to me, those are the top priorities. >> well, that's all i have. senator, do you have any questions? well, with that again, thank you for being here today. this has been very enlightening. we appreciate your insights your work, your dedications that went into your statements. you do hero's work as well. and i want to thank you for that. the record will remain open until l the close of business on thursday, april 23rd for any future submissions, if you would like. you may receive questions for other members in that period of time as well and i would encourage you to answer those in the same manner that you've answered the one here. and with that, this hearing is adjourned. thank you very much, mr. linick. >> thank you.

if you missed any of the hearing, you can find it any time online at c-span.org in the video library. and later today robert mcdonald will be testifying on the va's 2016 budget request.

nearly $170 billion for disability compensations pensions and other benefits. we'll have live coverage of that hearing coming up at 2:30 eastern time. also here on c-span 3. and then tomorrow the house begins debate on two cyber security bills, dealing with information sharing between private companies and the federal government, along with liability protection. you can watch debate on those measures in the house live over on our companion network, c-span. the hill reports trade groups are banking on this being the year that congress' passes liability protection for companies that are hacked when they share data with the government. groups like the u.s. chamber of commerce and the financial services round table have been lobbying for the measures for years, saying that sharing cyber threat data without legal protections could expose companies to frivolous shareholder lawsuits and regulations. you can read more on thehill.com. here are a few of the book festivals we'll be covering this spring on c-span 2's book tv.

this weekend we'll be in maryland hearing from thors such as former attorney general alberto alberto gonzales. in may we'll revisit maryland with former congressman tom davis and mark frost. as well as former senior adviser to president obama david axelrod, and then we'll close out may at book expo america in new york city. thn on the first week in june, we're live for the the chicago tribune fest. including our three-hour live in depth program with pulitzer prize winning author. last month the former chair of the federal reserve, ben bernanke talkeded about achieving full employment in the u.s. and what that would mean for the economy. he also joined a panel discussion about the factors that affect employment.

the discussion was hosted by the center on budget and policy priorities. good morning, everyone. good morning. i am bob greenstein, president of the center of budget priorities and i want to welcome you all to this exciting event sponsored by the center's full employment project. i want to particularly thank the open philanthropy project, which has made today's event possible.

many of you know the center run budget for the work on pressing issues to reduce poverty and inequality and for our contributions to important budget tax debates both in washington and in the state capitols. under the leadership of jared bernstein, the full employment project has broadened our work to include various economic policy issues that are critically important but maybe longer term in nature and extend beyond currency policy battles. now i'm happy to say with the support of atlantic philanthropies, we are creating a new part of the center on budget, which we call policy futures, that will apply the kind of longer term perspective to the full employment project embodies to a broad range of key policy issues, and of which the full employment project will become the key part. policy futures will focus on

long-term federal and state fiscal challenges. on new approaches to reduce poverty and strengthen opportunity, on retirement security, on health reform, of which more is still needed eded and on the intersection of climate change policy and fiscal policy, as well as, of course, on full employment. if you're interested, you can find a one-page brochure on policy futures in your packets this morning. today's event with our excellent panel is a strong example of the kind of intellectual focus we plan to bring to the longer term policy challenges. as we're doing today, we'll be engaging insightful and creative thinkers, commissioning papers, and placing a spotlight on innovative policy ideas. you'll be hearing more about policy futures in the months ahead. and with that let me turn

things over so we can commence today's event. let me tern things over to the director of the full employment project. [ applause ] >> thanks, bob. really happy to see everyone out here today getting our week started on what i think will be an enlightening morning. bob noted today's event is parking lot of the full employment project. the goal of the project is to identify and advocate for policies to help get us to and keep us at full employment. by which we mean a very tight matchup between the number of people who want and need to work and the number of jobs. it's our firm belief that full employment is one of the best ways to ensure that the benefits of the economy's growth don't just accumulate to the top of the income scale but are broadly shared by families at all income levels.

all the work in the project, including a video of today's event and the various papers we've commissioned can be found online at the center's website, centeronbudget.org. here's the plan for today. our keynote presentation will be followed by a short q&a. we'll then take a few minutes to set up the panel, which will include valerie wilson and myself moderated by david wessel. following the panel we'll do another round of q&a. before we begin i would like to thank alexander berger for support of our work. and i want top thank from the bottom of my heart ben spielberg and michelle bosey who are integral in making this event happen, along with many other of my colleagues, including susan steinman and larry hass. i want to thank kelly hunter and of course i want to especially thank ben bernanke and david wessel along with my awesome

panels for their generous agreements to be here today. ben bernanke hardly needs an introduction. he was the chair of the federal reserve and member of the -- before that. he has made more important contributions to our understanding of macro economics, economic history and policy than i have time to note here. i always thought that we were extremely lucky to have him where we were during the great recession. the other things many remember about great ben harks back to if you really understand something, you explain it to anyone. ben has tried harder than many who sit in such influential positions to be extremely clear to tell it like he sees it. i was one of many who was highly influenced by his important insights a decade ago, regarding what he labeled a global savings glut, and the impact on economies across the globe. you can imagine my excitement when ben graciously agreed to reflect on those dynamics today. please welcome fellow blogger

ben bernanke. [ applause ] >> good morning. thank you, jared. thanks to the center on budget and policy priorities for this important conference on employment, jobs. you know economics, standard economics at least focuses mostly on people as consumers and jobs are something you have to do to get the income you need to consume. and i think that's, you know, sociologists and others will tell you i think that's a little bit defective. people are important producers and what makes us feel we are creative and accomplishing things in our lives sochlt in. so in trying to develop a healthy economy to give everybody decent and meaningful work, we are addressing not just the issues of incomes, but also

the issue of personal satisfaction. now, my perspective the panelists are mostly going to be, i think, not entirely but a lot of it will be micro economics of full employment. my perspective is obviously from a macro economic perspective. and full employment is of course, a central goal of macro economic policy. i'm not going to -- i'm disappointing the reporters. i will not be talking today about prospective monetary policy actions out of respect for my successors and ex-colleagues. but i do want to say that when i was at the fed obviously we took a lot of -- we were very -- we took very seriously the full employment part of the mandate and it figured very much into our policy decisions, including in particular, famous qe3, the quantitateive easing open ended

program that tied our policy to a quote, substantial improvement in the outlook for the labor market. so i'm glad we have seen not as much improvement as we would like, but certainly meaningful improvement in the labor market over the last few years. now, important question, of course, going forward is whether or not macro economic policy, by which i mine primarily monetary fiscal policy can reliably and sustain bli achieve full employment in our economy. and i want to talk today about two frameworks which give similar but not quite the same answers to that question, one of them is the secular stagnation perspective that larry summers has recently revived. and the other is, as jared indicates, is to update a bit, what i talked about ten years ago as a so-called global savings glut. and i'll explain what those are in a couple of minutes. but i will take the opportunity, since jared raised it to note

that i have kicked off a blog today. jared says i need to buy in pajamas so i can have the appropriate costume for doing that, and i mentioned it today because tomorrow and wednesday my blogs will provide material related to these remarks this morning, including background data et cetera. so if you didn't get everything i said today, just go to the brookings website, and you'll get more information. so let me talk about the two frameworks. and in particular i want to talk about what they mean for the long-term future of our economy and for policy, the policy implications. secular stagnation. the idea goes back to alvin hansen, who spoke about it in his 1938 presidential address. the american economic association. hansen, of course, was speaking at the latter part of the depression. there in fact, had been a second

recession in 1937-38 and unemployment was still about 70%, as best we can tell. and hansen at that time expressed pessimism about the ability of the economy to sustain full employment in the future. he pointed out that demographics were moving in an adverse way at that time. slower population growth. he was concerned about productivity and technology changes and he said super spending would be chronically weak in a way that would prevent the the economy from achieving full employment going forward. now of course hansen didn't quite take that one because after world war ii of course, we had a period of substantial growth, and high employment, relating both to a population boom a baby boom, and also to the application of many technological advances obviously in the '50s an '60s. but larry summers has revived

the argument and modernized it, and i just want to be very clear that i think there's a lot of interest here, and i'm not trying to set up any kind of opposition. i want to just try to look at how these two perspectives balance each other. but the key idea in larry's survival of secular stagnation argument, but the basic argument is that because going forward the the returns to capital and consumer spending are likely to be weaker than they've been in the past. that the real interest rate that is needed to provide full employment could be very, very low. and there are a lot of reasons why real interest rates, as we know, if we look around the world, of course we see very low interest rates. and he talked about in his remarks to the national association for business economics, he listed a number of reasons why the demand for

capital and the demand for consumer spending and durables might be unusually low going forward, and the result would be that essentially you would need very low interest rates to get the economy up to full employment. what were the reasons? obviously some of the same ones that alvin hansen talked about, including the fact that our demography is shifting towards an aging society slower growth both from population and possibly from also slower technical change. also he notes, and think think this is an interesting point that if you look at new industries, like facebook on the one hand versus the industries that were dominant in the '50s and '60s like steel making obviously facebook and similar companies have much smaller needs for capital. they don't need big factories and heavy machinery to produce

more output. so for less demand for physical capital, the demand for investment will be smaller and again, that will keep down the interest rates in the economy. related to that is that the relative price of capital has been declining over time for both capital goods and consumer durables. and so spending on capital he argued would be smaller. so the focus has been on the demand for capital goods for how much people would want to buy, how that affects the total for output in terms to get the full employment. he also talks as we have about potential stagnation in consumer spending, which of course is a much bigger part of final demand, and i won't get much into this. but he talked about increasing equality, which has many implications, of course, and many causes.

but he argues, and there's an interesting debate about this, increased equality because it puts more in the hands to people that save more. the the rich or the upper income people might push down the demand for consumer goods as well, and therefore be another source of stagnation. and now what is the implication of this view that demand for capital goods and some consumer goods may be very weak going forward, and therefore the interest rate needed to restore full employment could be chronically and systematically very low. if the real interest rate that you need to get full employment is extremely low and in particular, if it's lower than minus the inflation target of the fed then the fed runs out of room. if the fed lowers interest rates to zero, and if that's not low

enough, then obviously monetary policy finds it very difficult to get to full employment. he points out, he argues that in fact, in order for monetary policy to get to full employment by itself, that it has to allow financial bubbles, like the housing bubble. and did he recall the early 2uring the early 2000s, he points out the economy did not overheat although all the the demand coming from construction and consumer spending out of the housing bubble. he argues, therefore, that that's evidence that monetary policy cannot get us to full employment without bubbles and of course we all understand that bubbles are very dangerous, and we certainly don't want that to be part of the policy tool kit. so what's the the solution? his main solution is that a fiscal policy. and he argues that by bringing in fiscal policy, in particular, for example, fiscal expenditure on new infrastructure, that that

would help solve the secular stagnation problem, and address the concern that monetary policy by itself is insufficient. so let me express a couple of points of agreement here. certainly a better balance of monetary and fiscal policy, something that we've needed for quite some time, and infrastructure in particular has the advantage that not only is it a source of demand to put people to work as you build bridges and roads and schools and whatever, but of course, it also provides productivity gains and other benefits in the longer term for the economy as well. so i clearly would agree that we need a better mix of policy. and the heavy reliance not just in the united states, but in other economies on the central bank is not desirable. and those who complain that low interest rates are bad for various reasons because they create bubbles and so on we can

debate weather that is true. but the right response is not for the fed to tighten policy and put the economy in recession. the right response is let's have a more balanced policy between monetary and fiscal to give you the appropriate amount of stimulus at an interest rate not necessarily so low. and so i agree with that. i also take what he has made, which he calls the the inverse of the law. as the economics know it's the fallacious view that supply creates its own demand and therefore that it's never any problem but having enough demand in the economy. larry puts it cleverly as the reverse of the law, which says that the left demand creates lack of supply. if you have an economy which is persistently below full employment so that people have long-term joblessness, that's going to affect their skills. it's going to affect their motivation. it's going to affect their motivation to labor market. it's going to affect capital investment. so by having a weak chronically

underemployed economy, you're also going to get eventually an economy which is not as productive as otherwise would be. so that's roughly the overview. and there's no responsibility for my summery of his views of the secular stagnation high hypothesis. let me now just give a few concerns that i have a few potential responses and then give an alternative perspective. i would say first that -- just a few points. first i think the the notion that the real interest rate that you need to get full employment has to be actual quite negative, which is what you need, because the fed can get real interests rates down to minus two. that's a little bit strong. and most economists would argue that negative real interest rates, there's got to be things that are productive ultimately,

at least in a normal growing economy. when i was on the panel when larry first introduced this point about secular stagnation, and i reminded him what his uncle taught us, he argued that real interest rates couldn't be below zero because in that world it would pay to knock down the rocky mountains, just to save the gas you get from driving up the grade, you know. literally it would if interest rates were really zero. of course, we're not. and of course, we're not knocking down the rocky mountains, so please don't take that literally. interest rates that negative minus 2% it's questionable whether that's true. and particularly when you think it's not just facebook, but it involves housing and office buildings and consumer durables and many other types of long-lived goods that pay a higher return than minus two. it's also questionable, i think

that you need to have bubbles to get to full employment. there's a very nice paper by jim hamilton and ken west that was presented recently at the u.s. monetary policy forum. they questioned whether in fact, it really was true that the housing bubble of the early 2000s was the only reason we were able to get to full employment. they pointed out the factors of 6% gdp, so that was an awful lot of dpland demand going abroad. and on top of that we had a major increase in oil prices, which was also zapping consumer demand. they showed those two things along tw the housing bubble were more or less a wash. and so that evidence, and the recent evidence, of course, that we are at least approaching full

employment, is inconsistent with the view that you need bubbles to get to full employment. their view, which i think needs to be taken seriously is that the slow recovery that we have seen and the low interest rates are at least in part due to head wids, that is drags on the economy that will ultimately dissipate. and often when i was chairman, i would talk about the the head winds facing the economy including tight fiscal policy again. the after-effects of the financial crisis, which are still with us but obviously dying away and also the fact that the housing sector is still quite below normal in terms of its growth. so there's some objections to the secular stagnation hypothesis hypothesis. i think there's a lot of merit to it, and i agree with the policy implications. but i think the one concern that i would like to talk about for the rest of my remarks is the

fact that secular stagnation the way it's been expressed is about the u.s. economy in isolation. it doesn't talk about the internationals a pecks of our economy. but in fact trade and exports are important source of demand for our economy. and in a world where not just -- if the whole world has secular stagnation, that's one thing. but if there's anywhere in the world that doesn't have secular stagnation and that has investment opportunities and growth opportunities, then the u.s. can benefit from that by foreign investment and by exports to that area of the world. and i won't go into detail in the argument. but again i would argue that in a world of reasonably mobile capital and reasonably mobile trade, that it's not enough to

say that the u.s. is in secular stagnation. you would have to argue the whole world is in secular stagnation. i don't find that very plausible. even if the united states reaches where all the industries are facebook type industries, i think the rest of the world is not yet in that point. so in order to think about secular stagnation and the opportunities for full employment, i think it is important to bring in, at least a little bit, the global aspects and ask -- given that the united states is an open economy, that we do have foreign investment, that we do have trade can that help explain an alternative or compliment to secular stagnation nor the basic facts, which are that real interest rates are quite low and growth is less than we would like to see. so about ten years ago i made an argument, as sharon mentioned, called the global savings glut, and the basic idea there was that for various reasons, bloebl savings was exceeded desired

global investment, and what are some of the reasons for that? well, first i pointed out what was happening in asia. you had countries like china which had huge savings even though they invest a lot as well. a lot of their savings was being shipped abroad in the the form of acquiring international reserves, or in terms of supporting their export industry which was a big source of growth for them. and this was a policy issue. this wasn't the fact there were no opportunities for investment in chi that. they were suppressing domestic consumption consumption. they were keeping the the exchange rate undervalued. and these led to surpluses and a lot of savings flowing into the the global economy. and fonlcapital investments in those chis went down, but they're high savers, so the savings went off

into the the global investment markets. like wise i pointed out ten years ago the oil producers commodity prices were very high of course, just before or during the crisis and so you had countries like aud rab and others others others others -- saudi arabia that were earning huge amounts of foreign exchange, so you had a very high amount of savings in the global economy, and that was having two effects. the first was that with lots of savings in the economy, that's going to drive down interest rates. because the supply of savings is greater than demand for investments, that's going to push interest rates down, and that helped explained as i argued at the time it helped explain what alan greenspan called the ka none drum even as the feds was tightening rates the long-term rates were made quite low with contributing some extebt to the boom in housing

prices. the other effect can be that with financial capital flowing into the united states, that strengthened the dollar and contributed to our very large trade deficit. so in the middle of the 2000s, in 2006. we had a trade deficit more than 6% of real gdp, which meant a lot of demand from ghesic consumers and firms was being sifenned off to the global economy. and this was the the problem of global em balances talked a lot about during that time. so that loss of demand through the trade deficit could contribute to slower growth in the united states, and offset to some extend as i mentioned before the pods effects on demand from the housing bubble, and all those things i think are tied together. # gsz oi i let me characterize

how the world has changed in the last ten years and what global imbalances and the global -- looks like today. and the basic facts are as follows. first, the trade deficit of the united states, as you probably know, is about halved, which is very positive. the biggest reason is the fact that we've become major oil producers again, and so we don't have to import as much oil. just to note, that if you are an exporter but you're not an oil producer in the united states, that's not entirely good news for you because the strength of our oil production and the reduction of demand for foreign oil means the dollar is stronger than it otherwise would be, and it hurts nonoil exports. the main point is the u.s. is seeing improvement in the trade deficit, which is a positive thing. the second observation, i think worth making, is of course that

the emerging market savings glut that i talked about the enyears ago, it's still very large, but it looks to be moderating somewhat. in particular, as you probably know, china is has been trying to restructure the economy so that it's not completely reliant on exports and on foreign investment, and more reliant on domestic consumption and domestic demand and their current account surplus has accordingly come down, meaningfully and they continue to work in that direction, so that is positive. that decline has been justify set only partially by increased surplus among other asian countries. the southeast asian countries in particular. and finally in the emergeing market world well, two other points. one is latin america has become much less of a surplus, looking in particular there's been a major swing in deficit in latin america. and finally of course as oil prices go down then the current accounts of the oil producers will go down as well.

so the emerging market surplus global savings glut looks to be lower and declining, which is a positive thing for the the global economy. but there is one change worth noting. which is that ten years ago when i talked about it the balance was zero. and the trade balance of europe was essentially in balance. today, since 2006, the net trade balance of europe and the eurozone has risen by more than $300 billion. so there's been a big movement towards surplus and imbalance in europe. now where is h that coming from? part of it comes for germany which has the largest -- by far the largest trade balance surplus in the world despite the fact that the country is about a quarter the size of the united states. and that's troubling. because that looks to be structural and looks to be even

rising and it will probably rise ian more as the euro gets weaker over time. but a lot of the change more recent change has come instead from the fact that the deep recession in the periphery in greece and ireland and spain and portugal has driven down demand and moved the periphery from being from deficit, that is from importing more than they're exporting to a major surplus and that's actually being the biggest source of the swing. so europe has replaced to some extent, the emerging markets. and that's one of the reasons interest rates still remain very low in the world, and that is a headwind towards u.s. growth as well. because it props up the dollar and hurts our exports. now the good news there is that

it's not really good in the sense that the reason for much of the trade imbalance that the surplus in peripheral europe is the fact that they're in a depression basically. the economy is very very weak. they're not importing very much. and therefore they're exporting their extra savings to the rest of the world. that's not got news for europe. but the good news for the world is this is not a long-h term structural issue. presumably at some point europe will recover and the surplus will moderate, so looking around the world we see some tendency downward to the amount of the savings glut issues, as we see less in emerging markets and as we is expect europe to give back. so the implications are from that perspective that the downward pressure on global interest rates will probably moderate somewhat, continue to moderate somewhat over time, and

the pressures for the trade deficits of the united states will probably moderate somewhat over time. and i think those are positive factors that need to be taken into account, thinking about growth. well again i don't think these are mutually exclusive, i think they're really very closely related ideas, kbept that the global savings glut is a global perspective, but what are the bottom lines in terms of -- in terms of policy? well, again, going back to secular stagnation, i think once again it is important for us to get a better mix of monetary and fiscal policy if supporting return to full employment. again, relying entirely on the fed, relying entirely on central banks, makes it much more difficult and keeps central banks very low where as a better mix of monetary and fiscal policy would have a better result. secondly, if you do believe in secular stagnation, and you think the economy is not

producing good returns, then obviously there's a lot we can do to make our economy more productive and make investment more desirable. supporting technological change. more worker skills. all those things that make investment more attractive in our economy. third, we have to continue to fight the headwinds, which is part of what's happening. improving, for example the housing market, and overcoming the remaining problems left from the credit crisis. but i guess i would say that from the global savings glut perspective, we can't forget the international part. we need to continue to do what we've been doing for the last decade, through the imf and other international bodies and trying to reduce global imbalances and try to reduce in particular structural long-term imbalances that involve in particular long surpluses, which are essentially

counterproductive in a world where there's not enough demand to keep economies at full employment. i think these are interesting perspectives. i'll stop there jared, and i'm happy to take pa few questions. >> okay. >> thank you very much. that was exactly what i hoped you would talk about. so we have about 15 minutes for questions and answers. i will call on you. please make it a question. no lectures if you please. the more we can make our kwis crisp, the more we'll have a time for ben to answer them. ross isenbury there. >> you said we need a better mix of monetary policy.

didn't say anything about the size of the change in the fiscal policy. what are you thinking of when you talk about a better mix or are you talking about $200 billion more of investment? >> i didn't go as far this morning to get a miracle recommendation. but i would point to the the last few years. 2013 was the worst from the macro perspective, when fiscal policy, the sequester, other cuts, tax increases all that together was actually a major drag on growth. and cbo estimated in 2013 that fiscal policy was taking a point and a half office call growth, rather than supporting growth. and i argued as chairman during that time that the short-term fiscal policy ought to be more attentive to the needs of the recovery, and that those who were concerned about fiscal

sustainability, which is, of course, legitimate issues should be thinking more in a longer term framework. but in the near term, i think that, you know, the fiscal policy was on the whole, two restrictive during 2011, 12 13 and that it put more burden, again on the fed to keep interest rates very low in order to maintain some progress towards full employment. >> we didn't rehearse this, but i have a slide on that point later. >> you'll get your answer then. >> no, no no. i meant on the 2013 problem. >> oh okay.

if china is weakening the currency, what leverage do we have before us in the change, and there's been some talk lately about whether there should be provisions in trade agreements regarding currency and trying to enforce a regime of currency levels across cross country. is h that something we should be doing? >> no i don't support that for the following reason, is i think there's no chance that would be accepted. so it would kill the the trade deal. but the second thing is that it's although an economist can tell the difference between exchange rate management and legitimate monetary policy, i'm not sure that a technical legal document could do that. from the trade partners the exchange rate movement is offset by the stronger dplesic economy,

in terms of not exporting the weakness of the economy. so it's good for us if other economies are doing aggressive fiscal and monetary expansion. so i don't recommend putting that into the trade agreement. we don't really have powerful tools. but as a participant in many many, many international meetings over the last decade that it was a constant theme of discussion. the imf did some evaluations and reviews of different countries. obviously it's not a real legal stick to use. but countries do respond, i think to diplomatic and overtures and pressure from their trading partners when what they're doing is perceived as, you know, counterproductive to global economy. so i think that's all we need to do is to highlight the

imbalances and con to try to put the pressure on countries to achieve a better sustainable balance. >> let's see. right there. wait for the microphone, please. >> hi. so i'm curious when you're talking about averaging full employment. what do you think the appropriate level is? how do you feel about the fed's 5.0 to 5.2 range. >> i'm not hearing you. >> when we're talking full employment. what do you think the appropriate level of that is right now? where is full employment? >> in terms of the unemployment rate? >> yes, in terms of the traditional unemployment rate. >> well, i don't know a number and i think that you know those who tried to measure it find an awful lot of uncertainty around it. that's one of the reasons that the fed is in some sense groping, and among other things

they are paying attention to things like real wages to see if those are responding and that would be one indicator of approaching full employment. but it's -- it's even more complicated than it was before. as annie levin's paper will show. the unemployment rate used to be sort of the only number you had to look at. now there are many dimensions of underemployment or unemployment as the labor market has been changing structurally overtime. so it's much harder to make an assessment. as you know, the fed has modestly lowered recently their estimate of the sustainable rate of unemployment, and i would gather that's mostly in response to the fact that unemployment has fallen quickly. it's reached 5.5%. and so far there's not much indication of wage pressures. but as i said, nobody really has that number. nobody really knows that number with any precision and the fed will continue to grope to find out what the right number is. >> and just underscoring a point

that ben made, andy levin's paper goes into a lot of depth on the points that were just made. let's see. if there anyone way in the back there. person waving your paper over there. >> the chinese have made concerted effort in the last two or three years to establish the u.n. as a more prominent currency. they have the sdr thing going on. they have a number of other moves they're making including the other investment bank. do you agree that having that currentsy as an additional reserve currency would be good for the world economy, or bad for the world economy? and how do you think the effort to establish that will affect the euro? . >> well i think that in order for them to be a reserve currency, there's a lot more

work to be done to liberalize the foreign exchange regime, to make it a floating exchange rate, to make it floating reserve, et cetera. those would all be positive things for the world and for china. i hope they continue to undertake the reforms. if they undertake the reforms, then you have a flexible exchange rate, then people or countries will begin to use it more extensively as a reserve currency. and i see no problem with that. but i think the more important thing is not that the the currency, but that they take the steps necessary to get to that point. that is to reform the foreign exchange regime to improve the liquidity of the markets to allow capital flows convertibility, et cetera. i'm all in favor of them continuing the reform process, and i think one implication is a larger role, particularly in regional trade.

>> they led on the people's bank of china has led on reform. that's correct and you know, i think they're right. >> okay. let's see. the gentleman right there. i appreciate the questioners being crisp, as i asked. thank you. >> my question regards to one of the policy priorities you touched on climate change. what monetary tools do you believe there are to address the climate change problem, and do you believe these tools require coordination on the global scale, or are they going to go to the approach of each nation, individual plan, and we all come together? >> well, i'm no expert on climate change on making any specific recommendations there but of course, we've had success in the united states with market based, you know, affluent

charges in cleaning up the air. that has actually worked pretty well, and so various market-based solutions charges on carbon, markets markets, there is a market in chicago that allows you to swap carbon claims. so if the country decides to go in that direction, there are good market based approaches to that. obviously the more global it is the better. and that -- if you can develop a global market that would equate the benefits across different economies. but the prospects are for that i really couldn't say at this point. but just, again, thinking about it from the point of view of global savings, if countries decide to go in that direction it's another opportunity for capital investment, which is part of the issue are there enough good investments to be

made. >> okay, maybe one or two more. right there. >> rob dugger. the employment problem has to do something with the capital stock, human capital stock. what we know about human capital stock in the united states now is that the percentage of young adults, 18 to 24-year-olds, 50, 60% or more are not really qualified for most jobs. in fact, it's one of the surprising things, very large number of jobs that can't be filled, 3 million or more in the united states. in your work on both i suspect the secular stagnation must have also something to do with capital stock, labor force quality, competitiveness.

have you thought about this or how would you suggest thinking about this aspect of full employment challenge? >> i thought about it a lot. i think that human capital formation, this is pretty standard but i do believe that human capital formation skills and acquisition and training and those things are critical for addressing a number of problems, including inequality and inability of people in the middle to make progress dealing with globalization, it's very important on a human level. i strongly support it. i was an educator my wife is an educator, we think this is a critical thing. and it would certainly help on secular stagnation because if you have a skilled labor force you're going to have a lot more attractive investment opportunities in between higher income consumers and more capital investment, you're going to get around this problem of insufficient demand that the

secular stagnation is concerned. it's a very positive thing. that being said, i'm a bit leery of the argument because we've heard it sometimes during, you know, in 2008, 2009 with unemployment rate was 10%. i didn't think that these issues really of much to do with why unemployment had risen to 5 to 10. they said it was all supply side. i didn't believe that. my remarks this morning suggest we have to make sure there's enough demand to put the economy in a full employment position. over the medium term growth comes not from low interest rates or from even from fiscal policy as much as it comes from productivity and skills and those things. so those things are critically important. but it's also important to make sure you've got a sufficient amount of demand to maintain full employment. >> if i might i want to amplify the last part of ben's comments in the following sense.

back in 2000, we had similar human capital problems in the population you mentioned and yet unemployment rates were falling quickly. it's hard to really get too far into assessing the role that the very real problem you mentioned plays when demand is persistent persistently weak. first you have to get to full employment to really understand the extent to which people are truly unemployable. one more question. let's see. who -- back there the young person raising their hand back there with the glasses. i learned not to say the young manor woman because i mistakes. >> you mentioned china in your speech. what's your take on that and if

you're managing the pvoc, what type of policy would you implement to avoid? my second question would you recommend u.s. to join aiib or other china-led international institutions? >> i'll tackle -- say a word about the first one. so china is going through very difficult transitions now. as i said it's very constructively and desirably moving from being export led to having a greater amount of domestic -- particularly consumption, good for the chinese people that a greater share of their growing gdp be devoted to consumer spending and household welfare. that's a positive development. but it is tricky and it involves many structural and policy changes that obviously are going on at the same time. that's one of the reasons of course that growth has slowed in china recently. as they go through this difficult transition, there are many other issues, there are issues relating to quality of

loans in the banking sector, shadow banking system, property values, not to mention issues like the environment and climate quality. it's a complex situation but i guess my general sense is that chinese government has a lot of resources, they have a reasonable amount of control over the financial sector so i'm not pessimistic but of course obviously there's a lot we don't know about what's happening inside china and we'll have to watch that carefully. >> let me invite the panel to come up, please. >> let's stay here, yeah. i'm the director of the hutchens

center of monetary policy at brookings and the center of poll policy priorities has come up with an agenda. if that hasn't filled you up we're going to talk about three other aspects of full employment. let me introduce the speakers. going to speak for five minutes then we'll take questions. first will be valerie wilson, the program on race ethnicity and the economy. valerie is an economist. i'm the least educated perpendicularperson on the panel for her. she'll be followed by maurice got his law degree from northeastern university,

director of the national employment law projects access and opportunity program. then we'll hear from anthony leave levin, does not speak for the speak. he will be soon be at dartmouth college which he doesn't speak for. darren bernsteen definitely speaks to somebody, a senior fellow, you've already met him and he'll describe about a book he's working on. each will speak for five minutes. my friend larry will help us keep to five minutes. the reason they have former journalists moderate, because we're rude enough to speak up if they fit their limit. i promise to do that. valerie. >> thank you, good morning.

before i get started on my remarks, i would like to thank jared for inviting me to contribute and allowing me to be part of a distinguished eded group of speakers this morning. i'm looking forward to the conversation myself. talking about the labor market each month has been like going on a road trip with my two young kids who are 6 and 3 and every couple miles someone is ask are we there yet? in the case of the labor market usually referring to has the economy fully recovered? like i tell my kids every couple of miles the answer is no not yet. one of the great things about the panel this morning is that we get to have what i think is the more meaningful discussion of what there should actually be. so -- going back to my anl gi of the road trip, taking my kids down to the neighborhood park is a shorter ride much cheaper

trip than taking them to say, busch gardens in williams burg that they also enjoy. i think it's also quite clear that the payoff on those two destinations is quite different as well. so similarly i would like to argue this morning that full employment is a better destination with a better payoff than full recovery would be. this is especially true when we look at african-americans in the labor market. you may be asking what's the difference tw full recovery and full employment? the distinction i make is this, full recovery would return us to labor market conditions that we were in pre-great recession. now, whether or not that does it for you depends on how good you had it in 2007. but full employment on the other hand raises the bar to the point where everyone who is willing and able to work can get a job. now, as we've already heard this morning and question was raised about what is the unemployment

rate of full employment? we can debate that but we know from past experience that it's possible to get that unemployment rate down to as low as 4% without setting off a national crisis. i want to make three points from the report i wrote about why i think full employment is a better target than full recovery and share slides illustrating how this has a disproportionate impact beneficial impact for african-americans. the first reason i would argue is pretty obviously it means more people with jobs. the african-american unemployment rate tends to change 2 percent points for every 1% change in the national unemployment rate. with the labor improvements we saw over the past year we saw the african-americans with the largest increase in employed

adults and african-americans had the large eflt increase in labor force participation and this translated into the 200,000 fewer unemployed african-americans over the past year we saw unemployment fall. my second argument i would draw your attention to the slide that's up now is that full employment creates a tighter labor market that increases the chances that we have stronger and faster wage growth. so again, to illustrate that point, the slide up now shows the average annual change for economic recoveries. the thing that immediately should jump out to you is towards the center of that graph, clearly there was the fastest wage growth during the 1990s and also the point where the unemployment rate got the lowest, 4% on an annual basis in the year 2000. i would especially focus on that 1995 and 2000 bar and the fact

that the wage growth for african-americans actually outpaced that of whites during that period. on either side. 90s we see a relatively stagnant wages and then the only other point where we see a longer bar for african-americans is during the current recovery period in which case a longer bar is not a good thing because it's beneath the horizontal line which means wages are declining. the next point i want to make is demonstrated in this slide. the last one showed you what happened with annual wage growth. this slide actually formalizes that relationship between the unemployment rate and wages and shows that since 1979 wages of black workers have been more responsive to market changes than those of white workers. when then unemployment rate doubles from 5% to 10% the median black workers wages

decline by 8 to 10%. and that 8% to 10% depends on whether or not i'm including the period of the great recession and recovery, compared to a 3% decline for white workers. my final point i would like to make regarding why i think full employment is a better target is that more jobs mean higher wages and that translates into improved living standards. now, in my graph -- in my report i have a graph that looks a lot like the first wage graph that i showed you in looking over the last four recoveries, median household income. how, that relationship is pretty obvious since most people get income through working. but this slide i find particularly compelling because it shows that the share of african-americans households and the middle 60% of the income

distribution, which could loosely call the middle class, expanded between that period between 1995 and 2000 as unemployment reached exceptionally low levels and black wages grew exceptionally fast. so we saw an expansion of the black middle class that was actually unique to this late 1990s period. again, if you look at the other recovery periods we see that there was actually a decline in the '80s, decline in the current recovery and not a lot of change in that 2001 and 2007 period. so as i close up my remarks here and go back to my road trip analogy that i started with at the beginning of the question, are we there yet? so whether we're talking full recovery, whether we're talking full employment, the answer is the same at this point no we're not there yet. but my hope is that we would endure the longer ride and get to the destination where the

payoff is greater. and that payoff is full employment. thank you very much. [ applause ] >> we're asking for brief sum rims that are much longer and detailed on the website. for people standing in the back, even if your seat or whatever it is staff your seats up front, feel free vouch for you if they tell you you can't have taken a seat. >> waiting for the slides to come up.

>> can we have maurice's slides? >> thank you. thank you very much. i also want to thank jared for inviting us to participate in this forum and to taking into account this kind of extraneous ish yu which is the impact of the criminal justice system on full employment. i also want to thank the co-author of our paper, who is with the justice policy institute. together we did our best to document the impact of the criminal justice system on the labor market and to make some very concrete recommendations for reform, to help clear the path to full employment for people with records. in a few minutes i have, i'm going to flag a few of the key findings from the paper. first, i think most people know

it's been widely reported in the press that over the last several decades, 30 to 40 years, we've seen a huge rise in incarceration rates over 400% over the last 30 to 40 years. we incarcerate about 2.4 million people right now, either in prison or jail. another 5 million are on supervision, either on parole or probation. that's over 7 million people. and every year their cost to the taxpayer of the criminal justice exceeds about $250 billion. given these massive numbers it's not surprising that exceptionally large numbers of people have a criminal record that's going to undermine their job prospects. according to the best information we have, roughly 70 million adults in the united states nearly one in three have

a serious misdemeanor or felony arrest or conviction that can show up on a routine criminal background check for employment. i'll talk a little bit more about this later but the impact on people of color is especially severe. according to a recent "new york times" poll 34% of working age men who were not employed either full-time or part-time report having been convicted of a crime. so if you put that together with the fact that 9 in 10 major employers in the united states conduct criminal background checks for employment, often taking into account all or misdemeanor records you get a picture of what workers with the criminal record are up against when they try to break their way into the labor market. we also know from rigorous employment testing studies -- let me get my slide up here. as you can see that that about

50% of employers are less likely to interview a candidate with a conviction record compared to someone who would otherwise identical credentials who does not have a conviction. this testing study illustrates how these results play out by race. it shows african-americans have a far greater plikly hood of being denied a callback compared to whites but even more striking is the fact that an african-american without a criminal record is less likely to be interviewed than a white candidate with a criminal record. finally i just want to mention, on the side of economics, council of economic advisers recently concluded in a report focused on limited labor force participation that economic

growth is also seriously compromised when large numbers of people with a criminal record can't make their way into the labor market and the center on economic and policy research found that the failure to employ large numbers of people with felony records deprive the economy of as much as $65 billion in gdp in one year. so that's kind of the big picture scheme. i want to talk a little bit about a recommendation that some of the promising solutions and there are a bunch of them profiled in the paper if you have a chance to read it. but i want to mention that there's just been a ton of momentum bipartisan momentum around what we call smart on crime criminal justice reforms. we just attended a big forum last week that was co-sponsored by coke industries, center for american progress, aclu, freedom forum, tea party you name it

they were all there talking about criminal justice reform. we had this very special moment really to do something about this issue. it gives you a picture for how this issue plays out in reality for a lot of workers. just after the 9/11 attacks congress passed a terrorism security law requiring that over 2 million workers employed in the nation's ports had to undergo an fbi background check for employment. this is a program implemented by tsa. if the worker has a felony record going back less than 7 years he or she is disqualified under the law from working in the ports. no matter how long you've been working there, if you have a felony record going back seven years, that's it you can no longer be employed on one of the nation's ports. but in the legislation, the unions fought hard to include

two significant -- one allowed the workers to appeal what are routine inaccuracies in the background check even with the fbi background checks. that's usually the fact that a rap sheet reports arrests but not updated to include the disposition like dismissed charges. very routine. the other protection allowed workers to petition tsa for what's called a waiver, to demonstrate their rehabilitation basically. individual information not just your criminal record. and in the end it turns out both worker protections were worth their weight in gold, especially for workers of color. tsa granted 87% of the workers, almost nine in ten of the workers were allowed to work despite the fact they had a felony record going back seven years because they were able to produce evidence of rehabilitation. that was almost 15,000 workers

whose coveted jobs were saved in the end because of the one procedure. just about done. tsa granted 95% of the appeals, which saved 50% of the jobs, also a serious indicator how inaccurate the records are. as you can see from the next figure, if you can see that the african-americans were far more likely to petition for a waiver or appeal given their disproportionate numbers who have a criminal record. that left bar you see more than 50% of folks who apply for waiver were african-american. unfortunately most occupational licensing laws, employers don't follow these protections which is a by reason so much workers with a record are unfairly shut out of the labor market. thank you. [ applause ]

>> thank you to jared i think this is an absolutely crucial topic. i wanted to see more events like this and more public discussion debate, decisions that policy makers are making physical policy and monetary policy and other sorts of regular tri policies are crucial for millions of americans. as david said, the red ink at the bottom of the slide is essentially to say these are just my own views and my co-author dave blanche flower. so i had the privilege of working for ben bernanke my instinct is to call him chairman bernanke and i was an adviser for a couple of years. the major strides that the fed took under chairman bernanke's leadership on transparency were really remarkable.

and on this slide you can see one excerpt adopted in 2012 and it's reaffirmed each year since then and as chairman bernanke, ben bernanke said a few moments ago, this statement and the related policy decisions that the fed made at the time and since then have really underscored the role of the employment part of the federal reserve's mandate along with the mandate for price stability. those are both important. those are generally complimentary goals. what you see here in the statement is that a promise -- a commitment to communicate as clear as possible and the decisions must be informed by the assessments of maximum level of employment. to spend a moment to explain this, the maximum level of employment is actually something

economists think of the balance growth path of the economy, monetary policy can't really change that path if fiscal policy or regulatory policy can influence it, foreign policies monetary policy takes that path as given and tries to help bring the economy back on to that path. and it's important distinction here when we're talking about full employment because there's actions that moan tri policy can do to promote -- bring the economy back to the balance growth path. and there are actions other parts of the government can take as well as the private sector to help raise the level of maximum employment, including the sorts of things that maurice said about legal reforms and protections as well as things valerie mentioned. the focus of our paper, is really focused on monetary policy.

traditionally economists have presumed that the on pilot rate is a good indicator of the shofrtfall of the economy from the balance growth path, from the full employment level that monetary policy can achieve this associated with a stable low inflation rate. the rate went up dramatically from 5% to 10% when the great recession hit. and it's come back almost all the way back toward its longer run normal levels. the problem here is like valerie said are we there yet? we're essentially back to normal and it's time for policy to start normalizing and i'll say. we strongly disagree with that and we'll show you why. employment is a narrow concept

in what is labor market slack. it only counts people who are completely out of work not working at all and search for a job in the past month. okay, now, if you look at this picture it's showing people who are working and only working part-time and they are searching for full-time job and they haven't been able to find one. it seems obvious to us that we can discuss it in the q and a but it seems obvious that's that's part of labor market slack. if you look at the picture that went up a lot in 2008 and 2009 when the recession hit. it's only about halfway back to its precrisis level. suggestive as valerie said and ben bernanke said we have made substantial progress, measurable important progress in the recovery of labor market but we're not there yet, maybe only halfway there. by the way i love valerie's paper. i hope you will read it, even if

you don't read mine and danny's, please read valerie's. it shows and you can see this on the right side of the picture, that these issues about under employment are very important for people of color and we show here the same exact series but for a specifically for african-americans. okay, another issue is people who have left the labor market not currently searching for a job and have given up but they are not unemployable. they can come back and without going through details here in this picture, the bottom line here is that there's been some grade inflation as policy makers have been watching the data. they've said maybe those people are never coming back maybe it's demographics, maybe it's structural factors or these people have become unemployable because they've been out of work for so long. that phrase is very unappealing to me because my wife is a full-time mom and hasn't been working for a few years. is she unemployable now?

no absolutely not. the idea we should give up on people and say they are unemployable, i think danny and i certainly disagree with. that gap is big and you can see here, this is something again valerie emphasized in her paper for people and working years, 30s and 40s and early 50s, they are not retired and generally not disabled and not in school. many are not full-time parents. those numbers fell off dramatically out to the onset of the recession. and they haven't recovered much there has been good news recently that their participation rates have been rising so some of them have been coming back into the labor market as it has been strengthening. we haven't seen any recovery yet but we should and we shouldn't think we're back to normal yet until we see these people coming back into the workforce.

okay, so finally the implications of this are crucial. we're talking here about somewhere between 3 to 6 million americans who shortfall, fall short of what we would consider full employment. that means the true unemployment rate is not 5.5%, it's somewhere between 7.5% or maybe as high as 9%. and that also means that we should be considering ourselves as quite a ways from the time that we can start to normalize monetary policy. i know david wants to raise this more into q and a. i'll stop here. >> could you just explain what you have here? the first cell on the left the three -- i can't read it 3.3. >> 3.3. let me go through this carefully. it's important. there's a paper -- i think it goes to details, the first column is the millions of jobs

millions of full-time jobs of the short fall how far away are we from full employment. and the benchmark estimate is 3.3 million full-time jobs. but under reasonable alternative assessment of the labor force participation rate, the employment gap is actually 6 million full-time jobs it's a large number. the difference between the first row and second row, the first includes people working part-time and second includes people not in the labor force? >> not quite, both rows have this -- both rows have the same amount of unemployment. they both have the samt amount of unemployment gap, which is part of it. okay, but as i told you, there was grade inflation, cbl gave up on people and said they are never coming back. that's just in the last two years cbo changed its views on

that. if you take the views of what they said in 2013 you get 6 million people instead of 3. it's a very big important difference. again, in terms of the unemployment rate, which is the middle column, that means we should be thinking of the true unemployment rate including people who want a full-time job or working and can't find a full-time job and people who dropped out who in normal times would be working. unemployment rates between 7.1 and 9.1. >> the final column what the fed funds rate should be under a policy rule and it -- that suggests to you that it's premature. >> that's right. it's -- the benchmark estimate and again this is just one rule, one could debate about this, but this is just an example to say according to the benchmark estimate having the federal funds rate close to zero is still appropriate today. if you take the risk that maybe they are not unemployable and maybe they will come back maybe the true rate is 9%, then it

would be really premature to start. >> valerie, let me start with you -- i forgot jared, i'm sorry. andy used up all your time. >> actually might be better, since i worked on it, let me give it to you. it has to deal with the consumer producer distinction. i just want to underscore how important this andy's paper is as well in this regard and maurice as well. there's nothing xranous at all about the magnitudes he's talking about. i recently finished a book be out in a few weeks. the idea was to get into the question of what i call the fundamental problem of the u.s. economy although this disease has spread elsewhere and that's the economic growth can no

longer be counted on to deliver broadly shared prosperity. i think that's very much embedded in our economy these days, ben bernanke alluded to that a little bit. the book reports to offer a challenge to meet that challenge. i'm not going to go through ten chapters in five minutes. i want to try to go through two. but in the interest of time, i'll go through one and leave second for q and a. maybe we can get back to it. the first point though is a -- is one that underscores a point that ben made in his talk, getting the fiscal and monetary balance correct. i would argue that's been missing both in our economy and particularly in those of europe. i have three points to make. first, those of us pulling for full employment, often talked

about monetary and fiscal policies if they are individually important they are of course important compliments. in fact, is specially when monetary policy is to some degree and to a large degree neutralized because the fed funds rate, the interest rate that they control is bound by zero fiscal policy is even more important. it's one thing to lower the cost of borrowing but another to reduce demand. i take you through a long example having to do with a restaurant that serves meatless meatballs, that's supposed to interest you in wanting to read about that. monetary policy sets the table fiscal policy brings people into the restaurant. that's my first point. my second point is that this zero lower bound problem may be an increasing problem going forward. meaning if we want to avoid prolonged weakness in recoveries fiscal policy will need to step up. this again gets to some of the points that ben made in the key note presentation regarding how

low interest rates are and probably will stay for a while that gives the fed less of a per perch to come back down thus raising the importance of getting this mix right. look at the box in my first slide here it's a little 3 x 3 grid with monetary policy on the x axis and fiscal policy -- fiscal on the y and monetary on the x there just with growth, neutral and contraction. you have nine different possibilities there. we want to be in -- i'm sorry, we want to be in box one where both fiscal and monetary policy are pushing in the same direction. i argue that that's where we were in 2009 and much of 2010. in the book i document that these compliment were quite effective in arresting the decline and output.

there you saw the one-two punch of monetary and fiscal working together. but fiscal policy quickly moved us into box seven where the fed was in growth mode and fiscal policy due to austerity was in contraction mode. this is the point i said when ben was talking about 2013, i have a slide on how damaging that was. now we move to box 4 where the fed remains pretty much in a strong growth mode and fiscal policy is neutral. this move from 7 to 4 has been really helpful as i'll show you in a minute. even having fiscal go from a negative fiscal impulse to fiscal neutrality has made a very positive difference in growth and jobs. now, what many of us are concerned about now and you heard this in andy's impassioned plea, that's about as passionate as you'll hear a macro economist again, that the fed could

potentially move too quick to neutrality to box 5, although i would say that chair janet yellen has been cautious to say it will be a shallow path and remain data dependent. i would like to stick to box 4 at least where the fed is on growth and fiscal is on neutral. i would say europe by the way is an interesting case here and i'll stop after this point. in that when austerity first struck, they bit off austerity more than we did they were kind of around box 7 there,let me see -- so when europe first began, they were around box 7 there with a contraction mode of fiscal policy -- actually, when they began, the fiscal policy was getting aus tear and the fed was in a neutral mode -- >> ecb. >> in a neutral mode and this

was -- this was a problematic and really pulling back growth. yet with fiscal still in contraction with aus territory remaining remaining, this shows the importance of getting this one-two punch right and perhaps ben will want to weigh in on that a little bit. i vifdly remember him going up to congress during his tenure as chair of the fed during this period and arguing very much for complimentary fiscal policy. i won't go into my next chapter because of time constraints but i will say what i does was to try to foresee a question i always get when i give this presentation, which is great, you all got wonderful ideas, great panel, all good, but we have a dysfunctional politics that isn't going to do any of the stuff you want it to. that leaves the fed out of the

picture because they are politically independent. getting fiscal policy right depends on a very different set of political actions and actors that we now have in place. in chapter 10 i try to think carefully about the politics it would take to get us to where we need to go. >> thank you very much. [ applause ] >> this is a challenge because the papers are interesting and not quite in the same lane. one question to you valerie then i want to change maybe to talk about policy implications. you make point that the unemployment rate of african-americans goes up more than others and comes down more quickly during a recovery. two questions, why? and is that affecting -- or not? >> i think the why has a lot to do with the fact that they are

persistent disparities in unemployment from the start. typically the african-american unemployment rate is about double the white rate close to double the national rate. so when we see things getting worse because that rate is higher we tend to see that more of an increase there. by the same token and when the recovery gets moving and things start improving, you start to see it come down faster but it has to come down from a higher point. i think that disparity has to do with why the black unemployment rate moves so much when the national rate moves. >> is that getting greater over time? or don't we know? >> i haven't seen that as necessarily getting greater over time. like i said. the 2 to 1 has been pretty consistent. at the same token, this greater volatility has been consistent at least since the 1979 which was the data i was using. >> maurice, you alluded to this

but i think you're talking about two different sets of policies here. one set of policy is let's reduce the number of people who have records so they don't have these blemishes on their employment forms and second one is let's lower the barrier to people who have these blemishes because so many have them. i was startled by the fact in your paper you said that for african-american working age men, i assume that's 25 to 54, something like that who are not in prison, so african-american men working age not in prison 25% have a felony conviction. >> what's one policy that you think has promise to reduce the number of people with records and what's the policy that would reduce the barriers beyond your -- >> yes that's exactly right. you have to do both.

you have to close the flood gates and there's been a lot of work done in that area to divert people from the criminal justice system at the arrest stage, conviction stage and incarceration stage. i come from california. there's a proposition that passed with a ton of bipartisan support to basically reduce about six felonies down to misdemeanors, mostly drug crimes but -- and various various property crimes and that had the effect of reducing the prison population by 50 to 100,000 people really ambitious and reincesting all of that money into treatment and other services, it's a one-two punch. there's a lot going on in that area. on the side of helping people navigate, the brand-new world of background checks, finally the most promising reform has been what we call fair chance hiring.

jared mentioned it, it's about creating a more fair process so at the application stage you don't have to report your criminal record anymore and remove the question and the whole challenge -- this is not specific to folks with records these days. it's specific to a lot of people unemployed, getting your foot in the door is a huge problem. there are these online applicant tracking systems and all of this stuff that makes it impossible to establish who you are as a person, aopposed to your record or whatever it is. the beauty of this is it kind of breaks through that and you have this chance to demonstrate who you are as an individual beyond your criminal record. so we have 14 states that enacted these fair chance hiring reforms over 100 cities and counties, about 60 of them did so just in the past two years. there's a lot of movement. >> you might not get the job if

you have a criminal record or conviction but at least you can't get thrown out of the initial screening. >> exactly. exactly is. >> valerie talked about the mid to late 90s and it's interesting, you goe back and look at the newspaper coverage in the late 90s, valerie said the unemployment rate is getting quite low down into the low 4%. people who were disabled -- you have a disability, some of people thought as though they were unemployable. what happened in the late 90s is that firms were desperate to find people. i have someone who has got a bad back but they can probably do this job. and the employer says, that's a great idea, let's give them a

call and see if we can recruit them. a lot of people who had been disabled and apparently permanently disabled suddenly they were actually coming back into the workforce and likewise people who were coming out of prison and with felony convictions and again, just look in the wall street journal there's a fascinating article in '99 or 2000, exactly about this. employment agencies started going to -- not to the high security prisons but to the low minimum security prisons asking do you have any inmates who are going to be released in the next couple of months that we could interview now? we have so many -- literally you look at the wall street journal not kidding you -- >> must be true if it's in the "wall street journal". >> it must be true. one of your other colleagues pointed me to this story a few months ago. they are interviewing these people and pt kinds of problems we are seeing today and seen in the last few years that maurice

is highlighting of course these other suggestions, i'm agreeing with you on but also said as ben bernanke said earlier this morning, there's a demand side and supply side. if the demand is strong and firms really need to hire more workers because they got a lot of demand for their products, then people who used to be considered unemployable suddenly become employable and that's also part of the problem. >> so ben bernanke, andy made the distinction between there's a potential growth path of the economy, how fast can we safely grow, that's largely out of control of the federal reserve and then there's -- and fed's job to get us as close to the path as possible. he made the case even more strong than you did that the unemployment rate the standard rate is misleading and that we need to look a lot more measures of that. you said that that's more true now than it used to be.

so why is that? how do you look -- how do you decide how much slack there is, how safe it is? >> it is very difficult. part of the problem -- for example, the participation rate has fallen a lot. the share of people working or looking for work has fallen a lot. i think it's an overstatement to say all of that is has to do with a weak economy. a lot of it has to do with trends in work patterns in aging, in retirement patterns in people's schooling choices a whole variety of things. so to say that all of that is due to the great recession is wrong but on other handsome of it may be and figuring out how much is difficult. likewise andy showed part-time work. there's been a big increase in part-time work. i have no doubt some of that reflects under employment but i mean there are also changes in the way firms organize their

workforce and you know and way people interact with the labor market in home production et cetera, all i'm saying, there are have been a lot of ongoing changes and women's role in the workforce, et cetera that make it even harder than usual to figure out how much further before you get to valerie's destination. and that's a practical problem for the fed because they do have a dual mandate and want to figure out you know how far can they go before they reach a point where further easy policy would be destabilizing, that's a tough decision. >> you think andy overstates the amount of slack the way he does the numbers? >> i think it's an i am pier cal question andy has interesting work in previous papers, one of the questions is how much is this slack as defined by andy,

how much of it does affect for example wages? if you think -- if you think that slack is real slack in some sense, then a large amount ought to cause wages to be slack as well. and andy's evidence which he can speak for himself, state by state, there does seem to be some relationship between how much of this type of broader measure of slack there is in a given state and what wage behaviors is and others have found different results but that's the kind of analysis you have to do to assess what's going on. that's why there's been a lot of attention to wages and the fact that wage growth has been quite weak all else equal would suggest that there's still some slack in the labor market. >> could you briefly summarize what you did in the paper on the state stuff? >> actually, i want to say again, valerie has some of the same evidence and danny and i were relieved that her findings

actually were very consistent with what we found. so you know, again you can take a look at both of the papers to bear on this question. i agree with what ben bernanke said -- it's not trivial. this is not andy levin's estimate, for the labor force participation we're taking cbo's current 2015 the 7.5% unemployment rate that i showed you is just using the cbo's current -- >> summarize the state by state stuff. >> the state level evidence is that -- if unemployment is elevated in a given state or year, that dampens wage pressures like valerie described. if part-time unemployment is elevated in a given state in a given year, that also dampens

wages very significantly and if you look at the state by state participation rates and particularly in earlier work we've looked at prime age adults, in this paper it's all working age adults, that also affects it. as ben bernanke said, these do seem to be forms of slack, it's not just the unemployment rate of people completely unemployed -- out of work and currently searching for a job. it's people who are partly employed by definition they are employable because they have a job. they are showing up for work every day but just 20 hours a week and really want a 40 hour a week job. >> one more question, so does getting to valerie's destination means your wife has to get a job is this. >> no -- >> okay fine, that was a joke. >> jared? >> so two points, one is just what we were just all talking about. i took some of andy's work and some earlier work he had done

with adam and did the following exercise which i thought was a good way to explain these dynamics that we've been talking about regarding wages which are a critical missing piece of the recovery particularly when you look at the populations of valerie is concerned about and we're all concerned about that valerie wrote about. i think the -- i think the -- if you try to predict this flat path of nominal wage growth, which is stuck at 2% now for five years if you try to predict that using the unemployment rate, you will get a prediction trying to forecast where wages are going so you run a model and stop at 2007 or 2009 and you forecast. you will find that your forecast shows wages should be growing now a couple of percent faster than they are. you say, geez, what's wrong with

my forecast, it used to work but doesn't work anymore. then you put in the labor force participation rate, that simple. this is just national stuff you don't even have to get to the more sophisticated state level. your forecast tracks the wage trends really tightly. that tells you that there's something about these folks that are out of labor force that are constraint on wage growth and i think it underscores this point about how much slack is left. second point related to that very quickly we're not going to reach disadvantaged minorityies, the long term unemployed and people with criminal records, simply by getting to unemployment and then moving off of it. we need to get to unemployment chock full unemployment and stay there for these effects to really bear out. >> jared, you're not suggesting that all of the decline in labor force participation is

reversible by running expansionary fiscal policy? we know there's an aging, baby boomers -- some is probably persistent demographic taste and some is recoverable if we get stronger and the argument is really about how much -- >> exactly. none of us are making the assumption, including andy, that it's the full 3 point gap 66% now it's 63%. all arguing about the three points. i will say the following, i've looked at all of the decompositions and right now i think maybe a point and a half is recoverable. >> and andy let me ask you about the remarks ben bernanke made earlier. i'm sure i'm oversimplifying, part of what he was saying there's a limit to what the fed can do because it only controls monetary policy in the united states and to the extent to which the chinese choose to run

a current account surplus or these days the germans choose to run a current account surplus other than pounding the table at g-20 meetings the fed can't do much. do you agree with that? >> well, i mean, this is obviously a complex discussion but i would say ben bernanke himself was adamant that the fed should do what it can. okay, that the monetary policy not a panacea and there are situations in which monetary policy is doing everything it can and that still may not be enough to quickly get back to full employment. but i think that i would say first of all again the analysis that danny and i have done and i stand behind it in many cases i'm the first person to say we're uncertain about this and not quite sure how to read it. i would stand behind this to say that we think there's still a lot of labor market slack and nominal wage inflation has been

pretty darn flat at 2% and so like larry summers we think it would be premature to start normalizing policy or tightening policy right now. we see very significant downside risks to the u.s. economy. i think some of them are from abroad but frankly this morning, the personal consumption expenditure data came out very weak. and people are starting to talk now that gp, which is total output of the u.s. economy, this may drop may be negative. we'll see. now some of that may be weather but of course we've heard that story before in previous years and i would like to see an economy that's resilient enough that we can have a few winter storms and the economy doesn't come to a halt. >> can i just say, the one area where i disagree a little bit with ben gets to the question that i think you're asking a second ago david which is about what we could and should do to

push back against imbalanced trade. right now one of the things that's a drag on our economy in fact is the very strong dollar and it is shaving according i agree with your point that to try to put a currency chapter in a tpp could undermine the deal although i still advocate for trying and trying hard perhaps if we can't do it in the tpp then we need to do something more outside of it than quite diplomacy. i agree it's hard for even non-economists to see between

demand policy and currency management over manipulation. i think the extend to which you have a large current account surplus and buying large amounts of reserve currency is very much an indicator. >> care to respond. i think most economists can make that distinction. >> i think what the rules would say is that it's the amount of reserves that you accumulate. if you want one motivation for accumulated foreign reserves is to cover your debts when your debts are in currency other than your own. you want to accumulate some

multiple of your debt. maybe that's one. when you get to two yourself probably outside of a range. >> it is those kinds of rules. >> you may be right. already an hour not talking about how much reserve is okay. there clearly will be judgments that not necessarily distinguish different motivations for reserve accumulation, for example. i think in principle it's a good idea. i just worry that it will kill the deal as you said and b it's harder than you might think to make that distinction. >> do either of you want to add anything? a point in your paper you didn't get to make or criticize andy's regression or anything?

>> i'm out of my league now. >> let's turn to the audience. i hope you make your questions quick. two questions right here. start there and move in. tell us who you are. >> alexander berger. in comments friday, janet yellen said she expects the market to push core relation lack up to 2% and it will probably to start the planning this year. she also said she no longer wants to wait and see wage growth before she makes that decision. i was curious what you think explains that decision. >> i don't speak for the federal reserve. i'm sorry. >> nor do i. >> i think, i completely agree

with ben bernanke that these are complex judgments looking at a lot of different data and different models and different analytical tools. i don't want to make this sound trivial. there's been very significant changes in productivity growth for reasons that were talked about in the first session this morning. they are totally out of feds control. technology grows and facebook and all these sorts of things. that means that we don't know for sure what the, along this idea of a balanced growth path, we don't know for sure what nominal wage growth will be along that path. that means there could be circumstances in which relation and inflation period comes back up to the feds target of 2% and wage inflation is still where it is. that would point to the sort of

structural and regulatory policies that would need to improve the path itself. it's not a monetary policy issue at that point. my own concern which i think is what jarred d said it's there's still a lot of labor today. just consumer price inflation has been running at 1.5% for several years. the fed has been falling short of its 2% goal. as i said earlier and ben bernanke has emphasized this over several years it's complimentary. if we're missing the inflation goal on the downside it may be a sign that there is a lot of labor markets and that maybe the only way to get up to 2% is to have a pick up in nominal wage inflation and the only way to get that is to maintain accommodated policies longer than we might have thought.

>> tell us who you are. >> i'm at the center for popular democracy. i want to follow up. it seems like one of questions is what are the trade offs. we didn't talk about whether or not 2% inflation target is the appropriate goal. it seems to me if you're trying to hit 2% and very scared of overshooting it, then if you're willing to tolerate higher inflation given we have been under inflation for the last 7 years or something like that. is anyone familiar with any research that suggests that 3% or 4% inflation has human costs that it would be negative for the economy. is there any reason to think we couldn't be well anchored. >> >> when you were tlrks why did you go for 2%.

is you had it to do again, would you pick a higher target? >> there is research and most gave 2% which is international standard. it is seymmetrical. i think, this is a complicated question. not only the question of what is the cost of higher inflation but what is the benefit. does it really help you? how much does it help you. these are issues economists need to do more work on. there isn't a lot of serious work on this question. i would say the following which is when i was there, we did talk about alternatives including tpp targets and things of that sort. there's two questions. what would you choose if you were starting from scratch and the other what about the costs and complexities of switching regimes in middle of a deep

recession or financial crisis. i would say deciding not to switch is not the same thing as making it a final judgment about which would be the best frame work de novo. we established the frame work and it was based on what we knew at the time. there is a history which is that inflation has been around 2% and expectations are extremely well anchored around 2%. changing it is a very complex process. given all that we decided to make changes. i think a lot more work needs to be done. i'm thinking about higher targets and what are the benefits and costs of that. again, you have to take into account not just the de novo thing but what is the cost of making a change. >> there's a paper in your packet by economists larry wall who has written some pieces for our project and in that paper

explicitly argues it would be a very useful to go above 2% inflation specifically for the kinds of intuitions that i think you were getting at that the fed should allow not just symmetry but a persistent period above 2% in order to get the unemployment rate down. wall has also written, i think it is complicated. i agree with a lot of what ben just said that if you can anchor a two, you can anchor or three or a four. that doesn't say much about the cost. i think ben's point is we don't know enough about that. >> tell us who you are. >> pam harris, council on education in ward 5. my question is to valerie wilson. more and more of our workers are hispanic workers and i'm sure

some of them are undocumented hispanic hispanic workers. it's greatly impacted african-americans in this business. how has that factored into your report and how will it impact the overall employment of african-americans once america embraces making the undocumented workers citizens? >> that's a good question. there's a lot of directions i could go on that one. first, i would say that that's an issue that has been raised for some time whether or not increased immigration has resulted in displacement of african-american workers. i think the point that you make is salient because you're talking about your community in your city. i think nationally we don't tend to see that as much. in certain communities and certain areas, where there's more localized labor market, i think there are those tensions. on the other side of that the exis