Epiphanies from Austan Goolsbee

As chairman of the Council of Economic Advisers and a cabinet-level aide to fellow Chicagoan Barack Obama, Austan Goolsbee had a rarefied perch in Washington for an academic trained to write about recessions, not steer the country through one. He couldn’t wait to leave. “There was a lot of yelling,” Goolsbee says. Now safely back at the University of Chicago, he talks to Foreign Policy about the inside-the-administration fights, tired Republican trickle-down economics, and what he would do if he woke up one day as China’s central bank chief.

We had the most successful financial system rescue ever. It didn’t end up costing any money. Normally, a financial rescue of that magnitude costs about 5 to 10 percent of GDP, an astoundingly big number. But in the U.S. they paid the money back. That hasn’t stopped it from being massively unpopular, and it hasn’t prevented the worst recession in our lifetimes for the real economy.

The U.S. is still in a pretty good spot, especially relative to other advanced countries. The aging of our population is not as pronounced as almost anyone else’s. We start from a debt-to-GDP ratio that’s below most other advanced countries. Our tax and spending levels are pretty low. And we continue to be a highly entrepreneurial culture with a great deal of innovation. It’s not to say everything is perfect, but I’m pretty optimistic. Cautious but, medium to long run, heavily optimistic.

The primary reason it’s been such hard, slow, tough work to get out of this recession is that we fundamentally can’t go back to what we were doing before the recession began. There’s 6 million vacant homes now, so we’re not going to go back to massive construction rates driving economic growth. In several quarters in the 2000s, if you added up all the private savings of everyone in the United States, it was less than nothing. You can’t sustain that as a driver of growth.

You can understand why people are pissed off. The Occupy Wall Street crowd put on the table an issue, which is a pretty glaring one in the data, that hadn’t really been on the agenda: income inequality, tax policy, and whether the focus of our policies should only be saving corporations. And if you look at the Romney or Perry economic plans, they’re just in the same old trickle-down playbook.

Would I dump the dollar [if I were China’s central banker]? I don’t know. Look, if you accumulate $2 or $3 trillion of foreign reserves, you’re in a tough spot. George Stigler, a Nobel laureate here at the University at Chicago, used to wake up every day and give himself a D. But that made him feel good because he gave everyone else an F. For every criticism of the U.S. economy, whenever people go into a panic, they look around and say, “That’s the cleanest shirt I have. So I’m putting it on.”

I’m pretty happy not to be an insider anymore. There’s just no common ground. I don’t know if it’s distrust or that the politics is substantially more partisan than the public. But there’s no pressure to make a grand bargain on fiscal matters, on growth, on anything. The Republicans were like the East German judge at the Olympics: The president lands a triple flip, but they’ve already given him a 2.