Michael Bloomberg is probably going to get crucified by his opponents during Tuesday’s Democratic debate, thanks to newly leaked remarks from June 2016, in which the former New York City mayor told a crowd at Goldman Sachs that he only offered Barack Obama a “backhanded” endorsement for reelection in 2012, joked about running for president on a platform of defending the big banks, and called Sen. Elizabeth Warren and progressive voters “scary.” But aside from providing new grist for attacks that Bloomberg is a Democrat in name only, the new tape also offers some valuable, unfiltered insight into Bloomberg’s instincts on economic policy, which appear to be misguided in the banal, Davos-man sort of way we’ve come to expect from the world’s politically moderate plutocrats. When it comes to the economy, he largely seems to rely on rich-guy folk wisdom.
Take monetary policy, a dull subject that also happens to be absolutely crucial to the health of the economy and ultimate success of any presidency. At the time of Bloomberg’s 2016 remarks, the Federal Reserve was holding back on interest rate hikes while the country continued to heal from the lingering trauma of the Great Recession. Bloomberg believed this was a grave mistake. “If you were chairman of the Federal Reserve, what would you be doing?” an audience member asked. “Raise interest rates,” Bloomberg responded, emphatically. He continued:
You have to have higher interest rates because otherwise the markets don’t function. There’s no allocation of capital. And if the Fed needed to cut interest rates, since 0 interest rates have been shown not to work, there’s nothing they can do and I want them to have that ability.
Bloomberg went on to say that the Fed should simply announce that it planned to raise interest rates a quarter of a point every 37 days until they returned to where they were a decade before. (Why 37 days? I have no idea.) “I fail to see why keeping interest rates at this level makes any sense,” he said.
The idea that central bankers should raise interest rates higher in the near term just so that they will have more room to cut them later in the event of a future recession is a popular nostrum that is sometimes repeated by respectable figures in finance. It’s often referred to as “stockpiling ammo.” The problem is that this idea never made much sense. If you raise rates too soon, it just weakens the economy and increases the risk of a recession, which will force policymakers to cut rates back down. It’s a bit like digging yourself into a ditch just so you’ll have some dirt to fill the hole at a later date. This is pretty much what unfolded in 2018 and 2019, when the Fed had to double back and lower rates after a period of raising them too aggressively.
The fact that Bloomberg made a somewhat common mistake about monetary policy may not be the scintillating sort of scandal that would get him snapped in half by Warren on national television. But in the end, appointing the right people to the Fed is one of the president’s most important responsibilities, given that it’s one of the few ways he can directly affect the economy, and it’s the sort of thing at which you’d assume a managerial type like Bloomberg might excel. But his comments from 2016 do not inspire much confidence in his ability to handle the task. If the Fed actually raised rates on the schedule he seemed to believe was appropriate, it would have been an unmitigated disaster.
Bloomberg’s take on income inequality is similarly off-base in a way you might expect of someone who reads the Wall Street Journal’s op-ed page (or talks to a lot of people who do). During his remarks, he suggest that the Fed’s low interest rates have fueled the income gap by inflating asset prices.
Look at the income inequality. Any time we’ve had this before, society blows up and they do set up the guillotines. And the guillotines don’t have to be chop your head of. They can be confiscatory taxes. They could be seizing the endowments of educational institutions and philanthropic organizations, all of which those proposals are out there. We have to do something about this income inequality. And a lot of of it comes from 0 interest rates. Because it’s the fixed asset values that keep going up whether it’s art or buildings or land or whatever that comes from very cheap money. But that, unfortunately, those things are owned by the very rich. And you keep exacerbating this, no matter how much you hurt the poor.
This too was a fairly common idea in 2016 (it even still comes up today). And there’s some surface-level logic to it: The Federal Reserve’s quantitative easing policies, for instance, really were designed to push up certain asset prices, which probably benefited some rich people. But low interest rates also help reduce inequality by allowing the job market to get hot, so that people can find work and get raises. More importantly, just about every analysis you look at will show that most, if not all, of the rise in wealth and income inequality took place well before 2008, meaning that the Fed’s post-recession monetary policy can’t be at fault. Bloomberg deserves some credit for broaching the topic of inequality in a room full of rich guys, even if he’s only warning them to watch their necks. But he doesn’t really understand what he’s talking about.
The same can be said for Bloomberg’s take on employment and automation. It turns out that the man has an Andrew Yang–ish streak: He spends a good chunk of his speech talking about how technology is threatening to wipe out middle class jobs (“something like 40 percent of all jobs in America could be automated” he said) and contemplating radical solutions to fix it, like a universal basic income or a sort of federal job guarantee.
The question you have to ask yourself is what’s going to happen to society? Everybody wants recognition and respect. Everybody’s got to eat. And there are proposals, for instance, for a cash payment to everybody. Switzerland had one on the ballot that got turned down. But there are legitimate economists who aren’t crazy left wing nuts who say, look, people have to eat. Because if they can’t eat, they’re going to set up the guillotines. But a lot of people don’t just want a check. They just want the dignity of having earned it. Well how do you do that? Well I’ll tell you what happened in the depression. The government understood that the government needed the jobs, they needed the subsidies, but they wanted a job. So they created the WPA. So maybe the answer is another WPA, because the corporate world isn’t going to do it. They’re using the technology to reduce the number of employees. And that’s why you see the unemployment rate come down. It’s people dropping out of the workforce. And a lot of the jobs created are temporary jobs in the shared economy.
Again, the notion that we could be facing a massive wave of unemployment thanks to technology is utterly commonplace. You hear it on Wall Street, in Silicon Valley, and yes, at Davos. And it’s nice to see that Bloomberg is trying to think through a humane solution to the problem. But as I’ve written at length, these concerns are mostly unjustified. Some jobs and industries are clearly being replaced by new tech. But there is little evidence whatsoever that we are headed for a dystopian post-work scenario, à la Player Piano. There just isn’t.
On the Fed, on inequality, and on the future of work, Bloomberg has bought into bad ideas that unfortunately have some cachet in C-suites. All of this comes on top of the fact that he bought into and perpetuated the conservative myth that federal housing policy was responsible for the housing bubble and financial crisis. Just because someone understands how to make a lot of money does not mean they understand the economy. Bloomberg is Exhibit A.
Listen to the most recent episode of Slate Money, about the fight for housing in America.
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