Think you know how wealth moves through the economy? Dean Baker reveals the hidden rules and policies that actually determine who gets ahead.
Despite recent volatility, the stock market sits at record highs while unemployment ticks up, inflation is once again on the rise, and economic anxiety runs deep.
In this week’s WhoWhatWhy podcast, Dean Baker, one of America’s distinguished economic minds, breaks down this paradox with a stark warning: Wall Street’s celebrations often signal policies that hurt working Americans, from deregulation that endangers public safety to tax plans that primarily benefit the wealthy.
Baker dissects how modern economic policies systematically redirect wealth upward — and why many popular solutions won’t fix the problem.
To explain the hows and whys, he delves into the complex dynamics of trade, manufacturing, and wages in modern America. He challenges popular narratives about bringing back manufacturing jobs, detailing how the landscape has fundamentally changed since the 1980s when manufacturing provided a reliable path to the middle class. He offers a particularly striking statistic: If the minimum wage had kept pace with productivity gains since 1968, it would be over $26 an hour today.
Baker also provides a sobering analysis of how policy decisions around patents, copyrights, and trade agreements have contributed to income inequality. Using the pharmaceutical industry as a case study, he shows how government-granted monopolies redistribute wealth upward, costing American households thousands of dollars annually.
To illustrate the ever-shifting intersection between economics and politics, Baker considers how European nations are reassessing their economic policies in response to global political shifts — while offering fresh perspectives on issues that directly impact Americans’ daily lives.
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(As a service to our readers, we provide transcripts with our podcasts. We try to ensure that these transcripts do not include errors. However, due to a constraint of resources, we are not always able to proofread them as closely as we would like and hope that you will excuse any errors that slipped through.)
Jeff Schechtman: Welcome to the WhoWhatWhy podcast. I’m Jeff Schechtman. Every economic age seems to bear its own fingerprints, etched clearly enough for future economists to dissect. But the marks we’re seeing today, sharp volatility, consumer anxiety, unpredictable tariffs, and a stock market seemingly running on a mixture of hope and fear, feel more like claw marks, deep and erratic, scratching at our collective confidence.
The economy under Donald Trump has become a roller coaster we didn’t exactly sign up for. Tariffs imposed almost whimsically, trade policies rooted less in logic than bravado, and a dollar that seems increasingly unsure of its global footing. Wall Street holds its breath at every tweet. Consumers feel the pinch at every checkout, and businesses wrestle with uncertainty about where and how to invest. The once predictable rules of economics seem suddenly negotiable. Yet beneath all the chaos, certain things remain stubbornly constant, most notably, America’s deeply embedded income inequality.
My guest today, economist, Dean Baker, points out that while uncertainty churns at the top, inequality continues to quietly hollow out the economic foundations beneath us. He has spent decades demystifying economic policy, exposing how seemingly neutral decisions favor the privileged few, and questioning who truly benefits from the turbulence.
Dean Baker co-founded the Center for Economic and Policy Research and is the author of numerous influential books, including his latest, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. His work has consistently spotlighted how the rich get richer, often by design, while the rest bear the costs.
Today, we’ll spend some time unpacking the real-time impacts of tariffs, Trump’s economic maneuvers, consumer confidence shaken by unpredictability, and why the US dollar’s strength or weakness matters to us all. We’ll also explore how these daily disruptions tie back to the deeper structural inequalities that Baker has long warned us are destabilizing to our economic future. It is my pleasure to welcome Dean Baker back here to the WhoWhatWhy podcast. Dean, thanks so much for joining us.
Dean Baker: Jeff, thanks for having me on.
Jeff: It is a delight to have you here. When we talk about the economy, it’s a little bit like for most people, the story of the blind man and the elephant. Every part that you touch, you come away with a different definition of what the elephant is. For some people, it’s the price of eggs. Some, it’s the stock market, tariffs, inflation, and all the things that we hear about every day. Talk a little bit about that idea first that when we talk about the economy, there isn’t necessarily, at least in the public’s consciousness, the universal idea of what we should or what we are talking about.
Dean: Yes. You’re right, it is very confusing. People mean different things. A lot of people, it’s very common to hear them say, “Oh, the economy is good because the stock market’s good.” And the point I make, and this isn’t some left-wing thing, it’s just definitional, the stock market, in principle, is the value of future corporate profits. So if something has happened or an administration has done something that leads investors in the market to believe profits will be higher in the future, then you expect the market to go up. It’s almost definitional.
No, that thing could be something that’s good for the economy, good for the country as a whole. If we develop new technology, let’s say AI pays off, as some people expect, we have more productivity, we could all have better living standards. That could be a story where the stock market goes up and it’s good for everyone, in some sense.
But it could also be the case that the stock market goes up because there’s Trump saying, “I’ve got lower taxes for rich people.” That would cause the stock market to go up if people think that’s going to happen. “I’m going to reduce regulations, so companies aren’t going to have to worry about pesky safety regulation or environmental regulation.” That causes stock market to go up.
So the stock market, as I say, I’m focusing on that because many people look at that and they go, “That’s the economy.” What I emphasize is, for most people, the economy is jobs and wages. So can you get a job? And thankfully, at least for now, most people can. Maybe that won’t be true in another month or so, but we’ve had very low unemployment.
One of the great, great stories of the Biden administration that got very low attention was the lowest stretch four years average unemployment since the late ’60s, and it was really quite impressive. People could get jobs, and we were seeing rising real wages. So we all know about inflation, but the fact was, for most of the Biden administration, wages were rising more rapidly than prices, so people were able to buy more. We saw that clearly in the data.
So that’s when I look at the economy. I’m focused on people get jobs, are their wages rising? And also, another very, very important point, are wages rising for everyone? Because if we go back prior, let’s say ’80s and ’90s, wages were rising at the top end of the distribution, so the top 10% or so. They were seeing wages far outpace inflation, particularly higher up the top 5% and the top 1%, but if you take the bottom 80% and particularly, say, the bottom 50%, their wages weren’t keeping pace with inflation.
So for me, I’m focused on wages, prices, are workers coming out ahead? Those are the big stories. Other things we can and should look at, but that to my view, that’s front and center.
Jeff: To your point about the markets being forward-looking, the problem is that the markets may be forward-looking, but for most people that are looking for jobs or are trying to earn a living, they’re living in the here and now, not what the future might be.
Dean: That’s right, and it is, again, I am saying, I don’t think that the stock market is the economy, but of course, I look at that. I’d be crazy, I think any economist would be crazy not to look at what the market’s doing because it’s giving you information. It’s just what investors think about the world. Now, they could often be wrong, they are often wrong. I remember, I’ve been following economics a long time, back in the late ’90s, I was looking at the stock market going through the roof. I go, “This makes no sense. This makes no sense.” And well, what do you know? It crashed. So at the end of the day, it didn’t make sense.
So they can be wrong, but I want to know what people are putting money on the table, what they think. But again, what they think about the future is different from what people see today in terms of, can they get a job? What are their wages? What would their wages buy? That’s where they live. So the stock market, again, it’s important for me as an economist to follow and pay some attention to it, but that’s not where most people live.
Jeff: And talk about it with respect to this whole idea of tariffs and inflation, and the impact that all of that can have on the broader economic issues that you’re talking about.
Dean: The two big sources of uncertainty that the Trump administration has thrown into the economy, the biggest– Well, we could argue which is the biggest. I’ll just give both of them. Obviously, the tariffs. And it’s almost impossible to over-emphasize how much uncertainty those create. So just imagine, most of us will never be in this situation. You’re running a big company, you’re running Ford, you’re running General Motors, and you’re trying to decide, you had planned to expand production, but you’re trying to go, “Do I want to do that in the United States? Do I want to do that in Canada? Do I want to do it in Mexico?”
Now, keep in mind, it was deliberate policy to integrate Canada and Mexico with the US. So I know Trump talks about it like it’s a great [unintelligible 00:07:37] They invested in Canada, they invested– Well, he signed the trade agreement. We originally had NAFTA at ’93. I was against it, but the reality was, we did it. So better or worse, that was the reality over 30 years ago. And then Trump modified it with his trade agreement in 2020, and he was saying, “Great trade agreement.”
Now he’s saying, “Oh my God, these companies, they’re traders, they invested.” What did he think was going to happen? These trade agreements were deliberately about integrating our economies. So that’s the story we’ve had for over 30 years. So now, you have a company that’s thinking of expanding. Do you do that in Mexico? Do you do it in Canada? Do you do it in the US?
My guess is most of them are just going to hold off because you don’t know. Are there going to be tariffs? If there are tariffs, are they going to be there for a year, two years, five years? So that creates enormous uncertainty, and that’s definitely very, very bad news for the economy. Of course, if we actually have the tariffs, these are huge tax increases. That’s a big whack to the economy.
Now the other source of uncertainty is Elon Musk and his DOGE crew. They’re running around, of course, laying off workers. We don’t know how many workers at the end of the day they’ll lay off. They don’t know. They lay off workers and say, “Oh, it’s a mistake.” This is not efficient. I mentioned that because they’re supposed to be about efficiency, but that’s not an efficient way to operate.
But then on top of that, they’re canceling government contracts. And from the standpoint of a lot of businesses, I’m thinking, obviously, academia, but also, the healthcare industry, they don’t– State and local governments, I should say. They don’t know what things look like even a few months down the road, much less a year or two down the road. So if you’re trying to decide, do you want to hire more people? Well, you’re going to be very, very, very cautious.
So I’m expecting we get our job numbers monthly, so we’ll get that on March, employment in early April. I expect we’re going to see some bad stories there, primarily, not so much layoffs. We’ll see some of that, but I think the bigger story is that you’ll see a lot of businesses holding off on hiring. And just to drive home this point, one-third of job creation in the last year came directly from healthcare. Hard to believe that you don’t have hospitals, nursing homes, doctors offices very hesitant about hiring new people in the current environment.
State and local government were the second leading sector, job growth sector there too. What is your budget going to look like next year? You’re going to be very reluctant to hire people. So I think we’re going to see a really big hit from the uncertainty that has been created and again, I have no idea, people try to attach, “Oh, they have this grand plan.” I’m kind of skeptical. I’ll just say, if they have a grand plan, they’re doing a really good job concealing what it is.
Jeff: Isn’t it in many cases, the worst of all possible worlds right now in that we’re going to have some of these tariffs which, as you say, will cost consumers and drive up inflation. At the same time, you have this freezing of activity on the part of business, creating this stagflation where you have negative growth and inflation.
Dean: Yes, it very much could create that. And let me say, we had tariffs under the Biden administration, and you could argue with them. I wasn’t a total fan of their tariffs, they’re a mixed bag, but there was at least a coherence to it. So Biden said, “Okay, we’re going to impose tariffs on semiconductors, on clean solar panels, on electric cars, electric vehicles because we want to build up our industry here.” So this went along with putting in place the infrastructure, the charging stations. We had subsidies for people buying electric vehicles.
So it was a workout strategy where they said, “Okay, we’re having tariffs, but it’s part of a larger plan. It’s not tariffs for the sake of tariffs.” The Trump administration, again, if they have a larger plan, they’re doing a great job concealing what it might be. They seem to be totally haphazard. They change the size of the tariffs all the time, what they say they’ll be. Can’t decide whether they’re going to put them on and leave them on. And again, that’s a really, really important point because sometimes they’re saying, “Oh, this is just a negotiating tactic.”
So again, going back to my auto executive trying to figure out what to do with expanding capacity. If you think the tariffs are just there for however long, a few months as a negotiating tactic, you’re going to assume it’s going to be gone in six months or a year, and you’ll invest accordingly. On the other hand, if you think it’s going to be there for the indefinite future, maybe 5, 10, 20 years, well, you’ll invest a different way. And if you don’t know which it’s going to be, you’re just going to hold off your investment. And I think that’s what we’re seeing.
Jeff: Given how much free trade there has been over the past 30 years, given the low tariffs over this period of time, talk about how difficult it is to turn on a dime to change that at this point.
Dean: There’s several points here. First off, as I was saying in the case of Canada and Mexico, but even other places, our economies get integrated, and in principle, there’s nothing wrong with that. So you’re taking advantage of economies of scale. Some places are more fit with the classic joke, we’re not going to be producing coffee in the United States, no matter how high we make the tariff.
And it’s not a bad thing. [chuckles] I’m the coffee fan, but we’re not going to produce it here. So we have our economies integrated. And again, that’s in principle, a fine thing. Now trying to say, “No, we’re not going to integrate them.” That’s incredibly disruptive.
But then on top of that, I think the Trump people, again, I don’t try to get into their head, I can’t, but if you say, okay, let’s say we have this big trade deficit, or argue whether it’s big or not, it’s smaller than it used to be. It’s 3% GDP. It’s about 900 billion a year. So you say, “Okay, let’s say we’re going to get rid of the trade deficit. We’re going to have more manufacturing here. So instead of importing 900 billion more than we export, we’re going to have balanced trade. We’ll import less, we’ll export more.”
I just did the math on that. And if you assume that we make up that gap, 900 billion all on the manufacturing side, my reason for emphasizing all, we also export a lot of cultural goods. We also export a lot of services. So you could easily balance or at least move towards balance by raising agricultural exports, raising service exports, but let’s just say, we do it all on the manufacturing side. We would increase employment manufacturing from 8% of the labor force to 9%. That’s not a qualitative change.
And Trump keeps talking about this, and I know the history, I’ve talked about it myself many times. You can go back to 1980, manufacturing jobs were generally good-paying jobs. Main reason for that was they were disproportionately unionized. At that point, over 32% of manufacturing workers were in unions. That compared to 15% for the private sector as a whole. So you could say these were good jobs. That’s a good thing. We had all these workers in manufacturing, and a little bit of this is stereotypical. They’re largely men, of course. A lot of them were Black, so it wasn’t all White then.
But in any case, you could say that was a good story. Someone get a job in the UAW and put their kids through college. I know many people in that boat. Kids who went to college because their father was working in a Ford plant or GM plant, and they made enough money. They were able to do that, and that’s a great story.
That’s not the story today. Manufacturing today, just 8% of the workers are unionized, 6% of the rest of the private sector. That story of manufacturing jobs being these good jobs that we’re going to get back, and suddenly, we’ll have all these people who are more prosperous, that literally makes no sense, given how the world’s changed in the last 40, 45 years. So we could talk about the golden age that’s exaggerated, but there’s some truth to that. But that era’s dead, and there’s no logic. There’s no way we could bring it back.
Jeff: How do we begin to address some of these issues that you’ve written about and that you’ve raised over the years in terms of this income inequality and in terms of creating those jobs you were talking about earlier?
Dean: I think a lot of it is we have to think more carefully about what the market is. So again, one of the things I’ve written about endlessly is they weren’t free trade agreements. They were trade agreements. We didn’t free up trade-in doctors. People look at me like, “What are you talking about?” I go, we had extensive negotiations to make it as easy as possible to import textiles from other countries, to import steel, to import cars, that’s what our trade agreements were about.
We could have made it as easy as possible for doctors, and we could start with Europe and Canada, which it’s still very hard for them to do it, but we could say India, China, other countries train to our standards. If they didn’t learn English growing up, learn it to come here. And then you could practice just like the doctor who got their education in New York or Boston, or wherever else.
That would have the same benefits. We talked about gains from trade, well, it would have the same benefits of getting rid of tariffs on steel and cars. We’d have lower-cost healthcare. Our doctors get paid twice as much as doctors in Europe, Germany, and France, and Canada. We would save over $100 billion a year on healthcare if we paid our doctors salaries comparable to what they were getting in these other wealthy countries. That’s a big deal.
The other point that I hit home on this is that the trade deals actually made patent and copyright protection longer and stronger. And now this is 180 degrees at odds with free trade. These are government-granted monopolies. I understand they serve a purpose. Patents provide incentives for innovation. Copyrights provide incentive for creative work. Those are clear purposes, but the point is, they’re government policies, and they’re absolutely 180 degrees at odds with free trade.
If I go out and make copies of Bill Gates’ Microsoft software and start selling them and computers, they’re going to have me arrested. So that’s not free trade, and it’s a huge, huge amount of money. I focus on prescription drugs because one, it’s people’s health, people’s lives, but also, it’s an incredible amount of money. We’re going to spend over $650 billion this year on pharmaceutical products. If we stamped our fingers said, “No patents, free trade, and prescription drugs,” we’d probably spend around $100 billion.
The difference, $550 billion a year. It’s over $4,000 per household. That’s a lot of money, and it’s all redistributed upwards. It’s very few people with just high school degrees who are benefiting from those patent monopolies. So I focus patent monopolies, copyright monopolies. These were not gifts from God. These are not part of the free market, they’re policies. Again, they have a rationale, but we should be talking about that and recognize that these have a very, very large impact on the economy. And I’d say, they’re very big factors in the upward redistribution of income we’ve seen over the last 45 years.
Jeff: And it’s safe to say, perhaps, that we’re going to see more of those policies during this administration.
Dean: Yes, it’s really remarkable, and I guess not surprising to me, but just kind of amazing. There’s a huge amount of antagonism at the pharmaceutical industry, including on the right. I’m on Twitter, so I see all these people saying, “Oh, and so and so is a shill for the big pharma, and this and that.” So this is coming from the right. They’re clearly a MAGA people. They’re Trumpers. You go, “Okay, great. You don’t like pharma. I don’t like them either. Let’s whack them.”
What’s the first thing Trump comes into office and does, or one of the very first things? Executive order. Biden had proposed that we would be having price controls or regulations on a number of drugs in Medicare. Trump goes, “No, we’re going to give big pharma more money.” So, I think that just speaks volumes. Obviously, he’s very cynical as a politician, as a person, but we’re likely to see even more money redistributed upwards through patent and copyright monopolies than was previously the case. And again, as I say, it is just kind of amazing that he’s doing this even as so many of the people in his space ostensibly hate the drug companies.
Jeff: Have you seen anything in the Trump agenda, from an economic perspective at this point, that could have positive impacts on the lower 50% of the economy?
Dean: It’s a great question. I wish I could answer yes to that. It’s very hard to see. And his absolute contempt for minimum wage laws, again, the tariffs are incredibly regressive tax. You can’t emphasize that enough. So he has his people saying, and again, who knows what they actually believe, but his press secretary last week was saying, a tariffs a tax cut. How can a tax be a tax cut?
So we’re taxing imported goods, and again, most of that will be passed on to consumers. And it’s regressive for two reasons. One, if you take the really rich people on Elon Musk, they couldn’t spend their whole income even if they wanted to, whereas, most low-moderate-income people, they are spending their whole income, but they’re also more likely to spend it on goods. So you get higher-end people, they take trips overseas, they go to high-end restaurants, that’s a lot of their income.
Lower-end people, they’re disproportionately buying their clothes, buying other goods, so they’re going to disproportionately pay those taxes. So it’s hard to see that as being a good story. If we see the unemployment rate rise, which that’s my best guess. I don’t mean necessarily in March, although, I do think it’ll start to go up in March. Or it went up in February, actually. But I think we will continue to see it rise. That’s really bad for low-moderate-income people.
One of the things I and others have pointed out is that when you get low on employment, it disproportionately benefits the most disadvantaged workers. People with less education, people with a criminal record, Blacks, Hispanics, they disproportionately benefit very [unintelligible 00:21:23] The low unemployment we saw, in fact, in the Biden administration, if that rate starts to go up, if we see the unemployment rate overall start to rise, figure Black unemployment rises 2:1 for– So in other words, if the unemployment rate would go from 4%, which was in January to 5%, some point this year, that’d be a 2% point increase for Blacks. Black teens, 5% or 6% point increase.
So, I mean, look at things like that, it’s really hard for me to see anything positive from the Trump agenda. I could be missing something. And again, I actually would like to, if I could say, “That’s a good thing,” because I’m not averse to praising something that I think is good and go, “Okay, I think your tariff is bad. I think giving the pharmaceutical industry more money is bad news.” But this one thing we could agree on that’s good, I’m just at a loss to think of what that might be.
Jeff: And the thing that will make the higher unemployment worse is inflation going along with it from the tariffs and from the additional cost.
Dean: Yes. So inflation, and also, again, this is another part of the story, the Republicans are set on their tax cuts, which primarily go to higher-end people. And how they want to offset the cost of that is they want to have cuts to Medicaid, which is incredibly important healthcare program for low-moderate-income people. Over 70 million people benefit from that.
So you’re going to be hitting a lot of people if you have those cuts where some of them will be losing their jobs, but also be losing their healthcare. And that’s going to be a really bad story for an awful lot of people. Again, none of this is baked in the cake, so it’s possible those Medicaid cuts won’t go through. Who knows? But that’s not a good story.
Jeff: Talk a little bit about what you wrote about in Rigged and the income inequality and the impact that that has, and more specifically, if that gap continues to grow over the next four years, what the consequences are.
Dean: It’s easy to overlook, I would just say, how much income inequality we’ve seen over the last, I guess, almost 50 years now. It really began in 1980. From 1937, when the federal minimum wage was first created until 1968, the minimum wage not just rose in step with prices, not just kept pace with inflation, it rose in step with productivity. So that means as the overall economy got more productive, workers saw, in general, their wages rise with productivity. The workers at the bottom also saw that.
So one of the exercises I did a couple of years ago, and I haven’t updated this, this is a crude estimate, but I’m sure it’s in the ballpark. If the minimum wage had kept rising in step with productivity since ’68, that was its high point, it would be over $26 an hour today. And you just think about that. Imagine the worst paying jobs, that you’re a custodian in a department store, you’re working in night shift at Denny’s, suppose you’re pocketing $26 an hour, it would be a very, very different world. So I look to that as say how things could be.
If we keep going the other way, both it means people don’t share overall benefits of economic growth. But we look at Elon Musk now, this is just obscene, he doesn’t make any bones about it. “I don’t like you. I’m going to spend an infinite amount of money to defeat you in the next election.” And he can. And it really is just obscene. So you’re getting oligarchy. It’s always been the case. It’s not new that rich people had disproportionate influence in our politics, but it’s really just gotten over the top.
And again, to my point, that’s just incredibly pernicious. We shouldn’t have to worry, we shouldn’t be governed by the whims of one person. Elon Musk, I think is a particularly bad person in a lot of ways, but that’s neither here nor there. I’m a fan of democracy and you don’t have a democracy when you have particularly one person, but even a small group of rich people basically could determine the outcomes of election. So that’s a pretty horrible story.
Jeff: But even if you take Elon Musk out of the equation, the wealth gap is still incredibly substantial and it’s still problematic.
Dean: Absolutely. And one of the things I know people, many of my friends, they talk about a wealth tax. I’m fine with the wealth tax, but I also go, “We’re not going to see that.” And it’s been frustrating to me, particularly in the Trump days, that we spent a lot of time, me, meaning myself and other progressives, talking about a wealth tax, debating it when the right was plotting to take power, and they did.
And I think of things like Musk’s control on elections. I don’t think there’s a plausible way to restrain the high side, at least not for the immediate future. What we could and should have done and still should do, is try and do something on the low side. Make it so that the rest of us could have a voice.
And it’s not just my idea, many others have worked on this. If we had had some sort of public funding for tax credits to support the media. So just to throw this out here, suppose we all got $100 to support the media of our choice. It could be a local newspaper, it could be a radio station, it could be a television station, whatever. You could decide the balance. That would be a huge step towards equalizing the story. So we won’t just have not just the Rupert Murdochs, but even we see with more centrist, Jeff Bezos, a billionaire owns Washington Post, he decide, “Oh, I don’t want things critical of Trump.” You don’t have straight news anymore.
So this would’ve been a great step, which something we could still do. It could be done at the state and local level, so it doesn’t rely on having the federal government. Obviously, the Republican Congress is not going to approve that. Could be done at state and local level. States like Minnesota, maybe.
So anyhow, the inequality we have today is a huge, huge problem, but we have to think strategically, how can you try to make inroads against it? And again, that’s one of the things I think is very important. But I think realistically, we could all say, “Oh, there should be campaign spending restrictions. “That’s wonderful. Ain’t going to happen. So we have to think the other way.
Jeff: One of the things you’ve written a lot about is the strength or lack of strength of the US dollar and how that fits into this broader equation. Talk a little about that.
Dean: Yes, this is an interesting story, and I’ve changed my position on this because I think the world’s changed. If we go back 20 years, the dollar was there– 25 years, I should say. The dollar was seriously overvalued. And to my view, that was creating the trade deficits. So if you go back to the late ’90s, that was on the first trade deficit. First started to get very large, and that continued to grow in the first decade of this century as China was admitted to the WTO. I’d say the dollar was seriously overvalued. And we should have worked to try to lower its value, meaning through negotiations.
We did that in the ’80s. They had The Plaza Accord, this is under Reagan where they negotiated with our major trading partners, Japan, Germany, UK, France. And they agreed that they would raise the value of their currencies against the dollar. And it worked. We had a big reduction of value of dollar and a big reduction in our trade deficit. It was a very successful policy, by my view.
It would’ve been very good to have done that in the late ’90s or be part of the first decade of this century, but we went the other way. The Clinton administration was touting the high dollar. They said, this was a great thing. And that opened up our trade deficit.
And I was talking before about manufacturing jobs. We lost millions of manufacturing jobs in the decade from– Or not even the decade, the seven years from 2000 and 2007, and that basically destroyed– We look at the areas that went from- flipped from Obama to Trump in 2016, places like Ohio, places like Iowa, Michigan, Wisconsin, Pennsylvania, they lost millions and millions of jobs. And it’s understandable, people were pissed about that.
So that was an overvaluation of the dollar. But we go where we are today and we go, “Okay, should we want a lower value dollar?” And my answer is not necessarily because there’s not any particular importance to getting back manufacturing jobs now. There was importance to protecting the good jobs that were there back in the ’90s, back in 2000, they’re gone. So there’s not a story we’ll get those jobs back. We can get some jobs back in manufacturing, but there’s no reason, I think, they’ll be particularly well-paying. It shouldn’t be a priority.
So I’m less concerned about the value of the dollar. Although, I will say, when the dollar falls, and this is almost definitional, we will see higher prices for imported goods. And again, that’s how you address the trade balance. If we have our imports cost more and our exports are cheaper, that will lower the trade deficit. But to my view, that’s just not a major concern today. It was a concern in the late ’90s, early part of this century. When you’re talking about good-paying jobs, it’s not, to my view, a realistic concern today.
Jeff: This whole notion of getting jobs back, how do we get beyond this illusion that somehow they’re going to come back or that there’s a magic formula to bring them back?
Dean: So I don’t know if there’s an easy way to get away from that illusion. Obviously, the Trump administration is feeding on it. And again, as I said, it doesn’t make a lot of sense. When we had good paying union jobs and manufacturing, you could say you want to keep them. And if there are a way to get back good-paying union jobs and manufacturing, that would be a good thing, but there’s no more reason to think that we get back, let’s say, a million manufacturing jobs to reduce the trade deficit a huge amount.
There’s no reason to think those would be any better jobs than the jobs that they’re going to replace in healthcare, in retail, or whatever else, unless they were unionized. But again, if those were union jobs, if the healthcare jobs are unionized, retail jobs are unionized, they’d be good-paying jobs too. So, it’s just not a realistic story.
So I think part of it, and again, I think some of the people’s progressives, Sherrod Brown, senator from Ohio for three terms, unfortunately, he lost last fall, but he talks that way. I know Sherrod, he’s a great guy. I would love to have seen him win. But again, we’re not going to get back the good-paying jobs we lost in Ohio, even if we did get the trade deficit down. We might get some manufacturing jobs back, but a lot of those manufacturing jobs don’t pay particularly well. They don’t offer healthcare. They’re not particularly good jobs.
Jeff: And of course, technology is the overlay to all of this, and we still don’t know the impact of that going forward, of the AI and the jobs that will be lost in that regard.
Dean: I mean, technology we always see, and this is again, a source of frustration to me because I’ve had a lot of arguments with people about the job loss we saw at the start of the century in manufacturing because again, we lost 3.4 million jobs, 20% of the jobs in manufacturing from 2000 and 2007. I use ’07 as an endpoint for the Great Recession.
And I have a comment, say, “Oh, that wasn’t trade, that was technology. That was productivity.” And I go, “You have quite a story about productivity. It didn’t cost us manufacturing jobs in the three decades from 1970 to 2000. It didn’t cost us manufacturing jobs from 2011 to the present. Manufacturing jobs have been pretty stable, maybe even increased a little.” But for those seven years when the trade deficit was exploding productivity costs manufacturing jobs, that’s a little wacky.
So, general starting technologies, I generally think that’s a good thing. Let’s have higher wages, let’s have more leisure time. Those are great things, but we need an institutional structure to ensure that the benefits of technology, the benefits of productivity growth are broadly shared. We had that in the three decades following World War II when we had a heavily unionized economy. And workers did see rising real wages, they had shorter work weeks. Things were going the right way.
Again, not trying to complain about those decades. I’m not going to say things were perfect, but the point was they were going the right way.
The last five decades since mid-’70s thereabout, that’s not been true. So if we could restructure, if we can ensure that people get their share of the benefits of productivity growth, technology is fantastic, but I’m not confident that’s the case at present.
Jeff: And finally, what do you think is the worst-case scenario for the next four years from an economic perspective?
Dean: We could see a big rise in unemployment. There seems to be very little understanding of economics among not just Trump, but his Treasury secretary. I heard people were bragging about Bessent. I never met the guy, but saying he’s a smart man is– I don’t do IQ testing, but the things he says about the economy, a lot of it doesn’t make any sense.
So, oftentimes, they’ve been yelling about government spending being bad, this and that. Government spending supports the economy. If you cut government spending a huge amount and you don’t have something to offset that, you’re going to have really high unemployment. And if we get high unemployment, obviously, it’s horrible for the unemployed workers, but that means he won’t see wage growth because workers have no bargaining power. They can’t tell their boss, “Hey, you’re not paying me enough. I’ll go across the street.” Boss goes, “Go ahead. They aren’t going to hire you.”
We’ll see cutbacks in our healthcare. And again, I should point out here a lot of the story, we see Trump saying, “Oh, we don’t want–” And Musk too, I guess, is calling the shots as much as him. “We don’t want those pesky regulators.” Pesky regulators do things like make sure our drugs are safe, make sure our food’s safe, make sure that Musk’s factories aren’t spewing stuff into our air and water.
We could have some really bad stories here, where people are considerably poor, their health deteriorates, being morbid here, we see more plane crashes because we don’t want to trouble the airlines with inspections. We could see a lot of really bad things. And I’m being a little facetious there, but only a little bit, because if you don’t have regulations, companies, they will do what they can get away with.
I’m not saying they’re bad people, but they’re there to make profits, so if they could do cost-cutting and there’s a risk to people flying the planes or people who eat their food or whatever and they aren’t going to have to pay the cost of it because no one could sue them, they’ll take the chance. It’s not their problem.
Jeff: Is there a global contagion to this fear of global contagion?
Dean: I think for better or worse, we’re seeing the opposite. And part of that is that Trump is just so over the top. So, everyone saw that clown show with Zelensky. What a ridiculous– And I’m not the biggest fan of the war in Ukraine, and there are lots of things you could say about it I didn’t particularly like, but that was just a clown show. He is the president of a country that was invaded. That’s unambiguous, there’s no issue, and he has to defend his people. Again, no issue. And to put him through there, he’s not thankful enough, I mean, what absurdities.
So that freaked out certainly Europe, certainly Canada. And just today in Germany, they’ve eliminated a restriction on spending that they’ve put in place. I’m forgetting how far back. I think it dates back about a decade or so, that very much put them in a straightjacket economically. And now they’ve removed that because Merz is conservative. He’s not by any means a leftist, he’s Conservative Party, but he said, “Look, we have to build up our infrastructure, build up our military. We can’t count on the United States.”
He’s the most visible person because obviously Germany is the most important economy in Europe. But Macron and France, my wife’s Danish, so I know more about Danish politics, there too, they were totally pro-American too. This is just like a revolution in their thinking, going from being totally pro-American. Denmark sent troops to Iraq, that’s how pro-American they were, but now they’re saying, “Oh my God, this guy is nuts.”
So I think there’s been a reaction the other way, and I think that reaction at the end of the day, is going to be very positive. It’s really unfortunate that we’re in this situation, but it is very good that it’s been a big reaction against the right, that these people are crazy and they’re basically doubling down on not necessarily the most progressive policies, but doubling down on policies that are going to strengthen their economy and put people to work. And better or worse, that’ll increase their defense, which again, they shouldn’t be dependent on the US for defense. I’ll just say that.
Jeff: And it comes full circle to where we started this conversation in terms of markets being forward-looking. This is, perhaps, the reason why we’re seeing the markets and some of these European countries, the stock markets doing pretty well in the past couple of weeks.
Dean: So, again, predating Trump, many of us were pulling out our hair telling the Germans that, “You guys are crazy.” And I don’t know how many conversations I’ve had with German economists, progressive economists. I’m not looking to their right. I mean, I’ve talked to right-wingers there too, but progressive economists, they go, “Oh, we had hyperinflation following World War I.” I’m just going, “Oh my God, that was a hundred years ago. You weren’t alive, your parents weren’t alive, as are your grandparents.” [chuckles]
I’m like, “You’re telling me about a very particular event. And what we’re saying, you really should be spending more building up your infrastructure, building up your technological base.” And they weren’t doing it. But now they seem prepared to do that, and their markets are reacting because it will be good for their business. It’ll be good for the country.
This is exactly the case I was talking about before. You could have a story where the stock market goes up in a way that indicates that, or the basis for it is economic growth that everyone will benefit by. So it’s as I said, this is a very positive story for Europe. The motivating factor is, of course, not positive at all, but the outcome, at least for now, looks like it will be very positive.
Jeff: Dean Baker, I thank you so much for spending time with us here on the WhoWhatWhy podcast.
Dean: Thanks a lot for having me on. I really enjoyed it.
Jeff: Thank you. And thank you for listening and joining us here on The WhoWhatWhy podcast. I hope you join us next week for another WhoWhatWhy Podcast. I’m Jeff Schechtman. If you liked this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to whowhatwhy.org/donate.
