Why We Are Lucky To Have Lael Brainard On Fed’s Board

I read about some appointments President Obama is making for the Federal Reserve’s Board of Governors, and I saw a female face.


Lael Brainard

Binyamin Appelbaum, Obama to Nominate 3 to the Board of the Fed

President Obama plans to nominate three people to the Federal Reserve’s Board of Governors, including Stanley Fischer, former head of the Bank of Israel, as the Fed’s next vice chairman, the White House said on Friday.

Mr. Obama also plans to nominate Lael Brainard, a former Treasury Department official, to an open seat on the seven-member board, and to nominate the Republican financier Jerome H. Powell, on the board since 2012, to a new term.

“These three distinguished individuals have the proven experience, judgment and deep knowledge of the financial system to serve at the Federal Reserve during this important time for our economy,” Mr. Obama said in a statement.


Another nominee, Ms. Brainard, 51, joined the Obama administration in 2010 as Treasury under secretary for international affairs — in effect a senior diplomat for the nation’s financial interests. She stepped down in November. That expertise could prove valuable to the Fed as it navigates the global impact of its actions and seeks to foster international coordination on issues of monetary and regulatory policy.

Mr. Obama praised her as “one of my top and most trusted international economic advisers during a challenging time not just at home, but for our global economy.”

I looked into her background, and she’s run the economics steeplechase: master’s and doctorate in economics from Harvard (National Science Foundation Fellow). She graduated with highest honors from Wesleyan University, White House Fellow, a Council on Foreign Relations International Affairs Fellow, a Marshall Scholar elect, and a member of the Council on Foreign Relations, and Aspen Strategy Group.

And I read a paper she co-authored in late 2005 with Robert Litan called Services Offshoring, American Jobs, and the Global Economy. This was written looking back at the 2001 recession, which was surprisingly slow to turn around, a precursor to (or earlier part of?) our current Great Recession, and as she and Liton explore its terrain we same the same inequalities and precariousness of economics that have become the foreground issues of our day.

The starting point of their discussion is that offshoring has an impact on the economy that is almost the same as technological advance:

The authors write [citations removed],

International trade works much like technological change. Economists such as Catherine Mann of the Institute for International Economics, who point to offshoring’s overall benefits to the U.S. economy, typically argue that it helps lower costs and prices. A recent study by the consulting firm McKinsey and Co. estimates that the net cost savings of moving some jobs offshore is about 50 percent. This is far lower than the sometimes 80 to 90 percent wage differential between U.S. and foreign workers (because of costs incurred for coordination and telecommunications), but still sizable. In turn, lower inflation and higher productivity allow the Federal Reserve to run a more accommodative monetary policy, meaning the economy can grow faster, creating the conditions for higher employment. Mann estimates that economic growth would have been lower by 0.3 percent a year between 1995 and 2002 without foreign outsourcing in information technology.


Offshoring, like trade and technology, is a process of creative destruction whereby workers in affected industries face the very real possibility of losing not only their jobs but also their healthcare. Even worse, some workers fall down the economic ladder when they have no choice but to take new jobs at lower pay and thus face the prospect of lower lifetime earnings. This concern is particularly acute because it comes at a moment when anxieties about jobs and wages are at fever pitch. Against the backdrop of a breathtaking acceleration in manufacturing job losses over the past few years, the jobs picture remained bleak much longer into the recent recovery than in any previous postwar recovery.


This plays into a broader set of distributive trends that have been quite negative for American workers since the end of the 2001 recession. As Federal Reserve Chairman Alan Greenspan noted in April 2004, “virtually all of the gains in productivity have ended up in rising profit margins and hence in a decline in the proportion of that national income going to compensation of employees.” Two years into the current recovery, the profit share of income grew 33 percent (on a pretax basis) compared with only 3 percent during the recovery of 1992–93; worker compensation, meanwhile, remained down 4 percent—a steeper decline than during any previous recovery in the last four decades. At the same time, the administration’s tax policies have exacerbated rather than offset these trends by shifting the tax burden away from wealth and towards earned income. 


Now that college-educated, white-collar American workers will increasingly be in competition with highly qualified workers in the developing world, won’t they be subject to the same pressures?

In his new book, BusinessWeek’s chief economist Michael Mandel worries that that the answer to this question is “yes,” and he may well be right. If Mandel’s assumption is correct, the “skills premium” that educated workers earned in the past may be pushed down in the future, thus reversing a decades-long trend. 

Things have only gotten worse, and Brainard and Liton’s policy recommendations have largely gone unimplemented: most importantly, these two (the others regulatory and data-collection oriented):

Give American workers the knowledge and skills they need to compete in the global economy. America will not be able to hold onto the world’s highest paying jobs if the number of college graduates with degrees in physical sciences, math, and engineering continue on a downward trend. This requires concerted action at all levels: strengthening the kindergarten through twelfth-grade curriculum; encouraging more American teenagers to invest in science and engineering higher education; and restoring funding to community colleges and retraining programs that have recently experienced cuts. 


Address the dislocation faced by workers in the services sector. This is the most urgent priority. Although Congress made far-reaching reforms to the Trade Adjustment Assistance (TAA) program in 2002—including adding a healthcare benefit—it ultimately rejected efforts to extend the program’s reach to services workers. Software programmers are now suing the DOL to gain access to the same extended unemployment insurance and retraining benefits long guaranteed to trade-impacted manufacturing workers. Congress could make the suit moot by making clear that service workers are covered by TAA.

Wage insurance should also be a central part of the safety net for displaced services workers. In 2002, Congress amended the Trade Promotional Authority Act to include a program providing wage insurance to workers who are over fifty and can prove that trade is a “major cause” of their displacement.Service workers displaced by offshoring should be eligible for that benefit, and it will almost surely be necessary to lower or eliminate the age requirement and raise the compensation limit (now $10,000 per year) to reflect the higher income of many dislocated service workers.

I confess that I have never heard of wage insurance, but it’s clear that not only manufacturing jobs have been lost to offshoring. I am uncertain of the status of the TAA program, but I know that the education situation in the US today is far worse than it was in 2005, given the layoffs in primary and secondary education, and the rapid increase in the cost of college and the diminishing value of a degree.

And, since her area of economics is international trade – which impacts the economy like technology – I hazard that she can see into the ways that technology is changing our world, both for good and bad. 

We are lucky to have her on the Fed Board.

Update – 6:53am 11 January 2014 – ten minutes later, I am still reading the NY Times editorial page, and see the headline No Jobs, No Benefits, and Lousy Pay, which open with this: 
There is nothing good to say about the December employment report, which showed that only 74,000 jobs were added last month. But dismal as it was, the report came at an opportune political moment. The new numbers rebut the Republican arguments that jobless benefits need not be renewed, and that the current minimum wage is adequate. At the same time, they underscore the need, only recently raised to the top of the political agenda, to combat poverty and inequality.
The rise of a populist agenda in the US has to include an understanding of impacts of international trade on the economy. A ‘flat world’ isn’t a law of the universe like gravity, but is instead the outcome of myriad policy decisions that benefit some and harm others. I hope that Lael Brainard will help in changing that headline.

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