Treasury Department's Chief Economist Bids Farewell

Catherine Hollander

Friday is Jan Eberly’s last day as the Treasury Department’s Assistant Secretary for Economic Policy and Chief Economist. She’s headed back to the Kellogg School of Management at Northwestern University, where she taught before she came to Treasury in 2011.

National Journal caught up with Eberly on the eve of her departure. Edited excerpts of the conversation follow. 

NJ Let’s start with your new job. You’re heading back to Northwestern. What are you looking forward to?

EBERLY I refer to this as going back to the second-best job an economist can have. I’ve been a faculty member since I finished graduate school and I enjoy interacting with my students and with my colleagues. I’ll have, obviously, a broader perspective and the policy perspective to bring back and I think that’ll be valuable both for the community of economists and also for students. Because they’re interested in economics not only as a frame for how to think about the world but also how it can influence the world and influence policy. That’ll be interesting. That’ll be fun. 

NJ What have you learned in Washington about how data and economic research influence policy?

EBERLY First, I would say that economic analysis and data really does have an important influence on policy, that policymakers are looking for the evidence of what works in policy, how it influences the economy. And there’s lots of ideas, and there’s more ideas than evidence, and so they’re looking for evidence of what can be effective and what works. So I think it is quite influential. 

People always ask me, ‘Well, aren’t you frustrated that the economics doesn’t always carry the day on policy?’ And I think that’s a narrow view of the role that economics can and should play in policy. There’s many other considerations in addition to efficiency. People think about fairness. They also think about what’s possible. And that’s where economics, I think, can play an additional role. Rather than just taking the narrow view of what’s the best possible policy, also thinking about what are good policies that are implementable.

There are obviously political challenges, and that’s what comes first to people’s minds, but then there’s also implementation challenges. Policies that are simple are easier to implement than policies that are complicated, and that’s not always part of our economic analysis, but it’s something we can take into account as we’re promoting, as we’re designing, suggesting, and analyzing policy implementation.

NJ What are some of the biggest unknowns in economic research on policy right now? Where do you think it would be most valuable to have economists spending their time?

EBERLY Let me take that from the point of view of a macroeconomist, which I am. I think the financial crisis challenged some of the models that we’ve used and reinforced something that I think macroeconomists were beginning to think about. I’m in a finance department and I’m trained as a macroeconomist, so I had been thinking about this margin between macroeconomics and finance for many years, and I think the profession had been moving in that direction. But the financial crisis was, I think, the clearest possible evidence that that’s an interaction that we need to understand better and also in a more rigorous way.

The profession is clearly learning more about that. There have been advances in particular in monetary economics to understand that interaction, but I think that’s also relevant for fiscal policy and credit policy, where having a framework that explicitly includes financial institutions and financial effects and their effect on the economy will, I hope, improve our ability to advise on policy going forward.

NJ You said you’d be bringing a “policy perspective” back to Northwestern. How will that change what you’re researching and what you’re teaching the classroom?

EBERLY To think not only about the ways but also about the means. I think ways and means is a good lesson for economists. We’ve focused very much on the ways we would like policy to go and less on the means, so I think my classroom will have more on sort of the context for economics, which includes messaging and communicating and how hard it is for people to think about more than one thing at a time. Economics usually has multiple things going on at the same time. We arrive at a policy recommendation as a result of often very nuanced, complex analysis, and if a very simple policy results from that, then that’s a fortunate coincidence. If you have a policy that is more than one-dimensional, how you communicate, how you message is an important part of it. So those things will definitely be part of my message coming back.

NJ The economy has a way to go before it’s recovered. What conditions are necessary for a strong rebound, economically and policy-wise?

EBERLY I think it’s helpful first to recognize that private-sector growth has been picking up. We like to look at PDFP. This is private domestic final purchases. It’s a subset of [gross domestic product] that focuses on private-sector demand. So it takes out government, it takes out the foreign transactions -- so it takes out exports -- and it takes out inventories because that’s not final demand. And that’s been growing close to 3 percent over the course of the recovery. It’s been much less volatile than GDP during the recovery. Recognizing that government, especially state and local, has been pulling back over time, but seeing that growth in the private sector is a good sign for the development of a self-sustaining recovery.

And what you need to see for that to continue and build more momentum is the expectation that we will have sustained growth in private-sector demand. That gives firms the confidence that they need in order to ramp up their hiring and ramp up their investment.

Investment growth has been relatively strong over time. We saw a pickup in employment over the winter. Last month’s [jobs] report, as we know, was a little softer, but unemployment claims have continued to come down. So both investment and employment show signs of picking up and continuing to show growth going forward.

NJ Which sectors worry you most right now? 

EBERLY Historically, of course, we were looking for a pickup in the housing sector. And we’ve started to see sustained growth in home prices. The transactions, that is, purchases in housing, have been more uneven, but that likely reflects some effects of tight inventories in the housing market. Housing residential investment has contributed positively to GDP growth consistently for - well, we’ll have more data tomorrow - but six quarters so far.

I think that’s been very encouraging, and also seeing construction employment pick up. That took longer. Residential investment picked up before construction employment did, but in the last three-quarters of the year or so, we’ve seen improvement in construction employment. Housing is still at a relatively low level, but the direction is improving there.

Consumption has contributed positively to GDP growth consistently. Obviously, we’re keeping an eye on it as the payroll tax holiday [expired]. We’ve had a series of unfortunately bad weather during the first quarter that likely impacted retail sales. So we’re keeping a close eye on that. [Consumption] is an important part of this private demand in the U.S. So we’ll watch that closely.

But for the most part, I think the pieces are in place for continued growth in demand. That’s really crucial for firms to see sustained growth there.

NJ With stimulus being sort of a dirty word in Washington these days, what are some policy options that are stimulative but stomachable?

EBERLY I would phrase the question differently. But there’s a number of policies the administration has put forward. Our office has been actively involved in looking at the effectiveness of infrastructure investment. It’s the sort of policy that lets you do two things at once, in the sense that it provides support for the economy in the short- to medium-run, in particular for employment growth, and it also supports competitiveness in the longer run because we can’t take our eye off productivity growth and the support that public investment can have there. States and localities that have done traditionally much of the infrastructure investment have been in a very challenging budget situation, so having support for infrastructure seems very important.

I would also emphasize the early childhood education support for young people [in] the president’s budget. Having a forward-looking view of economic policy and the support that we give to younger generations I think is quite important. Those policies have been shown to be quite effective. And in addition to immigration, we also need to invest in our own [what] economists call human capital. The quality of our human capital will be part of our competitiveness model going forward.

NJ Any other parting thoughts?

EBERLY It’s an honor to be a public servant and I would always encourage my colleagues and young people to take advantage of this opportunity. 

NJ Maybe we’ll see you in Washington again?

EBERLY [Laughs]. People do come around.