Sam Bell and Skanda Amarnath on Gross Labor Income Targeting

Episode Summary

Executive Summary: David Beckworth interviews Sam Bell and Skanda Amarnath of Employ America about improving labor market outcomes, Fed accountability, and a new asymmetric “floor GLI” framework that prioritizes gross labor income growth in weak-demand states while remaining attentive to inflation in overheating periods. The conversation also covers Fed nominations, the 2010s recovery, and the politics of the Fed’s strategy review.

Main Topics: Employ America’s mission (Priority: 5/5): Bell explains the new group’s North Star: tighter labor markets, higher employment, better wages, and improved job quality through research, advocacy, and policy engagement. Fed nomination scrutiny and historical record (Priority: 5/5): Bell describes his research process on Fed nominees—especially Kevin Warsh, Marvin Goodfriend, and Stephen Moore—arguing that nominees should be judged on their full policy record, not just current positioning or political connections. Systematic Fed hawkishness and the weak recovery (Priority: 5/5): Amarnath argues the post-crisis recovery was too slow because policy repeatedly erred on the hawkish side, missing the jobs crisis and underappreciating weak nominal growth. The floor GLI proposal (Priority: 5/5): Amarnath outlines a state-contingent framework centered on gross labor income growth, aiming to place a floor under labor income in low-growth states while putting more weight on inflation in hot economies. Politics of Fed policy and congressional accountability (Priority: 4/5): The guests discuss how Republican attitudes toward the Fed have shifted, why Congress now asks more questions about jobs and wages, and how the Fed review could shape future political support for aggressive stabilization tools. Current Fed conditions: rate cuts, yield curve, and policy space (Priority: 4/5): They discuss the 2018 hike, the yield curve’s inversion, rate-cut expectations, and the argument that the Fed has limited conventional room left before hitting the effective lower bound. Limits of the current Fed review (Priority: 4/5): Both guests welcome the review but criticize its narrow focus on average inflation targeting, wishing for a more ambitious reassessment of maximum employment and nominal growth.

Key Arguments: Employ America exists to promote better labor market outcomes—more employment, higher wages, and better jobs—through research and advocacy, not just commentary. Fed nominees should be evaluated against their full historical record, especially on unemployment and crisis-era policy, because those records reveal whether they will support a strong labor market. The post-2008 recovery suffered from one-sided hawkish errors; policymakers and markets repeatedly overestimated inflation risks and underestimated slack. Gross labor income is a more robust real-time indicator than inflation for judging labor-market conditions because inflation is lagging, methodologically messy, and often misleading in weak-demand states. A state-contingent framework is preferable: emphasize labor-income growth when nominal growth is weak and place more weight on inflation when nominal growth is strong. The Fed’s communication problem is political as well as technical; saying “we need higher income and job growth” is easier to defend than “we need higher inflation.” Congressional and Republican attitudes toward the Fed appear to have shifted in a dovish direction, creating a window for the Fed to claim policy ground before the next downturn. The current strategy review risks being too incremental; average inflation targeting alone does not sufficiently address the maximum-employment side of the mandate or the low-nominal-growth problem. The Fed has limited conventional policy space because it is already relatively close to the effective lower bound, making mistakes on the downside especially costly. If the Fed must err, it should err dovishly: cutting too much can be reversed, while cutting too little risks another prolonged slump and limited room to respond.

Data Points: Fed review timeline: 12 months - The Fed’s strategy review is described as a year-long process, with six months of listening already completed. Current unemployment rate context: below 4% - Bell references the current environment as very different from 2011 because unemployment is now below 4%. December 2018 rate hike: 1 hike - The guests discuss the Fed’s December 2018 rate increase as potentially a mistake in retrospect. Conventional policy space: about 5 percentage points - Beckworth notes the Fed usually cuts rates by roughly five points in recessions, but is currently near 2.5%, implying reduced room. Fed funds rate level: around 2.5% - The discussion highlights that the policy rate is already relatively low, limiting conventional easing room. Hawkish/dovish inflation miss: about 50 basis points - Amarnath references inflation undershooting target by roughly 50 bps over long periods as meaningful when compounded. Employ America timeline: new organization - The guests introduce Employ America as a newly formed research and advocacy organization. Fed nominations discussed: 3 nominees - Bell says he focused on Kevin Warsh, Marvin Goodfriend, and Stephen Moore in his public-research efforts. Negative interest rate concern: 1 senator’s vote history - Bell notes Rand Paul has voted for only one Fed nominee in his Senate career, Randy Quarles, illustrating the difficulty of some nominations. Recovery period referenced: 2009–2012 - Multiple comments refer to the unemployment crisis and weak recovery across these years.

Pivotal Quotes: "“Our North Star is better labor market outcomes.”" — Sam Bell: Bell describes Employ America’s mission and priorities. "“This has been one long story in sort of policy not quite getting it right, and it’s all been in one direction.”" — Skanda Amarnath: Amarnath summarizes his critique of post-crisis monetary policy as systematically too hawkish. "“The point is you brought to the surface these comments he had made and everyone was aware of what he had said during this period.”" — David Beckworth: Beckworth reflects on Bell’s role in scrutinizing Marvin Goodfriend’s nomination record.

Implications: The episode suggests the Fed’s next framework should more explicitly prioritize jobs and labor income, not just inflation. It also implies a political opening: if the Fed wants credibility in the next downturn, it should strengthen its maximum-employment strategy now.