“Fault-Finder Is a Minimum-Wage Job”

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, is far less reserved than the average banker.

I first met the economist Austan Goolsbee more than 20 years ago. I was out at the University of Chicago, spending time with a different Chicago economist, Steve Levitt, who would become my Freakonomics friend and co-author. Levitt could be shy and soft-spoken; Goolsbee was neither. He was a former debate champion, and he had done improvisational comedy — in fact, he did a lot of things that most economics professors didn’t do. If you had told me back then that Goolsbee would go on to run the Council of Economic Advisors in the Obama White House and then, in 2023, that he’d become president of the Federal Reserve Bank of Chicago, I would have thought you had the wrong guy.

But plainly I’m the one who was wrong. Goolsbee’s academic research and teaching skills were always top-tier; he’s a hardcore empiricist but he also has strong opinions. And so, as the Trump White House embarks on an aggressive overhaul of economic policy, I thought it might be good to speak with someone from the Fed, and I suspected Goolsbee might be very good. He’s been on our show before — in 2018, talking about Trump’s 2017 tax cuts, and in 2020, talking about federal Covid stimulus, and also back in 2014, in an episode we called “Should the U.S. Merge With Mexico?” (He wasn’t a huge fan of that idea.)

If you look at the U.S. economy today by the numbers, things looks pretty good. Inflation has been trending downward since June of 2022; the most recent reading, in April, came in at 2.3 percent. Unemployment is also low, at 4.2 percent. But the Trump White House has introduced a high level of economic uncertainty, and the U.S. stock markets and Treasury bonds and the dollar have all taken wild swings lately. This puts the Fed on alert. Every six weeks or so, Goolsbee goes to Washington to participate in the meetings of the Federal Open Market Committee, where interest rates are debated and determined. Goolsbee calls it “the world’s greatest deliberative body.”

If you’re an econ nerd, it’s just about the coolest thing in the world. It really is exactly what you dreamed it would be as an econ grad student. There’s a huge table and there’s twelve reserve banks and seven governors, including the chair. The shades come down so no one can spy on what’s happening, and then they go around the room and they say, What do you think about the economy?

Goolsbee is sitting on this committee during a particularly eventful period: tariffs and protectionism, big changes to taxation and spending, and much more. A lot of nonpartisan economic analysts say Trump’s economic agenda could turn out to be incendiary, in which case the Fed may end up serving as the fire department. I suggested that to Goolsbee, and he countered with a different metaphor:

As we say in Chicago, there’s no bad weather. There’s only bad clothing. You tell us the conditions, and we’ll figure out what’s the correct jacket to put on. And that’s true at the Fed, too. Conditions change all the time. Sometimes it’s policy. Sometimes it can be geopolitics. The President and Congress, in their wisdom, can pass any tariff policy they want. That becomes a condition that affects prices and affects employment, and if it does that, then the Fed has to think about it. At the end of the day, the Fed has only one tool, and that’s the interest rate. I think of it as a screwdriver. If things start getting too loose then you tighten it, and if things are too tight then you loosen it. But if it’s, you know, “Can you make us breakfast?” No, we basically can’t. We don’t have a tool to do that.

You can hear my conversation with Austan Goolsbee on this week's episode of Freakonomics Radio — including his advice to would-be counterfeiters. (In a word: don’t.)

Find this week’s episode of Freakonomics Radio, “Fault-Finder Is a Minimum-Wage Job,” on Apple Podcasts, Spotify, or wherever you listen to podcasts. A full transcript is available on our website.

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