Interview with Lael Brainard (Director of the National Economic Council under President Biden)
Lael Brainard served as the Director of the National Economic Council from 2023 to 2025 under President Biden. Before that, she served on the Board of Governors of the Federal Reserve System from 2014 to 2023, including as Vice Chair starting in 2022. She also served as Undersecretary for International Affairs at the US Treasury between 2009-2013 in the Obama Administration.
Interview conducted 14th March 2025
Q How do you characterise “Bidenomics”? What do you think its objectives were and how do you think it performed?
There was a central focus across all of Biden’s economic policies, which made working families of America the north star of all of his economic policy. When he put his weight behind certain policies, by and large, it was to lift up the fortunes of people at the middle of the income distribution. That was very important as an animating feature throughout.
There are two very distinct phases of Biden’s economic policies: the first phase was the immediate stabilisation and recovery efforts. I would distinguish those very strongly from the longer-term investment strategy. I think they’re quite different elements. They have in common that the middle class, working families and workers were the central focus of the policies, but they were very different in what they did.
I came in on the tail end of the recovery efforts and obviously we continued to make sure the economy stayed on track. There was a lot of crisis management that still needed to be done, whether that was working through the uniquely American debt limit or dealing with contract negotiations and the regional banking crisis. All of those things were related in some way to the recovery.
Then there was the longer-term investment agenda, which goes to the heart of what was really innovative [under the Biden administration]. The investment agenda had as its focus creating the incentives for the private sector to invest in long-term competitive and productive areas of the US economy that just hadn’t been seeing the investment that was necessary – in advanced technology, semiconductor manufacturing and the clean energy transition – to benefit middle-class Americans and regions that have been left behind.
Q: And looking back, did it work?
There was, I think, tremendous value to the CHIPS and Science Act, the Bipartisan Infrastructure Law and the clean energy provisions in the Inflation Reduction Act. These aspects are really important and provide good models for other places to pick up.
There were also areas that could have been done differently that would have made that set of incentives effective sooner and gotten perhaps a bigger response quicker. But, by and large, the thrust of those policies was well conceived and really important for the long-term growth of the economy. Those are the things that have the most relevance for other countries.
The biggest relevance of the earlier stabilisation and recovery are some specific policies that worked like the child tax credit, but other countries have similar policies. The big question mark on the earlier part of the Biden economic policy is weighing the benefits of a much larger amount of stimulus bolsters the economy earlier on against the risk of potentially a little bit more of a price response, but also a much stronger recovery. So there are some really important questions there, but they’re important to separate from the investment agenda.
Q: How much of the labour market dynamism that came about following the pandemic and the stimulus was ex ante part of the plan or was that a surprise?
I was at the Federal Reserve during that early part of the pandemic response, so I looked at this from a bit of a distance. I had a lot of discussions with German and French and other counterparts about the Kurzarbeit and other programs that they were using to keep people attached to their positions at existing businesses. Certainly, from a macro point of view, we thought a lot about supporting the labour market ahead of time. Now what is clear with the benefit of hindsight is there was a huge amount of support given to businesses to reopen and to be able to hire quickly. There was also support to individuals in terms of enabling them to stay out of the workforce longer, to collect unemployment longer. This included people who were not attached to firms – the pandemic unemployment assistance was entirely novel. What became clear as people were coming back to work, ultimately, is that they had chosen to reallocate to better, more remunerative and productive attachments.
It seems to be good for individuals and also for the economy because there was quite a bit of sectoral reallocation that you can see in the labour market data. You also see tremendous business dynamism. If you look at the small business application numbers, they are off the charts. People like Steven Davis and John Haltwanger who study those kinds of statistics noted almost a structural shift as the recovery was gaining steam. Those two things together may well be part of the reason we saw the uptick in productivity. Obviously, I don’t think I’ve seen any empirical analysis that establishes definitively how much of the increase in productivity they were responsible for. But I think with the benefit of hindsight protecting people but not handcuffing them to their existing employers this time worked out much better for the overall economy. It also appears to have worked out much better for individuals because we saw a lot of stronger household balance sheets and better remuneration.
Q: Clearly, the administration didn’t want to go light on the stimulus, as many people felt Obama did after the financial crisis. One of the debates is did the stimulus go too far in retrospect. Is there anything that you want to reflect on that debate?
I think the politics were very special at that moment. There were three big stimulus packages: $2.2 trillion in early 2020; then $0.9 trillion dollar second stimulus package in December 2020, then the $1.9 trillion American Rescue Plan in late March of 2021. If you look at the debates coming off the back of the December package, which was still under Republican President with a Republican Senate, President Trump loudly mused about not signing the bill because he said the $600 stimulus checks were too small, and they should have been $2,000.
The Presidential election was already decided in favour of President Biden, but the Senate hung in the balance. There were two races in Georgia and many people believe they were decisively won by Democrats because they picked up the $1400 stimulus check idea that Trump had thrown out there. That was then something that the Democrats needed to deliver on. So I think that piece of it was just a necessity.
There were pieces of the American Rescue Plan that really paid out only over time that were not absolutely central to it that perhaps would have been better not to include. In terms of the output gap it was a very large package at a time when the economy was well on its way to recovering. Unemployment had come down very, very rapidly over the course of the latter part of 2020. Although it was probably larger than it needed to have been, there were some political reasons for some of the elements that were very compelling.
But when I look at the macroeconomic estimates of the effect of the American Recovery Plan, it may have accounted for at most one to two percentage points on the price level. If you look at a variety of peer economies and you look at an array of growth outcomes, employment outcomes, price level outcomes – because the price level turned out to matter a lot – there were many countries that were in the same ballpark in terms of the price level increase with a lot less fiscal stimulus. Those countries considerably underperformed the US on unemployment and growth. So I think at the end of the day, yes, it was too big. Yes, some elements weren’t essential but was it decisive in terms of inflation? No. Probably one to two percentage points at most on the price level. But it also supported a significantly earlier and stronger recovery in GDP and the labour market.
Q: There’s an interesting debate about the link between the dynamism of the labour market and the macro stimulus, could you have had that dynamism without the labour market being pretty hot, pretty tight?
The macro stimulus was an important piece of the puzzle for the very hot labour market. But it was also the case that the Federal Reserve was highly stimulative throughout this period and only started to taper in November of 2021 and didn’t start to hike rates until March of 2022. Then, of course, we raised rates starting in May very rapidly and in very large increments. So there was a lot of support for the economy from the monetary side, and ideally fiscal policy takes that into account.
To distinguish between some programs, the child tax credit was very important, not just because of the support that it provided, but because this was a well designed program that proved that if you structure the child tax credit in a way that really supports families on the lower end of the income spectrum, you get great results. Similarly, the premium tax credits were well conceived and materially expanded health insurance coverage. So policies like those were important regardless, but there was some aid that only paid out very slowly over time, particularly to states and localities. People would have a hard time arguing that aid really made any difference at all to the labour market in that period of time.
Q: When you go back to September 2021 was the worry at the time whether the recovery was still fragile?
By the time of September 2021 inflation had gotten back above 2%. Inflation sagged very low first in 2020, and it took a while for it to recover. But by the middle of 2021, it was climbing rapidly. Unemployment peaked at about 14.8% in April of 2020. By the third quarter of 2021 unemployment was down around 5% and the rate of decline was pretty steep, so I think at that juncture there was just a lot more comfort that the recovery was self-sustaining.
Q: Once you get into the autumn, probably monetary and fiscal policy was more stimulatory than it ought to have been?
The Federal Reserve took time to start hiking rates partly because of the complexity of our tools. There was a view that we had to finish tapering asset purchases before we could start hiking because otherwise monetary policy tools would be working at cross purposes. And the statement noted that we expected to see significant progress before we could start tapering. All of that put a lot of sand in the gears and slowed us down. And then, of course, what happened that was completely unanticipated was Russia invaded Ukraine on February 24th of 2022. Commodity prices spiked and inflation got an additional jolt at a time where we were in the midst of turning the ship and withdrawing stimulus. So that that was a spanner in the works that nobody anticipated. So after making an initial hike the following month, we adapted by hiking in ¾ of a percentage point increments at several meetings in a row
Q: When you think about the industrial policy piece – at that point, is there a tension between its macroeconomic impact and the other micro strategic objectives?
No. The macroeconomic effects of the investment programs came some time after the fiscal stimulus had waned. Those programs took some time to push out into the economy. For instance, the Treasury wasn’t staffed up for the amount of tax guidance they needed to issue. It was complicated and very important, and they were doing things that were unprecedented in terms of the structure of the tax credits. It was really good stuff, like making them transferable and establishing direct pay – these were all things that monetised those tax credits in ways that I think are incredibly important. But it just slowed down the effect on the economy.
Additionally, some programs worked through the states and no money went out into the economy under some of those programs for at least a year. As a result, some of the programs were slow to spend out. For CHIPs and Science funding – because those were very large grants – there was a lot of concern to make sure that they were being awarded on a competitive basis correctly. It took a very long time to get that money out the door. Commerce was still making some final awards in January 2025. So it took some time for that money to get out into the economy. We did see the private sector making investments in anticipation of the tax credits and other incentives being finalised and the factory construction numbers jumping up. By 2023-2024 we did see that, but not in a way that would have a big macro stimulative impact, I would argue.
Q: When you look back, did fiscal policy make macro stabilisation harder? Is fiscal policy being asked to do too much in this period?
We have a political system that is very unique. It is usually the case that in the first two years of a term, if a president has majorities in both Houses of Congress, there’s an agenda that has been building up for some time, and the president and congressional leaders will try to get as much of that done as possible. That’s just the way our system necessarily works. The ARP was carrying some of that policy agenda: it was an opportunity to get a lot of policies that were very important done. Again, could it have been relatively smaller and still done some of those really important policy innovations and gotten money to people that help sustain their ability to invest in their kids and get affordable health insurance?
Q: Others have talked about how the trouble with the Obama stimulus was there wasn’t enough of a buffer. Is the lesson that the ARP was not flexible enough to respond and adapt to economic conditions?
In addition to fiscal policy, monetary policy provides an important ability to buffer the economy from shocks as well. So the two work together. Certainly there was a lot of support coming from the monetary policy side during this time period. And it’s certainly true that the fiscal support was essential in providing targeted support –for instance for the unemployed, for household balance sheets, to stabilise child care, for small businesses and nonprofits, and to keep families in their homes.
Q: Was industrial policy under Biden a continuation of attempts by previous Democrat administrations to tackle market failures and make the market work better, or a break with the past and a fundamentally different way of using the power of government? Less simply market-adjusting and more market-shaping?
I would make the case that we actually did target areas that the market was unable to invest in sufficiently. For instance, in the semiconductor manufacturing arena, it was simply not viable for private companies to put large capital to work in the United States when the incentives from governments in other countries, in particular in Asia, were just so massive. So that is essentially why we lost semiconductor manufacturing over time because those massive capital investments were not market-driven. These were huge capital-intensive investments and they were materially shifted by government subsidies, support and trade policy.
The market failure that the clean energy credits were addressing is also very clear, particularly the advanced technology tax credits. The private sector, particularly in the US, was not getting sufficient reward from the markets for making important capital investments, and they simply were not going to happen in the absence of the tax credits. But the reason this policy is really improving market outcomes to advance societal goals is because these are tax credits. Private companies have to figure out which of these tax credits made certain activities viable and profitable. And then the private sector would be entrepreneurial about where to invest. We weren’t choosing.
The scale and design of this agenda was much bolder across the board. In that sense it is a real break from past efforts, coupled with a willingness to alter trade policy to support those investments.
Q: Was there a debate within the administration between the argument you put there and others in other departments who saw things differently?
At the White House, no I don’t think so. Certainly with the Commerce Department, the Treasury Department, the Energy Department, and the White House, we thought of ourselves as creating incentives for the private sector and also providing more support to the private sector in areas like innovation. For a variety of reasons, government support for innovation had really diminished over time. We thought that was a really important public good and so we wove that into all of our programs as well.
Obviously, the Bipartisan Infrastructure Law is different. There it is about the provision of public goods. I don’t think that the Biden Administration’s approach was very different from the Obama Administration. During the Obama administration, we just couldn’t get sufficient bipartisan support in Congress for those kinds of infrastructure investments despite strong efforts.
Q: In the end, the argument that you make to us today is that the biggest difference was scale as opposed to a view of how the market worked? Some people would say this was a more managed intervention rather than a market supporting intervention.
Scale and ambition, yes. If I think about what the Loan Program Office was doing at the Department of Energy or what Secretary Granholm was doing with her grants programs for battery recycling: it was very targeted at those areas of market failure that were also consistent with the use of tax credits. There was a lot of grant making authority that previous Democratic administrations didn’t have, but I think it was deployed pretty carefully as a companion tool to tax credits that were really trying to get private capital off the sidelines and invested in the economy. Of course, if you look at all the work that we did, I think our estimates are all based on the massive amounts of private sector capital that are needed to achieve America’s ambitious advanced manufacturing and clean energy goals.
Q: How hard is it going to be to assess whether it worked?
There are lots of things that are changing dramatically under the new Trump administration. If they eliminate or dramatically change the structure of the tax credits or change the way that the CHIPS investments are made, then we won’t get a clean ability to assess the efficacy of these programs because they have their greatest economic effect over a longer period of time. I hope we’ll be able to assess them.
My sense is they were slow to spend out in some cases, perhaps most notably the charging stations. The stations were incredibly slow to spend out partly, perhaps mostly, because they work through the states and that process is very slow. But I am still hopeful that in many other areas that clean empirical assessment will be possible. Certainly my sense, having looked at the investment numbers in some of the clean energy areas and the semiconductor numbers (which was a step change), is that they should prove out over time.
Q: A lot of people who are strongly supportive of what you were doing strategically on industrial policy will say, but what they were doing trying to protect solar panels and prevent Chinese imports was ridiculous.
Obviously for each of these areas there was deep analysis that was undertaken, including every step of the solar panel supply chain. There was fundamental concern about any area where China would have a 90% share. We felt that Europe was not sufficiently attuned to those risks and should have worked with us more on that. We look at what happened in Europe on dependence on energy and we think it’s just concerning that they would put themselves in that position again with regard to important components of clean energy. Even more concerning, having looked a lot at the EV industry, we are worried that Europe is at risk of not being able to sustain domestic auto production. So I understand why there might be an alternative view there. But the concern about being 90% dependent – which the world is – on China for solar wafers is a national security argument. It’s not purely an economic argument.
Q: How much did the pandemic suddenly change people’s perception around supply chain vulnerability?
The pandemic helped to crystallise it. In the wake of the Fukushima earthquake in 2011, the supply chains for autos around the world broke down for a few months and everybody in that world said “This is not healthy, and we need more diversified supply chains”. And then they went back to just-in-time and made their supply chains even more fragile. So the pandemic should have been a wakeup call. Of course there were other important geostrategic developments around the same time, including a reorientation of China’s national security policies. So it was really not just on the economic side, but also a significant reorientation of China in terms of their national security priorities and partnerships that highlight risks around supply chains.
Q: There’s also an element of America becoming pretty self-sufficient in energy and suddenly thinking we maybe didn’t appreciate before what a good thing that is.
There are many people in the United States that think a lot about how important energy self-sufficiency is. Clearly the fracking transformation completely changed the US trajectory on fossil fuels. But yes, Russia’s invasion of Ukraine and the associated leverage over certain countries in Europe was very troubling and animating.
Q: Did it change the way you thought about policy making compared to when you were in the Obama administration?
Not so much me, because I worked in the international arena during the Obama administration where I saw these risks play out. I was already a bit of a hawk in the Obama administration, but yes, I do think it was a very important moment.
Q: One argument might be that the US has seen such growth and productivity growth, in particular, not just because of anything that happened in the last four years, but because of fundamentals in the economy, such as the tech sector, as opposed to specific policy changes that any administration might make?
The US has a very dynamic AI sector that has developed in part on the strength of the massive tech platforms in the United States. There’s no question that both the capital requirements as well as the data requirements, for better or worse, favour very large tech platforms that have that ability to internalise data and make investments in data centres. It’s too early to see broad economic effects, but AI is projected to make a real difference in terms of productivity. It will have all kinds of other knock on effects, but the productivity enhancements seem to be likely to be quite profound.
The US starts with a strong foundation. China has that foundation, Europe not as much.
In terms of some of the other areas, let’s go back to semiconductors. We have some of the biggest companies in the world that are consumers of advanced semiconductors. We have some of the best semiconductor design companies but we had completely ceded manufacturing of advanced semiconductors to the point where 0% of leading edge semiconductors were manufactured in the US. You just can’t negate the important role of the government in creating a set of incentives that change the market’s rates of return on these investments. That fundamentally depended on the CHIPS and Science Act. Similarly, with the tax incentives for clean energy: we just would not have seen the kinds of investments we’re likely to see in areas like hydrogen without some of the really important incentives that were put in place.
We have many advantages, but we have really big deficits on infrastructure. If you don’t have high-speed Internet-enabled businesses, they’re not going to be able to take advantage of AI. So I think the government’s role on infrastructure really matters.
The one thing we haven’t talked about is regional policy – we call it place-based policy. If you look at the way those investments dispersed across the country, independent analysis looked at the 1,000 most distressed counties and found they received disproportionate amounts of investment, business creation and employment relative to the previous 20 years. Tax credits gave added bonuses for being in coal communities and added bonuses for being in low income communities. Some of the grants are specifically only for communities that were distressed. Then there’s also just a natural affinity between some of the energy investments and the land that previously housed coal mines and steel plants. This was very intentional. It is clear in the legislation that they worked hard to include those incentives and the investments and jobs actually were disproportionately in those communities. Now, whether that progress is sustained depends on the Trump administration.
Q: In terms of learning for Europe, Bidenomics on the one hand reaped the benefits of a dynamic hot labour market, and on the other hand was focusing its rhetoric on re-regulating the labour markets, backing unions and supporting workers. Is the conclusion that, rhetoric aside, Bidenomics worked because of the dynamic labour market?
The Biden Administration not only supported a strong labour market recovery, but also strongly supported the ability to form and join a union and the rights of unions to bargain collectively and secure higher real wages at a time when the labour market is strong.
Q: But when it comes to these questions about labour market regulation, if Britain and Europe were to look at America and Bidenomics and say it worked and we should adjust our labour market regulation, that wouldn’t be the lesson you’d be drawing?
I think the starting conditions are just so different. I think the Biden administration really did support the ability of unions to form and to collectively bargain and to protect workers in areas like overtime protections. In some ways we were trying to restore the rights that we think that workers should have under our laws against the significant deterioration that had happened under the previous administration.
My sense is that the UK and Europe have been very constrained by fiscal rules and constraints and a real reluctance to engage in more supportive incentives and grants for certain parts of the economy because they may be over-learning some lessons from the past.
In terms of the labour market dynamism, I think we would all conclude that there were some big, dynamic shifts in the economy that happened in the wake of COVID that had to do with how the services sector organised itself along with other areas. Perhaps it’s better to support workers, independent of their job attachments, during those moments of fundamental dislocation and give them the opportunity to go back in the market stronger household finances that enabled them to choose better jobs based on that strength.
But it didn’t happen in a context where workers were in a weak position, it happened in a context where they were in a strong bargaining position. So I think that is actually an important lesson: we supported the economy being strong and gave lots of support to particular productive parts of the economy. And we also supported workers coming back into that labour market from a position of strength. Empirically, we saw both higher real wages and higher productivity.
Q: Looking back, what is the one big positive take away from this experience, which has really worked and what is the one thing that didn’t?
I think the positive would be the real focus on working Americans and making them the centre of the recovery as well as the centre of our investment policies because that led to a very dynamic economy and good outcomes. It led to much better outcomes in terms of real income and household balance sheets for working Americans who then, in turn, power the economy. They are the consumers that made our recovery self-sustaining and strong. So I think that is the positive piece.
The negative piece is some elements of the investment agenda were too encumbered – they took too long to push investment in a positive way.
ENDS