The Federal Reserve's Austan Goolsbee is a man with a mission: to steer the economy away from the perils of overheating and towards a more balanced, sustainable path. In an exclusive interview with Fortune, Goolsbee offers a nuanced perspective on the economy, one that is both grounded in reality and mindful of the hype surrounding AI. He advocates for a return to 'old school' economics, focusing on the ordinary Americans and the real-world impacts of economic decisions.
One of the key concerns Goolsbee highlights is the potential for economic overheating. While the employment side of the Fed's mandate appears relatively stable, with low unemployment and hiring rates, he is wary of the impact of data center buildouts on the broader economy. He argues that these buildouts are 'shoving other parts of the economy down', leading to a rebalance of resources and potentially pushing up services inflation. This, in turn, could lead to aggregate overheating, a scenario Goolsbee is keen to avoid.
Goolsbee's skepticism towards the hype surrounding AI is evident. He acknowledges the potential for AI to disrupt the labor market, but is cautious about the expected outcomes. In his view, the productivity gains from AI may not be as immediate or widespread as some suggest, and the hype could lead to short-term overheating. He points to the Solow Productivity Paradox, where technological advancements may not always translate into immediate productivity gains, and the delay between theory and reality could be significant.
Another concern for Goolsbee is the persistence of supply shocks. He argues that, particularly since the pandemic, these shocks have been more enduring than theoretical models suggest. This is due to ongoing issues like geopolitics and the longer time it takes to fix complex global supply chains. The FOMC must balance the risk of reacting to transitory supply shocks against the risk of enduring above-target inflation.
Despite these challenges, Goolsbee remains focused on the consumer. He believes that the unrelenting, continued consumer spending has been the driving force behind the economy's stability and growth. He advocates for attention to be shifted back to 'old school' economic barometers, such as consumer spending, to ensure the economy remains on a sustainable path. In his words, 'If we hit a hiccup on consumer spending, to me, that is the biggest risk to continued stability and growth'.
Goolsbee's perspective is a reminder that economic policy must be grounded in reality and focused on the needs of ordinary Americans. While the hype surrounding AI and supply shocks may be compelling, it is essential to consider the broader implications and potential risks. In my opinion, Goolsbee's approach is a refreshing reminder of the importance of balance and nuance in economic decision-making, and a call to return to the fundamentals of 'old school' economics.
