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Global Perspectives: Glenn Hubbard on Immigration, Economic Dynamism and Limits of Monetary Policy

Mark A. Wynne

October 29, 2019

Glenn Hubbard served as dean of the Columbia Business School from 2004 through June 2019. A PhD graduate of Harvard University, Hubbard has had a long career in academia and served in government in the U.S. Treasury and as chair of the Council of Economic Advisers under President George W. Bush.

Earlier this month, the Federal Reserve Bank of Dallas hosted Hubbard as part of the Bank’s Global Perspectives speaker series. This series was launched at the beginning of 2016 with the objective of bringing leaders from the worlds of business, academia and policymaking to the Dallas Fed to share their insights on global, national and regional developments.

Hubbard and Dallas Fed President Rob Kaplan discussed his career in academia and government, his decision to become an economist and the key challenges facing the U.S. The following are excerpts from their conversation, edited for clarity, and presented by topic.

On Becoming an Economist:

Hubbard: I was an electrical engineer. For those of you of my age (61) who remember studying engineering in the past, that meant computer programming on punch cards. I loved the problem-solving aspect of engineering. I like the idea dynamic programming and optimal control, but I was really interested in people. I went to college in the mid- to late-1970s, and I really admired [former Fed Chairman] Alan Greenspan. I told Alan many years later that he’s one of the reasons I became an economist.

I thought I could take what I really liked as an engineer to economics. When I went to grad school, I didn’t know much economics, but I knew math and that was very important in grad school. So that’s how I got there. The world was spared one mediocre electrical engineer [and] got maybe an OK economist instead.

Valuing Immigration to the U.S.:

Immigration is essential to America’s future. One reason that we have done so much better in the recent past compared with many of our industrial-economy peers has been our openness—our openness to capital, our openness to goods, our openness to ideas and our openness to people.

The immigration debate is two debates. The one that ought to be incredibly easy involves high-skilled people. I’ve been dean of a business school. Half of my students at Columbia are not Americans. I would love to see all of them work in my country, not because I’m a saint, but because I’m selfish. I want the smartest people in the world to work here.

I think for anybody who gets a higher education in this country—MBAs, engineers, doctors—this is a no-brainer. Where there’s more of a debate is on the low-skilled immigration issue. It strikes me that if we’re worried about the effects of low-skilled immigration on low-skilled Americans, we need to do more to help them [low-skilled Americans], which is about education and training.

I think immigration remains a vexing issue. Unfortunately, it’s very politicized right now. But we’re not going to be the great country that everybody in this room wants unless we get this right.

Limitations of Monetary Policy:

I think we’ve asked too much of the Fed, of the European Central Bank and of the Bank of Japan. We have asked them to solve problems that they really can’t solve. Transitory shortfalls in aggregate demand are the Fed’s territory. Many of what [difficulties] we have seen in the world economy are structural problems. They’re due to the fact that we’ve had tectonic shifts in the global economy, technological change and globalization that have affected economies around the world and the futures of millions of people in those economies.

That’s not a Federal Reserve problem. It is a problem for the government. I think we need structural reforms, and I say that not just as an economist. If we want the kind of economic system that raised people all over the world out of poverty and gave us unbelievable living standards that many of us could not have foreseen when we were children, we have to fix these structural problems. It really is for governments and for businesspeople to put a fork in their governments, their senators and their representatives to get it done.

Reforming U.S. Health Care:

Health care is a little more than one-sixth of the American economy—and we’re told that it’s one [area] where market forces can’t work because there’s asymmetric information. And I say to myself, “Wait a minute. Isn’t there asymmetric information in finance and the law and professional services?”

We don’t think that the government should be running those sectors, so what's going on here? It turns out a lot of what’s going on in health care is an inability to keep costs down. We have this focus in the country on access and demand, without asking ourselves, “Why are costs so high?”

John Cogan, Dan Kessler and I wrote a book, Healthy, Wealthy, and Wise. We argued that a lot of the problem is third-party pay systems—what we call insurance. In the United States, insurance is essentially subsidized prepaid health care. Insurance to economists means coverage of catastrophic events. It doesn’t mean prepaid health care.

So what could you do? The puckish way that I would put it is Medicare for none. What I mean by that is that there ought to be nothing special about being old or poor. Everybody could get a voucher for catastrophic health care—universal catastrophic coverage—which would be financed by taxation. For middle- and upper-income people, you would have health savings accounts and other vehicles to help meet high deductibles.

Economic Stability, Structural Change and Disruption:

A healthy economy is a disruptive economy. The question is how you manage it. When I was a young engineer, I wanted to be an economist in part because of [economists] Friedrich Hayek and Adam Smith, who had a view of the constantly disruptive market. To get stability, you need change. It’s change that generates the system that gives you sustainable economic growth.

I want a very dynamic, disruptive economy. I just don’t want people left behind. My colleague, Ned (Edmund) Phelps at Columbia is a Nobel Prize winner in economics. He’s really put his finger on this as a central issue both in economic performance and in the satisfaction and happiness of people. Part of it is demography; older people are less likely to start new things than younger people. But I worry that part of it is regulations, market structure—dare I say it, monopoly power in some segments of the economy—that are discouraging innovation.

Market Power in a Digital Economy:

I’ve traditionally been of the view that firms that get big are usually better. Many years ago, there used to be this argument that high price–cost margins and industry concentration were indicative of monopoly. Sam Peltzman at the University of Chicago said, “No, it’s the other way around. More efficient firms are more profitable and get a larger market share.”

We were so worried about many of the firms we thought of as monopolies in the past taking over the world—like IBM or AT&T or Microsoft. I don’t think we’re so worried about them today.

Having said that, there is something interesting going on because part of the market power people are worried about today is the ownership of data, which is fundamentally different from the market power that economists have traditionally looked at. If I own the data, then even if you have the better mousetrap, it may be difficult for you to compete with me.

The reason I say it’s interesting for research is because traditional antitrust doesn’t really deal with that problem. I think we need to think about how to give people property rights to their own data.

About the Author

Mark A. Wynne

Wynne is vice president and associate director of research in the Research Department at the Federal Reserve Bank of Dallas.

The views expressed are those of the author and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

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