The ‘Anti-Business’ President Who’s Been Good for Business
Obama on free trade, regulating banks, and why his daughters won’t work for Wall Street.
Photographer: Geordie Wood
A little after 2:30 p.m. on Monday, June 13, we sat down with President Obama in the Oval Office, which is exactly the range of yellow, taupe, and beige we all know from television but smaller than expected. It’s an old building, after all. Obama offered coffee to the three of us conducting the interview: John Micklethwait, editor-in-chief for Bloomberg; Megan Murphy, Bloomberg News Washington bureau chief; and Bloomberg Businessweek Editor-in-Chief Ellen Pollock. He touched briefly on the mass shooting in Orlando, before quickly switching gears: “All right, let’s talk about the economy.”
BLOOMBERG BUSINESSWEEK: The stock market has tripled. Profits are very high. And yet you still have this label of being an anti-business figure. How do you look at that?
OBAMA: Well, first of all, toward the end of my second term, I think among the business community, there’s maybe a greater acknowledgment, a less grudging acknowledgment, that we steered through the worst financial and economic crisis in our lifetimes successfully—certainly more successfully than many of our peers. We’re now 10 percent above the GDP pre-crisis. In Europe, for example, they’re just now getting back to even.
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Photographer: Geordie Wood for Bloomberg Businessweek
As you mentioned, the stock market, obviously, has come roaring back. But I think more relevant for ordinary folks, we’ve cut the unemployment rate in half. We’ve been able to have the longest [stretch of] consecutive months of private-sector job growth in our history. Biggest job growth since the ’90s in manufacturing. The auto industry has come roaring back and is selling more cars than ever. We’ve doubled the production of clean energy. Our production of traditional fossil fuels has exceeded all expectations. We’ve been able to grow the economy, reduce unemployment, and cut the deficit by around three-quarters, measured as a percent of GDP. So it’s hard to argue with the facts.
I think where the business community has traditionally voiced complaints about my administration is in the regulatory sector. And yet, if you look at the results—Dodd-Frank being a good example—it is indisputable that our banking system and our financial sector are safer and more stable than when I came into office. Now, what’s also true is that banking profits are not as outsized as they were, but I don’t consider that a bad thing, and I think most Americans don’t either. They’re still making a profit, it’s just that there is a froth that’s been eliminated, and that’s good over the long term for the financial sector.
Do you think it’s a benefit of regulation that it reduced profitability, as opposed to just making the system safer?
Our intention has not been to reduce profits just for the sake of reducing profits. Our intention has been to reduce reckless behavior that led to outsized profits. I think the fact that it’s harder to leverage and trade in ways that threaten the stability of the economy as a whole is a positive for the U.S. economy. It may show up in terms of less profitability for some banking activities, but my argument has always been, start making money the old-fashioned way. Don’t gamble, invest.
Jamie Dimon, the chief executive officer of JPMorgan Chase, came out with a statement saying, “I don’t think in the next 10 years you’re going to see a banker serving in a senior role in Washington.” Do you think that’s unlikely as well?
There’s no doubt that the banking industry took a hit post-Lehman. What was interesting is, early in my administration, somehow they often thought that me or Tim Geithner or others were fanning the flames of antibank sentiment, and we’d have to explain to them, no, what’s fanning the flames is that people have lost their homes and their savings, and this has all spilled out into Main Street while you guys still made out all right. Hopefully, there’s been some more reflection on the part of the banking industry.
There are a number of banking CEOs, including somebody like a Jamie Dimon, who I think are smart and are outstanding businesspeople, but they have different roles to play. Their job is to serve their shareholders, maximize profits, run a business. My job as president of the United States is to make sure that the overall system is stable and that the economy as a whole is well-served by a healthy, functioning system that allocates capital in efficient ways. And that means the interests of any individual bank or banker are not always going to be congruent with the interests of the economy as a whole. That shouldn’t be a surprise, and I would say the American people should be suspicious if anybody who’s occupying this office thinks that whatever’s good for the top 10 banks is automatically good for America. Even bankers shouldn’t want their president to be thinking that way.
When we put forward regulations that make mortgages simpler and more intelligible to consumers, that may be bad for somebody’s short-term bottom line—if their business model is built on pushing out shaky loans to consumers. But it will actually be good for the housing market and for the financial system as a whole if people know what they’re buying and they can afford the mortgages they take on.
Some of the rules put in place have meant it’s harder to get a loan. Something like 58 percent of approved mortgages are going to the wealthiest applicants, and homeownership among African Americans is down. Where’s the balance there?
Well, the interesting thing—and we’ve looked at this very carefully—is that there’s no doubt that there’s been some pullback and increased conservatism on the part of lenders. But oftentimes, it’s not justified by the regulations. It’s a byproduct of them rethinking their business model. And so if you talk to a number of bankers, what they’ll say is, “Look, these loans just aren’t that profitable to us.” Or, “These small-business loans may just not be worth us churning through the paperwork.” And that’s independent of any regulatory requirements that are being placed on them. Typically, what you’ve seen is a pendulum swinging where, after a financial crisis, oftentimes there’s a pullback on the part of the banking industry. My suspicion is that will end up loosening, and when it does, that’s when you want to make sure that those regulations are avoiding some of the excesses that we saw in the past.
So it’s unlikely, then, that you’ll go to work on Wall Street?
(Laughs)
Would you be happy if your daughters ended up on Wall Street?
Well, I’m pretty certain that my daughters will not end up working on Wall Street. But look, I genuinely believe that one of the great comparative advantages that we have as a country is this extremely broad, deep, sophisticated financial sector. It means there’s more capital flowing through this country that can be directed to startups and small businesses and expansion than anyplace else. And we want to keep it that way. But I do believe—and this isn’t just my bias; I think a lot of economists share this view—that if you start getting to the point where 40 percent of the economy is taken up by the financial sector and that our best and brightest are going into financial work as opposed to engineering or computer science, then we could actually lose our competitive edge over time.
We’ve talked about some of the positive things in the economy, but we’re still seeing very low productivity and GDP growth hovering around 2 percent. People like Larry Summers talk about secular stagnation. What avenues do you see for growth? And do you think something fundamental has changed?
Well, I’m a congenital optimist about the prospects of the American economy and the world economy generally. If our expectations are to duplicate the growth here in the United States that occurred right after World War II, when Europe was destroyed, Japan was destroyed, half of Europe was behind an Iron Curtain, and billions of people in China and India were suffering under either communist rule, in the case of China, or socialist approaches to the economy that stifled creativity and growth and innovation in India—we have to see that as a unique period in our history. But I do believe we can grow a lot faster than we’re growing right now. And I think we can grow faster than any other advanced economy.
Some of this foundation that we have laid out, I think, puts us in a position to do that. The investments we’ve made in R&D, the investments we’re making in clean energy, the investment we’ve been making in education and job training—those are all things that may not have a payoff today but will have a payoff 5 years from now, 10 years from now, 20 years from now.
Just to take a simple example: When I came into office, we started working both with the public sector, but also private-sector companies like Intel, to say how are we going to produce more engineers? And our goal has been to generate 100,000 more engineers, but also engineering teachers, and to really focus on STEM [science, technology, engineering, and math] education. That will help with productivity growth over the long term, even though it may not show up in Year 1, Year 2, Year 3 of that initiative.
The things we have not done that we need to do, that could make an enormous difference, are proposals I’ve put forward that Congress has so far blocked. The most obvious one would be infrastructure. We have about $2 trillion worth of deferred maintenance. And those are jobs that can’t be shipped overseas. Those are jobs that economists will tell you create a multiplier effect throughout the economy, but also lay the foundation for long-term productivity. And at a time when capital is so cheap, for us not to be doing that is crazy.
The fact that we haven’t fixed our immigration system in an intelligent way is contrary to what our experience tells us, which is that compared to Europe or China or Japan, one of our biggest advantages is attracting new talent, strivers who want to come to this country, who are willing to take enormous risks to get here, and then are going to try to start a new business or populate entire communities that have fallen on hard times. That will make a significant difference.
Making college more affordable so that every young person is getting some post-high-school training: If our workers are better trained, have higher skills, that’s going to make us more productive. So there are a number of things we could do right now that don’t require some out-of-the-box policy initiatives and that would really make a difference in boosting productivity growth. I also believe that increasing wages as a share of the overall economy will help us grow.
What do you think is the ideal minimum wage? You said $12 before, but how high can it go?
Here’s what I would say as a general proposition: If you work full time in our society, you should be above the poverty rate. And that might mean something different in Manhattan than it does in a small town in Arkansas or Oklahoma. But what is absolutely clear is there’s a certain threshold above which you can pay your bills and below which you can’t.
Now, what our economic history seems to indicate is that when workers have a sufficient share of the overall pie, they spend it. Consumer confidence grows and businesses are more prone to invest. One of the problems that we have right now—and I talk to CEOs who tell me, “Look, if we’re growing at 2 percent, then I don’t need to make significant business investment to make a profit, I just have to make sure that, through automation and other means, I’m keeping my costs low enough that I’m going to make money selling basically the same amount of stuff.” If you have workers making a better wage, now you’ve got bigger markets to go chase.
And what we also know is that when people see some modest increase in their wages, it ends up having a virtuous effect on the economy as a whole. So I think that as we move toward an economy where, because of automation, you need fewer and fewer people to make more and more stuff, more and more of us are going to have to move into the service sector. The service sector historically has been a low-wage sector. And in order for us to make sure that we don’t see this growing divide between haves and have-nots, with a middle class that’s shrinking, we’re going to have to make sure the service sector pays better.
Think about how difficult it is right now for a young, idealistic person who wants to go into teaching to figure out how they’re going to live a middle-class life as a teacher. There’s no job that’s more important to our economy than having really good teachers in the classroom, but right now, the way our economy is structured, it’s very hard for young people to make that decision unless the parents are subsidizing them in a fairly significant way.
What’s the answer to that problem?
Well, that’s an example of us thinking about, how do we pay our teachers? How do we pay our health-care workers? More and more people are going to be going into that sector. Those are sectors, by the way, where productivity gains aren’t going to be as fast, because, by definition, interacting with a child or helping an elderly person who’s going through physical therapy is less subject to automation. So we’re going to have to make some broader decisions in terms of the social compact about how folks who are making a living in really important, necessary jobs are getting compensated.
My broader point, though, is that for a while I think there’s been a tendency among economists, business leaders, pundits, to pose this conflict between issues of equity and distribution, and efficiency. And my argument is that we should be investing in those things that are going to make us more efficient—like infrastructure, like R&D, like education, like trade—which puts me in conflict sometimes with some members of my party. I’m not somebody who believes we can lop off the global supply chain and somehow that’s going to make us more productive, even if it was possible. But I also believe that if you combine those things that make us more efficient and more productive with a strategy to increase wages for those folks who are increasingly going to be employed in the service sectors, then you will not only get sustained, broader economic growth, but you’ll also gain the political consensus that’s necessary to continue becoming more efficient over time.
Some economists suggest that globalization is going to start targeting all those services jobs. If you want to keep up wages in that area, doesn’t it push us toward something like a universal basic income?
The way I describe it is that, because of automation, because of globalization, we’re going to have to examine the social compact, the same way we did early in the 19th century and then again during and after the Great Depression. The notion of a 40-hour workweek, a minimum wage, child labor laws, etc.—those will have to be updated for these new realities. But if we’re smart right now, then we build ourselves a runway to make that transition less abrupt, because we’re still growing, and we’re beating the competition around the world. Look, for example, at smart cars, where the technology basically exists now. The number of people who are currently employed driving vehicles of some sort is enormous. And some of those jobs are pretty good jobs. You know, people are worried about Uber, but the fear is actually driverless Uber, right? Or driverless buses or what have you.
Now, there are all kinds of reasons why society may be better off if smart cars are the norm. Significant drops in traffic fatalities, much more efficient use of the vehicle, so that we’re less likely to emit as much pollution and carbon that causes climate change. You know, drastically reduced traffic, which means we’re giving back hours to families that are currently taken up in road rage. All kinds of reasons why we may want to do that. But if we haven’t given any thought to where are the people who are currently making a living driving transferring into, then there’s going to be deep resistance.
So trying to separate out issues of efficiency and productivity from issues of distribution and how people experience their own lives and their ability to take care of their families, I think, is a bad recipe. It’s not an either/or situation. It’s a both/and situation.
One of the reasons people are feeling left behind is free trade. Have you not done a good job of selling the benefits of trade to people who feel that this is something that’s taking their jobs, taking away their future?
A couple of interesting things about trade. No. 1, the majority of Americans, surveys show, still favor free trade. It’s just that those who are opposed feel it much more intensely. No. 2, there is no doubt that some of the trade deals of the past, and the way in which globalization occurred over the course of the last 40 years, has not always been to the U.S.’s advantage.
So you take the example of China’s accession to the WTO [World Trade Organization]. From a geopolitical perspective, it was absolutely the right thing to do. And in fairness, nobody anticipated that China suddenly was going to be the engine of world manufacturing that rapidly. But there probably were some safeguards that could have been built to make sure that they weren’t devaluing their currency unfairly, that they weren’t engaged in the same state-owned enterprise subsidies and dumping that they were. Hopefully we’ve learned lessons from what happened there.
My argument with my friends in the union movement, for example—and I’m a strong union supporter—is if you’re fighting that battle, you’re fighting the last war. That you have to recognize that globalization is here to stay. That to keep one of the auto plants that have reopened and grown here in the United States operating at full capacity—they’re relying on parts from all over the world, and trying to disentangle that is all but impossible. And our goal, then, should be to try to shape trade deals that raise standards everywhere. And that’s what we’ve done with the Trans-Pacific Partnership.
I just came back from Vietnam. They’re introducing measures in their constitution to recognize worker organizations that are independent from the government for the first time. The only reason they’re doing that is because they wanted to be part of TPP.
If we simply pretend that trade will go away or that we can block it off, then China will set the rules for trade for the next 20, 30, 50 years. It sure won’t be good for U.S. businesses. It won’t be good for U.S. workers, and ultimately it won’t be as good for workers in Vietnam or the people of Malaysia or other countries we’re working with.
The last point I’d make on this is that the challenge from a perceptions point of view is that the benefits of globalization we take for granted. The costs are highly visible. You know, you can argue that one of the reasons inflation has been so low over the last two decades is because we’re able to get a lot of stuff cheap from all around the world.
We take for granted that we can get a flatscreen TV really cheap, or that we get clothes that fit better and last longer than when I was a kid. You walk into J.Crew or the Gap, and it’s a great improvement. I try to tell my kids, “You guys look a lot sharper than I did when I was your age, because we went to Sears, and it wasn’t working the same way.”
On the other hand, when a plant closes, we see it. And people feel it acutely. And entire communities feel it acutely. So I think this is where we need to go into those localized areas that are most acutely affected by trade and work with them—not to sell them a bill of goods that somehow if we just stopped trade, all those manufacturing jobs are coming back, because they’re not. Automation has displaced them a lot more than globalization has.
So we’ve got to go into those communities that have been hard-hit and say, “We can still make stuff, but if your strategy is just to make the same old steel that you were making 30 years ago, you’re not going to be able to outsell the Chinese or the Brazilians or others.” But what we can do is have an old Kodak plant suddenly be at the cutting edge of photonics and train an entire generation through your community colleges and universities so that they’re expert in that field, and you’ll see a new growth that’s compatible with globalization and will allow you to succeed.
And we need to say that we’re going to make sure your kid is getting the kind of training that allows them to succeed in the next generation of manufacturing, the next generation of biotech. We’re going to make sure that your entire community has broadband. One of the great successes of our administration that hasn’t been talked about a lot is the fact that—in part because of some smart decisions we made about spectrum and laying broadband lines—the penetration and the speed of broadband in this country since I came into office has grown exponentially. Through a program called ConnectEd, we’re on track for 98, 99 percent of the schools around America to be connected with high-speed broadband.
The basic facts seem to be out there that free trade offers real advantages, but people aren’t getting it. They’re revolting against globalization, not just with Donald Trump, but Brexit, or Marine Le Pen. They don’t accept the stuff about immigration. Have the politics of selling that message changed?
My argument has been that the reason people are resistant to [the free-trade] argument is because global elites have been inattentive to the issues of wages, incomes, and opportunity for ordinary people. If you’re selling globalization and saying it’s great, even though each year, not just in the United States but across the advanced economy, you’re seeing more and more of a winner-take-all economy, where not just the top 1 percent, but the top 0.01 percent, are getting a larger and larger share, then, yes, it’s going to be pretty hard to make the argument that “Don’t worry, this is great for you.”
And this is another area where sometimes I find myself arguing with my friends in the business community. The issue is not resentment or class warfare or that somehow we want to level everybody down rather than lift everybody up. The issue is that, if in fact automation and globalization do have a tendency to create vast wealth and opportunity for a very small, highly skilled set of people and have a tendency to create a larger and larger group of folks who feel redundant in the economy, and if you don’t pay attention to that, then people will rightly resist. They will understandably say, “I am not getting a good deal here.”
Is that what Trump is tapping into?
Look, I think that the temptation in that circumstance is to resort to nativism and nostalgia and the sense that these are things that are now out of control and I want to take control back. And that can be true on the Left; it can be true on the Right. But I continue to believe that the majority of people, whether in the United States, in Europe, or certainly in rapidly advancing parts of the world like Asia—those folks recognize that the world has shrunk, and that if the rules are structured properly, this gives them more opportunity, not less, to succeed.
I think most people still understand that. If you talk to the younger generation here in the United States, they’re not knee-jerk anti-trade. They’re not anti-globalization. If you look at surveys, it tends to be older workers who are feeling displaced who are attracted to this notion of “let’s pull up the drawbridge and shut everybody off.”
But if we are to succeed in shaping a sustainable, growing, prosperous, integrated world economy, we have to pay attention to the trends that push toward greater inequality and find ways to modify those tendencies. And we know how to do it.
We know that if we’re investing in education, early childhood education, college—making that cheaper and more affordable—then workers are going to have more opportunity. We know that if we have higher minimum wages, then they’ll get a larger share of the fruits of all these amazing new innovations and globalization. We know that if we have stronger labor standards and workers have more of a voice, that’s going to make a difference.
There were a bunch of decisions that were made back in the ’30s by FDR and then again later, in this country in the ’60s, that were fiercely resisted by business but essentially created a social compact and a social welfare state where people said, “OK, I’m seeing the benefits of innovation. I’m seeing the benefits of capitalism. I’m seeing the benefits of trade.” We just have to update those for the 21st century in the same way that in previous eras we updated those for the shift from agriculture to industry. And that’s going to require some farsightedness, not just in the public arena but also in the private sector.
You know, if I am a CEO in a boardroom right now, I should be thinking about, how do I make sure my workers are making a decent wage? And if I’m a shareholder, that is something I should be paying attention to, too, because if you’re not, that’s when you start getting the kinds of political pushback that you’re seeing here in the United States. That’s how you start getting a Brexit campaign. Over time, you’ll strangle this goose that’s been laying you all these golden eggs. Share the eggs.
Do you have any desire to run a company yourself?
Well, I’ve said this before and, I think, surprised a lot of people, but if I think about what would stir my passions had I not gone into politics, it’d probably be starting some kind of business. The skill set of starting my presidential campaigns—and building the kinds of teams that we did and marketing ideas—I think would be the same kinds of skills that I would enjoy exercising in the private sector.
Now, I’m always careful about drawing too many easy parallels there, because sometimes there are CEOs who come in and start explaining to me how I should be running the presidency. And I sometimes have to stop them and say, “All right. One, I appreciate your advice. But imagine a situation in which half your board and management were actively trying to get rid of you and prevent you from accomplishing anything. And you had 2 million employees, and you couldn’t fire a large portion of them. And your competitors weren’t simply promoting their own products, but were continually saying how your products were the worst that were ever invented and will cause a civilizational crisis. If you pull that all together, then you’ve got about half of what I’m dealing with on a daily basis.
What industries would you think about going into?
Well, you know, it’s hard to say. But what I will say is that—just to bring things full circle about innovation—the conversations I have with Silicon Valley and with venture capital pull together my interests in science and organization in a way I find really satisfying. You know, you think about something like precision medicine: the work we’ve done to try to build off of breakthroughs in the human genome; the fact that now you can have your personal genome mapped for a thousand bucks instead of $100,000; and the potential for us to identify what your tendencies are, and to sculpt medicines that are uniquely effective for you. That’s just an example of something I can sit and listen and talk to folks for hours about.
We’re going to have a global entrepreneurship summit—the last one of a series that we began when I first came into office. And the enthusiasm from around the world about these summits speaks to the advantage that we continue to have here in the United States. It’s this notion that if you get a good idea, and you organize some people to support you, and you learn from your mistakes, you can create something entirely new.
You can become Bill Gates.
You can become Bill Gates. Or, in some cases, you can electrify a village. You can save water in a desert. That’s the thing about the U.S. economy that continues to be unique. And it’s tied to capitalism and markets, but it’s also tied to a faith in science and reason and a mindset that says there’s always something new to discover, and we don’t know everything, and we’re going to try new things, and we’re pragmatic. And if we ever lose that, then we will have lost what has made us an incredible force for good in the world. If we sustain it, then we can maintain the kind of progress that has been made. I always tell interns and young people who I talk to that as tough as things seem right now, do not believe people when they tell you they wish they could go back to the good old days. Because the good old days aren’t—I’m now old enough where I remember some of those good old days.
Does it annoy you, then, that the guy who wants to go back and is America’s most successful businessman, at least by his own reckoning, is Donald Trump?
Well, I—there’s no successful businessman in America who actually thinks the most successful businessman in the country is Donald Trump. I know those guys, and so do you, and I guarantee you, that’s not their view.