Transcripts For CSPAN Economic Policy Discussion 20240713

Policy conference. I am the director of the i amrch center and delighted to introduce the chairman and vice chair of the white House Counsel of Economic Advisors. In preparing for this session, i have a foundational commonality. He is originally from sweden. , am originally from minnesota the land of american swedes. Close enough. Currently on leave from the university of chicago, where he is a professor of public directs thees and program on Foundational Research and Health Care Markets and policies within the Health Economic initiatives. Severald in publicsector positions, including his role as Senior Advisor to the head of the food and Drug Administration and as the senior Economic Advisor to the head of the centers for medicare and medicaid services. He also served as the Health Care Advisor for senator john mccain during his president ial campaign. Thank you so much for joining us today. Start, it says on wikipedia that the chairman writes all 300 pages. If you would, please take us through some of the highlights of the report. Free. Can download it for i will talk a little bit about the main themes. It is i did not write the report. It is about 435 pages. I will go through the main themes. If you want the bottom line of general,ave done in our twitter account has daily andtes on all of activities the bottom lines on the economic report of the president. Themes in the report that are the main themes on how the Trump Administration cowrote the agenda which we think consists of four pillars. , freeing deregulation up Energy Innovation in the private sector and the fourth one renegotiating trade agreements to be more fair with more reciprocity across the globe. The two main themes in the report that overlays a lot of chapters is the first theme is what we have seen in the expansion after these policies were implement it under trump, very different than the early part of expansion after the Great Recession. The second theme, and i will get into those numbers, the second theme we laid out is about the opposed toyears, as the previous part of expansion, has been inclusive in terms of growth. Are the benefactors lower end of the distribution. Let me go into of why we document in two ways why this expansion is different. This part of the expansion is different from the earlier part. Usually, when you have a recession, you have early growth directly after the recession that is pretty rapid and then it levels off to normal growth levels. That is the opposite of what happened after the Great Recession where we had a pretty slow growth initially and we have had accelerated growth the last three years. This is in spite of the fiscal and Monetary Policy that was a lot looser in the early part of the recession as opposed to being more constrained. We had more easy Monetary Policy in the beginning of the cycle than in the end. Is two ways we show that it different from the earlier part what did people say would be the continuation of the obama economy in 2016. People forecasted what they thought 17, 18, 19 would look like. Forecastn goal is to undercurrent law what the future will look like. It is notk at that surprising but it is a pessimistic forecast. People generally had to believe the longer you go into an expansion, the harder it is to do well. Different thanas that. They predicted that the labor force partition rate Participation Rate would fall. Growth ofcted wage low income individuals very low when it actually accelerated. Week showsthis last whenhis has come to ahead the president called this a con claim that wanted to this was the continuation of the obama expansion. Those people in 2016 are claiming this is a continuation of the obama economy when they themselves in 2016 said something different. They are pretending to be someone else. That is what a con man is. That is something worth noting. No one predicted this kind of informance given current law 2016. The second way in which the later part of the extension expansion differs from the first is that if you look at the data compared to the first, it is different. Shrankorce participation in the earlier part of the expansion and has ticked up in the last three years. Same with homeownership. Same with inequality. Inequality has narrowed in the last three years as opposed to widening before that. That gets me to the second theme of the report, which is inclusive growth. If you look at inequality both in income and wealth, that has taken a turn for the better the last three years. Growth, allat wage across the board in terms of disadvantage group, the lower half, minorities versus white americans, you have had a reversal of disadvantage groups now growing faster compared to before 2017 when they were growing slower than their counterparts. Is the that, we argue, tax cut that increased labor demand but deregulation. Deregulation has been progressive in the sense that we have seen larger gains in the share of income from deliberation from deregulation. That is an important component of why we think deregulation is important. That is on income inequality. On the wealth inequality, you have seen in normas growth wealth. Growth of wealth among the lower part of the wealth distribution. It is generating selfsufficiency as opposed to government dependence. It is a big deal in terms of how much were gaining the poor are gaining. They are coming off welfare programs by not qualifying, which is how we want people to come off welfare programs. , we see gaining to become more selfsufficient. The belief in that labor and tois the best poverty programs by man, i would say. Selfsufficiency is something the forgotten men and women that we talk about, this is a big deal in terms of how we see the economy turning in their direction. There are some additional risks of housingn terms regulation we believe are intrusive. Housing regulation has led to not enough supply, restricting the supply and having very high prices in those areas. Is, can one on the state and local level deregulate those prices. Deregulating that supply to meet the demand better is very important Going Forward, given that people are working more and can have ae and housing boom. We can have a demand increase that is pretty substantial in those areas and you need supply to feed the demand better than what we are currently doing. It is very concentrated in certain areas. Housing becomes very expensive. Is a huge new york and california problem relative to other areas. Lastly, this report in terms of risk is the first report, which is surprising, that discusses the Opioid Crisis that has been going on for 10 years or more. It is something the president is very concerned about from day one. , this is ant important component of the partly ansis, it is economic phenomenon because if you look at essentially how much opioidernment finances prescription the markets got big enough for illegal innovators to improve quality and reduce price, which is really what fentanyl is about. If you look at the early part of the prescription epidemic, that was highly subsidized by the government so we went from about 15 of pills being government programsthrough public to about 67 of pills being government financed during a period. If you think of other addictions, alcohol and cigarettes, we tax those addictions. We have subsidized this addiction with well intended programs, obviously, that are aimed at doing Something Else which is subsidizing the medical use of opioids, which is not harmful. At the same time, we have subsidized the nonmedical use of opioids, which is what kills people in terms of an addiction. This would not this would not be feasible without those subsidies because if you look at the middle of the prescription 50,000, it cost about to buy an addiction out of pocket every year. You buy a lot of pills when youre addicted. If you are buying these outofpocket, the amount of pills you would need at the prices that were going, it will cost you 50,000 to keep up a yearly addiction. The report lays out that transmission. What are things that might be important to think about. I will stop there and take questions. Phone orpp on your ipad or computer, submit questions you have. I will start with one myself, the economic report has an annual gdp growth of 2. 9 . The administrations proposed budget depends on the level of growth to shrink deficits Going Forward that without it, deficits increase considerably. How concerned are you about the real possibility of this happening since past productions of gdp growth by the administration have not been realized . In terms of we are pretty close and if you look at the errors we document the of past administrations in terms of forecast errors in the trump lower than any other Administration Since reagan. If you are concerned about errors about forecasting, you should have seen the forecasts in the early part of the expansion. Bit,ve been off a little compared to other administrations, we have been awful lot less. We have been off a lot less. It is important to understand what the differences between what the white house does and cbo and what wall street does. White house ejections are different because projections are different because they include all policies. Law so no newrent Administration Policies get implemented. Bluechip is in between. Between the cbo every administration is always higher than cbo and bluechip because that is the nature of what is being predicted. That is important to keep in mind. Am i worried about the deficit and debt . I am less worried than the current front runner in a democratic dutch in the Democratic Party current front runner in the Democratic Party. Not evenhese policies, feasible to collect that amount of revenue to fund some of the programs they are proposing. Common argument against the tax cut of 2017 was that it was a tax cut for the wealthy and it drove a hole in the debt. Both of those arguments, and there is a lot of evidence suggesting both are not consistent with evidence. End aret one, the lower converging with the upper and of the wealth distribution. Wealthy individuals benefited from the tax cuts but poor individuals grew faster than the wealthy individuals. That it droveect a hole in the debt, if you look at cbos revisions to the revenue forecast due to improved Economic Conditions, that implies the tax cut paid for itself with additional revenue, according to cbos numbers. What has happened is that spending, particularly military spelling military spending because the military was going down the tube and the president has changed that, it is a spending issue as opposed to tax cuts reducing revenues. What we care about is the debt relative to the size of the economy. You might have deficit spending and that ratio shrinking over time if the economy grows fast enough. Believe we have put in place we are putting in place trade , necessary Structural Reforms for future growth to take place. Thank you. In talking about the increase in for lower distribution, last year, this is a question from the audience, last year, 28 out of 50 states raise their minimum wage. How are you able to distinguish wage growth due to this administrations tax cut and deregulation and simply a change in state laws . Some people have incorrectly argued that this bluecollar boom we talk about in governmention is a produced boom in the sense that minimum wages across the country are rising in lot of states. It turns out that is qualitatively correct but quantitatively, it is unimportant. Only about 2 of people among the working age are on minimum wage levels. We have analyzed this and come finding quantitative that this is not a big deal in terms of affecting overall wage growth. Tariffs anda bit to trade, trade uncertainty continues to be Impact Industries with the negotiations of the phase i deal with china but with no certainty on a resolution, how significant of an impact do you think china will have in this next year . Correctirst thing to about our trade policies, a lot of people have because the president was the first to take thereeveryone should be bipartisan support that there was unfair trade practices in china which need to be needed to be renegotiated. The president took that on and with any negotiation, there will be uncertainty as to what that negotiation leads to. That is what i think we have seen in terms of dampening investments. Overall effort clearly will have positive gdp effects. If you think of the longrun return, where there is a longrun benefit compared to any short run issue with renegotiation uncertainty. I think we see that in phase one. The phase one benefits will dominate any turning we have had in the market. Churning we have had in the market. I think people misinterpret the tariffs. These tariffs successfully created leverage for us to when you hear econ 101 discussions, it misses the point of how they have been used to generate a larger rate of return than any potential cause for uncertainty involved in the renegotiations. Four 2020, i think, we are going to get rid of some of that uncertainty coming down and that will be beneficial for investment. The agreements will be in place. The real threat is the coronavirus. We are taking a wait and see approach, to see what will happen before we start looking at the implications of it. Has thethe president safety of the American People as his number one priority. He wants to avoid what happened with the swine flu. We are taking strict measures. The secretary leading our task force, we have put Border Patrol that seems toace be pretty successful so far in terms of combating any impact here. In terms of the Public Health impact on the economy, i think that has been exaggerated. If you look at seasonal , the flu kills 40,000 americans a year. That is a big deal compared to the numbers we are talking about with the corona. You cannot vaccinate against those new strains. Against are vaccinated seasonal flu, you think you are protected from everything but you are not. It is important to keep in mind that we take a huge hit from Infectious Diseases that cannot and thenated against economy is resilient. That does not mean the economic effects from all the shutdowns in china will have will not have an impact here. The question is, how large are those effects. We are taking a wait and see approach. Box of onecked the of our audience questions about the coronavirus. Going back to the Opioid Crisis you mentioned, another audience question were you suggesting that the Affordable Care act had contributed to the Opioid Crisis . Is there something these is claiming are not well intended policies. Most of the opioid issue was a part d issue. It funds disability and disability is associated with a lot of pain and you have Pain Management being important in Medicare Part d relative to medicaid. Any program potentially has this effect. Everyone is on board to fund the medical use of Pain Management. Like i said, medical use of Pain Management is not what is killing people. It is the nonmedical use. How do you slow down the nonmedical use . If you look at the growth of the deaths hasn, opioid declined under trump. Reversing the trend and part of that is the aggressive efforts to try to limit the nonmedical that wereoids undertaken and i think that has been successful. Biguse the market became so on prescription opioids, there was great incentives for illegal innovators. What happens, fentanyl became much more potent and cheaper. If you think about the price of a high, that price went through the floor and that innovation became probable and a huge wantedpool of customers cheaper and Higher Quality product and that is what happened. That is important to keep in mind because a lot of that comes through the mexican border. Heroin comes through and fentanyl comes to this other border and that is 1 the southern border and that is why the president is focused on shutting down the influx of drugs on the border through the wall and ports of entry. Better monitoring the influx of new jobs. From where things stand now, what do you believe is the biggest threat to Economic Growth in the next five years . Senator and you cannot say senator Bernie Sanders. We have a section in the report on the threats for the next five years. We continue to lay out obviously, we are not done. We are working every day to continue this four pillar agenda. That four pillar agenda is essential to ensuring growth. I do think the biggest threat is government policy. That gets reversed and whether it is sanders or any other candidate, in terms of Economic Growth, that is the biggest threat. Thank you. We are out of time. Please join me in thanking the chairman. [applause] thank you for joining us today. Bright and early on the first day of our policy conference, i am pleased to welcome somebody who really needs no introduction. Swagel, he is the director of the cbo. He was formally at u. S. Treasury. He also served as chief of staff and senior economist at the council of economic white house. He was at the imf and the Federal Reserve board. He has been a professor at northwestern, Chicago School of business and the university of maryland. When i look at him i think, did you start when you were 12 . Announce a fun fact for the day, he is a retired baseball coach from bcc high school for the washingtonians in the room. At any rate, join me in giving a warm welcome to phil. [applause] susan. Ks, i will talk about the budget outlook and the economy but i want to start by mentioning that today is the 45th anniversary of the sounding the founding of the cbo. It is hard to think back to when she started this office. No blueprint, no guide. Other countries do not have these independent budget offices that support the parliament or legislature. Separate and distinct from the executive branch. Cbo is her vision and it is incredible how much of that is still the case. Her decision that cbo would be nonpartisan, would put forward analysis but not policy. That is what i tell members and staff and what the rest of my colleagues say, congress will get our analysis. They will not get our opinion. We are there to support them. Because of the way alice started the organization. There is a history page and we have added today a page to the website with a little bit more about alice and some quotes from her in a little bit more on her bio. Take a look at the cbo website for the history and economics and budget. Talk first about the economy and then about the budget situation. I will try to be relatively brief. There is a lot more we could go into and i know people have questions. It will be much more interesting to get your questions. As tom just said, the way we do our Economic Outlook is based on current law. That is what is useful for the congress. We put forward a baseline congress uses that we score against and knowing what the economy is in with the fiscal situation are under current law is important and is the right way to do it. Important to keep this in 2017,think about early the cbo forecast was completed based ond of 2016, current law, and there is an expansion of Government Spending at the end of 2017 so the outcome in 2017 and 2018 was stronger than the cbo forecast and that is not a surprise. That is a good way to start to think about our Economic Outlook. The most notable part of the Economic Outlook is the strong labor market. We expect we see the Unemployment Rate as somewhat below the natural rate and rising backup as the economy slows. Elementsee one clear of a strong labor market. Another one is what is happening with wage growth. I want to focus on wage growth at the bottom. This is the wellknown atlanta fed wage tracker. You can see the top darkest line shows wage growth in the bottom quartile. The atlanta fed doesnt bite quartiles the atlanta fed does it by quartiles. We saw some deceleration of wage growth and it is something we are still looking at to evaluate the economy. Slackquestion is how much is left in the economy and we have to think about that very carefully both what it means to the economy and for revenues and we also have to think about what it means for Monetary Policy. At cbo, we dont tell the fed we do not give them advice. Evaluate what they will do. We are focused on the same questions other people are. How much slack is there . How many people will return to the labor force . There are many causes disability, addiction. Social ills wrapped up together that goat with the same question that go with the same question. What accounts for the millions, tens of millions of people still on the sidelines . That is something we are looking at carefully. The demographics are going against the u. S. We are in an aging society and that has an important effect on her Labor Force Growth. On our Labor Force Growth. We see gdp growth as reasonably good. Growthafter pretty solid in 2018 and 2019, we see gdp economylowing, as the returns back down to potential. That is heavily influenced by demographics. To our view of gdp growth, what is happening here . At the bottom, the dark is Labor Force Growth and a key challenge facing the u. S. Economy is the slowing growth of the labor force. This is why i highlighted the importance of understanding what is happening in the u. S. Labor force when the economy is strong , why are people still on the sidelines . Productivity growth, we all understand is difficult to forecast. What we have here is return to somewhat stronger productivity growth then we have seen in the period since the financial crisis but not as strong as the. As the period before the financial crisis. We try to understand what is happening with productivity growth. It means we have to understand what happens with depreciation and so on. We are looking carefully at that and the cbo has a fantastic macro group, many of whom are here today. We are as a group are looking at this carefully. Very good. This is a conventional view of inflation. Saying that we are the conventional wisdom is a good thing and not a pejorative. That is what we seek to be. Inflation has been running a bit below the fed target and we see inflation rising with a strong labor market and then suddenly down to the 2 target. There are different measures of core and headline inflation. This is a pretty benign view of the economy. Growth slows because of the longterm factors but settles down to the long run rate. The Unemployment Rate rises gently back to the natural rate. Inflation goes over the targets for little bit and then settles down. It is a very benign view. This forecast was completed before the outbreak of the coronavirus in china. It is can imagine, something we are tracking carefully as well. I heard tom talk about it a little bit and i dont have much to add. We are tracking it carefully. Rates, this is our fed funds forecast. I will skip over that just to show you what we have with longerterm Interest Rates. Conventional view of Interest Rates. Interest rates have remained lower over the past several then thee cbo cbo had previously projected and we have taken that on board. I started out as director at the beginning of june and since of june. , beginning that is about one point 8 trillion over the 10year outlook. Those two reductions since ive been director. There has been some additional spending and lower revenues in various places. The fiscal situation is still daunting. The low Interest Rates have mattered. You can see in the chart that we expect Interest Rates to rise and you can see that over the next several years with both longterm and shortterm rates rising. Lower than what cbo previously and it makes a big difference. This is something we are looking carefully at as you would expect. What are the many reasons for low longterm Interest Rates . What are the portents . Why might those Interest Rates go lower or higher and if they go higher, what would that mean . Abouts a good way to talk the budget deficit. Re is a sense in which there is a sense in which it is hard to know what words to use. We are not trained to scare people but we are trying to describe it accurately and honestly. Daunting is the term of art from the cbo. The outlook is daunting. If you want a metaphor, if you go downhill skiing and you go into a slope you have not done before and you are at the top and you are looking down and ok, lets think about this. Maybe there are some good metaphors here. Outlook,udget deficit the cumulative deficit is over 12 million 12 trillion over the next 10 years. Over 4 of gdp. Rates helpsnterest but the primary deficit in the even aslarge that Interest Rates remain as low as they are. We have the conventional reasons why this the challenge. Over time, they will be crowding out. Since we borrow from foreigners, and increasing u. S. Income will flow to foreigners. Creeping, problems arising from the fiscal situation and the more difficult one is the longerterm vulnerability. The stock of debt rises, that makes the u. S. More vulnerable to a situation in which Interest Rates rise. If Interest Rates inflict upward and the debt to gdp ratio is higher, that is a more difficult situation. Hand, i think we all understand that the u. S. Is trusted around the world our economy is trusted and are dollar assets are trusted. At the seen that coronavirus outbreak has become more serious that u. S. Interest rates have responded by going down. That is a sign the u. S. Is still trusted. This is not a crisis. It is a challenge that has to be addressed over time. Known, thetty well gap between spending and revenue. You can see at the bottom that revenue is set to go back above the 50 year average. One thing that is important to keep in mind is that is under current law. At the end of 2025, current law all aspects of our personal income tax system expire and revert to pre2017 law. That is a pretty big impact on revenue. The upper line is spending and you can see that is rising well above the historical experience and set to continue. Elementsee just the that are going to change on the revenue side over the next 10 years and the top line is the tax revenues. Same thing, looking at the same view looking at the view of the same thing. Since that tax act was enacted, the cbo has been tracking the impact of the tax act on the economy both on output and the fiscal situation and in our most recent update published at the end of january, we revised down our projections for Corporate Income tax over the next 10 years. We did it for a variety of interest of the time i will not go through but more explanation on the cbo website. I am happy to talk about it if anyone has a question. You can see that outlays are set discretionary out lies outlays are predicted projected to decline. This is just a mechanical calculation. The cbo projects out Discretionary Spending from current law. We project it out at the rate of inflation. Mechanically, Discretionary Spending is set to decline. Outlaysottom, interest are set to rise reflected the largest stock of debt and rising Interest Rates. The combination of those two. The real challenge on the spending side is mandatory spending. What is happening on the mandatory spending side, it is a combination of two main factors. One is the aging of the growth of and excess the health care costs. Affect lots of pieces of the federal government. Outlays are set to rise. Next coupleer the of decades. Social security will be relatively stable. The wrong direction from the fiscal point of view. Sometimes, the fiscal outlook and the societal outlook dont go in the same direction. At cbo, we pay careful attention to demographic factors and the fertility rate in the u. S. Has gone down. A variety of reasons, economic and social, but teenagers are having fewer babies which i expect most people would is socially a good thing. We have to remind ourselves sometimes the budget blinders can do this. Line, you can see what is going on with medicare. Medicare spending is set to rise considerably. This is a chart with a lot of lines but it is a simple message. The nature of our government is changing and is set to change further over the ensuing decade. You can see that if you go vertically down the page, you can see at the top left, Social Security spending has been rising and Health Care Spending has been doing the same. Spending has been shrinking. You see defense spending and nondefense spending. On the tax side, you can see some changes as well. Individual income tax went down and back up. Corporate income tax shrinking as a share of revenue. The real change is on the spending side. This is my last slide. The kicker, i think it is called, wheres the debt going. It is going to to an unprecedented place. 180 to gdp. Its daunting. Which a sense in this is under current law. The 2017 tax cut, there is a change in the law and the 2017 tax act is extended or other things, it would be larger than this. At the end of 2019, the Appropriations Bills at the end of the year changed certain laws, including repeal of certain taxes on the health care side, the cadillac tax, for example had never gone into effect. Law sostill in current it was still in our outlook. Repealing that one tax provision had a large impact way out into threshold because the for the tax was set in nominal dollars. Becomeme, it was set to never took hold but repealing it had a big impact on the debt situation. Face. S the challenge we we have this unusual situation of a strong labor market, steady growth, a pretty benign outlook yet why deficits that are set to aider and eight deficit debt situation going up to historical levels. Thank you very much. [applause] i will leave that there. You, feel free to present questions. I will get them up here if you submit them. I will start with a few of my own questions. When you were appointed last year, many of the economists in the Previous Administration were very congratulatory. Economists wrote on twitter, you are a smart serious economist willing to confront hard truths. I will ask you about some of those hard truths. I did not supply these talking points, by the way. This this chart says it all. What i gleaned from your presentation is that we are looking, if i eyeball this, by 2030 we have as much debt to gdp as we did in world war ii, which is phenomenal. Given that we are not in a war yet. In there are a couple things what you said that really worry me. One is that you have rising debt interest payments, but you had reductions in what longterm Interest Rates are. There is some potential, we can argue about if we are in a world of secular stagnation or not but there is potential for rates to be higher. We have baked in the fact that congress would let the 2017 tax personal taxd rates would rise. Mark in myquestion mind. This could look a lot worse. I know you are just projecting out current policy, but if you set that aside, you are an academic, you have done lots of work on this. What would be your recipe for controlling this exploding debt situation and very large deficit . Very good. Challenge, it is so take ahat it is going to societal effort. This is not something that is a few little tweaks. If it were a few little tweaks it would be easy, we would have done it. So that is the challenge, thinking about how do we as a society face up to this, the fiscal challenge . Fortunately, we dont need to do it quickly. It is not like tomorrow, things are going to be a problem. We can see that by Interest Rates. We look at what is happening in markets and we see the Interest Rates remain low. That is a good thing. The other good thing is, supplies, as a nation we have the ability to use fiscal policy if the congress and the president decide that is useful. For whatever purposes, whether it is on the spending side or the revenue side. Forwardt going to put our plan, we are going to do the analysis and make sure the math is right for whatever proposals come from the congress. Let me add one more thing. The challenge, the other challenge is the generational one, the longer we wait, that means some generations dont their their share of the burden of adjustment. It is not just that we are putting the burden on our children, which is true but it means the current generations are not sharing in the burden of adjustment. As,mention world war ii that is spot on. The generation that fought in world war ii also paid for it. They paid for it in human life, but they paid for it financially as well. You can see that from the debt chart. The longer we wait, that means are avoidingoday their share of the burden. That brings us to how we pay for some of these mandatory programs like Social Security and medicare and so on. It payasyougo system . Other countries have chosen different paths. We now have this demographic deficit that we are facing instead of boom. What do you think about Current System . Is there any potential for shifting away from the system . So there are proposals that have been put forward. Senator enzi is the chairman of the Senate Budget committee and this cbo works through the house budget committee, chaired by chairman John Yarmouth from kentucky, and on the senate side , the senator from wyoming. The senators have put forth a bipartisan proposal for budget reform and it is very interesting. It is worth careful scrutiny. Doesnt have a view about what the right budget process is because we will follow the process and follow whatever Congress Says it is. One challenge i should note is, on the pay go side, there is a protect a sense that pay go would be a step in the direction of this color adjustment as opposed to not paying for new spending or a lower revenue. But there is a sense in which it makes adjustment more difficult because anything that is paid for is not available to deal with the existing imbalance. It is like the low hanging fruit is being taken away by pay go. Pay go is a step, but sometimes it is not a solution. It in a sense makes the adjustment more difficult. A couple questions about your projection, your reduced project projection for corporate revenue. You mentioned we might see more of it. What is coming from, why has that been less than what we thought . Can i dial back on the slide . If whoevers controlling the slides could find the slide, very good. It is the page that says the corporate, there are four bullet points on the Corporate Income tax. Rewind a little further. It is on our website. There are four main reasons. One is the data change, so the past is not what we thought it was. The bureau of economic analysis, which does excellent work tracking the economy, revised , theystory of the split split the income between corporate earnings on the one hand and labor income on the other hand. We have the data on tax collections, and it looks like Corporate Tax revenue was lower than what would have been expected given where corporate profits were. Profits on corporate was revised lower. That result a little bit of the mystery resolved a little bit of the mystery. We had some additional modeling work we did on the effect of, the research and experimentation , the tax treatment of research and experimentation, what did that due to revenues . That affected our projection. Then there were changes in regulation that affected the international effects of the 2017 tax act. We dont interpret the regulations, we just observe the impact of the regulations on taxpayers, in this case Corporate Taxpayers. We are looking at behavior and the behavior is twofold. One was, corporations repatriated their profits from overseas faster than we had our april 2018 analysis of the december 2017 tax act. That is one. The second is, the revenue is lower. It is faster, but lower than had been anticipated. So we have baked that into our projection. It is a combination of those things. I will recap since i dont have the slide. Modeling, it is quicker than expected repatriation and the behavior of to thers in response changes in the economy and changes in regulation since the enactment of the tax law. What about the impact of tariffs . Does that explain the reduction in corporate profits . We dont connect, we dont make that connection directly but we do follow tariffs very carefully. We have an excellent analyst to does this, so we look at this as, what is the effect of each line item on tariffs on the u. S. , then we go from prices to quantities and output. It has a meaningful impact. We calculate that the higher tariffs put in place since 2018 is having an effect that 1277 per household this year, in 2019 but still, you get the point. Fors a meaningful amount each household. We also recognize that the tariffs, what is going on am a trade side is probably having an impact on Business Investments beyond the direct impact on households. If we were to get further rounds of trade deals with china, we have had phase one, if we were to roll it all back to that we work, im not sure is realistic but if we were, what impact would it have on our growth projections . Positive, thats for sure. Success on the trade side, the administrations trade agenda would be a positive for the economy. It is hard to know exactly how much and how quickly. Of course, we would worry about the lingering impact of uncertainty on Business Investments. We still have that, even as, since some of the effects have fallen away, we still worry there is a lingering impact on investment. It would be a positive, but not enough to change the fiscal outlook. So there is a question here about a vat tax. In the february 2020 Economic Outlook survey by nabe members come other was concern about the deficit, the size of the deficit. Where economists, after all. Somebody asked about vat tax. Is that part of the solution for reducing the deficit and debt, and if it were, is it politically feasible . Alices runs into the way set us up. We would provide analysis of that at cbo. If that was proposed or enacted, the cbo working together with our colleagues at the joint committee on taxation would analyze it. The jcp is in charge of tax policy. We would look at the effect of the economy. We are set up to look at the static effects and the dynamic effects and cbo has done some very nice work looking at the dynamic effects of legislation on the economy. Immigration reform was front and center on the agenda, and cbo did id. Amick score of inflation. A dynamic score of inflation. It would be weird not to do an analysis to assume the economy is static. We are set up to do that and we would point out the positives of the vat proposal and any offsets, anything on the other side. We just wouldnt give our opinion of it. Ok. We would analyze it in full. Maybe i am repeating myself but that is our job. It is to say, here are the positives, here of the negatives. But it is not even the positives and negatives, positives and negatives from a congressional point of view. We are the positive economics and members have to do the themselves. Alysis what about productivity . In one of the charts you showed, you had productivity growth, we know the Labor Force Growth is falling but productivity growth,ou had in the 2024 period rising to 1. 5. Where is the productivity growth coming from would be my first question, then the immediate followup is, what could we be doing to get back to where we were in the 1990s and foster positive productivity or even faster productivity growth . That is surprising to me because we have had deregulation, so i would love your thoughts. I know this is something mgi has done a lot of work on. Too. L plug that work here, there are lots of Different Things that feed into productivity growth. Part of it is on the capital side. We see the december 2017 tax act as boosting the overall economy, and boosting Capital Formation, investing in Capital Formation in particular. We saws a sense in which that initial response, the first half of 2018, investing picked up. Since the middle of 2018 it has been more difficult to disentangle the positive impact of the tax act from what seems to be the negative impact on investment in Capital Formation of the trade policy. The lowerxpect that taxes on capital income would continue to support further in capital accumulation, and that would improve labor productivity. That is one. Changes in regulation what affect productivity, as well. There are other things i could go into, but to answer quickly , as on the policy side economists we know it is difficult to know, what are the levers that boost productivity growth . We know some things that are probably going in the direction of not boosting it. The cbo recently put out a report that goes through different categories of federal investment. That is one. An increase in the labor force would boost Capital Formation coming fromvity Capital Formation, as well. If we have more people, that means the marginal return of having more capital is higher. That is a letter, as well. There is a question about what lessons should we be drawing from the experience of japan with large deficits and debt . If you are not a student of japan, japanese economists i am not an expert but i have followed. In terms of, there is a variety of lessons. One is the impact of demographics. The demographic challenge that we face, while we are well behind them, that is putting a devoutly, they are way ahead of us in facing the demographic challenge. That has an impact on growth in japan. That is a lesson that i think we can learn from the experience of japan, an important one. On the other hand, their fiscal situation is different. The debt to gdp level is higher, but japan funds itself primarily from domestic savings. It is not clear that that is the most apt lesson for the u. S. If anything, i think of one of the potential challenges that we to ourth respect Interest Rates comes from this distinction, that since we have a considerable part of our debt funded from inflows of capital, wereose inflows of capital to reverse, that would be expected to have a meaningful impact in raising Interest Rates. That could happen for different reasons. It doesnt have to be in the middle of a crisis, it could just be as the rest of the world ages, people in other countries just want their money. It is a lifecycle hypothesis, as you age you start saving. Other societies will just want to bring back the resources to fund consumption in their countries and that could pose a challenge to our Interest Rates and fiscal situation. Which brings us to another source of funding for our Government Debt is actually the Federal Reserve area there is a question here, could should we be focusing on debt as a percentage of gdp or debt as a percentage of gdp held by the public, not by the Federal Reserve, which has a larger Balance Sheet than we saw 10 years ago . Next we do look carefully at the operations of the Federal Reserve. ,or purely fiscal reasons profit and those remittances have been higher since the financial crisis. That is something we track carefully. We have work on our website that goes through that in detail. Debt held by the public to avoid the internal operations within the u. S. Government. That is, debt held by the public is the best measure of the fiscal situation, the nature of the challenge. I guess the last question here is really about potential gdp. We talked about productivity. Is that highly related . What else could we do to raise potential gdp . 2 growth is not bad but actually, given the fiscal stimulative nature of our current stance, it is surprisingly low. What should the u. S. Be focusing on . Or with the next congress after the next election, what should they focus on to raise potential gdp . That is the right question to and on. It is intrinsically a longterm challenge, and maybe this is, i dont know, the academic, the instructor, i think back to the solow model and the production function as well as all of us do every day, right you go right . So many macroeconomy macroeconomists here. Output is a faction of productivity. Stock, orur capital labor force, then productivity likely to be all aspects of that changing. We have the ability to change our Labor Force Growth. Cbo just put out a fourpage report, it is graphics heavy so it is sort of a new report them cbo from cbo and we put it on immigration. Who are the immigrants in the u. S. And what is their role in the economy . Immigrants are an increasingly large share of the u. S. Population growth. All of u. S. O become population growth in the future. We have that lever that, people want to come to the u. S. And maybe this is the right way to best vote ofthe confidence in the u. S. Economy is that people want to come here. Supportly, that would stronger growth. Great. Thank you very much for your time today. [applause] thank you. [captions Copyright National cable satellite corp. 2020] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] good morning, everyone. Thanks for being here. I think we have kicked off our, this years policy conference 2020 vision examining policy prescriptions in election year, severalard from speakers and now we are about to move into a discussion on fiscal policy and growing fiscal imbalances, both global and domestic, and we have a terrific panel for you. I want to thank the pt Peterson Institute for its tireless focus on these issues, and for their over these years and for this section in particular. We appreciate your partnership very much. I will hand it over to jeff holland, the Vice President for research at the pt Peterson Foundation emma to moderate the session. Thank you, jeff. [applause] thank you all. Thanks for having us. On behalf of the Peterson Foundation come i want to say how happy we are to sponsor this event am especially given the great fiscal policy agenda topics we have, including this one on global fiscal policy perspectives. We have a panel of distinguished economists who will be talking about this issue. I will introduce them first. They will be giving a five minute set of remarks or so to get us started. A reminder, send your questions in. I have the ipad now so i will be taking your questions during the session. The economic counselor and director of the Research Department at the International Monetary fund. She is currently on leave of Public Service from Harvard Universitys economics department, where she is the professor of International Studies and economics. Focuses onh International Finance and macroeconomics. She has been published in many top economics journals. She has authored Numerous Research articles on Exchange Rates, trade and investment, International Financial crises, Monetary Policy, debt and emergingmarket crises richie is the coeditor of the handbook of international economics. She was the coeditor of the American Economic review and managing editor of the review of economic studies. She previously served as the codirector of the International Financial Macroeconomics Program visiting and was a scholar and member of the Advisory Panel of the Federal Reserve bank of new york. From 201620162018 she was Economic Advisor to the chief minister in india. She was a member of the eminent persons policy group on g20 matters for indias ministry of finance. Her phd ineived economics from Princeton University in 2001 after earning the from a college and university of washington. Our second panelist is the professor of practice at the mccourts school of Public Policy at georgetown university. He has more than 25 years of Public Service, recently as director of the congressional budget office. Prior to that he was chief economist and director of economics at the International Trade commission and before that, he was a Senior Research fellow at george mason university, the commissioner of the bureau of labor statistics, chief economist for the white house consul of economic advisers, chief economist for the department of commerce, Senior International economist for the r i t c, assistant professor at university of arkansas, and an International Economist at the department of the treasury. He worked on a variety of topics including labor Market Analysis , Economic Conditions and measurement, macroeconomic analysis, Forecasting International economics and policy, and computational modeling. Equilibrium he earned his phd in economics from purdue university. Let me turn it over to you for your introductory report. Thank you. This is a real pleasure. Ok, lets try this again. It is a real pleasure to be here. The session is about fiscal makey and i would like to three points and keep them short. The first point is clearly, when we are thinking about how to ,eal with the next downturn what role should fiscal policy play . 2019, 2020 we saw Monetary Policy step in with 49 Central Banks almost synchronously cutting Interest Rates. That certainly helped support the Global Economy. Our estimate is that it contributed about half a percentage point growth in 2019 and will contribute half a percentage point in 2020. The fiscal policy, on the other hand, was more unevenly used, but that said, it was used in important Major Economies and the Global Economy got a boost from it. I think it is fair to say that many see the Monetary Policy , and having shrunk especially conventional monetary space having shrunk, and in some areas, japan and the u. S. The question is, what happens the next time around when there is a downturn . Here is where there is increasing agreement that fiscal policy will have to play a bigger role. Point, how does fiscal policy play a bigger role . There are two different areas in which fiscal policy is being viewed as having a bigger role to play. One is of course, in terms of doing something now for countries that have the fiscal space, which is raise potential growth, deal with the risks from climate change, and being able to spend on infrastructure, public, physical, social infrastructure, climate infrastructure, and given the alignment of low Interest Rates, low Debt Service Costs come a countries that have the fiscal space could certainly use that. There is also the need to think a more cyclical fiscal policy for the next time around. What does that mean . They have been rulesbased, if you have the sense that things are going aground, there will be Interest Rate that. Fiscal policy tends to be more discretionary and it is usually after the fact. There are automatic stabilizers in place, but i think now we are inclined to think more strongly about how to improve these automatic stabilizers. For instance, if there is another downturn and Unemployment Rates go up, that should trigger fiscal spending more quickly. You could cover a larger portion of the population. There are more liquidity constraints. These policies have to be thought of now. The third point, looking more is a problem of public debt, high levels of public debt in major parts of the world. There are developing economies, low income developing economies that have high levels of debt stress. Their economies are under debt stress. It is time now for them to consolidate through both revenue measures and expenditure measures, because otherwise, if and when Interest Rates will find, they themselves in a difficult situation where they would have to cut back on very essential social spending. I want to stop there for my three points. Thanks, gita. Thanks for inviting me here. Talking about u. S. Fiscal policy, i will start with the simple observation, 1 trillion is a lot of money. 14 trillion is a lot of money. Terms ofare now is, in fiscal policy, is really unprecedented. We have had the longest expansion in u. S. History, and we are still running deficit, a deficit of 1 trillion per year and next year and the year after. Hat things are unprecedented in a lot of ways. This longn to expansion, we have had lowerthanexpected Interest Rates. We have had inflation under control. These are all in usual things. It is all uncharted territory. So if you are looking forward, i dont believe we have licked recessions. We are going to have another recession at some point. We are starting from a position where we have never been. I understand the idea if you talk about fiscal policy to complement it, i think that notion is, at e least in the United States, there is an infinite amount of that. Space for you dont have to worry about a zero lower y of the boundary in the United States. That may be true. Think in terms of our fiscal policy well be very run oriented. Going think were ever to, i dont think were ever another go without recession. I dont think Interest Rates forever. Y low right now the debt is looking its there forever. Borrow this well back, you nt pay it get out 30 years or more. There to pay ace that trillion dollars back. The thing i worry about is policy, medium term and long term. We need to think about that more than we have. Not talking about drastically changing things, but im talking about having a plan it, having a o plan and dealing with the fiscal policy in the medium term and long term. I think its really important, i think were just being very shortsided on this. Always uncomfortable with the idea that were in such territory. D i hope you are, too. Territory. Rtered so i think if were going to talk about fiscal policy for the i think a couple of things are important. I like the idea of automatic stabilizers. I dont know that were very good at conducting fiscal policy sense. Scretionary i think were pretty bad at it, as a matter of fact. If youre going to have stabilizers, they need to be symmetric. Provide stimulus and you need to do the other direction, you need to pay back debt. E cant just make it the constant ratcheting debt over time. E seem to have forgotten what used to be a real mantra a while ago. Fiscal policy needs to be timely, targeted and temporary. I dont think we should get away from that. Thanks, keith, since we are talking about u. S. Fiscal policy all morning, lets start right there for right now. With you, so in the i. M. F. Log that you had written you had suggested that the unsustainable debt consolidate eed to including through effective revenue mobilization, does the fall into this category . So a couple of things, the has with the world the other countries have in dealing with these kinds of said, what we hat have flagged is that if you look the immediate terms of the u. S. , structural deficits of 3. 75 of gdp. An environment with Interest Rates low, these kind a deficits to stay on persistent basis, that would debt an increasing trajectory. Our recommendation is considering, considering what them, the medium term perspective it is important for have a goal where a stabilized or is on a declining path. That would require three sets of measures. One is mobilization revenue. Can see that happening through a carbon tax, an increase in the federal gas tax also talked about consumption taxes, federal taxes. Ption the second is by reducing the services. Ealth he u. S. Spends more than most countries do or maybe all on Health Services with not as good health outcomes. There are clearly defish ens is system. You can use technology to efficiency. More systems to make sure there s more cost sharing with beneficiaries and better methods of remunerating healthcare and moving away from ind of per procedurebased remuneration. Thats a second area where more and the third e is on pensions. Pensions building up, we can see an argument for why you want to front load the increased retirement age that is being planned. Are f these measures important, of course, i started u. S. Has it the along the way, but when things flight to re is a u. S. Treasuries and that helps, but one has to keep in mind is this kind of public spending is also crowdings out proucketive forms of public spending which some on Public Infrastructure in which there is for it. Ed thanks. Get is a question i dont to ask very often. To be rmer c. B. O. S, nice able to question c. B. O. Directors, we just heard about current outlook for the budget and for the economy. Youre no longer bound do youg c. B. O. Director, have anything to add or maybe to follow up on things phil asnt able to say as the current director. Ill start with a trillion money. S is a lot of we have been running, were at a weve n this cycle where been near or probably potential dp and we still have a ton of stimulus out there. A hink we undersell probably little bit of how far the United States budget is. Run a deficit of a trillion this year, we talk 4 gdp. That makes it seem smaller than it really is. An uld like to make observation. 130 lso that spending is of tax revenue this year. Were off by 30 . And in terms of the process, ight, every year we have an annual budget that deals asically with Discretionary Spending only. Discretionary spending is 30 of all federal spending. If you sat down and did a little we know this year, we know pretty much what tax revenues are going to be, thats to forecast. We know what mandatory spending longtime o be, commitments. Debt we got. Uch if you take out mandatory spending and interest, were with under 400 billion eft to spend on Discretionary Spending. We then spend 1. 4 trillion in discretionary. That is 3 1 2, four times the money we had for discretionary out of that process. Close. Not even and it also points out one of the problems, this focus on spending, at some point, there is going to be some crowding out. If your mandatory spending is your to be so strong, interests costs are so strong, you recognize that your iscretionary spending is not going to be much of your solution. You are not able to cut that much and youre not going to it. Rease all of the talk about Infrastructure Investment and et Discretionary Spending. We dont have much for that i in terms eed to think of a plan, a plan and stick to year you look at the budget deficit, you look at this track of debt and you have a you try to make progress on this. Its the responsible thing to do, i feel like were being really short run oriented and right now. Sponsible thanks, keith. In of you have mentioned deficits already and in the 980s and 1990s, there was a consensus that the growing and it was a Threat Congress did steps to address that. The aftermath in the Great Recession, there have been disagreements about the budget ce of federal deficit and the dangers presented by it. Simply print money or borrow to deal with the deficit . Of dangers would be involved with doing that, to you. Of sure. This actually goes back before financial crisis, the mportant trends that are effecting the debt and the Interest Rates and the economy to the 1990s and we start from the period where see real Interest Rates almost across the global conomy declining over time, its before the Global Financial one was just after the crisis in a bunch of emerging in early 1990s, there a huge appetite for the socalled bernanke savings glut nd that glut brought Interest Rates down. There was the phenomenon of reducing the hics verall demand for investments, increasing demand for savings, Interest Rates. Some point increasing lack of demand a in the Global Economy. Those trends that think are the most salient features when at debt levels today and fiscal policies today, they have a different view of what it 1980s when real Interest Rates were very high. Of course, that doesnt mean one moves to a scenario assumption is that and you can s onetize deficits inchris indiscriminately. Inflation has stayed low despite of the buildup in debt that of international ndependence, the space between fiscal policy and Monetary Policy. If that were to be taken away nd we move to a new regime where all of that would be a clearly different paradigm and it would be wrong to assume that Interest Rates where they are. Now, i dont think thats a esson to be learned, but in terms of why people are, you know, are having a little bit of take on fiscal policy is the long term trends on what is happening with demographics, with the demand for safe assets. We do have you been of the levels of public debt in the world, its also at a time rates are really low. Market policy pulling it, its the other way around. Ts these trends that are pushing Interest Rates down and monetary policies are following. Keith, what are your feelings on this . Sure, the ideal of fiscal is not clear to me, especially for a country like the United States. Fiscalably have a lot of space, probably always had a lot of fiscal space, but fiscal run, im going t back to my theme, a short run run s long run, is a short thing. Straight fed four on an saying the debt is unsustainable trend. Not a short hats run problem thats being described, at least for me, its long run problem. You look 30 years down the road at least under current law, 180 of gdp. Doesnt scare you, 200 plus probably wont scare you either. Its a rrent policy, much higher number. Interest rates are low now, are to be low in 30 years ecause you dont have, you dont have to have higher Interest Rates or high interest ates to have debt get to a really high level as the decades roll by. High, low to get Interest Rates, its going to get high. In that accepts its always been still is an issue. One of the things that i get bit is the a little talk of, well, we have more fiscal space. I dont want to tell that they dont have to worry about deficits and ebt because deficits and debt are a long run, maybe a medium were blem and i think just encouraging the wrong sort of behavior, to be honest, for not to think of this as something that is a real issue. Lets look at the worldwide situation now. N that january 20 blog, given historic low Interest Rates and growth, they should enlist in infrastructure. Can you give some examples . The examples of countries germany, australia, countriesa, these are that are taking steps, you do more em planning for spending and in the case of korea, an amount of it. Countries that we think of fiscal space. Debtu look at germany, the overtime, its declining. Germany like several advanced economies are no productivity growth, no potential growth and borrow at they can negative rates at this point in cost i think from a pure benefit analysis, nothing kanzan bout this, you could make an argument this would be the time given that you have decided to, if you have to make these and youre going to output and your long run growth, now would be the use your fiscal space to improving ssues like physical infrastructure, digital infrascrawr, means mitigation and it that this is a good step in this direction. Make, therewe would are countries that have fiscal they and regardless where are in the cycle, especially run output g long rowth, they should be using, seizing the opportunity to do so. In other countries, do you what countries generate sort of the most concern . I mentioned in the several there are in s es, several africa with large levels of debt. And south africa have large fiscal deficits, they have it. Eal with he debt would be in an unsustainable economies. We have high level of debt and ow Interest Rates, that is concentrated to a fair bit on economies. When you look at the other economies, they are facing high rates. St they tend to borrow internationally in foreign currency. Are countries that will have to consolidate now and environment now where Interest Rates are low sufficie here is liquidity in the Global Economy, you have a risk a scenario where Interest Rates go up and you will be in deep trouble. Keith, i saw you write something down. Do you have something you want about . All right, then three months ago n september, wall street journal had an article that higher debt might be leading to lower Interest Rates and said borrowing helped poor recession, t of the it made it harder for policy rates. To raise they were likely to pull back on spending money on new goods when Economic Conditions weaken. Number ofappened in a ountries, so, keith, do you have any comment on what you . Hink might be happening the high level of debt keeps rates low. Im going to appeal to normal times, not now. Not normal times. Under normal times in the united tates, higher levels of debt are associated with higher Interest Rates and slower growth. Were going tonk be where we are forever, i think were going to go back to more times and so i think that this relationship is exactly the to think we need about higher debt being interest with higher rates and crowning out and slower growth. That . T do you think of several people think that this might be the new normal. It is, but ng that whole something to, the sense that were low for long and low forever, i agree with that seems unlikely and not really good for the Global Economy. Could be a new normal at least for a little bit. O the question of, its odd that we live in a world where debt is high and real Interest Rates are low. To me, just some basic supply world and, if we have a where debts are high and real Interest Rates are low, it tells demand for holding that debt far exceeds the supply. Can afford to have higher levels of debt and still low Interest Rates. Comes back to the point i made earlier which is this phenomenon here of low interest a reflection of these trends. It is a reflection of the demand savings, a demand coming coming ng demographics, from demand for safe assets, inequality, its for savings that is generating environment where being the debt that is put out there, real interest low. S are now for the second place to wit when the fact financial crisis hit and you had households with large amounts of debt, that was an environment where hundreds of companies were that led to a d drop in demand and, of course, that also leads to lower real Interest Rates. Can have a situation where especially if you have firms borrowing at floating rates, if there was a sudden increase in real Interest Rates, of course that would have big consequences for the economy. But again, the argument again, i just wanted to straighten out which is that bit thats Monetary Policy just setting Interest Rates, rates regardless of what the are. Mentals of the economy this is an environment when rates banks are raising in 2018 and then realizes the lower rate was much which means the level of demand in the economy was low enough that would reduce Economic Activities as the rates were the too high to sustain level of demand that was needed. And so, again, with these trends, the question is how do those underlying another ange, thats discussion. How are we going to get out of his socalled liquidity trap and socalled potential growth and secondly, of course, if we going into policies where we completely disregard the talk about nd monetizing debt, of course, thats a completely different scenario. It up, you brought had spoken at the World Economic liquidity this, the trap this country might be in. Do you want to summarize a little bit of what that discussion was about . Yes, its just a reflection f the fact that the level of demand is such or the level of for cashlike assets is so high, even with very low you want to hold those things as opposed to invest. We have seen that throughout the world. Investment is quite weak. Now that is a reflection of many features, one of course is the that was nomy, important, but its also the fact that productivity growth is weak. If the question now is where, ow are we going to get this increase in productivity growth, thats the Million Dollar question that nobody has a great to. Er there is one possibility that ll of the innovation that is happening with Artificial Intelligence and all of the new innovations that are happening that are going to lead productivity, they tend to lag in that. Thats one possibility. Of course that if there were to be more of an distribution, that raise, ise demand and that would also raise real rates in also raise investment product activity. Be a way to raise rates. Policy rates will stay quite low. Mentioned focus on the future a number of times. We go into recession again, what sorts of policies would we expect to see in response to that . First, i just remind all that, the last recession we went with a debt of about 35 at the time was considered high. In five years it doubles. Its 70 of gdp. Were starting at a high level. That fiscal ic policy can be complimentary to onetary policy and can help out, but again i go with this idea that the more we make is were ic, i dont think very good at discretionary fiscal policy. The more we can make it and the more we can make a plan on reducing it once really ne i think is important. Part of the problem, i think, short term e thinking. A lot of the challenges the faces are not shortterm challenges, not how or how e our expansion to deal with the recession. We have some long run issues, slower Economic Growth. We got to get used to the idea tot our labor force is going grow a half a percent a year and. 3 of a n to maybe percent a year. Ere talking about 2 Economic Growth Going Forward with this debt hanging over your head forward. Thats sort of my real concern. In fiscal policy are real in the short term in recession. H the and to the degree that feel constrained with that could be an issue forward. Putting recession aside, the pressure that we face with the rising healthcare cost, what sorts of solutions do see to the fiscal situation that were actually in right now . We need a plan. Think we need a plan, we need to think about it. Now is not the right time to the deficit, then when is . One of the things we havent absolutelyt which is true is going out 30 years, we got this huge accumulation of where thats good for the economy or not, in 30 years debt. Have huge at some point that has to be paid off, all right. Off by you and i r are we now pushing a debt inheritance to future have to deal o with this. They have to deal with paying population, paying for the aging population and debt for the existing Going Forward. I think thats a really this. Ated part of its an intergeneration transfer that is going on. That e to be honest about going for. There is a session tomorrow, we can preview, maybe talk about that a bit ourselves. O, what do you think is the implications of income inequality on the fiscal and here in the ation u. S. As well as worldwide . Find the question more interesting the other way, what is the implication of inequality andor come back to the other direction, too. I think what we have to ecognize is that if you look about a economies, third, to explain, if you want explain distribution of income and you want to look at inequal is, how of t a third in reduction taxes and comes from ransfers practice you get a significant evening out of the e or across distribution. Point, its tical on incomes and inequality and disposable income. True for emerging taxes, so there is a challenge there. You can see that this is important. The second is that fiscal policy provides a huge role in equal access to ducation, healthcare, Public Transportation and so, again, you can again, you can see this is the impact. It is important for raising in theivity and growth long run, something we talked about earlier, which is just increasing the economy. On the other way around, going from, what does it mean to go inequality to fiscal policy . Of course one is, of course, if there is a highly unequal we know that that has consequences for economic activity. Theres not sufficient demand, low economic tax revenue collected are lower. That has a direct impact. But in addition to that, i think also important to note that it is very important to make that the, you know, that very wealthy also pay their taxes, the taxes theyre supposed to pay. Theyre already in the system. Importantat is an piece. For instance, in the u. S. , you interest carried provision whereby youre going Equity Managers thats a really lowlying fruit that one would need to close. Important in is terms of international taxation, shifting ix mean, all of these pieces, one has to pay close attention to. Keith, how about your thoughts . I dont have much to say about income inequality. Issue andits been an is growing as an issue. The only thing ill point out is to have the fiscal ability to deal with that, if with that. Deal and if youre at good times, up a huge deficit and debt, then its going to prohibit at some point your ability to do that. Politicaleres a economy tradeoff, about doing more with government but running up debt. Have to think about a bit. One more question. It to the turn audience questions. A keith, now that youre in university setting, how will the generation of younger americans, justre in college, entering the workforce, be affected by the inability to our fiscal challenges . One of the things thats obvious even right now is most the federal government does is for people who are older. Spend we dont spend much money on people who are in prime working age in the United States. We just dont. And whats going to happen Going Forward, of course, is the burden on the young is going to get higher and higher. A big part of their burden is care of thetaking old and taking care of the old debt, Going Forward. I always find it interesting to look at federal outlays by category, you know, what were they in the 60s, in the 70s, are they now . What are they going to look like 30 years from now . Going tofrom now, its be really heavily targeted security, health care, some of those things. And so i think thats an issue what do youg, is want your government to do . Well, were locking in what the government can do right now. So did you have any thought to engage can be done younger americans or people across the world in general fiscal issues . I just also want to follow up on what keith said. Agree with many parts of it. Of course, when you think about think of aficit, you debt and what it implies for future generations, i think difference important fiscal medium consolidation, which is clearly important. Second, the fact that its not of expenditure but also where youre spending matters. Y that and it is important that the spending happens to provide access to opportunity and that really matters, especially for have people, and you can the same level of deficit. You can have a lower level of better but just be much at spending it, and that also raises potential growth. So i think thats important to mind. N now, reaching out to younger thate, this is something we do on a daily basis at the i. M. F. Know, we have engageof events where we with the very young people, with, you know, unions, with the private sector, with all kinds society. S of civil this past week, i was in south africa, in kenya, two countries are dealing with high levels of fiscal deficit. We talked a lot about it. Were out there. Were also media savvy, using all theedia and possible tools out there. So were doing a lot. Do you think the message is getting across . I dont know what message is getting their message is getting across. Think there is a lot to think about. And not a simple black white scenario at this point. Were living at a time where is very high, Interest Rates are very low. These interesting questions that are coming up of i mean, this is important us to continue to engage with them and, again, to make some of the points that we made, the difference between what you do when youre in over the medium to long run. Lets turn to some audience questions. Preview of ar session thats coming later today. So Stephanie Kelton will discuss mmt later. If Bernie Sanders wins, kelton well be secretary. Are you aboutble mmt becoming the de facto u. S. Policy . One who wants to answer it. Ok. I guess i did speak about it indirectly, which is the way that the assumption canrlying mmt is that one monetize fiscal spending, fiscal and as long as theres no inflation, and given that and so there is losing, youeople know, a run on u. S. Debt, then winwin. Like this is a of course, this argument lies on there will be no inflation and no run on u. S. Debt. I think what we have to keep in mind, the environment we are in now, with low inflation and projected in low inflation, is one of several Bank Independence. It is one where Central Banks have their mandate, which is on inflation and on output. Monetizingut Government Spending. Now, if that were to change, assumptionurse, the that there will be no inflation and there will be no run on u. S. Debt, it just becomes very hard to maintain. So thats a sense in which i mean, i believe that there that there is countries do have budget constraints. That is very much the case that spend moregoing to now, that at some point in the future, you will have to repay not with real resources, just printing money. And i mean, i dont think the environment we are in should be assumed to last forever regardless of how we change the institutional infrastructure. So, keith, is it possible if we took this approach, that fiscal policy would be restore to step in and the balance . Well, one of the issues with the idea of monetizing debt, it doesnt go away. Right . Its still there. These forecasts for a huge debt is with high Interest Rates, low Interest Rates. Theyre really high Going Forward. You have to believe that inflation is never going to be an issue. You have to believe that the somehow is going to solve things. Discretionary fiscal policy in the United States is not very good. Term thinking very short with it. I think what its missing is longer term thinking with it. Issues withy monetary theory is ive tried to look at it. A theory. Its a bunch of observations. Its not very complete. And its a bunch of observations, then drawing seem toons that all relate to inflation will never be a problem again. To remember when there actually was inflation. Just overall, my whole message were running a high risk. In believing that things are the and theyre gonna be this way forever somehow. Its risk and theres no reason have this risk. We arent dealing with real serious shortterm problems. Problems are longterm problems that we need to think about dealing with. So there are a couple of about the situation worldwide. I think these are for you. So heres the first one. Interest rates negative, many think that expansionary fiscal policy is essential for the european union, even before there is a downturn. Why is there hesitation and what done to overcome it . We did this study, the 55. F. , where we looked at countries over the last 200 years. Interestfeature of rate being lower than growth rates is more the norm than the exception. Course that can happen for multiple reasons. If inflation surprisingly on the upside or downside. But it is not atypical. Despite that, theres been plenty of debt crisis around the world. So just because Interest Rates are lower than growth rates at guarantee thato there is smooth sailing. Second, if you look at the happens, you very often see this reversal that happens, when is there are periods Interest Rates are lower, then theres a sharp reversal. That. Ard to predict its very hard to predict when that will happen. So thats the sense in which it be prudent for countries to work on the that Interest Rates would stay lower than growth rates forever. Have a change, and that can go up very quickly. Countriesf these were talking about have growth zero. Basically at and secondly, even if you have than growthes lower rates, if youre running primary deficits, running large primary you can easily have a situation where debt continues to rise and continues rise significantly. So these are important concerns, which is why its not enough to say, well, this is what we have right now. Well, lets to just do all this spending now. That would not be wise. Heres another question for you, on the international situation, in particular about japan. One of the policy prescriptions thementioned was to raise consumption tax. Plunged. D. P. What did japan do wrong . There is in the case of japan, this was, again, the about having a more stable debt over the medium to long run. The question was about over debt over the medium to long run. Raise thegy was to consumption tax now, while at otherme time putting public spending stimulus in cushioned some of the effects of the raise in the consumption tax. That when youcted put in a consumption tax that a quarter where growth is above number and where its below normal, because frontloading. This has clearly coming out be decline has come out to more severe than many forecasted. So that would require the to address it. Es but there is a broader question making sure your debt is on a trajectory and if you can do that in a way where taxes, provide you run the revenues on a long basis but at the same time, your current level of demand is not badly damag through other kinds of support mek in additions, that would be mechanisms, that would be ideal. Of course its not easy to get that mix right. Quickly feasible is it for the government to raise austerity inse order to solve the deficit problem . Thats part of the problem. Politically, we think very short run. We just do. Going to getly not much in a political season like now. In fact, all youre seeing is ideas on things that would raise the deficit, raise the debt Going Forward. I think the only hope is to think in terms of medium term term, longedium term, having a plan. I dont even know if that will work, because it hasnt worked before. But i think we have to think in terms of targets. Is a political problem that our annual budget, which we have passing everytime year, is 30 of the federal budget and its going to be shrinking Going Forward. Youre leaving a big chunk of unaddressed year after year. You need to get that into the political talk somehow. There have been some plans work. Id but there seems to be a consensus at the time that deficit was important. Do you see any sort of consensus like that developing here . The problems with anything like the congressional ons is they dont enforce it themselves. They make the rules. So they can set up something and can change their mind. And they do all the time. Thats part of the problem. Ultimately, i think ultimately the problem is a lack of leadership. The public is not concerned about debt. You fill out trillions of them. S to theyre just not concerned about that. So for politicians, theyre not concerned about that. Im not sure weve had success. Got a huge debt. And it wasnt just the Great Recession. Up to the Great Recession. Heres a question for both of touched i think weve on already, but well ask it one more time. Concern about deficits and debt have been thrown out the window in many parts of the with more countries moving in that direction, yet rates continue to remain low. Game . The end [laughter] so this is the point i made is that thewhich fact that countries can borrow all some advanced economies but not everybody can lower interesta rate than they could in the high levels of debt, is because of what these trends that weve seen, which is the low Interest Rates, coming down, longterm rates coming demand. Ain, this aging demographics, factors of these kind. One. S and secondly, nominal rates are staying low, because inflation isnt anywhere for reasons. Central Bank Independence helps on that front in many countries, but inflation is staying low too. Is, what willn change . So if there is, you can think of arguments that lead that a drop in demand for safe assets. Instance, if there is in emerging markets continue to their open domestic markets, so theres less appetite for international debt, greater policy uncertainty in the world, if in the covid19, big risk we all face at this time. Ratesuld see interest going back up. Secondly, there are, you know, world thaties in the are facing rising Interest Rates, even though the global rate is low. Rest their own country risk is high. Theyre Exchange Rate risk is high. They are facing the problem hasnt disappeared from the face earth. There are it exists in many parts of the world. Is why, you know, to the question, from an know, privateu agent, businesss perspective, dont care about what the world level of debt is as long as rates at which they can are very low. So it is for policy makers to they are thethat ones who have to care about overall level of the debt, what forward for going the next generation and for the rates that will exist in the future for individual households, their concern is, is Government Debt crowding out my debt . Which means that im having to high rates. Ry and thats not the case. It is the case in some thenoping economies and you see the immediate back lasch against it backlash against public. But its not the case in advanced economies. That doesnt mean theres no that policy makers shouldnt Pay Attention to it. End game . S about the anwell, right now weve had opportunity. This has been the longest expansion on record. Potential. Bove we have the option, if we wanted to, to start to address the and debt problem. If not now, if these arent the right circumstances, what are the right circumstances . Well, what were doing is making theoice not to deal with debt and deficit right now at a time when we really can deal debt and deficit. And i worry about what were waiting tillis theres a crisis. Waiting till theres a crisis of some sort and you have to deal with it and you have to have measures to deal with it. That justdo that, sure looks to me like what were doing. Untiljust going to wait theres a real imminent shortterm problem. Think, is to i have some leadership and some plans on dealing with things over time. On that note, we are out of time. Thanking oure in panelists. [applause] [indistinct conversation] cspans wall street journal, live every washington journal live every day with news and policy issues that impact you. Morning. Mark hugo lopez will discuss the the latino vote in the democratic primaries and general fall. On this tom heart of the one campaign, the International Organization cofounded by u2 lead singer will talk about his fight against poverty and preventable disease. Barrstorney general management of the justice department. Watch cspans washington morning. Uesday join the discussion. Nasa mathematician katherine has died at the age of 101. Her life was recently depicted figureslm hidden which showcased her contributions to the first anital spaceflight by american astronaut. In thats the status computer . Hes there, mr. Harrison. Can she handle analytic geometry . Absolutely. And she speaks. Yes, sir, i do. Which one . Both. Geometry and speaking. The me