Director of the cbo. Hes been in front of us many times. We always find his views and positions extremely enlightening. Enlightening. Its wonderful to have dug with the spirit and its also good to have Glenn Hubbard with us it was dean of, sorry, dean at Russell Carson professor of finance and economics of the columbia business school, and is a past chair of the cea under george w. Bush. And finally we have our moderator Michael Peterson who is the ceo and president of the Peterson Foundation. Michael oversees a strategy for the foundation, and look at the key fiscal policy challenges that we all face, michael and the foundation are longtime supporters and backers of nabe, and were delighted to have you again michael. So over to you. Okay, thank you. [applause] spin the Peterson Foundation had to be back at nabe egg and this year and with a great panel double focusing on fiscal policy. As part of a role at the foundation would like to contain different perspectives and find common ground. We will see if we can find some areas of the greatest debate among his top economist. Just a reminder, if you have questions please fill out and we will save time at the end. Weve heard about trade and Monetary Policy this morning. Id like to start i just look at our general fiscal outlook. Deficits are then substantially from what they were at the height of the great recession. However, they are on path to still increase and will reach trillion dollar deficits begin by 2023. Over the longterm significant levels of debt as a share of the gone over the longterm. Glenn, what your perspective on this outlook . How urgent we need to do with it and whats the right timetable . Its a great question and also with respect to the timetable, the fiscal situation facing the United States over the medium to long run is not good, and we know that we know what the underlying drivers are having to do with entitlement programs and their growing share of the budget. Having said that, i do not expect in the nearterm a serious effort at restraining future debt. Indeed, if there were pressures they might go in the other direction depending on choices made both in the budget and in a tax bill. I think the administration should be rightly focused first on raising growth. The president has i think quite successfully reset expectations growth. He and the carver sent to deliver a set of policies that will actually do that. I would see that is coming first. I dont expect the president or the congress to take material action on the deficit or debt in the near future. I could be wrong but but i dou. Do you think they should is a giveaway to ask the question . The important problem for the country are medium to long term. It is important to address those problems. Unless and until we can raise growth, those problems become even harder. So i would focus on growth first and then pivot to mediumterm challenges in the entitlements. Those are very hard to do because they are politically unpopular. In this room it would be not difficult for us to come up with ways that are both progressive and help the deficit, but those are elusive in washington. Doug, what is your view . I agree. First of all, thank you for having me here today. I agree with much of what glenn said. Let me add a few points. When i looked out a decade or two at our fiscal situation, im quite concerned about high and rising levels of debt. We have shown no ability as a country to adopt policies to address that challenge. We havent even really had an informed, honest discussion of that, outside of groups like this. But as i look out several years in the federal budget i am much more worried about the prospect of sharp cuts in federal spending that i think would be damaging to longterm Growth Prospects by cutting back on federal investment, and especially damaging to incomes of lower and middle income people who are more dependent on certain forms of Government Spending. I think our Economic Policy in this country should really be oriented explicitly toward raising Living Standards for lower and middle income people. There are a number of steps we can take to do that but the first thing is to do no harm. By not taking away benefits, people are depending on. So i worry a lot in the short term about inappropriate cutbacks in Government Spending. Beyond that, i think we can make changes to put the debt on a more sustainable path. But those changes are less urgent because Interest Rates are so low. Last panel just finished with that point. Ive written a paper with the brookings, out of the general Economic Perspective short about the implications of low Interest Rates for fiscal policy. There are a number of possible explanations for low Interest Rates as you know. Those excavations at somewhat different implications for fiscal policy but on balance they imply that it is okay to have more debt and appropriate to have more federal investment then we would had Interest Rates were higher. Is there not a direct connection between the level of debt and some of the Spending Priorities you are talking about . For those concerned about discretion spending, at a stroke lows, expected gold or because of the caps. Doesnt have an impact on the ability to forgo those payments and county office of what . Thats right but i think once concerned about supporting federal investment, then the thing is to tackle the federal deficit in other ways, not to tackle them by cutting federal deficits between about to have federal investment, a smaller percentage of gdp than at any point in my lifetime. That is not overlooking growth oriented budget policy. I was picking up on your point about the present. I think he has reset expectations for growth. I think its reset them in a totally unrealistic way. I dont think there is strong evidence that this administrations economic policies will lead to faster growth on balance than the previous administrations economic policies. On one edge of my talk about tax reform that might happen or Regulatory Reform that might ease growth. On the other hand, we might have cutbacks of federal investments. We have immigration policy. Whether those ballots out to raise or lower growth relative to the policies weve had in place is not at all clear to me. I think we could achieve sustained growth in the low 2 range, sustained growth, not a a year or two what over a decade. It would be a real accomplishment now. Im not sure setting expectations of three or four is advancing the national discussion. I was going to do growth later but lets do it now. I do worry as doug said that were really eviscerating what washington calls Discretionary Spending. If you go out and ask people on the street what this government do . They were largely answer questions like public goods would be the terms would use but, of course, that is a what government is doing. We are on autopilot to become a nation of entitlements and Interest Payments tiny business of the public goods, the public depends on. Thats the real issue. I do think faster growth is possible and i do think tax reform and Regulatory Reform are a key element. Some of the numbers i hear and read about strike me as overly optimistic but if you asked the good economy in the high to use, it absolutely again but it would require very different policy mix and the policy mix would have to be aimed at raising productivity grow substantially. Are those probable . I cant say that. Are the possible . Yes. So what else would you put unless engines of growth oriented policies . The top of my list would be tax reform. If you just look at what the profession models as the largest changes in the level of outputs, were talking about a change in growth over a period of time, i would put tax reform at the top. I would also put Regulatory Reform high on my list because it has blocked some of the channels we would normally have for progrowth policy. I think that a policy at the fed which was talked about in the last panel would also be helpful. Tax reform would be number one. There is obviously a bill from the congress being discussed. I do with the Administration Stands on that bill but that is a step in the right direction with some important caveats. What are your thoughts on the tax reform debate . Welcome i agree with glenn the tax reform can boost Economic Growth, but a few of the points. One is how much extra growth we expect. When they cant, then chairman of the house ways and Means Committee with the staff produced very thorough tax reform bill, the staff estimated that legislation would raise gdp by 1 or so in the level after a decade. Thats onetenth of a percentage point on annual growth. Now part of the constraint that they impose on themselves and constructing that legislation was written to be revenue neutral and roughly distribution neutral. If one were to abandon those constraints than one might achieve faster Economic Growth but if one abandons the revenue you collect them one has to think about the longterm consequences are running a federal debt. If one abandons distribution neutrality, you need to think about whether this policy is boosting income lower and they will benefit from over Economic Growth but the lesson of the past few decades is that a rising tide does not miss her lift all boats very much at all. If one has tax reform that shifts the burden away from our income people and toward lower income people, one might get faster Economic Growth, for example, by lori a tax rate on capital income but one might still make wors were solved the people benefited the least from economic gains in this country over the last few decades. The people whose economic plight i think thats rightfully received more attention over the past year. Cant i come in on this because i think the camp plan was an example of a lesson in tax reform. I thought the camp plan was not very persuasive. Actually raised the cost of capital on marginal investors. This is why were doing tax reform. If you want to have real tax reform, deep cuts in business marginal tax rates moving toward expensing of investment, the dirty secret has always been you cant get there from here without some new revenue source, or spending cuts, or tolerating a higher deficit. Of course thats known in the ways and means bill, the new revenue sources, the board of adjustment. There are very good tax policy reasons for doing that. Im skeptical a full adjustment is a right answer but thats a discussion to have it. Bubut i think the taxable debate will center pretty quickly on revenue because to get the rate cuts needed for growth, youre going to have to pay for that somehow. According to most estimates if you look over 10 years, total Corporate Income tax raise about 4 trillion. Lowering rates to 20 in some of the other adjustments lose about two children and the adjustment tax brings in about a trillion and is growth and other things that we need to fill the gap. The reason people in washington like it are wrong. The are two recent people like it. One, they think it is protectionist. Thats wrong. The second is they think it raises a lot of revenue. That cant be true in perpetuity because the nation that runs a deficit today has to ultimately run a surplus. In a world where their tenure budget windows, i understand the issue. The reason i like the border adjustment is for tax policy reasons. They get rid of a lot of the tax planning both on paper and in real assets that President Trump is rightly concerned about. I think the way to thread the needle is going to be Something Like a partial border of judgment, ray some revenue in the nearterm and then if the administration and congress would have tunics and other adjustments in the tax to right the ship. I agree with the point about some of the tax policy advantages of border adjustment tax, but we should recognize that part of the reason it turns out not to be protectors is because economists expect the value of the dollar will rise very substantially. That is important for consequences you and elsewhere. It reduces the value of foreign earnings to american corporations, reduces the value of our ownership of foreign assets. It also means that Foreign Countries or for individuals who all money in dollars will suddenly find those debts substantially larger in the form of other currencies. So even if the dollar does adjust fully or a partial adjustment as much as is needed in the tax policies, it could be very disruptive in macroeconomic terms. If it doesnt adjust and then you dont have all the tax benefits were looking for spirit and should be revenue neutral. The agree, dear flexibility . We know we dont want to undertake policies that make permanent adverse on it, consequences because we just started the conversation that were not on the right path. Having said that, does the tax bill have to be revenue neutral or should a package of proposals the budget neutral . Those are two different questions. I dont know how the administration is thinking of it. Honestly, in the real world of tax debate, it would be hard for me to imagine that this ultimate tax bill will be revenue neutral. Precisely because i think there are risks in the border adjustments, other new taxes like a carbon tax or others that i dont see any Political Support there. And the administration hasnt shown an appetite for the spending reductions that would be required to make up the difference. Honestly i think thats how we will play out. So i think that tax reform should be revenue neutral. I would include the dynamic effects come if you will. Ive written a paper last year for brookings in which i supported the idea of dynamic scoring by cbo for legislation. Comprehensive tax reform is clearly in that category so i think the estimate should include those effects. I went on that basis make taxable revenue neutral. Ultimately, i think its very clear we would need to have higher taxes in this country for all people not liking to pay taxes and being against Government Spending in abstract, they are quite supportive of benefits for Older Americans and that as we know where most of the spending goes and where the vast majority at the growth in spending is going. If you look out from now a few decades from now, the increase in nonintrusive federal spending, leaving aside the dynamics and the dead, but the increase in nonintercell spending is more than accounted for by the effects of the aging of the population for Social Security and medicare. Ultimately, when push comes closer to shove people will not cut those programs to keep the taxes done. They will raise the taxes to pay for those programs. At this point i would be content with neutrality. I think cutting revenue at this point just goes so clearly in the wrong direction that we should not be supportive of that. I dont think the positive effects of tax reform even in more progrowth tax reform then chairman camps proposal would be sufficient gains for the economy to justify a big increase in deficits the taxable at this point. I dont think that higher taxes can be the solution. If you look at the gap caused by Social Security, medicare, you would have to be raising taxes to levels that are unfathomable in at least the type of tax system we currently have. If america wants to be on that path it must have a consumption tax instead. There would be no other way, so the tax debate and the budget debate have to be linked. The Public Finance 101, the first order choice of government is spending the rest of it is just how you pay for it. Taxes today, borrowing. We will have done this discussion and has done except were not having an honest discussion with the American People about it. Lets go deeper on dynamic scoring for a second. It seems to be able to get into this debate that will be a critical component of the scoring and how you adjust. Glenn what are the dos and donts . What are some of the right ways, wrong ways to do that . Im going to commend doug spirit which i discussed as a good primer on this. Dynamic scoring should be done for really big things. You can imagine why thats true. Why is Congress Considering taxi from is important and must be because they think this is some Economic Impact that scorekeeper should do that. Then went to think about where that comes from. So different tax changes are very different in the dynamic scoring effects. Corporate rate cut, tax changes can have large dynamic effects. Cuts in marginal individual rates below the top rate actually not so much. As politically popular as those may be. Thinking about it i think its important, the administration and the congress will also have to think about the overall gdp effects of an economic package, which include more than taxes, can include other things that the president might propose. So i think it is a good exercise. The two ships that i would be shipped at the congressional ship will obviously do it differently for different audiences but i think this is an important discussion and one which people in this room should be playing a role. Spirit would you like to just plug your paper are to give anything else . Thank you, gland. I think his point about how different sorts of tax reforms have different sorts of economic effects is exactly what i think its possible for the congress to have analysis from its staff of the economic effects of tax reform proposals, or Health Reform proposals or Immigration Reform proposals or other largescale changes in policy. They should see this different economic effects and waiters in the decision. One thing i would add is, go back to my original point about importance of considering to submission effects of policy changes as well. We had just seen a very striking divergence in the economic of why hiring americans are lower middle income americans, and that economic diversion is mirrored in a social divergence. We see a frightening rise in opioid use. We see diverging trends based in education level and life expectancy, and out of wedlock births. The social consequences of a lack of Economic Opportunity are very clear beyond the obvious material consequences. And those material and social consequences that have implications for the cohesiveness of our society, for the functioning of our political process, for our ability to lead internationally. As we make changes in tax policy or spending policy or other sorts of Government Policies we really need to have these distributional concerns front and center. I dont mean by that, that all Economic Policy is a zerosum game. I dont believe that but i do think there are sometimes tradeoffs between what we do to make the entire pie larger and what you do to make certain slices of that pie larger and we should not be just about making the overall high larger. Two examples of this i think in the tax debate. What is the Corporate Tax which at least when i went to school i was taught was largely borne by owners of capital that is not really what the profession believes today, that labor versus strong burden of the Corporate Tax. Something im disappointed im not hearing more in the context debate though it is wages support and work support for the reasons doug suggested. There has been bipartisan discussion in the outgoing president , speaker ryan have both talked about expanding the earned income tax credit for childless workers, other ways one might think about supporting work. This really needs to be part of a tax reform bill. Not just for optics of politics but its good economics. Lets move on to health care. Health care is a key physical issue. 70 of growth and longterm spending as you said earlier is healthrelated, Enormous Economic issue. We spent 18 of gdp on health care. In this repeal and replace discussion and debate thats going to happen, how do you think the potential outcomes physical perspective for you with their at the time of the passage. You scored it. I believe it was slightly, and helped reduce deficits slightly when his original pastor how are you looking at it now . Theres about 1. 2 trillion of revenue over 10 years, 800 billion and medicare segment of the same. And about 1. 6 joined. 6 join in spending on the subsidies and Medicaid Expansion. A few years later and the current dialogue how do you see this playing out . I spent a lot of my life working on Health Reform proposals. Live a few thoughts. The first is that republicans face a hard tradeoff right now. There is no way to maintain the level of Insurance Coverage weve reached under the Affordable Care act without subsidies that are similar in scale to those under the Affordable Care act and a set of rules for Insurance Markets that are similar to those under the Affordable Care act. So if they repeal the transport they will either have to replace it with something that looks a lot like the Affordable Care act, or they will have to tolerate a substantial reduction in health Insurance Coverage. And both of those alternatives are unappealing. Both havent unappealing since 2009 when i first started working with republicans on Health Reform proposals, and eight years later in 2017 theres clearly no resolution within the Republican Caucus on which of those consequences are what combination of his consequences to take. Im not at all sure that some largescale changes to Health Care Policy will happen. If it does happen then it depends very much on which of those roads republican screw down and what changes they make. The Affordable Care act raised, obvious he had a big increase in federal subsidies for Health Insurance. We should recognize that the subsidies represent less than 10 of total federal subsidies for Health Insurance. Federal government as we know provides very substantial tax subsidies for people with insurance through their employers, provides very substantial insurance for americans over the age of 65, disabled americans, and for many low income americans for receiving the Affordable Care act. The incremental subsidies under the aca as large as they are in dollar terms are less than 10 of total federal subsidies. If we talk about federal spending for health care we should recognize the aca is a pretty small piece. Moreover, the aca raised money to pay for the subsidies in part by cuts in medicare spending relative to the preceding law. Although republicans railed against those at the time, theyre basically quite content to keep those in law. The budget resolution that done since then all the discussion been keeping those medicare cuts in law. However, recommendation thinking repealing new subsidies for keeping the medical costs from the aca is part of what riles up hospitals and other Health Care Providers because they accepted some of those cuts and payments in medicare with less complaints and would have offered to otherwise because it would getting other revenue through people having other covers. I think the cuts will stay in law. The question of whether taxes are changed and how much changes, how much the Exchange Subsidies and Medicaid Expansion are changed. I think its very unclear whether the republican proposal will be good for the deficit at the end of the day. I dont think thats their objective nor does it need to be the objective in every aspect of policy. But i think clearly if they roll back subsidies to a substantial amount that would be rolling back taxes by at least as much and maybe more. I dont think that repeal and replace will make a big difference in the overall deficit, just as the institution of the aca does not make a big difference in the overall deficit. Do you agree with that framing . I agree this is a very difficult and republican congressional leaders have put themselves in a bit of the box. I would step back and say lets dont talk about aca or no aca, what should we be doing. One of the big problems in health care, and elephant in the realm familiar to this audience is the bias towards thirdparty pay and the diminution of incentives for cost containment. Anin the tax code that could either mean reform that makes some of those upper income subsidies less generous or it could mean dragging the tax code all the way through to neutralize it, but not tackling it strikes me as a mistake. Likewise i think theres an opportunity to block granting the Medicaid Program to deal more flexibly and faithfully with the needs of low income americans than creating an entire new subsidy schemes to do that. The bills that are being discussed are largely agerelated credits. My worry with those is they are set sufficiently generous, they will buy out the base ended the run up the deficit or unravel the system. I would prefer to see more incremental reform tackled with the medicaid block grant and things like that. I agree that the Republican Leaders are in a bit of a box. I think would be naive to say you could repeal the aca and did nothing. I think that is politically and economically untenable. On one piece, medicaid block granting. I stayed on task i see a Real Advantage in giving countless more flexibility to use medicaid dollars or other sorts of federal dollars in ways that thethebest in their states. But we should recognize the current law has a fair amount of flexibility and there are a lot of waivers in medicaid and which states a lot of things that are different from the core conception of the program and perhaps those rules should be loosened. But we dont, its not the case that it is one size fits all, and you didnt say this but some people do. Its not the case onesizefitsall today. Moreover, there is a very significant negative consequence of moving to block grants. In 1995 when we had the family with dependent childrens program, twothirds or so of poor countries to benefits under that program. It was block granted. The amount spent was cast in nominal terms, and today about a quarter of poor families receive benefits to the success of program them temporary aid to needy families. So we ought to separate here the advantages and his adventures of greater flexibility for governors from advantages and disadvantages of cutting back the amount of money that they have to spend. And if too much flexibility is granted as it would be in my view, under a block grant and if too little money is available as it would be under the proposals we have seen in the congress, from block granting that it pays, the consequent will be low income people who were not receive health care in the way they do under current law. I think that pushes us in exactly the wrong direction. Lets talk about another aspect of the health care sector. A lot going on in federal policy but a big issue is Health Care Efficiency overall. We spent 18 of gdp, many other advanced nations spend about half that. According to a study we did with the institute of medicine they identified about 800 billion in annual waste in health care system. To scale that, thats what we spend on k12 education as an issue. Theres an enormous opportunity here for enormous problem with it with her current sector. What policies can be done at the federal level or the state and local level that can stimulate efficiency for the system as a whole rather than just on the subsidy question . Its a great question, an important one and i would start again going back to the discussion about incentive. If you give incentives for people to seek a lowercost outcomes for the same value they will definitely do that. The second is to think more about this practice at the window in the Medicare Program the dartmouth the data going back for a long time suggesting huge regional variation in medicare spending that is essentially uncorrelated without comps. Theres much the medical profession they can do in best practices and we can learn a lot from case studies if we know both companies and Hospital Systems that have done a very good job. You ask yourself in most industries, dont people just automatically learn these productivity practices . Thats about incentives and surplus thats involved so i dont think this is an unsolvable problem. I agree. Let me offer some specifics that i would pursue. First, i take his point about the value people having some skin in the game, obviously not for most expensive procedure but for other procedures. We can increase skin in the game in a few ways to implement a socalled cadillac tax take effect, that will encourage insurers and employers provide insurance to their employees to design insurance policies where people pay somewhat more out of pocket. Expensive plans on the new entrants mark places actually require larger share of payments outofpocket than most americans with Health Insurance pay. We can address some of this from employerprovided entrance to the cadillac tax. We can address some of this in medicare by restricting the ability of medigap policies to fill in totally around the basic medicare package and there are ways to do that i think and be sensitive to the needs of lower income people. Also having many could face additional incentives to spend Health Care Dollars more efficiently. I think we also can change the way medicare pays providers for Health Insurance. Medicare is the single largest provider, largest single payer of helped her in the country, so it sets the standard for good and for bad. There are a whole set of experiments underway now partly to the center for medicare and medicaid innovation, partly through the general work of cms and hhs, and changing the way providers are paid, for example, through more bundling of payments, more episodes at the relevant payment for individual items of care. I think its huge potential. We need to let a lot of Different Things happen here, 1000 flowers should live and we will learn to the process i think how the government can be more effective. And meanwhile, much of the board work is happening in hospitals and medical practices across the country where people are trying to reengineer their systems to be more efficient. We also should recognize that what some people call waste in health care system, other people call one more shot at finding out whats wrong. And even if after the fact those can be distinguished from the clinic its hard to distinguish them going in. Part of life that kind spends more for health care than other countries is about we have an attitude towards health care of doing anything we can. As a person i have some sympathy with that. We all feel that way on individual cases, but unless we shift that a little bit and recognize that some things really are not worth doing for the people who will be affected, its going to be hard to wrestle that 800 billion down to a small number. Lets move on to infrastructure. As you know the president has called for 1 trillion program which which includes public and private funding. Lan, how do you feel about how to allocate that between public and private . When do you think this . Is an opportunity for bipartisanship in this apartment . Let me begin, every time Larry Summers tell me his Laguardia Airport is terrible, with which i agree, i reminded him that the lack of capital is probably not in my top five excuses. More the Port Authority of new york and new jersey, and the regulatory burdens of airport changes. The first thing weve got to do if were serious about it infrastructure strategy is speed it up, make sure that we get regulation out of the way where it is in the way in the question is how do you do it . I think of it almost like tron ching. The federal involvement tron ching the risk is cash flows because much of what is needed could well be funded. By the private sector pics of it may be some role for the federal government that is way shy of the big numbers the Top Administration is going around. To be fair i think they mean thats the total infrastructure, not the federal government share, at least i hope thats what they mean. But the private sector is playing up to that with a better Regulatory Environment. Thats what i would put my energy. I agree about Laguardia Airport being terrible at a great part of the problem surely lies in local decisionmaking and lies in regulatory obstacles. But i do want to down too much the role of federal dollars. There are a whole of infrastructure types where it is not really possible to involve the private sector in a particular way. If you look at the beltway in virginia there can be a new toll lane built by a private contractor. Although to be click its not obvious that saves the populist money. The federal government borrowed the money but borrowed at lower rates than the private contract to do construction so its not obvious were sending money but it could be done at least in the private sector. Yoyoure not pointed in the private sector is prepare the American Legion bridge or fix the lanes that exist, or fix local roads or fix schools or build Water Treatment facilities. Theres an awful lot of things we do that are intrinsically public. They are the public goods, and you could do some contracting with the private sector in some cases but fundamentally, this is an allocation of public funds. Under the current caps on appropriations, federal nondefense Discretionary Spending will soon be a smaller percentage of gdp than at any point in my lifetime. About half of federal nondefense Discretionary Spending is labeled investment by the omb, covering infrastructure, research and development and education and training. So if youre going to squeeze the whole amount, the other half is not investment. Its things like Veterans Health care, transportation, security and so on. I dont see a lot of uproar cut back on those things. We are on track to really squeeze federal spending on Infrastructure Investment, before you come to proposal, take another 10 off of nondefense Discretionary Spending action which the administration has put forward. Whether you need a trillion dollar over the next decade is not clear, but cutting back on federal investment is i think clearly the wrong direction to go, given the importance of investing in our future and particularly given the very low level of Interest Rates that we expect to see for years to come. Spirit talk to us about publicprivate partnerships. What types of projects or investments do you think are appropriate for that and where are the most useful . Doug identified one way of thinking about it, which is project by project, whats government and not. I agree there some projects the private sector will have no interest in. Another would be things like it Infrastructure Bank with which i agree in principle but worry greatly in practice that the last thing the nation needs is another drain on the taxpayers, public and private. I think it comes down to figuring out which projects the government should be involved in, which not an working with states to make sure they have an environment to move forward. I dont know what the administration will do but i doubt that it would propose trillion dollars in actual spending on this, given the other contours of the budget. I just dont see how thats possible. Do you think ill be in the form of spending or tax credit or a combination thereof . It could be well tax credits during the campaign. Under wilbur ross had written on this. Im not pretty one way or the other. Thats another example of what is going to cost the government money, all tax credit or spending. Some of us think as tax credits and spending actually. So they could do it either way. The real question is how much do you need, what should be the governments role, what nonfinancial things are you doing to ensure the success of the enterprise . Do you have a view on tax cut versus actual spending . I agree which we should think about both of us as use of federal resources and we should think about which is more effective in which particular circumstance. There are certain aspects of investment that might be effectively spurred by tax credits but i think that the great deal more that is most effectively done through direct Government Spending. I worry about the broader Regulatory Environment as glenn says. I worry about the choice of projects. If we could be more rigorous in our costbenefit analysis of Infrastructure Investment, build a more crucial transportation policy at your bridges to nowhere that would be a good thing. If we could implement these projects more effectively that would be a good thing. In some cases that might happen better under private control but not necessary. Theres a literature of active resource of Government Services that sometimes administered in public ways and sometimes private ways. There is no very sharp rock audience which is more efficient. I think at some cases can be the private sector. So im not against tax credits per se but i think the view that that is somehow the cheapest and most effective way to power up a lot of extra Infrastructure Investment without it costing the taxpayers much is wrong. So when you think about funding, you mention early because of low Interest Rate of private you think its the right time to do that. As you look on the medium and longterm when we look at that as far as the eye can see, that will change over time. If theres not a Repayment Program for that debt, how do you think about interested in the future and how it impacts decisions . I think what we need to do for our budget is we need, this is not a new line for me, we need to think now about the other changes we would phase in gradually over time. I do think that persistently low track for Interest Rates means that stays in process can happen more slowly and that we can do more crucial investments over, say, the next decade. But ultimately i think we will need a combination of cutbacks in Social Security and medicare benefits relative to current law and increases in tax revenues relative to current law. It is much better to start those things, putting those things into law now. Remember that were still in the midst of an increase in the retirement age for Social Security. That was legislator in 1983, 34 years ago. So if you ought to have cutbacks 10, 20 years from now, now would be the time to enact them. But i also see no prospects of that happening. [laughter] because there is a persistent delusion, that some of the officials who dont know better and some who do no better, that the way to tackle the federal budget is to cut back on quote waste. Im not against cutting back on waste but thats not where the action is. The action is in benefit program and people like him. The current president was elected i think in part because he promised not to mess with Social Security and medicare benefits. So i see no prospect that he will change course on that embassy very little prospect that the Republican Leaders in congress will try to tackle those programs. Okay. Lets move on to immigration. Its often viewed as more of a a social issue and a lot of controversy about that but big economic implications and big fiscal implications. How would you use immigration policy to help stimulate growth and deal with the deficit . Immigration is really two stores in the u. S. And unfortunate and our political debate they get conflated. One is a story about extremely highskilled immigrants. So think engineers, physicians, mba students. I wont put lawyers in that category. All other highly skilled people. To me there should be very little argument we would want more of these people in the United States. This should be easy. Unfortunately it is not easy. The fight over the h1b caps and so on. Then theres another debate which is about low skilled immigration if we dont think that high skilled emigration is really worsening the lot of high skilled americans, do we think that the low end . They are the jury is quite out of. One of your colleagues is probably the leading scholar in this area, and i think there is real reason to be concerned that lower income americans could be worse off. Now the question is what do you do . One approach would be an economic approach to immigration. Thats as we welcome people that are in the nations interest, which would be skills suitable for work that needs to be done as opposed to a family approach or an open border approach. Another is to say no, keep the current approach but realize that we have to subsidize the work of low income americans more than we do today. The Political Solutions have to fall into one of those camps. If we are going to be down the satellite antiimmigration rhetoric that were hearing. Closing the borders would reduce gdp growth and, in fact, would only accelerate some of the automation trends that are also harming the prospects of low income americans. I think it would fall in one of those two directions spin what do you think about . I agree with this friend of the issues. Let me add a few points. If we have people movin move ine country without a lot of skills and thereby lowering the wages of less skilled nativeborn workers, then we really do have to follow up with subsidies for those workers. In fact, stepped up. If we, this remain other people talk about changes that are good for the economy as a whole, but bad for low income workers then we really need to step in and not just on a rhetorical level, but article policy level to compensate them for their losses. Secondly i would add that with immigration going forward, discussions about the debate about people that are already here and we need to, i think, in some ways reach a resolution regarding people who are already here, so we can focus on immigration policy on a forwardlooking basis. Its not the only policy where i think we are ducking a ferry fairly sterile debate because we cant get over certain points. I think the debate of people coming in just as badly confused by the people who are here, so i would i think we should separate out and think about separately in a rational way. Automation, how do you think about it as is it something to be fearful of an what are the implications . As you know the debate between bill gates and others whether one should tax robots. Are not a particular fan of taxing robots. I think we should not fear automation. But, we should respond to it actively and not just by watching it happen, so i think its very much like trade in a way and in many ways more important than trade. We should not try to stop technological advances that make workers more productive, but we should recognize technological advances will drive some people out of work. Their loss of income, their loss of self selfworth from not having jobs that they are good at jewel doing and enjoyed doing have consequences, so you look around the country now i think there are three and a Million People who drive taxis or buses or delivery vehicles or something else. Many of those people do not have a lot of education. Many arent earning enough money , so to lead successful lives as part of a six site society and to drive self driving vehicles over the next decade will i presume cost many people their job. I think the solution is not to ban self driving vehicles, but to work very hard at providing good jobs with good wages for people who will lose their jobs otherwise. Sort of wage subsidies you talked about. A question of how to provide benefits for people sort of nonwage compensation for people. Used to be any less skilled workers worked for Big Companies they also had high skilled workers providing pension and other forms of compensation. Lower wage lower skilled workers were beneficiaries as well and as we have had more breakdown of that relationship, more Large Companies hiring low skill from other firms, we have people who do not receive pensions. We can find ways to help those people build Retirement Savings and obtain Health Insurance and so on. A lot of things we can do to help people who are hurt by this technological process. I agree with that and i think its ironic that given the president was elected precisely on some of these tensions in part of the electric affected that we dont see more of a discussion of policies that would improves these peoples progress of which i would put wage subsidy at the top of the list. To most us labor policy come from the 1930s and from a very different set of fears and consolation of events that American Workers now face, so both sides of the aisle we really have to discuss this and i hope our political process is up for that. One last question here about us corporations and the cash they are sitting on an often using or Share Repurchases as opposed to investment. Anyway to get that capital into the economy to stimulate growth . I know of no Business Leader that would not want to grow faster if they thought it was profitable to do so, so the note notion of Business People sitting on cash ive just never met such a person. I think once expectations are reset about growth Corporate Tax rates are lower, Interest Rates rise as they are, i think youll see the tradeoff change and you will see more substantial use of capital for real investment. In the tax bill, the movement to a cash flow tax would make it clear that the use of data for Financial Engineering would no longer receive a tax break. It would be fine with expensing the same tax treatment for a real investment, but not Financial Engineering. I think with better policy we will see that. You like the repatriation . Completely. We should have a territorial tax system with no residual tax and one of the reasons as i mentioned earlier that i like partial border adjustments is that they are a disciplined device on some of the tax planning games that Multinational Companies play. I agree with glenn that tax policies encourage more investment. And i agree that at the moment business, animal spirits are riding high, but i am more skeptical that we will see a big change going forward. In terms of the level of investment. One, im not persuaded that animal spirits will stay where they are. I think understandable reasons why leaders are pleased to see a new administration and new congress focused on tax release and regularly, but whether tax reform can happen, whether regulatory changes are significant, whether said that capital is tangled up in other issues, i think there will be disappointment tocome on a large scale and that will prompt animal spirits to retreat. I also think part of what we see in terms of this investment is perception by businesses that this is almost of a national that there are fewer good opportunities to invest, but some may be fundamental in how the economy is changing. With an aging population we have a more slowly growing labor force and we need less investment to equip each new worker with capital. We have had slow multi faceted activity growth now going back for more than a decade and that will diminish the incentive for investment. We have certain forms of businesses that are growing that dont require as much capital, so i think part of what we see here is the shift in Economic Conditions reducing the amount of desirable investments and thats why part of why Interest Rates are so low and why investment is low despite Interest Rates below because its a fundamental shortage of good Investment Opportunities relative to what weve seen at some point the past. Doesnt mean you cant move around what i think is this new equilibrium with appropriate policy, but i dont think we should expect a return of where we were two decades ago. Glenn, any final words . I do think capital or the lack of duppercaseletter plane would be a key role in lower productivity growth, so its the right place to be a nice think it is challenging, but better policy could move the needle on Investment Capital issue. I want to thank you both for being here. Thank you. Thank you. [applause]. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] finishing up a portion of the National Association of Business Economic annual policy conference