[inaudible conversations] well, were going to move straight on. Im very, very pleased to introduce our panel on discalling [inaudible] you know, sometimes when youre organizing a nabe conference and panel, its like bringing friends together. And this is one case like that. We have real friends of nawe on the dais today. I wont belabor their introductions, but were very pleased to have Doug Elmendorf with us today, isas all of you know, past director of the cbo. Hes been in front of us many times, we always find his views and positions extremely enlightening. Its wonderful to have doug is us. And its also good to have Glenn Hubbard with us who is dean of, dean of the russell sorry, dean and Russell Carlson professor of finance and economics at the Columbia Business School and is the past, past chair of the cea under george w. Bush. And finally, we have our moderator, michael peterson, president and coo of peterson foundation. Michael oversees strategy for the foundation and looking 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 hereby michael, so over here, mike billion, so over to you. Thank you. [applause] well, the peterson foundations very proud to be back again this year, and we have a great panel thatll be focused on fiscal policy, and as part of our role at the foundation, we like to find common ground, so well see if we can find some areas of agreement between these top economists. Weve heard about trade and Monetary Policy this morning. Id like to start by just looking at our general fiscal outlook. Deficits are down, however, theyre on path to steadily increase. Over the long term, obviously, significant levels of that as a share of the economy over the long term. Glenn, whats your perspective on this outlook, how urgent is it that we need to deal with it, and whats the right timetable . Well, its a great question also with respect to the timetable. Obviously, the fiscal situation facing the United States over the heed yum to long run is not good, and we know that. I do not expect in the near term a serious effort at restraining future debt. Indeed, if there were pressures, they might go in the other direction depending on choices made in the budget and on a tax bill. I think the administration should be rightly focused first on raising growth. The president has, i think quite successfully, reset expectations about growth. Now he and congress have to deliver a set of policies that will actually do that. And i would see that as coming first. I dont expect the president over the Congress President or the congress to take material action on the deficit or debt in the near future. I could be wrong, but i doubt it. Do you think they should, is a different way to ask the question. I think the important problems for the country are medium to long term, and 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 medium term challenges in the entitlements. As you know, those are very hard to do because theyre politically unpopular. In this room it would be not difficult for us to come up with ways that are progressive and help the deficit, but those are elusive in washington. Be. Okay, doug, whats 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 look 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 budge, i am much more worried about the prospect be of sharp cuts in federal spending that i think would be damaging to longterm Growth Prospects by cutting back on Central 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 Economy 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 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 coming out in the journal of economic per spectives shortly about the implications of low Interest Rates for fiscal policy. And the, there are a number of possible explanations for low Interest Rates, as you know, and they have 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 than we would have if Interest Rates were higher. Is there not a direct connection though between the level of debt and some of the Spending Priorities that youre talking about . I mean, for those concerned about Discretionary Spending, its at historic low, its set to go even lower as a result of the caps. Doesnt that have an impact on the ability to afford those payments and crowding out and so forth . Well, thats right, but i think one concerned about supporting federal investment is to tackle federal investments in other ways. We are about to have federal investments, a smaller percentage of gdp than at think point my lifetime. Any point in my lifetime. Picking up on your point, glenn, about the president , i think he has reset expectations for growth. I think hes roadway set them in a reset them this a totally unrealistic way. I dont think theres strong evidence that this administrations economic policies will lead to faster or growth on balance than the previous administrations economic policies. On one hand, you might talk about tax reform or Regulatory Reform that might boost growth. On the other hand, we have cutbacks in federal investment, we have restrictive immigration policies and the process of restrictive trade policies. Whether those balance out to raise or lower growth relative to the policies weve had in place is not at all clear to me. I think that we could achieve sustained growth in the low 2 range, sustained growth. Not a year or two, but over a daled, that would be a real accomplishment now. Im not sure that setting expectations of 3 or 4 is advancing the national discussion. Were going to do growth later, but lets get to it yeah, i do worry, as doug said, that we are really eviscerating what in washington gets called Discretionary Spending. If you go out and ask people on the street what does government do, theyll largely answer questions like public goods would be the terms we would use, but, of course, that isnt what government is doing. Were on autopilot to become a neigh of entitlements and interest nation of entitlements and interest payments. So i think thats a real issue. I do think faster growth is possible, and i do think tax reform and Regulatory Reform are a key element. I think some of the numbers i hear bandied about strike me as overly optimistic, but if you ask could the American Economy grow in the high twos, it actually can. But it would require a different policy mix aimed at raising productivity growth substantially. Are those probable . I cant say that. Are they possible . Yes. Be. So what else would you put on the list in terms of growthoriented piles . Policies . Well, top of my list would be tax reform. The largest changes in the level of outputs, talking about change in growth over a period of time, i would put tax reform at the top. I would also put regulatory reto form high on my list because a its has blocked some of the channels we would normally have for progrowth policy. I think better policy at the fed which was talked about in the last panel would also be helpful. But tax reform would be number one. There is, obviously, a will from the congress being discussed, i dont know where the Administration Stands on that bill, but thats definitely a help . The right direction with some important in the well, i agree with glenn that tax reform can boost economic growth, but we should be careful on a few points, i think. One is how much extra growth we expect. When dave camp, thenchairman of the house ways and Means Committee with his staff produce frommed a very thorough tax produced a very thorough tax reform bill estimated that that legislation would raise gdp by 1 or so in the level of after a decade. Thats a tenth of a percentage point on annual growth. Now, part of the constraint that they imposed on themselves in constructing that legislation was for it to be revenue neutral and roughly distribution neutral. If one were to abandon one of those two or both of those con straichts, then were one might achieve faster economic growth. But it be one abandons the revenue neutrality, one has to think about the longterm consequences of running up the federal debt, abandons distribution neutrality, you these to think about whether this policy is boosting incomes of lower and middle income people. They will benefit probably to some extent from Overall Economic growth, but the lesson of the past few decades is that a rising tide does not necessarily lift all boats very much at all. So if one has tax reform that shifts burden away from higher income people and toward lower income people, one might still make worse off the people who have benefited the least from economic gains in this cup over the last few in this country over the last few decades. And the people whose economic plight has, i think rightfully, received more attention over the past year. Can i come in on this point . Because i think the camp plan was an example of a lesson in tax reform. I thought the camp plan was not very persuasive. It actually raised the cost of capital on marginal investments. 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. Now, of course, thats hone the in the ways and means bill. The new Revenue Sources, the board beer border adjustment. Im skeptical that a full border adjustments the right answer, but, you know, thats a discussion to have. But i think the tax reform debate will center pretty quickly on revenue because to get the rate cuts that are needed for growth, youre going to have to pay for that somehow. Yeah. According to most estimates if you look over ten years, total Corporate Income taxes raise about 4 trillion, some of the other adjustments lose about 2 trillion and the border adjustment brings in about a trillion and theres growth well, the problem with the board adjustment tax is the reason people here in washington are wrong. One, they think its protectionist. Thats wrong. The second is they think it raises a lot of revenue. That cant be true in perpetuity, because a nation who runs a deficit today has to, ultimately, run a surplus. Now, in a world where there are tenyear budget windows, i understand the reason. The reason i like it is for tax policy reasons. They get a they get rid of a lot of the tax playing games. But i think the way to thread the needle is going to be Something Like a partial worder adjustment, raise some revenue in the near term and then the administration and congress would have to make some other adjustments in the tax bill to right the ship. Can i just add, so i agree with glenns points about some of the tax policy advantages of a boarder adjustment tanks border adjustment tax. Economists expect the value of the dollar will rise substantially. Correct. That has important macroeconomic consequences here and else. Where it reduces the value of foreign earnings to american corporations, reduces the value of our ownership of foreign assets. It also means Foreign Countries and individuals who owe money denominated in dollars will suddenly find those debts substantially larger in the form of other current currencies. So even if you do a partial adjustment as much is needed in the tax policy sense, you could be very disruptive in macroeconomic terms. And the if it doesnt adjust, then you dont have all thing great tax features looking for. Do you agree with that goal . Do you have flexibility on that goal . Well, we know we dont want to undertake policies that make permanent adverse consequences for the fisk 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 be budget neutral . I dont know how the administration is thinking about it. Honestly, itd be hard for me to imagine if this ultimate tax bill, if it happens, will be revenue neutral precisely because i think there are risks on the border adjustments, other new taxes like a carbon tax or others, 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 itll play out if we get a tax bill. So i think tax reform should be revenue neutral. I would include the dynamic effects, if you will. Ive written, wrote a paper last year for the brookings papers in which i supported the idea of dynamic scoring for legislation. Comprehensive tax reform is clearly in that category, so i think the estimates should include those effects, and i would on that basis make tax reform revenue neutral. Ultimately, i think its very clear well need to have higher taxes in this country for all of people not liking to pay taxes and being against Government Spending this the abstract, theyre actually quite supportive of benefits for older americans, and thats, as we know, where most of the spending goes and where the vast majority of the growth in spending is going. The you look if you look out a few decades from now, the increase this noninterest federal spending, but the increase in noninterest federal spending is more than accounted for by the effects of the aging of the population. I think, ultimately, when push comes closer to shove, people will not cut those programs, they will raise taxes to pay for those programs. At this point, though, id be content with revenue neutrality. But i think cutting revenue at this point just goes so clearly in the wrong direction that we should not be supportive of that. And i dont think the positive effects of tax reform, even more progrowth tax reform than chairman camps proposal be, would be sufficient gains for the economy to justify a big increase in deficits through tax reform at this point. Yeah, i dont think that higher taxes can be the solution. If you look at the gap caused by Social Security and medicare, you would have to be raising taxes to levels that are unfarther be thom bl at least unfathomable at least in the type of tax system we currently have. If america wants to be on that path, there must be a consumption tax instead. Public finance 101, the first order choice of government is spent, the rest of its just how you pay for it, taxes today, borrowing. And we really have to have this discussion, and as doug said, were not having an honest discussion with the American People about it. Lets go deeper on dynamic scoring for a second. If we get into this debate, thats going to be a critical component of how you adjust, so, glenn, what are the dos and donts of that, right ways, wrong ways. Im going to actually commend dougs pape be or as a good piper on this. Dynamic scoring should be done for really big things. And you can imagine why thats true. Having said that, then we have to think about where that comes from p. And so different tax changes are very different in their die a namic scoring effect. Or dynamic scoring effects. Cuts in inframarginnal rates below the top rate, actually not so much as politically popular as those may be. Thinking about it is 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, could include oh things that the president might propose. So i think it is a good exercise. The two ships, the omb ship and the congressional ship, will obviously do it differently and for different audiences, but i think this is an important discussion and one in which people in this room should be playing a role. Would you like to just plug your paper, or do you have anything else to add . Its a great paper. [laughter] thank you, glenn. I think glenns point about how different sources of tax reforms have different sorts of economic effects is exactly why i think its valuable 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 large scale changes in policy. They should see those and weigh those in their decisions. One thing i would add is to go back to my original point about the importance of considering distributional effects of policy changes as well. We have just seen a very striking divergence in the economic lives of hiring from americans and lower and middle income americans. And that is mirrored in the social diversions. We see a frightening rise in opioid use, diverging trends in education level and life expectancy, 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 then have implications for the cohesiveness of our society, for the functioning of our political process, for our ability to lead internationally. So i think as we make changes in tax policy or spending policy or other sorts of government policies, we really need to have these distributional concernses front and center. I dont mean by that that all Economic Policy is a zero sum 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 would do to make certain slices of that pie larger. And we should not be just about making the overall pie larger. I think theres two examples of this, i think, in the tax debate. One is the Corporate Tax which at least when i went to school was largely borne by owners of capital. Thats not really what the profession believes today, that labor shares meaning some of the gains doug mentioned would be part of tax reform. Manager im disappointed im not hearing more in the current tax debate is wage support and work support for the reasons doug suggested. There has been bipartisan discussion, the outgoing president , speaker ryan have talked about expanding the earned income tax credit for childless workers, there are other ways one might think about support toking work. This really these to be part of a tax reform be bill not just for optics or politics, its good economics. Okay, good. Lets move on to health care. Health cares obviously a key fiscal issue, about 70 of the growth as you said earlier is health related, Enormous Economic issue, we spend 18 of gdp on health care. In this repeal and replace discussion and debate thats going happen, how do you think of the potential outcomes from there a fiscal perspective . Doug, you scored it, i believe it was slightly it helped reduce deficits very slightly over a tenyear period when it was originally passed. How are you looking at it now . About 800 billion this medicare savings and about 1. 6 trillion in spending on the subsidies. A few years later in the current dialogue, how to you see this playing out . Well, i have spent a lot of my life working on Health Care Reform poems. So i have a few thoughts. 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 with subsidies that are similar in scale to those under the Affordable Care act ask be a set of rules for Insurance Markets that are similar to those under the Affordable Care act. So if they repeal the Affordable Care act, 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, those alternatives have been 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 or what combination of those consequences to take. So im not at all sure that some large scale change to Health Care Policy will happen. If it does happen, then it depends very much on which of those roads the republicans go down and what other changes they make. The Affordable Care act raised, obviously, had a big increase in federal subsidies for Health Insurance, but we should recognize this that those 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 new their employers, provides very substantial insurance for americans over the anal of 65, disabled americans and for many low income americans preceding the with affordable carry act. So its less than 10 of total federal subsidies. The if we talk about federal spending for health care, we should recognize the aca is actually a small piece. Moreover, the aca raised money to pay for those subsidies this part by cuts in medicare spending relative to the preceding law. And although the republicans railed against those at the time, theyre basically quite content to keep those in law. So the budget resolution theyve done since then, all the discussion has been about keeping those medicare cuts in law. However, that combination of thinking of repealing the new subsidies but keeping the medicare cuts from the aca is part of what riles up hospitals and other Health Care Providers because they accepted some of those cuts in payments in medicare with less complaints than they would have offered otherwise because they were getting more revenue new other people having Insurance Coverage. Even still, i think the consistents will stay in law. Then its the question about whether how taxes are changed and how much changes how much the Exchange Subsidies and medicaid are changed. I think its very unclear whether the republican proposals will be good for the deficit at the end of the day. I dont think their objective there, nor does it need to be in every aspect of policy, but i think clearly if they roll back subsidies to a substantial amount, theyll be rolling back taxes by at least as much and maybe more. So i dont think that repeal and replace will make a big difference in the overall deficit just as the constitution of the aca did not make a big difference in the overall deficit. Do you agree with that framing of some of well, i certainly agree e that this is very, very difficult, and republican congressional leaders have put themselves in a bit of a box. I would step back and say lets dont talk about aca or no ark ca, what should we be doing . One of the wig problems in health care, indeed, an elephant in the room to this audience is the diminution be of incentives for Cost Containment n. 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. Likewise, i think theres an opportunity for block granting the Medicaid Program to deem more flexibly and faithfully with the needs of low income americans than creating entire new subsidy schemes to do that. The bills that are being discussed are largely agerelated credits. My worry with those is theyre set sufficiently generous, theyll buy out the base and either run up the deficit or unravel the system. I would prefer to see more incredit amount reform incremental reform tackled with a medicaid block grant is and things like that. I agree, Republican Leaders are in a butt of a box bit of a box here. I think on one piece, which is medicaid block granting, i see a Real Advantage in giving governors more flexibility to use medicaid or dollars or other sorts of federal dollars this ways they think are best in their states. But we should recognize that current law has a fair amount of flexibility. There are a lot of waivers in medicaid in which states are doing a lot of things that are different from the core conception of the program. And perhaps be those rules should be loosened. But we dont, and its not the case you didnt say this, but its not the case that one size fits all today. Moreover to, i think there is a very significant, negative be consequence of moving to block grants. In 1995 when we had the aid to families with dependent children program, twothirds or so of poor families received benefits under that program. It was block granted. The amount spent was capped in nominal terms, and today about a quarter of poor families receive benefits through the successor program, temporary aid to needy families. So if with we are to desperate here the advantages and disadvantages of greater flexibility of for governors to the advantages and disadvantages of cutting back the amounts of money that they have to spend. And if too much flexibility is granted as it might be be under a brock grant, and if too little money is available as it would be under the proposals we have seen in the congress for block granting medicaid, the consequence will be are low income people who will not receive health care in the way they do under current law. I think that pushes us in exactly the wrong direction. Okay. Lets talk about another aspect of the health care sector. Certainly a lot going on this federal policy, but a big issue, we spend 18 of gdp, many other advanced nations spend about half that. According to a study that we did with the institute of medicine, they identified about 800 billion in annual waste. And thats more than we spend on k12 education as a nation. So theres an enormous opportunity here or an enormous problem. So what policies can be done at the federal level or the state and local level, frankly, that can stimulate efficiency for the system as a whole rather than just on the subsidy question . I think its a great question, a very important one, and i would start by going back to the discussion about incentives. If you give incentives for people to seek lower cost outcomes for the same value, they will definitely do that. The second is to think more about best practices. We know in the meld care Program Medicare program, we have the dartmouth research, so theres much the medical profession can do in best practices, and we can learn a lot from case studies. We know of companies and Hospital Systems that have done a very good job. You ask yourself, well, in most industries dont people just automatically learn these productivity practices . But, again, thats about incentives and the surplus thats involved. So i dont think this is an unsolve to bl problem. I agree with glenn. Let me offer some specifics that i would pursue. First, i take glenns point about the value people having some skin in the game. Obviously, not for most expensive procedures, but for other procedures, and we can increase skin in the game in a few ways. If we met the socalled cadillac tax take effect, that will encourage insurerses and employers providing insurance for their employees to design insurance policies where people pay somewhat more out of pocket. The less expensive plans on the new insurance marketplaces actually require larger share of payments out of pocket than most americans with Health Insurance pay. So we can address some of this on the employerprovided insurance through the cadillac tax. We can address some of this in medicare by restricting the ability of policies to till in totally around the basic medicare package, and there are ways to do that that i think can be sensitive to the needs of many people. I think we also can change the way medicare pays providers for Health Insurance. Medicares the single largest provider single largest payer for health care in the country. So it sets the standard for good and for bad, and there are a whole set of experiments underway now partly through the center for medicare and medicaid innovation, partly through the general work of cms and hhs, and this changing the way providers are paid for example be, through bundling of payments for episodes of care rather than for individual items of care. I think its huge potential. We need to let a lot of Different Things happen here. A thousand flowers should bloom, and we will learn through that process, i think, how the government can be more effective. And meanwhile, as glenn said, much of the important 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 the Health Care System other people call one more shot at finding out whats wrong. And even if after the fact those can be distinguished fairly cleanly, its hard to distinguish them going in. And part of why the United States spends more for health care in other countries is that we have an attitude toward health care of doing anything we can. And as a person, i have sympathy with that. We all feel that way in individual cases, but unless we shift that a little bit and recognize that some things really arent worth doing for the people who we affected, its going to be hard to wrestle that 800 billion down to a small number. Okay. Lets move on to infrastructure. As you know, the president has called for a trillion Dollar Program which includes public and private funding. Glenn, how do you feel about how to allocate that between public and private . When do you think this will happen . Is it an opportunity for bipartisanship in this environment . Well, let me begin by every time Larry Summers tells me that Laguardia Airport is terrible with which i agree [laughter] i remind him that the lack of capital is probably not in my top five excuses. More Port Authority of new york and new jersey and the regulatory burdens of airport changes. The first be thing weve got to do if were serious about an infrastructure strategy is speed be it up, make sure that we get regulation out of the way where its in the way. Then the question is how do you do it. I think of it almost like tranching. The federal government involvement ought to be for the federal involvement ought to be for the riskiest cash flows because actually most of what is needed could well be funded by the private sector. There may be some role of the federal government. Now, to be fair, i think the Trump Administration means the total infrastructure not the federal government share, thiess thats what i hope they mean. But i think the private sectors plenty up to that with a better Regulatory Environment. So thats where i would put my energy. I agree about Laguardia Airport being terrible, and i agree part of the problem surely lies in local Decision Making and lies in regulatory obstacles. But i dont want to downplay too much the role of federal dollars here. There are a whole set of infrastructure types where it is not really possible to involve the private sector in a particular way. The if you look at the beltway here in virginia, there canning be a new toll lane built by a private contractor. Although to be clear, its not obvious that salves the populace money. If the federal government borrowed the money, it would boar borrow it at lower rates. What youre not going to do in the private sector is to remain the american lean bridge or fix the lanes that exist or fix local roads or fix schools or build Water Treatment facilities. There are an awful lot of things that we do that are intrinsically public. They are the public goods. And be you could do some contracting with the private sector in some cases, but fundamentally, this is an allocation of public funds. And under the current caps on appropriations, federal nondefense Discretionary Spending will soon be a smaller percentage of gdp than at any point in my rife time. My lifetime. About half is hableed investment labeled investment by the omb. So if youre going to squeeze the whole amount, the other half is Veterans Health care, transportation, security and be so on. I dont see a lot of uproar to cut back on those things. So were on track to really squeeze federal spending on Infrastructure Investment before you come to a proposal to take another 10 of off next year which the administration has put forward. Whether you these a trillion dollars more 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. Talk to us a little bit about Public Private partnerships, glenn. What types of projects or investments do you think are appropriate for that, and where are they most useful . Well, i think doug identified one way of thinking about it which is project by project whats government and or not, another would be thingses hike an infrastructure or bank like an Infrastructure Bank which i agree with in principle but worry greatly in practice that the last thing the nation needs is another drain on the taxpayers thats prick public and private. I think it comes down to figuring out which the government should be involved in and which not and working with states to make sure they have an environment to move forward. I dont know what the administration will do, but i doubt it would propose a trillion dollars in actual spending, i just dont see how thats possible. And do you think itll be in the form of spending or tax credits or a combination thereof . It could well be tax credits. During the campaign i know wilbur ross had written on this. Im not privy one way or another. Thats another example, but its going to cost the government money. Some of us think of tax centss as spending actually. So dhoakd it either way. The the real question is how much do you need, what should be the governments role and what nonfinancial things are you do doing to insure the success of the enterprise. Do you have a view on tax cents versus actual spending . Is that meaningful for you . I agree with glenn, we should think about both of those as a use of federal resources and which would be more effective in particular circumstances. As i said, there are certain aspects of Infrastructure Investment that might be be effectively spurred by tax credits, but i think theres a great deal more. I worry about the broader Regulatory Environment as glenn says. I worry about the choice of projects. If we could be more rigorous many our cost benefit analysis of Infrastructure Investments, build more crucial or transportation hubs and fewer 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 necessarily. Theres literature of different sorts of government [inaudible] and i think there is no very sharp, broad answer to which is more efficient. I think in some cases that can be the private sector. So im not against tax cents per se, but i think tax credits per se, but i think the view that that is 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 it, you mentioned earlier because of the low Interest Rate environment, you think its the right time to do that. As you look over the medium and long term when were looking at deficits as far as the eye can see, that cost of capitals going to change over time. How do you think about Interest Rates in the future and how it impacts the decision today . Well, i think what we need to do for our budget is we need to this is not a new line from from me we need to think now about a set of changes that we would phase in gradually over time. I do think that the persistently low track for Interest Rates means that process can happen more slowly and 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. And it is much better to start or those things, put those things into law now. Remember that we are still in the midst of an increase in do retirement age for Social Security that was legislated in 1983. 34 years ago. So if you want to have cutbacks in spending for certain programs, 10, 20 years from now, now would be the time to enact them. But i also see no prospect of that happening. [laughter] because there is a persistent delusion fed by some officials when dont know better and some who do know better that the way to tackle the federal budget is to cut back on the, quote, waste. And im not against cutting back on waste, but thats not where the action is. The action is in benefit programs. People like them. 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, and i see very little prospect that the Republican Leaders in congress will try to tackle those programs. Okay. Lets, lets move on to immigration. Its often viewed as more of a social issue and, obviously, a lot of controversy around that, but there are big economic implications and big first be call implicationings. So how would you use immigration policy to help stimulate growth and deal with our deficit . Immigration is two stories in the u. S. , and unfortunately, they get conflated. One is a story about extremely high skilled immigrants, so think engineers, physicians, mba students. I wont put lawyers in that category [laughter] all other highly skilled people. To me, there should be very little argument. We would want more of these people in the United States. I mean, this should be easy. Unfortunately, its not easy. The fight over the h1b caps and so on. And then theres another debate which is about low skilled immigration. If if we dont think that high skilled immigration is really worsening the lot of high skilled americans, do we think that at the low end . And there the jury is quite out. One of your colleagues, George Borjas 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, it says we welcome people that are in the nations interests which would be skills suitable for work that needs to be done as opposed to a family approach or an open borders 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, one of those camps if we are going to beat down the, sadly, antiimmigration rhetoric that were hearing. Closing the borders would only accelerate some of the automation trends that are also harming prospects of low this many americans. I think politics will have to go in one of those two directions. How do you think about immigration . I agree very much. Let me add a few points. The first is if we have people moving into the country without a lot of skills and thereby lowering the wages of less skilled nativeborn workers ors then we really do have to follow up with subsidies. Right. For those workers. If you think about trade policy, economists have known for a long time that greater International Trade generally raises a countrys average standard of living. Weve known for a long time that greater International Trade can lower the standard of living for some people. And when we teach economics, we say, well, more trade might be an improvement, but to make that happen, you have to subsidize the losers from the winners. But we havent actually done that very well. Be weve proceeded with great increase in trade, i think more heavily simply by the growth and engagement with the World Economy of developing countries. Weve had an increase in pressure on lower wage workers from trade. We have not actually which i think has been in in many ways n good for the country as a whole, but we have not stepped up to bolster the wages of the people who have been hurt. If we in this room and other people talk about changes that are good for the economy as a whole but bad for low wage or middle income workers, then we really need to step no not just step in not just on the rhetorical levels, but on the levels of policies, to compensate them. The we could thing i would add is the nice framing we face Going Forward gets obscured in policy discussions in part by debate about people who are already here. And we need to, i think in some ways, reach some resolution regarding people who are already here so that we can focus on immigration policy on a forwardlooking basis. Its not the only aspect of Economic Policy where i think we are stuck in a fairlier the april, not fairly sterile, not constructive debate, badly confused by people who are here. So thats another piece i think we should separate out and try to think about separately and in a rational way. Glenn mentioned automation. How do you think about it . Is that something to be fearful of . And interestingly, what are the fiscal implications . Can you tax the robots . [laughter] well, as you know, theres a debate now going between bill gates and Larry Summers and others on whether one should tax robots. Im not a particular fan they dont vote though. Thats true. [laughter] i think we should not fear automation, but we should respond to it actively not just by watching out happen. So i think its very much like trade in this way and in many ways more important than trade. We should not try to stop technological advances that make workers her productive, but we should recognize those technological advances will drive some people out of work and that their loss of income, their loss of selfworth there not having jobs that they are good at doing and enjoy doing, there are really serious social consequences. If you look around the country now, there are, i think, three and a half 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 of them arent earning enough money to lead successful lives as part of a society. And the rise of selfdriving vehicles over the next few decades will, i presume, cost many of those people their jobs. I think a solution is not to ban selfdriving vehicles, but the solution is to work very hard at providing good jobs with good becames for people wages for people who will lose their jobs otherwise. And some of that can be with the wage subsidies you talked about. Theres also the question of how to provide benefitses for people, nonwage compensation for people. It used to be that many less skilled workers worked for Big Companies that had also a lot of high skilled workers. They provided pensions and Health Insurance and other forms of compensation tailored in some ways better bull of their for the bulk of their work force but [inaudible] were beneficiaries as well. And as weve had more breakdown of that relationship, more Large Companies hiring their low skilled from other firm, we have more people who do not receive pensions and what have you. And we can find ways to help those people build Retirement Savings and obtain Health Insurance and so on. This is a lot of things we can do to help people who are hurt by this technological progress, and thats what we should focus on. I agree with that. I think its ironic given that the president was elected you have because of some of these that were not seeing more of a discussion of policies that would actually improve these peoples prospects of which i would put wage subsidies at the very top of the list. You know, most u. S. Labor policies come from the 1930s and from a very different set of fears and congresseslation of events constellation of events that American Workers now face. So on both sides of the aisle, we really have to discuss this, and i hope our political process is up to that. One last question about u. S. Corporations and the cash thats sitting on and often used for share repurchases, any way to get that capital morefectively into the economy . I know of no Business Leader or that would not be want to grow faster if he or she thought it was profitable to do so. So the notion of Business People arbitrarily sitting on cash, aye never met such a person. I think once cantations are reset about growth, Corporate Tax rates are lower, Interest Rates start to rise as they are, i think youre going to see that tradeoff change, and you will see much more substantial use of capital for Real Investment. After all, in the tax bill the movement to a cash flow tax would make it clear that the use of debt for Financial Engineering would no longer receive a tax preference. It would be fine if, with expensing it would be fine, same tax treatment for a Real Investment but not for fan engineering, and i think thats very healthy. I think with better policy you like the idea of repatriation . Completely. We should have a territorial tax system with no residual tack. And one of the reasons, as i mentioned earlier, that i rather like partial border adjustments is that they are a disciplined device on some of the taxplanning games that Multinational Companies play. So i agree with glenn that tax policy could help to encourage investment. And i agree that at the moment business, animal spirits are riding high. But im more skeptical that well see a big change Going Forward. In terms of the level of investment. One is that im not persuaded that the animal spirits are going to stay where they are. I think there are understandable reasons why Business Leaders are pleased to see a new administration and new congress focused on tax relief of and regulatory relief, but whether tax reform can happen, whether regulatory changes are significant, whether instead the capital is tangled up in other issues, i think therell be disappointment to come on a large scale, and that will cause Business Leaders to animal spirits to retreat. I also think part of what were seeing in terms of Business Investment is per sense by businesses perception businesses that there are fewer good with opportunities to invest, but some of that may be fundamental in how the economy is changing. With an aging population, we have a more slowly growing labor force. We need less investment to equip each new worker or with existing capital as existing workers. Weve had slow growth now going back for more than a decade, can 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 parking lot of what were seeing here is just a shift this Economic Conditions that are 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 being low. Because there is just a fundamental shortage of good Investment Opportunities relative to what weve seen at some points in the past. It doesnt mean that you cant move around this new, what i think is this new equilibrium with appropriate policies, but i dont think we should expect a return to where we were two decades ago. Glenn, any final words . Were out of time, but do you want to add anything . I do think the lack of capital deepening has been a key role in lower productivity growth, so this is the right place to look. I agree with doug that its challenging, but i still think better policy could materially move the needle. Good. Well, on behalf of nabe, i want to thank you both for being here. Thank you. [applause] [inaudible conversations] in this next part of the concern, nobel prizewinning economist angus deaton talks about the effect of health, immigration and be race on poverty. This is just under an hour. Thank [applause] thank you, stuart. Good afternoon, ev