The First 100 Days: Economic Policy – Moderated by Kathleen Hays

The First 100 Days: Economic Policy – Moderated by Kathleen Hays

– Welcome. Good Evening. My name is Joy Connolly and as Provost I have the privilege of welcoming you to the Graduate Center of the
City University of New York. For those who are watching a live stream thank you for joining us,
too, wherever you might be. Tonight, I’m proud to
say, marks the opening of our First 100 Days programming
at the Graduate Center. This is a seven part series
designed to help us all navigate, learn about,
this new political era, a new administration, a new President. Conversation over the next several weeks will delve into topics that
will be familiar to you, of interest to all of
us, immigration, activism it’s history and it’s purpose now, trade, inequality, and
other timely themes. And all of these discussions will feature Graduate Center scholars and other figures of national
recognition and importance. So we hope very much that
you’ll come back often and develop a portfolio
of citizen strategies to, as I say, navigate this new political era. This evening’s conversation focuses on what was for many arguably
the most important topic of the election and
a decisive one for some. Our own Paul Krugman has
written extensively about Trump’s economic policies explaining how, “The plans would benefit the rich “and ethically challenge
businesses,” as he puts it. In his columns he has criticized how Trump and his allies are making it a priority to unravel financial reform and I quote, “Specifically the parts that protect “consumers against predators.” And that Trump sees international trade the way he sees everything else, as a struggle for dominance, in which you only win at
somebody else’s expense. Our panelists tonight will untangle both the realities and the unknowns of what some are calling Trumponomics, if indeed it deserves that name, and I wish them success in that
worthy and complicated goal. The discussion is emblematic of what we do all the time at the Graduate Center. This incubator, this
building, which incubates vigorous debate reflected in our doctoral and master’s programs, our 30 plus centers and institutes, and the dozens of events
we hold here every week. It’s essential to note,
and I think many of you may know this, but it’s
always worth saying again especially now that our PHD students here at the Graduate Center reach about 200,000 undergraduates every
year in CUNY’s classrooms and labs all across New York City. Almost 40% of these
undergraduates come from households with annual
incomes below $20,000, 42% are the first in their
families to go to college. We couldn’t be prouder to be
part of this extraordinary project in reducing
socioeconomic inequality. So for these, and many other reasons, we’re especially pleased to
present to you tonight’s event which features several of
the nation’s most prominent thinkers from across
the political spectrum. Dan Alpert is the
founding managing partner of Westwood Capital and its affiliates. He has more than 30 years of international merchant banking and investment banking expertise
including a wide variety of bankruptcy related
restructuring experience. He has researched and written extensively on the housing and credit bubbles and the resulting economic crisis and is widely quoted and
featured in the media. Jason Furman joined the Peterson Institute for International Economics,
as senior fellow, in January. Prior to that he was
a top economic advisor to President Barack Obama for both terms, serving as the chair of the
Council of Economic Advisors for three and a half years, and also as chief economist
and member of the Cabinet. Before joining the Obama Administration Furman held a variety of public policy and research posts and taught
at several universities. James Pethokoukis is a
columnist and blogger at the American Enterprise Institute. Previously, he was the
Washington columnist for Reuters Breaking Views the opinion and commentary wing of Thomson Reuters. He was also the business
editor and economics columnist for the US News and World
Report for 11 years. He is an official contributor to CNBC and to my knowledge the only
former Jeopardy champion (crowd cheers) on stage tonight, 2002. Finally Paul Krugman is a Nobel Laureate, New York Times columnist, and author, distinguished scholar
here at the Stone Center on socioeconomic inequality, and distinguished professor in
the PHD program in Economics. He has been called the
most important political economist in America by
the Washington Monthly, and is the author of
numerous best selling books including, End This Depression Now! And it is now my pleasure to introduce our moderator, Kathleen Hays, is a global economics and
policy editor at Bloomberg. Recognized as one of the
top economics reporters and anchors she has covered the US economy and the federal reserve
for more than two decades. She joined Bloomberg in 2006 after years as an on air and online
economics correspondent at CNN, CNN FN, and CNBC where she served as post correspondent and
commentator for numerous programs. She began her career
as a print journalist, first as a founder and the New York Bureau chief of Markets News International and later at Reuters and the
Investor’s Business Daily. Please do join me in welcoming all our distinguished speakers. Enjoy the evening. (audience applauds) – Well thank you so much for
that lovely introduction. It’s, for me, it’s a real
pleasure and privilege to be here with such a distinguished panel and all of you here to talk about the First 100 Days of Trumponomics. From the title you can
tell that we’re gonna focus on tonight is economics,
the economy, business. We’re gonna look at those aspects of what Donald Trump has proposed, what he’s done, and debate what they
mean, if they make sense, where he’s taking the country
or not taking the country. And we’ve asked each panelist to start by just giving us a brief statement on some aspect of what they see so far, and we’re gonna start with Paul. – Okay, and I have to say of course I was involved in the planning of this, and this is going to
be a serious discussion and as non political as
anything involving this can be. But I could not resist,
last minute decision, I did have to start out
with a too long Trump tie. (audience laughs) – All right, well that’s serious business. – Okay– (audience laughs) When we conceived of this panel we thought we’d be talking about, all right here is the agenda
that the Trump Administration has laid out and here’s
what’s likely to happen, how it’s gonna play out. The situation right now
is very, very different from I think anything
that certainly I imagined which is that at this point we still don’t know what Trumponomics is. That we are, right after the election I think there was a
widespread point of view, widespread expectation that
we’d be seeing something that some of colleagues call
a Reactionary Keynesianism. That we’d be seeing a
big infrastructure plan, that we’d be seeing big tax cuts. We’d see an overhaul of health reform, or dismantling, whatever it would be. And then perhaps, also,
some serious turn towards protection and his trade policy. Maybe all of that is going to happen, but so far nothing has happened. I think the most striking
thing for me right now is that there is no legislation, not only nothing passed,
nothing submitted, not even an outline of
what the legislation is likely to look like. At this point we still don’t know how much of what appeared to be the
agenda during the election and in the weeks immediately following is actually going to be
translated to anything practical. No movement at all I’d
say on infrastructure, lots of back and forth, maybe
something happens on taxes. Jason I think has more views on what’s likely to happen than I do. Contrasting, here’s where I really like to have Jason here, by the way, ’cause if you contrast
this with where we were at this point under the
previous administration you’d already have the Recovery Act 850 billion dollars of
fiscal stimulus passed, although it took quite a while before health reform was passed the broad outline of
that reform was in place. If we look at the
administration before that the broad outline of the Bush
tax cuts was already in place. So there’s an amazing
stasis right now that we’re, a stall, whatever it’s
that things seem to, at least for the time being,
to be stuck in the mud. And the interesting question
is how does that get resolved? When does something really happen? What is Trumponomics in reality? And we don’t know yet. – Jason Furman. – Thanks so much for having me here including many in this panel, Paul told me he wanted it to
be completely not political so I didn’t bring my extra tie. – Because it’s not in
the fashion statement. – Want to talk about, in this opening, what we can infer from what’s happened to markets since the election,
and to cut to the answer it’s gonna be very little for a few reasons. The stock market’s up about 10% since the election, so I get the question from a lot of people, what does that mean about Trumponomics and the impact of it? And I think there’s three really important points to keep in mind. One is markets don’t
always know everything and aren’t always fully foreseeing. I remember an economist in March of 2009 wrote a rather notorious
op-ed about how much the S&P had fallen under President Obama, and this was the ultimate proof that his economic plans were gonna fail. And I think the very day
that op-ed was published is when the markets
started one of the most extraordinary rises it’s ever
had over the next many years. But it did take until mid March, even though things like the Recovery Act were passed in February, for
the market to turn around. So part of why the market is that way is it seems to me that a
lot of the positive things are being assumed as if they’ll happen, infrastructure, corporate tax reform, and the negative things trade wars, and interference with
businesses not going to happen. I don’t know what’s going to happen, like Paul says we know
very little right now, but I’m less convinced that all of that. Second thing I’d say is to understand what the stock market is. The stock market takes the
present discounted value of corporate earnings and figures out how much they’re worth today. There’s three reasons
that that could go up. One is that GDP goes up, we have a bigger economy in the future. The second is the fraction of the economy that goes to companies could go up. And the third is that
you could have less risk or a lower discount rate. That second one’s really important. If you have a corporate tax cut, even if it doesn’t increase growth, it means corporate earnings go up in the future after
taxes, stock prices go up, but that doesn’t tell you anything about the size of the economy overall. And then the last point I’d make is that ultimately the test of the economy is how households at the
middle, the bottom 90%, poverty, whatever it is you want
to look at a number of different measures which
tend to move together almost tend to not co-move very closely with the stock market in part because, as I said, the stock
market doesn’t tell you what’s going to happen to GDP. And even if it did it
certainly doesn’t tell you what’s gonna happen to
the distribution of GDP. So I would infer relatively little so far. Obviously it’s great that we
have a big burst of optimism and confidence in our economy sometimes that can be self-fulfilling, more often, absent fundamentals that are underlying it it can be the opposite of self-fulfilling and correct itself in a rather ugly way and I think we all have to
hope that’s not what happens. – [Kathleen] All right, James Pethokoukis. – Yeah, there’s a few different things I like to think about, so
not a lot has happened. A lot of this legislation
doesn’t look like it’s moving particularly quickly. I was told by many people on the right that lookout you are
just gonna see a blizzard of legislation, very quickly,
tax reform, Obamacare. If we were sitting here in summer of 2018 still talking about what’s
tax reform gonna look like maybe I wouldn’t be shocked. So I’m still sort of thinking about how I should think about policy
in the Trump Administration and a few of the things I think about are one, nostalgia, to what
extent will his policies be driven by nostalgia for the past. There’s one thing that’s really jumped out among many things during the election when it comes to economic
policy was a speech that Trump gave in
Pittsburgh in which he talked about I think it was his
American steel speech where we need to start building bridges and things with American steel. And we need to reopen the coal mines, and it was a very sort of backward looking to the sort of 1950s and 1960s speech. What was especially weird about that was that there was
Pittsburgh sitting there where you had Google and
Uber just hiring like crazy but he never mentioned Google or Uber, or really ever mentioned the
technology part of the economy. Never mentioned any threat
of automation of the jobs or how we should deal with that. So going forward to what extent will his policies be driven by nostalgia? I think another thing,
and this is one thing that’s super concerning, and I’m sure it’s concerned everybody on the panel is recently we’ve heard about they want to sort of refigure how they calculate the trade deficit during the campaign. Trump questioned whether these were real sort of job market numbers. They seem to be trying
to phony around with some of the GDP numbers, how
they do their GDP forecasts, so I’m gonna be really
concerned and interested going forward and hopefully
more interested than concerned about how they actually sort of quantify economic policy, how
they calculate things, so that’s a fairly large concern. I’m also concerned about the sort of the Know-Nothingism of Trumponomics and that’s when I see
the immigration policy which seems to be just really an amazingly self-defeating thing. Not only, you can say the moral aspect, but also one of, what’s
sort of the secret sauce of the American economy is our ability to attract talent to the
United States of America. We have a lot of people,
very talented people, in this world who think
that if they want to do something great with their lives there’s no better place to do it than
the United States of America. And I fear that fewer
people will think that a year from now, probably last week, during this administration. And, also one thing, I also
wonder we should pay attention to who is making policy
in this administration? Is it Steve Bannon? Is it Gary Cohn? Is it Ivanka Trump? Or it the Congressional Republicans? I can tell you that a lot
of Congressional Republicans going to the administration
thought of Trump that he’s going to be
a very weak President and they’d be able to roll all over him. And when we see that the first, I think we’ll know if that’s true when we see this tax plan if it looks more like a Paul Ryan tax plan
or a Steve Bannon tax plan. – [Kathleen] All right, Dan Alpert. – So there’s probably three major issues that we need to think about going forward. One, I’ll classify it
as trade and treaties and that’s very complicated
because you have not only the issue of the
blunt force kind of tariff discussion that he was
having during the campaign, but you have some slightly
more artful things that could come about that would be
very interesting to see. You have the issue of tear ’em up the whole rhetoric about treaties. And yet, within that
discussion there’s actual practical discussion to some modifications that need to happen potentially. Even recently I’ve heard a groundswell of interest in withdrawing from the government procurement
protocols of the WTO Treaty. I mean there’s all sorts
of things under discussion, I agree with you, it’s very hard to figure out who’s leading the charge. The radical populist Keynesian kind of infrastructure plan,
domestic fiscal spending, putting aside the issue
of the traditional desire of Republicans to cut social programs clearly one of the most beneficial things and I think Paul would
probably agree with me that he could do is
actually perform on his campaign policies with regard
to infrastructure spending, and then domestic taxation which I think has already been covered in part. But part of that is also
policies that will tend to provide disincentives for
certain corporate behavior as an exchange for a
reduction in corporate rates. That’s very interesting as well. Again, don’t know whether they can get their act together to
nuance any of this stuff but there’s three things I think that really come into play when you
get beyond the actual policy. One is what is going to be the interplay between the traditional, ideological, Republican positions
and Trumpian populism? I don’t think we know that yet, I think you alluded to that a second ago, that has yet to play out and
we’ll have to see what happens. The other thing I think
that’s interesting is, and I’d love to hear other
panelists talk about it, part of all of this
really depends on coming to some sort of consensus on what brought him to power in the first place? It’s very easy to sort
of pick up the Russians, or opioid addled middle aged white people, but at the end of the
day what is the ultimate groundswell that brought him to power? It’s very easy to write
it off to 77,000 votes in four states and say,
well it was just a fluke. I don’t know that that’s
really the appropriate approach to take intellectually. And then the only other comment that I think we need to at
least address in part is in order to understand
what’s gonna happen we have to have some
understanding of who this guy is. And I’ll have some comments on that later, at least from my point of view. And then finally the wonderful thing that I think is so exciting is my god, monetary policy has taken
an enormous backseat. We barely hear about it anymore. Kathleen you were there with bated breath every moment–
– I still am. – Worrying about what the Fed is gonna do and now no one seems to care. – And it drives me crazy. For eight years we had a policy of not commenting on the Fed and everyone wanted to talk about the Fed. Now I finally can and no one’s interested. – [Dan] Yeah, no one cares,
I call it the monetary fade. – Well, gentlemen, I want
to jump in on this question of the market because I think that I would guess there’s much anti-Trumpism, and much it’s not doing anything,
it’s not going anywhere, but there’s been a lot of
talk about animal spirits. There’s been a lot, you’ve
seen consumer confidence rise, we’ve seen small business
optimism shoot up, so obviously, and I think
this goes to something you just said, why was Trump elected? People were waiting for something, they were waiting for a difference, and the person who came
in to make a difference just happens to be Donald Trump. And there seems to be an expectation that he is gonna lighten
the regulatory burden in many ways on businesses,
small businesses, feel this mightily so
let’s start with you Jason. And I want everybody to jump in on this. Is there some validity to this? Is this something where Donald
Trump could make a difference which Democrats somehow didn’t
pay enough attention to? – Yeah, so, I think there’s
three interpretations of what we’ve seen in confidence and we’ve certainly seen it on consumers, small businesses, large
businesses, a range of things. One is that it will
ultimately be justified and we’ll see a set of policies that are consistent with this set of confidence and it will all work out. I think that’s a possibility. A second is that confidence
is self-fulfilling that consumers are confident,
businesses are confident, they go out and invest
more and they go out and spend more and so it
will become self-fulfilling. I’m personally a little
bit more skeptical of that, I don’t see a lot of evidence that lack of business confidence
was holding back investment. I think it was lack of demand that was holding back investment, so similarly I don’t see a lot of
evidence going forward that just because businesses are confident that they’re actually gonna
feel they can build a factory. It requires more than
that but it’s possible. The third is it could be Wile
E. Coyote type of situation where you’re sort of running
forward you look down and you realize there’s
nothing beneath you. (audience laughs) – This is a widely used
metaphor in economics. – And I think that’s a
distinct possibility, as well. Just to give one example though
of sort of the disconnect again between some of this confidence and some of the reality, I had an op-ed in the Wall Street Journal
today about something called the conflict of
interest rule or fiduciary rule this is about protecting
retirement savers. The administration is potentially on tract to getting rid of that rule,
if they did that actually would reduce costs for some brokerages, it should raise the stock
prices of some brokerages, but it would have large costs for middle class consumers
and for the economy. So again, they may be confident
and excited about that that’s not the test we
should have for that rule. Policy makers should
think about net benefits not gross cost to businesses. – I just want to, right
at the beginning Jason, you sort of said 10% rise in
stocks, which is about right. And that we want to think a little bit about some perspective,
over the past 20 years we’ve had two of the largest asset bubbles in the history of the world. First a stock bubble
especially tech stocks at the end of the ’90s and
then the housing bubble and the housing bubble
appears to have gotten home prices and large parts of the country have roughly double of what was actually justified by the fundamentals and it all did come crashing down. In the case of tech stocks
it was more than that which is not saying that
every rise in asset prices is a bubble but it’s
saying that at some level trying to justify an asset price move of that size is a mug’s game, people have bought into a story. The story may or may not make sense, it certainly doesn’t necessarily represent any great deep insight
into where things will go. The fact that people bought
into an optimistic story in the months after the election, and small businesses bought into it, some consumers did, may
not really be telling us anything about Trumponomics. May not even be telling us about what their problems were before. It’s just a story that caught hold. – I’ll go one step, I’ll
take that one step further. You said that the function
of the stock market, or what the stock market does
is discount future outcomes. The fact is that some
of those future outcomes are literally the next trade, right? It’s the greater fool theory,
it’s the whole concept that if you believe there’s
momentum behind a market you are going to play in it. You also have to look at
the fact that this was a if you look at the equity
markets in general, going back a year before the election, they were fairly mollified,
they weren’t doing anything and traders were moving
sideways and in and out of stuff but there were no major movements. This gives everyone a chance to play, and I think that some of
what you’re experiencing today is a lot of pent up
desire to make some money quick. It’s a momentum market, I
don’t believe it’s driven at all by fundamentals,
it’s obviously driven to a certain extent by some wild guesses on what might happen in
policy but that’s about it. – The idea that you have
investors, they like the story. In December there was
a hedge fund manager, big hedge fund manager at Ray
Dalio he wrote a research note which was very widely
distributed, went viral, talking about animal spirits. That’s when that phrase really kind of penetrated into the
conversation that perhaps kind of not just the tax
cuts, or the regulation, but the fact that Trump was
pro-business more generally, pro-capitalism, that
that was gonna release these animal spirits and
the market’s gonna go up, they think they’re gonna be fantastic. And in that note there was one word, in one sentence, about trade. That well, Trump’s views
on trade may not be typical of what you would expect to see
from a Republican President. One word on trade which
encompasses Trump’s entire thesis about the economy,
something he’s been talking about since the 1980s. His cosmology is that
America has been screwed for four decades because of trade. And if you look who Trump
has put in these positions, whether it’s the Commerce Department, the US Trade Rep, he’s
created a trade council. He seems to be taking that part of his agenda pretty seriously, and I would wager far more seriously than some of these market bulls are. – I’ve just said that that in terms of who he is leaving
aside more psychological, there’s not a long record over the years of Trump seeming to care a
whole lot about infrastructure, not at all about him seeming
to care about tax reform, but trade has always been central to his world views, his cosmology. – Have you ever seen? You should go on YouTube
look at his appearance on Oprah Winfrey in 1987
where he’s talking about Japan beating the hell
out of US companies. – Oh but as a matter of fact we lost a lot of jobs in the ’80s you guys. Manufacturing got
hollowed out in the ’80s. Trade was not good for the
United States in the ’80s. Sure it increases your
GDP and your growth, but you know who benefits
mostly in some cases? Big companies, big multinationals, a lot of American workers lost their jobs and that’s one of the big reason that Trump won the rust
belts, go ahead Jason. – Yeah that’s one thing, broader thing, and then to address that on trade. There a real asymmetry
in economic policies. If they did all the best
economic policies in the world in terms of regulation,
corporate tax reform, et cetera. I think it could add a couple
tenths to our growth rate on an annual basis going
forward and that’s because we’re at full employment, not at, we’re close enough to full employment. Not a whole Keynesian room and we’re at the production frontier for the world. We have the most advanced technologies and pushing that further is hard. That’s what we could do on the upside, the downside with bad policies,
a trade war, et cetera you can take a lot more than a few tenths of the growth rate, so that risk and that asymmetry concerns me. In terms of trade let’s take
the case of steel, for example. China behaves terribly on steel. They subsidize their companies, they have massive over
capacity, they dump, they engage in other things. Let’s just take that as
given because it’s true. The question then is
what we do about that? If we try to do something overly extreme and unilateral it will
raise the price of US steel more than Germany is paying for steel, and Japan is paying for steel. We have a lot more
manufacturing jobs downstream that are using that steel, for example, to produce autos than we have
in steel in the first place. And so we would disadvantage
our auto companies, relative to German and Japanese ones, and probably end up costing
us manufacturing jobs. Even if you wanted to
move back to the past, you wouldn’t do it. Another approach is you get
together with Germany and Japan and have a multilateral approach where we all deal together with
global steel overcapacity. Maybe that could deal with it because then you’re not raising US steel prices relative to other countries. My thought about their
ability to do something multilateral versus unilateral on this is well I think you
all have a thought too. – [Kathleen] Paul Krugman, he
won his Nobel Prize for trade. So let’s here what he has to say. – Um, that trade is really interesting. One big political economy question is can Trump actually put something he really clearly feels strongly
about into practice? And that’s gonna be an interesting thing, because if you, the notion
that the United States has been screwed by
tremendously asymmetric deals and so on is not true. That doesn’t mean that
you couldn’t go ahead and start doing protectionist stuff, but the consequences
of that are very large. You get retaliation you get emulation, you basically tear down
the whole trading system that the United States built. Now maybe he’s willing
to go down the route or maybe he wimps out as people
try to explain that to him. Suppose we do actually have a substantial, well no sorry momentary digression, I actually spent one year
at a sub-political level in the Reagan Administration. I was on the staff of the
Council of Economic Advisors the international, the domestic– – [Kathleen] Who was the head then? – That was Marty Feldstein. The domestic head was a guy
named, what was his name? Summers, Larry Summers, don’t
know what happened to him. (audience laughs) It was an interesting time, but I would be the guy behind the table in meetings about trade and there were a lot of people in the Reagan Administration who didn’t have any idea
what they were talking about and they would say
something we should do this and then a guy from USTR or
sometimes from State Department would say that would be (mumbles) illegal and that would shut off the discussion. Because even they, even
the ignoramus’s there understood that getting
into a global trade war was not something we really wanted to do. Now I’m not sure if that will
apply in this circumstance. But just back to trade suppose we do have a significant protectionist turn. I think a lot of economists, a lot of business people as well, assume that that would
de-recessionary right away. And that’s not obviously clear. The trade war would hurt our exports, it would also reduce our imports, the overall affect on demand is unclear possibly even a wash. It would make us less efficient. It would cut long-run growth. It would make us poorer but that’s a gradually unfolding thing. The idea that a turn away from free trade is a short-run recession
event is probably not right. But what it is is it’s
extremely disruptive which is not quite the same thing. That your typical US manufactured good, the Boeing Jetliner, you
stand in front and you say here’s a made in American product. Well, some of it’s made in America. In fact only a little
over half the value added it’s an enormously complex
international process. If the trade arrangements that we have now start breaking down then some pieces of manufacturing, maybe steel, benefit. Other pieces of manufacturing are hurt. It’s a lot of abrupt
shocks here and there, some positive, some negative, which is a little bit like
what the Riser Trade did, we talk about the China shock after 2000 which probably did
contribute to some of this disillusionment that helped Trump win. But if we have a protectionist
move there’d be a Trump shock which would again produce lots of domestic winners and losers in ways that I think, I don’t think it’s captured as simply a question of what happens to total manufacturing jobs. It’s a question of what does it do to communities here and there? And it would be pretty
bad for quite a few. – Well I just have to ask you, can it not be possible, I
think that everybody thinks Donald Trump wants a trade war. What Donald Trump seems
to want is new trade deals with individual countries. He thinks that you don’t get what you need and want in the multilateral deals. Is that a possible way for this to go? Also, as one of my smart
Bloomberg colleagues posed recently as we were
having the discussion about globalization,
there’s nobody who buys as much stuff, really, as a single country in particular as the United States. You’ve got big exporting nations, big current account surplus
nations, how can they, what that means is they
need us to buy their stuff. China needs us to buy their stuff. Everybody needs us to buy their stuff. So don’t they have to deal
with the United States? Go ahead Dan. – I think you need to
backtrack just a little bit and say well what does he
really think is going on? Whether or not it’s going
on doesn’t really matter. But what does he think is going on. And what I think he believes is that we have a subpar employment base. We have a very, very difficult situation. People are underemployed
from the standpoint of not doing jobs that
would earn them more money, and jobs that would potentially be more productive to the country. And he believes that the way that’s going to come back somehow is
by very simplistically recapturing manufacturing
jobs which obviously aren’t coming back in
the way that they left. But this all dovetails
you mentioned that we’re at full employment and
I have to challenge you on that since I don’t believe we are. About 60%, 62 for
production, for production non-supervisor jobs of jobs created between December 2007
and December of last year were in four very low wage sectors. Low wage sectors that not only involve low wages but also low hours. And when you take the
combination of those two things you have to scratch your head, why do people take those jobs? You have to say maybe that’s because they’re the only jobs
available to those people and they need the money in order to work. So the question, the notion of looking at the u3 Unemployment Rate or looking at job formation and saying oh this is great we have all these jobs being formed. Without actually looking at the complexion of those jobs I think is
maybe a little bit too facile. – Can I just, the question I have is, is not whether you can
have bilateral trade deals because we do, we’ve done that before and there’s a case against it, there’s some case for it. But the question is what
exactly are we dealing for? World trade is quite free
right now, both directions. There are not a whole lot
of barriers to US exports. There’s not a whole lot of US
barriers to imports either. I mean I used to teach a course on actual trade policy and it
was getting harder and harder to teach each successive
year because there was less and less stuff to talk about because we’re pretty open now. So what is the demand? He says well, the Japanese should buy, I think he said it was Japan, that they should buy more of our cars– – [Kathleen] Or the Koreans, both. I think he wants the Koreans
and Japanese, just Asians. – But how are they supposed
to make that happen? The notion that there’s a, that there’s something we really want in terms of a trade deal,
not in terms of outcomes, but in terms of the actual trade rules from other countries is not clear. It’s not clear what, suppose you went back and so we rip up NAFTA we’re
gonna start all over again. What is it we’re gonna
ask the Mexicans for? I don’t think they’ve
thought that through. I don’t think he’s thought it through, and I don’t think anyone around him has, because I don’t think they’re
clear about how it works. – And what happens when it doesn’t work? I mean he’s talked a lot
about the trade deficit. What happens when the trade
deficit is still huge? What happens when those
jobs don’t come back and the ones that do come
back end up being automated? So then what’s the next step? And I think people should
be extremely concerned, recently Peter Navarro who
sort of is his trade guru, gave an interview to the Financial Times where he talked about
undoing global supply chains. That global supply chains that are making that Boeing jet, which
are making that iPhone. That is an extremely
ambitious trade policy if you’re trying to
sort of rework and undo the entire global trade
system that’s more than just a tariff or reworking NAFTA. And the kind of thing
that’s going to cause I think not just a
downturn or a market panic is that kind of thing, that’s why I’d be super concerned about that he has a very ambitious trade agenda. – Okay well gentlemen I want
to ask you about Dodd Frank and we have to get to the
budget, and fiscal spending, and I love that the
Reactionary Keynesianism we have to get to that too. And austerity you were one of the people we had too much austerity for years, and now someone’s proposing something that seems less likely. But let’s start with Dodd Frank. Because this is something
that we don’t see any big steps being taken, yet, but there’s been lots of people bot sides of the aisle. Economists who are
liberal and conservative, maybe more conservatives than liberals, still saying that Dodd
Frank is way too big, is inefficient in some ways, it has way too many
regulations that increase the cost particularly for small banks, and if you just had a
few really tough rules. If you really for example made it hurt the head of a big bank,
if they really screwed up, instead of you fine
their bank $350 million and bail them out and
they keep their jobs. Maybe if people really had to pay you wouldn’t need all of these rules, because there would be consequences. Let’s start with Dodd Frank and say is there some reason to move ahead there? And will he, has he said
anything that makes sense to you? – I think you have to
start with the fallacy that’s being offered to the public about financial regulation. One we just had what I
think somebody called the Valentine’s card from Ted Cruz where he dropped the bill on doing away with the CFPB all together
on Valentine’s Day. – [Paul] The Consumer
Financial Protection Bureau. – But the whole issue
of financial regulation on the other side of the aisle and I think I’m clear on where I sit,
is that somehow we are impairing capital flows. We’re impairing money that would otherwise flow into new investment, into businesses, and ultimately create jobs. I’ve spent the last 10 years writing about a demand crisis and it’s very hard for me to stomach that as a reason to back off of the financial regulation that clearly was so necessary after
the actions that the Financial Committee took during the 2000s and even before that. Having said that, there are some areas with some institutions of certain sizes where the burden has become very great and this can be tinkered with, just as it would be in any
other form of regulation that will be tinkered with
over many decades to come. Any sort of radical position
that differs from that based on the notion of
there being limitless demand for money from credit worthy people who can actually pay it back if they take it is a fallacy and it’s unfortunate. – The length of memories in
this area is just astonishing. Tim Geithner has a great passage
in his book, Stress Test, where his wife is watching
some banker talk about how could the government
possibly be interfering in the financial sector with
these financial regulations? And she turns to Tim and says, “Isn’t that the person who woke us up “at 1 a.m. wanting the
government to intervene “so that his bank wouldn’t
go bankrupt three years ago?” Of course things in Dodd
Frank like any other piece of legislation can be tweaked, but our banks have a lot more
capital than they have before. Our banks are lending,
lending growth is proceeding perfectly fine, it’s
proceeding even faster at small banks than large banks. The two of the things that
would worry me the most are number one, financial
crises are global they spread from one country to the next. We’ve improved a lot our
international cooperation around things like for
example the Basel Committee and saying that all banks
should have a certain level of capital and then
it’s up to each country to decide insofar as you’re pulling back from those multilateral processes you’re not only making our
financial sector weaker, you’re creating a permission structure for others to weaken
theirs and have a crisis somewhere else in the
world that can spread to the United States,
so that would worry me. The second thing is one thing that some on the left and right agreed with is don’t like bailouts, bailouts are bad, they benefit the financial industry. We already created some restrictions on our ability to respond
to the next crisis in Dodd Frank, I’m worried
we’d create even more in subsequent legislation
it would go under the heading of anti-bailout
it would sound perfectly great and it would be a little bit like getting rid of the fire department because you really hope that there’s not another fire and you’re afraid someone will set one just in the hopes that the
fire truck could come along and put out the remnants
of it when it was done. – Just this is somewhat generic. When people complain about
the complexity of regulation once you decide you need to
regulate something, at all, and the case for financial regulation is absolutely overwhelming. Adam Smith has a passage on why you need to regulate banks and
the Wealth of Nations because we basically had
history’s first quasi modern banking crisis in Scotland a few years before he wrote that book, and he actually uses the fire analogy. Says it’s the same as
requiring that people have firewalls on their
apartments in Edinburgh. So but once you decide that
you do need to regulate and the case for some kind
of regulation is necessary then bills have to have
layers to deal with ways in which people might
evade the regulation, avoid it, you need to specify
what it is you’re regulating. A lot of what went wrong in 2008 was that we were having trouble knowing, well what exactly is a bank? So shadow banking all these things that didn’t, weren’t big marble buildings with rows of tellers but nonetheless were functionally banks were
at the core of the crisis. So the notion that oh
well look how complicated the bill is that we must
be able to simplify it, yeah simplify it, anything
that looks vaguely like a bank has to have 20% capital. I guess that would be a doable financial regulation but
it’s not gonna happen. – Jim, do you have
anything to say on this? – Listen it’s possible that Dodd Frank is a drag, somewhat, on the economy. I’m dubious that it’s
particularly significant. I think that also leaves out, if we’ve made the banking system less likely to collapse and cause another financial shock and recession that’s worth something too. I think what we saw having a decade of basically terrible growth has done both to our economy and to
our political system. But to some degree the Republican party is afflicted by the
belief that if we only do these few things, we’re gonna go back to some go-go economy of the 90s or preferably the Reagan years. If only we repeal Dodd Frank. If only we repeal Obamacare. If only we just get the
magic marginal tax rate we’re gonna have amazingly fast growth. I don’t believe that. I think there are things we
can do to have faster growth, but many of our problems
began before the Obama years. We’ve had weak productivity
for a very long time which is probably my number
one economic concern, that our productivity growth
has basically flat-lined since the Great Recession
and was weak before that. So I think when you’re
looking for any one policy, either a new policy, or
a repeal of a policy, to sort of bring back some golden age you’re probably gonna make a mistake and probably do something
that’s gonna have a lot of long-term harm. – I would just like to add
that I heard a great story from somebody who had
just interviewed a person who has a small business
who wanted to get a loan from the bank, small
bank, and he had to take two days off of work just
to fill out the paperwork. And he said I’m not even going to bother I’ll put it on my credit card. You hear too many stories like that. Anybody’s who tried to do a mortgage refi I think you’ll see that there is a lot you have to do now to borrow money. I think this is gonna be an issue. We’ll see how it gets resolved. But at any rate, they’ve
got a long list here, can we move on, I want to get back to this big picture question of fiscal stimulus. Because, and I mentioned you, when we were in the financial crisis and particularly when the
European debt crisis started. And we had so much focus on Greece, and the Germans insisted that the Greeks just had to tough it out and
have a terrible depression, as bad or worse than our Great Depression. There was a lot of criticism
in fiscal austerity. So here you have someone who was elected, at least partly it seems on his promise to get the economy going again, to cut taxes, to boost spending. So, and Paul, one of your big complaints is nothing’s happening yet. But what could happen, what should happen, and what’s likely to happen? I know a couple of you especially want to weigh in on what could happen given the makeup of congress right now. – Okay maybe I should say, so
I’m with Jason on the economy is fairly close to full employment now. Not because no one knows what the right unemployment number is but
you look at other things, you look at wage growth,
you look at quit rates, which are an indication that people feel safe enough to quit and
look for another job. And those are looking like an economy that’s roughly at full employment. Even so, there is I would say a case for continuing fiscal
stimulus for two reasons. One is interest rates
are still very, very low and if something bad happens the Fed has very little room to move. So you want an insurance,
you want some boost to demand just to give
a little more leeway to get away from I don’t
know how to sail a sailboat but they get away from a lee
shore or something like that. And the other is that
the interest rates remain incredibly low and we have
desperate infrastructure needs and so a program of public investment is really still very much called for. Another trouble is that so if the program that some of us imagined
might be Trumponomics imagine the immediate
aftermath of the election were actually on the
table which was the actual trillion dollar public investment program and then okay whatever he did on taxes. That would be something that would be hard to say that hard for someone no matter how politically opposed, not
to say that was a good idea, and in fact Senate
Democrats more or less said we’re prepared to sign on for your trillion dollar infrastructure program but nothing like that is on the table, and to the extent that we’ve had any hint of what the substance of
infrastructure might be it’s public private partnerships with very little public money and probably very little actual additionality, any real expansion of investment. So the case, yeah, what the US Government should be doing would
be a a straightforward big infrastructure program and not worry about the financing borrow the money. But if that’s there’s no indication that anyone in the congressional majority is interested in such a thing. – You know with all due respect to him. He did say during the
transition that infrastructure was going to be his second 100 days. So now, we take the man at his word then perhaps there is something coming. Maybe it’s the third
100 days I don’t know. I believe this considerable Keynesian room for a massive infrastructure program, I believe that we can improve the quality of American jobs as a result. I believe that we continue
to have a global glut, capital glut, massive underconsumption in our trading partners,
especially those partners that have huge surpluses
against us almost by definition. And so, the notion of
grabbing some of that excess capital and having the collective agent of government turn that into jobs is something that he sunk his teeth into during the campaign and
it was incredibly popular. And I think you’re
right, it has an audience on the left and the right. Now, we have a barbell electorate, you can argue we have a
barbelled congress too. And the question is how fat
is the part in the middle? And it is big enough to block it? – [Paul] I wanted to actually ask Jim a question but if you want– – I’d say two things. One is I agree with Paul and the evidence about being close to full employment, and to some degree it doesn’t matter what any of us on stage thinks. It matters what the Fed thinks. And so if we think the Fed thinks that we’re close to full employment, that we’re close to
their inflation target, if we did a lot of fiscal stimulus they’re gonna raise
interest rates even faster and try to keep us in
about the same place. I think even if that’s the
case, and even if we didn’t get any extra growth from fiscal
stimulus in the short run, I think for the reasons that Paul outlined it still might be warranted. We’d have a better fiscal monetary mix. We’d have less risk of asset bubbles and we’d get some
productive infrastructure even if we didn’t
actually get any more jobs and growth in the short run. That case for fiscal
stimulus though is one that is it’s sort of
goodish but not so great that you’d be willing to
sacrifice a lot for it. And things in the sacrifice
department would be large tax cuts for high income households, large increases in the
medium and long run, deficit, and what I think
is the most likely thing to happen coming out of the tax debate is we end up with a tax cut and to keep the number down the cost of
the tax cut it gets backloaded. So it costs very little in the first year, it costs a lot in the last year, and that’s precisely the opposite of what our economy
needs if anything it’d be a little bit up front
without that long run impact on the deficit. So I think you know that’s totally– – By the way that’s exactly
what happened in Bush 2001. – Right, so I think it’s consistent to say you know what fiscal
stimulus it’s not sort of absolute it’s so
desperate that we need it, it’s sort of a mild plus
and then take a look at it. Really well design, do it, not well-design it’s just not important enough, shouldn’t bear those costs. – I just had a question for James, we’re talking Trump and (mumbles). What struck me is that
congressional Republicans seem remarkably unready. They just, they don’t seem to have come in with a prepared agenda. That’s most obviously
the case of Obamacare, but it’s even true on taxes. And you’re closer you
talk to them much more am I missing something or were they just sort of really unprepared at all to translate their philosophical notions into concrete policies? – The late conservative
commentator, Robert Novak, once said, “God put Republicans
on Earth to cut taxes. “If they don’t cut taxes
they have no useful purpose.” (audience laughs) So I certainly expected that granted the election was a surprise result, so that may have put
people back on their heels, that Republicans would
have, if no other policy, a well-thought out tax cut plan that would pass the
House, pass the Senate, and just be ready for
Donald Trump to sign. That is clearly not the case. There’s been a lot of talk about this border adjustment tax which about 12 people in Washington understand. – Not including the Speaker of the House. – Well, yeah, maybe which
if that doesn’t happen it kind of looks like it won’t happen then a tax cut which was probably already going to lose a lot of money would lose about another trillion dollars. And then they have to
come up with a plan B tax cut plan so that’s one problem is that this key element is falling apart and they’re not explaining it well. But then again they could just say, you know what this country, we’re in a crisis as
Trump said it’s a mess. So we need to focus on growth first and we’re not even going to
try to pay for this tax cut. They’ll say the Reagan tax cuts eventually paid for themselves so if you want a big infrastructure spending plan then maybe that’s actually good news. ‘Cause maybe everybody
just gets to dynamically score whatever they want. Republicans can dynamically
score their tax cut plan. Democrats can dynamically
score their infrastructure plan everybody gets what they want and we’ll worry about the deficit never. – I think it’s a little bit sad. Our productivity I agree with Jim is I think our biggest problem, and we’re not going to
be able to have sustained wage growth without more
productivity growth. Inequality is another quite big one. I think it’s a small part
of our productivity problem, but not a zero part
that we have the highest corporate tax rates in the world. An international tax system that’s broken that collects no revenue while imposing a certain amount of distortion. And that we have a ton of
loopholes in our system too that distorts the allocation of capital and means we don’t end up actually collecting that much revenue even though we have these high rates on the books. Every other country in the
world has dealt with this issue. I wish we were better
prepared to legislate on it. If you look the House last year put out a blueprint and it actually reads like an academic seminar and I mean that actually as a complement. I love academic seminars on tax policy. Some of the ideas in it
this destination basis border adjustment are
really quite thoughtful and clever ideas but it’s filled with every major issue is and
the Ways and Means Committee will figure out the
answer to blank huge issue that we need resolve if we’re legislating. I don’t think they thought
they were legislating this year so they were sort of engaged in the seminar, we’re now
in this different place and I think it’s a shame. Because this is an area where if you were gonna do a revenue neutral
business tax reform I think you could
actually make our economy a little bit better by doing it. If you end up costing a lot of money, or don’t do a real reform, I think you’d end up hurting– – It is a little bit shocking that Republicans would even contemplate not paying for those tax reform. I mean it wasn’t that long ago where I was told by top Republicans, look it’s happening, we
are only maybe months maybe a year away from
another financial crisis driven by this tremendously
terrible national debt. Obama’s had this huge
trillion dollar deficits we’re gonna have another financial crisis. Now the debt GDP ratio is worse now than it was when they said it then, but now they don’t seem
to much care about it. So it’s a little bit
shocking that something that was going to like bring down the economy seems to be kind of a non-factor. – I mean one also really
important thing on that is just revenue is a shared GDP. When you did the Reagan tax cuts in the early ’80s I think
there were like 22% of GDP. The Bush tax cuts in
2001 about 22% of GDP, now they’re closer to 18% of GDP. So sort of Republicans have succeeded in what God put them on Earth for another round of it would
be quite different– – Well, except that in fact under Obama tax rates on top 1% went up quite a lot. Actually a lot more than
I think liberals realized. It turns out that at
least by CBO estimates the federal tax rate on the top 1% is back to about what it was in 1980 which kind of makes you actually does surprise you that
they haven’t quickly found a way to undo all of that. But instead everything
seems to be bogged down in Obamacare repeal and DBCFT which is this corporate tax thing which is actually to say it’s the least
bad idea I’ve ever heard from some of these people, but they don’t seem to understand it and they certainly haven’t
ever managed to sell it. They’ve sold it to the
extent that they have by making it seem like it’s all about US competitiveness which it’s not. – I’m gonna ask one final question and then we’re gonna get
some audience questions, and it has to do with can we talk about currency manipulation which it’s funny if you follow this whole
question it’s kind of been turned on it’s
head it was much easier to say in the ’80s that the Chinese get their currency artificially weak so they could export lots of stuff and take advantage of this huge pool of very poor people who would
work for next to nothing and that did cause, it was a
big shock to the US economy. And now it’s kind of turned on its head because some people laud a strong dollar. Well a strong dollar makes
your imports cheaper, but it makes your exports more expensive and I would submit to you that t-shirts are so cheap now do we
really need to worry about more expensive imports from China at this point for things like that. But what about that
question, because to me it does seem like it’s, what
should we want right now? Should we want a weaker dollar? Should we want a stronger dollar? Should we want a President like Trump who’s gonna do something about it, and if so in which direction? When you talk about the bottom two jobs that are creating so many of the jobs, so you can talk about full employment except this is kind of a
skinny full employment, I guess that’s what it is maybe, Jason? That this isn’t the nicest full employment that we ever saw or Donald Trump wouldn’t be in the White House, right? I mean there’s too many
people dissatisfied about their lot in life,
what they’re making, their insecurity about their future, for this to be a really, boy this feels good full employment. But I just wonder about
that question broadly, and I know you want to
say something about that, but also about is there still this sense of as long as there’s so
much cheap labor overseas we are just doomed when it comes to wages ever rising again? – I mean with respect to the thing you just mentioned one of
the problems of course, and a slight dig but you can’t tell people who feel they’re underemployed
that they’re well-employed. And I think that to a certain extent there’s some of the rage out there was because of what happened
over the last few years. Having said that I agree that the currency situation is very different. You could argue that we
did everything possible to try to tank the dollar
against our competitor’s currencies through
extraordinary monetary policy. And we were unable to budget, now I’d love for somebody
to write a book on that and try to explain to me
why if we did everything that we’re supposed to do
to debase the currency. That the currency didn’t debase itself the answer in my book is pretty clear and that is that is that the interest of the other parties is to participate and race to the bottom, to
maintain their export markets, that the concept that was prevalent maybe four years ago that somehow
we were going to be able to experience a pivot in
China to domestic consumption. That would alleviate some of the pain clearly did not happen and I don’t believe it will happen for many decades. Germany, the other major surplus, has been in my opinion hiding behind a Euro regime that is
completely ill thought, but beyond ill thought
as a practical matter potentially dangerous and
they’ve been sitting there with their Hartz reforms
and their policies with regard to labor and the state and all the other things that they do. And then once they
bankrupt the rest of Europe with vendor finance
they go on and they say listen we probably need
to give some relief so let’s have a weaker
Euro and now they have an enormous surplus against
the rest of the world not just their European brethren, so this is a big issue. – Okay, it’s actually
only about six years ago that the question of Chinese
currency manipulation was a really serious one,
and I was one of the people who was really arguing that we needed to be prepared to sanction them. But a lot has changed since then. China’s surplus is way down now. They’re not nearly as big of a surplus country as they were, and yes they’re intervening heavily in the foreign exchange market but they’re intervening to support their currency not to drive it down. You cannot reasonably
claim that they’re engaged in predatory currency
manipulation at this point. Germany, yeah there is,
Germany the Deutsche Mark which doesn’t exist but if it did it we be undervalued against
other European currencies. It’s not all clear that
the Euro is undervalued. Yes, the Euro area as a whole is running a trade surplus, capital is flowing from Europe to the United
States but that has a lot to do with lack of
investment opportunities. Europe is looking increasingly Japanese. It’s working age population is shrinking, it’s just not a good place to, it doesn’t look like a
good place to invest. And the United States
although we have our problems, we’re a mess I guess, but we’re still a more attractive destination
and so ultimately now the problem we have is
not that other countries are manipulating currencies it is that we are an attractive
destination for investors, and the balance of
payments always balances. If you’re gonna have an inflow of capital, you’re gonna have a deficit
in goods and services. – [Dan] So would you advocate
a market access charge to (chuckles) take some of that away? – Actually, one thing,
maybe we could really create an environment where people are really don’t trust the
credibility of the US Government so that you could, anyway nevermind. (audience laughs) – [Kathleen] Okay, Jason Furman. – I mean even the big
believers and advocates and passionate people on the
topic of currency manipulation don’t claim that China, Japan,
or Germany are doing it now. You could either argue either side of Singapore, Taiwan and South Korea, but what you couldn’t argue
is that that’s a hugely economically consequential
thing for the US economy. I think some of this also sidetracks us. Germany has a massive
current account surplus, a huge imbalance, that’s what worries me, that’s ’cause Germany’s
not ’cause Germany’s manipulating its currency, it doesn’t have a currency as Paul said. It’s because it’s not investing enough. It’s not doing enough public investments, it’s not doing enough private investment so we need to be engaged with them on what the real issue is not getting sidetracked into a wrong one. I did want to come back though, Kathleen, to a sort of semi debate
that’s been hovering beneath us this question
of full employment just to be clear what I mean. Saying that you’re close
to full employment, I think we’re probably not
there yet, but close to it. Isn’t to say everything’s
perfect, or great, or people should declare victory
and go home and be happy. It’s a diagnosis of what’s
wrong with the economy and what should be done about it. When you’re not at full employment it says you should do stimulus
either cut interest rates or fiscal stimulus that can bring your unemployment rate down and help you in a really quick and easy way. It’s sort of the lowest hanging
fruit of economic policy. I don’t think there’s
much more room for that in the United States, I
think there is in Europe. Instead I think a lot of
our problems right now are on the supply side, our
productivity is too low, our inequality is too
high, and not enough people are participating in our work force. And to deal with that is
unfortunately more complicated. It requires education,
and business tax reform, and a higher minimum wage,
and better training programs and all sorts of stuff like that that will help on that part. So I think we do have a lot
of issues in our economy. I just don’t think right now, as much as I love fiscal stimulus, they can all be solved with it. I think it’s a much
more complicated problem than solution that’s on the supply side. – Yeah, that’s great, Jason. Listen you’re out of
the administration now, can you just tell us
who’s is the exact person who made the phone call to
fake the unemployment rate? (audience laughs) Was that you? Who was it? Because as we know it’s like 40, 50%. – [Dan] Now we have
serious discussion about– – He did not deny it. He did not deny it. – Now we have serious discussion about how we are calculating exports
in the headline number. I don’t know if you saw that, but now the whole notion
of cutting out re-imports or re-exports from the
number at the headline so that we can more
adequately explain that to the American people is gaining currency within the Administration
which is very interesting when it comes to the
notion of cooking numbers. – What’s just striking
there is who exactly, just leaving aside the, who’s gonna change their views politically because we publish a different trade balance number? I mean how many people there are probably 17 voters nationally who even have the order of magnitude idea of how big the trade deficit is. – On a serious note though I’m just hoping they still fund the poor little old Bureau of Labor Statistics and the Bureau of Economic Analysis and the Commerce Department so we do have some numbers because
under every administration for how long they keep
cutting back, cutting back, cutting back and it’s a shame. It really is important. – People who are actually in this business they say they’re much less
afraid of manipulation than they are of just starvation. – You’ve got great civil
servants in the there. Anyway, I want to ask some
of our audience questions. Let’s start with this
one it’s very specific. If the Affordable Care Act is repealed what will be the effect on employment, and both on supply and demand? – Okay, I just say the ACA is
it’s roughly deficit neutral. Its taxes on high income
people and benefits to middle and lower income people. Presumably, I’m trying to figure out a way to say this in
English, but never mind. The people who would lose from repeal have a higher marginal propensity to spend out of income than the people
who would gain from repeal. So it would in fact be
a contractionary policy, it wouldn’t do very much
on the budget deficit but it would reduce a lot of people who currently have insurance, will suddenly find they
don’t have insurance. They’d be scrambling frantically, they’d be cash constrained,
and so it’s a negative. Supply side in principle
it might be slightly reducing the number of
people who’re seeking work, but there’s really, or
people taking shorter hours that should be in effect but
we don’t really see that. – Or being only offered shorter hours because it made it, it
would be more expensive for some employers who
have large part-time work forces to exceed certain hours. So some people, there’s a lot of honorable evidence that people got short cut hours. And a lot of small businesses say it’s been a huge burden on them. So I think when we saw that
small business optimism– – [Dan] Except that the short hours stuff started well before
the passage of the act. – Some of Jim’s colleagues at the American Enterprise Institute actually did a study where they
looked at hours changes just above and below
the limit and didn’t see any difference between the two. – It’s one of those
things that sounds like– – Do you talk to many
small businesses who’ve, I mean I’m just saying
I’ve talked to people who have small business and they feel this was a huge burden on them. I mean maybe they’re wrong. – Oh no, the particular
thing of the hours reduction has been studied and I think is pretty- – The impact for them has
been more contractionary. – Look, I think the Affordable Care Act has been a mild economic positive, but I don’t think that’s what’s important. If you repealed it you’d
have 20 or 30 million uninsured and I think
that consequences of that swamp any economic impact. – There is some economic gain to having people who aren’t sick, I
think a more healthier America. – But can I ask you guys– – I had to be some sort
of number cruncher here. – And there’s also some
economic gain to having people not feel trapped
with big employers. For having people feel free
to try out different things. – But what about is
there room to improve it, and what if we could sit people down? Or Donald Trump or whoever’s
gonna be in charge of this to say, here’s what would
really make it better. Because the cost I think
for a lot of people the cost of going on an exchange
has been not insignificant and people who actually have jobs where they have their health care provided have been in a much better position than people who have to
buy it from exchanges. Because you’re employer’s paying for it. So if you’re lucky enough
to keep that kind of a job and less and less of
those are being offered because you have this alternative, but you’re having to buy that, it’s not an insignificant amount of money and particularly for families. And particularly for someone who doesn’t make a lot of money
because they’re working in one of those low wage jobs. – There’s two things we know. One is what the solution is, I don’t even need to say what it is, and the other one is that
the President actually agrees with it because he
said so multiple times. When no one’s looking he
falls back on single payer. – [Kathleen] On single payer,
did you guys hear that? I think that must have gotten
lost in the shuffle there. (audience applauds) – I mean, I just want
to say the complaints about high deductibles, about
large out-of-pocket expenses, and all that are real. And what this is telling
you is that the ACA is kind of thinly funded. It’s actually spending
almost as little as possible to make something like this work, so the solution if you
wanted to make it work better would be, well let’s have
some additional taxes on high incomes and use
it to make the subsidies more generous and the
plans have better coverage and come on, even if the
President decided that that was what he wanted
there’s not a chance in Hell that this would pass this Congress. – He could raise the mandate
penalties and avoid that. – That’s right, he could also– – Which is about as likely. – That’s right, the
trouble is the thing is when people and this one of the not ready for primetime issues which
is not a Trump issue. If you asked well we need a conservative alternative to Obamacare,
actually Obamacare was the conservative alternative. It was the heritage devised
way to avoid single payer. – The drug companies didn’t
have to give up that much, and the health insurance
companies have a captive audience. Although they’ve all left the exchanges or they’re trying to as fast as they can. We’ve got three questions left and I’ve got about five minutes, so let’s do a little bit
more of a lightning round, ’cause I want to hear
from everybody on this. And one of them I think near and dear to the hearts of everyone here at CUNY because there’s so much work on income and income inequality in
the US and around the world. It’s one of the things they are known for and one of the things that I
understand drew Paul Krugman to CUNY when he came here
a couple of years ago. Many people argue that rising inequality, or the perception of rising inequality, propelled Trump to victory. What’s likely to happen to income and wealth inequality during
this administration? (audience laughs) Go ahead. – I think it’s a little
bit like an ocean liner and it has its trajectory,
it has its momentum, it has a very deep set of forces pushing it in a certain direction to a first approximation would not expect any of the policies we see
in the next couple of years to change market income inequality, inequality in terms of what you paid. They could have been if the minimum wage continues to erode with inflation, that will increase inequality. If you have a set of things that license more pay at the top
that could increase it. The place that can move in a faster way is after tax inequality. You look at what we did
in our administration and as Paul said the top 1/10 of 1% after tax incomes went down 9% because of tax policy changes, and after tax incomes at
the bottom went up 18% because of expansions in
the Affordable Care Act and reductions in taxes. So that type of inequality you
can move very, very quickly. You can move it with
the stroke of the pen. And if we did see a tax cut that had big tax cuts at the top and potentially even raise taxes at the
bottom that would have a big immediate impact on
after tax income inequality. – Listen, I think it matters, and that’s not the only
thing that matters, but it matters talking about
really high end inequality, how someone got there. If you’re a billionaire
because you created something, fantastic that people
want, a good, a service and you became a billionaire that’s not what keeps me up at night. If you got really, really rich because I don’t know because
your bank was bailed out or you had a company that
benefited from a tax break or some sort of regulatory change, I think that’s different. What I worry about in this administration is that second kind of inequality, which is more of a crony
capitalism inequality. I worry that in this administration which likes to call itself pro-business rather than pro-market I worry about that kind of inequality
rising, which means people are getting rich by not being productive. – [Kathleen] Okay, Dan do
you have something to say? – Only that left to its
own devices inequality is going to continue to expand. The only way that I see of reducing that is to increase the end demand for labor by giving laborers something
to do that is useful, that has value to it. Pushing up the minimum wage is a wash as far as I’m concerned
I don’t really see it. I don’t oppose it, but
I don’t see it as having it’s certainly no panacea. But the notion of stepping
up with the Keynesian tool and actually absorbing a lot
of excess underutilized labor, because just because it’s employed if it’s a leisure and hospitality
job with 16 hours, $16.90 an hour and working
under 20 hours that’s not a job. And to the extent that you’ve got a guy who used to be a construction worker, maybe he’s taking opioids
because he’s in pain, or maybe he just likes it,
but at the end of the day he’s tending bar he’s not building buildings or bridges
and that bartending job doesn’t make him a lot of money. So I hate to get all populist on you, but apparently there’s
something out there about that. – [Kathleen] Okay, Paul. – I’m just sort of with Jason here in that the things that can really move are tax and benefit policies and that, has there been any proposal or any ghost of a proposal out of this administration that is actually inequality
reducing in those directions? I think everything we’re hearing would be inequality increasing. How much of it they’re gonna actually do I don’t know, but the
idea that we’re gonna be addressing inequality in any way in the next however long this
administration lasts I don’t know. – [Kathleen] Okay, here’s one more. Less than 50% of qualified
Americans voted in 2016. How is that a part of
America’s economic problems? – [Dan] Why don’t you talk about know-nothingism for a while. – We’re all looking at you, Jim. I don’t know why (laughs). – Listen, boy if that election
didn’t get you excited. What is the election, listen
I understand that people, maybe they weren’t
thrilled with those choices and I think the quality of
debate was really horrible. And I think that if we
actually did not have a debate in what I think about the
actual economic challenges facing America and I wonder if we had that kind of debate that maybe we got a few more people turning out. – I think we probably would have had less. (audience laughs) – And you know less, you
can blame the public, you can blame the candidates. I think you do want to
talk about the media, now I believe it’s that the network news the three major networks over the course of the whole election devoted combined 35 minutes to the discussion of issues. They devoted, of course not politically, but they devoted about three
times as much to emails as they did to all issues combined. So, now I’m not clear, I
think Jason may be right. Let’s put it this way, you always want to bear in mind what people actually read. If they read at all, what
they pay attention to. We’re in the journalism business we’re all counting our Twitter followers, because it helps
negotiations with management, but you always want to bear in mind that even the biggest journalistic,
even the president would have to multiply
his Twitter followers by an order of magnitude to
be up there with Katy Perry. – So now I’ve got a really quick one, because you’re kind of touching on it and then we’ve got one more. Because I’m going over time
but I just can’t help it. I’m so surprised with all
of this Trump tweeting that Twitter stock price and prospects for an IPO are still lousy, anyway, Trump tweets as a policy tool. Is this a sign of the times? Is it a cutting-edge path that more and more leaders are taking? And as an aside I still am really nerdy and I cover central banks including the Bank of Japan and I was in Tokyo for the first time a couple of weeks ago. And someone mentioned to me oh yeah, Prime Minister Abe has
a Twitter handle now. Everybody in the world is doing this. And I’m just curious are there costs, and there benefits, are there dangers? Just off of the top of your heads, anybody got a thought on that? – Let me just say this is actually partly in the crony capitalism thing. One, there was some concern with a presidential tweet favorable or not start to become a big
issue for stock prices, but I think we’ve learned something now. We’ve learned when he
gets mad at Nordstrom the stock went up. But when he gets mad at Lockheed or Boeing the stock goes down, which is telling you that actually it’s not the
tweets it’s to the extent the defense contracting is an issue. But the idea that the
Twitter account unheeded is going to be an
important tool of policy, or even of politics I think
is turning out to be wrong. – I have some penetrating
insights on that question, which I will reveal on my Twitter account @JimPethokoukis it’s a long last name, you’ll spell it right eventually. – Okay and here is I
like this question a lot, because I believe in
economic education too. I think it’s very important
and I think we will have fewer problems the more people know about how things work. And this question says, I work at the Council for Economic
Education which supports K through 12 teachers of
economics and personal finance. If you had one piece
of advice for teachers on what they should be
teaching their students about the current economic environment what would it be? – To use Paul’s textbook. – There you go. – Yeah, that’s wow, okay. (audience laughs) Wow. – I do think that having been
in government for a long time that a lot of the fancy economics matters every now and then but it’s surprising how often arithmetic, budget constraints, basic internal coherence matters and that’s where you start
with in economics is maximizing subject to a budget constraint. Making sure that lesson is
getting through to everyone would be of some use
to our future leaders. – Yeah, things add up. If I had to have a single
slogan it would not be not even the free lunch, because sometimes there are free lunches, but things add up. That the total amount of stuff we sell to the rest of the world is equal to the total amount of stuff we buy from the rest of the world. Some of it may be IOUs
instead of physical stuff, but you’re younger than me but have been much more in the heat of policy stuff. But you spend any time around
actual policy discussion and you realize how much
very, very simple things and misunderstandings of
simple things are the key. – There’s no doubt I’m sitting here today because of my high school
econ teacher, Scott Roloffs, who brought out the Milton
Friedman PBS series, Free to Choose, based on
his book and we watched all of those videos in class. Probably not the typical
high school that got me here, so I recommend the Free to
Choose by Milton Friedman. – Best economic advice
you can give children is the one, the economic advice I received from my Depression Era parents. People are going to be
trying to sell you stuff you don’t need, watch out. (audience applauds) – All right, well thank you audience. I appreciate you, we were
rapt to the very end. We appreciate that so much. I want to thank Dan Alpert. (audience applauds) Jim Pethokoukis that’s the
answer, what’s the question? (audience applauds) Jason Furman. (audience applauds) And of course the one
and only Paul Krugman. (audience applauds) Okay that’s it. – [Paul] Yeah that’s right. – So now we’re supposed
to pause for a moment, we’re supposed to leave.


  1. I am full confident that Paul Krugman know   what's Trump economy priority No. 1 and so do I .
    Where is the greatest potential for growth of quality , stable  jobs for the American Continent , I can not think twice .
    Mazal u'bracha .

  2. Of all the people on this stage, oddly enough, it was the moderator who was the most political. She clearly showed where her sympathies lie, uncritically airing the erroneous complaint from the right that Dodd-Frank is strangling businesses; that Trump's election is attributable to the economy and not misplaced anger toward those "elites" to say nothing of racism and sexism; that small businesses felt overburdened by the ACA, etc. I've never heard of Hays before, but if she's dissatisfied with her job at Bloomberg, it seems FoxNews would make a lovely home. Hays should read more of Krugman, Joseph Stiglitz, and Thomas Piketty and see how that goes on Bloomberg

  3. krugman predicted a stock market collapse. what insight!! the guy is another overrated economics numbnut who continues to be taken seriously by the left because of a nobel prize given to him by the left. great job libtards. you are on a winning streak.

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