as 1/4 of 1% of gdp which is roughly $45 billion in gross budgetary effect, or major legislation can be designated by the chairman of either the budget committee or one of the tax rating committees. the heritage foundation has been promoting dynamic scoring for a very long time, particularly with respect to tax policy scoring. this is because dynamic scoring will enable policy makers to better understand the impacts of proposed policies and make achieving pro growth policies less difficult. the earliest reference i can find on our website was a 1996 paper by dan mitchell, although i know that heritage has gone active on this issue long before that. in 2005 heritage published a book on the subject called the secret chambers of public square, what can be done to make tax analysis and revenue

estimation more transparent and accurate. i collaborated with bill beach and marcos to edit that volume. most of what's in it unfortunately, is still highly relevant today. regarding tax scoring, there's relatively little disagreement about the underlying economics of the macro economic of tax policy changes but there is significant differences about the magnitude of the effects. the primary risk in tax is that jct will systematically under estimate the growth effects of good or bad tax policy. with respect to spending there is, in my judgment significant disagreement in certain respects about the economic impact of spending policies. issues include whether a tanzian type stimulus effects are real or whether spending generally has' negative impact. the neoclassical growth impacts, rate of return analysis with respect to infrastructure

enhanced expenditures such as education and job training and lastly incentive effects, for example, the impact of phase out of means tested programs or disability programs or unemployment insurance and life. our panel today is first rate. first, we're going to have annie morton who's a chief economist with the house budget committee, and bill beach. they're basically going to tell us how we got to where we are and a few other things. then we're very pleased to have the cbo director steve hall, and curtis dubais, our senior research fellow will speak. let me take one second and introduce very briefly each of the four speakers and then we'll get immediately to the program. keith hall has been director of the congressional budget office since april 1st of this year. previously he was a senior research fellow at george mason university and before that at

the bureau of labor statistics. 2005 to 2008 he served as chief economist for the white house council of economic advisers. andy morton is with the house budget committee. he served in the agriculture department, chief economist of the senate agriculture committee and as an analyst at the cbo. dr. beach is chief economist of the senate budget committee. previously for 15 years he was a director of the center for data analysis here at the heritage foundation. he has also served as the president of the institute for humane studies and senior economist at sprint. i've known bill longer than either of us would care to admit. he's a fine economist and a true friend of economic liberty. curtis dubais is a research fellow here. previously he was a senior economist at price waterhouse coopers in tax foundation.

please join me in welcoming andy morton. [ applause ] it's a pleasure to be here. i'm going to kind of briefly make a few comments briefly on a few areas i'll provide a little background on new macro eem knock mick scoring rule in the 2016 budget resolution conference agreement and not too much but maybe a few comments/thoughts on how this rule is likely to work to play out going forward. so in terms of background, i started out in my professional career following more doctorate at cbo working on cost estimates in agricultural policy area so i have a bit of a background currently when it comes to congressional skoorg. let me start off by a little

technical background in this area. cbo and i think jct as well they have for years included behavioral responses in their conventional cost estimate. now at the micro economic level or in some cases market level when they score spending and tax-related legislative proposals. so on the spending side just as an example, cbo estimates how farmers might change their crop production decisions if the government changes farming support levels or crop insurance subsidies, that type of policy level. on the tax side jct has for years estimated how individuals or businesses will change their behavior at the micro economic level in response to changes in tax rate and other tax-related parameters. however, these conventional estimates as david mentioned they also assume very importantly that the overall level of economic activity

typically measured by gross domestic product does not change. so that is the conventional scoring approach assumes that the overall size of the economy does not change due to legislation that's in front of the congress. now as david also mentioned i think we intuitively -- i think most of us if not all of us would intuitively agree at least that major legislation can and almost certainly would affect the general economy. historically though we haven't incorporated dynamic scoring, or as we like to say, dr. price my boss likes to say, macro economic scoring. historically we haven't done that for proposed legislation for the most part. there have been concerns i think it's fair to say, about the technical difficulty of doing this kind of analysis the appropriate models to use.

even if you agree on the model, the appropriate magnitude or key parameters that are necessary to make this kind of analysis. however, i would say, and i was chatting with john tailor about this after our hearing today at the house budget committee i think it's fair to say that the economics profession as a whole has very -- is greatly advanced its capability in this area, its modeling capability its analytical capability generally and i think cbo and jct have also been part of that, and particularly, at least in the case of cbo, i follow cbo for the work that i do most closely, and we have others that work more directly on tax policy, but i think cbo has taken a step forward as well in recent years, particularly when it comes to longer run economic modeling. in fact in recent years cbo has been in practice this enhanced

capability in certain instances it's produced macro economic analysis with budgetary feedback associated with the president's budget illustrative fiscal policy scenarios and also more recently the fiscal plans envisioned by the house and senate budget resolutions, both the house budget last year and the house and senate budgets in this year's resolution and also the conference agreement and publicly released those on cbo's website. now as david mentioned cbo, however, has generally not performed macro economic scoring of proposed legislation. the major exception to that convention in recent years of course, has been cbo's what i would call a partial macro economic score of the senate immigration billing. but pursuant to a house rule that was in place through the 113th congress, the joint tax

committee, jct, has provided on a supplemental basis macro economic analysis to the extent practicable again of each of the ways and means committee reported tax bills as supplemental information to their official conventional phase cost estimate. that's been going on for a number of years, so jct has gotten quite a bit of experience under its belt i would say, in the area of doing this for proposed legislation, this type of analysis. house budget committee chairman price, my boss, has been interested in macro economic scoring for a number of years and in my view has been a leader on this issue as well as have been a number of other republican members in the house.

dr. price has a pro budgeting act which the house passed in 2014 would have extended the jct supplemental information analysis to direct spending and tax legislation generally and would have also provided for not only macro economic based estimates through the 10-year window but also into subsequent decades, the other 10-year window. dr. price's bill also it set a marker in that there were concerns raised in the house early on on this, how are we going to do this in an operational and practical way. are we doing didactic scoring or macro economic scoring for every bill as it comes through and cbo and jct dotel us that it does take more time to do those types of estimates. we have to do this for every bill. dr. price's approach, his approach at the time and his bill back in the previous congress was to provide

supplemental information and particularly for major legislation. so he defined major legislation for the purpose of macro economic scoring requirement as having -- adding a gross budgetary effect conventionally measured on gdp of at least 1/4 of 1% of gdp in any year of the 10-year window. that actually i think elements of dr. price's bill as it has turned out and played out in the house, they have become important elements of what the house did in january in the new congress. the house decided with this new congress that with the capability having advanced with getting more experience to both this kind of analysis to both jct and cbo the time has come the logical next step and to do these estimates more accurately

for major legislation to require this for major legislation for both direct spending and revenue legislation. so that's what the house has built into its rules package at the beginning of this new congress. and then the budget resolution came along bill and i worked on this provision a great deal and i think it's fair to say that there are some differences. i won't go into the weeds on this right now, but there are some slight differences. but the budget resolution provision is very similar to the house rule and the important thing is it will apply in the senate as well as the house. now that bill will address how exactly that's going to work out in the senate, it is going to be used in the house for official scoring when the time comes with respect to major legislation. now as far as how will the rule work going forward, you know that's -- it's -- a couple of

things to say on that ground. first of all, we have dr. hall here so i think i'm going to leave most of that to him but i will say we don't know -- we haven't yet tested this new provision in practice with a specific piece of legislation. i think that's going to happen in the fairly near future. i can tell you preparations are being made at j.c.t., at cbo and we're watching this very carefully i think in both of our budget committees in both chambers. a couple of issues in terms of getting ready to roll this out that i'll briefly touch on. in terms of quantifying the macro economic effect of the piece of major legislation i suspect that in fact there already has been i think there's going to be a great deal of discussion about what are the appropriate models to use and i

think there's going to be a striving to determine what are the consensus estimates for the magnitudes of the key estimating parameters. that's very much in progress. in terms of display issues, that's going to be important as well. how will these estimates be displayed for the congress? cbo and jct will need to provide estimates of the bill's impact on outlays, revenues, and deficit in the applicable years inbe inclusive of macro economic effects. so, yes, we're going to want to look at the pieces but we're going to need to know the bottom line in terms of each of those major budgetary aggregates and they're going to need to be point estimates because that's essential in the way that the congress does the scoring for legislation. i think jct is already off to a very good start as they have been doing this work on a supplemental basis for a number of years. i think cbo is off to a very

good start as well and they're being -- i want to commend them for being very transparent in how they're proceeding with this and look forward to hearing more. >> thanks, andy. andy morton and, indeed, all of his colleagues have been great partners in this experiment. i would like to thank all of you economists for being here in the audience today. those of you who are not economists are very much in the position of one of the students of wesley claire mitchell, famous economist who taught the history of economic doctrine of columbia university in the 1910s and '20s. the student was having a very difficult time with the subject. reading ricardo and endless 19th century economists who can't write and came up to wesley claire mitchell after one of the most tedious lectures everlasting hours, i would assume, and said, dr. mitchell, how can you stand this topic?

this is just -- this is just awful? and mitchell looked at the student and said i have a very high tolerance for this topic. so i hope you have very high tolerance for this topic this afternoon because from the weed tops i am going into the weed bottoms. i think it's important that one of us speak about the mechanics, and these remarks are intended directed at keith and his colleagues, but they're intended not to be, in a sense, a cookbook for them, but based on the experience that we acquired here at the heritage foundation and other organizations outside of government over the years in scoring, i thought it would be useful to say a few things. so the implementation of macro economic scoring which we also call honest accounting and some other people call dynamic scoring, so there's many terms for this constitutes a major enhancement in the scoring practice of the cbo and the joint committee. during the pendency of the current budget resolution cbo

will be asked to augment its current practice with certain legislation with a dynamic scoring. moreover, it will do so in real legislative time. that is, macro economic scores will not be research products, rather, they will be cost estimates produced in time for the consideration of legislation. this scoring technique also qualifies as major because of how it will change established conventional scoring operations and models. that's a crucial point in my view. macro economic scoring is not an additional costing technique in the sense that building a new addition to a house adds to the total square feet of the dwelling, rather it is an improvement to cbo's scoring program much like installing a new and more powerful engine into an automobile improves the car's performance. and, finally, the implement of macro economic scoring contacts a major initiative for cbo because of the controversy surrounding them. this controversy probably stems

in the parts of some claims from tax reform advocates that macro economic scoring will reduce all costs of all tax reforms. it is, likewise, probably stems from the claims of some who oppose tax rate reductions that is a technique designed to justify tax cuts for high income taxpayers. in my view neither of those are true. cbo's challenge will be to implement the scoring technique while correcting such expectations and puncturing them. let me develop a couple of these points in the next six or so minutes. let me first talk about routine macro economic scoring. cbo has long maintained a macro economic model and employed analysts with extensive training in macro economics to run these models. they have a good foundation. indeed, the office has an entire division macro economic division devoted to the macro economic problems the cbo needs to solve, baseline economic

forecasts and projections are the biggest ones and they're used in the all important cbo spending and revenue baseline that andy and i work with. they also analyze, as andy said, the president's annual budget commission. they answer a number of macro economic questions that arise during the legislative session. cbo often points to its analysis of the senate's comprehensive immigration reform legislation as an example of its capabilities in the macro scoring realm over the course of six weeks cbo successfully applied its macro economic models to immigration legislation and produced a final cost estimate that incorporated economic feedback. so in essence we have track record. despite this success in the capacity it demonstrated to create macro economic scores research products like the office's immigration work or recent analysis of the minimum wage increases tell us little, actually, about cbo's ability to

routinely produce macro economic scores. difference between research and routine. while routine production of such scores clearly requires the macro model cbo used to produce immigration and minimum wage estimates, several other elements need to be in place to support in time production, in time production of macro scores. and we are really in the weeds now, right? if any of you want to leave the room, just hold your hand up. so let me mention, two. one, model selection. in the research setting, analysts will spend a lot of time determining the appropriate model to use for the particular question being posed from among many possible sometimes competing models. in routine dynamic scoring however, which comes at you in rapid succession, it is best to settle on a couple of models that are capable of addressing a wide variety of legislative propose salgs and to use those models for most, if not all, of

your scoring projects. secondly focus on science and mechanics. whatever models employed for routine work, it should carefully reflect the mainstream economic thinking and be sufficiently detailed to handle a widely diverse set of assumptions. so you have to have a model that reflects the science that's in the mainstream and a big model to handle all of the projects to be thrown at it. that's hard to get. the goal of reflecting the mainstream of economic thinking builds into the maintenance of scoring models the discipline of constantly updating the model specifications to reflect the evolving reviews of academic economy. you keep the eye on science so that the model is sharp, at the edge, at the correct edge. that keeps the modeling teams focused on the economic science on which the model is built. second point, integration of

models. so model selection is difficult, but integration of models is also something you need to be thinking about. there exists a deep misunderstanding among many who have followed the debate in adoption of macro economic scoring that it creates a second score to accompany the current conventional score or, worse that, it requires cbo and jct to produce a range of macro economic scores, each of which would be produced by a separate macro economic model. neither of these are envisioned or supported by the scoring rule in the joint resolution. the -- we can't have two scores on the floor when we're involved with legislative debate one score. the introduction of routine macro economic scoring allows additional information to enter into the creation of the cbo or jct final score of major legislation. it is an enhancement of the current scoring practice, not a competing or a new layer on

current practice. it corrects an information bias in current scoring which would remain deficient without macro modeling and that information is about the general economy. so when you don't include changes in the size and shape of the general economy the pace, you're not biased against doing that you're creating a bias because you don't -- you're not including all available information. i'm not saying they're biased. we all use bias in kind of a pejorative sense. it's like if you walked around with your left eye closed, you wouldn't be getting all of the information that you could. now we're going to have both eyes open. that said, the new scoring rule not only enhances current scoring practice but it also reshapes some aspects of conventional modeling too. let me just cite one aspect. the conventional models that andy talked about frequently contain data and equations designed to capture how policy change might directly or indirectly affect the behavior

of individuals and organizations. so you might have a labor model that -- you might have a labor model that's a conventional model that would have things like will taxes rise will people work more or less. almost all of these feeder models that feed into the macro model create equation sz that are essential for the accurate analysis of policy change. they have to have them. it would be an error however to leave those parameters or assumptions in the underlying feeder models untouched once they start to interact with macro model. macro model may have labor force elasticity, micro model may have labor elasticity? do you count them both or do you integrate the two? so not only are you putting a new modeling practice in place, you're changing your underlying or existing modeling practice. it's a comprehensive field adjustment that occurs because we're not adding a new scoring technique, we're changing the

existing scoring technique. finally, let me just say a word about communication and display. policy makers in the general public look to the cbo for point cost estimates. even though there's widespread recognition that the conventional estimating models produce equally legitimate estimates depending on the application of different and valid behavioral assumptions. even so cbo has chosen to produce point estimates in nearly all of its work of conventional modeling. let me just translate that. cbo produces point estimates all the time. if you're on the cbo website you're seeing one after another after another. keith won't tell you today, but i'll bet you he would tell you if you asked him privately. i'm really putting him on the spot. there may be more than just one answer to those models but they have to choose one.

so that's a display issue. so let me just conclude with that point. back in 1975 the cbo was created in the 1974 budget and empanelment act. budget control and empanelment act. so in 1975 alice rivlin and her colleagues began to put together the conventional models. they had discussions with the hill, they had discussion with economists like me and andy on the hill. there were oversight hearings. there was all of this interaction that occurred before the models which we now accept as they're great they were finally settled. we're at that same point right now. we're not again just adding on, creating a new settle models out there, we're changing the core practice of cbo and the joint committee. core practice is changing. so, be patient with us. we haven't donnie scoring yet. there's not a failure. the failure would be to do this too quickly and to do it wrong.

let me start by saying these slides are already up on the cbo website so you can get them there. i can. this is close enough. i'll try. at the bottom there is a link. we've set up a little spot on our website with all of our papers and stuff on dynamic scoring. if you want to see some of the work we've done, background work, you can see that. let me start by -- turn it on.

ah. okay. just as well. i'll go without the slides. the first point about scoring and cbo. let me mention one thing. this is the issue much doing a macro economic effects analysis, which is how cbo refers to a dynamic analysis. in terms of scoring we produce more than 600 formal cost estimates a year at cbo and we produce between 5,000 and 6,000 informal cost estimates, right? so, first of all, using dynamic scoring in all of those is not possible. it takes too much time and, anyway, the effects are probably too small to show up on the dynamic scoring in any event. one of the important aspects about the budget resolution, very important part is that it sets the requirement up for things that are fairly large.

that 1/4 of 1% of gdp, that works out to be $45 billion in budgetary effect in a year. that's a good standard for two reasons, all right? one is we can't do this every time so we need to pick the big ones. the second thing is the dynamic effects are probably only going to be significant on the big ones anyway. that works out just fine. and at this level i don't know i haven't done an exact count. we probably had three, four, five estimates last year that hit this criteria. there's not going to be a lot of work. and also, any designation by one of the chair men of the budget committees can ask us to do this analysis. >> all right. >> still not behaving? >> still not behaving. oh, well. the slides will be available. i don't really need the slides. >> okay. >> use your hand. >> my hand?

okay. let me talk in general about my view of the macro economics. first of all, it's really not controversial in the economic profession that there are dynamic effects right? from -- from either spending or taxes. that's not controversial. the tricky part is the accuracy. and let me give you an idea from my perspective. i spent some time in the statistical agencies. you know, blf, i spent some time in commerce, and when you estimate a piece of statistical data, when you're estimating gdp, two things you're looking for. one is you're looking for an estimate that's unbiased, so your revisions go up as much as they go down once you get more complete data. the other is accuracy. you want the revisions to be small. with a dynamic scoring in my view, you've got two was of looking at it. i think you've got a similar sort of analysis with it. if you know there are likely to be dynamic effects and you assume the dynamic effects are

zero. you're introducing bias into an estimate, right? but by introducing dynamic scoring and getting something that's hopefully less bias, you may introduce more error, more uncertainty in your estimate. that's a legitimate tradeoff to worry about. you can't worry. you can't make a decision that you don't want to have a dynamic analysis because it introduces too much error. you can decide you're going to accept a little bit more uncertainty. you can get something with less bias, right? it's a reasonable think to think about. cbo at one time not doing dynamic scoring because it made sense. now starting to do it. now hopefully it will get something that's more -- that's got less bias in it. second thing i want to say about cbo is macro economics that are not new to cbo. we've been doing them for several years. we've been developing models for seven years. to a large degree we've got our act down in terms of work force

models. we produced our latest long-term budget output that used our dynamic model. we looked at the budget outlook for 20 years looking at the macro economic effects and i can tell you in that particular estimate we took into account the macro economic accounts of rising deficit of increased taxes on wages the effect on labor market increased number of transfers and we took into account a decrease in investment all out of this -- out of the budget forecast going forward. so we took all those things into account. the one that dominated was the increase in the deficit in the long-term budget outlook, but all of those things were part of dynamic scoring. it's been routinely in the analysis of the president's budget. it will be -- and both of you guys already mentioned the immigration bill. it's an important part of the immigration bill of course, because you had something that

changed your labor supply. you can't ignore dynamic effects if your labor supply is changing. that was an important thing to include. ing one of the things that is important with starting in with a macro economic effect analysis is transparency. we've now had a couple of presentations. if you look at this presentation, i've got some detail in there. i'll talk about the detail as well as we go. we actually had our -- one of our meeting of our economic advisory panel on friday. we made a presentation on macro economic analysis. we've talked about the models we've used. we've talked to them about the parameter value in the models and we got some feedback from them, too, about how we were going to talk about the results when we did the results, the idea being asking -- asking the economists to understand, what sort of transparency would help them understand what we're doing. and in my mind the early role

of transparency for sure for us is if we produce a score and use a dynamic analysis it's not helpful to us if you say the score is too high or it's too low. we want you to tell us which parameter was wrong. are we using a description of labor market as too responsive not responsive enough. using the right model. we want the stuff to help us improve things in the future. it does two things i think for us. one, it helps with the credibility. right? this stuff can be a black box unless you know exactly what kind of model is being used parameter values. it helps you criticize us in helpful ways. one of the things that we certainly need to think about is improving this over time getting our act together, making estimates, seeing how we're doing and actually taking criticism when criticism is needed. the estimates in particular we spent a lot of time now looking

at labor markets because one of the most important dynamic effects is what happens to labor markets. if you all recall one of the things we did in the aca was we found some results where the labor market hours worked were declined by 1 1/2 to 2% with the aca. what does that tell you about the dynamic effects of the aca? you have a declining labor market, that means it's going to be a drag on economic growth so you know which direction, sort of where the dynamic effects are going to be on that. other things of course, the other effects, we're doing some work now. we've done a lot of work on the labor supply. actually done some work on the effects of government investment. how to invest. one of the things that's going to do is that's going to help inform us on the spending side of things on the dynamic analysis part. at some point we'll release that and we'll have some estimates in there and you folks will get an idea of what that looks like.

in terms of the actual modeling, the trouble with dynamic modeling is it's obvious, right? any kind of modeling, but dynamic modeling in particular. the economy is really complex right? whatever model you use, it's too simple to really capture what's really going to happen with precision in the economy. but, if you can make an estimate right, if you can base it on empirical work, you have value. our two workhorse models are, one, it's a solo type growth model. the other it's a life cycle growth model. the first one the solo type growth model is probably going to be our workhorse because it's got enough -- it's complex enough but it's also simple enough so it's something we can use fairly quickly. and both these models are

forecasting not just output they're forecasting potential output, right? so in determining potential output, the amount and quality of labor and capital are important, all right because it affects work, savings and investment. productivity is important. federal investment impacts productivity which impacts macro model. the amount of national savings is in part on federal borrowing. all of these things are in these models. the solo-type growth model first of all, as i say, is based on real empirical data. based on elasticity, where we're looking at the impact of previous changes in policy previous changes on economic variables, and so it assumes that people base their decisions about working and saving primarily on current economic conditions and current policies.

that said. it's more shortsighted than other models, but in a way anticipation of future policies is in there in a general way because within the ee lasslasticityieselasticities when taxes changed people changed their plans. anticipation of future policies is not explicitly in the model, it's in there in a general way in the elasticity. this is what makes it a bit easier to operate. the second is a life cycle growth model. some people call it an overlapping growth model. this differs only in that it explicitly takes into account explicit expectations about future economic conditions, right? we work on making these models so they're actually consistent with each other. we're likely not running the life cycle growth model without looking at the solo model to be

honest. we try to make the parameters consistent. the tricky part about the life cycle growth model is it goes on forever, right? so, what happens to expectations is people see the federal budget debt going on to infinity forever, right? then their expectation is it's not sustainable and you've got a problem. the model won't even solve under those circcircumstances. you have to have an expectation of future fiscal policies in particular that put the federal debt on a sustainable path. so you've got to make an assumption about policy in here. the notion, i mean the basic logic of a household won't hold government bonds. they expect the bonds are going to be worthless one day. that's one way to look at it. we've actually had pretty good luck using this model and it turns out in practice when we look at this sort of future

fiscal policies we put them enough in the future that it doesn't matter so much what the policy is, the model solves and the results aren't that sensitive to the exact policy. in other words you don't have to sort of figure out how congress is going to solve that debt exactly. a number of ways you can do it as long as you put it out maybe 25 years in the future. difference between these two models life cycle growth model is going to be important on things that have clear future expectations involved. social security, we never use just the solo type growth model with social security because social security is so far in the future that it's really important to look at explicit expectations about future expectations. we likely bring in this life cycle growth model. clearly those things are involved. and if my slides were working i

could show you the elasticities that we're using. not that i expect these will necessarily mean much to you, but the point is we're going to be transparent about it. you can see these elasticities. i can tell you when we talk to our economic advisory panel we had some debate about the values of the statistics there right? that's the sort of debate that we want. we want to be sure that we get that right and it's defendable. our goal is there may be a range of values, but we're going to give a point estimate we're going to give something that's consistent with the review of the profession and we're going to give you some idea of the uncertainty involved. sometimes it's a problem of unknown unknown, right? so how do you do standard error? how do you do uncertainty there? well, one of the ways you do it is what we did with the long-term budget outlook. some of the important variables are things like productivity. well, we look back at the history of productivity growth

and we notice productivity growth historically ranges, has certain range to it. well, we ran the model through that range. we had a point estimate that we used. we ran it at the high end, at the low end. give you an idea how that affected the output. it's not a standard error but it does give you an idea of how much there's been in productivity and how it affects our forecast. that gives you some idea of what we've got here. and i think especially the presentation and how we do this is going to evolve over time. it takes a little time to do this. there's a very important language that we actually ask and we were kind enough to add. we're supposed to do work on anything that has gross budgetary effect of 1/4 of 1% of gdp. it was great language to the extent practicable.

sometimes there may be stuff where we just can't do it. to be honest, sometimes we may find this is not that big of a step. we can put it in there but, again, it sort of depends on what it is. elasticities that are crafted better to particular types of tax changes, particular types of spending changes. maybe in the near future where i actually have no idea how we're going to do it. trade promotion authority is up. trans-pacific partnership, right? if that becomes a bill. if you are asked to dynamically score that we don't have any trade models let alone dynamic impact of trade models. you need something more. sometimes the models aren't enough. that's going to be a challenge for us.

>> thank you dr. hall. curtis? >> it's a real honor to be up here with such an august panel. as david eluded to in the introduction, heritage has been working on and towards dynamic scoring for a real long time and we continue that work. all of us who work on it today stand on the shoulders of bill who set that up. you did the first one in 1996, right? the first dynamic analysis here. they kept it at cda for about 20 years. we tan work. we're really excited to see the ruling in the budget this year because this is a really big step forward. one of the keys to modeling is that you get better at it the more you do it. it's really important that cbo and jct do the modeling because they'll learn more and more each time they do it. go back to last year, the way jct scored the tax reform proposal that the chairman of the ways and means committee did, they learned an awful lot when they did that. they did a pretty good job considering it was the first big dynamic score that they did in a

long time. the next time they scored the tax reform they'll do a better job. so it's that feedback to help you get better and better but transparency is also a big factor. if you put the score out, you put them out often. you're transparent about what you do. you get feedback from academic communities and the community. it's an iterative process. we'll help with getting the point estimate that bill talked about. from a higher level, there's a lot of talk in policy making today about being pro science and anti-science. i think this plays into it. this is a pro science thing. we know, we have the technology. we know how to use it. it's there. we should be doing it. we need to use it more and to show that it can be done. i think that will happen as we advance and we do more and more of these dynamic scores. it is certainly a pro science. it is certainly an advancement because we know that static

estimates are wrong. we know that certain bills do have that -- do have that effect on the macro economy. we do that. dynamic gets us a more accurate score. no score will be 100% right on. we know we're moving in the right direction. that's why i think it's a huge, huge thing that bill and andy have helped put together and dr. hall is going to help implement. we can keep building on it going forward and eventually we'll get to a place where dynamic scoring is not really a debate anymore, everything will be dynamically scored. thank you. all right. we have time for some questions. please use the microphone for the benefit of those watching over the internet. and identify yourself and your institutional affiliation. question. yes. >> hi.

kevin dyre from the heritage foundation. i was wondering if any of these dynamic models have been used to back test previous legislation, such as for example, the camp rock tax in the early 1980s and the dynamic effects of that and if you were able to reproduce whatever occurred? >> to my knowledge, we haven't done that. i do think that's an interesting idea. you know it's always hard any sort of economic forecasting is difficult, right? we mess up on the short-term forecast all the time just like everybody else does. here we're talking about a long-term forecast. it's difficult. it's hard to know what went wrong in a forecast. i do think that would be informative. one of the issues for us is how much time we can take to do a back cast like that. i think that's an interesting idea. >> you wouldn't be able to forecast up to 30 years -- from the back but maybe 5, 10 years into the future you could see some interesting results. >> right. yes. >> david, i wonder if i could say a quick word on that?

>> yes. >> steve etten who's in the audience sitting over there and one of the great pioneers in this whole area of costing dynamic analysis and so forth, he and i were privileged to be on the design team when the joint -- when the jct watts putting together the make model, which is their dynamic model. steven, if memory serves me right, they actually did a backcasting exercise. i think that they looked at the 2001 tax act maybe the 1990 -- something in the 1990s. the interesting key ask pam lumel or tom to pull that study out, and it was very enlightening to us as we were putting together the specifications of the make model. >> over here. >> bill hoagland with the

bipartisan policy. first of all, thank the panel. thank you all for your presentation. i guess this is a question for bill. i'm looking at the report. it's been bothering me. in the report language it says, in the senate these estimates would be provided for informational purposes only. >> right. >> can you -- >> right. >> -- clarify how this is going to work if it's only for informational purposes only -- >> right. >> -- in the senate? actual scoring as andy has outlined in the house? >> sure. and that's a great question. we're often asked that question. there are differences, as you know bill more than perhaps anyone else sitting in this auditorium today between the rules of the house and the rules of the senate and so not to get anybody disturbed about that difference, but that is the difference. in fact there is even a difference as between the house and senate as to who is the upper body. clearly the constitution says that the senate is the upper body.

that is a difference of opinion. so, in the rules of the senate we have a predilection against more than one cost estimate being on the floor at any one time. so we are working with all with all the elements in the senate parliamentarian, everyone else to explore how we can bring this new scoring into the senate rules rules. more than anything else, that will be dependent upon how we eventually get the cbo scoring table done because that will give us an idea of what is that score. so we'll have to kind of put that question off to the side rail for a while. it is a developing discussion. we aren't changing the rules of the senate. we would accommodate ourselves within the rules of the senate. >> the concurrent budget resolution contains mandatory

language. it's not nearly advisory and the senate agreed. >> there we are in the rules of the senate various rules about points of order, about -- we've got a lot of complexity there when it comes to scoring. we need to work this into that. we need to find a path into that. so i'm not particularly disturb disturbed as we were working our way through the budget resolution. we weren't ready. we weren't even up to getting all that done when we were debating a budget resolution. i don't think that's the appropriate place for that to be done. i would just watch that develop and maybe by the time we are a few months in from here we'll have news on that front. we'll just see how it's being done. having said all that, let me point out in a more general sense that any macroeconomic score that comes out of cbo

will whether it's official score, whether it's informational, whether it's guidance, whatever is going to result in a better policy debate, don't you think? so i can't imagine it wouldn't improve things. we'll all watch to see how that develops, bill. i hope that addresses your question. >> this has been very interesting. this is for dr. beach, actually following up with bill's question. i couldn't find the specifying language for the senate, for informational purposes only. not with the conference report but the actual tax stuff, the budget. is the same restriction not in the actual legislative tax -- can you explain that a little? >> if i had my lawyer here i

could probably help you out. you're asking questions for an economist somewhere. >> i have an economist question too. regarding the reporting and presentation issues you've talked about, and i would love to hear dr. hall's thoughts on this obviously, you said your intention, the intention of this project increasing and kind of putting in place the standard macroeconomic analysis would be to have one scorer and have this replace the point estimate. you wouldn't see what the convention point estimate would be alongside this you would just see this. >> that's yet to be -- that's one of the design issues that's still coming up. we haven't quite crossed that bridge yet. >> dr. hall, what do you think about that? do you see value in continuing to present the conventional model outputs even after -- even if say, this becomes the standard dynamic scoring become

it is standard? >> yes, i think if it's up to us we would produce the dynamic score and also somewhere in the document have a conventional part and a macroeconomic part just for understanding the score and understanding the uncertainty in what we've done. >> if i could add a brief thing. >> sure. >> i think from a transparency point of view, i think what keith said right there makes a world of sense. i would just add that for -- and bill knows all about this, both bills, i should say. for official scoring purposes, when you're moving legislation forward and the parliamentarian or the councils, whatever committees are involved, the results committee, they need to see that point estimate. you're probably going the need, if we do these pieces in a macroeconomic score, we're also going to need the overall

totals. it's just another -- basically just a summing up. so to this is to avoid confusion, frankly, for people -- particularly until this becomes more routine. >> other questions? this gentleman? >> jonathan nicholson of block berg. i was confused on the life cycle growth model stuff. and i guess you have to have a point estimate. most cbo scores are over ten years. but if you put the solution as to how something is paid for, whether increased access or cut in spending 25 years out does that undermine sort of the -- if your score is for a point estimate over ten years, but your solution, closing solution is 25 years out does that undermined the score on a

consistency basis? >> i think our goal is always to try to be sort of in the middle, look for consensus and look for something in the middle. if in fact, a particular score with a life cycle model there's impact of changing the policy back and forth. we'll try to be transparent about the effect of the policy down the line. >> thank you so much for your remarks so far. my question touches on transparency confusion and also the dynamic nature of the scoring. is it also the case that the administration is creating its own analysis and competing with the numbers. you're all scientists and focus on the numbers. i wonder if you would talk about any pressures you feel to either manipulate -- are you feeling those pressures? and to the extent it invites confusion when the

administration comes up with their own scores of behavioral economics, much more responsive in a dine namic manner. thanks. >> i'll answer that with a story which is always safer for me than to answer directly. when we started the to do dynamic analysis here at heritage, our first project was to take a look at the 1993 ominous budget reconciliation act which many of you know as the 1993 tax increases or those that saved the '90s, depending on your perspective. during the course of that we discovered president clinton's office of management and budget had used a dynamic model to take a look at the 1993 tax increases. we were very comforted by that, not knowing at the time it was a controversial technique. president clinton just wanted to know what was going on.

i have since learned that the white house and the treasury have been leaders but not well known leaders in developing dynamic techniques. i think to go back to something curtis said, and perhaps even all of us have said. the more this is done, the more there's this controversy and debate, the better the technique also become. it's a scoring procedure which is here to stay and we need to explore it thoroughly. >> anybody else? this gentleman in the back. you can hand the mic if it's easier. zbr i was wondering if the states have adopted any doom namic scoring or if success on

the federal level might spur states to do so? >> i know bill can answer the question. the answer is yes. go ahead. you have more experience. >> in the book that was referred to by david burton there's a chapter on what the states do. when we wrote the chapter in 2005 we found ten states that use dynamic scoring, dynamic analysis or dynamic input in forming their budgets or looking at their legislation. two states that did so were large states new york and california since that time texas has also started that, maybe more than ten today. yes, there's a laboratory out there and there are states that have good practices probably states that don't have pretty good practices. there's some ground truth and experience on that front. >> yes, ma'am. thank you so much. i just had a quick clarification

question about kind of the criteria for bills that will be under the dynamic scoring. will your dynamic scoring include estimates beyond just like the general ten years or will it kind of cap off at an estimate that's ten years? >> oh, boy. nobody wants to answer these questions. so we use a ten-year budget window for almost all of our legislation, there's some exceptions. the joint resolution asked cbo to give an opinion, a qualitative answer for the next ten years -- 20 years actually. cbo has from time to time given us as they did yesterday a long-term budget outlook that goes out in this case to 2014.

so there's an answer to your question which goes to routine everyday budget work. that would be probably the best thing to say, yes, a ten-year look, but there are lots of scores that come out, not even scores, but research papers that look beyond that period of time. i wouldn't. again, nodals are limited as yogi berra, you were saying the other day keith testified in front of our committee this morning, i think he said all projections are suspect especially those about the future. and this is a yogi berra thing. that's probably a good thing to keep in mind. this is just to give policymakers a new piece of advice not to give them a perfect prediction. policymakers have a real hard time -- they have to make judgments, so they have to see probable paths of consequences

of going a or b or c. that's what models do they give the most likely outcome, but certainly not to be ever held to an account especially for the long term to give them perfectly accurate results. >> it will matter to a great deal in the context of what the bill is doing. if you're making changes to social security care and medicare, you'll want to see 20 to 30 years out. >> it's also depending on whether you're at your potential growth. the dynamic is about changing the part of the economy. if you're well below potential, you have to get to there first. for example, right now that dynamic part may not add that much on a ten-year forecast because the economy is not a potential value.

next question. this gentleman. >> naud naud[ inaudible ]. you mentioned the transpacific partnership. so my question is what upcoming legislation might qualify for this rule? i guess a few examples would be a repeal of the affordable care act, legislative response to the burwell decision transpacific partnership partnership, tpa highway reauthorization, and finally business tax reform. >> that's why i said it may all well be tested soon. i don't know if any of those may be the first or the second or if it will be others. but i suspect we'll get a test

fairly soon and relatively short order. that doesn't mean next week or the week after that, but sometime relatively soon. >> we'll try to be ready. >> is it clear whether any or all of those would qualify? >> one of the considerations, too, is we can be asked to do a dynamic score even if it doesn't meet the criteria. there's still some unknown from that respect. >> dr. hall you mentioned that there's this trigger over which has to be bigger or you don't do it and you have thousands of things to do. our model is simpler than some of the ones you're running, and we're not trying to model quite as many things. whether i enter a one-point change in the corporate rate up or down or a 10% change in the rate up or down, the motto runs

just as fast either way, given a second or two, some have enormous changes in dead weight losses and growth. others have little effect or actually act perversely or more than pay for themselves, or some. i would like to know the difference between the ones that have a big effect on dead weight losses and others that simply don't seem to do much damage or don't do much good if you look to change them. you might have one big cut that does a little bit of good, and you may have a bunch of very small offsets, all of which that has big dead weight losses and you shouldn't be touching them. if you're not modeling the bad ones and only modeling the good ones because the good one is god and the big ones are bad, you can give people the quality of the type of tax change they're

recommending, and you could at least group them into things that obviously do good or obviously do bad and sort of scale back your estimate and get more information out or develop a model that runs faster, this information about what's good and what's bad tend to get lost if they're all below the threshold. that could result in a bill that turns out to be bad when -- i hope you can get a model that runs quickly enough to give the small tax cuts they're due or tax increases they're do at some point. >> of course, we can be asked to as well. >> i know when we've done it, it's taken a while to do it in a way that they're comfortable. >> that often raises a presentation issue in a effect. are you going to have one

aggregate score or disaggregate the dynamic effects of subsets of large legislation. have you guys thought about that that? >> we've asked the cbo to think about how they would show us the dynamic effects on outlays, summed up in a bill, on revenues summed up on a bill and on the deficit. those are the things in the joint resolution which we've asked them to produce. that clearly is of a kind of informational -- i don't know how that will fit in. if i remember correctly looking at true conventional scores they usually sum up all the provisions and give you a line for to outlaid portion, some up all the revenues and if there are revenue ms. the bill. as we've answered several times

this afternoon we'll be waiting for cbo to work with us, andy and myself, and people on the staffs that we work on to develop those display elements. again, we're at 1975. we're not where we are today on conventional scoring with respect to dynamic scoring. we need to really think thoughtfully through this, how we're going to display and how we're going to operate. >> yes. >> thank you all for being here. question for dr. hall. i'm very much in the weeds, as bill would say. with outlays when you look at, say, just the static effect of spending say $50 billion on research and $50 billion on -- pick the most useless government thing you can think of.

i don't want to pick on anybody. think of something useless versus something, say very good research that's helpful and contributes to growth and industry, et cetera. from a static perspective both of those cost $50 billion. the treasury is writing checks and you have a deficit. from a dynamic point of view the former kind is clearly better. we intuitively say it's clearly better to spend on investments or things that aren't useless or things that don't do harm somehow, does cbo have a way or have you thought about developing ways to group or classify or evaluate types of outlays. seems to be a much harder problem than on the tax site where in tax you're basically giving people their money back and they'll do with it broadly what they were doing before, just all skaepd up slightly. i think that's probably the hardest question when i think about dynamically scoring things. i'm curious what your response is. >> i agree.

that's the part of thing that's part of experience with it. we start to get comfortable with the sort of things we're looking on. certainly on outlays timing is really important that's not with taxes. i think that's probably going to be an issue when we start doing dynamic scoring and we start deciding what sort of timing the effect is going to come in. if it's something that impacts pro ductivity, that's how out in the future a little bit. so that's going to be an issue. >> we have time for one or two more questions and that's it. david? >> first for the three phds on the panel thanks for your service to the country. we all appreciate and benefit from it. dr. hall the question i want to ask you relates to the words you put in the concurrent budget resolution. i wanted to be sure, if you can assure us, that cbo will interpret the words to the

extent practicable in a professional sense. something may not be practicable because you don't have the models that will accomplish it or somebody wants something in three days and you only have such a big staff and professional issues like that. not it isn't practicable because maybe powerful people in congress don't like the answer i'm going to give and therefore it's not practicable to give a result. they want to be sure how to interpret the language you put in the resolution. >> the extent practicable is sort of a professional ethics sort of term. it's whether we feel like we can produce an estimate we think is going to be accurate we think is defendable for us. that's really the only way i'm thinking about that term. >> perhaps one more. anybody? this gentleman.

>> referring to the outlay part, you get political reactions that say, well, you're doing this dynamic analysis only for the tax side because you want lower taxes, and what about the benefits of government spending and so forth. it seems to me that to give a good answer there you need cost benefit analysis of the spending. so the individual agencies that are performing and getting funded should be doing appropriate cost benefit analysis to show that the way they're spending the money is actually generating results where the benefits exceed the costs. and that seems to me is going to be very complicate edd, an overall macroeconomic analysis. can you comment on that?

>> the way it works now with any scoring, we often call agencies and talk with them about details of how they'll do what they're being asked to do to help us make these sort of judgments like that. of course, it would be helpful if agencies already had some work they could cite something they could help us with on that. that's an interesting issue. i think it's a real one. >> i'd like to thank the pam for your participation. i think everybody learned a great deal. i think theank the audience for coming. [ applause ] >> this concludes our event.

in the next washington journal, two members of congress discuss issues before the house of representatives this week including u.s. military strategy against isis, the withdrawal of troops from iraq, international trade and the affordable care act. we'll talk to missouri republican vicky harts her, member of the armed services and agriculture committee and connecticut democrat joe courtney also on the armed services committee. live at 7:30 eastern on c-span. chief financial officers from major corporations gathered in washington, d.c. this week for discussions on the financial challenges facing their companies and the global economy. over the next few hours we'll watch several panels from the day-long event. some of the topics health care costs, tax reforms regulation and trade. up first, the economic outlook

hosted by the "wall street journal" cfo network, this is 30 minutes. >> thanks very much for joining us this morning, jason. interesting time in the world economy. i'd like to start out actually by asking a little bit about what's been going on in the economy. i and many people i think the white house thought this would be the breakout year. we thought with most of the headwinds, whether deleveraging or physical restrapt we would have an above-trend year. a naegive quarter in the first quarter, like the third negative quarter since the expansion began. a lot of the data has been kind of mushy. how worried should we be that the economy is now flagging and there might be something more fundamental wrong with it? >> that's what the economy looked like in mid june of last year. it looked a lot like this. the first half growth was tracking at about the same number that the first half's growth is tracking at this year. we then saw a really strong

second half last year. i continue to think that a lot of what was pouring the economy last year was consumers. they're 70% of the economy. they're deleveraged they're confident. they have higher real earnings that due to lower gas prices and so i continue to think that will be a good part of our economy that takes a little longer to get going. but we did start to see that in may. >> you mention consumers and everybody who believes the drop in gasoline prices we've experienced should be delivering a fairly sizable boost to consumption. thus far it seems to have gotten us to saving not spending. what do you think of that? >> i think it's been really puzzling. if you look at the jump-up in the savings rate it's about the 90th percentile than we had

seen, quite an en creasingly large increased. we got revised data for march and april. consumer spending in those months, may was a lot stronger. i think the savings numbers will come down a little bit. historically when they spike up like that they tend to come down. as they come down, that would lead to elevated consumer spending. soy think this may be sort of the normal bumps and wiggles in the economy that are hard to explain. but they make more sense over a longer period of time. >> are you still expected the boost from lower energy prices to show up? >> i think we have not seen the full benefits of the decline in oil prices, yeah. >> there's been some speculation that events in the last six or seven years left a deep impression on consumer behavior. they don't respond to incentives to spend as they used to. too much pressure to deleverage to build up retirement saving overall caution given the

negative shocks. do you think there's something to that? >> i think there's something to being a bit cautious. there's nothing wrong with being a bit cautious. i'm not saying everyone should go out and spend, everyone should go out and save. people will have to make that decision themselves. if you look at the behavior in the savings rate in the post recession period, what you've seen in the last four or five months is quite unusual and hard to explain even relative to the last couple years. i don't think it's indicative of a big sea change as opposed to some mortem rare event. >> one of the things that was a big drag on the economy in the first quarter was trade, in fact, trade has subtracted from growth in four of the last five quarters. clearly one of the stories here is it's not just the u.s. that struggled to get momentum but the entire world. why is that? is that likely to change this year? >> i think the rest of the world has weighed on the u.s. growth as you just said. i think it continues to be a

concern for u.s. growth going forward. i think it's a smaller issue that the consumer we were just talking about a smaller portion of our economy. there's a lot of answers to the rest of the world. i think being slow to the types of aggregate demand, expansion nair policies we've had in the united states is part of the story pour the rest of the world. the falling gas price will help in our trading partners, especially a lot of key ones. i think that's good news and one of the reasons you've seen a positive surprise in the global data in the last couple months. the positive surprise is still relative to quite a low benchmark. >> one of the questions we've been debating a lot in the journal recently, it seems hard to believe but the expansion now is actually -- as of this month, i think six years old. the national bureau of economic research dated the start of the expansion to july of 2009. at 72 months we're now actually

slightly longer than the average postwar expansion. i think it's almost as long as the 2001 to 2007 expansion. so naturally some of us are looking around saying it's starting to look a little old and maybe we should be thinking about when the next recession is. so first of all, should we be worried about the possibility of another recession coming along in the not-to-distant future? number two, if it happened, what would we do? >> to add to the longevity point, we've had 15 straight months of private sector job growth which is the longest continuous period of job growth that we've seen. >> i felt obligated to see the glass as half empty. >> there's been a plot of economic research on this question. it pretty consistently finds that expansions don't die of old age. it's not that the longer it's gone on the higher the probability of going into recession. there basically is almost a constant probability of going into recession in any given

year. and then you can sort of look at the situation and see does it feel a little higher or lower in that year. i don't think there's any reason to be worried about the age of the expansion. by the way we're still not fully recovered. we're almost there. but there's still slack in the labor market, still ways in which we're not back to where we should be. i'm not worried about old able. i'm not worried we're fully recovered. i do think we always have to be prepared for ups and downs in the economy. and to have a more robust system that some degree that automatically responds as an economy starts to turn down, things like unemployment insurance, the way the fiscal system as a whole works. it's quite important for that reason. >> the view that monetary policies constrain because short-term interest rates are zero bound. they've done a lot in terms of unconventional policy such as expanding the balance sheet by purchasing bonds. the view is also that fiscal

policy is constrained because debt is very high relative to where it has been historically. don't those pose significant issues? >> i think a decade ago most of the economics profession thought fiscal policy was something as ar kaiic z a way to deal with the cycles. i think what we've learned in the last decade and the way the economics profession has moved is one, you can have a sustained downturn downturn, the fiscal policy does have time to address. two, the fed can be constrained in terms of what it can do. also fiscal policy on the road. three, a more balanced response using multiple tools can be better for a range of macroeconomic outcomes and financial sector outcomes. i think we as a profession think fiscal policy is more important. the fact that interest rates are so low is a real vindication

that, if you're undertaking a fiscal expansion and the market understands why you're doing it, think they there's a good reason, the economy needs it think they're doing it in a sensible and prudent way, you're not going to be punished for that. if anything, it might lower your debt to gdp ratio by raising the denominator, the gdp portion. >> you don't accept the premise that we have no fiscal room if the need arose? >> i don't -- as i said, i don't anticipate it rising at some point the economy is going to go up, at some point the economy is going to go down. we don't know when that is. fiscal policy will be a important part of the answer. >> let the record show i asked if you thought there was going to be a recession soon and you said no. >> i want to turn now to the policy agenda. of course this town is all abuzz with the discussion about the president's efforts to obtain trade promotion authority from the congress.

the idea to be to consummate the transpacific partnership that's been in the works for a while. he and his staff have been out trying to make the case to the congress, is this something we ought to do. i want to talk about the economics of it. we talked a minute ago about how the entire world seems to be stuck if a slow growth mode. what are the prospects that tpp can actually change that? does tpp actually have the potential to provide some kind of impetus to global growth. by way of background i sort of say that because a plot of critics have said that given how low tariffs already are by the countries participating in this it's poly anish. >> i think there's still a lot of potential in expanded trade to help with our productivity growth. i think our productivity growth is key to our overall economic

success. first of all there are high tariffs in a number of areas agriculture, for example being one of them. a number of sectors are quite affected. second of all, a lot of countries we're dealing with here have significant non-tariff barriers. that's something united states tends not to have we have an open transparent, level playing field. a lot of countries we're negotiating in with tpp don't. we're trying to level those playing fields. if you look at a standard economic model, they show that just those types of standard economic effects, lowering tariffs could add about $75 billion to the u.s. economy annually. i think that could be an understatement because expanding the size of the market expands innovation. expanded competition expands innovation. spending less time worried about these different barriers gives you more room to innovate. i think you can potentially, in addition to the economy, get some extra speed going out of

this. now, i don't want to -- this isn't the whole agenda. there's a lot more you need to do in the economy, a lot of economic policies. this one adds this, that one adds that that one adds that. you do a bunch of them and they add up to substantially more productivity. i think this is a key part of that. >> this is a good opportunity to ask you all to actually weigh in here. we have an audience response question. i'd like do go to question two, i believe, on trade. what i would like to do is ask the participants in this room their opinion about the transpacific partnership just how material will be to their business. i think you can all respond now. is this number, the number of responses we have so far or number of seconds left? >> you can feel free to change

the policy based on the results here. i know you guys like to respond. take a look at this. it's interesting. so the good news is the net is positive. more positives than negatives. most people say neither positive nor negative. this is actually a very good cross section of u.s. business. what i sort of sense here in my instant analysis is a bit of ambivalence or neutrality, like they know it's in the headlines, but they can't get excited about why it matters to them. what would your interpretation be? >> any one of you is more of an expert in your business than i am. so i'm not going to question your individual judgment. but no one has seen tpp yet. what we're asking for now is the ability to negotiate it. we're asking for instructions to bring back a good deal. we're then going to bring it back and you're going to have the same 60 days that members of

congress have before the president signs it. a lot more time after that until there's an actual vote in congress. so you should look you should see what's important to you there. i guess anyone that does business with japan for example, can see that a lot of different markets there can be closed off right there. we're trying to open them up. the other thing i would say is a lot of this is about jobs here in the united states, about the quality of jobs here in the united states. and having a shift to more export intensive industries where you see better jobs and higher wages. >> i'm glad you brought up the jobs question. obviously a lot of critics essentially in your own party believe free trade has hurt jobs especially for the working and middle class. it's a common thing you hear with nafta, common for people who have studied expanded trade

with china. so when they hear the administration say trade is a key to more a and better jobs, there's a lot of skepticism out there. how do you respond to those who say trade hasn't delivered the benefits, that the average worker is actually worse off as a result? >> i would say that the united states is already a very open economy. we have very low tariffs and non-tariff barriers. most of those types of effects we already have. the question that we're trying to do in tpp is ask how we can shape globalization. that's already a fact. that's already happening. with tpp you'd have higher labor standards than you'd have otherwise. higher environmental standards than you would have otherwise. disproportionate reduce tariffs and non-tariff barriers with our trading partners. it takes whatever is already a challenging set of facts and helps to shape them more in the interest of the united states. >> related to that certainly in

the case of china, over the 13 years in which china has been part of the world trading community, you can see an arc in terms of business's attitudes in terms of excitement and anticipation to expand business opportunities in china in the first four or five years following wto exception in 2001 followed by a period of buyers remorse where it's difficult to overcome a lot of the intrinsic domestic barriers china had and discrimination they facility from china with respect to their operations there. i think the business community, when they think of how they will benefit from closer ties to countries like malaysia, singapore, vietnam they're probably thinking the same thing. well i understand the benefits of free trade but how do i know i will be treated fairly so my product, my service is actually operating on a level playing field? i think that's the big question. does tpp actually get us closer

towards that? or is it a diverse do they end up fighting an uphill battle against discriminatory practices? >> tpp contains a lot of things that the agreement with china over a decade ago didn't. one of them is it does come with more investor protections, so that if somebody takes an investment you made in a country, tries to ex-proep eight it, you'll have a set of recourses under it arbitration that you don't have with a country like china. there's a set of labor rurls, environment, in terms of how you compete with us that you have in tpp, that we're negotiating towards in tpp that you didn't have in the trade agreement with china. there's a bigger set of changes that countries are going to have to make to participate in a transparent results-based level playing field with the united

states to get the types of privileges you get from being in something like tpp. >> you predict a company today that probably thought they weren't going to benefit or lose from this agreement will find ten years from now actually the world evolve in such a way that it did make a difference? >> yeah. i think you'll see it in a lot of different ways. it may be your own business it may be your suppliers. it may be someone you're selling to. i think it will ripple throughout the economy. >> we talked about the impact on workers. one of the striking things about the economy today is even though, as we were saying gdp growth has been sluggish, it's a pretty good jobs market 280,000 jobs created in month of may we learned last week, unemployment read down to 5. 4%. the funny thing is, that hasn't generated significant wage growth. why is that? >> we're seeing some pickup in nominal wage growth if you look across a range of surveys and

aggregate them together. we're seeing 2 1/2 years of real wage growth nominal wage growth exceeding inflation. recently that's because of the fall in the price of gasoline as opposed to a sustained increase in wages. but the reason we haven't seen more is rooted in two things. one is the last couple decades where wage growth has been relatively low. in fact real wage growth for the last 2 1/2 years has exceeded what we saw from 2001 to 2007. so slower productivity growth that we've had for decades continue to weigh on wage growth. second we're digging out of a really deep hole with a lot of key areas of slack in the neighborhood, whether it's people not participating part time for economic reasons and others who i think have had some restraint on wage growth. >> i think an interesting question is where do we go from here with the labor market

tightening? we have another question that we'd love to hear your input into. if you'd check your devices i think question one asks you what the prospects are for wages in the coming years? what i'd basically like to mow is thinking about how you're going to adjust pay pacts for your workforce in the coming year? will the average wage increase be higher than it was last year, lower than the last year or roughly the same? >> i'm in suspense. >> i've been kind of struck by the lack of move. in that number actually in the aggregate data, 2% 2.1, 2.2. where are we now? >> kind of similar in the last one, jason where the net looks positive, but the aggregate not so much. it kind of -- if i could sort of like market cap weight those numbers, i'd come up with a number like 2.5%. is that disappointing,

surprising surprising. >> we think a stronger economy will do that. we think things like tpp that we're talking about help create more good jobs. we think wage growth isn't guaranteed across the spectrum. so higher minimum wage would help people at the bottom. you see states cities and a lot of companies that have come out and announced that they're raising the floor on wages that they pay. but i don't think there's simple overnight answer to something that has been weighing on our country for decades now. >> actually i want to talk about the minimum wage question. a lot of the business community worries a higher minimum wage crimps their costs in ways that make it difficult for them to adjust. there's a view this will actually hurt rather than help people with the lowest skills. are they right? >> first of all, you've seen a lot of major businesses come out and say we're raising everyone wage's to $10, to some number

above that. and i think that's based on the same logic that you see in the economics research which is higher wages on the one hand are higher costs but on the other hand bring a set of benefits in terms of the types of workers you can attract, retain, motivate and all of that shows up in your productivity, and the evidence is historical those two roughly offset each other, leaving it unchanged but workers better off. >> i'd love to bring you all into the conversation. so if you have a question, you have -- john over here has a microphone. hopefully we'll get feedback from the audience here. one of the common refrains you hear from the business community, almost like a two-tiered labor market where there's a lot of folks with limited skills available, but the people with the skills they actually need, especially stem workers are in very short

supply. these they just can't find. first of all, how would you diagnose the quality of the labor market and if they're right in a systematic way that we have shortages of these people, how do we fix that? >> there was a debate a few years ago of, was the unemployment rate elevated because there was a mismatch their demand for this set of skills, supply for that set of skills and they weren't matching up and that led to higher unemployment. the evidence for that was quite weak. you didn't see much higher wage growth in one sector than another which is what you would normally expect to see if those types of shortages were causing you a short-run economic problem. i think in a long-run sense though, having better skills is a key to higher wages and is a key to a stronger economy. to some degree that's better skills. to some degree that's a more anymoreable agile set of skills. ones where local community

college is hooked up to the local employer and understands what they need and is doing something based on the demand for skills rather than supplying them and hoping it will work out. i think there's a lot they can do. i think moat of that, most of their spending there is private sector spending. a lot of this has to be the private sector. that's working with the private sector tofiguring out the federal government doesn't have a lot of dollars in this. >> let's go to questions. we have five or six minutes for questions. anybody have one to start off? i have an anonymous one that was sent in. does the white house realize the years of anti business rhetoric and policy may have had a negative impact on hiring cap ex and other risk-taking to a higher growth rate? in other words, it's your fault. >> i heard that question and i guess i completely disagree with

the premise of it. you have a president who is out there working really, really hard right now on expanding trade. expanding trade i think is good for businesses, good for workers. and you have a president who is the first president in decades who called to lower the corporate tax rate as part of reform. you have a president that from day one took a set of steps without which the economy would be in much worse shape than it is today in terms of the fiscal policy we were talking about before. i gets maybe the answer is i don't realize that. >> my personal perspective on the economy is it's very fragile still. >> tell us who you are. >> bill moore. just as a citizen and as a cfo, i'd say it's still very fragile. personally i'm worried ashtd some of the triggers that could

put us into recession. right now a couple of issues are a lot of people have, as you said, they're spernding less, but they feel wealthier. a lot of that prices haven't risen as much as people have hoped. still people under water in their homes. another aspect of wealth is their investments. so right now i'd say that some people might perceive the secitys parked to be pretty highly valued. if there's a correction in the market in some way, do you feel that that could have a ripple effect on the economy? and what's your viewpoint on that? >> markets are going to go up, markets are going to go down. there's no question that part of what determines consumption as well. people took a really, really big hit to their wealth in 2007 and 2008. they actually took a hit to wealth that was about 15% of the economy because of the falling stock prices and falling house prices which is much larger than

the hit to wealth that precipitated the great depression. part of what we've seen since then is a really long painful process of deleveraging by consumers and businesses. i don't think we're all the way there yet. the housing sector, as you said i don't think is fully healed. the flip side of the housing sector not being fully healed is the housing sector still has a lot of potential in it. i think we're actually not building enough houses right now. credit is too tight for many households in the housing market. as we rectify those issues that will be one of the sources of added growth we can expect in our economy over the next few years. >> how do you feel about the premise that there's a lot of excesses or overstretched valuations in the market out there which pose as threat to the sustainability of the expansion? >> i think financial market

values are something that the system is much better at being attentive to much better at looking at systemic risks. we as regulators aren't looking at their corners. they're looking at the system as a whole. that's an issue of that. >> other questions? >> francis shemmel has a question. what is your opinion on corporate tax reform for economic stimulation? >> i think business tax reform is very important. and i change the word that -- the question -- you said corporate. i said business. i think we do need to do large businesses and i think we need to do small businesses. we need to do c corps and pass-throughs and address all of those in an integrated basis. the u.s. has the highest statutory tax rate in the world. that leads to all sorts of issues. our international system is badly broken.

it raises almost no money and it causes substantial economic distortions which is from an economic perspective the worst combination that you could have. and at the same time there's also a lot of ways in which this system has loopholes and distortions in it. i think bringing the rates down broadening the tax base and having a system much more neutral towards decision making would benefit our long run productivity. i think we can do that while also financing investments in our infrastructure which is another key thing we need for competitiveness. >> these cfo ls sit with the ceo and they sit with the board. they're going to go back to their companies and the board and ceo is going to say what did you hear from the head of the council on economic add vietsers about the next five years? we're thinking about where our growth trajectory is headed. what message would you like them

to share with the board about your view and the administration's view on watts going to happen to growth economically in the united states over the five-year period? >> i think we have a lot of potential in this country. i think that you look at the developments in technology and medicine and nano materials, in energy, the slower cost growth in health care that we've seen lately. i think all that gives us huge potential. there's a number of ways in which we don't fully capitalize on that potential. if we go back to the sequester again in october that won't just be a short-run hit to the economy. it will cut down the research we need for our long-run growth. if we don't take advantage of the opportunity to make sustained investments in infrastructure because we do it two months at a time, that will impede our economic growth. if we don't take advantage of the markets all around the world, that will impede our growth. we have a lot of opportunities

that we really need to get moving to take advantage of. >> jason and greg, thank you very much. >> thank you. [ applause ] . the next topic for the "wall street journal" cfo conference health care costs. the president and ceo of the mayor clinic and chairman and ceo of kaiser permanente take questions about how the health care system can both cut costs and deliver quality care. >> good morning. as we know there's been a lot of health care news lately, and certainly this morning in our newspaper and i believe it was our scoop a very big conversation going on in the insurance market with united health, anthem, cigna. we've got burwell, issues of the cadillac tax.

so health care, quite sometime after the affordable care act is passed is what might be described adds a little turmoil. with us today we have two ceos of models in health care that are so admired to they are often exported and they are looked at in the rest of the world as something to achieve something to strive for. i want to start with mr. tyson from kaiser permanente in oakland and elsewhere who actually just told me he just came back from china where they're interested in talking with him about how do they cover their billions of people. at kaiser you've got i've just learned, ten million under coverage right now. this is a system that has gone -- it was among the first to embrace electronic health records. again, as a model to deliver

affordable care at high quality. if you could kind of give us the secret formula, what are the basics that enable you to do this, be exported into a system that everybody can get? >> thanks. it's great to see you and great to be here. just right quick in terms of if you will, what's unique about our model as i describe it, the incentives are aligned. we take care of a population of 10.1 million people in the united states. we are a prepaid health system on a capitated basis. i'm given a certain amount of revenue to take care of individuals and populations. so from that, i have been and we have been able to build a health system because we own pretty much the health care dollar and that is distributed around different care delivery models

to take care of a very diverse population. in the end we're not for profit. i don't answer, if you will, to shareholders. at the end of the day we build a delivery system that is really focused on making it possible to keep people adds healthy as possible and to make care as affordable as possible. and the physicians who work exclusively with our organization, the health plan call the permanente medical group, now 20,000 strong, provide all of the oversight and care for that given population. now, just to introduce the mayor clinic's model. you've heard of mayo clinic maybe if you're fortunate your executive plans allow you to go out for your executive physical and find out from soup to nuts what could be wrong with you. they deliver care in a couple other areas, going through a

knew system where they're partnering with other organizations. if you need a diagnosis, mayor might be the place to think about going. talk about mayo's model and how that, again, within the idea of affordable care, how can that be translated into lessons we can learn in the united states? >> thanks, laura. good morning. mayo clinic is the first and largest integrated group practice of medicine it's 150 years old, physician-led and mission driven as a not for profit humanitarian organization where the needs of the patient come first and essentially al read physicians teams of allied health professionals enabled by engineers who have been part of the system for well over a century to drive efficiency and quick answers correct answers, and we have a very large research and education mission as well to bring new model ts of care and breakthrough therapies to patients quickly.

it's an area where we concentrate on complex care, as you said difficult or puzzling or troublesome diagnoses and also highly complex procedures to quickly give answers and it's a health system that focuses on complex care but we also mentioned population where we work in arizona and to a lesser degree in arizona and florida. with all the mergers and acquisitions happening across the country, we decide on to take a different path and essentially to digitize how we work and put those into a tool so others could do consultations with us from around the country and if they need to send patients to us or to others that's their choice, for additional diagnostic and

therapeutic organizations. we built around 30 of these around the united states mexico, puerto rico, and what we found is by sharing what we know either through digitized tools or through consultations, well over 80% of the patient committees stay in kentucky or in new hampshire or california and not have to travel for that level of mayo care. that's brought the cost down and has improved the performance of these areas around the country. it's nice to have the mayo clinic foot print. this allows us to help you help keep the health care costs down by driving high valued care accuracy, get it right the first time, do everything you should and nothing more and at a much lower cost in the 16 states where we provide that help. >> well, one of the things

that's been a high criticism of the united states health care system is this fragmentation of care, the idea -- and i don't know how many are in systems where all your doctors work for one organization. i know certainly in new york, you know, you have a doctor for this, a doctor for that, a doctor for something else. they don't know each other some of us don't have electronic medical records. but electronic medical records, as much as a struggle it's been in this country to get it adopted, in a system like kaiser, that's been something even with fits and starts at the beginning that you have embraced and it has enabled you to deliver a type of care by mining that data. in other words, using the data you've gotten, tell us about how the big data that you have within your system has enabled you to identify the highest cost people, look at ways to intervene and also the idea of e-visits, not having to go to the doctor not having to have patients leave work for a whole day to go see their doctor.

>> i can't imagine what it would be like running an organization, taking care of 10 million people in any organization. this has evolved over years and in particular over the last decade where we went all the way in and helped to evolve that whole system. >> we now have all 10 million people on the electronic health record. i was told recently we have something like 100 petabytes of data. someone asked me how much is that? i said a lot. >> i haven't heard that term before, either. >> but what we've been able to do is to really now -- our physicians have been able to study through the data, the efficacy of care and to look at the proven practices that produces different outcomes. we've been able to aggregate

data, our physicians have been able to aggregate data to better understand how to take care for example, of different ethnic population. we also collect our data by ethnic groups. we are learning now that equality of care and equity of care are two very different things. everybody has access to all the care. where we are now with our exploration, equity is very different because one person may not need as much or may need it in a very different way. that has come about because of the data. we're more efficient and effective because now we're targeting the different diseases, the different populations, the different outcomes that allow us to do things very differently. last year, we did 20 million easy. 20 million e-visits. >> so that's me e-mailing my doctor? >> that's you e-mailing your doctor, because of your relationship with your doctor. this year we'll probably do 30 and then we think we're going do

double it. our members love it. on a scale of one to ten, ten being ultimate, it's like 9.7. it is an interactive process in a very secure environment where you're getting the information that you need. we're now doing more telehealth where we're doing video conferencing as part of it. >> right. >> so when you have organizations like ours that can look at the population in a wholistic way, you then build a system that meets those needs. telehealth, e-visit those kind of things are both convenient and it's great for coordination of care management in particular of patients who have chronic diseases. because what you want to do is to present -- prevent, if you will, needing to intervene as an episode, meaning you let something go until it reaches a crisis crisis stage. you want to help that individual

to manage his or her health as much as possible. >> which in a system like yours is much more possible than in a fee for service where you're getting paid to pay for episodes of care. >> in terms of delivering care you talked about the fact that you're putting mayo clinic's information and sourceing and second opinions out there in the world. but you're bringing people to mayo clinic. i termed it domestic outsourcing in which employers like walmart have come to you and for some years now it's just starting to expand and even if your employee is in you know is markedin bismarck north dakota, how is it possible it would be more cost efficient to bring that employee for cancer treatment, which is an agreement i believe you have, in the last few months, started to solidify, how is it possible to pay them, their caregiver

transportation and all that for it to cost less to do it that way. >> our systems and approaches are quite different. whereas we would look at a diagnostic issue and engineer that for efficiency and safer outcomes. not that they don't do that at kaiser. but so for example with the team-based care at mayo, we've been able to perfect as much as possible always trying to improve the appropriateness of the care we give the patients with complex transplants. for 18 years walmart has -- we've been the exclusive provider of transplant care for them regardless of where their million plus employees live. and the recognition of that by them was the avoided costs. a patient comes to the mayo clinic needing a heart and liver transplant, we see the patient and we realize no, they don't, they need to have the liner of the heart easily stripped away so the heart failure and the

liver failure will go away that saves them a lot of money and avoided costs, if you will. as you mentioned in skrarn,january, they extended that contract for the care of patients with breast cancer or lung or colorectal cancer. they will send the records of those folks for us to review and if we believe additional diagnostics or treatment are needed, they will pay the entire cost of those patients going to phoenix or jacksonville or rochester for all the diagnostics and all the care and send the caregiver for that care at no cost to the employee which is an extraordinary benefit if you think about it. and then you realize, wait a minute, it is an extraordinary benefit, but it makes good sense to walmart because the diagnosis will be accurate, the care will be as safe as it can be as cutting edge as it can be and the patient will get back to work. and they've recognized that the avoided cost for complex care in a highly engineered system like mayo saves them money. and we believe that's our value

if you will, for other employers who say, for our employees, if they get complex care it's very expensive, but it will be a lot less expensive if they do the right thing and do it quickly and help the patient get back and it's also good for their employees. and so this is an area of growth for us to take the proven value of our care, better care at lower costs, safer care avoiding the back and forth that you mentioned about new york. you were saying we work as a team and so we usually can get the answer within three or four days and get on with things. so that's why employers are coming to mayo and say, could you look after our complex care needs, whether it's heart surgery or cancer, that sort of thing. >> and a lot of times, that will involve not doing as aggressive care as was originally sdooded by their local doctors, but in other cases you will be providing the care, but more -- you know, at a more cost

efficient basis, even with the hotel bills and flight and all that. >> and the patients need not always go. another story would be a young woman we recently saw who was from kentucky and she was in her early 30s and found out she had breast cancer. they consulted us and just as they were about to treat her, they realized she was pregnant. they said oh my gosh what do we do about that? and we were able to coach them on how to manage that young woman's breast cancer and her pregnancy. she got great care, never left kentucky, the costs were very low and all of that was done keeping the patient local. she got great care and the costs were minuscule compared to if she had been ping-ponging around locally. again, just terrific avoided costs for your health care plan if it's done well and done right. >> should there be any concern in a system like kaiser permanente, the doctors are employed, have all