welcome to the second day of the policy conference. i'm the ahead of inflation, oddities research and fidelity in boston and today we have the pleasure of hearing the latest views from the 13th president of the world bank group determined he began last year prior to joining he served as undersecretary of the treasury for international affairs, founded a macroeconomic research firm and served as the chief economist while many of us know him now as a policymaker there is a very long history in the private sector economics. when i was chatting with a friend of mine he mentioned the best moderators are funny, fluid

and forgettable. with that, the floor is yours. >> i'm very pleased to be here. i've got some notes and then it is nothing as to tell people about and am looking forward to the conversation and the national association the meetings were one of my favorite in the 1980s when i was at the senate budget committee and the joint economic committee select switched on to be back and see some old friends. the 1980s was an important time for u.s. growth but like today, the years presented

challenges for growth especially for the developing countries there's quite a few topics today but the one i'd like to tackle is the need for faster growth in the developing countries the challenges that they are facing and i want to focus on the importance of the growth rates within the developing country growth rate metric, but also the importance of digital financial services, which i want to speak about, and also transparency of debt and investment policy which is something the world bank is working on. i can list the various parts, but the short take is there are five different parts of it.

the ifc, the international finance corporation which works on private sector growth. there is the different types of cross-border risk and also to help settle investment disputes between the government and investors so it's a big group with a clear mission about lowering the poverty rate and also increasing shared prosperity. that shared prosperity means to me and can be done from a mathematical income higher median that are social circumstances within countries, so it is a goal that probably we all share and they have to have better prospects for people around the world and especially in the poor countries.

we have to use forecasts sometimes. in january we put out forecasts about 2.5%. the good news is that was slightly higher than what the growth rate was in 2019, but the bad news is the first half is going to be slower than that given the coronavirus but even 2.5% but that simply is not enough growth for the developing countries. many of the poor countries need a faster growth rate by the world economy in order to lift them up. there's also the concern that growth is unequal to any quality in various forms which were all concerning for developing country growth.

one is that the capital is tending to go more towards the developing country as me saying there isn't of capital flow going on. the capital is going more towards big companies rather than small companies and is about also contributes to the inequality of both income and also of wealth. there is an added problem with any quality as we look at the investment rate for developing countries, they've been sluggish. the world bank report in 2019 had a subtitle which is sluggish investment in the countries. so, if you start from a platform that is unequal and then you have in any quality, that gives you prospects for continued i ay

quality or slow growth in the developing world. world. there is simply nothere's simplw investment taking place. so, i'd like to focus for a little bit on europe and then talk about the digital financial services. so, as we look at the growth rate around the world, one of the notable weaknesses has been in europe. it's just reported that the members onumbers that the weakeh in seven years, which is a particular concern to africa where a lot is because it is closely associated with europe growth rate. as we look at the 1% or even slower growth rates with europe we can look at the various factors and one is the structural system, labor

mobility. one important one, the slow growth is coming at a time when the central bank's owner inclined to be as possible so i want to talk a bit about that. it comes at the time when a timn mainstream economics considers the policies to be massively stimulative, that is the size of the balance sheet and expansion of the balance sheet. one interpretation of this now is there simply hasn't been enough that the constraint on the growth in europe is so great that the central bank should increase its bond purchases or even buying corporate bonds or increase its holding of the sovereign bond. the other interpretation that i've preferred is that they combined the monetary financial regulatory policy has not actually been stimulative.

while textbooks teach monetari monetarism, that's the idea that monetary actions of the central bank are multiplied through the private banking system by the way of bank reserves and reserve requirements, the reality is that we move to a post monetarist world. the balance sheet has expanded in recent years, but there is no longethere's nolonger a direct o the private sector bank and credit growth so we have this under a monetary system there's sure to be leverage but it hasn't happened. adding to the inequality, central banks are buying long durations to cover the assets using short-term liabilities. that is a major distortion of markets because the central bank purchases subsidized the least

productive assets in the economy. to be productive, the market economy needs working capital. that's a short-term voting capital more than long-term capital at least in the growth space or the economy. that requires short-term financing, bu but which of the supply omuch of thesupply of thl in europe is soaked up by the central bank in order to purchase and hold long-term government bonds. the policy details and provided the monetary stimulus is notable that slowness of private sector growth in europe especially for small businesses is buy all the targeted small-business credit programs out there is not working. i think it's important that economists recognize the new environment post-monetarism. the key numbers are financial regulatory policies, which itself is biased towards large

existing borrowers. that is a recipe for slow growth, especially for new entrants, small businesses, people without much capital or developing countries. all of those the system is biased to provide a slow growth for the people trying to get into the system. it is a recipe for any quality. i think it's important that the economics profession re-examining the monetary policy tool leaving the slow unequal growth because it sets out to the capital in the long-term government bond, just not a workable system. i want to turn to africa for a minute and think that general point. one is the structural reforms are as political in the developing countries as they were in the developed countries. that means systems that work for

the labor mobility, fiscal policy, monetary policy, providing sound money, some means for people to have access to money and credit in all of those are struggling in many of the developing countries. the world bank has a major program to try to put forward with transparency, debt and investment. what this means were the basis of that is if you have a more transparent system, you are going to be able to attract more capital so it is actually a recipe for mortgage investment and more growth if you can have more transparent in your system. the challenge is that it is very detailed in order to improve the transparency of the credit markets in the developing countries. and i want to list some of the challenges that we are facing.

i may be able to find a list of those here and then i will save them all. and this is particularly important with the yield curve plastic is as i described how the slowness of the differenc is into the countries is in part as capital gets sucked up into the long-duration, that doesn't leave enough for the investment that's needed in the developing countries. let me take a moment here because they really want to give you a bit of a list. at times -- salang talking about how to credit and establish the developing countries. the environment has changed dramatically over recent years. we've done a report and world bank did a report a couple

months ago that went through and described the debt available to the developing countries. so, what we find out today in our analysis is that it was discussed that she g. 20 some creditors are using contracts confidentiality clauses. the borrowers to request relief from the calls to proceed with transparent data reporting. creditors should be violating legal requirements of other creditors such as the pledge. these are important because they become obstacles to the investment within the developing

country. the countries around the world have a negative pledge clause is a protection for the people of the country as the government think about new types of loans and we think it would be helpful if they would publish templates and we invited the g. 22 in the works of the g. 22 in the works of suggestion and push it forward in developing. i want to mention state owned enterprise debt. you push the debt down to a subsidiary of the government, the state owned enterprise and that doesn't show up in the debt statistics so it ends up being an obstacle to new investors coming in for the country. another challenge is the growth of sovereign borrowing that provides collateral for the lender. it used to be dated and provides

collateral that more and more they have been providing collateral and that ties up the assets of the country from other types of growth or borrowing that might have been achieved. so, we are working with countries around the world to try to shift the way from collateralized borrowing in order to have more transparency and get more investment. the bank has a policy of discouraging borrowing when this comes additional borrowing going on. we make the loans and grants to the countries that is an undercut in the interest of doing that is undercut if it then turns around and take some high interest rates and borrowing from other creditors.

that would be pushing forward as we go into new year's of encouraging the policy. the transparency initiative is to show countries they can have faster growth and more investment if theforeigninvestme transparency within the system. it sounds straightforward and like it should be the normal policy, but i have to say that the world system right now is to work against that approach so we are working on it and trying to deepen it and i want to take a moment and mentioned the importance of a new step in development which is digital services. throughout history it's been a giant struggle to have money rather than barter. you are comparing apples and

oranges, comparing different kinds of goods and trying to trade. it was a big innovation to try to monetize the world financial system. but the problem has been throughout time that it's hard to have money in the weakest parts of the global economy. it's hard for small businesses to get a hold of credit. it's hard for women to physically hold onto money because someone takes it away. so, that, those obstacles i think our weekend see an avenue to improving this to the digital financial services that you can think of as to actually have to start small amounts of money and

that becomes one of the most important avenues towards dynamics so we are pushing hard for digital financial services to grow. that means it's not easy you have to have a regulatory policy that encourages that kind of diversity, and you also have to have a banking system or a telecommunication system that is up to the task of keeping track of individual money or even the smallest of the poorest person within an economy so it's critical to get financial transactions down as low as possible so you need to be thinking about the smallest fraction per transaction cost that enables hundreds of transactions even for poor people in countries. in virginia it's been a good

example of a country that has managed to set up a system that works on the most basic cell phone and for the poorest person and that opens up new transaction volumes which people in this room, the financial market people know how critical it is to have a high volume of low-cost transactions in order to liquefy the market. i want to give you a sense i'm concerned about the slowness of growth especially the slowness of growth in europe and it's going to be challenged by the current events and as we think about the developing countries. it is exacerbating the challenges and a lot of it is their own structural reforms we can hope for better systems. i helped on the other countries so they can get a better growth

system going in their own country. .. one of the benefits of being the moderator you have the monopoly in the first question or two. i have a few questions to some of the, to have an item by everyone in the audience to submit questions by the app, i don't think they'll be any shortage of questions. so i've been coming to this conference for a very long time, and you mentioned you had been as well, we spent a considerable amount of time discussing frustratingly weak dental growth and investment. i know this is something you spent a lot of time think about. in your mind, what are the building blocks of strong and

sustainable growth, how does the world big thick about this, what is the framework? >> i will tell you my view and then bring in the world bank. i think economic is pretty clear, governments and provide governments and provide restraints on their own time. and provide for people to operate in a free environment. that means the rule of law and some clarity in how the rules and regulation changes over time. those are critical into getting

growth. because we know growth comes from people and people at the bottom having an opportunity. this idea that it was featured at the g20 this weekend and opportunity society is really important that people have to feel like they can try something and see if it works, that's either a new job skill or changing colleges or other things that are getting to go to high school for a lot of developing countries prepare first step toward growth is being allowed to go to seventh grade or eighth grade which a lot of countries are not allowing. as far as the world bank interacting with the system. the bank is active in governance process and rule of law.

one other thing in the transparency initiative, the importance of knowing within a country who has the right to sign a contract on behalf of the government. many countries don't have clarity and that so you're the lender, you come in and you get janet to sign on a contract and it really hasn't been scrutinized by other parts of the government. we want to see a governance process it makes sensible choices and to build the capacity because a lot of countries just do not have the people that can think about the contracting environment.

and really focus on more learning. help is critical and there's a lot of time on that. and extreme weather conditions is important for huge portion of

the world's poor. they tend to live closer to sea level, that was a broad statement but billions and hundreds of millions live close to sea level without very much protection and other aspects of that are important. so the bank works in all of those areas, but the starting point is a structure of economy that is basically market based rather than monopoly, one of the hardest things that we fight against his capture by state owned enterprises or by the military, many countries still have systems with is a biased in favor that there owned by the military or state owned enterprises. that really undercuts the innovation of the economy. >> very interesting. staying on the growth for just a moment. one thing you mentioned, just

about better educational payments, and one thing you brought up yesterday was a significant increase in the female participation rate and here in the u.s. when i was researching ideas to pose to you, i was quite struck by the decline in globally in the female participation rate from some of the data on the world bank. how do you think about the female on the labor force in the dividend for growth that can bring. >> this is one of the strongest points of an economist can argue about 2.5% growth or 3.5% growth rate but one that we can agree on is a vital portion that women can provide into an economy. we see every day in terms of women being additive from a straight gdp standpoint but also

very importantly creating different kinds of innovation that a man might think of. often times better at negotiating a favorable outcome then a man might be. so getting that participation is vital everywhere around the world. some countries are going up, and we've been encouraged, the world bank does a lot of reporting on this. i was just in dubai week ago for a summit -- a woman summit -- one of the thing the world bank tried to do and does very effectively is lean on government, male headed government to change the laws of their country so women can own businesses or can have a passport or can take a job in a different sector of the economy, can have pay that goes up rather

than going sideways. and it's been, i think one of the bigger successes of world development over the last ten or 20 years. let's say ten years because it's relatively recent. countries are changing their laws to allow fuller participation by women in the economy and then they get better results out of it. we do an important report called the women's, business and the law wpl, which documents the rules changes. one part of development is keeping track of which countries actually change their laws in a positive way that empower women. it just came out two weeks ago and it's a thick report and he gives blow-by-blow which countries were making progress. i am cautiously optimistic but your point, i was in pakistan in

october, the participation rate for women in their economy is still really low. like 25% even. and so what that means, a whole group of important economic contributors is screened out at the get go. they have an additional problem with girls go to school for a wild, but then there's not secondary schools and much less higher education that is readily available for girls so that leaves with lower skill. i would love if we could spend a whole hour on this topic because it is one that is clearly economic beneficial but there are some progress being made in its identifiable enough of what needs to be done in which countries to get more progress. >> interesting.

staying with the theme of the building blocks of growth. another topic that came up yesterday in a really great session, get the slides if you have not seen the. the climate change session. research is just the effect of climate change will disproportionately affect the country that's already struggling to develop. as you mentioned. as a solution while targeted public and private investment and how is the world bank think about the drivers of growth and climate change? a fairly broad question but -- >> let me address that by i'm not sure i got the full question but the answer is what the world bank is doing, there is a big program in order to invest or make loans in ways that address climate issues and countries have different programs and what they're trying to do with their climate commitments that the bank can support those.

over the next five years there is a commitment by the bank of doing $200 billion and climate company benefits so to put in to perspective, there are lots and lots of international organizations from the united nations to the european bank for reconstruction and development. if you're familiar with the imf and on down. if you put all the rest together, the world bank does half of the total in terms of climate and environment investments and countries. so the types of things that are done are adaptations of people are prepared for climate changes and extreme weather conditions and our lives are preserved, there's disaster relief, i was

in mozambique in april after the cyclone hit. in the world bank provided, those are tools. a lot of times the biggest thing that can be done is responding quickly. then there's preparedness so we strongly encourage and work with countries on ways that they can be prepared for change. there is also mitigation. we think about low carbon, around the world still layering anomalies within the carbon environment. germany continuing to burn a lot of coal, pakistan still signing contracts for new coal and other parts of the world still in expansion of that and a very sluggish -- a lot of developing

countries that are still have such difficulty in their electricity sectors that they're using bunker fuel and diesel fuel to make electricity. it's one of the most costly pot under parts of the higher environment that were in. those are all different aspects of change that can go on. i think focusing country by country and region by region and things that will improve the outlook is really where people can be focused. >> thank you. >> i left out, a whole range. water usage is a critical part of the whole echo system and that gets into the crop cycle so the bank is very involved in trying to help countries use better fertilizer, much lower

quantities of fertilizer that will allow mortar under more productivity for crops -- one anomaly or one harmful thing in the world, countries choose to grow crops, not whether it's environmentally sustainable but whether a special interest that wants that crop, whether cotton, rice, wheat and parts of the world that don't need those and on down the list in the u.s. were aware of the sugar anomaly and it drains a lot from environmental resources. i wanted to mention also one of our bigger new programs is china's marine plastic problem. china has fallen into the habit of putting plastic into rivers and then it goes into oceans. many are aware of that as a

major problem within our mental procesenvironmental problem. how farmers use plastic to try to discourage the plastic from finding its way into rivers which is an important new aspect. so were doing marine plastic, undertakings in indonesia and the caribbean and try to reduce that. >> i realized as i asked the question ironic that were both drinking from plastic bottles. >> i'd rather not be. >> let me go to the questions that we have in the few minutes we have left, it's a most interesting the questions you can submit when they're an ominous. is the world bank operating differently versus the previous administration, if so how? >> i began at the world bank in

april 2019. to an extent there's a lot of inertia and organizations but i think were making positive changes. one thing i wanted the bank to do was focus on good development outcome and that means country by country and region by region for example for the horn of africa. that focus is a very talented staff on thinking about how do we get a good outcome in nigeria. how do we get a good outcome in ethiopia and around the world, china, india and other places around the world. i think it's a good healthy focus for the bank and people have been energized by that. we are doing what we call a realignment or global footprint to put more resources near the

client. so the bank has a huge number of offices around the world and we are putting more practice managers into regional offices rather than d.c. which allows us to connect well with clients and do the job well within that. it is putting the resources in the decision-making and a shorter process. those are all inside to make the bank function well. were in the process of recruiting a new chief economist and the economic role is very important in the bank, we also have two new very senior women in the bank lori will start -- she's in d.c. this week and i'm very happy she will start at the bank on march 1. and then sheila can became our

chief financial officer under the when she started, maybe september. these are very strong luminary women at the top of the bank. and she was just that the g20 this weekend with the finance ministers from around the world. she is speaking on behalf of the bank and showing the strength of the leadership of the world bank in terms of addressing the challenges. people want to talk about what the challenges are but what i'm trying to do is have us focus very much on individual solutions, let's break it down for this country, what change can we actually help for and encourage and push forward. >> that speaks to the next question, maybe our last question, all try to sneak into. you highlight the ways of the current policy mixed in europe may not be working.

what are the specific policies you would advocate to changes? >> people have written for 20 years about this, one is labor mobility which i mentioned meaning that the ability of people to change jobs to get new skills. that has not been working well. small business credit is the second major problem for europe and i think we have to examine the central bank policy where they buy long-term government. that is a heavy bias in the system away from where you're trying to go which is to get small business started up. of course the efficiency of government spending is important for some european countries have better system than others. that's what i was a better uniformity around europe of the quality of government. spending would be important.

i think the regulatory policy has to be looked at as far as why is it a lot of the innovative capital is an innovated investing done maybe from europe but into places where the business start somewhere outside continental europe. that should be a focus. >> one last question before we wrap up. what is the world big response to the coronavirus outbreak? >> hello to the cameras out there. because coronavirus is topic number one. we are looking at ways to respond or to make available resources for developing countries as it goes pre-were also very close to corneille did with w.h.o., the world health organization which is one of the

frontline providers on that. we have in a range of tools that the bank can use as appended make spread. >> please join me in thanking president david malpass. [applause] >> thank you. >> thank you. [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> hello everyone. i get the privilege -- for some reason they think i should be on the political panel at all times. it is a true joy when i get to do it because i get to see charlie and mark. both of whom unknown for really

long time. to give you some background on the framing of this panel and charlie refers to as your dessert because you guys get to go through all the other stuff and this is fun. i'm not sure how fund politics is anymore but charlie will make it entertaining. >> first of all to see you know, charlie cook is a legend in terms of applying data to economic collections and at one point in time in his bio is says he was referred to as a picasso of political science which i thought i'm not sure that a also is considered misogynist maybe we should take that away. [laughter] broke truly an artist and amazing. also we have mark zandi i've known him since i was a regional economist. a long time ago. almost 30 years ago.

mark is the chief economist and heads up all of their economic analysis, he heads up economy.com which he sold and he employed one of my son's best friend who is brilliant for quite a while comey lewis. >> is that right? >> yes he works with your brother but both of them have an interesting perspective in the title of this, that was james carville that said that back in 1992, what a colorful person he was. he is so i heard him recently. back in 1992 we had our first job as recovery and they were ushering in world war ii the silent generation of george h. w. bush and our first baby boomer bill clinton was elected and we had our first jobless recovery in 1992. so there was a lot of tension between the fed and president bush back then.

so some of the things come around come to haunt us again. mark will start us off with a great model on modeling the economic impact and how the economy can affect the electoral vote, charlie will give a counterpoint on whether or not it still is the economy stupid or not. without alternate over to mark and let you get started. thank you diane. and thank you for inviting me too be here. >> hello did you want me too go on for? >> five or six minutes. >> it is the economy stupid, but it's economy stupid in three states. rank order that includes pennsylvania, michigan and wisconsin. that is the conclusion based on our election model, that is open book. if you go to google, the zande presidential election model, you get a paper that describes a model in detail. everything is laid out for you. the left-hand side of the model

goes to the incumbent party and obviously this year it's republican trump, the right-hand side explains two sets of variables, one is political and one economic. political includes the share of the vote that went to the income net party in the previous election so that can controls the body part. anyone from wyoming? i didn't think so there's only 600,000 of you. but you will vote republican. everyone in wyoming knows cheney and you'll vote republican. anybody marilyn, you probably vote democratic. so we control for that. the change in the president's approval rating in the year leading up to the election is not the level of the approval rating, it's a change in the

matters which obviously is very trump friendly because president trump's approval rating goes back to 1980 which are. which recondition the model. his approval rating is lower than any other president in modern survey. but the standard deviation is also the lowest. very likely his approval rating on election day will not have change more than it did today. we also include, this is an innovation we've been doing this since 1992 election. that was the first time we did this back when carville said those words. but we now have -- the key thing is turnout. so what percent of voters of the norman conant voters gone vote. turnout is a variable.

this model we've been using since 1992 spinner every single time except clinton. it got clinton wrong. the reason is because we did not include turnout and model so we implicitly were assuming turnout would be typical on average but it was anything but typical in 2016, turnout for clinton was low. there are couple other political variables but i will not go into the break economic variables, pocketbook variables, gasoline prices, stock prices, labor market variables. this is all the state electoral college level so remodeling economics at the state level. unemployment, real incomes take a look. one quick sidebar, what economic variables matter have changed over time. if you go back when carville

said those words, gasoline prices and the changing gasoline prices was very, very important. that was a period of the inflation, gasoline prices were people's benchmark for understanding whether inflation was a problem or not. we were driving a lot more of people's income. the variable that mattered a lot more today is stock prices. stock prices are central to the result, very, very sensitive to the result and in large part, i think stock market is more essential to the economy than ever has been in the intuition behind that, the baby boomers, me, diane you're too young to be a baby boomer, were hanging out in the equity market from the previous generations in the same point of lifecycle for lots of reasons, were prepared for retirement, nowhere to get

healed and no return anywhere to you in the equity market. we are very tight in to the equity market. moreover, one other point that equity market affects our asymmetric meaning when prices rise it had an impact positive but relatively small compared to prices declining. that's because think about the baby boomer, that's their nest egg. if it is building they feel pretty good but they will not go spend the nest egg but if prices fall that means is being diminished and they go into panic mode. you pull back, saving rates will jump in that will have an impact on the economy. under the assumption that the economy on election day is roughly the same it is today that the president's approval rating is basically where it is

today the assumption feels reasonably okay but the virus is messing things up but were subtracting now. turnout is typical meaning the average turnout for the nonincumbent party since 1980, that's how were conditioned on the model. this is the result. absorbed that, president trump saw this and he tweeted it. [laughter] i would say it was a very -- with the word. i hate to say this but it was a charming tweet. [laughter] here it is. looks good to me. looks good to me. [laughter] so for the d's in the room you're starting to choke a

little bit and i got a lot of hate mail, a member republican hack apparently. i did not know that. but there you go. i got a lot of good e-mails from economist who were with mckenna metrics which was kind of useful, they were all wrong but kind of useful. under the assumption that the economy is performing roughly as well on election day as it did today that the president's approval rating is on a change from where it is today but turnout is high for the d's, 2008 turnout, obama mccain turnout, here's a result. you can see who flipped, this is where the economy matters, it's all in the margin, the economy matters but it matters on the margin and in those states that are on the edge, pennsylvania, whicmichigan and wisconsin, it's about five counties in pennsylvania. five counties, two counties

surrounding pittsburgh, those are purple counties that are half trump and half dprk two counties in northeast pennsylvania, that is trump country, but it's about the turnout for the d's. and there is one county in southeastern pennsylvania, chester county pennsylvania. i lived there. >> you determining the next election. >> this election will be different determined by my wife. she is a d but it's how engaged a d she becomes. because if she's all in she is raising money, she's also pulls she's canvassing, and she is

doing everything to get that elected freight if she is not engaged then forget about it it's not happening. i'm not going to tell you who she's going to vote for or who she wants. the d candidate matters an awful lot. but it's still the economy stupid just in a more nuanced way than it was in 1992. >> thanks. good to know your wife will determine the next election, i'm glad women have a high role in the selection. i think we need to, i'm going to turn to charlie, has more nuanced fused as well. >> no nuance about it i disagree. [laughter] i was going to say and point out nobody remembers because i'm a baby boomer saturday nightlight >> i always had an enormous amount of respect for mark and his work so i don't want to downgrade what he said and done

and how right it used to be at all. [laughter] i think if i had to put a title, it used to be the economy stupid. because right now the economy is not driving american politics, you don't have this kind of economy, you do not have unemployment at a 50 year low while at the same time you have a president who is never ever had a 50% job approval rating in any credible national poll. in 402 out of 403 major national polls taken since he took office that major dirge job approval rating, his numbers have been underwater, higher disapproval then approval. if you're curious about the one out of 403 it was the very first fox news poll taken ten days into is a administration that had him at 48 approved and 47

disapprove. that was the one that was underwater upside down. the economy does not have the relationship that it used to. what was really interesting to me, if anybody's interested in reading the book about the 2016 election, there was one written by -- is called identity crisis and it was written by a scientist but written in english lynn and michael tassel. it's about politics and identity politics, how hyper partisanship and tribalism has taken over. you are all economist and i'm not. i thought what was really interesting, they just barely touched on this, there was a very strong relationship between consumer confidence and presidential approval rating from john kennedy to george w.

bush. very, very strong relationships. specifically, the index -- the michigan index with job approval rating and i should say job approval has always been the best predictor of how this president will do. strong relationships, that relationship all but ended under obama and did not restart under president trump. that we have something that supersedes the whole people with their pocketbooks, it is totally different now. what we have -- some people are voting against her own seat against economic self interest paid the farmers i talked to in north florida, beef cattle men and i asked them about tariffs, are you worried about tears, he said oh yeah i'm really worried about tariffs. the next thing was out of his

mouth, i think everything the president is doing is what he believes is in the national interest and i support him 100%. i, home at night and i see my wife in the economy, i have five employees and the economy has been good to us we benefited from the tax-cut and she will never vote for president trump -- he could come up with a cure for cancer and the common cold and in fact that question is now that she's not a member anymore, i don't think she would vote for republican in any set of circumstances. i realize that's not data-driven but what happens, people are college-educated suburban voters are trending towards democrats. particular women, very, very very strong. working class, small town rural whites would less than afford your college degree, trending very strongly the other way. this has nothing to do with

economics, has to do with values, culture with identity. and whether you really like donald trump or whether you hate his guts it has nothing to do with economics. it depends on how you do there. but you do not see these kinds of numbers with the president -- his job approval rating ought to be ten points higher than is right now given the economy. really typically he runs 10 - 15 points below and is opposition, thon many issues. there has only been one data point, one income that president up since we've gone into the new era. i think march models were absolutely right for a previous era. i don't think were there anymore. and whether president trump gets reelected or not, i frankly --

if we went into a recession, that would taken. but to be honest if the economy got better i don't think it would help him much, if it got worse i don't think it would help much. it certainly hasn't been reactive to the economy for the last three years, not at all. just a tiny tiny bit on the margin. so i don't think this dynamic exists anymore. but we will see. whether democrats win or lose rather than this -- first of all we will probably have the highest turnout in american history which would be beatty 1940 and 1960 or it'll be close. it will have two components, everyone who loves president trump will turn out, the second part everybody who loves president trump will turn out.

in 2018 we have the highest midterm election since 1914. in the previous midterm election we have the lowest midterm election since 1942. something happened after the 2016 election and it depends on whether you love him or not. i frankly think the old joke about the woman asked by a friend, how's your husband and she replied compared to what. [laughter] i think whether president trump gets reelected or not he has a whole lot to do compared to what them what's going on in the economy. >> on that note, i have a question for you to mark but i'm going back to charlie. there's a lot of questions about sanders, trump, who will win the democratic nomination because it does matter who it is. it clearly matters to mark -- >> thank you because i know mark wants to jump in. the democratic party is unified one sensor badly divided the

other previous unified in the sense that they want to evict president trump. that's a universal feeling, they're all against trump. there is a division in the party, 60% of that basically want to beat him and that's it. they may have preferences for the democratic nomination but the end of the day they are for any democrat that could beat them. it is not -- they want to hit the reset button, they want to restore and take things back to where they were before president trump heard the other 40% are looking for big stuff, when you listen to a bernie sanders elizabeth warren and go to one of rare events and florida -- i mean iowa or new hampshire or wherever. you will hear the word corruption but not the sense that i learned growing up in louisiana not known for good government. it's in a sense of systemic

corruption. our political process is corrupt. our economic system is corrupt. and we had liberal democrats run for president but they had never been antiestablishment to this degree. for fundamental change of system. thus not what george mcgovern or harry or ted kennedy or any of the other democratic candidates for president were pushing. so this is really quite different. the thing is, my thinking has been, had been if you have 60% that just want to throw him out and don't give a rip who it is just so they can win. and 40% to want something that is pretty strained distraction, the 50% would probably bail. but on the bernie side, if you were going to ask them a year ago, what would be the best case scenario for you. he would probably say elizabeth warren collapses or all but

collapses and there is a three, four, five way contested on the centerleft. guess what, that is where we are. frankly last saturday in the saturday nevada south carolina are little important then to shoot the wounded from iowa and new hampshire in a couple of candidacies. the thing that happens on super tuesday, he could get sanders to get 25 - 30% of the vote and end up with 40 - 45% of the delegates simply because of the weird delegate selection process democrats have and the fact that the other side of the party is so badly divided. i've been skeptical of whether bernie can win the nomination but these are the circumstances in which he could, i still kind of do not think he will get it but even in my own firm i'm in a

minority view. it's a close call. coming out of super tuesday he may have an insurmountable lead in terms of delegates coming out of that. if he is a democratic nominee i would never say that he cannot possibly win. but he would be facing gale force headwinds in just about any other democrat other than warren, the selection if it's about donald trump, i think he loses. if it's a choice if it's a referendum of democrat socialism, he can win that. if it's a referendum around peach mint, he can win that. if it's a choice between him and someone else or polarizing controversial, that one could go either way. if it's just about donald trump i do not think he went up.

>> mark, you can counter but also for couple questions. one, you mentioned baby boomers and i'm fascinated, you did a lot of work in the credit card industry that did a lot of work when in december 2018 when the market collapsed it was baby boomers pulling in during the height of the christmas season that destroyed retail. it really was a reaction to the stock market through baby boomers. it is interesting and fascinating to understand the demographics. so that would obviously -- if the market is flat this year, how would that plan and i have another question, in addition to that for you and your models have you considered looking at social media variables? >> good questions. the nice thing about a model obviously is based in data and analysis but also allows you to examine questions of what if. you asked in what if question, what if stock prices were to

decline with that change the dynamic and would we get a different result, that's what's different. the answer is yes. if stock prices and this is a quick calculation back in the envelope not exactly right the roughly. if you go back a week ago for the equity market, stock prices have fallen in the all-time peak by 15% and that's to give you context, the s&p 500 was sitting at 3300 so that would be a decline of 500 points. but the s&p back at 2800. we got back at 2800 and stayed there, not that you go down and go back up but kinda typical for the market. let's say we go down in its more fundamental, maybe the virus is slowing growth in the global recession is more likely and we go down and stay down, that's what the election is with typical turnout.

on the margin, the economy does not matter north dakota or kansas or wyoming or the farmers, that is set in that's been set for a long time. it is more set under trump, it's been set for the last two generations or three generations. what matters is the economy, in pennsylvania, michigan and wisconsin. by the way that goes to who the democrat should have for their nominee if they really want to win. they have to think about who will do well in pennsylvania, michigan and wisconsin. and that's the matter. the stock market matters significantly and could turn the election. by the way i said the president since he shone a light on the equity market, i don't know if you noticed but every chance he gets when the market rises he says i take a look at the stock

market. by the way every time the market was crossing 20000 on the dow it goes up and goes down every time it's at 28000 he acted like it was a figure. this is reinforcing the minds of the electorate and people in the importance of the equity market of a real-time report card of what's going on. in my view i think this is a critical thing. one thing i want to say about the economy in the election, this hits deeper then who's gonna win the election. by the way all processes by saying i'm an economist. so i have a bias. everything looks like the economy to me. let's take that as a given, i may be overstating the case but trump and the democratic reaction was called out bernie in my view a direct result of the financial crisis ten years ago. that was devastating to millions

and millions of people, disenfranchised americans. this is something that happened globally, not in the united states, everywhere across the planet because the entire plant it went through this. it's taken ten years to get back where we started and were still not back there. taken the ten year treasury will yield sitting at 1.6%, that is not a symptom of a healthy economy. we are not there. people know this and feel it. a great survey year ago everybody knows better repeat, 40% of america household americt have an emergency fund. i don't care what the guys are saying, i don't i want something different, i want to blow this thing out. that's economy stupid. it's giving us trump and it's given us bernie. , they are not the same, there's lots of difference between the two. but they are symptomatic of what the economy has done to her

politics. it is the economy stupid. >> all that charlie counter that. the g20, the peterson institute which is one of her great sponsors did a great study on 55 new and existing parties within the g20. the overall majority had moved to write nationalism populist which included limits on immigration, close borders, tariffs and subsidies depending on whether the developed or developing. much more to the right than the left. but that is something we should be aware of, a global for whatever reason i think their policy reasons but for whatever reason there is a population frantically nationalism that is global in scope right now. >> why don't you way in. >> if the economy still mattered

let me ask you this. -- >> the economy was not all that great -- go look at pennsylvania, michigan and wisconsin, look at the statistics. look at unemployment. >> if we were here four years ago today, would you point to wisconsin, i don't think so. wisconsin had gone democratic seven times in a row, the last democrat to lose wisconsin was mondale, the other two, six times in a row, these were not states they were pointing to. hillary did not step foot in

wisconsin until the day. sometimes you anticipate being the tipping point states aren't in people and states that are are not the ones you're looking for. and that is sort of what happened in michigan, wisconsin. michigan and wisconsin were not targeted states, overall in the election but two tenths of a point, michigan, seven tenths of a point in wisconsin and pennsylvania, what happened in pennsylvania, the rulebook, the small town in the center across the top came out in unprecedented numbers, it broke the numbers. clean campaign got the good numbers that they thought they needed. out of chester county and the city of philadelphia and pittsburgh and west. they got the numbers they thought they needed. but you had voters coming out of the woodwork and numbers we had never seen before. so what is that about, the reason wisconsin and pennsylvania, they have a

disproportionate number of whites with less than a four-year college degree, whites in the manufacturing sector and that is where trump did well in the primaries and that's where he did well in the general. but it has a lot more to do with culture. you show me a working-class white in particular working-class white male and i don't care what his checkbook shows. that guy is very likely to be for donald trump regardless of his personal finances. it's about culture and identity and a feeling we have been left behind that the coast looked down on us, they either make fun or ignore, this is about culture and identity and anything else. >> i wanted to follow-up with you on that charlie. some of talk to a lot about moderates and one has flipped in 2018 very marginally and very moderate democrat and they

flipped the red areas and they said the biggest issue for them was showing up. you mentioned hillary clinton. >> they weren't if they were republican. >> waited republicans get the majority in 2018, the suburbs of atlanta, dallas, houston, kansas city, oklahoma city, richmond, that just talks about the south, these are districts that have been republicans since moby was a guppy. [laughter] but there fast economy is doing well and you got lots of people from other parts of the country moving in and looked next-door in virginia, a used to be read republican state, yet influx of new people coming in and is now a blue state. we've gone from purple to blue, north carolina coming in to the research triangle, charlotte going to atlanta in the suburbs and to texas. the places with the big influx of people coming in changing

their southern us make it a less southern, those of the states that are moving away and were democrats score big games, the state that doesn't have a lot of new people coming in, my home state of louisiana and arkansas, mississippi where my wife was born, south carolina, alabama, those states are not changing a bit, they're just as read republican, it's how you trust, and for a lot of people by the traditional definition will be called republicans who love the guy in moving away from him. my friend time davis who was a moderate republican next-door, he has a great line, he said the republican party has gone from country club to just country. [laughter] this is not about economics it's about culture. >> i will let you counter on

that, but you mention texas, how do you look at texas in your models, it's coming up of one of the states that could shift colors from economic standpoint, charlie mentioned it shifty with a number of people coming in, how do you look at that. >> it's getting closer, i don't think the democrats will win this year. >> one interesting thing in fascinating thing to do with the data and models, we can rank order the states based on the% of the vote to the common party. we have a precise estimate. those states sitting around 50, those are the swing states and that's why go back to pennsylvania, michigan and wisconsin wisconsin, charlie brought up a good point, historically it's gone d but the tories been very close. >> it's really on the margin and it's almost a random event that is gone more d than our. >> seven times in a row is a random event. >> take a look. it's very, very close.

>> it's close but seven times in a row is not random. >> i don't mean to call you my father but i'm having the exact same thing with my father. my father has written a book, this is the book he's written, i'll plug it right now because he loved me too do that. this is exactly the fight that i have with my dad, the culture guy and i'm the economist going back and forth. i think it's a pretty good book, we will send it to you charlie. [laughter] anyway you can see were texas lands' end in my mind i don't quite remember. >> here's charlie's address. >> thank you. [laughter]

i have a card to. >> i have you both on e-mail. >> texas is not close. the economy would have to go to hell for that to happen. that is not happening in texas because it's a very solid economy. i don't know if you been recently to dallas but it's amazing every time i go there -- >> you don't have a card. >> i do, hold on. >> you have other people's car cards. >> here we go. >> there's my son when he was three. [laughter] >> he was a cute kid when i look at that anyway. i don't think texas is in the play. i am saying after you control for things as best as you can, culture by the way, the way i control is brute force. i say how did you guys vote last time, if i'm from wyoming or north dakota, regardless of what the economy.

it's not like i don't think culture matters, it matters. i'm not saying a domain more today than it did in 1992, in my view it does. . . . in five counties in pennsylvania it makes no sense. >> there's a lot of questions on different candidates. bloomberg comes up, mostly bloomberg and sanders. who could it be? >> i think bloomberg is the only candidate that has the money.

wow, tom steyer might as well be throwing money into the shredder, $60 billion. he would do a little bit better than south carolina because he's focused on money in south carolina but these other people they do not have the money to compete on super tuesday. those states need about $100 billion. some of the candidate go from nevada to south carolina and it's either going to be trump or excuse me, bernie sanders or bloomberg. i had been thinking very strongly it would be bloomberg. i still lean that way.

normally you'd expect some of them to get out of the race because that is what normally happens but they are all staying in which means none of them may get the nomination and the nomination may go to somebody that reflects something different from >> it's similar but in the republican party, you had a visceral establishment that was quite something and they wanted to do something wild and crazy and they missed jeb bush in the blink of an eye and marco rubio, people that the republicans would go for. i think sort of what had been a

key party movement has evolved into the trump movement that was said how barack obama in their mind wasn't even in america and mccain lost to him and romney could knock him out again. what good was the establishment so let's do something totally different. it's 40, not 60 but it's only one and a third candidate versus 60% divided by four. >> i know you've done some work on the coronavirus. what do you think this could

mean for this election? >> i assume it becomes a pandemic it's everywhere. it remains largely contained but assume what we are seeing now is what we are going to get. it's going to be very weak and ironically things are very strong because all the preferred activity will be the 3% growth rate. also you are benefiting from a low environment because you have the mortgage rates that are going to be pretty close to a

record low which means it is searching and if what they are getting right now is what they are goinwe aregoing to get, it p friendly. if the virus jumps and becomes a pandemic, what happened yesterday in th and the market investors said my god there is a reasonably high probability which means it is going everywhere. i don't know if you've been to the lawn but it's the center of europe. transportation everywhere. the italians we were debating,

the uk was growing 1% and what's the policy response, there is none. the only country that has any kind of fiscal space isn't happening and then you have asia struggling with the commodity prices. we are the island. we might be able to navigate on the scenario but into recession that likely means we are going pretty close. it's not in recession and slow enough unemployment will start to rise particularly in pennsylvania, michigan and wisconsin. and that will be significant. the stock market is going to anticipate all this and you won't get the 50 percent done.

the typical decline if you were going into the recession is 20%. and according to the modeling, take it for what it's worth, 15% which was a week ago and stayed there so this virus could really scramble for election. >> thi >> this is out of my lane but it gives excuse i don't think the economy going down anything short of a recession i don't think that it would hurt anything at all and actually kind of gives them an excuse for the economy slowing down. we could blame it on this but i think yes, i wouldn't take my eyes off of north carolina,

georgia, arizona. these states are going to be just as important and their economies are going opposite of michigan, wisconsin, pennsylvania but they are going to be on the bubble and its not about the economy. >> one last thing about the virus. what matters is actually the policy response. if this is katrina remembered bush and katrina was disastrous because everyone said okay its katrina but it wasn't an act of god the way we treated those people as you know and this is a referendum on the way the government has been operating in the last three years. we've seen the government hollowed out and this may be the implication we are not prepared

for. >> three and a half ago i am flying to hong kong for a spee speech, the whole drill. six days later on a lunar new year's eve day flying back hong kong, san francisco, get off the plane and not a trace of any health related person of any kind. i am in a rabbit hole on this but it's always exciting. thank you, both.

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the moderators all named diane this is a theme today and i am pleased to welcome you here to this discussion with jason and holtz-eakin. professor of practice at kennedy school heat of course was

director, the chair of the council of economic advisers during the obama administration. he's had other prominent roles throughout his career and doug holtz-eakin is the president of the forum that he started over ten years ago now and of course you know him mostly from his stint as the director and he was also working for the council of economic advisers during the george w. bush administration. so, in other words welcome to the fiscal policy establishment. [laughter] today maybe we can practice a little bit but all of them are too busy right now.

fiscal policy response is to economic inequality and i thought i would start by mentioning they put out the results of the membership policy survey and i know one of the questions was what should be the primary objective of the policy. 44% of you said grow, increasing economic growth. it's interesting because i'd like to think we could do it all that i am an optimist. part of the discussion today -- >> we don't take the budget concerns very seriously. >> i don't. >> i think that part of the

discussion today is is it possible to do all of that, they are not mutually exclusive -- i'm going to launch right into an opening question which is we are not going to dispute arising equality over the past few decades but i would like to know what you think are the explanations in terms of the economy itself but the economic factors. we are not going to dispute it, you see it in the income data, the wealth data, the mortality data in a wide range of data wherever possible as we talk about the numbers to make it as

hard as possible for doug to object. they both have some merit and the first is grounded in competitive labor markets. it's grounded in competitive labor market and supply and demand market clearing wage and this technology model we've had the combination of technological change that rewards the scope sl and at the same time that college attainment is increasing it is increasing at a slower rate starting with people born around 1960. you have more need for skilled people and i think that explains probably a little bit more than half.

the other bit less than half as institutional factors that lie outside of this competitive model. it's the way that the pie is divided in the concentration and the like. the second factors have associated with them but are not necessarily an efficient response in fact curbing them may help increase efficiency as far as we believe the competitive model all you can do is education or taxes. >> i'm going to agree on the first one because it also explains the market outcomes across the globe. in the 80s you start to see the bottom starts to drop and as

you get to the '90s the bottom stabilizes but it continues to rise and that is at the core of this. what's interesting to me is that starts to feel like an episode early in my career i when the united states has a productivity slowdown so they have massively over explained the slowdown. i think the issue becomes how you think about ordering those as those that are quantitatively important and amenable to the policy responses and where you move next. >> so, the top has kept rising

and that has been a force in the inequality. what do you think the role of government should be in combating or not exacerbating inequality? ' >> let me start by saying it's important to understand that the government does reduce inequality. the tax system is mildly progressive and the benefits system is massively progressive and to take together the fiscal system does a lot to reduce inequality. if you look at the change in 2016, the top 1% went up by 12 percentage points over that period. the after-tax transfer went up by about seven percentage pointsus to a little bit more than increasing the quality offset by the fact the system itself is progressive.

there is a bit of a partial success story to the system right now. i don't know if it is enough of a success story or we underline that in the legislation in 2017 which resulted in a larger reduction for the houses of the top and in the middle for the bottom and it's the exact opposite of the direction we should be trying to do if we put the tax system on autopilot and it didn't change the tax cuts did is a growth in revenue and share gdp because they get the income in the higher bracket so

as the economy grows it would support a larger and more progressive government system. we feel like every time we creep into that area there is a legislative desire to kind of beat it back down. how would you characterize the natural evolution of revenues? >> that is a very hard question. on the spending side it's sort of comparable to adjust things because in the 80s and '90s it's largely discretionary and

not mandatory. they got used to that idea. buthat i think has become a problem because now you have the desire to lower rates. that has left us in a very difficult place because there is no other revenue source and it's pretty hard to argue that so when you get left fighting for this income tax isn't enough to

solve the problem. >> i kind of wanted it t want te antiestablishment policy first. i'm wondering if you can talk a little bit about what you think some of the proposals are trying to address by taxing the very rich benefit programs that will benefit all broadly with medicare for all so we can talk about what's wrong with those ideas and what they see the challenges are. >> how much time is left? >> let's talk about the trade-off between some of the wiktheleaky bucket and the risi

tide. >> the tide will not rise if there is no bucket. >> t. hugely overstates the growth and efficiency side as compared to the distribution side. let me give you two examples, the 2017 tax law, cbo said after a decade it would increase the level of gdp by 0.5 percentage points. that means on an annual basis it would increase the growth rate of gdp by one half of one tenth. a isn't a measure of how much it

increases people's well-being because first of all it is funded in part from international borrowing. they showed what happened to the real gnp after paying the foreigners and that was after the decade which is to say the growth rate went up 100th of one percentage point. when you do the math welfare measure and compare that to the distribution one group gets a tax change that is plus or minus two percentage points, that is huge and way bigger direct effect that their income goes up by 2% or down because of the tax change my second example that i

like as much about as the tax cut there are certain elements that are poorly executed would be the sanders proposal. the model, not to pick on diane found that it would level the gdp by 1%. but that is an economic policy as i could possibly imagine. in about as good an estimator as anybody knows and he has it over in the annual growth rate by 31 hundredths of a percent which is to say he thought the economy was going to grow at 2.1% absent the sanders wealth tax according to the budget model is going to grow at 2% because you won't see the 31 hundredths and rounding. so the distributional effects of the proposals are just much

larger. you can add or subtract for better or worse by the redistributiobut theredistributf growth and a lot less on actual welfare so focusing on the distributional impact is a reasonable way to evaluate. >> it's because of the distributional implications. we used essentially the equivalent to explicitly look at the implications of the wealth tax on the proposals by elizabeth warren. what happens is the economic incidentals increasingly overtime on workers in the form of lower labor income. we know where those people are.

it isn' is in the way that i wao go. these are deliberately destructive policies. the goal is to destroy wealth accumulation and as a result, extraordinarily high tax rates on the return to capital. i understand people wanting to collect more money and i have no particular animus towards the. this is a terrible proposal something we shouldn't even consider in my view. it's comparably well intention intentioned. the united states is about 30 million people who are insured. 15 million of those are eligible for medicaid, check out the exchanges that come along with

it. another 5 million are here illegally and another 5 million have declined. so 5 million americans who are a target to get everyone into this coverage. 2.5 million of them are relatively low in the states they didn'statesthey didn't do d expansion. thithat is a target for the coverage. pretty affluent americans who are walking around self-insured i don't really care if i want to do that, that's michael. but really you do this too for 2.5 million people, that is an extraordinarily inefficient policy that makes no sense at all. what you put onto thwhen you put have, the cost for all you can fight about whether national health spending changes but if you have to put it all and finance it somehow, the scale of that is enormous. if you did it with a traditional

approach to the payroll tax for the program, that's not the way to go. it's a disruptive policy with poorly targeted results and we just have to avoid that. there is a big trade-off. >> so, are you saying that policies like the wealth tax and medicare for all to raise taxes to pay for it they will be counterproductive? >> economic growth for sure and there are ways to target and equality. it's the same on the universal income. we have the array of programs that they have good reason. let's figure out how to get 15 million are eligible actually on medicaid or the aca.

>> to go back to the supply-side response, how do you feel about the magnitude of this versus the benefit of getting revenue and using it for lower income households? >> first of all, i haven't seen the paper on the wealth tax so i will take a look at that. i think that it is lowering income by 1% after 30 years. so i think they got a pretty different number so i would be interested in seeing the different assumptions and i agree with almost everything you said on medicare for all right now. my first choice would be to make the tax system more efficient and raise more revenue. there's a lot of ways to do that. i put out a paper recently that suggested basically that douglas holtz-eakin tax plan with a 28%

tax rate and i think that he originally had a 25%. >> when you look at the economic efficiency of the corporate taxes, the tax base matters a lot more. you can make different arguments onon way they may or may not matter but if you have expensing and to disallow the cash flow tax that gives you a lot more room to raise the tax revenues so we can get more and increase economic growth in dividends 0.2 percentage points to the growth rate relative to everything in the existing program so there are some steps like that. there isn't going to be enough revenue for things that are efficient improving so there has to be a trade-off to minimize things like getting rid of the capital gains as a way of producing and it also enables you to raise the capital gains because it becomes less

responsive to the taxes than they are now and eventually you have to pay them some way as opposed to avoid them entirely. a greater degree between corporate and individual level taxes if they were able to switch to something more like market to market taxation and capital gains to raise revenue and give it in a more progressive manner, by the way, mark would have paid more taxes undeunder the plan then he wouly under the wealth tax. they paid a low rate for someone like him is an enormously high rate of return. the wealth tax is a low rate of return so this would actually get the economics are so there's a lot of things we can do on the efficiency improvement and i think in almost all of those cases the come of the revenue is going to swamp any of these different efficiencies so if we can do a testing freeze that is the only thing we could do, i would take that as money spent

in a decent way. >> are there other ways they would raise taxes to address inequality? >> minus the same is jason's. you want to pay most attention to the base. the great debate has been for decades or more towards the consumption tax. i think they are going to have to have as much as we can possibly have going forward so that's important to me and this is a place you can preserve that it's not all are created equal and broadbrush terms. some are roth style where you pay the taxes upfront and then

whatever else happens on the return with a traditional ira where you get the deduction expending, that's jason's world and i agree with that. i'd agree with that. then with false prophets or monopoly powe power with a great lobbyisor the greatlobbyist or s the great return, they get tax taxed. that seems right to me and that is the tax system stacked and that's possible growth and guarding against massive windfall. but the bulk of this is going to continue to be done on the spending side and i simply think we have a fundamental trade-off no matter what the we do on thex code we have to deal wit with te mandatory spending programs and ask the question where is the entitlement most important and we have a system that doesn't do enough for kids and that is a

real issue. >> i'm looking ahead to the questions coming up on my app. i'm noticing that there's a lot of interest on the question of too much focus being paid to income rather than wealth and how we address the generations. this is why there's been such motivation for the proposal to tax wealth. is it inherently, what do you think of this movement towards let's just attack wealth instead of get at it indirectly? >> wolf is the secret of the income, some of them are consumption so if you tax the income more progressively you will have a distribution and

more progressive income tax distribution so i don't find the reframing. you can just go back and forth between the two. you end up with this strange thing where 80% of tax might sound reasonable to but then when you transform that into the income space they are getting 1.3 and that is over a 100% tax rate on the income they are generating and i think income as that is associated with incentives and there's a reason we look at these things and i think once you start getting to the wealth of space, you can miss that and also the people they get a 100% rate of return and on the income generated uri under taxing them relative to what you would tax them even in the consumption tax system that

was properly designed for the normal rate of return. so i think the wild thing has been political and takes us away from sensible economics on the distribution issues. i've always been mystified by the billion dollar slipped to one offspring as well as those generates very different intergenerational inequalities and we ought to configure the system to tax people on the basis of what they receive and there is a very progressive tax if you get a dollar that i think is the place where you worry about the wealth distribution and only if they are. everything else is great.

>> so, turning now to the political debate and discussion and among the democratic candidates i'm not going to ask you who you support, but -- >> i don't have to decide until tuesday next week. [laughter] >> same here. onto like 8 p.m.. >> yeah, i will be right there with you. so, do you think, and i'm trying to wrap my head around how what is going to emerge as the democratic platform in terms of tax and spending policy and so that obviouslsaidthat obviouslya large extent, but do you think that's part of thithat part of f going through this very likely primary process is going to be a

different perspective on how the spending policy should be used to address inequality? do you think that it will in any case hold of the democratic party a little bit less because of the fact we had these candidates even advocating for these extreme ideas is not the nominee it seems like it will have lasting effects no matter who ends up even if it is sanders or warren doesn't end up the nominee, what do you think about that? >> i think congress has been entirely unscathed by the discussions that we are talking about. doug and i testified to the ways and means committee a few weeks ago. there wasn't a member of congress asked either of us claim of wealth tax can you tell us why it's great because that is generally the format of the

question said they usually last about five minutes to actually answer it. >> the democrats i would say are more passionate in congress about restoring the assault deduction than they are raising the rates of your more passionate about tax cuts for the income than the increase for high income households. i think a lot of them are more terrified than they should be on raising the corporate tax rate. so i think no matter who is elected, the constraint will be congress, it will be quite a big constraint and as an open question, and i don't know the answer what would make a financial transaction tax likely to happen in this country, sanders getting elected this passionately argued for it for a long time now, or michael bloomberg who came out in favor of a week or two ago? i'm not sure i know the answer to that. i can tell a story where mike bloomberg would be more effective at legislating that in

arguing against the objections that it would destroy the financial market then bernie sanders wasanders would answer r betting in things tilt towards sanders, you know, that isn't going to happen and it shifts towards bloomberg you should start to get nervous that it will happen so i don't think you can even read this and the fiscal space against what people are going position is because remember bill clinton went for quite a bi big health care plann 1993 and got a thing as a result and you could certainly see that happening with some of the more ambitious candidates. >> the question was on the platform. that's already happened. that ship has sailed. >> i wasn't debating that at all. >> i think it is a fair question with any of the likely presidents who they are actually going to do come january and how they will effectively legislate the government if they choose to

do so. that is a hard question to answer. >> i was going to remind the bill clinton campaigned on tax cuts and then once he was president he ended up raising the taxes instead is so obviously things could change by the time you are campaigning to the time you are governing. >> we are not going to have a government larger than denmark and france. that is what is in the proposal that would make it larger than the government of denmark or france. the congress is not going to go -- >> european countries have tried to tax and later rescinded but it's lower in these countries. what are they doing instead of? what they are doing is broad-based taxes that are less progressive band was combined with larger broad-based benefits whether it's for health,

education, pensions and the like. that would be a better direction to go than trying to achieve hyper progressivity and i am in favor of those at the top but i don't think we can get much more than 2% of gdp in that matter and if we can only get 2% more gdp that isn't going to be enough money to plug the social safety net when elizabeth warren pretends you can have the most generous health plan in the entire world and pay for it entirely on people that are rich and mostly superrich are just avoiding type of conversation that we have in the 1930s and we established social security in the 1960s when we established medicare which everyone is going to pay in and

get something and get a really good deal so that's the direction i wish we could move. i think the key is to go back to the competitive aspect and the skills issue and recognize that in the united states we test the national assessment of education progress and every year we have 25 to 33% of fourth and eighth graders reading and math that they can't even come close and we are leaving as a result 25 to 32% of the american population behind. then we are going to have a huge fight on how to fix it after the

fact. it's what we should be talking about doing but nobody is doing. >> we have to teach kids to read. we had 7,000 rooms talking about rediscovering american workers. [applause] do you think economists have failed to speak up on the other kind of capital in the economy? how well for getting student loans raised the capitol fax

these are terrible proposals and they are expensive. we have to get serious about this. if you want to boost human capital the lowest hanging fruit is education and the united states has a moment about 22nd in the world and to do that costs money and they can't be any program with a teacher that doesn't have a college degree or that doesn't have any training and educating the need to be high-quality programs. the returned from our enormous and we could do euphemisms no one talks about in this particular case there've been a lot of democratic proposals and frankly you have economists that

supported with almost no elected member that wants to sit to talo talk about the quality of opportunity one is to tax the billionaires it's to make sure people are not incredibly disadvantaged from the moment of birth in the rest of their life. that's going to take money, a whole lot less than $150 billion a year. even at the other end of its college and expanding the number of people that go before we saw the slowdown i think that is the

other margin we have ended or we don't need more money. what you need is more things like income-based repayment like they have in australia. the loan ends up getting forgave him at almost no cost to deal with all of the liquidity problems that prevent people from going to college. if you want to find somebody it is the single best if they are less likely to finish if they finish it takes them longer and that is a legacy issue and we have to remember about 30% is a

lot in the labor force determining the nature of inequality that have to be somehow addressed and that has been underappreciated. the audience is throwing out a couple other policies that like your thoughts on. the other is the universal basic income. so your thoughts on the value added tax source of revenue. i think a lot of them have bad efficiency aspects. disability insurance you have to

be unable to work. we can argue how that is implemented but the idea that there is conditionality is something that strikes us as fair and efficient. the last thing in the premise is wrong. i think we should be more focused on how to enable people to work and to succeed in the workplace rather than giving up on work. i've got there is a memo done for george bush may be dug was involved and was a great analysis.

any government that ever instituted and lost the next and it's followed by the economic analysis tha is pretty decent ai can picture president bush to the next tax reform idea. it's consistent with what i said more taxes for everyone and raising more money. i think it's politically very hard int and that the way to geo it. we have an overwhelming agreement on this and i just think the political capital you have to spend to get that back in the united states is too high for the outcome.

i'm a big fan of using the existing collection to end up with a tax cut could look like economics but the sense on paper and one of the reasons i was a big fan of the representatives task force proposal at the beginning of the discussion that is a good way to go. >> yesterday stephanie was here speaking about monetary theory and it would be nice to ask you if deficits still matter and how much should the federal budget be a constraint on any of the approaches they would advocate

for addressing economic inequality? >> i would say at the outset i think we have to take seriously the trajectory of the budget. budget. there's nthere is no question ts unsustainable if it's an ever larger divergence between the projected revenues and spending and the structure of that is wrong because you are crowding out the discretionary spending which is where you do basic research and all the things you can generally invest in the future but it's all wrong and has to be taken seriously.

do you want to reach for a quail and then maybe get serious about it i think given the fundamental politics to raise more revenue and take on the mandatory spending programs we should start now because it isn't going to happen fast. i think one way might be one deficits have changed it's about the problems with deficits even if they overstated the problem and then i went through the experience of congress being incredibly concerned about the deficit while the unemployment

rate was 10% and that was completely insane. you can look around other countries and to see the same thing in places like germany today. now i think the political system is likely to be overly concerned about the deficit as it is to be under concerned about deficits. in the political era it's made e place in conditions that shape the truth in one direction to just tell you the truth, so i will do that now. it claimed to discover a timeless truth into some grandiose statement about everything. that's completely wrong. you have to think situationally. the monetary theory would work out disastrously and has worked out disastrously so we know

there's something more to the economic standing application of identities. what i dbut i do think has chans interest rates for the negative rate it means we should be thinking about that differently in the american economic association for the sustainable primary deficit is a lot larger now than what we thought it was a decade ago. who knows which way interest rates will go but i remember people saying they will go up the question is how much and they've just gone down since then. so to me i think that says we can wait a bit of time. i would pay for things in the meantime. we can make sure we are eventually dealing with social security and medicare and since we have that built into the system now, i do that mostly on the revenue side by the way, and if it stabilizes 100% of gdp

have almost no conviction anymore but that's obviously a problem. problem. >> i don't know if i can ask a quick question here. prediction about who's going to take the democratic nomination. >> i think a new yorker will be the next president. >> think you for your questions. [applause] we are going to a