This is the thing you and I have talked about a bit in the past.
But let's come back to what we saw, this huge sturm und drang, if I can call it
that, in Washington. Media loves to cover it.
But did anything happen that really matters this week in Washington when it
comes to the deficit? Not really.
It was a farce. Sturm und drang is probably even too
much. I think the big story or the big drama
really is the deficit and debt. We have high and rising debt to GDP
ratios and that was completely ignored in this drama, but really needs to
become front and center. Well, and that's a problem that
Democrats and Republicans share. That's not it.
Absolutely. If you ask yourself, badmouth, the
Democrat and Republican parties have no plan and the president has no
leadership, what could go wrong? Well, a lot, particularly when you count
in the need for higher defense spending, spending on opportunity, and
particularly in the context of today's jobs reports, higher interest rates and
what they do to the budget. So what about the math?
You refer to the math. What's the math as opposed to the policy
differences before we get to the policies?
Well, the math is the debt to GDP ratio is on an unsustainable path, meaning we
just can't go there and we can fight about how to address it.
That's no reason for legitimate political discourse.
But denying that it's a problem is not. And we can't say that we won't raise any
tax or cut any spending. There's no door number three.
When do we really start to feel the pain?
Because part of the problem is we keep hearing about this drama and then it
goes away and nothing quite happens. And so at some point, it's sort of like
the boy who cried wolf. Right.
We're going to feel it very soon. And it's easy to see why we need to
spend much more on defense. Interest rates have gone up and have
really from the federal budget into a problem.
In fact, if interest rates stay where they are now, premium over what the CBO
forecast over the next decade, what about a seven percentage point increase
in the debt to GDP ratio, even over bad numbers in about $3 trillion more debt?
We really can't go there. So what's the solution?
Give us the answer to it. Again, apart from exactly what the
policies are, but how do we start on a path that actually addresses the issue?
You know, it's a great question. I think the problem is we can't go to
the Congressional Budget Office as a long term outlook and start pulling out
technocratic proposals. That's not going to work.
We first have to tell the American people what's going on, actual
information. Here's the path, here's how bad it is.
Here's what it's going to do to programs you care about, like the ability to
defend the country, educate children, do basic research, and then we have to
start articulating stories, you know, what kinds of policies make sense?
Do we have a tax system that works? Do we want Social Security and Medicare
to be as generous as they are now for upper income people?
We have to have those discussions. And then finally, we have to talk about
gradual adjustment. No serious person thinks we're going to
slam on the brakes today, but how do we like the Greenspan Commission decades
ago outlined something steadily that could make a difference.
Is the way we live in a democracy and votes count political appeal accounts.
I assume you're talking about some political leadership that has to really
take the bull by the horns. Yes, I mean, obviously, the president
should be leading. He's not I would hope that in the
presidential campaign we will see this. My desire would be to have a fiscal
commission begin after the election, the 2024 election, to really tackle these
issues and whoever is president to take that very seriously.
Lest you think it's naive, we have plenty of precedents for doing this.
And frankly, anything that tries to move fast or just isn't politically viable.
Tell us about the commission. As you say, it's been done before with
respect to Social Security, as I recall. Also base closings.
Yes, those are the two issues. So Social Security had a cash flow
problem. President Reagan appointed a commission.
Alan Greenspan chaired it. And that commission came up with a
politically palatable idea of gradual changes that affected both taxes and
spending. I think the same thing has to happen
here. We have to ask ourselves, do we have the
right tax system here? We don't.
Let's fix that. Do we have the right structure, the
entitlements? Hint we don't.
And how do we gradually change those to bring the budget back?
In the past, when you use a commission, is it basically because both sides know
where they need to get to? They just need to have a way to do it
without paying too much of a price? And do the sides right now have that
same understanding? I think they do.
I think nobody wants to admit it. Right now.
We have a bipartisan consensus that taxes should not be raised except on the
very rich and no spending should be cut. That fails math.
Where are we? Social Security?
Social Security's actually relatively straightforward to fix.
We have to ask ourselves a fundamental question What do we want it to do
if we want Social Security to make sure no senior is in poverty, we should raise
minimum benefits and then flatten them for everyone else.
Raising the retirement age is is something to consider, although one
would want to make sure it doesn't bind on people.
Who do a lot of physical labor as opposed to people who do more office
labor. But this one, is it hard economically?
It's just politically difficult. Is there any way to get to real deficit
reform without dealing with Social Security and Medicare?
No, no. In fact, if you say let's just fix this
by raising taxes on the rich, if you did all of the tax increases on the rich,
that might be plausible. You might be talking about a percentage
point of GDP. That's real money, but not compared to
the size of the deficit that we're talking about.
You really have to tackle the entitlement programs.
Is there any way to deal with the deficit problem without doing both
revenue and costs? No, no.
I think revenue has to be part of the equation for two reasons.
One is political. But the other is timing.
If you believe that you need gradual adjustment in the spending side on
entitlements, you'll need more revenue up front.
So candidates, I think, would include, let's say, a carbon tax or a reform in
the tax system that allows you to raise more revenue without killing jobs and
growth. Both of those are possible.
So so you have to deal with Medicare, you have to deal with Social Security,
and you had to do with both revenue increases, which is taxes, essentially.
And you have to deal with cost. But does feathering in and help?
If you look back in history, does it make a difference if you sort of we're
not going to do it right away, We're going to do it over a period of time?
Well, it absolutely does for two reasons.
One, it's not a large change in any given year.
And second, it gives people time to plan.
If you're going to adjust entitlements, you're telling younger people you have
time. We'll give you other ways to save.
Likewise, on tax increases, we're not punishing today's job creators and
businesses. We're trying to phase in the need to pay
for what the American people say they want.
Glenn, you've been in Washington as well as here in New York.
Have we had instances where the president has come forward and done that
education that you say is the first step?
Because right now, I think most people don't really understand what's going on.
What we most definitely have, if you take, for example, President Reagan's
leadership on tax reform, a complicated subject, to be sure.
He made sure the American people understood what was going on in a
controversial issue. George H.W.
Bush, in explaining a budget deal, explained well, I think why both sides
had to make compromises. He paid a political price, but it was
the right thing to do. So are there people working on this
right now? Can you are you working on it?
I mean, how do I m and lots of people are.
This is not a problem that is technically difficult.
The trick is to come up with things that can build political coalitions and
processes that make it happen. This is not something where Republicans
get everything they want or Democrats get everything they want.
Both sides will have to make concessions.
But the math is the math. We're here on Wall Street week.
Is there a role that Wall Street, in a largely construed Wall Street can play
to try to bring this to past 100%? This past week, I think Jamie Dimon had
made comments about elevated interest rates from policy.
Business leaders have made comments that the uncertainty and chaos in Washington
is affecting economic growth and governance fears for interest rates in
the economy. It is perfectly okay, and I would hope,
necessary for business leaders to stand up.
And how do we explain to individuals across the country what it means for
them individually? Because everyone, when they hear this,
the first question will be, what does it mean for me?
Townhalls. Go back to the Bowles-Simpson
commission. Alan Simpson was an enormous comedian
around the country in explaining things. Erskine Bowles less funny, but super
smart and and very sincere. We need that.
We need going around the country explaining what's going on.
Finally, though, you have hopes that maybe this will come up as an issue in
this election, because I haven't seen evidence of it yet.
I think it will not because economists have suddenly become persuasive, but
because of things like the need for defense, the higher interest rates, the
uncertainty, the Federal Reserve policy, the jobs report today, that's what's
going to keep it in the news.