WEBVTT - Bitcoin's Usage Has Collapsed, Schoenholtz Says 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:29.040 Bloomberg dot Com, and of course on the Bloomberg. Well, 0:00:29.080 --> 0:00:32.080 it is now my pleasure to introduce Kim Shoon Halt. 0:00:32.159 --> 0:00:35.000 He is ny U Professor and director of the Center 0:00:35.040 --> 0:00:38.440 for Global Economy and Business, and he joins us here 0:00:38.520 --> 0:00:42.600 in our eleven at three of studios. Thank you, professor, 0:00:42.680 --> 0:00:46.360 great to have you here. Happy holidays, my pleasure. Are 0:00:46.400 --> 0:00:48.839 they really happy holidays for business? Based on what you 0:00:48.880 --> 0:00:51.960 know out of the tax overhaul bill and what you 0:00:52.040 --> 0:00:55.320 see as in terms of changes in any financial regulations 0:00:55.320 --> 0:00:58.800 for businesses, Well, let's see leave the financial regulations aside 0:00:58.800 --> 0:01:01.880 for the moment, but and even the tax changes aside, 0:01:02.440 --> 0:01:05.560 business is doing pretty well. Profits are high as a 0:01:05.600 --> 0:01:08.240 share of GDP, so this is a pretty strong period 0:01:08.240 --> 0:01:11.240 of the economy. Growth is above the level that we 0:01:11.280 --> 0:01:14.760 can sustain over the long run. So UH and unemployments 0:01:14.800 --> 0:01:17.000 down to the lowest level we've seen in more than 0:01:17.040 --> 0:01:19.839 a decade. We may hit the lowest we've seen since 0:01:19.840 --> 0:01:24.560 the nineteen sixties during eighteen So this is a strong 0:01:24.600 --> 0:01:28.119 period for the economy. What to what do you attest this? Uh, 0:01:28.280 --> 0:01:31.319 this strength in the economy. Is it government policy? Is 0:01:31.360 --> 0:01:35.399 it natural? Business cycle? Credit cycle? Look, this is the 0:01:35.520 --> 0:01:39.039 ninth year of expansion and so UH, this has been 0:01:39.080 --> 0:01:43.400 a disappointing expansion for most of its history. But we're 0:01:43.440 --> 0:01:46.440 finally getting to a point where we're approached. We're very 0:01:46.480 --> 0:01:50.400 close to full utilization of labor resources. UH, and that's 0:01:50.440 --> 0:01:53.120 exactly when you would expect businesses to be looking for 0:01:53.160 --> 0:01:57.840 other ways to expand. Investment picks up. UH. And in addition, 0:01:57.920 --> 0:02:00.560 profitability has been high for some time. So if anything, 0:02:00.880 --> 0:02:03.880 investment has lagged profits. I guess, okay, but I guess 0:02:03.960 --> 0:02:06.520 one of what what in your mind based on your analysis, 0:02:06.600 --> 0:02:11.880 what accounts for this strength and corporate profits? What accounts 0:02:12.000 --> 0:02:15.760 for the low level of unemployment? Is it a policy? 0:02:15.840 --> 0:02:18.240 Is it political? Is it natural? What is it that 0:02:18.360 --> 0:02:21.239 you believe accounts for all this? The single most important 0:02:21.280 --> 0:02:25.120 thing has been a very stimulative monetary policy over the 0:02:25.200 --> 0:02:28.080 last seven or eight years. That has taken a long 0:02:28.200 --> 0:02:32.120 time to have its impact. But UH, central bank policy 0:02:32.120 --> 0:02:36.200 in the US has been very accommodative. We've stimulated financial conditions, 0:02:36.480 --> 0:02:39.760 so stock prices are high, bond prices are high, meaning 0:02:39.800 --> 0:02:43.120 bond yields are low. All of that eventually has had 0:02:43.160 --> 0:02:46.320 an impact on stimulating aggregate demand in the economy. All right, 0:02:46.360 --> 0:02:48.600 So I gotta jump in here, um kim, because we 0:02:48.600 --> 0:02:50.639 were talking a bunch on TV. But I'm just curious, 0:02:50.639 --> 0:02:54.080 why does it not feel terrific and why? And I 0:02:54.120 --> 0:02:56.960 guess most importantly is we've talked about the gap between 0:02:57.360 --> 0:03:00.400 the folks that are wealthy getting wealthier and those who 0:03:00.400 --> 0:03:04.760 are not. Does anything and better in terms of reducing 0:03:04.760 --> 0:03:08.400 that gap, Well, let's take the two parts separately. First, 0:03:08.440 --> 0:03:11.400 wise have been so disappointing. Um, I think there are 0:03:11.400 --> 0:03:14.240 a variety of reasons. One is that long run growth 0:03:14.280 --> 0:03:17.640 appears to have slowed, and we were observing that during 0:03:17.680 --> 0:03:21.080 the recovery, So productivity growth has slowed a lot. That's 0:03:21.120 --> 0:03:24.280 really hurt us over time, and that's really a problem 0:03:24.360 --> 0:03:28.400 for for our long run living standards. Uh. Second reason 0:03:28.520 --> 0:03:32.000 is that the in the after effects of the financial 0:03:32.040 --> 0:03:36.160 crisis were just enormous in reducing the ability of our 0:03:36.240 --> 0:03:40.520 financial sector to provide support for the economy and and 0:03:40.520 --> 0:03:44.400 and also of the ability of non financial firms to 0:03:44.960 --> 0:03:48.920 manage their expansion. So and households were severely damaged. And 0:03:49.080 --> 0:03:51.520 think of how much damage there was the household wealth 0:03:51.560 --> 0:03:54.280 for an extended period of time. So this is this 0:03:54.320 --> 0:03:56.760 has been a disappointing recovery. It's amazing that we're in 0:03:56.800 --> 0:03:59.480 the ninth year and do see so few imbalances. It's 0:03:59.560 --> 0:04:02.280 partly it's taken so long to get here, but we're 0:04:02.320 --> 0:04:05.120 now here. And that's why given that we're at this stage, 0:04:05.160 --> 0:04:07.360 this is when you'd expect investment to pick up. So 0:04:07.400 --> 0:04:09.680 what worries you? Then, well, let me just respond to 0:04:09.720 --> 0:04:12.880 your other question of that income equality. Um, Frankly, I 0:04:12.920 --> 0:04:16.120 don't see that getting better without government action. And if anything, 0:04:16.200 --> 0:04:20.200 government action has worked the other way. Um So, Uh, 0:04:20.360 --> 0:04:24.119 you know, we've been in this long transition period in which, um, 0:04:24.160 --> 0:04:28.080 there are benefits to people with higher incomes and higher 0:04:28.120 --> 0:04:31.640 skills and uh, and that's still there. There. There's a 0:04:31.720 --> 0:04:35.160 huge premium for getting a college education today. UM, so 0:04:35.240 --> 0:04:38.960 people with more skills get higher earnings, and that differentials 0:04:39.040 --> 0:04:42.239 not going away quickly. So I don't think that gets 0:04:42.279 --> 0:04:46.599 corrected without government changes. Probably for me to introduce the 0:04:46.600 --> 0:04:49.240 actual answer, but I'm just going to pose something and Carol, 0:04:49.279 --> 0:04:50.839 you know, you bring this up, this idea that people 0:04:50.880 --> 0:04:53.520 do not feel as if the economy has entered this 0:04:53.600 --> 0:04:57.279 strong position, and Professor I would just wonder it hasn't. 0:04:57.640 --> 0:04:59.120 Is it possible that a lot of this has to 0:04:59.160 --> 0:05:03.000 do with security, and I mean physical security, because physical 0:05:03.080 --> 0:05:07.360 security has created let's say, time constraints on everything from 0:05:07.400 --> 0:05:09.680 going to the airport to going on a train. In 0:05:09.720 --> 0:05:13.200 other words, the in the Sekey apparatus, the security apparatus 0:05:13.240 --> 0:05:15.240 in the country is vastly different than it was and 0:05:15.360 --> 0:05:19.159 let's say previous recoveries. And as a result, you're being 0:05:19.200 --> 0:05:21.880 required as an individual to have more patients, to set 0:05:21.880 --> 0:05:24.159 aside more time for things that you don't necessarily like 0:05:24.279 --> 0:05:27.279 to do, such as standing in a line. Also, you 0:05:27.360 --> 0:05:31.320 see around you the effects of lack of spending on infrastructure, 0:05:31.360 --> 0:05:33.080 so that can make you feel terrible when you hit 0:05:33.120 --> 0:05:36.719 a pothole or when you're you know, being forced into 0:05:37.080 --> 0:05:40.120 one lane and driving, you know, circles to try to 0:05:40.160 --> 0:05:43.479 get to the airport departure gates. Is that part of 0:05:43.520 --> 0:05:46.680 what makes us feel this way? Him, I can't say 0:05:46.720 --> 0:05:49.800 with certainty that that's making such a that's why. That's 0:05:49.800 --> 0:05:52.720 why I offer. But but here's I would give you 0:05:52.800 --> 0:05:56.280 a simpler hypothesis. Because we started from such a very 0:05:56.360 --> 0:05:59.440 high unemployment rate. In this expansion, we've had very low 0:05:59.480 --> 0:06:04.440 wage growth, and so people's incomes just haven't expanded until recently. 0:06:04.480 --> 0:06:06.520 And if you're asking me as an economist, what would 0:06:06.560 --> 0:06:09.159 I focus on first? That's what i'd focus Why is 0:06:09.200 --> 0:06:12.000 that not happening? Considering we talk about the improvements in 0:06:12.040 --> 0:06:17.160 corporate profits. Revenues are growing, um, you look at some 0:06:17.240 --> 0:06:19.960 of the CEO pay packages and they're doing just fine. 0:06:20.000 --> 0:06:22.080 Why has it not trickled down? Is it just that 0:06:22.120 --> 0:06:25.719 companies have not had to pay to get workers until 0:06:25.800 --> 0:06:29.440 relatively recently, there's been an abundance of labor supply relative 0:06:29.480 --> 0:06:33.000 to demand, and I think we're in that period precisely 0:06:33.000 --> 0:06:35.359 when that's changed. We're in the sweet spot where the 0:06:35.400 --> 0:06:38.960 economy is operating with nearly full employment, and that changes 0:06:39.000 --> 0:06:41.720 the way firms behave. It means that they're willing to 0:06:41.800 --> 0:06:44.400 pay more for workers. It means they're willing to invest more. 0:06:44.839 --> 0:06:48.440 This is when we benefit from the expansion. Usually in 0:06:48.520 --> 0:06:52.080 most expansions, that will happen a lot earlier. The Phillips curve. Sorry, 0:06:52.120 --> 0:06:55.160 the Phillips curve actually works. It's not clear that I 0:06:55.200 --> 0:06:57.640 would want to rely on that for policy, but I 0:06:57.640 --> 0:07:00.599 think it's probably the case that when the labor market 0:07:00.680 --> 0:07:03.919 gets tighter, that causes firms to bid for labor. It 0:07:03.960 --> 0:07:06.880 just takes time. Uh. And remember, you know, we're in 0:07:06.920 --> 0:07:09.240 a different labor market structure that we used to be 0:07:09.840 --> 0:07:14.480 far less unionization, so there's uh less threat of strike. Um, 0:07:14.640 --> 0:07:17.160 but from time to time we will see strikes precisely 0:07:17.160 --> 0:07:20.280 because labor is less abundant than it was when you 0:07:20.600 --> 0:07:23.200 mentioned corporate profits. I just want to follow up on 0:07:23.240 --> 0:07:27.400 what Carol said about that translating into higher wages. If 0:07:27.400 --> 0:07:31.240 the corporate profits are do indeed exists, they must exist somewhere. 0:07:31.280 --> 0:07:34.040 They either exist in forms and dividends, share buy backs, 0:07:34.160 --> 0:07:38.600 or just cash on a company's balance sheet. Uh. If 0:07:38.680 --> 0:07:42.520 that's the case, is it really just because workers will 0:07:42.560 --> 0:07:45.200 spend the money that the economy will benefit because the 0:07:45.200 --> 0:07:48.240 money is there, it just isn't being spent. Is that 0:07:48.280 --> 0:07:50.720 which are Well? You know, the fact if firms get 0:07:50.760 --> 0:07:54.200 profits doesn't mean it automatically gets spent. It does mean 0:07:54.240 --> 0:07:56.840 it does raise the question are they doing the investment? 0:07:57.200 --> 0:08:00.280 Is someone who has greater wealth willing to spend more. 0:08:00.720 --> 0:08:04.040 People may want to accumulate wealth without spending more, especially 0:08:04.040 --> 0:08:06.640 when they live in a period of uncertainty. But what 0:08:06.680 --> 0:08:10.280 we're seeing now is the personal savings ratio is going down, right, 0:08:10.400 --> 0:08:13.240 and that's telling you people aren't spending more. That has 0:08:13.440 --> 0:08:16.240 begun to change. We went through a period early in 0:08:16.280 --> 0:08:18.880 this recovery where the savings ratio went up. I was 0:08:18.920 --> 0:08:21.200 telling you they were really nervous about the environment in 0:08:21.280 --> 0:08:24.920 which they operated. So uh, I think we're finally getting 0:08:24.920 --> 0:08:27.400 to the point where in most recoveries we would have 0:08:27.440 --> 0:08:30.880 been at this stage five or six years ago. See Carol, 0:08:30.920 --> 0:08:34.760 it really just oil ball boils down to making more money. 0:08:34.800 --> 0:08:36.600 If you make more money, you're gonna feel a lot better. 0:08:36.760 --> 0:08:40.800 Works for me exactly. We're waiting, right, We are waiting. 0:08:40.800 --> 0:08:42.680 We'll have to start to see if we do see 0:08:42.760 --> 0:08:46.040 more wage pressures. Certainly the stats, the statistics, the monthly 0:08:46.080 --> 0:08:49.199 labor reports haven't necessarily bore that out, but that will 0:08:49.240 --> 0:08:52.040 be keeping a track of it. Joining us with our 0:08:52.120 --> 0:08:55.640 continuing conversation is Kim Shoon Haltze, n y U, Professor 0:08:55.679 --> 0:08:58.960 and director of the Center for Global Economy and Business 0:08:58.960 --> 0:09:02.199 and I guess I would be remiss in this century 0:09:02.240 --> 0:09:06.040 if I did not mention that bitcoin has increased about 0:09:06.080 --> 0:09:08.199 nine and a half percent in values, trading at about 0:09:08.200 --> 0:09:12.800 fifteen thousand, eighty three dollars a theoryum also a little 0:09:12.800 --> 0:09:16.679 bit higher light coin other cryptocurrency gaining three percent. And 0:09:16.720 --> 0:09:19.480 Professor Schoenheltz, you were saying just during the break that 0:09:20.120 --> 0:09:23.360 you know that things are getting into a bubble if 0:09:23.840 --> 0:09:26.520 you get a lot of questions about bitcoin. Did you 0:09:26.559 --> 0:09:29.520 receive a lot of questions about bitcoin over the last 0:09:29.559 --> 0:09:32.520 week or so? Yeah, I think that one of the hallmarks, 0:09:32.559 --> 0:09:34.400 one of the hallmarks of a bubble is that it 0:09:34.480 --> 0:09:38.600 becomes the topic of conversation. And uh, I think partly 0:09:38.640 --> 0:09:41.000 because of the enormous press attention that it's getting, and 0:09:41.000 --> 0:09:44.800 that's reflecting the price action in the markets. We're seeing 0:09:44.800 --> 0:09:47.360 a lot of people who have very limited knowledge about 0:09:47.400 --> 0:09:50.600 this asking questions. It's fine to be asking questions. The 0:09:50.760 --> 0:09:54.880 danger is that the price movements sell themselves, induce people 0:09:54.920 --> 0:09:57.640 to buy. And when you start to see that, that's 0:09:57.720 --> 0:10:00.040 that's what you worry about a bubble. Was that you 0:10:00.120 --> 0:10:02.960 talked earlier on TV about Bloomberg surveillance, about fomo fear 0:10:03.000 --> 0:10:06.080 of missing out, or maybe it was another even someone else, 0:10:06.080 --> 0:10:08.960 But it's a pretty common fear that people think that 0:10:09.040 --> 0:10:11.559 they have to get involved in something. Is that when 0:10:11.600 --> 0:10:14.240 it's on the way up, and um, that's worrisome. We've 0:10:14.240 --> 0:10:18.240 seen that with many other assets. This is not unusual. Fortunately, 0:10:18.280 --> 0:10:21.079 it's not so big that it will affect the economy 0:10:21.120 --> 0:10:24.560 at large if the bubble bursts. But um, but it 0:10:24.679 --> 0:10:27.760 is worrisome for the investors themselves. Was that an investment conference? 0:10:27.800 --> 0:10:30.120 Michael Lewis gave a big keynote. You know, best selling 0:10:30.160 --> 0:10:35.240 author um Liars, Poker, Flashboys, The Big Short and uh 0:10:35.320 --> 0:10:37.679 and knows a lot about the financial industry. And someone 0:10:37.880 --> 0:10:39.720 asked him, you know, why haven't you written about bitcoin. 0:10:39.960 --> 0:10:42.520 He talked about being in a gathering with other folks 0:10:42.520 --> 0:10:44.240 who were in the know about bitcoin, and he said, well, 0:10:44.240 --> 0:10:45.959 can I buy anything with bitcoin? They're like, yeah, you 0:10:46.000 --> 0:10:47.240 can buy a cup of coffee. We'll take you to 0:10:47.320 --> 0:10:49.679 the corner. They went to the corner that he had 0:10:49.679 --> 0:10:52.480 some bitcoin. He couldn't do it, they couldn't actually make 0:10:52.520 --> 0:10:55.880 the process happen. He finally throughout some dollars and did it. 0:10:55.960 --> 0:10:58.319 But his point was, tell me when I can actually 0:10:58.360 --> 0:11:01.280 do something with it, then then I think there's a story. 0:11:01.280 --> 0:11:04.280 There's something much more productive here. That's a great way 0:11:04.320 --> 0:11:07.240 to respond. By the way, I like Michael Lewis's books, 0:11:07.280 --> 0:11:11.000 so I'm not surprised. Um. The question is what are 0:11:11.040 --> 0:11:14.199 the fundamental values of a bitcoin. It can't be a 0:11:14.240 --> 0:11:17.600 dividend that will get paid because bitcoin doesn't have any earnings, 0:11:17.640 --> 0:11:19.960 So it has to be from the use, the widespread 0:11:20.080 --> 0:11:23.440 use of that as a means of exchange. In fact, 0:11:23.559 --> 0:11:28.400 over the last year, the use has collapsed. Percent of 0:11:28.440 --> 0:11:31.840 trading in bitcoin is gone over the last year because 0:11:31.840 --> 0:11:36.839 the Chinese authorities shut down the exchanges the dominator, So 0:11:37.400 --> 0:11:39.760 most of the trading in two thousands sixteen in bitcoin 0:11:39.920 --> 0:11:44.120 was in on the Chinese exchanges. That's gone. Having having 0:11:44.160 --> 0:11:47.320 said all that, the very concept though of a should 0:11:47.360 --> 0:11:50.040 we call it maybe an ultracurrency or an ultra means 0:11:50.040 --> 0:11:54.400 of exchange. It is not part of the financial system 0:11:54.440 --> 0:11:56.880 as we know it. Do you think that there's any 0:11:56.920 --> 0:11:59.920 possibility that that the digital world will come up with 0:12:00.000 --> 0:12:02.760 an answer for that? Look, there are central banks that 0:12:02.760 --> 0:12:05.240 are exploring now whether they want to create their own 0:12:05.240 --> 0:12:08.119 digital currencies, and you can see why there's an incentive 0:12:08.160 --> 0:12:11.640 because governments look at currency issue as a good way 0:12:11.679 --> 0:12:15.320 of financing themselves. It's low cost compared to issuing interest 0:12:15.360 --> 0:12:19.839 paying debt um. But even in that area, there are 0:12:19.840 --> 0:12:23.040 worries about having digital currencies that are run by governments, 0:12:23.080 --> 0:12:27.560 because the question is will people eventually prefer that to having, say, 0:12:27.679 --> 0:12:30.400 a deposited a bank, And if they do, will will 0:12:30.400 --> 0:12:32.800 the banks be able to raise their liabilities with which 0:12:32.840 --> 0:12:35.480 to provide the credit in the economy. If at some 0:12:35.559 --> 0:12:38.200 point in the future we end up depending on the 0:12:38.280 --> 0:12:42.400 central banks as digital currency issuers to be providing credit, 0:12:42.760 --> 0:12:46.719 we will have replaced the private intermediation mechanism. That's a 0:12:46.720 --> 0:12:49.920 worry that I have about any digital currency form. And 0:12:50.000 --> 0:12:53.480 the if it's state run, isn't that happening already to 0:12:53.559 --> 0:12:57.400 a certain extent, that that middle person, that middleman, whether 0:12:57.480 --> 0:13:00.600 it's in the banking industry or the financial service, this industry, 0:13:00.679 --> 0:13:03.719 really any industry is getting crushed because the margins are 0:13:03.760 --> 0:13:06.640 just getting so thin. Well, we have to look at 0:13:06.640 --> 0:13:09.040 the statistics. I think when you were asking the question, 0:13:09.080 --> 0:13:11.439 I was thinking you're right to an excellent extent, because 0:13:11.440 --> 0:13:13.560 the balance sheets of most of the central banks have 0:13:13.559 --> 0:13:16.920 gotten a lot bigger, and during the crisis, some of 0:13:16.920 --> 0:13:22.000 them were purposely acting to replace intermediate private intermediation that 0:13:22.120 --> 0:13:25.840 was no longer providing the services that we needed. But 0:13:26.320 --> 0:13:30.240 in a normal expansion, I think it's really worrisome to 0:13:30.320 --> 0:13:33.480 have the central bank replace the private sector as the 0:13:33.480 --> 0:13:37.520 supplier of credit. Eventually, that raises the question whether credit 0:13:37.559 --> 0:13:40.760 will get politicized whether sorry, no, no, no, forgive me 0:13:41.040 --> 0:13:43.360 what I mean to interrupt? All right, So we're all 0:13:43.400 --> 0:13:45.680 gonna have to try and figure out what ultimately bitcoin 0:13:45.840 --> 0:13:47.840 is all about, right, and the financial system system is 0:13:47.840 --> 0:13:49.520 trying to figure that out, Kim. In the meantime, you 0:13:49.559 --> 0:13:51.480 wrote something over the summer which I want to just 0:13:51.559 --> 0:13:53.800 quickly get to. We've got about forty five second. You 0:13:53.800 --> 0:13:56.520 wrote about the U. S. Treasuries missed opportunity. There are 0:13:56.559 --> 0:13:59.160 things within our financial system as it exists that we 0:13:59.160 --> 0:14:00.719 should be paying a tech too. If you could just 0:14:00.800 --> 0:14:05.400 quickly you know the we're in a better place than 0:14:05.440 --> 0:14:09.040 we were a decade ago. The finance the banking system 0:14:09.160 --> 0:14:12.200 is far better capitalized than it was a decade ago, 0:14:12.640 --> 0:14:16.120 but that's because it was pitifully capitalized a decade ago, 0:14:16.200 --> 0:14:18.560 and we're in a better position now, but there's a 0:14:18.559 --> 0:14:21.600 lot we could do both to make our financial system 0:14:21.640 --> 0:14:25.040 more efficient and safer at the same time, which tells 0:14:25.080 --> 0:14:28.800 you we're not running an efficient set of regulations. Unfortunately, 0:14:28.800 --> 0:14:32.400 I thought the Treasury's proposals fall short in a variety 0:14:32.440 --> 0:14:37.240 of ways. If anything, they're not supporting greater capital requirements 0:14:37.240 --> 0:14:39.560 for banks, which I think would make our systems safer, 0:14:40.040 --> 0:14:43.400 and they have fallen short of being willing to impose 0:14:43.760 --> 0:14:46.920 efficiency rules that would help us advance. We have to 0:14:46.920 --> 0:14:49.440 be watching what's coming out of Washington, because certainly there 0:14:49.440 --> 0:14:52.320 could be some changes. Kim John Hilped of n Y. 0:14:52.440 --> 0:14:55.560 You joining us here on Bloomberg's aveillance. Carol Master, Pim Fox, 0:14:55.640 --> 0:15:12.880 This is Bloomberg. Now. I want to bring in our 0:15:12.920 --> 0:15:16.120 next guest. Sharon O'Halleran is the George Blumenthal Professor of 0:15:16.160 --> 0:15:20.080 Political Economy and Professor of International and Public Affairs at 0:15:20.120 --> 0:15:24.680 Columbia University, the author of the book entitled Politics, Process 0:15:24.760 --> 0:15:27.840 and American Trade Policy, and she joins us here in 0:15:27.920 --> 0:15:31.240 our eleven Trio Studios. Professor how halleran, thank you very 0:15:31.280 --> 0:15:34.200 much for being with us. Maybe just begin by giving 0:15:34.280 --> 0:15:37.560 us your thoughts about the tax overhaul plan. And the 0:15:37.600 --> 0:15:40.800 effects that you believe it will have on the economy, 0:15:40.880 --> 0:15:44.000 warranteed even on consumers. So first of all, we know 0:15:44.360 --> 0:15:47.200 that it reduces the corporate tax, and it brings it 0:15:47.240 --> 0:15:51.880 in line with many of our trading peers. And we 0:15:51.920 --> 0:15:54.920 saw other countries doing the same, such as France and 0:15:54.960 --> 0:15:58.760 even Germany who reduced their corporate tax even below ours. 0:15:59.640 --> 0:16:02.680 And we see in addition that many of the individual 0:16:02.760 --> 0:16:09.920 tax were cut substantially, and that was they were significant. 0:16:10.600 --> 0:16:15.600 And we also see that this was rather a retrogressive 0:16:15.640 --> 0:16:19.880 tax in the sense that those folks at the higher 0:16:20.360 --> 0:16:24.640 end of the income distribution, we're gonna get disproportionately more 0:16:25.320 --> 0:16:28.560 than those at the lower ends. So for example, if 0:16:28.560 --> 0:16:30.840 you make ten thousand dollars, you're going to get about 0:16:30.880 --> 0:16:36.040 ten dollars of BANG, and if you're making over a million, 0:16:36.080 --> 0:16:39.640 you're gonna get about seventy dollars of bang. And if 0:16:39.680 --> 0:16:44.920 you think that, in fact, the this is a stimulus 0:16:44.960 --> 0:16:49.800 to the economy, the impact of people at at those brackets, 0:16:49.960 --> 0:16:53.200 if they spend usually the lower incomes spend dollar per dollar, 0:16:54.080 --> 0:16:57.480 then that's going to have a less impact than somewhat 0:16:57.480 --> 0:16:59.800 the higher end, who will tend to either save or 0:17:00.400 --> 0:17:05.640 put that in a less save dollar for dollar impact. 0:17:05.760 --> 0:17:11.080 So so okay, so that makes okay, get it that. Obviously, 0:17:11.160 --> 0:17:13.840 if you're making a lot more money um in terms 0:17:13.880 --> 0:17:17.840 of the possible benefits to taxes and tax cuts, you're 0:17:17.880 --> 0:17:21.040 going to see bigger, a bigger bang. Having said that, 0:17:21.359 --> 0:17:24.240 those folks at the lower end of the income scale, 0:17:24.400 --> 0:17:26.920 as you said, tend to spend more rather than save 0:17:27.000 --> 0:17:29.840 it or invest it. Will that have much of an 0:17:29.880 --> 0:17:33.679 economic impact? Will that make a difference in their lives too? 0:17:34.960 --> 0:17:38.760 So there will be very little difference at the lower 0:17:38.920 --> 0:17:41.119 end of the impact. I mean they at the lower 0:17:41.200 --> 0:17:44.320 end of the scale. Clearly, they'll most everybody will see 0:17:44.400 --> 0:17:49.120 some cut. Again, it's not going to have a substantial 0:17:49.280 --> 0:17:54.560 impact at that at that area. The places where there 0:17:54.680 --> 0:17:58.480 will be significant impact is what you will see is 0:17:58.680 --> 0:18:02.760 one they have reduce teach of the scales down and 0:18:02.800 --> 0:18:05.760 they've closed some of the loopholes, which is good. They've 0:18:06.160 --> 0:18:11.919 increased the individual um credits and that's important. So they've 0:18:12.000 --> 0:18:17.200 attempted to simplify those that the different types of schedules. 0:18:17.720 --> 0:18:20.800 I think it's been not aspective as they had hoped, 0:18:21.760 --> 0:18:25.679 but that I think is going to be the effect. 0:18:25.760 --> 0:18:31.080 In addition, these rates are not permanent. In fact, they 0:18:31.080 --> 0:18:34.920 fade off by and so in fact we're going to 0:18:35.040 --> 0:18:37.600 kick back to the old rates. You know, one of 0:18:37.680 --> 0:18:40.120 one thing I wanted to ask you though about the 0:18:40.160 --> 0:18:42.760 process having to do this. I understand the idea of 0:18:42.800 --> 0:18:46.239 trying to align the corporate tax rate and make it 0:18:46.320 --> 0:18:48.760 more harmonious with the rest of the world so that 0:18:48.800 --> 0:18:52.119 we are not at a disadvantage. All right, So, having 0:18:52.160 --> 0:18:57.880 said that, is there on the personal side? Is there 0:18:57.920 --> 0:19:04.359 an economic benefit to the reduction of state and local 0:19:04.400 --> 0:19:09.720 tax deductions? Is there? Sorry, obviously there's an economic bench 0:19:09.760 --> 0:19:12.560 to state and local But but we didn't reduce state 0:19:12.640 --> 0:19:18.280 and local tax deductions. We reduced the federal income tax. 0:19:19.520 --> 0:19:22.520 That is true. We are actually making it that you 0:19:22.640 --> 0:19:27.159 cannot re deduced or take out you can deduct, you cannot. 0:19:27.400 --> 0:19:30.000 So my point of the states where that that exists, 0:19:30.000 --> 0:19:31.960 where you're not going to be able to reduce cut, 0:19:32.000 --> 0:19:35.080 you know, deductor state and local taxes, won't those states 0:19:35.119 --> 0:19:37.280 just have to increase taxes in order to make up 0:19:37.320 --> 0:19:41.120 for that budget uh shortfall, Because I mean it's still 0:19:41.160 --> 0:19:43.520 as if that things have to be paid for. Well, 0:19:43.640 --> 0:19:46.320 that's not clear that they're going to be able to 0:19:46.480 --> 0:19:49.280 because the high tax states already going to be at 0:19:49.280 --> 0:19:53.720 a significant disadvantage to the low tax states such as Florida, 0:19:54.040 --> 0:19:56.720 and it's going to be very difficult for New Jersey, 0:19:56.800 --> 0:20:00.200 New York, Connecticut to raise the state and local tex is. 0:20:01.040 --> 0:20:05.199 So all of a sudden, there's going to be enormous 0:20:05.240 --> 0:20:09.680 amount of competition, and therefore the way in which they're 0:20:09.680 --> 0:20:12.520 not gonna be able to raise what's called the mill rates, right, 0:20:12.600 --> 0:20:14.600 So the way in which they're going to have to 0:20:14.640 --> 0:20:17.159 do that is going to be almost through surcharges of 0:20:17.680 --> 0:20:19.800 sales tax. Okay. The point I'm trying to make though, 0:20:19.920 --> 0:20:22.720 is that if the United States is lowering corporate tax 0:20:22.800 --> 0:20:25.000 rates to be more consistent with the rest of the world, 0:20:25.280 --> 0:20:27.879 we're doing just the opposite when it comes to state 0:20:28.280 --> 0:20:30.960 and local taxes. We're making it as if they're all 0:20:31.040 --> 0:20:34.240 different foreign countries competing with each other and it's a 0:20:34.320 --> 0:20:38.040 race to the bottom. Right. So one corporate text is 0:20:38.119 --> 0:20:41.080 the effective corporate text if you look at what ge 0:20:41.320 --> 0:20:45.240 Spent was paid, was because they they have the best 0:20:45.680 --> 0:20:49.040 accountants in the world. Okay, that's really their comparative advantage. 0:20:49.359 --> 0:20:54.560 So that let's sit it straight, So we're just harmonizing 0:20:54.600 --> 0:20:58.600 that and cutting cutting out the loopholes. Second, it's already 0:20:58.760 --> 0:21:02.439 it's we've always had competition between the states over tax 0:21:02.440 --> 0:21:05.160 and tax structure, and there's been advantages to being in 0:21:05.200 --> 0:21:09.159 these high tax areas, either because of locality you're in 0:21:09.160 --> 0:21:12.960 New York, you're in the north Northeast, there's good school districts, 0:21:12.960 --> 0:21:15.720 so forth, and so on. The way you move to 0:21:15.960 --> 0:21:19.120 that when you no longer can use your state local 0:21:19.400 --> 0:21:24.000 taxes is that you use sales tax, you use different 0:21:24.000 --> 0:21:27.919 types of excise taxes, use toll roles. Those are the 0:21:27.920 --> 0:21:31.760 ways in which you get the money to pay for 0:21:32.280 --> 0:21:38.359 the schools, their highways, the other types of infrastructure that 0:21:38.440 --> 0:21:42.200 the local communities need. So, Sharon, and just going back 0:21:42.240 --> 0:21:47.200 to economic impact that your research says that it's unclear 0:21:47.280 --> 0:21:49.879 what the long term effects will be ultimately from this 0:21:50.000 --> 0:21:52.640 tax overhaul package, what it will be on the economy, 0:21:52.680 --> 0:21:55.560 we just kind of don't know. Well, that's correct. I mean, 0:21:56.080 --> 0:21:59.879 in the end, in ten years out, about sixty of 0:22:00.000 --> 0:22:03.680 Americans will be paying more, right, because the individual tax 0:22:03.800 --> 0:22:05.679 rates are going to be going well, be will be 0:22:05.680 --> 0:22:11.520 phased out. And consequently, it's not clear whether in fact, 0:22:11.520 --> 0:22:13.679 this is going to be an overall stimulus to the 0:22:13.680 --> 0:22:17.280 economy and lead to greater growth. Moreover, you don't know 0:22:17.520 --> 0:22:19.560 if at the higher ends that there's going to be 0:22:19.600 --> 0:22:22.639 greater investment, greater consumption, if it's going to have the 0:22:22.640 --> 0:22:25.359 trickle down effects that they're all thinking that it will, 0:22:25.680 --> 0:22:29.880 especially when you're in a scenario where you have very 0:22:29.920 --> 0:22:37.040 low employment, unemployment, you have basically low inflation, so you're 0:22:37.080 --> 0:22:40.360 not in the area of the era of the Reagan 0:22:40.920 --> 0:22:44.760 economics where that did have a stimulating effect. So it's 0:22:44.800 --> 0:22:48.680 not clear that this is the environment where a tax 0:22:48.720 --> 0:22:52.400 cut is going to have a lot of traction. Would 0:22:52.400 --> 0:22:56.440 you have crafted at tax overhaul with great differences than 0:22:56.560 --> 0:22:59.840 than what we saw so I would do the corporate tax. 0:23:00.040 --> 0:23:02.280 I do think that's that is something that has to 0:23:02.320 --> 0:23:05.600 have had and be become efficient. I would have put 0:23:05.600 --> 0:23:09.280 in sentence in place to repatriate a lot of the 0:23:09.320 --> 0:23:12.359