Speaker 1: Brought you by Bank of America Mary Lynch. Investing in
Speaker 1: local communities, economies and a sustainable future. That's the power
Speaker 1: of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated
Speaker 1: member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and
Speaker 1: of course on the Bloomberg. Joining us now as Gabriela Santa,
Speaker 1: She's Global Chief Strategy to JP Morgan Funds. And let
Speaker 1: me start just by asking about the Federal Reserve meeting
Speaker 1: we had this week. In the hierarchy of what's important
Speaker 1: to investors right now, where do you position the FED
Speaker 1: compared to say, political events and what we saw in
Speaker 1: Europe and indeed what we're looking forward to in France.
Speaker 1: So I think the FED is still relevant. It's perhaps
Speaker 1: less of a focus than it has been over the
Speaker 1: past few years, which ultimately is a healthy thing. We
Speaker 1: should be focusing a little bit back on fundamentals on
Speaker 1: how the economy and earnings and are actually doing UM,
Speaker 1: but I do think we could have gleamed some interesting
Speaker 1: perspectives from the FED meeting. In particular for me was
Speaker 1: their approach towards inflation UH and I didn't see a
Speaker 1: particular concern from their side towards inflation. Even as you
Speaker 1: get some of these UH indicries, whether it's CPI or
Speaker 1: even pc getting closer to their target, they signaled a
Speaker 1: bit of a willingness to look through that. So to me,
Speaker 1: that signals a faster pace of rate hikes than over
Speaker 1: the past few years. UM. But it removes some of
Speaker 1: that tail risk of the FED being overly aggressive, at
Speaker 1: least for now. How much to a disconnect was there,
Speaker 1: or is there, between what the Fed is projecting and
Speaker 1: what investors thought would happen what would come out of
Speaker 1: the meeting. I think it was decently in line, so
Speaker 1: very well telegraphed rate hike the statement did reflect a
Speaker 1: slightly better view towards the economy and inflation. UH. And
Speaker 1: then Janet Yellen during the press conference seemed very hesitant
Speaker 1: to to precipitate any sort of fiscal policy change as
Speaker 1: she has in the past, right as she did last year. UM.
Speaker 1: What perhaps was a little bit of a surprise was
Speaker 1: the willingness to look through some of that inflation, and
Speaker 1: that's why I think the market reacted the way he
Speaker 1: did with bond yields falling with the dollar falling, was
Speaker 1: removing that tail a risk of a very aggressive FED.
Speaker 1: We're talking to Sebastian Mallaby yesterday, uh and he talked
Speaker 1: how talked about how problematic it can be if if
Speaker 1: the FED is too predictable. He had a column in
Speaker 1: the Post I think about a week ago suggesting the
Speaker 1: FED could really do a good service by raising rates
Speaker 1: by fifty basis points instead. Of course that didn't happen.
Speaker 1: But is there a problem with predictability? Do you think,
Speaker 1: as as an investor, as a strategisty to see that
Speaker 1: being a problem. I think it's a problem to the
Speaker 1: extent that if we take last year as an example,
Speaker 1: right in our view, given where the economy was, given
Speaker 1: where inflation already was trending, last year was already a
Speaker 1: year to have hiked more than just once right at
Speaker 1: the end of the year. However, the Fed's preoccupation around
Speaker 1: preparing the market and being overly concerned and predictable removed
Speaker 1: some of that optionality for them. Uh. And I think
Speaker 1: that is a concern for us in some some to
Speaker 1: some extent, right, the fed ney stacked regardless of whether
Speaker 1: the market is ready or not. Um, and that's ultimately
Speaker 1: better for for the economy. Gabrielle. I believe in Pennsylvania
Speaker 1: buried in the textbooks with the idea you don't do
Speaker 1: share buy backs at market tops, are we going to
Speaker 1: see fewers share buy backs? I believe the theory is
Speaker 1: if the stock market goes up, you don't buy back
Speaker 1: your shares. But it's always broken, isn't it? It has?
Speaker 1: And I think that's such a crucial question because the market,
Speaker 1: if we look at the equity market, has been getting
Speaker 1: a little bit excited about tax reform repatriation UM and
Speaker 1: thinking about how companies can choose to act on that
Speaker 1: extra cash. And there's some excitement that they'll shift away
Speaker 1: from buy backs, from dividends, from the usual use of
Speaker 1: cash over the past few years, towards actually using it
Speaker 1: for capex, which would be revolutionary if we think about
Speaker 1: the last ten years, right even before the Cristi um. So,
Speaker 1: I think there's a question mark here, um. This was
Speaker 1: a behavior of companies before the financial crisis, right, and
Speaker 1: so do we create the environment where companies are willing
Speaker 1: to spend on capex? And that's not just about tax
Speaker 1: reform in cash, it's also about removing several other types
Speaker 1: of uncertainty as well, such as there's the potential perhaps
Speaker 1: for less regulation or perhaps we could say more targeted
Speaker 1: or smarter types of regulation, which could remove some of
Speaker 1: that uncertainty that's often been cited as one of the
Speaker 1: top concerns for companies of all different types and sizes
Speaker 1: in the US. However, you're adding at the same time
Speaker 1: another layer of uncertainty here with regards to trade, with
Speaker 1: regards to immigration, with regards to geopolitics. So we have
Speaker 1: to be careful in figuring out the balance there um.
Speaker 1: And something that's interesting if you look at sentiment surveys,
Speaker 1: companies have been feeling more optimistic, but they're still feeling uncertain.
Speaker 1: So whether they actually act on that optimism and that
Speaker 1: capex is a whole different matter. How about volatility, You
Speaker 1: look at the fix having at eleven and twelve, what
Speaker 1: is that that to tell you about what's to come?
Speaker 1: That tells us that it's it's pretty easy to say
Speaker 1: that volatility will go up from here. When we say that,
Speaker 1: people are just like, well, yes, but I do think
Speaker 1: it holds true because if you think historically all the
Speaker 1: way back to usually you see a ten percent correction
Speaker 1: once a year, five percent once a quarter. Uh, and
Speaker 1: it's difficult to think that this year will be different
Speaker 1: with regards to that. It doesn't mean the market has
Speaker 1: to end down. It can end up for the year.
Speaker 1: It often does eighty percent of the time, but there
Speaker 1: is that digestion that needs to take place. We look
Speaker 1: at retail in the same store sales, and retail been
Speaker 1: challenged a Tiffany's just out with a light global same
Speaker 1: services as I believe it was negative, the flagship store negative.
Speaker 1: But it does get back to revenue responsiveness. With all
Speaker 1: that's going on in politics, fiscal stimulus and that at
Speaker 1: the top line, do you people believe that you'll add
Speaker 1: more to revenue, that they'll that there will be a
Speaker 1: better oof to corporate revenue this year? We do. We
Speaker 1: do UM and that's really crucial from this part onwards
Speaker 1: in the cycle, where we've done a lot of that
Speaker 1: margin expansion, a lot of that cost cutting, and now
Speaker 1: it's all about revenue growth UM and if we think
Speaker 1: about companies, what's helpful for them is if they feel
Speaker 1: like they have enough uh pricing power right where they
Speaker 1: feel like they can raise prices and consumers will still
Speaker 1: buy their goods. UH. And that's really where we are
Speaker 1: in this cycle is testing that uh and for companies
Speaker 1: really to to feel like they can increase their prices
Speaker 1: and hence increase their revenue growth. UM and I and
Speaker 1: we do feel optimistic that we will see that. I mean,
Speaker 1: it's an amazing David. I'm looking at a boring toothpaste
Speaker 1: and not company. It will be remain nameless. Their revenue
Speaker 1: growth is two point nine, So if you put a
Speaker 1: stick on that, it's a lift in revenue. It's kind
Speaker 1: of leverage you get off of that. Where are you
Speaker 1: looking overseas right now? I see that we're having the
Speaker 1: best week for emerging markets I think in eight or
Speaker 1: nine months. UM, what's attractive to you at this point
Speaker 1: in sort of how do you, as you're bouncing out
Speaker 1: of portfolio look to emerging markets at this point? So
Speaker 1: if we think about portfolios at this point in time,
Speaker 1: we would say we're looking around the world, we're seeing
Speaker 1: an acceleration and growth that's very encouraging. It's translating to
Speaker 1: a better earnings outlook. So overall we would be looking
Speaker 1: at equity markets versus government bonds. Then when you think
Speaker 1: about where does the US fit in that um, and
Speaker 1: we're talking about at this point in the cycle, it's
Speaker 1: normal to have less earnings growth, and so we have
Speaker 1: lowered our expectations for US returns too close to five
Speaker 1: percent over the next few years. That's not bad, it's
Speaker 1: just less than what you were getting over the past
Speaker 1: few years. So international is crucial from here on out.
Speaker 1: And we're really in the sweet spot where the US
Speaker 1: is in a more mature phase but not approaching recession,
Speaker 1: and that's where it's really valuable to have a good
Speaker 1: allocation to international. So we're looking to emerging markets, and
Speaker 1: we're looking at the Eurozone. We under play this, David,
Speaker 1: We're so eurocentric. I mean, if you look at the
Speaker 1: Dow US based up nineteen eight percent last twelve months.
Speaker 1: If you're in London and you invest in the Dow
Speaker 1: was sterling weakness, you're up four zero. It's remarkable. Help
Speaker 1: me here with small camp, large Camp. I mean, there's
Speaker 1: just this whole idea of JP Morgan. I mean, you
Speaker 1: already have a small company's apple help me here with
Speaker 1: small cap, mid camp large cap. So the argument is
Speaker 1: is was a bit stronger last year, right before small
Speaker 1: caps had such a strong rally. So the argument was,
Speaker 1: if you're starting to see all of these UH policy
Speaker 1: proposals that could be good for smaller companies, things like
Speaker 1: less regulation, like change the Affordable Care Act um UH
Speaker 1: focusing on improving the domestic economy, that argues perhaps for
Speaker 1: prioritization of small and mid caps. However, you've already seen
Speaker 1: a big move there, and valuations are less attractive and
Speaker 1: decently equal but between the two, so there's less of
Speaker 1: an argument to pick one versus the other. Now, Gabriel sentis,
Speaker 1: thank you so much. With JP Morgan, Doug Elmendorf joins
Speaker 1: his folks. If you are into fiscal policy, he needs
Speaker 1: no inner induction of former Congressional Budget Office director and
Speaker 1: now his leadership at the Harvard Kennedy School. UM. What
Speaker 1: I find so sad here, Dr Elmendorff, is if I
Speaker 1: go to the CBO and a two document of a
Speaker 1: year ago options for reducing the deficit two thousand seventeen
Speaker 1: to two thousand, the White House had all sorts of
Speaker 1: expert opinion on how to get the job done, and
Speaker 1: they clearly didn't listen. We've seen that within the uproar
Speaker 1: is the damage from this irreparable. It can Can the
Speaker 1: White House and the budget process recover from the idea
Speaker 1: of having Nick Burns react to acent reduction and State Department?
Speaker 1: This damage can be repaired. It depends on what the
Speaker 1: Congress does in actually passing appropriations. The President proposes these cuts,
Speaker 1: but the Congress will ultimately put the numbers down on paper.
Speaker 1: Do they work with and this is really important, folks,
Speaker 1: this is a huge privilege of Dr Elmendorff with this
Speaker 1: this morning. Do they work with any kind of document
Speaker 1: Kevin Hassett or Mr Wilvanian others give them or do
Speaker 1: they start from scratch this morning? All the Congress will
Speaker 1: look at them now mers that the President's team sends over,
Speaker 1: but they'll ultimately do what they think makes sense. A
Speaker 1: number of the leading Republicans in Congress have already expressed
Speaker 1: strong disagreements with aspects at least of the proposals. We
Speaker 1: had some sense here that regular order would be restored
Speaker 1: in Washington, d C. Is it going to be Can
Speaker 1: you foresee greed luck that would prevent that from happening.
Speaker 1: What if the consequence has been of having a continuing
Speaker 1: resolution after continuing resolution, after continuing resolution. I think the
Speaker 1: big obstacle to regular order on the budget is that
Speaker 1: some members of Congress are setting goals that sound good
Speaker 1: in the abstract to trim back government spending, but that
Speaker 1: aren't realizable in the specifics. People are unhappy about high
Speaker 1: government spending in many ways, but they like their Social
Speaker 1: Security benefits, they like their Medicare benefits. They want us
Speaker 1: to have strong diplomatic presence around the world, they want
Speaker 1: biomedical research. So in the specifics, people like a lot
Speaker 1: of things that are going on. And if the Congress
Speaker 1: sets a goal in this case, the president has set
Speaker 1: a goal that can't be reached to the actual appropriations process.
Speaker 1: That's gonna make it much harder to proceed in a
Speaker 1: regular way. Just get an historical sense here, we have
Speaker 1: a Congressman french Hill a moment ago talking about the
Speaker 1: president's budget saying that at the beginning of an administration,
Speaker 1: president put puts forth budget for in part symbolic value
Speaker 1: to show what he or perhaps in the future is
Speaker 1: is interested in. Is that what we're seeing, or how
Speaker 1: do you regard a first budget from a president? How
Speaker 1: much of it is is realistic versus how much is
Speaker 1: it a symbolically important? A lot of it is symbol
Speaker 1: in this case, I think particularly Director Mulveney is trying
Speaker 1: to convey his vision of what the government should be.
Speaker 1: On the other hand, if that symbol that you're setting
Speaker 1: out is too far away from reality, it's actually diminishing
Speaker 1: your ability to influence the outcome. Figure three, one page
Speaker 1: sixties six of this document. It's all there for the
Speaker 1: White House, the glide path of discretionary spending, and the
Speaker 1: president's defense. A lot of people upset we're gonna come
Speaker 1: back and talk about this, But the President has a
Speaker 1: point that we're now at a tipping point, aren't we
Speaker 1: in terms of total debt to GDP. We have a
Speaker 1: lot of debt from the federal government relative to the
Speaker 1: size of the economy. I don't use the word tipping point.
Speaker 1: We don't know what level of debt can be particularly dangerous.
Speaker 1: And at the moment, as you know, treasury interest rates
Speaker 1: are quite low. That gives us more run room. Doesn't
Speaker 1: mean we shouldn't do something, but it's not as urgent
Speaker 1: as otherwise. We're gonna come back and talk about this,
Speaker 1: and I think this is the word urgent really comes
Speaker 1: up here, the debate over do something now versus do
Speaker 1: it in a measured manner. What a prova you dougas
Speaker 1: Almondo for this from the Kennedy School at Harvard, a
Speaker 1: former Congressional Budget Office director, brought you by Bank of
Speaker 1: America Mary Lynch. Dedicated to bringing our clients insights and
Speaker 1: solutions to meet the challenges of a transforming world. That's
Speaker 1: the power of global connections. Mary Lynch, Pierce Federin Smith Incorporated,
Speaker 1: Member s I PC, dug out of a snow bank
Speaker 1: in Cambridge, Massachusetts, dug in Salmandorff joining a Center studios
Speaker 1: here in New York. We're talking about where we were.
Speaker 1: We were romancing about LBJ and back when we spent
Speaker 1: money on defense and discretion areas a percent of our
Speaker 1: g d P. And then there was this thing called
Speaker 1: the Clintons surplus. What's the real story about the Clintons surplus?
Speaker 1: How did it happen? And can we get back to
Speaker 1: the nirvana of what six weeks it was? In two
Speaker 1: thousand there were two main factors. One was that with
Speaker 1: the end of the Cold War, defense spending declined significantly
Speaker 1: as a percentage of GDP. The other factor was that
Speaker 1: the economy was booming and the financial sector was booming,
Speaker 1: so we had a big surge of income tax revenues.
Speaker 1: And those two factors are hard to reproduce. Defense spending
Speaker 1: can't fall a lot further as a share of GDP.
Speaker 1: There's discussion about how big it should be, but it's
Speaker 1: not going to fall in half again as a percentage
Speaker 1: of GDP as it did, and a boom in the
Speaker 1: economy will obviously help the budget, but it's hard to
Speaker 1: just order that up. Ask you abouts of what drives
Speaker 1: budgeting in Washington. You look at the Pentagon, and for
Speaker 1: many weeks now it has been James Maddis and James
Speaker 1: Maddis alone running that department. I think yesterday we've got
Speaker 1: a few notices of nominations to under secretary positions and
Speaker 1: assistant secretary positions. But you'll look at this big increase
Speaker 1: in defense spending fifty four a billion dollars at the
Speaker 1: White House once and you just have to think that
Speaker 1: that cannot that's probably not being driven by the Pentagon.
Speaker 1: At this point just by virtue of the fact there
Speaker 1: aren't a whole lot of people there to strategize for it.
Speaker 1: Speaking more broadly, uh, could agencies be doing more? Should
Speaker 1: agencies be doing more to sort of tell the White House,
Speaker 1: tell the Congress what they need and how respectful is
Speaker 1: Congress of them? I think that's a terrible mistake by
Speaker 1: this administration to not have filled more of those positions
Speaker 1: more quickly, both because they want to have more influence
Speaker 1: over those departments and because they need a source of
Speaker 1: information from the departments. And those secretaries with their deput
Speaker 1: secretaries and assistant stark Terries and so on, are the
Speaker 1: conduits for both control of the government and information from
Speaker 1: the government to the White House. Um, so they need
Speaker 1: to fill those positions. I think the fifty four billion
Speaker 1: dollars is a little overstated in the sense that it's
Speaker 1: fifty four billion dollars relative to what the current law
Speaker 1: will have for the coming year. It's actually a smaller
Speaker 1: increased relative to last year spending level, and that just
Speaker 1: reflects the fact that these caps on appropriations both defense
Speaker 1: and non defense for next year are below levels of
Speaker 1: spending that we're that we're doing right now, and that
Speaker 1: goes back to the earlier point about these targets for
Speaker 1: spending that aren't realizable in terms of the specific appropriations.
Speaker 1: The death ceiling is back. We still have the sequester.
Speaker 1: The President went to Capitol Hill, spoke before a joint
Speaker 1: session of Congress, and said he'd like to get get
Speaker 1: rid of it. How do we judge the success of
Speaker 1: it as as the sequester done much here and how
Speaker 1: easily can a president wave a wand and get rid
Speaker 1: of this this mechanism. Well, I think the debt ceiling
Speaker 1: is a mistake to have it mostly forces these showdowns
Speaker 1: that have not done much to really put the budget
Speaker 1: on better path. The sequester, as you recall, was the
Speaker 1: accidental outcome of a process that was designed to generate
Speaker 1: changes in benefit programs and taxes, which everybody agrees is
Speaker 1: really the route to putting the budget on the better
Speaker 1: path in the future. We backed into the limits on
Speaker 1: these annual appropriations because the deal couldn't be struck. I
Speaker 1: think everybody would like to go back to working in
Speaker 1: that kind of deal. But whether that deal has great
Speaker 1: prospects for being adopted given the polarization in our leaders
Speaker 1: and in our country, is not very clear. Tug Elmendorf
Speaker 1: with US. He's the dean of the Harvard Kennedy School.
Speaker 1: Former director of the Congressional Budget Office. I was talking
Speaker 1: to another director earlier this week, Robischer, and he said,
Speaker 1: you could you could see the scars that he had
Speaker 1: from being in that job, from dealing with all of
Speaker 1: the politics of that that position, at least being subjected
Speaker 1: to them. You look at it what we've heard over
Speaker 1: these past few weeks about that institution. What do you
Speaker 1: make of it? Has it been this politicized before, not
Speaker 1: saying institutions politicized? Has it been facing so much political pressure,
Speaker 1: so much political right or because it's something new. They've
Speaker 1: always been criticisms of CBO, and that's fair if they're
Speaker 1: based on evidence and logic. Uh, what worries means the
Speaker 1: criticism is based on politics, people trying to pressure CBO,
Speaker 1: and a succession of CBIO directors and a tremendous number
Speaker 1: of talented CBIO analysts have resolutely resisted pressure for more
Speaker 1: than forty years, and they'll keep doing that. Bob has
Speaker 1: his scars. I have some. Keith Hall is now earning
Speaker 1: his his his SCARSS never recovered. Don taken as well.
Speaker 1: Did it twice, I think, and I Alice did it
Speaker 1: longer than anybody, for more than eight years. But the
Speaker 1: institution is incredibly important, and almost all the members of
Speaker 1: Congress understand that, even when they object to particular estimates.
Speaker 1: I found his director lots of reinforcement for the importance
Speaker 1: of the agency and the work that it does. And
Speaker 1: I think that will continue. I've been raving about I've
Speaker 1: been It's nothing new. I've been doing it for years.
Speaker 1: But again back to the weekend reading of options for
Speaker 1: reducing the deficit. If you were to say to the
Speaker 1: President or to his White House team, is political team, Okay,
Speaker 1: you've really screwed this up. Even the Republicans are livid.
Speaker 1: Here's what you need to do. Given the belief everyone
Speaker 1: has that we have too much debt, what's the Almendorf
Speaker 1: prescription to get his war Zak would say, to get
Speaker 1: those glide pass back in the right direction. Now is
Speaker 1: the time to be developing a set of policies that
Speaker 1: would scale back on some of our entitlement programs over
Speaker 1: time and would raise some revenues to pay for the
Speaker 1: programs that we have. Remember that we have a very
Speaker 1: in aging population, A lot more people are going to
Speaker 1: be eligible for Social Security and Medicare in the coming years.
Speaker 1: How do you respond to the idea that we need
Speaker 1: to broaden tax break base and even very poor people
Speaker 1: should play pay an itty bitty little bit of tax
Speaker 1: or is that just conservative rhetoric that that doesn't move
Speaker 1: the needle. Remember that poor working people are paying payroll tax.
Speaker 1: Many Americans pay much more in payroll tax than they
Speaker 1: paying income tax. So if you look at all of
Speaker 1: the federal taxes together, not just the income tax, most
Speaker 1: people are paying tax. Should we raise as a constructive exercise?
Speaker 1: The amount of salary that's used to calculate the Social
Speaker 1: Security tax is one twenty I'm guessing right now it
Speaker 1: should it go up to one forty or one fifty
Speaker 1: or would that create an uproar and make the president age? Yes?
Speaker 1: And yes, I think we should and it would create
Speaker 1: an uproar. I mean we create an uproar, but it would.
Speaker 1: But we should remember that the share of total earnings
Speaker 1: that are being captured now by the Social Security payroll
Speaker 1: tax is smaller than the share we had for many
Speaker 1: many decades. That share has slipped over time, So pushing
Speaker 1: up the cap would really just go back to what
Speaker 1: we were doing a few decades. I wrote a story
Speaker 1: in this David Gura pushing eleven years ago for Bloomberg News,
Speaker 1: and the hate mails still comes. Look at your perspective
Speaker 1: on just the magnitude of what Congress is saying it's
Speaker 1: going to consider this year. We see them working on
Speaker 1: the Affordable Care Act now trying to make changes to
Speaker 1: that with this new piece of legislation. Let some of
Speaker 1: the ans Republicans are there's an eagerness among them to
Speaker 1: tackle tax reform and financial reform as well. Uh, give
Speaker 1: us a sense of how how big and undertaking that
Speaker 1: is and the likelihood you think that we're going to
Speaker 1: get tax reform this time around. To do big reform
Speaker 1: to the health care system or the tax system is
Speaker 1: really a year long project for the Congress because a
Speaker 1: lot of other things have to happen along the way,
Speaker 1: like the annual appropriations and other sorts of legislation. So
Speaker 1: to push through some comprehensive reform of a big part
Speaker 1: of federal policy is very hard and really takes much
Speaker 1: of a year. I think it was a tactical mistake
Speaker 1: for the Republican leadership to not turn to tax reform
Speaker 1: to start with that would I think tax reform is
Speaker 1: more important for our economy, and I think would be
Speaker 1: more favor Ruble for them in political terms. They felt
Speaker 1: a need to tackle health reform because of what they've
Speaker 1: been saying about the Affordable Care Act for a long time,
Speaker 1: but analysts all knew there was no way to satisfy
Speaker 1: the set of objectives Republicans had laid out for healthcare reform,
Speaker 1: and we're seeing that now in the debacle that's unfolding.
Speaker 1: How do you respond to Leviathan the articles restraining the
Speaker 1: Leviathan property tax limitation in Massachusetts. It's a good supplement
Speaker 1: for ambient a few other lowlights. It is a levia
Speaker 1: that a lot of people feel that way. A lot
Speaker 1: of the Trump supporters feel that way. It's out of control,
Speaker 1: it's too big. How do we tame the beast of
Speaker 1: the budget? The problem is that the beast is growing
Speaker 1: in budgetary terms, mostly because the population is aging and
Speaker 1: healthcare costs are rising, and not just rising in the government,
Speaker 1: but rising across the economy. Defense spending is a smaller
Speaker 1: percentage of GDP than it's been for most of my lifetime.
Speaker 1: The non defense discretionary spending, the appropriations every year, they're
Speaker 1: about the same share of GDP today they were fifty
Speaker 1: years ago. Uh, what's really grown is Social Security and
Speaker 1: Medicare and Medicaid, and it's grown because we have more
Speaker 1: older Americans and healthcare is more expensive. So to really
Speaker 1: pull back on the leviathan in budgetary terms requires hard
Speaker 1: choices about those programs. But I think it's a different matter.
Speaker 1: Is the leviathan in a regulatory sense. The e p
Speaker 1: A is matters for the economy, not so much through
Speaker 1: its the appropriations. It gets those matter for states and
Speaker 1: local governments. It matters for the economy through its regulation.
Speaker 1: People shill distinguish a bit between the budgetary leviathan and
Speaker 1: the regulatory leviathan. Professor Almendrove, thank you so much. Here's
Speaker 1: with the Kennedy School Harvard, Dean of the Kennedy School
Speaker 1: at Harvard, and of course formally with the CBO. This
Speaker 1: entire conversation will be out at our iTunes podcast. We
Speaker 1: thank Bank of America for their support of all of
Speaker 1: our surveillance digital product worldwide. This is Bloomer. Now we
Speaker 1: go to Nicholas Burns, Ambassador Nicholas Burns, Professor of the
Speaker 1: Practice at the Kennedy School of Government at Harvard University,
Speaker 1: joining us. Great to speak with you. Good morning. As always,
Speaker 1: Let's start with the trip that Secretary of State Rex
Speaker 1: Tillerson is taking through East Asia at this point. He
Speaker 1: made it known on the first stop on that trip
Speaker 1: he wants this administration to pursue a different policy toward
Speaker 1: North Korea. Give us a sense of how much that
Speaker 1: policy has changed from administration to administration. I do think
Speaker 1: there's a consensus that we have to change policy towards
Speaker 1: North Korea. Both President Clinton and President George W. Bush
Speaker 1: tried diplomacy in the North Koreans didn't honor the agreements
Speaker 1: we made, and now the problem is more serious because
Speaker 1: they have nuclear weapons, and they have a ballistic missile,
Speaker 1: which if they put a nuclear warhead on top of it,
Speaker 1: if they can master that technology, could pass to belye
Speaker 1: reach the west coast of the United States in the
Speaker 1: next five or ten years, and that's an unacceptable threat
Speaker 1: to the US. So I think that Secretary Tillerson's right
Speaker 1: to suggest that we need to change course. Obviously, it's
Speaker 1: not going to be in the direction of the use
Speaker 1: of military force, because that could be potentially catastrophic. I
Speaker 1: think what they're gonna do is try to convince China
Speaker 1: that China has to finally use its leverage over North
Speaker 1: Korea to try to resolve or at least contain this
Speaker 1: problem and make this a big issue in the U. S.
Speaker 1: China relationship. Patients is a part of diplomacy, probably a
Speaker 1: frustrating part of diplomacy to someone like you who has
Speaker 1: been engaged with it. We heard from Secretary tailorson yesterday
Speaker 1: saying here that the era of strategic patients has to
Speaker 1: end when it comes to North Korea. What would you
Speaker 1: tell him about the importance of taking one's time, listening
Speaker 1: to all sides and trying to figure this out. Well,
Speaker 1: I think he knows that. I don't think he was
Speaker 1: suggesting that we should be impetuous or um act hastily.
Speaker 1: I think what he's saying is that the policy of
Speaker 1: trying to contain the threat by either talking to the
Speaker 1: North Koreans and negotiations which they entirely disregard, or having
Speaker 1: them meet commitments to us which they then forego, you've
Speaker 1: got to you've got to think of a different policy
Speaker 1: and Beijing is going to be at the heart of this.
Speaker 1: Jeju and Ping will be at Mara Lago in Florida
Speaker 1: to visit President Trump in about a month's time, and
Speaker 1: I expect that North Korea will be very high on
Speaker 1: the list. But certainly we've got to be patient in
Speaker 1: putting together a stronger and more effective policy. What are
Speaker 1: you listening to from the Secretary on this trip? Of course,
Speaker 1: we had Secretary Defense James Mattis a couple of weeks before,
Speaker 1: making pretty much the same itinerary, what are you gonna
Speaker 1: What are you gonna? Be a straining to hear from
Speaker 1: the Secretary while he's overseas, A reaffirmation of America's commitment
Speaker 1: to South Korea and to Japan. These are two critical allies.
Speaker 1: One of the problems with the beginning of President Trump's
Speaker 1: tenure in office as President Trump himself questioning the utility
Speaker 1: and relevance of American alliances, whether it's the Far East,
Speaker 1: which Japan and South Korea, or whether it's NATO. And
Speaker 1: you see the Secretary Madison. Secretary twists and have to
Speaker 1: follow behind and and and reaffirm what every American president
Speaker 1: is Truman. Truman has since Truman has known that these
Speaker 1: alliances are critical to us. And what is the relationship
Speaker 1: of Senate in the House diplomacy leadership in instructing, teaching,
Speaker 1: helping a president get to a better outcome. Did they
Speaker 1: sit down over a scotch of their choice and say, well,
Speaker 1: Mr President, how does that work? Well? This is an
Speaker 1: unusual time where I think the leadership in Washington is
Speaker 1: coming from the Senate, and particularly Senate Republicans, people like
Speaker 1: Um certainly John McCain and Lindsey Graham and Rob Portman
Speaker 1: and Susan Collins and Marc Rubio, and they've all been
Speaker 1: suggesting to the President privately and publicly, you can't cut
Speaker 1: the State Department budget by a third. That will decimate
Speaker 1: our diplomacy. You have to honor allies. Angela Merkel is
Speaker 1: going to be at the White House today. You can't see,
Speaker 1: cannot see Germany as solely an economic competitor when it's
Speaker 1: our strongest ally in Europe. And to try to suggest
Speaker 1: to the President there's a history here, you're inheriting the history,
Speaker 1: the wisdom of previous presidents policies that have worked, stick
Speaker 1: with them. Don't strike out on this far right adventure.
Speaker 1: Of economic nationalism and withdrawal of American influence in the world,
Speaker 1: which is the great fear that Bannon, that Bannon and
Speaker 1: others will get to the President and convince him to
Speaker 1: renege on everything that's gone well in American foreign policy
Speaker 1: in the past. On his last trip to Europe, Secretary
Speaker 1: Tillers and traveled with I think six acting secretaries and
Speaker 1: in acting a spokesman on this trip. I think the
Speaker 1: picture is kind of the same. We don't have a
Speaker 1: full complement of deputies in the State Department by by
Speaker 1: any means. I wonder sort of how that's handicapping him.
Speaker 1: I'm speaking with Max Bocks yesterday, the former senator from Montana,
Speaker 1: of course, also ambassador to China, and he said that
Speaker 1: it was a real shame that on his stop in Tokyo,
Speaker 1: a Secretary taylors and did not up at the embassy there.
Speaker 1: He kind of characterized that as an amateur mistake, but
Speaker 1: one that could have a really deleterious effect on morale
Speaker 1: in that embassy. Where a small mistake, but could it
Speaker 1: have a bigger sense of import You should Secretary State
Speaker 1: should always visit the American embassy. I think Secretary Tylorson
Speaker 1: has all the skills to be a successful secretary, and
Speaker 1: I certainly wish him well. I do think this has
Speaker 1: been from the Trump White House the slowest transition in history.
Speaker 1: We have a situation now where there's no Deputy Secretary
Speaker 1: of State for the five under secretaries, not even appointed
Speaker 1: yet much less confirmed, none of the assistant secretaries. These
Speaker 1: are the people at the core of America's diplomatic power,
Speaker 1: and none appointed. And it's mystifying. Some people think that
Speaker 1: the Bannon agenda, the Trump agenda, is to hollow out
Speaker 1: the government and to make it so much smaller that
Speaker 1: it's a reflection of what it used to be. This
Speaker 1: is a great mistake, and I think I don't blame
Speaker 1: Secretary Tylerson. This is a White House decision not to
Speaker 1: appoint these people. I'm going to pick on one guy ambassadors,
Speaker 1: and I'm gonna do it because I can't pronounce his
Speaker 1: last name, Stephen Covid six K O V A C
Speaker 1: S I C S. He's at the consulate in Nagoya.
Speaker 1: He's the guy that looks up to Nick Burns. He's
Speaker 1: out of Temple University, has a privilege working for the
Speaker 1: State Department he worked in Silicon Valley. I'm just reading
Speaker 1: his bios and he's been there for fourteen years. I mean,
Speaker 1: he's not jetting around like Dick Burns. He's not jetting
Speaker 1: like this guy. This guy is in the trenches of
Speaker 1: the State Department. How is he supposed to respond to
Speaker 1: a tent haircut? Well, first time. You're a great champion
Speaker 1: of American diplomacy. Thank you for that. Um. You know,
Speaker 1: the State Department is basically people. We don't have weapons systems,
Speaker 1: as I was telling Tom earlier today, we don't have
Speaker 1: aircraft carriers to put in a mothballs to satisfy a
Speaker 1: budget hawk. What we have our people, Um. And we
Speaker 1: have people who are Arabists and Africanists and China specialists,
Speaker 1: in Japan specialists. I spend their whole life learning these languages,
Speaker 1: learning the history and culture. They're a national treasure. And
Speaker 1: part of what it keeps America strong and safe is
Speaker 1: that we have people on the front lines and our
Speaker 1: embassies and consulates sometimes for years defending US, explaining US,
Speaker 1: advancing American interests in a thousand different ways. And that's
Speaker 1: what diplomacy is. And and President Trump's budget is entirely
Speaker 1: military and homeland security. Now that's vital to us, and
Speaker 1: I actually want to see the military budget increased, but
Speaker 1: to cut the State Department, to cut the e p A,
Speaker 1: to cut social welfare programs. This budget is not going
Speaker 1: to pass the Republican Congress. Republicans will resist it. It
Speaker 1: needs to be fundamentally resought. And Pastor Burnce, let me
Speaker 1: ask you, lastly, hear about public diplomacy. How lucky it
Speaker 1: is to be one Aaron at McPike traveling on behalf
Speaker 1: of the Independent Journal Review with Secretary Tillerson and the
Speaker 1: only journalist on that trip, Rex Tailers, and finally taking
Speaker 1: questions in Japan for the first time from journalists. What
Speaker 1: would you say to him about the importance of engaging
Speaker 1: with the public and with journalists, And how big a
Speaker 1: problem is this that he hasn't you know, he doesn't
Speaker 1: need my advice, but I think, what what? What the
Speaker 1: secretarian others will learn the Trump White House is you
Speaker 1: want your Secretary of State and Defense traveled for the
Speaker 1: American journalists. You want them to tell the story, not
Speaker 1: just the Chinese State News agency, which is not exactly democratic.
Speaker 1: You don't want the Chinese government run media to define
Speaker 1: Secretary Tellerson's visit. You want free democrats, small d democratic
Speaker 1: reporters to be able to do that. And in the
Speaker 1: democracy where the press has First Amendment rights, it's the
Speaker 1: responsibility of people in government to be transparent as much
Speaker 1: as that's possible, to be accountable. This is what democracy is.
Speaker 1: And the press is not the enemy of the American people,
Speaker 1: as President Trump has been saying, Ambassador Burns, a great
Speaker 1: privilege to speak with you. As always. That's Nicholas Burns
Speaker 1: at the Harvard Kennedy School in Colander at the budget
Speaker 1: guy on Twitter, a man who cautions us a time
Speaker 1: that we should not call the document that the White
Speaker 1: House released yesterday and sent to Capitol Hill a budget.
Speaker 1: Stand it begs the question I gotta ask once the
Speaker 1: last time we had what you would consider to be
Speaker 1: what constitutes a budget? Wow, that was a very dramatic question.
Speaker 1: Than's grassing. Good morning, everybody. Um. No, Look, the president,
Speaker 1: President Obama has submitted a budget each of the previous
Speaker 1: eight years. Um, it's not so much that this isn't
Speaker 1: a budget. It's that the first, the first so called
Speaker 1: budget coming out of the administration is only partially complete.
Speaker 1: It only deals with about one third is spending, doesn't
Speaker 1: deal with economics, doesn't deal with revenues, doesn't deal with
Speaker 1: mandatory spending. Um. I mean, this was really just a
Speaker 1: press release coming out of the Trump campaign about fulfilling
Speaker 1: its campaign promises. But it doesn't really have the fiscal
Speaker 1: policy involved. So I don't see how you can possibly
Speaker 1: seriously take this as a budget. Yeah, but stand I mean, folks,
Speaker 1: let's let's be clear here. Professor Collandar was noted by
Speaker 1: the Laureate Paul Krugman today in the New York Times,
Speaker 1: who you know, went to the source calendar. This is
Speaker 1: not a budget, etcetera. It's a campaign document. I get
Speaker 1: that Paul Kruegman doesn't like the budget. Paul Krugman doesn't
Speaker 1: like any Trump thing. What about the Trump supporters that
Speaker 1: are going say, what, how do they respond to this? Well, Tom,
Speaker 1: I'm not even commenting on the specific proposals. I like some,
Speaker 1: I dislike a lot of them. That's not the point.
Speaker 1: But you know, the budget is a tool of fiscal policy.
Speaker 1: It should it should be related to the economy. What
Speaker 1: you where you think the economy is going to go?
Speaker 1: And this budget doesn't include an economic forecast, and so
Speaker 1: if you don't have an economic forecast, if you don't
Speaker 1: have even an assumption even you guess, so how can
Speaker 1: you come up with proposals? But you know the minutia
Speaker 1: of actually the Joint Committee and all that I know.
Speaker 1: The headline question is what does Speaker Ryan do forget
Speaker 1: about that? What does the machinery that Stan Collendar knows perfect,
Speaker 1: How does the machinery spy into this and then get
Speaker 1: to the next step It sits back and waits. Uh.
Speaker 1: Mc mulvaney, the O and B director, yesterday said they're
Speaker 1: going to come out with the rest of their proposal
Speaker 1: in May or June, and the machinery in congresses you
Speaker 1: put it, the budget process is gonna wait until then
Speaker 1: for two reasons. One because they want to see what
Speaker 1: the President is going to propose and make him take
Speaker 1: the political hit for anything to that that's pretty bad. Second,
Speaker 1: um Congress really can't move on the next budget until
Speaker 1: it finishes this one, that is two thousand seventeen, because
Speaker 1: if they move ahead with two thousand and eighteen, that's
Speaker 1: the budget that was submitted to Asteroid, the document that
Speaker 1: was submitted yesterday, they're going to kill their chances of
Speaker 1: doing a c A repeal and replace. So that's where
Speaker 1: I mean, David, my head spinning. It's like my life
Speaker 1: is now complete. Then it's like Maryland losing. That's what
Speaker 1: it's like to stand. How many pounds are gonna be
Speaker 1: packed on this skinny budget by the time we get
Speaker 1: the next one? What detail are you expecting we're gonna get.
Speaker 1: Are we gonna get some of the say, uh farther
Speaker 1: out of prospects that we didn't get in this one? Well,
Speaker 1: you're gonna don't forget this was just so called discretionary
Speaker 1: spending that his appropriations and so um. And it was
Speaker 1: just for one year. So we're gonna get five and
Speaker 1: ten year forecasts for those for those programs, which is
Speaker 1: about a trillion dollars in the budget. You're gonna get
Speaker 1: mandatory programs, Social Security, Medicare, Medicaid, etcetera. Um, you're gonna
Speaker 1: actually get a deficit forecast going out ten years or beyond.
Speaker 1: UM that will show whether or not the president is
Speaker 1: going to be able to keep his promise to eliminate
Speaker 1: the deficit balance the budget by the end of his
Speaker 1: his first actually a second term. Um. And you're going
Speaker 1: to get an economic forecast and revenue. So that's going
Speaker 1: to mean that the typical five books that we get
Speaker 1: from the President, the bigger budget apendix to everything that
Speaker 1: just the basic budget document should be available in May
Speaker 1: or June, and until then we really don't have enough
Speaker 1: information to make any decisions. Let me ask you about
Speaker 1: Mr Mulvaaney. Watched him yesterday fulminating from that podium in
Speaker 1: the White House press room. He's a guy who has
Speaker 1: been very hard line, and I was wondering going into
Speaker 1: this sort of how he would complement the White House
Speaker 1: the rest of the White House when it comes to
Speaker 1: budget issues. How is he fitting in and how much
Speaker 1: is his message different from that of the White House. Well,
Speaker 1: if you look at his his congressional career, his positions
Speaker 1: on the budget are completely different to the White House.
Speaker 1: Which is why I've said to our clients here, Um,
Speaker 1: he's either going to be the most influential member of
Speaker 1: the cabinet or the next one out the door. Um.
Speaker 1: He mentioned one of the one of the differences yesterday
Speaker 1: the White House. Uh, you know, she wants to spend
Speaker 1: more on defense. But he that is mulvannying. When he
Speaker 1: was a member of Congress said we don't want to
Speaker 1: use it as part of the Overseas Contingency Operations Fund,
Speaker 1: which allows you to spend more than the cap in defense.
Speaker 1: So he seems so far to convinced the administration they
Speaker 1: shouldn't do it that way, whether or not they actually
Speaker 1: get there. But but I mean, that's a that's a
Speaker 1: major change that he's essentially forcing reductions into in domestic
Speaker 1: spending to pay for an increase in defense. Stan Collins
Speaker 1: are executive vice president of Corvis. Always great to get
Speaker 1: his perspective. Tom ready to see him get the FaceTime
Speaker 1: book Ruitman to stand as a and earned source of
Speaker 1: the minutia of our fiscal process. I love how he
Speaker 1: sequenced the calendar there, they got to do this budget
Speaker 1: before they do that budget. And then I did I
Speaker 1: believe he say, we don't really don't do the next
Speaker 1: thing till me. So it's a waiting game until then.
Speaker 1: That's the next next iteration from the White House joining
Speaker 1: us Stephen Ratner, will it who I should point out
Speaker 1: manage his money for? Uh? Michael Blomberg, the principal owner
Speaker 1: of the station. But far more importantly, Steve, your public
Speaker 1: service is our did you have a budget when you
Speaker 1: were zar, like, did they call you up and say,
Speaker 1: you know, the gulf stream Detroit? Detroit's killing us. I
Speaker 1: didn't have a gulf stream. The great advantage of seriously
Speaker 1: is of what we did was that we didn't have
Speaker 1: a budget because we were operating using tart money, which
Speaker 1: Congress had appropriated at the depths of the crisis, regretted
Speaker 1: immediately that it had done it because it gave the
Speaker 1: White House too much power, and so we were actually
Speaker 1: able to do everything we did without ever having to
Speaker 1: face those wonderful folks up on Capitol Hill. Have you
Speaker 1: seen a budget like this before? Mcmilvanny, the head of
Speaker 1: the m B calling this a hard power budget, one
Speaker 1: that's emphasizing security and defense so much. Let's just be
Speaker 1: clear one thing. This budget is a political statement, not
Speaker 1: not a budget that's going to happen. Because one thing
Speaker 1: that doesn't get enough attention is that you need sixty
Speaker 1: votes in the Senate to pass this, So you're never
Speaker 1: going to get eight Democrats to flip around and be
Speaker 1: for this budget. So even so, there's also opposition within
Speaker 1: the Republican Party. But these guys are making a statement
Speaker 1: as to what they want. Now. The thing that you
Speaker 1: should remember is that if this budget does not pass,
Speaker 1: and it won't or any budget won't pass, then you
Speaker 1: go into a continuing resolution, which means you go back
Speaker 1: into the sequestration caps and the deal that was made
Speaker 1: between Party and Petty Murray and Paul Paul Ryan when
Speaker 1: he was in charge of budgets to defer some of
Speaker 1: the worst cuts take effect. And so a lot of
Speaker 1: bad stuff is going to happen in October one on autopilot,
Speaker 1: even if this budget has not passed. So the sequestration
Speaker 1: is not going away, much as the President hope that
Speaker 1: it would when he when he spoke before the Joint
Speaker 1: Session of Commress. No no end in sight to those caps. Well,
Speaker 1: the president should know better that if you propose a
Speaker 1: budget that's gonna cut out of agencies that many of
Speaker 1: us think are important, then you obviously aren't gonna have
Speaker 1: a budget deal, and and the sequestration isn't gonna go away.
Speaker 1: What must it be like to run one of these agencies?
Speaker 1: I think if Secretary State Rex Tilligen, he seems to
Speaker 1: be on board with with cuts of these magnitudes, But
Speaker 1: we're talking about cuts here that would radically reconfigure again.
Speaker 1: Should they be affected, they probably will not be affected
Speaker 1: in full, at least the institutions that these people are heading.
Speaker 1: It's interesting because, of course some of the institutions like
Speaker 1: the e p A are headed by people who want
Speaker 1: to abolish them anyway. But I which is award. But
Speaker 1: but I do think of Rex to listen a lot,
Speaker 1: because I can't imagine that he would sit there and
Speaker 1: say to himself that I want my budget cut by
Speaker 1: thirty who wants his budget cut by But I think
Speaker 1: he may also say to himself, this is never gonna happen,
Speaker 1: and so I can still stay on the team and
Speaker 1: kind of let this sort of glide along and be
Speaker 1: worrying about North Korea and other things. What does this say? Okay,
Speaker 1: so let's say it's not gonna pass. What does it
Speaker 1: say about strategy? What did you learn yesterday about the
Speaker 1: seriousness with which this administration is treating the budget or
Speaker 1: treating its promises of cutting back the size of the
Speaker 1: federal government. I think that that does make you gasp
Speaker 1: a little bit, is that an administration, any administration, would
Speaker 1: come forward with something this radical. I haven't gone back
Speaker 1: and studied Reagan but Reagan's budgets. I covered them as
Speaker 1: a reporter, actually, but I I don't believe they were
Speaker 1: even remotely of this order of magnitude of trying to
Speaker 1: reshape the government. You lost a good one this week.
Speaker 1: Will the advisors Ellis Ruth will return to Dartmouth. She's
Speaker 1: out of deer fielding Dartmouth and she will go up
Speaker 1: there to their Dartmouth endowment and help them with quiet
Speaker 1: and conservative money. Is it about making money or is
Speaker 1: the game of endowment investment about not losing money? Which
Speaker 1: is it? It's about making money in the long run.
Speaker 1: You know, every endowment, and and we're a foundation in
Speaker 1: large part, has its own approach to how they tolerate volatility,
Speaker 1: how they tolerate risk. We have a very very thanks
Speaker 1: to our our founder Michael Bloomberg, part owner of Bloomberg
Speaker 1: Radio and and LP, we have a very long time horizon,
Speaker 1: so we're able to take risk. Other institutions are more
Speaker 1: conservative because they don't want the volatility. I'm sure Elis
Speaker 1: is listening this morning, help us here with the debate.
Speaker 1: She's going to be hit over the head with which
Speaker 1: is active versus passive? Harvard's had to deal with every endowment.
Speaker 1: He said, well, Harvard has a sum of a different situation.
Speaker 1: Harvard's issue was that they were trying to do active
Speaker 1: management internally, and in today's world, you can't attract the
Speaker 1: best talent to come internally into a place like that,
Speaker 1: and so they're now going to an external mode mode.
Speaker 1: I've the major endowments, whether it's Dartmouth, Harvard, what we do.
Speaker 1: We still do believe that over time, active management can
Speaker 1: produce better results, and we're still committed to that strategy.
Speaker 1: Now are we simply doing it as in a self
Speaker 1: preservation act? That we want to keep our jobs? So
Speaker 1: therefore we have to believe in active management. We'll find out,
Speaker 1: do you believe in the new environment, the regime shift,
Speaker 1: in the Trump bump, etcetera. It will see revenue growth
Speaker 1: out of American companies additional marginal revenue growth in the
Speaker 1: coming years above what would otherwise happen or above compared
Speaker 1: to what if we get four percent revenue growth? Is
Speaker 1: the new four percent five percent better revenue growth? I
Speaker 1: think you could get a little bit better revenue growth
Speaker 1: for a short period of time if he puts in
Speaker 1: place a stimulative tax policy that creates incentives for people
Speaker 1: to buy things and for companies to make things. In
Speaker 1: the UH, the revenue growth of our US companies are
Speaker 1: going to be hurt by a strong dollar. It's going
Speaker 1: to affect exploits UH. And secondly, it's as you know,
Speaker 1: it's just basic economics that are long term growth rate
Speaker 1: cannot exceed the supply of labor plus the productivity of
Speaker 1: that labor. If he restricts immigration, the supply of labor
Speaker 1: may be restricted somewhat. UH productivity has been very weak.
Speaker 1: I don't see anything he's proposing particularly that would help it.
Speaker 1: And so I I am I don't I'm not. I'm
Speaker 1: not a pessimist by nature, but it's very hard to
Speaker 1: see along term great threat growth much above two percent
Speaker 1: at this moment, and with the news flow we've had,
Speaker 1: healthcare is sort of drifted away. I believe that five
Speaker 1: days ago that was front center, right, David, Yeah, And
Speaker 1: I think that the House Speaker Paul Ryan probably would
Speaker 1: prefer that it's still remain centers we're dealing with with
Speaker 1: all of this stuff. Steve, how optimistic are you here
Speaker 1: that we'll see maybe not this piece of legislation pass.
Speaker 1: Might might be optimistic about that, but see some changes here,
Speaker 1: some smart changes to this legislation. I don't know they're
Speaker 1: gonna be changes. Whether they're gonna be smart changes or
Speaker 1: less smart is the question. Because what Paul Ryan's got
Speaker 1: to navigate are some people on his right flank who
Speaker 1: want changes that I would you is not smart, and
Speaker 1: then a bunch of several more or less moderate Republican
Speaker 1: senators on the Senate side who want changes in the
Speaker 1: other directions. So he's really caught between a rock and
Speaker 1: a hard place. I I've been sort of vacillating around
Speaker 1: fifty fifty for this, but I have to say that
Speaker 1: it doesn't make sense to me for the people on
Speaker 1: the right side of Paul Ryan to actually ultimately vote
Speaker 1: no to almost anything, because why would you want to
Speaker 1: go back to Obamacare one point oh if you can
Speaker 1: have two point oh or one point eight or one
Speaker 1: point five or anything that in their minds is better
Speaker 1: than one point oh. But you know, the broader point
Speaker 1: that we should keep in mind about both healthcare and
Speaker 1: the budget is the dramatic way in which the president
Speaker 1: is reshaping priorities and spending away from the very people
Speaker 1: who elected him. His healthcare proposal would cut one net
Speaker 1: one point one trillion dollars of benefits that go to
Speaker 1: lower income Americans, many of them voted for him, and
Speaker 1: they would give people like me six hundred million dollars
Speaker 1: of tax cuts, which and I didn't vote for him,
Speaker 1: and I don't need those tax cuts. And then on
Speaker 1: the spending side, the budget obviously would eviscerate a lot
Speaker 1: of programs that help people at the lower end of
Speaker 1: the income spectrum. So this is really the most traumatic
Speaker 1: reshaping of government priorities I've ever seen. The last question here,
Speaker 1: you look at the Affordable Care Act and you can
Speaker 1: see some deficits there. You've see these insurance companies pulling
Speaker 1: out of some markets and all that's associated with that.
Speaker 1: Why does it seem so difficult to have a smart,
Speaker 1: measured conversation about healthcare policy in this country? Here from
Speaker 1: the House speaker that this isn't being rushed through the House. Indeed,
Speaker 1: they've been thinking about it for a long time, They've
Speaker 1: run on it for several cycles now, and yet it's
Speaker 1: very hard to find outside groups that support this piece
Speaker 1: of legislation, the changes that are that are proposed here.
Speaker 1: What makes healthcare in particular so difficult so thorny a
Speaker 1: political issue. First of all, it's a huge part of
Speaker 1: our GDP, It's around eighteen percent or something like that.
Speaker 1: And secondly, you're dealing with moral questions. You're dealing with
Speaker 1: rationally healthcare. How much healthcare are people entitled to as
Speaker 1: a matter of just being a citizen versus having any
Speaker 1: other commodity, anything else you use in your life, you're
Speaker 1: expected to pay for it. Why healthcare is just different? Uh,
Speaker 1: it's just different in that respect. And I thought we
Speaker 1: were going with the question those I'll answer the questions
Speaker 1: you didn't ask fair enough. Is what's also not being discussed,
Speaker 1: And politically it's impossible. But the problems of like insurers
Speaker 1: pulling out of the marketplaces, this could have been fixed.
Speaker 1: Nobody expected that Obamacare would get it all right on
Speaker 1: the first get go, And in a rational world you
Speaker 1: could have gone back in and change things. For example,
Speaker 1: the cap of three to one on the ratio between
Speaker 1: where older people paying what younger people pay in retrospect
Speaker 1: was a mistake. You could fix that kind of stuff.
Speaker 1: Obviously not in this political environment. Steve Wrett, thank you
Speaker 1: so much. Little Advisors Orthopedic hand surgeon from Holidays Burg,
Speaker 1: pen Sylvania. The president of the American Medical Association. That's
Speaker 1: Andrew German, who joins us. Now, I know that the
Speaker 1: a m A has come out against the American Health
Speaker 1: Care Act, the plan proposed and championed by many members
Speaker 1: of the Republican Republican members of the House of Representative,
Speaker 1: Dr Gi, give us a sense here of what you
Speaker 1: and your organization don't like about the plan. Good morning. Well,
Speaker 1: first of all, thank you for having me on your show. Um,
Speaker 1: we know that people who don't have health insurance live
Speaker 1: sicker and die younger. The data are incontrovertibly clear on
Speaker 1: that point. So when we see a piece of legislation
Speaker 1: that that, by everybody's estimates, will take somewhere between fourteen
Speaker 1: and twenty five million people off the insurance roles, we
Speaker 1: think that that is condemning them to living sicker and
Speaker 1: dying younger. And a physicians, we felt obligated to point
Speaker 1: that out. How much input did you at the a
Speaker 1: m A and how much input to doctors in particular
Speaker 1: have in crafting this legislation. Did Republicans on the Hill
Speaker 1: seek out your counsel? Well, we uh informed every member
Speaker 1: of Congress on I think the second day of the
Speaker 1: of the congressional session. What our principles were, that people
Speaker 1: who had insurance shouldn't lose it, that people who don't
Speaker 1: have insurance should get it, That there needs to be
Speaker 1: adequate funding for safety net programs CHIP UH and medicaid.
Speaker 1: That there needs to be an unremitting commitment to quality UH,
Speaker 1: and that insurance needs to be affordable, affordable, and provide
Speaker 1: meaningful coverage. So we've we've communicated those principles to UH,
Speaker 1: to everyone in Congress, and we have met with leadership
Speaker 1: on both sides of the aisle. We've talked with with
Speaker 1: folks in the insurance industry who say, you know, there
Speaker 1: were problems with competition and a number of market places.
Speaker 1: How much of a mess is the Affordable Care Act
Speaker 1: to you when you're looking at it, when you see
Speaker 1: problems with the things that need to be fixed, what
Speaker 1: stands out to you as a doctor, Well, the biggest
Speaker 1: thing that needs to be fixed in the Affordable Care
Speaker 1: Act is stabilizing the individual insurance markets. There's great uncertainty UM,
Speaker 1: and I think people on both sides of the I'll
Speaker 1: agree about that. The question is do you fix what's there,
Speaker 1: or do you replace um UH with something else. We're
Speaker 1: not philosophically opposed to replacement. We just need to know
Speaker 1: what it is before you you repeal what's here. If
Speaker 1: your with us, folks. Andrew German, he is to have
Speaker 1: the American Medical Association and out of Upstate Syracuse UH
Speaker 1: DR I went back and forth yesterday with Peter Hotez, A. Baylor,
Speaker 1: and I think at Upstate UH Syracuse UH, Timothy n
Speaker 1: d E n d Y, Timothy Dy and their courage
Speaker 1: in really tough parts of the world on vaccines. They
Speaker 1: now have to bring that courage back to the United
Speaker 1: States where whether it's mumps or measles. We're having this
Speaker 1: discussion about vaccines, which was carried for carried forward a
Speaker 1: few days ago by our newly minted UH Secretary of
Speaker 1: of of Human Health and Human Services, Mr Price. Dr Price.
Speaker 1: Can you help us here with a vaccine debate? How
Speaker 1: does the A m A shift this debate back to science? Well,
Speaker 1: we there is no debate, but the science about vaccines
Speaker 1: is again incontrovertibly clear UM that we need to protect ourselves,
Speaker 1: our children, and our communities UH. And the science speaks
Speaker 1: for itself. So there's there's to my mind, no controversy there. Um,
Speaker 1: people need to get vaccines, they're safe. The controversy seems
Speaker 1: to be a select group of medical types who have
Speaker 1: succumbed to almost the state's rights debate on basic science.
Speaker 1: Back to Louis Pasteur. How do we address that as
Speaker 1: a nation when we see expanded illnesses and illnesses coming
Speaker 1: back from our childhoods. Well, again, I think we have
Speaker 1: to focus on the science. Science is not a state's
Speaker 1: right issue, states rights issue. Science is not a Democrat,
Speaker 1: Capital D or Republican uh shoes. Science is science, and
Speaker 1: uh that's what what allows us to take good care
Speaker 1: of people. Um. We we try to do evidence based
Speaker 1: medicine based on science that is rigorous, that is reproducible,
Speaker 1: and adheres to basic scientific principles that go back to
Speaker 1: Louis Pastor you sited before. That's Kevin, let me go
Speaker 1: back to this legislation on the Hill right now, the
Speaker 1: timetable that we have before us, how Speaker Paul Ryan
Speaker 1: and others hoping to get this done as quickly as possible.
Speaker 1: What are your next steps? You mentioned sending a letter
Speaker 1: sending your point of view to two congressmen on Capitol Hill.
Speaker 1: Where do you plan to go next? Is this debate
Speaker 1: continues in Washington. Well after the legislation was dropped, we
Speaker 1: reiterated our concerns. UM we have made our our principles
Speaker 1: again known. We've reiterated them and made it clear what
Speaker 1: our our problems are with the current legislation and why
Speaker 1: we can't support it as written. We have a patience
Speaker 1: UH action net work and a physicians grassroots network and
Speaker 1: both of those will be activated. And I don't know
Speaker 1: what else we will we will do, but weill. The
Speaker 1: important thing is that we are we are communicating to
Speaker 1: Congress that we want to work with them. We want
Speaker 1: to be helpful partners in crafting legislation that will accomplish
Speaker 1: the goals of meeting the principles that we've laid out.
Speaker 1: Do you feel that Washington is listening to our nurses
Speaker 1: and our doctors? I hope so well. I know hope
Speaker 1: and audacity would help out here. But but do you feel,
Speaker 1: you know, within the scope of your career, back to
Speaker 1: your days at Upstate and Syracuse, do you feel like
Speaker 1: you've got a voice in Washington with the A M A.
Speaker 1: I absolutely and honestly do. Otherwise I wouldn't have spent
Speaker 1: thirty years of my medical career being active in it.
Speaker 1: I think that advocating for our profession uh and for
Speaker 1: our patients is a professional responsibility. I think it is
Speaker 1: as on a par with with keeping current with trying
Speaker 1: to do good medicine because we um doctors, nurses, and
Speaker 1: patients are the ones who can tell our stories uh
Speaker 1: and Congress needs to hear them. So that's why I
Speaker 1: do the work that I do, and it's it's a
Speaker 1: privilege to do it. Oh, thank you so much, Dr German,
Speaker 1: greatly appreciate. We'd love to have you back on back
Speaker 1: with Bloomberg Surveillance again on the medicine of the nation.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm out on Twitter at Tom Keene. David
Speaker 1: Gura is at David Gura. Before the podcast, you can
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