WEBVTT - Elmendorf: Mistake for Trump Not to Fill Positions Quickly 0:00:00.080 --> 0:00:02.920 Brought you by Bank of America Mary Lynch. Investing in 0:00:03.000 --> 0:00:07.840 local communities, economies and a sustainable future. That's the power 0:00:08.080 --> 0:00:12.320 of global connections. Mary Lynch, Pierce Fenner and Smith Incorporated 0:00:12.760 --> 0:00:27.400 member s I p C. Welcome to the Bloomberg Surveillance Podcast. 0:00:27.800 --> 0:00:31.520 I'm Tom Keene with David Gura. Daily we bring you 0:00:31.560 --> 0:00:36.600 insight from the best in economics, finance, investment, and international relations. 0:00:37.000 --> 0:00:41.599 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 0:00:41.680 --> 0:00:49.920 of course on the Bloomberg. Joining us now as Gabriela Santa, 0:00:50.000 --> 0:00:53.000 She's Global Chief Strategy to JP Morgan Funds. And let 0:00:53.000 --> 0:00:55.160 me start just by asking about the Federal Reserve meeting 0:00:55.200 --> 0:00:57.880 we had this week. In the hierarchy of what's important 0:00:57.880 --> 0:01:00.560 to investors right now, where do you position the FED 0:01:00.600 --> 0:01:03.040 compared to say, political events and what we saw in 0:01:03.080 --> 0:01:05.280 Europe and indeed what we're looking forward to in France. 0:01:05.800 --> 0:01:08.400 So I think the FED is still relevant. It's perhaps 0:01:08.560 --> 0:01:10.520 less of a focus than it has been over the 0:01:10.520 --> 0:01:13.479 past few years, which ultimately is a healthy thing. We 0:01:13.520 --> 0:01:16.440 should be focusing a little bit back on fundamentals on 0:01:16.480 --> 0:01:20.640 how the economy and earnings and are actually doing UM, 0:01:20.640 --> 0:01:22.880 but I do think we could have gleamed some interesting 0:01:23.560 --> 0:01:27.039 perspectives from the FED meeting. In particular for me was 0:01:27.080 --> 0:01:30.000 their approach towards inflation UH and I didn't see a 0:01:30.000 --> 0:01:34.920 particular concern from their side towards inflation. Even as you 0:01:35.000 --> 0:01:37.840 get some of these UH indicries, whether it's CPI or 0:01:37.880 --> 0:01:41.360 even pc getting closer to their target, they signaled a 0:01:41.400 --> 0:01:44.440 bit of a willingness to look through that. So to me, 0:01:44.520 --> 0:01:46.920 that signals a faster pace of rate hikes than over 0:01:46.959 --> 0:01:49.680 the past few years. UM. But it removes some of 0:01:49.720 --> 0:01:52.280 that tail risk of the FED being overly aggressive, at 0:01:52.360 --> 0:01:54.560 least for now. How much to a disconnect was there, 0:01:54.640 --> 0:01:57.000 or is there, between what the Fed is projecting and 0:01:57.040 --> 0:01:58.920 what investors thought would happen what would come out of 0:01:58.960 --> 0:02:02.000 the meeting. I think it was decently in line, so 0:02:02.320 --> 0:02:06.000 very well telegraphed rate hike the statement did reflect a 0:02:06.240 --> 0:02:10.280 slightly better view towards the economy and inflation. UH. And 0:02:10.320 --> 0:02:14.240 then Janet Yellen during the press conference seemed very hesitant 0:02:14.480 --> 0:02:17.480 to to precipitate any sort of fiscal policy change as 0:02:17.520 --> 0:02:20.639 she has in the past, right as she did last year. UM. 0:02:20.639 --> 0:02:23.040 What perhaps was a little bit of a surprise was 0:02:24.240 --> 0:02:26.920 the willingness to look through some of that inflation, and 0:02:26.960 --> 0:02:28.760 that's why I think the market reacted the way he 0:02:28.800 --> 0:02:32.280 did with bond yields falling with the dollar falling, was 0:02:32.320 --> 0:02:34.519 removing that tail a risk of a very aggressive FED. 0:02:34.760 --> 0:02:38.400 We're talking to Sebastian Mallaby yesterday, uh and he talked 0:02:38.440 --> 0:02:41.040 how talked about how problematic it can be if if 0:02:41.080 --> 0:02:43.280 the FED is too predictable. He had a column in 0:02:43.280 --> 0:02:45.040 the Post I think about a week ago suggesting the 0:02:45.040 --> 0:02:48.320 FED could really do a good service by raising rates 0:02:48.320 --> 0:02:51.200 by fifty basis points instead. Of course that didn't happen. 0:02:51.240 --> 0:02:53.359 But is there a problem with predictability? Do you think, 0:02:53.360 --> 0:02:55.360 as as an investor, as a strategisty to see that 0:02:55.400 --> 0:02:57.919 being a problem. I think it's a problem to the 0:02:57.960 --> 0:03:00.840 extent that if we take last year as an example, 0:03:00.960 --> 0:03:04.320 right in our view, given where the economy was, given 0:03:04.320 --> 0:03:07.799 where inflation already was trending, last year was already a 0:03:07.880 --> 0:03:11.000 year to have hiked more than just once right at 0:03:11.040 --> 0:03:14.720 the end of the year. However, the Fed's preoccupation around 0:03:14.720 --> 0:03:19.920 preparing the market and being overly concerned and predictable removed 0:03:20.080 --> 0:03:23.040 some of that optionality for them. Uh. And I think 0:03:23.080 --> 0:03:25.680 that is a concern for us in some some to 0:03:25.760 --> 0:03:28.680 some extent, right, the fed ney stacked regardless of whether 0:03:28.720 --> 0:03:31.280 the market is ready or not. Um, and that's ultimately 0:03:31.400 --> 0:03:35.160 better for for the economy. Gabrielle. I believe in Pennsylvania 0:03:35.280 --> 0:03:37.600 buried in the textbooks with the idea you don't do 0:03:37.680 --> 0:03:40.320 share buy backs at market tops, are we going to 0:03:40.400 --> 0:03:43.480 see fewers share buy backs? I believe the theory is 0:03:43.520 --> 0:03:46.400 if the stock market goes up, you don't buy back 0:03:46.480 --> 0:03:49.720 your shares. But it's always broken, isn't it? It has? 0:03:49.800 --> 0:03:52.760 And I think that's such a crucial question because the market, 0:03:53.000 --> 0:03:54.840 if we look at the equity market, has been getting 0:03:54.880 --> 0:03:59.160 a little bit excited about tax reform repatriation UM and 0:03:59.240 --> 0:04:02.120 thinking about how companies can choose to act on that 0:04:02.200 --> 0:04:05.560 extra cash. And there's some excitement that they'll shift away 0:04:05.560 --> 0:04:09.280 from buy backs, from dividends, from the usual use of 0:04:09.320 --> 0:04:12.080 cash over the past few years, towards actually using it 0:04:12.120 --> 0:04:16.120 for capex, which would be revolutionary if we think about 0:04:16.160 --> 0:04:20.400 the last ten years, right even before the Cristi um. So, 0:04:20.480 --> 0:04:24.040 I think there's a question mark here, um. This was 0:04:24.080 --> 0:04:27.640 a behavior of companies before the financial crisis, right, and 0:04:27.680 --> 0:04:31.239 so do we create the environment where companies are willing 0:04:31.279 --> 0:04:33.719 to spend on capex? And that's not just about tax 0:04:33.720 --> 0:04:37.240 reform in cash, it's also about removing several other types 0:04:37.279 --> 0:04:42.200 of uncertainty as well, such as there's the potential perhaps 0:04:42.279 --> 0:04:46.160 for less regulation or perhaps we could say more targeted 0:04:46.279 --> 0:04:49.560 or smarter types of regulation, which could remove some of 0:04:49.600 --> 0:04:52.040 that uncertainty that's often been cited as one of the 0:04:52.360 --> 0:04:56.080 top concerns for companies of all different types and sizes 0:04:56.120 --> 0:04:58.720 in the US. However, you're adding at the same time 0:04:58.760 --> 0:05:02.240 another layer of uncertainty here with regards to trade, with 0:05:02.240 --> 0:05:05.880 regards to immigration, with regards to geopolitics. So we have 0:05:05.920 --> 0:05:08.640 to be careful in figuring out the balance there um. 0:05:08.680 --> 0:05:11.280 And something that's interesting if you look at sentiment surveys, 0:05:11.320 --> 0:05:14.640 companies have been feeling more optimistic, but they're still feeling uncertain. 0:05:15.200 --> 0:05:17.560 So whether they actually act on that optimism and that 0:05:17.600 --> 0:05:20.360 capex is a whole different matter. How about volatility, You 0:05:20.360 --> 0:05:22.240 look at the fix having at eleven and twelve, what 0:05:22.360 --> 0:05:24.360 is that that to tell you about what's to come? 0:05:25.080 --> 0:05:27.520 That tells us that it's it's pretty easy to say 0:05:27.560 --> 0:05:32.080 that volatility will go up from here. When we say that, 0:05:32.120 --> 0:05:34.920 people are just like, well, yes, but I do think 0:05:35.000 --> 0:05:38.200 it holds true because if you think historically all the 0:05:38.240 --> 0:05:41.839 way back to usually you see a ten percent correction 0:05:41.920 --> 0:05:44.960 once a year, five percent once a quarter. Uh, and 0:05:45.000 --> 0:05:47.479 it's difficult to think that this year will be different 0:05:47.600 --> 0:05:50.000 with regards to that. It doesn't mean the market has 0:05:50.040 --> 0:05:51.839 to end down. It can end up for the year. 0:05:51.839 --> 0:05:54.840 It often does eighty percent of the time, but there 0:05:54.960 --> 0:05:57.040 is that digestion that needs to take place. We look 0:05:57.080 --> 0:05:59.520 at retail in the same store sales, and retail been 0:05:59.640 --> 0:06:02.960 challenged a Tiffany's just out with a light global same 0:06:03.000 --> 0:06:06.680 services as I believe it was negative, the flagship store negative. 0:06:07.560 --> 0:06:11.279 But it does get back to revenue responsiveness. With all 0:06:11.320 --> 0:06:14.840 that's going on in politics, fiscal stimulus and that at 0:06:14.839 --> 0:06:17.520 the top line, do you people believe that you'll add 0:06:17.560 --> 0:06:19.919 more to revenue, that they'll that there will be a 0:06:19.920 --> 0:06:23.160 better oof to corporate revenue this year? We do. We 0:06:23.240 --> 0:06:26.480 do UM and that's really crucial from this part onwards 0:06:26.520 --> 0:06:28.640 in the cycle, where we've done a lot of that 0:06:28.680 --> 0:06:30.800 margin expansion, a lot of that cost cutting, and now 0:06:30.880 --> 0:06:33.280 it's all about revenue growth UM and if we think 0:06:33.320 --> 0:06:36.640 about companies, what's helpful for them is if they feel 0:06:36.640 --> 0:06:39.640 like they have enough uh pricing power right where they 0:06:39.640 --> 0:06:42.160 feel like they can raise prices and consumers will still 0:06:42.160 --> 0:06:44.800 buy their goods. UH. And that's really where we are 0:06:44.800 --> 0:06:47.920 in this cycle is testing that uh and for companies 0:06:48.320 --> 0:06:50.760 really to to feel like they can increase their prices 0:06:50.760 --> 0:06:53.479 and hence increase their revenue growth. UM and I and 0:06:53.880 --> 0:06:56.040 we do feel optimistic that we will see that. I mean, 0:06:56.080 --> 0:06:58.599 it's an amazing David. I'm looking at a boring toothpaste 0:06:58.600 --> 0:07:01.880 and not company. It will be remain nameless. Their revenue 0:07:01.880 --> 0:07:05.080 growth is two point nine, So if you put a 0:07:05.120 --> 0:07:08.360 stick on that, it's a lift in revenue. It's kind 0:07:08.400 --> 0:07:10.400 of leverage you get off of that. Where are you 0:07:10.440 --> 0:07:12.280 looking overseas right now? I see that we're having the 0:07:12.280 --> 0:07:14.160 best week for emerging markets I think in eight or 0:07:14.240 --> 0:07:17.120 nine months. UM, what's attractive to you at this point 0:07:17.200 --> 0:07:18.680 in sort of how do you, as you're bouncing out 0:07:18.680 --> 0:07:21.560 of portfolio look to emerging markets at this point? So 0:07:21.720 --> 0:07:24.480 if we think about portfolios at this point in time, 0:07:24.520 --> 0:07:27.040 we would say we're looking around the world, we're seeing 0:07:27.040 --> 0:07:30.440 an acceleration and growth that's very encouraging. It's translating to 0:07:30.480 --> 0:07:33.600 a better earnings outlook. So overall we would be looking 0:07:33.640 --> 0:07:37.840 at equity markets versus government bonds. Then when you think 0:07:37.840 --> 0:07:40.160 about where does the US fit in that um, and 0:07:40.200 --> 0:07:42.320 we're talking about at this point in the cycle, it's 0:07:42.360 --> 0:07:45.760 normal to have less earnings growth, and so we have 0:07:45.920 --> 0:07:49.320 lowered our expectations for US returns too close to five 0:07:49.360 --> 0:07:52.200 percent over the next few years. That's not bad, it's 0:07:52.240 --> 0:07:53.920 just less than what you were getting over the past 0:07:53.960 --> 0:07:57.840 few years. So international is crucial from here on out. 0:07:57.960 --> 0:08:00.160 And we're really in the sweet spot where the US 0:08:00.200 --> 0:08:03.320 is in a more mature phase but not approaching recession, 0:08:03.800 --> 0:08:06.600 and that's where it's really valuable to have a good 0:08:06.600 --> 0:08:10.080 allocation to international. So we're looking to emerging markets, and 0:08:10.080 --> 0:08:12.760 we're looking at the Eurozone. We under play this, David, 0:08:12.920 --> 0:08:15.040 We're so eurocentric. I mean, if you look at the 0:08:15.080 --> 0:08:19.800 Dow US based up nineteen eight percent last twelve months. 0:08:20.280 --> 0:08:23.040 If you're in London and you invest in the Dow 0:08:23.440 --> 0:08:30.720 was sterling weakness, you're up four zero. It's remarkable. Help 0:08:30.760 --> 0:08:33.000 me here with small camp, large Camp. I mean, there's 0:08:33.040 --> 0:08:35.480 just this whole idea of JP Morgan. I mean, you 0:08:35.520 --> 0:08:39.160 already have a small company's apple help me here with 0:08:39.240 --> 0:08:44.120 small cap, mid camp large cap. So the argument is 0:08:44.120 --> 0:08:48.640 is was a bit stronger last year, right before small 0:08:48.679 --> 0:08:51.600 caps had such a strong rally. So the argument was, 0:08:51.679 --> 0:08:54.760 if you're starting to see all of these UH policy 0:08:54.800 --> 0:08:58.199 proposals that could be good for smaller companies, things like 0:08:58.320 --> 0:09:03.120 less regulation, like change the Affordable Care Act um UH 0:09:03.360 --> 0:09:08.160 focusing on improving the domestic economy, that argues perhaps for 0:09:08.559 --> 0:09:11.920 prioritization of small and mid caps. However, you've already seen 0:09:11.960 --> 0:09:15.360 a big move there, and valuations are less attractive and 0:09:15.520 --> 0:09:18.480 decently equal but between the two, so there's less of 0:09:18.520 --> 0:09:22.040 an argument to pick one versus the other. Now, Gabriel sentis, 0:09:22.040 --> 0:09:40.199 thank you so much. With JP Morgan, Doug Elmendorf joins 0:09:40.240 --> 0:09:42.800 his folks. If you are into fiscal policy, he needs 0:09:42.800 --> 0:09:46.319 no inner induction of former Congressional Budget Office director and 0:09:46.400 --> 0:09:50.320 now his leadership at the Harvard Kennedy School. UM. What 0:09:50.400 --> 0:09:54.040 I find so sad here, Dr Elmendorff, is if I 0:09:54.080 --> 0:09:58.080 go to the CBO and a two document of a 0:09:58.160 --> 0:10:02.360 year ago options for reducing the deficit two thousand seventeen 0:10:02.400 --> 0:10:07.360 to two thousand, the White House had all sorts of 0:10:07.559 --> 0:10:10.880 expert opinion on how to get the job done, and 0:10:10.960 --> 0:10:14.840 they clearly didn't listen. We've seen that within the uproar 0:10:15.600 --> 0:10:20.280 is the damage from this irreparable. It can Can the 0:10:20.320 --> 0:10:24.520 White House and the budget process recover from the idea 0:10:24.520 --> 0:10:28.880 of having Nick Burns react to acent reduction and State Department? 0:10:30.040 --> 0:10:32.640 This damage can be repaired. It depends on what the 0:10:32.679 --> 0:10:38.440 Congress does in actually passing appropriations. The President proposes these cuts, 0:10:38.559 --> 0:10:41.600 but the Congress will ultimately put the numbers down on paper. 0:10:41.679 --> 0:10:44.400 Do they work with and this is really important, folks, 0:10:44.480 --> 0:10:47.240 this is a huge privilege of Dr Elmendorff with this 0:10:47.240 --> 0:10:49.920 this morning. Do they work with any kind of document 0:10:50.400 --> 0:10:54.360 Kevin Hassett or Mr Wilvanian others give them or do 0:10:54.440 --> 0:10:59.319 they start from scratch this morning? All the Congress will 0:10:59.360 --> 0:11:02.120 look at them now mers that the President's team sends over, 0:11:02.360 --> 0:11:04.920 but they'll ultimately do what they think makes sense. A 0:11:05.000 --> 0:11:08.360 number of the leading Republicans in Congress have already expressed 0:11:08.679 --> 0:11:12.959 strong disagreements with aspects at least of the proposals. We 0:11:13.320 --> 0:11:15.640 had some sense here that regular order would be restored 0:11:15.720 --> 0:11:19.000 in Washington, d C. Is it going to be Can 0:11:19.040 --> 0:11:21.080 you foresee greed luck that would prevent that from happening. 0:11:21.080 --> 0:11:23.520 What if the consequence has been of having a continuing 0:11:23.520 --> 0:11:27.000 resolution after continuing resolution, after continuing resolution. I think the 0:11:27.040 --> 0:11:30.440 big obstacle to regular order on the budget is that 0:11:30.840 --> 0:11:34.199 some members of Congress are setting goals that sound good 0:11:34.200 --> 0:11:37.360 in the abstract to trim back government spending, but that 0:11:37.440 --> 0:11:41.560 aren't realizable in the specifics. People are unhappy about high 0:11:41.600 --> 0:11:44.319 government spending in many ways, but they like their Social 0:11:44.320 --> 0:11:47.400 Security benefits, they like their Medicare benefits. They want us 0:11:47.400 --> 0:11:50.280 to have strong diplomatic presence around the world, they want 0:11:50.280 --> 0:11:53.640 biomedical research. So in the specifics, people like a lot 0:11:53.640 --> 0:11:55.920 of things that are going on. And if the Congress 0:11:55.920 --> 0:11:58.040 sets a goal in this case, the president has set 0:11:58.040 --> 0:12:01.720 a goal that can't be reached to the actual appropriations process. 0:12:02.000 --> 0:12:03.679 That's gonna make it much harder to proceed in a 0:12:03.760 --> 0:12:06.400 regular way. Just get an historical sense here, we have 0:12:06.480 --> 0:12:08.559 a Congressman french Hill a moment ago talking about the 0:12:08.559 --> 0:12:11.559 president's budget saying that at the beginning of an administration, 0:12:12.160 --> 0:12:15.199 president put puts forth budget for in part symbolic value 0:12:15.200 --> 0:12:17.120 to show what he or perhaps in the future is 0:12:17.120 --> 0:12:19.080 is interested in. Is that what we're seeing, or how 0:12:19.080 --> 0:12:21.160 do you regard a first budget from a president? How 0:12:21.240 --> 0:12:23.200 much of it is is realistic versus how much is 0:12:23.200 --> 0:12:26.840 it a symbolically important? A lot of it is symbol 0:12:26.960 --> 0:12:30.080 in this case, I think particularly Director Mulveney is trying 0:12:30.120 --> 0:12:33.320 to convey his vision of what the government should be. 0:12:33.720 --> 0:12:36.040 On the other hand, if that symbol that you're setting 0:12:36.080 --> 0:12:39.359 out is too far away from reality, it's actually diminishing 0:12:39.360 --> 0:12:44.280 your ability to influence the outcome. Figure three, one page 0:12:44.320 --> 0:12:48.679 sixties six of this document. It's all there for the 0:12:48.720 --> 0:12:52.720 White House, the glide path of discretionary spending, and the 0:12:52.800 --> 0:12:55.160 president's defense. A lot of people upset we're gonna come 0:12:55.200 --> 0:12:58.160 back and talk about this, But the President has a 0:12:58.200 --> 0:13:00.600 point that we're now at a tipping point, aren't we 0:13:00.920 --> 0:13:04.480 in terms of total debt to GDP. We have a 0:13:04.480 --> 0:13:06.800 lot of debt from the federal government relative to the 0:13:06.840 --> 0:13:09.400 size of the economy. I don't use the word tipping point. 0:13:09.520 --> 0:13:12.960 We don't know what level of debt can be particularly dangerous. 0:13:13.120 --> 0:13:15.520 And at the moment, as you know, treasury interest rates 0:13:15.559 --> 0:13:18.680 are quite low. That gives us more run room. Doesn't 0:13:18.720 --> 0:13:20.640 mean we shouldn't do something, but it's not as urgent 0:13:20.679 --> 0:13:22.720 as otherwise. We're gonna come back and talk about this, 0:13:22.800 --> 0:13:25.640 and I think this is the word urgent really comes 0:13:25.679 --> 0:13:28.640 up here, the debate over do something now versus do 0:13:28.720 --> 0:13:30.600 it in a measured manner. What a prova you dougas 0:13:30.640 --> 0:13:33.439 Almondo for this from the Kennedy School at Harvard, a 0:13:33.480 --> 0:13:44.320 former Congressional Budget Office director, brought you by Bank of 0:13:44.360 --> 0:13:48.400 America Mary Lynch. Dedicated to bringing our clients insights and 0:13:48.480 --> 0:13:52.640 solutions to meet the challenges of a transforming world. That's 0:13:52.640 --> 0:13:57.920 the power of global connections. Mary Lynch, Pierce Federin Smith Incorporated, 0:13:58.080 --> 0:14:04.840 Member s I PC, dug out of a snow bank 0:14:04.880 --> 0:14:08.480 in Cambridge, Massachusetts, dug in Salmandorff joining a Center studios 0:14:09.200 --> 0:14:12.559 here in New York. We're talking about where we were. 0:14:12.600 --> 0:14:16.160 We were romancing about LBJ and back when we spent 0:14:16.240 --> 0:14:19.440 money on defense and discretion areas a percent of our 0:14:19.520 --> 0:14:21.880 g d P. And then there was this thing called 0:14:21.880 --> 0:14:26.960 the Clintons surplus. What's the real story about the Clintons surplus? 0:14:27.360 --> 0:14:30.120 How did it happen? And can we get back to 0:14:30.200 --> 0:14:33.720 the nirvana of what six weeks it was? In two 0:14:33.800 --> 0:14:37.480 thousand there were two main factors. One was that with 0:14:37.560 --> 0:14:41.880 the end of the Cold War, defense spending declined significantly 0:14:42.120 --> 0:14:44.760 as a percentage of GDP. The other factor was that 0:14:44.800 --> 0:14:47.760 the economy was booming and the financial sector was booming, 0:14:48.120 --> 0:14:50.160 so we had a big surge of income tax revenues. 0:14:50.760 --> 0:14:53.800 And those two factors are hard to reproduce. Defense spending 0:14:53.880 --> 0:14:56.360 can't fall a lot further as a share of GDP. 0:14:56.520 --> 0:14:58.960 There's discussion about how big it should be, but it's 0:14:58.960 --> 0:15:00.880 not going to fall in half again as a percentage 0:15:00.880 --> 0:15:03.720 of GDP as it did, and a boom in the 0:15:03.720 --> 0:15:06.360 economy will obviously help the budget, but it's hard to 0:15:06.640 --> 0:15:09.560 just order that up. Ask you abouts of what drives 0:15:09.560 --> 0:15:11.920 budgeting in Washington. You look at the Pentagon, and for 0:15:11.960 --> 0:15:14.280 many weeks now it has been James Maddis and James 0:15:14.360 --> 0:15:16.600 Maddis alone running that department. I think yesterday we've got 0:15:16.600 --> 0:15:19.800 a few notices of nominations to under secretary positions and 0:15:19.840 --> 0:15:22.720 assistant secretary positions. But you'll look at this big increase 0:15:22.720 --> 0:15:24.800 in defense spending fifty four a billion dollars at the 0:15:24.800 --> 0:15:27.720 White House once and you just have to think that 0:15:27.720 --> 0:15:29.920 that cannot that's probably not being driven by the Pentagon. 0:15:30.000 --> 0:15:31.320 At this point just by virtue of the fact there 0:15:31.320 --> 0:15:33.880 aren't a whole lot of people there to strategize for it. 0:15:34.680 --> 0:15:37.960 Speaking more broadly, uh, could agencies be doing more? Should 0:15:37.960 --> 0:15:40.320 agencies be doing more to sort of tell the White House, 0:15:40.360 --> 0:15:43.120 tell the Congress what they need and how respectful is 0:15:43.160 --> 0:15:46.160 Congress of them? I think that's a terrible mistake by 0:15:46.160 --> 0:15:48.960 this administration to not have filled more of those positions 0:15:49.000 --> 0:15:52.400 more quickly, both because they want to have more influence 0:15:52.720 --> 0:15:54.920 over those departments and because they need a source of 0:15:54.960 --> 0:15:58.800 information from the departments. And those secretaries with their deput 0:15:58.880 --> 0:16:01.320 secretaries and assistant stark Terries and so on, are the 0:16:01.360 --> 0:16:04.440 conduits for both control of the government and information from 0:16:04.440 --> 0:16:07.840 the government to the White House. Um, so they need 0:16:07.880 --> 0:16:10.480 to fill those positions. I think the fifty four billion 0:16:10.480 --> 0:16:12.560 dollars is a little overstated in the sense that it's 0:16:12.560 --> 0:16:16.000 fifty four billion dollars relative to what the current law 0:16:16.040 --> 0:16:18.400 will have for the coming year. It's actually a smaller 0:16:18.400 --> 0:16:21.280 increased relative to last year spending level, and that just 0:16:21.360 --> 0:16:25.040 reflects the fact that these caps on appropriations both defense 0:16:25.120 --> 0:16:29.240 and non defense for next year are below levels of 0:16:29.240 --> 0:16:31.360 spending that we're that we're doing right now, and that 0:16:31.600 --> 0:16:34.040 goes back to the earlier point about these targets for 0:16:34.080 --> 0:16:37.720 spending that aren't realizable in terms of the specific appropriations. 0:16:38.080 --> 0:16:40.320 The death ceiling is back. We still have the sequester. 0:16:40.400 --> 0:16:42.200 The President went to Capitol Hill, spoke before a joint 0:16:42.240 --> 0:16:43.960 session of Congress, and said he'd like to get get 0:16:44.040 --> 0:16:46.360 rid of it. How do we judge the success of 0:16:46.400 --> 0:16:49.120 it as as the sequester done much here and how 0:16:49.160 --> 0:16:51.280 easily can a president wave a wand and get rid 0:16:51.320 --> 0:16:54.800 of this this mechanism. Well, I think the debt ceiling 0:16:54.880 --> 0:16:58.120 is a mistake to have it mostly forces these showdowns 0:16:58.120 --> 0:16:59.800 that have not done much to really put the budget 0:16:59.840 --> 0:17:04.320 on better path. The sequester, as you recall, was the 0:17:04.480 --> 0:17:07.680 accidental outcome of a process that was designed to generate 0:17:07.760 --> 0:17:12.720 changes in benefit programs and taxes, which everybody agrees is 0:17:12.760 --> 0:17:15.000 really the route to putting the budget on the better 0:17:15.000 --> 0:17:18.960 path in the future. We backed into the limits on 0:17:19.080 --> 0:17:22.119 these annual appropriations because the deal couldn't be struck. I 0:17:22.119 --> 0:17:24.159 think everybody would like to go back to working in 0:17:24.160 --> 0:17:26.840 that kind of deal. But whether that deal has great 0:17:26.840 --> 0:17:31.119 prospects for being adopted given the polarization in our leaders 0:17:31.119 --> 0:17:33.440 and in our country, is not very clear. Tug Elmendorf 0:17:33.520 --> 0:17:35.280 with US. He's the dean of the Harvard Kennedy School. 0:17:35.520 --> 0:17:37.560 Former director of the Congressional Budget Office. I was talking 0:17:37.600 --> 0:17:40.640 to another director earlier this week, Robischer, and he said, 0:17:40.640 --> 0:17:42.280 you could you could see the scars that he had 0:17:42.320 --> 0:17:44.560 from being in that job, from dealing with all of 0:17:44.600 --> 0:17:47.240 the politics of that that position, at least being subjected 0:17:47.800 --> 0:17:49.600 to them. You look at it what we've heard over 0:17:49.600 --> 0:17:52.960 these past few weeks about that institution. What do you 0:17:52.960 --> 0:17:55.600 make of it? Has it been this politicized before, not 0:17:55.640 --> 0:17:59.080 saying institutions politicized? Has it been facing so much political pressure, 0:17:59.119 --> 0:18:02.280 so much political right or because it's something new. They've 0:18:02.600 --> 0:18:06.280 always been criticisms of CBO, and that's fair if they're 0:18:06.320 --> 0:18:10.119 based on evidence and logic. Uh, what worries means the 0:18:10.119 --> 0:18:13.760 criticism is based on politics, people trying to pressure CBO, 0:18:13.840 --> 0:18:16.600 and a succession of CBIO directors and a tremendous number 0:18:16.640 --> 0:18:20.640 of talented CBIO analysts have resolutely resisted pressure for more 0:18:20.680 --> 0:18:23.280 than forty years, and they'll keep doing that. Bob has 0:18:23.320 --> 0:18:27.200 his scars. I have some. Keith Hall is now earning 0:18:27.280 --> 0:18:33.080 his his his SCARSS never recovered. Don taken as well. 0:18:33.560 --> 0:18:36.000 Did it twice, I think, and I Alice did it 0:18:36.040 --> 0:18:38.720 longer than anybody, for more than eight years. But the 0:18:38.760 --> 0:18:42.399 institution is incredibly important, and almost all the members of 0:18:42.440 --> 0:18:45.880 Congress understand that, even when they object to particular estimates. 0:18:46.160 --> 0:18:50.240 I found his director lots of reinforcement for the importance 0:18:50.240 --> 0:18:52.119 of the agency and the work that it does. And 0:18:52.160 --> 0:18:54.679 I think that will continue. I've been raving about I've 0:18:54.680 --> 0:18:56.840 been It's nothing new. I've been doing it for years. 0:18:56.880 --> 0:19:00.080 But again back to the weekend reading of options for 0:19:00.160 --> 0:19:02.840 reducing the deficit. If you were to say to the 0:19:02.880 --> 0:19:07.400 President or to his White House team, is political team, Okay, 0:19:07.480 --> 0:19:10.240 you've really screwed this up. Even the Republicans are livid. 0:19:10.680 --> 0:19:14.879 Here's what you need to do. Given the belief everyone 0:19:15.000 --> 0:19:18.480 has that we have too much debt, what's the Almendorf 0:19:18.560 --> 0:19:21.920 prescription to get his war Zak would say, to get 0:19:21.960 --> 0:19:26.840 those glide pass back in the right direction. Now is 0:19:26.840 --> 0:19:30.480 the time to be developing a set of policies that 0:19:30.520 --> 0:19:34.000 would scale back on some of our entitlement programs over 0:19:34.040 --> 0:19:37.639 time and would raise some revenues to pay for the 0:19:37.680 --> 0:19:40.359 programs that we have. Remember that we have a very 0:19:40.400 --> 0:19:43.200 in aging population, A lot more people are going to 0:19:43.280 --> 0:19:46.040 be eligible for Social Security and Medicare in the coming years. 0:19:46.119 --> 0:19:48.720 How do you respond to the idea that we need 0:19:48.720 --> 0:19:52.399 to broaden tax break base and even very poor people 0:19:52.800 --> 0:19:55.639 should play pay an itty bitty little bit of tax 0:19:56.119 --> 0:19:59.320 or is that just conservative rhetoric that that doesn't move 0:19:59.359 --> 0:20:03.399 the needle. Remember that poor working people are paying payroll tax. 0:20:04.280 --> 0:20:06.800 Many Americans pay much more in payroll tax than they 0:20:06.880 --> 0:20:08.879 paying income tax. So if you look at all of 0:20:08.880 --> 0:20:12.000 the federal taxes together, not just the income tax, most 0:20:12.000 --> 0:20:15.840 people are paying tax. Should we raise as a constructive exercise? 0:20:16.560 --> 0:20:20.479 The amount of salary that's used to calculate the Social 0:20:20.520 --> 0:20:24.080 Security tax is one twenty I'm guessing right now it 0:20:24.160 --> 0:20:26.840 should it go up to one forty or one fifty 0:20:26.920 --> 0:20:30.920 or would that create an uproar and make the president age? Yes? 0:20:30.960 --> 0:20:33.040 And yes, I think we should and it would create 0:20:33.080 --> 0:20:36.200 an uproar. I mean we create an uproar, but it would. 0:20:36.240 --> 0:20:39.480 But we should remember that the share of total earnings 0:20:39.720 --> 0:20:42.600 that are being captured now by the Social Security payroll 0:20:42.640 --> 0:20:45.560 tax is smaller than the share we had for many 0:20:45.560 --> 0:20:48.800 many decades. That share has slipped over time, So pushing 0:20:48.880 --> 0:20:51.320 up the cap would really just go back to what 0:20:51.359 --> 0:20:53.359 we were doing a few decades. I wrote a story 0:20:53.400 --> 0:20:57.639 in this David Gura pushing eleven years ago for Bloomberg News, 0:20:58.080 --> 0:21:02.440 and the hate mails still comes. Look at your perspective 0:21:02.440 --> 0:21:05.080 on just the magnitude of what Congress is saying it's 0:21:05.080 --> 0:21:07.480 going to consider this year. We see them working on 0:21:07.600 --> 0:21:10.000 the Affordable Care Act now trying to make changes to 0:21:10.040 --> 0:21:11.679 that with this new piece of legislation. Let some of 0:21:11.680 --> 0:21:15.240 the ans Republicans are there's an eagerness among them to 0:21:15.320 --> 0:21:20.120 tackle tax reform and financial reform as well. Uh, give 0:21:20.200 --> 0:21:23.040 us a sense of how how big and undertaking that 0:21:23.200 --> 0:21:25.000 is and the likelihood you think that we're going to 0:21:25.040 --> 0:21:30.200 get tax reform this time around. To do big reform 0:21:30.280 --> 0:21:33.240 to the health care system or the tax system is 0:21:33.280 --> 0:21:36.240 really a year long project for the Congress because a 0:21:36.240 --> 0:21:37.920 lot of other things have to happen along the way, 0:21:37.960 --> 0:21:41.040 like the annual appropriations and other sorts of legislation. So 0:21:41.160 --> 0:21:44.600 to push through some comprehensive reform of a big part 0:21:44.600 --> 0:21:47.640 of federal policy is very hard and really takes much 0:21:47.640 --> 0:21:50.120