WEBVTT - Brookings Institution's Ben Harris Talks State of the Economy 0:00:00.040 --> 0:00:02.720 As we assess some of these policy proposals we're still 0:00:02.759 --> 0:00:06.080 getting from the candidates as they take their messages to 0:00:06.080 --> 0:00:08.720 the swing states, with just a handful of days to 0:00:08.720 --> 0:00:10.280 go at this point until the election. 0:00:10.080 --> 0:00:12.480 Eighteen You act like it's late in the game for 0:00:12.520 --> 0:00:14.200 this type of thing that be happening, Well, it got 0:00:14.240 --> 0:00:14.960 eighteen days. 0:00:15.120 --> 0:00:17.360 Just feel a little late in the game here, But 0:00:17.440 --> 0:00:19.520 of course it's not too late to start putting together 0:00:19.600 --> 0:00:21.239 some math on this, as we have seen a number 0:00:21.320 --> 0:00:23.840 of nonpartisan groups do, and we want to get more 0:00:23.840 --> 0:00:26.720 into the math and potential economic impact of some of 0:00:26.720 --> 0:00:29.280 these policy proposals. And turn out to Ben Harris. He's 0:00:29.320 --> 0:00:32.680 former Assistant Treasury Secretary during the Biden administration. He's now 0:00:33.040 --> 0:00:36.559 Brookings Institution Vice President and director of Economic Studies. He 0:00:36.600 --> 0:00:38.839 is here with us in our Washington, d C. Studio. 0:00:39.120 --> 0:00:41.400 Welcome to Bloomberg TV and Radio. Ben, it's good to 0:00:41.440 --> 0:00:41.800 have you. 0:00:41.840 --> 0:00:42.160 Thanks. 0:00:43.280 --> 0:00:45.519 If we could just begin with Donald Trump today suggesting 0:00:45.560 --> 0:00:49.200 he would at least consider not taxing veterans and first 0:00:49.240 --> 0:00:52.160 responders and members of the military some twenty million people. 0:00:52.240 --> 0:00:55.320 Layered on top of all of the other tax proposals 0:00:55.320 --> 0:00:57.360 he's put out there, things that would not get taxed. 0:00:57.600 --> 0:00:59.800 What is the baseline of how much needs to be 0:00:59.880 --> 0:01:01.960 tax to continue to fund the US government? 0:01:02.960 --> 0:01:04.640 So more than he's proposing. 0:01:04.680 --> 0:01:06.080 I mean, I don't have a magic number, but I 0:01:06.120 --> 0:01:08.360 mean his his approach has been to start with the 0:01:08.400 --> 0:01:12.600 TCJA extension, which costs five trillion dollars over ten years, 0:01:12.920 --> 0:01:15.240 and then to add on all of these special tax 0:01:15.240 --> 0:01:17.959 breaks that really don't have an economic justification. You know, 0:01:18.000 --> 0:01:21.360 as you just mentioned, tax breaks for wages, sorry for tips, 0:01:21.720 --> 0:01:26.280 tax breaks for particular occupations, tax breaks for people who 0:01:26.280 --> 0:01:29.080 receive social scurity benefits, which by the way, would completely 0:01:29.160 --> 0:01:33.640 undermine Social Security and Medicare finances, were already up probably 0:01:33.680 --> 0:01:36.240 close around ten trillion dollars in counting. This isn't a 0:01:36.280 --> 0:01:39.440 realistic set of proposals. They're just far too expensive to 0:01:39.520 --> 0:01:40.560 ever make it through Congress. 0:01:40.560 --> 0:01:43.560 You know, at one point, Ben, we had Republicans like 0:01:43.680 --> 0:01:46.959 Kevin Brady, pretty old fashioned Republicans sitting here at the 0:01:46.959 --> 0:01:49.320 table saying, Hey, there's going to be a real important 0:01:49.360 --> 0:01:49.800 debate here. 0:01:49.840 --> 0:01:52.040 We need to make the Trump tax cuts permanent. 0:01:52.400 --> 0:01:55.080 That was six to nine months ago, before all the 0:01:55.120 --> 0:01:58.080 other items and exemptions that we've mentioned since were rolled out. 0:01:58.560 --> 0:02:02.080 What happens to the old school responsible Republicans who were 0:02:02.080 --> 0:02:04.600 going to help usher this through on Capitol Hill. 0:02:04.680 --> 0:02:06.520 Who wake up every day to another exemption. 0:02:07.280 --> 0:02:10.680 I mean, there are fiscally responsible Republicans in Congress, but 0:02:10.720 --> 0:02:13.040 they must be pre lonely right now. I mean, I 0:02:13.040 --> 0:02:15.200 think the turning point was back in twenty seventeen when 0:02:15.200 --> 0:02:18.520 Republicans passed a one point five trillion dollar tax cut 0:02:18.600 --> 0:02:20.160 without paying for it, and that kind of opened the 0:02:20.200 --> 0:02:23.360 door for this idea that look, for certain types of priorities, 0:02:23.400 --> 0:02:25.440 it's okay to take on enormous amounts of debt. 0:02:26.240 --> 0:02:26.880 And so that's what. 0:02:26.840 --> 0:02:29.360 We saw, and that feels like where Donald Trump has 0:02:29.400 --> 0:02:32.040 left the priority. Now, what's the priority now? I think 0:02:32.040 --> 0:02:34.240 the party is winning the election, and then they'll see 0:02:34.280 --> 0:02:36.720 the composition of Congress, and then they'll come back to 0:02:36.760 --> 0:02:39.120 the drawing board. And if there's a Republican sweep, I 0:02:39.120 --> 0:02:41.639 think you can expect a wholesale extension of the TCJA 0:02:42.520 --> 0:02:45.160 with a few other Republican priorities mixed in, you know, 0:02:45.240 --> 0:02:47.600 to be fair Republicans. Though they did pass the Limit 0:02:47.680 --> 0:02:50.959 Safe Grow Act coming out of the House, which did 0:02:51.000 --> 0:02:55.800 reduce the deficit, it was basically a combination of caps 0:02:55.800 --> 0:02:58.800 on discretionary spending plus a couple of other pay fors. 0:02:58.800 --> 0:03:00.760 So it's not as though there have been no Republican 0:03:00.880 --> 0:03:03.399 priorities that have made it through a House of Congress. 0:03:03.800 --> 0:03:05.480 It just feels like if Donald Trump's can be in 0:03:05.480 --> 0:03:07.760 the White House, He's been pretty clear he's comfortable taking 0:03:07.760 --> 0:03:08.920 on trillion dollars. 0:03:08.639 --> 0:03:09.079 In new debt. 0:03:09.560 --> 0:03:12.000 Ben reminding us that it's not just tax policy that 0:03:12.040 --> 0:03:14.000 we're going to see a battle over in twenty twenty five, 0:03:14.040 --> 0:03:15.280 but we're going to have to deal with the dead 0:03:15.320 --> 0:03:19.120 sealing again, as you recall back to that deal. So 0:03:19.160 --> 0:03:22.000 there's so much to look forward to. All that to say, 0:03:22.040 --> 0:03:26.040 when we look at Kamala Harris's proposals, nonpartisan organizations have 0:03:26.160 --> 0:03:28.880 two said it will add to the deficit. Perhaps less 0:03:29.080 --> 0:03:30.960 three and a half trillion dollars is what the Committee 0:03:30.960 --> 0:03:33.720 for Responsible but Federal Budget has had to say. But 0:03:33.760 --> 0:03:37.440 Donald Trump would contend her policies will also be inflationary. 0:03:37.560 --> 0:03:39.920 Is there not some truth in that that. 0:03:39.920 --> 0:03:41.200 Her policies will be inflationary. 0:03:41.320 --> 0:03:44.040 She's subsidizing housing, it could drive up housing costs, If 0:03:44.040 --> 0:03:46.840 she's cutting taxes, all of these things could fuel inflation. 0:03:46.920 --> 0:03:48.600 And make the deficit go higher all the same. 0:03:48.800 --> 0:03:50.680 Yeah, So I think on the housing policy, it's great 0:03:50.680 --> 0:03:52.720 that you brought that up, but the twenty five thousand 0:03:52.720 --> 0:03:54.760 dollars first time Home by Our tax credit was far 0:03:54.800 --> 0:03:56.800 from the only proposal that she put forward. Sorry, she 0:03:56.840 --> 0:03:59.320 also wants to expand housing supply. I think that the 0:03:59.360 --> 0:04:01.480 first time Home by Our tax credit really only makes 0:04:01.480 --> 0:04:03.840 sense if it's done in conjunction with an expansion in 0:04:03.880 --> 0:04:07.800 the housing supply. That's not really inflationary as far as 0:04:07.800 --> 0:04:09.800 her other policies go, I mean, she is taking aim 0:04:10.040 --> 0:04:12.960 at at costs across the board. So she wants to 0:04:13.280 --> 0:04:15.520 make prescription drugs cheaper. I mean, I think that the 0:04:15.560 --> 0:04:18.080 household costs have been kind of a centerpiece of her 0:04:18.880 --> 0:04:19.640 of her policies. 0:04:19.880 --> 0:04:22.359 Price gouging she wants to go after does not. 0:04:22.480 --> 0:04:23.599 Work, so no. 0:04:23.720 --> 0:04:26.440 I mean, most states have price gouging laws on the books, 0:04:26.440 --> 0:04:28.799 and for most states they are non binding. Most Americans 0:04:28.800 --> 0:04:30.960 live in a state that has price gouging laws, and 0:04:31.000 --> 0:04:33.599 as far as I can tell, they're fairly inconsequential. So 0:04:33.839 --> 0:04:36.440 I think that's, you know, pretty far down on the 0:04:36.480 --> 0:04:39.120 list of policies that matter for the American people. But 0:04:39.200 --> 0:04:41.400 she has made prices a centerpiece of her campaign. 0:04:41.480 --> 0:04:43.800 Yeah, that's interesting because that was a that was a 0:04:43.800 --> 0:04:46.160 big rollout at the time she made it, and it's 0:04:46.160 --> 0:04:48.400 still on the backdrops and it's still on the stump speech. 0:04:48.760 --> 0:04:50.960 It's just when you start waiting priorities. I think to 0:04:51.000 --> 0:04:53.800 your point here, well, the next president of the United States, 0:04:53.960 --> 0:04:56.840 Trump or Harris have to manage a recession in their 0:04:56.880 --> 0:04:57.360 first year. 0:04:58.040 --> 0:04:58.840 That's a great question. 0:04:58.839 --> 0:05:00.880 I mean, what I can say now about the state 0:05:00.880 --> 0:05:03.200 of the macroeconomy. This is like the definition of a 0:05:03.560 --> 0:05:05.880 soft landing. I mean, it's when we go back twenty 0:05:05.960 --> 0:05:08.200 years and reflect on what the Fed has done with 0:05:08.200 --> 0:05:09.760 this current economy. I think will kind of be in 0:05:09.880 --> 0:05:12.080 awe of how wealth things turned out. I mean, we've 0:05:12.120 --> 0:05:13.640 got I mean I can just go list some of 0:05:13.640 --> 0:05:17.200 the highlights. We've got a higher share of people working 0:05:17.520 --> 0:05:20.160 primates people working that we've seen in over twenty years. 0:05:20.560 --> 0:05:24.400 We've seen inflation come down to an a level where 0:05:24.400 --> 0:05:26.440 the feed is perfectly comfortable with it. We've seen a 0:05:26.440 --> 0:05:29.560 wealth explosion in this country, almost fifty trillion dollars in 0:05:29.600 --> 0:05:31.400 wealth added over the course of the pandemic. 0:05:31.600 --> 0:05:32.760 I mean, you can kind of go on and on 0:05:32.760 --> 0:05:33.080 and on. 0:05:33.520 --> 0:05:36.880 But we have a great economy, both relatives and prior recoveries, 0:05:36.920 --> 0:05:39.200 and also relative to the rest of the developed world. 0:05:39.279 --> 0:05:42.520 So right now, when I talk to forecasters, most of 0:05:42.560 --> 0:05:44.359 them say we have about a ten to fifteen percent 0:05:44.400 --> 0:05:46.120 chance for a session in the next year, which is 0:05:46.200 --> 0:05:49.440 kind of the unconditional average in any that's not so bad. 0:05:49.480 --> 0:05:50.799 I'll take that at this point. 0:05:50.960 --> 0:05:53.839 Well, so, if all of that is how this economy 0:05:53.920 --> 0:05:55.520 is shaping up right now, does this look like an 0:05:55.520 --> 0:05:58.080 economy to you that needs easier policy or is it 0:05:58.080 --> 0:06:00.919 simply an economy that doesn't need tighter policy anymore? 0:06:00.960 --> 0:06:03.200 Are you talking about monetary policy? Yeah, well, I think 0:06:03.240 --> 0:06:06.159 that with respect to monetary policy, the FEDS at is spot. 0:06:06.240 --> 0:06:08.039 It's kind of an enviable spot right now, where it 0:06:08.080 --> 0:06:11.920 knows we're not so close to the neutral rate. The 0:06:11.960 --> 0:06:15.720 next fifty BIPs of cutting feel pretty easy, and then 0:06:15.760 --> 0:06:18.000 you start getting into the hard decisions. So markets right 0:06:18.000 --> 0:06:20.120 now I think are around a ninety percent chance of 0:06:20.160 --> 0:06:23.159 a twenty five BIPs cut in the next meeting. I 0:06:23.160 --> 0:06:24.760 would probably take the over on that as far as 0:06:24.760 --> 0:06:27.320 probabilities go, and about a seventy five percent chance we'll 0:06:27.320 --> 0:06:31.440 get two cuts between now and December. Those are easy 0:06:31.480 --> 0:06:34.880 decisions though, inflation's way down, the labor market's weakening. I 0:06:34.880 --> 0:06:37.640 think it's pretty easy to vote for a twenty five 0:06:37.640 --> 0:06:40.480 BIPs cut. But after we get past the four and 0:06:40.520 --> 0:06:42.400 a half percent for the Fed funds rate, we get 0:06:42.400 --> 0:06:44.640 closer to four, that's when the hard decisions start coming. 0:06:44.680 --> 0:06:48.039 Donald Trump was asked in the Univision town hall earlier 0:06:48.080 --> 0:06:53.120 this week what would happen to agriculture, jobs and other 0:06:53.160 --> 0:06:56.640 parts of the labor market if he followed through on 0:06:56.680 --> 0:07:00.360 what he calls mass deportation. He didn't use that term 0:07:00.839 --> 0:07:03.760 in this conversation, but he also didn't really answer the question. 0:07:03.839 --> 0:07:05.520 Do you have a sense of what would happen to 0:07:05.560 --> 0:07:08.040 the job market if you shut down the border and 0:07:08.080 --> 0:07:12.240 conducted a mass deportation of millions of migrants in the country. 0:07:12.400 --> 0:07:14.320 Yeah, So these are two different policies, So let's say 0:07:14.360 --> 0:07:17.320 up them out. So both Kamala Harris and Donald Trump 0:07:17.400 --> 0:07:21.240 want to shut down the border. Kamala Harris backs the 0:07:21.240 --> 0:07:24.720 Biden Plan, which you know, essentially puts in place a 0:07:24.720 --> 0:07:25.480 whole host. 0:07:25.360 --> 0:07:29.040 Of different policies, the Senate compromen. Yeah, exactly, So what 0:07:29.040 --> 0:07:29.600 we're really. 0:07:29.440 --> 0:07:32.440 Talking about Now, the difference between the two candidates is 0:07:32.480 --> 0:07:36.160 what would happen if we saw mass deportation on the 0:07:36.280 --> 0:07:38.200 order of something we've never even come close to seeing 0:07:38.240 --> 0:07:38.720 this country. 0:07:38.760 --> 0:07:40.520 We're talking about potentially. 0:07:41.480 --> 0:07:44.720 In immigration agents, going to schools, going to place the business, 0:07:45.040 --> 0:07:48.800 potentially checkpoints. Is really unclear how you're going to find 0:07:49.040 --> 0:07:51.440 ten million people to kick them out of the country. 0:07:51.880 --> 0:07:55.400 From an economic perspective, economists don't love kicking workers out 0:07:55.400 --> 0:07:57.880 at a time when you have worker shortages. So if 0:07:57.920 --> 0:07:59.640 you look at some of the estimates coming out of 0:07:59.640 --> 0:08:01.880 Golden if you look at estimates coming out of the 0:08:01.880 --> 0:08:05.240 Brookings Institution, non partisan estimates, you do find a hit 0:08:05.320 --> 0:08:08.160 on growth simply because we need workers and now is 0:08:08.200 --> 0:08:09.320 not the best time to kick him out. 0:08:09.200 --> 0:08:11.040 Of our So that could hasten the recession in the 0:08:11.040 --> 0:08:11.440 first year. 0:08:11.560 --> 0:08:13.640 Yeah, I think the probability of recession goes up if 0:08:13.680 --> 0:08:17.680 you're talking about sixty percent tariffs on Chinese goods and 0:08:17.680 --> 0:08:19.480 if you're kicking millions of people out of the country. 0:08:19.760 --> 0:08:22.760 Yeah, So it becomes a demographic consideration, right, The US 0:08:22.760 --> 0:08:26.640 needs immigration to maintain its workforce, definitely. All right, Ben, 0:08:26.720 --> 0:08:27.920 thanks for joining USKS for having. 0:08:27.840 --> 0:08:29.400 Me to Ben Harris back at the table. 0:08:29.400 --> 0:08:33.000 Don't be a Stranger, Brookings Institution, former Assistant Treasury Secretary 0:08:33.200 --> 0:08:34.400 in the Biden administration 0:08:34.960 --> 0:08:37.520 With his experience in view today in Washington.