State of America: Part One Talking Business

Hello, from New York. Jobs are being created, unemployment is low and

wages are rising slightly. So everything is rosy? Why then in this

presidential election year are photos so angry? -- voters. We

examine the state of the US economy. Welcome to the programme. In only a

few months America will have a new president. The race has been bitter

and highlighted dissatisfaction that has caught many in the establishment

by surprise. Yet if you look at the statistics the economy has recovered

from the 2008-2009 financial crisis, yet people, instead of feeling

flush, feel bust. I do think that the changes in

manufacturing in America over the last 20 years have left some areas

of the country severely depressed. I am concerned as a patriot and a

former soldier, I worried about the direction of the country. But to a

degree we are powerless to do much about it. People are doing their

best to make it. I work at a hospital that is closing down, so I

am looking for a job. I feel like you don't have any control over

who's doing what, who is pulling the strings. I am just the guy. --

little guy. This is one of the paradoxes of the current climate,

suggesting the wounds inflicted by the financial crisis run deeper than

many thought. And it helps explain some of the economic populism

espoused by Donald Trump and which has resonated with voters. What is

the true state of the US economy? To discuss it I am joined by two

respected economists who served in the past two administrations. The

Dean of Columbia business School and under the presidency of George Bush

a member of the Council of economic advisers, and a professor of comic

and public affairs at Winston and former chairman of the President

Obama Council of economic advisers. We have seen from the statistics

that the economy is recovering. Certainly more so than in other

developing countries. Yet people do not feel it. A question for both of

you, but starting with you, going, what is the current health of the

economy? It has recovered in some significant

measure from the financial crisis but the rate of growth is sluggish

by historical standards the -- and at the same time there are

structural problems, the decline in the labour force participation

worries many. As well as a feeling that Washington does not work.

Policies to move the economy forward are not getting enacted. That

contributes to the fear and malaise of voters even though the recovery

is real. Do you agree with the diagnosis? I agree with what Glenn

said. It is a puzzle to me that populism is on the rise whilst the

economy is substantially stronger than four years ago when the

president was facing real election. I think there is an element of

people now feeling secure enough to look back and say, how did we allow

this crisis to happen? Having fixed these problems, how come people have

not been punished for the actions that led to the worst economic

crisis of our lifetimes? So in some sense the fact that the economy is

doing better makes people feel on stronger ground to complain, to ask

some of the deep questions about how this happened and how we prevent it

again. But if you look at the followers of Donald Trump,

particularly blue-collar workers, they don't feel the economy is

getting stronger. The decline in manufacturing jobs has taken place

for a long time. We have seen a recovery in manufacturing. So partly

what that reflects his 30 years of rising income inequality, declining

participation for men, and for quite some time, declining opportunities

in those sectors, and change is difficult. That has been going on

for quite some time. If I may jump in, it is the long-time is

important. The economy and the whole is much better off from trade

agreements and immigration but there are individuals in particular who

may not be. As an economy we have not pursued policies particularly

related to supporting work which helps those individuals, and that is

the pain we are seeing. It sounds like you are talking about rising

inequality. Something which predates the financial crisis but was perhaps

highlighted by it. I don't think of it is inequality per se, although it

can manifest itself that way. I think it is a declining opportunity

for work for many people as a result of the world in which we live, be

that training or education or direct support for work. What would you

like to see to face the problem? Major infrastructure investment. Our

infrastructure in the US is very much in need of improvement. Drive

on the road, and everybody pays the pothole tax. I just had to replace a

bumper, for example. We need to repair bridges, we need at least one

more tunnel into New York City, our airports are often embarrassing

compared to the best in the world, the electrical grid, you can go on

and on. So there is quite a bit we can do to invest in infrastructure

which would get people back to work today, dividing well-paid jobs, and

also improving productivity and competitiveness in the future. Do

you agree? I agree but I think it is only part of the strategy, we need

to radically change the expectation of people and households for the

future. And we need radical as Miss tax reform. The United States must

be a place in which the want to invest that means having a tax

system which does it. And before supporting work, we have programmes

we think of as work support which are more to do with family support

than work. If we are serious about work in the recovery we need to

spend more money. Do you think that is where the money should be spent,

or elsewhere? It is an important place to spend it but we need to use

lots of instruments to strengthen the bargaining power of low-wage

workers. Unions are very weak in the US. Our economy works better when

workers have a voice, it is good for the country on the whole. The

minimal wage in the US is well below the UK or Germany, where they have

just implemented minimum wage for the first time in their history. So

it is one thing to support opportunity and wages and income of

low and moderate income people, but we need to use a whole set tools.

Each set of tools has its own drawbacks and strengths, and I think

we do better if we use a broad set. But I also agree with cooling

completely, on corporate tax, our system is the worst of all worlds.

We have a very high statutory rate. We have a large loopholes. We don't

raise much money. We discourage US investment. So I think there is a

lot of room for improvement. President Obama has taken steps to

try to address... On the corporate front, we have seen tax inversion, a

company relocating its headquarters overseas to take advantage of lower

tax rates. Do you support the steps taken by the US Treasury so far? I

don't. I think it is going after a manifestation but not the underlying

problem. In versions will continue in a new form. The statutory US rate

is so high. And because we have a corporate tax system, as Alan

correctly says, that is riddled with problems. If we had a very low

marginal tax rate in the US and the tax base, we would see much

different action. I wish the Treasury had the courage to push

that rather than going after inversions. There is an opportunity

for the next president, the next Congress, to do what Glenn suggests.

To lower the corporate tax rate and reduce some of the tax expenditure,

some of the preferences, and that will help to reduce corporate

inversions. And that does present an opportunity at the beginning for the

next administration. Hopefully we will be able to get a lock on the

beginning of the next administration. Given where we are

now with gridlock in Congress I can see why Treasury is taking the

action it is. One of the reasons what we are talking about is so

important is the best thing for low-wage workers is the economy

running hot. We have depended on the Federal Reserve to do so but policy

does -- monetary policy does not have much capacity, changes from the

president could help. It seems you are advocating the trickle-down

effect, a rising tide lifts all boats. After 1982's recession the

recovery was much stronger, this seems weaker. So does that approach

still hold? Yes, the best thing for anybody in the economy is to have

the economy grow faster. The question is, how? The President

Obama administration pointed out that faster productivity and growth

is a far better tonic for middle income wages than just going back to

old income distribution. Final word, do you agree? I think growth is

extremely important. Necessarily, but not sufficient. We had a long

period of growth which was not shared with the middle-class. Almost

all of the games went to the very top. The very top of the top. So it

is important we pursue a strategy leading to stronger growth, and it

is also important we take action to have more inclusive growth, and that

growth is sustainable. Those are the three key elements to an economy

that will create a thriving middle-class. Thank you both for

now. Later in the programme, we discuss if the economic system is

rigged. A sentiment prominent in this election cycle. But in our

talking point we cross the Atlantic to Ireland where our comedy

consultant shows it is not just Americans who are unhappy at their

financial situation. I am at a very special event in

Dublin Castle. In a few moments the American vice president will speak.

He is an island, obviously, to look up his Irish roots. But he will also

give a speech on the special relationship between Ireland and the

United States. And given what has happened with Brexit we need all the

friendships we can get. The longer I am here the more I

wonder, why did my relatives of leave?

We have shared a lot, Ireland and America. Even a financial crisis.

But there is still a legacy of a huge amount of suspicion on both

sides of the Atlantic of big money, big finance, corporatism, and

capitalism. Why? The growing recognition after 2008-2009, not

only that the bailout benefited, seemed to benefit the wealthy at the

expense of the many, but the last few years of a common policy had

benefited the wealthy. Our economy changes from week to

week. We thought everything would be OK. But the EU would save us, we

were all in it together, on the road to progress. Now, everything is

uncertain again. President Obama was re-elected in 2012 with unemployment

at its highest level for any re-elected president since Franklin

D ruse of elk -- Roosevelt in 1940. Since 2012 the economy has recovered

but the fruits have been very poorly distributed.

Are there examples from history we can look at? Reagan was elected when

the economy was suffering from a phenomenon known as stagflation. The

broader trends of financial eyes Asian, which were in existence in

the 1970s and accelerated in the 1980s and are still with us today,

that is the fundamental source of income inequality. -- financial eyes

. We thought things were getting better, now we are not so sure

again. Who knows what future vice president of the United States,

hopefully with Irish roots, who knows what they will come and tell

us? Remember, you can see a lot more of

those of short films on our website. Gentlemen, obviously there in

America we have seen a huge rise of economic populist. Do you think that

what we have seen in this election cycle, ultimately will help the

economy, force is used to be addressed? In the end it could be

healthy, it could cause a national discussion about how our economy is

failing for large segment of the population. Or it could lead to more

crony capitalism. Donald Trump said he would approve the keystone

pipeline but he would extract is on the profits from the Canadian

company, which is an example of crony capitalism. So I worry it

would lead to extremes. That we would move away from some key

aspects of our country, that have made us great, such as welcoming

immigrants. If you are going to build a wall and say to the rest of

the world, we are closed to immigrants, who go back to the

history of the US, one of the reasons we have been so successful

and had such a strong economy is because we have welcomed the best

and the brightest throughout the world. That has led to dynamism

within the economy. So I worry that we could end up stepping backwards.

I see you are nodding your head. The way I see it is that populism is a

healthy fire at the moment, and sometimes fires can burn out of

control, and that is a concern. The reason it is good at the moment is

it is forcing a conversation about trade where people can have

reasonable differences of opinion. I also hope that the US proceeds as an

open, global power. But to have the discussion by Fiat, as opposed to

for real, it is unfortunate. So I think the populism is positive, but

I do worry about it burning out of control. Many of the promises we

hear on the campaign Trail is, can they even be delivered? And if not,

what is the danger? The short answer is they are not. And the longer

answer is, it was always thus. I am concerned to hear, from the left,

concerns that we will expand the Social Security programme, which is

already a fiscal problem for the country. I am concerned by Donald

Trump's having a tax plan with a $10 trillion revenue cost. Neither plan

seems to move us forward. The candidates must at least talk about

the issues of concern for them, but then we impose a reasonable

discipline of mathematics. People can agree about economics, but

surely not arithmetic. Is there a case that more financial education

is required? That economist and policy makers like yourself have not

done a good enough job communicating to the public? Absolutely, whether

it is about individual investments, preparation for retirement, we know

that many Americans are woefully underprepared in the allocation of

wealth, and the way that we have public discourse about the

programmes such as Social Security and medical care, we need to do a

much better job. You were recently an economic adviser to President

Obama. Did you discuss how to draw people closer to economic policy?

What was the thinking? Absolutely. The president set up a commission on

the financial capabilities of the population. And one of the reasons

for the fiduciary rule, which is now requiring people to give investment

advice, with the interests of the client in mind, as opposed to

maximising their own income, and it is also important that we have a

system which protects people. A system that protects people from

dangerous products, dangerous toasters, in the same way we now

have the consumer financial protection board to help protect

people from financial fraud and shenanigans. I saw somewhere that

roughly half of all American adults do not have enough financial power

to put away $400 for an emergency. So we can talk about savings but in

that context it is easy to see what is fuelling populism on the campaign

trail. That is partly a reflection of global economic trends that have

taken place, stagnation in incomes, real incomes, at the bottom. I worry

we are in something of an inequality trap. The fact that inequality has

increased so much in the US that the people at the bottom start with so

many disadvantages it will be harder for them to ever have upward

mobility. So the challenges are much greater than they were, say, 20, 30

years ago, when inequality was just beginning to rise. But it is one of

the reasons why I think that it is important that people have habits of

putting money aside for an emergency, because if they do not

the consequences could be severe. Foreclosure, bankruptcy, high credit

card interest rates, and so on. So I think it is very important that the

public do follow good financial habits. Please jump in. We need to

focus on opportunity. The truth is mobility has not gone down, but the

flip side is it has not improved either. We are not the economy of

immediate escalators, or vice versa. To change that we need to focus on

access to education, opportunity, to really think about that, we have had

times in our nation's history, whether it is the time of President

Lincoln, or the GI Bill, in modern times, we need to really think about

that, and saving, because there are plenty of examples from the rest of

the world. Australia's superannuation scheme comes to mind.

We could build savings for people, we just have not focused. The Bernie

Sanders promise of free tuition is a way of addressing problems like too

much of student debt. College being free is a silly girl. It is already

free for most Lincoln -- a silly goal, already free for most

low-income students. We need to think hard about whether college is

a bargain. Is the American dream still relevant today? Still

applicable? It absolutely is. The idea of dynamism, wanting to be an

economy that generates the classical good life of continuous improvement,

innovation, growth and well-being, it is very much alive. Frustrated,

but very much alive. Is it attainable? Very much so, but not

with the policies we are doing now. If you look around the world there

is no other country's problems I would trade hours for, they can all

be solved. But it is the case that the consequences of the apparent

situation matter more today than they did before. So for those who

are ambitious and work hard and are talented there is still upward

mobility, but not enough. So we need to do more to support that aspect of

our economy, because if not we are throwing away an extremely important

resource. We will have more of a labour shortage economy because of

the demographics, an older population with slow growth, so we

need to take advantage of all of our human resources. It will be a longer

run problem if we don't invest enough, particularly in children who

are born into less fortunate circumstances. So more work to be

done but an optimistic note to end on. Glenn Hubbard, Alan Krueger,

thank you. Next week we are back in New York to

examine the rise of the robots and what it means for your job

prospects. For now, it is goodbye. The weather has not been ideal.

Sunshine