this is 45 minutes. gillian: welcome to fiscal

resiliency in an uncertain world. what do we do next with the budget? with that, with interest rates and much else. this is a remarkable session. firstly, the topics bear going to be talking about hopefully [indiscernible] is very -- president joe biden tries to push an infrastructure bill. we have brought together three economists. we have to know while prize-winning -- nobel prize-winning economist. the former head of the omb.

nb have bob rubin. three of them have come together to address a real-life issue and embraced a word you will often hear from economists, humility. they decided they have been wrong to pretend to be so certain about where the world is going with interest rates and debt levels, and essentially they're trying to [indiscernible] to my mind, that is one of the most remarkable things of all. i'm with the financial times.

can you tell us in a nutshell, what has prompted you to write this paper, and what exactly are you proposing to deal with this problem of profound uncertainty? >> whether we have humility or don't have humility, i don't think any of us have advocated certainty in the past. i think we are all having a probabilistic view of the world. with this paper was an effort to suggest is because of the uncertainties, deep uncertainties about interest rates, it would be good to have automaticity in our fiscal policy. we suggested using automatic stabilizers. in one particular example, certain types of infrastructure.

it can be done with automatic stabilizers. that was the core of our proposal. we also did say, there has been an inception -- assumption that interest rates will stay low. we said there is deep uncertainty about that, and maybe the asymmetry is more on the upside down the downside. gillian: not everybody watching will be familiar by what you mean by automatic stabilizers. the way i imagine has been like someone managing their weight. they either have a plan that they have to do a certain amount of calories per day and stick to that, or, anything went. what you are suggesting is that should be a regular way in. if the weight goes up or down,

instead of having a fixed target, there should be more than adjustment. is that a fair estimation? peter: i think it is with a couple of quick caveats. . instead of forcing you to go on the diet for the day or exercise more, that happens automatically. if you step on the scale it automatically puts you on a treadmill. i think the reason this is important is the deep uncertainties that joe spoke about mean that if we can automatically gear the budget more towards what is happening in the economy, we are more likely to wind up in a better place. we have not talked about this before hand. one example, there is some growing concern about the role

that the structure of current unemployment benefits in the u.s. is playing in terms of discouraging people to come back to work. it is possible automatic stabilizers would have been designed to be coming off quicker than if you just had it open. it is one way in which the policy can respond more automatically and more in the moment to what is actually happening. the only other thing i would say, another piece that is new here is automatic stabilizers are framed in terms of responding to the macroeconomy. we also have this idea that more things could be automatically geared to underline drivers of

programs over the long-term. as one example, if you have a pension or retirement program, you could think about linking that to life expectancy in particular ways, so the program responds automatically, not just in the moment but over longer periods of time. gillian: i am curious. you have traditionally been far to the left to someone like bob rubin, spend, spend, spend. peter is maybe halfway between you. how do you see this working out in practice?

do you see this as being -- [indiscernible] joseph: i think it's just a way of thinking intelligently about decision-making in the face of deep uncertainty. we have talked about the ways in which things can be automatically adjusted to the circumstances, if there is more unemployment, if unemployment lasts longer, that have the unemployment insurance program last longer. if we recover more quickly. let's not have to go to congress and say let's gala down, because with the unemployment rate down, it would on -- be reduced. [indiscernible] more thoughtful deliberation

about the discretionary aspects. of policy in every situation is different, we never had a pandemic, we never had a financial crisis. that is the emphasis on the deep uncertainty. everything is always different, but, we have a lot of experience from all of the economic downturns and fluctuations. that leaves more times for democratic deliberation where things are unusual about events we face an economic policymaking. gillian: is it saying is actually, what we see when the pandemic heads as congress

passes a massive budget. if what you are trying to say is you shouldn't be happening commitments to hit a certain level, how would you say this to the wider public? bob: i think joe said it really well. there are some areas where you can design so they automatically taken or kickoff. when you have a pandemic, the ranger relief -- you need major relief. you can make an argument -- $1.9 trillion was absolutely necessary. by the magnitude was right is where the debate was. there are some things you can design with automatic kick ins

and kick outs. beyond that there is a discretionary question. joseph: this is the first economic downturn, normally they manifest in the real economy like a housing crisis. this is a service sector that has been affected for obvious reasons, the pandemic. we need around discussion about what do we do about this shock. there is no way we could've had an automatic program for that, because it is not something in our regular life. if we have more on the automatic, we could then have an intelligent discussion about how we handle the service sector. peter: i think that is exactly the point. the heart of the question does get to it, de-clutter a lot of

the stuff that can happen automatically so you can focus on what is different this time, where you do need an act of congress. so you don't need to absorb any mind share in tackling that part. gillian: you were the person who brokered this collective paper. what inspired you to do it? peter: sometime in november or december, there were a lot of discussions about interest rates remaining permanently low, and a variety of different fiscal policy questions. i remember talking with joe and bob in different context, and they both agreed it would make sense to have more adimora -- automatic stabilizers, there was a risk of rates going up.

it would be beneficial to have more stabilizers as part of the budget. to your point in terms of how you introduce them, they are often seen as being at public extremes as part of the policy debate, but there is a lot of overlap. sometimes the paper could be but we did over christmas break. spent the holiday season on it. i am now an investment baker. this was complicated but doable. gillian: bob and joe, you were basically -- [indiscernible] i'm curious if you have some more granular examples.

do you all agree with larry summers, the need for higher rates? bob: it's hard to tell. it has been widely debated. you have a $1.9 trillion relief program which i think was essential, you can debate the size, but something substantial was essential. we have a strong economy. the consensus forecast this year 7%, 4% next year. it does seem to be there is demand in the economy. on the supply side, you have labor shortages, our clients cannot get enough labor. i think there is a material risk of not just inflation at the moment.

is inflation just at the moment, transitory, or enduring? i think there is a material risk it can be enduring. on the other hand, there is also a possibility that it is transitory, in which case it will be ok. as an investor and policymaker, i would have a cautious bias. joseph: one of the things you raised about humility. one of the arguments for humility we make in the paper, his economists have done very bad jobs in forecasting. anybody rely on the best of the forecasters should feel very nervous. that is one of the things. in that context, where you can't really be sure, how you frame policy? you go back to the question, i

am less concerned about for a couple of reasons. there are a lot of global supply. we are recovering faster than the rest of the world, but a lot of the things we buy we buy from the rest of the world. they have not been able to have the kind of stimulus we have had. i am also less worried that some of the things we are seeing in inflation are temporary things. you shut down the economy, you restart it. it is enormously difficult and our price system is really good at adjustment, but we never had an experiment like this and we never will except in wartime. those are really hard. not a surprise we are going to see particular shortages. with the other two points i may,

it would be a good thing if we got back to a more normal interest-rate. the shadow price, scarcity value of capital isn't zero. we have had negative real interest rates. it would be a good thing if we were able to have a strong enough economy we can raise taxes to finance the kinds of things we need as a collective. the only times we have been able we have been able to bring minority groups into the economy is when the labor market is tight. the real question is, not too tight. that is finally the answer. the fed has the instruments, we have now much more timely tools for making judgments about where

the economy is going. i'm not as worried as bob, but i think it is something we have to keep surveillance over, and that is exactly why you want to have a framework that responds to uncertainty. that is what we talked about. gillian: [indiscernible] peter: the way this debate is framed is the pandemic is over in the u.s., we overfilled the bathtub, that is closing -- causing inflation. there are multiple challenges with that argument. the first is, if you look across countries, many of whom did a lot less fiscal relief, inflation is up across the board, including in europe, almost to the same degree in the u.s.. a lot of it is very likely

chokeholds in supply constraints that will use over time. if you look at a very limited set of goods and services, new cars, things that are affected pandemic related shortages, that has added about 100 basis points to the overall inflation rate. as those prices stop rising but flattened and things come back down, that is going to reverse maybe even to 150 days or more between now and the end of 2022. there is a lot of temporary phenomenons. the final thing is this debate in the u.s. is framed as if we are done with the virus, the fact that so much of the world remains unvaccinated in the fact that variants can breed in other countries and potentially come back, who knows how even mrna vaccines will respond to

potentially more powerful variants than the delta variant. requires again a bit of humility and not declaring mission accomplished on the pandemic, which is part of this overall narrative that we are going to wind up with inflation being the dominant concern instead of lingering economic concerns associated with the virus. gillian: the phrase copious humility must afraid that you guys collectively invented in the paper. i have never seen that before and an economic paper. bob said you are always more humble than everyone realized. anyone who want to ask a question, please go ahead and do so. i would like as peter, you are in charge of managing a budget

at the omb. in the face of uncertainties, if you were back there now, to what degree would you be concerned that if there is a chance interest rates are going to go up, that is going to blow up the budget, because that's have been -- [indiscernible] peter: a couple of things. it is interesting to me that at the time in 2007, 2009, there were concerns about interest rates stabilizing are going up. they went down in the intervening period. instead of learning the lesson we should not be so confident in our predictions, a lot of people have learned the lesson of, let's have high conviction on a new set of facts and the rates

will remain forever. which is not seem to be learning the right lesson. cap was one of the motivations. to try and lengthen the maturity of the treasury to lock in the lower rates, we talk about have it interacts with what the fed is trying to do. that is one approach that was suggest there is a benefit to taking a moment, which as joe points out, has two parts. if you expect rates to go up, there might be insurance arguments, even without that expectation. that is one example. the second thing is, one of the reasons we talk about tying programs, pensions for example two underlying indicators, is that it can help to build in a bit of offsetting phenomenon

into the physical debate, it will be easier in the future because future congresses will be like past congresses, it will be easier to cut spending. we actually have much more success in building things in ahead of time than having it affecting gradually. as an example, without embracing a specific policy proposal, it is astonishing to me that in 1983 the greenspan commission wave -- raised the normal retirement age. it is increasing today. people do not realize it. the social security retirement age is increasing as we speak and no one speaks about it. the reason is it was done well in advance. they can happen gradually with tiny steps each year, almost imperceptible.

yet, it is tilting towards an actuary of balance with all else equal. there are lots of things we can do that type programs to their underlying drivers until toward safety, if rates do go up significantly, that still provide flexibility if conditions warrant it. gillian: intelligent long-term planning. bob, how concerned are you about a debt crisis? bob: let me make two comments. the ratio of our debt to our economy is at the highest, historic highs, the highest it has been in our history except for world war ii. i think there is a substantial risk, it's hard to know whether

this can go on for a long time or not a long time. in markets, generally speaking, conditions can stay out of sync for a long time and all of a sudden adjust rapidly and savagely. when you consider how high the ratio is now, that should be on policymaker's minds. if you look at the proposal the administration has made on infrastructure, social programs that are important economic initiatives, what is being lost is these are things we need to do for productivity purposes. the question for the administration is, how do we pay for? there is ample room to raise taxes on a progressive basis to pay for the entire program if we have the political will. in my opinion it would have any adverse effect on the economy. the question we face is, how

much can we raise taxes and how much are we willing to deficit fund. that is a set of issues the congress is facing, and it begins with congress recognizing how important the initiatives are. gillian: that leads nicely to one of the first question from the audience. what does the economy need now? what is your view of the proposal? what about you peter, and then joe? peter: in my opinion, my -- the most important thing is to adopt a set of climate related proposals which are only very partially covered in the infrastructure deal.

not get an active, that is another topic. and we act today, it is very unlikely we are going to come back to the topic over the next couple of years. if we go 3, 4, five years, without a significant shift in the path we are on, any hope of reaching that zero by 2050 is going to be dramatically reduced. i think the climate risk far exceeds any fiscal risk, and if we have a deficit finance these investments i would do so. i would put that at the very topic of -- top of the list. the balance on responding to the pandemic has been roughly adequate, in-line line with what was warranted.

the highest priority i think, both from a social perspective and economic perspective involve taking the climate risk and dialing it down through a whole variety of measures that federal policy can help on. gillian: joe, what about you? joseph: i agree with peter. let me add the following. i think there are lots of things we can do, lots of weight -- lots of ways to spend money. we face in inequality crisis, health crisis. you don't have a productive labor force if it is not well educated, not healthy. you have an economy if we are burning. you have to spend 2%, 3% of our gdp dealing with the problems with weather-related events, the heat, people are dying from

extreme temperatures. the good news is, there are ways of spending money that actually respond to climate change, are part of our infrastructure, they can help address inequality and bring this back from the pandemic. that is at the core of what biden is trying to do. if we shipped in more of those directions, but it into the core of what the strategy is. gillian: we have two questions linked to the mysteries of the labor market, which i find fascinating. it's one area macroeconomics are ill-equipped to deal with. speaking as a former anthropologist. one question is, how much of the shortage is related to past

immigration policies and how much is related to unemployment policy, relatedly, should special economic incentives deal with later shortage -- they were shortages, if so, what do you suggest? joseph: as an economist, the first reaction when we hear the word labor shortage, our responses pay higher wages. the fact is, that the bottom wages are the same as they were 65 years ago. that inequality has consequences. the fact we have not provided adequate health care means many people who have less skills are not healthy, and not healthy enough to be productive members of the labor force. this question in some sense speaks to the previous question.

there is some evidence that the argument it is related to unemployment insurance is not valid. two in particular studies. we have a lot of variations across states in the level about employment insurance, and you can see whether in those states where unemployment insurance is higher, there is a faster rate or slower rate of leaving the unemployment pool. in other words, it is unemployed invariable -- important variable. turns out, it is not the driver. the second way you can look at it is we are in the wage distribution and occupational distribution. for the most part, they are not

where you would have thought they would be if you thought that the unemployment, the extra $400 was the problem. i find it mystifying, the idea that unemployment insurance which is going to end in a few months would lead to a long-term labor shortage. gillian: would you to agree? peter: i would say that concern around the extra unemployment benefit may be more significant than joe suggests, but, the early evidence from missouri which has ended that extra benefit suggest continued labor shortages. it's early. i think we will learn a lot more when it is too late.

that is not particularly helpful. i would also say, i think there is more possibility there will be mismatches and labor market attachments that come out of this than most people are suggesting. we are still very early in the game of what work looks like post-pandemic. i don't think we will even have a good sense until after labor day when schools are back open and there is some return to what the new normal looks like. it is very early to be making confident predictions about what exactly is going on. bob: joe has a very learned understanding. anecdotally, talking to people, employers, i get the impression this may be wrong. the ui is playing a little more

of a role in low-wage occupations that may the data suggests. secondly, on peter's point, i don't think there is any question employers are trying to figure out, how can they do with the people who not medically equipped for what they need to do. later on, if i get a chance, i will disagree with peter on something else. i think climate change is existential, i think it can change life on earth as we know it, but that does not necessarily mean deficit funding will work. if you deficit fund and of these two of economic crisis, it may underline your economy and therefore, by so doing, eliminate your ability to peter: they paid for a paid for

climate bill --a paid for, bill, there would not hold this up on the fiscal discipline if the only alternative was indefinitely financing them, i would. >> that these me. nicely to the question. what climate action specifically would be most beneficial to mid term economic health? >> there is no single action. i think we need climate packages. prices which signal the way that prices can go. we are pricing something that is scarce.

the social cost of carbon that was used under the trump administration is ridiculous. it has been raised much higher than it was under obama but half of what it should be. we need people to take seriously reducing emissions. i think we need regulations. it would be very easy, no coal burning electric power plants. finally, we need public investments. we need public transportation systems that are so much more efficient and reduce carbon. a lot of these carbon investments still increase -- so

increase productivity of the economy that they pay for themselves long-term. that is why i am less worried than bob is. even if we had to borrow over the long-term. gillian: i wanted to think about whether you could jump into climate privacy -- policy next. we only have a few minutes left unfortunately but we have one other question. it is simply this, in terms of the tragedy of the elderly pandemic death toll, will that have a significant effect on

funding? bob: i can tackle that. it is a green nice shade in which people say if some bad thing happens, it can help on the financial side of things. two or three things. there was a excess mortality, not just from the pandemic but also from averted health care, even outside of pandemic related metallic causes, there were all out of things that were elevated in terms of death rates. this was a very unusual time. this is not just what happens on love expectancy but also on the revenue side.

what happens to the economy matters as well, in terms of medium and long-term security. it is completely the wrong question. we can solve social security and medicare overnight. that is not really the purpose here. we like things to be sustainable but the ultimate purpose is they want to encourage human well-being. while there may be an effect from some of the people that died prematurely, it should not be celebrated or -- it is not where the focus should be. >> i was at a conference where a

representative at a cigarette company was talking about how cigarettes actually help social security. cigarettes cause people to die, social security sounded like a better system. gillian: another quick hot potato. crypto. how is the formal -- former principal system dealing with the economy over borders? they have a great big question from the irs about whether you have actually dealt with crypto or not. bob: i don't have a view on that. peter: i think we are likely to

see the growth sponsored by central governments which will change the nature of the crypto economy. i think the whole variety of concerns. there have been a lot of concerns around cyber risk and how much the role of cryptocurrencies have played in encouraging and facilitating cyber crimes. i think what you will see, there has already been discussion on this in europe. i think you will see the rise of digital currencies from central banks. that poses all series of questions. >> electronic transactions are going to be a feature but the financial market -- regulators

have worked for 40 years in the government to make our financial system more transparent. cryptocurrencies are just that. crypto is trying to make it less transparent. that is why in many jurisdictions, they are trying to undo the crypto part of these digital currencies. that is why putting in the central banks, it at least stymies the worst aspects of cryptocurrencies. gillian: if you were grading the administrations right now, would you give them? -- what would you give them? >> i would give them a very high grade for what they are trying to do. just to clarify something, somebody said, worrying about a crisis?

i am not worried about a crisis. i am worried about the adverse impacts of increasing desolate -- increasing deficits. i think the judge should be part of the decisions being made. joseph: very high grades. i give them high grades for trying to get infrastructure through. it looks like we will, optimistically. i think that is the kind of agenda the country needs. intellectual-property lights -- rights are really important, the dangers of mutations need to be reduced. looking issue after issue, i think they have done a very good job, particularly given the political constraints they are under.

peter: getting people vaccinated is the most important thing by a wide margin. gillian: the key take away i have taken from this is that you are all embracing copious humility about the future and it indicates that we are at a very interesting inflection point. whether it is about financial crises, central banks, the way that economists respond, everything that we had years ago has been ripped up. whether it is enough to create the kind of vibrant economy that people are trying to promote is an area of concern. i commend you on joint job

session and i look forward to your next opinions on this. thank you all

>> without objection the chair is authorized to declare a recess of