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tv   Politics and Public Policy Today  CSPAN  October 11, 2016 9:28am-11:29am EDT

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financial service and heads of major global corporations that influence events, hire half a billion people globally and have a sense of the pulse of what's going on around the world. it's a great pleasure we have them with us here today. there's an endless number of issues we can discuss. we have a short period of time. we'll try hit the highlights. maybe not everything you want. i do have an ipad with me and try to take some questions from the audience. gentlemen, thank you for joining us today. i know you're quite busy today seeing clients while you're in down. i had stan fisher here this morning, given the numbers out this morning it looks like a goldilocks economy, things look good. i don't know what the fed will do in december or january he didn't say. how do you see the u.s. economy and we'll go the global economy after that. you see loan demand. how do you view the u.s.
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economy. >> sure. if you look at where we are, go back and think about the u.s. economy coming out of the crisis, the first thing we have to solve was consumer confidence. you think of the u.s. economy, u.s. economy is primarily about two-thirds driven by the consumer. two things we had to address quickly is one we had to get -- >> please silence your phone. >> the second was jobs. we had unemployment around 10% and very clearly swift action in particular around the various types of qe in the u.s. did put floor into housing, got that obviously back and today we're at or above in most markets pre-crisis levels and we got unemployment that's going to bounce they 4.9 and 5% and while we saw not an off the wall charts number bath pretty good number and wage growth and sectors within the job growth and it's fairly robust.
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we got a consumer today that's largely recovered. confident. we look at what's going on in terms of saving and spending. and we see a good dynamic there. and so the u.s. economy being driven by the consumer is in reasonable shape. when we talk to corp operates around the u.s. there's not that same confidence and that the challenge is top line growth, challenge is of regulation, the challenge is over a lot of things we know and feel have led corporations to be a bit more conservative in terms of inventory, conservative in terms of cap x investment and in many ways managing shareholders, managing their businesses through inorganic means. but all in all, you know, the u.s. economy is okay. >> jamie, what are you hearing in corporate boardroom in >> wages going up. 15 million more people working.
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15 million more americans. and we welcome all the immigrants. corporations are doing fine. capital markets are wide-open. small business, middle market, large credit is in good shape. plenty of liquidity. plenty of wherewithal. and i'll let james do the international part. i want to add i don't think it's goldilocks. we should be doing better. maybe later we'll talk about why it's not better. >> and it goes back to the corporate sectors $2 trillion of the cash sitting on corporate balance sheets. why aren't they spending? >> first a lot is being held because moody's, ratings, board fears, you look around this world $50 trillion of liquidity it is -- it is sitting around. if you look at the average credit rating you expect after a
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crisis these fundamental phil mickelsons of average company is what they were as a aa company years ago and that's much tougher on these things and it's the aftermath of a crisis. >> james, what brings them back? what brings back spirits in the boardroom and how district attorney you see the economy? >> i turn the question around a little bit. if we have goldilocks economy why are interest rates near zero? so i think it's a recognition that things are actually doing fine as mike and jamie said. could do better. but it certainly is not an economy that reflects a distressed rate environment. that feeds into your follow up, what brings back the confidence, what brings back animal spirits, what brings back a change in mix of the consumer savings rate. is a sense of confidence that the economy is on track.
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it comes from the political sector, which i'm sure we'll talk about some. it comes from the monetary sector. and, you know, i think you have to, if you're the average citizen out there you would say the signals you're getting is we're not doing great. >> right. >> and, in fact, that translate into some campaign slogans. so if that's the case, then why am i going spend inwhy am i going to consume. why i do make the investments i should be making. from what we see in our businesses and what we see in client balance sheets it doesn't add up. you can't connect these two dots and that's because, you know, for all numbers that drive the economy, emotion and human behavior drives it just as much. >> right. obviously with elections here in the united states, political risk, but there's always been political risks. is it exaggerated or are we talking too much about politic? is it too much of a driver the
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way we think about risk going forward and obviously there are places around the world that isn't directly impacted by election. the markets that you see that you like where you're putting money in investment, where you're lending and are we exaggerating the impact of politic? >> i'll start. i think we've got recognize that something different is happening and we were probably, many people in this room were surprised by the brexit vote. a week ago we had a peace vote in colombia. the negative vote there was a surprise. we got an election in the u.s. what we're seeing in these elections is rather than people voting for things, they are voting against things. that's different from where we've been historically. much different, much more difficult to predict as we go forward. and i think that in some ways the populism, the negativism you can define it in a few different ways weighs on the economies
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because when you surprise a population around these votes that undermines the confidence of investment, undermines the confidence of inbound money flows, are people willing to spend, people twoilg hire and all of those things. >> you mentioned the b word. jamie you were pretty vocal about brexit. is that the biggest event you have to navigate around over the next few years >>. >>. what we said about brexit what happened is reduce gdp of the uk, that's not a disaster. it is what is it. creates years of uncertainty. not a disaster. at one point we'll find out what we have to do in financial services to accommodate the new rules. we don't know what is it. not up to us. banks aren't threatening. we'll be told here's what we have to do. we'll know what we have to move when. he'll be able to deal with that. the issue about brexit is what is the impact long run not next year or two years on the survival of the eurozone.
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that was the issue about brexit. my own personal view is that it made the chance of the eurozone not survive a decade from now five times higher. we don't have time to go through it here. i would add to this list of why, you know, why it should be better and goldilocks is abnormal trading environment. i'll write a book one day. i'm going to go through every single one of these and look data to look backwards. how many jobs were worthless. how incore her rent policy was. we have failed to collaborate. we have failed to have proper infrastructure planning. we didn't get tpp done. we didn't get the immigration bill done. we didn't have long term fiscal reform and when i travel the world i am just overwhelmed with comments from all of you, our clients about what they can do or can't get done because of rules and regulations and all
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those things are true. that's why it's 2% and not 3.5. i'm almost positive but can't prove it. using big data looking back ten years from now it will be proven. >> anybody running for office >> no, but i've said publicly i would love to be president. but i'm not going to be. i'm not going to run. we torch those people too. look at the politics. everyone except donald trump, it's a true story, except for one in modern history came from within the party and was really experienced in politics. every single one except donald trump. the other one which is kind of understandable is ike eisenhower in 1952. so i guess it's very hard. i just hope the next president does the right things and drops this rhetoric about democrat, republican. who cares. and they look at all these things that we did. take a deep breath and talk to people. put people in those jobs who are deeply experienced in those
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matters. we now commonly just -- it's like what happened in brexit. if there's an expert get rid of them. that's what we're talking about. we're doing it in a lot of places where facts, analysis, policy matter. >> james i'm not sure how to get from there to you. but the question was -- we'll come back to politics. we have to. i would love to avoid it but i can't. >> i can give my slogan. make america fun again. [ laughter ] [ applause ] >> i like that. sign me up. james, when you look around the world what do you find attractive and the brexit question, actually, how do you bring that decision into your equation as you think about where you have been, how you do business, how do you plan for it? >> jamie gets to talk about fun and i get to talk about brexit. what's the title of the book? >> you don't want to know. >> i got an idea.
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where were we? brexit? you know just on brexit, you know, we've had a lot of discussions in the uk and the europeans. i think there are a -- i totally agree to what jamie said. to me it's about the survival of the union president the union has been in place are years. it's a success. with challenges, of course, all the immigration issues that have come up in recent years, income disparity, et cetera. that to me was the main game. somewhere that message has been lost in this narrow discussion. but this discussion is tapping into a vein which exists in spain. it exists in italy. it exists in a lot of parts of the european union where frankly a lot of these countries if you look at the map of europe in the last 1,000 years it's changed
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hundreds of time. the configurations are what we experience today. i think the broader long term consequences are geopolitical. on narrow brexit we got kids working for our office in london who haven't been in tuck for five years. they are german grads that have come across to work in german companies. what happens to them? do they get residency? we got headquarters you got to build, what sort of resources do you need. compliance risk. finance order. what happens to that. do the cities you might consider moving more activities to hoof the fundamental plumbing and infrastructure around, you know, the accounting, legal and the other banking capabilities that you need in those cities? so there are issues. so i think the big winner from
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brexit is new york and the u.s. i think you'll see more business moving to new york and that's not our design but i think that is one of the potential outcomes here. so i'm very hopeful that and we're getting to meet with the various ministers that this can to be done in a way that continues to encourage particularly for tuck and for london as much business as possible. because it works well. the rule of law is great. t the regulatory authorities are great. there's a huge eco system built around the financial sector which is a big give up that's been put in place over five decades >> you're long new york real estate. >> you never short new york real estate. >> nor is donald trump. [ laughter ] but it sounds like your cautious about italy, all the political, potential for rapid political
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change. how do you think about europe generally? is it a place for you to pick up market share or expand your business irrespective of brexit? >> europe is an $18 trillion economy. it's not a do you want to. of course. the u.s. is $7 trillion, europe is $18 trillion. china is 10. fourth largest is japan is 4. so it's not a question of are you interested. listen there are parts of europe doing great. germany is doing much better. parts of northern europe doing much better. there's been economic miracles along much of the so-called eastern europe poland, hungary. europe remains for our sake critical part of running a global financial institution. that's not even a remote question. this is now down in the weed of, okay, how many finance risk management audit people you need
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in x, y, z cities and london. and how do you deal with these employees that are there on passport situation that they thought existed that are not. these are the types of questions i'm talking about. >> market shares available to be picked up, good business, really about the plumbing and how does the plumbing works. >> if you look at our history we've been in the uk over 100 years. 8,500 employees there. and we're fortunate in some respects in terms of some of the flexibility we have. we not only operate out of the uk we got a bank in ireland. we operate physically on the ground and have hard pipes connected in 20 of the 27 member countries. so we got flexibility and it's not a question of being in europe, it's just how we're glowing. >> are there other parts around the world that you like a lot? >> yeah. if you go and look what's going on in asia.
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again just back in while growth isn't what we would all like to it be, begot get our heads around the growth paradigm is different. again if we look what's going on in china, certainly sensing and feeling their receding of fears around a hard landing. we see some other economies doing quite well. place like vietnam as an example. phenomenal things happening there. you look at what's going on in latin america right now. you look period change of regime and what's happening in argentina. you look what's going on in brazil, returning to growth next year. so place like mexico where you have a phenomenal demographic around a great labor force that sits at the u.s. border, has that same energy, shale on their side. we got to get our heads around slower growth but there's some great opportunities. >> coming back to the u.s. --
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>> every country is different and all of us the same thing growth of multi-national, growth of assets under management. in 20rks 30 years it will be really good. the job is to manage the risk in that. so i remember sitting at india risk committee one day and i was hearing risk goes on too long you don't take on any risk. we're talk about india. the bureaucracy than and that and the problemitarians and the debt and the banks and the npos is our exposure the high. i can envision myself seeing at a risk committee in continental europe in 1865 they send jpmorgan to the united states and he came back this democracy thing we're not sure. high yield country. undeveloped. it's got this racial problem. the world will be okay. the risk you have -- there are these real big risks. so eurozone. it's not -- if it ever comes to
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someone is going leave the eurozone that's an issue. contracts, currencies. then all of us will be sitting there going through a real detailed analysis how we hedge that. not we're going leave the countries but deal with the complexities of those issues. >> take a question from the audience and you can submit the question on the app. the issue of negative interest rates what does that mean for the way your business model, fee based income versus net interest margins. james? >> i mean, forget about our business model. it's horse military you're a saver. it's the fundamental problem. if you want those animal spirits to come back, and you want people to engage in consuming and investing then you got to provide some sort of stimulus on the other side that they are not running down their capital. i just think -- who in this room
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thought five years ago we would have a negative-interest-rate environment. if you put a set of me trig around the world, the experiment with abenomics in japan who would have thought it would translate if you had a box on right-hand side interest rates would be this, who would nut in this. it's an anomaly with last chance action. it's depressing. >> stan fisher say interest rates may stay low for an extraordinarily long time. how do you incorporate it into your business strategy. we would love to have a curve.
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>> from a business model perspective it first says that in the things that we can control, the combination of expenses and risks we got be very disciplined. and we've got to be smart about where, with how and whom we do business. from the corporate side of things there's more flexibility because our corporations have the ability to adjust and move capital, to move monies, to either stay away from negative interest rates or take advantage of other things. transmission mechanism to consumer is much more difficult. in some cases it's illegal to pass on negative interest rates in many cases we got a bit of what i describe the y2k problem. many don't have the system to process interest rates today can be fixed over time. in a world where people are living longer, savings are more important, there's a psychological impact that again goes back to the undermining of
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confidence that's there. the adjustments around business model, again you kind of pull the levers. pull around these. as you've seen in the net interest margins of banks in countries with negative interest rates it's a burden. it's a tax. >> are you ready for this, if it's a ten year phenomenon is citi ready are you ready for a long period of ultralow interest rates? >> whatever it is we'll deal with it. margins are $300 a year. now it's $150. still earns profit. average margin is down. we have a new client and you can do that in the corporate world too. i don't buy this longer forever argument. i think you got to be very careful. more people invest that's true more likely it might be wrong. those things people wouldn't have been looking at 1.7% ten year bond today.
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i think there's a huge issue around why -- i think my own view qe 1 worked, qe2 worked, qe3 pushing on string. no corporation will build a new plant no corporation is going to build a new plant. these behaviors, i'm not sure you're getting the behavior generally you would have gotten by keeping it low. stagnation, no normal. honestly, i think that monetary policy, regulatory policy have changed how all these things work. in the old day, you remember the money multiplier. when the bank system bought a security, created a deposit, deposited it in the bank and it was lendable. excess reserves, lend it out. money got multiplied five times as it filtered through the system. because of all these new requirements, liquidity requirements, that doesn't happen and can't happen but i'm not saying we should have changed those things. it simply doesn't happen.
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in america today, a lot of you know and i get asked this question, why do you have 2.5 trillion of excess reserves? because they are called excess. why lend, be more aggressive, help the economy, because you can't. i can talk about other rules. i don't think the system functions the same. i think monetary authorities trying to figure out what these things do, nor do i think coordinated, fiscal policy, monetary policy. i think if you got that right, you'd get growth. going around the world, to grow a business, any country, argentina really bad, mexico, brazil, where business people say i want to shrink. no, they are looking for opportunities to grow. so there are all these questions that need to be answered that i think will lead to higher growth. >> i think, tim, to pick up on this, you don't make corporate strategy based on where interest rates are and you certainly
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don't make it based on what you think will happen for the next decade. there's nobody in this room that can get out there tomorrow morning and tell me if the dow is going to be up or down. there are much more fundamental drivers around corporate strategy, the opening of mark, demographics regulatory that attaches to different business, consolidating parts of your business, these are the things that drive your strategy. those who would predict rates forth next 10 years, i would ask them where were they eight years ago. how many times, the market, smart people in this room and others represented the fed would raigs rates in eight years and how many times has it happened? once. >> i know our own forecasting is a large -- several standard deviations. you mentioned demographics. there's a new book called "100
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year life." my children have a 60% probability of living to 105. how do you think about savings products and financial products for a generation not only longevity, morbidity but live and work into their 80s. it goes back to the issue about savings and low interest rate. if we're not saving enough now for people who retire at 65, how do we save enough for people who retire when they are 85 or 90. mike, are you guys thinking longer term about demographic shape your financial products? >> so very clearly the consequences of low and negative rates have be significantly impacted that and manifested in several ways. one, certainly defined benefit programs really struggling. in many cases being forced to go to new asset classes, down in credit and search for yield. >> does that worry you, a search for a yield?
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>> it does. it does. many of those are very good professional money managers who do this for a living and go in eyes wide open. mom and dad living on a fixed income are forced to do that it's worrisome. second piece around it, certainly here in the u.s. but many places around the world, we've got to get some foreign stuff. current economics system just don't work. probably many people if you're u.s. citizen and depending what age you are thinking by the time i get to that age to get that check, i won't get that check. we need to deal with that today. >> what do you think about the demographic challenge? >> it's a plus and minus. aging population -- declining population and germany, italy haven't really been dealt with before. much easier to grow economy when you have 1% population growth, negative one. new products, new savings, new
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services, people end up having to work a little bit longer. social security will have to be reformed. when they put it in place, average person lived at 65, worked until 65, lived and died at 65. if you lived to 65, you would live another seven years. now the average person retires at 62. if you make it to 65 you're going to make it to 85 or 90, let's just change the system. we've got to do it fair to whoever saves and stuff like that. point out generational. warren buffett wrote this thing, even if we grow 2%, say you average 2% for 30 or 40 years, that's the average household income in america, $130,000. as long as you don't owe money outside. maybe huge federal debt. as long as it's not owed outside the country. a huge wherewithal to take care of our people. feed, house, transport, becomes this generational thing about who for who. right now if you go for numbers
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older generation taking it out of the mouths of babes. of course the babes will end up inheriting it. i don't know exactly how that's going to work but products will be invented for it. >> bismarck had the first social security program that kicked in at 60 and the life expectancy was 58. that's a pretty good deal, right? >> 65 came from bismarck, actually, when it was incorporated -- social security created in 193 2, came from germany. the idea was no one would collect. imagine if you're living and working to 85, living to 105, the system we have in place will not provide for those people. >> we have time to adjust. >> jim, you've been talking a lot about regulation. e-mail going to come to that. with we had a board meeting. we talked about opportunities, we had bassl 3, 4 on the table.
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how do you see it coming to fruition. are we able to see past regulatory process in place for seven years. >> i'm sighing. no. it's a short answer. we're in an interesting place right now. let's say that the banking system and all the numbers are out there, is dramatically better capitalized on a global basis. obviously by region and by institution you look at their own facts. the amount of regulatory change in the last five years is probably equivalent to last 50 years, maybe more. there's been a historic set of new regulatory changes. unfortunately many of the jurisdictions around the world are now operating at different paces. some have declared themselves -- the kid in the back seat of the
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car who asks their parents, are we there yet? some are getting the answer yes. summer getting the answer we're not sure we need to check with everybody else. some are getting the answer we're not close. so we've got a lack of harmony at the global level. we've got institutions that i think feel like they have been through enormous change. at the same time do their fiduciary job for those people. so the short answer is, no, we're not there yet. we have much better regulators, much stronger institutions, more belts and suspenders, probably a good thing for building confidence in the financial system. the lack of harmony around jurisdictions around the world are sort of the next phase of the problem. we could talk about this for hours. you probably don't want to do
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that. you've got to step back and look at the cumulative impact of what has taken place between the changes in liquidity, changes in capital up front, the annual health test. you see appropriate tests in other countries. at the back end, things go badly a resolution plan to make sure you don't mess up the neighborhood if you go under." that basic infrastructure, book ends with annual health checkup is a momentous change in the way of thinking about how this industry is regulated for the better. we need to start digesting, the unintended consequences for changes, positive and negatives and where would you adjust dials. >> some of the whispers is the basel iii process make break down, europe go their way, asia go their way, harmonization may come to a screeching halt.
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anybody worried about that? >> we do. the concept changed mention of a level playing field, a global world with free trade of god, services, currencies, et cetera. you want to have this level playing field as possible. it does for the first time in a long time feel like there is a real divergence emerging today. if you look at regulations and standards that are being talked about out there, we've probably got different constraints in u.s. that europe has today than japan potentially has. i think that starts to get to a dangerous place when investors, customers, clients try and start to do comparisons around safety. i think we're better off trying to be in the same place. it appears now for a period of time we're not going to be there. >> i would one ceo tell me their c-car submission was 20,000 pages long. >> that's probably short.
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>> that was executive summary. >> you've got regulatory issue started. are there regulatory changes you think were superfluous, damaging, harmful. if the next president were to call you and said, what should we doing wheres to regulation? >> i mentioned, it's clear being down here that japan, china, europe going to want to stop, digest, not add to capital liquidity, mottify some of the things done to make sure it's helping the economy. the united states still wants to push for more here. it's clear they want to come to harmony. i would just love to get along. i think they should compromise and get things done. isn't it exactly the same? a level playing field but a little different? we'll all survive with that. i do think getting it done is really important. it's just another thing. again, i believe that this is out of sympathy for european
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banks that for seven years constant changing roles, deleveraging and catching up for seven years. okay. let them stop, digest the economy. really important in europe, 0% by banks not by capital markets which you're liable to do up here. also ask cumulative effect of things. there are hundreds of things. of course no one really knows, which i think might be slightly irresponsible category. but the other way around now. if you picked out one that you should change, have these very specific things, i'd pick out capital on reserves to central banks and operational risk capital. why do you have reserves? because of that interest rate swaps, basic problems, repo problems, that one thing unnecessary. operation cap is another thing, so high, you can't remove it. someone is going to look at that and say the u.s. is $400 billion
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of capital. i don't know those around the world say why do you have all that capital sitting there for this hypothetical thing. i believe in operational risk, no way you can justify $400 billion of capital permanently idle over something like that. those two things, may be other things. modify, should be prepared. sometimes a knee-jerk reaction, not changing anything. that's the way it is. particularly in favor of a bank. if a bank suggests it, not going to get changed. rational people when they look at, modify, calibrate, synchronize, calibrate for the people of the nation. not the banks. the banks will get through this somehow. i wish there was a little bit more of that and try to figure out the effects of what some of these were. >> these are regulatory components you think should be changed, dropped. one of the components of basel
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iii, called basel iv. how important is that to morgan stanley? >> i don't really want to get into which pieces i'd be changing because obviously give the appearance of self-serving. obviously like to change so we could do better but that's not very helpful. i think the points jamie made are legitimate questions. listen, this has been a surge of activity in a very compressed time period. there is definitely some areas where there's been excess and some areas where it's been too slow, lay it all out there. what i would like to see is more international harmony and let's stop and pause and digest. let's just see what we've got for a bit. no question over time you'll find some bits aren't working, right? but the financial system is
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demde demonstrably safer than it was going into the financial crisis. they are demonstrably lower because they carry less capital. it behooves us to change that reality. that can take years or a decade or more. i'm not going to get into a piece or what parts we want. we need to absorb, digest and live with it for a bit. >> do you think the european banks are gaegt bgetting a bad shake? this idea maybe we hit the pause button. face economic changes, p & l, negative interest rates, not the best environment to be raising capital, although they will if they have to. do you think the banks are facing an unfair set of challenges. >> i think the banks should be given time.
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they need time. to rush in around these things is not the best for the clients they are serving. started the path with europe, take time for the recognition of that. i think we should see it through. >> i find it interesting you talk about the cost of capital. many officials have to understand you've got to earn your cost-of- capital. there are many institutions, equity cost of capital, three or four%, that math doesn't work. it's unfortunate we have that set of conditions. that's probably one of the biggest challenges that many of our fellow institutions have to see if they can't afford capital. >> you look at the u.s., saw this number, forget the source, average return on equity for 2015 for u.s. bank was 8.5%. >> what is citi. >> citi is we've got a tangible -- we were 9.2. >> jamie, what's yours? >> 12 or 13 tangible. >> james? >> 8.5% for the quarter.
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>> one of the question from the audience, given that you're so well capitalized and certainly u.s. institutions are, why not play a greater role in europe, start the process, look for assets to acquire. any interest? >> in acquiring? >> yes. >> you try first. >> there's planet earth and planet somewhere else which tim is sitting on right now. >> all right. answer my question. >> i don't think there's a lot of enthusiasm for the banks getting bigger right now. i think shareholders would generally like to see you just your business model to get above the cost of capital. and i think that, yeah. >> the issue, if big is bad, how do you consolidation in europe. >> big is not bad at all. >> i agree.
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regulatory perception big is bad. but you can't get scale. you can't get consolidation. >> i don't think the facts have supported that actually. i think if you look at the balance sheets at some of the largest banks in the world, they are bigger than they were precrisis. so natural organic growth rate. listen, if you've got a global economy that's growing, banking and financial sector will grow. it grows with gdp. so big is not bad. it's how they manage and whether the regulators retention, right amount of capital from businesses that you choose to be big in. if you choose to be big in business x, which has a high capital charge, prosecute that to the best of your ability and good luck to you. if you don't think you'll do that so well, go to a business with a lower capital charge and so on. everybody has to make their business model decisions around core expertise. absolute size, yes, there's political rhetoric around size. i think regulatory rhetoric has not been around absolute size.
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>> in that, james, we don't wake you and say city, we think we should with a trillion eight in assets. gee, 100 countries sounds good. let's operate in 100 countries. balance sheet, risk, geographical presence are all a function of our cuss and client relationships and where we can support them. >> an important point. position we all do, clients in front of our people. almost everything is direct answer later to that. most of us look at the world that way. how do we serve those clients, multi-nationals around the world, those governments, those consumers in a way we can really do a great job for them. that is why you're in business. that's how you make these decisions. there are size, every single business. >> you need scale. a lot you're pulling out of because regulatory cost. kyc, aml. we were at a meeting yesterday imf mark carney head of isb
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looking at ways to stop the derisking process. some may be technology driven, changes in regulation and rules. is this a big issue for you? >> for us we've gone through a pretty radical transformation of our company, refocusing our company. we went into the crisis operating in 100 countries, we reopened in 100 countries. there are those businesses. in our case we add certain consumer seg men's that were below scale and around our lack of ability realistically to buy growth and a lower, longer rate environment, hyper competitive environment. it's tough to organically grow and we did a pretty disciplined capital allocation where we could take that ab ploy it in this environment and return. in some of those cases it wasn't in some of those businesses we try to recycle that capital back into other areas of our business and move away from those things that we didn't see over the intermediate area or longer
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term, probable path. >> you make a great point, banks internal markets, reallocating on internal return, based on your different business divisions. jamie, how do you think about markets you may be pulling out of because of regulatory cost? anything the public sector can do? >> we would not pull out of market for regulatory cost. we consider our selves like permanent in the country. we modify business. standard cleanup hobbies, standard simplify derisk. we all do that, a standard. when it comes to business overseas, a large derisking. the risks, of course simplified. kyc automated, unified, make it better for us and clients. we need governments. governments in united states, other countries to come to a common set of goals, what we're really trying to do here. maybe even you know with the
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penalty if a mistake is made. right now people are so afraid of the cost of a mistake, that's kind of one of the things driving it. not trying to take risk, clients, inadvertently we have to protect our company, too. i'm hoping we find a better balance over time. it's not going to reverse right now. people can say whatever they want. very, very careful. james, that leads us into technology. the leap is we had a number of young computer scientists leading experts on artificial intelligence applied or augmented intelligence can be applied kyc, aml issues. it's really technology that can be applied to fox services generally. 18 months ago we were in new york. you said it's time to put our focus on technology. we're trying to get there. how do you think about technology at morgan stanley? are there particular technologies you see you like
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you're employing? >> it's not like we all woke up a couple years ago and all of a sudden somebody said there's this thing called technology. it's kind of been -- it's been front and center of the banking sector for a very, very long time. and maybe the most important innovation, paul volcker said this, maybe he's right, the atm machine. i don't think you approach technology as a category. you look at likes of business, figure out a specific business. what is the technology you need to have in place to best pursue that business on the most cost effective. what do they need? what are you doing in terms of delivering financial advice is very different from electronic trading, very different from the system supporting our primary business. not a generic technology category, a by business
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category. i think it's incumbent on the banks to understand where customer behavior is going and have the capability to deliver what their services are in the most efficient and effective way for it. some with human being, some with remote. a lot of new technologies coming up in fin tech are things that i think have low barriers to entry, functions effectively given away to clients. there are algorithms which can be written by any number of people. i'm not sure what the sustainable competitive advantage they are. i think they are minimum cost of entry, which institutions like ours will adopt and embrace. it's not clear to me they are going to radically change all sectors of finance. sit back and say payments different from -- consumer credit different from, wealth management different from. everybody's trading different. m and a, go through the long
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list. everything affected at a different. retail activity done electronically the more it's going to happen. you embrace it. more sophisticated evaluated schools, don't throw the baby out with the bath water here. we talk about this every week. these issues permeate every discussion you have about every business. there's a -- shot that, open up technology book. >> part of your dna, in your offices in silicon valley. impress people. how much time do you spend employing technologies with respect to the products you're selling. >> we spend a lot of time. we've got innovation centers like most silicon valley, dublin, singapore, tel aviv, around the world. what we try to do is take a lot of that locally into the business. we don't try and drive the top
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down technology strategy at the firm. really what we're focused on quite simply, removing frictions. technology about friction, money, fees, friction is time, aggravation, and what are the things we can be doing in terms of customer client interface in terms of firm, services, regulatory interaction, et cetera, where we can take those frictions out. make it as painless as possible. it's interesting, five or six years ago we love kind of the big, bold vision slogan, aspirational statement. i remember we came out and i remember going into a meeting and somebody said, our aspiration is to become the world's digital bank. i went home and slept on it. i came down the next day and said that's a redundant aspiration. in order to be a bank going forward, you're going to have to be digital. again, it's the mind-set that's there. it's got to be at a local level.
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>> one of your fellow board members said, i'm not a banker, i'm a technologies. jamie, you're a technologist in your business. >> cost of services almost a tenth of what it was 20 years ago. we all need to use these to serve our clients, straight through processing. we bank 20 million people on mobile together, get alerts, money, invest money. all have global investors, use the cloud to reduce cost. we're all going to be machine learning, bots, ai, it works. it will be deployed. not an earth shattering thing. reducing clients, serving clients that want to be served. different for every business, every product. >> taking costs out. >> all the same, collaborate and compete. that's our life, do it forever, try to reduce it. even straight through processing, not only cost for us but clients. a million things to do just logical that most of us have been doing since we've been in
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business. most review these things at every business meeting we have. and i think it's good that f fintech wants to disrupt us, it's called capitalism. it's fine. >> we have a session this afternoon on green finance, some driven by climate change. there seems to be this great movement in creating instruments to deal with climate change in green finance. is that important to morgan stanley? are you creating products to facilitate funding to green finance infrastructure and technology? >> yeah. it ought to be important to us. there's a planet 6 million people going to 9 million people and the planet is not getting any bigger. how to figure out, how to participate in this. we've credit something called sustainability, which really is a vehicle with a lot of outside advisers to shake us up a little bit and point us to where we
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should be thinking about. not as do-gooders. we do things charitably in different parts of the world. where our clients need help. we have a lot of investors, for example, sustain in investable portfolios. how do you create the right product for that? listen, it's like a lot of these activities, i don't think, tim, it's something you can ignore. the world is not getting any bigger. we need to use our resources better. everybody wants to participate in that. we're restructuring our buildings to make our selves as a company more environmentally friendly. we're trying to help our clients to do the same thing raising finance around it. >> anything policymakers of the industry that facilitators your launch into this business or should they just get out of the way? is there ways to facilitate? >> we're all going to repeat the same exact thing, okay? the governments need to do the right thing here. social finance, a very small part of finance. governments have a rule about
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carbon, carbon taxes, emission trading. it's their response. they are doing it. that's what's really going to fix the stuff. this is tip of iceberg. very helpful but not going to change climate. >> mike? >> agreed. >> go to infrastructure then. one of the issues discussed at this meeting is lack of infrastructure. mckenzie says we need between 50 and 60 trillion infrastructure global. are you engaged in providing infrastructure global and are regulatory issues making it challenging for you to provide infrastructure funding? >> i think the new capital rules have made it more challenging. the mckenzie number, 60 trillion over the next decade. all of us travel the world. there's really an insatiable appetite for financing a lot of
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infrastructure projects. as we go forward in the u.s. as jamie mentioned around qe more effective qe going forward some type of infrastructure projects here in the u.s. we're absolutely if you look at big things going on right now, $14 billion new airport going into mexico city. we just built -- help build a new metro rail system in panama, and you go. the big challenge and requisite answer is how do we get government banks and private sector together to create the right structures. today demand around that is going to far exceed supply. >> so capital charge with respect to regulatory changes. then government playing some role providing guarantee or risk. >> saying we need another $50 billion a year, $100 in a year,
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ten years, no more taxation to build bridges to nowhere. we need infrastructure, roads, bridges, tunnels. i don't think new york city built a bridge or tunnel, now doing laguardia or airport. money, great sucking sound, money gets doled out to favorite members, mayors. driving by a project today, it's a little bridge. the bridge is five times the size of this thing we're sitting here. four years in the running. don't tell me it wasn't fraud. both sides are right. i hope the next president calls up opposition party coming over for cocktails, how can we satisfy you?
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do 50, $100 billion and make you comfortable it's right. banks should be part of it, private partnerships. they probably designed, "they all work. that's where you get benefits, productive jobs, reduce it to long-term growth. >> same question. enormous need for infrastructure. why isn't this going to infrastructure funding? >> before you look at that, you've got to look at it by region of the world. maybe most exciting infrastructure stories for the next 10 years ironically one of the youngest democracies and oldest, india and u.s. on the other hand china that overbuilt infrastructure, four-tier cities, malaysia, indonesia, tremendous needs.
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we're in singapore a lot of us with the government there, major push on infrastructure spend. so i think the world is beginning to wake up to it. how to do the financing. a lot of these products kept on bank sheet, sold off, how much can be picked up in private equity type infrastructure funds, which is we build our own, raise $4 billion fund, closed another $4 billion fund. this is, you know, a tiny part of what needs to happen. i think the next decade, i think it's very exciting. obviously an alternative investment in this kind of rate environment becomes more interesting, much more sporting investment environment. infrastructure long-term, illiquid, not very excited. in this environment it gets more interesting. >> we've got a minute and a half left, let me ask a broader question, anti-trade,
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gobblization, immigration and unfortunately anti-finance. as you guys go out of your business every day, employees, clients, customers, traveling around the the country, what is the positive story your institution with respect to economic growth, capital formation. i know you're doing a lot in detroit. what story are you telling? how do you go out every day and tell your employees and customers, look, what you're doings is really, really important. what's your story, mike? >> again, going back to the point, we're not doing these things because we wake up and do them. we're doing them because we support clients around the world. i can tell you in the conversation with u.s. foreign national, foreign multi-nationals, they are looking for opportunities around the world and that growth. sometimes that growth is at home and it's not, or it's not. our ability to lead and follow those places, we don't see that as retreat. what we sometimes describe as
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protectionism or people talk about as globalization, it's a bit more personal than that. really what we see today. we see it in the u.s. it's about how do i proeblgt my job. in the uk, how do i protect my border. that sits there and we've got to understand in terms of what's going on we've got to be prepared to deal with that mentality and show the benefits of -- >> formation jobs. jamie, what's your stump speech? >> i'm speaking for all of us really, i think. i'm so proud of what this company, jpmorgan, we all feel the same, so proud of what we accomplish every day around the world. for the most part we go to towns, think of 2,000 hamlets in 100 countries, the united states, where the clients like us. they want our brain power, capital. we all fund governments.
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and customer satisfaction never higher, we're trusted, important. it's not always understood by population. the best job, do the best job with every interaction. what we all do goes way beyond that. we have philanthropic. we train people around the world. we all do this, start a new black entrepreneur fund. these are fabulous things. you have lunch and dinner with them. you feel proud of the place and what it accomplishes. every once in a while make a mistake. in our business it reverb rates everywhere. this, too, will pass. keep doing a great job we do for communities around the world. >> james, i'll give you a final word. >> on the doozy. >> listen, the exciting things global kmek growth needs
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somebody to facilitate between those that have capital and those that need it. you don't have facebook and apple, wouldn't exist, you wouldn't have fintech startups trying to eat our lunch god bless them. wouldn't exist if the venture capital market didn't exist. we're managing $2 trillion of people's money and they depend on good management of their money to get the kinds of returns to lead the life and get the retirement and all the things they need to do. that's an incredible responsibility and an incredible privilege. the ability to do that, the ability to help countries grow, merge companies, make them more efficient, more globally, enterprises from china access market, these are tremendous and necessary things that have to happen for the global economy to grow. if you're interesting in that, in finance, if that's the kind of career you're excited about, terrific, we'd love to have you. we totally understand that.
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this is an industry essential to economic growth, the challenge we have which jamie finished on is we're all basically in this together. there isn't a lot of separation in the public eye about which bank is this and that. we're all the banks. the banks have to collectively raise themselves to a standard of sufficient not perfection but world-class professionalism where we don't give the public a reason to take a shot at us. we get to do the job the public hopefully needs us to do. >> gentlemen, thank you. ladies and gentlemen, let's give a round of applause. >> both presidential candidates are campaign in florida today. hillary clinton will be joined
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by former vice president al gore at a rally in miami. we'll have that live for you at 3:00 p.m. eastern on our companion network c-span. ler for you donald trump in panama city live this evening at 8:30 eastern. it will be on c-span2. debate matchup between governor pat mccrory and democratic challenger roy cooper, live on c-span. on c-span2 governor cole seeking governorship debate democratic opponent businessman jim justice. here on c-span3 in nebraska's second district race. state debate race today live 7:00 p.m. eastern on c-span networks. watch c-span's live coverage of the third debate between hillary clinton and donald trump on wednesday october 19th.
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her live debate preview from the university of nevada, las vegas, starts at 7:30 p.m. eastern. the briefing for the debate studio audience is 8:30 p.m. eastern and 9:30 debate at 9:30 eastern. stay with us following the debate for viewer reaction including calls, tweets and facebook postings and watch the debate live or on demand using desktop phone or tablet at c-span.org. listen on the phone with free app, download from the app store or google play. now to a discussion on impact of immigration and economy hosted by urban institute. participants examine report of long-term impact on wages of native born workers. this is just under three hours.
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>> good morning, everyone. >> i'm honored to be the president of the urban institute and welcome you here today for this really extraordinary program on behalf not only of my colleagues here at urban but also our partners at saw price school of public policy at the university of southern california. for a discussion of more new analysis on immigration impacts on larger economy and america's communities. our goal today is to better understand the potential role of immigrants when effectively integrated into the economy. as the day as a whole focus on cities and communities. i invite all of you in the room
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and online to take advantage of hashtag so we can see your comments. for those online live, i know many will watch later, those online live watching c-span audience who we also welcome. can you send comments at events at urban.org and we'll get them to the panel moderator for discussion. we're excited about this being in a deeper collaboration between urban institute and saw price school under the leadership of gary painter, who is director of social policy price school -- center. first let me briefly mention the occasion that draws us here. yesterday the national academy of sciences, engineering and medicine released a report entitled the economic and fiscal
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consequences of immigration, which is a comprehensive examination of these issues and the ways in which immigrants have driven change in our society since 1977. the academies convened 15 experts on a world-class academic nonpartisan panel led by professor francine, professor of economics at cornell university. some of the facts you find in digging through that report. over 40 million people in the united states today were born in other countries. an equal number have at least one immigrant parent. together those immigrants and near relations of immigrants make up a quarter of americans. a growing share of our working population are immigrants. almost all of the growth in our future workforce is expected to come from immigrants and their
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families. the panel in the report discussed how the nature of changes in our population in the last 20 years. the number of foreign born have doubled since 1990 and 30% of our population. naturalized citizens, temporary visas, green cards, refugees and the the undocumented. the number of the undocumented, 11 million, has been constant since 2009 with about 3 to 400,000 immigrants joining our country illegally and a similar number leaving each year. there are 1 million legal permanent residents that also arrive each year. what's the impact? national academy press release read long-term impacts on overall wages and unemployment of native born u.s. workers are very small, although low skilled workers may be affected. impacts on economic growth are positive while effects on government budgets are mixed. that's a nuanced headline.
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nuance doesn't convey very well in debate. this morning i looked at the news cycle comments on the report. "new york times" said immigrants aren't taking american jobs. washington said drains economy sapg $96 billion a year from state and local taxes while depressing wages. so people are finding a little of what they -- they did add, at least in the short run. people are looking for what they want to find. they focused too little on one of the report's key conclusions, the ways in which immigration is integral to our prospect for economic growth. so we like to say at the urban institute we elevate the debate. today's discussion is intended to elevate and mine this incredibly rich, sophisticated
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and terrific body of work. we are excited one the panel member is our own, state finance initiative here was a member of the panel as was one of usc faculty who is not with us today. i'm sorry. pardon me, i had the wrong list in front of me when i was writing any notes. my apologies dow. so the first panel is going to introduce the report. we're delighted also to have from usc roberto to moderate. teaching at the school of communication and price school of public policy. directs toms river, a policy institute and has a long history of studying and writing about immigration policy first as a journalist at "new york times" and "washington post" among other places and then as
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founding director of pew center. audrey singer will introduce then leaders from three regions discussing diversion roles of immigrants. in particular we're excited our partnership with usc is going to focus on this regional and local impact. we're going to try to better understand the role of immigration also the ways in which communities that come from immigration can be reinforced and barriers into that successful integration we have can be removed. audrey a senior fellow, integration for years, always member of another academy panel on immigrant integration released just about a year ago. roberto and audrey going to introduce the rest of our speakers. i encourage you online and in the room to stick around because in the end we're going to hear
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from president obama's chief immigration adviser, director of the domestic policy council cec cecilia munoz who will close out our day. with that, thank you. >> hi. thank you, sarah and thank you all for coming. we're very excited with the release of the report three years in the making. it's taken a fair amount of energy on our part and the rest of the commission and we're excited to share the results with you today. it was my privilege to serve with fellow members and examine this topic. before we begin our discussion and most of this will be a discussion where we answer questions and we're not going to go page by page or theory by theory through all 500 pages. i wanted to take a couple minutes to stress the findings
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and highlight and give you a road map through the report. first a little housekeeping. the project sponsored by mcarthur foundation who felt it was worthwhile for a panel to examine and specify what we know about economic and fiscal consequences of immigration. little did they know three years ago when they basically decided it was worth investing in this where we were going to be in the presidential low clouelection c. will received this because of the time and money anticipated and a follow-up from the 1990s. they recognized the world as a whole and world of immigrants have changed in the intervening time. the other thing to stress is independent of the role of immigrants we went from a rare point in history in the 1990s running fiscal surpluses, a country at the end of the last
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century we were actually raising more in taxes than we were spending at the federal level. now we're back to sort of where we were historically but at a larger level after the recession where we were running deficits. this is important because when we start talking about the fiscal effects and some of the things like that headline in the washington times, has to do with the fact immigrants cost more than they are paying in federal taxes but so does everybody else. so basically the key thing to note and remember as we're talking about what's going on at the fiscal level, the fact we're running deficits in the country means if you're doing an accounting exercise and looking at taxes paid versus money spent, we're in the hole. that has nothing to do with immigrants or any individual person, it just has to do federally what we're doing now. that's sort of important to know and remember especially as some of these headlines come out that it's kind of misleading.
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because while immigrants cost money, so do natives. natives would have cost $137 billion in 2013. it's just something to keep in mind as we move forward. as noted by sarah, we note changes in the country in the population, evaluated research on economic impacts of immigrants examining numerous studies and hearing from experts. so we did a pretty exhaustive search of both studies and research reports that were both pro and against what role immigrants are playing in this country and we had a pretty diverse committee and we actually hit consensus on sort of what we think the takeaways were. we differentiated in our report, and this is different from some of the other work that was done, which first generation or immigrant populations, second
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generation or children of immigrants. this is people who are native to this country but have at least foreign born parent and other native resident. if we end up talking about and i'm probably the one that will be most likely to fall into this nomenclature of third or more generation, it just basically means anybody whose parents were not immigrants themselves or immigrants. it could be people whose grandparents were immigrants, great-grandparents were immigrants or people whose ancestors came over on the mayflower. we're going to skip that because sarah actually covered it. some of the other highlights. one of the things sarah mentioned i think is worth stressing, we lose sight of the fact that while the number of undocumented immigrants increased from the 1990s through the beginning of this century, beginning in 2007 and through
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now, the number of unauthorized immigrants has actually been constant. we've had people come in and we've had people leave but there's been sort of a net wash that's sort of important to remember as we're going forward. so immigrants are also making up an increasing share of our population. they are also making up a larger share of our labor force. so partly what we see are immigrants younger than they were historically and younger than what's been going on sort of with the population in the united states. right? so in the country natives are actually aging and more and more leaving the workforce and labor forward. so part of what's sustaining us is the fact we have immigrants coming in of working age who are working. so the share of the population in our labor force now made up of immigrants gone from 11% to 16%. by 2020 to 2030, the only
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increase in our labor force population is going to come from immigrants or the children of immigrants. so native born and third generation folks are actually leaving the labor force population more than they are entering it due to sort of birth rate replacement. it's important just to recognize that in order to sustain our labor force we need a certain level of immigration moving forward. some other general findings. immigrants have also more recently entered the country with more education than they have historically. native born individuals have also gotten more education right now. typically are overrepresented in two groups. those without a high school degree. even though they have more education, they are still a substantial degree that don't have a high school degree and those with a college degree. right now we have
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disproportionate number of immigrants, those with higher levels of education in the stem field, science and technology. we learn little effect overall on the economy in terms of waenlgs and employment. we find that to the extent there are negative effects. it sort of concentrated in other people who are closely the substitutes for newly arrived immigrants. so if there's any effect and the reports sort of span a large role in terms of showing these effects, it's mainly concentrated in effects on the employment or wages of prior immigrants or other people without a high school degree. we also spend some time and we'll talk about this more soon on the role of high-skilled immigrants. we find they contribute positively to the economy and
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they actually are complimentary with both labor that has a college degree and that without a college degree. we'll get into that more later. we actually find they actually increase economic growth in this country and add to our productivity. we switch to the fiscal side of things, we actually see a more mixed pick. again, as i recounted before, we're running deficits. so if you just sort of look at sort of the overall fiscal picture, everything looks pretty bleak in that we're spending more money than we're actually raising in taxes. and while immigrants if we allocate cost on an average basis actually consume more than they pay in taxes, a lot of this has to do with how we allocate education cost. so what we do in this study, and one of the issues that we had to decide on how do you handle children? so if you were going to educate
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kids, do we actually say kids should bear the burden of their own cost of what we spend on them like the cost of education or do we say those are attributable to the parents? what we do in the record, we actually say the cost of kids sit with their parents. so for immigrant parents we assign any cost of sort of children who are under 18 or under 21, dependents to those parents even if those kids are native. so in general when we actually find there are negative effects of immigrants, that's largely coming from the fact they are younger, have more kids typically. so at the state and local level, we're spending more on them because we're paying for those education costs. you could instead of thinking of education as a cost, you could think of it as an investment in which case we should all bear some of that burden. in fact, part of what we do, because we're looking at the adult first, second, and third
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plus generations, we actually find that the group that contributes the most to the country both at the federal level and state and local level is actually that second generation. so in part what we're finding is that that investment we're making in kids is paying off later. now, most of those returns are felt by the federal government rather than state and local governments, in part because state and local governments actually pay for education while the federal government does, yet the federal government receives a fair amount of that return because of income taxes, which is our main way of paying into the federal government. what's new in the report to you is we actually do estimates across the 50 states and actually find tremendous variation in what the fiscal benefits and costs are for first, second and third plus generations across each of the 50 states. i've skipped a bunch of things. we have a lot more going on in the report.
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i'd say reading the executive summary and brief is great or, you know, if you're board this weekend you can get your own copy. with that i'm going to hand it over to roberto to start. >> thank you.start. thank you. >> thank you. let me start by introducing the other panelists whose biographies you have . up front, jenny hunt, and my colleague from usc, a denimographer and policy analyst. i would suggest if you're interested in this topic, immigration, really, or if you're interested in either the economic or fiscal future of the country, that door stop will be with you for much more than a weekend. this is -- this report is in some ways a companion volume to the report that kim mentioned
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that was done in 1997, the new americans report. and for people who have been in this field, that really provided a kind of a benchmark, a really important marker in our understanding of the fiscal and economic effects of immigration that has been a consistent influence in the way we think about these issues for 20 years. i think this volume has the same potential in terms of its longevity and influence. it's an extraordinarily complex undertaking that pursues a lot of very detailed subjects as well as presenting the broad strokes that kim has presented and other broad strokes. there are still -- that was only a part of the overview that you got. so, in the time that we have, we will barely scratch the surface of what this document offers in
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terms of both insights and questions. and ways of formulating questions. it gives us necessary vocabulary to start assessing these important questions. and takes us from one period of time, the 1990s, into a very different period of time where the dynamics have changed considerably. i want to start with one particular subject, and it's one that relates to what i believe one of the most significant changes in the nature of the immigration flows itself, and particularly in the last few years, which is the increasing numbers of high-skilled immigrants and their impact on the economy. something that really wasn't that much of an issue in 1997.
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and now, since the recession, increasing ly is an issue and oe that as our economy's drifted by information technologies and other forms of economic activity that rely on brains and human capital in particular, the flow of human capital into the country in the role that immigration policy's playing in providing that essential economic input i think is something that this report opens doors on in a way that we haven't seen before. jenny, i know this is a subject of interest to you. and one aspect of this report i find very intriguing on this question, is a very multidimensional approach to the economic impact of highly skilled or well educated or entrepreneurial immigrants. and it's not -- you don't just measure incomes and jobs. it's a much more complicated
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picture. i was wondering if you could give us an introduction to the framework you present regarding that part of the immigration flow? >> yeah, absolutely. i do want to start by saying, though, some people do have the idea of, well, we know that skilled immigrants contribute to the economy but unskilled don't really. i hope to be able to emphasize later that, actually, all immigrants do contribute to the economy. so i'm going to say some, talk about some ways in which the skilled immigrants contribute, but that's not implying that they're the only ones that do contribute. >> of course. >> but there are two ways in which we think particularly skilled immigrants might contribute that doesn't apply to less skilled immigrants, and one is that they might innovate. it doesn't even necessarily have to be innovate more than natives, because if you come up with a new idea, actually, the whole population can benefit from it, rather than, at least eventually, after the patent has expired and so forth. everyone can benefit. and we think that that actually
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affects economic growth and not just the level of well-being or of economic well-being in the economy. so, that's one thing. of course, it's not only skilled immigrants that innovate, but we think they innovate more than less-killed immigrants or people and workers in general. so, that's unthing. and then the second thing is that we think that skilled workers, which would therefore include skilled immigrants, might actually have what we call positive spillovers on their co-workers. so, actually, it's easy for a professor to think of that in the proof sorrell context, even though that's not typical for the economy. we professors, we try to seek out jobs in departments where there's other very good colleagues because we know we'll interact with them and they will make us more productive. so, similarly, or just in general, if you have some skilled immigrants coming into the u.s., they may actually raise the productivity of not -- now, i'm not talking about the
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entire economy, but a group around them. and nowadays, around you means potentially farther away, also electronically, but face-to-face is still important. so, those are two ways. but also the skilled immigrants contribute in a way we think the unskilled don't, but there are these extra dimensions that you're talking about, some of which do also actually apply to immigrants more generally. so, for example, we think that skilled or even other immigrants coming in affect how natives decide to specialize. so this can actually be looked at in two ways, but the first economic way of thinking about it is that people increase their specialization in what they're good at. so, even at the high-skill level, there's evidence that when immigrants come, that the natives go into specialties that use language and communications more intensively, because in
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general, of course, they speak english better than the immigrants. and that increases the efficiency and productivity of the economy. so, that's one -- i'm not sure if you have another -- >> so, i was just going to add to that, and i think that is gre great, the other thing that is true of immigrants more so than natives has to do with entrepreneurship, right? so, these could be people who are high skilled or have more education, but it could also be other immigrants who are coming. so, they are more like tleey start and open small businesses, some of which grow into larger businesses, but also provide jobs for others, which i think is also an important role. and then, and jenny will probably get back to this later, because immigrants are also more mobile or more willing to move within the country, it means that they are more likely to go to places where there are jobs or there are openings, so at all
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skill levels, which i think gets beyond just sort of high skilled labor, but it just makes the whole economy work better if people are more willing to sort of move to take jobs that are open and to help things. >> and so, we've been talking a little bit here, but for all of these things, there is evidence. so in fact, we find that if you look amongst workers with college or more, that immigrants are twice as likely to patent, for example, as natives are, and that that has -- then there is one more theoretical step. we do think that that's contributed to growth, probably, perhaps up to 2.5% over ten years, and that's something that then compounds and continues. there is also evidence of exactly what kim was saying, that, firstly, immigrants have to pick a place when they first arrive, and they tend to pick the booming places, the most productive places, and then they're also more mobile within the u.s., even after their initial move, than natives are, and that also contributes to the
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productivity of the economy. so we have evidence for that, as i said, also evidence for the specialization of the natives and more communications in english-intensive jobs. >> yeah, i mean, i find that aspect of a very important reminder not to think of our economy as a series of zero sum gains, but it's something this large and this dynamic, you introduce an element like a number of immigrants, and there's kind of a leavening, a series of secondary effects into the entire economic picture. so, it's not a matter of sort of one immigrant, one native and trying to judge impacts, but this much richer picture which starts to emerge from this report. we've, as we all know all too well, we've been living now in a prolonged period of modest to
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slow to negligible growth rates, and there's ongoing concern about whether that's a circumstance that extends forward. before going forward on the demographic part, in looking at these economic impacts, i'm curious how you judged the effects of that context? how were these dynamics changed by the fact that they played out during a period where the overall economy was either had, obviously, severe downturn, but then the last eight, nine years of slow recovery? how do we understand those effects and the effect of that context on these dynamics? >> that's something we certainly talked about on the panel, that
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we realized there wasn't really evidence on how the context had changed things. so, i could speculate, but it's actually not in the report, even though we also thought that was an important question. >> well, then, let's talk about the future then. one of the important topics, and as you, kim mentioned in your opening remarks, is how we think about the future influence of immigration on the economy. and one of the questions which the report addresses that's been a long-term point of discussion in immigration debates is the role of immigration in the social security, medicare and
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other policies, an important part of the deficit, you mentioned, that are certain to increase in the years to come. so, dowell, you've written a lot about how in the past, and a lot of that's reflected in the report, that immigration flows till now have helped mitigate in part some of the effects of an aging population. what i'm curious about is hearing from the three of you how we think about this going forward. what does this report tell us about the way we should think of the role of immigration in what are certain to be very difficult debates? i mean, we've managed to avoid them for a long time. and in washington, you never know. we could still avoid dealing with the fiscal effects of an aging population for a while
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longer, but there's going to be, come a time when this has to be addressed. and this report attempts to give us some ideas about how to think about immigration in that coming debate. and i was wondering whether you could address, what are some of the important tangents that we see? >> roberto, thank you. as a denimographer and a planner, i've looked at the future oftentimes, and the big question is always when does the feature start? well, it already started. it started -- i say it started in 2000. 2001, to be exact. seriously, it did start already. and we can't appreciate how it's evolving without looking at what happened recently. most people's mind-sets about what is reality are really about 10 years out of date, sometimes 20 years in california out of date. it's interesting, we don't really update things fast enough. and we've gone through a very volatile period, the boom of the bubble, then the bust, then the recovery. and now you're asking into the
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future beyond that and people's perspectives are really just lagging very much. so, let me just quickly recap. there was rapid growth in the 1970s and '80s, when the large baby boom generation entered the working ages. like 20 million people per decade were being added in the workforce, rapid. and then it started to slow down, but immigrants started to pick up in the '70s and '80s and '90s and filled some of the gap. this current decade we're in right now, the 2010 to 2020, we're right in the middle of it, 2016, right here in the middle of this decade is a total transition where the working-age population is now shrinking down to only 8 million of growth. and most of that now is immigrants and their children. next decade, it's all immigrants and their children. there is really no third-generation-plus native-native growth after 2020 because the large baby boomers,
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the baby boomer generation that came in the '70s and '80s that swelled the labor force is now 40 years later going out the back door and shrinking the labor force as they exit into retirement. it's a massive exit, and there's still 40% of the newcomers in the labor force are still these third generation, but there's not enough of them to offset all their parents and grandparents going out the retirement stage. so, what it means is that we're shifting our reliance tremendously to this foreign-born population and their children, who we've, fortunately, invested in in the past as much as we needed them to invest to have a prosperous retirement, because we can't go back. so, i hope we've invested well when we were looking at the future back in 2001, although i have some doubts. but let me just say, in terms of the ratios, there's a simple way of looking at just how dependent we are on the younger generation now that we did invest in,
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hopefully. it's the senior ratio or sometimes the dependency ratio. it used to be there was 24 seniors aged 65 and older per 100 working-age people. 24. currently it's up to 27. it's rising. and by 2030, it's up to 40 in the u.s. so, it's jumping tremendously. and without immigration, the ratio would rise even more, another quarter, 25% greater rise in the ratio. so immigrants have helped to sort of balance our population. they can't stop aging, unfortunately. nobody can stop aging. but they can slow its increase and keep us a little more balanced. now, that's the big picture on what's happening going forward. there are specific occupations that have to be filled. some are high-skilled, some are low-skilled, but there's a generational support system where we're all intertwined.
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it's not really -- you can't separate the natives from the immigrants or the immigrants' parents from their children. we're really all intertwined, and there's a 25-year generational rotation that's ongoing, and we need to make that work a little more favorably than it has because we're becoming so top heavy now with all these retirees who deserve their retirement. they will claim it and i will claim it. and i always point out that this large baby boomer bubble that is causing so much trouble, it wasn't our idea. it's nobody's fault. it's just a natural path of events, and we have to make the best of it, and we can. and we're fortunate that we still have immigrants that want to come to join us. >> right. i was just going to add to that. we sort of go to the fiscal side of this. one thing that is also important to remember is even though we sort of talk about people paying in to social security and medicare and about people feel like they've made their payments
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in and that's what they're getting out, it's a pay-as-you-go system. so, it's not necessarily the case that dowell's money is sort of sitting there waiting for him to retire, right? so, the money that's actually going to be used to pay off his social security is money that you guys over here who seem pretty young are going to pay in, right? so, it's basically something that we're in a pay-as-you-go world. and so, part of what we're doing is we need people to sort of keep coming or to be part of the labor force and to sustain employment in order for these things to work. how big or small these issues are and sort of what the fiscal cliffs look like, a lot of that is going to depend on sort of, one, how long existing people as they age continue to work, and two, in addition to sort of what's going on with the population, what we decide as a country on the fiscal side. like you know, there are all sorts of conversations that
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happen that aren't necessarily getting resolved in washington about sort of how do we fix social security and medicare? if we can slow down the rate of growth in health care costs, that would help. if people worked a little bit longer before they retired, that would help. if we actually raised taxes and cut other spending, that would also help. but a lot of this is going to be dependent on sort of having workers be part of that, and immigrants and the children of immigrants are an increasingly large part of that population. >> let me just follow on there, because some of the chapters i admire most in the report are the fiscal chapters. and there are just some beautiful graphs in there that look at the generation who was born in america, grew up here, educated in america, how much more they pay in taxes as they become more educated, going from a high school degree to a college degree to a postgraduate degree. it's amazing the differences, the increase. and i just know that, when i'm trying to sell my house, i hope
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that some of the better educated people show up on my doorstep and not the undereducated ones that i couldn't afford to pay for earlier on. we have to look forward to reap tax benefits going forward into the future. so if the future already started in 2001, we might be in trouble because we didn't do enough, but we still have a chance for the next decade or the decade ahead, i think, roberto. >> did you want to weigh in on this? >> no, i'm not as good at foreseeing the future as my colleagues on the panel. >> i mean, it, you know, it does -- the way you've just described this, when we go back to the thorny, fiscal question of to whom do you ascribe the costs of educating children, i mean, do you ascribe it to -- i mean, there are two obvious choices, the children or the parents. but the picture you're
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painting -- >> we're society. >> -- it really is the people who are going to collect social security benefits. >> right. >> are the ones who are reaping the benefits of that education, right? >> right, yes. >> so, well, the notion of you, you know, in the longer-term future, where you imagine the second generation, this very large cohort of the children of the '80s and '90s becoming important contributors to our fiscal balance out in the '20s and '30s when all of this crunch comes, i mean, that's really the payoff for the investment that was put in at the state and local level in their education, right? >> right. and there's some mismatch with that, right? if you feel like the federal government is getting a lot of the benefits and states are paying for it, but that's a whole other area. >> right. >> and part of the reason the report is 500 pages is we look
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at these questions, like who do you attribute the cost of education to? how do you make assumptions about, sort of as you're looking forward, what we're going to do in terms of balancing the budget. and part of the reason it's 500 pages is that we have a plethora of economists, and so our answer to most of these questions was, we'll do it both ways. so, you'll see things where we look at things on an average cost, where we basically attribute things to everybody, and then we'll do things where we'll look at sort of, well, is it really fair to say that immigrants who are coming in should be paying out past debts or the cost of defects, right? there are things called public goods that we generally think the cost of which don't increase if you add another person to it. and so, part of what we do in the fiscal section of the report, which we actually did new work in, is we looked at things on an average basis and then also on a marginal basis. and not surprisingly, if you don't attribute things like
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defense to immigrants, they're actually very attractive and they help make the fact that we have these big deficits more affordable for the rest of us. >> well, that's good. the other thing you said, though, you also said that there was the -- we have new immigrants arriving, but we also have immigrants that are already here, and there's two ways to calculate the costs. when we go forward in the future, do we use a profile of the typical new immigrant to be like people who are already here, or do we use a profile that's based on those who have arrived just recently in the last five years? and you wanted to make immigrants look worse, you would use the old immigrants as a profile, who are less educated. and if you want to make immigrants look like a better fiscal bargain, then you would use the new. so, some people prefer to use the old, but the facts are -- and we showed this clearly in the prort -- is that education
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has been rising steadily since 1970s with immigrant arrivals. each decade steadily higher, higher, higher. and so, how could you go back and use the old when, really, the new is even probably underestimated for future educational attainment of new arrivals. i just point that out, because that is in the news today i think also. people are using old immigrants to represent the future, and it's not consistent with current trends. >> and in the report we do both, right? so, basically, in the report on the fiscal side, we do a number of things. the first thing we do is year-by-year sort of accounting of sort of what these things look like, the first, second and third-plus generation, both controlling for the age profile and also looking at sort of whether things are more or less recent. and then we also do something where we do a 75-year projection going forward where we basically look at, if you have an additional immigrant coming, what are the taxes paid and
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services received of them and their children? and so, like, their children and maybe their grandchildren 75 years in the future, where we're basically adding this up. and in general, the immigrants looked really good. that's sort of where you basically get both the amount of money you're investing, but also that return from those kids in the allegations to that immigrant when they first arrive. and then we also do stuff state by state for the state and local work, just sort of showing how that varies across different places. >> let me -- i just want to underscore what might seem like a methalogical or accounting issue, which is the measurement of impact at 75 years, rather than in a shorter time frame. i mean, the nature of immigration is such that you don't know the actual effects on a society until the second generation reaches adulthood.
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and it -- this is a confounding factor in any discussion of immigration. the image i draw is that if we had been sitting here 100 years ago in 1916, the conversation about the impact of the european immigrants who had arrived in the previous ten years would have been extraordinarily dire about their absolute inability to work in an industrial economy. they were unfit to be citizens of a democrat. they were producing crime, illness and who knows what else. less than 75 years later, 50 years later, that generation had conquered the world, had brought about the american century, had defeated authoritarianism in europe and asia and was confronting communism on the world stage. and so, if you take a short-term view, particularly if you take a
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very narrow, contemporary view, you lose sight of this. and this report, when it casts its eye out in the 75-year projections, you see an entirely different set of assumptions. there's one, just one other housekeeping detail, large, conceptual housekeeping detail. if i'm not mistaken, this report says in assessing fiscal impacts -- correct me if i'm wrong. >> okay. >> that similarly situated natives and foreign-born have the same fiscal impacts. is that correct? that there's nothing about being foreign born per se. >> so what we do is we attribute costs and benefits, and i really should have a green eye shade right now, to individuals. so, we do this in a number of ways. we start with individual
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information we have about people. so, if you're receiving certain benefits or you're paying specific taxes, we sort of attribute that to you. what we find, even though there are certain costs that immigrants have, like for example the cost of, like, bi-lingual education or programs for immigrant children, we attribute to those children. but in general, most of the costs, and when we average most things in, the costs and benefits of immigrants and natives are largely being driven by a few factors, one of which is sort of their education and their income levels, so the education of the immigrants themselves, their income -- >> age. >> -- and their age. so, that sort of gets -- and the number of kids they have. so what we find is that the people who are most expensive are those people that have kids. so, the fact that immigrants look more expensive has much more to do with the fact that they are younger and they have
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kids and less to do with the fact that they are foreign born. and that's where this whole question about whether we're sort of looking at them as investments or not. the other thing to note is if you look at an individual, whether they're foreign born or native, you see definite costs and payments in over a life cycle or over sort of the 90-year period. so, if you start off, you find that someone comes or is born, they're really expensive sort of when they hit age 5 and we're sending them to school. so, basically, state and local governments are paying for education. they're sort of in school until they're either 17 or 21, and they're expensive. they start paying taxes when they're 21 or so. you're getting a big benefit as people are paying taxes and they're not necessarily using services themselves. and so, you sort of have this picture where they're above the line. and then we hit 65 or 70, where the costs to the government are
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higher again because they're receiving social security and their health care costs go up. and so, basically, anybody, if you look at an individual person and you look at sort of how they interact with government, you see that they get money at the beginning and they get money at the end, and in the middle they're paying in, hopefully to cover those costs and make the whole system work. >> right. so, children and old people are annoying as they cost money, but the important thing here -- and i want to go back to this point -- that if you -- a couple that has three children and sends them to public school. >> yes. >> is producing the same costs -- >> pretty much. >> -- pretty much regardless of their nativity. >> yes. >> there's one big difference, though. same cost, but the payoff on the back end when the kids grow up, for some reason is higher for the immigrants' children than for the children of native-born.
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the second generation, on all the studies, all the graphs, we show this higher payoff. and it's not totally clear why. >> i think part of this has to do with they get a little bit more education and they probably are specializing in things that might have a little bit more payoff, like -- and you know, anecdotally. this is like you have the kids of immigrants who are becoming doctors and lawyers and scientists and stuff and aren't necessarily going to be as likely to become ethnomusicologists. sorry! nothing against ethnomusicologists. >> yeah, right. so, we started out thinking about the economy as a big, complex system, rather than a series of zero sum gains, and we've talked now about the need to look at a long arc. having put down those two big markers, now let's turn to the
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contentious issue of the day, which is much more the short-term effects of low-skilled immigrants, jenny, where you were going to take us initially. this report adds significantly to a nuance understanding that the interactions between those workers and others, similarly situated workers, and the economies in which they exist. i was sort of wondering whether you could just give us the high points of that analysis. >> firstly, since both you and apparently the "washington times" mentioned the short run, one of the things we talk about in the report is we don't really know what the short run is in practice. in theory, we know, but in practice, we don't know. so, the short run would be you suddenly have a huge wave of people come in a few months, and there isn't really time for much to adjust in the economy. but we rarely see that in the u.s. there's more like steady, but steadily increasing flows.
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and interestingly, even theoretical models have not really dealt with the case of, well, how do firms change their behavior, knowing that immigration is coming and is gradually increasing? so, surprisingly, we don't actually have a good theoretical model for that. so, now, overall -- firstly, i should say that we don't actually find, we in the report and the authors that we cite in the report, that there's really any effect on the employment rate of natives from immigration. that's a bit different, actually, from other countries. but for the u.s., really no one in this literature is concerned about employment rates of natives. and so, the whole question revolves around what is the effect on wages. and just like the previous report, actually, we find that on average, the effect on native wages is actually about zero. and then the question is, what's
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the picture? so theoretically speaking, we expect immigration to benefit natives overall, including business owners, workers, and then we expect there to be, however, winners and losers, and that's true within workers as well. and who the winners and losers are depends on the makeup of the immigration flows. so, it depends -- so, it's a bit complicated, because as kim said, the immigrants are concentrated at the top and the bottom. and so, normally, the losers are going to be people, native workers who see inflows of people just like them. so, in theory, you would expect it to be the natives at the very top and the very bottom who are hurt, but at the top, as i mentioned before, though, there's this issue that there could be a completely different thing going on that you actually helped, your productivity is increased by having people to work with you that are complimentary and not substitutes. so, for that reason and also for reasons of equity, we're most
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concerned about seeing native high school dropouts, who are about 10% of the population. and what we did agree in the report is it does seem as though they are people whose wages are decreased by immigration. however, what we could not agree on was a number. and so, we came to a consensus about the sign, not about the number. and in fact, there is a big range of studies that range from very small negative effect to actually quite big negative effect, and we did not take the step of saying, well, there was this or that floor and the one that found the small or the big effect, we couldn't actually get consensus on that. so, we agree there is a group of natives at the bottom who experience a negative effect. we don't know exactly how large. >> so, roberto, can i just push back on jenny on this point a little bit? it's not in the report, i know. but so, it's a very small effect
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on natives. and yet, incomes aren't doing very well for the natives. somebody has to be blamed for that, something or somebody. what is it that's -- what else could be causing the fact that incomes have stagnated the way they have until just recently? >> well, now you could write a whole other national research council book on that. >> i'm guessing they have. >> i don't think so, actually. no, no, that's a very good point. i think actually there might be a sentence or two on it in the report. the big -- you're exactly right, the wages of the less skilled in the u.s., men in particular, have been falling, not falling quite to the level of female wag wages, and the main explain entry factors that people have in mind for that are technological change, offshoring, so moving production of, especially of less skilled
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tasks abroad, and then perhaps that, a little bit, but i don't think anyone thinks immigration, even the studies that find the big negative effect, even that is not enough to explain much of this phenomenon, so correct in sign but not in magnitude for immigration. and then there's currently, actually, a bit of an argument after a long time of thinking that trade and goods was not important. that's more of an open question now. but those are really the big factors. no one really thinks -- this is such a big phenomenon, no one thinks that immigration is a big contributor to that, but that's an excellent point. >> this also gets back to the fact that returns to education are increasing overall in the country. and so, when we're talking about this, especially when we're talking about natives with less than a high school education, that's becoming an increasingly small group of people. as more and more people are gradualing from high school. and so, you basically find that
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you have to sort of understand who it is we're talking about. and so, how you sort of think about it. are we talking about the 50 or 60-year-old person without a high school degree, who probably spent his life in the factory and, you know, was actually earning a pretty good wage? or are we talking about the 18 to 20-year-old african-american who just basically dropped out of school and is having a tough time? and so, part of this is also trying to understand some of who these people are who are left in specific groups and why we think there might be different effects. so, one of the other things that were found in the report that's highlighted is there does seem to be a small, negative effect on the hours, not necessarily the employment, of teenagers of immigration. and part of that, you could imagine, has to do with the fact that

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