Skip to main content

tv   Key Capitol Hill Hearings  CSPAN  December 15, 2014 8:00pm-10:01pm EST

8:00 pm
quorum call:
8:01 pm
8:02 pm
8:03 pm
mr. walsh: madam president? the presiding officer: the senator from montana. mr. walsh: request that the quorum call be dispensed with. the presiding officer: without objection. mr. walsh: i ask unanimous consent the senate proceed to a period of morning business with senators permitted to speak for up to ten minutes each. the presiding officer: without objection. mr. walsh: i ask unanimous consent that following disposition of calendar number 635, rose, there be three hours of debate equally divided in the usual form on the motion to invoke cloture on calendar number 1084, saldana. further, that the time from 2:15 p.m. until 2:30 p.m. be equally divided in the usual form, with all other provisions of the previous order remaining in effect. the presiding officer: is there objection? without objection. mr. walsh: i ask unanimous consent that the senate proceed to executive session to consider
8:04 pm
all nominations placed on the secretary's desk in the foreign service. that the nominations be confirmed en bloc, the motions to reconsider be laid on the table, with no intervening action or debate, that no further motions be in order to any of the nominations, that the president be immediately notified of the senate's action, and the national then resume legislative session. the presiding officer: without objection. mr. walsh: i ask unanimous consent that the senate proceed to the consideration of calendar number 606, senate 1744. the presiding officer: the clerk will report. the clerk: calendar number 606, s. 1744, a bill to strengthen the accountability of individuals involved in misconduct affecting the integrity of background investigations to update guidelines for security clearances, and for other purposes. the presiding officer: is there objection to proceeding to
8:05 pm
the measure sn? without objection. mr. walsh: i ask unanimous consent that the committee-reported substitute amendment, which is at the desk, be agreed to, the bill, as amended, be read a third time, and that the senate proceed to vote on passage of the bill, as amend. the presiding officer: without objection. hearing no further debate, all those in favor say aye. all those opposed, say nay. the ayes appear to have it. the ayes do have it. the bill, as amended, is passed. mr. walsh: i ask unanimous consent that the committee-reported title amendment be agreed to, the motions to reconsider be laid on the table, with no intervening action or debate. the presiding officer: without objection. mr. walsh: i ask unanimous consent the senate proceed to the consideration of h.r. 2901, which was received from the house and is at the desk.
8:06 pm
the presiding officer: the clerk will report. the clerk: john marshall harlan 2901 -- h.r.2901, an act to strengthen senator paul warner poor the poor act. the presidinis there objection g to the measure? without objection. mr. walsh: i ask unanimous consent the bill be considered read a third time and the senate proceed to vote on passage of the bill. the presiding officer: without objection. hearing no further debate, all those in favor say aye. all those opposed, say nay. the ayes appear to have it. the ayes do have it. the bill is passed. mr. walsh: i ask unanimous consent the motion to reconsider be considered made and laid upon the table, with no intervening action or debate. the presiding officer: without objection. mr. walsh: i ask unanimous consent that the committee on judiciary be discharged from
8:07 pm
further consideration of h.r. 1068, and the senate proceed to its immediate consideration. the presiding officer: the clerk will report. the clerk: h.r. 1068, an act -- to enact title 54 united states code, national park service and related programs as positive law. the presiding officer: is there objection? without objection, the committee is discharged and we'll now proceed to the measure. mr. walsh: i ask unanimous consent that the bill be read a third time and passed, the motion to reconsider be considered made and laid on the table. the presiding officer: without objection. mr. walsh: i ask unanimous consent that the committee on banking be discharged from further consideration of h.r. 2866 and the senate proceed to its immediate consideration. the presiding officer: the clerk will report. the clerk: h.r. 2866, an act
8:08 pm
to require the secretary of the treasury to mint coins in commemoration of the centennial of boystown and for other purposes. the presiding officer: is there objection? without objection, the committee is discharged and the senate will proceed to the measure. mr. walsh: i ask unanimous consent tha the johannes amendmt at the desk be agreed, the bill be read a third time and passed, the motion to reconsider be laid on the table. the presiding officer: without objection. mr. walsh: i ask unanimous consent that when the senate completes its business today, it adjourn until 10:00 a.m. on tuesday, december 16, 2014, that following the prayer and pledge, the morning hour be deemed expired, the journal of proceedings be approved to date, and the time for the two leaders be reserved for their use later in the day, and that following
8:09 pm
any leaders' remarks, the senate resume executive session as provided under the previous order. the presiding officer: without objection. mr. walsh: for the information of all senators, the 10:00 a.m. confirmation votes on the santos and rose nominations are expected to be voice votes. there will be up to two roll call votes at 2:30 p.m. on cloture and confirmation on the saldana nomination. additional roll call votes will occur at 6:00 p.m. we anticipate recessing for the purpose of the weekly caucus meetings following the use or yielding back of time on the saldana nomination. if there is no further business to come before the senate, i ask that it adjourn under the previous order. the presiding officer: the senate stands adjourned until 10:00 a.m. tomorrow. >> the senate confirmed the
8:10 pm
surgeon general today even with protest from the nra. the senate is still expected to consider a number of other nomnations before ending the 113th congress including a secretary of state. they have two more bills to discuss. one to expand tax break and the other renews the terrorism insurance bill. coming up tonight on c-span2. the communicators features mary gray on the ethics raised by companies on the internet
8:11 pm
harvesting data. and then talk about the surgeon general conformation. created by america's cable companies 35 years ago and brought to you as a public service by your local cable or satellite provider. >> host: a look at the personal data collection online and the ethics involved in that. joining us is indiana university professor mary gray. professor gray, are we being studied and researched when we go online? >> guest: in the simple answer, yes. any company that is trying to see how to show the best website
8:12 pm
and information from their friends is constantly trying to assess what makeathize best information service were you for you. test same time, universities for the last 20 years as we have moved more online have been moving to think about this as a there have been
8:13 pm
8:14 pm
>> host: >> host: >> the point was achieved whether they are sending an
8:15 pm
e-mail or texting or iming with someone or having a skype conversation. all three of those are ways we are generating information and also ways of social interaction. >> host: is there a creepiness factor to all of this? >> guest: the creepy question is a great question. i think for all of us, as somebody who use as computer every day, we have certain expectations when we fire up the computers about who sees what we are doing and who we are sharing information with and at any moment if the expectations i have are shifted, because i realize there might be another party who sees what i am doing, say for example, a message pops up and asks if i would like help making a purchase, there are certainly lines that we don't know we have crossed them until
8:16 pm
it is too late. that is true for researchers and companies. there is not a clear sense of what is creepy because it is culturally specific. one person talking loudly on a cellphone in a park has no problem with someone standing on bench listening and at the same time you can have someone having a private conversation and going to great lengths to be totally seclud secluded. so it is the cultural context and individual's experiences and their needs for privacy. >> host: let's bring mark into the conversation from "politico." >> thank you. facebook got into trouble by changing newsfeed results so what are the rules of the road for researchers?
8:17 pm
>> guest: i want to emphasis it is relative. we have guidelines, called the common rule, that setup the expectations for dealing with what is called human subject research. so in all cases of doing research that involves people, whether it is data they already produced like an archive and a database of responses to a survey, the expectation is if i p participated in the sud study, i was given an opportunity to say i want my information to be ruse used. we are playing catch up with the online rules, though. researchers at every university
8:18 pm
who do this kind of research are constantly working on what are the best practices and that includes ethical and informing someone of the data we might be looking at. it is common it look at things like a google group, think of that as a public space, i don't have to sign up for an account. if someone is participating in the open group they may feel fine if i am a fellow user of say a particular group, say a tennis group, i am not in that moment when i am posting thinking someone who is studying tennis is reading and collecting this. so in the moment am i interacting with someone as a researcher who i respond. and i collect all of the post
8:19 pm
there. it is as a real question. we have to be thinking what might be the right questions to ask to figure out what is necessary in that case. one easy guideline as someone who runs the group posted something that said don't come here unless you are a member of the group. that is a clear message to researche researchers. but they are not always present. so as researchers work with how they work with online environments we have had to continuely bootstrap ways of seeking consent if we need to follow and debrief someone part of the study. especially when it is globally distributed it makes it more complicated because it isn't just the united states' rules. for companies, i would argue
8:20 pm
there already are a set of rules in place and that is the federal trade and commissions guidelines on good business practices. we have a very clear set of standards for what are the expectations the consumer has when they use a product. so i think what we could be talking about is let the rules right now that govern human subjects research for researchers like me really drive the conversation about what to do online and look at companies involvement and follow the guidelines for consumer rights. >> it seems the guidelines in place for consumer rights are not necessarily jiving with social media expectations based on the facebook study. how do you square that circle? >> guest: i think the biggest challenge is for the companies
8:21 pm
to be open and explicit about what it is they are doing as they develop their products. any of the experiments i know of happening in corporate settings is happening to improve a product. there are very view cases where it is basic research in the settings. my position at microsoft is one of those exceptions and i have to hold a higher bar for my research. if i am researching a topic that is important to science i think i have a clear man date and for me that is the common rules or the rules that regulate human subject research. in the case of the companies that are doing any sort of experiments and that word is charged, but studying user activity, i think they need to be clear about their intention and who benefits from the
8:22 pm
activity. if the individual consumer benefits by the improvement of their services then i think there is room to make sure those experiments are done with the greatest awareness and courtesy and respect to the consumer. i think there are cases where we have the challenge that most consumers don't realize how much information is gathered about them. that is the gap we have to bridge to me >> can you give advice to a social media company that want today do an ex experiment like that and avoid the creepiness factor. >> guest: i think in many cases, in most of the cases, there would be an opportunity beyond terms of service -- i don't
8:23 pm
think that is enough -- but there would be an opportunity to say we would like to look at what you are doing for this reason, be clear about the reason and give someone the opportunity to say i don't want to be part of that study. and i think there are other cases where the question wouldn't be answerable if someone is asked if they would like to participate and we call that where you need a compromise and need some kind of deception when you ask and that is i need to be vague about asking you questions about whether or not you like to play tennis, for example. see it isn't like the company doesn't know how to reach you. if the company wants to do the study that doesn't seeing consent at the front end there is no reason at the end they
8:24 pm
could say we were looking at your data for goals of improving our service and if you would like your data removed from the experiment, let us know. it would be easy to remove the information. there are a lot of reasons giving for the deep reaching process because it would not be possible but i don't buy it. i think there is a way to do this and respect people's autonomy. >> can you talk about the value of this large data set we have? what can be learned about the world that couldn't 30 years ago because of this? >> guest: this is so important. the hard conversation we need to have is we need to keep access
8:25 pm
to the interaction online because so much of what we do as humans every day happens online. so the loss to the fields trying to understand behavior and improve support around marginalized communities need to be able at a study people's experience of the world as more and more experiences move to a digital environment that is the reason we are following them there. i think there would be a tremendous loss if we don't work out the question. >> can you tell stories about things that were learned? >> guest: a lot of research around mine was how young people identifying as gay, bisexual or transgender use the internet to identify with that particular in
8:26 pm
kentucky and west virginia. i learned what the limits were of what they could get online that really meant they needed to advocate for resources in their home communities. early '90s to late '90s the story was the internet will solve everything. get a dial up connection and we will have all of the information we need. that is not true. that has yet to be shown as the solution to social problems. so in my research, and i think there are other examples of this, seeing the limits to what people can do with technologies and seeing what are the public resources they need and private sector resources they need to make up the difference, we can only learn if we are studying both parts of that puzzle. both the off line and online. >> what were you tools? were you looking at google searches or sitting down with the kids? >> guest: i was sitting down with the kids.
8:27 pm
this is before moving to microsoft research and most of what i had access to, and i think this is another issue in terms of the data available, if it is a private company i don't have access to the search logs and back end. as a researcher at a university what i did have access to was finding young people who were using digital media and i did it two ways. i went to these communities, found those kids -- they are not that hard to find -- and i talked with them. i said who are your friends who are afraid to come into the meetings who use digital media as their primary connection to the world and talked with those young people and i spent over a year doing that research which is what i think it takes. which is why i am afraid of situations of staying just at the surface level and god's eye view of what people are doing
8:28 pm
online we risk giving the people the sense it is creepy and i want to stay away from these worlds but we risk not being able to access those young people or other communities through other means. >> host: microsoft research isn't a non-profit place. how does your research benefit the company such as microsoft? >> guest: i am in a special environment because the expectation is that the research that i do, and right now i am studying digital labor, so for example the project on crowd surfing i am doing now,the goal is i will be able to answer basic question and the contributions i make to the scientific fields that can learn from what i gather will eventually be able to show better technologies and routes to what companies like microsoft
8:29 pm
might offer. so there is not an expectation of developing something specific. it is really an old-fashion belief that basic science advances all of us including technology companies. >> host: so many people watching this are thinking i clicked on a website and then ads for a website started popping up. how persuasive is the big data? how much do private companies know about us? >> guest: i think the being really precise here. they don't necessarily know about you the individual. but they have a picture in the aggregate of what a population of people in a specific age, time and location are doing and what are they asking. so i think the challenge here is yes, i don't think anybody can deny this, there would always be a way to trace that individual search query to them
8:30 pm
individually but i don't know any company that actually clo collects information in ways that makes it easy to collect data. they are collecting it in bulk you might say. it is difficult to get to the information. as someone who is internally in the community i have to appropriately go through a lot of gatekeepers who protect the privacy of the individual users. none of the companies would exist if they were making it easy to access your private information. the challenge, and i think this is part of the conversation, is most tech companies have only thought about the user's concern around privacy. they only took up and are good at safeguarding your social security number and exact location. they will not release that information. they work hard to keep others from getting that information
8:31 pm
and that is never bullet-proof other than someone calling you at home and getting your social security number isn't impossible either. but tech companies have put a lot of time in protecting your privacy. >> because they need to know that to improve their systems. that, i think, in terms of
8:32 pm
educating the general public and making it clear that any effort to give them advertising that is tailored to them and any effort to make it easier for them to see tweets from one set of people instead of another set of people, all of that energy means i have to collect a lot of information about what you are doing. >> what is your sense of what is driving that online privacy and respect for information conversation? a lot of studies show people are concerned about privacy if you want them to pay for g-mail they will give up the privacy. >> guest: this fascinates me. the pugh research on internet and life came out with a study precisely about this: what are people willing to give up in terms of information online. most people's sense of what they are protecting when they go online works from that privacy
8:33 pm
framework. we all think about what we worry about sharing as an individual but we have not thought much about what am i uncomfortable sharing about our exchange as two or three people. so when i go online and have a text exchange with say three other people i am not thinking about privacy in that moment. i am with a group of people. i am not thinking about my individual privacy. i am thinking about our shared relationship in relation to the privacy of what we might be talking about. i might care deeply about keeping the conversation private like with the young people i worked with. so the challenge is we are thinking about privacy in old fashion ways that have to do with social security numbers or home address or location and those are not the kind of information i might feel
8:34 pm
protective about when i am thinking about the facebook study or what might feel intrusive about what a company is doing. it is as a moving target for the people using the services in terms of thinking what is the privacy that matters the most. and it is a moving target for companies. >> host: and some of the top numbers here. 80path are concerned with government tracking and 64% think more should be done to regulate advertisers and 61% disagree that online is more efficient because of personal data sharing but 55% are willing to share for free online services and 81% don't feel secure using social media. >> guest: i didn't remember it was as high as 81%. wow. i want to circle back to something you asked about
8:35 pm
before. the education around what it is that is shared online is key here. i think in most cases when people think about their safety or security online they are becoming aware that the information is being collected and it isn't being collected to improve their experience of the service but to sell a product. so i would argue we need to get to that place where we are not talking about a free service. it isn't free. in exchange for the service, we are paying with the information we put online. so with any of these services, it comes down to being able to say is it worth to to have this account if i have that advertising, in the same way a tell marketer could be calling me. >> i was curious when you talked about the monitoring amount of
8:36 pm
information that is gathered is focused on product improvement. there are cases where an industry, apple and google, offering encryption for smart phones and privacy is what people are selling on. that hasn't happened in most things on the internet. why is that? >> because i think a lot of the money made from internet-based services comes from advertising. and microsoft is lucky being in the position of not needing to rely on selling your information to keep their business going. other companies that are primarily selling your information to be able to keep themselves alive. any company that is based on advertising revenue model needs you to keep giving information and feeding it because the only thing they profit on is not just
8:37 pm
your personal information but your activity and social information and selling that. so i think there are companies that, if they have other products and they can sell privacy as a luxury item, which i find something we really need to discuss as a society, then they will have the advantage because they don't have to rely on advertising dollars. in cases where the company has to rely on the advertising dollars it is an issue because that is what they have to sell. >> how is this going to change as the internet of things develop? kenmore can be selling information about all of the junk food we take out of the fridge at night. >> guest: the future will look like an accelerated version of the selling of our personal and social information or it will be
8:38 pm
a path where we make decisions as consumers about what we want sold and what we don't. the internet of things presents a new set of opportunities to have that conversation because you are right. as soon as you have the capacity to collect information on any activity that you are doing there is going to be a desire to get that information. so it is going to be up to, i think the public, to be able to say these are the expectations around transparency that i hold for companies that are traff trafficking and selling my information. and unfortunately, until there is enough public expectation of both companies, and researchers respecting their information, it is going to be a land grab. >> host: and finally professor gray, joe asked about advise for companies, but what about advice for the consumers who feel the creep factor?
8:39 pm
>> guest: it is tough right now. consumers don't have many options. they will and should have opportunities with researchers and being able to come back and say that is not okay. researchers are mandated to do this. but in the case of dealing with a company that might be collecting information and a consumer is trying to figure out what kind of information they are not given many tools to figure that out. so the most i can imagine a consumer being able to do is really educating them syphilelv how much of their interaction is tracked to benefit a product and they need to decide if they are willing to have that tracking experience online and get out of the framework it is free because they are the product.
8:40 pm
it isn't free. >> host: mary gray has been your guest and joe marks from "politico" as well. >> c-span created by america's cable companies 35 years ago and brought to you as a public service by your local cable or satellite provider. next on c-span2, a discussion on challenges to the federal budget process and then senate debate on dr. murphy who was confirmed to be the next surgeon general. and energy secretary is up later with his mexico and canadian counterparts. on the next washington journal, emily stevenson talks about a provision in the 1.1 trillion spending bill approved by
8:41 pm
congress that would ease the regulation of derivatives under the dodd frank act. and then brothers discuss bipartisan in government and their own differing views. and a look at how federal workers view their job based on a survey. and we will take your phone calls and look for your comments on facebook and twitter. washington journal is live every day at 7 a.m. eastern. david cameron appears on tuesday to discuss the uk's climate change priorities and efforts to combat extremism. live coverage at 11 a.m. eastern on c-span. this week on q&a we talk about
8:42 pm
the war on women rhetoric. >> what is your problem with ted kennedy? >> it goes back to, like i said, where the idea for the book came for, was the 2012 dnc convention when they showed this tribute video to him because he had pasted away and portraying him as a women's right champion when he left a young woman to drown in his car and if he had not gone back for nine hours trying to save his own behind she would have probably survived. and you cannot do an entire video at a convention claiming to be preaching and fighting about the war on women and glorify someone like that and not include that part of his life in a video about his women's rights record. >> sunday night at 8 p.m.
8:43 pm
specific. and to mark the anniversary of q&a we are airing one product a night at 7 p.m. on c-span. next, a discussion on the challenges of the budget process. it was hosted by the brookings hutchinson center on monetary and policy. this is about two hours. >> good morning and welcome. i am louise sheiner and i am the policy director here at brookings. our goals are to both improve public understanding of fiscal and monetary policy and to be a
8:44 pm
place that gathers people to try to improve those policies. the center was made possible by glen hutchins who is going to be here later today. and we are pleased to welcome several members of the advisory committee. our topic this morning is fiscal uncertainty. we know that projections of federal government deficits show in the long run we are on unsustainable paths but they have very wide confidence bands around them. the question of how that uncertainty should influence policy is quite controversial. some argue that because we have little ability to predict future deficits we should focus on the here and now. and others argue because the future could turn out worse than expected means we should pay
8:45 pm
gre greater attention to uncertainty. it is also possible to take steps now that can reduce the uncertainty but they have drawback and benefits. the question is importantly but woe fully under emphasised topic and we are lucky to have the leading world experts on the issues here to debate. our first paper is on the big question of whether uncertainty means we should pay more attention or less attention is going to be discussed by charles manski and then peter diamond. we then feature a paper on policies that can insulate the federal budget from uncertainty that will be discussed by a
8:46 pm
panel of experts with practical experience cwith bill hogan and j jean spurling and jim cooper. and then finally we will wrap up with the last panel. both papers presented and the slideshow presented today will be available on our website. i am pleased to have alan auerbach here to kick off the first fiscal event. he taught me most of what i know about public finance first as my professor and then at a joint coalition. i still bring my notebook around
8:47 pm
from harvard days of him teaching so i know what he says is worth paying attention. without further ado, please welcome alan auerbach. [applause] >> thank you very much. this is the title of my paper and it is a very certain title. there is more uncertainty in the paper as well as in the subject. so to start long-term projections for the path of federal revenue and spending show a significant imbalance under current policy. now, of course, that in itself is a question that one has to deal with and that is what is current policy. there are disagreements about the best way to think about that but nevertheless under a reasoninable analysis about what
8:48 pm
current policy is there is a significant imbalance between expenditures and revenue that lead to a large fiscal gap. something that is measured peri periodcally. they are much larger than adjustments we make in what we view as large policy adjustments. but projections are very uncertain and they go up over the horizon of what one is forecasting. here is one figure from the paper taken from a cbo document in 2008 showing predictions of the likely outcomes as of the mid fiscal year 2008 looking
8:49 pm
through the end of fiscal year 2013. starting in 2007 when the deficit is a share of gdp is known. and you see the confidence ban and highest and lowest series are the five percent and nine percent. the solid line is what the listed forecast was for those fiscal years. and then the dotted red line is what actually happened. now, i have to adjust what happened because the predictions were made under current policy and since policy changed i took out the estimates of the affects of policy so the red line isn't what the deficit were, but what by cbo's estimates and after the fact they would have been without changes and policy. you can see even in the first
8:50 pm
and second year being predictive, the prediction was -- the actual value was outside the 90% confidence ban. 2009 wasn't just a typical year and that is an illustration. so it is reasonable and may very well be the confidence bands were accurate and we had an unusual draw in 2009 as we know we did. but the fact the confidence bands widens over time is customary and comes from the fact some things we predict are important and forecasting ref new and expenditures are changed over time. the level of productivity is uncertainty every year and so if you look at the years time the levels from the gdp will be more
8:51 pm
and more uncertain. similar things on the expenditure side. so even five years out, you have something from the deficit of five percent of the gdp and surplus of five and a half percent and that is half the size of the federal budget in terms of the range of uncertainty. and that is five years out. so for long term forecast the problems are worse. what should we do about the uncertainty? my paper isn't about what to do about the predicted fiscal gaps but whether about how our response should differ as a result of there being a lot of uncertainty about the projections. you may find it hard to separate to two but i think it is important to do that because the arguments about one tend to spill over in the arguments about the other. there are a couple comments i
8:52 pm
want to disregard as not useful in thinking about this issue and one of them is stein's law from herb stein and that anything can't go on won't. and many people say if you look at the projections of medicare and social security occupying such a huge fraction of the budget we know that is not going to happen. and some people take comfort in that. i don't understand why. because knowing that something is going to change doesn't really give you any information about how it is going to change, when it is going to change, and what the consequences of the changes are going to be or delays in the changes. what we would really like to know if we don't pay attention and wait for things to fall a part how would the outcome be if we were designing policy actually. a second common response is
8:53 pm
projection is behind and you can fill in your favorite number here behind certain years are so uncertain we should ignore them. you can chose here and everyone here argues for different numbers depending on who is making them and what particular set of projections are being referenced. i don't understand what that means. does it mean if we have projections showing that things are getting worse and worse over time, say 25 years out, with increasing uncertainty about the fact that estimate it is getting worse, does ignoring things after that time mean we say the problem went away after 25 years? that this thing that looks bad but uncertain suddenly 25 years out is no problem. if not that, then what?
8:54 pm
i don't understand what this viewpoint really represents. what my paper does discuss is supported by the economics and that is if the future is uncertain there is a case of saving as a form of self insurance if you will. and that is an argument that comes from the way individuals should behave with their own uncertain prospects but it is a case you could make for the government as well. uncertainty is bad. if we could avoid it we would but there is no way to make sure to aggregate uncertainty. there is no insurance company for that. so as a measure that is not as good as making it go away is putting resources aside so if
8:55 pm
bad outcomes occur you are more protected than you would normally be. and the are misconceptions, and i go dlu through several in the paper and will deal with a few of them here. it isn't that we are uncertain about the future. it is really that we have no idea. we just don't know and this is unfortunate and we wish otherwise but that is life. we are very uncertain about the future and it is something we might feel bad about. and something we may not be sure how to deal with. but it is not something we should ignore. it is hard to come up with a coherent argument for why we should ignore things about which
8:56 pm
we are very uncertain. another common argument here is people will be better off in the future so they can absorb better fiscal buderns than those imposed today. this is an argument to deal with projected fiscal balances and if we knew taxes had to go up or benefits down for people in the future that would be an argument one might support based on the greater well-being of people in the future. it isn't an argument about how to deal with separately or in addition to the uncertainty. and they talk about this uncertain makes the burdens increase meaning taxes have to go up more, we could have serious economic damage or
8:57 pm
fiscal crisis if we found ourselves unable to collect the revenue we need. so that pushes us more toward dealing with the problem now than simply projecting an imbalance would. secondally, we should wait until we have a better idea about the future. and this may be consistent with the view of the world that there is a certain amount of uncertainty and we will resolve it as time goes. the second thing to say is there is always more uncertainty coming. we wait and are not going to make uncertainty going away but will restrict our options for dealing with it. second, there may be cases in which we expect a resolution of information of uncertainty about certain things. we may discover whether the provisions of the affordable care act meant to control cost will do so, we may learn other
8:58 pm
things about life expectancy or cost of other government expenditures and it may make it easier to deal with things, but i view this as an argument more about the type of response we should undertake and respond to to today. it might cause us to delay further health care changes in the health care delivery system because we want to learn more about the most efficient way but doesn't mean we should not put resources aside to make it easier to deal with the fiscal uncertainty we face. another argument is there is uncertainty, we are getting new information all of the time as we resolve the temporal uncertainty, and we cannot be continuingly jumping around changing policy every time new information becomes available.
8:59 pm
i think that is right. i think there are a couple of implications. first that when we do act we should act with force. the future is worse than we thought a couple years ago or better and that leads us to act and there are cost to changing policy every year leaving aside the political cost of trying to make it happen there are cost to the economy. so we might want to act gradually or wait until we feel the need to. but on the other hand, we should act knowing we might not get the opportunity to do in the future. and finally, and this is something david talks about in his paper, we can put in place automatic responses if we can be confidant about what they should be as events unfold.
9:00 pm
... we have an idea of what it's like and this is the kind of response we are going to want. with greater uncertainty projections are more susceptible to political influence. the agency doing the forecasting
9:01 pm
doesn't have a strong argument about what might happen, then political influences might be more able to change what the forecast is. a target to defend against this influence. that may well be true. i'm not an expert on this but to me it provides an argument for institutional protections and transparency. i think ignoring information is a bad second choice. unfortunately maybe the one we are forced to make but certainly one that we should make only as a last resort. so to summarize my comments and my paper which is i say goes into more detail in the points that i have made, uncertainty means that our policy choices will always turn out to be wrong in some sense. that is it's going to make life more difficult for us because we are going to have to make
9:02 pm
adjustments and we are not going to get it right. we no we are not going to get it right except in a few incidents. that doesn't mean ignoring uncertainty is the right thing to do. we can't make it go away by ignoring it. it's still there and it's better to formulate a more accurate response which can lessen the negative consequences of uncertainty them simply to ignore it and let things happen. thank you. [applause] >> well done. thank you. very happy that the brookings
9:03 pm
center has organized this event. the most broad principles that we should be facing up to uncertainty rather than ignoring it. i've been trying to get that message across for quite a while in my own work. i didn't write a paper specifically for this event but there are couple of syllabi in the bottom if you're interested. in an article they will talk about a little bit today on communicating uncertainty and official economic statistics that will be in the journal of economic literature i think next september. that's on my webpage if anyone wants to take a look at that. let me take a moment on the general themes of my work.
9:04 pm
they are foremost the society should face up to the uncertainty that attend policy formation and i've been quite critical of various practices and policy analysis that hide uncertainty rather than facing up to it. my background is a concentration rather than economic so i'm trying to be careful about how we make empirical inferences and often the way we make empirical inferences despite taking whatever data is available in adding whatever assumptions are needed to draw strong conclusions. that may not seem a red button for most people but for me that's where it gets me really riled up. so i've been arguing is that the credible policy analysis with explicitly express limits to knowledge, try to show how that might be done in my technical work and on the broad notion is to study how policymakers can
9:05 pm
reasonably and i won't say optimally because that's going too far. that's pushing things but reasonably assess far as i would go to make decisions in an uncertain world then i think that is what alan's paper is focused on. now if we are going to face up to uncertainty, alan was focusing on projections for the future but we have to face up to uncertainty even about the things we think we know about the economy today. so i want to talk a bit about communicating uncertainty in official statistics. so we have all kinds of statistics that summarize the stated economy in these point estimates. these could be unemployment rates, growth and employment, gdp growth and income statistics and so on the federal statistic agencies report. and if you look at the news releases that come out monthly or quarterly you find out there is little mention of error and any of the statistics. if you dig down into the
9:06 pm
technical publications, and i've done this from the census bureau and bls and other agencies, you will find a verbal acknowledgment regularly that estimates are subject to sampling and nonsampling. you will find a little bit of trying to measure sampling error by confidence by standardbearers but most of the air is nonsampling and you won't find any quantification of a nonsampling error. reporting official statistics manifest a tendency what i call for policy analysis to project incredible certitude. making things certain but there's not much credibility behind it. agencies do not justify the way they produce point estimates. let me give three examples that i think are important. one, if you look at gdp estimates that come out quarterly those will help. the bureau of economic analysis reports and advanced estimate and a second estimate and a third is nothing to fear and it's a continuous process of the
9:07 pm
estimates. you can thing from the first first estimate the gdp has gone up by 1% a month later you say it went down by 1.5% but the estimates the come out are not accompanied by any error measures. the way that it does this by doing trend extrapolations when the data is incomplete and replacing extrapolations with real data. it's a process that takes a lot of time. the bank of england actually in the british context actually puts, there's a fan chart that puts drawings around current gdp estimates and i think that's something we could do here. a second source is a sample surveys for anyone who uses sample surveys. you know there is missing data in people aren't interviewed or they refuse to answer questions. in the current population survey the basis for her household income statistics there's a huge
9:08 pm
amount of missing data on household incomes, upwards of 40%. he would never see that from looking at the press releases that are put out because the census bureau imputes that and you have to dig down and use quantum metrics to know that these are amputations may not have much value. their big potential problems there. i could go on at great length about any of these issues by the third that drives not just me crazy but macroeconomists regularly crazy is the use of seasonal adjustment. if you find out the unemployment rate went down last month relative to two months ago didn't really go down or is that because of the seasonal adjustment formula, the x12 or x. 13 from the census bureau through its autoregressive average moving process. may look like it went down. in this building you don't have to say much more about. jonathan wright from -- wrote a nice paper they came unto the
9:09 pm
bureau a year ago. agencies could use establish principles to report sampling error in statistic. it's more challenging to measure nonsampling error but i think the good-faith efforts would be more informative than reporting official statistics as if they were true. even if it's hard to report nonsampling error it's better not to do it but not reported. why is it important to communicate uncertainty? government and private entities use official statistics for making decisions. the quality of decision-making may suffer if decision-makers incorrectly believe the statistics to be accurate or if they think they're sophisticated than they have to guess at what they error margin should be but they don't really know what the magnitude of the errors are pretty think it would be better of agencies statistical agencies would communicate the uncertainty and then we would have a better understanding of what information is available about the economy. let me in the rest of my time to move forward and talk about projections. i've written about this before.
9:10 pm
i said i would not raise this question again about scoring practices. the congressional budget act established the cbo has been interpreted as mandating the cbo to provide point predictions for scores of the budgetary legislation. the scores are conveyed to leaders of congress and not accompanied by measures of uncertainty. there are various things the ceo does -- cbo does that does express certainty but not the scores. one notable example that i've used in a case study in my book was the scoring of the affordable care act and a letter that doug sent to speaker pelosi back in 2010. the cbo and jcps mated both pieces of legislation, people in this room will remember there were two pieces of legislation were to produce a net reduction of $138 billion. the question is what does that $138 -- million dollar reduction
9:11 pm
mean +-plus-or-minus-sign team. that will remember. douglas holtz-eakin wrote in the times that there deficit would be 52 million. so what i got was the cbo should express uncertainty in scoring and i have to say and this is controversial. i gave a talk about this. cbo has established an admirable reputation for confidentiality. maybe it's best to leave it alone and continue things as they are. i worry though and this is maybe just me being an academic for me outside it doesn't understand washington but there is but a social contract to accept cbo estimates and i worry that social contract is going to break down at some point. someone will dig in whether in congress or the media will take gannon signed some estimate that they don't like. you ask how the sausage was put together and they said well who
9:12 pm
knows? and the cbo's reputation will go. i would rather the cbo face up to this and provide uncertainty. a very simple way to do this might be to provide integral fork cast. it could be a probability distribution. we don't have to get into those details. now the question is this really the right question to and on in this room, congress cope with uncertainty? when i've talked about this academic offices -- they say of course the cbo should be transparent about the uncertainty. when i talk to people around washington they tend to be skeptical. there were two reactions that i've received. some people assert that members of congress are psychologically unable to deal with uncertainty. i have heard that many times. i won't describe any particular individual but i've heard it many times. some gave it game theory argument that in decision-making
9:13 pm
there's a noncooperative gain and expressing uncertainty will make things worse. there's one brookings economist which was i had a fairly uncomfortable e-mail exchange a few years ago. i will end up with three questions because i can answer whether congress can cope with uncertainty so i want to end with these three questions. first how to use official statistics and cbo scores for interpreting them right now. second how would transparent communication of uncertainty affect our policymaking and third and this is what the latter half of alan's paper was about as what would constitute normatively reasonable fiscal policy in an uncertain market? thank you. [applause] >> alan has given us first of all a clear picture of
9:14 pm
uncertainty out there and it is large. i want to do a few things around it. first, i want, no coronation here quote chuck manski that there is an important political question of how different ways of purveying impact in matters. before i knew what, before he i paid attention to who else was on the panel i thought this really belongs. what's important to keep in mind here is that what we really want around policies are full long benefit costs a week and think about why we like it or might we don't like it but first of all there's no way that can be done by a neutral agency. if nothing else it's going to involve way to put on different
9:15 pm
concerns, ways to put on different parts of the income distribution. so the issue is what can be done by an agency like cbo, which will help with the process and i think we need to answer the questions that chuck just opposed for getting on with that and conveying uncertainty should always be there. but the question is how and how that fits in. so i'm to focus on social security for the odd reason i know a little bit more about it than the overall budget. the office of the actuary does three projections and that is conveying uncertainty. it's often criticized because there is no easy way to hang probabilities on those two outsiders that are meant to be unlikely in doing it. there is also a stochastic
9:16 pm
projection which i think has the unfortunate effect and chuck mentioned it. this is leaving out uncertainty about the model you are using. it's leaving out uncertainty about the nonstationary of the time series you are using to set up the monte carlo. i think it's really important to have both, just because they are going to communicate and what we can hope to do is communicate. so, let me go to three issues that everybody is talking about around the uncertainty projections. automatic adjustments, legislation for future implementation and additional savings, what i will call alan's baram in response to increased uncertainty. i want to say i love automatic
9:17 pm
adjustments pretty think it's important to have future implementation and i think we need a lot more theory work done before we accept alan's baram. this is not to say i think it's wrong but to say we need some serious studies. let me just run through some of this. automatic adjustments, social security has some of them, adjustments for food prices and adjustments for wages. you look abroad, sweden has adjustments for mortality rates, for life expectancy. both for initial benefits and the increasing benefits for delayed claiming. germany has the benefit adjustment for the old-age dependency rate and sweden as an adjustment which they made an absolute mess of. if the projection of solvency is the point. jumping ahead, having read the abstract of caymans presentation, i think trying to deal with solvency projections
9:18 pm
automatically would be hard and not a good idea. doing something for mortality is proposed in her 2005 i think would be a good idea but again alan's example indicates the importance of being careful for that. let me just throw out the cbo in its projections assumes all the benefits will be paid and there will be no increase in revenues for covering that. perfectly sensible central projection. it's also the projection in the alternative fiscal scenario. i think the probability we hang on that outcome is very close. the debt-financed, full payment of benefits without changing revenues since two real histories of it in 77 and 83 show benefit cuts to be part of the story and revenue increases
9:19 pm
to be part of the story. so, justin move on then to current legislation for future things. some of them have no credibility and don't affect private behavior and turnout often not happen. social security, the history is rather different. from the beginning of social security up to 1990 there was always a future tax rate increase that had been legislated. none of them were ever repealed. some of them were delayed. some of them are accelerated. he clearly had an impact on the ability of congress to deal with that. and the increase in the age for full benefits which was voted and 83 has had no serious headwinds. so trying to figure out when you can do this in a way that leads to better policy seems to be an extremely important point.
9:20 pm
now let me move on to alan theorem. that's the theorem you have seen from him and he draws on a model of individual behavior for it, which makes the point that there are conditions you need for that and secondly he makes the point that with the uncertain rates it becomes more complicated. and i hope i'm not being unfair, here is 100% of the logic behind you go from the individual to government. i'm sure there is more in alan's heads and was in the paper particularly the draft i went to. so let me talk about what's missing. areas and first i have drawn a paper by of all people alan and kevin which made the assumption that when you had legislation
9:21 pm
that triggered a delay until the next legislation, i present them, didn't actually read the whole paper, that congress is acting in an optimal systematic way around that one political constraints. but i think the point to recognize here unlike the models of behaviors we don't expect to lead to adjustment the periodic adjustment. the second element is what kind of adjustment do we get? i don't think we want to be modeling. congress has always been consistently optimizing overall and away we approve of and i looked around were there any things on individual behavior one might draw on. this paper has behavior -- behavioral misbehavior when you are making a decision and uncertainty about what will happen if you try tried to do it ahead of time and analyzes how to set the budget constraint to
9:22 pm
trade these off. i think that's an interesting mindset for going forward. and now i want to turn to deadweight burdens of taxation which are part of alan's innovation. my hobby of course is if you ever say the word you need to say something about the income distribution changes that are accompanying the particular level of debt weight burden from the particular tax policy you are looking at. obviously if we had some taxes we could have no debt burdens but we can't or asymmetric information. if we had a small enough budget and a good enough population so we could have a uniform head tax to cover all of the budget, then we could have no deadweight burdens.
9:23 pm
that we might not like that. we might choose to have debt weight burdens in order to have a different tack structure for better income distribution. in that case the presence of deadweight burdens as a sign that the policy is better, not worse. emanuel site is in his thesis asked the question, if you can't finance the government and you don't want to pay attention to income distribution what do you do and it turns out you get a particular optimal tax model and he goes ahead and solves it and my thinking is we need on the policy adjustment rather than the whole budget argument and analysis of the minimum debt weight burden. that counts is debt weight burden and if the actual policies anything different in that it makes a policy better not worse. i just want to remind you of two
9:24 pm
standard welfare theorems in the context of public finance. the absence of distorting taxes when we have the income distribution concerns is a sign that you are not optimizing. even if it's just individual uncertainty you are dealing with asymmetric information, again the absence of distorting taxes is evidence that you don't have social welfare. thank you. [applause] >> thank you very much for that. i will score you high and two counts. one is clarity in the second one is brevity. as we know they don't always
9:25 pm
coincide so i appreciate that. alan i want to ask you about something that peter raised and it basically goes as i understand your argument you are saying that we should do enough today with the federal government on sustainable fiscal course. that involves probably changes to taxes and benefits so whatever you think we should do that and then we should tighten our belts more to account for the fact that there is a lot of uncertainty. >> yes, that's basically it. >> and that sounds like we have to go through a lot of pain that may not prove to be necessary. and the reason we should do that is? >> the reason we should do that is first of all life is more complicated than that. starting from that basically
9:26 pm
what i said, if there's a lot of uncertainty and we have a series of adverse events which caused things to be within the predicted range but a lot worse than the baseline estimate than then if we haven't taken forceful action we will have a disaster. economic, not just some people paying higher taxes but are really economic disaster. >> it's not enough to build in indexing or triggers. we have to save more now. >> well you could build in the trader. the problem is that overcomes a policy problem. you won't have to enact it but for example suppose the trigger is marginal income tax rates go up when there's a bigger revenue shortfall. if it only happens after shortfall that's still going to
9:27 pm
give you the same path with taxes that she would have done if you were simply responding and that would still give you a very high marginal tax rates in the future. so it overcomes the political problem and perhaps it avoids a fiscal crisis and an ability to ask. but it doesn't change the economic cost or the adverse distribution of things. >> peter do you think he is right or wrong? >> both. the point here is that he was describing a particular way of first bonding to triggers that are there. first of all there are other ways to construct triggers that are forward-looking and secondly one of the problems we have in some of these things is congress
9:28 pm
will have powerful incentives to undo more of them. but we also have -- so i think until we get more usable, useful picture of the interaction of the position and political action, it's hard to jump to the side of that. i don't think saving more now is necessarily optimum. it may be that now i will add to what peter was saying. i think actually it's uncertain. alan began, allen's presentation
9:29 pm
was like peter and myself. of course that was in this paper but as peter alluded to i don't think it's there in the literature from 2007. when i was in graduate school i learned precautionary savings arguments depend on the third druid if of the utility function that in my view was oh this is really subtle and we shouldn't be drawing strong conclusions. now whether that argument even applies to government savings i don't know. even if it did this is subtle and even if beside the political economy questions of how congress will that peter was raising just the traditional economic social planning i'm not sure what could be sensible government policy. i think what alan has done today has been a service of sticking
9:30 pm
his neck out and making a strong proposal which i hope would lead to -- which would get underneath us. >> alan you haven't spend all of your life in academia. you have spent some time in the tax committee. do you really think that members of congress, even if we say the median and above members of congress can actually distinguish between what is a projection and what is the uncertainty around that projection? are we being a little bit naïve here for think that's even possible? >> no, i don't think we are being naïve. i think obviously some members are more expert in this than others. members of the budget committee are likely to understand it better than the people who aren't.
9:31 pm
.. and you know, but yet the resources are there and it is tempting to spend it. >> let's turn to the audience. we have time for that. there is a microphone around. if would be helpful, a, tell us
9:32 pm
who you are and b, follow the panel's example of brevity. >> i'm a reporter with tax notes on "the hill." this is for alan. i hope this isn't missing the point but i read one page here but you said the three main sources are uncertainty over the next 25 years, over longer time horizon, past business cycles i guess, is productivity growth, interest rates on the debt and health care costs growth. so again, not to miss the point but did you give any thought to just suggesting, well, if those are the sources of uncertainty, maybe we push them in a positive direction? reforming education system for example. >> i don't understand what i mean by push them in positive direction? >> [inaudible]. >> well, first of all it is kind of hard to come up with anything that has substantial effect on
9:33 pm
any of these factors in terms of policy. i'm talking here about uncertainty. so again, i. i want too separate what we should do about projected imbalances and uncertainty about the projected imbalance. even if we improve the excess, trajectory of excess health cost breath, that means we have a smaller job ahead of us, but still doesn't tell us how we should be responding to uncertainty. >> in the book. right there. >> question for alan also. when you use the word savings there is interesting relationship between investment and models. with people saving on money, is there uncertainty or there is assumption that savings turn into invests? in the case like the government makes investments? >> when i talk about the saving
9:34 pm
and in the paper i'm thinking about government retiring debt. that is simplest thing i'm thinking about when this issue comes up. >> marti fell stein. -- marty feldstein. >> thanks. i agree with alan's basic conclusion we should be doing things in advance. the question of why save? one reason why we should be thinking about saving is that we've seen the size of the national debt double relative to gdp in the last decade or so. so, from that point of view alone, given the risks associated with a large debt, paying some of it down, lee introducing the future interests costs and dead weight losses associated with raising taxes to service that debt, all seems to be a good thing. another thing that, particularly thinking about social security and medicare, yes, there is
9:35 pm
uncertainty about the future around we could adjust when the time came but you can't adjust the benefits of future retirees quickly. both as a political matter and as a matter fairness to individuals you have to give them time to adjust so i think maybe we gave too much time in the social security reforms of 1983 which we're still phasing in 30 plus years later. but you can't do it overnight. so that is another reason to respond to uncertainty by looking ahead and making those adjustments. i would like alan's suggestion about indexing to life expectancy and he both made the case for it and also raised the concern that not everybody is going to enjoy the same increases in life expectancy. and i think we know the
9:36 pm
statistical evidence is that lower income people have not enjoyed the same increase in life expectancy over last several decades that higher income people did. that is remediable not individual by individual but income group by income group. with the social security we have a record of lifetime earnings. we can make the age of benefits depend upon the average income during the individual's working life. >> alan? >> dr. from brookings. you talked about uncertainty but there is useful distinction between uncertainty, between stuff you can't price and risk, this thing that has probabilities on it. so i wondered whether it was, would be useful to make that kind of distinction in thinking
9:37 pm
about the sorts of things you're thinking about? my second question is, from monetary policy, there is brainard uncertainty and that said you should move slowly and then see what the effects are, when you're uncertain about the effects. is there analogy here or political, i understand the political stuff would be very, very hard but i wonder whether there is any analogy here? >> on the first one i do talk briefly in the paper about the distinction between risk and uncertainty suggesting that perhaps is what underlies people's arguments about not, just ignoring uncertainty. if i had is the certainty where people don't have probability distributionses it is hard to react to it. while i sympathize with that perspective i looked into the literature to see whether -- there is very small literature on precautionary saving in response to ambiguity aversions,
9:38 pm
nidian uncertainty. there is no argument, nowhere in the literature is there an argument for ignoring uncertainty. it tends to be kind of analogous. again it is fairly thin literature. on the second point i guess i would, i hadn't been thinking about the brainard paper but i think my comments about health care reform have that flavor. that is, if we're really not sure what measures we should be taking we ought to be, we ought to take precaution there but that doesn't mean that, maybe, maybe our responses should be more of a budgetary variety and less of the structural variety if we really don't know what the right way to do things is. >> budgetary to -- >> for example, if you say, we don't know how, we have a medicare projected deficit. we don't know how big it's going to be and we don't know how various health reform measures will change it. so we have to be careful in undertaking those measures. that doesn't mean we can't say, raise medicare premiums or do
9:39 pm
something else to improve the funding of the system. >> peter? >> let me just criticize citation of the brainard paper. i written at it and turned down and never followed up on it. what he assumes is something you know perfectly and there is a parameter of changes from that where you have uncertainty. and so you go toward what you know perfectly. the problem that alan has posed for us is there is nothing that we know certainly and so i don't think the brainard analysis holds for monetary policy and -- fiscal policy either. >> i could add on both of those, on brainard, just take that as an another example that peter was saying, precisely what sun certain matters a lot and you can get very different results. you really need to have the model. on the bigger issue about nidian
9:40 pm
uncertainty and ambiguity, one of the things we haven't talked about at all, what the view of the nation should be regarding uncertain. we have to ask should the government be risk-averse or risk neutral even within the standard framework. once you move into areas with ambiguity, and this shows up in climate change policy a lot and other areas as well, you have to take a stance. my technical work is analysis of social policy you have to take a stance on what the right question to alan's answer would be might depend on what decision criteria the government uses. so as well, subtle at thises. >> let me understand that point. there may be circumstances where the government thinks it is in the national interest to respond to uncertainty by taking action now but there may be other circumstances where we come to a different conclusion? >> i have a paper that came out
9:41 pm
in the past year in the economic journal on the effect of infrastructure spending. the big uncertainty what the effect of government spending, productivity of government spending and what implications should that have for tasks policy i crank outs because i'm a technical economist i crank out solutions to that problem for the government. i find out they could support higher infrastructure spending or lower infrastructure spending just based on what decision criteria the government is going to be use. >> that would be helpful in wash, definitely. bill? >> thank you, bill gale from brookings. thank you. we're talking about all this in the context of cbo forecasts and how they use uncertainty and that is well and good. i want to make observation. observation may be wrong but seems to me the private sector, goldman sachss of the world, when they put out their economic forecasts they treat uncertainty
9:42 pm
much more like cbo does much less like i think the ideal economic viewpoint would be. just a question for all of you, given that the private sector is not asking or producing these estimates of uncertainty that we would like in our economic models with all the bells and whistles, does that mean there is actually no demand for it? or does that mean that people just don't know enough to be demanding this, even in the private sector? and, rather than just looking at the government forecast? >> this would be the right sector for long-run horizons. >> yes. >> where uncertainly matters a lot. >> i guess i would say if uncertainty would be ignored on wall street it is hard to argue why there would be a market for options. [inaudible]. i think there is delivered in the same spirit that cbo's are. that is it is understood there is uncertainty about them.
9:43 pm
>> i think, when the goldman sachs predicts what the fed is going to do, their clientele may be as interested in certainty as members congress even though there is a great deal of uncertainty about what the long-run equalibrium interest rate is. >> thank you very much. what impact on uncertainty would have, if we focused on the inequality of the wealth inequality, if we close that gap considerably, what impact would that have on uncertainty for the future, especially as it relates to social security, medicare, medicaid? thank you. >> we could, if we made, if we made inequality disappear, other things being equal? [laughter] >> it is not going to disappear but seems to be going in the wrong direction. >> getting back to peter's point about distortion airy taxes.
9:44 pm
when you have greater inequality you're likely to use more distortion heirry taxes. you're willing to spend more to get it. but that also means, if you have, an economy where you can have lower marginal tax rates because you don't need to affect policies of redistribution, that gives you a little it about more flexibility in terms of your long-run planning because it does mean, for example, that if revenue need go up unexpectedly you have more scope for increasing marginal tax rates than you would if you were already using a lot of high marginal tax rates to do redistribution. so it would make, obviously would make life simpler but i'm, among the unlikely things to happen in the next several years i think that is probably among most unlikely. >> last question here. the blue shirt.
9:45 pm
bob schiller has a proposal we have a tax increase on rich people that is triggered if uncertainty, if inequality gets worse since we're not certain about how -- >> yeah. steve glass from social security administration. a question for the panel. relates to what you were saying, david, about the prospect of elected officials inflicting pain that may not be ultimately necessary. i think others on the panel mentioned this alan's con send app tension is yes. understanding insurance about bringing about risk for the future we would may expect be necessary to have a -- i would ask you all to sort of look back and observe what you've seen and i think we have a lot of they're tish shuns in the room, all of us, not so many elected officials. what is your experience and observations of all elected officials representing the people have function when presented with a range of possibilities do they tend to look at, i think you're suggesting, alan, at the outlyer
9:46 pm
situations where things could be bad and save extra and perhaps more hopeful and say given a range it could well turn out to be better than the best expectations so we can defer action as a result? therefore giving a range of possibilities, does it really take us in the direction in our economy, and in our politics that you would like? >> well i'm not sure i'm an expert on the behavior of politicians. there are others here who are much better able to comment on that. i think, an interesting question is, what, if any, institutional changes could be made to make it more likely to succeed in putting resources aside. that is an interesting question. there are various potential answers but i'm, i don't really know. >> two things. first of all, i will go a step further than alan. i'm not an expert how
9:47 pm
politicians behave but the inflicting future pain is politically much easier than inflicting current pain and again social security is the obvious example here. but secondly, worldwide we're seeing serious attempts to build up rainy day funds. norway is the prime example. i'm just back from peru and they're studying how they can make it work given commodity issues. chile wrestles with this. so i think this, there is a great topic -- [inaudible] >> i'm even less an expert than peter. >> we actually have some experts later. before we get too humble here. >> but the one point i might put is that, behavior of policymakers and politicians is not necessarily fixed. i hate for an economist to use
9:48 pm
the word cultural norms but i think there is a cultural norm in this country to ignore uncertainty and that is changeable. even if now, and going back to bill gill, he is the guy who i had a testy email exchange several years ago about this and he is true to form today. wall street doesn't, they make earnings forecast without uncertainty and shows the market is always right and therefore we don't need to worry about uncertainty. could be the private earnings forecasters are wrong to ignore uncertainty and the government is wrong to ignore uncertainty and these things are changeable. i would say, i don't know what robert schiller may have to say about this when he comes on but i spend a lot of time in london and i find somewhat more receptivity to expression of uncertainty in the u.k. than i do in this country and, so i think this is changeable. >> okay. with that i'm going to dismiss the panel. and invite david caiman up.
9:49 pm
david is a assistant professor of law at, oh, sorry. [applause] david is an assistant professor of law at nyu, a veteran of the obama administration, both the office of management and budget and the national economic council, and we asked him to think about, if you know that you're uncertain, how can you, instead of ignoring that, take chuck man ski's advice and don't ignore it, how do you build into government policy and legislation ways to anticipate and adjust to it. after david speaks i will be joined by bill hoagland, gene spurring and representative cooper who will not say they are not experts on what washington does. >> first, thanks to the hutchins center for organizing this conference and i very much look forward to the discussion with representative cooper, bill,
9:50 pm
gene and i want to thank them in advance. i also want to specifically thank gene. so part of my interest in these topics and trying to build these kinds of mechanisms actually came from the many hours and frankly very late nights i spent trying to dream up various trigger mechanisms while working for gene. so i wanted to thank gene for some inspiration even if it came sometimes at the expense of sleep. so first, i wanted to distinguish this discussion from the discussion that came before. alan's paper and the discussion we just had addresses the very important issue of how much we should be saving for the future given the uncertainty we face. the issue that i'm talking about is somewhat different. irrespective whether we choose to save more or less because of uncertainty we do make decisions today that will affect our future. we have little choice in that matter. so when major legislation is
9:51 pm
enacted today or on some future date, it will have effects going forward. that will, the legislation will continue as time goes on. even as the world changes and potentially in ways that were not expected at the time the legislation was designed. so unless the legislation adapts, in some way to the new circumstances, we will have a situation where, what i call policy drift. as we drift off course, that was intended for where there is no correction, potentially from the legislation itself or from policymakers. this can produce suboptimal policy in areas ranging from counter-cyclical policy to social security. my discussion today focusing on legislative mechanisms that can be used to address this problem and build inflexibility to legislation so it can update in ways to, that it can update to circumstances even if we end up in a situation where we are, where the world is different
9:52 pm
than with we had expected. i emphasize automatic adjustment mechanisms as a tool for doing, something emphasized obviously by the previous panel. i think that is probably among the most attractive ways to doing it and i don't like think it win be appropriate to all circumstance and i will draws other tools at our disposal trying to address this first let me lay out the basic problem. the process of legislation is often characterized by inertia but not always. so there will be moments where large legislation gets done, where grand bargains get struck. even as that is followed by periods where little legislation is actually done. so the figure i have up here displays this visually in terms of the type of process we may be looking at and really quite a simple figure. the idea is that policy gets set at an earlier point.
9:53 pm
circumstances change in some ways so that we begin to drift off of the path that was intended and policy may not be performing as it was intended to but there may be thresholds below which congress simply will not correct the drift. it may only correct if you drift off sufficiently from the originally-intended path. there are a number of ways to explain why this pattern may develop. it includes the fact that congress can only focus on some issues at once. it also may include the difficulty of negotiating across two houses and the president as quite evident today. especially increasingly partisan environment. irrespective of the exact explanation, congress does tend to move in fits and starts and doesn't always respond to new information. this has very real effects on policy and the country. and i want to illustrate that now using two different policy areas. one coming from recent recession and the other from social security policy which has been discussed already.
9:54 pm
so first the great recession. the great recession may be remembered in fact for its very large legislation, in response to the economy's tailspin. so it may seem an odd choice for illustrating what i am calling policy drift because congress, seemed in fact to respond. but its major legislation adjusting fiscal policy, the recovery act, was designed at time of great uncertainty about the state of the economy. while the economy was expected to suffer severe recession the severity had not become fully apparent. as of january 2009, for instance, the congressional budget office expected the unemployment rate to be about three percentage points above the full employment rate in 2009 and 2010. however as it turns out the actual rate was something like four to six percentage points higher than the full employment rate in those years assuming policy remained the same as of the beginning of 2009. i should be clear the fact that
9:55 pm
the initial projections were incorrect and were too optimistic became very quickly evident. the unemployment rate quickly shot up to higher levels than had been expected. so what was the congressional response to this new information? well 2009 saw basically no additional fiscal support beyond what was earlier enacted. and 2010 saw some but largely as a result of congress extending measures with cliff-like expirations in the earlier stimulus. and this become as lesson on which i later focus. one way, probably not the best way but one way of getting congress to focus and update areas of new information is build in dramatic expirations. the point here that circumstances had changed and policy drifted away from inherently intended course, to the extent there is such a ink thing without much response from congress. so, now taking example of social security, which obviously
9:56 pm
has already gone in significant discussion. as our prior panel discussed the problem of uncertainty is not just about short-term economic trends but about the long term. we certainly face uncertainty there as well. when it comes to social security we've seen at least to have general commitment by policymakers for self-sustaining, social security system. so they agree on that, generally. and in 1983, and in the face of immediate solvency problem, there was a deal to maintain solvency in the system for at least 75 years but the deal was made in the face of uncertainty. and as it has turned out and shown in this figure, various factors combined to actually produce a system that will not be as solvent as long as they originally expected. instead of solvent through around 2060, the current projection now puts solvency, solvency point around 2033 and
9:57 pm
ten trillion estimate was shown with optimistic scenario that the trust fund never becomes insolvent and pessimistic scenario that it occurs as early as 2028. in sum we have drifted off the course that was set in 1983 but there has no response certainly in the form of significant social security legislation since that date. so now the question becomes, what do we do in the face of a combination of uncertainty and sometimes inability of congress to actually respond to new information. part of the answer so to make legislation proe robust to circumstances and legislation can adapt with out congress taking action. i call this as automatic adjustment figures and form of it indexing t goes off in certain conditions and updates legislation appropriately for those conditions. let's first turn to countercyclical policy in the face of uncertainty our fiscal
9:58 pm
system could be made to automatically respond to changes in economic conditions in order to support demand when needed and withdraw that support when not. the idea strengthening what are often called the automatic stablizers is old one. while the idea is old and certainly worth revisiting and expanding in at least two ways. first when the government does do significant discretionary stimulus with congress stepping in during a period of economic weakness to actually adjust demand, it can potentially build additional automatic adjustments into that legislation. congress should recognize that there may only be one bite of the apple and it is sensible to plan if that were the case. so, in the recovery act, many of the largest provisions could have been made contingent on economic circumstances. second, on a permanent basis there are many opportunities for improving our automatic stablizers. for instance right now only
9:59 pm
unemployment insurance is triggered off by when the unemployment rate crosses certain thresholds and yet the unemployment rate does a good job of indicating when we in fact are entering recession as this slide shows. so the gray period here shows periods of recessions. spike in that indicates return of recession when it has begun. you can imagine based on unemployment rate or earth indices we could come up with we could automatically adjust initial infrastructure spending on state by state basis. we could adjust tax credits and so on and we would have better economic performance. . .
10:00 pm
i agree with mike you have to build in different protections with the actuary do those protections but i would note that when it comes to looking at actual social security plans when they do then they do them on the 75 year projection including saving social security plan. people do target the 75 year solvency and if we are targeting it when we are

16 Views

info Stream Only

Uploaded by TV Archive on