Invest in better state building
Invest in better state building
Illustration by Shout
January 20 offers the United States a chance for a fresh start.
A new president brings new policy ideas, a new team, and a new store of political capital. But America’s slate is anything but blank. The list of concerns facing the country’s new chief executive—old and new, chronic and acute, social, economic, military, and geopolitical—is dwarfed only by the universe of ideas about how to address them.
We’ve asked some of America’s foremost academic social scientists for the one piece of advice they’d most like to offer the White House. Our group of advisors, who hail from some of the country’s most elite universities, includes Nobel laureates and former senior-level policy makers. Their suggestions range from how to deter terrorists to how to end political gridlock, from ways to reduce poverty to ways to spur new-business growth.
All advice was solicited and received before the outcome of the election was decided. Our object in this project was to collect advice to the office of the president, rather than to any particular occupant. It reflects, then, not the commotion and controversies of the campaign, but rather the most promising solutions to America’s most pressing problems, as identified by some of its brightest minds.
Multiple speakers overlapping: My advice for the next president of the United States . . .
Roger Myerson: My advice to the next president of the United States is that although we’ve had some failures in state building, and it’s very popular for politicians today to say, “America should not do state building,” in fact, the United States’ national security interests really depend on this nation developing a real, effective capability at state building and doing postconflict political follow-through for any future military interventions.
The reason why an international terrorist would want to spend any time organizing attacks on the United States is primarily because he anticipates that our military, the military response that he hopes his attacks would provoke will, by death and destruction in his region, create a kind of chaos that creates political opportunities for him.
We need such enemies to anticipate that our response to their attacks would not be destruction that creates political chaos, but rather a destruction that can be effectively turned by us into a new political order. A capacity to effectively support democratic state building can be developed by applying lessons from America’s own history of decentralized federal democracy.
Democratic state building has seemed, paradoxically, to be more difficult than imperial conquest because when America tries to support the leader of a national government, that leader then has less incentive to do the hard work of negotiating a broad coalition that includes popularly trusted leaders from communities throughout the country.
Don’t run away from state building. Recognize that the failures in the past mean that we need to invest more in it. The cost, however, will be significantly less than the cost of any number of exciting weapon systems that military contractors are currently talking about.
My advice to the next president of the United States is this: although we’ve had some failures in state building, and although it's very popular for politicians today to say “America should not engage in state building,” in fact the US’ national-security interests really depend on this nation developing an effective capacity for postconflict political follow-through for future military interventions.
Don’t run away from state building. Recognize that the failures of the past mean that we need to invest more in it. The cost will be significantly less than the cost of any number of new weapon systems that military contractors are currently talking about, and its impact on our ability to deter international terrorism will be far greater.
Terrorism is first and foremost a political tactic. The basic goal of terrorist violence is to provoke a violent response. Because terrorists hide within larger populations of people, governments that respond to terrorist acts often do so to the detriment of large subsets of those populations. The effect is to cause people in those populations to start viewing the governments in question as their enemies. It enables the terrorists to say, “Well, we’re the ones who have been fighting this dangerous enemy all along.”
Our response, they hope, will create political opportunities for them. Almost all of the discussion we hear this election year about how to respond to international terrorism in the Middle East and elsewhere in the world is, “When they attack, we’re going to just bomb them. Don’t try to do state building; don’t occupy anything. Just go in with destruction.”
What can we do that terrorists would truly hate? The answer is to build up political alternatives to them.
Destruction creates chaos. It creates hardship for the populations around where the terrorists are operating. And that is exactly what terrorists want. When we face, as we do today, enemies such as ISIS, who actually think that any American military operation would simply create new political opportunities for them, that means our military threats have failed to act as deterrents.
So what can we do that terrorists would truly hate? The answer is to build up political alternatives to them. And the way to do that is to develop a balanced sharing of power between national, provincial, and municipal governments.
If you look through the history of what happened in Iraq and Afghanistan after our military interventions there, you’ll find that where we had frustration and failures, it was almost always because we didn’t insist on a proper balance between local and national politics in the formation of the government. This is not some theoretical abstraction. This is exactly the kind of political principal that meant the most to America in its own state-building process.
It has been said by many that Americans have overestimated the degree to which people around the world desire or are ready for democracy. I think democracy is a pretty good sell. I think people all around the world, if they don’t have a democratic government, appreciate the idea that the national leadership ought to be accountable to a broad popular approval, and don't want leaders who can’t win popular approval in something such as an election.
Far from overestimating the appeal of democracy, I think we underestimate the extent to which other countries are exactly like the US in having local politics that mean as much to them as national politics. When our diplomats and generals go in and focus only on building a strong national government for a country in transition, we are implicitly threatening local political leadership in some or many parts of that country. In each case this has created problems.
For example: ISIS in 2014 conquered the Sunni third of Iraq very quickly because of an alienation of the Sunni population. That area had legitimately elected provincial governments in the three Sunni-majority provinces. If the US had made a commitment to long-term financial and technical support for those legitimately elected provincial governments in the Sunni provinces, local Sunni leaders wouldn’t have needed to turn to ISIS to protect their political authority.
The US should have understood, because this is part of our own history, that people everywhere need to have some faith that popular local leaders have some real ability to serve their communities.
When I argue that the US needs to invest in a credible capacity for state building, it is not with any anticipation that we will ever use it. One can advocate for military systems without ever wanting to use them—in fact, one should. The imperative is deterrence. If terrorists recognize that attacking the US will result in the creation of a viable democratic government in the state or region in which they operate, they will have to change their political strategy. If that happens, then our state-building capacity will never need to be used, but we will nonetheless have deterred dangerous adversaries.
Multiple speakers overlapping: My advice to the next president of the United States . . .
Douglas J. Skinner: My advice to the next president of the United States is to urgently reform the tax system and the tax code.
If we look over the last several years, since the financial crisis, the level of capital investment by public companies in the US has increased very modestly relative to, say, earnings or operating cash flows. If we could somehow stimulate those capital expenditures, it would really help to increase economic growth.
If we look at the balance sheets, especially of the largest public companies in the US, there’s an enormous amount of cash being held on those balance sheets. I think it’s around $1.3 trillion, $1.4 trillion of cash held by US multinationals is held outside of the US.
Why is that? Well, it’s because the US tax code has this unusual feature under which the earnings, taxable income of the foreign subsidiaries of these US multinational companies is taxed not only in the foreign jurisdiction, the foreign country, where those earnings are actually made, but also by the US.
So for example, if Apple earns a $100 outside the US, in a country with a tax rate of 20 percent, the incremental 15 percent to bring it up to the US tax rate of 35 percent is going to be taxed by the US. If that cash, those earnings, are held in the foreign subsidiary outside the US, they’re not going to be subject to US taxes. So that additional 15 percent is only gonna be payable if that cash is returned to the US by Apple or by one of these other multinationals.
So the problem is really twofold. One, the US tax rate is relatively high compared to most developed countries. And No. 2, we have this relatively unusual feature of the US tax code in which the cash held offshore is going to be tax free at least to the US tax rate, as long as it’s held offshore.
If we could reform the tax system to remove those things, then this money would very likely flow back into the US, would be spent by these companies, and could very well trigger a very substantial increase in capital investment, and potentially lead to much stronger economic growth in the US.
And so it’s very perverse if we think about the fact that these companies would like to operate in the US, but are using this strange feature of the tax code to essentially take themselves offshore, outside the US, to avoid these high taxes. Those jobs, investment, everything else, potentially, is leaving the US.
Perhaps the biggest concern that economists talk about today—related to the issue of low or even negative interest rates—is how to stimulate economic growth. My advice has to do with an important driver of growth, which is how to encourage companies to increase their levels of investment—that is, to spend more on plant, machinery, equipment, and R&D, investments that ultimately will generate future profits, increase employment, and drive economic growth.
If you look at the largest public companies in the US, you will find that this type of investment expenditure—capex and R&D spending—has grown very modestly since the 2007–10 financial crisis. There are two culprits for this. First, as some of my research shows, nonfinancial public companies are returning cash to shareholders—through both dividends and repurchases—at record levels (both in absolute-dollar terms and relative to their earnings). There isn’t much the president can (or should) do about this.
In spite of these large payouts, the cash held on corporate balance sheets is also at record levels. Apple, Microsoft, Google, and other large tech companies have received a lot of attention here: Apple, for example, is holding well in excess of $200 billion in cash (really, cash and marketable securities) on its balance sheet. Moody’s reported that US nonfinancial companies held a record $1.7 trillion in cash at the end of 2015.
Of the $216 billion in cash on Apple’s balance sheet, $200 billion (93 percent) is held offshore.
This is where the next president can help. A big reason these companies are holding so much cash is the US tax system, which is urgently in need of reform. Not only is the corporate tax rate, at 35 percent, one of the highest among developed economies, but—even more important—the US taxes the foreign earnings of US multinationals. This means that if a US multinational, such as Apple or Microsoft, earns $100 in another country and pays $20 in taxes in that country, it owes an additional $15 in taxes to the US government (bringing the total up to the 35 percent liability imposed by the US). This $15 can be deferred indefinitely if the money is not brought home (or repatriated), which provides a strong incentive for these companies to keep the cash offshore.
Remarkably, of the $216 billion in cash on Apple’s balance sheet, $200 billion (93 percent) is held offshore and is not being spent. Microsoft holds around $103 billion in cash, of which $96 billion sits outside the US. This is money that will not be spent to grow the business (or even be returned to shareholders) unless these companies happen to find attractive investment opportunities in these other countries.
Reforming US tax code—both lowering the corporate rate and eliminating taxation of foreign earnings—could bring a lot of cash back to the US and could be a big boost to investment. Furthermore, it would remove the incentive for US companies to opt for tax-motivated inversions, which move US businesses (and the associated employment and investment, not to mention tax revenues) to lower tax regimes. The Obama administration has been trying to stamp out such inversions almost on a deal-by-deal basis by thinking up rules to block individual transactions; well thought-out tax reform would remove the incentive underlying them in one fell swoop.
I think everyone agrees that our tax system is overly complex, that the tax rate is too high, and that this has created structural disadvantages for US companies. Reforming the tax system could go a long way toward stimulating corporate investment and driving economic growth. This seems like a no-brainer for the next president.
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Multiple speakers overlapping: My advice for the next president of the United States is . . .
Dan Adelman: My advice for the next president of the United States is that, first off, that we keep the Patient Protection part of the Affordable Care Act, which has set off the quality revolution in health care in America. And secondly, that they start something similar to the Financial Accounting Standards Board that the SEC set up in the past to protect consumers from investment fraud, but to do so for health care.
So the Affordable Care Act has been much discussed lately, in particular, health-care insurance for all Americans and the difficulties with the exchanges. But what’s not been much discussed is the patient-protection part of the act. The patient-protection part of the act has started a number of different programs, in particular the Hospital Value-Based Purchasing Program, the Hospital Readmissions Reduction Program, and the Medicare Savings Program that tie money to quality. And so, as a result of this, today, 30 percent of Medicare payments are now tied to quality metrics, and it’s expected in the next couple of years for that to move to 50 percent.
However, there’s a crisis brewing, and the crisis is that the quality metrics that are being calculated are inaccurate, and as a consequence of this, we have hospitals that are being penalized that are good hospitals, and we have hospitals that are bad hospitals that are being rewarded.
We also have the problem of the patients themselves, because the patients are being directed in some cases to providers that, in fact, are not providing the best care.
We currently lack national standards for how hospitals should control internally the collection and maintenance of data. And so I’ve heard of hospitals that, for example, upon the death of a patient, will make sure that things like obesity and diabetes are properly coded, and by doing so have had significant increases in their mortality quality metric.
And so what you have are hospitals, some hospitals, are investing heavily in these internal controls, and are therefore gaming the system, where you have, on the other hand, other hospitals that are not investing in these internal controls quite so much, and even though they look not as good in terms of the quality metrics that are being reported, they, in fact, have higher quality.
And so that’s one area where there’s an issue. The other issue is in external data integrity. And so, some of my collaborators at Rush University Medical Center just published this month an article in the Joint Commission Journal on Quality and Patient Safety showing that the patient safety indices that are being calculated by U.S. News & World Report, in the past have suffered from a data-integrity issue. And as a result of that, U.S. News & World Report has actually changed their methodology for how they calculate these scores.
The second problem is with methodology. And so, a couple years ago, the Institute of Medicine published a report saying that hospitals should begin to collect social and behavioral determinants of health. And it’s been well understood that these determinants actually have significant effect on readmissions, rates, and mortality, and other things. And so, for safety-net hospitals in particular, it’s felt that they are being unfairly penalized because these determinants are not being accurately captured.
And so, my second recommendation is that the government should set up essentially a FASB for health care. So just like the SEC started the Financial Accounting Standards Board some years ago to protect the consumer from investor fraud, the federal government should start a similar agency—nonprofit, independent—that has two basic roles. One is in setting standards for hospitals, for the internal controls of hospitals around data collection and data integrity. And then they should also be setting standards for external reporting, much like the National Quality Forum does today, for example.
But in addition, they should also have audit powers. So they should be able to go into hospitals and verify that the standards that they’ve set for internal controls are, in fact, being followed. In addition, any agency, government or nongovernment, that’s involved in rating hospitals should be subject to audit, and the quality metrics that they’re reporting should be subject to audit, to make sure that they’re following proper methodological standards and that there’s transparency.
This election cycle, there’s been a lot of discussion about the Affordable Care Act, primarily concerning the issue of providing health-care insurance for all Americans and the difficulties with the exchanges. But the law is actually called the Patient Protection and Affordable Care Act, and the patient-protection part of the legislation hasn’t been discussed much, even though it started a quality-measurement revolution. So my first piece of advice to the next president is that whatever else you do with health care, keep the patient-protection part of the Affordable Care Act.
The act has created a number of programs focused on quality metrics—for example, the Hospital Value-Based Purchasing Program, the Hospital Readmissions Reduction Program, and the Medicare Shared Savings Program. As a result, today 30 percent of all Medicare payments are tied to payment models that have a quality-metric component to them. That’s expected to move to 50 percent over the next couple of years.
The metrics we’re talking about are ones such as mortality, readmissions, and patient safety. In addition, these metrics are also being publicly recorded, so now the Centers for Medicare & Medicaid Services publish figures allowing people to compare various hospitals across metrics. Soon they plan to do the same for physicians. In addition, you have U.S. News & World Report, which has its own quality metrics that it publishes, and other agencies, such as the nonprofit ProPublica.
Consequently, quality metrics are tied to not only dollars but reputation. In the Healthcare Analytics Laboratory at Chicago Booth, we collaborate on lots of projects with hospitals all around Chicago, and we’re seeing hospitals working hard to improve their quality. These are good reasons to keep the patient-protection component of the act in place.
However, there’s a crisis brewing. The quality metrics that are being calculated are inaccurate. And as a consequence, some good hospitals are being penalized, and some bad hospitals are being rewarded. Patients are also being directed, in some cases, to providers that are not giving the best care.
Why are the metrics inaccurate? There are two primary reasons. One has to do with data integrity, and especially with internal controls. We lack national standards for how hospitals should control, internally, the collection and maintenance of data. For example, on the death of a patient, some hospitals make sure that conditions such as obesity and diabetes are properly coded, while others don’t. Those that do have seen increases in their mortality quality metric without having necessarily made an actual quality improvement. Differences in internal controls can make hospitals look better or worse than they really are.
There are also data-integrity problems with how quality metrics are externally reported. Some of my collaborators at Rush University Medical Center just published an article demonstrating that the patient-safety indices calculated by U.S. News & World Report have, in the past, suffered from a data-integrity issue.1U.S. News & World Report has actually changed its methodology for how it calculates these scores, and in 2016 there have been some reversals, with formerly high-ranking hospitals now near the bottom along some metrics. And of course, clinically, nothing has changed.
The second major problem with quality metrics involves methodology. A couple of years ago the Institute of Medicine published a report saying that hospitals should begin to collect data on social and behavioral determinants of health. It’s been well understood that these determinants actually have significant impact on readmission rates, mortality, and other things. But they aren’t being accurately captured right now, and so it is believed that safety-net hospitals in particular are being unfairly penalized.
Similarly, ProPublica has begun ranking surgeons across the nation, and the methodology they’re using for risk adjustment, while sophisticated, was not properly vetted in the medical community before their rankings were released.2 Nonetheless, their ranking affects where the public gets its care.
As a result of all this, my second piece of advice to the president is that the government should set up for health care something similar to the Financial Accounting Standards Board.3 We need a nonprofit, independent authority to serve two basic roles. One is setting standards for the internal controls of hospitals around data collection and data integrity, as well as standards for external reporting of quality metrics, much as the National Quality Forum does today. Its second role should be as an auditor. It should be able to go into hospitals and verify that the standards established for internal controls are in fact being followed. In addition, any agency, governmental or private, that’s involved in rating hospitals should be subject to audit to make sure it’s following proper methodological standards and being transparent.
What I’m describing is not a small job. But taking these steps would allow us to build on the strides we’ve already made toward better quality and patient protection in heath care, and it would allow hospitals to compete with one another on a level playing field.
1 Bala Hota, Thomas A. Webb, Brian D. Stein, Richa Gupta, David Ansell, and Omar Lateef, "Consumer Rankings and Health Care: Toward Validation and Transparency," The Joint Commission Journal on Quality and Patient Safety, October 2016.
2 Mark W. Friedberg, Peter J. Pronovost, David M. Shahian, Dana Gelb Safran, Karl Y. Bilimoria, Marc N. Elliott, Cheryl L. Damberg, Justin B. Dimick, Alan M. Zaslavsky, "A Methodological Critique of the ProPublica Surgeon Scorecard," RAND Corporation, 2015.
3 This idea builds on views expressed by David M. Shahian, Elizabeth A. Mort, and Peter J. Pronovost in “The Quality Measurement Crisis: An Urgent Need for Methodological Standards and Transparency,” The Joint Commission Journal on Quality and Patient Safety, October 2016.
I’d like to offer two pieces of advice to the next president. One is to find wise trades. The other is to stop what I would call parasitic integration. Let me explain what I mean by those terms, and how they’re related.
Wise trades sound like a broad idea, but I mean something very specific. Columbia’s Joseph Stiglitz referred to near-Pareto improvements, which describe trades that allow just about everybody to be better off (except perhaps for some special interests who contorted the system to begin with). This kind of trade is possible for legislators who want to move policy forward.
To understand wise trades, imagine a situation where Spouse A and Spouse B are going to dinner and a movie. Being perfectly nice people, they compromise on the dinner choice, and then over dinner they compromise over the movie choice. Later on, they find out that there was a trade to be made: Spouse A cared more about dinner choice, and Spouse B cared more about movie choice. If we let each dominate on the issue that he or she cared about, both would have ended up being happier.
We’ve now been through two different presidential administrations where the ability to reach across parties to actually make wise decisions has been very, very limited. But if we go back to the 1990s, we had something called a Habitat Conservation Plan, which provided a means to make trades between land rights and environmental concerns so that land owners could potentially violate the Endangered Species Act while in pursuit of a broader plan that would make the environment and the economy better off. Similarly, in the Environmental Protection Agency we had something called Project Excel, which had the same object with this question in mind: How do you relax some regulations in the pursuit of wiser agreements for the overall society, both on economic and environmental grounds?
We’re not just looking for the center. We’re looking for wise legislators.
It need not just be environmental issues. We were on the verge of a grand deal to solve our debt crisis, but that fell apart due to extremists on both sides of the aisle.
What the next president should do is to figure out how to harness a bipartisan set of wise legislators who could craft a series of wise trades across domains so that we could have wiser policies. Then legislators could resume their partisan differences, but on a more Pareto-improved set of options that they would be looking at.
The idea of wise trades is not compromising, and we’re not just looking for the center. We’re looking for wise legislators who realize that there are trades to be made, legislators who actually want to make the world a better place as opposed to clobbering the other side.
But making the world a better place doesn’t just entail wise trades. My other piece of advice is that there’s a moral imperative to stop parasitic integration. Integration, or value creation, is something we teach in negotiation classes; parasitic integration refers to situations where two parties come up with trades by stealing from people who aren’t at the table.
Growing the debt so that we can spend more without increasing taxes is parasitically integrating across those issues while dumping the debt on future generations. Similarly, overharvesting our forests and overharvesting our seas provides the means for current society to be better off largely because we’re stealing from future generations. I think the next president should abide by the imperative to stop stealing from future generations, and that certainly includes a major focus on reducing climate change, which is an enormous threat to the earth’s future residents.
Multiple speakers overlapping: My advice for the next president of the United States . . .
Eugene F. Fama: My advice for the next president of the United States, for what it’s worth, and I know they won’t follow it, is that less government would be better than more government. The overregulation of almost everything, both at the federal, state, and local level—it’s choking business formation and choking new listings of stocks on the stock exchange. The number of listings on the stock exchange has dropped by 30 percent in the last . . . since around 2000.
So these are big problems that the country faces that neither candidate seems to be talking at all about. Nobody seems to be concerned about regulation because it’s something in the background that people don’t see unless they try to start a business. And then they see it in spades.
Basically, today, you cannot start a financial business unless you’re already in the financial business because of the compliance issues that are there now and weren’t present 30 years ago. The problem that we have is that once regulation is in place, it’s very difficult to roll it back, even though it’s not working. When it’s not working, what you tend to get is even more regulation.
I don’t think financial markets are too regulated. I think financial companies are too regulated. And that comes about because of this crazy “too big to fail” phenomenon that everybody seems to accept. And I think too big to fail is a horrendous problem with the system. I would rather just let them fail, frankly, and make them more responsible that way than trying to regulate them.
In the crisis in 2008 and 2009, there were massive regulators sitting right in these institutions who didn’t see the problems coming. So why will they see the problems coming next time? It seems like you’d do better to try to construct a simpler system that got around these problems created mostly by, as I said, too big to fail. Now I would prefer to see them fail, but no administration is going to let them fail ’cause they’re all worried about what will happen to the economy if we let these companies fail. My own view is, you’ll probably have two weeks of really chaotic stuff and then it’ll settle out.
We have a resolution authority, it’s called the FDIC, who goes in and resettles small banks when they fail. We’re just afraid to apply that to big banks. But I think we should apply it to the big banks as well. Frankly, the banks like too big to fail. It gives them a put option on the rest of us. And that put option is very valuable to them. So they wanna argue that raising capital requirements will actually be too expensive for them. But if you believe Modigliani and Miller, there’s no cost at all.
The simplest regulation in my view would be to really up the equity requirements of, or the capital requirements of, financial companies so they wouldn’t fail. Raise it so high that they can absorb all the losses that they are willing to take. And then if they fail, let them fail.
My general advice for the next president of the United States is that less government is better than more.
Regulation of almost everything, at the federal, state, and local levels, is choking the economy. It’s choking business formation, and it’s choking listings of stocks on stock exchanges. The number of listed stocks has dropped by about 30 percent since 2000. All regulation should have an expiration date, so Congress can judge from experience whether the costs justify the benefits.
And why stop there? Perhaps all or at least most laws should have expiration dates, and exceptions should be rare.
I would like taxpayers to have more direct say (i.e., a menu of choices) in allocating how their tax dollars are spent. Lest this seem silly, we do it now, at least in part, with the charitable tax deduction. I think of that deduction as the Feds allowing me to allocate the tax I would otherwise be paying them to my favorite charities instead. This is better than raising taxes and having the Feds allocate the tax dollars to their choice of charities, which is basically the system in Europe.
“Too big to fail” is an abomination. We should increase the capital requirements of large financial companies so they can absorb the losses they might incur. If they nevertheless fail, trust the FDIC (Federal Deposit Insurance Corporation) to liquidate them in an orderly way. The FDIC liquidates small banks that fail, and we should let it handle big banks.
Janet M. Currie, Princeton
The next president must maintain and expand efforts to improve the lives of young children because they are our future. Research shows that what happens early in life sets a pattern for child development. Children who are healthy, well nourished, and cared for in safe and stimulating environments grow up to be happier, healthier, better-educated, and higher-earning adults.
Federal programs that have made a difference for children include the Earned Income Tax Credit, Medicaid (and SCHIP, the State Children’s Health Insurance Program), WIC (the Special Supplemental Nutrition Program for Women, Infants, and Children), SNAP (the Supplemental Nutrition Assistance Program, formerly the Food Stamp Program), and Head Start, among others. Children in the US today have lower mortality, higher educational attainment, and less risky behaviors because of these programs.
John H. Cochrane, Chicago Booth and Hoover Institution, Stanford
My advice to the next president: mind the store.
I know, every president dreams of repeating Roosevelt: a 100-day flurry of new legislation, orders and agencies, dramatically changing the country and cementing his or her place in history.
But it’s not 1932. We’re not in the middle of a national emergency. You (likely) don’t have a compliant Congress. Our country does not need a massive dose of new laws, new regulations, new agencies. It has lots of laws, regulations, and agencies that aren’t working. We need to clean up the mess.
Yes, your team has 100 policy ideas ready to go, with new regulations and policies and tax credits and executive orders for everything from child care to traffic jams at intermodal transfer facilities (I’m not making this up) to crabgrass removal (I am making that one up, I hope) to new restrictions on trade and immigration.
It won’t work. Congress will block you, executive orders will wind up in court, partisan polarization will increase, your opponents will fight back with ethics probes, and the economy will continue at its sclerotic pace.
It’s not the moment.
First, appoint good people. Get management of the country out of the White House and to the agencies where it belongs. The president's major job is to appoint good people to work for him or her.
Throw away your long list of new policies. Read House Speaker Paul Ryan’s “A Better Way,” the detailed legislative plan that the House wants to follow. Find the simple things in there you can agree on. Sit down with him and get them done.
Tax reform. Immigration reform. Regulatory reform. Criminal-justice reform. Every bipartisan commission has simple answers to these long-standing messes. Find a deal. Get it done. That’s what great politicians do.
Simplify the gross complexity. Fight hard against pervasive cronyism, not with more rules but with less temptation.
Speak softly, carry a big stick, and stop promising never to use it.
If you just got that done—clean up the house and mind the store, get the things the government is already trying to do to work with modest competence—the economy would take off like a rocket. You would go down in history as the country’s great healer. Future presidents will emulate your first term, not Roosevelt’s.
Then, go on a tour. Start with our friends, not on big negotiations with our enemies. Quietly, with no public statement, no spin doctors, go reassure our allies that America stands with her friends and means what she says. No more lines in the sand, constant spin, empty threats, empty guarantees, and needless public insults. Speak softly, carry a big stick, and stop promising never to use it. Our enemies will retreat, and you will go down in history as the great healer of the world, too.
Yes, that will require that you throw away all your campaign promises and plans and disappoint so many of your supporters. But think what historians will say of your deep character, when they describe how you arrived at the battle, recognized everything you had planned was not going to work, and took up the simple mind-the-store, faithfully-execute-the-laws task that the current moment, true wisdom, and the Constitution called for.
Multiple speakers overlapping: My advice for the next president of the United States . . .
Anuj K. Shah: My advice for the next president of the United States would be to focus on studying and expanding antiviolence programming for young people across the country. The attributes of an effective program, at least from our research, we’ve found, is that programs are particularly effective when they teach young people to slow down and pause and reflect on the situations they’re in before choosing what to do. So a lot of the programs that we’ve evaluated are loosely based on principles of cognitive behavioral therapy, or CBT.
And at it’s core, CBT basically says, look, everybody acts automatically from time to time. We all respond to situations quickly or interpret them or make assumptions about them quickly, and usually our automaticity is well adapted or well tuned to the environments or situations we’re in. But every once in a while, we do things automatically that are not well matched to the situations we’re in.
For example, sometimes we might escalate a conflict, when, in fact, it might have made more sense to walk away from it this time. So CBT-based programming spends time teaching people to reflect on the situations they’re in, and to think about those situations from different angles so that they come up with different responses to those situations.
So we’ve seen very promising results from this type of programming. So we’ve had the chance to evaluate three versions, or two versions on three separate occasions, of the CBT-based programming. One of the programs is the Becoming a Man program that Youth Guidance created and administers in some Chicago Public Schools. And the other program is one in the Cook County Juvenile Detention Center. And you see that, for people who have been through these programs, arrests for all crimes drop by about 35 percent. And even more notably, you see that arrests for violent crimes drop by 50 percent. And in the juvenile-justice setting, you see that recidivism rates drop by 21 percent 18 months out. So you see that there are strong positive effects on crime and violence, but you’re also seeing some positive effects on school engagement as well. The Becoming a Man program has shown some positive effects for school engagement that actually translates into higher graduation rates as well. Given how stubborn graduation rates are to move, if you see that that’s a robust effect, then that would be a terrific benefit of this program too.
To bring this to every at-risk young person in the country would cost about $2 billion per year, which is actually a pretty small fraction of the $200 billion per year that we spend on criminal justice already.
My advice for the next president of the United States would be to focus on studying and expanding antiviolence programming for young people across the country.
In research I’ve conducted with other investigators, we’ve seen promising results from a particular type of antiviolence programming—for people who have been through these programs, arrests for all crimes drop by about 35 percent, arrests for violent crimes drop by 50 percent, recidivism rates drop, and graduation rates go up. The programs are loosely based on principles of cognitive behavioral therapy, or CBT, which at its core basically says, “Everybody acts automatically from time to time. We all respond to situations quickly or interpret them or make assumptions about them quickly.”
Usually our automaticity is well adapted or well tuned to the environments or situations we’re in. Every once in a while we do things automatically that are not well matched to the situations we’re in. For example, sometimes we might escalate a conflict when in fact it might have made more sense to walk away from it. CBT-based programming spends time teaching people to reflect on the situations they’re in and to think about those situations from various angles so that they come up with appropriate responses.
The challenge of scaling these interventions right now is that we’re not sure the best ways to adapt them to local contexts. What does this kind of program look like in Houston as opposed to Chicago? We’re not 100 percent sure. We don’t know the exact ingredients that are most effective in these different contexts.
Consider, then, a five-year plan wherein the Coordinating Council on Juvenile Justice and Delinquency Prevention would lead a multiagency effort to study and evaluate programs to see which are the most effective. In years one and two they might field and act on proposals from organizations providing CBT-based programming. They can evaluate, say, 40 cities with 40 programs. Through the variation in those programs, you’ll better understand the common components of the programs that work.
In years three through five, you’d scale up that evaluation and demonstration approach to more cities, but also in different contexts. For instance, in-school programming versus after-school programming versus juvenile-justice settings. We estimate that once we better understand the most effective components and contexts, bringing this to every at-risk young person in the country would cost about $2 billion per year—a pretty small fraction of the $200 billion per year that we spend on criminal justice already.
Evelyn Z. Brodkin, University of Chicago
It is time to take a new and clear-sighted look at direct income support for poor and lower-income families. My advice to the next president of the United States is to reach beyond the tired politics of welfare bashing and reconsider policies of income assistance that can help struggling households make ends meet.
The US has now had two decades of experience in cutting its income safety net, dramatically reducing public welfare and, in many states, eliminating general assistance to the poor. This period has also witnessed growing inequality and relatively high levels of poverty (and deep poverty) even as the economy recovered from recession. Although there are many factors accounting for these developments, it seems reasonable to consider whether ending income support has made things worse. While we experiment with other ideas that may open a path to greater equality over the long-term, it is time to consider restoring and upgrading our income support system to meet both the short- and longer-term challenges we face.
Consider that advanced market democracies, especially the Nordic states, have achieved relatively high levels of economic equality and low levels of poverty due, among other things, to a combination of social welfare and labor market arrangements. Admittedly, the US is unlikely to replicate these arrangements for reasons that are both political and historical. But a modest lesson that might be drawn from the Nordic experience is the importance of a basic income safety net for those who, for various reasons, find themselves outside of the labor market or relegated to its precarious sectors, where work is unstable, wages low, and benefits scarce.
US and international experience suggest that there is no obvious substitute for direct income assistance.
There are a number of ways to provide direct cash assistance, some more efficient than others. For example, proponents of a “citizens wage” make the case for a basic income that frees its recipients from bureaucratic oversight and supports individual autonomy. More often, US income-transfer policies introduce bureaucratic complexity by attaching work and other requirements, as is the case for the Temporary Assistance for Needy Families (TANF) program, but somewhat less so for the Supplemental Nutrition Assistance Program (SNAP) and the Earned Income Tax Credit (EITC).
The case of TANF may be particularly instructive. TANF is the name for the "reformed" welfare system, created in 1997 with the idea of reducing poverty by increasing work. But this did not happen. In the 15 years after TANF, many poor adults worked more hours and received less cash assistance, but without corresponding declines in poverty. In fact, many households found themselves with no work and no welfare.
Nor did TANF result in reduced federal spending. Instead, it shifted spending from direct cash aid to the poor to funding for social services. Although many social-service programs are valuable, they do not directly put money in people’s pockets enabling them to place food on the table, pay the rent, buy clothes, and ride the bus.
US and international experience suggest that there is no obvious substitute for direct income assistance, whether provided through family cash transfers, a citizens wage, basic income grants, or other policy instruments. Income support not only has direct benefits for poor and lower-income households, but, by underwriting consumption, it can have broader benefits for economic and community development as well as health and well-being. Yet, concerns about moral hazard have bedeviled efforts to build and sustain a system of income support for the non-elderly in the US, despite considerable evidence that these concerns are overstated and the moral benefits, arguably, understated.
Over the longer-term, other policy initiatives will be required to address the complex challenges posed by poverty and inequality. However, until other alternatives prove workable, it is possible to act directly and quickly to impact poverty in America by providing money to people who need it and don't have it. Cash assistance is a means to that end.
Eric S. Maskin, Harvard
I think the most important task for the next president is to deal with climate change. The Paris Agreement was an important first step in getting the countries of the world to reduce carbon emissions. But almost all experts agree that it is not nearly enough. The US president must be a leader in negotiating more effective agreements.
Multiple speakers overlapping: My advice for the next president of the United States . . .
Anat Admati: My advice for the next president of the United States is to take a close look at very bad policies we have regarding certain subsidies, specifically subsidies that completely distort the economy and actually harm us. We subsidize harmful things.
One of the big distortions in the economy is that we have policies through tax rules, for example, that encourage and subsidize the use of debt in certain situations to fund things. For example, housing. We subsidize people to buy houses, but only if they borrow. If they borrow, they get to deduct the mortgage but they don’t get subsidy if they don’t borrow, and the more you borrow the more you’re subsidized. That subsidy doesn’t make sense. It doesn’t even do what we want it to do. But it makes people use a lot of debt for buying houses, sometimes too much debt. It inflates housing prices, and actually adds to inequality and other distortions.
Similarly, we subsidize, through the tax code and otherwise, corporate debt. In other words, corporations to fund with debt relative to other . . . to funding, for example, with equity, shareholder money. And that is, again, an incredible distortion that does nothing good for the economy except it creates a situation which corporations love to use too much debt than what’s efficient. There’s maybe a role for that, but for corporations in particular, it’s entirely unnecessary to subsidize it from taxpayers. So that corporations, and especially financial corporations, borrow way more than they need to and it create lots and lots of inefficiencies as a result—bad investments . . . we get an incredibly fragile financial system that then we have a lot of trouble regulating.
And all of this because of a policy that can be easily changed, like the most no-brainer change you can have that every committee that has looked at has recommended, and that if you actually get thoughtful people who understand these issues and are unconflicted about the subsidies to look at it, they might come up with a bunch of proposals, even though some of these policies have been embedded and people got so used to them. They think that’s natural somehow.
We also subsidize, for example, sugar, and not vegetables. So again, it’s a subsidy that the sugar industry is lobbying and promoting. And everybody who gets subsidized says they’re gonna pass it on to somebody and it’s gonna do good. But, you know, a subsidy is like negative taxes. We kind of encourage somebody. We give them a break. They pay less. They say some good things will happen. But we don’t subsidize pollution. We don’t subsidize smoking, but we have policies that are very similar to that. And so I advise the next president to examine some of these subsidies.
My advice for the next president of the United States is to take a close look at bad policies we have regarding certain subsidies—specifically, subsidies that completely distort the economy and do us harm. We subsidize harmful things, and as a result, many of us are suffering the consequences of things that can easily be fixed.
One of the big distortions in the economy is that we have policies—tax rules, for example—that encourage and subsidize the use of debt in certain situations. For example, housing. We subsidize the purchase of houses, but only if the buyers borrow. If they borrow, they get to deduct the interest on the mortgage. They don’t get a subsidy if they don't borrow. And the more you borrow, the more you’re subsidized.
That subsidy doesn’t make sense. It doesn’t do what we want it to do; but what it does do is make people use a lot of debt when buying houses. That subsidy can inflate housing prices and actually add to inequality and other distortions. If we want to subsidize housing, if we want people to own houses, we have to find a different way to deliver those subsidies to the people who deserve them.
We don’t subsidize pollution. We don’t subsidize smoking. But we have policies that subsidize similarly harmful things.
Similarly, we subsidize, through the tax code and otherwise, corporate debt. In other words, we encourage corporations to finance with debt rather than financing with equity. That is an incredible distortion, and it does nothing for the economy except to encourage corporations to use more debt than is efficient. As a result, we get distortions in investments, we get an incredibly fragile financial system that we have a lot of trouble regulating, and all because of a policy that can be quite easily changed.
We also subsidize, for example, sugar and do almost nothing to subsidize vegetables. The sugar industry loves and promotes their subsidy. But we could subsidize something healthier instead. We don’t subsidize pollution. We don’t subsidize smoking. But we have policies that subsidize similarly harmful things.
Some of these subsidies, such as the corporate debt subsidies, started almost as an accident. They were put in place 100 years ago temporarily, maybe to help indebted railroads. But we seem to be stuck with them. It seems difficult to change a tax code—people tell you it’s a sacred thing, as though it’s from the Bible. Once a subsidy is in place, the people who benefit most from it hate to lose it, and then it becomes a political issue. It becomes lobbying for certain loopholes or preferential treatment.
We have to stop subsidizing harmful addictions, such as addictions to debt or addictions to sugar, and start crafting better policy. Use subsidies instead to address the things that we know are wrong but are difficult to tackle, such as inequality.
Multiple speakers overlapping: My advice for the next president of the United States . . .
Brandice Canes-Wrone: My advice to the next president is to look at the evidence from the past and recognize that presidents have a very limited ability to change public opinion. Most presidents, when they win, you know, are coming off of, of course, a very successful election. They're surrounded by people who are telling the president that that president is particularly good at connecting with the public and that using these technologies, and presidents then tend to perceive that they will be capable of molding public opinion on the issues that the president cares a lot about.
Yet, time and time again, we see presidents getting burned on that issue. That doesn't mean if there's an issue on which the public is already behind the president and Congress is blocking it that the president can't use,
sort of, public communications to try to pressure Congress.
But if it's an issue on which the president's trying to actually move public preferences, presidents fail over and over again. We saw it with Bill Clinton and health care. We saw it with Obama and a number of issues. We saw it not just with George W. Bush, but we even saw it back with Reagan. If you look at cases when Reagan was successful, he was successful in cases where the democratic Congress was actually the one who was out of step with public opinion.
So I'd say, every advisor's going to tell you in the presidential office that they have the technology. In this case, it's going to be with Twitter (laughter) and with that president's particular connection with certain . . . the voters are confused. The voters don't know.
But don't fall for it. You're going to waste a lot of time. You're going to spend a lot of capital, and you're not going to be successful, at least at molding public opinion. You're just not going to be.
It's not that the president should shut down the communications office (laughing) and not make any efforts to reach out to the public or to confront the public. It's that when the situation is initially highly imbalanced and the public doesn't want the policy, um, you're not going to see the president swaying them.
My advice to the next president is to look at the evidence from the past and recognize that presidents have a very limited ability to change public opinion.
Most new presidents are coming off of, of course, a successful election campaign. Often there are new communications technologies that have been involved in their winning the election. They’re surrounded by people who are telling them that they are particularly good at connecting with the public and at using these technologies, and so presidents tend to perceive that they will be capable of molding public opinion on the issues that they care a lot about. Yet time and time again, we see presidents getting burned on those issues.
That doesn’t mean that if there’s an issue on which the public is already behind the president and Congress is blocking it, the president can’t use public communications to try to pressure Congress. But if there’s an issue on which the president is trying to actually move public preferences, presidents fail over and over again. They waste a lot of time, and they expend a lot of capital.
The exception is security. On something like a national security matter, the public tends to defer to the president and rally around the flag, so to speak. The president has a big informational advantage in those cases, and the public knows that. The same isn’t true, however, of other policy areas, where access to information is more balanced.
Not that the president should shut down the communications office. You wouldn’t want your opposition to go out and be on the airwaves while you sit back and do nothing. But when presidents find themselves surrounded by people who have every incentive to tell them that they are great at molding public opinion, by policy advisors who are working to get certain policies passed, I would say prioritize those policies on which you already have the public behind you.
Multiple speakers overlapping: My advice for the next president of the United States . . .
Randall S. Kroszner: My advice to the next president of the United States is to make corporate tax reform a key priority. The US has been facing much more intense competition internationally over time. Corporate taxes are one of those key issues. Corporate tax rates have fallen around the world over the last 15 years. They were about 30 percent on average back in the beginning of the 2000s. Today they’re about 23 percent. The US has continued to keep its corporate tax rate at 35 percent at the federal level, plus, on average, around 4 percent on the state level, being 39 percent.
So we are one of the highest corporate tax areas in the world, and the rest of the world is going the other direction and, of course, attracting capital, investment, and, of course, job creation.
A key reform that could be done is to try to make the system much more sensible. One way to address it is to try to reduce the corporate tax rate, particularly for these international activities. Much of the rest of the world is on a so-called territorial system. That is, people . . . corporations will have operations in different countries. They pay taxes at the corporate rate in that country, but then they can repatriate, bring back any of the profits to the US, and they don’t have to pay an additional tax on that.
The US has a worldwide system, and under that system, corporations have to pay taxes when they bring back to the US—that is repatriate—the earnings that they have in other countries after they’ve paid taxes on that. That’s not typical in other countries. Overall, roughly $2 trillion of corporate funds are held outside the United States and not brought back to the United States because of our high corporate taxes.
For example, there’s been one recent proposal to have a significantly lower tax rate, in sort of like the 12–14 percent area, on repatriated earnings, and that would certainly give more of an incentive to bring it back. So there are a whole variety of things that could be done to try to change the rates and the incentives to get these revenues back to the US.
Is this the thing that is going to cause the economy to grow at 4 percent rather than 2 percent? No, I wouldn’t want to make that kind of statement. But is it going to help on the margin to increase investment, increase job creation, and perhaps increase consumption as some of the money comes back and is distributed out through dividends or distributed out through share buybacks? It’s going to help.
My advice to the next president of the United States is to make corporate tax reform a key priority.
It’s no surprise that companies such as Apple keep $200 billion outside of the US that otherwise they could bring back in. Overall, roughly $2 trillion of corporate funds are held outside of the US and not brought in because of our high corporate taxes. This is not good for the US. If we reformed the corporate tax system to remove disincentives for them to bring that money back, they could then use those funds to increase investment domestically to create jobs and/or to pay higher dividends to shareholders, including pensioners.
The US has been facing much more intense competition internationally over time, and corporate taxes are a big part of that. Corporate tax rates have fallen around the world over the last 15 years: they were about 30 percent, on average, back in the beginning of the 2000s. Today, they’re about 23 percent. The US has continued to keep its federal corporate tax rate at 35 percent, plus on average about 4 percent on the state level, for a total of 39 percent. We are one of the highest corporate tax regions on the planet. The rest of the world is moving toward lower rates and, of course, attracting capital and investment and creating jobs.
In addition, much of the rest of the world is on a so-called territorial tax system, wherein corporations with operations in different countries pay taxes on earnings in those countries, but they can repatriate, or bring back, any of the profits to their home countries without paying additional taxes. The US has a simple worldwide system, so you pay tax locally in whatever country you have revenue in, and then you’ll pay more tax if the funds are repatriated to the US. There’s been one recent proposal to have a significantly lower tax rate, in the 12–14 percent range, on repatriated earnings. That would certainly give more of an incentive to bring that money back.
Another key reform would be to lower tax rates more generally but broaden the tax base by eliminating a lot of loopholes and special deductions, so that you can lower rates without actually reducing revenues. An added benefit of that is by eliminating the distortions that come with loopholes, you’re using the market rather than the tax code to establish incentives for allocating investment, and that will likely lead to more-efficient allocation of funds and a somewhat higher growth rate.
Ireland is an example of how powerful tax reforms can be. It has a low corporate tax rate, about 12.5 percent, which is lower than the rest of the European Union and relatively low in the developed world. The American Chamber of Commerce in Ireland estimates that about 700 US companies have opened up operations in Ireland, and they’ve created about 140,000 jobs there. The business-friendly policy environment has fostered high job growth and an economic boom in Ireland while the rest of Europe stagnates.
Not only is tax reform important; it’s something that’s politically feasible. I don’t think anyone believes that giving strong incentives for US corporations not to invest in the US makes any sense at all, and hence we’ve had House Speaker Paul Ryan (Rep.), Senator Charles Schumer (Dem.), and presidential candidates Hillary Clinton and Donald Trump talk about these kinds of things. It’s one of those rare issues that both sides of the aisle can agree on.
Multiple speakers overlapping: My advice for the next president of the United States . . .
Austan Goolsbee: My advice for the next president is threefold. No. 1, win big! Presidents that win big are able to do things, and presidents that don’t win big are not able to do anything. So unless you get a big victory, you can forget the numbers two and three of my advice.
No. 2: I think at this point in the country, the crisis is over. We gotta get out of the crisis mentality. My advice is, start thinking again about investments rather than just what we can do in the next three months to try to kick-start the economy, try to do A, B, or C.
My third piece of advice, substantive piece is: remember that the thing that made us the richest country in the world is our people, and we have to invest in our skill base of our own people. And that means their training, that means raising educational attainment in the US, all of those things. That’s the most important thing in the country.
It’s a bit of a win-win in that you improve not just the fate of the economy and the fate of the nation, you’re also making the people themselves much more resilient to recession. If you look at people with a college degree, they don’t just have higher incomes, they don’t just have lower unemployment around the world and within the US, they also prove remarkably better able to weather the downturn and they have proved better able to move from industry to industry and into new jobs as the world economy has shifted around.
I think the view that, let’s just try to shut out the world and pretend like there is no global economy, the view that that’s gonna keep us rich or make us rich is deeply misguided.
My advice for the next president is threefold. Number one, win big. Presidents that win big are able to do things, and presidents that don’t win big are not able to do anything. Unless you get a big victory, you can forget numbers two and three of my advice.
Number two. At this point in the country, the crisis is over. We have to get out of the crisis mentality. It's important for us to make investments with the long run in mind.
My third piece of advice is: remember that the thing that made us the richest country in the world is our people. We have to invest in the skill base of our own people. That means their training. That means raising educational attainment in the US. Those investments in human capital comprise the most important thing for the country.
In making those investments you’re, in essence, saving and investing for the future. It's a bit of a win-win in that you not only improve the fate of the economy and the fate of the nation, you make individuals themselves much more resilient to recession. If you look at people with a college degree, they don’t just have higher incomes. They don’t just have lower unemployment. Around the world and within the US, they also have proved remarkably better able to weather the downturn and move from industry to industry and into new jobs as the world economy has shifted.
Ioana Marinescu, University of Chicago Harris School of Public Policy
Employment and real wages for low-skilled workers have been falling during the past 15 years. The Earned Income Tax Credit (EITC) provides a tax credit to low-wage workers, and thus both redistributes income and promotes employment. However, only single mothers significantly benefit from this policy—the level of the EITC for childless adults is negligible. To help low-skilled workers out of poverty, we should increase the level of the EITC for childless adults. Economic studies have shown that the EITC has increased employment among single mothers; expanding it for childless adults with low wages would likely also encourage employment for this disadvantaged population.
Not only would increasing the EITC for childless workers help reduce poverty and boost employment, the idea also has bipartisan support, according to a report by the Center on Budget and Policy Priorities. This proposal would therefore be a good place to start effectively helping the low-skilled workers who have been falling behind in American society.
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