Elmendorf: Mistake for Trump Not to Fill Positions Quickly

of course on the Bloomberg. Joining us now as Gabriela Santa, She's Global Chief Strategy to JP Morgan Funds. And let me start just by asking about the Federal Reserve meeting we had this week. In the hierarchy of what's important to investors right now, where do you position the FED compared to say, political events and what we saw in Europe and indeed what we're looking forward to in France. So I think the FED is still relevant. It's perhaps less of a focus than it has been over the

past few years, which ultimately is a healthy thing. We should be focusing a little bit back on fundamentals on how the economy and earnings and are actually doing UM, but I do think we could have gleamed some interesting perspectives from the FED meeting. In particular for me was their approach towards inflation UH and I didn't see a

particular concern from their side towards inflation. Even as you get some of these UH indicries, whether it's CPI or even pc getting closer to their target, they signaled a bit of a willingness to look through that. So to me, that signals a faster pace of rate hikes than over the past few years. UM. But it removes some of that tail risk of the FED being overly aggressive, at

least for now. How much to a disconnect was there, or is there, between what the Fed is projecting and what investors thought would happen what would come out of the meeting. I think it was decently in line, so very well telegraphed rate hike the statement did reflect a slightly better view towards the economy and inflation. UH. And then Janet Yellen during the press conference seemed very hesitant to to precipitate any sort of fiscal policy change as

she has in the past, right as she did last year. UM. What perhaps was a little bit of a surprise was the willingness to look through some of that inflation, and that's why I think the market reacted the way he did with bond yields falling with the dollar falling, was removing that tail a risk of a very aggressive FED. We're talking to Sebastian Mallaby yesterday, uh and he talked how talked about how problematic it can be if if

the FED is too predictable. He had a column in the Post I think about a week ago suggesting the FED could really do a good service by raising rates by fifty basis points instead. Of course that didn't happen. But is there a problem with predictability? Do you think, as as an investor, as a strategisty to see that

being a problem. I think it's a problem to the extent that if we take last year as an example, right in our view, given where the economy was, given where inflation already was trending, last year was already a year to have hiked more than just once right at the end of the year. However, the Fed's preoccupation around preparing the market and being overly concerned and predictable removed

some of that optionality for them. Uh. And I think that is a concern for us in some some to some extent, right, the fed ney stacked regardless of whether the market is ready or not. Um, and that's ultimately better for for the economy. Gabrielle. I believe in Pennsylvania buried in the textbooks with the idea you don't do share buy backs at market tops, are we going to see fewers share buy backs? I believe the theory is if the stock market goes up, you don't buy back

your shares. But it's always broken, isn't it? It has? And I think that's such a crucial question because the market, if we look at the equity market, has been getting a little bit excited about tax reform repatriation UM and thinking about how companies can choose to act on that

extra cash. And there's some excitement that they'll shift away from buy backs, from dividends, from the usual use of cash over the past few years, towards actually using it for capex, which would be revolutionary if we think about the last ten years, right even before the Cristi um. So, I think there's a question mark here, um. This was a behavior of companies before the financial crisis, right, and so do we create the environment where companies are willing

to spend on capex? And that's not just about tax reform in cash, it's also about removing several other types of uncertainty as well, such as there's the potential perhaps for less regulation or perhaps we could say more targeted or smarter types of regulation, which could remove some of that uncertainty that's often been cited as one of the top concerns for companies of all different types and sizes

in the US. However, you're adding at the same time another layer of uncertainty here with regards to trade, with regards to immigration, with regards to geopolitics. So we have to be careful in figuring out the balance there um. And something that's interesting if you look at sentiment surveys, companies have been feeling more optimistic, but they're still feeling uncertain. So whether they actually act on that optimism and that

capex is a whole different matter. How about volatility, You look at the fix having at eleven and twelve, what is that that to tell you about what's to come? That tells us that it's it's pretty easy to say that volatility will go up from here. When we say that, people are just like, well, yes, but I do think it holds true because if you think historically all the way back to usually you see a ten percent correction

once a year, five percent once a quarter. Uh, and it's difficult to think that this year will be different with regards to that. It doesn't mean the market has to end down. It can end up for the year. It often does eighty percent of the time, but there is that digestion that needs to take place. We look at retail in the same store sales, and retail been challenged a Tiffany's just out with a light global same services as I believe it was negative, the flagship store negative.

But it does get back to revenue responsiveness. With all that's going on in politics, fiscal stimulus and that at the top line, do you people believe that you'll add more to revenue, that they'll that there will be a

better oof to corporate revenue this year? We do. We do UM and that's really crucial from this part onwards in the cycle, where we've done a lot of that margin expansion, a lot of that cost cutting, and now it's all about revenue growth UM and if we think about companies, what's helpful for them is if they feel like they have enough uh pricing power right where they feel like they can raise prices and consumers will still

buy their goods. UH. And that's really where we are in this cycle is testing that uh and for companies really to to feel like they can increase their prices and hence increase their revenue growth. UM and I and we do feel optimistic that we will see that. I mean, it's an amazing David. I'm looking at a boring toothpaste and not company. It will be remain nameless. Their revenue growth is two point nine, So if you put a stick on that, it's a lift in revenue. It's kind

of leverage you get off of that. Where are you looking overseas right now? I see that we're having the best week for emerging markets I think in eight or nine months. UM, what's attractive to you at this point in sort of how do you, as you're bouncing out of portfolio look to emerging markets at this point? So if we think about portfolios at this point in time, we would say we're looking around the world, we're seeing an acceleration and growth that's very encouraging. It's translating to

a better earnings outlook. So overall we would be looking at equity markets versus government bonds. Then when you think about where does the US fit in that um, and we're talking about at this point in the cycle, it's normal to have less earnings growth, and so we have lowered our expectations for US returns too close to five percent over the next few years. That's not bad, it's just less than what you were getting over the past few years. So international is crucial from here on out.

And we're really in the sweet spot where the US is in a more mature phase but not approaching recession, and that's where it's really valuable to have a good allocation to international. So we're looking to emerging markets, and we're looking at the Eurozone. We under play this, David, We're so eurocentric. I mean, if you look at the Dow US based up nineteen eight percent last twelve months. If you're in London and you invest in the Dow

was sterling weakness, you're up four zero. It's remarkable. Help me here with small camp, large Camp. I mean, there's just this whole idea of JP Morgan. I mean, you already have a small company's apple help me here with small cap, mid camp large cap. So the argument is is was a bit stronger last year, right before small

caps had such a strong rally. So the argument was, if you're starting to see all of these UH policy proposals that could be good for smaller companies, things like less regulation, like change the Affordable Care Act um UH focusing on improving the domestic economy, that argues perhaps for prioritization of small and mid caps. However, you've already seen a big move there, and valuations are less attractive and decently equal but between the two, so there's less of

an argument to pick one versus the other. Now, Gabriel sentis, thank you so much. With JP Morgan, Doug Elmendorf joins his folks. If you are into fiscal policy, he needs no inner induction of former Congressional Budget Office director and

now his leadership at the Harvard Kennedy School. UM. What I find so sad here, Dr Elmendorff, is if I go to the CBO and a two document of a year ago options for reducing the deficit two thousand seventeen to two thousand, the White House had all sorts of expert opinion on how to get the job done, and they clearly didn't listen. We've seen that within the uproar

is the damage from this irreparable. It can Can the White House and the budget process recover from the idea of having Nick Burns react to acent reduction and State Department? This damage can be repaired. It depends on what the Congress does in actually passing appropriations. The President proposes these cuts, but the Congress will ultimately put the numbers down on paper. Do they work with and this is really important, folks, this is a huge privilege of Dr Elmendorff with this

this morning. Do they work with any kind of document Kevin Hassett or Mr Wilvanian others give them or do they start from scratch this morning? All the Congress will look at them now mers that the President's team sends over, but they'll ultimately do what they think makes sense. A number of the leading Republicans in Congress have already expressed

strong disagreements with aspects at least of the proposals. We had some sense here that regular order would be restored in Washington, d C. Is it going to be Can you foresee greed luck that would prevent that from happening. What if the consequence has been of having a continuing

resolution after continuing resolution, after continuing resolution. I think the big obstacle to regular order on the budget is that some members of Congress are setting goals that sound good in the abstract to trim back government spending, but that aren't realizable in the specifics. People are unhappy about high government spending in many ways, but they like their Social

Security benefits, they like their Medicare benefits. They want us to have strong diplomatic presence around the world, they want biomedical research. So in the specifics, people like a lot of things that are going on. And if the Congress sets a goal in this case, the president has set a goal that can't be reached to the actual appropriations process. That's gonna make it much harder to proceed in a

regular way. Just get an historical sense here, we have a Congressman french Hill a moment ago talking about the president's budget saying that at the beginning of an administration, president put puts forth budget for in part symbolic value to show what he or perhaps in the future is is interested in. Is that what we're seeing, or how do you regard a first budget from a president? How much of it is is realistic versus how much is

it a symbolically important? A lot of it is symbol in this case, I think particularly Director Mulveney is trying to convey his vision of what the government should be. On the other hand, if that symbol that you're setting out is too far away from reality, it's actually diminishing your ability to influence the outcome. Figure three, one page sixties six of this document. It's all there for the White House, the glide path of discretionary spending, and the

president's defense. A lot of people upset we're gonna come back and talk about this, But the President has a point that we're now at a tipping point, aren't we in terms of total debt to GDP. We have a lot of debt from the federal government relative to the size of the economy. I don't use the word tipping point. We don't know what level of debt can be particularly dangerous. And at the moment, as you know, treasury interest rates

are quite low. That gives us more run room. Doesn't mean we shouldn't do something, but it's not as urgent as otherwise. We're gonna come back and talk about this, and I think this is the word urgent really comes up here, the debate over do something now versus do it in a measured manner. What a prova you dougas Almondo for this from the Kennedy School at Harvard, a former Congressional Budget Office director, brought you by Bank of

America Mary Lynch. Dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections. Mary Lynch, Pierce Federin Smith Incorporated, Member s I PC, dug out of a snow bank in Cambridge, Massachusetts, dug in Salmandorff joining a Center studios here in New York. We're talking about where we were.

We were romancing about LBJ and back when we spent money on defense and discretion areas a percent of our g d P. And then there was this thing called the Clintons surplus. What's the real story about the Clintons surplus? How did it happen? And can we get back to the nirvana of what six weeks it was? In two thousand there were two main factors. One was that with the end of the Cold War, defense spending declined significantly

as a percentage of GDP. The other factor was that the economy was booming and the financial sector was booming, so we had a big surge of income tax revenues. And those two factors are hard to reproduce. Defense spending can't fall a lot further as a share of GDP. There's discussion about how big it should be, but it's not going to fall in half again as a percentage of GDP as it did, and a boom in the economy will obviously help the budget, but it's hard to

just order that up. Ask you abouts of what drives budgeting in Washington. You look at the Pentagon, and for many weeks now it has been James Maddis and James Maddis alone running that department. I think yesterday we've got a few notices of nominations to under secretary positions and

assistant secretary positions. But you'll look at this big increase in defense spending fifty four a billion dollars at the White House once and you just have to think that that cannot that's probably not being driven by the Pentagon. At this point just by virtue of the fact there aren't a whole lot of people there to strategize for it.

Speaking more broadly, uh, could agencies be doing more? Should agencies be doing more to sort of tell the White House, tell the Congress what they need and how respectful is Congress of them? I think that's a terrible mistake by this administration to not have filled more of those positions more quickly, both because they want to have more influence over those departments and because they need a source of

information from the departments. And those secretaries with their deput secretaries and assistant stark Terries and so on, are the conduits for both control of the government and information from the government to the White House. Um, so they need to fill those positions. I think the fifty four billion dollars is a little overstated in the sense that it's fifty four billion dollars relative to what the current law

will have for the coming year. It's actually a smaller increased relative to last year spending level, and that just reflects the fact that these caps on appropriations both defense and non defense for next year are below levels of spending that we're that we're doing right now, and that goes back to the earlier point about these targets for spending that aren't realizable in terms of the specific appropriations. The death ceiling is back. We still have the sequester.

The President went to Capitol Hill, spoke before a joint session of Congress, and said he'd like to get get rid of it. How do we judge the success of it as as the sequester done much here and how easily can a president wave a wand and get rid of this this mechanism. Well, I think the debt ceiling is a mistake to have it mostly forces these showdowns that have not done much to really put the budget

on better path. The sequester, as you recall, was the accidental outcome of a process that was designed to generate changes in benefit programs and taxes, which everybody agrees is really the route to putting the budget on the better path in the future. We backed into the limits on these annual appropriations because the deal couldn't be struck. I think everybody would like to go back to working in

that kind of deal. But whether that deal has great prospects for being adopted given the polarization in our leaders and in our country, is not very clear. Tug Elmendorf with US. He's the dean of the Harvard Kennedy School.

Former director of the Congressional Budget Office. I was talking to another director earlier this week, Robischer, and he said, you could you could see the scars that he had from being in that job, from dealing with all of the politics of that that position, at least being subjected to them. You look at it what we've heard over these past few weeks about that institution. What do you make of it? Has it been this politicized before, not

saying institutions politicized? Has it been facing so much political pressure, so much political right or because it's something new. They've always been criticisms of CBO, and that's fair if they're based on evidence and logic. Uh, what worries means the criticism is based on politics, people trying to pressure CBO, and a succession of CBIO directors and a tremendous number of talented CBIO analysts have resolutely resisted pressure for more

than forty years, and they'll keep doing that. Bob has his scars. I have some. Keith Hall is now earning his his his SCARSS never recovered. Don taken as well. Did it twice, I think, and I Alice did it longer than anybody, for more than eight years. But the institution is incredibly important, and almost all the members of Congress understand that, even when they object to particular estimates. I found his director lots of reinforcement for the importance

of the agency and the work that it does. And I think that will continue. I've been raving about I've been It's nothing new. I've been doing it for years. But again back to the weekend reading of options for reducing the deficit. If you were to say to the President or to his White House team, is political team, Okay, you've really screwed this up. Even the Republicans are livid.

Here's what you need to do. Given the belief everyone has that we have too much debt, what's the Almendorf prescription to get his war Zak would say, to get those glide pass back in the right direction. Now is the time to be developing a set of policies that would scale back on some of our entitlement programs over time and would raise some revenues to pay for the

programs that we have. Remember that we have a very in aging population, A lot more people are going to be eligible for Social Security and Medicare in the coming years. How do you respond to the idea that we need to broaden tax break base and even very poor people should play pay an itty bitty little bit of tax or is that just conservative rhetoric that that doesn't move the needle. Remember that poor working people are paying payroll tax. Many Americans pay much more in payroll tax than they

paying income tax. So if you look at all of the federal taxes together, not just the income tax, most people are paying tax. Should we raise as a constructive exercise? The amount of salary that's used to calculate the Social Security tax is one twenty I'm guessing right now it should it go up to one forty or one fifty or would that create an uproar and make the president age? Yes? And yes, I think we should and it would create an uproar. I mean we create an uproar, but it would.

But we should remember that the share of total earnings that are being captured now by the Social Security payroll tax is smaller than the share we had for many many decades. That share has slipped over time, So pushing up the cap would really just go back to what we were doing a few decades. I wrote a story in this David Gura pushing eleven years ago for Bloomberg News, and the hate mails still comes. Look at your perspective on just the magnitude of what Congress is saying it's

going to consider this year. We see them working on the Affordable Care Act now trying to make changes to that with this new piece of legislation. Let some of the ans Republicans are there's an eagerness among them to tackle tax reform and financial reform as well. Uh, give us a sense of how how big and undertaking that is and the likelihood you think that we're going to

get tax reform this time around. To do big reform to the health care system or the tax system is really a year long project for the Congress because a lot of other things have to happen along the way, like the annual appropriations and other sorts of legislation. So to push through some comprehensive reform of a big part of federal policy is very hard and really takes much

of a year. I think it was a tactical mistake for the Republican leadership to not turn to tax reform to start with that would I think tax reform is more important for our economy, and I think would be

more favor Ruble for them in political terms. They felt a need to tackle health reform because of what they've been saying about the Affordable Care Act for a long time, but analysts all knew there was no way to satisfy the set of objectives Republicans had laid out for healthcare reform, and we're seeing that now in the debacle that's unfolding. How do you respond to Leviathan the articles restraining the Leviathan property tax limitation in Massachusetts. It's a good supplement

for ambient a few other lowlights. It is a levia that a lot of people feel that way. A lot of the Trump supporters feel that way. It's out of control, it's too big. How do we tame the beast of the budget? The problem is that the beast is growing in budgetary terms, mostly because the population is aging and healthcare costs are rising, and not just rising in the government, but rising across the economy. Defense spending is a smaller percentage of GDP than it's been for most of my lifetime.

The non defense discretionary spending, the appropriations every year, they're about the same share of GDP today they were fifty years ago. Uh, what's really grown is Social Security and Medicare and Medicaid, and it's grown because we have more older Americans and healthcare is more expensive. So to really pull back on the leviathan in budgetary terms requires hard choices about those programs. But I think it's a different matter.

Is the leviathan in a regulatory sense. The e p A is matters for the economy, not so much through its the appropriations. It gets those matter for states and local governments. It matters for the economy through its regulation. People shill distinguish a bit between the budgetary leviathan and the regulatory leviathan. Professor Almendrove, thank you so much. Here's with the Kennedy School Harvard, Dean of the Kennedy School at Harvard, and of course formally with the CBO. This

entire conversation will be out at our iTunes podcast. We thank Bank of America for their support of all of our surveillance digital product worldwide. This is Bloomer. Now we go to Nicholas Burns, Ambassador Nicholas Burns, Professor of the Practice at the Kennedy School of Government at Harvard University, joining us. Great to speak with you. Good morning. As always, Let's start with the trip that Secretary of State Rex

Tillerson is taking through East Asia at this point. He made it known on the first stop on that trip he wants this administration to pursue a different policy toward North Korea. Give us a sense of how much that policy has changed from administration to administration. I do think there's a consensus that we have to change policy towards

North Korea. Both President Clinton and President George W. Bush tried diplomacy in the North Koreans didn't honor the agreements we made, and now the problem is more serious because they have nuclear weapons, and they have a ballistic missile, which if they put a nuclear warhead on top of it, if they can master that technology, could pass to belye reach the west coast of the United States in the next five or ten years, and that's an unacceptable threat

to the US. So I think that Secretary Tillerson's right to suggest that we need to change course. Obviously, it's not going to be in the direction of the use of military force, because that could be potentially catastrophic. I think what they're gonna do is try to convince China that China has to finally use its leverage over North Korea to try to resolve or at least contain this problem and make this a big issue in the U. S.

China relationship. Patients is a part of diplomacy, probably a frustrating part of diplomacy to someone like you who has been engaged with it. We heard from Secretary tailorson yesterday saying here that the era of strategic patients has to end when it comes to North Korea. What would you tell him about the importance of taking one's time, listening to all sides and trying to figure this out. Well,

I think he knows that. I don't think he was suggesting that we should be impetuous or um act hastily. I think what he's saying is that the policy of trying to contain the threat by either talking to the North Koreans and negotiations which they entirely disregard, or having them meet commitments to us which they then forego, you've got to you've got to think of a different policy and Beijing is going to be at the heart of this.

Jeju and Ping will be at Mara Lago in Florida to visit President Trump in about a month's time, and I expect that North Korea will be very high on the list. But certainly we've got to be patient in putting together a stronger and more effective policy. What are you listening to from the Secretary on this trip? Of course, we had Secretary Defense James Mattis a couple of weeks before, making pretty much the same itinerary, what are you gonna

What are you gonna? Be a straining to hear from the Secretary while he's overseas, A reaffirmation of America's commitment to South Korea and to Japan. These are two critical allies. One of the problems with the beginning of President Trump's tenure in office as President Trump himself questioning the utility and relevance of American alliances, whether it's the Far East, which Japan and South Korea, or whether it's NATO. And

you see the Secretary Madison. Secretary twists and have to follow behind and and and reaffirm what every American president is Truman. Truman has since Truman has known that these alliances are critical to us. And what is the relationship of Senate in the House diplomacy leadership in instructing, teaching, helping a president get to a better outcome. Did they sit down over a scotch of their choice and say, well,

Mr President, how does that work? Well? This is an unusual time where I think the leadership in Washington is coming from the Senate, and particularly Senate Republicans, people like Um certainly John McCain and Lindsey Graham and Rob Portman and Susan Collins and Marc Rubio, and they've all been suggesting to the President privately and publicly, you can't cut the State Department budget by a third. That will decimate our diplomacy. You have to honor allies. Angela Merkel is

going to be at the White House today. You can't see, cannot see Germany as solely an economic competitor when it's our strongest ally in Europe. And to try to suggest to the President there's a history here, you're inheriting the history, the wisdom of previous presidents policies that have worked, stick with them. Don't strike out on this far right adventure.

Of economic nationalism and withdrawal of American influence in the world, which is the great fear that Bannon, that Bannon and others will get to the President and convince him to renege on everything that's gone well in American foreign policy in the past. On his last trip to Europe, Secretary Tillers and traveled with I think six acting secretaries and in acting a spokesman on this trip. I think the

picture is kind of the same. We don't have a full complement of deputies in the State Department by by any means. I wonder sort of how that's handicapping him. I'm speaking with Max Bocks yesterday, the former senator from Montana, of course, also ambassador to China, and he said that it was a real shame that on his stop in Tokyo, a Secretary taylors and did not up at the embassy there.

He kind of characterized that as an amateur mistake, but one that could have a really deleterious effect on morale in that embassy. Where a small mistake, but could it have a bigger sense of import You should Secretary State should always visit the American embassy. I think Secretary Tylorson has all the skills to be a successful secretary, and I certainly wish him well. I do think this has been from the Trump White House the slowest transition in history.

We have a situation now where there's no Deputy Secretary of State for the five under secretaries, not even appointed yet much less confirmed, none of the assistant secretaries. These are the people at the core of America's diplomatic power, and none appointed. And it's mystifying. Some people think that the Bannon agenda, the Trump agenda, is to hollow out the government and to make it so much smaller that

it's a reflection of what it used to be. This is a great mistake, and I think I don't blame Secretary Tylerson. This is a White House decision not to appoint these people. I'm going to pick on one guy ambassadors, and I'm gonna do it because I can't pronounce his last name, Stephen Covid six K O V A C S I C S. He's at the consulate in Nagoya. He's the guy that looks up to Nick Burns. He's out of Temple University, has a privilege working for the

State Department he worked in Silicon Valley. I'm just reading his bios and he's been there for fourteen years. I mean, he's not jetting around like Dick Burns. He's not jetting like this guy. This guy is in the trenches of the State Department. How is he supposed to respond to a tent haircut? Well, first time. You're a great champion of American diplomacy. Thank you for that. Um. You know,

the State Department is basically people. We don't have weapons systems, as I was telling Tom earlier today, we don't have aircraft carriers to put in a mothballs to satisfy a budget hawk. What we have our people, Um. And we have people who are Arabists and Africanists and China specialists, in Japan specialists. I spend their whole life learning these languages,

learning the history and culture. They're a national treasure. And part of what it keeps America strong and safe is that we have people on the front lines and our embassies and consulates sometimes for years defending US, explaining US, advancing American interests in a thousand different ways. And that's what diplomacy is. And and President Trump's budget is entirely

military and homeland security. Now that's vital to us, and I actually want to see the military budget increased, but to cut the State Department, to cut the e p A, to cut social welfare programs. This budget is not going to pass the Republican Congress. Republicans will resist it. It needs to be fundamentally resought. And Pastor Burnce, let me

ask you, lastly, hear about public diplomacy. How lucky it is to be one Aaron at McPike traveling on behalf of the Independent Journal Review with Secretary Tillerson and the only journalist on that trip, Rex Tailers, and finally taking questions in Japan for the first time from journalists. What would you say to him about the importance of engaging with the public and with journalists, And how big a problem is this that he hasn't you know, he doesn't

need my advice, but I think, what what? What the secretarian others will learn the Trump White House is you want your Secretary of State and Defense traveled for the American journalists. You want them to tell the story, not just the Chinese State News agency, which is not exactly democratic. You don't want the Chinese government run media to define Secretary Tellerson's visit. You want free democrats, small d democratic

reporters to be able to do that. And in the democracy where the press has First Amendment rights, it's the responsibility of people in government to be transparent as much as that's possible, to be accountable. This is what democracy is. And the press is not the enemy of the American people, as President Trump has been saying, Ambassador Burns, a great

privilege to speak with you. As always. That's Nicholas Burns at the Harvard Kennedy School in Colander at the budget guy on Twitter, a man who cautions us a time that we should not call the document that the White House released yesterday and sent to Capitol Hill a budget. Stand it begs the question I gotta ask once the last time we had what you would consider to be what constitutes a budget? Wow, that was a very dramatic question.

Than's grassing. Good morning, everybody. Um. No, Look, the president, President Obama has submitted a budget each of the previous eight years. Um, it's not so much that this isn't a budget. It's that the first, the first so called budget coming out of the administration is only partially complete. It only deals with about one third is spending, doesn't deal with economics, doesn't deal with revenues, doesn't deal with

mandatory spending. Um. I mean, this was really just a press release coming out of the Trump campaign about fulfilling its campaign promises. But it doesn't really have the fiscal policy involved. So I don't see how you can possibly seriously take this as a budget. Yeah, but stand I mean, folks, let's let's be clear here. Professor Collandar was noted by the Laureate Paul Krugman today in the New York Times, who you know, went to the source calendar. This is

not a budget, etcetera. It's a campaign document. I get that Paul Kruegman doesn't like the budget. Paul Krugman doesn't like any Trump thing. What about the Trump supporters that are going say, what, how do they respond to this? Well, Tom, I'm not even commenting on the specific proposals. I like some, I dislike a lot of them. That's not the point. But you know, the budget is a tool of fiscal policy.

It should it should be related to the economy. What you where you think the economy is going to go? And this budget doesn't include an economic forecast, and so if you don't have an economic forecast, if you don't have even an assumption even you guess, so how can you come up with proposals? But you know the minutia of actually the Joint Committee and all that I know. The headline question is what does Speaker Ryan do forget

about that? What does the machinery that Stan Collendar knows perfect, How does the machinery spy into this and then get to the next step It sits back and waits. Uh. Mc mulvaney, the O and B director, yesterday said they're going to come out with the rest of their proposal in May or June, and the machinery in congresses you put it, the budget process is gonna wait until then for two reasons. One because they want to see what the President is going to propose and make him take

the political hit for anything to that that's pretty bad. Second, um Congress really can't move on the next budget until it finishes this one, that is two thousand seventeen, because if they move ahead with two thousand and eighteen, that's the budget that was submitted to Asteroid, the document that was submitted yesterday, they're going to kill their chances of doing a c A repeal and replace. So that's where I mean, David, my head spinning. It's like my life

is now complete. Then it's like Maryland losing. That's what it's like to stand. How many pounds are gonna be packed on this skinny budget by the time we get the next one? What detail are you expecting we're gonna get. Are we gonna get some of the say, uh farther out of prospects that we didn't get in this one? Well, you're gonna don't forget this was just so called discretionary spending that his appropriations and so um. And it was

just for one year. So we're gonna get five and ten year forecasts for those for those programs, which is about a trillion dollars in the budget. You're gonna get mandatory programs, Social Security, Medicare, Medicaid, etcetera. Um, you're gonna actually get a deficit forecast going out ten years or beyond. UM that will show whether or not the president is going to be able to keep his promise to eliminate the deficit balance the budget by the end of his

his first actually a second term. Um. And you're going to get an economic forecast and revenue. So that's going to mean that the typical five books that we get from the President, the bigger budget apendix to everything that just the basic budget document should be available in May or June, and until then we really don't have enough information to make any decisions. Let me ask you about Mr Mulvaaney. Watched him yesterday fulminating from that podium in

the White House press room. He's a guy who has been very hard line, and I was wondering going into this sort of how he would complement the White House the rest of the White House when it comes to budget issues. How is he fitting in and how much is his message different from that of the White House. Well, if you look at his his congressional career, his positions on the budget are completely different to the White House.

Which is why I've said to our clients here, Um, he's either going to be the most influential member of the cabinet or the next one out the door. Um. He mentioned one of the one of the differences yesterday the White House. Uh, you know, she wants to spend more on defense. But he that is mulvannying. When he was a member of Congress said we don't want to use it as part of the Overseas Contingency Operations Fund, which allows you to spend more than the cap in defense.

So he seems so far to convinced the administration they shouldn't do it that way, whether or not they actually get there. But but I mean, that's a that's a major change that he's essentially forcing reductions into in domestic spending to pay for an increase in defense. Stan Collins are executive vice president of Corvis. Always great to get his perspective. Tom ready to see him get the FaceTime book Ruitman to stand as a and earned source of

the minutia of our fiscal process. I love how he sequenced the calendar there, they got to do this budget before they do that budget. And then I did I believe he say, we don't really don't do the next thing till me. So it's a waiting game until then. That's the next next iteration from the White House joining us Stephen Ratner, will it who I should point out manage his money for? Uh? Michael Blomberg, the principal owner

of the station. But far more importantly, Steve, your public service is our did you have a budget when you were zar, like, did they call you up and say, you know, the gulf stream Detroit? Detroit's killing us. I

didn't have a gulf stream. The great advantage of seriously is of what we did was that we didn't have a budget because we were operating using tart money, which Congress had appropriated at the depths of the crisis, regretted immediately that it had done it because it gave the White House too much power, and so we were actually able to do everything we did without ever having to face those wonderful folks up on Capitol Hill. Have you

seen a budget like this before? Mcmilvanny, the head of the m B calling this a hard power budget, one that's emphasizing security and defense so much. Let's just be clear one thing. This budget is a political statement, not not a budget that's going to happen. Because one thing that doesn't get enough attention is that you need sixty votes in the Senate to pass this, So you're never going to get eight Democrats to flip around and be for this budget. So even so, there's also opposition within

the Republican Party. But these guys are making a statement as to what they want. Now. The thing that you should remember is that if this budget does not pass, and it won't or any budget won't pass, then you go into a continuing resolution, which means you go back into the sequestration caps and the deal that was made between Party and Petty Murray and Paul Paul Ryan when he was in charge of budgets to defer some of

the worst cuts take effect. And so a lot of bad stuff is going to happen in October one on autopilot, even if this budget has not passed. So the sequestration is not going away, much as the President hope that it would when he when he spoke before the Joint

Session of Commress. No no end in sight to those caps. Well, the president should know better that if you propose a budget that's gonna cut out of agencies that many of us think are important, then you obviously aren't gonna have a budget deal, and and the sequestration isn't gonna go away. What must it be like to run one of these agencies?

I think if Secretary State Rex Tilligen, he seems to be on board with with cuts of these magnitudes, But we're talking about cuts here that would radically reconfigure again. Should they be affected, they probably will not be affected in full, at least the institutions that these people are heading. It's interesting because, of course some of the institutions like the e p A are headed by people who want

to abolish them anyway. But I which is award. But but I do think of Rex to listen a lot, because I can't imagine that he would sit there and say to himself that I want my budget cut by thirty who wants his budget cut by But I think he may also say to himself, this is never gonna happen, and so I can still stay on the team and kind of let this sort of glide along and be worrying about North Korea and other things. What does this say? Okay, so let's say it's not gonna pass. What does it

say about strategy? What did you learn yesterday about the seriousness with which this administration is treating the budget or treating its promises of cutting back the size of the federal government. I think that that does make you gasp a little bit, is that an administration, any administration, would come forward with something this radical. I haven't gone back

and studied Reagan but Reagan's budgets. I covered them as a reporter, actually, but I I don't believe they were even remotely of this order of magnitude of trying to reshape the government. You lost a good one this week. Will the advisors Ellis Ruth will return to Dartmouth. She's out of deer fielding Dartmouth and she will go up there to their Dartmouth endowment and help them with quiet and conservative money. Is it about making money or is

the game of endowment investment about not losing money? Which is it? It's about making money in the long run. You know, every endowment, and and we're a foundation in large part, has its own approach to how they tolerate volatility, how they tolerate risk. We have a very very thanks to our our founder Michael Bloomberg, part owner of Bloomberg Radio and and LP, we have a very long time horizon, so we're able to take risk. Other institutions are more

conservative because they don't want the volatility. I'm sure Elis is listening this morning, help us here with the debate. She's going to be hit over the head with which is active versus passive? Harvard's had to deal with every endowment. He said, well, Harvard has a sum of a different situation.

Harvard's issue was that they were trying to do active management internally, and in today's world, you can't attract the best talent to come internally into a place like that, and so they're now going to an external mode mode. I've the major endowments, whether it's Dartmouth, Harvard, what we do. We still do believe that over time, active management can produce better results, and we're still committed to that strategy. Now are we simply doing it as in a self

preservation act? That we want to keep our jobs? So therefore we have to believe in active management. We'll find out, do you believe in the new environment, the regime shift, in the Trump bump, etcetera. It will see revenue growth out of American companies additional marginal revenue growth in the coming years above what would otherwise happen or above compared to what if we get four percent revenue growth? Is

the new four percent five percent better revenue growth? I think you could get a little bit better revenue growth for a short period of time if he puts in place a stimulative tax policy that creates incentives for people to buy things and for companies to make things. In the UH, the revenue growth of our US companies are going to be hurt by a strong dollar. It's going

to affect exploits UH. And secondly, it's as you know, it's just basic economics that are long term growth rate cannot exceed the supply of labor plus the productivity of that labor. If he restricts immigration, the supply of labor may be restricted somewhat. UH productivity has been very weak. I don't see anything he's proposing particularly that would help it.

And so I I am I don't I'm not. I'm not a pessimist by nature, but it's very hard to see along term great threat growth much above two percent at this moment, and with the news flow we've had, healthcare is sort of drifted away. I believe that five days ago that was front center, right, David, Yeah, And I think that the House Speaker Paul Ryan probably would prefer that it's still remain centers we're dealing with with

all of this stuff. Steve, how optimistic are you here that we'll see maybe not this piece of legislation pass. Might might be optimistic about that, but see some changes here, some smart changes to this legislation. I don't know they're gonna be changes. Whether they're gonna be smart changes or

less smart is the question. Because what Paul Ryan's got to navigate are some people on his right flank who want changes that I would you is not smart, and then a bunch of several more or less moderate Republican senators on the Senate side who want changes in the other directions. So he's really caught between a rock and

a hard place. I I've been sort of vacillating around fifty fifty for this, but I have to say that it doesn't make sense to me for the people on the right side of Paul Ryan to actually ultimately vote no to almost anything, because why would you want to go back to Obamacare one point oh if you can have two point oh or one point eight or one point five or anything that in their minds is better

than one point oh. But you know, the broader point that we should keep in mind about both healthcare and the budget is the dramatic way in which the president is reshaping priorities and spending away from the very people who elected him. His healthcare proposal would cut one net one point one trillion dollars of benefits that go to lower income Americans, many of them voted for him, and they would give people like me six hundred million dollars of tax cuts, which and I didn't vote for him,

and I don't need those tax cuts. And then on the spending side, the budget obviously would eviscerate a lot of programs that help people at the lower end of the income spectrum. So this is really the most traumatic reshaping of government priorities I've ever seen. The last question here, you look at the Affordable Care Act and you can see some deficits there. You've see these insurance companies pulling out of some markets and all that's associated with that.

Why does it seem so difficult to have a smart, measured conversation about healthcare policy in this country? Here from the House speaker that this isn't being rushed through the House. Indeed, they've been thinking about it for a long time, They've run on it for several cycles now, and yet it's very hard to find outside groups that support this piece of legislation, the changes that are that are proposed here. What makes healthcare in particular so difficult so thorny a

political issue. First of all, it's a huge part of our GDP, It's around eighteen percent or something like that. And secondly, you're dealing with moral questions. You're dealing with rationally healthcare. How much healthcare are people entitled to as a matter of just being a citizen versus having any other commodity, anything else you use in your life, you're expected to pay for it. Why healthcare is just different? Uh,

it's just different in that respect. And I thought we were going with the question those I'll answer the questions you didn't ask fair enough. Is what's also not being discussed, And politically it's impossible. But the problems of like insurers pulling out of the marketplaces, this could have been fixed. Nobody expected that Obamacare would get it all right on the first get go, And in a rational world you

could have gone back in and change things. For example, the cap of three to one on the ratio between where older people paying what younger people pay in retrospect was a mistake. You could fix that kind of stuff. Obviously not in this political environment. Steve Wrett, thank you so much. Little Advisors Orthopedic hand surgeon from Holidays Burg, pen Sylvania. The president of the American Medical Association. That's

Andrew German, who joins us. Now, I know that the a m A has come out against the American Health Care Act, the plan proposed and championed by many members of the Republican Republican members of the House of Representative, Dr Gi, give us a sense here of what you and your organization don't like about the plan. Good morning. Well, first of all, thank you for having me on your show. Um, we know that people who don't have health insurance live

sicker and die younger. The data are incontrovertibly clear on that point. So when we see a piece of legislation that that, by everybody's estimates, will take somewhere between fourteen and twenty five million people off the insurance roles, we think that that is condemning them to living sicker and dying younger. And a physicians, we felt obligated to point that out. How much input did you at the a m A and how much input to doctors in particular

have in crafting this legislation. Did Republicans on the Hill seek out your counsel? Well, we uh informed every member of Congress on I think the second day of the of the congressional session. What our principles were, that people who had insurance shouldn't lose it, that people who don't have insurance should get it, That there needs to be adequate funding for safety net programs CHIP UH and medicaid.

That there needs to be an unremitting commitment to quality UH, and that insurance needs to be affordable, affordable, and provide meaningful coverage. So we've we've communicated those principles to UH, to everyone in Congress, and we have met with leadership on both sides of the aisle. We've talked with with folks in the insurance industry who say, you know, there were problems with competition and a number of market places.

How much of a mess is the Affordable Care Act to you when you're looking at it, when you see problems with the things that need to be fixed, what stands out to you as a doctor, Well, the biggest thing that needs to be fixed in the Affordable Care Act is stabilizing the individual insurance markets. There's great uncertainty UM, and I think people on both sides of the I'll agree about that. The question is do you fix what's there, or do you replace um UH with something else. We're

not philosophically opposed to replacement. We just need to know what it is before you you repeal what's here. If your with us, folks. Andrew German, he is to have the American Medical Association and out of Upstate Syracuse UH DR I went back and forth yesterday with Peter Hotez, A. Baylor, and I think at Upstate UH Syracuse UH, Timothy n d E n d Y, Timothy Dy and their courage in really tough parts of the world on vaccines. They now have to bring that courage back to the United

States where whether it's mumps or measles. We're having this discussion about vaccines, which was carried for carried forward a few days ago by our newly minted UH Secretary of of of Human Health and Human Services, Mr Price. Dr Price. Can you help us here with a vaccine debate? How does the A m A shift this debate back to science? Well, we there is no debate, but the science about vaccines is again incontrovertibly clear UM that we need to protect ourselves,

our children, and our communities UH. And the science speaks for itself. So there's there's to my mind, no controversy there. Um, people need to get vaccines, they're safe. The controversy seems to be a select group of medical types who have succumbed to almost the state's rights debate on basic science. Back to Louis Pasteur. How do we address that as a nation when we see expanded illnesses and illnesses coming back from our childhoods. Well, again, I think we have

to focus on the science. Science is not a state's right issue, states rights issue. Science is not a Democrat, Capital D or Republican uh shoes. Science is science, and uh that's what what allows us to take good care of people. Um. We we try to do evidence based medicine based on science that is rigorous, that is reproducible, and adheres to basic scientific principles that go back to

Louis Pastor you sited before. That's Kevin, let me go back to this legislation on the Hill right now, the timetable that we have before us, how Speaker Paul Ryan and others hoping to get this done as quickly as possible. What are your next steps? You mentioned sending a letter sending your point of view to two congressmen on Capitol Hill. Where do you plan to go next? Is this debate continues in Washington. Well after the legislation was dropped, we

reiterated our concerns. UM we have made our our principles again known. We've reiterated them and made it clear what our our problems are with the current legislation and why we can't support it as written. We have a patience UH action net work and a physicians grassroots network and both of those will be activated. And I don't know what else we will we will do, but weill. The important thing is that we are we are communicating to

Congress that we want to work with them. We want to be helpful partners in crafting legislation that will accomplish the goals of meeting the principles that we've laid out. Do you feel that Washington is listening to our nurses and our doctors? I hope so well. I know hope and audacity would help out here. But but do you feel, you know, within the scope of your career, back to your days at Upstate and Syracuse, do you feel like you've got a voice in Washington with the A M A.

I absolutely and honestly do. Otherwise I wouldn't have spent thirty years of my medical career being active in it. I think that advocating for our profession uh and for our patients is a professional responsibility. I think it is as on a par with with keeping current with trying to do good medicine because we um doctors, nurses, and patients are the ones who can tell our stories uh and Congress needs to hear them. So that's why I do the work that I do, and it's it's a

privilege to do it. Oh, thank you so much, Dr German, greatly appreciate. We'd love to have you back on back with Bloomberg Surveillance again on the medicine of the nation. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio. Yeah, brought you

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