Can Trump and Pelosi Find Common Ground Before 2020?

Plus, Dem economists push back against debt fears By Yuval Rosenberg and Michael Rainey Where Trump and Pelosi Might Still Find Common Ground Before 2020 Congress isn’t like to pass much in the way of major legislation this year, but there’s still hope for progress on a couple of fronts: infrastructure and prescription drug pricing. House Speaker Nancy Pelosi said Tuesday that she’s “very optimistic” about being able to reach a bipartisan deal on both. And on Wednesday, President Trump urged Democrats to focus on those legislative priorities instead of investigating his administration. “Get back to infrastructure, get back to cutting taxes, get back to lowering drug prices,” he told reporters, according to [CNBC](. Infrastructure: Pelosi and Senate Minority Leader Chuck Schumer are set to meet with President Trump next Tuesday to discuss a potential plan. "We'll be meeting with the president next week when we come back to talk about what the prospect is for the size in terms of resources and scope of what that might be," Pelosi said at the Time 100 Summit on Tuesday. Trump has called an infrastructure deal “the easiest thing” he could achieve with Democrats. "The president wants a bipartisan infrastructure package that rebuilds crumbling infrastructure, invests in the projects and industries of tomorrow, and promotes permitting efficiency," a White House spokesperson told [Bloomberg News](. And Pelosi on Tuesday said that tackling the issue "in a green way" has "never really been partisan." Even so, finding agreement on funding details and environmental provisions won’t exactly be simple. Pelosi has said she wants an infrastructure package of at least $1 trillion, though she would rather it be closer to $2 trillion, Bloomberg notes. Trump has proposed spending $200 billion over 10 years to spur $800 billion or more in state, local and private funding. Bridging that large difference will be one issue. Agreeing on how to pay for the additional spending will be another. Prescription Drug Prices: “The White House and top lawmakers from both parties think a bill to lower drug prices has a better chance of becoming law before the 2020 election than any other controversial legislation,” Axios’s Jonathan Swan and Caitlin Owens [reported]( this week. Pelosi on Tuesday indicated a deal with Trump on drug prices should be possible. "In our conversations at the staff level and my conversations with him, I think we can find a path to do that," she said. The bottom line: These may still be the areas with the best chances of bipartisan cooperation, but the mounting Democratic calls for Trump’s impeachment and the looming 2020 election are bound to cast a sizable shadow, potentially darkening the prospects for any significant legislative action. Chart of the Day: 2019’s Lobbying Leaders [Roll Call reports]( that trade, infrastructure and health care issues including prescription drug prices “dominated the lobbying agendas of some of the biggest spenders on K Street early this year.” Here’s Roll Call’s look at the top lobbying spenders so far this year: Dem Economists Push Back Against Debt Worries Just how worried should we be about the rapidly rising national debt? Last week we [told you]( about a budget watchdog group’s effort to raise the alarm over “debt denialism” that has taken hold in some quarters, with politicians and economists from across the political spectrum pushing fiscal concerns onto the back burner. This week, two Democratic economists who have played a role in that effort offered their latest thoughts on the debate. Writing on the Peterson Institute for International Economics blog, Jason Furman, who served as President Obama’s chair of the Council of Economic Advisers, and Lawrence H. Summers, who served as Treasury secretary in the Clinton administration and director of the National Economic Council under Obama, [addressed five debt-related points]( 1. Debt alarmism is also a danger. Furman and Summers warn that excessive debt worries can be just as destructive as excessive debt creation, in large part by hindering policymakers from taking the steps needed to fight an economic downturn. “Among the largest economic policy errors of the last decade was that the fiscal stimulus was too small in the wake of the Great Recession — that is, deficits were too small, not too large,” they write. Moving forward, they argue that “the dangers posed by anti-deficit dogma in the next recession could be enormous.” 2. The costs and benefits of deficits have changed. The authors say that the persistence of low interest rates make it clear that one worry — that deficits will drive up interest rates and choke off economic growth — should be discarded. “The idea that we need deficit reduction to keep interest rates down and thus encourage borrowing and investment may have made sense years ago, but it would be an absurd diagnosis of today’s economic problems,” they write. At the same time, there are limits to how much the government can spend without sparking inflation. Given such constraints, policymakers should proceed cautiously and aim to “do no harm” by paying for new programs rather than having them increase the deficit. 3. We need to stabilize the debt while shoring up Social Security and Medicare. “Entitlement programs need to be fortified for fundamental social reasons,” Furman and Summers write. Increasing revenues (read: higher payroll taxes, “and not just from high-income households”) to cover the Social Security and Medicare shortfalls is essential, they say, and will improve the debt outlook as well. 4. The U.S. is not facing a fiscal crisis. The cost of reducing the debt is greater than any benefit that reduction would provide, Furman and Summers argue. “Countries that borrow in their own currencies and run independent monetary policies have substantial latitude on fiscal policy,” they say. “Not unlimited latitude, as some political advocates of MMT argue — just look at when the United Kingdom had to turn to the International Monetary Fund in the 1970s — but much more than indicated by the overwrought predictions of many advocates of more urgent deficit reduction.” If there is a crisis at some point in the future, “deficit reduction can be done rapidly.” 5. Fiscal policymakers should be focused on the next recession — and sustaining the country. Furman and Summers say that in a low-interest rate environment, fiscal policies will play a leading role in combating the next recession. Accordingly, policymakers should be “actively making contingency plans now for the next recession by identifying infrastructure projects, finding equitable ways to reduce sales taxes, and considering ways of giving tax benefits that maximize the propensity for them to be spent.” More broadly, policymakers need to focus on sustaining and promoting national growth. “The budget deficit is not our only or even most important national deficit,” they write. “Those worried about placing burdens on the next generations should be even more concerned with an inadequate infrastructure, an education system that fails most young people, places where employment rates are too low, insufficient investment in scientific leadership, and a government that increasingly lacks the capacity to do fundamental tasks like collecting taxes, caring for veterans, and enforcing the law.” Why Rising Budget Deficits Don’t Scare Wall Street Some economists see America’s large and growing budget deficits as a problem requiring urgent attention, but Bloomberg’s Katia Dmitrieva and Liz McCormick [say]( that to many investors, the fiscal gap looks more like a solution to several pressing issues. In the face of rising uncertainty about a slowing economy in Europe and possible credit woes in China, investors are increasing their demand for safe assets, Dmitrieva and McCormick say, and the debt issued by the U.S. Treasury to cover the soaring deficits under President Trump fits the bill nicely. Thomas Wacker, head of credit research at UBS Global Wealth Management, told Bloomberg that people buy U.S. Treasuries when they are worried, and with “so many things cooking everywhere” in the world right now, “there’s a constant flow into dollar debt.” U.S. government-backed debt is particularly appealing because, unlike some other advanced countries, including Germany and Japan, it provides a positive yield (see the chart below). Some experts argue the increase in the supply of safe assets could have a stabilizing effect on the markets, in part by reducing the need for private debt issuers to create exotic instruments that attempt to mimic the performance of government debt — a dynamic that ended disastrously in the financial crisis 10 years ago. “When the government spends money and borrows money, it’s creating safe assets. That’s the thing that’s being missed,” said J.W. Mason, an economist at the liberal Roosevelt Institute. Aside from the immediate worries about the health of the global economy, the need for safe and stable retirement funds to provide for an aging population will likely play a significant role in maintaining demand for U.S. debt, Dmitrieva and McCormick say. One thing seems certain, though: With trillion-dollar annual deficits coming as soon as this year, the U.S. will be issuing lots of safe assets in the foreseeable future. And although many fiscal hawks are certain that rising public debt will push up interest rates, potentially sparking a fiscal crisis of spiraling debt costs, market participants aren’t so sure. Andrew Milligan, head of global strategy at Aberdeen Standard Investments, told Bloomberg that “when the U.S. Treasury market explodes due to more issuance, you’ll be seeing a lot of investors simply dashing for safety and buying that debt.” In a dynamic he called “peculiar,” Milligan said that, “Supply often creates its own demand in the bond market.’’ Did you see [this shot]( Send your nominations for the best buzzer-beaters ever, story tips and feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. And please tell your friends they can [sign up here]( to get their own copy of this newsletter. Can You Fix Social Security? A New Tool Lets You Try The Congressional Budget Office released an interactive tool Wednesday that shows how some widely discussed policy changes would affect the long-run financial health of the Social Security system. “This interactive tool allows the user to explore seven policy options that could be used to improve the Social Security program’s finances and delay the trust funds’ exhaustion,” CBO said. “Four options would reduce benefits, and three options would increase payroll taxes. The tool allows for any combination of those options. It also lets the user change implementation dates and choose whether to show scheduled or payable benefits. … The tool also shows the impact of the options on different groups of people.” [Click here to view the interactive tool on the CBO website](. 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