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U.S. Department of State - Great Seal

U.S. Department of State

Diplomacy in Action

The Economy, Trade and the 2016 U.S. Election

Sharyn O'Halloran, Professor of Political Economy and International and Public Affairs, Columbia University
New York, NY
April 20, 2016




Date: 04/20/2016 Location: New York, NY Description: Sharyn O'Halloran, a political scientist and economist, briefs journalists on issues related to the political economy of international trade and finance, regulation and institutional reform, economic growth during democratic transitions, and the political representation of minorities. - State Dept Image
12:00 P.M. EST

NEW YORK FOREIGN PRESS CENTER, 799 UNITED NATIONS PLAZA, 10TH FLOOR

MODERATOR: Okay, good afternoon. Welcome to the New York Foreign Press Center. My name is Monica Shie. Today we have a briefing on the economy, trade, and the 2016 U.S. election, also talking about last night’s winners.

So today I’d like to welcome Sharyn O’Halloran, professor of political economy and international and public affairs at Columbia University.

Sharyn.

MS O’HALLORAN: So thank you. Last night, I guess, was no real big surprise to anyone. I guess the real surprise is that we’re here, but the topic really is to talk about the economy and the election. And I thought it would be good just to start off the where we are in the state of the economy. And the one big thing that we’ve noted in this election is there isn’t the “it’s the economy, stupid” language that we – really is the economy hasn’t really played a fundamental issue, but I think it’s important to understand why.

And so just if you look at how the economy, the U.S. economy is doing, you could just see we’re at – we’re doing okay, right. We’re about 2.2 growth rate. It’s predicted to be slightly down on employment – actually for the first time since the recession has ticked down to 4.9 in January, went back up to about 5.0. The interest rates, again, remain low. The 10-year bond is about 1.8. Business spending actually has declined, and these are a couple of issues that are points of contention moving forward. It is expected to increase. Energy, we see, is increasing, energy prices. That’s good, that’s bad – consumers, bad; producers, good. So it’ll have mixed results in the economy. Housing starts is one of the points that people are looking at. We’re seeing them actually decline now. And so people can say that’s good in the sense that it’s taking some pressure out of the potential bubble. People can say it’s bad, it’s implicating some stalling of the economy. Where we do see some resistance is in retail spending, and another place of concern is in the widening trade gap.

What is going on, then? We think about jobs, job growth, and we can see again that we have – the unemployment rate has slipped down to 4.9, below the 5 – really 5 percent level. And that’s a key point in the United States, because we think of structural unemployment really about as 5 percent. But one issue you do see is the number of jobs being created. The other issue you see is in the nature of those jobs. And again, that’s part of where the dialogue in the elections is taking place.

Another issue that you see is in wages and wages and productivity. And this goes to some of the concerns that others have been talking about, which is about the minimum wage, wage growth, where is the income distributions and income gaps taking place. You see that overall, the hourly earnings actually did increase, has been – but what the real issue is in long-term productivity. And that’s not just driven by increasing wages. It is driven by larger, larger demands about the overall productivity of the U.S. economy. And consequently, where are the ways in which the U.S. growth is going to take place, and how is that going to be divided among the various sectors of the economy?

And again, this is where you’re getting the differences of preferences and the differences of interests of the various constituencies taking place. So I just wanted to give you a little highlight of where, if we’re seeing divides in the economic – in the electoral dialogue, again, it’s not about the whole state of the economy; it’s about various long-term trends that we’re seeing. And I just wanted to show you in the numbers where they’re coming from.

What are some of the implications of this? Well, we’ve seen growth – growth, again, has been pretty lackadaisical, lackluster, if you will. We saw it decline in the last quarter of 2015. Again, you came out, you saw some of the financial industry with pretty large decreases in their revenue structures, amongst other types of manufacturing, other producers coming out with weak earnings ratios. And the drivers in this are really two things: one, the widening trade deficit, and the second is the strong dollar. A lot of this has really been implicated from weakness in the global markets, the emerging markets in particular, and highlighting the issues around China and Asia.

So when you do these polls as to what is the – and you ask the question of 60 economists – not that you’ll ever get the same answer, but if you ask a question, the most likely answer that you’re going to get as to what is the biggest risk moving forward for the next 12 months to the U.S. economy, it really is not the election – right – not financial meltdown, or even the U.S. consumer. It’s global risk. And therefore, this poses the biggest issue for the U.S.

So one of the questions, then, really becomes: If that is the way the U.S. economy long-term or even medium-term health is situated, how does the election play into this, if at all? So where are we now? Again, we saw last night that the obvious happened – Clinton and Trump are going to be the likely candidates come fall 2016 presidential elections. There will be a lot of drama along the way, I assure you, predominantly around the delegates and how those played out. And there’s interesting stories around primaries and delegates and conventions.

But one of the issues that is interesting in the American politics and has been in previous elections a big point of contention is understanding the role of money in politics, right. Who is giving to whom and is that influencing the campaigns and are we having disproportionate influence in there? Not hearing much of that this election. And it’s not just because you see Hillary Clinton and Bernie Sanders and Ted Cruz and Donald Trump getting money and being able to manage their just balanced set of constituents. It really is, I think, a result of that a lot of the same groups are giving to many of the different constituents, and let me show you what I mean.

Here, if you just take the top donors and you break it down by industry, you see – well, there’s big differences between Bernie and Hillary, correct? Clinton – her largest donors are securities and investment, retirees, the legal community, unions, and women. Bernie – retirees, teachers, the professional – health professionals, and these are the – these would be nurses and other doctors’ aides and so forth. And in any case, if Hillary Clinton wins the nomination in fall that – for the Democratic ticket, it’s most likely those different constituents, those voters will turn their support over to Hillary. I can’t – it’s very hard to imagine that the teachers will be – all of a sudden become avid supporters for the Trump campaign. But so most likely there you will see those voters support the Hillary campaign or not vote at all.

We look at Ted Cruz, and again we see similar – the real estate, the finance, securities and investment as your second, and retirees. Looking very similar to Hillary Clinton’s composition. Donald Trump is pretty much self-funded. He has very little money, and this may be part of what the – why there’s not much of a discussion going on around the influence of money in the campaign this year. But the big issue, and what’s to note, is that many of these groups, again, that are supporting Cruz also are supporting Hillary Clinton. And in fact, if Trump becomes the Republican nominee, it could very well be that many of those groups become swing voters and swing over to the Clinton campaign.

So I think this is going to be one of the key issues as to where those key sectors or those voters represented in those key sectors, where they actually land. Because they tend not to be hard, fast Republican identifiers. They tend to be more moderate on social issues, conservative on economic or moderate on economic issues, and therefore, they could probably swing either way.

So what are the implications for the economy? What are some of the key issues, then? And if we go back to some of those trends – and what does it mean for any of those candidates taking place? One, foreign trade is huge. And this is now interesting because if we think of the 1990s with the Bush and Clinton – we may have to say Clinton 1, and that will be interesting, right? – and Clinton, that would – that was – those were big issues as well, right, the North American Free Trade Agreement, the Canada-U.S. Free Trade Agreement. But here we have two candidates, both on opposite sides – Donald Trump and Bernie Sanders – pretty much saying they will reduce foreign trade. Not just they wouldn’t go into a particular agreement but they’re going to actively seek policies to reduce our dependency on foreign trade. U.S. is one of the largest exporters in the world and we’re one of the most competitive economies, so obviously statements along those lines will have serious implications for many different sectors of the U.S. economy.

Hillary opposes particular trade agreements, in particular the Trans-Pacific Partnership, and there are lots of things about the TPP that are – I think are – go towards some very deep concerns within the U.S. as well as on the opposite side of the Atlantic.

When we look at taxing and investment income, we see both Sanders and Clinton favor higher taxing on the investment income and labor income from higher earners. Trump and Cruz actually always – you would imagine this one. This is a complete Democrat/Republican split, right? Trump and Cruz seek to reduce taxes and even move in some cases to a flat tax both on income and in some cases consumption, which would be what we see in Europe, like a VAT.

On the minimum wage – and we talked about the issues of productivity and wages and wage growth – we see that, again, this issue is dividing the candidates along party lines. Sanders and Clinton support a higher national minimum wage. Clinton supports, actually, a federal – a higher federal minimum, is how she proposes it, as opposed to an absolute increase in the whole standard. Trump’s position on many of these issues is unclear, and Cruz opposes it.

So what does this mean if any of these candidates come in? What if Trump wins? What if Hillary Clinton wins? What do we expect? There’s a second influencer that we have to think about in the U.S., and that is the role of Congress, and in particular a role of this Congress that is highly polarized. In the Senate we have 54 Republicans and 44 Democrats, two Independents – Independents usually vote as Democrats. In 2016, we’re likely to have – afterwards we’re likely to have 50 Republicans, so the Democrats are expected to pick up seats – 47 Democrats – and three seats still are too close to call. So in any case in the Senate, you will have a highly polarized, very divided chamber. And if you remember, of all the concerns that happen, it’s really – you need 60 votes to pass many of the legislations because 60 votes are where the filibuster lie and they can – you can block them because of a – if it’s a budget bill it requires the 60 votes, the supermajority.

In the House of Representatives, here again we have – Republicans have the majority at 234 seats, the Democrats 201, two Independents, and the Democrats are likely to pick up five to ten seats in 2016 election. Again, this will not be enough to regain the majority.

So what should we expect, then, on all of those policies that we’re talking about – foreign trade, getting rid of all of our trading goods, taxing, reduce – either eliminating taxes or increasing taxes, and even for the minimum wage bills that probably have enormous amount of support within the electorate? Probably gridlock, which is we should expect to see pretty little – limited movement on those large policies unless there is some enormous tidal – national trend or national tidal wave that takes over in the fall 2016 elections, of which is very unlikely that is predicted at this time.

MODERATOR: Okay. We’ll open it out to questions. Please state your name and your media organization.

QUESTION: Orhan, Turkish newspaper Zaman. First question: Can we get this light?

MS O’HALLORAN: Yeah. I think I had two errors. I’ll clean them up and then I’ll do it. (Laughter.) I’ll send them out.

QUESTION: Okay. The second question is --

MS O’HALLORAN: I can send them to – and you can – yeah, okay.

QUESTION: It’s very clear. Which candidates might help or hurt investment, at least from the market perspective?

MS O’HALLORAN: So investment, obviously, it depends on a lot. If you’re saying that investment is going – the taxes imposed on the returns, like the total of returns, then clearly anyone who wants to reduce taxes on investment, well, that just increases how much people get. But if you’re going to say what’s the – go back up to the big tickets here – the big-ticket items, right, on how we’re doing. So – but if you say, “How – what candidate is going to be – do the best for the medium to long-term,” that is, issues around investment and infrastructure that – or education that are going to lead to higher growth and productivity, right, where – that is where you’re going to get higher earnings ratios for U.S. companies in the medium to long term – I mean, those are big investments – then you have to look at people who will – the candidates that will invest in those areas.

Trump has not said a word about them. I – and I’m not sure the model as a professor of Trump University is one that I would endorse and emulate, however, I – for developing human capital. However, we have serious infrastructure problems that need to be addressed, of which the education system, bridges, roads, moving, high rail – all of those things that are going to improve the long-term return on investment. If you’re asking about the equity market, then you look at the taxes, right. So those are the – that’s the way to think about it, whether you want short or you want medium to long.

Yes.

QUESTION: Hi. I’m Sandro Pozzi from El Pais.

MS O’HALLORAN: Please.

QUESTION: Looking at the markets, everything is very quiet even if Donald Trump is equal to uncertainty.

MS O’HALLORAN: Yes.

QUESTION: That’s because everybody thinks Clinton is going to be the elected or --

MS O’HALLORAN: No.

QUESTION: How you – what is your – I mean, things are going to get wild for the convention. What happened with Ted Cruz? Because he’s pretty fanatic and have very strong ideas and I don’t know if the markets are considering that option.

MS O’HALLORAN: No. I think now because of the delegate counts people are seeing Trump as the frontrunner. I do believe there is a lot of support in his party to – leadership to maintain Cruz as a viable candidate along the way simply because it’ll provide a means in which to work on the platform that Trump would run on and how that would be managed. Also, it would be a means to negotiate a lot of different things with Donald Trump, who has never been part of that process. So I think there are lots of reasons why.

I do believe so far Trump – the prediction, if you look at, like – go on the political (inaudible) – stock market, right – political market, it’s a pretty – they are predicting Trump to be the candidate. I think that’s probably right at this point. At least I don’t see anything happening otherwise. And even if – there’s nothing that’s going to be revealed about him that will surprise many people. So I think that’s the case.

I do not believe people think that if he got into office, he wouldn’t be – it’s the – he wouldn’t be – the uncertainty wouldn’t be there. I think people are very aware that the uncertainty would be there, just because, one, he’s not a known entity, he’s never held public office, he’s never been subject to the types of constraints and so forth. So it’s really unclear on how he would respond to those particular environment.

But the one thing they’re betting on is this red word, “gridlock.” And so the one – so we may – sometimes we think of gridlock as very bad, other times when you have large swings in preferences that bring in candidates on a populist trend, that are – that it really does reflect people’s concerns. The ability for them to sweepingly change all of government and all existing policies is limited by a process that requires supermajorities, multiple houses, a legal system to review its constitutionality, and all those types of checks and balances that, again, in good times lead to things that we don’t like, like slow implementation and incremental policy.

But when you have a case like this, that may be a good situation because it allows us to be thoughtful in evaluating different policies as they come up. So I think the uncertainty is definitely there in the different propositions and proposals he might make as if – was to hold that office. However, the ability to implement those, I think, will be moderated simply because of the structure.

QUESTION: Thank you. May I – a follow-up. It’s about this idea of gridlock. Don’t you envision – because gridlock is Democrats against the Republicans, not having an – I mean, Democrats and Republicans not having an agreement in the Congress. But don’t you see --

MS O’HALLORAN: No, no, no. It’s – gridlock – because you can have the veto --

QUESTION: Yeah, yeah. No, my point is will you see a situation in which Democrats and Republicans are going to be opposed to anything that comes from a Donald Trump administration?

MS O’HALLORAN: No, no, you – no, not necessarily. You don’t need everybody opposing Donald Trump. No, I don’t think that’s going to be the case. I think you’ll have certain segments of the Republican Party that will – if this was the scenario – and a very hypothetical case – if this was the scenario – you’re moving me beyond where I really want to talk here, but I will go through the hypothetical.

If this was the hypothetical and sets of budgets come down that remove the State Department and the USTR and all other – the Labor – all – for example, the probability that Donald – that particular – that president would get a lot of support from the Democrats is probably nil. He will probably get support from more extreme versions of the tails that we usually thought Ted Cruz represented, but – they may support him. But more moderates of the Republican Party probably would not support him, therefore you may have a case where the president’s ability to set extreme policies would be limited.

So he’s going to have to, in this hypothetical case, negotiate and move more to the center than the dialogue so far has suggested he would. Again, that’s the political process. Some think of it as gridlock, others see it as a way to have a more modulated, thoughtful conversation.

QUESTION: Hey, thank you very much. My name is Ahmed Fathi from ATN News and other news media in the Middle East. Let me first comment on the gridlock that you are – that you indicated. What would be the role of the Federal Reserve through the instruments they use as a way to balance the uptake on the political arena in order to avoid any spiral effects to the economy?

And my second part – and this is as an economist – wouldn’t public spending in infrastructure, education, roads, tunnels, et cetera, would create an economic growth of a sort? I mean, I’m referring, of course, to Malthus and his work in that area. But wouldn’t the public spending be a positive – have a positive impact on all – the overall economy? Thank you.

MS O’HALLORAN: Okay. So the Federal Reserve is an independent agency. They, in fact, are – those are – that agency is not to be part of the political process even though, yes, there are appointees and yes, at times they do have to – they do make reports to Congress and it does feel as if they’re under political pressure. But they would not necessarily be subject to the same types of political scrutiny as, say, an elected official. So that’s the first thing.

The second thing to which they would – we’ve seen modulate or counterbalance monetary policy versus fiscal policy – we’ve seen that being a very limited tool right – the quantitative easing, and we’re on quantitative easing 3.7, I think. I don’t know. But that’s various – now we’re – buybacks, and that has proven not to be as stimulating to the economy as of – as one – previously before we did those exercises we thought.

Moreover, we’re seeing that in the European bank, as it is going into negative interest rates – here again we’re seeing the impact of monetary policy to stimulate the economy where we usually would have used fiscal tools again being limited or taking, perhaps, longer to work through the various multiplier effects than we would like. So I’m not sure to what – to how much our Federal Reserve would and could get into that and would act as a stabilizer, okay.

Second question – you asked does federal spending stimulate the economy. Yes, it does, and we saw that when the – we had the stimulus and they – they did the TARP and they did all these types of ready – shovel-ready projects they funded, and that was great. Many of those shovel-ready projects would have happened anyway and have not had long-term implications for the growth of the economy simply because they weren’t the right value-added project to do at that time that we really needed – the roads, the bridges, the cellular phones, what have you, okay. So those are some of the real issues. Yes, fiscal spending matters, but it also matters how you spend the money if in fact it’s going to improve productivity and the skillset of the American worker. And those are the places that you have to really think about. So it’s not – it’s not money just to stimulate, right? You want money for investment into high-return areas.

MODERATOR: I think we’re going to go here first, and then (inaudible).

QUESTION: Hi. Thanks. I’m Mort Bertelsen with Dagens Naeringsliv, a Norwegian business daily. So free trade has been a central part of U.S. economic policy for decades. Now we have four presidential candidates that are either opposed to it outright – opposed to it or skeptical. So do you think there’s a case to be made for less global trade, and what will be the likely consequence if U.S. is turning, indeed, more inward?

MS O’HALLORAN: Global – it’s very hard to start talking about less global trade, simply because all – most companies are global to some extent, which includes their supply chains, which includes their customers, which includes many of them having subsidiaries or branches or what have you in other companies, so just the act of them doing their daily business means there is going to be global exchange. It’s – global trade no longer looks like the – exporting the widgets from New England to, I don’t know, Spain or Portugal, right? It’s – that’s not what it looks like anymore; most of it done in services, and in the information age it looks very different. So my sense is I don’t think that we’re going to clamp down or that global exchanges will decrease anytime soon.

The nature of those exchanges and the way in which they’re regulated I think will, and the issue there is how do we ensure – and these are questions that have been going on for decades, equivalent to – as we’ve expanded trade, how do we manage the different preferences or concerns of the domestic economies or domestic preferences, whether those be not wanting to use chemicals in food or pesticides or so forth; using organic food – we can go down the long list of different types of regulations. Do we open different markets to foreign companies? Who has the right to regulate? So when we think of investments, right, and going and opening up investments and telecommunications in Europe or the United States to a foreign company, how do we do that in a way that is consistent with home rule, right? Do we – are we capable of harmonizing those rules? Does that mean that we harmonize to the least common denominator, or can we bring them up? And those to me are going to really the limits of what’s pushing back.

The other issue about people being against trade is really what has happened is those – is I do believe – and for the U.S. and – is that we have failed to bring along a large – a part of our constituency or voters who were disproportionately impacted by global trade. The manufacturing – the skilled manufacturing worker in the ‘80s and ‘90s, we were not able to retrain them for a new and emerging economy. And I think that is very much part of the lack of investment in our human capital, and we have policies in place, but they’re quite underutilized – things such as trade adjustment assistance, which is a partnership between the governments and firms to facilitate and retrain workers who are displaced by trade. Those are the types of programs that, in fact, are absolutely necessary to go hand in hand with any type of maintenance of a global economic system and expansion of trade. And I think that has to be on the agenda when we talk about that.

So those are – so when they’re talking about reducing trade, they’re really talking about how to help those groups of people and how to prevent that group from getting larger and larger, okay? It’s not that we don’t want Microsoft to ship Word and Windows abroad, all right? It’s how do we help those folks and how do we make those folks benefit from global trade.

And I think that’s important, but those jobs no longer exist and they’re not coming back, so getting them back is not – is not the answer.

QUESTION: Hello. Hajime Matsuura, Shimbun Sankei. Two questions, please. Your – the three topics, issues, you raised on the economic policy – it seems like it has a lot to do with the issue of inequality, and I would like to ask your opinion how in general election this issue will play out and how two candidates will tackle this.

On second fold, on Trump, against – as opposed to his public image as a capitalist, it seems like he – he’s compassionate, sympathetic to the issue of inequality and perhaps that’s why he attracted a lot of middle class – falling middle class supporters. Could you analyze his philosophy or his agenda behind that? Is this just because he wants to be popular or is this something natural that – his idea?

MS O’HALLORAN: I – as – dissecting a candidate is always really difficult and dangerous, but I’ll – let me just – so I’ll start with the second question first because it’s probably the hardest. He’s identifying what I believe is a very core issue in the United States, which is growing income inequality. It used to be that a skilled manufacturing worker could earn a very – a good, solid living, and now it’s more difficult for someone with that skillset to be able to do so. Moreover, it’s difficult for someone even with a college education to get where their parents were.

So those are the types of angst, real angst, that people are tapping into and particularly Trump is tapping into. Do I believe it’s a play or a mask? No, I believe the man is very smart and he understands that that is a serious issue. Does he – can he identify that and have compassion for those people? I believe so. Does he himself embody those necessary values? He – that’s not necessarily what we’ve seen, but doesn’t mean he can’t.

So I don’t – I think that’s the really the way to think about it, and I believe he’s correct in identifying those – that particular issue. And I believe can – he’s very good at articulating – very good at articulating their concerns. And in some ways, he’s – it’s – he is an odd – odd spokesperson for that group, but he is now a spokesperson for a group that’s been disaffected; yes, I believe that’s true.

And your first question said about the inequality issues of those three issues – the minimum wage, tax, and trade – each of them do disproportionally impact different segments of the – of a society; that’s true. And the candidates are mostly falling along party lines, right, in their positions for that: lower taxes – Trump, Cruz, right; higher – Clinton, Bernie. So that’s exactly what you would have expected.

The question is: At the end of it, would a Trump or Clinton presidency lead to more or less income inequality? If Donald Trump has identified, rightly so, the angst of this group and has become a voice of that group, will the policies that he is proposing, right, lead to less inequality? Cutting trade will probably not necessarily lead to less inequality; it will just lead to a shrinking of the pie, not necessarily a redistribution of the pie. Lowering taxes, which really means less spending on infrastructure and all the other issues, not clear. Again, it would have to be done – I mean, the spending would have to be done and lowering taxes on that group. If you look at the – how much they pay, that’s not the – that disaffected group that he’s representing is not the part that’s most taxed; it’s the next level that is highly taxed. So – and that – so it’s not clear that tax will capture that, will satisfy the needs of that group that he thinks – that he feels he’s representing. And then the third issue of – what did we have? We had – I just went through my own issues now. So is it --

QUESTION: Salaries.

MS O’HALLORAN: I’m sorry, salaries, wage. That – that is an important issue. I think his response isn’t that he doesn’t believe people should be paid well; it’s more – not paid at all right now – paid well or paid for their value added; it’s that he feels that that should be set in the private sector.

Nobody’s – nobody’s not responding positively to Trump because he’s a capitalist. That’s – in the United States, that’s not a bad word. So that’s not the issue. The issue really is are – he’s identified with this group and saying that he wants to help these voters. Are the policies he seems to be supporting – and he hasn’t made a really strong set of statements. Are these the policies that are going to lead to that outcome? And that’s the question, I think, that it poses in my mind.

Mm-hmm.

QUESTION: Hi, I’m Erik Bergin with the Swedish daily news in Stockholm. Just one question: How do – would you say markets reason when it comes to choosing between a Clinton and a Trump presidency? I mean, is it questions about their tax – proposed tax levels or maybe regulation of the banks, or what’s important to markets when they sort of judge these two possibilities?

MS O’HALLORAN: Markets respond really best when there’s certainty in predictions. So what really drives markets is uncertainty about the set of policies. So like you always see when they don’t know what the Fed’s going to do, they’re all over the place and markets are going down. But even after the Fed – even if it, like, takes the negative stance, you might see a dip but then it goes back up. So it’s really the uncertainty in the policies that are difficult.

So for the markets, Trump poses a really – poses a real negative because of the high uncertainty around both not only his policy stances but what he would be able to do when he gets into – if he – if, in the hypothetical, he was to hold that office, and if indeed, given the posture that he’s held throughout the campaign so far, if that would indeed be what he would pose when he was in office and what the consequences of not even the legislation but our security – economic and – security would be throughout the world. Those are big issues. So I would say that that’s – uncertainty is the biggest issue that markets are responding to.

QUESTION: Let me be a little bit radical. (Laughter.) Because --

MS O’HALLORAN: You’ve already made me go into hypotheticals. I would never dare, so – (laughter) --

QUESTION: I mean – because of your previous response.

MS O’HALLORAN: Yeah.

QUESTION: Do you think the Democratic Party is becoming most favorite now to the 1 percent than the Republican in a hypothetical Donald Trump presidency?

MS O’HALLORAN: So are you asking me --

QUESTION: Yeah.

MS O’HALLORAN: -- are the support – are we seeing a change in the support of who the voters are? There --

QUESTION: More that the 1 percent is related to Republicans --

MS O’HALLORAN: Yes.

QUESTION: -- and now it looks like it’s more tending to Democrats.

MS O’HALLORAN: Yes. So – no, no, I understand. So the – right now the rhetoric of Donald Trump sounds much different than what you would usually hear the rhetoric of a front-running Republican sounding like. That’s true. I think in the general election, Trump will have to tone down a lot of that, and you’re already seeing him do so. So the question is: Is he going to be able to build up enough confidence of that 1 percent, which is all of the people who are giving to Cruz and to Clinton, to keep – in particular to keep those folks that are – donated to Cruz from switching over to support Clinton? And that, I’m not sure. I just don’t know.

So it’s not that he isn’t proposing policies – decreasing taxes is very appealing to people in those income brackets. Cutting – limiting trade, eliminating trade is not appealing at all. And so that is a serious question for them. I have a feeling most of the moderates will switch over, will actually pivot to Clinton.

QUESTION: Could you explain more why the global issue is going to affect the economy in 2016?

MS O’HALLORAN: Right. So right now we have the widening trade gap and the global issue is China. That was a large export – that was a target market for us. They – you have the instability with the getting – coming into the global economy. That has had lots of spillover effects to that region. Europe has not really bounced back yet, and so, again, that’s another market that we exchange with a lot. So that’s – so one, it’s the – it’s – our market partners are experiencing demand reduction. The second is the U.S. dollar is very strong relative them – relative to those other markets, and consequently it’s expensive to buy U.S. goods. Therefore, again, the demand for U.S. goods is decreasing.

So those are the drivers that really are going to impact – I think I did that here. Yeah, those are the drivers that are going to really impact the global economy for the U.S.

MODERATOR: Any other questions?

QUESTION: Hello again. I was wondering if you could say a few words about the long-term prospects for the budget deficits and debt reduction, and some of the realism in the proposals that these candidates have made.

MS O’HALLORAN: So minimum wage doesn’t impact that. Again, it’s – that’s not going to have a serious impact on the deficits. The taxes obviously will. The only way the minimum wage would have an impact is if, in fact, they – it leads to a significant reduction in people hiring and firms going out of business, all of the draconian implications that people who are against raising the minimum wage suggest. I am dubious that that scenario would play out, but there could be some implications along that line, so it could be slightly negative.

Taxes, obviously – if you move to either a flat tax in the way they’re speaking about it or reducing taxes on investment and on so forth, clearly that will reduce total revenues. And the other issues around eliminating trade, well, that’ll have significant impact on GDP, which means people producing and hiring and earnings for companies that we tax and so forth.

So each of those policies, if they were to play out in the negative – yeah.

QUESTION: I was also thinking in terms of – I was also thinking in terms of defense spending, mandatory programs --

MS O’HALLORAN: Oh, okay. I thought you wanted to (inaudible). So on the defense spending, I would be very interested to see Mr. Trump’s budget on defense spending. And I’m not – I have – I’m not sure how he would – whether he would indeed cut that or not, or how he would allocate those resources. Clinton would probably be, I think, a little bit of keep the same, maybe reallocate a little bit more into some of the more innovative types of projects that they’re looking at, more research and so forth that they’ve – in those areas that they have going. And I’m looking at defense budgeting in some of the areas that they allocate. And the mandatory spending – I don’t believe Trump would – I mean, I haven’t heard him actually talk to Social Security really or any Medicare – I haven’t heard him really speak to any of that, so I don’t know. But clearly, if there’s less money, and he believes in a balanced budget, then one has to cut, and those – and even the mandatory spending, he would have to somehow find a way. My sense is, again, the gridlock would prevent most of those very extreme policies from being passed, and we probably would wind up passing stopgap budgets for a very long time, which again leads to a lot of uncertainty in the – and makes markets very unstable.

So those are the things I would worry about – not just the equity markets unstable, but also the willingness of firms to invest in capital and research and all of those things that lead to long-term reductions in productivity and keep hiring people and so forth. So that’s what the uncertainty issue is all about.

And yeah, no, I don’t – Clinton, I think, will be about the same. I have – she – I don’t believe she’ll be doing radical redistribution. I do believe she would invest more in education. I think that is a strong area of hers, and higher education in particular, and research and development. Those are areas that she has spoken out very strongly. She’s even previously spoken out in stating things such as seeing investment in your own human capital, educating yourself. In the United States, we pay for our higher education. That, in fact, that could be a tax deduction of some form, just as it would be a tax deduction if you were to invest in capital or research for a firm. Things along those.

So she has discussed those. I haven’t seen that as part of this platform, but those are other issues that have been out there. And that’s what I think it would look like.

As to the balanced budget, the deficit we now actually grew for the first time, so that’s interesting. I am not sure what’s motivating a lot of that. I think it’s more on the expense side than the revenue, and I – so we’ll have to see how that plays out. But again, the numbers I showed you on the overall economy is it’s chugging along. It’s – but again, has been raised a couple of times, it’s not benefiting everyone equally. And that, I think, is going to be the long-term limit to our growth.

QUESTION: Just a quick follow-up on the flow of hypotheticals. (Laughter.)

MS O’HALLORAN: So just for the record and the transcript, all of these scenarios are highly hypothetical, of which I am not expressing any personal statement for or against any candidate, but this is only done in the hypothetical. Okay? I need to say that. And it does not reflect the views of anyone.

QUESTION: And until Mr. Trump finish his homework and writing his full economic policy --

MS O’HALLORAN: I would happily help him on any effort he has. Okay? He would like to --

QUESTION: Let me just ask you, because the southern neighbor, Mexico

MS O’HALLORAN: Yes.

QUESTION: -- a major trade partner and also a part of the equation of the national security of the United States and the Americas in general, have been a target of a substantial amount of attacks by Mr. Trump, first through demonizing their people, the Mexican people; second through threatening to cancel NAFTA, which have been in place since the Clinton Administration; and third through imposing measures – I’m not going to speak about the ridiculous of building the wall and charging them for it, but – which is going to be a good bonanza for the construction companies, by the way, on the Mexican side.

MS O’HALLORAN: Unfortunately, we import our cement from Mexico, but don’t worry about it.

QUESTION: Yeah, and construction and skilled labor, et cetera. But what would be – hypothetically, what would be – Trump presidency and economic policy toward the southern neighbor, Mexico, be like? Thank you.

MS O’HALLORAN: So I do believe, again, that dialogue – and it is a dialogue, because many people do have those feelings – not against Mexico and Mexico people, but that jobs are moving down there, that the flow of immigrants – and it’s not all – it’s not – those are not all Mexicans. Many, because of the – some of the instability and economic problems through South America, there – Mexico is a pathway, right, for many immigrants up through – into the United States. So this --

QUESTION: He does not make the distinction.

MS O’HALLORAN: I’m – I would like to make a more nuanced distinction on the behalf – (laughter) – in the – even in the hypothetical, all right, because – so I think it is a more nuanced conversation and I do believe that’s correct. I think he would learn, once in office, in the hypothetical, that Mexico’s a very strong partner for the U.S. Many – we have many policies that are – and economic and security and others – that are very important and longstanding; that building a wall against Texas, especially since the Rio Grande keeps moving to our benefit, is not a good idea; and that it’s not going to prevent people who are in desperate need from moving to the United States – as we’ve seen in Europe, right? So that’s not the point. And the United States was built on the power of the intellectual capital and the drive and hard work of immigrants. Being one of them, I can attest to that. So that’s – that I will very, very strongly feel that’s a view that also will be strongly expressed and probably embodied to anyone sitting in the office of the presidency in the United States.

So I see it, but at the same time, what he is is expressing the voice of disenfranchised constituents that really are not benefiting from globalization, from the work of the 21st century of information, of technology, of all the things – of the improvement of standard of living and all of those other aspects that many other segments are, and they are being left behind. And the question is: We don’t stop everybody else from improving. How do we as a society, as an economy, as a global world, bring and integrate people into that? And that, I think, is really where the dialogue has to shift, and I think he will find that.

And to the extent that you take the Trump University seriously – and it is a vocational school in the old-fashioned sense; that is, people who wanted to get trained in a particular thing can find that way there. I’m not going to go about – I can’t go there, but I will simply say if that is important and if it’s a means to get the training to allow them to enter into the 21st century and he sees investment in human capital – again, I’m not going to say that’s the best means – as an important way for that, then I think he’ll understand that. I think he’ll be, in the hypothetical, given alternatives that may seem more appealing and pass a majority in Congress.

QUESTION: Thank you.

MS O’HALLORAN: Yep.

MODERATOR: Okay. Thank you, Professor O’Halloran. Thank you all very much for coming. I think she has some time after if you want to do some one-on-ones with the cameras. Thank you.

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