Transcript: Q&A with Sen. Dan Coats on the economic impact of debt ceiling brinksmanship before the Joint Economic Committee – Sept. 18, 2013

Partial transcript of Q&A with Sen. Dan Coats (R-Ind.) on the economic impact of debt ceiling brinksmanship before the Joint Economic Committee on Sept. 18, 2013:

Sen. Dan Coats (R-Ind.):
…A number of efforts have been made, as you know, over the past three or four years relative to how we achieve the so-called deal that reassures investors around the world, reassures the financial markets, and sends the message that they’ve finally gotten their act together, that even though this would require a long-term effort to get to where we ultimately want to get.

Just coming together in support of something of that magnitude, which would include probably tax reform – a significant comprehensive tax reform – which would include structural entitlement reform, puts them on the glide path to continued sustainability, which is not on now, which would have incorporated both revenue and incorporate meaningful spending, replacing sequester with something far more efficient in terms of how we separate the essential functions of the federal government that we all want and know we need to support…

But despite the efforts, whether it’s the Gang of Six, the Committee of Twelve, Simpson-Bowles, Domenici-Rivlin, all the effort that the dinner party group that I’ve been a part of, they’ve all come up short. What has happened is led us to a series of crises, whether it’s debt limit crisis, whether it’s funding next year’s government crisis, which we’re facing here in just a week and a half, it has not removed that cloud of uncertainty that exists over – you know, you talk to CEOs, business people whether they’re small, medium or large, essentially just kind of frozen in place in terms of hiring, in terms of expanding, in terms of research and development commitments, in terms of looking to the future.

Now, the discouraging part of all this is that despite all these efforts, it appears that there’s no real early solution in place. The Congress is divided on how best to go forward – versus revenue, versus spending. The public is divided in terms of what we think they want us to do. I think it’s fair to say that the current administration is holding to a formula which cannot be accepted by the Congress.

And so despite this, we’ve stumbled through. I think everyone acknowledges that we could be doing much better.

My question is stepping a bit away from the debt limit, anticipating that probably we’re going to keep doing these kind of things for the next three and a half years, we’re going to have a new President in 2017, based on your knowledge of where we are, what we’ve done so far, some of it constructive and helpful, and likely what we won’t do going forward for the next three and a half years, what is that new President going to face when he sits down with his team – his economics team – and says, “Okay, where are we? What kind of situation are we in?” Are we going to have to continue to rely on some outside precipitating factor like what happened in Europe – a Greece – or a crisis or a spike in interest rates that’s going to drive to some type of compromise solution? I’d just like to get your thoughts on that…

Dr. Mark Zandi, Chief Economist, Moody’s Analytics:
I think if you can – Congress and the administration – can come reasonably together and pass a budget, fund the government, extend the debt ceiling and do nothing else, the economy would kick into gear and in 2017 the next President will be facing an economy that’s pretty close to full employment.

I fully agree that we have long-term fiscal problems. Entitlement reform is necessary. Tax reform is necessary. But the key issue – the only missing ingredient to a much better economy over the next few years to really get things going here and to get us back to full employment is for you all to come to terms and just sign on the dotted line and we will be off and running.

David Malpass, President of Encima Global LLC:
…It would be a missed opportunity right now to pass this opportunity by. I think critical is small steps. If there were simply one program that you knew of in the vast government that there could be bipartisan consensus that it could be downsized, that would go a long way. That would be a starting point of something we’re not doing right now. So by the time you get to 2017, if you assume things stay as they are now, that means there won’t have been a single program that you can identify that needs to be downsized. So that means U.S. growth would have been slower. We’ll have millions of people unemployed or who haven’t found a job because of that inaction going on right now.

Donald Marron, Institute Fellow & Director of Economic Policy Initiatives, The Urban Institute:
So, clearly we’ll miss many opportunities to do larger things.

A couple of things that will pass – one emergency that’s going to come in the 2016, 2017 is the disability portion of the Social Security, whose trust fund will likely run out of resources. And so the new President in 2017 may face that as a new immediate fiscal challenge.

And then one thing that will happen is a lot of the uncertainty around the implementation of the health reform will presumably be resolved by then, not all by any stretch. But we will learn a lot in the next few years about how health reform operates or doesn’t operate, which I think will be very important information for thinking about health care going forward.

Dr. Daniel J. Mitchell, Senior Fellow, Cato Institute:
I’ll say something optimistic. In the last two years, because we’ve frozen government spending – actually reduced it a little bit two years in a row – the deficit has fallen by more than 50% and the burden of government spending has dropped by a couple of percentage points of GDP.

And over the next three years, before the next President comes in, if we simply limit the growth of government so it grows by 1% a year, the President will have a balanced budget and be in a much stronger position to start considering some of the entitlement reforms to deal with the long-run.

So I think there’s light at the end of the tunnel if we can just make sure the trend lines are correct in terms of the growth of the government versus the growth of the productive sector of the economy.

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