Transcript: Q&A w/ Treasury Secretary Jack Lew on the debt ceiling & economy – Feb. 3, 2014

Partial transcript of Q&A with Treasury Secretary Jack Lew on the debt ceiling and the U.S. economy at the Bipartisan Policy Center on Feb. 3, 2014:

…What are the single most important thing Congress could do right now to strengthen the economy and improve job creation?

Treasury Secretary Jack Lew:
You know, I think that the first thing is just to make sure we don’t have a repeat of the kinds of self-inflicted wounds we saw last year. We saw over the last two or three years the economy picking up momentum and then things kind of got jammed up in Washington, and we saw confidence go down, we saw the markets become volatile. So, the very, very first thing I think Congress could do is just do its business. That’s what happened with the budget. That’s what happened – what’s happening this week with the farm bill. I believe the debt limit is the last piece there that has to happen in order for people to breathe a little bit of a sigh of relief that we’re not going to see the kinds of brinksmanship that caused anxiety, frankly, not just here in the United States but around the world.

You know, moving beyond that, I think there are quite a number of things where there is a bipartisan consensus where Congress could move forward and it really would help the economy. I believe immigration reform has a bipartisan consensus, and I believe it would very much help our economy. I believe that infrastructure investment is something we badly need for a future that’s going to be strong and vibrant, and there’s a bipartisan consensus to do that and I think we can make progress on that. I think skills training is another area where when you go out and talk to employers in this country – I did it on Friday in Virginia – the question that you get asked – two questions – one is “Can we rely on the infrastructure?” and “Can we rely on the fact that there will be generation after generation of workers with the skills we need?”

So I actually think there’s quite a lot that could be done to move the economy forward.

And I think the fourth item is tax reform. I think there’s at least in business tax reform a convergence of thinking. So, I’m going to continue to be optimistic that there are things not only Congress could do but where there’s a bipartisan consensus to move things along.

Demographics are our destiny, and those of us who served on the Rivlin-Domenici panel here at the BPC on both sides of the issue – tax policy, regulatory policy – were stunned at what’s coming. The cliff, once we get over that, is a chasm in terms of the next 10, 15, 20 years in terms of debt and deficit, in part caused by a very good thing – we’re living a lot longer. How do we address that? What are your thoughts about that very serious future challenge in the debt, deficit categories?

Treasury Secretary Jack Lew:
Well, first of all, I think when you look at the demographics in the United States, our demographics are actually much more positive than demographics in other parts of the world. We have more younger workers than other countries do. We have the ability to grow – and as I mentioned a moment with immigration reform – we have a history of growing our population by being a magnet for people want a better life and to build our economy.

I think when you look at these long-term trends, as the President said many times, there’s a need for bipartisan discussions about how we can deal with some of these tough issues in a balanced fair way. In the past, that’s how we have made progress – whether it was 1983 Social Security reform or 1986 tax reform.

It’s going to take a bipartisan consensus, which frankly has been a little bit challenging to reach.

Now, when you look at the next 10 years, we’re on a very good path. We’re seeing the deficit drop rapidly. I mean, the statistic I quoted – cutting the deficit in half – is a very significant measure. The first step to dealing with the long-term is dealing with the short-term, and I think we’re on a path towards dealing with the next 10 years.

You know, I believe that when the time comes for a bipartisan conversation, we can keep faith to Social Security and keep the program as we know it, keep Medicare so it’s a dependable entitlement for senior citizens, and we can make the kinds of policy that over the long term will make a difference. We’ve had a challenge finding the space where you can have a balanced approach, and balanced means you look at both sides of the equation. As we’ve said in our fiscal policy for a number of years, you have to balance revenues and spending, and that’s where the difficulty has come in.

So I’m not sure this is the year for the long-term fiscal challenge to be dealt with. I actually believe we’ve made so much progress in the short and medium term. We have a little time to deal with the longer term.

What we need is to develop a track record of being able to work together, develop some trust across the aisle. And if we can get some of the things that I mentioned done this year and over the next 18 months, that would be an excellent foundation for tackling some of the harder problems as we go forward.

…Every time we’ve gone around this bush for the last few years, you’ve always heard the statement “The United States should not default on its debt but…” and then the sentence continues. And usually the condition is there are things that we ought to do and that the debt limit should be a motivator. Is it suitable for one side in that kind of discussion to hold open just in case the prospect of tanking global economy and taking U.S. households down with it for purposes of negotiation?

Treasury Secretary Jack Lew:
…I think what we saw in 2011 was different from anything we’ve seen in the previous 30 years…We have never before seen the argument made that if “I don’t get my way, we’ll default”. That is not an acceptable way to deal with the debt limit. I think the President had to take a firm position that that could not be the way we deal with it – we couldn’t have either every year, every six months this kind of high stakes threat that if you don’t capitulate on a matter of broad policy then we’re going to default because one side is being responsible and says we can’t default and part of another side says we’re not.

I think the President’s position on this has been a very principled one. He has many times said if you flipped the parties around and have a Democratic Congress and a Republican President, he would just as strongly believe that it’s an obligation to pay our bills.

The truth is we’re one of the very few countries in the world that separates the spending decisions from the decision to borrow and pay for it.

We saw the Senate move forward with an innovation – the McConnell rule – which made it a little easier for Congress to deal with it a couple of times by putting it on the President to raise the debt limit and giving Congress the ability to object without blocking it.

So, I think there are ways we can deal with this to give both sides a chance to have their views very much reflected. What we can’t do is we cannot for a moment accept the notion that for the first time since 1789, the United States would not pay its bills in full. That’s not acceptable, and frankly it’s unacceptable to leadership on either side, which is why I’m confident it will be addressed and hopefully it will be addressed in a way that doesn’t cause the high wire brinksmanship that does so much damage to our economy.


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