Transcript: Q&A w/ Sen. Chris Coons on the CBO’s 2014-2024 budget & economic outlook

Partial transcript of Q&A with Sen. Chris Coons (D-Delaware) on the Congressional Budget Office’s (CBO) 2014-2024 federal budget and economic outlook. The Senate Budget Committee hearing was held on Feb. 11, 2014:

Sen. Chris Coons (D-Delaware):
…The other side wants to almost exclusively focus on entitlement reform. We want to talk about tax expenditures. We think extending unemployment insurance will be stimulative for the economy than I think reducing regulatory burdens. We seem to go back and forth on these issues with great predictability.

One thing that I wanted to ask for your input on was the one area where I hear general agreement between our parties and that’s in manufacturing. Restoring robust economic growth in the United States strikes me as one of the best ways to achieve deficit reduction and to achieve returns of full employment and to achieve a lot of other shared objectives.

There are about 25 of my colleagues and more than a dozen bipartisan bills that would strengthen significantly the environment, the ground for manufacturing and for the continuing growth in manufacturing employment in the United States. Manufacturing jobs, as you know, are among the highest quality jobs, have the best multiplier effects, and they have the best impact on their immediate community.

The bills broadly speak to skills, access to credit, investment in R&D, export markets, infrastructure. Could you comment on the relative importance of manufacturing as a sector to contributing to growth and what you see as appropriate policy actions we might take on a bipartisan basis that would strengthen the sector?

Douglas Elmendorf, Director of the Congressional Budget Office:
Senator, those are hard questions which I don’t have adequate answers. You’re certainly correct that manufacturing jobs tended in the past provide higher than average wages and better than average benefits. But we have not done analysis ourselves at least in my time at CBO that I’m aware of of what policy actions might do for the manufacturing sectors and how that might then ripple through the broader economy.

So again, you asked questions for which I wished I had answers but I don’t have them, I’m afraid.

Sen. Chris Coons (D-Delaware):
Well, I’d be eager to work with you if I possibly could and submitting for some review and discussion a variety of both historical and prospective policy tools that have been brought to me and to many of my colleagues by the manufacturing sector, by manufacturing leaders in my state and the country around skills, credit, export, R&D. It is an area where government action and fiscal policy can make a significant and enduring difference.

Let me turn to one other topic in my time here, which is interest rates. A number of other Senators have asked about this. There are, I think, roughly half of our current debt held by foreigners and they have difficulty, I think, sometimes discerning the dance of politics here in the Capitol. I’d be interested in what you view as the short-term and long-term threats to our interest rates, to our debt service costs. We have in recent years had in my view far too many close calls where there was open discussion of the possibility of default, and I think that has increased our borrowing costs and then there are long-term drivers that also create some questions about the debt service costs that we may face going forward. So if you could just briefly speak to the short-term and long-term drivers of the [interest rate]?

Douglas Elmendorf, Director of the Congressional Budget Office:
So, Senator, we think that default in any obligation of the U.S. government would be a dangerous example, and that’s importantly because until now investors have been able to count on the federal government paying its debts. And if that were to change, it would have consequences that could be very severe but that are hard to quantify given the lack of historical experience.

Interest rates can go up or down for a variety of reasons and some would be good things for the economy as a whole but would make the government’s interest burden larger. For example, if there were much stronger economic growth than we expect over the next few years, that could increase private credit demands and push up interest rates in a way that basically make this committee happy about the economy but can raise the cost of government borrowing. If the economy is weaker than the next several years than we expect, that could keep interest rates lower. So there are economic factors that will matter.

But also the perceived risk of Treasury securities and the perceived risk of other investments. As you know, capital can come into the U.S. Treasury market if it is leaving other financial markets that seem more dangerous. There’s a wide panoply of factors that can affect interest rates.

Although one might root for low interest rates for the federal government, of course, that might come together with a weak economy, which is exactly what you are not for.

So, one doesn’t want to think about higher interest rates as necessarily correlating good or bad economic circumstances in general. And we look at a variety of forces that can affect interest rates in our projections. We think we balanced the risks but the risk of rates being a good deal higher or lower than we thought is a very real one.

Sen. Chris Coons (D-Delaware):
But to clarify, if I understood your testimony, publicly discussing the possibility of default – urging default as a negotiating tool in policy debate – is, I think I’m quoting you, a “dangerous gamble.”

Douglas Elmendorf, Director of the Congressional Budget Office:
Yes, Senator.

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