00:00Let's talk about what a prolonged pause means.
00:03When you think through some of the potential economic impacts here,
00:06how long does this shutdown have to last for it to really substantially matter?
00:13Yeah, it's probably have to go on for at least several weeks.
00:17The last shutdown you mentioned seven years ago,
00:21maybe reduced GDP by maybe $5 billion, a pretty small amount,
00:27definitely within our standard error of measurement.
00:31But on the other hand, if this goes on for quite a while,
00:34you're going to see some disruption of government services,
00:38things like everything from permitting to other things.
00:41And so you could see that becoming a little more disruptive.
00:44And so clearly the longer this shutdown lasts, the longer the impact is going to be on GDP.
00:50Absolutely.
00:51And so when you think about what sort of ballpark we're in,
00:55weeks versus days versus maybe months,
00:57and you think about some of the issues in conversation right now,
01:02I mean, does it look like we're looking more towards weeks than days?
01:06It could be.
01:07I mean, they're about a trillion dollars apart right now.
01:10In particular, what Democrats are asking for is basically reversal of all the changes to Medicaid
01:17that happened during the one big, beautiful bill last July.
01:23That adds up to $800-some billion right there.
01:27And they are also asking to extend the Affordable Care Act subsidies that were enhanced during the COVID year.
01:37So even before COVID, the subsidies were pretty large for the Affordable Care Act premiums.
01:44But COVID then enhanced it, brought subsidies all the way up to 400% of the poverty line.
01:49And they want those continued.
01:51Add it all up, it's about a trillion dollars of additional deficits over 10 years that the Democrats are asking for.
01:57And that, of course, would undo some of the economic benefits of the one big, big, beautiful bill.
02:03Well, I am curious on that.
02:05I mean, some of the issues that the Democrats are pointing out are long-term issues,
02:08at least long-term issues that have been debated.
02:10I am curious.
02:11I mean, particularly when we talk about these entitlement programs.
02:14I mean, I've seen the research.
02:15I mean, we haven't even talked about Social Security and the fact that that's basically going to be depleted probably within the next 10 years or so.
02:21And obviously, when we talk about what's happening with Medicaid and Medicare, obviously, the money itself isn't there.
02:27Is there an impact that you can quantify longer term looking out on our economy if those aren't extended or funded in some sort of meaningful, rational way?
02:39Oh, absolutely.
02:40I mean, we did a projection of the Penn Wharton budget model that basically says under the most favorable assumptions that capital markets could place on the long-term outlook right now in terms of the government and its operations,
02:55basically, at best, we would have about 20 years before capital markets basically just completely give up.
03:04And that is you have a classic bank run problem.
03:06The type of problems that you've seen in other countries like Greece and so forth in the past.
03:11So this idea that it cannot happen in the United States is simply wrong.
03:15The good news is that we do have some time to deal with that.
03:21You correctly identified health care is actually a much bigger problem than even Social Security.
03:27Even though Social Security trust fund is about to deplete in about eight to nine years,
03:31at which point it will only be about able to pay maybe three quarters of benefits and even less over time.
03:38And so even though that sounds more imminent, the health care in terms of kind of present value and balance is even bigger.
03:47And so as a result of that, there's no question there has to be some either more funding or spending containment in our nation's entitlement programs.
03:56Well, I am curious about the funding side of it, particularly when it comes to tax receipts.
04:00I mean, you have an administration right now that has basically made tax cuts a big hallmark of this economic agenda.
04:06That's great for those of us who are paying taxes.
04:08But, of course, from a government perspective, the big question is, how do you fill that hole?
04:12There's only so much you can cut, particularly in this political environment, Kent.
04:15And I'm sure you know that.
04:17Is there some sort of sense here that we would start to see any sort of tailing off in tax receipts,
04:22or for that matter, even non-tax receipts in the near future?
04:24Yes. I mean, there's no question that tax receipts are going to fall relative to where they would have been this year
04:37without the extension of the Tax Cuts and Jobs Act and the other elements that were inside of the one big, beautiful bill.
04:44And so there's no question tax receipts are going to go down as a result of that.
04:49Some people speculate that tariffs could make up for a lot of that loss.
04:54That's probably not true.
04:57And even if they did, the economic harm caused by tariffs,
05:01really because of the additional tax and intermediate goods that we use for production in the United States,
05:08would reduce the economy over time.
05:11And so as a result of that, we're going to definitely face more fiscal pressure in the future.
05:19And there has to be either some efficient way of raising more revenue,
05:23something like whether it's a value-added tax or other very broad-based tax,
05:28or a containment of spending or some combination of both.
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