Oct 13, 2015, 2:45 PM ETFireside Chat, Panel, Roundtable, Conference Presentation, Keynote

A Conversation With Gary Becker, David Rubenstein and Robert Rubin

U.S. real GDP has grown slowly for four years, lagging significantly behind long-term potential growth rates.
The panel identifies 3% annual real GDP growth as a realistic and attainable long-term goal, consistent with historical averages from 1880–2010.
Achieving 3% growth requires closing the widening gap between current output and potential output.
Current quarter-to-quarter GDP estimates are characterized by significant measurement error and uncertainty.

The U.S. public debt is approximately $10 trillion (excluding trust funds), representing roughly 73% of GDP.
The federal government adds approximately $1 trillion in debt annually, though the budget deficit is shrinking in the current year.
Bob Rubin proposes a fiscal program to stabilize the debt-to-GDP ratio over 10 years with a slight decline.
Rubin recommends deferring fiscal implementation by 1.5 years to allow for macroeconomic growth and increased business confidence.
The proposed deficit reduction strategy includes entitlement reforms (e.g., CPI changes and Medicare cost constraints) and spending cuts alongside revenue increases.
Gary Becker suggests raising the eligibility age for Medicare and Social Security to 70 to reduce long-term burdens, citing increased life expectancy.
Rubin identifies four major tax expenditures as primary targets for revenue generation: municipal bonds, state and local income taxes, mortgages, and charitable deductions.
The panel notes that the Simpson-Bowles proposal to reduce deductions and lower top tax rates may require reducing deductions by three times the Congressional Research Service's estimated limit of $1.5 trillion.
Both panelists agree that bipartisanship is essential to passing fiscal reforms, though current political dysfunction makes compromise difficult.

The United States remains the single most attractive long-term investment destination due to its dynamic society, rule of law, and entrepreneurial culture.
Key U.S. competitive advantages include shale energy resources, a stable political system, and favorable demographics compared to China and Europe.
Investment in emerging markets (e.g., China, India) is contingent on the effectiveness of their political systems and their ability to implement sound policy decisions.
Bob Rubin highlights three engines of U.S. economic growth: the energy revolution (shale gas/oil), the recovery in the housing market, and manufacturing growth outpacing overall economic growth.
Gary Becker views the U.S. immigration system as a critical failure, calling for a radical reform that allows the sale of immigration rights to fund a student-loan-style program for skilled workers.
The panel argues that the U.S. suffers from the "worst immigration policy" among developed nations, prioritizing unskilled labor over skilled workers compared to European standards.
The Eurozone is criticized as a "disaster" for non-competitive members (e.g., Spain, Greece, Italy) due to the inability to devalue currency, leading to stagnation and high youth unemployment.

Inflation has remained low despite massive money supply expansion (QE) due to a weak global economy, globalization of labor, and labor-saving technologies.
Panelists express skepticism regarding the Federal Reserve's ability to manage inflation if the economy strengthens, noting risks of inflation becoming entrenched once it starts.
Gary Becker rejects the notion that moderate inflation (e.g., 2–4%) would effectively help reduce debt, citing the risk of rapidly rising interest rates on short-maturity federal debt.
Bob Rubin warns that the Fed faces uncharted waters in navigating the drawdown of excess bank reserves, risking either a recession (from tightening) or high inflation (from delaying).
The panel doubts macroeconomic models' predictive power regarding the financial crisis and future Federal Reserve actions.

The primary obstacle to economic progress is identified as a "dysfunctional" political system mired in ideology and partisanship.
Bob Rubin suggests that an informed electorate is the most critical factor for enabling elected officials to make difficult decisions and compromise.
Proposals to improve governance include campaign finance reform, addressing gerrymandering, and implementing open primaries to shift candidates toward the political center.
Gary Becker argues that political compromise historically required divided government, whereas single-party control often leads to reckless spending (citing the Bush administration) or, occasionally, deficit reduction (citing the first two years of the Clinton administration).
The panel is skeptical of term limits, citing the "end point problem" where lawmakers focus on post-office careers rather than public service, with no empirical evidence of better governance in such systems.
Immigration reform is predicted to be the most likely area for legislative action, with Congress expected to pass a compromise measure before adjournment.

Gary Becker won the Nobel Prize in Economics in 1992; the announcement call came while he was asleep and ill with the flu.
Becker lost approximately 25% of his Nobel Prize money (paid in Swedish Krona) due to the devaluation of the currency shortly after the award.
Bob Rubin cites his time in government as the "steepest learning curve" of his life and expresses no regrets regarding the decision to leave private equity for public service.
Rubin notes that while he foregoes massive private sector earnings during government service, the impact of policy achievements is "massive" and shapes his entire life thereafter.