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00:00Dean Hubbard we come to you in an extraordinary and original time. What we are living right now is not in the textbooks of you not in the textbooks of the laureate Joe Stiglitz not in the textbooks of Ned Phelps is. Well how do we come out of this with stability or instability. Well a huge and important questions Tom I think that we have to take action on both monetary policy and fiscal policy. We have news on both. Yesterday the Fed's got to be a lot clearer both on the inflation side and the real side. And fiscal policy has to confront the fact that we do have to pay for things in the long run. The tax system required for the government President Biden wants is one that would require a value added tax of some very large middle class taxes. How should our viewers and listeners synthesize inflation. Should we partition. It is the dynamics of goods and services. Should we look at it as U.S. versus the rest of the world. How do you study where inflation's heading. Well great questions. And I think the answer is sort of all of the above and more. I do believe that under good conditions inflation burdens could be transitory. Inflation will rise. We'll see that in services inflation as it bounces back and and in goods and in goods inflation and shortages of course. I think the problem for the Fed is that they're focused now on the labor market misses an important point. One of the reasons employment recovery is not as fast as output is the part of that's structural. It's an economy readjusting the Fed. Being easy isn't going to help that. It's not really a matter of running the economy hot. So there are inflation risks to be sure. Glenn what would you say to people who would say look for years we've been expecting inflation for years. It seems like there hasn't been that much slack in the labor market and it would make sense given how low rates are that inflation would pick up. It hasn't. This is not going to change. How would you respond. Well inflation is picking up. I don't think it's going to explode but I do think there will come a time where the Fed's data dependence rhetoric is going to make it really explain the ground madness of inflationary expectations. Unfortunately but maybe fortunately for the Fed stands the kinds of policies we're seeing on the fiscal front will slow productivity growth. So the kind of secular stagnation scenario and lower real rates in the medium run may prevail. Can you explain that how the proposals that we've heard from Biden's administration will actually cause more stagnation and less productivity. Sure. The tax proposals on the corporate front and the capital gains front are definitely leaning against investment. The president may well articulate fairness points but we're not hearing about the efficiency points. And traditionally we trade both of those trade both of those off. There's not very much support for work. And what the president is proposing really an expansion of social spending. That's a very different set of orientation. Is there in the Fed's perspective that could mean lower real interest rates going forward. Is there an economic precedent to highlight and to show what you're saying. Because a lot of people point to the tax cuts under President Trump and said well a lot of that did not go into capital expenditures. That didn't necessarily go to investments in higher productivity. On the flip side higher capital gains taxes and higher corporate taxes won't have that big of a material effect in terms of diminishing capital expenditures and productivity. Great questions in the RTS J. The Tax Cut Jobs Act you referred to investment did go up early on that growth was retarded by the fact that the administration chose a protectionist trade policy generated enormous amounts of policy uncertainty that were themselves and tie investment. We have experiences from the 1970s of malaise with with bad tax policy. Tax policy is only one thing. It's not dispositive. But clearly there are more efficient ways to fund government than what we're hearing about and from budget math. You can't fund government this big by taxes on the rich.

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Biden’s Tax Plans Lean Against Investment, Economist Hubbard Says

Columbia Professor of Economics Glenn Hubbard examines the economic path out of the coronavirus pandemic, inflation, and President Joe Biden’s tax proposals. He speaks on “Bloomberg Surveillance Early Edition.” (Source: Bloomberg)

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