JULY 2019

Takeaways from the Aspen Ideas Festival: American Renewal, Part II

Category: Portfolio Management

By Doug Cohen, Managing Director, Portfolio Management

The following are my key observations from the speakers of the additional sessions that I attended on the broad theme of American Renewal. Please also see from this topic Part I and Part III.

My observations and key takeaways from sessions on the topics of the Next New World Order and Economic Progress can be found here.

A Path Forward on Economic Policy

Robert RubinSenior counselor at Centerview Partners, former US Treasury secretary, first director of the national Economic Council

Melissa KearneyThe Neil Moskowitz Professor of Economics at University of Maryland, research associate at the National Bureau of Economic Research

1) There was a strong consensus that the current economy has its clear strong points, including low unemployment and rising wages at the bottom. That said, rising inequality, a dysfunctional political system and a misguided fiscal policy (including excessive debt) likely have the US, in Rubin’s terms “on a road to perdition.” In his view, the US needs both strong growth and less inequality to support a strong economy—either/or won’t be sufficient, something that he believes President Clinton understood well. While he is optimistic that “principled compromise” will eventually emerge with the help of the often-overlooked ideological center of the country, one got the clear sense he doesn’t expect that to occur anytime soon.

2) Kearney shared the same sentiment toward inequality but emphasized the importance of both a strong family structure and education. She believes the US spends far too little on children (roughly 1% of government expenditures) and, ethical issues aside, too much healthcare for the elderly. She cited a college education as likely the single best predictor of long-term success and noted that about 85% of college graduates come from two parent households. She believes the government needs to find ways to provide additional funding for public colleges and community colleges (Rubin supported that but was just as vocal regarding trade/vocational education). She argued that policies such as a universal basic income, Medicare for All, and free college make for “great bumper stickers” but are likely “terrible ideas” from a policy perspective. She supports an expanded earned income tax credit, continued deregulation to support the private sector and additional childcare funding. Rubin noted that Medicare for All would likely be a political disaster for Democrats given the extent to which most employees like their current work-sponsored insurance.

3) Much of the conversation came back to the notion that the government needs to find ways to support new initiatives—while still reducing a debt that has reached 78% of GDP and is on pace to surge to post World War II levels in the coming two decades. There was no support whatsoever for so-called Modern Monetary Theory, which downplays the significance of the debt. Rubin highlighted a recent editorial from his former colleague Larry Summers that called for a reduction in assorted tax deductions and credits and the elimination of the “step up” after death on capital gains. He believes that could raise ~$2.5 trillion over a decade—at least as much as the wealth tax proposed by Senator Warren that he views as quite possibly unconstitutional and likely very difficult to implement effectively. He also supported a carbon tax and reduced defense expenditures (something he tried to pursue while running the Treasury Department with little success given heavy political backlash).

--A key question that was not addressed: “Are there any 2020 presidential candidates that can provide the kind of ‘principled compromise’ that Rubin believes is necessary to reduce the rising polarization in the country?”

Not Your Parents’ Party: How Gens X, Y and Z will Shake up our Politics

Kristen Soltis AndersonCo-founder of Echelon Insights, columnist at The Washington Examiner

Margie OmeroPrincipal at the Democratic polling firm GBAO

1) Millennial voting surged in the 2018 mid-terms to about 42%, nearly double the 2014 turnout. The demographic is tilted toward Democrats and all signs point to sustained/heightened millennial engagement in 2020 (even as 2/3 of overall Democratic voters acknowledge not being fully engaged in the 2020 campaign as of yet). Immigration looms as a top issue for millennials. This is particularly true for younger Republicans, but the impact is superseded by the fact that millennials are accustomed to diversity and generally do not favor ideas such as a wall with Mexico. Younger voters are generally driven by a sense of “fairness”—they care about who is getting hurt. Legalization of marijuana, for example, is often seen as something where no one gets hurt. Conversely, support for gun control has increased significantly in recent years, particularly after Parkland. Issues such as climate change (identified in a recent widescale poll as the top issue for 31% of college students vs. 16% who listed the economy) also bode well for Democrats. Anderson argued that the GOP will need to find ways to show that technological innovation—best supported by a free market—will ultimately lead to better solutions to climate change than massive government programs such as the Green New Deal.

2) Research shows that world events during the ages of 14-20 have about 4x the impact on future political views than events after the age of 40. Social media and rising anxiety levels among youth have younger people more engaged than ever. While young people generally pray as often as their elders, they are far less likely to affiliate with a particular religion. This too may bode poorly for the GOP over time.

3) When asked by an audience member about recent polls indicating an “alarming rise in support for socialism among younger voters”, the panelists highlighted a 1949 survey by Gallop and a more recent one. The 1949 survey apparently underscored the notion that most young Americans associated socialism with government ownership of the means of production and the like. By that definition, socialism was not viewed favorably. Recent surveys have revealed higher support for socialism, albeit apparently, in part, based on the notion that socialism means being social with one another, including using social media. (Yes, we let out a somewhat bemused sigh after hearing that as well). That said, while younger voters clearly do have a general support for capitalism, they feel that, for example, the level of pay for CEOs to average workers is far too high. They are also more supportive of say the Danish kind of socialism than the North Korean or Venezuelan model. Omero argued that Republicans may be making a mistake by accusing Democrats of embracing socialism too broadly.

--A key question that was not addressed: “Does the increased prominence of social media and the like and the resultant ease with which people can stay within their own political ‘echo chamber’ make it even more likely that the views formed during youth will remain in place than ever before?”

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