Douglas Holtz-Eakin is a go-to guy if you want to get in-depth analysis on the government shutdown from a non-partisan budget expert who knows the politics and economics of what’s driving it and can give an informed view on what will happen next. Or perhaps better to say, “could” happen after hearing Doug explain how politicized the budget and policy debates are, and how deeply Trump and his Republican supporters Republicans on one side and Democrats on the other, have dug in to win the shutdown war.
Right now he sees an ongoing political stalemate but expects that soon necessary trade-offs, and clearer winner and loser positions, will appear to drive negotiations to a conclusion. Democrats may lack the majority of votes in Congress, he says, but President Trump still needs to convince some of them to vote for the continuing resolution which must be passed to roll this legislation forward.
So, you may ask, how can anyone be non-partisan in a debate like this? Why trust Doug?
First let’s look at his history. Doug’s an academic and policy wonk in the areas a budget guru needs to know and have worked in over the years. He studied economics getting his Ph.D. from Princeton, went on to be be an economics professor at Syracuse University and in this period also served two stints as at the Council of Economic Advisors. In 2003 he became director of the non-partisan Congressional Budget office, the CBO, where he led a study of tax rates which concluded that any new revenue that tax cuts brought in fell far short of what it cost to make them. More evidence that this right of center economist deserves his stripes as an objective analyst.
Doug notes in our conversation that he is a registered Republican, who worked on Senator John McCain’s presidential campaign as chief economics advisor. He says he realized then that, similar to what he did at the CBO when explained budgetary issues and policy positions to elected officials and their staffs, there was a crying need for simple, understandable analyses to inform policy makers on both sides of the aisle on crucial but complicated issues- and just as or even more important to inform the public. That’s when he founded The American Action Forum “that leads the center-right on domestic economic and fiscal policy issues.”
As Doug explains, “we analyze the policy from an admittedly center right perspective from a market-oriented point of view. And we just ask the question, is this policy big or small? Is it good or bad? And it doesn’t matter if it’s a Republican or a Democrat, doesn’t matter who reads it.”
So dive in and hear what he has to say. Are Democrats wrong to insist to holding on to the Medicare subsidies which they say hurt the people who need them most in order to pay for otherwise unaffordable healthcare? Are Republicans right to point to wealthier middle class Americans who are still getting subsidies that they no longer need? Is that even the issue? Get an informed and definite view from Doug on these and other contentious issues. .
A really tough environment 00:00:53:00
Certainly. It’s a real tough time for them to get any kind of spending bills. How do you explain it? How do you understand it? Well, I think it’s pretty straightforward. The Democrats supported a a so-called clean continuing resolution in March. They kept the government funded at the levels, that were prevailed during the Biden administration and at the mix of activities that prevailed in the Biden administration.
The smell of politics is in the air 00:01:18:20
The House of Representatives passed exactly the same C.R. once again. And Democrats in the Senate have thus far refused to support it and have instead argued the government needs to be shut down so that they can bring attention to the issue of extending the, ACA subsidies. That’s that strikes me as just, straightforward politics. We know that the Democrats, their leadership, have been under tremendous pressure from the base to pick a fight with the president, to give them a voice for their grievances about the way he’s conducting affairs.
NEXT??? Good question 00:01:51:02
So. So the real question is what happens next? Because so far, it’s, sort of plain vanilla, shut down. We’ve seen enough of these that they don’t really, interfere with government services, at least not immediately. They don’t really have a big economic impact. The political points get scored. In fact, you can shut the government because so little actually happens.
The President has raised the stakes 00:02:12:24
So you do it, you score the points. And now, now. And that’s the part where we I think we’re in slightly uncharted territory. We’ve never had a president, promise mass firings during the middle of the shutdown. We’ve never had a president target the funding for projects that are in, the Democrats districts. So, how does that play?
No data? Not unprecedented! … but BAD TIMING 00:03:24:22
…And off they go. So we haven’t seen anything like that yet. So we’re still in this position. I’ll just note, you know, so the listeners understand this isn’t the first time we haven’t gotten economic data. We’re going to shut down 2013. We didn’t get the employment data back then. It’s just happening in a very unfortunate time where the sort of future path of the economy is very uncertain.
Both sides lack realism 00:03:44:15
So it would be nice to have it. There’s no question about that. I think the, I think, you know, you can sort of evaluate both sides arguments and come to some conclusions. I think the Democrats have overreached. This is their opening bid. They’re not going to they’re not going to get Republicans to do a U-turn on the hard-fought reconciliation bill they just passed couple months ago. That’s an unrealistic ask. They’re not going to get ten years of ACA subsidies. They might get an extension. They might get some reforms in the process. Republicans in the same way. I think the risks are, reductions in force, mass layoffs, are a bridge too far. They really don’t have anything to do with the shutdown. They’re scoring political points, and we’ll see which of those sort of overreaches the public likes the most.
Fly united….00:04:46:01
it seems it’s politically it’s not good for either side. Right. And if you’re looking forward to the midterm elections, you would think that for the Republicans this makes them a bit nervous. I know there are some Republicans that are nervous. I know they’re Democrats that are nervous. And so you always have to judge the temperature of your own party and sort of say, you know, can we stay united?
They must judge the mood of the nation… 00:05:09:13
You also have to, I think, literally judge the mood of the public. And that’s what really matters. Who’s going to take the blame for this ends up being the crucial question.
Missing paychecks makes it real 00:05:30:07
I think, missing paychecks starts to make it very real. And the and the public starts to notice the idea of not paying the military doesn’t play well, ever. So, certainly that that’s a day to keep an eye on. There are other things that are looming out there. If, our calculations are correct, the women and infant children’s program is running out of cash. That could become an issue. The last time we had a shutdown, it was lines, at the airports and the air traffic controllers, you know, sort of not showing up for work. That could be an issue. It’s really hard to tell. I mean, these shutdowns are remarkably, fluid events, and they change direction quickly, and they gain speed, rapidly.
Republicans are looking for budget priority changes 00:06:37:22
<Many Republicans> don’t want to roll forward a spending level, previously established by the Biden Administration. Is that a strong as real background issue? I think that’s a real background issue. Certainly, you know, when you, you know, when you do a continuing resolution, you’re essentially saying, let’s just keep doing what we’re doing. Well, they kept doing what Biden was doing for a year. And, I’m sure the rank and file in the, in the House in particular doesn’t like the amount of spending. They also don’t like which things are well-funded, which things are relatively starved. And so, the appropriators in the House would like to put their mark on the bills. And to do that, they have to get everyone back in, because appropriations require 60 votes in the Senate, they need to have negotiations between House, Senate, Republican, Democrat.
The heath care and subsidy issue: The Facts 00:07:43:12
Think about what Americans are going to listen to. Right. If, those subsidies which were placed and were supposed to expire but they’re still there…. And, of course, the Democrats say, hey, look, people need these, you know, help. They’re there. They can’t they can’t afford this if they don’t have it…. And then, when the Biden administration took office, they they added a substantial, premium to those, subsidies at the low end. The trouble was, it didn’t stop at the low end. They go up to people getting 600% of the federal poverty line. So they’re well into the middle class, $100,000 range that I think the real starting point is, why are we going to continue to give, these big subsidies to people who are, well, often in the middle class?
A case for a deal- but no evidence it will fly 00:08:44:04
Let’s, get, in shape, you know? Yes, take care of the low-income people. But let’s reform them for the remainder. I think that’s where the bulk of the Republican caucus is. The Democrats just want a flat up renewal. Obviously, they need to negotiate. And so we now find ourselves in the ironic, fight over.
The negotiations game…negotiating when to negotiate 00:09:02:21
When do you negotiate? Is it okay to negotiate when, in order to reopen the government or to get the Democrat’s position or Republicans get to reopen the government so we can negotiate? Let’s get there somehow. So what? So, it’s just we don’t really know. We’re just going to sit and wait? The Democrats feel, as you kind of pointed out at the beginning, they want to score some points. They want to show that they’re fighting against Trump. They’re not just sitting back and, you know, letting those subsidies expire when you’ve been observing these things for a long time, from the economic side, from the politics side, what?
Not as short as I once thought… 00:10:09:22
Well, first, I’ll confess that I got it wrong. I thought this would be a short, shut down. In fact, I thought it’d be over today. That was my initial forecast. Not correct. And the reason was this, the Republicans had a very good position. They were really sitting there, having done the work in the House to pass the CR (continuing resolution). It was there in the Senate to be voted on. It’s the same thing. The Democrats already supported. So they’ve got the classic you voted for it before; you voted against it. And so you just sit and wait out the Democrats, they need to allow their base to vent their frustration. They did that, didn’t, you know? Mission accomplished! Check that box. And the leadership starts to do the arithmetic and says, okay, we accomplished that. But if we just, you know, caused pain from this point forward, that’s not good for us. So let’s go back and get a negotiation going. I thought that’s how I would run the wild card.
Trump’s stance is a game changer for negotiating – and a RISK 00:11:11:10
<But> the president targeting these projects in the blue states and localities, and threatening mass reductions in force? That’s a completely different, animal. And if that doesn’t play well, he will have gone from, a position of real strength in this, in my view, to having hurt himself deeply.
The subsidies are NOT about delivering services to migrants 00:11:36:06
There’s always a tiny bit to that in that these are subsidies to low income, individuals, if they have, the same sort of, false identity papers that allow them to employee, they can probably also collect some subsidies. That’s not what they’re there, though. The claim that they are there and that the reason that they want to extend them is to, provide money to the undocumented is, is not, really what’s going on.
Republicans appear to have lost the ability to pass things 00:12:00:09
So how much pressure do you think the White House will feel? If markets react, for example, I mean, the stocks then rally like crazy. But this seems to me this puts a lot of focus on the fact that, you know, the US, deficit is large and has gotten bigger, and the Republicans pass some things and now they can’t even get past, you know, keeping that going.
Is the White House the apex of pressure? 00:12:45:18
It seems like it’s the white House is the one that is going to feel the most potentially. Well, we know that, international capital markets are watching France in the UK very carefully. And we’re statistically in the same territory, same debt load, same debt, budget deficits. So, any white House would be paying attention to, to see if they’re starting to have some trouble there.
Is Trump vulnerable to bad economic reaction? 00:13:07:11
And this president we know is very sensitive to stock market performance, that’s for sure. So if this was perceived as starting to damage that, I think they would they would react quickly. Remember we had a shutdown in 2018 when Mr. Trump was president before. That’s when the lines formed at the airports. And it was over in a heartbeat. So, he is responsive to that kind of pressure. He will be watching to see whether it’s, you know, lines at airports or the reductions in force or international capital markets, anything that’s just as trouble for his economic agenda. He’s going to change course. So when you look at the what both sides are standing for right now, look particular at what though, at the white House.
Beyond the ACA imbroglio we are in bad budgetary shape- 00:14:17:04
So, we are in terrible budgetary shape. There’s no way to sugarcoat that. And there is no way to fix it without addressing the very large spending programs Social Security, Medicare, Medicaid, the Affordable Care Act. I mean, that that is where the money is. And they are growing more rapidly than other parts of the budget. They outgrow the revenues every year. So this is something that needs to get done. I’m of the opinion that if you’re at all rational, you don’t just re-up the Affordable Care Act and, you know, just re-up Medicaid. You don’t have Medicare at every juncture you are looking, can we make this program function more efficiently, meet the policy goals, but spend less money because we need to? There’s no way around that. So, that’s the conversation we should be having. That’s not the conversation. You know, that I know that.
Desperation fostered budget discipline…once 00:15:46:17
And the example I would choose would be back in 1989 90, I was working at the white House and, we had a flash crash of the stock market and never really did understand why it dropped 20% of the day. And, Congress reacted to that by saying, oh my God, it must be the deficit. Let’s go fix the deficit. There was no evidence connecting those two things, but they took this as an as an omen. It was also true. The interest spending was roughly the same fraction of the budget in GDP than it is now. The absolute numbers were smaller, but it was it was eating up resources. So they started doing things like Gramm-Rudman-Hollings and deficit targets and, caps on discretionary spending.
Crisis anyone…ANYONE? 00:16:25:09
And, and the result was quite good. And, you know, in between 1960 and 2000, deficits averaged 2.2% of GDP. They weren’t enormous. They’ve been well over 5% in the 21st century. So I would like to have a nice fake crisis. Or even better, let the UK and France have a crisis and scare our guys into getting things cleaned up. So I’m not on any side.
I am a registered Republican, and I worked for John McCain…. 00:17:03:04
And one of the things I learned on that campaign was that there was a paucity of policy analysis that occurred in real time for real people. And, when I was at the white House or at the Congressional Budget Office, you worked on whatever was happening, and you conveyed your results to your political superiors in English for non-specialists. And so I said, here’s what’s happening. Here are the options. Here’s how you should think about it. I decided that the public would benefit from that as well. So that’s what we do. We do domestic and economic policy. We don’t do any international affairs or social issues or national defense. And we write on whatever is happening right now. It’s shut downs and it’s, the fed deliberations and tariffs. And we analyze the policy from a, an admittedly center right perspective from a market oriented point of view. And we just ask the question, is this policy big or small? Is it good or bad? And it doesn’t matter if it’s a Republican or a Democrat, doesn’t matter who reads it.
Americanactionforum.org. 00:17:59:24
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DOUGLAS HOLTZ-EAKIN
Douglas Holtz-Eakin is the President of the American Action Forum.
Before founding AAF in 2009, Dr. Holtz-Eakin served in a variety of influential policy positions. During 2001-2002, he was the Chief Economist of the President’s Council of Economic Advisers (CEA), where he had also served during 1989-1990 as a Senior Staff Economist. At CEA he helped to formulate policies addressing the 2000-2001 recession and the aftermath of the terrorist attacks of September 11, 2001. From 2003-2005 he was the 6th Director of the non-partisan Congressional Budget Office (CBO), which provides budgetary and policy analysis to the U.S. Congress. During his tenure, CBO assisted Congress as they addressed numerous policies — notably the 2003 tax cuts (the Jobs and Growth Tax Relief Reconciliation Act), the 2003 Medicare prescription drug bill (the Medicare Modernization Act), and the 2005 push for Social Security reform.During 2007 and 2008, he was Director of Domestic and Economic Policy for the John McCain presidential campaign. After that, he was a Commissioner on the congressionally chartered Financial Crisis Inquiry Commission.
Dr. Holtz-Eakin built an international reputation as a scholar. He began his career at Columbia University in 1985 and moved to Syracuse University from 1990 to 2001. At Syracuse, he became Trustee Professor of Economics at the Maxwell School, Chairman of the Department of Economics and Associate Director of the Center for Policy Research.
Dr. Holtz-Eakin writes a daily column in AAF’s morning newsletter, the Daily Dish, and regularly comments on current policy and political debates for a variety of news outlets.
