Advice for the next president

Fifteen of America’s top thinkers offer their ideas for how America can grow faster, stay safer, and work better

Credit: Illustration by Shout

Oct 26, 2016

Sections Public Policy

Collections Politics

January 20

offers the United States

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a fresh start.

 

A new president brings new policy ideas, a new team, and a new store of political capital. But America’s slate is anything but blank. The list of concerns facing the country’s new chief executive—old and new, chronic and acute, social, economic, military, and geopolitical—is dwarfed only by the universe of ideas about how to address them.

We’ve asked some of America’s foremost academic social scientists for the one piece of advice they’d most like to offer the White House. Our group of advisors, who hail from some of the country’s most elite universities, includes Nobel laureates and former senior-level policy makers. Their suggestions range from how to deter terrorists to how to end political gridlock, from ways to reduce poverty to ways to spur new-business growth.

All advice was solicited and received before the outcome of the election was decided. Our object in this project was to collect advice to the office of the president, rather than to any particular occupant. It reflects, then, not the commotion and controversies of the campaign, but rather the most promising solutions to America’s most pressing problems, as identified by some of its brightest minds.

Invest in better state building

Roger Myerson, University of Chicago

 

My advice to the next president of the United States is this: although we’ve had some failures in state building, and although it's very popular for politicians today to say “America should not engage in state building,” in fact the US’ national-security interests really depend on this nation developing an effective capacity for postconflict political follow-through for future military interventions.

Don’t run away from state building. Recognize that the failures of the past mean that we need to invest more in it. The cost will be significantly less than the cost of any number of new weapon systems that military contractors are currently talking about, and its impact on our ability to deter international terrorism will be far greater.

Terrorism is first and foremost a political tactic. The basic goal of terrorist violence is to provoke a violent response. Because terrorists hide within larger populations of people, governments that respond to terrorist acts often do so to the detriment of large subsets of those populations. The effect is to cause people in those populations to start viewing the governments in question as their enemies. It enables the terrorists to say, “Well, we’re the ones who have been fighting this dangerous enemy all along.”

Our response, they hope, will create political opportunities for them. Almost all of the discussion we hear this election year about how to respond to international terrorism in the Middle East and elsewhere in the world is, “When they attack, we’re going to just bomb them. Don’t try to do state building; don’t occupy anything. Just go in with destruction.”

What can we do that terrorists would truly hate? The answer is to build up political alternatives to them.

Destruction creates chaos. It creates hardship for the populations around where the terrorists are operating. And that is exactly what terrorists want. When we face, as we do today, enemies such as ISIS, who actually think that any American military operation would simply create new political opportunities for them, that means our military threats have failed to act as deterrents.

So what can we do that terrorists would truly hate? The answer is to build up political alternatives to them. And the way to do that is to develop a balanced sharing of power between national, provincial, and municipal governments.

If you look through the history of what happened in Iraq and Afghanistan after our military interventions there, you’ll find that where we had frustration and failures, it was almost always because we didn’t insist on a proper balance between local and national politics in the formation of the government. This is not some theoretical abstraction. This is exactly the kind of political principal that meant the most to America in its own state-building process.

It has been said by many that Americans have overestimated the degree to which people around the world desire or are ready for democracy. I think democracy is a pretty good sell. I think people all around the world, if they don’t have a democratic government, appreciate the idea that the national leadership ought to be accountable to a broad popular approval, and don't want leaders who can’t win popular approval in something such as an election.

Far from overestimating the appeal of democracy, I think we underestimate the extent to which other countries are exactly like the US in having local politics that mean as much to them as national politics. When our diplomats and generals go in and focus only on building a strong national government for a country in transition, we are implicitly threatening local political leadership in some or many parts of that country. In each case this has created problems.

For example: ISIS in 2014 conquered the Sunni third of Iraq very quickly because of an alienation of the Sunni population. That area had legitimately elected provincial governments in the three Sunni-majority provinces. If the US had made a commitment to long-term financial and technical support for those legitimately elected provincial governments in the Sunni provinces, local Sunni leaders wouldn’t have needed to turn to ISIS to protect their political authority.

The US should have understood, because this is part of our own history, that people everywhere need to have some faith that popular local leaders have some real ability to serve their communities.

When I argue that the US needs to invest in a credible capacity for state building, it is not with any anticipation that we will ever use it. One can advocate for military systems without ever wanting to use them—in fact, one should. The imperative is deterrence. If terrorists recognize that attacking the US will result in the creation of a viable democratic government in the state or region in which they operate, they will have to change their political strategy. If that happens, then our state-building capacity will never need to be used, but we will nonetheless have deterred dangerous adversaries.

Encourage business investment

Douglas J. Skinner, Chicago Booth

 

Perhaps the biggest concern that economists talk about today—related to the issue of low or even negative interest rates—is how to stimulate economic growth. My advice has to do with an important driver of growth, which is how to encourage companies to increase their levels of investment—that is, to spend more on plant, machinery, equipment, and R&D, investments that ultimately will generate future profits, increase employment, and drive economic growth.

If you look at the largest public companies in the US, you will find that this type of investment expenditure—capex and R&D spending—has grown very modestly since the 2007–10 financial crisis. There are two culprits for this. First, as some of my research shows, nonfinancial public companies are returning cash to shareholders—through both dividends and repurchases—at record levels (both in absolute-dollar terms and relative to their earnings). There isn’t much the president can (or should) do about this.

In spite of these large payouts, the cash held on corporate balance sheets is also at record levels. Apple, Microsoft, Google, and other large tech companies have received a lot of attention here: Apple, for example, is holding well in excess of $200 billion in cash (really, cash and marketable securities) on its balance sheet. Moody’s reported that US nonfinancial companies held a record $1.7 trillion in cash at the end of 2015.

Of the $216 billion in cash on Apple’s balance sheet, $200 billion (93 percent) is held offshore.

This is where the next president can help. A big reason these companies are holding so much cash is the US tax system, which is urgently in need of reform. Not only is the corporate tax rate, at 35 percent, one of the highest among developed economies, but—even more important—the US taxes the foreign earnings of US multinationals. This means that if a US multinational, such as Apple or Microsoft, earns $100 in another country and pays $20 in taxes in that country, it owes an additional $15 in taxes to the US government (bringing the total up to the 35 percent liability imposed by the US). This $15 can be deferred indefinitely if the money is not brought home (or repatriated), which provides a strong incentive for these companies to keep the cash offshore.

Remarkably, of the $216 billion in cash on Apple’s balance sheet, $200 billion (93 percent) is held offshore and is not being spent. Microsoft holds around $103 billion in cash, of which $96 billion sits outside the US. This is money that will not be spent to grow the business (or even be returned to shareholders) unless these companies happen to find attractive investment opportunities in these other countries.

Reforming US tax code—both lowering the corporate rate and eliminating taxation of foreign earnings—could bring a lot of cash back to the US and could be a big boost to investment. Furthermore, it would remove the incentive for US companies to opt for tax-motivated inversions, which move US businesses (and the associated employment and investment, not to mention tax revenues) to lower tax regimes. The Obama administration has been trying to stamp out such inversions almost on a deal-by-deal basis by thinking up rules to block individual transactions; well thought-out tax reform would remove the incentive underlying them in one fell swoop.

I think everyone agrees that our tax system is overly complex, that the tax rate is too high, and that this has created structural disadvantages for US companies.   Reforming the tax system could go a long way toward stimulating corporate investment and driving economic growth. This seems like a no-brainer for the next president.

Improve health-care metrics

Dan Adelman, Chicago Booth

 

This election cycle, there’s been a lot of discussion about the Affordable Care Act, primarily concerning the issue of providing health-care insurance for all Americans and the difficulties with the exchanges. But the law is actually called the Patient Protection and Affordable Care Act, and the patient-protection part of the legislation hasn’t been discussed much, even though it started a quality-measurement revolution. So my first piece of advice to the next president is that whatever else you do with health care, keep the patient-protection part of the Affordable Care Act.

The act has created a number of programs focused on quality metrics—for example, the Hospital Value-Based Purchasing Program, the Hospital Readmissions Reduction Program, and the Medicare Shared Savings Program. As a result, today 30 percent of all Medicare payments are tied to payment models that have a quality-metric component to them. That’s expected to move to 50 percent over the next couple of years.

The metrics we’re talking about are ones such as mortality, readmissions, and patient safety. In addition, these metrics are also being publicly recorded, so now the Centers for Medicare & Medicaid Services publish figures allowing people to compare various hospitals across metrics.  Soon they plan to do the same for physicians. In addition, you have U.S. News & World Report, which has its own quality metrics that it publishes, and other agencies, such as the nonprofit ProPublica.

Consequently, quality metrics are tied to not only dollars but reputation. In the Healthcare Analytics Laboratory at Chicago Booth, we collaborate on lots of projects with hospitals all around Chicago, and we’re seeing hospitals working hard to improve their quality.  These are good reasons to keep the patient-protection component of the act in place.

However, there’s a crisis brewing. The quality metrics that are being calculated are inaccurate. And as a consequence, some good hospitals are being penalized, and some bad hospitals are being rewarded. Patients are also being directed, in some cases, to providers that are not giving the best care.

Why are the metrics inaccurate? There are two primary reasons. One has to do with data integrity, and especially with internal controls. We lack national standards for how hospitals should control, internally, the collection and maintenance of data. For example, on the death of a patient, some hospitals make sure that conditions such as obesity and diabetes are properly coded, while others don’t. Those that do have seen increases in their mortality quality metric without having necessarily made an actual quality improvement. Differences in internal controls can make hospitals look better or worse than they really are.

There are also data-integrity problems with how quality metrics are externally reported. Some of my collaborators at Rush University Medical Center just published an article demonstrating that the patient-safety indices calculated by U.S. News & World Report have, in the past, suffered from a data-integrity issue.1U.S. News & World Report has actually changed its methodology for how it calculates these scores, and in 2016 there have been some reversals, with formerly high-ranking hospitals now near the bottom along some metrics.  And of course, clinically, nothing has changed.

The second major problem with quality metrics involves methodology. A couple of years ago the Institute of Medicine published a report saying that hospitals should begin to collect data on social and behavioral determinants of health. It’s been well understood that these determinants actually have significant impact on readmission rates, mortality, and other things. But they aren’t being accurately captured right now, and so it is believed that safety-net hospitals in particular are being unfairly penalized.

Similarly, ProPublica has begun ranking surgeons across the nation, and the methodology they’re using for risk adjustment, while sophisticated, was not properly vetted in the medical community before their rankings were released.2 Nonetheless, their ranking affects where the public gets its care.

As a result of all this, my second piece of advice to the president is that the government should set up for health care something similar to the Financial Accounting Standards Board.3 We need a nonprofit, independent authority to serve two basic roles. One is setting standards for the internal controls of hospitals around data collection and data integrity, as well as standards for external reporting of quality metrics, much as the National Quality Forum does today. Its second role should be as an auditor. It should be able to go into hospitals and verify that the standards established for internal controls are in fact being followed. In addition, any agency, governmental or private, that’s involved in rating hospitals should be subject to audit to make sure it’s following proper methodological standards and being transparent.

What I’m describing is not a small job. But taking these steps would allow us to build on the strides we’ve already made toward better quality and patient protection in heath care, and it would allow hospitals to compete with one another on a level playing field.

1 Bala Hota, Thomas A. Webb, Brian D. Stein, Richa Gupta, David Ansell, and Omar Lateef, "Consumer Rankings and Health Care: Toward Validation and Transparency," The Joint Commission Journal on Quality and Patient Safety, October 2016.
2 Mark W. Friedberg, Peter J. Pronovost, David M. Shahian, Dana Gelb Safran, Karl Y. Bilimoria, Marc N. Elliott, Cheryl L. Damberg, Justin B. Dimick, Alan M. Zaslavsky, "A Methodological Critique of the ProPublica Surgeon Scorecard," RAND Corporation, 2015.
3 This idea builds on views expressed by David M. Shahian, Elizabeth A. Mort, and Peter J. Pronovost in “The Quality Measurement Crisis: An Urgent Need for Methodological Standards and Transparency,” The Joint Commission Journal on Quality and Patient Safety, October 2016.

Revive bipartisanship

Max H. Bazerman, Harvard

 

I’d like to offer two pieces of advice to the next president. One is to find wise trades. The other is to stop what I would call parasitic integration. Let me explain what I mean by those terms, and how they’re related.

Wise trades sound like a broad idea, but I mean something very specific. Columbia’s Joseph Stiglitz referred to near-Pareto improvements, which describe trades that allow just about everybody to be better off (except perhaps for some special interests who contorted the system to begin with). This kind of trade is possible for legislators who want to move policy forward.

To understand wise trades, imagine a situation where Spouse A and Spouse B are going to dinner and a movie. Being perfectly nice people, they compromise on the dinner choice, and then over dinner they compromise over the movie choice. Later on, they find out that there was a trade to be made: Spouse A cared more about dinner choice, and Spouse B cared more about movie choice. If we let each dominate on the issue that he or she cared about, both would have ended up being happier.

We’ve now been through two different presidential administrations where the ability to reach across parties to actually make wise decisions has been very, very limited. But if we go back to the 1990s, we had something called a Habitat Conservation Plan, which provided a means to make trades between land rights and environmental concerns so that land owners could potentially violate the Endangered Species Act while in pursuit of a broader plan that would make the environment and the economy better off. Similarly, in the Environmental Protection Agency we had something called Project Excel, which had the same object with this question in mind: How do you relax some regulations in the pursuit of wiser agreements for the overall society, both on economic and environmental grounds?

We’re not just looking for the center. We’re looking for wise legislators.

It need not just be environmental issues. We were on the verge of a grand deal to solve our debt crisis, but that fell apart due to extremists on both sides of the aisle.

What the next president should do is to figure out how to harness a bipartisan set of wise legislators who could craft a series of wise trades across domains so that we could have wiser policies. Then legislators could resume their partisan differences, but on a more Pareto-improved set of options that they would be looking at.

The idea of wise trades is not compromising, and we’re not just looking for the center. We’re looking for wise legislators who realize that there are trades to be made, legislators who actually want to make the world a better place as opposed to clobbering the other side.

But making the world a better place doesn’t just entail wise trades. My other piece of advice is that there’s a moral imperative to stop parasitic integration. Integration, or value creation, is something we teach in negotiation classes; parasitic integration refers to situations where two parties come up with trades by stealing from people who aren’t at the table.

Growing the debt so that we can spend more without increasing taxes is parasitically integrating across those issues while dumping the debt on future generations. Similarly, overharvesting our forests and overharvesting our seas provides the means for current society to be better off largely because we’re stealing from future generations. I think the next president should abide by the imperative to stop stealing from future generations, and that certainly includes a major focus on reducing climate change, which is an enormous threat to the earth’s future residents.

Regulation, direct democracy, and ‘too big to fail’

Eugene F. Fama, Chicago Booth

 

My general advice for the next president of the United States is that less government is better than more.  

Regulation of almost everything, at the federal, state, and local levels, is choking the economy. It’s choking business formation, and it’s choking listings of stocks on stock exchanges. The number of listed stocks has dropped by about 30 percent since 2000. All regulation should have an expiration date, so Congress can judge from experience whether the costs justify the benefits.

And why stop there? Perhaps all or at least most laws should have expiration dates, and exceptions should be rare.

I would like taxpayers to have more direct say (i.e., a menu of choices) in allocating how their tax dollars are spent. Lest this seem silly, we do it now, at least in part, with the charitable tax deduction. I think of that deduction as the Feds allowing me to allocate the tax I would otherwise be paying them to my favorite charities instead.  This is better than raising taxes and having the Feds allocate the tax dollars to their choice of charities, which is basically the system in Europe.

“Too big to fail” is an abomination. We should increase the capital requirements of large financial companies so they can absorb the losses they might incur. If they nevertheless fail, trust the FDIC (Federal Deposit Insurance Corporation) to liquidate them in an orderly way. The FDIC liquidates small banks that fail, and we should let it handle big banks.­­

Improve young children’s lives

Janet M. Currie, Princeton

The next president must maintain and expand efforts to improve the lives of young children because they are our future. Research shows that what happens early in life sets a pattern for child development. Children who are healthy, well nourished, and cared for in safe and stimulating environments grow up to be happier, healthier, better-educated, and higher-earning adults. 

Federal programs that have made a difference for children include the Earned Income Tax Credit, Medicaid (and SCHIP, the State Children’s Health Insurance Program), WIC (the Special Supplemental Nutrition Program for Women, Infants, and Children), SNAP (the Supplemental Nutrition Assistance Program, formerly the Food Stamp Program), and Head Start, among others. Children in the US today have lower mortality, higher educational attainment, and less risky behaviors because of these programs.

Clean the house, mind the store, heal the world

John H. Cochrane, Chicago Booth and Hoover Institution, Stanford

My advice to the next president: mind the store. 

I know, every president dreams of repeating Roosevelt: a 100-day flurry of new legislation, orders and agencies, dramatically changing the country and cementing his or her place in history.  

But it’s not 1932. We’re not in the middle of a national emergency. You (likely) don’t have a compliant Congress. Our country does not need a massive dose of new laws, new regulations, new agencies. It has lots of laws, regulations, and agencies that aren’t working. We need to clean up the mess.  

Yes, your team has 100 policy ideas ready to go, with new regulations and policies and tax credits and executive orders for everything from child care to traffic jams at intermodal transfer facilities (I’m not making this up) to crabgrass removal (I am making that one up, I hope) to new restrictions on trade and immigration.  

It won’t work. Congress will block you, executive orders will wind up in court, partisan polarization will increase, your opponents will fight back with ethics probes, and the economy will continue at its sclerotic pace. 

It’s not the moment. 

First, appoint good people. Get management of the country out of the White House and to the agencies where it belongs. The president's major job is to appoint good people to work for him or her.   

Throw away your long list of new policies. Read House Speaker Paul Ryan’s “A Better Way,” the detailed legislative plan that the House wants to follow. Find the simple things in there you can agree on. Sit down with him and get them done.  

Tax reform. Immigration reform. Regulatory reform. Criminal-justice reform. Every bipartisan commission has simple answers to these long-standing messes. Find a deal. Get it done. That’s what great politicians do. 

Simplify the gross complexity. Fight hard against pervasive cronyism, not with more rules but with less temptation. 

Speak softly, carry a big stick, and stop promising never to use it.

If you just got that done—clean up the house and mind the store, get the things the government is already trying to do to work with modest competence—the economy would take off like a rocket. You would go down in history as the country’s great healer. Future presidents will emulate your first term, not Roosevelt’s.  

Then, go on a tour. Start with our friends, not on big negotiations with our enemies. Quietly, with no public statement, no spin doctors, go reassure our allies that America stands with her friends and means what she says. No more lines in the sand, constant spin, empty threats, empty guarantees, and needless public insults. Speak softly, carry a big stick, and stop promising never to use it. Our enemies will retreat, and you will go down in history as the great healer of the world, too.

Yes, that will require that you throw away all your campaign promises and plans and disappoint so many of your supporters. But think what historians will say of your deep character, when they describe how you arrived at the battle, recognized everything you had planned was not going to work, and took up the simple mind-the-store, faithfully-execute-the-laws task that the current moment, true wisdom, and the Constitution called for. 

Expand antiviolence programming

Anuj K. Shah, Chicago Booth

 

My advice for the next president of the United States would be to focus on studying and expanding antiviolence programming for young people across the country.

In research I’ve conducted with other investigators, we’ve seen promising results from a particular type of antiviolence programming—for people who have been through these programs, arrests for all crimes drop by about 35 percent, arrests for violent crimes drop by 50 percent, recidivism rates drop, and graduation rates go up. The programs are loosely based on principles of cognitive behavioral therapy, or CBT, which at its core basically says, “Everybody acts automatically from time to time. We all respond to situations quickly or interpret them or make assumptions about them quickly.”

Usually our automaticity is well adapted or well tuned to the environments or situations we’re in. Every once in a while we do things automatically that are not well matched to the situations we’re in. For example, sometimes we might escalate a conflict when in fact it might have made more sense to walk away from it. CBT-based programming spends time teaching people to reflect on the situations they’re in and to think about those situations from various angles so that they come up with appropriate responses.

The challenge of scaling these interventions right now is that we’re not sure the best ways to adapt them to local contexts. What does this kind of program look like in Houston as opposed to Chicago? We’re not 100 percent sure. We don’t know the exact ingredients that are most effective in these different contexts.

Consider, then, a five-year plan wherein the Coordinating Council on Juvenile Justice and Delinquency Prevention would lead a multiagency effort to study and evaluate programs to see which are the most effective. In years one and two they might field and act on proposals from organizations providing CBT-based programming. They can evaluate, say, 40 cities with 40 programs. Through the variation in those programs, you’ll better understand the common components of the programs that work.

In years three through five, you’d scale up that evaluation and demonstration approach to more cities, but also in different contexts. For instance, in-school programming versus after-school programming versus juvenile-justice settings. We estimate that once we better understand the most effective components and contexts, bringing this to every at-risk young person in the country would cost about $2 billion per year—a pretty small fraction of the $200 billion per year that we spend on criminal justice already.

Revisit income support

Evelyn Z. Brodkin, University of Chicago

It is time to take a new and clear-sighted look at direct income support for poor and lower-income families. My advice to the next president of the United States is to reach beyond the tired politics of welfare bashing and reconsider policies of income assistance that can help struggling households make ends meet.

The US has now had two decades of experience in cutting its income safety net, dramatically reducing public welfare and, in many states, eliminating general assistance to the poor. This period has also witnessed growing inequality and relatively high levels of poverty (and deep poverty) even as the economy recovered from recession.  Although there are many factors accounting for these developments, it seems reasonable to consider whether ending income support has made things worse. While we experiment with other ideas that may open a path to greater equality over the long-term, it is time to consider restoring and upgrading our income support system to meet both the short- and longer-term challenges we face.

Consider that advanced market democracies, especially the Nordic states, have achieved relatively high levels of economic equality and low levels of poverty due, among other things, to a combination of social welfare and labor market arrangements. Admittedly, the US is unlikely to replicate these arrangements for reasons that are both political and historical. But a modest lesson that might be drawn from the Nordic experience is the importance of a basic income safety net for those who, for various reasons, find themselves outside of the labor market or relegated to its precarious sectors, where work is unstable, wages low, and benefits scarce.

US and international experience suggest that there is no obvious substitute for direct income assistance.

There are a number of ways to provide direct cash assistance, some more efficient than others. For example, proponents of a “citizens wage” make the case for a basic income that frees its recipients from bureaucratic oversight and supports individual autonomy. More often, US income-transfer policies introduce bureaucratic complexity by attaching work and other requirements, as is the case for the Temporary Assistance for Needy Families (TANF) program, but somewhat less so for the Supplemental Nutrition Assistance Program (SNAP) and the Earned Income Tax Credit (EITC).

The case of TANF may be particularly instructive.  TANF is the name for the "reformed" welfare system, created in 1997 with the idea of reducing poverty by increasing work.  But this did not happen.  In the 15 years after TANF, many poor adults worked more hours and received less cash assistance, but without corresponding declines in poverty. In fact, many households found themselves with no work and no welfare. 

Nor did TANF result in reduced federal spending. Instead, it shifted spending from direct cash aid to the poor to funding for social services. Although many social-service programs are valuable, they do not directly put money in people’s pockets enabling them to place food on the table, pay the rent, buy clothes, and ride the bus.

US and international experience suggest that there is no obvious substitute for direct income assistance, whether provided through family cash transfers, a citizens wage, basic income grants, or other policy instruments.  Income support not only has direct benefits for poor and lower-income households, but, by underwriting consumption, it can have broader benefits for economic and community development as well as health and well-being.  Yet, concerns about moral hazard have bedeviled efforts to build and sustain a system of income support for the non-elderly in the US, despite considerable evidence that these concerns are overstated and the moral benefits, arguably, understated.

Over the longer-term, other policy initiatives will be required to address the complex challenges posed by poverty and inequality.  However, until other alternatives prove workable, it is possible to act directly and quickly to impact poverty in America by providing money to people who need it and don't have it. Cash assistance is a means to that end.

Tackle global warming

Eric S. Maskin, Harvard

I think the most important task for the next president is to deal with climate change. The Paris Agreement was an important first step in getting the countries of the world to reduce carbon emissions. But almost all experts agree that it is not nearly enough. The US president must be a leader in negotiating more effective agreements.

Stop subsidizing the wrong things

Anat R. Admati, Stanford

 

My advice for the next president of the United States is to take a close look at bad policies we have regarding certain subsidies—specifically, subsidies that completely distort the economy and do us harm. We subsidize harmful things, and as a result, many of us are suffering the consequences of things that can easily be fixed.

One of the big distortions in the economy is that we have policies—tax rules, for example—that encourage and subsidize the use of debt in certain situations. For example, housing. We subsidize the purchase of houses, but only if the buyers borrow. If they borrow, they get to deduct the interest on the mortgage. They don’t get a subsidy if they don't borrow. And the more you borrow, the more you’re subsidized.

That subsidy doesn’t make sense. It doesn’t do what we want it to do; but what it does do is make people use a lot of debt when buying houses. That subsidy can inflate housing prices and actually add to inequality and other distortions. If we want to subsidize housing, if we want people to own houses, we have to find a different way to deliver those subsidies to the people who deserve them.

We don’t subsidize pollution. We don’t subsidize smoking. But we have policies that subsidize similarly harmful things.

Similarly, we subsidize, through the tax code and otherwise, corporate debt. In other words, we encourage corporations to finance with debt rather than financing with equity. That is an incredible distortion, and it does nothing for the economy except to encourage corporations to use more debt than is efficient. As a result, we get distortions in investments, we get an incredibly fragile financial system that we have a lot of trouble regulating, and all because of a policy that can be quite easily changed.

We also subsidize, for example, sugar and do almost nothing to subsidize vegetables. The sugar industry loves and promotes their subsidy. But we could subsidize something healthier instead. We don’t subsidize pollution. We don’t subsidize smoking. But we have policies that subsidize similarly harmful things.

Some of these subsidies, such as the corporate debt subsidies, started almost as an accident. They were put in place 100 years ago temporarily, maybe to help indebted railroads. But we seem to be stuck with them. It seems difficult to change a tax code—people tell you it’s a sacred thing, as though it’s from the Bible. Once a subsidy is in place, the people who benefit most from it hate to lose it, and then it becomes a political issue. It becomes lobbying for certain loopholes or preferential treatment.

We have to stop subsidizing harmful addictions, such as addictions to debt or addictions to sugar, and start crafting better policy. Use subsidies instead to address the things that we know are wrong but are difficult to tackle, such as inequality.

Don’t fight public opinion

Brandice Canes-Wrone, Princeton

 

My advice to the next president is to look at the evidence from the past and recognize that presidents have a very limited ability to change public opinion.

Most new presidents are coming off of, of course, a successful election campaign. Often there are new communications technologies that have been involved in their winning the election. They’re surrounded by people who are telling them that they are particularly good at connecting with the public and at using these technologies, and so presidents tend to perceive that they will be capable of molding public opinion on the issues that they care a lot about. Yet time and time again, we see presidents getting burned on those issues.

That doesn’t mean that if there’s an issue on which the public is already behind the president and Congress is blocking it, the president can’t use public communications to try to pressure Congress. But if there’s an issue on which the president is trying to actually move public preferences, presidents fail over and over again. They waste a lot of time, and they expend a lot of capital.

The exception is security. On something like a national security matter, the public tends to defer to the president and rally around the flag, so to speak. The president has a big informational advantage in those cases, and the public knows that. The same isn’t true, however, of other policy areas, where access to information is more balanced.

Not that the president should shut down the communications office. You wouldn’t want your opposition to go out and be on the airwaves while you sit back and do nothing. But when presidents find themselves surrounded by people who have every incentive to tell them that they are great at molding public opinion, by policy advisors who are working to get certain policies passed, I would say prioritize those policies on which you already have the public behind you.

Cut corporate taxes and close loopholes

Randall S. Kroszner, Chicago Booth

 

My advice to the next president of the United States is to make corporate tax reform a key priority.

It’s no surprise that companies such as Apple keep $200 billion outside of the US that otherwise they could bring back in. Overall, roughly $2 trillion of corporate funds are held outside of the US and not brought in because of our high corporate taxes. This is not good for the US. If we reformed the corporate tax system to remove disincentives for them to bring that money back, they could then use those funds to increase investment domestically to create jobs and/or to pay higher dividends to shareholders, including pensioners.

The US has been facing much more intense competition internationally over time, and corporate taxes are a big part of that. Corporate tax rates have fallen around the world over the last 15 years: they were about 30 percent, on average, back in the beginning of the 2000s. Today, they’re about 23 percent. The US has continued to keep its federal corporate tax rate at 35 percent, plus on average about 4 percent on the state level, for a total of 39 percent. We are one of the highest corporate tax regions on the planet. The rest of the world is moving toward lower rates and, of course, attracting capital and investment and creating jobs.

In addition, much of the rest of the world is on a so-called territorial tax system, wherein corporations with operations in different countries pay taxes on earnings in those countries, but they can repatriate, or bring back, any of the profits to their home countries without paying additional taxes. The US has a simple worldwide system, so you pay tax locally in whatever country you have revenue in, and then you’ll pay more tax if the funds are repatriated to the US. There’s been one recent proposal to have a significantly lower tax rate, in the 12–14 percent range, on repatriated earnings. That would certainly give more of an incentive to bring that money back.

Another key reform would be to lower tax rates more generally but broaden the tax base by eliminating a lot of loopholes and special deductions, so that you can lower rates without actually reducing revenues. An added benefit of that is by eliminating the distortions that come with loopholes, you’re using the market rather than the tax code to establish incentives for allocating investment, and that will likely lead to more-efficient allocation of funds and a somewhat higher growth rate.

Ireland is an example of how powerful tax reforms can be. It has a low corporate tax rate, about 12.5 percent, which is lower than the rest of the European Union and relatively low in the developed world. The American Chamber of Commerce in Ireland estimates that about 700 US companies have opened up operations in Ireland, and they’ve created about 140,000 jobs there.  The business-friendly policy environment has fostered high job growth and an economic boom in Ireland while the rest of Europe stagnates. 

Not only is tax reform important; it’s something that’s politically feasible. I don’t think anyone believes that giving strong incentives for US corporations not to invest in the US makes any sense at all, and hence we’ve had House Speaker Paul Ryan (Rep.), Senator Charles Schumer (Dem.), and presidential candidates Hillary Clinton and Donald Trump talk about these kinds of things. It’s one of those rare issues that both sides of the aisle can agree on.

Move past the crisis and focus on human capital

Austan D. Goolsbee, Chicago Booth

 

My advice for the next president is threefold. Number one, win big. Presidents that win big are able to do things, and presidents that don’t win big are not able to do anything. Unless you get a big victory, you can forget numbers two and three of my advice.

Number two. At this point in the country, the crisis is over. We have to get out of the crisis mentality. It's important for us to make investments with the long run in mind.

My third piece of advice is: remember that the thing that made us the richest country in the world is our people. We have to invest in the skill base of our own people. That means their training. That means raising educational attainment in the US. Those investments in human capital comprise the most important thing for the country.

In making those investments you’re, in essence, saving and investing for the future. It's a bit of a win-win in that you not only improve the fate of the economy and the fate of the nation, you make individuals themselves much more resilient to recession. If you look at people with a college degree, they don’t just have higher incomes. They don’t just have lower unemployment. Around the world and within the US, they also have proved remarkably better able to weather the downturn and move from industry to industry and into new jobs as the world economy has shifted.

Expand tax credits to the childless

Ioana Marinescu, University of Chicago Harris School of Public Policy

Employment and real wages for low-skilled workers have been falling during the past 15 years. The Earned Income Tax Credit (EITC) provides a tax credit to low-wage workers, and thus both redistributes income and promotes employment. However, only single mothers significantly benefit from this policy—the level of the EITC for childless adults is negligible. To help low-skilled workers out of poverty, we should increase the level of the EITC for childless adults. Economic studies have shown that the EITC has increased employment among single mothers; expanding it for childless adults with low wages would likely also encourage employment for this disadvantaged population.

Not only would increasing the EITC for childless workers help reduce poverty and boost employment, the idea also has bipartisan support, according to a report by the Center on Budget and Policy Priorities. This proposal would therefore be a good place to start effectively helping the low-skilled workers who have been falling behind in American society.