America in a post-COVID world

Tom Donilon: Thank you, Zach.  Hello and welcome everybody to the BlackRock Future Forum.  My name is Tom Donilon.  I’m the chairman of the BlackRock Investment Institute.  I am pleased to be joined today, really delighted to be joined today by former speaker of the US House of Representatives, Paul Ryan.  Speaker Ryan was the 54th Speaker of the House, in office from October of 2015 to January of 2019.  He was the youngest speaker of the House of Representatives in nearly 150 years.  During his tenure as speaker, Speaker Ryan led efforts to reform the US tax code, bolster national defense, expand domestic energy production, combat the opioid epidemic, reform the US criminal justice system, and promote economic opportunity as well as run one of the most complicated institutions in the world.

He served as chairman of the House Ways and Means Committee, and prior to that, served as chairman of the House Budget Committee.  In 2012, he was selected to serve as Governor Mitt Romney’s vice presidential nominee.  Ryan was first elected to Congress at age 28 and represented Wisconsin’s First District for two decades.  In 2019, Speaker Ryan was named to the board of directors of Fox Corporation.  He was also named a visiting fellow-of-practice at the American Enterprise Institute and professor of the practice at the University of Notre Dame teaching political science and economics.

Additionally, he’s a member of the Ronald Reagan Presidential Foundation & Institute’s board of trustees.  Speaker Ryan, it’s a pleasure to speak with you today, and I look forward to hearing your views on a number of issues facing the country and the world.  And without further ado, let’s begin.  One, first question: The BlackRock Future Forum is about bringing the sharpest minds together across the government and industry to speak to our clients about real-world problems and potential solutions.  Of course, at top of mind today is the COVID-19 epidemic and the varying global responses to the pandemic.  First question: How would you assess the US response to date both at the federal and state level and with respect to the financial, economic, but also the health dimensions of the crisis?

Paul Ryan: Well, first of all, Tom, nice to be with you.  Thanks for having me with you today, and I would say mixed, to quickly answer your question.  On the economic front, I think it was a pretty impressive response, frankly, globally speaking.  You saw central banks around the world pumping liquidity into the systems.  I do think that the corporation by my former colleagues in Congress with what we call Phase 1 through Phase 3.5 was really pretty impressive.

Rick Rieder could give you a good slide deck on that.  But if you combine what the fiscal policy did with respect to the tax rebates, with respect to the PPP program, the exchange stabilization fund, which leveraged the Federal Reserve backstop of liquidity, setting up all of these special-purpose vehicle in these financing markets, I think you’re going to see probably a Fed balance sheet probably as high as $7 trillion at the end of the day and around $3 trillion of fiscal liquidity injection.  You had a very, very impressive economic response, and I think that has helped bolster the economy and brought the bottom up from where it would otherwise be, and as a result, whether it’s CBO or the Federal Reserve, they’re forecasting some pretty positive economic growth in Q3.

The health response I think a little more mixed.  You have a federalism system here in America, so you’re going to have different responses.  Some states did better than others.  Densely populated areas obviously fared worse than others, but I think it – all in all, we did not overwhelm our healthcare system.  We got the ventilators produced like we needed to, so I think we did not have the overcrowding in our healthcare system that we feared.  What I regret in all of this though, Tom, to sum it up, is how COVID has become kind of partisan, how the necessary distancing and the protocols that we need to operate on in society have unfortunately become somewhat partisan, and I worry about that as this summer continues and as the fall resumes before we actually have a vaccine.

Tom Donilon: Thank you.  How do you feel about the global response?  You commented upon that various dimensions of the United States response and the differential between the financial response and the health response throughout the country.  How do you view the global response and in particular the international cooperation or lack of cooperation that we’ve seen on combating the virus?

Paul Ryan: Well, first, I think you have to lay some blame at the feet of China to begin with whether it was just the obfuscation, holding back on PPE, or just not being forthcoming about the real story on COVID from Wuhan to begin with.  Then I think if you take a look at the free world, at Europe and the rest, I think you had a better response.  Some countries fare better than others.  Korea comes to mind for example.  But I think with respect to PPE and ventilators, I think we could have done better.  I think the CDC is going to learn a lot of lessons from this on how to share in the future, but also I think you’re going to see a lot of changes with respect to supply chains and the dependencies on China and the rest.

So, I think there’s two questions in the question you asked: China and everything else.  China is going to have permanent changes in policy, globally speaking everything else.  My hope is that you’re going to have far more cooperation with respect to vaccines and the rest so that we will have a better, more coordinated response when the vaccine rolls around or if something like this ever happens again.

Tom Donilon: Thanks.  You mentioned the scale of the financial response in the United States in particular but also globally, which is at a scale we haven’t seen since World War II I think when you combine the fiscal and monetary response.  You’re also one of the leading experts in our country on the budget and the relationship between the budget and the markets.  So, we’ve had this unprecedented response, which is going to result in substantial federal deficits going forward and substantial central bank balance sheets going forward.  What do you think this means for the United States and our economy, and do you have concerns about the scale of the – long-term, the scale of the interventions?

Paul Ryan: I do.  I do.  Look, I was very worried about this.  In fact, in 2008 when I thought the fiscal response was necessary but also very impressive, that pales in comparison to the fiscal monetary response we have right now.  Mind you, there’s no moral hazard politics associated with this episode because it was a global pandemic, and the government imposed a shutdown on the economy.  That’s a little different than the moral hazards that occurred with the mortgage meltdown.  But the fiscal and monetary response is unprecedented in scale, so my biggest concern is how this all ends at the end of the day.  I’m not worried about primacy as the world reserve currency being challenged by some other sovereign currency, but I do worry about the credibility of the dollar as a reserve currency given the trajectory of our fiscal policy, the unsustained entitlement programs we have, which are the drivers of our future debt, and what is probably going to be somewhere like a $7 trillion added to the Fed balance sheet.

In 2008, we gave then Ben Bernanke in legislation—I negotiated this with him—a new tool that they claimed would fight inflation far more thoroughly, which was the ability to pay interest on excess reserves.  Now, the Fed believes that they have new tools like that that can mop up excess liquidity, that can mop up inflation if it ever rears its ugly head.  I’m not so sure about that.  I hope that that is the case.  We’re talking about dis-inflation and deflation these days, but I do worry around the corner we’ll be talking about inflation down the road, and the best thing from a fiscal policy that we can do is get our entitlements under control.  I’m not holding my breath.  I wrote all the Republican budgets in the beginning of our majority and then oversaw the running of those in the second half of our majority.  All in all, every year we are in the majority.  We passed in the House a budget that balanced the budget and actually paid off the debt.

That takes enormous political lifting, and I just don’t see the political planets aligning themselves to do what I think needs to be done to get our entitlements under control, and therefore, because of that, in addition to all of this excess spending liquidity, I do worry about the future of inflation and monetary stability.  If we could get our entitlements under control, and there are ways of doing that, then I think we will be fine, but until that day comes, I think there will be reason to worry about these things.

Tom Donilon: Pushing a little bit in the opposite direction from that, there’s been a lot of discussion about infrastructure, and it’s been discussed now for a number of years.  I think that it particularly comes into focus now given some of the weaknesses that we’ve seen in our economic structure and also, because of at least for now, the prospect of low interest rates.  So, you have the prospect of investing federal money in projects that will, in terms of growth and return, be greater than the cost of the money.  What’s your thinking on infrastructure at this point?  And given the circumstance around which you described, of us just having had to put in place these unprecedentedly large-scale interventions?

Paul Ryan: So, Tom, I think that’s a very good question because I think this is one of the few areas remaining where we can get bipartisan consensus.  I do not personally buy into the size of the Keynesian multipliers, which means that infrastructure is the key thing for economic growth.  I think in and of itself, because of crumbling infrastructure, there’s a great need to modernize American’s infrastructure whether it’s broadband and 5G or just simple roads and bridges.  All of these things are extremely important.  I think where we’re going to have a challenge is in ideology more from the left than from the right, which is it’s important that the private sector carry a lot of this burden, and that means programs like infrastructure banks or asset recycling carried out by the private sector with some federal backstop or local government backstop are going to be the key to leverage as much resources and money as possible for infrastructure.  I do think there is a play to be made there.

In your last question, you asked me about fiscal responsibility.  One of the bills that I think has a chance of making it through Congress this year yet is to create some commissions not like the… commission, which was doomed to fail because of its structure but like the old Greenspan commission of social security, which was fast-tracked, couldn’t be filibustered.  Congress had to vote on it up or down, final version, kind of like base closing commissions.  One of the bills that is really sort of making its way and has a possibility this year is a commission on the bankruptcy of the various trust funds that are out there be it the Medicare trust funds or the highway trust fund.

Mitt Romney is the primary sponsor of this, and that bill is getting a lot of bipartisan traction.  On the highway trust fund, you have a losing revenue proposition, which is gas tax revenues.  They’re not really lined up with today’s technology, and I think things like vehicle miles traveled, the VMT proposal, which charges a fee on the distance any kind of vehicle travels based upon its weight class is a better way of creating a revenue source for things like roads and bridges that is an idea whose time has finally come and finally arrived I believe in addition to things like asset recycling, infrastructure banks because there’s going to be a lot of need for yield.  There’s going to be a lot of need for paper and bonds out there.  I think that there is a play to be made there in the next Congress on infrastructure, and frankly it’s one of the few bipartisan ideas out there that still have legs under it in my opinion.

Tom Donilon: Terrific, thank you.  Let me broaden it out a bit I think more global.  Globalization has taken a hit during the course of this crisis, and it’s actually I think declining as a trend leading into the crisis really beginning with the great financial crisis.  And we’ve had a number of countries around the world put in place various restrictions on trade, and we’ve seen a substantial drop in global trade during the course of the crisis.  How do you see globalization?  Are we at an inflection point here or something that we just had assumed was always going to continue going forward, that we continued to globalize and open up markets and have free movement of people and goods and services?  Do you see us at a – for political and other reasons, do you see us at an inflection point on globalization?

Paul Ryan: Yeah, I really do and for a good reason and for bad reasons, for better or for worse I do.  Frankly, just to give you a little bit of history on this, you probably remember this.  I think you were at NSA at the time.  When I – before I was speaker in 2015, I was Ways and Means chair.  I rode with Ron Wyden, a Democrat, my counterpart in the Senate, trade promotion authority so that then-President Obama could go and negotiation TPP, and we thought then negotiate TTIP, which is the European agreement.  So, I was one of those few people left in Congress who wanted to see a transpacific partnership put in place as, in my opinion then, a very good China policy.  What happened soon after that, we passed TPA.  Mike Froman and his team went over to negotiate TPP.  They didn’t negotiate it, and they just ran out the clock on us, meaning we could not get that passed because what you had coming in that 2016 election were both candidates for president.  Hillary Clinton and Donald Trump were both against TPP.

So you basically had a consensus politically speaking whether it was populism on the right and friction from trade and blue-collar workers who felt disaffected or labor union politics on the left and everything in between, you ended up moving from what we used to have as a general consensus toward trade and global agreements against it.  So where are we right now?  Well, I do believe we still can get TPP even in a Trump administration in time because it is one where we have chorus under our belt now.  We just did an agreement, a bilateral, with Japan, and so through these bilaterals, and we now have the USMCA, Mexico and Canada, so I do believe we are sort of making our way into TPP.

So, for that matter, it’s very good China policy.  I think the administration now understands that, and I think there are ways of getting ourselves into these agreements.  I think the European agreement, frankly, is going to be even more challenging given trade frictions with that.  So, I don’t tout trade down and out.  I think it’s going to be a harder road to climb, but where I think the big difference now is with respect to China.  You have total bipartisan support for some version of decoupling with China for various reasons—for national security reasons, for trade reasons, COVID-19-related reasons.  So, I do think there’s going to be a big bipartisan effort on repatriating the supply chain, on… off national security vulnerabilities, and decoupling.

I do believe we need to have trade with China on non-critical infrastructure items, and we need to obviously have a relationship with China, but we cannot be dependent.  And I think we need to help the rest of the world understand putting ourselves more vulnerable or more dependent upon China, a communist party dictatorship, is not in anyone’s national security interests if you come from the free world.  And only America can really lead a proper response to that.  I think because of COVID-19, because of 5G and some other circumstances, decoupling is here.  It’s going to happen.  The question is just how fast and in what form.  And then the question is after that, can we rebuild our alliances with the rest of the free world and smooth out the frictions with respect to trade?  I’d like to think the answer is yes to that.

Tom Donilon: And clearly, maybe – it’s the biggest challenge, diplomatic international challenge for the next president no matter who wins in November with the US/China relationship and all the dimensions that you laid out.  Why don’t we turn to the election?  Obviously, not going to get into – ask you to make predictions about the 2020 elections, but maybe we could discuss what difference it would make.  How do you think about that?  And investors are thinking about this.  What is the difference if President Trump is re-elected or Vice President Biden is elected?  What do you see as the biggest policy implications of the two core scenarios?

Paul Ryan: Well, obviously, what I – I’m an Article 1 guy, so what I care mostly about is Congress.  If Trump gets re-elected, then I see no chance of us losing the Senate on the best scenario, and in fact, I think we’ll pick up seats in the House.  I still think we can keep the Senate under either scenario.  It just depends on the magnitude of the victor at the top of the ticket, but if Trump is re-elected, I think obviously you can draw a straight-line trajectory from where we are now.  I think there’s a lot of unfinished work to be done on some of the initiatives that have already been started, but if Joe Biden wins, which I know is what you’re hoping for, in my mind it depends on who’s controlling the Congress.  If – and I know Joe well.  I’ve done agreements with him over the years.

If it’s Joe Biden and a Republican Senate, that looks different than if it’s Joe Biden and a progressive Democrat Senate.  So, in my mind’s eye, it depends on what happens, and the congressional elections will ultimately determine what happens there.  Where we can get consensus, like I said, hopefully it’s on things like our 5G policy, the smart kind of decoupling that is bipartisan: infrastructure.  My biggest concern is on fiscal policy.  Tax policy, which is to me incredibly important for our economic growth, regulatory policy, that’s, in my mind’s eye, the biggest difference between a Biden and Trump presidency.  I think the Biden presidency will be over-regulatory in a lot of areas, and I think they’ll regulate, and I think they’ll slow down economic growth.

Whereas in the Trump administration, I think one of the most impressive accomplishments was its light regulation footprint, which I think has done a lot to contribute to economic growth.  I want to make sure that the gains we got in tax reform, which I think contributed to a very strong economy, are not walked backwards.  But my biggest concern under whoever becomes president is what you mentioned at the beginning, is fiscal policy.  Entitlements are unsustainable.  They’re on an unsustainable path.  It’s not too late to fix them on our own terms as a country in a way that fulfills each of their missions, but if we keep kicking the entitlement can down the road, as both presidents from both parties have done, then I really do worry that our monetary policy and our fiscal policy are sort of on a collision course with one another, and the next president is going to have to deal with that.

Tom Donilon: The next president is also going to have to deal with issues arising out of what has been extraordinary events around the issues of social justice in the United States, racial justice in the United States, policy conduct and those issues.  Your whole career has been focused on social justice as part of your devotion to public service.  As I’ve said, we’ve seen this extraordinary expression of concern about racial justice in the United States.  How are you thinking about that these days, and what impact can policy make moving forward in terms of bringing the country together?  If you were elected president in November of 2020 and you had to face the current social situation in the country, how would you think about it as president?  What would be the first few things that you would do both in terms of tone and policy?

Paul Ryan: Well, the word is unify.  First of all, as you probably know me a little bit, my mentor was Jack Kemp.  I came up in age as a Republican looking at Reagan as an ideal person to emulate.  And so, first, I think the George Floyd murder, and I choose that word carefully, I think opened a lot of eyes in America.  I think a lot of scales fell from people’s eyes, and I think that that needs to be looked at in a way that opens hearts and minds to people who had never thought of these things before so that we really can empathize with minorities who did and do face systemic discrimination.  So that, first of all, needs to be acknowledged, and then something’s got to be done about it, and I do believe that leading the kind of tone, and the words taken in themselves, black lives matter, are true words.  No one should be worried about saying these words.  They’re true, and then we can have hopefully an honest and reasonable debate about what to do about it.

Should we defund the police?  No, I don’t think we should defund the police.  But should we work at making equality of opportunity policies more at reach with other people?  Look, I helped author the opportunity zone legislation.  I helped author criminal justice reform.  I think there are a lot of things like that that can be done to speak to the concerns of people who feel like the American dream is just not there for them, that they’ve been excluded from it.  So I really believe that this moment is a moment that calls for empathy, understanding, listening, and innovative policies because people’s minds really are open to these problems, and then addressing these injustices that are baked into the system, that have been part and parcel of the American system that a lot of people see.  And I really do think we can go at the root causes.

One of the things I work at, at Notre Dame and at my own foundation is try to go at the root cause of poverty, at the root cause of the lack of economic mobility.  There are so many things I think we can do as a country on a bipartisan basis to address these inconsistencies, these inequities, and that’s what a president ought to do which is to unify and to heal.  But I hate identity politics.  I think it’s immoral to begin with, but also politically speaking I just think it’s wrong to practice it.  Regrettably, we get this from the left and the right, identity politics.  So if I were president, the first thing I would do is try and get rid of all this identity politics and try and focus on a unity politics, which is to go find those areas of common consensus of common ground that can advance this country together and bring everyone into the fold so that everyone believes this idea of opportunity and upward mobility is there for them in this country no matter who they are or where they come from.

Tom Donilon: Speaker Ryan, thank you.  Let me ask one last question.  You have had a career in politics.  You now have a career in business, and you’re also teaching at Notre Dame as we mentioned at the top of the – at the top of our interview today.  One of the big trends in America that’s been I think a concern to people is polarization in our politics, which has seemed to have gotten more extreme in recent years and really has been a barrier to getting the kinds of things done that you talked about during the course of our conversation.  How do you polarization?  What’s the way out?  And I had an interesting question to close out on, which is what are you telling your students about careers in public service in the current environment?

Paul Ryan: It’s a really –Tom, I think it’s a great point to end on.  Look, I did 20 years in Congress, 1998 until 2019, and in that arc of time, I saw an enormous transformation of our politics, and it coincided with obviously the internet and data and digital and the rest.  And in the old days, like 10 years ago, the way you measured success in politics was really what I would call a meritocracy.  Success was measured by persuasion and legislation.  Could you create innovative policies to solve problems of the day, and could you persuade people, your constituents, your colleagues, the country was the way to go?  And that was sort of how you measured success in politics?  This day and age, I think success in politics is measured more by entertainment, by provocation.

So, we now have what I would call in both parties frankly entertainment wings of our parties where people look at this old slog who’s spending 10, 20 years in Congress proving yourself through a meritocracy.  You can leapfrog that entire meritocracy if you are good on Twitter or on Facebook, digital.  You can really be entertaining on cable television.  You can immediately leapfrog that entire meritocracy and be a national player overnight, and I can think of episodes on both sides of the aisle where people did that.  But what that does require though is fragmentation, polarization.  And so, you got to the point where a lot of people are looking not over their left shoulder if they’re a Republican or their right shoulder if they’re Democrat.  They’re looking over their shoulder worried about a primary, and so they’re focused on staying in their partisan lane and entertaining.

And so, my worry is we now have entertainment politics, which is really by design extremely partisan.  Plus, you can monetize it.  You have whole websites.  You have whole entertainment venues that make money off of this polarization.  So, what is the antidote to that?  What do I tell students at Notre Dame?  I said you have to run to this problem.  You have to get more involved.  Don’t impugn people’s motives.  Don’t question their characters.  Understand what they’re coming from and have a civil debate.

And I think the best alternative, the best antidote to this in my mind’s eye is we have to do everything we can to revitalize civil society.  That space between ourselves and our government where we occupy our lives, where we put the phone down, put the TV down, and go actually interact with other people and then get out of your comfort zone and spend time with people who are not like you, who don’t think like you, who don’t look like you, who don’t live near where you live.  So to me, the more you can get society to integrate itself through a civil society, that, in my mind’s eye, is the best way to try and heal our politics so that we can have common ground, so that we can have politics of mutual understanding, vibrant debate, but civil debate.  And that, to me, is what I try to teach my kids at Notre Dame.

Tom Donilon: Speaker, thank you very much.  That’s a great point to end on, really appreciate you joining us today at the BlackRock Future Forum, taking the time and to really kind of go around the globe on issues including talking about our own country, really appreciate it.  Thank you very much.

Paul Ryan: My pleasure.  Thanks for having me.

MKTGH0720U-1237850