Economic Policy To The Fore | Jason Furman on Deregulation, Tax Cuts, Tariffs, and Healthcare
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Let's close this door. Very pleased today to be joined by Jason Furman, professor of the practice of economic policy at Harvard University. Professor, welcome to Monetary Matters. Good to be with you. How are you thinking about the current policy agenda with tariffs and

tax cuts and deregulation. The Treasury Secretary Scott Besant always insists that it's not just about tariffs, it's a three-legged stool: deregulation and tax cuts. Just how stimulative do you think the tax cuts and deregulation are going to be? And are they able to offset the potential slowdown impact from tariffs? So both the tax cuts and the deregulation are at best a mixed bag. The tariffs are not mixed. They're just bad.

On the deregulation side, there are certainly areas where there's been deregulation and it's probably good for growth. That includes related to fossil fuels, especially liquid natural gas exports.

There's some things on the financial side that may be good for growth. Crypto is good for the growth of crypto. Whether that's diverting resources from things that are better uses is anyone's guess. And my guess is that they are diverting resources. But on the regulatory side, there's also other things that go the other direction. He's made it harder to do wind and solar.

He's heavily regulating our country's universities, including the one that I teach at and do research at, which I think will hurt innovation in the long run. And then there's just a general unpredictability about how companies are being treated, whether that's through the antitrust process, FCC, other regulatory. There's a lot of companies that right now are in fear about what's going to happen to them. So regulation, some steps forward, but some steps back. And then next up, taxes.

There is very little that is growth oriented in these current tax debate. It's things like tax-free tips, tax-free overtime, tax-free social security benefits. None of that screams out incentives and economic growth.

I'm like this some business provisions like expensing I'm quite fond of, but it's also when you raise the deficit, which the tax reform will do, it will raise the cost of capital for businesses. And so the higher interest rates will offset any of the other benefits. And so I view both the taxes and the deregulation as quite mixed.

And then the tariffs, of course, only bad. What about the tax cuts do you think are not as stimulative? You said tax on tips. Are there other types of tax cuts that you think could be more stimulative and why? So let's think of the impact of taxes through the demand side and through the supply side. The demand side is where I would use the word stimulus. It says more money in people's pockets and they're going to spend more.

And basically all of it is reasonably stimulative. And that's actually a problem, not a good thing, given that we are currently at full employment, that even prior to the tariffs, inflation was above target and the tariffs will at least temporarily push them further above target. So all of that stimulus just will lead the Fed to be more reluctant to cut rates, put upward pressure on

on long-term rates, mortgage rates, and the like. So yes, there is some real fiscal stimulus in it. Then the other way of thinking about tax cuts is the supply side. What does it do to invest incentives to invest, to innovate, to save, to grow, to work more and the like?

And there, if you look at the new tax cuts above and beyond the extension, there's just very little that's like that. Reducing taxes on Social Security benefits is not much of an incentive for anything. I don't see very much in the way of supply side tax cuts here, with the exception of business expensing.

which is something I think is a good thing to do, but not good enough that it offsets everything else in the legislation. Okay, so when you said these tax cuts could be bad, I interpret that as recessionary or not that stimulative. You actually think they're potentially too stimulative, so they will overstimulate growth and exacerbate inflationary pressure.

How do you think about the different consumer stimulus, lowering individual taxes versus supply side stimulus, lowering business taxes? Because

I look at the corporate tax rate and then I look at the rate that's actually paid and it seems a lot lower than the rate that people pay. Why is that? And is that a good thing? So the corporate rate, you know, it was good that we cut it from 35 to something. I probably would have stopped at 25. They went all the way to 21. But that was good because corporate taxes are on highly mobile companies.

The income those companies have is even more mobile than the companies themselves. And the rest of the world had cut their tax rates. And there's a general rule that you want lower taxes on things that are incredibly responsive and movable with respect to those taxes. And just people are going to move a lot less than corporations. And so it makes sense to do that. The other thing I would highlight is that a lot of corporate income is taxed twice, whereas individual income is for the most part taxed once.

So if you take the corporate rate of 21 plus the dividend rate, which is basically 24, that corporate income, once you give it through to someone, is being taxed at a 45% rate. That's now about the same, in fact, higher than what the individual taxation would be.

So you're not a fan of these tax cuts. What's the distributional impact of these tax cuts? A lot of people from definitely the left say that it's only helping out rich people or disproportionately helping rich people. Is that true? Yes, that is true. You can look. The Joint Committee on Taxation is nonpartisan. They just came out with an analysis of the House tax bill.

And you look at the total amount of money going to the top 1%, and it is, I believe, $96 billion in the year 2027. That is more than the money going to everyone who makes up to $100,000 a year. They're getting about $93 billion in that year. And that's notable because above a million dollars a year, there's only about a million people that make that. Below 100,000, there's more than 100 million people that make that.

Now you might say, oh, tax cuts for taxpayers, it's people at the top who are paying the taxes. But if you look at the percentage change in after-tax incomes, you scale it by income, it's also more than twice as large for households above a million as below 100,000. So the tax cuts themselves

would make the tax code more regressive. But you don't want to just think about them themselves. Once you add in the Medicaid cuts that are in this bill, which are estimated to reduce coverage by about 10 million, then the net effect is that the bottom quintile of Americans, the bottom fifth, end up worse off because they lose more benefits than they get in tax cuts. The top 1% end up much better off. And so the whole thing is basically redistribution from the poor to the rich.

And Scott Besson, who I think is probably one of the best at any administration of arguing the economic case,

is that basically the US economy over the past decade or so, it has grown because of public debt. The government has been the one that's been leveraging up and borrowing money, not the private sector. And he says that the Trump administration, and he wants to do the exact opposite. They want to delever the government, so reduce the fiscal deficit. So the government borrows less as a percentage of GDP every year, and then relever. So the private sector, you have a credit boom within the private sector.

Two questions for you, Jason. Number one, do you accept that criticism? And number two, even if you did accept that criticism, how are you judging their policies as a way to do that?

Yes. So on the first, I completely agree. And on the second, their policies totally fail by that test. Let's take them in turn. Biden added way too much to the deficit and the debt. It was completely unnecessary given the economic situation that we were in. The deficit last year, this year are just shocking for an economy that is at peace, not facing a major emergency, growing quite well and the like.

So absolutely something needs to be done about our fiscal trajectory. The problem is if you look at the budgets that both the House and the Senate have passed, they would increase the deficit, they would increase the debt and they would make the problem worse. Now, what is the administration counting on to help? Partly they're counting on tariffs.

That'll help our fiscal situation, although not the way I would have done it. Partly they're counting on Doge. I think that's mostly a mirage. There doesn't seem to be a lot of noticeable impact on spending. And in fact, some things will be worse because of all the severance payments and the like. And then partly they're counting on economic growth.

And I don't think the tariffs are going to give us a more economic growth. If anything, they're going to hurt it. So I think right now our deficit is about 6% of GDP. It's very likely in a year or two or three that it'll be 8% of GDP. And then the question is, will President Trump do what President Reagan did, which is say, oops, I added too much to the deficit. I'm going to reverse course and fix my mistake. Or will he double down on

on the deficit increasing strategy. I'd bet on the latter, but I'll be hoping for the former. And the huge increase in the deficit under President Biden and under Trump, a lot of that was during COVID. How do you give attribution looking at the data? I can cite several things. There's the child tax credit, there was the stimulus bill, the CHIPS Act, which gave tax breaks to companies who build in the United States. Social Security is indexed to inflation. So as inflation goes up,

They have to pay out more. But what are the biggest contributors to just why the deficit blew out so much in 2020, 2021, 2022? Yeah. So, you know, there are a lot of money for individuals, a lot of money for states, a lot of money for COVID, a lot of money for small businesses. I actually think what was done in 2020 was necessary. The economy was falling apart.

By 2021, the end March, the economy was on the road to recovery. It was growing quite quickly and just much, much, much less money was needed. So it was really that second round. Now, what's important is that has added to our debt. It's added to interest payments on the debt, but it hasn't permanently increased spending or cut taxes, excluding interest.

There's subsequent things though that came back and did that. The infrastructure bill was largely not paid for. The CHIPS Act was largely not paid for. Something called the Inflation Reduction Act increased deficits upfront, although eventually it will start to lower them. So there was a lot of other legislation that layered on top of it. And by the way, even without any of this legislation, we were already in a somewhat fiscally problematic place.

And now, Professor, let's turn to tariffs. How do you think tariffs impact the economy? And tell us just what do you think the impact would be on the economy if the tariffs announced on Liberation Day, which were headed 90-day pause and are scheduled to come back into effect? They may not go back to effect. There may be deals. But if there was a very high rate of tariff on Lesotho and China and all these countries,

What would be the impact on the economy? I'm not going to make an output. So first of all, the tariffs we already have right now give us an average tariff rate above 15%. That's the highest average tariff rate we've had since the 1940s. So investors have gotten used to it.

They're all calm about it. It's going to mean less imports. It's going to mean less exports. It is going to mean an overall less efficient economy with incomes maybe a percent below what they otherwise would have been over the longer period. If more tariffs come back,

Then all of that would be compounded because you'd have two effects. One is the direct effect of the tariffs. If you had reciprocal tariffs, liberation day style coming back. But second, the confidence that right now people have decided that President Trump is willing to listen to the market, is flexible, is not dead set on the tariffs.

And all of that confidence would be shaken if we go back into a large scale trade war with major economies like Japan,

or Europe, neither of which seem super eager and in a super rush to strike what they view as a very unfavorable deal with the United States. And just how disruptive do you think that would be to the US economy? I, like a lot of people, thought, okay, we are an economy, we import a ton from China, and we do. But looking at the, I guess, trade as a percentage of GDP,

were roughly 27%, so 11% exports, 15% imports, 16% imports. And comparing to countries that do a lot of trade, Iceland, Hong Kong, Luxembourg, that over 100% of their economy is trade, over 100% of their GDP, we have a relatively small percentage, big ocean. Might this not be as big as people in the media, such as myself, a month ago were saying? Yeah. So

If you just, because trade is a relatively small share of the economy, and you're absolutely right about that. That's, by the way, part of what lets us mess around with it. We can picture ourselves as an autarky. Iceland could not picture itself as an autarky. They understand that they would basically starve to death if they tried to do that.

And so the direct effects are yeah, more minus a percentage point on GDP. So that's not a recession that says the economy grows at 1% instead of 2%. It's not great. I wouldn't recommend anyone do that, but it's not catastrophic. Where the effects got larger was when you factored in either confidence style effects or you factored in embargoes from China. If there's a supply chain, you can't make

Because you don't have rare earths. All of a sudden, a large swath of your industry grinds to a halt for lack of one ingredient you need for that industry. And so that's what I was worried about. But yeah, my guess is that this is a moderate negative ungrowth, not catastrophic. I wouldn't recommend any president even do a moderate negative ungrowth.

And has the percentage of trade in America changed? Like has our trade as a percentage of GDP gone up over time relative to the 1930s, Smoot-Hawley or the 1880s and 1890s that President Trump speaks so glowingly about?

Yeah, trade has basically, since Smoot-Hawley, steadily increased, but it plateaued around 2010 and it's been roughly flat since then. And yeah, in some ways these tariffs are worse than Smoot-Hawley in that it's affecting a sector that is more important to our economy.

than it used to be. And so if tariffs, even the worst case scenario is only going to take out 1% of GDP, it's a lot 2% to 1 GDP, so the growth, some people might not notice it, but that definitely is a lot. Why are economists so united in their hatred of tariffs? Yeah, so first of all, that's 1% of GDP is that $2,000 a household.

So if I said I passed a new law and everyone needed to fly to Washington, bring a bag of $2,000 with them, put it on the mall, and then we set fire to all of it, that would be considered one of the most phenomenally stupid and wasteful policies in the history of the United States.

In some ways, that's the best case scenario here. And by the way, you'd have to do it not just once, but every year. I think though part of what bothers economists so much is that so many of the arguments for all of this are just really terrible. The idea that trade deficits are bad, the idea that tariffs are paid by foreigners, the idea that when you tax imports, it doesn't affect exports. All of these are just mistaken and confused.

And we don't have the answers to everything. We can spot a certain amount of things that are just complete and total nonsense. And a bunch of this is in the complete and total nonsense category.

So the tariffs that as you record are on the rest of the world, ex-China is 10% because that's the baseline tariff. A colleague of yours, Professor Ken Rogoff, I interviewed earlier this month. He said, quote, and I'm paraphrasing, it's a dirty secret among economists that a 10% tariff on the rest of the world wouldn't be a big deal. 10% kind of seems like the moderate case from the Trump administration at a 10% tariff rate. Would you agree? Would you also characterize a 10% tariff as not a big deal?

One question is, can you stay there? Do other countries retaliate against you? Do you do higher tariffs of the type that we have on cars and car parts and we're going to potentially soon have on semiconductors and pharmaceuticals and other products? But

I guess I think 10%, maybe I think it's bigger. I'll go, I'll walk down the hall and talk to Ken and see if we can converge on this. I think it's a moderately big deal. You're going to have less exports, less imports, somewhat worse jobs, and some costs along the adjustment path.

As at the end of the world, no. Is it unnecessarily making yourself poorer? Yeah. You said you think they could take growth down by 1%. I think you meant real GDP. So inflation, GDP. Is that going to be taking holding inflation flat and having nominal GDP to go down by 1% or holding nominal GDP flat and inflation goes up by 1% or

And if anything, inflation will go up more than a percentage point because of the tariffs. So nominal GDP growth could actually be faster. It just would be an unpleasant division where it was a sort of

form of stagflation, lower growth, higher inflation, not full-blown recession, not full-blown terrifying inflation. And how do you assess the economic record of Trump's first presidency? It was perfectly good. Growth was quite strong. The unemployment rate kept falling. And it was better than I thought it was going to be at the time. Now, it didn't

sort of fully rise to what he thought it was. This is prior to COVID, of course. It didn't fully rise to what he said. He was talking about things like a 4% growth rate. We didn't see anything like that. A bunch of it was demand side stimulus, not the supply side. So it was tax cuts, putting money in people's pockets and people going out and spending that money. But the economy needed more demand stimulus then than I appreciated at the time. And it makes sense. Interest rates were very close to zero. Inflation was below target.

The neutral interest rate itself was probably very low. And so there was more of a role and necessity for fiscal policy to keep demand up in a way that none of those conditions are correct today. And so trying to reproduce the same playbook would not

create some of the benefits and successes we saw in his first term. And do you think that you served as the chair of the Council of Economic Advisors under President Obama, and that was a time the economy was recovering from a recession. But if I recall correctly, there was intense pressure to have stimulus, but fund the stimulus and balance the

budget. Do you feel like there's a little bit of maybe hypocrisy in Republicans because the economy is way stronger now than it was in 2010. But they're just seemingly a lot less concerned about the deficit than they were when the economy was so weak in 2010. Look, everyone who does fiscal policy in Washington has a certain amount of hypocrisy, where they care about the deficit when they're not in office, they don't care about it when they are in office.

But yeah, the tax cuts of this magnitude, not this design, but this magnitude would have been quite helpful in 2010, 2011, 2012. And now they're actually harmful and have bad side effects. Yeah, hypocritical. But do I think it's a totally unique thing among Republicans? Definitely not.

What do you make of the CHIPS Act and just generally policy under the previous administration of having tax cuts in order to stimulate the production of advanced manufacturing? To me, that kind of sounds like a platform that Republicans would be on board with. But of course, it was done under a Democratic administration.

Yeah, so for me, you want to be very reluctant about engaging in industrial policy. Most of the time, the market knows the right thing to do, and you'd rather do what the market wants rather than whatever your idea of what's great. But there is a very big exception, which is national security.

And getting 90% of our advanced microchips from one island off the coast of mainland China is an unnecessary risk to take. And so it makes sense to try to build more microchip factories here in the United States. And that wasn't going to happen on its own, so we put some money into it.

I'm less sure about the investing in wind and solar and things like that. In that area, we definitely want to use wind and solar power, but that doesn't mean we need to make the solar panels and the wind turbines here in the United States. So that is a little bit less certain. But in general,

If you view things as a competition with China, I find policies of the form we're going to do more in the United States and make ourselves better and invest here much more appealing than we're going to put tariffs on China and try to degrade things in China. Because, by the way, all those tariffs turn around and hurt us as well.

And earlier you said, I don't want to misquote you, that the president misunderstands trade deficits. What do you mean by that? What does the president and the Trump administration misunderstand about trade deficits in your view? And to what degree is that harmful in its policy? Yeah, I mean, they misunderstand an awful lot. But the most important is that they think a trade deficit reflects other countries taking advantage of the United States.

Whereas you could also call a trade deficit a good surplus. We're getting more goods than we're giving up. That's a wonderful thing because we love those goods. You could call it a financial account surplus because money is flowing into the United States to fund that budget deficit.

And so it really isn't an inherently bad thing. It is not other countries taking advantage of us. Then some subsidiary sort of corollaries to that misunderstanding is trade deficits are not caused by tariffs. We have a trade deficit with Japan, which has very low tariffs on us. We have a trade surplus with Brazil, which has very high tariffs on us.

Moreover, trade deficits are not solved by tariffs. If when we raise the tariff, it doesn't predictably lower the trade deficit. Ultimately, that trade deficit reflects the imbalance of how much we as a country save and we invest. And if we choose to save more, then we'll bring our trade deficit down. And if we choose to borrow more by running larger budget deficits, then we're going to drive our trade deficit up.

And every single thing I've just been saying on this topic is just straightforward. Econ 101, or the class I teach, is called Act 10. It's uncontroversial and widely believed among economists and just utterly antithetical to how President Trump thinks about these issues. Thank you for that. What does Econ 101 and most economists think about persistent trade deficits and current account

The US has a huge trade deficit, but a somewhat smaller trade services surplus. And year after year, 1990, 1991, 1992, all the way going to the present day, a current account deficit. What does Econ 101, what do you think about the persistent decline?

nature of these current account deficits? Okay. Oh, in last year, we had a deficit with Sweden, but this year, we've got a surplus, but year over year, they're building and then the opposite of the current account deficit is the financial surplus, all the money goes back into the United States to invest in on basically on Wall Street. Is that sustainable? We are probably on the edge of sustainable.

Whether a trade deficit is a problem or not, a persistent one really just depends on a very complicated set of circumstances. So general rule, if your trade deficit is less than 3% of GDP, I just don't worry at all. If it's 3 to 6, maybe it's okay, maybe it's not. You really need to prove that it's okay. If it's above 6% of GDP, then it's a problem. The United States has been just about 3% of GDP on the border there.

So why might it not be a problem? It's being financed by investment into the United States.

A lot of that investment that foreign is put in the United States is getting quite low returns. It's basically they're buying treasuries. Less investment overseas is getting much higher returns. A lot of it is foreign direct investment. And so on a flow basis, even though we're net debtors to the rest of the world, we're basically breaking even in terms of income. We're a little bit like a hedge fund that borrows cheap and invests at a high rate of return.

And so as long as we can keep doing that, it is basically sustainable. The other way to think about it is what's that trade deficit funding? Partly it's funding consumption, and that's a little bit of a concern, but partly it's funding the enormous amounts of investments that our businesses are making. Things like data centers and new energy sources and the like.

And so get rid of the trade deficit, get rid of the financing for those things. And you have less investment, less growth and a less successful economy overall. I think there's a case for bringing it down a bit. You can run a trade deficit basically forever and be okay. Okay. So the US trade deficit is right now 3% of GDP. You think that's

somewhat sustainable. I actually just came up talking to Professor Rogoff because he said, okay, I think we're breaking even though we owe way more to the rest of the world than the rest of the world owes to us. We have a negative international net international investment position that we are earning basically the same. We have a higher rate of return on our assets than the world gets of us. That's exactly what I'm saying. Yeah. But isn't the rate of change somewhat troubling? It used to be way

way more profitable. And now it's, as you say, breaking even. It's at the edge. I would rather the trade deficit fall as a share of GDP than rise as a share of GDP. For that to happen, we need to save more. The biggest lever we have to save more as a country would be to bring our budget deficit down. So there's a lot of reasons we want to bring our budget deficit down. The trade deficit is just one of them.

But if we brought our budget deficit down, our trade deficit would come down and both our fiscal situation domestically and our international borrowing situation would be more sustainable. So all of that would be nice to do. But of the two, I am more worried about the budget deficit and its sustainability than I am about the trade deficit. The trade deficit is sort of one percentage point from where it should be. The budget deficit is three percentage points from where it should be. Hmm.

Thank you for that. I now want to move on to healthcare. How would you assess the healthcare in the United States in terms of efficiency, in terms of what people get for what they get? And also, I guess it's just efficiency. I know a positive way of looking at it is we employ 20 million people in the healthcare industry. A negative view is that, wow, we employ all these people in the healthcare industry, and what if they could be doing something else? Yeah. So first of all, it's distinguished between health and healthcare.

Health in the United States is terrible. Relative to other rich countries, we have a much lower life expectancy. For a lot of groups, it's actually fallen back, not gone up. Much of that is not due to healthcare though. It's due to things like obesity, suicide, drug overdoses, other social elements that need social solutions.

If you look at healthcare itself, it's also not terrific. In the United States, it's more than one sixth of our GDP, more than any other country, basically twice as much as any other country in the world. I do think we get some things for that. Shorter waiting times, some better amenities, more flexibility about which doctors to choose, but it's too much. And you don't want it as a make work program. That's a really bad reason to have a large health system.

I think part of the problem though is that no one is exposed to the cost of any of their choices or not no one. People are insulated to some degree from the costs of their choices. And so it's hard to ask is such and such worth paying for? If you give people narrow networks, have utilization review where you need permission to get a procedure, have high deductibles, all of these people really hate

What they should understand is you have a choice of this or getting lower wages because

the health premiums that your employer are paying are so high, but no one quite realizes, oh, do I get utilization review or do I get higher wages? Because those choices aren't really placed next to each other in the way that they actually happen in reality. And so looking at medical costs, how do medical costs in the US compare to the rest of the world? And I understand that there's health insurance and then there's the actual cost, which a lot of insurance companies themselves pay.

Yeah, so cost, by the way, there's two pieces of it. It's price times quantity. And the price is higher in the United States, but also the quantity is higher. And so the two of those mean we end up spending more. And they have different solutions. On price, you might reduce concentration in the hospital sector.

and allow fewer hospital mergers, and that'll bring down hospital prices. For quantity, though, that's a trickier thing because you basically need to tell people you're going to have to wait longer for a doctor or not get certain procedures or something else, all of which can be quite unpopular. Do you think the rise in medical costs is sustainable in the U.S.?

It's sustainable. The growth rate has slowed over time and other things are much, much cheaper. It's incredibly cheap to buy your clothing, buy your food, buy flat screen TVs, at least relative to what it used to be. And so if you look at the share of a consumer's budget that is going to health

plus housing, plus food and clothing, it's basically stayed constant. Some part of that has gone down over time and other parts of that have gone up over time.

Yeah. So the essentials, what was considered the essentials 100 years ago, clothes, food, and even TVs, although that was not in the 1920s, has gone out in tremendous deflation. That's been amazing for the consumer. But I think that the two parts of the CPI of inflation that have really gone up are education and healthcare. What is it about education and healthcare that's different than a TV? A TV, the price goes down every year of education and healthcare, it goes up. Is it just that it requires so much more labor or is

Is there other factors? That's the biggest factor is that they're very labor intensive healthcare and education, and it's harder to have productivity growth because one doctor can only can't really treat that many more patients than they used to cheat treat. One teacher can't teach that many more people than they used to teach.

And so the very labor intensive combined with lack of productivity is the biggest factor. I do think in health though, there are a set of choices that we've made because we don't pay the cost. Imagine gasoline was free. And it had been free for the last hundred years. It had always been free. What would cars look like today?

they'd be a lot bigger. And we wouldn't even have invented whole swaths of technologies, probably wouldn't even have invented electric cars. You couldn't really even know there was another path you could have been on because people would have made different choices about cars with gasoline being free. And health, I think, is somewhat like that because a lot of it was essentially free at the margin for a lot of people. There were different choices about how to organize the system that were made that just put us in

in a very different equilibrium than we otherwise would have been in. And do you think when things are free, it encourages overconsumption? And what is it about the US? Is it that we actually, private health insurance companies say yes more often than the government programs in other countries do? And therefore, that's why we have overconsumption of healthcare in the US? Yeah, I think that's an important part of it, is that health systems in other countries are better at saying no than we are. And that's sort of

unpleasant answer because it implies a trade-off. And are you getting your money's worth from the system now? I think not, but you're getting something. It's not like you're getting nothing. So you'd be giving up something if you cut it back. And

And one thing that's on a lot of investors' radar is what's going on with, is it Medicare Part D? A lot of insurance companies had gotten into that field, basically a level of insurance, of private insurance on top of Medicare. And I know, for example, UnitedHealth has gotten into that and they've put out some earnings reports that the market absolutely does not like at all. Just what's been going on in there? Is there a policy change? Tell us about that.

Yeah, so you can opt out of the government provided Medicare and the government will send some money instead to an insurance company which insures you through Medicare Advantage or Medicare Part D. When you do the numbers, it turns out that they give more to the insurance company than the government would have spent to insure that person. So we're basically losing money on this.

Where does that extra payment go? A bit of it goes into insurance company profits, and then a bunch of it goes into richer benefits. The insurance companies offer things that Medicare doesn't because they're competing with each other and they're trying to get customers. So this is yet another place where the government spends more than it needs to.

It would be great to cut back on it, but if we cut back on it, yeah, it would actually hurt insurance companies a bit. It would hurt Medicare beneficiaries some as well. So, it's not a free and easy fix to the problem. And is that what's happening in Congress?

This Congress is not looking at Medicare or Social Security at all. They're just looking at Medicaid, which is the health program for poor people. And largely, although there's some fancier rhetoric around it, for the most part, the policies, when you look at them, are taking health insurance away from about 10 million people. What about the economic consequences of that for the entire economy, that 10 million people who are on Medicaid no longer have that?

Look, that's negative stimulus. The tax cuts are much larger and they're positive stimulus. Moreover, negative stimulus isn't a bad thing right now. So my objection to the Medicaid cuts is not macroeconomic. Macroeconomically, it's fine. It might even be good macroeconomically. It's just that I don't like when you are cutting Medicaid and the only reason you're cutting it is to offset

part of the cost of tax cuts. It's not part of everyone sacrifices, everyone holds hands and jumped together. Everyone puts something on the table to deal with the deficit. It's you all get $5 trillion and then the poor people have to pay $1 trillion of that $5 trillion.

Professor, thank you so much for coming on Monetary Matters. People can find you on Twitter at Jason Furman, not no underscore, no dash. My final question for you, what do you think is the biggest misunderstanding in macroeconomics other than that trade deficits are bad? I think that just people confusing the supply side and the demand side. And this gets back to the conversation we had earlier. And it's really easy to grow on the demand side, but it only works

works some of the time when the economy is in recession. And when you apply recessionary thinking to non-recessionary times, you can get some pretty bad outcomes in terms of both inflation and interest rates. Thank you again. Thanks, everyone, for watching. Reminder to subscribe to our Monetary Matters Network YouTube channel and also leave a rating and review on Apple Podcasts, Spotify and other podcast platforms. Until next time. Thank you. Just close the door.