 Thank you very much. I am going to talk about low interest rates, but I am going to take a somewhat broader perspective on fiscal policy. So just to give you an idea of where I'm going, and by the way I should say I'm very happy to be back at the European Central Bank. It's been a few years since my last visit, and I've enjoyed the conference very much so far. Back to my outline, I'm going to organize my discussion in three parts. Starting with underlying economic changes relating to demographics and technology. So sort of thinking about fundamentals that are driving changes in the economy and how these economic changes change the fiscal policy environment. And I'm going to talk about the implication at the end, talk about what the implications are for fiscal policy. So it'll be a little bit complicated because everything's related to everything else, and I've tried to sort of pull out different strands as I go along, and I hope in the end I give you a complete picture of what I think of as the future of fiscal policy. So the underlying changes I'm going to focus on are three, population aging, economic integration, and economic inequality. You might say that aging may be a primitive or a fundamental change, whereas economic integration and economic inequality themselves may follow from other underlying changes, but I'm not going to worry too much about the semantics here. And these are the sort of three fundamental types of changes that I'm going to talk about. And then in turn I'm going to talk about how these changes contribute to, yes, low interest rates, but also changes in the fiscal structure of countries and also an inducement of fiscal stress that many countries are or will be experiencing, and then also fiscal spillovers and the interdependence of economies. So let me start with population aging, which is something that I've worked on over the years, demographic change and its effect on fiscal policy. So perhaps I'm giving it more attention than others might, but I do think it's a very important issue and it's certainly important to all the countries we think about. So here's just a, we saw, I think, a picture in one of the presentations yesterday about changes in old age dependency ratios. This is just a reassurance that it's still true today. And this is just the G7 old age dependency ratios in 2018 and the projections for 2050. Obviously differing for different countries, but the United States has a relatively, has a higher birth rate and a higher rate of immigration in migration than some other countries. Japan is a well-known leader in population aging. It's the oldest population now among the major economies and it's going to get older faster than the other countries. Turning to selected countries from Europe, including some of the ones I just showed you, it's pervasive. It's bigger in southern Europe, Portugal, Spain, for example, Italy, all have very, very big current and increases in old age dependency. But it's a pervasive issue. Okay, so what? Well, we know obviously that has certain economic effects in terms of labor force participation and things like that. But it's also got direct fiscal implications. Well, let me just, since I know the U.S. well, let me just give you an illustration of this. This is a picture of U.S. federal spending since the 1960s going through the last fiscal year in the U.S. 2018. And it's the U.S. federal, it's the federal budget broken down into two pieces and I've left interest, I've left debt service out. I'll be talking about debt service and interest later. The non-interest spending, what you might say traditionally we thought of is what governments do, has been steadily declining as a share of GDP in the U.S. You see a little spike up during the global financial crisis due to counter-cyclical spending as well as a decline in the denominator. The three major entitlement programs that are focused on the elderly are public pension system, our Medicare, which is healthcare for the aged, and Medicaid, which is healthcare for the poor, but about two-thirds of the spending goes to the aged because of things like long-term care and other things that the elderly require. And you can see that starting a few years ago those programs and those transfer programs became the majority of the federal budget together. And that's just going in one direction and I'm going to come back and talk about that. Well, associated with that is fiscal pressure because it doesn't have to be that way but it is almost universally true that these kinds of age-based programs for the elderly are unfunded. One could certainly set money aside for public pensions for old-age healthcare on a generational basis. We don't do that. And with a stable population it might not be that important but with an unstable population it's very important. So just to give you an illustration, here are some fiscal calculations from a paper I did with Yuri Gorodnichenko for the Fed's Jackson Hole Conference two years ago. By the way, you'll see there's a hyperlink. I've put hyperlinks to all the papers that I cite in my slides. And so if you access the slides, you'll be able to access anything that I cite in my talk. And for each of these I provide in the purple, fiscal gap calculations that is by how much would the government of that respective country, and this is for general government including subnational governments, by how much would it be necessary to increase the primary surpluses, the share of GDP on a permanent basis between now and 2050 in order to maintain the current debt-to-GDP ratio. Now, these calculations are done assuming a 1% percentage point gap between R and G, so R greater than G. If you assume that R was equal to G or even less than G, that would reduce, obviously, reduce the numbers. But that isn't the major point that I'm going to make, that isn't relevant to the major point I'm going to make here. There are three bars for each country. The first bar is the all-in fiscal gap. The second bar, the green one, is how big the fiscal gap is if you just forgot about current government debt. Now, of course, if R were equal to G, that would be no effect because current debt service to keep the debt-to-GDP ratio constant if R equals G doesn't cost you anything because you can just issue more debt to service the existing debt if R equals G. For most countries, a small decline for countries like Italy bigger because Italy has a higher debt-to-GDP ratio. But the big thing that I wanted to talk about in this picture is what happens when you go from the green bar to the red bar. Now, what's happening there is it's labeled no debt or P. P is pensions, H is health. And the red bar says what would happen if the currently projected increases in health care spending and pension spending as a share of GDP didn't happen? And those values state that they're current shares of GDP. And you can see how important these are for all of the countries. Much more important even in these assumptions than the current stock of national debt. And what that's showing is that the fiscal problems and the fiscal stress that countries face is largely due to the future increases in pension and health care spending. I should say all of these data come from IMF projections at the time two years ago. There's also different flexibility and responsiveness. It's a lot easier to cut discretionary spending than it is to have a pension reform that has immediate impact on spending. So here's just as an illustration. This is from a paper I wrote for a Boston Fed conference 13 years ago. And I estimated fiscal feedback rules for the U.S. federal government for all discretionary spending, discretionary spending, excluding defense spending, and then those three programs that I showed you. As a share of GDP and relating them to the lag value of the budget surplus and the GDP gap. And you'd want positive coefficients for both of these if the government is practicing counter-cyclical policy and also worrying about the fiscal picture. And all the coefficients are positive. But social security and Medicare and Medicaid, which I showed you now are even more important at quantitatively. So their levels are even bigger now. And over this period we're only a little bit smaller than all discretionary spending and bigger than non-defense discretionary spending is much less sensitive to those two determinants. So it doesn't change very much. And that's true in the U.S. I can't say what it's like in other countries, but I know given how splendidly the French attempt at pension reform is going right now that these are difficult things to do. Particularly difficult if you're interested in having a short-run impact on the budget. There are also going to be something that people don't think about as much, different trends in revenue sources. If we think of normal life-cycle behavior, as we shift to an older population, that's likely to make consumption taxes more important as a share of revenue than income taxes. And that may have some impact on the automatic stabilization of taxes simply because consumption being smoother than income means that consumption taxes for a given tax structure are likely to vary less with the cycle. Another thing that population aging is going to do is to contribute to slower economic growth. Well, that's obvious. Slower, we have, as populations age, labor force becomes smaller, labor force is growing less quickly. I mean, Japan is again a good example of this. And of course, that has one obvious implication that I think we all know, but sometimes people forget, which is we need to adjust the norms we have for what normal economic growth is. If we think of a certain growth rate as historically what we'd expect to see for a well-functioning economy, that's not going to be true anymore if you're making a transition to an older population with a smaller labor force. But there is a more subtle issue here, which is the composition of the labor force itself may contribute to changes in the rate of labor productivity growth. And I just cite one paper here a few years ago in which looking across U.S. states, the researchers found that shifts to an older population within the workforce contributed to lower rates of growth. And if that's true, first of all, it would be worth figuring out why, because this is more or less a reduced form analysis. But it also has implications for what we strive to do in trying to make the economy perform well. And I think there's also a changing political equilibrium. One of the concerns I have as somebody who worries about the fiscal deficit in the U.S. is that we're rapidly losing our, whatever opportunity we have to make reforms of old age entitlement programs because the voting population is aging. And people are likely to behave in a self-interested manner, and that makes it very difficult to pass reforms. Now, of course, you can finesse it by holding harmless people above a certain age. But nevertheless, I think it means that reforms of these kinds of programs will get more difficult even as it gets, as the reforms become more essential. And I just cited a paper here by Jim Peturba looking again across U.S. states at education spending and showing that education spending was negatively affected by the elderly share and the population. So I think that means that the time, there's some timers of the essence, I guess I would say, in dealing with the fiscal stress associated with unsustainable old age entitlement programs. And of course, one final thing that demographic change is likely to do is have an effect on the capital labor ratio. Again, using our standard life cycle analysis, and that is one of the causes that's been implicated, along with others that were mentioned yesterday, in contributing to lower interest rates. The second economic change I'm talking about is economic integration. We always think about economic integration as sort of trade as a share of GDP, and here for the G7 and in the dark line, the unweighted average is basically average of exports and imports as a share of GDP, rising steadily through this period, as we know. No surprise there. That's what people think about when they think about economic integration, but there's another aspect of economic integration that I think is important, which is the rise of multinational companies. So not simply trade, but you might say supply chains and the fact that companies are operating in many places. So this is just as an illustration for U.S. resident companies the share of their profits coming from foreign sources. And you can see how steadily it's been going up, of course with Wiggles, but it's an inexorable upward trend as companies have become multinational companies. So they don't simply export or import. They operate around the world. And the effects of these two different aspects of immigration, well, the first is just larger fiscal spillovers. I've cited a paper that my colleague and frequent co-author Yuri Gorodnichenko and I did using OECD data estimating pretty large fiscal spillovers within the OECD based on trade linkages. But as to the multinationals, increased tax competition. If companies are operating around the world, it makes it easier for them to move their activities among countries and to move their profits, or at least where they report their profits among countries. And this has led to very sharp declines in corporate tax rates. This is for the G7, but the G7 are representative of a broader group of countries. The United States being the most recent country to adopt a sharp decline in its corporate tax rate, but surely not the last. And that increased tax competition is hastened by another economic change, which is the shift of production toward intangible investment and services, especially digital, because these are things that essentially have no home. Companies that use intellectual property to produce or produce digital services, it's in the cloud somewhere. You can't say it's in Germany or it's in Ireland or it's in the United States. And that, of course, makes countries even more feel even more necessary to compete or adopt policies to deal with it. The third economic factor I wanted to talk about is economic inequality. This is from the World Inequality Database, something that Tomah Piketty, Emmanuel Syes, and others have put together, and we all know what the story is here. Let me just issue a little bit of a warning about this. First of all, aggregating across cohorts in measuring inequality, even in a stable population, can lead to certain misleading conclusions. Just for example, this is from a paper I did most, I just finished a few months ago with Larry Kotlerkoff and Daryl Kohler, where we showed that if you look over a lifetime basis and separate by cohort, the U.S. tax system and transfer system looks a lot more progressive than it would look if you just look at a single year and add all cohorts together, and these are effective tax rates, negative at the bottom of the resource distribution because poor people are basically getting transfer payments rather than paying taxes. But with demographic change, there's an additional element of the problem of measuring inequality, which is that the changing age structure may induce furious changes in measuring inequality. Just as an illustration, typical ways of measuring resources would look at current income. If you have retired individuals, retired individuals are likely not to have very much current income, even if on a lifetime basis they're relatively affluent. And so an increase in the elderly share of the population might cause you to think that there's more inequality, more mass at the bottom of the income distribution when in fact no such thing is happening. And also, if we're looking at trends, the trends may differ within cohorts. We may have different trends among 50-year-olds and among 20-year-olds, and if we're trying to understand what the future is going to look like, we want to understand these differences. And finally, and I'll come back to this when I talk about the implications, inequality across cohorts is an important issue for fiscal policy. If you think about the demonstrations going on right now associated with global warming, for example, it's very much a generational issue. And many other things, when we think about fiscal reforms, are going to have very, potentially very strong generational consequences. And if we don't think about those when we're thinking about fiscal policy, we are going to be missing a potentially big piece. What are the potential impacts on fiscal policy of inequality? Perhaps this is more true in the U.S. now than in other countries. But a push to rely more on tax bases that are associated with the wealthy, corporate taxes, wealth taxes, some things which may not be as easy to collect as tried and true taxes like a VAT. And a stronger reliance on more volatile sources of revenue if we think of taxes on corporate profits and high incomes. So this is just an illustration. This is for the U.S. These are the sort of growth rates starting from 1980 for different parts of the population. And the incomes of the top 1% are much more volatile than incomes lower in the income distribution. Simply because a lot of it comes from corporate profits and corporate profits in turn are quite cyclical too. You could see they fall sharply as a share of GDP during recessions. Now, you might think that would lead to a strengthening of automatic stabilizers because we're relying more heavily on taxes on these very volatile sources. But then I think you need to think also about marginal propensities to consume and whether they might be lower at the top of the income distribution than they are in other parts of the income distribution. I've just cited here a paper by my former student Owens Adar in the JPE which finds that to be true. I think another thing that inequality is going to do is put political, it'll exert political pressure not to cut spending. I think it's, if one thinks of spending programs as disproportionately helping the less well off in the population, having a more unequal distribution of income is going to make, increase the political challenge of reducing spending. And I'll just, as a note, I showed you some fiscal feedback rules earlier that I estimated in a 2006 paper. I've continued to estimate these using different data sources and most often using semiannual data from the Congressional Budget Office on tax and spending changes. And over the years, these feedback rules have tended to look sort of like the ones I showed you before, showing both taxes and spending responding to the fiscal gap and to the budget surplus. For the last 10 years, those equations just break down for the U.S. There's basically no relationship or if there's any relationship, it has the wrong sign with respect to the budget. The best illustration of this, I think, is what the U.S. has done in the last couple of years. In 2017, at full employment with a growing budget deficit, we had an enormous tax cut. The following year, we had very big spending increases. Not called for by the state of the business cycle and certainly not called for by the state of the budget. Whether that's due to the, you know, inequality and the stress that that puts on the political process or some other factors, I can't say. Okay. So this brings me to the third part of my analysis or my talk, which is what the implications for all of these things are for fiscal policy. So first, and now I will take up some of the issues that Olivier Blanchard talked about yesterday, how does one respond to low interest rates? So I said that low interest rates are in part a phenomenon caused by aging. Others have mentioned secular stagnation, which I suppose could be related to aging. We've also talked about a shortage of safe assets. It matters why interest rates are low and we think about how to respond. If it's a savings glut, for example, because of demographic change, that has different implications for what possible rates of return are in the private sector, then a shortage of safe assets. A shortage of safe assets would suggest a bigger spread between the return on government debt and the return on private investment, whereas the savings glut would just suggest all rates of return are lower because there's more, you know, there's a lot of capital floating around. And the different implications, I think an important difference has to do with whether it's what you should do with additional government debt if you issue it. If you've got a shortage of safe assets, that means you may have a lot of very high good investment opportunities in both the private and the public sector, which means issuing government debt may be a good idea, but not necessarily increasing the government's net liability position. So issuing government debt to invest in government capital, which is something that Olivier suggested yesterday, or in private capital for that matter. Now, I realize there are agency issues, there are a variety of issues one wants to think about before recommending that the government issue bonds to invest in private securities. But, you know, we have a precedent for this in the U.S. anyway that came during the financial crisis when the Fed was buying mortgage-backed assets. Now, that was a different circumstance and for a different reason. But I don't think one should necessarily rule out the idea of making funds available for private investment if issuing government bonds has some specific value. Now, I also want to issue some caution regarding the message you heard yesterday about how painless it would be to issue additional government debt. And the main problem is that that analysis sort of tends to think about a situation where you've got, say, a zero primary deficit and, you know, you issue debt and, you know, is it sustainable? But that's not the situation that the U.S. or European countries face. Because of this age-based spending growth that I was telling you about. So let me give you some current projections for the United States. My apologies. I pulled these out of a PDF file and so I didn't. The legends are too small to be really readable. But these are from a paper I did with Bill Gale in September. And these show the composition of U.S. federal government spending over the next 30 years as projected by the Congressional Budget Office and with some adjustments by us to provide a more realistic picture of what current policy is. The problem in the U.S. is that a lot of policies that are currently in place are scheduled to expire for really parliamentary budget reasons that have nothing to do with what the government's actually doing. And so these are, you might say, realistic projections of where we're going. And you can see that... And these are, by the way, since these are very recent projections, these are assuming very low interest rates on government debt. So these are current projections given current interest rates. So these are not overstating our current estimates of interest costs. And you'll see net interest going steadily up to the point where it'll be, you know, several percent of GDP by the end of the period, unprecedented share of GDP. And the reason for that is that health care spending and Social Security, which in the U.S. is public pension spending, are rising, especially health care. And these are not pessimistic projections. These are, you might say, central tendencies of these distributions. In fact, perhaps optimistic in the case of the Social Security public pension spending. And what these translate into is the dark line current policy. Current law is this unrealistic scenario where a lot of these provisions expire. So current policy is the one to pay attention to, starting from our current net debt to GDP, publicly held debt to GDP ratio of just below 80 percent to 180 percent by the end of the three decades. Who knows what's sustainable. But this, the U.S. has a post war, has a high, since World War II, of 106 percent of GDP publicly held. And that was in 1946 at the end of World War II, for obvious reasons. So going way past that, it does put us in uncharted territory, although possibly something that we can live with for a long time. Another point I want to make, and it's sort of implicit in what I just showed you, which is that low interest rates don't keep the debt from accumulating if you keep throwing primary surpluses on. There are particular problems if you think of unfunded programs. If your aim is to fund these programs, low interest rates actually hurt. They don't help. And I'll give you as an illustration one of our big growing fiscal problems in the United States, which is our unfunded state and local public pension liabilities, basically for state and local employees. These are largely unfunded. They have funds, but they're not obliged by law to be funded. And over time, the discount rates that the pension plans themselves apply in trying to calculate their unfunded liability, but national income accounts at the Bureau of Economic Analysis also have been reducing their assumed discount rate for these plans, basically tracking the high-grade corporate bonds. If you look at what's happened, these are from recent data from the Bureau of Economic Analysis. So here's the funding ratio for two states in the U.S. plus the U.S. average. And very little has happened during this time that there haven't really been any changes in what governments are doing. And you see that since the early 2000s, there's been a decline in the funding ratios of these public pension plans. And it's well known in the U.S. now that Illinois is not a good place to live if you don't want to pay for future pension liabilities. Wisconsin, which is near Illinois, but I guess different for a variety of reasons, is much better. But you can see that going from a position where the funding ratio was close to 80% for the U.S., we're now below 50%. And that's a remarkable change, and it's largely attributable to a decline in interest rates. So if you're thinking that the fiscal problem is one of current liabilities, then low interest rates are good. If you're thinking that the fiscal problem is one of future primary deficits, then low interest rates either don't help you at all if you're not trying to fund them or hurt you if you're trying to accumulate a reserve fund to help cover those costs. And finally, I'd like to point out that while we focus on the difference between the rate of return and the growth rate, the growth rate itself matters. So just imagine a government trying to keep its debt GDP ratio from getting too high. When is it going to get too high? It's going to get too high other things being equal during a period of disappointing economic growth, either because of recession or slow productivity growth. And that's going to be the time that the government is likely to need to have a fiscal consolidation. It's also going to be a time or a state of nature in which incomes are lower. If you have a period of prolonged slow growth or many recessions, you'll be poorer than in other states of the world. And so that needs to be taken into account. It's not simply doing a stress test and saying what's the probability that we're going to need to make an adjustment. That is certainly, you need that information. But when that adjustment is made, resources are going to be very valuable. And so you need to have a risk adjustment for that. And that's something that we typically don't do. And finally, and an obvious point that's already been made, is at this conference, we need more robust options for fiscal policy, given the limited scope for monetary policy when interest rates are quite low. Okay, what's the implications for fiscal policy in responding to fiscal stress? We need to have a greater focus on longer-term spending. And for that, budget rules don't do well. Now, I understand that the budget rules that the EU has have special provisions for pension reforms to try to prevent the rules from standing in the way of pension reform. Nevertheless, it's very hard to write rules. And here, I'm very much in line with what Olivier was talking about yesterday when he was talking about rules versus standards. The kind of adjustments that we're going to want governments to make are going to be more complicated to describe than simply changes and deficits. And we're also going to want to have additional information, such as generational effects, a point that I made earlier. If we're talking about having a pension reform, there are many ways to reform pensions. You can do it through increasing contributions. You can do it through cutting benefits. You can phase-in benefit cuts. You can adopt them immediately. You might have very similar budgetary effects on average over a period of time and very, very different effects on different cohorts in the population. And so if that is an element of social welfare that you think is relevant, you need to have measures of when you're evaluating the performance of governments and meeting fiscal targets that incorporate generational measures of generational impact. That's more complicated still than what budget rules do, and I think it just moves you further away. And I say here in a vague sense that it suggests greater reliance on fiscal institutions and less on fiscal rules. And whether those fiscal institutions are fiscal councils or some other entities or bodies, I think that's really the only way to go because the rules simply cannot be written in a way that deals with all the contingencies that have to be taken into account. At the same time that we want this more complex focus on the longer term, we want to be a little bit more relaxed about the short term because of low interest rates, both because that lowers the short term costs of increasing debt and also because low interest rates limit the scope for monetary policy. And again, that's another argument against the way we apply budget rules, which tend to focus more on the short term, at least in terms of specific measures. And I think also we need to think about stable and growing revenue sources. To whatever extent we have pension reform or health care reform, we also need to think about additional revenue sources. For countries like those in the EU, increasing the VAT may be an option. For countries like the U.S., adopting a VAT, moving in the direction of destination-based business taxation, there are taxes that are more stable and viable in light of the increasing globalization of companies. Also, in light of the political friction that we observe, perhaps because of inequality or perhaps because of other reasons, I think it's important to consider changes both for the long run and for the short run that have a more automatic character. So for the short run, that means trying to strengthen automatic stabilizers, putting things into law, either that, for example, have automatic adjustments in the VAT in response to economic weakness. And for the long term, because of the difficulty of dealing with unfeasible pension or health care programs, some sort of automatic adjustments. For pensions, it's easier to talk about indexing for the old age dependency ratio, which I know is something that is in place in Germany. Notional defined contribution accounts for public pension systems that automatically adjust pension accumulations or entitlements for life expectancy. Having these things as part of the law, I think, makes it easier to stay on a good trajectory because it doesn't require frequent political intervention. When such intervention may be problematic. And finally, in terms of implications for fiscal policy because of economic spillovers, I don't have much to say here except a couple of things. I think we need additional research. If spillovers of government spending, logically, given what we would expect to happen, these spillovers should be different for different kinds of spending because of import shares. Leakages should be different. And more research to know what the strength of these spillovers of different kinds of spending and tax changes are would be useful. And if one is thinking about budget rules, I've been speaking against budget rules as being increasingly difficult to use to deal with the fiscal problems that countries face. But to the extent that, say, the EU continues to utilize budget rules, having budget rules and norms that depend not only on a country's own situation but on an aggregate situation, I think, would be useful. One can get into the discussion whether that would be enough, whether countries that have fiscal space and could help other countries would be willing to do so, even with a weaker budget rule. That is a relevant question. But I do think that taking spillovers into account, one can think about how rules might be different and based not only on a country's own situation. So let me conclude. I think that fiscal policy is becoming more important. It's becoming more important because monetary policy is becoming less effective because of low interest rates. And it's becoming more important also because we're going to need fiscal adjustments to make our current path feasible and to deal with the inequality and other social problems that we have. These point to perhaps a greater tolerance for deviations from a standard trajectory in the short run, but also less tolerance and more focus on longer-term problems than we traditionally apply when thinking about budget rules. Reforms are needed everywhere. We need to reform tax systems to make them perhaps more cyclically responsive, fairer and more sustainable in light of globalization. We need to reform age-based spending programs. We need to change our budget rules and perhaps rely more heavily on fiscal institutions. They're all needed. I've pointed out some of the changes that could be made, but in many cases I've simply said that the way we do things now is not adequate. So I'm not really saying that we necessarily need more study or more research, but we definitely need more thought and perhaps more experimentation to see what works. Thank you. Alan, perhaps I would leave these conclusions up. So we can be a bit of a guide to the discussions. So let me open the floor for a few questions, please. So I would like to go back to your point on the funding ratios of the states in the U.S. because I think it's sort of relevant for Europe. A lot of the states have balanced budget requirements. Right. So what is it going to happen when, you know, the aging is going to kick in and there is a recession? I think this sort of tells us maybe what is going to happen here because we have these rules, et cetera. Let's go to maybe three. Gabriela was there. Yes, Gabriela Jiuji from the Commission. First of all, I wanted to underline your initial point, which is that perhaps the interest rates are not exogenous and perhaps something can be done. And perhaps you can elaborate more on how do you think the role of government-born markets actually can affect that. You came with one solution, maybe more. But, you know, if you can elaborate on that because it might recreate more room for monetary policy, actually, rather than just going into discussion on fiscal. And the second point, you mentioned new forms of taxation or shift in taxation and you didn't mention one tax, which in my view is satisfying all the criteria I mentioned, which is property tax. And so if you can elaborate on that as well. Thank you. Yeah, that was a question. Hi, I'm Philip Water from the ECB. It goes in the same direction as Gabriela's question. With the design and effectiveness of monetary policy and all the changes for fiscal policy, what change do you foresee for the actions and the working of central banks? Will we be conducting mostly a policy mix? We don't have strong institutions on the fiscal side. We don't have strong fiscal councils that you are calling for. Ministry of Finance are usually very oriented on the short term. What is the new structure of policy making? Let's go to another couple and then we will do another round. So I have two here, please. Paulo O'Reel from the Banco de España. What you've been talking about is what has been termed as a social dominance in the public spending and I think we are not paying enough attention to it. And often we say things like, for example, politicians are forgetting about public investment. Often it's not that they're forgetting about it, but the social dominance of the health and the age and it's just pushing that out of the picture. And how to rebalance this, I think it's not simple because the political economy of it is very complex, especially because what we are seeing is that it's not only the old that are calling for the social dominance, in fact it's even the young who are calling. We have young people demonstrating in favor of pension systems when they're most damaged by them. So how we bring this political economy into the fiscal debate, even in the short run, I think it's fundamental. And I would like to have ideas about how to bring this more structurally into our models and our analysis. Thank you. Okay, let's go for Peter and then we stop. I really enjoyed your presentation. You cover so much ground that I would like to have details on tons of things. So let me just focus on a couple. If you were to kind of go to 2050 and given all the challenges that you have outlined, how would you see the structure of national tax systems and the international tax system in 2050? Okay, so let's address this first round and maybe there will be a second round. All right. So I'll try to group questions. So the first question was about what will happen to the states when they get old and have all these commitments and a balanced budget and then I had a question about the dominance of social spending and how do we make room for public investment? I don't know. As people in the U.S. at the state and local level have confronted in many of these cities with aging populations and large public workforces have confronted their situation, it's very, very gloomy prospects where they're anticipating that their entire budget will go toward servicing old age pension commitments. And indeed in the U.S. we have constitutional restrictions that keep us from adjusting these things, even worse than at the federal level. And to the extent that this is true in other countries and that there's general lobbying for bigger pensions, there's lobbying in the current U.S. political environment, there's proposals to expand our public pension system right now. I don't have an answer. My expectation is that it may require some sort of a fiscal crisis, whether it's at the state and local level or at the national level, for there to be any kind of sustained reform programs to put social programs to put them on a sustainable basis and leave enough room for necessary public investment. But I don't have a roadmap for how that's going to happen because the politics of that are very difficult. The role of the government in affecting interest rates, yes, I suggested that if safe assets is what the investing public wants, then safe assets is what governments should supply. And obviously if the government supplies a lot of them, that's going to affect the interest rates on those. That's what we'd expect to happen. But nevertheless, if governments can do that and use the money for productive investment, I think that's a good thing. What element, which entity in the government should do that? And indeed, whether that's something that, in terms of the question of what central banks do, that's a pretty big expansion of what central banks do. But as I said, our central bank in the United States did that during the financial crisis. And so indeed, that kind of portfolio management, it's a step beyond quantitative easing or balance sheet expansion, but certainly something that one can think about as an expanded role for central banks because after all, it does relate to attempts to adjust or control the interest rate. What the national tax structure will look like in 2050, and I guess this relates to the question about property taxes, I think one should not hold up too much hope for international cooperation, which means that countries are going to need to find tax bases that serve reasonably well in terms of equity and are not as subject to disappearance as some of the bases that they rely on now. It was right when Henry George said it, and it's still right that property taxes have appealing features. It is a puzzle that we don't rely more on them. It's not a puzzle in the United States because it's probably unconstitutional for the U.S. federal government to impose property taxes. But that's not a problem that other countries have, and it actually does puzzle me that property taxes aren't more important. I did mention destination-based taxes. People are a lot less mobile than... consumers are a lot less mobile than electrons or in the case of digital services or patents or reported profits. And so trying to tax either consumption or other bases like corporate profits on a destination basis that is related to where consumers are, I think is the direction in which we're already heading, and I think we're going to keep going that way. So I think there is a feasible path for tax systems, but I think it's taking us a while to figure that out. Any further questions from the audience? Yeah, please stop. Okay, so one back and then we come here. Thank you, European Commission. I would ask you to elaborate a bit more on the long-term dimension of fiscal policy, specifically along the following. I think it's fairly... your recommendation on stronger short-run fiscal policy response is fairly consensual from what also we have heard throughout this conference. Likewise, although difficult to implement, the need for more long-term approach to things such as pension and actually I think in Europe to some extent this has been following having automatic indexation rule. My point is related to the issue of funding in that you started by saying, okay, program could be funded and unfunded, most are unfunded, but then actually when you're showing the data for the U.S. states that with very low interest rates it's not that funding is so much of a viable strategy, which to me points to the fundamental issues that short of storing food in the ground, the consumption of the old will have to be paid for by the productive capacity that is there. So do you see a role for fiscal policy in this respect? If this is in a sense the fundamental problem long-term wise? Thank you very much for the very inspiring talk. I would have one question, which is a bit related to what Vitor said like if we look forward 30 years, how will the world look like? So in a sense is Japan giving us a glimpse where we are headed? So will we see very large debt ratios throughout the world? Will we see in a sense permanently low interest rates, permanently low inflation? I mean you also talked about the breakdown of the fiscal rules that were estimated before the crisis. So how we had it in this world that is described also by those who believe in the fiscal theory of the price level, we are in a fiscal dominance regime and we may be stuck in there for a long time. I was just puzzled by something you said and I hope you can clarify. You made a comment about that the federal government can't tax property and yet we have all of these presidential candidates, sorry this is U.S. specific, it's intriguing, calling for a wealth tax and I don't know how we would have a wealth tax if a huge chunk of our wealth is in our property. I need to know for personal reasons. Jacopo? Jacopo Cimadamo from DCB. I was a bit of course surprised and striped by your chart of inequality. I mean you showed a big increase of income held by the top 1% of population in the U.S. On the other end you showed that contrary to what we might have expected taxation is very progressive in the U.S. or at least there is some degrees of progressivity. So the question is then why we still see such a big degree of inequality. Is this due to tax avoidance or to profit shifting for example? A reason seems to me also the increase in income that you showed in another chart. From a policy point of view what can we do? I mean wealth tax is an option. Another option could be to increase further the progressivity of taxation and is this something feasible in the U.S. or not? Thanks. Any further remark? I have perhaps as a last question myself. Sure. You argue for basically, if understood correctly, you argue for more fiscal activism when we are at zero bound. So how should we interpret this? Of course I see the rationale of that. I mean on the other hand, there is evidence at least for the U.S. there is a paper by Galli and others showing that the economy has been behaving in zero bound exactly as in the period without a zero bound. So in other words it seems that at least so far the standard monetary policy measures have worked and this is a bit the same of what we are here at DCB that we have tools beyond the zero bound. Hopefully we are right. So I mean it is a bit in contradiction. So either we say that monetary policy has lost potency and therefore we need more fiscal support or not and the issue is not clear. And also another aspect of it I think is that just mechanically a larger fiscal response at zero bound coupled with quantitative easing is basically copter money. It is the same as a copter money. So you have basically a monetary expansion and a parallel fiscal expansion. So basically what we have advocated is a bit of a conditional copter money done at a zero bound can get this out of control or maybe not reverse later. So these are all questions that are important as well. But you have a lot to cover so... Yes. Okay. Well let me answer Linda's factual question first. This brings to mind the old joke about economists trying to open a can and the economist says let's assume we have a can opener. And that's... We're basically assuming that something that's probably unconstitutional is constitutional. It's an aspiration. And I guess you could say that since nobody expects any of these proposals to be enacted anyway it doesn't matter whether it's constitutional or not. It's an interesting question about if we have these unfunded liabilities and we have a zero rate of return then it's much more difficult to fund. We still can. We have to put a lot more aside. So I wouldn't say that funding can't be done. It's just that we need more money. But I also, as I suggested, I think there are other approaches. You can have pension benefits that are perfectly stable if they're indexed to wage growth and the old age dependency ratio. You can make an unfunded system completely stable. It doesn't require any intervention. It doesn't require any funding. You may not like the distributional consequences across different cohorts. It may not work exactly the way you want. In my view there's probably some optimal mix of funding and indexing. I think that's something I've actually worked on myself in a couple of papers. And I think that's something people should think about more. It depends obviously very much on individual country circumstances. Both in terms of productivity growth, the uncertainty of productivity growth, the age structure, and how rapidly the society is aging. Will we all look like Japan? Will we have fiscal crises? Your question about helicopter money and whether things will get out of control. I feel a little bit schizophrenic to be discussing a situation in which on the one hand central banks are unable to bring inflation up to inflation targets. And at the same time we're worrying about the fiscal theory of the price level which says that irresponsible fiscal policy is going to lead to a jump in prices. Somehow they don't seem to be both possible at the same time. Or maybe the idea is that one will be true and then the other will be true. That kind of reminds me of the approach that the Bank of Japan took during the dismal years in Japan when the Bank of Japan remained cautious because they were worried that large expansions as a monetary base even though they appeared to be having no effect would suddenly have an effect and then it would be very difficult to control. Maybe it's just because of my orientation toward thinking about fiscal policy rather than monetary policy but I do worry about the infeasibility of fiscal policy. Let me also point out the whole idea of the fiscal theory of the price level is that if you have a unsustainable policy the price level will adjust to make it sustainable. That's not true when you're talking about future liabilities. When I showed you this picture and I said what happens how much of the fiscal gaps that countries face are attributable to current debt and how much of it is attributable to future primary deficits associated with old age spending a big chunk of it's the latter when we think about what the fiscal theory of the price level tells us it tells us that if you have a lot of nominal liabilities that make your fiscal policy unsustainable a jump in the price level can bring the government's inter-temporal budget constraint back into balance. That's not true if you have future liabilities and the liabilities are real rather than nominal that is if you've promised to provide a certain standard of living or a certain quality and amount of health care and the price level doubles your liabilities haven't changed. The real value of your existing liabilities have gone down but as I showed you if I made the government debt go away you've still got very large fiscal gaps and so the fiscal theory of the price level whether it will prove true or not in terms of its impact on the price level it's not going to solve our fiscal problems. Okay, so thanks a lot for this really enlightening I think we should have another round of applause. So let's hope we survive a fiscal crisis but meanwhile let's have a coffee break.