>> from our studios in new york city, this is "charlie rose." >> martin wolf is here agreed he is editor at financial times. his columns are required reading for the global elite.

he has written a new book, "the shifts and the shocks." larry summers has set his superb book may be the best of all those sponsored by the recession. it is analytical without succumbing to fatalism or complacency. i am pleased to have martin wolf back at this table. welcome. congratulations. how long was this in the making? >> three years. i write my books in the summer since i have a day job. i decided in 2012 -- it turned out favorable. there was a pause in the crisis as i was finishing. the episode to some degree was finishing. >> we just saw paul krugman.

he talked about his own sense of the global economy and financial reform. and the stock market, and demand, and how europe was different from other places. you said the two of you differ, he was complementry about the book, but you said you differ in three ways great what would they be? >> some ways. i think the most important part is this. one aspect of the way you approach this is to look at how the crisis occurred, then to work at how to prevent it. that is a focus of my book. he agrees with the analysis as i understood it of his review of how it happened. he is more optimistic, that is the sense i get, of our ability to come up with economies after

crises hit. he is disappointed with what happened but he thinks we will do better. i am skeptical for political and economic reasons. i put weight on avoiding repetitions of the crisis. the more optimistic you are about the way we can treat crises the less concerned you will be about that. it is an interesting point. when you look at the general theory, from which paul drew, he doesn't actually discuss how crises happen. it is just about what you do after them. i don't want to put words in his mouth. that is dangerous. but paul shares those views. in practice, whether we know in theory what to do, the reality is when crises hit policymakers are at a loss. the u.s. economy is far smaller today than it would have been if the crisis had happened. >> isn't that the problem with

the japanese? >> they responded particularly ineffectively. the europeans have done a worse job than the japanese. now. a response to this crisis significantly worse than the japanese responded to the worst. the lesson i draw from this, if a big crisis happens, nearly every government and policy system will fail. they want to one not to deal with it quickly, even if they could. that is a controversial issue. the first lesson is don't get into such a terrible state in the first place. that becomes crucially about how you arrange the financial system. >> i will come back to do after the crisis, but do you think the reform that was created is

sufficient to prevent a crisis again? >> no. i don't. i think there are genuine improvements. i argue if you look at this, in essence the financial system we have today is similar to the financial system we had before the crisis. sometimes it is more concentrated, more reliant on the limited number of institutions which remain too big to fail. i think it stands. the un-fundamental fragility remains. in particular, they are highly leveraged, lesson selling them before the crisis. we depend heavily on what has come to be called the central banks and regulatory authorities ability to recognize risks in time. i think that is optimistic given the past. we need a more robust financial system and less leverage in our economy.

we have done little about that. >> how would we have done that? >> this is a long-term proposition. where we got to in the years running up to the crisis was a mistake. there are two essential elements. the first is the leverage in the banking sector should have been reduced substantially. i think 10-1 leverage rather than 25-31 is the we should have been looking at. in some cases it was 50-1. i think there is evidence that 10-1 should be the floor. that is a big change. i'm not the only one. we have huge subsidies in our tax system. we encourage people to take on debt. household and corporate.

you can't deduct, but you can deduct for debt. it is the tax system that we rely so much on debt contracts for making ordinary transactions. when you buy a house you do a debt contract. an alternative, which summit recommended, cap contracts which would explicitly it share the risks, so if prices go down, and if they quote the risk is shared. this is an automatic reduction in debt as a bankruptcy procedure without consequences for closure and the massive bankruptcy. we need to think radically about our financial system and our economy works in relation to that. >> is that allegedly possible?

>> it is certainly not politically possible now. the crucial thing is to put these ideas out, to make clear they are respectable views held by many economists, and get them into the public domain. if i don't want this to happen, we get into another crisis, leverage builds up again, we are encouraging it to restart, house prices are rising. there's going to be a buildup for what is already a high level. only back to the early 2000 level. i think we will have an agenda

which people would say that was not enough. let's look at these ideas. i see these for more radical progress. >> why didn't you recognize it was coming? >> we were blinded by ideology. i was part of this in an important way. i get my recognition of what i got right and what i got wrong. the macroeconomic side, rising capital flows into the united states, being wasted in housing, that was clear. we can get to the view which is widely shared by economists, not all, but by economists, policymakers, finance ministries and central banks, that the financial sector knew what it was doing. people borrowed more than they could afford. they could evaluate the risk. life in housing prices never go down. >> that was particularly true here. he financial disaster was 70 years or more. it was out of living memory. we just got incredibly careless. >> when you look at the response of paulson, geithner are, bernanke, do you get them high marks? >> it was not perfect but they were operating within a constrained political system, and a crisis situation.

uniquely the u.s. treasury did not have legislative authority to use government money. they relied on the central bank. given those constraints, until the tarp came along, and i know how unpopular was, given those constraints i give them a high mark for avoiding a depression. a nation could have collapsed. they stopped the collapse of the economy. two terrible quarters, then it recovered. it was nothing like the 30's.

unemployment was terrible. we never recovered if that is what we have learned. these are damaging but they did what i think had to be done. the alternatives for worst. >> i talked to christine lagarde last night. she talks about a new mediocrity. which you have written about. >> yes, indeed. >> a new normal. do you agree? >> we have a better sense of what has happened after the crisis. there are two things we know. the developed countries have never recovered their previous rate of growth. even the rate of growth, and they have lost relative to the previous trend. in the case of the united states, the economy is smaller

by about more than 15%. we have these huge losses. that is our new normal. slower growth than before. we can discuss why. meanwhile, this is a new phenomenon. a lot of emerging countries are doing worse than we previously thought. some cases like china, the slowdown is natural. they have some very big problems because they make our mistakes in responding to our crisis. they created a credit boom which they have to handle. if you look across the emerging world, 85% of the world, they are deteriorating. consistently they are downgrading forecast. >> pressure is coming from the ground roots. >> of course. >> labor contracts, urban, whole world. >> they have worse problems. latin america is stagnant.

brazil is a terrible example. russia -- almost completely stagnant. a whole slew of emerging economies are much worse. >> the reason is the absence of demand. >> that is one big factor to read external demand is weaker. commodity price is over. they failed to make reforms in the few years. some of that is nothing to do with us. some of it is. the world economy does look as though it is weakening in these different ways. perhaps the new america is not a bad description. >> public expenditures? >> in the short, it is difficult to see a way in the developed world which won't devolve some form of public spending. including public investment. which i have been arguing for

for years and may now be late. generating demand in the private sector, spontaneously, without another bubble, that is the key thing. it is going to be difficult. this gets back to mind reading of the past. we have an unbalanced global economy. because, in essence, a big part of it, a merging worlds where the good investment opportunities are is not able to accept the flows of capital we could provide. it just doesn't want to do so. the investment opportunities they have are not adequately developed because they are policy regimes are so terrible. we have to generate demand internally. the way we've found to develop

commands internally is to get households to borrow money they can't afford to buy houses they don't need or can't afford. that is the dysfunctional relationship. we are going to go back to the public sector. likes that is easier for the chinese today. >> for us it is virtually impossible. >> real demand is 5% less than it was before the crises. there is real progress here by the political resistance to more government investment to the view that government is part of the solution is overwhelming. it is a big constraint. the changes in income distribution we are saying all increase savings and a road spending. it makes it more difficult to balance our economy and unwillingness of businesses to invest is another factor. they don't see a future in our economy. it is a vicious circle. >> and america's economy is the

most impressive at this moment. >> no question. >> but it is not enough to lead a global economy. >> nor do i think the way it did before the crisis, this ever-increasing consumer borrowing, is sucking in goods from the rest of the world. i argued -- >> by money from china. >> and unworkable model. >> what you think is the reasonable expectation for growth in gdp in the united states? >> 2-3%. >> not 4%. >> 4% as possible. it is possible because there is a lot of catch-up. you have an exceptionally long period of weak growth. if optimism returns and corporations start investing,

there is a backlog. investment in housing must improve. one of the points, household formation in the united states. let's oppose these young people, now we can get together and form a household, buy a house, by the furniture. you might have a period of normal growth rate but the dragons, the overhang of debt, the continued weak demand from the government, and the we grow the economy might keep it down. >> is that the reason the stock market went down? >> i think corrections are due. for various reasons, it was more optimistic. partly because it was

alternative, if you're getting zero interest rates on your safe government bonds, you have to take more risk. that is with the central banks wanted. they wanted people to take more risk. the stock market was very fully valued. people get more nervous of what is going on. they look at what is happening in the emerging world. there are all these elements of concern. the stock market corrects a bit. it was due. at the moment i don't see this

as a disaster. the oil price is more interesting. that really is telling you people expect weakening demand. weakening demand in the world economy. >> isn't that determined by the saudi government? >> that might be part of it. the bedrock, we are looking at what my being one of those big corrections. they may have been too high for some time. >> now they are down to? >> oil prices can move very quickly. we might see further falls. i have seen how people -- another indicator [indiscernible] >> what does that mean for the economies of russia? >> it is very bad news for people i like having bad news. for russia it is bad. with a few exceptions. the oil producers would like to have more revenue pretty >> we put a lot of demand on central banks.

>> we expect them to be our saviors. in a situation of deflationary threat, they manage depression, they were the game. many people feared hyperinflation. these policies, but they didn't. they can't fix the underlying weaknesses, the decline in productivity, growth across the west. it is disturbing. they can just buy us time. the big questions is how we trade in a new and better balanced economy. >> i'm intrigued by what i once

heard a secretary of the treasury say. the economy is about the politics. if the politics don't work, you can't force the economy to work. but i don't think is quite so close. but it works both ways. politics becomes economics of course. the government is a huge factor in any economy. the policy regime is crucial. people's expectations about how well they are going to perform will affect the economy and the other way, the economy over a long period fails to raise the standard for a society, if the economy generates huge crises it undermines democratic politics and that is how the book ends. whether or not politics caused the crisis, the economic crisis is a clinical crisis to. it is one of the reasons

government is weakened. >> chancellor merkel makes decisions based on the politics. >> of course. like she has a problem, basically in charge of your grade in that situation, you can imagine a president of the united states, the person making the policies were elected by texas alone, you would have strange policies. the germans have done better than that. >> it is important, notwithstanding, not to exaggerate the story of slowdown.

>> yes. i made the point that imf continues to forecast the world will grow at 5%, mostly because of asia. 5% a year, roughly speaking, the emerging economies will double in size every 14 or 15 years. that is a lot of demand. it is a huge shift in power. it is a word to say this isn't the end of the world. it is much better than 2008. >> they have revised their estimates downward. >> cumulatively, 2%. mostly for other parts of the emerging world. asia is holding up well. if that were to continue, they would have to be much more worried.

as things are at the moment, 5% growth in the emerging world, 2% in the developing world. world average is 3-4%. this is not a disaster. >> in the end you are guardedly what? >> always watchful. the big part of this is to say we have had one such crisis. it is enormous. it is the biggest of a run of crises over the next 10-15 years. we have to avoid having another. we can't afford the political and economic consequences of another crisis. that is key. >> the consequences of another crisis like we went through would do what? >> another rise in public-sector sector debt, another shock, and then we would be in danger of politics we saw in the 1930's. one of the things i have been consistent throughout this whole crisis is we must manage it

collectively in order to avoid a race to the bottom of politics which we discussed. naturalism has returned. racism has returned. when the leads are destroyed you have populist polls. you can see that. >> i read you from the last paragraph, the economies of the western world are poor than they imagined 10 years ago. they must look forward to a long period of retrenchment to appear fair. every effort must be made to ensure that a similar crisis will not recur without eliminating those aspects of the

open world economy. this will require more radicalism, we must not only learn the lessons about how the world economy went awry. we must act upon them if we do not, at the crisis arrives, even our economy could end up in the fire. thank you. it is a great book. >> thank you. >> martin wolf, back in a moment. ♪

>> james mcpherson is here, a professor of history at princeton. he has worked on the civil war. his latest book explores the first and only president of the confederacy, "embattled rebel." i am pleased to have james mcpherson at this table for the first time. welcome. a pleasure to meet you. i share what some have said about you.

why in your career on jefferson davis now? >> i did a book on abraham lincoln six years ago. that is half of the equation. if you want to understand the civil war, you have to look at both halves of the story. it is like looking only at lincoln, it is like looking only at a partner dancing by himself. it takes two to tango and two to understand why and how things happen. >> what is it you understand? is there significant modification of your impression of the confederacy because you now know jefferson davis? >> i don't think it change my perception of the confederacy so much as a change some of my

perceptions of jefferson davis. i had a stereo typical view of davis as an abrasive, unlovable, and at president of the confederacy. not only who a traitor to his country, by leading a rebellion against the legitimate united states cover meant, but i failed leader of the confederacy. a failed leader of a rebellion. the more i got into his life, his personality, his actions as president of the confederacy, more complex he appeared to be, more understandable, his actions and personality. i came out with a more sympathetic understanding of jefferson davis than i have had when he was a stock caricature. >> he was not a firebreathing

secessionist. like that is correct. he was trying to find some kind of solution to the sectional crisis that erupted after lincoln's election. he was a member of the senate and appointed to a committee of 13 to try some resolution of this conflict. until it became clear there would not be any kind of compromise that would resolve the issues of both sides, and until his own state of mississippi seceded, he hoped for some kind of resolution. once he became committed, he never looked back. in the end, in 1865, he was the last confederate standing, the last major figure in the confederacy to concede the war was lost, up until richmond felt. after lee surrendered he was still hoping to revive the

confederacy and continue fighting for independence. >> was there a circumstance or a combination of circumstances that might have led to a different resolve? some kind of compromise or something rather than unconditional surrender? >> i have written that the only possible solution of the civil war was a victory by one side or another. the issues turned out to be non-compromise of all, as long as lincoln and jefferson davis presidents of their respective causes. lincoln insisted there could be no peace, no solution short of

preservation of the united states as one nation, and as the war went on that included a second warning for the north, the abolition of slavery from jefferson davis is one of you these were unacceptable. he said there can be no end to this conflict short of complete confederate independence. there was no middle ground as long as they were the leaders of the respective causes. if abraham lincoln had been defeated for reelection in 1864, and replaced by george mcclellan, it is hard to say what would have happened. he would not have insisted on the abolition of slavery. if we take him at his word. he would have insisted on reunion. i think the war is only going to end and surrendered by one side or the other.

once lincoln was reelected it was clear the handwriting was on the wall. it was on the ropes by that time. now there was no hope of a president making the concessions. >> you saw the movie "lincoln." didn't resonate with you as what you perceived lincoln to be, notwithstanding the fact that it was a movie. >> they did take some license. they got the essential history correct. lincoln was a determined nationalist. a democrat with a small d. he's also session as a violation not only of the integrity of the united states but as a denial of democracy. if the losing party in an election can refuse to recognize

the legitimacy of the outcome and say we're going to leave the country there is an end to democracy. that is the essential lesson of his gettysburg address. >> ulysses s. grant said jefferson davis had an exalted opinion of himself as a military genius. >> that is partly right. the more i looked, the grand statement that davis had an exalted opinion of himself is partly based on a correct appraisal. i think it is a caricature more than it is an expression of reality. grant said this in 1885. i'm not sure he would have said

that 20 years earlier during the war itself. davis of course was blamed by his confederate compatriots for the loss of the war because the man at the top has to take the blame. it is quite true -- >> should he be blamed for decisions he made? >> you can criticize the decisions but a lot of that is monday morning quarterbacking. like some of that is robert e lee. >> lee ann davis saw eye to eye on many issues. >> davis of ported lee before and after the campaign. where lee would have been critical of davis might have been in davis decision to replace johnson as the command and replace him with with hood. there are more decisions that may be questioned. you can see the same thing about lincoln and any leader in the war. >> who was his greatest general?

>> lee, no question. lee was the greatest general of the confederacy. >> was he better than grant? >> i don't think so. maybe tactically. commanding armies on the battlefield itself. grant had a broader rich nugent vision of what was necessary to win the war. it was stronger in his understanding of the importance of logistics then lee. when grant became general and was responsible for all union armies he was in the right place. >> why did lincoln choose grant?

>> grant had proved himself to be the most successful general. he worked his way up from brigadier general. he had been successful at every level. he didn't give lincoln any kind of trouble the way so many generals did. he didn't complain about lack of support by the government the way so many did. or so many of davis' generals did. >> how about stonewall jackson? how significant was that? >> it was significant for the army of northern virginia. jackson was a corps commander. i don't know whether jackson would have been successful as an army commander responsible for strategy as well as tactics but clearly it was an important loss. lee put it concisely when he said to johnson that you have lost your left arm, i have lost

my right arm. >> sherman, the man -- this is my recollection. he hated war but believed that if you're one to fight a war leave no stone unturned and just go one make war so hated that the other side will give up. >> that is exactly right. hard war, soft peas. the harder the war the sooner it will be over. in the end the less suffering. lincoln came to have the same point of view. lincoln was a man of great humanity. he suffered great sadness for the carnage of the civil war. exacted on the american people north and south. he said that the sooner we bring this war to an end, even if it takes harsh measures to accomplish it, the better off we will be.

>> was their effort to bridge aps in terms of envoys to give up? >> there were efforts along that line. in 1863 at the time that we invaded pennsylvania, jefferson davis appointed his vice president, alexander stephens, as an envoy to go to washington to talk to lincoln, whom he had known in the 1840's. >> he wrote their territory controlled by the union. >> he had to go to fort monroe under a flag of truce and singapore to washington. the sensible purpose was to deal with a prisoner of war exchange. the real purpose was as lee was in pennsylvania lincoln would recognize the necessity. lincoln sent word back to bother

to come. february 1865, the confederacy was on the ropes, lincoln met with the confederate envoys at the mouth of the james river. lincoln laid out his terms for peace, which was basically surrender. the three envoys, one of whom was alexander stephens, new davis would not approve of those terms. they went back and had to tell davis no. davis still hope something could be won. he was the last confederate standing. after most confederates

recognized it was all over, lee himself, davis can still hope to continue to fight. >> how would the country have been different if lincoln had survived? >> the reconstruction process, it would have been more successful unless acrimonious. the problem was andrew johnson was from tennessee. he had been a democrat. he had been put on the ticket to broaden the appeal of the republican party which called itself the union party. once lincoln was gone johnson reverted to his southerness. that set up the polarization

between the president and the republican majority of congress that affected the formation of a reconstruction policy and led to johnson's impeachment in 1868. he was one vote short of being convicted. >> what is the biggest misconception of abraham lincoln? i'm taking advantage of the that you've written about him. >> the biggest misconception is that he is this jokester storyteller, a lightweight who somehow -- >> the perception at the time? >> by many contemporaries. that's right. the biggest misconception now, i'm not sure. >> is he the greatest man? >> our greatest presidents. george washington would be a competitor. the two of them face the

greatest tasks. nationbuilding, nation saving. they triumphed, they carried through. >> how big was lincoln's ego? >> he did not have an ego problem. the opposite. he was ready to recognize other people might know more than he did on certain questions. he was ready to take advice and seek advice. he was thick-skinned about criticism, unlike davis, who was thin skinned. he did not have this outside sense of honor by which you have to defend your honor against criticism, against insult. lincoln was willing to work with his critics more readily than

davis. that might be the biggest difference between the two of them. >> what it grant say to leave when he met him? >> they first talked about the mexican war. they had been fighting on the same side. grant told lee he rendered meeting him. lee said he didn't remember meeting him. both of them made important contributions to american victory in that war. after that the next thing after they talked about the mexican war, lee told grant maybe we should get down to the recent business we came here to do. enough small talk. grant sat down and wrote out the surrender terms.

>> he wrote about himself? >> he did. the terms that he wanted. they were generous terms. they paroled the confederate soldiers and said a few go home and observe the laws in places you live, very generous creed >> when he left that long train of union soldiers, what did they do? >> they tipped their hats in recognition of a worthy foe and a gentleman. >> lee went on to be president of washington lee university. >> that's right. it was renamed washington and lee university. >> jefferson davis? >> he fled richmond, went to danville, the north carolina, was one step ahead of union calvary.

as long as he remained at large the confederacy might still be able to carry on the war. davis was urging southerners continue fighting as guerrillas. he wouldn't give up. he was finally captured by calgary in georgia on may 10. this is after lee has surrendered. once he is captured the war is truly over. he was imprisoned for two years while the government tried to decide whether to try him for treason. they finally decided not to because of the constitution, treason must be a jury trial for anyone committed were accused of treason. the trial must take place in the jurisdiction where the alleged crime was committed. the government was concerned that they could never get the jury conviction in richmond, virginia. they decided to let him go. partly i that time, they sensed to reunite the nation may require reconciliation between

the old those. this was partly a reason for deciding not to prosecute davis. then he lived another 22 years after he was released. he lived mostly in mississippi. for a while in new orleans. mississippi was his home state. >> what happened to sherman? >> he remained in the army or the rest of his life. he became general in chief in the 1870's. >> chief military officer. >> that is correct.

he was in charge of the attempt to pacify the warfare and the 1870's. he died in 1890. >> famously having said if elected i will not serve. you said that you recommend one book or president obama to read, it would be the bully pulpit. why did you say that? >> both president roosevelt and taft faced some of the same kinds of problems obama faces of congress. with the opposition party, and have their ways of dealing with it or failing to deal with it. roosevelt was much more successful, even though the conservative wing of his own

party disliked what he was doing. he was a reformed republican, almost considered radical. taft lost control of congress. it would be something obama could certainly identify with, but maybe gain some insight. >> what you think of, i just interviewed leon panetta. it has criticism of president obama. clinton made some note of the differences she had on syria. gates made some criticism. in each case, each of these memoirs [indiscernible] -- should they wait until after the president has finished serving before writing these books? as a historian what do you say? >> there is a good case for

waiting. criticizing a sitting president who is still facing the same issues might have a tendency to undercut his ability to continue dealing with these issues. i don't know whether that has been the case or will be the case in the instances you cite. i think you can make a case that it might have been wiser to wait. >> what is your assessment of obama? >> in many respects he has been inspirational, a good president. but he has, he lacks the lyndon johnson touch that made it possible to get things done. it was the abraham lincoln touch. lincoln and johnson, their parties controlled congress by substantial margins.

that has not been the case with obama. in some respects obama has been victim of bad luck. >> in terms of the makeup of the opposition? >> and the determination to oppose everything he stands for. >> you were once told you would be forced to choose between being a popular historian or a historian's historian. did you make that choice? >> i believe you can be both. >> i thought you would say that. >> history can be serious. history can be educational. at the same time, entertaining. >> if it is well-written. >> if it has a great story to tell. >> if there is passion. >> that's right. >> live your passion for the civil war? >> the civil war is the hand everything that has happened in

american history, fulfill the promise of the revolution and the constitution, the united states would survive as a nation based on broad popular suffrage. not as broad as today. most states blacks could not vote. more than any other country in the world. it ensure that nation would not perish from the earth. by abolishing slavery, it eventually got rid of the institution that had made a mockery of american professions of freedom. it set the stage for the development of the united states. >> this book is called "embattled rebel." one of our great civil war historians.

thank you for joining us. see you next time. ♪

>> live from pier three in san bloomberg, welcome to " west." where we cover innovation, technology, and the future of business. i'm emily chang. a check of your top headlines. stocks are surging after a tumultuous week. the dow, nasdaq, and s&p posting gains of about 1.5% to help trim weekly losses. the cdc will be issuing stricter guidelines for those