by the way if you think i'm wrong ask any economists about the bhagwati theorem is. it is basic simple economics. and then they talk about the environment. you know, i was a member of the world wildlife fund a long time ago when one of my classmates was the executive director. i had won a best drive it tree collections. i am on the national massu board. i am really a tree hugger and i have really m.a. tree hugger. i love the environment and i take oil spills really seriously. there's something to be avoided like the plague and i mean that. when five weeks ago they had that's built in australia, the beach was polluted. that is a sin. that is a real tragedy. remember the exxon valdez them all that happened there? these are things that you must focus on and you must make sure these things don't happen.

in my country, one of the leading countries in trying to solve and protect against these types of problems. what these people don't understand is, if we don't do offshore drilling, indonesia will. and if you think we are sloppy about oil spills and what happens to the informant, you can't believe how sloppy indonesia is. the disaster in indonesia is the 1,000 times worse than it would ever be here and will have been far more frequently. to get one of these animals covered with oil, they will light a match and flipped it on them and watch out that they can run. what they don't understand is the world's dynamic. they will increase its to do this stuff. you have got to understand basic economics in this stuff. when i look at this stuff as well, and i see the nuclear issue there. and i will stop with this one

but i was on the board for years and years and years, which is that general days ago. i used to go to france. is the only american on the board that had some of the most fun political discussions you can imagine. i love them dearly by the way. revi boarding, which is six the year, until my wife told me she no longer wanted to go to paris. alaikum i noticed paris works pretty well. france works pretty well. do you know how much of their energy is nuclear? it is over 70, 80, something like that. i want to tell you i don't understand anything about nuclear power. i don't know any of the physics, i really don't but i know how to make a safe nuclear power plant. it is real simple. if you've got nuclear power facility to make sure the board of directors and officers of the corporation live on the premise and they send their kids to the

school on premise. i will assure you it is a. what you want to do is a line incentives, make sure pilots of airplanes don't have parachutes. you don't want them getting off than you riding with the plane for the rest of the trap. it is a lighting as that this and they-- if you tax people who work, and you pay people who don't work, do i need to say the next sentence to you? you are going to get lots of people not working. if you tax rich people come and give the people-- money to poor people you are going to have lots of poor people and know rich people. the last one, i move from southern california from san diego to nashville tennessee for one simple reason. california has a 10.5% income tax rate and nashville has a 01. i hope i am not going way over your heads a day but did you have two locations a and b if

you raise taxes in b and lowered them in a manufacturers are going to move from-- to. that is all this book is about. unfortunately this administration is going the opposite way and peter i thank was the guy who thought of the title here. and comment you know but unfortunately it is coming true. what we have tried to do is lay out all the examples than they did it in a usable form. this is not and an academic form. is just trying to lay out the stories of many examples of when people did the right things and when they did the wrong things. i want to stress again it is not about nice people are bad people. does not about partisanship. this is politics but it is not republican, it is not a democrat, it is not liberal, it is not conservative. it is basic math and economics. thank you. [applause] >> we can take some questions.

>> on the middle east energy issue, i know you are a big fan of the efficiencies and all but isn't the political instability a threat to then vincibility and is and that's something that can help deal with the inefficiencies or the sort of instability in the middle east? >> no, it is not. in that the vinnie thing it works the other way. the deans from trader such that they make these places more tolerable, more user-friendly. i had never thought that not trading with the country makes the country like you more. but use the example i used to use is china. we trey a lot with china, it is a huge investor in the hanna. remember when hillary was talking about this was a risk. my view is that a lot investments and it will make them think twice about bombing us. if we have a huge integrated stake in these countries through economics, my view is that this will make them much less likely

to do politically disruptive defense and plus, the whole history of embargoes. has been fraught with the lawyer. the only thing that is clear every time you use protectionism is that you suffered enormously. protectionism hurts the protector as well as the country against which they are protecting. and that is what has happened. i think he will find almost all the literature in economics to support exactly what i'm describing there. it is a failed tool, protectionism and it actually hurts the political process. it does not make north korea like us better. it does not make cuba like this better and it does not make zimbabwe work better. >> if we engage in offshore drilling, 4250% of our oil from countries that don't like us to taking 30% of our oil from countries who don't like is, what is wrong with that? >> nothing is wrong with that but we don't want to be energy independence as a policy.

we want to buy the cheapest energy and use it in the most efficient way for goeth in fact the middle east, if we can produce a cheaper than they can, that is great, that is comparative advantage. that is why don't ever use the argument of energy independence when i support nuclear power because it is usually a false argument for the right policy. go ahead steve. >> the related point on this is that, with respect to what is going on with this administration, with solar and wind and renewable energy. i find this to be one of the most massive malinvestment we are going to make it the nation. when you look at solar and wind, most americans that no idea where they get their electricity from. when u.s. people, you just did something in his pocket and the electricity comes up. 52% comes from coal and we are the saudi arabia of coal.

we have got somewhere between 15 and 20% of our electricity from nuclear power. we get some of it from heider. anybody want to take a guess at how much of our electricity comes from when and solar? about 1.5%. so let's just think this through. let's say in by the way we have spent tens of billions of dollars since 1980 subsidizing solar and wind power but let's say this is a fabulously successful investment, up yonder while the streams, that all of this research we are going to do leads to a massive explosion in solar and wind power, so let's say we have even quadrupled the amount of energy we get from solar and when. so now we are at 6% in the question is where in the world are we going to get the other 90% of our energy from? that we are not doing nuclear power and not drilling in this budget is economically suicidal. one of the things i have become

convinced about is we are just not serious in this country about economic competitiveness and it is a sin. we are raising taxes when every other country is lowering taxes. we are going to this big global warming tax when everyone knows china, india and these other countries are not doing it. how are we going two of that manufacturing sector if we put that tax on american manufacturers and the world doesn't. i don't know about you, arthur, it is like economic kerry kerry to move forward with these things. we have already got their manufacturing sector flat on its back. now it seems almost patriotic to be talking about this global warming tax. the other questions? >> steve, the three of you and the officials ended advisors that are advising president obama, you are looking at roughly a similar set of circumstances in history.

what do you think is the core driving thing that causes them to arrive at a different set of economic proposals? is it economic, is it philosophical, is it-- is it their view on the role of government or what is that that is causing them to come to a different set of conclusions? >> let me just say one thing. just one thing, the question about why is it that we look of the data, they look of the data and we come to polar opposite conclusions? the answer is i don't really know. everytime i get talks about the book the first question is, this stuff seems so obvious. the fact that as you just said, vortech ciscom bruce texas ten-year, of missy could get more economic here than there a we don't think it's a radical ideas. we think the evidence is pretty solid, so i don't have a good explanation for how the other

side comes up with the opposite conclusions. i do think that conservatives are paying a pretty high price for letting the left write the history books of what is happening in this country. i mentioned the new deal. most kids are taught that the new deal was a success. most economic reporters. i work of "the wall street journal" and these are some of this mardis, bess reporters in the country. if i ask them, it's you think the new deal helped in the depression? the vast majority of them would say yes, so i think part of it is we don't have a good understanding of economic history which is what this book tries to do. >> i have been involved in political processes for a long time. i have been involved in washington noaa i was the first chief economist at the allenby in 1970 and then i stayed on as consultant to the secretary of treasury and the fence for the rest of the ford and the chief of staff by the way. and that some of you may remember that is right to the

curb with dick cheney and don rumsfeld at the washington hotel and the course my role with the real president. let me tell you, it is way cool. it is lake will be involved with the president. it just is way cool and it is a job to die for. i can tell you some of the close things i ever did that would really make you laugh like having my secretary, may come and having the professor laffer, the white house is calling, thanks and i-- aye and the brim, thanks gladdest. then i come back and i come back, and they say what is the, what is happening? i am not at liberty to talk about it but you will probably read about it. and i had more fun. going up to camp david on helicopter one and riding around in a golf cart is to die for. you have got to roll, you have got to play in the political process.

if the president says x, and you figure out an argument that makes x correct and that is what a political team does. we did it. let me tell you that these people, or about arguments they know to be true in order to create favorites with their political benefactors and they do, and so did we. i would have lied through my teeth every day of the week and twice on sunday to hang with reagan. the only thing is reagan never ask me to do that. but, it is a very different process when you get into a political process. it becomes much more of an advocacy than it does a scientific analysis. i just ask you to read the academic papers and then hear what she talks about now with regard to the stimulus. go to our academic work and see

which he says about the incentive effects of taxes and all the good which she says when she does of the paper with jared bernstein. i understand. i am following austin gould, one of the need disguise you will ever meet. austin goal tries to defend the present position of firing wagner. he was as nervous as i would have been but you have got to do it. when you understand policy is not academics. it is not academic research. it is where you go along the political line and that to a large extent is why there's so much of the debate. >> i would say that a huge percent of the academic economists and don't have any relationship with obama are saying-- >> do have a huge relationship. key think universities are independent defense, they are not. even when i was officially with the white house steve, there were always groups that would hang together. it is us versus them and it

becomes a very political process for economists. that is what happens and whether it should origin, it does and that is that would gets along. what we do is we see each other has been parts of a different team because steve, there not many things that you and peter could say honestly that i would not want to defend because you are my friends and we are on the same team and it does the same with economists and the white house and the other side as well. >> i have not yet read-- [inaudible] >> i have never heard anyone say it is a fine piece of work that they have read it. >> to your address in your book how the tax and spending policies impact and intersects with what i call the retirement of our baby boom generation.

your taking roughly 60 million americans out of that consumer engine. what happens then? >> peter, you should do that when first. >> i am almost 70, and my dad retired when he was 65 and when he was 65, he was a lot older than than i am now at 70. it is a different world, a different age, a different time than that taken the python, as you say, is that as serious event as you make of that to be. what we haven't done it suggests a lot of our government programs. we did under reagan a little bit. if you remember we reduce benefits of social security by taxing social security benefits at 50% of social security benefits. dennis's reducing benefits. we also extended the age of retirement from 65 to 67 which is again reducing benefits to make it that more.

if you looked at these programs, if we had social security kick in net 71 years old, there would be no unfun that liabilities whatsoever. it would just recognize the increase in longevity that has occurred in the population, the change of a 70 earl versus 65 enrolled and the same thing we can do with medicare. basically what happens is they do it only when they are forced to by the events that occur, but they are really easy to solve these problems. >> you agree with their colleague? >> he is a great guy. but not wrong in a nasty of the way. i knew his father very well in the nixon white house. his father was one of the finest people i knew, but i don't think demographics are serious with regard to the economy. i think what we did in the book, we mentioned demographics once.

>> i will just add that it is not so much the demographics as the problem which i think you are addressing, who the massive deficits, the social security problem and the others and how are we going to fund them. and it is a problem. arthur's point about raising the social security age from 65 to 70 is the obvious solution. begin know what the average male life expectancy was in this country in the year 1900? it was 48. things have changed a lot, and when social security was started in the 30's, the average life expectancy, i don't know what the exact number was but it was a hell of a lot lower than it was now. so, obviously now is in the upper 70's, so clearly some of these things are going to be done. they are politically difficult to do but when we are faced with

bankruptcy, they will get done. >> one quick thing on this, if you look at these statistics, on what happened to social security this year in the obama budget, the first time in like 25 years social security actually when negative. we spend more money on outlays. there are some adjustments that are made to the thing that technically it is not running negative, but if you look at the amount of money that was paid out in benefits and then the look of the month of money that came in in cablefax is the word negative this year. that is a scary thing because it is something like eight to ten years ahead of schedule. the system is not supposed to turn negative until sometime around 2017. the point i am making is i agree with you guys that raising the entire met h is a no-brainer but growth is everything. growth is absolutely everything to solving the medicare and social security long-term

problems. key put in a slightly higher economic growth rate, and we are talking projections of the next 50 to 75 years because of the effect of compounding as the albert einstein said the most powerful force in the universe is compound interest. if you put 2.5 and economic growth rate and 3% growth rate those huge tens of trillions of dollars in deficits, they actually become very much managed a biscuits to the point of our book, we better get back to growth economic policies are these the deficits are going to get bigger and bigger. >> the old u.s. auto industry-- i look at detroit and i look at the federal policies of the last 30 years. i look at union demands and i look at the corporate dealership and that sort of iron triangle which is crushed and was already on its way down before last

year. is there ever going to be a u.s. auto industry again in detroit, the old style? i know bmw is then greenville in spartanburg. it is there a situation, tax policy, regulatory policy and all the rest, that is ever going to allow that industry to flourish again? >> real quickly, i sure hope so. i have always thought an american car. i just wrote a column about the subject. a beautiful red camaro convertible, by midlife crisis car but i want america, i don't want those jobs to disappear and it is important i think that we have, it is not final but we be good to have an auto-- american on the manufacturing industry. we are now at the precipice of basically having three groups running the auto industry.

the united states government, the united autoworkers and the sierra club and folks that is a prescription for disaster. the problem is, if washington is running the car companies, it is going to be politically driven. we want grain cars, we want the plosive car come of this car come of that car. i don't see that turning to possibility. >> as long as we are speculating i will at that i think there will be an auto industry in detroit, dennis. it will be smaller. gm will go bankrupt in a package bankruptcy because it is no no longer the unions that are the problem. it is the bondholders, and the bondholders are going to suffer and they are going to suffer in bankruptcy. but, there will be a new automobile industry in detroit that is more nimble, that is smaller, and we know, we will no

longer have many of the name brands of the past. the oldsmobiles gone and as i heard i think it was yesterday, pontiac is gone too. >> another question? >> just a few questions. one, just on the way i have-- the idea is certain level and increasing taxes would actually reduce revenue, but obviously at some point, and i think this is probably a conservative base sometimes. that means that the more you cut taxes the more in increases which obviously there is one point of the curve were reducing taxes lead to reduced revenue. i guess my question is, firstly, where dew c.s as being on that curve right now? would cutting taxes at this

point bring in more revenue or are we at the point where we have cut taxes, reducing taxes. also, just because you mentioned you both had praised bill clinton. i guess the argument that the obama adminstration is making is that the top marginal rates went up on bill clinton and all he wants to do is bring the top marginal breaks back. >> yeah, your point is completely correct. the higher taxes are the more likely increases will lose revenues. they are both sides of the curb. it depends on what taxes you are talking about. it depends upon how high they are, how broad the tax base is. that me give you one that is really focused on politics today. it is the highest tax rates.

and i will go on that one that i can. and i want to take you back to john look and of the. we go to the very heavily in the book. when jack kennedy took office the highest marginal increase tax was 91%. andel lowest tax rate other than zero was 20%. that is when he came into office. now, when you look at this kennedy cut the highest rate from 91% to 70% and cut the lowest rate from 20% to 14%. cut them all in the middle too but those of the two extremes. if you look to the percentage cut in the tax rate on the highest bracket it went from 91 to 70 so that is the 21 percentage point cut for do you divide 21 by 91 n.t. get a 23% cut in the rate. by cutting the lowest rate from 20% to 14% that is a six percentage point cut, 6% /20% is a 30% cut in the rate set up the

highest rates by 23% at the lowest rates by 30%. the one thing you've got to understand in economics is people don't work to pay taxes. people could give a what the taxes are. they what they-- they worry about what they received that afterwards. the tax rate is not important. that the after-tax return that is important. but we take you to the after-tax return. let the guy was in the top bracket, for every dollar that i made he paid 91 cents in taxes and he was allowed to keep 9 cents. it was that 9 cents per dollar that was his or her incentive for earning income in that tax bracket. do you follow me? when kennedy cut that rate from 91% to 70% that person's incentive for doing the same activity, he earned a but instead of keeping 9 cents ecap 30 cents on the dollar. that is a 233% increase in incentives for 23% cut in tax

rates. do you follow me? that is they tend to one benefit cost ratio. do you follow me on that? in the lowest bracket, a guy turned a buck. before kennedy's attack could be paid 24 cents in taxes and was allowed to keep 80%. that was the guys incentive for working in that bracket bracket after kennedy's incentive, he paid 14 cents in taxes and was allowed to keep 86%. there was an increase of 6 cents out of 80. that is the 7.5% increase in incentives for a 30% cut in tax rates. that is the benefit cost ratio of one to four. that his wife from an economist's standpoint it coming in the time that kennedy it is 40 times more powerful to cut tax rates and the highest bracket than the lowest bracket. now it is much more than that when you get down to the real numbers. kulick the real numbers, rich people know how to get a ground

taxes. they know how to do it. they can change the timing of their production. they have got keogh, 401(k)'s. they can change the location of their production. i move from california to tennessee, got businesses in uzbekistan. they can change the composition of their income. for example let me give you an example, the versus guy in america, warren buffett and by the way don't mean this as a slur against warren buffett. i think he's a very impressive man but a few bucket his well, what is this wealth then? i have not on the new numbers but he's worth $66 billion. he owns stock, but what company did he karen? berkshire hathaway. what was the basis for is a delegation in berkshire hathaway? pretty close to zero. now you take the market capital and that is what his wealth is, in what we call on realized

capital gains. if any of you know what the tax rate is on the unrealized capital gains, it is zero. steve is cutting capital gains in market thinking about cutting capital gains. it gives it to the belen melinda gates foundation it will never see a tax. but, when you look of this, when he says that they lacked hecht's is the my secretary he is telling you the truth. it is a bad tax bill and i am not blaming you for finding a tax way of having all this wealth. the last thing is rich people can change the volume of their income, so when you look of the tax codes of the last 25 or 30 years the top 1%, the top 1%, i forget what the member is but the top 1% in 1980 i think they'd 17.5% of all the income tax in the united states. the top 1% today paid 42% of all the income tax than the united