cumberland maryland with eckert putting together communication nodes that fit into a small trailer. now this is private sector, putting it together, ready to put it out on the market. hey, we are americans. let's do some stuff from the private sector from bottom-up. it shouldn't just be a way for a government scenario. private sectors should be doing this and in fact some banks are quietly working on this so you will still get your bill next month. don't know how they will be delivered, but -- i at least had to make one smiling comment on the grim discussion. >> well, maybe on that note i will mention jim woolsey is a distinguished to the foundation on the defense of democracy and praising what happened on 9/11 he said most of all it was a failure of imagination. and that's why i think it is so important you were imagining the

kind of attack, the kind of catastrophe tragedy and atrocity that could occur and the good news as a we have the technology to the we have the ability to defend ourselves and defend americans against all of it. the bad news is we are not doing it so far. and i think our view here is that an educated public will demand of its elected leaders that they have the courage and wisdom to defend them against this sort possibility that bilmes out there, to look it in the face and do what has to be done, and i think your book makes great contributions of thank you for that. >> thank you, sir. [applause] >> william forstchen is a faculty fellow and history professor at monterey college in north carolina. his books include gettysburg and pearl harbor, both co-authored with former house spin eckert new gingrich degette to find out more of the author and his

work, visit onesecondafter.com. this summer book tv is asking what are you reading. >> bob schieffer, what are you reading this summer? >> well i just finished a book called bacon ridge about the great oil fortunes that were made in texas and it's by a writer named bryan burrough for "vanity fair." he is an absolutely terrific book. the best book i have read this summer, and one of the best books i have read since i don't know when is called the help which is a novel by a young writer called kathryn stockett, and it is the story of two black maids and a young white woman who live in jackson mississippi in 1963, and it tells more about the relations between blacks and whites with what was going on in

the south, that was the year james meredith was enrolled at the university of mississippi, that was the first big story that i had covered. this is a wonderful book, and i just recommend it to everyone. >> to see more summer reading lists and other program information, visit our web site at booktv.org. guy sormon argues it would be a dangerous reaction to recent events. he states free market capitalism has lifted almost a billion people across the globe out of poverty. the harvard club of new york city hosted this event. it is one hour. [applause] >> thank you. if you read the book you will miss the french accent. [laughter] so this morning you have the book and the french accent. and as brian just explained the

purpose of the book is to show, to demonstrate economic is a song in and free market works and is a science. it is a recent science if we look back in history you had extraordinary man with extraordinary intuition like adam smith explained more than two centuries ago the free trade was good. but it was more like in the intuition what is quite recent and economics is the science is that most of the arguments and certainly most of the arguments in this book are based on facts we can measure. we now work on data and build mathematical models. we confront the mathematical model with economic reality, and we know the model is right or

the model is wrong. it's demonstrated wrong we build a new model and so on. so economics works as science since quite a recent perk of. when i started studying economics even teaching economics it was a matter of opinion. people would think free trade was good and other people would think free trade was bad. and some would advocate inflation as a way to create growth for a sample it was before milton friedman. and so it was a matter of discussion until the late 70's economies would compare the efficiency of the soviet model versus the capitalist model and some would argue the communist model was more efficient, more egalitarian because we didn't have the data. when we started adding the data, well, economics stopped being a matter of opinion and it became

a scientific matter so when i say economics is a science and free market works better it's not because it is my opinion or because it is my choice. it is a fact. and i would say most of the economists' work now within this framework. the rule of economics and role of economists today is to try to define what is a good economic policy versus a bad economic policy. so economics is a way to make a distinction. and i argue that we are today in a position to make this distinction. we know what works and we know what doesn't work. of course what works doesn't work perfectly because we are human beings and as human beings we have passions and make sometimes irrational decisions and there are parameters we don't control but basically

within the perimeter we control we know more or less how to define a good economic policy. what is a good economic policy? a good economic policy is a policy which brings people out of poverty. and if there are out of poverty, which is the case in the united states and western europe, a good economic policy is a policy which improves the opportunities for people to -- and more opportunities on freedom of choice as milton friedman said, so the criteria are. so what works? basically six principles and i have no time to elaborate six principles which would seem evident today and which were all that evident let's say 30 or 40 years ago. the first principle which i think most of the economists today would agree beyond free market economy is the basis of growth is on japan to worship

and without all entrepreneur you have no growth and you have of entrepreneur because you have circumstances, political and legal circumstances which allow people to take initiative, like the rule of law, a reasonable tax system and the respect of property. if you destroy the basis of of entrepreneurship and if you destroy private property and if you don't have a rule of law because a field state or unpredictable state and you don't have entrepreneurship, then you have no growth. it is as simple as that. and this of course has been very often described more as an intuition than by fact. now we have sacked speak can compare. we can compare countries where of entrepreneurship has been destroyed by the name of communism, rule of law has been erased, private property destroyed and private tax is too high and entrepreneurship has

disappeared and as a consequence you have no growth. the second principle which is also extremely important is the innovation. innovation is the only engine for growth. there is no other engine for growth and innovation so once you say that you have not gone very far so you need to go a little bit further like for of entrepreneurship to try to understand what are the conditions for innovation and the united states are a pioneer on innovation since more than a century because of the very specific conditions which is basically the relationship, close relationship between the university, the academics and business community. this is what is unique in the world and if you look at fundamental research, fundamental science, you have other places which are as good as the united states and europe and japan but there is no place where the connection between the

business community and academic community is as close and narrow as it is here and as long as the united states will be able to keep this connection, this relationship between the academic world and business world i think the united states will be the leader in terms of innovation. many other countries, france flexible, south korea right now are trying to build this kind of connection but it is complicated and it's rooted in the history and culture of these people. so i read all the columns and books about the united states losing its edge in terms of innovation. i see no progress there as long as you keep the circumstances i described. the third principle and i won't debate the want to elaborate is to have a predictable money and currency.

this is absolutely evident today. this was not the case. i mentioned that in my introduction. we do remember within the late 70's the brazillian model where it was explained and shared by many economists are around the world by creating more money for hyperinflation you could bring faster growth and this was common wisdom largely accepted when friedman demonstrated it was wrong and also on till experience and experimentation demonstrate it was wrong so economics like any work on two legs. fundamental, abstract theory and also the fifth occasion of the theory so this has been the case as for inflation is concerned. the most remarkable move, positive move in 30 years is most of the countries all around the world have created independent central banks and and most of the cases these

independent central banks have been able to guarantee to the people the currency would be stable and predictable. this is one of the reasons for example why many countries in africa which were mild in poverty entel started growing and the real growth and the main explanation has been the monetary stability. before monetary stability in countries like the dfa so, because they have a stable currency these countries all conditions remaining the same this country started to grow because they understood the principle number three. principal number four is the free trade manning all economists without exceptions and i am talking about economists, not politicians. all economies agree free trade is essential and positive so it

has been demonstrated by her theory and practice. the question is why is it that non-economists are still sometimes against free trade? it has to do with one of the characteristics of economics and it has to do with also the fact economics isn't popular science. people do not like economists and do not like economics and you understand why. economists work globally. we say free trade is good for you as a group, for you as a nation but if you happen to be a worker in an industry which will disappear because of a chinese competition, to hear a free trade is good for you is completely irrelevant and you have constantly this contradiction in economics

between this course which is a global this course, global trade is good for you and the individual perception of the free trade which can harm certain individuals. this is why it is extremely important the government local national government or whatever would take care of the negative consequences of free trade and other economic modernization when they do impact individuals. and there will be this discrepancy between the global benefits of economic growth and the individual perception. this does apply to principal number five, which is destructive creation, to you the word destructive creation means when an activity has become obsolete, irrelevant it has to be closed, destroyed in order to be replaced by something else. so in principle it's like the

free trade, it's extremely efficient. anna mauney efficient countries like planned economy, new factories were ever close and this is why there was no growth in the soviet union for example but when you close a factory this will show on television. new factories and new activities will be created somewhere but you don't know where therefore there will be no television coverage. so, create destruction is like free trade creates an aspect of asymmetry and this explains why the politicians, columnists, pundits it's easier in a way beyond the fact sometimes they do not understand the principal of economics or they do not like it which has been the same i think when you don't understand you don't like but also it helps if i may say so the negative aspect of growth, visible and positive are not as easily

visible so the asymmetry in milton friedman wrote a lot about this explanting economics and free-market economics is not extremely popular. what is extremely interesting and i write a lot about this this came as a surprise for many people even for economists as a surprise since 20, 25 years of free-market and capitalism work everywhere in any civilization and this is not yet will accept it. i give you an example. today you have many arab or muslim countries which are still very poor. not all of them but i am talking mostly about non-oil-producing countries like egypt and he would listen to many pundits say and they are poor because they're muslim, they don't have the right religion and islam is not stressing enough

responsibility or they think that everything is destiny, if everything is destiny there is no reason to invest in the future you just wait and see what will happen to you. so this was a common explanation for the poverty of a country like egypt. like in the 50's you had the dominant explanation sinking that the asian people because they were never able to grow because there is no interest in the future and people keep repeating the same gesture. and what happens today under our own eyes and it occurred in less than 25 years that when you apply the right economic policy that happens to be the same everywhere, the five principles i quoted to apply everywhere starts very capitally. i mentioned egypt is growing. china is growing, india is

growing. india is an interesting case as well. when india became independent and 49, no, 48, in 48 they chose an economic model which is extremely popular at that time, closed border state control in the industry what was called the licensed kingdom, you couldn't start a new business even a small business without state authorization and this was supposed to bring india out of poverty. the gross rate of india between dependence in 1991 was 1% per habited and this was a predictable and constant and regular economists started in india call that the hindu rate of growth as if 1% was routed in the indian or the hindu culture. and 91 the finance minister

decided to open the border to welcome foreign investment to a certain extent to council the licensing system and india is growing between five, six, 7% according to the years. and i mention india because it is less known what happened in china and which i will not elaborate so when of the miracles but is not in a miracle, just application of principle but economic policy show that the culture, religion, civilization is not a key factor. the key factor is the economic strategy. it's good or it's bad. it goes into the direction of more free-market or less free market and this makes all the difference. now, if the system is so perfect and wonderful why do we have crisis? there should be no crisis but there are and connaughton blight y. there are two reasons i think.

the first is a fundamental reason that capitalism market follow cycles by definition. why avoid cycle? a think it has to do with innovation. it is connected as i said before based on innovation but you can't know in advance whether and innovation will work or will not work. and sometimes innovation doesn't work and when innovation doesn't work it brings negative consequences. the cycle of the economy is very much connected with the technical cycle and cycle of innovation. if you don't have innovation you have no growth and if you have innovation you take risks as the french economy wrote the market is a dangerous place to be. so the market is efficient but the market is danger is by definition and among all the markets the financial market is the most dangerous place to be.

it is the most unpredictable of the markets because there is a lot of innovation going on the securitizations for example as being one of the most remarkable innovations in the financial markets want recently. it started centuries ago but it becomes more and more sophisticated so when you have innovation you have to injury and when you have danger you have risk. so this is a fundamental reason. in the socialist economy or the hindu economy there are no cycles. you could be sure it was 1% a year. they would never reach six, 7% a year. now they are around six, 7% a year they will have cycles and the already have. so therefore i don't think you can eliminate cycles. you cannot eliminate. what you can do is help individual people to confront the harshness of the cycle.

people are lose their job, factories are closed and so on because the cycle and the crisis. so what is to be done for the responsible government to take into consideration the hardship which is supported by the people in which are the consequence of the crisis but to have the growing economy without any cycle seems impossible to me. now you have a second explanation which is a short-term explanation, how to explain specific crises noss cycled in general but specific crisis. it's not that easy. there is still a lot of debate at around the 1930 crisis a lot of debate and around the 1970's crisis but my position as many of their free-market economies would share this position the root cause of the present crisis and former crisis has been too

loose monetary policy. adis very probable the excessive money available in the markets which is brought speculation and the crisis after the ball. this is not a new phenomenon in the economic history we had a lot. they have always been the consequence of excess of monetary creation. and the problem with the bubble is they are very difficult to predict and when you are in a bubble it is difficult to get out of the bubble. because you don't know how long the bubble will go on so it's good to be in sight because when you are in sight to make a lot of money and if you go out of the bubble and the novel goes on and you regret to have left because others are still making money and bubbles have been described through a mathematical model in my book i described at

length the schenck model, a brazilian economist teaching at princeton who show how the bulwarks and you know you are unable not by looking at crisis but the number of transactions. when the number of transaction is increasing rapidly probably you are in the bubble. but at that stage we can't predict how long will the bubble go on and went to get out of the bubble. and financial market followed the rule and i will quote again of why all randomness. financial markets are widely random if they cannot be otherwise because if they were otherwise they wouldn't be marketed any more because everybody would make money on the market so financial markets already random by definition like capitalism so first cycle and crisis by definition. at that stage for economic

knowledge we cannot do more. many people would say, many critics would say why do we need economists if they don't know how to make predictions? well in many science is we don't make predictions. but we can predict what is bad for you. we are like primitive medical doctors who tell you well if you smoke and drink probably will have concern in your life. economists say if you close your borders like you did in the 1930 afterwards. the situation will be worse and indian economy's when consulted on the best economic policy for developing countries sometimes answer if i were you i wouldn't stop from here. [laughter] so we know where not to start

from and we know what is to be avoided and we know what doesn't work. for example to talk about the current situation in the united states and europe when the stimulus doesn't work we know that because it has been done before so maybe this time it will work because we can't make a prediction so i cannot predict the stimulus will work or will not work but what we can say in the past the stimulus never worked and i won't get into the details we can demonstrate why it doesn't work. we can demonstrate in the theory that demonstrate also as a practical matter because it has been tried many times and so far there is no case study to show public stimulus works. it usually does not. also i wanted to say something about because also today stimulus is promoted, regulation

is promoted so on stimulus i'm very clear on the regulation i know brough is more radical than i am on a regulation because i say that regulation is usually useless and prove to be and so if regulation are usually used less the regulation is usually good. it has been demonstrated what regulation would be useful. it certainly would be useful for the regulators because a lot of regulation is very important a lot of regulation is justified if i may say so by the political desire of bureaucrats and politicians to create their own domain, their own power. you can understand that very well. we are all rational to a certain extent but bureaucrats are rational as well so you have to understand bureaucrats will explain the regulation at the origin of the crisis even if this is not the case because i

still don't see the connection between their relation and current crisis but i am more able than brian because i see some kind of regulation can be useful the increase transparency in so my position is to say the regulation would allow individuals to be better aware of what they buy and would increase individual freedom, individual choice. bryant's story i speak in your name that the regulators would use the argument of transparency to build more useless regulation. so economics is always the question of fine-tuning and trade off. and finally, i will repeat -- i try never to repeat myself, but

you didn't listen to me yesterday night and maybe you didn't read my latest paper in the journal, but i really love the discussion with the liberal economists bob franken at cornell university because you have this big debate about health care in the united states. and many liberal economies in the united states will get the french system and the love that and bob frank explained to me why i love the french system and why i would like to have the same in the united states because it goes to france every summer and when he has a medical problem they go to a french doctor and they can choose their doctor and it is very cheap, extremely cheap and they are all surprised. most of them love the high-speed train. ago from paris to the riviera, we want that in the united states and frank says you can't blame me for wanting the same as you have and i say i pay for the

high-speed train as a taxpayer and ip as a taxpayer to access premedical doctor when you were on vacation but if you were not on a vacation, if you were french, you would have half of your income used to pay for the train and the welfare system and also the people who pay the most are the unemployed people. the cost of the french health care is so high it does prevent the employment of a lot of qualified people. so economics is also a trade-off and you can't have both, you can't have a perfect world with everything. you have to choose and the rule of the responsibility of the economy's is to give the data, to get figures and say yes, you can have a welfare system or health care system like france

but you will have a permanent basis in good years between 12% unemployment which is what you have in the united states in bad years is what we have been better years. .. let the people decide through the democratic process.

thank you. [applause] >> i understand we have some questions? >> there's a mic. >> we have time for questions. there's a microphone being passed around. this is being taped, so please use the microphone, and identify yourself and tell us where you're coming from so the viewing audience knows who is asking the question. i'm going to take the privilege of asking the first question, which is, did we learn anything fundamental about economics from this crisis or will we as we sort it out? was all of this somehow already taken into account by the present state of knowledge circa 2006 in the science of economics? >> it's a little early to

answer, but i think we haven't learned a lot, and when you talk about -- when you talk with the academics, do they change the curriculum, for example, strangely not. it is vain to say nothing is really new in this crisis. its rather confirms a certain knowledge that we had and people who shared the view, for example, that the excess of the loose monetary policy has provoking the crisis, this hat been confirmed by the crisis, but i wouldn't say there's a revolution in the knowledge based on the crisis, at least so far, and even if you read a columnist, very liberaly columnist like crukman, through

are not bringing in new ideas. they want more of the same or less of the same but basically we're working in the same framework, and all the debate about, this is the end of capitalism, is irsvelte. -- is irsvelte. -- irrelevant. this is the present situation. >> my name is daniel -- >> wait for the mike. >> my name is daniel and i work in the hedge-fund business. my question is about the form of regulation you seem to subscribe to about regular laters increasing transparency. can you comment on the decision by alan greenspan, rubon and summers to forestall derivatives traded through market exchange and they said that banks were

the best custodians and they could handle this. what do you recommend? >> i don't think it was a mistake. i think it will be very helpful to promote innovation in this field. i think that there is a misunderstanding when you look at the crisis between the consequence and the cause, and once again, i think the real cause is the monetary creation, loose monetary policy, and what has been don with the excess of monetary creation is only a consequence. there is an -- the relationship is reverse, and it's the same debate about greed, you know, and the people say the bankers, the financerrers is breedy.

everybody is freedy and when you have no greed, you have no innovation so it's a kind of idealologial interpretation but this has nothing to do with economics. normally it's good, and it's a very old tradition, started a long, long time ago in the division of risks, and it has been extremely helpful, and i hope it will continue and that new regulation will not stifle innovation in the financial sector. also, many observers say it's too bad that in the financial sector and other companies, the risk manager has no more power but the risk manager has power.

they have not been listened to because the possibilities to make a bundle of money were so huge, it was brought into the system, not by the lack of regulation but by the amount of money which was available. so i look at that as the root cause. this comes october afterward, and finally, final observation, when you regulate -- the regulators will always be late vis-a-vis financial regulation. you cannot regulate what doesn't exist. so when you regulate, you regular late what exist, and bus of the lessons of the past, we have some kind of regulation based on what just happened, but what just happened will not repeat itself because in the coming years you will have new financial innovations. so the regulation becomes obsolete on the very date is

published. the regulator will always be late, and will always run behind the market. so the argument saying that if we had better regulations -- and by the way we had better regular laters -- and i don't know where you fine -- find them -- the it's not the best people who become regulators. so regular laters and regulation -- regulators and regular laying will be behind innovation. >> the question had to do with market changes. you don't have regular laters telling people what products they can produce. you just say with hey counterparty risks and transparency in the market is a good thing. it seems like a market mechanism to solve a market problem. >> i do agree. >> also, picking -- my name is

steve, mediation services. on the question of regulation, prior to the year 2000, virtually all of the states regulated insurance, and there were two key factors. one is if you write insurance and you take in premiums you have to set aside a certain percentage of the premiums you take in reserves because theoretically, and in reality, people are buying insurance to protect themselves against loss, and therefore, you can't treat all the premiums as 100% profits. that was number one. number two you had to have an insurable interest. i can't buy fire insurance on your house or life insurance an your life because i don't have an insurable interest. in the year 2000, congress, at the obviously urging of the financial community, deregulated, they trumped all those laws with a federal statute which said, in effect, you can write credit for false

swaps -- which is insurance -- but we're going to sea it's not insurance and we're going to preempt the states from regulate it and requiring reserves, andles pre-empt the insurable interest rule, so if goldman sachs has the debt some of entity and they're worried they will default, they buy insurance, and obviously they know their risks very well. they're not stupid. so they know there's a risk of loss, and yet aig, who is wright -- writing all this stuff, assumes there is zero risk of loss because of -- what do you call it -- triple-a rating agencies said, there's no risk of loss because they give it a triple-a rating. so, isn't it the absence of the -- getting rid of the regulations that made sense that really is very much behind he

crisis we're in now? >> the answer to you in our next book, which is to be published when? november. i don't want to interfere with her on this subject she knows best. >> i'm steven, national review. my question is in your book, the very first line is economics is a science, and you surveyed the current state of the field, and as you just said, science is about making predictions from observations in the past. we have seen that stimulus doesn't work, and yet a number of high-profile economists, certain columnist for "the new york times," persist in their belief that keynesian solutions are the best way to address the

cyclical downturn, so what is the scientific equivalents of this disagreement in the field of economics. something less radical? >> well, the usually call themselves neo -- because they don't follow what was recommended. keynes was taking it into consideration and he thought in good years you should, of the budget surplus, you should keep the money and in bad years spend the money so hoe was5'÷ suggestg countercyclical budgets. no country has ever followed this recommendation. the only person i know who came

out again with this recommendation has been the german chancellor. she said that in the future, we should follow our keynes model and use the surplus in bad years, so it's a bit different because there is no public saving. so, they just advocate a pure deficit, and this is not part of the keynesian agenda. public stimulus may work. it does happen it can create some kind of jobs in the very short term, but not for very long because the kind of investment where the state goes or investment which create job which does not create wealth. so not real investment with no return on this investment,

therefore, as a consequence, we know that sooner or later the stimulus is paid by higher taxes or inflation. in most of the cases now, because we don't have inflation, because of really independent central bank, it will be higher taxes, which will slow down the recovery. as you say, it's mostly columnist who are recommending this kind of public stimulus, or politicians, but among economists, i don't think many of them right now are suggesting this kind of policy. no name comes to my mind, actually. >> just if i may add, what would a political leader recommend job creation through public spending? because he is his own market and

running for re-election so he must demonstrate that he is acting, and you are not re-elected by not acting, and also because he hopes that he will have kind of a short-term return because the elections are always short-term. this is normal behavior in all democracies, and this is why many economists are saying, maybe it can work in the short-term but the consequences are negative in the long-term, but we are only economists and we're not running for office. the people that are running for office can listen or not listen. >> my name is kate, i'm with commentary magazine. you quoted manle twice in his characterization of the market and the wild randomness, but in

the beginning of your speech you said economy is solidified by statistical models. do you believe that in addition to helping economists verify their high pot theses or check them against reality, the reliance on -- or should i say overreliance on mathematical models is a blind spot in the circles of academia and doesn't take into account the reality of financial and economic cycles and do you think it trumps sometimes common sense and a healthy account of human nature?

>> uh-huh. at least three questions. distinction. starting with the notion of wild randomness, what mannedle wrote and tried to show was that the -- in nature you don't have wild randomness, you have mild randomness. physical events can be predicted to a certain extent, and he has built a mathematical model -- i don't want to be too technical there -- on the model which shows that many chaotic events, like noise, for example, and -- do follow a mathematical pattern and can be predicted, and the consequence of an extremely important -- for example in the telecommunication, he wrote my

randomness math mall cat model applies to nature. chaos is not that chaotic is what he says. he tried and many others trade to transfer his model to the financial market, and when looking at the data -- and we have data since the late 19th 19th century starting with the cotton strange in new york, which is the oldest financial data available -- it appears that no pattern ever appears. it's completely random. and any mathematical model which tried to introduce a prediction in the evolution of the prices in the market, all these models have been proven wrong, including many models which have been used these recent years, at least not to lose money. these models were attempt to predict the evolution of the

crisis. they all failed. and the conclusion of the mandel is to say that at that stage we have no mathematical tool to predict the financial market, therefore, randomness is mild in the physical nature. in the financial world, randomness is complete or wild. this is what we know at that taj. i want to elaborate but you have many mathematical models which comes to your mind and which have been extremely popular until the recent stock exchange crisis, and this model proved are not to be extremely precise. the second question is about the relevance of mathematical models in general, and do they take into account human parameters, human nature, and common sense. the purpose of the mathematical

model in economics is very limited or should be very limited. there are certain number of permitters in economics which tend to repeat themselves, like very simple example, there is a mathematical relation between money creation and the level of prices, for example. there is a mathematical relationship between the level of wages and the rate of unemployment. there is a mathematical relation between the level of your education, what's called a college premium, and your chances to be employed or not to be employed, and this limited -- it is built into mathematical model. the model have two virtues. the verse virtue is they introduce certain amount of

predictability. you know that -- you knew this is a currency, you have this type of consequence. you know if people go longer to college, probably they have a stronger chance to find a job. okay? and the second reason why mathematical models are used, it's because it's a universal language and if you need to common with the french or chinese or indian you will speak mathematics and you're talking the same language. so it's universal. so this is a rationale for mathematical models, but they only represent part of the reality. and they used to be wrong. and following the suggestion, the progress of science requires that the model should be deconstructed and destroyed and proven false. i've seen in the way economics is taught in the united states, there is an abuse of mathematics

and an abuse of models, and many students in economic department in the united states think that economics is only about mathematical model, and this is absolutely wrong. mathematical model is only one of the instruments that can be used to understand what is going around and to make some prediction in certain cases. there is a look of common sense in the education. maybe this answer your question about what should change. i'm very worried by the fact that only -- that mathematics is a requirement and also that the history of economic ideas is not taught anymore. i mean, in american universities. i think this is a big loss and it will use the scope and the knowledge of students in the economic departments. >> i'm marshall, i'm an

investment adviser. i was intrigued by your definition or yardstick for the success of an economic system as the extent to which it brings people out of poverty, and maybe this is not an economicses question but a political question. what do you think of the hypothesis that as a society prospers and its political leaders have less and less direct experience of poverty, that they also have less and less appreciation for the power of markets and capitalism to lift people out of poverty? >> well, the scope of the domain of economics is a limited domain. the economists are like plumbing, if you want hot water you better use choose a good

plumber. governments i say, if you want growth, we can show you the way to a certain extent. economics is basically about growth, and the question is, is growth a relevant criteria? and many attempts have been done by some economists, the calcutta economists or the u.n., they build other instruments to measure the happiness of people and trying to understand that happiness was distinct from economic growth. all this attempt failed. it happens that growth is an important factor and people tend to be more happy in growing

economy because growing economy brings more opportunities and more freedom of choice globally. globally. and now there is another debate which is a relationship between the growth in social justice and the case of countries where growth is creating new inequality which in the case of china, for example, but there is no connection between growth and social injustice. in most of the case, growth does bring more social justice. it doesn't bring necessarily more democracy, which is other complicated question. the relationship between growth and political freedom is not a clear connection. so, your question opens so many fields i can't focus only on one aspect of your question.

i'm very sorry for that. >> the final question. >> i'm michael, u.s. trust. you talk about china and india chose to focus on india. what are your thoughts of china if you think about your checklist. how does that make you think about the future for them? >> if i may quote myself, my former book was a book on china, but the title of the book was "the empire of wise." to summarize my argue ament very shortly, the factor of china chosen to be a strong country,

not a developed country. it's not the same. in a nondemocratic country you can decide to concentrate the investment on the narrow part of the country and narrow part of your population and make a distinction between what the chinese leaders called useful china and useless china. useful china is basically the eastern part of china. the part of china which is profitable because it is in a permanent relationship with the rest of the world, globalized china. this globalized china is using the work force of the peasants or not using the work force of the peasants at all, which means 60% of the chinese people are completely left out of the development process. this is a strategy choice. this brings a -- so, there are

two -- well, at least two risk factors for china -- three, even, i think. first one, when you leave out 60% of the people, even in the perceived regime, you don't know what will happen in the long term, and we can see that these days. there is a huge risk factor because of this imbalance in china and which is not the case in other developing countries like brazil or india, where, because of democracy, governments try to incorporate a larger number of people. so there's a huge risk factor connected to the social division. second weakness of china is a complete lack of innovation. china basically is an economy which is based -- which is subcontracting economy. if you have an ipod or cell

phone, probably it's written on your cell phone, you can verify right now -- it's written, made in china. but in fact, the added value for the chinese for an ipod is 5%. if your shirt is made in china, probably 80%. for most of what we call made in china, the participation of china is no more than 5%. because it is not an innovative economy. you cannot quote one chinese innovation. much is done and spoken about the huge new chinese universities. i have taught in some of these universities. the quality is not very high. the level is not very high. and the best students usually will leave the country and try to go to the united states, canada