it has in their sings and such, can you speak to the role line of thought were dan and a couple of his release ecologist at the endp teaching in the bay area and kahneman won the

nobel prize a couple years a. these areseful in looking at individual behavior and how to design a 401k program and they have been influential 401k in particular has been cnged a lot over the past years to reflect the realization how you structure that has a hug impact how people behave and there is a lot to b said for picking these defaults tt are more or less okaynd stealing people into that, themount of money they save, how the money is allotted and then give people the choice to change that if they want. so it's a huge impact on both what individuals c learn about their own investing, about the flaws all of us have in deali with money a the future isith the combination ase. but figuring out how markets work it's interesting that the impact has been limited.

there are not any great behavioral theories that explain what happened over the last few years. there aret any super great non-behavioral fees' the explain it either but it's not like someone has come along a said i can using lessons of cogtive psychology expept in everything that's happened. i thi that dan at mit has a chapter in the revised second edition in his book "predictably irrational" that claims to do that but i don't think that he manages it. >> on that very point many people may be wondering at this point in the conveation to we actually need a grand unified theory to explain the market's and what wou be the dowide of not having one now that we've seen the downside of having some that may not be perfectly accurate? >> i think it is healthier not to have a grand unified theory. the problem is it's hard to knock a theory of its pestal if you don't have a new one. but maybe that's okay. i wouldhink a much more

closely understoo and defined the version of this whole paradigm is a wldn't be the worst thing in the world. but it does seem what makes markets wo actually is diversit of opinion and so i you don't he lots of people with different models how they think the world works, then i think it'svebody agreeing we need to buy houses in california at cause markets to go away. it's this agreement makes markets work better so i am flying with their not being a grand theory but i do think that is one of the reasons some ideas that don work very wellave stayed in the textbooks a elsewhere because they are a grand theory and there's nothing to replace them. >> on the topic o grand fee, can you give your opinion of all let government spending that has been allocated to help the u.s.

economy and some of the thinking that maybe dving obama's current financial legend? >> well, obviously the initial big government action was to throw a bunch of money at the financial system so that money would keep coming out of the atm and you can never tell if we really were a risk of this complete financial breakdown whe banks stopped giving people money b that was the fgure why theycted like that and it didn't happen so that was the first -- it was probably a hugely inefficient use of money but it did sm to work. the second part is stimulus and the idea behind stimulus is when everybody is feeling blue and not wanting to spend if somebody will do it a that somebody the only one left in a tim when everyone it's usuly the government that can keep t economy going in a way and

that's another thing as far as rational expectati macroeconomics stmulus can't work. but you sort of watch what's happened over the ast few months and it seems to be working. obviously like with cars for clunkers all of these people are rushing to buy the cars now that's going to result when it expires there will be a drop-off in car sales but if in the meantime y have gotten money flowing through the economy again and have gotten car maker starting to to look for new models and have gotten people starting to spendn other things mbe it works so there is not really any deeply sophisticated economic theory behind all of this stimulus. it's basically that world war to the u.s. government spentastly more money than it took. was the most dramatic economic stimulus eckert as far as i know and i worked and that's basically all economists ca say iteemed to wk in world war

ii so let's try it aga at a slightly smaller scale. >> looking atour son i have a question that relates to him so when he's in his college economics class is what do you think the dominant theory is of the day will be that will drive those studies? >> sali -- i mean, as it stands now i bet they will be pretty similar to the os we've got now. the 18 area people who have been talking this up for 20 years is the insights coming mostly out of physics but also other iences about complexity and evolutionary dynamics and nonlinear equations i could somehow lead to a better understanding how econoes work, and i am all for that. it's just it hn't happened yet as far as i know although i got this long comment on my block

the other day from a professor i peking who says i was unfair in shortanging the work being done in evolutionary dynamics. so maybe there will be more of that but i did a lot of these really basic economic theory is -- they are the stuff that is taught in economics 101 it esn't date back jus to the 50'sit dates back 200 years buthe bulk of it was sort of formulated in the late 1800's and there are valuable insights and all of it and i guess the question is how strictly you apply it and this again is something i heard from sam savage all models e wrong, some are useful and it's sort of what's useful under what circumstances so i would love if it is presented in a way that is more okay here are these theories we stick with them ese reasons but they don't describe everything that happens in the world.

>> to fall apart there any specific furies you feel have been truly justified being thrown out t door at this point in time? >> the querist one and ion't know that anyone ever stated this as a pherae it was just convenient to do, is to assume that risk and financial mkets works on the bell cve that bacally you have this scatter graph of lots of potential defense and most of them will cluster to words the mean a a sort of goes down. you have a few st of extreme eve dance bute w't have super extreme events. if on an average day the stock market only mov 1% you won't suddenly have a day it moves 25% like it did in october of '. and that's wrong. it's clearly a wrong way of viewing the world. eveneople who use this stu know that it's wrong but it

still gets used because it's convenient. when somebody calculates the sharp ratio of a mutual fund which ir this risk toeward performance measur they a reducing bell curve measus of risk i the little morningstar ratings are based on i don't knowf it is the sharp ratio wixom ackley but they are very convenient and very uful and therefore they keep getting used even though they are just -- as far as financial markets go they are completely wrong. >> there is some interest and how to think about the derivatives markets. can you talk about whether feel dham evence and other second order financial instrumes generally make financial markets more stable or on stable -- unstable and is the recent volatility and spoke about in your comments were, are these normalf you have a long

engh time in the horizon with which to view them? >> that is one of the great things about the world view over a long enough time horizon it's absolutely white on arage markets are correct over hundreds of years or evencores of years. as far as derivatives the only answer i can giv is i don't know. i don't know if derivatives make markets more volatile or less volatile and the stry i tell in my book is about poll brought working who is this professor at stanford for years and years at the food research institute and he did some of your earliest research in the futures market and randomness and how we efficient they were, ande was always really interested in this question do futures markets make the underlying markets more or less volatile ando he got this tast case in the early 60's when

congress band futures were trading in on me in onions. the futures markets were in dairy products and eggs and wheaand in the 30's with these new dl support programs, suddenly the chicago exchange lost a bunch of their business so they had toome up with new agricultural products to change futu so onions, they thought they would do onions futures trading and went along for awhile and at that point this was the chicago exchange, they were small dominated by small numbers of trars and so a couple of the traders in the early 60's decided to corner the onion market so you had ts incredible onions bubble and collapsed and all of these onion farmers o sd have just taken advantage of the bubble to sell and say okay, i will deliver my speech to add that in

same price. ey all started jning in the market and so all of these onion farmers were wiped out, and in prices collapsed almost nothing and they got congress to ban the trading. so they thought if you can look at onion prices before and after this market, then you could learn something and so initially when the legislation came and he thought let's loo back to on ne markets before and after they had an ne future trading and so of inconclusivand than the first test in the 60's seem show much less volatility before the ban than aft so it seemed to get evidence that things work betterith future trading but then someone elseo the study and 70's with a full decade after the ban and was the leas volatile and ne price period and that is basically what other research into other derivatives markets caed more volatility. they areind of inconclusive.

they don't seem to rule in the world that at same time i isn't clear they make it all that much better. an so, the theory behind why derivatives especially the explosion of different kinds we have had over the past quarter century would make the wld safer is basically theres this kind of perfect mathematical economic tory of the perfect market, which a couple of gerard who ended up at berkeley and kenneth to end up at stanford came up with this in the 50's sort of an efficient that would have the invisible hd would work perfectly even in an uncertain world if you had securities markets that basically covered ery possible future outcome, and so the argument people made and it was a student of arrows who went on to be a derivates the artist at and ice-t, steve ross who

made thisn the 70's is what that means the more derivatives we c come up with the better and more often a stable the rld will yes, and some perfect theoretical world that it's true but in the of real world where any timeouome up with a new financial product lots of pple don't understand and misuse it and mess up with it you may be creating lots of volatity at the same time, so i wish i had an answer on derivatives, but i thinthat sort of confident pronouncements alan greenspan in particular use to make over the past decade about how much they allowed us to decrease the riskiness of the world, the laws haven't really panned out. >> on a related note, they' has been allowed in the press recently about the growth in flag use of exchange traded funds and then things that are

called inverse exchange trade funds that take positions on those markets. you also have -- you have a lot of new product innovation iãdv@b over the long run. thissue seems to be a new financial product means to be tested through one cycle, one market cycle before you know if

it is worth anything or not and so the issue is always that since the early 70's there has been this incredible boom in financial innovation and a bunch of innovations have turned out to be either just completely useless or may be designed wrong and so i gss the fear i wrote my column this week, i wrote next to the pool at my parents' house, so if you have problems with it that is probably why. but i wrote my codumn at this high-frequency trading controversy and when you start looking the reason it is happening is because we now have this very competitive environment where there are lots of differe exchanges competing with new york stock exchange and nasdaq and they all need folume to make money and so, these new traders, long who make new trade every millisecond and that generates tons of volumes of the exchanges are catering to do whatever they c to get these people to trade more with them,

and at some -- it is clearly a much better systethan when there was one exchange basically the ne york stock exchange up to the early 70's that dominated everything and charged huge commissions and scialistsn the exchangmade tons of money using their private information that other people couldn't gep at and now the transaction cost to buy and sell stocks are low were so in that sense innovation has been great. the question lobody knows the answer to is their something about this that's going to go off the rail in t next couple of years when you're starting to make market decisions more quickly than any hum could even hope to keep up with and nobody knows the answer. i talked to this guy buzzy check out about tinters going and he's totally freaked out by it and it kind of funny so maybe it is just the fear of the unknown but i also think financial

innovation and increased speed and financial transactions it is a mixed blessg. >> let me build on that with a pretty clear-cut question how fearful are you about the survival of the market capitalist sysm especially given what you are now talking about about the pace and nature of innovation. >> i'm not that your full. i think we will puzzling out one way or anothernd i've got to say at someevel we don't want to -- we will have financial bubbles and crashes and that is okay. i just think we should structure the society and financial regulation in a way that w can survive and i think that we are surviving this crisis but it's easier for me to say because still have my job so there's been a lot of collateral damage that probably didn't have to happen. but i guess it's just in the category of i don't know what the alternative would be.

right now china is very fashionable and probably should be among other emerging-market countries because there is something to be said when you are playing catch up to identify whatorked for other people and what technologieare in other countries and copying them but it is much harder when you are one of the world's richest most developed economies for any government official or anybody else to say this is the path things are going to take therefore we should allocate reurces this way so i don't see any -- clearly right now we are doing more of that than we have an ally of especially with alternative energ and there is a lot to be said for that just because they're seem to be real costs to our current energy system and usage that it would be nice if somebody will step in and a sign of them to the right people so they wouldehave differently. so, i think we can always find

smarter ways to intervene here and there in the market economy but no ion't think market capitalism is headed for a bust. >> okay i would like to shift course and talk about your column and i'm curious if you could share when you think pre-and post all the events tt we are talking about now, how have reductions changed on the part of people reading your column? how has the nature of what you cover the changed and howoes that play out inhe real time every daynteraction you get from readers online? >> the big thing that's changed is i write about financial stuff 90% of time and despite t fact i wrote thisook about financial things i never thoht of myself as a financial writer and when i started writing like column i wanted to range in fferent areas and like keep saying next month, that is when

i will get back to not writing about banks anymore. in terms of the reactions of the thingshat is ieresting my column in the magazine it is an explanatory coln i'm not trying to rse hell and maybe it's one of the reasons that is the kindf person i am but when i got the time my column was the only economic coverage and issue of the magazine and it seemed inappropriate to have it be a polemic. nowadays there's lot ofer economics coverage in the and sometimes i wonder if i should pick more fights so i don't get huge amounts of reaction to the column because of that. i'm just trying to explain stuff, not telling people how to think. on the blog you just get a lot of -- i get a lot of reaction but it's actually i have this little group of ten or 15 people probably becausee make the sign in process absurdly difficult. [lauter]

and i actually like it that way because i will read a story on yahoo! finance and it will have 500 comments and 497 of them will be totally idiotic where the comments on my blog are mostly pretty smart. i engaged with them and we argue ba and forth. i guess the interesting thing is a lot of questioning since last fall are we going about this financial rescuend financial deregulation the right way and i don't ow what the answer is. i get a lot of -- why would say mo of the pushback i get is from people who think we are being o kind to wall street but i have no idea if that is representative. it might juste the people who read my blog or time of calm. i love the feedback because it forces me to be clearer. sometimes it corrects mistak and sometimes it forces me to be more clear in my arguments but i have no idea if it represents

anything more than ten or 15 comments on my block. [lghter] on the subject of feedbac can you also talk about the feedback you are getting from economists to your book and the general public to the book? >> i started in the last couple of weeks long e-mails from finance professors that started to arrive and i sort of kringen at this prospect because i really wanted when i wrote the book to have a bunchf time tween when i finished e manuscriptnd was actually movin on to publication to show it to a bunch of fince scholars and i just it didn't happen. suddenly i finally got to the point i was happy with the manuscript and the publisher w like we've got to get going with this thing and the couple of professor i got it to never g arnd to reading it in time and for the most part there is some little factual errors here and there that likely nowadays book publishers don't like to print

copies at once so i keep coming out with new printings and each one is more correct. let me see if this one has got any of the fixes yet. no, this is the rear our original edition. [laughter] of the typist. and so -- one reaction as you sure neglected this particular line of research and my response is always yes, you are right, sorry. and i a sure in many cases my decision to neglect will look stupid 20 years from now but in the end, i was trying to be as fair as possible and represent reality that when you're looking at academic arguments happening the last ten or 15 years there is no way to tellhat's going to last and what's not so you sort of pick the people o seem to be the most compelling characters who fit into the narrative flow the best. in genal everybody is pretty appreciative because i think from the title mt of the

orthodox finance professors expect this to be this total broadside against them because there are people out there, georgeoros is one of them and there's another money manager, jimmy grant, who basically clean everything that's happened the past few years on the efficient market hypothesis, they say, and i don't go that far, and i tried to tell the story and i think there's a lot of validity to a lot of these ideas so in general the e-mails are yeah, nice book but, a, you got the name of my paper -- you got something wrong about the paper i wrote in 1977 or, you know, you missed this line of reasoning or failed to ever say what you meant by rational market which is what was in the e-mailoday. ..

>> it seems liket is a lot less clear now than it was two years ago that you need to know all of these theories to understand how financial mkets and the economy work because clearly the theories sophisticated ma, statistics and everything else did not allow these people to predict what happeneor really understand why it happened, so

at one level i feel like, my whole goain thibook and i am somee who struggles with the math and the statistics and in some, as a real habit of reading alaikum it is like people who read pyboy for the articles, i read economics articles for the pros, not equations so, i am one of those people and i am sureome of the concepts i just got wrong and a lot of others i just would have to have them explained to me again and again and again and read articles and finally come through but i guess what it is, a lot of, and this is both the limitation of the way academic resech works, a lot of academic tories don't really say that much. because you try to be careful and you are trying not to represent something more than you can hand they are just restatements of the obvious or less of the statements of a very minor thing, so i guess, i do

think there is this concern that , then the rest of us will feel left out but it seems in terms of understanding the economy we have actually taken several steps back to a more simpler basically keynesian explanation for how things work at least at a time like this and away from a world where the people with thei fan equations can have all the answers. so, i feel like the inequity has may be decreased over the last

he 36 days of televised coverage of the mccarthy hearings in the spring of 1954. this runs a little over 50 minutes. >> it is a nice day and a lot of other things he could be doing. you could be over at the fixing of 100 pennsylvania. i am interested in seeing obama wanting to break new ground. but, what i notice ishat the he seemed to have taken a tip from harry truman, another democratic president. turman once said after being in this town, in washington if you want a friend, get a dog, so obama has done that.@@@@

this class perdue if everybody will keep your e on the glass. anyhow, he made it possible for the hearings to be televised and four, for history to be made. there were three major networks then, abc, cbs and nbc. cbs a nbc were much more successful and they had soap operas on during the afternoon hours when the hearis were,

and there was money in the soap operas. they didn't want to give it up to do some hearings and to knew what would come of it? the abc didn't have the soap operas, and so they didn't have the money to sacrifice and littlejohn condense them it would be good investment for them to do the hearing, so they did, and so while the book says, shows how the tv,evision it is worth remembering they did i in a sense with two hands tied behind their backs. the other two did summaries and the impactn the american peop what tremendous. now, i read this obituary and i was suck by thinking about it, because i think in terms of books, there had been a number of books about senator mccarthy

but there hadn't been any book that dealt specifically with the army-mccarthy hearings and i thought that thatas the subject that was worth thinking about ald worth people reading about. for two main reasons. one is that the hearings iminat the strain of political paranoia that seems embedded in r nationalna. now, mccarthy was one of the biggest, most successful fomentors of political paranoia in all our history, certainly in the last century. don't get me wrong, henry kissinger said even paranoia has real enemies so in the country seized by paranoia, face real dangers and communism certaly was a danger to the united states then enter the rest of the free wor, so called.

and, of as terrorism is today, but the problem with paranoia is that sometimes politicians use these fears and concerns and exploit, the play upon them and that distorts the danger, so what we don't wind up instead of facing and resulting in keeping the nation se, tense sometimes to make things worse. that is what happened during the era of mccarthyism, with the red scare, and that is what i feel has happened more recently in the last few years withhe so-called war on terrorism, which george w. bush and the so-called fkans, led by richard cheney-- these folks h fanned fears and irrational concerns in the same way

the disturbing thing about this is the media too often goes along with deb and exacerbates it, so that is one of the main points i wanted to make in the book, andhere was another, and that has to do with the importance of television and the impact it has had on national politics, which really, which mccarthy hearings paved the way for. probably this would he happened in the house. television i guess would have come to dominate our politics but it was the mccarthy hearings thatatalyzed this event and made it inevitable and made it sooner. let me give you the back story, d when i talk about television politics, it is not just that television andhe impact.

it is not television is the biggest boy on the block. it is just chang the way the ga has been played. let me give iou the back story on this hearing so to speak. when they opened in the caucus room of the u.s. senate, while this 55 years ago ts very month, and they did go along for 36 days stretchin most of the rest of the sprang into this summer, many in washington thought that history was in the making. th proximate cause of the controversyetween mccarthy and the army tat boiled over enfoe the hearings was pretty much come a pretty small potatoes by historical measurements. at the center of the disputes was a former aide to mccarthy's investigating committee, g david shine. he had been inducted into services mccarthy was in the midst of a legend spying it one

of the army's most sensitive instlations, the center at fort monmouth in new jersey. in what amounted to an indictment of mccarthy made public a month befe it started the hearings, the army charged the mccarthy and his staff have relentlessly pressured the military to get forable treatment for private showing. the army claims to boffended and indignant about all of this, but would undercut the army's professions of indignation was the way they reacted to mccarthy and schine. in status lamming cadore in mccarthy's face of the army had gone out of its way to be nice to him than to schine, to play up to appease him. that was the substance of the charge that mccarthy and his cohorts fired back at the army. they charge the army was trying to use schine a hostage of sorts, trying to use schine to

get mccarthy to ease up on his investigation so here you had to powerful elements in the government, it republican senator who was at that time probably the most feared politicians in the land and the uned states army, which is part of the eisenhower it administration, and thewere at each other's throats. so, this was such a mess why the senate decided that another way to straighten it out was to have a hearing and of course this made an even bigger mess, but there was no aiding that. there was also adding spice to this brouhaha. mccarthy himself said several times to the army that schine who had been aid, he was not a whollot of help, that he was more of a publicity hound than anything else so whatas the fuss about schine? schine's most ardent supporter and every sense of the word was

mccarthy's top aide, the brilliant, ruthless and unscrupulous royce cohn. the real bond was between cohn and schine and had little to do with subversion except as it applied to middle-class morality. some people would even suspect that mccarthy was in on the action. lildian hellman, a liberal playwrights in fact referred to the three of them schine, mccarthy and cohn as bonni bonnie and clyde. [laughter] whicyohave to remember that lillian hellman was mayor mccarthy said of home everything she says is a lie and that includes and a and the. but what transcended the petty details of this argument between

schine and how he was treated an whahe and cohn really have in common was this that you of the tucci protagonist. 11 side is mccarthy, who has the said w the most feared politician in the country. he had been more or less stumbled into his role as red hunter and chief and was elected to congress in the senate i a big gop sweep of 1946. onesy beared wasn't very clear to him what he should be doing and by 1950, he was sinking into obscurity and desperately looking for some cause that would help him get reelected in 52. looking for an issue, first thought of organized crime but a guy from tennessee got their first. i think you have heard of him. not only was he the first but he was the mocrats and at that time one of those bless the

ventricles, the democrats ntrolled the house and senate. what that time they have the white house too. over the next fe years, which was starting in 1950, by relessly exploiting the tensions of the cold war between the u.s. and the soviet union and the public anxiety about qaim yes exertion, he had come to dominate the political scene. hardly anyone even among the opposition democrats or his own g.o.p. had the gumption to challenge him go mccarthy nominal upon it was the army but with everyone understood in washington was that this senator principal adversary was actually the army commander in chief, the head of the administratikn which mccarthy regularly harassed and intruded on, dwight david eisenhower.

now, i, as the lights to be called, was probably the most widely admired american politician of the 20th-century. for reasons that mystify even his closest aides he seed unwilling a unable to meet mccarthy's challenge, to his governance. when people le himbout it, he said i don't want to get down in the gutter with those guys. that is the way mccarthy operated and he continued to throw mud and sil confusion in the eisenhower administration. now, many believed the general who conquer the axis could afford no further retreat. eisenhower's supporters woy unless there man held theine in these hearings, the upstart senator from wisconsin would make a mockery of his presidency and from a historical perspective, the states in the

nfrontation in the senate caucus room transcended even the future president eisenhower. in oer wor it was this clash with mccarthy and ike that threaten the future of the eisenhower presidency but there was a bigger issue at stake. in his first four years of leading, mccarthy of help to generate an nation of national waive the paranoia, a word mentioned before. the like of which the nation had not seen since the great post-war, world morabund red scare and that was before even i was around. went back even before he was building it. reputations have been ruined, constituonal rights had been trampled un and dissent had come to be viewed as disloyalty. everyone conceded that the country faced a real peril from abroad and in theuclear age national survival was at risk every day. this threats seemed likely to

persist for years to com the crucial question that faced the country as it did until the late '80s, the crucial question that face the country and what some thought the hearings would casts light was how in this harrowing arrow with america balance fredom against the security? how would t nation protected citizens and their freedom too? that brings me to the moral of the story, sort of an epigram for the book. ies the publisher to put one in but he said he would have to raise the price of the book so i will offer it to you for free. there is an old saying, one that i don't thinkogi berra would say, an old saying that all is necessary for evil to triumph is for good men to do nothing. and i might add in today's world of television to cover now, of course i need to make an exception here that it does not include c-span, because we all

know they do work of enlightenment. that brings me to the role of the median general and television in pticular. as i think most of journalists later concedes the media contributed to the rise of mccarthy by the way they@@@@ rbb

trying to make a living in mccarthy knew that by helping him do that, he would get on their good side and they would help himccomplish what he wanted to do, so he had a very keen sense of what deadlines were ande would call reporters when he knew they were sitting around looking at old copy trying to figure out a way to freshen it up. do you need new "nick? i s this quote on the wire from someone else. did he really say that? he said yeah t i can give you a better one right now, so that when a long way and was a very important thing. he was particularly good at anticipating the needs of the network. this was in thenfancy of television news but it still was a powerful factor. as fred friendly, whom you may remember was the producer of federal r. murrow show, fred

friendly said mccarthy would come up and say we are going to have a hearing. what dates you want this to do it? and, friendly said every time we did it that way they showedp. in the end mccarthy was undone at the hearings by somne who was st as good mccarthy, in fact even better at manipulating television in t media and this was joe welthe counselor for the army. welch was extremely skill lawyer who w hand-picked for the job of reprenting the army by no one less thanom duly. some of the people who know amican politics was a fair country lawyer himself than he had a great interest in defanging mccarthy said he do we have been more responsible than anyone else in making dwight ours and how are president. welch sais tup mccarthy early and spent most of the first 30 or so dayshat the hearings

setting up mccarthy for his downfall. mccarthy was used to coping with the indignation about raged liberals. could farm that off easily but welch was a different adversary. he was cloaked in a sort of foxinessrth folks the patrician as somebody the way it was formidable combination. w could you hating guy like that? he just kept saying self-effacing. i just don't understand the mechanics when this latest lie or wds to thatffect? inead of-- kant sally throwing him on the defensive end joe mccarthy mad. it was welch's steady coding which dve the senator to the outburst of destroying his career. wilcha been chiding cohn, who was testifying about acting swiftly about what-- mccarthy

list to that and got his goat. mccarthy in the midst of this, mccarthy interrupted questioning and stunned the hearis and millions of the words by accusing welch of trying to get hired by the committee. a young lawyer from his firm, wells bost firm name fred fisher who mccarthy accused of being sympathetic to the communist cause. this was just the moment welch had been waiting for. he knew mccarthy had disinfmation and he was just prepared for him to deliver that shocked. until that moment, senator, until this moment i think i never really gauged your cruelty or your recklessness more in sorrow than anger. little did i dream you could be so reckless and cruel as to do an injury. that is pretty dramatic and pretty effecti and that would have been enough to silence the most reasonable men b mccarthy

wabeyond reason at that time. welch had twisted his tail so much. having been frustrated and outmaneuvered by welch in the weeks of 1954, joe mccarthy could not leave him alone. he persisted in his attack and then we'll to let them have one of the most memorable punchlines of the 20th century. let us not assassinate this lad further senator he told mccarthy. you have done enough, bennie addethe words that drove a dagger into mccarthy's political life and became the fragments of the history of that era. have you know sense of decency, sir, at long last, have you left no sense of decency? when the hearings adjourned and the audience broke into spontaneous applause, welch white to the tears from his eyes not entirely sure howhey got there. six months later the u.s.

censored mccarthy by substantial votes and although the center's term had months to run for all intensive purposes his career was over. and aftermath television received many-- perhaps more praise and then deserved. the problem with televion coverage of the hearingwas the problem we have seen in televisi news elseere, it failed to look beyond the surface it stressed for entertainment and in this case the personalities of welton mccarthy failed to challenge the decisions made by those in political stardom. the most significant story, which was buried underneath the and ending points of order in partisan posturing was how the u.s. army and through the administration of dwight senhower allowed itself to be bamboozled and intimidated by a

demagogue whose demagoguery was distguished more for its ambition than any evidence he had. thisas the issue that televisionhould have explored to serve the public interest for which it neglected. and now it is to the print press miss the forest for the trees but it was television whichade them a national event and therefore had a greater sponsibility and opportunity to cut to the pompositynd personal flaws and give its viewers a fuller grasp of the forces that shaped the confrontation. so, as a result the hearis were a disaster for the nation's leading demagogue, mccarthy but except for his demise they offerelittle for civil libertarians to celebrate. mccray's adversaries focused on his reckless tactics and his bully manner but no one served to challenge in the underlying rationale for the mccarthy era, the beli that americans simply because of their association however pipheral or relatively

innocuous bottom popular organization. in this regard no one on television or elsewhere in the media questioned the role of joe welch. though he emerged as the hero of the anti-mccary forces he lacked the nerve to tackle the premise of mccarthyism had on. instead, by his cunning, which earned him a placen history he in effect endorsed the idea of guilt by association. when fred fisher first told him of his alleged problem in his background, his link to a relatively harmless organization called the national lawyers guild, he told the young man that he had done nothing to threaten national security and to forget it. instead,, anstead welch ce tisher packing and link the story t"the new york times" to inoculate himself against further disclosures. that assured mccarthy would kw

about it than would somehow you sit and this was the moment that welch-- to be sure the hearings didn't force the end of mccarthy's career and free eisenhower from dealing with that but neither the committee or joe welch confronted the issue of mark-- mccarthyism. that was the business the hearings left unfinished. in fact did not even started so the broader questions raised by mccarthy era, how mccarthy would reconcile, how americans would reconcile the heritage with the dangers of the nuclear age or never seriously erred much less results. the politics of fear and paranoia, well the ebb anot never really went away and indeed persisted to this day in the midst of this so-called war on terror. television has plad a role in that. the telling impact of personnel

in character is conveyed by the television camera wereot lost and candidates and their strategists and the dramatic evidence of television's power wasoon seen. six years after the hearings in 1960, john kennedy combined coolness and charisma outpointed aweaty richard nixon over television in debate most americans, who listen to it on the radio instead of watching it on television, thought the young senator om massachusetts had lost. at view years let ultimately two ronald reagan, the great communicato and what reagan-- as its chief media adviser, michael deaver with his mentor and chaman space,hat deaver told when they were discussing substance. i don't care about all of these issues are what you say about

that, just get this man's face on television. this is a face that when a baby se it, the baby smiles. the baby smiles, the babies all over america smiled and so did their parents and a lot of other people caught on to that. of course television journalism has at times demonstrated a tremendous power to do good. this was illustrated during the civil rights administration when television brought the drum of the police dogs assaulting civi rights demonstrators in the self it was demonstrated during the vietnam war belatedly, finally after the tet offensive when walter cronkite proclaimedhe war a stalemate, and when he announced at on television walter cronkite was at that time the most trusted american.

the shockwaves rolled to the government as lyndon johnson's press secretary said. johnson himself was devastated. if i'd lost walter cronkite i've lost the country, so the media participated to for lyndon johnson and man who had a grip the white house. so, television continued to struggle against itself. once described as a torch of an lightman, which people laugh, but when general-- that was what many people thought it would become. that is what c-span is still trying to do in i way, but the inherent limitations of our media make it a powerful mmunication, a means of communication but also a crude one which tends to strike of the motions rather than the

intellect. that is not my quote it was said by roger mudd him many of you rember as one of the top newscasters and analysts for cbs at the time. the industry somehow still unable and willing to move beyond its preoccupation with the razzle-dazzle. perhaps th most dramatic and disturbing evidence of emotions came with the war on terror. as awful as the events of 9/11 work, tv found aay to hike its. to begin with there was t endless repetition of the images of the missile airline crashing into the second of the towers and that the towers collapsing. as michael tumassey wrote, as the footage of the towers collap, seen for the thousandth time, so did the selva and-- thousandth tale-- tb

pave the way for president bush to proclaim the war on terror by embring thear image for what might be considered a disastrous criminal act and as the months wore on and the administration lead us into war first and afghanistan and then into iraq, there was very little on television to distract or question the drum roll toward war that was driven by bush and cheney and rumsfeld. now, this said thing is at televisions reviving the strain of paranoia in american politics have a century after ifirst became whip politically despite helping to bring down joe mccarthy may seem paradical but it is the same emphasis on superficiality, the same unwillingness to challenge authority and conventional wisdom that led the way.

among the facrs contributing to the failures, particularly in their rush to conform, journalists ignore the broader meaning of the first amendment. trelles talked about the first amendment a lot, usually as a protection or a right.

what many fail to recnize is it is also a responsibility. one of the clearest and strongest expressions of the full meaning of the first administtion came almost 40 yaars ago in a judicial opinion issued by a federal district judge in new york. when nixon administration went into court to stop publicaon by "the new york times" of the pentagon papers, the secret chronicles of how the u.s. government hadone back seval decades had involved itself in the war in vietnam. when the nixon administratio sought to stop that, claiming e day claims of national security was threatened, the papers resisted, contested the injunction and they went to court. ultimately was resolved by the suprem court in favor of the

press and the first amendment but before they got there, the judge wrote an opinion that i think was quite eloquent and very much to the point. the security of the nation is not thathe ramparts alone he wrote. secuty also lies in the value of our freedom institutions. a cantankerous press, an obstinate press, ubiquitous press must be suffered by those in authority and order to preserve even greater values of freedom expression and the right people to know. think about those phrases, cantankerous, obstinate, suffering by those in authority. that is language usually considered the path-- pathway to success and prosperity in journalism today or most other walks of lifeut he knew what he was talking about when he was saying in effect the press has totick its neck out to be willing to take some risktself to protect everything.

the decision they handed down applied only to the newspapers directly but it really does apply to all media and to all citizens. it helps to rend journalists as to what their rights are in covering the news. just as important, curt fine's word help to remind viewers and readers of what they ever right to expect from a journalist who served them. thank you for your attention and time. [applause] i hope i have not gone on too long and that will be very glad to take on questins. >> please raise your hand if you've got se questions on cardand we will collect them. w effective was ed rode armor epping mccarthy's tactics to the public and contributg to mccarthy's danfoss? >> as they say in the book, to use cybil metaphor, morrow which kind of the ben delaro the

weekend the bowl and set him up for the kill. just briefly murrow did a broadcast which habeen celebrated in hailed in the movie, good night, good luck, which exposed mccarthy. it was really an attack on mccarthy more thent was an analysis, and he collected a lot of film that showed mccarthy in his worst lhts which was nearing. otherwise, what he failed to do was to put into contextecause this was in the introduction of the book about mccarthy but it is really aook about america and the kind of country we are and how did this cntry get to a point ere mccarthy was permittedo get that powerful?

and that is becaus he was tolerating-- tolerated by a whole t of people who should have had the gumption and the intelligence to stand up and say too mu too far and they didn't. morrow d not going to that. he just went after mccarthy. you have the president of the united states, the u.s. army, 100 u.s. senators and several hundred congressman, where were they in this and where was morrow? tually it took him a long time to get around to-- and it was mccarthy that scared him into a. mccarthy word about what he might too and warning tomorrow that he had iormation which was going to smear him. it did not amount to a great deal but in that climate it could be very daming. morrow realized that he was, it was, he had better get mccarthy before mccarthy got him, so he

did and itas effective in that sense. he called attention to it and i gus maybe currently he could have done more and again not just at mccarthy but the issue of mccarthyism and guilt by association. >> do you agree with president eisenhower's physician not to challenge mccarth not to get down in the mud with them? >> no, mccarthy was blliant. i thought it was a very weak position. steven ambrose, one of the outstanding but refs of eisenhower criticized him on two basic levels. onis failure to muster the morrow leadership two challenge mccahy. the other was another muro issue, the failure to show his

prestige and support behin the supreme court decision to desegregate. eisenhower made it very clear that that's, it was the biggest mistake he had ever made, appointing oral warren to the supreme court. that was the way ike was, but he didn't, he liked to be like to and he liked people likingke and a lot of politicians-- sometimes worry about popularity, but we have to worry when they get to popular. the question is how did they use that popularity? how did they use that public support? think of what eisenhower might have done that he had criticized mccarthy and used-- heim why did

done for civil rights if he had come think what he would have stated so thare is there a lesson there not just about the red scare but the uses of political power and public support. >> would you refresh our memory as to how commusm was a threat to this country at this time? >> yeah, i guess it has been a long time since the cold war and that was one tng everybody knew. it started in world war ii, when we thought hitler when the soviets were brave allies. even before@@ the war there were some people who thought ding that there were some pele in this country who thought we were fighting the wrong guy, that we should be fighting stalinnd the russians cause the real fear of people was communism,

that would threaten the revolution and threaten everything we held steorts, banking and god, motheood, whatever you had but that was kind of suppressed during world war ii because we needed the russians to defeat hitler and it was the policy of our government. after world war ii, there were many more books written about this than havever read, but it was out of the legacy of mistrust and suspicion, relations between the u.s. and e western powers and the soviet union to grew bigger and dangerous on bot sides. makeo mistake, joseph stan was not running some kind of a nursery school there. he was a terrible dictator and a

tyrant who used ery means known to man to keep himself i power, and they had gotten nuclear, they had gotten an atomic bomb whic we thought was the hour, we had a monopoly on, which was probably a mistake. early on there had been soviet spies although most of it started when the soviets were allies and the rosenberg case, the alger hiss case, all these ople listen to what fed the paranoia and by the time mccarthy started carrying on about it most of this was over. at any rate, the soviet union did have nuclear weapons and they have the power. that was a phrase of thera of mutual assured destruction and that is what we relied on to say keep the peace, because the wo great superpowers, each one had th power to destroy the other so there was a real threat and

something to be concern about. we did know what they were going to do and they didn't know exactly, so we got to the peri. some people thought the cold war would never and, but it did. >> what were mccarthy's charges about the army? what effect did they have one invidual army officers and soldiers >> well, i don't know that they had that much-- it was embarrassing. it was kind of vague. there were spies, which was a very sensitive place and tre were charges investigated. the never found a communist or a spy. what it did and many people contested-- by making these choices, heast a pall over the

people at monmouth and elsewhere in the government that was doing important research because they were allnder suspicion, simply because of what mccarthy said, so it dealt a serious blow. i don't know how you could measure that, but the counter charge was that by doing tse things mccarthy had impeded our effort scientific effort said research and he never proved anything against anyone. he just created a lot of confusion and a lot of distraction from what the army's main job was. >> we have several questns concerning journalism. what do you see as possible solutions to the crisis in journalism today, the demise of strong regional newspapers, who used to fund washington bureau

this? will we see one national political paper? >> well, the question is what are people goin to read or review korelitz gatt? you can't have a strong paper withouttrong leaders. people are going to advertise. it is hard for m to imagine a situation. ten years ago, i retired. actually ten years ago this month. at that time there was a "los angeles times" and the idethat it would be taken over by the "chicago tribune" seemed far-fetched or that the tribune would then go bankrupt seemed even more incredible and of cose we see thi happening all over the country. i guess it's question is whether the newspaper business itself can adjust or whether there has

to be other outlets fond. peopleo need information and i think they recognize that, and so people come if you are in journalism, what it comes to be called, you have to find a way of doing it. pa othis is a function of our culture. think about your own light snow and what they were like, ten, 15, 20 years ago. what are the thingsou actually tink about? there is not a lot of time given to serious thought. it is amazing, the "a today" became a big success, just gave a little nuggets of the news. i'm not here to attack them. but the summit turned up the people said, the lesson is better the more we can get them to do this we will just wait it in front of their nose and let

them sniffrbrb the i think the rock bottom has to be-- because they do believe in the ehange of ideas and i think eventually, the good will drive out the bad or not drive it out completely, overshadow

it. it may take awhile but we all look like a young, healthy crowd here. i wish i had a better answer than that but certainly it is a good question to ask and something we all ought to think about. >> can you comment on the reactions of wisconsin voters to this senator. were they proud of him, were they embarrassed? who succeeded h? somebody like him? any comment on that? >> the answer is yes. somewhere embarrassed by him, some were proud of him. he gave the state a certain distinction, d that was important. people took priden him and also he came under attack and that made people support him. there was movement to-- the

did not get anywhere and mccarthy won re-election without much trouble in 1952. we have had a number of different-- a liberal democrat that served in wisconsin. wisconsin has the great tradition of liberals so wisconsin is e not one of the big estates but to simplified it is not a state that necessarily would produce reaction. thers a strain of that in the midwest, so it is also in the east and the south and the west. >> i want to thank you for all of your questions. we have time for just three more and remember he will be signing books after the program has concluded today. in the end how effective was mccarthy and how many lives did he ruan? >> i have got notes from people

telling me about people whose live not by mccarthy directly but by the atmosphere that he created, the blacklistwhich kept people om getting jobs in television and radio and which in noted to t offhe blacklist you had to pay these people to purg your name. finally people sue them for what amount to extortion and that helped. there are people who claim that he was an important remder of the dangers of communism. we would haveo-- it not clear to me that he havard nailed a communist on his own, and i mean people would claim, but i don't know who they would be, so there were there peoe dog what mccarthy did although they didn't create quite that much attention.

he gave, i think the ppleho were on his side claims that he gave anti-communism that bad name, so that the fear is not the communis but all the anti, anti-communist, so that goes on. it is a big country and there is a lot of argument going on. there people that are reckless and silly and say things on both sides. he just cut to a point where he was willing, one thing i learned about politics, it is onehing that i think it is talking about dna. something called ra and that is the risker version. the last thing they want to do is to gamble whatever they have come u political support. they don't want to take a chance to lose it so mccarthy would make some charge or other.

but they were afraid that if they challenged him or criticized him or anything, there would be a risks of the safest thing for them dwas just to let it go and get along. he tick advantage othat and that is so he finallyet his comeuppance. he just drove people, it wasn't that people got courage. ople realized they had to do something about him because they got to be more afraid of what mccarthy would do to them if they didn't strike back, as murrow did and what would happen if they challenge him and that is what brought him down, so rtainly there is no shortage of them today and we should see plenty more. >> according to this questionnaire,t seems that today there are tooy politicians practicing the politics of paranoia, too many for tm to be called into

account. do you agree >> well, i don't know. i think it is possible to call-- i think you'd do it in specific circumstances if you feel someone has been irresponsible or reckless or wrong. i think people ought to be challenged on that specific thing. i don't take much point in issuing an indictment and running out a list of people. i don't think people pay much attention and think you take it one added time. i think people ought to be responsible. people like to work hard, go to bed early, you know, eatwell and they ought to try and follow the conscience and not, and try and conquer their fear. it is hard to do. there are a lot of things to be anxious and insecure about but as the man said, i don't know

it's the only thing we have to fear is fear itself but it certainly is a significant-- >. final question, we understand they are writing another book. what is the subject, if that is true? >> well,, that's would be hard to default any time, but it is something that i am still working on and i would be glad to tell you all about it if you are nice enough to invite me here in a couple of years and we get c-span2 come. i hope people are still interested but i appreciate you and i am grateful for your patience and your questions. thank you. >> thank you so much robert shogan. he will be signing copies immediately following the program today in the front room and as a very small token of our appreciation we would like to present you with the women's national democratic club pen so

you can sign copies of your book. >> fine come mccain he bit here? >> you can take it home with you. >> i had one from last time but i was juct about to run out of inc.. >> we look forward to coming back again. thank you very much again robert shogan. [applause] .. @@ event.

live coveragen c-span2. >> we would not be here. our premise as the nation's leading journal of health policy and also i should stress is a nonpartisan peer-reviewed journal of health policy is that a serious health reform effort warrants a serious national discussion. health affairs was founded in 1981. my predecessors in the room today. and john would be the first to tell you that health affairs has been in the business of coverg health reform since 1981. as our system is an extremely dynamic one. periodicly more dynamic than others. health reform at health affairs and, therefore, we are very delighted to be sponsoring the session this morning. as many o you have been

observing the current debate know, we have become aware the discussions now going o about health reform are not always proceeding at the highest level. which is part of the reason why we decided we needed to have this today. some of you may have seen this cartoon in the "boston globe" earlier in the week summing up how the tone is at some of the town hall meetings as you see. the questioner says that we will allocate the question time among the badly misinformed the i justidly ideological and the acti hallucinating. we have an anecdote of this morng. we understand these issues are difficult to follow this fake protester is holdang up a sign saying we have no idea what we are talking about. we recognize that these issues are complicated. we recognize that the issues really demand a longer conversation than is frequently the case. as we started on this voyage of thinking that we could do

something useful, we selected several topics that we thought we could bring something to in der both to harken back to work tt health affairs had published in the past and also capture some of the issues that we understood were of great concern to the public. we do not pretend by any means that this is comprehensive systemic review of every issue that could possibly come up in health reform and by the same token we do not have a universally representative sample of speaker representing every possible ideological, ethnic, geographical or other perspective. we're not pretending that we're doing that. what we are pretending -- i hope more than pretending what we're doing is bringing you some solid, subantiveonpartisan discussion on some of these very key issues we are most honored to have a couple of special guests on the line with us today to kick things off. these are individuals who as they will tell us and remind us have been in the healthcare

trembles for quite some time and have a very speal perspective personally as well as professionally on the impoance of health in the united states. first, we are most honored to have on the telhone lean with us this morning from his hom in hanover, new hampshir former surgeon general c everett koop. you have bios in your pockets that tell you more about our marvelous speakers toda dr. koop is about to celebrate his 93rd birthday this year he was born in brooklyn, new york. he received his m.d. degree from cornell medical college following his undergraduate degree from dartmouth. after serving at an internship he did post-graduate training at the university of medicine, the boston's children's hospal the graduate school of medicine at the universi of pennsvania and received the doctor of science in medicine in 1947. he was a pediatric surgeon for many years.

he's presently t liz professor of daughter mouth as well as the c. everett koop institute. he's an internationally respected pediatric surgeon and as you a know, he wasppointed surgeon general and deputy secretary of health in the u.s. public health service in 1981. as surgeon general he oversaw all of the activities of th public health service commission corps. he took a great interest as many of you wl recall in smoking and heal, diet and nutrition, environmental health hazards, immunization and disease prevention and make the chief spesperson on hiv and aids he's a force in health and health education ande're most delighted to welcome this morning dr. koop. are you on the line? >> i'm on the line. >> good morning. >> good morning to you. i'm very pleased to join you today by telephone. wish it could be with you in

person, but my doctor has advised me to minimize unnecessary travel, and when you're 92, i want you to remember that you always should listen to your doctor. [laughter] >> i have spent my life in the trenches of healthcare as a physician and surgeon, as a public health professional and as an educator. since my retirement from the post of surgeon general, i've devoted much of my life to the subject of healthcare reform. we're now at a place little is more important to us than having a first-class healthcare system than truly advances thhealth of the american puic. since my -- we are now at the

place where we are facing critical question about shaping a system that is equal to our great interest. in that context, there are many serious issues that mand serious discussionnd debate. forums such as today's are essential to that oective and are essential to our democracy. i congratulate the participants, the sponsors and the audience and wish all of you well as y advance these discussions today. signing out from hanover, massachusetts, this is dr. koop. [applae] >> thankou so much, dr. koop and say hi to your doctor for us. we're also very grateful to have with us also on the telephone linerom arizona, former surgeon general richard carmona.

dr. carmona was the 17th surgeon general of the u.s. he sved as the nation's top doctor at the time as you will all know issng calls against major health concerns such as obesity, heart disease, cancer and the dangers of secondhand smoke. during his tenure he focused on shifting the paradigm of healthcare from treatment to prevention stressing lifelong healthy living is a key component of medical care. he's been passionate about eliminating health disparities. he championed health literacy. he also has become a specialist in the area of public preparedness and led the nation as surgeon general in combating many global threats to health, safety and security. he grew up in an impoverished hispanic family. he droed out of high hool and experienced health disparities firsthand. then he went on to become a decorated green beret in vinam, a police officer, a s.w.a.t. team member and

eventually graduated from college and medical school at the top of his class. his very broad medical career includes having served@s@@@@@rr a hospital ceo

and a professor of sueiy just to name is health. as surgeon general i became more acould you telly aware than ever of the health and public health needs facing our country. i believe that it behooves all in our great nation regardless of party affiliation to take the current debate over healthcare reform seriously and participate. help drive the debate to a tional and logical conclusion. i too salute today's efforts and others like it that are taking place around the country to bring all serious and reasoned perspectives to bear on this discussion. and, susan, thanks for yours and health affairs andur colleagues' leadership to bring us together for this important

conference that hopefully brings clarity and transparency to this mplex issue. and from tucson, arizona, where the probably hotter today than in washington, this is rich carmona signing off. thank you. [applause] >> thank you so much, dr. carmona. we had also invited dr. david sacher to say a few words ts morning. unfortunately, he was unable to join us even by telephone but also sent his regards and suppor for this conference. i'm most pleased now to introduce david colby from the robert wood johnson foundation. he's vice president of research at the foundation. his bio is in the packet and he has a few words of greetings for us. david? >> thank you, susan. on behalf of the robert wood

johnson foundation, i want t thank you and everyone at health affairs for hosting us today and especially for putting together this event. it comes at a crucial time because as we've all seen over the last couple of weeks, over the last month, the facts of health reform are too often getting lost in piles of myth and gigabytes of fear or maybe i should sayerabytes of fear or if i could, i think, make up a worth zetabytes of fear. as some of you know, i spent nine years at the physician payment review commission and then @t medpac. and i was there during the lt health reform debate. i'm proud of my years in washington. unfortunately, i had a front row seat to watch the last debate on health reform be derailed by panic and the politics. as a researcher and a fan of

dragnet, it pained me to see cold hard factsnd painstaking research drowned out by the likes of harry and louise. so with joe friday ringing in my ears, just the facts, ma'am, i want to do my part not to let that happen again and sessions like this certainly help. in order to fix which is inarguably wrong and broken in our healthcare system, reform efforts must be driven by research and data and forhis go-around, lawmakers and policy expert have no shortage of objective information. they are now guided by tremendousrsenal of what's wrong with the healthcare system and how to fix it. we know much more than we knew last time. we know definitively that americans receivehe wrong care or at let not the right care about half the time. we know that even though we spend more on healthcare per capita than any other country on

earth, our outcomes are not the best. we know that there a huge geographic viations within the united states on who's reiving what care at what price and whether it's working or not. as a private philanthropy our role in the healthcare reform debate is to provide our leaders an policymakers with the resources and tools they need to support the healthcare system that will achieve coverage, and improve quality, value and eqlity for all americans. that's why we support health affairs and why we're working with susan and her team oa series of health policy briefs that provide clear, accessible overviews of the most salient health policy topics of the day. the briefs include competing arguments on allides of a policy proposal and relevant factual research. the briefsnd a lot of other research-based inftion are available on our website by visitingealthreform.org.

the foundation's dedication to objective research and above a just the facts is why we are proud to support today's symposium. in closing, i want to thank all of the participants for sharing their knowledge and their dedication to the issues that are important to all americans. thank you, susan. [applause] >> thank you very much, david. david mentioned the health policy briefs. we are also bringing out a new health policy brief today that deals with many of the subjects we'll be covering this morning. that and our earlier briefs are available also on our website at www.healthaffas.org. they are available for free and we encourage all to access em. we are now going to move on to our first panel discussion. and again, we selected some specific topics that we thought

were going to be of most interest today basedn shat we thought was the greates area of interest in the public at the moment. what we could gauge was of concern at the town halls and so forth. and that we believed was this whole question of the fear of government-takeover of the healthcare system. all of you have heard variations on this theme. i simply selected one here that was written up in roll call a few days ago about a woman who went to a forum with senator chuck grassley out in iowa. this woman is a 61-year-old factory worker who was one of 2,000 people who showed up last week at one of grassley's town hall meetings. as you see here, like many of her counterparts, she had a message for the iowa republan, a k healthcare negotiator stopped president barack obama and congressional democrats from enacting their healthcare plans. and she goes on to say, quote, when 9/11 happened i was very

terrified. i honestly am more terrified now than i thought my government was going to protect me. now i'm afraid of my government. we have the car iustry being taken over, the banks were taken over, now i feel our healthcare. i think we have -- wre leaning towards socialism and that scares me to death she told grassley and this is in the methodt church where the town hall had to retreat because it d overtaken the capacity of the earlier facility. this led us to believe that we needed to go back and look again at some of the basic facts. what exactly is e role of the u.s. government today in paying for and/or providing for healthcare? and how might this change under leading health reform bills now in congress? and we've asked two distinguished people to address these topics in sequence. first we're going to hear from lynn nichols the director of the

health policy at the new america foundation and he's going to lay out just so we're on the same page what does the u.s. federal government do in healthcare today? then we'll hear from gail wilensky who's a senior fellow at project hope, aeteran of many positions in government in particular having been the administrator of the healthcare financing administration now the cms from 1990 to 1992 and also having served in the white house under president h.w. bush as a health policy advisor there. gail is then going to talk about how the government's role might change under leading health reform bills now in congress. so first let me turn to you, lynn nichols. ..

as well as free financing. sically, you want a government to do stuff that you want done that we can't do alone or we can't get done through the marketplace. the simplest example is national

defense. basically it's something that benefits us all,ut you can benefit from it even if you don't contribute and because of that, free societies left alone will not have enough of it and you get conquered by the al qaeda or whatever is this year's enemy, so national defense is essential. similarly, police, fire, things that benefit us all that you would -- it's hard to skewed people from, that you'd have free rider problems. externalities, things that are so good or so bad, they affect people beyond what people do naturally. like public education. think about it for a minute. we're all better off because everyone can read and stand in lhne. sometimes i debate which of those twthings you learn in school are most important, but they're both pretty essential t civilization. similarly, pollution is a negative externality, something that if we don't intervene on, we'll have too much of. so governmt ste in when thingc spill over from one person to another. little known function except to economists but it's really

important, promoting competitive markets. if we don't have markets that work, it's kind of hard to depend upon them, so payg attention and making them work is an extremely important function and this is by far the most controversial. redistribution of market rerds. if we did nothing in the redistribution sphere, people would starve. we don't want that to happen, so we do some redistribution. we argue aboutow much. that's what politics is about. and then finally, macro economics, stabilization, we learned in the great depression, if you don't intervene, you can actually have an economy implode and that's why sometimes you have to intervene at the macro level. so how does this translate into health care? public goods, a good public good example is knowledge. knowledge comes from reseah and dissemination. what we do in this aountry at the federal level is we pay for basic research through the national institutes of health. $30 billion a year. i won't go through every program, trust me, but

$30 billion of nih money flows to create new knowledge which is used in lots of ways. agency for health carrie search and quality spend $50 million on coarative research. we spend $30 billion on new knowledg $50 million on comparative effectiveness. nters for disease control, $1.9 billion protects us from diseases that could be imported by foreign agencies. electronic information highway is a public good, is a thing that can make us all better off. we'll have too little of it if we don't have intervention. food and drug administration, making sure that the drugs we get are safe and effective, making sure that labels of food are clear. and indeed, professional licensure is pretty important, because you wouldn't want me practicing medicine. the time i'm most nervous in my life is when somebodyalls me dr. nichols, because they think i can actually deliver a baby or

stop a wound. second hand smoke laws, thinks about that. we learned from research, david talkedbout, that somebody else smoking can actually give you cancer. how can you stop that if a free society unless you have som kind of loss? so there's a lot of stuf going on. no state and local governments deal with restaurants. fedel laws, the reason you don't have smoking in hand airplane anymore, because that interstate commerce. promoting competition. insurance market regulation. left alone like all good folks trying to make money, they'll colewd. this is normal. so in 1944, anti-trust case stopped it and we turned regulation of health insurance hover to the states. as long as they did it pursuant to federal interest. anti-trust of course. anti-cpetition. hmo a actually was a crowbar used to force a kind of competition into the markelace that was being spressed by lots of different interests. medicare advantage plans came out actually in their oldest form, 82, the idea was to have private insurance compete with

fee for service medicare, in a way that siors would haveã course is medicare,

medicaid, and schip. the most recent data i could get to compareverything was 2007. we spend $418 billion in medicare. we spent $340 billion in medicaid and schip and of that 340, 59% is federal. medicaid is a federal and state share. so theederal public insurance payments per year, right now, $610 billion. now, just tgiveou a little bit of perspective over time. in 1960, before wead medicare, before we had medicaid, we spent about 5% of gdp on health care, and that's now 16. out of pocket spending ud to be 47%, now it's 12%. go to bottom row. public spending used to be 25, now it's 46.

fundamentally, what has happened is that we have substiduted collective dollars for the out of pocket pment, of mostlthe elderly and the poor, who had no coverage in 1960. that's the biggest change in the way we've organized our health system. we pay for people who couldn't pay f it otherwise. ok. in perspective, this is total health care spending on personal services, 22% comes from medicare. % from medicaid. others include v.a. and d.o.d. and just think about medare, medicaid and then private insurance. private insurance is bigger than either medicare or medicaid, but not bigger than both. for hospital care, med compare is a bigger relative payer, because the elderly obviously go to the hospital more than those who are notlder, so they pay 28% of hospital care. note again, private health insurance is more than that and medicaid is 17. for physician visits, what you

see here is a reflection of both the fact that most of the medicaid population is relatively healthy and we pay relatively poorly for doctor visits and medicaid. medicare is 20, medicaid is 7. private insurance is 50. so when you think about who pays for dtors and who pays for hospitals, most of the money comes from a private source, and medicare a medicaid make up the different percentages. now one thing yoshould know about public payment rates, in case you don't. is that two-thirds of all hospitals, two-thirds, have a negative medicare margin. medicaid pays differently and less than medicare. in general. so our public payers are not what you'd call wildly generous. both pay less than private payers an of course this is one of big controversies that is role, but it's a vy serious fact. private payers pay a hk of a lot more per patient relative to cost than do medicarend mediid. i' close with a reminder of

what this debate is about. what i'm showing you here is th basically, 35% of our population in poverty is uninsured. medicaid takes care of some of the poor, not all. and some of the poor, believe it or not, actually have employer but 35% are uninsured. they represent 36.5% of the uninsured. ok. and the big point here is that roughly 60% of the uninsured make ls than two times poverty. also, interestingly, 10% of uninsured make more than four times poverty. uninsured are heterogeneous. most are low income, but not al let me remind you what the cost of health insurance is, which is why this stuff costs so ch. what y have here is a family policy in 2008 according to kaiser 12-6, a family of three at two times poverty makes 35-2,

if they bought an insurance policy on their own, it would be 36% of income. if the make three times poverty, it would only be4% of in con. -- income. and that my friends, is why reformts money. thank yku very much. [applause] >> i see we have a littl prlem here. if it's up, i can't see you and therefore probably you can't see me either.

when susan asked me too this part, my first reaction was to laugh. and say, how will the role of government change in health care reform, and i said, aha, that's a trick question. because i don't know what the reform is going to look like. but after i thought about it for a while, i thought, well, ok, it's a habd question. we don't know exactly what's going to happen, and the bills which i am not going to review for you in any kind ofetail differ substantially. there are a variety of places t@at you can go read these bills that have been summarized, they're very important, you ought to go do that, but there are some areas in which they are quite similar and i am going to talk a little bit about what is likely toappen, assuming we

have any health care reform legislion passed, which i do believe continues to be likely, alough we are in a point right now in august where everything seems uncertain, but my presumption is that we will see some legislation passed by the congress before the endf the year and signed into law. it does seem that we have seen a change in focu at least in terms of the way that the legislation is being discussed. and that is what had started out initially as being a discussion of health care reform, and a lot of discussionbout ghat health care rorm might entail, has now become a discussion of health insurance reform. i'm sure all of you have noted this difference. it is important to tryo distinguish whether this is a selling strategy to focus on the

insurance part or in fact, whether or not, it this really reflects a difference in focus, in terms of mong away from him care reform, -- health care reform more generally, that is focusing on the delivery syem changes that we all have discussed in these types of groups, to much more of a focus on making sure that health insurance is expanded to the population without it. the real problem in trying to have a discussion about how will the role of government change with health care reform, is right now we don't know which of the bills that we have seen thus far will prevail and thediffer in some important ways and of course, we have not seen what coulbe the most important of the bills, because it is the one that has had the most effort the being bipartisan and that is the bill that the senate finance committee will be releasing sometime ts fall. there are the three committee

bills that have come out of the house, they differ from the initial bill that was under consideration by the house. we have heard discussions in a very general way by the administration of the points and the principles that they think are important. there's not been a lot of specificity. i think this is clearly in response to what theyelieved was a strategic mistake in the attempt in 1993-1994 of the health security act to get health care reform passed. we have seen t senate health bill, but it did not have any financing associated with and so many of the most controversial issues, that is, how do you pay for health care reform or health insurance expaion, has not been included. we will know much more presumably in september or whenever it is thathe senate finance committee releases its provisions.

now as you look in terms of the kinds of changes that people talk about, when they talk about the changing role of government, we need to understand that it's not just more government. clearl people are concerned now about how much more government may be in their lives. susan mentioned in her introduction that what we are seeing in her opinion and i agree with this completely, is in part a response to all of the change that people have witnessed in the last year, or year a a half. just a the pressure on the administration to only be able to snd on health care what they can finance is a reflectn of having already had unfunded bills, like the tarp bill and the stimulus bill. what we are seeing in terms of people's concern about the

expanded role of government is reflecting what they have been experiencing in the last year, where they have seen very substantial increases inhe role of government in areas in which we as amerans are not used to seeing them. in the financial system. overseeing c.e.o. pay. being a major shareholder i g.m. and chryslerl and now, directly subsidizing people to buy new cars. is in that context that i think the question about what exactly is likely to happen to the role of government with regard to health care takes on a new frenzied reflection of concern by the american people abandon just as the -- and just as the ability to finance unfunded expenditures for health care would have been very different, without tarp and the stimulus package, in my opinion, the concerne are seeing raised

right now about the expanded role of government would be very different, had we not had all of these other eventsccurring in the last year, bute have and we need to take tm into account. in discussing the changing role, it's important to understand that it's not always just about more government. a lot of what we will see in health care, although we will see more government in any of the reforms that we -- reform packages that have been introduced thus far, is the shift to a different level of government. in particular, in health care, significant shift from the state government to federal government, you'll though in some cases, -- although in some cases, we are seeing proposed changes that would indice a shift from the legislative branch potentially to the executive branch and i'll talk out that in a minute. while i've indicated that we don't know exactly the dimensions of cnge that we're likely to see, because wdon't

know whichf these quite different bills will prevail in the end, if any legislation is passed, and as ie indicated, i think that is likely, there are some changes that seem clear. the first is, we will see substantially increased spending on health care by the federal government. the initial estates of what it would cost to get everybody covered were about $1.5 trillion. i don't think right now that is the number that we'rlikely to see because of the problem that we can only do what we can pay for, but that is probably the number that we would see had we not had all of these other unfunded bil that we've had to deal with over the course of the lack year. what we have seen in legislation are numbers like,1 trillion over 10 yearsr $900 billion over 10 years. it's hard to believe tt a trillion in the context of a trillion and a half is starting to sound more modest.

whereas, even for somebody who used to run the medicare program and thought that big numbers were a part of my lexicon, it is hart to be quite so quick aut throwing around numbers that start with trillions rather than billions. it is also possible, because of the issue that i just raised, which is, we will only see passed what we are able and willing to pay for, that the final bill could be somethin smaller than the 900 bill that we're talking about. i just threw in arbitrarily $600 billion. lower number might be, but it is possible that it will be a smaller piece initially, of expansion, than what we have seen now being discussed which is $900 billion to a trillion dollars. again, it will fundamentally depend on the financing strategies, that will be able to be passed by the congress.

so for sure, the first change r

reductions are more questionable. if you have any question in your mind about the truth of this, think back about what happened when drg's were introduced with a deliberate attempt t lower the length of stay by moving from a per diem payment to a payment of diagnosis at th time of discharge. it took about two months after drg's were introduced, quicker, but sick. and what that was reflecting was that while the days were shorter and many of the people who were discharged earlier were ok, some of the people who were being discharged earlier were sicker than the would have been and sicker than they should have beentherwise. again, a reminder that when you put downward pressure, it's very hard unless you have a lot of

selective changes going on to be confident that there won't be any unintended consequences that occur, and so the exact savings is something that we'll have to wait and see what is negotiated and what it is likely to mean, and reassuring seniors that their access will not be negatively affected, will be a very important part of the selling job for whatever legislation is passed. in terms of insurance, that's probably where we see potentially some of the biggest changes in terms of the role of government. for sure, what we will see, that is the nature ofúwhat is being proposed, is a lot more federal government responsibility in what has been an area where there has been very little federal government responsibility in the past. insurance, health insurance has, like most areas of health care, been primarily under the jurisdiction of state

governments. what is being proposed in many of the insurance reforms is that we will see this taken over by the federal government. it is particularly an issue for individu and small group insurance, but it is also going to be true at a larger level, where many of the businesses have not been affected by state regulation, because they have been part of the erisa exemptn, the law passed in the 19's that allowed self-insured firms not to become under the purview of state government, but basically, inealth care at least, not to be under the purview of the federal government either. if there is an insance exchange, it may or may not be at the federal level. it depends on which of the bills that you look a some of the exchanges are being proposed at the national level, that would of course mean more federal government involvement.

some are being proposed to occur at either a regional or state government level, so it will clearly be more government, but it's not clear which level of government that will be, and finally, if there is a public plan, thatould indicate a very clear additional role at the federal level. you would probably need something like a cmf style agency to operate and manage the public plan. you would have to make various decisions about how it would function. it is, i think, less likely to occur now than it seemed a month or two ago. but i wnuld sale, is by no means off the table. it is something that is still being under consideration and clearly, a very important issue to the left wing of the democratic party. much more so than it appeared to be early on in the campaign, much more so than it appeared to the administration early on,

although they he indicated all along, the psident has indicated all along, he prefers this strategy but he don't regard it as absolutely central to reform. the fear is exaly what lin indicated when he talked about the payments under medicare and medicaid. right now, most hospitals have negative margins under medicare. medicare pays about 80% of the private rate to physicians. the concern both by therovider community and also by the prate insurance community is that a public plan would have the full authority of government. it cou will have those kinds of pssures reduced in producing lower payments to the providers and thu restabilize private insurance on a going-forward basis. that is probably one of the most controversy lal issues th we

will have to -- controversial issues that we wheth have to see played out, not just because of the increased role of the government, t because of the potential repercussions on private insurance and on the provider community on a going-forward basis. the house has attehe had to deal with this by including a provision that says that the public plan would not use medicare rates.s@ i have probably lived in washington far too long to take such an assurance, even in stattory language very -- statutory language very seriousl one short sentence or one piece of legislation removes that language and then you have a plan with the full power of government behind it. there are some other very important changes that are at leasbeing considered. i just want to mention them. because they also have significant changes on the role of government. we have what has been referred

to as med-pac on steroids, sometimes called imac, independent medicare advisory council. it is an attempt to do something like the federal health board that senator daschle has mentioned and others have mentioned as a strategy to try to slow down health care spenng. it would basically like some of the provisions of brac for the defense department, allow decisions to be by an advisory group, appointed by the president, confirmed by the senate, with regard to changes in medicare pricing. there would be an ability for the congress to disapprove it, but if it had been accepted by the president, unless disapproved immediately, would become part of the baseline and therefore at this disapproval would ha to be paid for in some other strategy.

it clearly represents a very significant shift from the legislative branch, where decisions are normally made out reimbursements under medicare, to the executive branch. there is some recognition arising byembers of the congress that is in fact what would occur, so we wihl see how much credence there is toc including this in a final piece of legislation.c there has been discussions about individual mandates, either of a hard or a softature. i would regard what massachusetts has as a soft mandate. you have to have insurance, unless you're if a category where it's deemed that there is not affordable insurance available to you and then you're excused. if you do that, you have to decide who will enforce this, probably the federal government, but not clear. and what kind of penalty will be i am poetsed if youon't have

it. similarly, all of the bills thus far have a pay or play provision for business. that is, either they have to provide insurance covere, presumably meeting whatever the minimum benefit sndards will be, that will be available for plans that are part of the insurance exchange, or else you will pay some kind of a taxn it looks like 8% of payroll is the number that is coming up most frequently, but that is again, n yet been decided. it could be something less than that. in any case, who enforces this and how the penalty is collected will mean expanded roles of government. all of these that i've described, all of the insurance changes, the insurancexchange, the potential role for this med-pac on steroids, the mandatesoth on the individual

and the payer pay provision, represent significant increases in terms of the role of government. so for me, the bottom line assuming legislation is passed is to say there clearly will be a significant increase in government spending. we've talking probably in the neighborhood of $1 trillion over 10 years. give or take a little bet. -- a little bit. we are indeed talng about an increase in government power, partularly a shift from what has previously been state responsibilities to federal government responsibilities. we are likely to see a significant increase in the number of people without insurance coverage. the numbers that lin cited in terms of their distribution are numbers that have been present for the last 30 years. a study that i was involved with, 1977, expenditure survey,

had one-third of the people who were uninsured below the poverty line.c 10% or 11% above four times the poverty line. this is clearly a problem we will only fix by active legislative and policy changes. what to me is actual little the more relevant question, since if you want to lower the people without insurance coverage, it is likely to take substantially increasespending by federal government, and if you are going to reform some of the concerns that haveúen raised about insurance as we now know it, you are going to increase government power in terms of how insurance is regulated, is whether we really are seeing health care reform or not, and in this case, the questions are far greater in my mind. whether we will really see spending slowed over the next

decade or so, whether we'll really see health outcomes improved, more emphasis on wellness and preventive care. all of those are far less clear to me in terms of the health care bills that are being nsidered. if had my choice, i would have people worry much more about whether or not we are actually reformingest health care system in terms of the legislation we're considering, rather than just worrying about how ch addional government we are imposing. but if fairness, that is a legitimate question to raise as well. thank you. [applause] >> thank you very much, gail and lin. we're going to take some questions now from the audience. we have some roving microphones. we'd ask you to wait until the microphone comes to you before you would ask your question and ifou would identify yourself

by name and affiliation beings that would be very helpful. while we're waiting to see if there is a question from the audience, i'm justoing to start with one from the pod rater's prerogative here. linl what i understood you to be saying is the single biggest change we've undertaken in our society is we pool our dollars through the government to pay for care for people who used to not get it at all, chiefly the elderly and the poor and what we're talking about now is adding some more to that pool. more of the poor who we have not covered to date as gail said and this has been a stubbornly resistant problem. so if you had to characterize that, are we talking about a huge change or are we tadking about a change at the margin? >> well, it depends on how you define margin. the reason i put t numbers up there that we spend over $600 billion a year to take care

of the poor and elderly, what we're talking about, a fully phased in coverage of all the uninsured would probably be about 150 become dollars a year. -- $150 billion a year. that is a big number. it's not as big as 600, but it's a big increase. i would say think about it as a fraction of g.d.p. over0 years, 1.5 maps into 1.6 trillion, as a fraction of g.d.p. over 10 years, that is 0.8% of g.d.p. now, that's a little more than gail and i make, but it's probably affordable for a nation as rich as ours. the question is, and i think this is the single biggest question, are we willing to do what it takes to pay for to, and there are only three buckets. you can increase taxes, you can change the way we currently subsidize health insurance, and you can do something about the way we spend money i the medicare and medicaid progra.

in my view, all 3 buckets are necessary. we're going to do this right. and@@@@@@$rr'"

pushback tha you're seeing. >> gentleman those were employment based insurance, those who are working but not getting coverage through an employer, who we would say have to get coverage through an employer, that's what you're talking about. >> this is not to say that they shouldn't be covered. i believe that people need to be covered. it is to recognize that what we are actively doing now is expanding the role of government beyond the traditional focus of government, the poor, low income and old, to directly receivi subsidies, whereas otherwise they indirectly receive very large subsidies because of the tax laws if they're receiving employer provided insurance, so it is expanding the role of government for these other groups, in order to make sure everybody has insurance.

>> and gail makes a really important point and that is we're not used to thinking about people above poverty needing a subsidy nor anything else. and that's why i put the slide i did at the very end, at two times poverty, a mother of two would have to pay 35% of her income. at three times poverty, it's 24. the truth is sports fan, we waited too long to do health reform, it got too expensive, but we're in a situation where we have a disconnect. we think of the poor as needy, but for health insurance, more than the poor are unable to may for it. that's the question before us i think. >> all right. let's take a question here in the rear please. >> let's pick up on the pushback point and so let me ask you, what's your understanding of -- or what's your best guess in understanding this pushback, and

in providing that explanation, then what's the policy argument or solution to address that pushck, and let's just leave aside the glaring issue that the fp needs to be completely recalculated. >> >> fpl being the federal poverty level population. >> well, i think gail hit it on the head, that we are in a situation that is so unprecedented in our history to have been faced with an economic calamity, like i think it's fair to say, a broad consensus of folks thought we were last fall, let's not forget, paul son and bernanke going to the hill saying you have to act now. gail will tell you now is not a popular word in congress. it's hard to do. and they ended up with a tarp package that was a big, big chunk of change. the stimulus packageas $800 billion more, then we got tarp two and the autos, we owned a couple banks and insurance

companies now and this is really unsettling to a lot gf people. i get that. it's about if my view, the ideology of the role of government. how can this be a good idea? unrtunately, i think we're in the context where all that's true, but we still have i would say, $50 million uninsured today, because of the economic decline, and we still have a situation where the richest country on earth has people who get cancer, can't work anymore, lose their coverage, can't maintain cobra and they die. we don't really want that to be what america is, and in my opinion, we can afford better. what we have to do, i think, is extremely calmly accept the angst, accept the questions, deal with it. to me,he frustrating part is not the question. the frustrating part is the relatively small percentage of population, doesn't want a discussion. that's what's hard. we've guilty to have a discussion. -- got to have a discussion. that's what august is supposed to be about. we're trying, but that's really

what it's about. >> do you want to d anything to that gail? >> i think what you are saying, lin and i have shared many panels and laugh that we can take each other's positions on some of these panels, we have had an ongoing, serious problem in health care. 15% of the population, without insurance coverage, and unsustainable speing, a couple of percentage points faster than the economy, and real problems with regard to clinical outcomes. everybody who knows anything about health carenows that at is something that you could have said this year, lt year, five years ago, 10 years ago, 20 years ago, the number might have been 13% of the pulation without insurance coverage. there is a passion and a desire by the president and the congress to do something about that, and we need to do something about that. it is their great misfortune that they are trying desperately to do something about this, in

the context of having to have dealt with this economic blow to our country, which did require having it be addressed first and that that has put restraints and concerns in place that they would over wise hare not felt, but we are not going to resolve these issues unless there's active policy. we saw in the late 1990's, a decade of robust econoc growth and the only reason the number of uninsured didn't grow, because there was a declinen employer sponsored insurance, was because the children's health insurance program was passed in 1997 and that compensated for the people losing employer comnsated insurance, so if we're going to fix the problem, 15% of the people without covage, we're going to have to have explicit policy changes. to my mind as an economist, what is even more important for the economy as a whole, if we are

going to slow down government spending and improve health outcomes, we are going to to make a lot of changes in terms of how physicians and hospitals are reimbursed, how they're organized, our whole emphasis on preventive and wellness care, rather than only sickness care. we don't kw how to make these changes happen. we hto be much more honest, that it willake time and trial and error to figure it out. and as soon as we can figure out the mode else that work, that produce the intermountain health care and the kaisers and the mayos, we have to try to hp them spring up otherwise in the country, other parts of the country. but we need to not be so glib as to say, oh, with their $700 billion of waste out there, we can just go grab it somehow and then we'll have financed health care reform. we know where we want to go for the most part. we don't know how to make it happen. >> all right. we'll take one more question

here in the year. >> lou diamond, thompson and reuters. i go back to the 150 billion and the distribution and two questions. one is can you give us a sense of the distribution of tt 150 across the income spectrum, and this is obviously not all low income and how that compares and how would he should think about the tax deductible handling of private sector insurance hand how that distributes across income and should weot be including in our discussions that comparison always? >> yes. and we'd like to hirto you do this talk from now on. that is the perfect question, because fundamentally what you've done is described one pyrami where wknow in order to get the 50 million covered, we're going to have to subsidize people at the bottom virtual my completely and you can scale it back as you go up the income

ale. my view, you could probably pull this off, subsidizing people up to three times poverty, maybe some would want to go to four, but we could do it at three. but the current subsidy that we useúthrough our employer system is the actual reverse, that is to say, we subsidize bill gates rate and the people who pick up our garbage every night, now have been put into firms without anybody else in the firm, they get no coverage, they get no tax benefit, so we basically have an inserted situation here and we could absolutely minus 1 make mother both more efficientnd more fair. >> if you want to know the numbers, it's about 60% of the people are below two times the poverty line. that's who would -- about 60% of that money would go to them. 40% would go to people above two times, but it's mainly the two

to three times the poverty line is the concentration as you've heard, it's at roughly 10% of the uninsured are four times or more of the poverty line. almost all economists, except during campaign periods apparently, would tell you that we should get rid of the tax exclusion from employer-sponsored insurance or limit it, because it encourages people to buy more insurance than they might if they had less buy assistanc and because it is terribly unfair, it is worth more the higher your income. the senate finance committee sound like they might consider it, now they're sounding less like they might csider it. it's a huge amount of money. it is -- lin had a wonderful phrase. it is off the table but still in the room. and that's because the congress is so desperate to finance these expansions and because this makes so much sense, it will --

it has political challenges, the unions don't like it, although you could exempt existing contracts, andf course, the president trashed the idea during the campaign, so that makes it a little politically awkward, but way more awkward things have happened in hour history than that. >> well, just to wrap up this really excellent discussion, what we're taking away from this is from lin's presentation, the federal government is very, very substantially involved in all aspects of health and health care now. and what we take awafrom gail's presentation is that to the degree we're talking about adding to y of this involvement, yes, it' somewhat more, under all of these proposals, and a lot of it is not necessarily more, but differen different levels of government taking over responsibilities, moving them from the state to the federal level, for example.

so i have guess we're left here with asking the goldie locks question, is all of this too much, is it not enough, is it just right, is it probably necessary if we're going to accomplish the goal of covering the uninsured, is it probably not enough if we want to really bend the curve? how do we reach a judgment on this? and i know this is a qualitative question, not a quantitative question, which may make you as campuses very uncomfortable, but i'm -- economists very uncomfortable, but i'm asking it anyway. >> the increased spending in the increased amount of government is not as worrisome to me as of the lack of focus on reforming the delivery system, point one. and point two, some of the proposed changes are either

needless or potentially very disruptive and i would put the public plan, number one, in that category. there are other ways to resolve some of the problems. you need to be very careful that you understand which problem you're trying to solve and then think about whether it's the best or the only way to do it. in terms of what is being proposed. it's at that point where you could change or reduce some of the increased amount of government regulation, by using a different mix of regulations, and expansions. but if you're going to solve this problem, you will need increased spending and you will need more regulation, that is a fact. >> i would certainly agree with all of that. i think what i would say in terms of the goldie locks questions both god and the devil are in the details. i think that if you imagine that we do indeed want to solve these

problems, that is to say, so many of our people don't have access to care, 20,000 die every year, according to the iom, we nt to solve this problem. we're going to have to spend some mey, we're going to have to increase the role of government. however, some of that, in fact, all of it could be relatel smart. it's an option. it has happened. you can do this without the heavy hand. you can do this in such a w that actually makes marketsork better. that's the pointsn that's what insurance market reform is about. it's making markets work better and more fair. but to do that, you do have to pay attention to incentives and choice and my view, if you pay attention to incentives and choice, you can also bend the curve, but i haveo say, it's hard to talk precisely and seriously about bending the curve when you're being accused of rationing for raising the question.

that's why gail and i both spend a lot of our daytime trying to@k 're going to move on now to orifex topic, which we have selected this moing. and it is the concern that has been raise about what happens if you really try to reduce the rate of growth of one particular

program. medicare. sotimes this has been referred to as a medicare massacre. and once again, i want to reach out to the news media to select a representative story that seems to suggest the tone of this is a police that ran in politico last week. the reporter cites the fact that frustrated older americans are a packing town halls, very passionate about their medicare benefits and very disapproving of the health care reform ideas that they appear to have heard so far and the reporters go on to remind us that these people, this demographic votes in larger numbers than other demographics, which is part of the reason their voice is taken so seriously. at the tuesday of last week town hall event in new hampshire, president obama made a point to reach out to many of these seniors, he took note of the low

support if polls for his health proposals and said we're not benefits. however, the reporters go on to point out that obama is talking about hundreds of billions of dollars in savings for medicare, cuts supporters say will trim fat from the program, including slashing and this is a very important word that people in the news media often use, slashing, just very graphic slashing $156 billion in subsidies to the medicare advantage program. the privately administered medicare program. this is the cause of such concern, that we thought it was particularly important to just focus on the medicar-- proposed medicare changes, in many of the pieces of legislation today, so we're going to discuss now, what are the implications of slowing the rate of growth in medicare spending, and we want to emphasize that phrase, because despitthe use of the word

slashing, what we're really talkin about here is medicare not growing at this rate, but growing at this rate. so if we slash it that much, what happens? and what, if anything, impact would there be on beneficiaries and we have three terrific persctives to bring to you now. first, from the vice-president of the peter j. peterson foundation, then we'll hear from darryl kirch, the president and c.e.o. of the association of american medical colleges, who will be speaking about many of these changes from the perspective largely of physicians, and then from the president of the health research and educational trust, and senior vice-president of research at the american hospital association, who will be speaking about these changes from the hospital perspective, and again, since much of the savings comes out of the hospitals, it seemed particularly important to address what might the impact be

on beneficiaries as felt through their hospital care. so let's turn now to hear first from jean sterly. >> thank you, sue son. the title of my talk kicks off from almost the last name of lin nichols about let's talk like adults and let's talk like adults about health care reform is related to medicare spending. in many ways, i feel a little bit like the basketball coach who had a player one time who was very nervous at practice, so the coach asked him why was he so nervous an he said his sister was about to have a baby and he didn't know whether he was going to be an uncle or an aunt. i think in many ways, that's the way the debate over health reform has proceeded, in particular, with respect to how

medicare spending is going to evolve over time. the first fiction that i'd like to put to rest is one that cannot only come up in this debate but was famous in the debate over the hillary clinton health care reform as well. where congress should keep its hands offer of medicare, and -- off of medicare and you hear this a number of times. in point of fact, congress does regulate medicare, it empours the executive branch to do things in medicare and med compare is a publicúprogram, so one way or the other, congress is going to regulate medicare. the debate is not whether congress should keep its hands off of medicare, but how far should it actually regulate medicare a how can it do it in the way to provide the maximum benefits to the public. now the simple fact is that medicare and health spendin are on an unsustainable path and given that they are on an sustainable path, congress is going to reform medicare. if you remember one thing from

this, that so far, real medicare reform is not on the table. gail emphasized that, lin emphasized that a little bit if his talk. for the most part, medicare reforms that are being discussed are fairly modest, most of them relate to providing information that might, might be used down the road to try to control costs, and this is in a system that's unsustainable. just to realize how health costs in general are at an unsustainable path. this is just a projection made by the congressional budget office of health spending which is the bottom line on this graph, vis-a-vis other non-health spending in the economy and what shows is that this health spending, it includes not just medicare spending o course, but other health spending as well, is growing by leaps and bounds, basically shoving aside almost everything else tha is being done in the economy. and the same is true for the government. if you look at the government

projections over the george w. bush administration and over the president obama administration, at least as under current law, the greatest changes under both these administraon is basically an increase in medicare spending and secondarily, an increase in spending on the elderly through other cash programs. that is, almost all of government growth, government growth that does come with economic growth, is basically projected to go towards programs for the elderly. i'll discuss if a minute this growth for the most part as not affect being the current elderly. the real question is what happens to middle aged people and whether this is where they view in many cases in the audience, whether this is what you want governments to be ing more of in the future, as it gathers more revenues due to economic growth. what's another fiction? as i said, 29, is it going to see real medicare reform? i doubt it. at least right now, what we're seeing is only a minor prelude

to a real medicare debate that is going to come up. in fact, i predict it could come up as early as next year, when i think congress is going to have to start addressinthese deficit issues. it's going to have to start addressing them because of the extent to which we're borrowing from china, it has to address them because people are concerned about tax operates rising enormously and it's going to have to addre them because the growth in health care spending is involng aside almost everything else the government does. will shove aside the brief interlewd, basically programs for children are scheduled not to grow at all. spending on health and retirement for typical elderly person is scheduled to grow from about $22,000 per person to over $40,000 in about 15 years or le. we're as spending on children is basically scheduled to stagnate. so all of these pressures on the budget are gng to come into play and i think they're going to come into play in very big

ways next year, but so far, congress isfraid and the administration is afraid to really tackle them in any real way. just to see this in terms of some numbers. this shows you under president obama's own budget, where he projected revenues would go, now a lot of the revenue increase here by the way is due to the economy hopefully recovering and others are due to tax rate increases he proposed, but you see the bottom line is growth in medicare, medicaid, social security, interest, and defens e is inhere too. actually defense comes down as a percentage of g.d.p., but it shows that nothing is lt over for anything else, except by running deficits, so there's nothing as far as children's program, there's nothing left over for energy programs, nothing left over for turning on the lights in the capitol under president obama's own budget and this is happening now, this sqeze is taking place now and what it means is that real medicare debate, a real medicare debate i think is inevible in the near term. :

>> in many ways the debate over health reform is small as a change compared to the changes that are already built into the current system. and so the real question we have to address, conservative, liberal, like, democrat,

republican alike, is how do we take all of these changes, but them into a pkage that is affordable and decide what we want most of. if we are middle aged, do we really want most of government growth to go to ourselves? or would we like some of it to go to our children that we would like some of it to go to the uninsured, that is a question that faces us and it faces us big ways. now, there is a fiction that comes about, i think again on both the liberal and conservative side about fixing medicare. i would say in many ways there has been unison on not fixing medicare. from the left, you get t argument that you can't fix medicare by itself. we can onlyix medicar if we fixed medicare as part of some very grand scheme on fixing total health care and er economy. i am not opposed to trying to fix health care in the economy. and is health care reform bill attempts and some moderate ways to try to do some of tha the notion thatou can just leave medicare alone, that medicare can operate without a real budget in the midst of all

of this is somewhat sill medicare is in many ways like the line in football. it leads. and if you talk to the head of the insurance company's, i have done that, they indicate that many of the prices that they set for the goods and services they provide is directl related to what they see medicare set as a price. maybe we can set a price sometimes all we can allow allow a price according to what private payers are paying. medicare leads. is the line. it is the begin july. and it actually makes a big difference in how total health costs grow over time. there is another metaphor if i can use it. and that has to do with the notion that we don't know what to do about medicare. health reform is as big as the economy of france. there is no way today we are going to determine what the economy of france going to look like 10 years in a. there's no way did it we will determine what health care will look like 10 years now. that doesn't mean we can't make decisions and we can't start up processes. it sort of reminds me like

parents arguing over child. you may feel your child needs to spend a lot more time practicing the piano or a lot more time studying. your spouse may be a little more lenient. a little bit of sesame street won't hurt. but if the kid is playing in the street, you can sit there and debate whether you want to get to watch sesame street or play the piano. but you shouldn't leave the kids playing in the street. in the matter, leaving medicare alone in an tnlimited budget, an open-end budget with little constraint on what is provided in the way of services by doctors, on what the public can demand, it just doesn't work. it is not a sustainable system. we are going to fight over the. were going to fight over the issue. will fight over next two and will fight overt 20 years from now. it still doesn't mean we can leave the system with an unlimited budget. medicare leads. it has got to accept that role. just to show you the role of medicare. this is just medicare in terms of the total health spending. medicare is the bottom portion

on there in terms of just huge growth, a percentage of gdp that it occupies. from the right you get the notion, well, medicare can't regulate prices. we know we don't like wage and price controls. they failed under president nixon. they will fail again. i hate is nothing but every insurance company in america, including medicare, sets prices. it might not set them very well, but there is something that stopped the drug company from charging an infinite amount for the drug. medicare doesn't regulate prices very well but it does set a price on everything it does. and it does decide what its medical care and what is not medical care. it does regulate. to the question of whether medicare should relate or not is a little bit silly. the question isow can we regulate it well. , and the issues we have to address, is how medicare favors specialization over primary-care, like other health insurance by the. how medicare favors chronic care overtures. i talked to had the drug companies to admit they will spend money for chronic care

research. they want to spend a lot less on chairs because chronic care raises a lot of@@@@@@rra)rr or more, is going to be paid for somebody else is going to come up with a $500 billion. it will come out of children's programs, it will come from somewhere. everything government does is

creating losers. the only policy that doesn't create lose is the status will. again, the debate is not whether we have changed, it is how do we regulate, organize a channel that energy doing toward good things. let me end with just a couple of other facts. the average health care costs per household in the united states now is about $21000. i am adding and not just the cost of your insurance. i am adding the cost of medicare, i'm adding it all in. average cost today is now $21000. this is the type of numbers that len nichols was struggling with when he sd that we actually waited too long to deal with health reform. how do we pay for that? right now we already pay for that through taxes of about $12000. by the way, i had in the cost of tax subsidies to the numbers you were before. and we pay about $9000 other means, largely by the way on the tax side by the way is through deficits.

what is the tax rate that is required to support medicare alone? in 1990 it was about 4%. in 2010 it is about 10% and in about it will take almost entire social security tax rate we collect now a 15% just to pay for medicare alone by 2003. those are changes that are built in the current law. those are changes we haveo deal with. those are changes we hope to deal with when we deal with health reform in the grand scheme of things, but right now we are not dealing with them in his health reform package. thank you. [applause] >> i am here to speak about the situation ostensiy from the doctor's perspective i don't pretend to represent all the physicians in america, and

it would be an egregious error to imagine that physicians all have the same position on health care for. they are just like the rest of americans that they have all sorts of partisan inclinations one way or another. the point though i would like to make that i think has been lost in some of the dinner recently, is that there is something very common among all positions that seems to be in the background of this. and quite silly, that is the hippocratic condition. physicians are professionals bound together by an oath and in cornerstones of that oath are to do good, and to always avoid harm for their patients. that is there from day one. i am privileged to travel around the country and talk with everyone from medical students, or a spider and medical students to the world's best specialist. that binds them all together and

they all agree on that. that is why you do not hear physicns arguing against covering the uninsured. and for them it is not a policy issue. for them, they see the net impact on patients. they see what happens when an uninsured individual is allowed to have a chronic illness, blossom, develop, go untreat d then they show up in the emergencroom at two in the morning. based in does that might've been avoided with better prenatal care. and they are the people who are at the bedside, as you will hear from my colleagues at the end of life. so they know it critically important, not just an economic questi. it is a human question, an ethical question, to cover the uninsured. and they are behind that. they also are painfully aware of what earlier speakers have lead to two, the lapses in quality, the lack of efficiency, the increasing affordability in the system. and they want to see that

rectified. so as i move to talk more specifically about the question at hand, the role physicians play in medicare and a larger health care reform, please keep in mind that eical underpin. that being said, physicians are ncerned about medicare. they have done their best to treat medicare patients over time, ia system that has some fundamentaflaws, as i will mention. the thing tha is a very immediate issue for them is we are not engaged now in the first attempt to contain medicare cost. there have been earlier attempts, some of them are playing out. one of the most blunt instruments that's been applied to medicare is something called for the policy in the room, the sdr, sustainable growth rate around physician payments. it is an approach not focused on patient needs.

it simply was an across the board attempt to tap down medicare physician cost. if that were allowed to go forward in its current configuration without some change in the legislation in front of us, it would actually cut physician payments this coming january 1 by 21%. the net result of that does not require a mathematic equation. if physicians can't afford, they can't maintain their practice financiall, when they see medicare patient, access for medicare beneficiaries would fall. that is a simple fact and that is why in both the house bill that is before us and in the senate, you see a tense two in one way or another address this, to prevent falli off that acts as clip for beneficiaries. the issue about the medicare reimbursement goes beyond simply

the physician payment rates. t@ere are lots of other support that flow through medicare, especially to what often are called the safety net hospitals. and many of those hospitals are familiar to me in academic medicine because they are teaching hospitals. they are often the places with the trauma unit or the burn unit. they are also the places where docts learn their craft. there are a whole series of special medicare payment that go to those hospitals that have been at various times discussed as potential ways to sweep up savings, to pay for the cost of insuring those. in my view again, this would be another clip we could fall off, to destabilize the safety net hospitals at a time when wneed them as much or more than ever. would be another one of those very unwise steps we might take in hopes of saving money. so the physicians i speak with are encouraged. these issues are being recognized. no one is sure what the solution

is, but they know that they troponin step, the use of blunt instruments like this will not get us where we want to get in terms of quality. this feeds into another aspect that really was alluded to here. our entire health insurance system, anthat system is strongly shaped by medicare is driven by fee for service payments, essentially volume-based payments. to put it in the extreme, the more severe illnesses people have, the more treating them is incentivized. that is where the rewards in the current systemwide. we have undervalued primary care. this is the reason you hear so many people correctly say this looks more like a sick care system than a health system. i see more and more physicians ready to step out of that world. the colleagues that i speak with

know that being paid to intervene when things, illnesses have gone too far is not what they went to medical school to do. and they are ready to consider alternative payment methods that start to focus on value and outcomes as opposed to volume. that unfortunately is being talked about only peripherally in this debate, a point i will return to right at the very end. i want to also address a second point that i think is being lost in the current. thquestion of doctor joyce is a very legitimate one, d i got you the opportunity to pick the physicians that care for me. but the bigger question i think americans are relatively unaware of is will there be a doctor to choose from. we went for a period almost 40 years in this country where we did not expand our medical school capacity at all. even as our population was

growing. most of you know what we did, we started importing internationally trained physicians to fill our gas, especially in rural and underserved areas. that is now coming home to roost for us and it is a problem. i am not sure what the right number is, but we've had a very hard time in our own wkforce studies findina projection that doesn't show's facing doctors shortages in the hundred $250,000 range, doctor range by 2025. that is a lot of doctors and we don't have doctors freeze-dried on a shelf. it takes a minimum of seven years to fully train a physician. this is a problem that we have been very concerned about for several years. it is an even bigger problem in nursing. we're in the same time period the shortage is projected to be as high as a quarter of a million nurses, and then you

certainly detected that the most acute point in all thiis primary care. fewer and fewer physicians want to go into a specialty that is undervalued an underreported. so as we say we want to shift from sick care to primary care and preventive medicine, we are not producing the people to do it. the most encouraging thing in the legislation so far it, as was in the presidents budget proposals is an attempt to reverse these trends. without going into detail, there arlarge set of programs, including the national health service corps, something with his urge to serve that i see i so many young doctors were that can be strengthened so we can put those doctors where many of those poor uninsured or underinsured patients are. that so-called title vii and title viii program that not only helps expand numbers, but will help build primary care and will help increase diversity in medicine. so these are embedded. they are not at the forefront of

the debate, but in the end we can talk about policy all we want but if the is no doctor in the house, we have a problem. the last point i want to make is just circling back to something several have talked about. we have wrapped ourselves up in health insurance reform, where is the health care delivery reform? i am fundamentally ver worried about the lack of discussion abt howe transform the care model. in academic medical centers, teaching hospitals and medical school, you have typically physicians and doctors working together under a single umbrella, under the old fee for service problem doing lots of procedures. but as i talked with them, many of them lament the fact that we don't do a very good job of keeping populations well. a following patient, longitudinally over time. they are really eager to move them to better care models. what they lack in many cases are

the tools. medicare, for many years, has had a lot of demonstration authority, but they have been fairly limited projects, a certain kind of disorder here or certain payment model there. there is another piece of legislation beyond the major senate health and health bil that i encourage all to pay some attention to. it is a house bill h.r. 3134. and it is a very small bill that is an evolution as every bill is and it is to create heth care innovation zones. h. i c. i think at his time in the course of the rest of this debate to do what we do in other areas of american enterprise to y we are going to intify zones where willing providers, doctors and hospitals, together with willing insurers, especially medicare and medicaid, can come together with other partners and really start to shift towardshat care that is based on outcomes and quality as opposed to simply generating

volumes. of activity. it has a long way to go i think before it is embedded in the major legislation, but in conversations, the senate, cms, i think people know that we need care innovation as much or more than we need payment reform. and i sincerely hope that this is the place in which doctors, hospitals and patients can come together in a different way. thank you. [applause] >> good morning, and thank you, susan, and to health affairs reporting on this very important event. what i thought i might do is give it a little bit and talk some of the issues that were brought up early in the morning but really start with the facts. the facts on the american hospital association. so as we think about bending the cost curve, let me start with two commitments that we have made on behalf of the nation's hospitals. the first is, as you have