and i concur to you that $13 billion is not a lot of money when you think of the neglect that's taken place over these years, what we've invested in rail is pitiful by comparison. and to the needs not only of more efficient operations and lessen importation of oil, et cetera, but the security needs for the country to be able to function in times of emergencies. so again should passenger rail on development of high-speed service receive a dedicated federal funding like our interstate system, our aviation system? and that is really the first part of the question that i ask. >> well, there's a sports writer in philadelphia who writes a column once a month and he entitles it "if i were king of the world" and he delineates all

the changes in sports. if i were king of the world we would stop messing around. all of the g7 nations have undertaken massive infrastructure repair systems. japan and german, countries a fraction of our size, have spent over a trillion dollars at one time in a 5 to 10-year infrastructure program. that's what we should be doing as a nation. we should finance it as a capital budget and we should change the way we score such financing mechanisms. it's the only way we're going to ever get this done. i mean, we're kidding ourselves. we're doing something to pat ourselves on the back and say, boy, i heard secretary lahood or i think he's terrific. he said $13 billion is terrific. it's better than -- $13 billion is better than nothing. well, sure it is. but it doesn't get us anywhere down the road. we can't do infrastructure on the cheap. we have to invest what we need to invest and we have to find a way to do it. and we have to find the

political courage to find a way to pay for it. i think the capital budget is long overdue. >> i agree with you -- >> i ran a pretty good sized company and i can tell -- >> no company would ever -- >> on a cash basis -- >> you wouldn't finance your capital needs out of operating costs and we do. we finance building a bridge or a train system the same way we purchase paper clips in the federal government. it's nuts. it's time to change. it's time to change and we better do it soon because infrastructure is a lot like that commercial, you can pay me now and he holds up the can of the oil filter $8.75 or you can pay me later and he points to the dilapidated car $465.25. it's not getting cheaper. >> you and i are very much on the same page. and all we have to do is convince about 85 others here we're doing the right thing there.

ms. fleming, in your march, 2009, report, you studied high-speed rail service in france, japan and spain. each of these countries has committed significant government support for its high-speed rail system. is it wall street to expect a high-speed passenger rail service to be successful without government contributing toward capital and/or operating expense? >> what we found is that there was a real commitment and priority in france, spain and japan. and the majority of upfront construction costs was bourne by the federal government, the central government in these countries without the expectation that they would recoup these initial investment. and most of these countries -- what they did was they built an initial trunk line in order to show success and built upon

that. the commitment followed with significant amounts of money and what that model allowed them to begin initial construction relatively quickly than if they didn't have that large investment by the central governments. >> thank you. i'd like to ask you a question, mr. boardman, and hope that we can get a quick response. my understanding that a foreign-owned manufacturers, passenger cars, high-speed rail equipment are interested in competing for the $8 billion that are provided in the recovery act. what can we do to encourage more american companies to enter into the high-speed rail manufacturing market? >> mr. chairman, i was encouraged yesterday to see that in the field hearing that the tni ge local motive had

testimony with the next generation of high-speed and their definition was 110 to 124. they had their ceo at the hearing in pittsburgh and so i think they are catching on to the fact that there is a commitment here in this country and i think that's the most important part of that. >> and the commonwealth is investing $7 million in helping them build that technology, senator. >> thank you. i'm going to turn to my ranking member here, senator thune, for you, sir, to ask your questions. >> thank you, mr. chairman. governor, senator wyden and i have a proposal called build america bonds, which i think is sort of geared at what you're talking about. it's a way of bonding for capital improvements. i agree entirely that the way that we budget around here

defies any sort of common sense or rational basis for making these types of decisions. it's clearly not the way that these decisions will be made in the private sector if you run a private business and so i appreciate your observations about that. and i would say to mr. skancke that if brett favre is playing for the vikings next year, there will be a lot more people who will want to get from sioux falls to minneapolis and preferably quickly and without having to drive through a blizzard. if i might direct a question -- this will be for mr. szabo and ms. fleming, the thing i take away is reliable projections and costs. proponents are going to overestimate ridership and underestimate cost and if the federal government makes investment decisions based upon faulty forecasts, we're going to fund projects that won't be successful. so i guess the question -- and

maybe i direct this first to mr. szabo is how are you going to evaluate such projections for proposed projects? and are you going to use your on projections or rely on the project sponsor for those? >> well, first off, one of the key components that we will be ranking the applications on will be their proposed management plan and their management of risk, which includes covering all of the operating costs and any cost overruns. those responsibilities belong to the applicant, not the federal government. so clearly it's in their best interest to protect themselves to ensure that those forecasts are accurate. one of the things that we plan to do is to use a template where essentially applicants will provide the data to us. but we'll run that data through our own calculations to ensure

that as we compare the projects, we're getting an apples to apples bakers. -- comparison. we believe that will help ensure the integrity of the data and help us make sure we have accurate forecasts. clearly at fra we understand the fact that the projects that we choose are going to have to be successful. we understand we cannot squander this opportunity. that if we are not, in fact, very careful about the projects we select and ensuring the success of the projects that we select -- if we fumble that ball, there won't be a next generation on this. we understand the responsibility that we have and we're prepared to take that challenge. >> senator, could i add something quickly to that question. one of the ways to ensure that you're getting accurate estimates is if a state is

recommending it, make the state chip in some money so that they bear the risk as well. amtrak and pennsylvania shared the $145 million cost of the expansion from philadelphia to harrisburg. >> that's a good discussion and one that we ought to, i think, take to heart if we do -- when we start looking and evaluating these projects. >> senator, it is a key part of our plan. >> it is, okay. and let me ask ms. fleming to sort of follow up on that question, too. do you think the department should take or make sure these forecasts -- when it relies on this information -- that you want to make them as accurate as possible and more directly do you think there should be some outside neutral party that evaluates these forecasts, too, in addition to having -- >> well, as you can imagine ridership and other forecasts are key factors in determining whether a project or a system is going to be economically viable.

and unfortunately, you know, statistics and estimates show ridership is overestimated and costs underestimated. and we try to provide more reliable statistics. the first would be kind of following governor rendell, which is really obligating the state and local governments to share some of the risks of underestimated costs. for those projects where they are seeking federal assistance. another way would be to obtain estimates and forecasts from independent sources where there isn't a stake in the specific project that's being considered. and lastly, making the forecast subject to peer review and maybe even making the data publicly available. so i think those three things would maybe better ensure that the information would be more reliable. >> mr. szabo, after we spent $13 billion, it's likely to be appropriated for high-speed rail over the next five years, do you

expect the united states to have at least one corridor of substantial length that's served by a japanese or a european-style high-speed railroad? >> i think it's important that first off we wait and see what is applied for. you know, obviously i can't start commenting on what we're going to do until applications come forward and are weighed, you know, graded and then approved but clearly again i think we understand the need to ensure that we have very tangible, very, you know, substantial successes. and, you know, clearly again our vision is to follow the model of what the europeans have advanced. you know, keep in mind, when when the system in spain first opened up, you know, again ms. fleming talked about how

essentially they begin with one trunk line, they did. they began with their one trunk line. essentially it was six to eight trains a day run being 125 miles an hour and from that they were so successful that they incrementally made the improvements that got them to roughly 20 trains a day at speeds of 200 miles an hour. so this is going to take a buildout, you know, a buildout much like the construction of the interstate highway system. and again, we need to understand -- the tgv system in france today. if you ride from paris to stausberg, you know, when you come out of paris you're doing approximately 200 miles an hour on dedicated right-of-way. about two-thirds along the way you flow on to what they call traditional track and you're doing speeds of about 125 miles an hour. so it's not this either/or proposition. >> mr. chairman, my time is

expired and i thank you all very much. >> i'm called elsewhere. senator udall is going to take over.sjñ and senator boxer will be next. senator hutchison and then it's all up to senator udall from new mexico. he's going to fix the whole problem. [laughter] >> senator lautenberg, on your way out the door, i want to thank you very much for this hearing and high-speed rail is critical. it's just really critical. i want to pick up on senator thune's comment about the funding. and senator thune, i wanted to pick up on your points about the funding because it's very critical. this $13 billion standing alone just can go so far. but in my state, we had an election about putting a $9 billion funding package and the people voted aye which is kind of remarkable given the latest votes that we had.

so, you know, the people there really understand it. and our system -- and i think -- i bet most everybody in this room has been to my state. it will eventually connect sacramento, our state capital to san diego in the south. the first phase will be between los angeles and san francisco and points in between. i also want to point out the private sector has to be leveraged into this, too. in california we're working with the private sector so you take the $13 billion. you add the $9 billion from my state. hopefully billions from other states and hopefully billions from the private sector that you can get involved in it and it starts to look like something on the scale not quite what governor rendell wants, i don't think, 'cause i think he even has a bigger plan. but i think you start to leverage and you start to see some real things happening. and i wanted to just point out

that our studies -- and if i am saying something that has been disproven, let me know, show that our high-speed rail in california is predicted to save 12.7 million barrels of oil a year by 2030 and reduce c02 emissions by 12 billion pounds per year. it's supposed to be 160,000 construction jobs and literally they're saving california hundreds of thousands of permanent jobs by 2035. i think as we look at a lot of the problems facing us, this great recession, the c02 problem the need to be energy independent, the need to make people feel comfortable getting out of their car, this seems to be one place. and so i have two questions. the first one -- both of them actually are to administrator szabo. what is your long-term plan for development of high-speed rail nationally?

and what factors do you consider the most important when it comes to funding? will a state contribution bear some weight here? >> yes in the guidance that we issued, that is one of the elements that while not mandatory in most of the tracks that -- you know, the funding tracks that we provide, it certainly is something that is weighted and certainly it's something that's encouraged. you know, our vision, frankly, matches what they have done in europe. and i think it's important to note -- you can compare it a little bit to the road system where you have local roads, you have county roads, you have state highways, you have u.s. highways and you have an interstate system. and all play a very, very important role. and they all interconnect with each other to provide hopefully a first class road system. our approach will need to be the same on rail.

just like it is in europe. you know, in europe, in japan, not every train is going 200 miles an hour. many of them are, but there continues to be a niche in the market for 110-mile service. there continues to be a niche in the market for traditional -- >> okay, but my main point is will state effort matter? >> absolutely. >> okay. that's my question. >> absolutely. a critical element. yes, absolutely. >> i said i have two questions. i have three. that's one. the second is to skancke who served as a commissioner on the national surface transportation policy and revenue study commission. he's been very important in advising us in the epw committee on how to proceed with the next highway bill, et cetera. and then i have the last question to mr. szabo. mr. skancke, do you believe d.o.t. has a realistic and workable plan to implement high-speed rail nationally? and what steps must they take to

ensure we have a stable system in the u.s.? >> senator boxer, i wouldn't think the nation as a whole has a plan for high-speed rail. you know me very well to know that i'm very candid when i answer questions. so i'll try to be -- >> well, that's why i asked it. >> i think our nation lacks a vision on how we're going to move our american public out to 2050. it's why this congress created the safety traffic commission and we have to sell the american public particularly on rail as we get people out of their own horse and buggy, which we have forced them into. that it is a cultural shift. we've got to convince the american public that high-speed passenger rail is going to be predictable. that it's going to be on time and it's going to be reliable. and we do that two ways. one, we just make the investment. we don't talk about what the program's going to look like or

how it's -- we've done that. we've studied corridors. we need to step up. fund it. find the funding mechanisms that are needed. and make the necessary investment. i think it's just that simple. >> okay. so my last question -- you said predictable, reliable and you had another word. >> dependable i think is what i said. >> but you didn't say safe and, of course -- it's obvious. >> yes. >> safe -- it's got to be safe. so my last question that deals with this tragedy that just occurred on the metro line here. we just wrote a letter -- senator rockefeller and i to talk about the need to move forward with positive train control and other life-saving measures because we really are going to have to address this.

this was awful and we've seen these things happen in my state. so my question -- and my last question is, do you intend to move forward with positive train control and do it quickly so we can let people know we are moving forward on the safety question? >> absolutely. first off we have a congressional mandate to ensure that positive train control is implemented by the year 2015 and it's our intent to make sure that that deadline is met. secondly, it's impossible to talk about high-speed rail without at the same time talking about positive train control. again, you're using the european models, you know, they have their european train control. you can't have trains going 200 miles an hour if you don't have some element of positive train control. >> but we got to fix it for the ones we've got going now. so i hope you'll move quicker than 2015. that was someplace i have to compromise but i think it needs to be swifter than that. thank you so much, mr. chairman. >> and thank you, senator boxer. senator hutchison?

>> thank you, mr. chairman. let me start with judge eckels and just a ask that -- well, let me first state that i hope there will be funding for projects other than those that may be further along than the texas t-bone. and if you could apply right now for federal funding and part of the stimulus, what would you ask for it to do? >> today our biggest need is the market and route and environmental and engineering studies before we go on the ground with a system, we want to make sure it's a system that will be viable, will have the market that will support the system. unlike the east coast we don't have regular service between houston and dallas today. and so to develop one, we need to make sure that we are building the system which could be priced so that we could compete with the automobiles, with the aircraft and also to keep an operational system. i do think bringing the

discipline of the marketplace to the system can help set a fair schedule and a construction --w you know, of the technology that will make sense and would be viable for the long term for the state.w >> let me ask, mr. szabo, i'm looking at the map of basically of the amtrak system with the high-speed corridors that have been designated -- the 11 that have been designated in the darker red. and is this the beginning of a planned system that those are investments that are already being made? and do you favor the ones that are already in the amtrak system being upgraded to high-speed? or are you looking at other factors like a new high-speed rail project that might feed

into amtrak and, therefore, enhance amtrak's capabilities? >> one of the next steps that we absolutely must take is the development of a national rail plan. and when i say that, i mean, it from a most comprehensive standpoint. we have to understand how high-speed rail is going to overlay on traditional inner city rail, how commuter rail will overlay on top of that. and, frankly, we have to understand how it's going to interact with the freight rail network. so there are all these components that need to be looked at to ensure that we have a comprehensive strategy when it comes to rail. you can't talk about high-speed rail without talking about the impact on the freights. you know, that map is a document that happens to exist today. but certainly there's the need for a much bolder, clearer vision and a national strategy on how to get there.

>> if you ever talked with or put on the table with the amtrak corridors that do share freight rail lines which make for problems of on-time service which then cause problems at the fair box, have you ever put on the table sharing the space and adding a line on the same corridor as the freight rail, which if you could get a reasonable deal like maybe free use of that space in exchange of getting out of the freight rail system, which they would certainly benefit them because they don't like dealing with amtrak -- have you ever thought about trying to get a second rail on the same right-of-way as

one of the ways for higher speed rail service in highly congested corridors? >> well, i think clearly there's multiple options. the key is that whatever we do -- and clearly if we're going to have high-speed rail, true high-speed rail it has to be on a dedicated corridor, but whatever we do, we're going to have to make sure that we achieve a win-win relationship with the freight industry. we have an obligation to make sure that if the passenger trains are operating, they are operating on time, you know, clearly reliability is a very critical component of ensure a high quality passenger rail abrasion and growing ridership. >> have you looked at having a separate track, though, to make that happen? i mean, you can talk about it. but in reality, at least on the

sunset limitedww+ñ and the texa eagle that i know so well, the experience has not been good. >> yeah, i mean, again any of these options can be considered. >> well, i would ask if in the parameters of the spending of this stimulus money if that is a factor. if looking at those -- those congested areas where you might be able to get a streamlined service if that could be an option. >> that would be a component that would be measured in a state's application to us. you know, there are clear advances to that as far as reliability, which is one of the components, you know, we measure, safety which is one of the components we measure. so again, if that was part of an application, it's a criteria that could be viewed very favorably. >> so a state effort is one

criteria that would be very important for matching funds. and then possibly if you could ease congestion for better service and higher speed rail in a state application, that that would be also a good factor? >> that's right. yes. >> judge eckels, let me just ask you -- obviously, the texas t-bone is not going to be looking at an amtrak route but are there options on the texas t-bone that might provide a dual rail with freight line or are you looking at a different, all-new right-of-way? >> senator, in the very fast track portion of the system -- and again as mr. szabo pointed out, the system would have to have its own tracks and we think the whole system should be a separate track anyway but as you described in the urban corridors

particularly as we're working on way in the cities on the houston or the corridor to the north we tie in and partner with the high cloud authority and the texas department, the harris county right-of-way and share a common corridor and in the idea where it's appropriate to lay a track adjacent to the freight railroads where it makes a lot of sense particularly in those urban corridors where you have a constructed right-of-way in the population centers it makes a lot of sense for us. as we move out on the demand on the freight capacity in the future. we have found them to be very reluctant to give up that right-of-way claiming that they need that for future development and it's theirs. so it's a continuous problem. we think it makes great side. we would like to consolidate with txdot on their right-of-way

and their rail lines so that we can make the curvature requirements. >> coming to some wall street terms with the freight rail is going to be on everyone's interest because they have a business to run and you can understand they are wanting to keep track of their tracks and getting separated out where we can but not having the huge expense of imminent domain and those issues. >> there are many places, senator where it's cheaper for us to relocate the freight rail and buy them a new right-of-way and new yards and take over their right-of-way than for us to try to condemn a new right-of-way. and there's places where that makes sense and we're working on that in texas. >> well, thank you very much. my time is up and helping us get through it.

and it's important america for true multimodal transportation. thank you. ... we have good-sized population centers in el paso, albuquerque, denver. as i look at the map here, it looks like that would make sense. so, i'm wondering, congress,

we haven't designated or, haven't authorized this 11th. we've authorized 11 high-speed rail corridors yet the department of transportation only designated 10. i hope you're reserving that last one for the southwest. could you tell me a little bit of the thinking on the 11th and where you are, and what's the what your are on an el paso, albuquerque, denver, corridor. >> i'm assuming that's to me? >> yes, yes it is, mr. szabo. >> frankly there's no position to announce at this time relative to any 11th high-speed rail corridor. but the important news is it is not necessary in order to be an applicant under the grant guidance that we issued. i think most of this gets

addressed again as we start taking a look at a national rail plan. quite frankly it is possible that there's the need for more than 11. we need to take a look where are those markets where there's good potential? what is the interest from those states, and historically, there has not been a strong interest from the southwest but, it sounds like the level of enthusiasm, quite frankly, nationwide is changing considerably. so i think the issues whether there's an 11th corridor, a 12th corridor, a 13th, whatever will get flush fleshed out as we do a national rail plan. >> senator, can i take a shot at that. >> please. >> i think the way this is going to happen is to do it. as mr. scan key said, it is up to the congress and governments to do it in scale and states and local governments should chip in.

i think it comes incrementally, i thought and thought, had wall street people in to try to see how i could finance high-speed rail from philadelphia to pittsburgh, 200 mapp rail. because if we built that, no doubt in my mind the selling would be 200 miles an hour and from pittsburgh, detroit and "chicago" go it would come. the texas t-bone is your thought. if they build the texas t-bone, el paso is not -- >> el paso is one of strongest supporters of in texas of high speed rail. the not that they think 900 miles from houston to el paso. longer than works on these kind of systems. they see that as real possibility and they see that the proof in the system on the t-bone, the would be next step to provide the capacity to move for --

forward to build el paso rout to albuquerque and other points in the west. >> one of the things that has been fascinating in new mexico, governor richardson, stepped up and did commuter rail and there were a lot of doubts. an earlier governor talked about doing it and was ridiculed by the press, but he stepped up and did it, on time, on schedule and ended up, it has been going about nine months now. it has passed the two millionth passenger. and, in a very short period of time. and, one of you, i think it was mr. skancke, mentioned reliable, you used term reliable ridership and predictions. i don't think anybody would have predicted in new mexico -- granted this is the same period where we hit the $4 gasoline and we're terribly ususual state and people are known to travel 120, 150

miles a day to work, just to commute. but. that, it sounds a little bit, governor rendell, you build it the people are going to come. i think with looking at our energy future. i don't know if any of you have any comments on may be hard to predict what reliable ridership is right now. please, governor rendell. >> if omb, gao, were predicting success of columbus's adventure and advising queen isabel last, we'd all be speaking italian i guaranty you. you hit right on the head, senator. some of we've got to do because a, we know it works in other parts of the world and we have to do in faith. where i invested $74 million of commonwealth money, that is not a lot of money down here. vice president mondale once said we spend that sum of money before breakfast in

washington but for the commonwealth that is still a nice hung of change. i wasn't sure, wasn't any study we would jump up ridership that much, i knew we had to try. this was our best shot. if you look at topography of pennsylvania. this was our best shot to prove a market for high-speed rail and it worked. it worked. sometimes you have to, as mr. skanke said, you have to do it the. >> in it is also about transit oriented development and induced demand and economic activity in this megapolis we refer to in the urban areas that would grow as a result of that infrastructure being in place. that is one of those things. it is hard to measure until it is in place. >> mr. skancke, did you want to talk about reliable ridership issue or comment on this? >> i think we have studied

ridership in this country for hundreds of millions of dollars. i didn't say years. hundreds of millions of dollars. and, as i said, we have to stop studying. we know, on all of the amtrak corridors throughout the country, there is a need and a demand. and as fuel prices go up, ridership goes up. as congestion goes up, ridership goes up. we don't have to guess. the problem that we have is, we're afraid to do it. because it may fail. what we need to do is not set up our high-speed rail and transit systems to fail. let's set them up to succeed. create systems that work, not pieces. so, as we've all said, instead of doing 100-mile segments, try a 500-mile segment. i'll be a little partisan for a second, let's build a

line from los angeles to las vegas. let's build a line from phoenix to las vegas. let's go from albuquerque to denver. let's try it. what do we have to lose? nothing. if we, fail, then we fail. but we don't even know what failure is yet because we haven't gotten there. >> mr. , senator udall, joe board man from amtrak. as the good governor was saying to me, who was that guy built 110 miles-an-hour service? david gunn. only good thing he did for amtrak. but that is not true. i want to say that because david and i are friend and i talked to him a couple days ago and accused him using money from turbo project in new york to get that done. but i know he also got pennsylvania money. i think what tom is talking about is absolutely true. with an exception. and that is, that, the culture in this country is not a train-riding culture. in the northeast corridor, about 43 million people live

within about 40 miles of where we operate a acela. acela is a success. in 2000, we had 37%, this is before acela started, air-rail market was with rail. today in, 2008, we have just the opposite of that. we have 63% of the rail-air market and that's with service that is two hours and 45 minutes, from new york to washington. and on north end, from, new york to boston, it was at at about 20%, is now, at 22%. it is now at about 49% in the same way. we are demonstrating success. but the piece that we can't miss, and i think, administrator szabo really pointed it out, we need to do both. we need to talk about having very high speed, and it needs to connect, t-bone,

listen carefully, judge, i didn't hear it connecting to amtrak. and it might. but amtrak is the only connected, intercity service coast to coast, border to border in the united states. and, we need the incremental improvements from the 90 to 110, so peobuild ahe train, so they fill up the high speed trains that are connected in some fashion, and it might even be at an airport but could be somewhere elsewhere you connect our system. people want to be seamless. they don't want to go to the border of pennsylvania, and new york, at route 15, when we had to build the connection, if you remember, governor, to make sure that, new york kept up with the leadership that was coming out of pennsylvania, to make that interstate connection. and that's the difficulty we have today with railroads. we don't always connect. >> well, senator, if i may, --

with mr. board man, of amtrak, texas t-bone will connect into the amtrak, houston metro, multimodal facility in downtown houston. >> well, great. that is a good way to finish. we very much appreciate this and thank you very much. and i will adjourn. >> thank you, senator. >> thank you. >> today, new jersey governor jon corzine delivers the annual state of the state address. we'll bring you live coverage from the state capitol in trenton, at 2:30 eastern on our companion network, c-span.

later emergency first-responders from around the country come together for a news conference on reallocating the broadband spectrum for public safety. live coverage at 5:00 p.m. also on c-span

>> next, capitalism and the role of government regulation of the economy. the economy is yuval levin, editor of the journal national affairs, hosted by american enterprise institute. this is hour and 15 minutes >> good evening. my name is lee on cass. fellow at aei. and it is my pleasure to well come you to this

bradley lecture, the first of the new year and extend a special well come for those joining us through the wonderful efforts of c-span. the next bradley lecture will take place on monday, february 8th, when professor gerard alexander of the university of virginia will speak on the topic, do liberals know best? intellectual self-confidence and claims to monopoly of knowledge. it is for me an enormous pleasure and distinct personal privilege to be able to introduce today's speaker, my former student and colleague, and now my friend and teacher, yuval levin. hertog fellow at ethics and public policy center and editor of the new quarterly magazine. "national affairs." offering advice about teaching leo strauss wisely suggested one should always assume there is one silent student in your class who is by far superior to you in head and in heart.

yuval levin first appearing a decade ago in my classes at the university of chicago was not quite silent, but it soon became apparent, most especially from his writings and his manner he was precisely the sort of student straus wanted teachers to imagine. smart, deep, wise, and humanly ad mirable. an immigrant from israel to new jersey at age 8, yuval had come to the committee on social thought from a staff position on capitol hill working for newt gingrich, a job he landed fresh from completing his undergraduate studies in political science at american university. his bachelor's thesis, a youthfully ambitious account of the role of reason and social thought from antiquity to modern times [laughter] was published in 2000 under the title, the tyranny of reason. although distinguishing himself in graduate school,

yuval fortunately for us was drawn to more public affairs than professorat te. joined president's task on bio ethics serving splendidly in several capacities and rising to become the executive direct are to. he served associate director of the white house policy council in the george w. bush administration where his portfolio included health care, bioethics and culture of life issues before taking up residence at ethics and public policy center in 2006. there he has been senior editor of the new atlantis, become a contributing editor to "national review" and written many important essays for review and commentary, "the weekly standard", "the wall street journal", "the new york times", "the washington post" and now also regularly for "newsweek", topics from immigration, social indicators and welfare and science and stem cell policy to shrewd assessments of partisan politics and major

political candidates. on the side as it were he is also managed to edit with chris demuth recent aei volume, religion in the american future. he produced a remarkable book on his own. imagining the future, science in american democracy, a sober and lucent look at science policy disputes to reveal deep and decisive differences between liberals and conservatives regarding how they think about the future. there is more. in the midst of his daily attentions to current affairs, he has produced a truly imagine tearal dissertation hope to become a book on thought of edmund burke and thomas payne, differences between them and faithful to their time and thought and ways in that illuminate the fundamental differences between liberal and conservative thought today. finally, september 2009 saw the first issue of "national affairs" under yuval's

impressive editorship which represents for those of us ho were nurtured by it, nothing less than the rebirth of the public interest, risen like a phoenix from the ashes. happily our late dear friend and colleague, irving crystal lived to see this rebirth and wrote perhaps his last letter a note of congratulations and encouragement to yuval. yuval, not unlike irving is a man of wide learning, clear thought, prudent good sense and shrewd judgement. possessing remarkable equine nimty and lacking pettiness and rancor, a with a quick pen, generous spirit and prodigious capacity for good works. like his hero burke. yuval holds together respect for tradition and spirit of reform, colored by a love of country and a profound appreciation of the december life that make decent life makes possible for so many. teachers flatter their students telling them they

have learned more from them than they have imported but in the present case the it is absolute truth. it is with eager anticipation i look forward to his lecture, recovering the case for capitalism, which promises to instruct the home team of economists on how best to understand and defend the economic system under which we live, and for the most part, flourish. please join me in giving a warm welcome to yuval levin. [applause] >> well, thank you very, very much, leon. i can't tell you how much that means to me and how much i appreciate it. thank all of you for being here, and many thanks to aei for the invitation to speak tonight. it's really a great and, -- there you go. done that many times in the course of the last few years.

it's really for me a great and a humbling honor to be asked to deliver a bradley lecture. i've been to many of these over the years. while i certainly know that don't belong in the league of people who generally deliver them, it's thrilling to be in their company and i appreciate it very much. aei is also the appropriate place i think to take up the subject i want to talk about tonight, the question of capitalism in this very complicated moment we're living in. and so, let's think together for a while about that question, and that moment. for friends of capitalism, the last two years have not been pleasant. first came a cascade of market calamities that seemed almost designed to confirm the most cliched hackneyed criticisms of free enterprise. reckless investors, careless lending irresponsible borrowing, wild speculation a assortment of charlatans, financial collapse, signs of underregulation, retirees

losing life savings while wall street fat cats get their bonuses even sight of alan greenspan apologizing to congressional committee for keeping the reins too loose. then came the response from washington which was at least disconcerting if partially excusable by the prevailedding sense of panic. by middle last year the federal government essentially owned the nation's largest bank, largest insurance company, and largest automaker. managed a substantial portion of the financial sector and was declaring winners and losers in massive corporate deals more or less ad hoc. meanwhile government spending has exploded and lawmakers are busy building new entitlement programs even as existing ones fall into bankruptcy. for a moment, it seemed as though all of this would cause the american public to lose its faith in the market economy. last april the pollster scott rasmussen found only 53% of the americans agreed with the proposition that capitalism was better than socialism. but that moment passed. has been replaced by a wave of populist discontent

directed as much as government than the market. defenders of free enterprise should not take too much heart from this turn in public opinion though. it suggests people are uneasy with the instability of the day but it is not formed it self into argument in defense of american capitalism or even coherent case against emerging intentions of the democratic majority in washington. to direct the public towards such a case we will need to explain what is at risk and what is at stake and why it matters. such an explanation is no simple matter. after decades of defending one tree or another, many friends of capitalism lost sight of the forest. what democratic capitalism is. its virtues and vices its strengths and weaknesses its political and moral and as well as economic justifications. our first task now is recovery that understanding which will clarify both our objections to the policy direction of the moment and our prescriptions for a better way. i hope to offer here one brief sketch of what such a recovery might involve.

and where it might direct us. a recovery of the case for capitalism should begin at the beginning. as always when we want to become reacquainted with ourselves we americans would be wise to start with refreshing dip into the late 18th century when our way of life was born. in this case we should begin by dipping into adam smith and original case for capitalism, before returning to our own time. the father of modern economics was a moral philosopher, a student of human nature and social institutions and his theories of political economy were an element of his larger project for the direction of human passions and appetites. smith began with a middling view of human nature. neither utopian or cynical. he believed although human beings were fundamentally self-interested we could be guided towards sympathy and benevolence. our powerful self-regard that expresses itself in our desire for attention, praise and recognition and motivates a great deal of human behavior. even our sympathy begins with ourselves. we feel for someone in

distress because we can imagine ourselves in his predictment. but for smith the fact that our self-regard expresses itself in desire for approval offers an opening for moral education and moderating our passions and animal appetites to make civilized life possible. our ability to step into someone else's shoes allows us to reflect on our own behavior, to ask how would what i'm doing look to someone else observing me? in that question, in that imaginary impartial spectator as smith puts it is the beginning of social order and of self-restraint. so the first impulse to more conformity and common social norms. this is how in a well-functioning society our sentimental tendencies to self-regard can become inclinations to sympathy and decency. but that well-functioning society takes work. it requires social institution designed to channel the septemberments towards this kind of moral formation. those institutions were smith's lifelong obsession. he was above all, a scholar of how social arrangements

shape human souls. the great secret of education is to direct vanity to proper objects he wrote in his first book, the theory of moral sentiments, published in 1759. note he says his aim is education. the idea is not to fool men into acting well or put the products of their acting poorly to some public end. the idea is to shape character and behavior, to channel human passions toward a public good. this is peculiar kind of moral education. smith says plainly, that there is no use in trying to persuade men to be virtuous. to amount of rational argument or ressa stations catechism will do the trick. rather experience of life in society and modern sympathy and conscience that develop through that experience build in human beings modern virtues smith thinks are essential, prudence, restraint, industry, frugality, honesty, civility, reliability. these are the virtues of liberal society, smith says. they are low but solid

virtues which can be very quitely share not just cultivated about aview and allow for stable productive lives and make moral coercion by the state less necessary. these moderate virtues are in a sense all versions of one larger virtue, self-command or self-control. this is what smith thinks is really the key to liberal society. self-command he writes, quote, is not only itself a great virtue but from it all the other virtues seem to derive their principle luster. he definds self-command capacity for delayed gratification and restraints on the appetite, in a word, discipline. smith's great project then, is the transformation of self-regard into self-command by means of social institutions that direct our vanity to proper objects. by arranging human relations, so that there is praise or benefit to be gained by discipline, he hopes to allow people to exercise virtue and so to improve their circumstances. smith's ambitions are very practical. life in the a free society

he writes, consists of quote, the uniform constant and uninterrupted effort of every man to better his condition, end quote. the moderate virtues make this kind of improvement possible and wise legislator will therefore arrange things so that the moderate virtues are valued and rewarded. smith knew that this arrangement would not be a matter of direct coercion or management. social life is just too complicated for that. lying his teacher adam ferguson and others of scottish enlightmentment. he was fascinated by vast gulf lay between intentions motivating actions and consequence of those actions. rather than by coercion arrangement witting accomplished in general way through institutional forms that would establish rules of the game intended to draw self-interested people towards decent --. smith made case for general approach in theory of sentiments. in four rear years later on

lectures of social improvements. come to be formalized into laws and specific areas of social life. he then collected and expanded portions of those lectures deal with questions of labor and commerce into a book about political economy, a book called, the wealth of nations and published in that fateful year of great ideas, 1776. his economics was just one element of smith's larger vision but it was a particularly important one. as a good liberal he believed material prosperity was essential to happiness should be at center of moral philosophy. he also thought wealth was a precondition for a decent society and for sympathy. we can't care for others if we ourselves are hungry. his vision of social life therefore required a developed economic teaching built around some institutional arrangement that could help produce prosperity while encouraging discipline and the moderate virtues, by making self-command a means of bettering our condition. the wealth of nations offers just such a teaching and just such an institution,

the market. the wealth of nations begins with a fact, not an argument. the fact that the division of labor which had been growing for centuries in european economies, made possible enormous improvements in efficiency and quality of production. dividing and subdividing manufacturing processes into specialized tasks save as great deal of time and effort and more important creates specialization and expertise rather than each man knowing a little about a lot, each becomes an expert in something in particular. and sells his expertise to others in return for money or for someone else's expertise. that way, all work is done by experts and so is done better and each person can trade on value of his expertise giving him reason to improve his prowess and his products. this process of exchange smith calls the market. it is the arena which labor, capital, goods and services are valued traded and bartered and lies at the heart of the modern economy but the rules of market are not self-legislating or

naturally obvious. on the contrary, smith argues, the market is a public institution. it requires rules imposed upon it by legislators who understand its workers and benefits, its purpose. this is where his great insight comes in. in smith's time under the reigning economic philosophy known as her can tellism, each of the european powers set market rules that served a few large domestic manufacturers and trading companies that worked closely with the government. took to be national interest to advance the nation's trading position. national interest to unbends the nation's trading position. instead smith argues legislator should govern the markets in the interest of a common consumer. he writes quote, consumption is the sole end and purpose of all production and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. the maximus koessel tippen it would be absurd to attempt to prove it but the mercantile

system, in the market the system the interest of the consumers almost constantly sacrificed. by turning the logic of mccain's ballistic economics on its head in establishing a market designed for the good of the consumer smith believes the government's can hunley simmons productivity and wealth and create economic institutions that encourage discipline of moderation and order. serving the good of the consumer would mean imposing uniform rules of open competition on all buyers and sellers which would lower prices and spur economic growth. these rules which smith calls the system of natural liberty would allow participants in the market to set prices and values by opening free negotiation in which no player is allowed to use political muscle or other coercion to compel the price of food and that determined by the framework of the market. the system involves natural liberty not in the sense that this somehow work of nature but rather no player or outsider and especially not government may impose artificial crisis and so only the natural price, the

price arrived at by the buyer and seller can prevail. this would make pricing more efficient reducing costs for efficiently and would help e the best producers prosper too and so benefit the nation as a whole. that does not mean that it would serve every individual self-interest. smith did not think there was a perfect harmony insociety. many merchants would be better off without competition and, in fact, many merchants look to call on friendly politicians to help them avoid competition but a system of uniformly applied rules which doesn't apply powerful merchants would serve the world and serve the wealth of the nation as a whole. smith has a very unusual definition of the wealth of a nation. quote the wealth of a state consists in the cheapness of provision and all other necessaries and conveniences of life, he writes. so a nation is wealthy in effect when consumer items are inexpensive at least relative to the means of the common people. that is a nation is wealthy when a decent life is within the reach of most.

this is a very democratic even populist notion of the purpose of the market. the broader the reach of the market moreover the more efficient it will be. so smith wants it to encompass everyone and to have society become one large market in which he writes every man lives by exchanging or becomes in some measure a merchant and the society itself grows to be what is properly called a commercial society. and the commercial society, smith insists, is also a good society. for one thing wealth is necessary for a good society because it reduces the misery of the poor and it allows everyone to be more sympathetic and generous. if our own misery pinches us very severely he writes we have to leisure to attend to that as our neighbor. the market is not a mechanism for wealth production. it is also a civilizing institution. for one thing it makes human relations more dignified, smith argues, the system of exchange

as opposed to the more aristocratic of owner and tenant allows the less privileged to address society in terms of what they have to offer rather than what they need. as smith puts it in one of his most famous passages, quote, it is not from the benevolence of the butcher, the brewer or baker for our dinner but for our own self-interest. we address ourselves not to their humanity but self-love and never talk to hhem of our necessity. smith is not saying that benevolence is degrading but the dependence upon the benevolence of others is demoralizing. extending the rule of the market to all helps most avoid this fate and so allows them to function as dignified equals. the fundamentally popular or democratic character of the system he proposes is also an important moral point for smith. he writes, quote, no society can surely be flourishing and happy of which the far greater part of the members are poor and

miserable. and his system would allow those who live off wages not property to benefit more than any other economic arrangement. most important for smith the market is well designed to harness self-regard to produce self-command. market players have a powerful incentive to consider what others will think of their actions since they have to appeal to those others as customers. and the virtues most valued inselers and buyers are precisely smith's moderate virtues, prudence, modesty and good discipline. the market is a powerful tool of discipline. it demands and rewards conformity and habits of peaceful order and can spread these into the larger society. when the greater part of the people are merchants, smith writes, they always bring punkuality and probity into the fashion. as it turns to individual

self-interest into the general good the market, therefore, might turn individual avarice to a source of self-discipline and even constructive risk venture and enterprise. it's crucial to see that self-command and discipline not freedom lay at the heart of smith's case for capitalism. yes, the market involves free competition but that means free of the undo influence of some competitors or their political patrons not free as an existential map. -- market and they are kept in it by regulation and law for the greater good. as joseph has put it smith advocated capitalism because it makes freedom possible not because it is freedom. and it makes freedom possible by guiding people to choose to obey the rules. the question smith sought to answer is given that men are profoundly imperfect can they be made to want to do good so that they do not have to be forced to do good?

smith insists throughout his writing is that the answer is yes and the free market is one important means of making that happen. it is an answer to the problem of appetite, not an unleashing of appetites. it's a case of the possibility of discipline and self-restraint not an argument against the need for them. but as smith might be the first to say, the fact that this was his intention hardly guarantees the consequences. and without question, the moral case for capitalism and especially the case for capitalism as a system of discipline has long been subject to serious criticism. to recover the case for capitalism beyond adam smith's original formulation we have to take those criticisms seriously. there's not today and there never has been a serious economic critique of the fundamental tenets of capitalism. there are only moral critiques. even those opponents of

capitalism who proposed communist systems offered moral systems not genuine economic theory. the moral critiques of capitalism have tended to fall into two categories. one, popular with those socialists and communists is capitalism is unfair to the poor. this is to put it bluntly, nonsense. the poor in the west and increasingly elsewhere as well had no greater deliverer than adam smith. inequality exists and the potential for escaping poverty is nowhere greater than capitalistic companies. the persistent poverty have far more to do with culture than economic injustice. but that very point brings us to the second and more serious moral critique of capitalism. that it empties the social life of any higher meaning and leaves society morally bankrupt even as it grows materially wealthy. is capitalism, in fact, just a

means of replacing material poverty is it a money making machine that burns social capital for its fuel leaving in its wake a society of opulent nihilists? this line of criticism has a very long pedigree in both the right and the left. from some of the earliest critics of capitalism to the present day. from romantics to moralists to post-moralists to neoconservatives. it also recalls the classical yitechniques especially in discipline. trade aimed at profits wrote st. thomas aquinas is most reprehensible since the desire of gain knows no bounds. adam smith knows the market would discipline society and precisely set bounds on our appetites. but as it turns out, our capitalistic age is not an age of discipline. far from it. our society is a study of unbounded appetite. our chief public health problem is obesity. our foremost social pathologists

is a sexual restraint and responsibility.ó$ and our culture is a diabolical babylonian vulgarity and a feast upon the flesh of the future. we borrow more than we can pay. we spend more than we have. we use more than we need. for all of our immense wealth, we still manage to live beyond our means. in fact, it's almost fair to say that we lack for nothing except discipline. but as adam smith could tell us, discipline above all is what we require to be free. this is no small problem for the case for capitalism. so what happened? in part adam smith surely understated the challenges of sustaining moral norms amist economic dinism. to him was the reality of british life in the late 18th century. the loss of that consensus brought about no, no small part by our capitalistic economy.

in light of that loss is a defining problem of our political economy. an economics of growth and an ethic of restraint make for an awkward match and the disciplining signals of the markets are not enough to bridge the gaps. smith was mistaken to assume that capitalism could produce sufficient moral authority to sustain itself. such authority would have to come from more traditional moral and cultural institutions beyond the market and our case for capitalism must, therefore, also be a case for those institutions. for the family and for religion and democratization. but in part we've also corrupted smith's vision of capitalism in ways that undermine precisely its civilizing powers and make it increasingly difficult for us to reap the benefits of the market system as we correct for its deficiencies.

the two key moral features of smith's political economy, its democratic or popular character and its disciplining effect have been under assault in our time. the first especially by a growing collusion between government and large corporations and the second especially by a welfare state expanding its reach well beyond the needy. the case for capitalism is nothing if not a case against these two ruinous trends, trends that have long with us but have dangerously combined and intensified in the age of obama. neither trend would have shocked adam smith. he knew that some among the wealthy and powerful would always look for exemptions from the rigors of competition. and he urged legislators to resist that pressure to grant them. though he was a champion of free market, smith was no fan of big business. large merchants and principles of joint stock companies or corporations, smith writes, are in order of men whose interest is never exactly the same with

that of the public and who have generally interest to deceive and oppress the public and who have on many occasions both deceived and oppressed it. end quote. this does not mean that they should be oppressed in return. only that they should be subject to the rules of open competition without exceptions. rules that will turn their self-interest toward more constructive paths. otherwise, both the efficiency of the market and the public's confidence in the fairness and legitimacy of the system will be dangerously undercut. capitalism is a fundamentally enterprise. the benefits of the the economic and moral are badly undermined. meanwhile smith also makes clear that the mere universeality of the markets and more individuals are shielded and executed from

the market the organizing and disciplining power of the system will wane dramatically leaving a vacuum by legislators brimming with bad ideas. the modern welfare state has had just this effect. welfare rose as an understandable response to the dislocations rocked by capitalism and to the poverty we will have with us and when it comes to the poorest of the poor who cannot subsist without help a decent society is not only right but obliged to offer help but the modern welfare state extends well beyond the indigent. the largest portion of our entitlement system by far is directed to the elderly and is not means-tested to be sure that only those among them who need help receive it. other middle class entitlements abound with more to come. the healthcare bill now being advanced by democrats in washington, for instance, would offer premium subsidies to families making twice the median income. the way they are now designed, these enormous entitlements are not paid for and the imminent

bankruptcy, social security will begin running deficits this year casts a giant shadow over the future of our country. but even if they were paid for, as they probably will be some day by an enormously expanded tax burden, that will mean undercutting the basic logic of the capitalist economy. they give their wealth to legislators who decide how to allocate it rather than letting the market play the role. this is not public aid for the destitute bits a gradual and unmistaken character of our political economy. it is least implicitly about the essence of capitalism that leaves economic decisions in the hands of the massive consumers and subjects nearly everyone to the uniformed rigors of market rules. both the growing collusion of big business in government and the growing middle class welfare state are expressions of a long-standing technocratic distaste on the left for the market economy and especially for the democratic character of capitalism. there are attempts to allocate capital more efficiently than

the whims of consumer preferences could and to provide material benefits to the public without the discipline of market rules. the core of adam smith's argument bourne out by two century of evidence is that such micromanagement and concentration of power is neither nor efficient and benevolent than the market. in the wealth of nations, smith was scornful of the state of the -- of the statesman who imagines he can get it right noting that, quote, he seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranged the different pieces upon a chessboard. he does not consider that the pieces on the chessboard have no other principle of motion upon which the hand impresses on him but on the great chessboard of human society every single piece has a principle of motion of its own all together different from that which the legislature might choose to impress upon him. legislators just can't know enough and can't sufficiently avoid the influence of political motives and interests to micromanage the market successfully.

but the technocratic itch approximatess because capitalism can never be tidy enough to satisfy the deep progressive urge for rational control. this is an old story. the modern age from its beginnings have joined two great forces pulling in two different directions. we might call them crudely science and democracy. science says there is hard, verifiable knowledge available to us about the workings of the material world. and the material world is all there is so we would best meet our needs by letting ourselves be guide\ed disease and the wishes and impressions of the people and leave individuals free to pursue their happiness as they wish. these two forces science and democracy or technology and populism are not always at odds but they often are and in the struggle between them capitalism is certainly on the side of democracy and of the peculiar implausible but evidently true insight that lawful chaos rather than managed order is the way to balance liberty and prosperity,

justice and wealth. for all the quantifiable variables available to modern economics capitalism is not a technical or scientific system. it is basically a system for diffusing authority and decision-making power and letting people have what they want. it argues that since market success is a matter of speaking to people's preferences, leaving decisions at the level of the individual exchange is almost always going to work better to produce more wealth and more happiness. that doesn't mean society has to live at the mercy of base and degraded preferences. we get beyond them by educating people's preferences and judgments rather than by taking them over by moral education rather than rational control. this is why the technocratic turn in federal policy is such a problem for capitalism. and why the populist flavor of the reaction of that turn these days is the appropriate flavor. but it is also why that reaction needs to be informed, refined and elevated by a coherent argument, a case for capitalism.

federal policy in the age of obama is simply put a combination of corporate government collusion and the expansion of the middle class welfare state. in the past year, following a crisis that was itself made possible by decades of increasingly cozy relationships between government and big finance, some of the largest corporations in america have become wards of the state shielded from the consequences of their own actions and decisions. and subjected to the control of the political class. meanwhile, the technocratic logic of the welfare state give us the money and we will choose how to use it has become the overarching vision of american domestic policy. it is a course sure to drain our economic dyan wishing sm and to exercise discipline on our commercial society and to encourage the moderate virtues. popular understood the case of capitalism is not a case for license or what i doorway fair.

-- laissez-faire, for clear and uniformed rules of competition imposed upon all, for letting markets set prices, letting buyers make choices and letting producers make what they think they can sell while protecting consumers and punishing abuses. it is a case for avoiding concentrations of power for keeping business and government separate and for letting those who can meet their own needs do so. and it is a case for the moderate virtues encouraged by market pressures but finally drawn from deeper wells from the wisdom of tradition the love of the family and the divine misteerious love upon love. here finally with the most daunting challenge confronting capitalism. adam smith was right to say that the virtues of self-command and discipline are utterly essential to capitalism and to the liberal society more generally.

they run against the grain of capitalistic culture and have to be restrained by friction and a constant recurrence to older preliberal sources of wisdom. this can be unpleasant and it is a duty all too easy to shirk. the cause of restraint, frugality and discipline lacks visceral appeal. even many of in our society most likely to be drawn in such a cause, social and religious conservatives have tended to avoid it in favor of bolder more heroic humanitarian missions like the plight of the sick and the poor especially abroad. these are noble and necessary callings, of course, but they ought not come entirely at the expense of a more common place resistance to the decadence of our time. without that resistance we could not hope to remain strong and wealthy enough to be of much use of the poor of the world. free and prosperous of the world need a social conservatism and

the truth that their freedom and prosperity depend on restraint and self-command. this truth is the essence of capitalism. american capitalism is in trouble today because we have grown forgetful of the case for it. it's by assault by misguided technocrats who know what not they do. the public is unhappy and angry at the sight of their recklessness. and it is precisely the popular character of democratic capitalism that is threatened most. but the picture alone will not do and the anger of outrage could be turned against the market as martialed in its defense. angry as we are we must be clear about its purpose. our purpose is to protect and strengthen our way of life. to stand up for a social and economic system that has lifted billions out of poverty and vastly improved our world in countless ways but always seems lacking in forthright defenders. and to avert the careless slide toward social democratic

melancholy and decline. this general purpose has to take form in specific instances and choices and exactly how the broad conceptual argument for capitalism should be translated into policy is always a matter of case by case pursued dense. -- prudence. the argument first framed by adam smith and refined by two centuries of theory and practice. the argument that helps us see what democratic capitalism means why and how we should sustain it. in the coming years, it is incumbent upon the friends of capitalism to rise to its defense and, therefore, first to understand its character as both an economic and a moral enterprise one whose health and strength are essential to the future of the larger american enterprise. thank

>> the floor is open to questions and afterwards we will have a reception for yuval outside. please wait for the microphone. i appreciate you stating your name and preferably questions rather than long speeches. >> fred smith competitive enterprise institute. you touched on a lovely speech but the question of the challenge of capitaling capitalism. -- capitalism and because of envy and self-agrandizement and undermine the legitimacy in the market and it's hard to achieve the agenda you have and there are counter-examples but what advice do you have bringing the intellectual forces we minorities represent and the economic forces which seem to be totally unaware that a cultural war is going on together again. >> well, thank you.

it's a very good question. there's certainly some truth to the notion that when you lose the intellectuals you lose some of your capacity for self-justification. but i think it's -- i think it's a limited truth. i think that a the large problem we have, the source of the -- the major source of the loss of legitimacy to the extent that it has been lost is actually the -- the collapse of the moral foundations of the portion of our -- of our culture where the poor live, not where the intellectuals live. that is we're looking at -- i'll go back to adam smith a minute. he said there will be two sets of morals in any society. he calls them loose and tight morals and he says the rich are always going to be loose morals. they are always going to live the way they want. they are going to be wild. the poor will always have tighter morals. in our society it's basically the other way around. we have a kind of upside down victorism.

and it's a very serious problem because it's not quite the fault of the poor. it's been more or less forced upon them by a social revolution over the last 40 years. but unlike the middle class and the wealthy, they don't have as easy a way out of this. they don't have the resources to get themselves out of it which for the most part now the wealthy have done. they've returned to a kind of more traditional way of living. and we've left the poor at the bottom still living out the consequences of the 1960s. the solution to that is not going to come from the intellectuals, from our intellectuals. it's just not. and the question is, is there a way for those of us who are fighting these battles of ideas to legitimate the kinds of moral institutions that are going to be necessary for the poor to be able to improve their situation. it's a cultural problem. more than an economic problem and so you need cultural elites as well as intellectual elites. now, that's the problem. that's not the solution.

i wish i had the solution for you. i think work like the kind of work that's done at aei and in washington and around the country is important. it's one way to get there. to empower local morally empowered institutions, the sort of thing bill talked about at the last of these lectures a month ago is also extremely important. essential to getting out of this problem. but i don't think the way that he described the problem is quite the nature of the problem we have today. what we have is a massive social dysfunction at the bottom of our society. and it's the responsibility of everybody else to deal with it. certainly our intellectuals are more blind to that responsibility than most people. but i don't think that it's fundamentally going to be an intellectual challenge. it's a moral challenge. and america in the past has proven to be surprisingly capable at dealing with these kinds of things.

whether that will happen in the future, though, is an open question. >> thank you. a great lecture. my question is that how can you bring the poor and the middle class like with the healthcare. one-fourth of americans are without healthcare and costing everybody. and also another question is on immigration. will those two issues bring those people -- or solve the problem in the future that we are facing? >> well, those aren't easy questions. first of all, i think that -- there's a way of looking at our healthcare problem that says the problem is that we have a market

system and it's not working for the poor. i think that's not correct. and the basic problem in healthcare is that costs are exploding. and the reasons for that have more to do with the lack of market mechanisms than the improvements of market mechanisms. in part because of the welfare state that basically protects people from the consequences of their decisions keeps them from knowing prices and costs and has a lot to do with why costs are exploding. so this is not a very creative answer. it's the basic conservative answer that healthcare is actually a place where more market mechanisms would do more good for more people. how much that has to do with bringing people into the middle class it's hard to say. i think it has to do to the extent that cost is a problem. as adam smith said the wealth of a nation has to do with the cheapness of necessities and we do consider healthcare a necessity and we're trying to

make it cheaper. it's not going to be easy. [inaudible] >> yeah. yes. well, that's true. the immigration problem certainly has a lot to do with our economic situation and vice versa. we're attractive because we're a strong economy. but we have a lot of problems at the bottom of the labor market because we have a lot of illegal immigration. the immigration question should be addressed, though, in my view not as an economic problem. but as, first of all, a question of basic lawfulness. the border should not be wide open and it should not be so easy to come here illegally but i think also as a matter of basic humanity. it should be easier, i think, to come here legally. i guess i don't take that to be fundamentally an economic question.

there's someone in the back. >> ben martinberg at aie. -- aei. when paul samuelson died the other day the obituaries were uniformly favorable. and i assume deservedly so. but my recollection is that there was a sentence or a paragraph in his famous textbook that said socialism creates wealth more rapidly and more efficiently than does democratic capitalism. i wonder if, a, i'm remembering correctly and, b, how prevalent is that view in the economic profession? >> well, i can't tell you if you're remembering correctly. i just don't know.

i would certainly say that today a few dozen seem to be prevalent in the economic profession. whether it once was -- i think it's still the case as irving crystal wrote in 1980. that there basically is no such thing as noncapitalisic theory. if only in the sense that what we think of as the discipline of economics is an extension of adam smith's work. and is a way of thinking about how economic man functions. and a system that begins by denying economic man is just a different system. and in the case of socialism, it's fundamentally a morally different system. it's not a different set of economic theories so much. but again i can't speak to the prevalence of the view in the academy. yeah. >> i'm a freelance correspondent.

in the introduction the bioethic is mentioned as one of your field of study. i may elect to ask two questions. as to stem cell research, the bush policy and obama policy are quite different. could you comment on both of them. and then in your judgment and opinion, what's the proper stem cell research out to be. and the second is to the age agent orange, the treatment of the american vietnam veterans and the vietnamese people -- the treatment.

you want to comment on that. thank you. >> well, on the first i'm happy to talk to you afterwards about bioethics and the second i couldn't do much good afterwards. so let's take another question. [laughter] >> right back there. >> okay. >> hey, yuval, ross from the "new york times." i wonder if you could comment a little -- i hate to bog us down in the weeds of policy but based on your own experience on the lessons of the bush era for the challenges that you're talking about because it seems as though you could make a case that the bush administration represented a broad attempt to come to grips with exactly the challenge that you're talking about. how to marry a defensive capitalism to a kind of cultural critique of the culture that it summoned up. but i think in hindsight both --

both on the left and now on the right, the bush era is rewarded in a way as a precursor to the trends of obama, the society of rhetoric looks like industrial policy in the housing market and the prescription drug benefit looks like afortes to the healthcare debate and so then. i'm curious what you take to be the broad lessons of the bush era for the problems that you're discussing. >> well, i think in a way that both sides of the way you put the question are right. that is there was a desire to find a means of expressing the need to balance the cultural problems of the capitalist society with the -- with the free market economics of american conservatism.

i would say that in practice, the former was done more than the latter because it's easier to do rhetorically. a lot of it is really a matter of talking and some of that talking was -- was done. in terms of actual policy, i would say that on the whole, what we saw -- what we did, i should say, i'm not entirely an direct observer of the bush administration was a direct result of the middle class state. it was walked into more or less backwards. it was not the design or the intention generally, though, in some cases it was -- but if you look at the effect, if you look at the consequences, i think it's fair to say that's what happened. now, the other leg of this, the collusion of corporate america

and the federal government certainly extends back very far into both republican and democratic administrations. the too big to fail regime is a product of the middle 1980s, of the height of the reagan administration. certainly our middle class welfare state in general has been around for a very long time. these trends were not -- were not curtailed in the bush years. let's put it that way. some old friends here will still be friends if i put it that way. [laughter] >> at the very end, of course, we saw the beginning of -- with the contention with the economic crisis where things were done that certainly would not have been contemplated earlier in the bush administration. and it's very hard to judge those decisions because they were -- they were undertaken in circumstances of really extreme panic. and they may well have been right but that doesn't preclude

us from judging their consequences on the merits and i think their consequences have been a serious problem for us. >> alex pollak from aei and thank you for an interesting talk and especially for emphasizing the key point which is the point of capitalism is to benefit the vast majority of the people, which it obviously does. but somehow that most basic point, as you say, gets lost in most of the discussion. and i also agree with the notion of how -- in order for that to happen, how it has to be married to a regime of self-discipline, a little bit the bourgeois entrepreneurial family. but could you say some more about how to -- how we might actually do that to make progress on the self-discipline side. >> well, it's in a way where i

tried to end up which is to say we need more cranks. we need social conservatism unapologetic, you know, behave kind of social conservatism. it's no fun and it doesn't -- you know, it doesn't make good television and all that. it is simply essential to the proper functioning of the capitalist society. and there have to be some preconditions -- there have to be some conditions that allow people to find that way of being attractive, to see that as their proper place in this society. that's very complicated. there are social conservatives. but i would say social conservatives in a liberal democracy do two sorts of things. one is they -- they fight for the weak or they fight for their sense of justice. and another is that they restrain appetites. and these are two very different things.

they are done in very different tones. and in different times in american history, social conservatives have tended to do one or the other much more and i do think we're in a moment where the inclination to look out for the interests of the weak, which is, of course, a noble and admirable inclination very much prevails over the inclination to restrain the appetites of our society. that's been great for the pro-life movement. it's been very good for efforts to help the sick in africa. and these have done wonderful things in both cases. but it has not been so good for the moral condition of our society. and as i said before of the moral condition of the poor and i think we need to recitize moral conservatism. how get there is maybe next month's lecture will help us see.

>> i thought it was -- jonah goldberg, national review and the "l.a. times." i thought it was a fantastic talk probably 'cause like you i'm sort of concerned of the weeds of the conservative battles and whatnot. what i found very refreshing in your talk how you emphasized the role of capitalism and fomenting virtue of restrains. that is completely at odds with the rhetoric you hear on the right today. if anything, the fusionist project of conservatism of melding social conservatism and libertarianism -- the randanes have won that talk, it's all rights talk my right to buy that and my right to live the life that i do. the language of sexual mores have been incorporated into economic activity. and my question for you is, one,

do you believe that that rights talk is a valuable part of the case for capitalism? and as a programmic thing and second of all, do you think it's correct? >> well, it's tough to simply give you a yes or no answer to that first question but if i'm compelled to, i would say, no, i don't think that it's a particularly valuable thing either for the case for capitalism or for the larger endeavor. i don't think capitalism is fundamentally a matter of rights. the market -- i think smith is right. the market is a public institution, a social institution created with a purpose. and it's not a matter of rights. it's not a function of natural rights. and i think that the -- the more libertarian way of thinking about this question that does prevail on the right makes it very difficult to seek that balance between -- between prosperity and morality.

and that plans is not impossible to sustain. it's been sustained for a long time in america but i think it would be impossible to sustain if we -- if we take the case to be fundamentally a libertarian case. there's a lot of good in what the libertarians have to say. there's a lot of truth in it. but i personally don't think that the fundamental core of it actually is true. as a matter of describing human life and human nature. and so there's certainly a problem there. and i would try for a very different kind of fusionism. i think social and fiscal conservatives can be natural allies. not perfect allies. there are vast differences, very real differences. but i think they can be allies if they both are neither liberal nor libertarian but conservative, conservative -- you don't want me to start on

edmond burke because i won't stop but conservative in a sense that seeks just that kind of balance. that has a vision of the liberal society as an achievement rather than as a beginning, rather than as a set of premiums that then have to be applied like a formula in arithmetic on to social life. so the view of things i present here is certainly as much a criticism of libertarians as is liberals, sure. [inaudible] >> i thought you you might. [laughter] >> yes, of course, in a way. but the classical liberal idea as i understand it was not a static idea. it was an institutional evolutionary idea and the progressive success was less in rolling back capitalism than in preempting its ability of the market to move into new areas as values emerged, environmental

areas but also preempting education systems and others driving them into the political regime and forcing us into this confrontational area wherein a sense a rights approach, leave me alone became antivalue in a sense. so i think it's not quite fair to blame libertarians. ... we say classical but there never actually was a simple classical liberalism. the dispute has always been there and it's a disagreement about whether the liberal society is fundamentally an achievement of western civilization achieved by countless generations of slow and careful buildings of social

and moral and political institutions or whether or whether it is a break from western civilization, a set of principles that have been discovered and should now be applied to social life in the hope of moving beyond politics to a more rational way of living. these are both liberal ways the inking. one is a kind of conservative that wants to sustain the achievement and the other is a kind of progressive liberalism but once you move beyond. that's our politics, but that's all politics 200 years ago. it's politics since the french revolution. and it is not always clear to me where the libertarians are. [inaudible]

>> are mashed with review. yuval, you've portrayed the revolution between big business in the growth of the middle-class welfare state state as the product of contemporary democrats distaste for capitalism. but i wonder it's fair to democratic liberals so after all do not regard themselves as being hostile to capitalism. they think of themselves as saving capitalism from its characteristics lauzon accesses. for example, they think that you need to create a certain amount of stability by, for example, increasing access to health insurance and that that will enable things like support for trade. and i just wonder whether you've been quite fair and -- >> well, i suppose no one could ever accuse me of being fair. [laughter] but i think that smith's

insights, smith's view that capitalism was fundamentally a democratic system and committed to as i say i kind of lawful chaos as the essence of social order is not taken by everyone should be at the essence of capitalism. there are a lot of people and there are a lot of economists who take capitalism to be a very orderly systematic kind of a thing that requires precisely a rational system of organization. and that's the way in which that kind of people who today call themselves progressive capitalist, and many of them who are in the obama administration can i say, i think with a straight face, that is truthfully that they are trying to defend our system, not to undermine our system. i think they began very different notion of what that system is than mine, but also then s.

they began from an ideal that is not what we tarred and is probably not what we should have aired another not communist era are not trying how right to undermine capitalist and they believed in free enterprise to a certain degree. they believe in economic freedom to a certain degree. but i don't think they believe in the democratic danceable but actually underlie those things. and they think that capitalism more amenable to the kind of rational control thereafter than i think it is. >> thank you. you have spent at least a bulk of your criticism i've been sort of leveled on the welfare state

and the coalition between big business and government. though our early in the talk you indicated that there was a kind of moral critique of capitalism in which capitalism in the way it its own foundation to put it somewhat strongly. now much time it's actually been spent on not and you try to recover the case for capitalism as if he meant to give it reit shares not irving christians too. and the question is whether or not this would be a way of focusing. has the character of capitalism in our lifetime, or my lifetime, changed so much that the teachings of adam smith and that the hopes of adam smith are really very problematic, only not so much only in the

government and buffer states have done but what's capitalism has done on its own and how it is perhaps precisely responsible for the inflation of the desire and the weakening of those kinds of institutions that you insist are necessary beyond capitalism to sustain it. >> well, i do agree with that and that's the way to which i think as i say at the end of the talk, smith was mistaken to say that capitalism could sustain itself morally. that it always needs to be fed by other sources of moral authority. and without question it undermines those other sources by functioning. it undermines her allegiance to them and makes us less interested them what they have to say. to me that suggests not that smith's teachings don't have anything to say to us, but that what we need above all is a recovery of some of the moral and social authority of those institutions. it may be possible for him to say what he said.

it made it possible for him to see, to envision a way that capitalism and a decent society not only would coexist but would reinforce one another. and without question, we are in trouble on that front, in deep trouble. and so, three cheers or two cheers -- i think that in the way that irving kristol put the two cheers for capitalism i certainly agree with him. but it has to be the case that we do something about that and try to restore what capitalism is missing. it's not easy to do and it's not easy to do especially in a capitalist society. but as i said in my mind at the end of the talk it's the most challenging and most important element of the case for capitalism, which is that it has to be a case for not only a noncapitalist, but a nonliberal side of institutions that have to continue to sustain our society. maybe that's impossible.

but i think the history of the democracy says it's not necessarily possible. it's probably the best we can do. >> erwin stelzer, hudson institute. i want to follow-up on this question because it's been bugging me too. you said at the beginning that adam smith operated in the context of 1776 and the time period in which certain standards existed certain balance existed. and that was then. this is now. way we live now seems to me somewhat different, short of the utopian revival that you seek --

my friend david gersten used to say this is the american enterprise institute for public policy. so short of that, what do you see as the reorder up of the various balances between individuals, between individuals and the state that might give you time to have your remedy work while the rest of us, at a lower level, try to set in place band-aid to keep the patient alive? >> well, that's obviously the difficult question and it's the question that, from a number of people at a number of ways. again, i think that the basic character of my prescription is for -- his first of all, at the beginning defenders of

capitalism for conservatives especially to recognize that what they are defending is also a moral system, also a moral conservative them, also the religious traditions of our society. that's not a policy prescription, but i think it's a necessary precondition for doing anything worthwhile at all. and necessary not only in a conceptual sense, but necessary because we're not doing it now. it's something we ought to be doing differently. exactly what that means, i don't think that a moral revival as a matter of what policy. i don't think you can make it happen. it's been tried in certain respects. it was even tried in the bush administration in some respect. but in the end, the united states has been fortunate to have experienced were the just revivals at some very key moments that i've made it possible for us to continue to function the way we have. you can't just order those on

command, you know, if you could, we should put in an order. [laughter] we could really use one. we could do something to help make better the easier, to not stand in the way. but could i tell you exactly what they are? i really couldn't. i can get useful to know what's needed even without knowing exactly how because at least you can tell some decent ideas apart from some terrible ideas. an exact roadmap, i certainly don't have. i wish i did. one more question. >> hi, jon's holiday. i have a question. i don't quite understand the case that the social malaise and excesses that exist are caused by capitalism and what could make a case that it's the lack of having to be responsible for your own actions and if the welfare state and crony

capitalism that lose money policies and all of that. so i'm really missed it. i don't catch it. i don't see why capitalism causes social access. other systems can do the same thing -- >> i think first of all part of the answer is capitalism doesn't prevent social access. human beings can't social access. we are creatures of access. and the fundamental social question for every society is, how do we strain to? so i don't simply blame capitalism for the fact that we are human beings. on the other hand, it does empower certain kinds of things that certain kinds of sentiments and appetites. it tells you that you are to have what you want, which is not always the best thing to tell everybody. if what you're after a social restraint in the restraint of social access. now, the basic case i try to make is that adam smith's

contention that capitalism would counteract that, seems not to a turbine true at the very least. i think it's also true that capitalism has exacerbated that. but a system of satisfying appetites is a system that produces more of what you're satisfying. it's kind of an economic runcible anyway. that means we need some other way to restrain ourselves. that means we need some other way to impose moral order on society. you can't do without it. it's not going to work. ano, it's not a matter of blaming capitalism. i think of the matter friendly corrections. thank you. [applause] [inaudible conversations]

[inaudible conversations]

now six noti economist on the status of the world economy. how different countries have weathered the recession and prospects for improvement around the globe. posted by the carnegie endowment for international peace this is just under two hours. >> good morning all. here assembled in this room and to the broader c-span audience. my name is set to step reef.

i'm teaching courses at chinese economy at johns hopkins school of advanced. i'm also a non-resident scholar curate the carnegie institute. this is the first seminar of the you're i understand in the title of the seminar, appropriate days happy new year. the world economy in 2010. but there is a question mark behind a happy new year and the meaning of the? will become clear in the proceedings during the seminar. the recession that it is struggling to get out of is an unusual recession and that is the reason for the question mark behind the happy new year. we have five panelists, all make it their business to predict the future or at least transcend the future. they are all heavy hitters in the subject.

in order of defeating senior, uri dadush is the director of the international economics program here. transfixed before that worked for a long time at the world bank where he was responsible for research and trade policies and for the publication of the very influential global economic world bank's global economic output application. next to him we have philip suttle who is the global active economic research at the institute of international economics here in washington. he is responsible for developing ifi's economic work, brought economic growth and product development. he is the author of many long and short articles that are published in various ways including on the web. next to me on my last is jorg

decressin in the research department of the imi. he ordinates the ims world economic outlook and he has led the ims policy division and the imf division in israel. he is published widely on reform and stability and european prospect. he is also the author of a recent book, integrating europe's financial markets. on my immediate right is desmond lachman, currently the institute after we serve as managing your and economic achieving market economic strategist for salomon smith. he was also hired to that deputy director of the imf in a policy

developing and review department anti-has written extensively on the global economy, the u.s. housing market, the u.s. dollar, strains in the market and his work at the enterprise is focused on global macroeconomic and global currency issues. on my far right is hans timmer. hans timmer is director of the developing prospect groups. under his management the group produces the world bank's annual publications, global economic prospects, global finance and global monitoring report. in addition, there is a wide range of forecasting publications that come out of the world bank under his supervision. so you see we have a panel of heavy hitters on the subject matter for this seminar. the procedure for this seminar is slightly different than normal. there will be no sort of lengthy

presentations for slides. this is customary. instead, i will ask five different questions. i will ask each three of the panelists to address each question in three minutes per question. they don't know ahead of time which questions i will ask them. that is deliberate in order to create an atmosphere of real discussion to make this seminar different from the conventional presentation. after that we will have an opportunity for discussion with the audience and questions that may come in from the larger audience. so i will now ask the first question. and ask three panelists to address the questions for three minutes each. first question is, as is announcing the program for this program, why did 2009 turn out to be better than did? and the person to whom i will

address our hans timmer uri, dadush. why did 2009 turn out to be better? please try to limit to three minutes. >> and the first question is, was actually 2009 better than we expect it? and i won't go back to all the forecast, but let me start with the observation that 2009, of course, was not a good year. it was one of the greatest recession that we have ever experienced and it is true that we have avoided a larger disaster. but if you look at the current situation, even after the many economies are coming out of the recession, productivity -- reduction levels across the world are still some 7% to 10% below what they were before the

crisis. unemployment in many countries is around 10%. there are huge problems emerging for the governments and their fiscal positions. the positive growth that we are seeing in the moment is to a large extent driven by temporary fact there is, that by all means this was not a good year, even if growth was very positive. if you look at the forecast. and i cannot talk in detail about the forecast because we will probably stand later this month amid january 21st. then come and you will see that the kind of recovery that we are all talking about is relatively mutated given the size of the decline that we have seen and then probably later in the discussion we will talk about major risk that are still out there. so going back to the question,

why was 2009 a much better? i would answer with the observation that actually 2009 was a year that has created huge problems and that it will take several years to solve those problems. >> thank you, hans. the next panelists will address this question is uri dadush. >> thank you, pieter. i agree with hans that 2009 of course was an awful year. at the same time, if you reel back to say six to eight months ago we were at that time considering the possibility of a falling to depression. the picture now looks remarkably

different. we have just finished the third quarter. we don't have full data for the fourth quarter yet. where world trade in industrial production is on a sharp recovery path, one of the fastest growth rates recorded. and so, one point before i say what actually explains this better than forecast, better than forecast outcome, let me say that there is a marked difference in the acceleration of developing and industrial countries. if you look at the consensus forecast that were made in the middle of 2009, the industrial countries, the advanced

countries by and large are doing better, but only a little bit better anticipated back six months ago. on the other hand, in the emerging markets particularly referring to china, india, brazil as the largest. as several others take celebration has been very significant and a number are some 2% stronger astin made it now for 2009 than they were in the middle of the year. what are the reasons? for reasons i won't mention very briefly that we are doing better than we thought. first of all, the policy measures that were taken were unprecedented, both the

financial rescue, the fiscal stimulus and the monetary stimulus have virtually no precedent, maybe fiscal stimulus you can call some precedence. so the aggressiveness of the policy response was extraordinary. the second reason is that these policies by and large worked, not a foregone conclusion. many of these policies were very controversial. but if you look at the numbers, if you look at the spreads, et cetera, et cetera. any number of indicators you have to say that we are in enormous lead better shape than we were nine months ago. the third factor i will mention is the fundamental strength of asia going into this recession

and the fact that they were able to respond very aggressively. a lot of it had to do with all of the in asia as well. but basically the banking site or in the households that there and the corporate sector in asia was just in very good shape. and it has been able to provide a major source of support for the world. and the fourth and last fact there that will mention is that the world avoided the worst contagion affects. what am i referring to? i am referring to financial contagion. we avoided a series of massive suffering that crisis, at least so far. imf played a very important role as well as other things have been. but these crises in the past

really exacerbated the problem during the great depression during the asian financial crisis. and we have avoided also on the contagion a search of efforts. we have a lot of protectionism but it does not become a general phenomenon as it did in the night teamed century. >> last person addressing the first question is jorg decressin your >> let me explain to us with that was originally going to happen. if we go back to about one year ago, so talking about january january 2009 we forecast that the advanced economies would be moving out of recession sometime in the middle of 2010. what is actually happened is quite different. if you look at the advanced economies as a group, they posted growth rates of about 2% in the third quarter of 2009

already. so this recoveries after restart that is a great deal earlier than those start we had expect it one year ago. at the same time, traditionally though it is to be said that if the u.s. catches a cold in our emerging economies catches the flu it has been quite different. there've been emerging economies that have been quite affected but those that have been remarkably resilient. these economies now the second quarter of 2000 night and the third quarter of 2009 have growth rates of around 8% in the massacre. of course they are big difference between asian economist untracked economies. eastern european and have have been while dominican estates. but on the whole it is a picture that is a good deal better than what we had expected one year ago. now, why is that the case? uri has already talked about some of the reasons.

what we all certainly did was faster in every cadet of the global economy that materialized in the fourth quarter of 2008 in the first quarter of 2009. we were all puzzled by the default and we attributed it basically to the fear of global depression. so to confidence back her spirit is very hard to gauge these confidence factors correctly. what i'm seeing right now. we have a very strong policy response to this fear of depression at the turmoil in the markets, exceptional monetary measures put interest rate cut close to zero in many advanced economies with unconventional support made available. we've seen a fiscal stimulus to put across advanced and emerging economies and then we've also seen recapitalization banks and guarantees for banks in order to get the financial sector running again. and what if all this done? it has changed the fundamentals on the ground, but it is also tinged confidence.

and again, it's very difficult to forecast confidence in the rebounding confidence has the been stronger than what we had expect it. that's why say this recoveries after he better start than what we had expected one year ago. >> thank you. we are doing well on time. the second question open to the three panelists is, do you expect the recovery to the continue in 2010. and if so, do you expect it to be l-shaped u-shaped or v-shaped? the first person to whom i would like to address the question is desmond lachman. >> thank you, pieter. you left out w. and square response. [laughter] i am very much in the camp of paul krugman, marty feldstein come expecting the recovery to be extremely subdued. and i can be talking about this

both at the u.s. level and at the global level. i would be rather concerned in policymaking circles if i saw with the massive stimulus that we've had, you know, for instance in the u.s. economy but is go stimulus that's unprecedented monetary ease though we managed to register something like 2.2% growth in the third quarter of the year. you know, the big question arises, what happens when the fiscal stimulus fades as the fiscal stimulus certainly will fade in the second half of 2010? and there really is a real risk that we do get a double dip recession as that faith. another reason i say that is there are extraordinarily strong head winds against u.s. economic recovery right now. the most notable of those headwinds is the situation in the labor market. not only do we have 10% interest

point of americans out of work, but if you and those who are working part-time and on an involuntary basis in those discouraged. if you look at the labor department six measure of an appointment for a something like 17.5%. so the issue is that kind of labor market is going to be exerting very strong downward pressure on wage growth in income growth. and without that kind of income growth, there is no possibility of getting a meaningful recovery and conception. in addition, what federal reserve officials keep alluding to is that we're on the cusp of another big downturn in the commercial property market, which could cause real problems in the regional banks. we've got a waiver foreclosures that is going to be hitting the residential property market so that we can get declines in housing that continue. and in addition, you've got a

banking system that is still dysfunctional. you know, what we know this is despite the fed reducing interest rates the way they done pump liquidity into the system we party got the banks cutting back on credit. especially to consumers and to small and medium-sized enterprises. so i just don't see the basis for a strong recovery in the united states. i think that's a v-shaped recovery is a wishful thinking. and we'll see what happens in the second half. what i'm really worried about, though, is the situation in europe. that what you've got now in europe is real tensions emerging in the euro zone. and i'm not just referring to greece, but i'm referring to portugal, spain and islands, all of those countries have really got trouble staying within the euro zone. they've got double-digit deficits both on the budget and on the current account. that is really going to be a

huge drag for the global economy, you know, and i would not exclude the possibility that we have a real full-blown crisis in either greece, spain, or island in the year ahead. finally, just to say word on japan. japan makes the united states budget situation look very prudent, well-managed. you've got a debt that is now moving towards 200% gdp and japan is now fighting with deflation. so, don't expect japan to be pulling us out of the situation. so in short, i'm in the camp of an l-shaped recovery act best, you know, with the 50% risk that we get a double dip in the second half of 2010. >> thank you, desmond. the next panelist on this question, build a recovery continued and what shape will it

need, philip suttle? >> i always get confused when people asked the shapes on the recovery because it's an exercise and i'm never quite sure for talking about growth rates or levels. but bottom line here is a look at our forecasts and i think men than most forecasts these days, we're already seeing in the sense that we have modest growth in 2007, 2008, very negative as we heard a very negative global growth in 2009. and somewhat already pre-determined by the dynamic we have going into the very strong to moderate growth in 2010. i think what's interesting about the global outlook discussion is most discussion is that really about the issue of what comes next year if we sort of take it for granted. i think most of us who take it for granted that the global economy is going to grow something like 2.5% this year.

it's really what comes after that in 2011 and beyond. and desmond raised a whole key of issues that we will come back to in the next half an hour or hour or so that really i think drives much of the medium outlook. but coming back to the 2010 issue. i would probably position myself certainly relative to the number of the rest of the panel as a relative optimist here. and i think i would highlight for aspects of the output that are really quite important that tend to not be the focus of the current time. i mean, somewhat unfortunately our industry tends to be extrapolated and when things are going well we tend to seem like you're going to go well. when things are going very poorly, we tend to cite those factors as reasons for things to continue to go poorly. and i'm not so sure that's the right thing to think about the world. but i would highly for factors that i think dominate 2010.

first, is to synchronize nature of the outturn. we at a synchronized downturn, very powerful in the fourth quarter of a wait in the first quarter of 09. we've now seen a synchronize downturn of about six months already and duration and it will continue for at least another six months. enable feed on itself as most globally synchronous processes do. second feature here, and at that point i think is very important, very raised somewhat that we should come back to it, is the growing role of the emerging markets and leading expansion. and it isn't just a shame. it latin america. it isn't just east asia, and south asia as well as latin america. and even in emerging europe, eastern europe, there is a stronger economy showing some signs such as pro bowl. third thought or and i think this is to a great extent but a very important point not to lose

sight of is the turnaround that's liable to happen in the sect there. one way of thinking about the downturn of 2009 is we had corporate adjusting very aggressively. and in so doing determine the financial position from one of modest net borrowers to one of substantial financial surplus. now maybe that financial surplus edition will remain for the next six months, nine months. but my suspicion is that it will increasingly turn into a little more corporate act diggity and corporate optimism, whether it's on the capital spending side or the employment side here at and that takes me to my fourth and final point which is that i think were going to get a turn in the global employment picture. desmond used the high level of unemployment in the u.s. and the weak labor market as a reason for extending this. i would actually turn that point a little bit on its head and say as the economy picks up, which were going to see here is the terminable market conditions.

i think wordy scenes in the high-frequency indicators and i think it's going to actually become a global phenomena. what we're seeing in some of the hiring surveys is the global employment picture intentionally looking much better by the time that we get to the middle of the current year. now that's not the same thing as saying of course the unemployment will go away. we are going to be stuck with high unemployment levels and low employment levels for an extended period. but the delta as variables and so where they're going were going to be pretty much close to an inflection away. >> you've heard very to contrasting views on the prospects. i'm curious, uri, what are your views on how it will continue and if so what shape? >> yeah, via view is that of course the recovery i believe will continue certainly in the

course of 2010. and i'm much closer to fill, a little more optimistic than i am to desmond. and let me point to my four fact fact yours for saying we have in the advanced economies at least a u-shaped recovery, not necessarily a very sharp v-shaped recovery, but quite easily half a% or so faster than consensus, which in this country for example, as i think 2.7% or 2.5%, depending on what to look at 42010. my four factors overlap to a degree with phils.

but the first one is that the push by the emerging markets. i think that we simply have to underscore the fact that a large part of the world and this is a part of the world which is on a very rapid long-term growth path did not have a massive banking crisis, does not have a financial crisis of the classical type. they suffered a very large external shock. but by and large, the financial sectors remained whole. and if you look at the three largest emerging economies, china, india and brazil, they are basically somewhere near their long-term growth path. and even in 2010, even in

22,009, but not much. so the underlying momentum and not part of the world is very, very strong. more of it is being driven by domestic demand almost by definition, less by exports. the second factor that overlaps with philip is that i am very impressed by the speed at which the nonfinancial corporate there has reacted here in the united states. and there's a lot of evidence that employment has been cut very rapid lee and most significantly than in some sense warranted by demand. and this does reflect that and

so house investments, so as inventories, et cetera. this is reflected much better than expect it earnings of nonfinancial corporate. by the way, not just in the united states, but in europe as well in the course of 20,009. this suggests to me that along with many others i expect a turn in the employment picture, especially given the latest numbers coming from the pmi's does suggest that we are still on an exponential path. the other two factors that i will point to, which go beyond a different ban phil's -- in the order of importance i would say

policies remain supportive in 2010. only about one-third has been spent.@@@@r@ @ @ @ @ @ @ @ the new boards and ceos of them are suicidal you have to assume they're looking at their businesses. the third and >> the third and most important factor in policy is, i believe, that is power of monetary policy is increasing, has increased very significantly in the last

six months. a year ago you could ago we were in liquidity trap, that lowering policy didn't matter very much. because people just came for cash. well, all indicators of which conversion has come down big time. and so the very low is starting to have policy. i have a now a very important impact on economic activity. and so -- we'll do in the foreseeable future in 2010. and finally, just mention it briefly because the point is often made. we are coming off a situation where all deferrable expenditures were deferred. we deferred capital, cars, houses, the build up of inventoryies. and all you need is for some

improvement in those deferrable items. compare to the large declines that occurred in 2009 for you to see significantly that rapid growth in 2010. >> thank you, uri. my next question deals with something that various panelist that commented on. that is the difference in performance, recovery performance, between the established industrialized economy, the older economies, and the emerging economies. the question is how do you explain that? what is the outlook for the feature-term future for these two major croups, the merging economies and the older, established industrialized economies. the first person to whom i would like to put that question is hans timmer.

>> thank you very much. phil said that the recovery is very synchronized in nature. that is true. we were talking about global downturn and global recovery. the fact that is synchronized, given that fact, it is very interesting to see that there are major differences between the emerging economies and the rich economies. and that are major differences within the developing world, within the emerging economies. half a year ago in the panel here, i made two points. one was that the recovery will be relatively muted given the size of the falling production that we have experienced and the second observation was the strength will depend on the emerging economies. because emerging economies had become the driver of gross in the world economy, that's

especially true for emerging asia, if you look at their contribution to growth. not the size of those economies. that's still only 20, 25%. but their contribution to youth was more than 50% during the boom period before the crisis. but much more important that contribution to growth and investment is significantly larger than the contribution of the high increase countries gross -- growth to investment. this was characterized by sharp movements in unvestment, huge fall in the recovery has to come from investment also. that is what we're seeing now happening. the recovery is driven by the turn that -- the turn up in production and in emerging asia to a large extent because of the stimulus in china. if you look at their import

growth, this is probably faster than history in recent months. much faster than the expert growth. it pulls the region out of the recession also. their production levels are now higher than was before the crisis. and while in the high-income countries, industry production is still 12 and a half% below what it was before the crisis. so you see, despite the fact that it is synchronized, a big difference between the emerging economies that are leading and the high-income countries that are now following. within the emerging economies, there's a major differentuation. the kind of recover that we're seeing in asia is not there in central europe and eastern europe despite the fact that indeed poland is -- shows relatively solid performance. but there are still many countries where the recovery is

hardly there. basically what we are seeing there is that the drop in production has stopped. but no clear signs of recovery. the picture in latin america is very diverse. strong recovery in brazil. but there the fallen production was also very strong. but in a country with strong policies like chile, we are not seeing the recovery yet. what we are concerned about is the low-income countries. they were not that impacted by the crisis in production. they were much more impacted in fallen income because of the fallen commodity prices. and our expectation is the impact of the crisis is much more in the medium run for the low-income countries and not so much in the short or medium run because nay don't have the

fiscal space to response to the events. and many of the mechanisms that are important in low-income countries actually come with a lack in terms of the dynamics of poverty that the dynamics of the fiscal positions in those countries. so a very diverse picture. but what is very positive that emerging asia, especially, is playing the leading role that was forecast. >> thank you. not just emerging asia, but several other large emerging economies are also doing better. but my next panelist on this question is desmond. desmond, what explained the larger emerging economies in between and the established industrialized economy? what lies ahead in the near-term future. >> before i address that, i would just like to go back to some points that have been raised earlier. i think something that is being

missed the very different nature of this recession. and one the features of this recession is the damage that it's done to the banking system that isf's estimates suggest that we've still got very much of the loan losses that have to be recognized. we have a banking sector circling the united states and in europe that is not lending. that they are, in fact, cutting down on credits. so despite what the fed is doing, we've got the preduction in credits to particularly consumers and small enterprises. research done by rocoff and reinhoff suggest that when you have crisis of this sort, the recoveries tend to be shallow and have risk of another leg

down. another point that i want to make is on the employment situation. certainly you are not doing to get unemployment continuing to rise. but what we will have in 2010 economies like the united states being characterized by unemployment at a rate that is close to 10% or double what economist would regard as the full employment rate. as long as that exists, you have downward pressure on incomes and that will make it very difficult for a recovery to go. as for the question on the emerging markets, i agree that the fundamentals of a lot of these emerging markets are a lot better than that those in the industrialized countries. and i state most notably is what you see is pretty much better public finances in the emerging markets. the deficits are a lot smaller. and the levels of debt are something like half of those in the industrialized counties. when the industrialized

considerates are heading towards 100% of gdp, the emerging has close to 50%. you've seen the emerging markets in asia and latin america. they've have learned from past crises that it's better to have their finances in good shape so they weather a recession like this watter well. the emerging markets are benefiting from a couple of factors that i'm not sure will persist in 2010 that my call is correct that you're not going to get much of the global recover re. first is that commodity prices have boomed. many of the exporters are benefits from that. what they are also benefiting from is that the risk-taking has come back on the expectation that you often are going to get a v-shaped recovery. if you don't get the v-shaped

recovery and you get risk aversion returning as i expect you'll get, you'll then begin to see problems emerging inlaces like eastern europe from the baltic countries just to mention one area which just looks like it's heading for a full-blown crisis. but you'll also get ukraine, hungary, the eastern periphery of europe is likely to be in trouble. just one word on the situation in china. china has surprised us in a very positive way by it's very rapid growth in the p 2009. and that was really achieved through massive fiscal stimulus policy, massive easying of monetary policy. but the question that i've thought is whether in 2010 we're not going to see problems emerging from the global economy from the chinese situation.

what i'm referring to is much of the stimulus package went to be building up additional excess capacity which is going to come on screen in 2010 at a time that europe and the united states are going to be having very high unemployment levels. i'm not sure that that is going to be a very positive development for the world economy. what we're going to see is height and protection as pressures which you've already got right now. if china is going to be providing additional supply, that's really going to make life rather difficult for the u.s. and europe. >> thank you. my final panelist on this question, what is the explanation for the different performance between the large emerging economies, especially in asia, and the oldest industrialized economies? and what lies ahead?

jorg? >> let me talk about similarities and then talk about differences. then we'll give you explanations. similarities, if you look at growth rates in advance economies in 2007, they were somewhere around 3%. in 2009 they were at minus 3%. you look at the emerging economies, in 2007 they, about 8%, and now they are around 2 percent. also a six percentage point. there's a similarity. they are connected. but then ago i'd much rather have 2% than more than minus 3% growth is what the advance economies have. this is the dissimilarities. this is that fundamentally, the structural growth process of the emerging economies are a good deal stronger than those of the advance economies. in fact, if you look at what

happened to the emerging economies during this global downturn, they did a good deal better than they did during previous global town turns. why is that the case? what's going on here? many of the emerging economies are tapping production potentials that have remained bottled up for many years beforehand. tapping it by a market friendly. they have learned from last mistakes and had very conservative approach. therefore the financial sectors have held up quite well. the term aspect, micropolicies they've have a fairly liberal approach. thus they have plenty of am fusion to practice the policy this time around which they didn't have during previous downturns. you put all of the things together. they make for a performance that is fundamental almost stronger than of the advance economies.

this is also in many ways the way it should be. in economies, typically what you say -- what you observe is if you observe history of the long periods, then poorer economies, relatively poo economies grow faster in relatively richer economies. for as long as they put the right conditions in place for growth to take off. this is very much what has happened over the past decade. that said, there's also a good deal of originality among the emerging economies. you've got already, latin and asia in the lead and latin america. then the picture becomes a little more mixed and to the commonwealth of independent states. even in these, you have examples that are fairly successful such as the fallen. now if you contrast it with where we are in the advance economy there, desmond has already pointed out, we are looking at very high or rising unemployment rates through much

of this year. this will weigh heavily on growth. this will be in our view a recovery for these economies than the recoveries that we've observed such as the '70s, '80s, and early '90s. this is the repercussion? you see capital increasingly again knocking on the doors of emerging economies. looking for investment opportunities. because well the growth fundamental is stronger, the yields are higher, and in many waying the micropolicies have been prudent. >> thank you. third question that i would like the panelist to address, even though you may have already hinted at it, what really the major risk that you see? and what degree of confidence,

forever, do you have nor your expectations? the first person i'd like to address is uri dadush. >> okay. pieter, thank you. first of all, there are downside risk to this forecast. there are also to the consensus, let's take the consensus as a reference. there are both upside risk and downside risk. i wanted to stress that that start with. it isn't just about downside risk. the second point i want to make is that the gamma of possible outcomes is in my view a lot narrower than it was six to mine months ago. essentially because the likelihood of, you know,

relapsing to major recession and depression is much lower than it was six to nine months ago. the upside risk first. then the downside risk. the upside risk really relate to what phil said about synchronized recovery. and we have a long history of forecasting of examination of forecasting records. that suggest that there's a lot of inertia in economic forecast. so that we miss turns points. so that when things are going up, we tend to underestimate the speed at which they go up. when things are going down, as they did until recently, we tend to underestimate the speed at which they go down. and we are in a -- clearly in a

turning point. kind of situation. and it is a synchronized recovery around the world. which carries, therefore, the upsides risk of the strong effects. the implication of this is that you want to worry about the inflationary pressures building up. you want to worry about the asset bubbles building up. again, this is a very, very country by country type of situation. it's very difficult to generalize on those. but i did want to underscore the upside risk. downside risks to the forecast are primarily coming from economic policy. and here i would highlight two

aspects. one, is the withdraw of stimulus. and how that is going to happen. and whether the private sector will be by then strong enough to support the economy going forward. the other is protectionism. just very briefly, on the withdraw of stimulus, i think the risk comes from the fiscal side of relatively modest, first of all, the effect in the countries hadn't been that large. i also think that the way that the withdraw of financial rescue is happening is minimizing risk in the sense that it is responding to market situation. it is allowing the pacs to come

in regard and say, look, we don't need all the help. and i think that's the right way to do it. so i think that the risk there are relatively limited. where the risk are much more significant is in the expected and inevitable increase in policy interest rates. and withdraw of stimulus. because again here history teaches that when you have in that situation, in inevitably, you're going to uncover weaknesses. and we are in a position where the world economy continues to be frank guile. and so those weaknesses whether it's dubai or whatever, are out there. and they will be uncovered as policy interest rates rise. so the way that is done, i think is very, very critical.

that's the downside risk. a word about protectionism. so far we've kept it under control. i am becoming more and more worried about the china/u.s. relationship this tit and tat and the chinese have done their share as well. and here that situation, i think, bares careful watching. i could say a lot more about that. but i'll stop there. >> uri, the next panelist who will address this question what are the risk is phil suttle, the institute of national financial. in your earlier comments within -- comments, you've tended to express the optimistic aspects of the situation. what do you see as the risk?

>> one think, i think it's important to get one's mind around is issue of timing of all of this. one think that i think is in the near term there are probably already upside than downside even from consensus. a lot of that is things that uri and mist have been talking about. cycles, as you look further out, it's easier to see downside risk. i don't think it's a thing that's time independent. the risk discussion is very much a function of the time horizon one has focused on. i suppose if i can sort of have any cake and eat it here, i'm emphasized near-term strength but medium-term vulnerability vulnerabilityies. let's call it second half of

2010. let me run through them quickly. i would like to say hi to all of our viewers in poland. who we seem to be pandered to at the moment. the first is no one has actually mentioned this. oil. if you think about what gives you a global recession, oil is five for five. including frankly 2008/2009. it so happens that oil and lee mans came together. it's impossible to distinguish between the two. if we've seen oil price move back up $80 or barrel if they go to $100 or above. if, not i'm saying it will happen. it will add significant near-term medium to the downside risk. second, the fiscal issue. which we can talk about all day. don't worry. we won't. but i think the issues that i

haven't heard anyone latch on to is the sort of unimaginable -- we should all, you know, with respect to people like desmond who called the '08 crisis well. we should all be prepared to imagine the unimaginable. what i'm talking about here is not turmoil in the greek debt market or spanish debt market, but turmoil in the does treasury. because it seems to be so high. one important thing is what the rating agencies do and say. at the moment they seem to be sticking their head down and trying to i avoid attention. they have to recognize many of the debt dynamics in the major countries are not sustainable with triple a debt ratings. the third downside risk is kind of variance on that is the whole tension with the euros. and i think the concerns about tensions in the euro zone aren't

just about budget deficits in one or two small countries. it's about the tough ride that we have in that region. in a period where we basically are trying to maintain a fixed exchange rate system in a tough period. fixed exchange rates as we know are dead easy to maintain in bullish credit environments. you know, take the first seven or eight years of comfortability. but when the credit environment becomes tough and stays tough, around unemployment rates go up in a different between region within the monetary zone, that's where your rough ride comes. that's very much the challenge that europe faces. not just for the next few courses or the next couple of years. but i think for the next four or five years. and then the final issue which you might expect me to raise given that i'm working for an organization sponsored by the banks is the issue of the bank sector. now desmond raised that point

earlier in the context with the damage done to the banks. the things that worries me is the fixed is being proposed to kind of stop another crisis. while in many ways, the objectives if they are imposed too early. that's quite plausible given the political imperative to do something, if they are imposed too early, it could act adds a severe constrain on the ability of the banking and financial system to finance and recovery. if we get aggressive actions taken to curtail bank activity, that will come at a significant cost to the economy in the near term. >> thank you, phillip. my last panelist on this question is desmond. desmond, i'm going to slightly rephrase the question, since most of the comments have emphasized the risk already. are there any upsides that you can see? [laughter] >> there are two upsides that i

can think of. one of which, you know, i think is possible that you get a shop decrease making commodity prices, especially oil that that could really be helpful. that would be equivalent to the tax cut for the industrialized countries that that could be helpful. the other upside risk that i can think of is that policymakers my raucously get their act together and engage in proper coordinated policy response. you know, i think that's talk of early withdoctor from the package. that's the downside risk. the upside risk i would see is if we really started talking about a second stimulus package in the united states that was coupled. and i stress this point that was coupled, with an indication of how we are going to deal with

the united states medium term budget problems that get to see the largest piece time both up in the united states public debt. how are we going to address that? i think that is critical. when i was talking about an l-shaped recovery, i wasn't really focusing on the risk. the downside risk that i see. you know, i would say that the downside risk that something has been mentioned. that i think have got a very good chance. all too good of a chance of materializing in 2010. it's that the middle of 2010 for me is the short term. i don't know they seem to think that's the long term. the long term is beyond 2010. but the four risk that i would indicate in one, which -- and i'll put hem in the order in which i really think i worry about them. the first is the situation in

europe. you know, phil correctly mentioned parallels with the argentina convertibility plan. they have to be dealing with a bunch of deficits on current account in the doesn't digits in the middle of the recession without having exchange rate or policy to deal with. that is a risk. i think that is a train wreck waiting to happen, you know, that the noise that we're getting about greece really should be a canary coal mine as far as island. spain is the key one, and portugal, i think you really could get full blown crisis in the zone. the second was referred to as oil. i would just note in passing, i don't want to get into politics. the united states is fighting two major wars in the middle east and iran is on it's way to

nuclear weapons. you could get a supply disruption. i agree that that would really be the debt help for the global economy. the third risk that i see which is very real. and which i notice the paper reserve officials keep talking about is what's happening in the commercial real estate market. that you've got $500 billion coming due in 2010 if those loans don't roll. as many of them won't. we'll get another letdown. that's going to have real damaging effect on the regional banks of the united states. half of their portfolio is in commercial real estate. the last thing we need is to get a credit crunch to the small and

medium enterprises which in turn most of the growth in the employment. they have eluded to the 2010, 2010 is an election year in the united states. china someone persists in fixing an exchange rate now to the depieceuating dollar. which is really just a red flag and invitation to have ramping up. if we've learned anything from the great depression, that is not very healthy for the prospect currently. >> thank you. >> kind of hard to really discipline yourself.

imagine yourself in the a meeting where you have to chance to address the g-20 for three minutes. the question is what should be done other than perhaps what is already being done to promote the recovery? if you wish to pick one country or group of countries, you are free to do so. the first panelist and the last to address the question, jorg? >> one of the fundamental policy challenges that you face can go down to three. the first is to engineer a shift in demand from public sources to private sources. from countries that have mostly

relied on exports in order to stimulate their youth. we need to shift there from say demand in the u.s. to more demand in emerging on all of the economies to given example. and the third, we need to repair the financial systems in the advance economies. at the same time, you need to effect supply. obviously real estate would be less important in the future. the resources that are being freed from the sectors will need to be employed gainfully. these are the three challenges. now given where we are right now, what would we recommend that policymakers do? well, first, fiscal policy in our view needs to stay accommodated. stock recovery and there are

risk building up in debt markets. for the strategy governments that should adopt the fiscal policy. it means we need to stay supportive now, but at the same time to address longer run challenges. how can this be done? i give you a concrete example. if in the comments, you were sudden to link statutory retirement agents to life expectancy, it exists in some economies. many economies would do a whole lot in terms of redressing future fiscal imbalances of reducing expenditures in the future. and the expansion that we see right now in the fiscal policy

is going to be contained. and it's going to be rolled back. would not depress demand today. it would still help government support the private sector. but there are other examples of such policies. the bottom line is we need to deal. the second is advance economies which are staying accommodated to doing right now. the third challenge is to deal with the financial sector. this is a trickier challenge. there's good news. if banks are paying back what governments have lent to them. but, you know, what we are really concerned about is the rebuild their capital and restart lending. right, so these are the two things that we need to monitor. now progress is being made in that respect. but in this stage, there's still more to be done in the banking sector for support supporter of growth in the future.

if more is not done, then one can see the economy running into a bottle neck as credit demand takes up ago. these are the chances. then, there is the other aspect. we need to shift demand for countries like the u.s. they are riding the countries to demand in other countries where savings have been high, they need to be brought down. that concerns a number of emerging economies in what we are looking for there is measures to booth consumption, coming through, for example, reforms to social safety nets. but there is a whole range of other messages such as developing nontradable sectors. so it's a complex agenda. progress is being made. and the g-20 in that regard is, you know, major good news. they are very much supportive of

global policies. >> thank you. hans timmer on the world bank. you have the audience at g-20 for three minutes? >> thank you very much. i think the biggest challenge for policymakers including those of the g-20 is to transition from short term fire fighting as if there's no storm to medium and long term. that does not mean that firefighter is not important. because you can prevention having your house burn down. doesn't also mean that prematurely you should stop extinguishing the fire. but the acute phase of the crisis is over. because with fire fighting, you

are not developing a new talent. and there are three reasons, i think, why that transition is so important. the first one is that there are serious limits to short-term stimulus programs. uri said earlier that it is positive that there are still some stimulus, fiscal stimulus in the pipeline. and in the u.s., you are only spent 1/3 of the total amount allocated. so this year we could spend another 1/3. it should be clear that by spending the same amount as last year, you are not generating growth. you are just preventing that there is no negative impact now of the withdraw of the stimulus. we have seen during the 1990s in japan that just with fiscal stimulus, you are not creating a growth in any economy. there's only very short term

that that kind of policy is affected. and the same is true for very lose monetary policy. it has been very effective. but already now we are very worried about the dollar carry trade and the price of the inflation that might come in several countries. so you have to quickly find other sources of gross. so that is the first reason. there are limits to the kind of policy that has been put in place until now. the second reason is that it is very important to restore confidence in the global economy. and you restore confidence not by continuing to spend as if there's no tomorrow. by putting on the table fiscal policies that are really sustainable. but making sure that you can take away the bottom for further growth. is that there is enough money for the infrastructure projects that are needed to do

accommodated gross. the third is this is the kind of crisis that has the potential to create lasting structural changes. that is not a normal crisis where you have to look for a turning point where is very difficult to miss at the moment. then everything is okay again. this is the kind of crisis that will change the global economic probably forever. that is true in financial markets. it's true also for the for the production. this is a kind of crisis where whole industries and certain countries can disappear and suddenly lose it against industries in emerging economies. that means as policymakers, you have to accommodate the structural changes. you have to open the way to create new growth. now in that respect, i'm very worried that policymakers cannot get a consensus for for example

on effective climate change policies? because those actually the kind of policies that are needed to to stabilize the environment. if there was dim, then you could create high-income new income. then you could create in developing countries new opportunities in the sense that there is a new way of securing of creating -- not just about crime change. it's also about policymakers being able to guide a longer term forward. >> thank you, hans. phillip suttle you have the last words. what are your recommendation to make this recovery more sustainable and more?

>> i agree with most of what's been said. most the good points have been made. it is fair to say that while we need to maintain stimlative policies both monetary and fiscal during the near term there are clear implications and cost that we've been talking about for keeping on pushing. i need to be caution as we look out over the next year or so about how that strategy is implemented. and i think there are some considerable financial risk associated with both central banks had been doing. i think to kind of try to summarize a lot of what's been said, i think there are three sort of sets of principals, if you like, i'd lay out to the

g-20 ministers here. in the first, in many ways they are all obviously points. the first is policymaking. it's what they really wish they had done in 2004, 2005, 2006. that's too late. you didn't do it. you messed up. let's move on. let's think about what can be done from a forward-looking perspective, taking the existing structures as given. let's way for consistency. that's a way of saying try for policy coordination. there are two consistency. what is the obviously one of

china running one monetary policy, the u.s. running another monetary policy, and tried to maintain a fixed exchange rate between the two. you have can't have that. you need to have some give and take. obviously in that context, you need chinese currency flexibility. that's an illustration. that's not my main point. it's the illustration. at the moment, i think the g-20 policy statements are full of loaded with consistency issues. and another illustration actually picked up on the point you just made. some of the risks comes out is capital ratios will be going up. probably most likely is for banks to restrain. you either want one or the other. it's hard to get them both. don't sort of aim for an ensign

outcome. -- inconsistent outcome. aim for consistency. my third point is one of hans' point. one needs to recognize that the world is in tremendous flux. there are certain things. i think hans' point about the green job in shift of the climate change issue is the perfect illustration of that. thank you, phillip. i'd like to thank all panelist for their contributions to these five crucial questions. we have about 40 minutes left for a discussion. and i'd like to open it up for questions from the audience. i'd like to state your name and affiliation and wait for the

microphone to arrive. the question is i will do that for you. wait for the microphone. >> thank you very much to the moderator and panelist. this has been a very rich discussion. i just can't resist on following up about comments. i just wonder if you could elaborate for about the risk. that was only the big downside risk when you said you could say more about it but you weren't doing at it this time. i'm going to give you an opportunity to trust that issue. >> uri? >> yeah, i -- at this point is that the protectionism has been kept a relatively under control. virtually all of the countries

have engaged in the measures of various types in the united states to buy america provisions that the case now the steel pipes have been a couple of other -- just about every one of this. this remains a contained phenomenon. there's been very little of sort of across the board increases. the wto disciplines by much more on the industry countries than they do on the developing countries. the developing countries have a lot more water in their

tariffs. in other words, they could raise and still stay. wto compliant, disciplines are also out there. because of the possible threat of dispute settlement. but i also in the end the control of protectionism isn't so much about, you know, the actual discipline that are out there. which can be to then around in various ways. it is about two things. it's about the memory of what happened before, and it's about the industrial measure. i happen to believe, and i write about nine months ago on this issue that if we have not managed to control the global recession and the possibility of

the depression that occurred, that the pressures would have been become very, very great. and in some cases, perhaps overwhelming. this is one important factor. if you believe desmond's outlook, then be very concerned about protectionism. because it is very contingent, in my view, on the state of the economy. let me say one more thing. why i agree that we need exchange rate flexibility in china, and we need some exchange rate of appreciation.

in the developing countries. i think to make this a sort of central question at moment has a number of risks. one is exactly to animate. one is to add to the protectionist rhetoric. and so on. and the other is essentially to take the heat off the real questions which underlie these global imbalances. which are actually more to do with fiscal policies in the united states, household savings rates in the united states, and distortions within china which artificially. which has so much more to do with the international exchange. it's essentially a way that these economies are adapting to these pressures and to these distortions. which really have to do with

domestic policyies. . >> since the issue of protectionism is so important and potentially so treacherous, i'd like to ask if other panelist have any comments on that question? >> can i make a point which is variant. which i think is most concerning on the hats spect which is the financial sector. it's actually being promoted by many of the official sector who are saying one way to make our system safer is to ring fence it. that you see especially in europe. and it's in a way very understandable. because of the some of the smaller countries experienced in europe with cross boarder banking difficulties. i think if we go down that root and ring fence banking systems and impose financial system and financial services, then it carries with it some pretty negative implications.

the least of which is fair to say a lot of growth in emerging markets in recent years has come from the opening up the financial systems and the introduction of best practices. maybe that's not the right phrase. but certain practices from the emerge economist. >> it's an important comment. i'd like to move to the next question. this gentleman on the second row there. >> hello, my name is james bond. i work at the immediatey. i want to ask phil who what -- phil what will happen to the pigs in europe? what will unwinding in terms of what an unwinding of the eurozone will look like in the tensions become obsessive, unmanageable, and the whole

place falls apart. >> good question. i'm sure desmond would love to comment on this as well. i worry preceasely because the links are so light. we have legal structures and physical structures. even compared to say argentina going off convertibility or britain going off gold. this is a tougher nut to crack in that sense if you believe the currency flexibility was the way to go. actually, reversing what was done with the introduction to the euros was tough. i think what it leads one to is the conclusion that you sort of -- i won't use the acronym. but those countries that you mention, they have to tough it out. you are looking at multiyear austerity. you can say we have in key parts of europe before. and it turned out to be not too bad. there are countries, island being an example itself that achieved a massive reduction in that budget deficit in the 1980s over a number of years.

somehow the country survived and actually flourishes out of it. but then you had the converge interest rates. they started off high and converged. you also had opening up of the economy to massive flows of fdi. neither of those two offsetting financial support seem to be there. to it looks to me like this group of countries is in for austerity on the fiscal side. not just for a year or two, but for an extent the, extents period. but desmond, maybe you have these on the unwide issue? >> >> i was trying to strike. until the question was raised. because i don't think it's a question of if this is going to happen. it's more a question of when is it going to happen. and basically, the stakes are incredibly high. the reason is that if any of these countries were to be forced out, and have to be

boring in their own currently -- we are talking about serious issues. they are very large. you are talking about a huge amount of debt. it would sink the hole of the spanish, the hole of the european banking. it would be real. that is the reason that the ecp is going to fight it. you know, hold it's nose, despite the fact that -- this kind of catastrophe in europe they are going to be pumps money until they get tired. the reason that i'm pessimistic about this is the size of the

imbalance that is are involved. and most importantly the amount of international competitiveness that the countries have lost. so, you know, if you are looking at countries like island portugal, greece, spain, they've lost something like 30% of competitiveness against germany. what they do is they now have to regain the competitiveness against a country that doesn't believe in inflation. so what it means that you actually have to get prices and wages falling but 30% which is then going to complicate their fiscal problem. unfortunately, you know, when you get to my stage of the the stage that i'm at in my career, he's been to a number of time. the last rendition was at the argentina plan. which everything said wouldn't fall apart. when it did, you have debt. i just don't see how.

it's just the inconsistencies are just so great. if you try to go with the austerity, you try to tighten your budget, you drive your economy down. if you drive your economy down, you lose your tax base. you don't really gain much by the tightening. i think this is a fool's errand. but the way it should play out is the ecp of kicking the can forward. until they realize that it's not just greece that they have to be supporting. but it's greece, the whole bunch of them. the four or five countries which involve huge amounts of money that's going to be a huge transfer from the north of europe to the south of europe. and this is going to have a political dynamic of it's own. i can't imagine that spaniards are going to tolerate unemployment in 20% and rising forever. they are going to be asking, there has to be a better way than this. that's basically what occurred in argentina. >> i'd like to suggest maybe on

the schedule something like this on the future of europe. you can invest us as a guest. next question from the audience. this gentleman here. >> barry wood. i'd like to ask phil and hans to expand about the power historical to the emerging markets. particularly the bricks. why do you really think that's happening? it's not just debt in the united states? is it? and how -- i'm not persuaded that domestic demand is going to rise in china and brazil and thus sustain this. and if the united states is going to grow at a low level, aren't we going to see commodity prices decline from these current levels? : these current levels? >> do you want to go first,

hans? >> why is it happening? let me first say why it is not happening. many people think that this was happening because of export growth, because of peter manipulation of currencies or through other -- because of peter manipulation of currencies or to other factors, such as stimulation in china, for these emerging economies were basically pairing growth by export exporting their way out. and i would say that that line of thinking is actually another danger against the trading

system as we know it. and we talk about protection. and often we talk about limiting the imports, but there's a lot of discussion about rethinking export growth, which could also be a threat against the trading system. and again, it's a misread of the data. helping countries including china. but it was happening in many, many more countries are going to in a half times almost three times as fast as the countries in the last ten years before the crisis and they accelerated their gross love nothing was happening. gross was not accelerating. this was a sickly happening because of internal reforms, which unleashed productivity potential that they had reduced. and through an enormous treason product could be and what that's

an increasing supply of products they were gaining market share and they were increasing trade. but not only direct sports, but also their imports. and as i earlier on, if you look at china, despite all the discussion about their change manipulation, their imports are asked to growing much faster the moment and they are exports. this is happening because of reforms and their economies, which enabled them to catch up in product to be level two what was already achieved in other countries, creating huge growth potential, making it possible to grow what was limited to inflation and actually keeping inflation very low all over the world here at now, as a result of this process, they have become very important not only for their own economies but actually very important for the

world economy as a whole. in 2007 was a very good illustration of that. recession or the downturn in the united states started already early 2007 or you could argue at the end of 2006. that was the moment where housing prices started falling and as a result of that, in 2007 there was no growth in consumption. there was no growth in imports and in the united states. and still come in the united states was growing because there was double-digit export. going to be emerging economies. and they were still growing despite the fact that there was no domestic demand in the united states. it was a good illustration not only that the rest of the world did not depend on u.s. consumer, but actually the u.s. started depending on investment demand in the rest of the world. and what happened was a crisis

that started was lehman brothers was that suddenly that investment demand that with a dynamic in the emerging economies stopped everywhere in the world people stopped investing, including in the developing countries. and that resulted in the very sharp downturn in the income countries, especially japan that is somewhat specialized in investment products. now, that has to be turned around. and for the world economy to grow again you need to go back to that very fast growth in the emerging economies. there's a potential buyer. the big danger is that too much perhaps in short run is still driven a stimulus and there's more needed to go back to that very fast growth that we saw before the crisis. it's a real phenomena and and it is homegrown. >> would you address the same question? >> the image that i've been sort

of pushing and living with the last couple of years is this is a world turned upside down in so many ways, not the least of which we have the official site or in the emerging world supporting banks in the mature world, which you know it's a tremendous inversion of the way official capital supports acted in the 1990's. but the point i would really highlight here is, you know, i given this business in the early 80's and for the first 20 years of my career the world was all about financial crises in the developing world. you know, starting with the lcd debt crisis and morphing into the various extreme crises of the 90's era and the mature world was still sitting there kind of smug and kind of ticking along. sometimes it did well, sometimes it did poorly. in portion was a concern about this. but the emerging world with the world of this financial instability in china was a bit of an exception but it was particularly true in latin

america. and i think part of this world turned upside down story is missing a dramatic impression about financial and ability. and so i daypart of the emerging market strength theme is the benefit that this region is now enjoying from the long run reestablishment of financial stability. it's very paradoxical because that an update is coming through the time that we in the mature world are suffering almost a financial instability. you know, it needn't happen that way, but it just does happen that way. and brazil is a very good case in point where after many years of height and inflation and total destruction of not just the capital markets, but also frankly the banking system. for the last ten, 15 years they gradually reestablished an orderly financial system and the longer benefits in the form of financing to the border economy, but especially to the corporate sector. those longer benefits are coming

through them coming through strongly. and i say, it so happens it's happening at a time when in the mature markets we're going the other direction. is that sustainable bikes well, probably is. but it's not inevitably sustainable. in that very much would be a function of what they get back into the battle to have it that they themselves had in the early 70's and in the last decade. so i think coming back this policy challenging points out one of the big issues that we face in the world is reestablishing financial conditions in the mature market, but also ensuring that the boy and financial conditions that we have out there in many emergency market need to ensure that those don't become too overheated. >> thank you. the next question, the gentleman in the middle there. >> hi i'm john rain firm morgan

stanley. the panel hasn't talked about tax policy at all. and i have two questions, pieter. the first one is do you think the governments will adore growing evidence that low tax rates lost her economic growth in interest of fiscal x. 30 going through? and secondly, as an economist you think you should be considering higher taxes in your growth rate forecast going forward? >> thank you. this is an easy question. jorg, you are the most obvious candidate to have the first go at this one. >> okay, it is very good deal of fiscal adjustment needs to take place. i've already said that ideally this should be performed along two dimensions. one is on entitlement systems and the other one is actual just that. when it comes to actual adjustments everything has to be expenditure tax cuts as well as increases. now, the relationship between

taxation and growth is a very complex one. it's not straightforward and there are many ways in which you can raise more revenue without hurting growth here in maine, which you really want to do is remove forms of taxation that end up being distortionary. or eliminate subsidies or tax expenditures as we call it. so it's really the interaction between when i want to beat you with is the interaction between the tax system and growth is complex and it not only the tax rates but at the structure of the tax system. and i'm convinced that in many countries you can achieve improvements in that structure that will also bring about more revenue. and at the same time, not her regrowth. but that of course will entail taking on special interests and all things that are very tough in the political arena. >> desmond, would be like to add to this? >> i think he raises a great question because he raises the issue of what is going to happen

to potential growth in industrialized countries, you know, over the next decade. i don't think that we've got any alternative. you know, if you look at the budget numbers. i'd agree with what john said if you look at the debt numbers, where we're going, you know, united states according to the professional budget office were going to see it doubly the debt gdp ratio from 45% to something like 85% by the end of the decade here and then we've got to deal with the entitlement programs that are going to cause it to double over the next decade. so i agree that i don't think that now is the time, you know, to be talking about tax cuts, you know, which would be widening those kind of stats. i think that if we've got commitments on expenditure of what she'd really be doing we should be financing them and this is really a concern. and that's got with this administration is that we've got

a very precarious bunch of situations that they seem to be rather cavalier in adding additional x. amateurs that aren't funded. it now, this could very well -- and frankly worried about the rating agencies in dedicating that the united states doesn't come up with medium-term adjustment plan the united states could lose its aaa rating. so i just don't see a way around having to engage in expenditure cuts, revenue increases to put the public finances on a better flitting otherwise what we're doing is just inviting a major crisis down the road. >> uri, do you have supplemental comments? >> no, i think these were very good comment. next question from the audience.

>> and jean fran china central television. i have a question for mr. dadush. i remember that you said that china needed to improve as an international influence in the world. i want to know how? you have some specific suggestions for the chinese policymakers? thank you. >> well, yeah, no, my observation is a long-standing one that comes from many years spent in frustration trying to manage the doha negotiations along. in noticing two things. one, that china is pretty much

destined to be the world's largest trading nation if it's not already it's going to be within the next several years. and it is in a sense the free trade power if you relate to this concept, and you know, united kingdom, britain, with the free trade power in much of the 19th century. united states was the free trade power in a good heart, doing good part the second half of the 20th century. end of free trade power is basically the world's largest trader. but it's also a competitive trader. it is a trader that is competent. and my point about china is that they could be doing more, could have done more to promote the doha negotiations and to

recognize that no country has a greater interest than china in eight views based and free trading. and that's where that particular point comes. but i think the point increasingly can be generalized. in so many areas. in climate change, china is now the biggest emitter of carbon dioxide. end of greenhouse gases. therefore, moving forward on the climate change negotiations will not have been unless china together with the united states of course which is the second-largest emitter come to some sort of agreement,

especially sense these two countries are the opposite in some sense of the opposite side of the spec drum developed and developed. but the point is really about china recognizing on the one hand its growing influence and i think this is obviously happening. but on the other hand, recognizing that they have a very important stake in the system. and that unless the conditions are created where rapid growth in the world is not impeded by whether it is environmental degradation or the absinthe of the rules and trade and finance.

china needs to play an important role. and that is why the currency issue, it even though i am on record saying that an appreciation of directv will do absolutely nothing to correct the current deficit of the united states because it is a completely marginal issue. the main issue in the united states is domestic policy. even though that is the case, it is important that china move in the direction of greater exchange rate flexibility for china itself and in part to defuse the protection as precious that will becoming more and more important. but it's very important and it will help china to move in that direction. >> if i may add because i'm focused on the china question almost full-time, even though i am the moderator.

and i completely agree with uri's responses but it's like to add other comments. many of the senior leaders in china i think i still to become used to the idea that china has become a major factor in the world, in every dimension. it's almost the already the second-largest economy in whatever way to measure it. it's probably the largest trader, the largest co2 in midair and so on and so on. but yet in the mindset of thing people china is still struggling in developing countries. china now has to adopt a mindset where it is to accept for itself the role of a major player in all dimensions of the world economy. with regard to specific recommendations the comment i would like to make is that the

exchange rate comments that uri mayday support, but the issue is not important for different reasons. i believe that if flex his nation is maybe a chinese interest. i believe it will help china move in the direction of the structural reforms that are clearly necessary in that country, not only for china but for the rest of the world are let's not forget that china's population is larger than that of all oecd countries together. so if china plays the current director pursues to structural reforms in the direction of greater dependence on domestic demand rather than exporting, especially domestic consumer demand that would be good for all of us. thank you. next question? this gentleman here. the >> thank you. it's bob davis with "the wall street journal." we've talked for years and years and years about how growth in the rich countries affect in a

positive fashion growth in emerging markets. i'm wondering in the context of the u.s. where most everyone here thinks they will be, you know, slow to at least moderate growth. water the linkages from the emerging markets to the u.s. in such a way that you can see or are their search linkages that you can see 8% or 9% growth in china effect dean in a positive way growth in the u.s.? >> would you take the question? >> the linkages come through the training system. in these emerging economies, although they are weight in global gdp has been rising very rapidly, we are focused on that. they also have a waiting in global consumption. it's smaller relative to the

weight that they have been local gdp but still appreciable. and if you're consumption growth rates on the order of 8%, 9% and china this does make a difference for the u.s. economy. now, that said, if you put this into the daniel realized that the extent to which the economies can do something for the advanced economy is still relatively limited or let me give you some numbers. if you take consumption in all the countries that ahead of this crisis have been running large current account deficits and are now experiencing increases in savings rate that are quite large, too. these economies comprise of the u.s., the uk, portugal island, greece, spain. sorry the acronym is an acronym. and all of the eastern european

economies. you take them all and put them into a consumption of china. consumption of china is one third. so china alone cannot do the whole adjustment. the consumption is still too small even though it is growing very rapidly. though it does make a difference for the u.s. economy, but it cannot pull the u.s. and all these other countries out of recession. that's the way we see it. [inaudible] >> people have been talking here about the official stimulus and the u.s. bank from that one -- >> there are two leakage as. one i think you cannot get the blessing which is the progression of debt capital into the economy in recent years the emerging markets have played a major part primarily of treachery, especially the last year if all that also mortgage-backed securities less obviously since the crisis. and that has kept interest rates

down. as i say, that may have been a mixed blessing and may have contributed to the whole problem. but i think one of the financial linkages is somewhat underappreciated is the support given by profitability a broad to u.s. corporations and dusted the u.s. start my period good example are the best example i can think of off the top of my head maybe not a particularly good one is general motors. you know, general motors has obviously gone bankrupt in this country and has been a bit of a disaster. but its operations in the emerging economies must especially in china, although they didn't say that, they were part of a stabilizer. and i contrast that actually with their operations in sweden, for example, which they basically walked away from. so i think. so i think it's an adjusting contrast showing the support and role being provided to the

corporate dirt by the emerging world. >> yeah? >> i just like to make the point that growth in china and he didn't be supportive of the united states economy, particularly if it's an export growth that leads to very large current account surface and not really has been the pattern in china. running current account surplus it means that effectively what you're doing is you're taking the market away from the united states. you are it of the united states. and i think that's when you've got a stimulus package that goes in for access capacity, excess supply, but it's not going to be very supportive to the united states going forward. >> uri wacs >> one more point. all the points so far i think i've related to short-term consideration meeting boosting aggregate demand in the united

states. this forgets what i believe is the most important benefit of the growth of developing countries, which has to do with the supply side of the economies. essentially, as china grows, as india grows, the number of people that are able to buy products, sophisticated, advanced consumer products reduced in the united states or for that matter in germany or the united kingdom increases exponentially. when i was at the world bank, working with hans we produced a report that illustrated how within 20 years now something like 90% of the middle class in the world somehow defined, i don't want to go into all the

definition, but these are people that can buy sophisticated products. 90% of those people will reside in the developing world. whereas today that proportion is much, much smaller. what this means fundamentally is the united states will be able to pursue the natural path of its comparative advantage, which is the development of sophisticated products. and import, the low-cost stuff that can be manufactured much better elsewhere. okay, so what we're talking about is we're not talking about the growth potential of the united states in the course of the next 12 to 18 months. we're talking about what the standard of living of the

average person in the united states is going to be 20 years from now, 30 years from now and what will determine not. in the integration with the developing countries probably holds the largest opportunity to raise those standards in the relative term. >> you know, just because it's such an important issue i want to underline two things. first of all, that there are limits to what you can get out of macro models with the standard rules of thumb through the trade languages. as i said before, one of the most important mechanisms in the current crisis was the sharp drop in investments in the fact that is the high income countries that are specializing in the investment boots. if you think tonight in athens which is more detail to that standard of micro- story, then you see that they're all of emerging economies is far bigger

that what you get when you just look at the economy. and the second point is very much related to what uri said about the supply side. the sole focus on the current account and service on the current account and searching through the impact of aggregate demand in high-income countries. that would be an important story if a country like china was going to be increasing its share in the same cake by promoting aggregate finances. it increases the cake for the whole world. and everybody benefits from that. it's not just emerging middle class in the developing countries themselves. it's also what the benefit from the people in low-income countries and it goes to lower prices. the real wealth is increasing because summer in the world product david d's and not a

process that's most important at the moment. >> unfortunately we've run out of time so i'll have to bring this seminar to a close. i'd like to thank the audience, also on c-span for tuning in to this very, very timely and important seminar. there's no time for any summing up other then to say that perhaps if it were up to desmond lachman he would put three? behind the happy new year whereas philip and uri might be content with no? where hans and jorg are happy with it. thank you for attending this seminar. not [applause] [inaudible conversations]

>> the candidates or messages to need general martha coakley, scott brown and independent joe kennedy.

the moderator is harvard aggressor and commentator david gergen. it was held yesterday at the edward m. kennedy institute for the u.s. senate in boston. it's an hour. [applause] >> good evening. i'm david gergen and i would like to welcome all of you to this closing debate among the candidates or next week's election to the united states senate. this coming tuesday will be a crucial times your in massachusetts. voters will go to the poll and select a person who may well determine the outcome of the long fight over health care legislation in washington. that stake as well, jobs, energy, the environment, abortion, wars overseas. we have much to talk about tonight. moreover, the candidates in this election are seeking to fill a seat that is legendary in american politics. among its occupants have been giants of the past from teddy

kennedy and his brother john to henry avalos, charles sumner, daniel webster, and john quincy adams. those are some shoes to fill. so this debate is sponsored by the edward m. kennedy institute for the united states senate. we are gathered at the boston campus of the university of massachusetts on whose land the kennedy institute will eventually be built. in an order determined by me introduce the three candidates here with us. scott brown, the republican candidate is in his third term in the state senate, representing the north bristol and middlesex district. he previously served three terms in the house reared martha coakley, the democratic kennedy is the attorney general of massachusetts. she was elected in 2006 after serving eight years as district attorney of middlesex county.

joseph kennedy, no relation to the late senator, is an independent candidate who was a member of the national party works in information technology. in preparing questions, i've consulted with members of the media and with other peoples whose judgment i trust. the questions themselves are known only to me. to the audience, once again, please hold your applause until the end. we will begin with a series of question to the candidates, leading time in each round for response to discussion. i lottery, the first question will go to mr. brown and then ms. coakley, mr. kennedy, and will rotate the order to later on the candidates will have time to ask each other questions. so, let us begin. to the candidates, president obama and democrats in congress are now in the final stages of hammering out a national health care bill.

there is a very real possibility that the winner of this election will be in a position to ensure passage of the bill or its defeat. do you want boaters messages to the next tuesday's vote as a referendum on this national health care bill? mr. brown? >> thank you. it's a pleasure to be or not to thank the kennedy institute and new massachusetts boston. thank you for your question. the health care bill is being proposed in washington is broken. the backroom deals, nebraska, louisiana, we all know about it. we need to start over. we have health care you're already massachusetts. 90% of the people who are already insured. we did it with the help of the senate president as well as others that we don't need was being pushed in washington on massachusetts. cutting half a trillion dollars from medicare you're going to look at longer lines, lesser coverage. we know we need to reform pricing as a member going to be doing very shortly. but do you think were going to have a one-size-fits-all plan in congress is going to come down here in massachusetts and hurt

what we have here at that's one of the differences between martha coakley and i peered were talking about a trillion dollar health care plan, have a trillion dollars of medicare cuts at a time when we just don't need it. i would propose actually going and allowing the state to do it individually with a government incentive i senate. very similar to what he did here. we can actually export out and show them how to do it. i'm looking for to having the opportunity to be the 41st about and make sure that we get that plan back to the drawing board. >> ms. coakley? >> thank you, david. thanks for hosting us this evening. how would be proud to be the 60th vote to make sure we get health care reform that we so badly need. we've taken a major massachusetts and getting everybody insured and now we are talking cost to make sure we've provided for transparency and competition to bring costs down. we now spend $2.6 trillion figure on health care in this country. we do not get our money's worth. we don't have transparency competition. we do not have the money we

spend now the kinds of health care that we can and should have. as senator kennedy said, it should be a right onto privilege. i believe that we can bypassing health care in washington and doing it incrementally as they wait to do appear to us that the groundwork for a revolutionary way in which we provide for coverage for those who can't get coverage now, preexisting injuries and make sure that we keep costs down and people can keep the health care they have. costs are going up at 8% to 10%. the status quo is simply unsustainable. >> mr. kennedy? >> the health care bill going on in washington is a travesty as much as i would like to think there will be 41st vote against it, which i would love to be, the reality is we are seeing both bought good every single time this bill has gone through congress we've seen another person fail because it is been bought. the issue today is not whether it was going to vote on health care. health care of past great it will be bought for because of the politics as usual going on in washington.

the question is, was going to work to repeal it once it passes? we have an issue going on today in government. in the issue is that government is too big or this bill will cost $1.2 trillion. so to explain what that number means, every year our federal income taxes is only $1.1 trillion for every single person in america. what that means is that 11% increase on every one at minimum to pay for this bill. we can't afford it, we shouldn't do it. health care in massachusetts is going up rapidly and the will of the government level as well. >> please follow-up. >> we venture into your massachusetts. with the best doctors, nurses, hospitals in the country. that's why people watch it come near. not only is this bill going to be bad for states. my job is to be the senator from massachusetts. i'm not going to be really subsidizing what we've been doing for the next ticket number

three, four, five years. we subsidizing what others have failed to do. >> you agree ms. coakley? >> no i don't. i spoke to a woman on the campaign trail this has been a software, has no health care, to children of the existing entries, very weird diseases that event doctors in massachusetts can address. the insurance companies will pay for it. this system is broken. massachusetts will benefit with $500 million closing the doughnut hole for prescriptions for seniors. it's a good win for massachusetts. >> is a bad plan because it's going to her jobs at a time when we can't afford to lose jobs. >> please explain it. >> y. will lose jobs? we have a competing plan with the government option you have an effect it will directly complete with the panseared have paired with taking great care to make sure we have fantastic plans here from the so-called plans a union members are getting down to the commonwealth care subsidized plans. but the biggest problem and

martha talked about the 500 million that senator kerry is bringing back. we should not to go to washington every time to have a cat to get us from washington. we should be able to fix the problems on our own and we can do that very easily. >> ms. coakley, can you promise the voters if you're elected who will vote for this national health care plan regardless of how it is changed here in conference? especially on abortion. >> what i said as i support the plan coming out of the senate. >> what if it is more restrictive as in the house? >> i is that i would not vote for a plan that has stupak in it. >> to become the 41st letter against it? >> affably that will be the choice. >> you will only vote for the senate bill? >> i will vote for the senate bill or some reason the facsimile of it. >> excuse me, it will not be the facsimile bill. it will be a compromise and bottom line is regardless of what version comes out, this bill is not good for massachusetts. it is going to cost us jobs. it is going to cost is very real

jobs at a time when we cannot afford it. >> the ministry question on a lot of peoples mind. you said you are for health care reform, just not this bill. we know from the clinton experience that if this bill fails it will be another 15 years before we see a health care reform effort in washington. are you billing under those circumstances to say i'm going to be the person, i'm going to send teddy kennedy seat. >> with all due respect, if not the democrat speak, not the kennedy seat. they want a sentimental being independent voter in thinker and look out for the best interest of massachusetts in a way that this bill is made i think people should have insurance. not just this particular bill because it's not good for the entire country. you're talking about an additional trillion dollars of cost, have a trillion dollars of medicare cut and military people at your veterans he will have cuts in tri-care. and it's not good. we need to go back to the drawing board. nobody is confident in this bill

by now. >> let me ask you a final question mr. kennedy you can jump in if you want to. ms. coakley, that had of the afl-cio, richard trumka said it would be a recipe for disaster if the final health care bill includes a tax on high-end insurance plans. senator obama says he is for the attacks on high-end plans. you've got labor support. it's not your president and the other position. were you, not? >> the president also said he thought there was a lot of room to determine what exactly was going to be in this cadillac lance. maybe the net should include a couple toyotas or something. and so it would not he as the current definition. i don't agree with it and i think there are different ways that we can pay for that plan. >> reasoner mission. this is about cars. it's about health care. the plan were talking about here is going to be taxing this cadillac ran so-called for good union members who thought so

hard through good-faith bargaining to get those plans reared in addition to that, how are you going to pay for this? you're cutting half a trillion dollars out of medicare. girls are going to be taxing people at a time that they just can't afford it. we can do better. we elected the drawing board and i don't think it's going to take 15 years, not on my watch. i will make it a priority to make sure we have coverage that they can rely on and have the flexibility to be part of. not a one-size-fits-all for the entire country at the really hurting states and their individual right to free market and free enterprise. >> i'm going to tune to you ms. coakley. all of you have talked to the economy and voters in this commonwealth of course but jobs right at the top of their list here at everyone is worried about 10% unemployment nationwide. but it's also true that this terrible economic situation workers find themselves in really comes at the end of a lost decade for american workers. there has been nationwide no net

job growth since december 1999 and middle-class families when adjusted for inflation have not seen their incomes rise. what are your plans on only short-term, but is the answer to the long-term challenge? for jobs for americans? >> well exactly. if i can note the cbo says within ten years years that health care plan will be deficit neutral. one of the reasons that we've had the issues that we have now are for because during the last decade we have inside regulations that have kept the economy and check on wall street with predatory lending. with the bush cheney tax policy that supported the wars in the society. and by the way that's what scott brown still wants to return to purity wants to go back to the drying board. he wants to go back to this bush cheney policies that provide for the very wealthiest. i supported a plan that will provide tax relief for the middle-class, that that will allow middle-class families to keep your money in their

paychecks are meant to provide for tax credits for college. to provide for tax credits and more abundant opportunities for businesses which will be the engine that gets his economy moving again. >> mr. kennedy? >> wages have not risen in america since 1972. so it's not just the last ten years that we've lost the last 40 years. what we need to do is get the economy going and the way we do that as we cut spending. harding did it back in the twenties. we haven't an offense. we continue to increase government probe ramps. we continue to spend money on wars and entitlement plans. these things draw money from the private sector and year after year we see the public are growing. we see people not get real wage increases at fastest what is going on. until people are willing to cut spending, cutting entitlements and stop going to war around the world, which is extremely, extremely expensive. we are not going to fix its economy. there is no, way, shape or form.

we packed jobs in government a number of bureaucracies that the government. we've wasteful spending up in government and nobody is holding them accountable. somebody needs to stop the wars. somebody needs to hold back the entitlement programs and somebody needs to give the money back to the taxpayer. >> mr. brown? >> thank you. congressional budget office is going to take ten years. so we're going to be paying for a plan. were going to basically subsidizing other states for the next four or five years and eventually will break even. well, that sounds like a real bargain. i'd rather send it back to the drawing board. and regarding tax cuts, there's no one listening right now the police martha you are the tax cutting kennedy. every history of cutting taxes, holding the line on spending. i've been up at the band of brothers fighting on beacon hill against the machine wants to raise your taxes governor patrick and everybody else. we can do better in that regard. regarding your comments bush cheney does, bush cheney that.

you can run against him but i'm scott brown. i drive a truck and yes it's 200,000 miles on it now and you're not running against them. you're running against me. and the big difference between you and me is that you want to raise taxes 2.1 trillion per the congressional budget office on items you in fact were very, very vocal about. nothing is changed but it's not 2.1 trillion what is the number you want to raise peoples taxes? >> .com it doesn't matter how may times you say 2.1 trillion. it doesn't make it accurate or even close to being. no, there isn't a number. because what i support are in fact release of the middle-class and the cuts that obama supports for the middle-class. a health care plan that will be supporting your response to health care cost is to make sure that we let insurance companies now provide for and cervical screening and hospice care for seniors. so that is the not a way to go if you want health care reform.

we have an energy policy that will make looters pay and those numbers and disappear. so we're down to zero. scott, you are the one who voted while you were in the senate for over $7 million over the commonwealth. you voted for $300 million of fees are selected by rhetoric and reality straight. i'm not taxing and spending a very conservative and very fiscally responsible attorney general. i brought back a billion dollars to the commonwealth as attorney general. >> once again there's no one watching that things are a tax cutter and i've never voted for a tax increase while in elective office or am very proud of fighting the line on taxes and the items that you are talking about i think is quite frankly outrageous that you would not be supporting a woman's right and protecting coverages. of course basic coverages and oliver health plans that were focusing. when we are for mandates and look at them to save money that's very important that health care bill that you're pushing in washington and you

will support and you said it in fact raises the age of getting coverages from 40 to 50. it sets limits on pap smear testing. the cuts have a trillion dollars from seniors to medicare. i think they're going to be her quite a bit more than i'm in the connect your authority review mandates so that we don't have to think higher practic care is amended and just because people of good lobbyists up in beacon hill we can do better with a plan that we have. we don't need to buy on a plan in washington. >> we can agree to disagree, scott. but let's be clear on the facts and you can distort my record and not be accurate about your own. i haven't proposed any new taxes except for those on the wealthiest top 2% of the country. that's all it ever said it talked about. so let's be clear on the facts. what i propose is going forward to making sure we can't afford for health care. it's a% to 10% a year going up. >> excuse me, you are in favor

of cap-and-trade wishes the national energy tax. >> it's not a tax. >> estate tax. you're in favor of a bill that's about a trillion dollars. and it's going to cut medicare by half a trillion dollars. during favor of inspiring tax cuts as part of the marriage penalty is coming back. excuse me, i don't need to be rude but i just want to say the childcare tax credit is coming back -- [laughter] i'm sorry. >> all right. listen i hear you all talking about tax cuts to create jobs in the importance of that. but there is a second issue out there that looming and that is called the deficit. now, the truth of the matter is that just over the rising are these deficits. with not only 1.4 trillion now but every year in the next ten years the obama administration says are going to have a trillion dollars more deficit. if were going to cut taxes and not cut spending very much, how

are we going to solve this problem. first goes to mr. kennedy. >> the answer goes here. nobody to my right has been willing to talk about spending cuts. and everybody who says -- >> but what i cut? >> i don't agree of enough time. i'm going to cut obamacare when it passes. i'm going to cut the department of education. i'm going to cut every single hack job that is out there that exist today. i've audit the federal reserve and i will see to it that if there is corruption in the federal reserve that we cut that as well. i will cut the wars. i will stop spending money on the war spirit we have people over in japan, engine or maybe they defend wealthy nations today. and you know who pays for a? we pay for it. everyone is incorrect when they say that cutting taxes creates jobs. that is not the truth. cutting spending, cutting spending historically is what creates jobs. when you cut taxes and you don't cut spending we get what we have

in the bush administration, which is what bankrupted our country. >> thank you. we need to do a jfk-style across-the-board software businesses and families that will create jobs if we tried everything already with a stimulus one. martha is considering a stimulus to. she was in favor of the first one. we're looking at 12 trillion counting on the national debt. wouldn't it be nice to maybe try something a little bit different? because the stimulus bills aren't working. it hasn't created one new job at governor patrick has that money were 49th is releasing the money we have. how can you release another stimulus bill in the first one has the word? philip to get little bit differently. we have to hold the line on spending first of all give the president of the line-item veto, do a top to bottom review of every federal program and squeeze that lakewood democrat president's leadership on those issues. so it's very important to that's not the difference between martha and me.

your tax proposals will not help at all. they want to the deficit. the health care bill will lead a trillion plus dollars that the cap-and-trade scheme will increase taxes. the aspiring taxes will increase taxes to that's a major differences between martha and me. >> ms. coakley? >> the question was about the deficit and let's remember it was a bit of history that when the democrats lost the presidency before it george w. bush we were in a pay-as-you-go for spending. a reader had to have it in the budget or make sure there was a revenue source for it. that completely win up a window with the bush cheney menstruation. we have deficit spending with reckless spending, and regular defending, unregulated wall street. they got us into a problem and to me it's astounding that scott rambo stand here and say that this problem must've just come out of nowhere and dissolution is to do nothing except to make sure that we do some kind of across-the-board tax cut here it is not going to work and what i

said and what he knows i've said in the past is that we need to get tax revenues that. we need to get the engine of this economy running again. >> how would you get tax revenues up? by increasing taxes? >> know, by getting people back to work. >> president obama has vowed no tax increases on any couple earning less than $250,000 or do you join them in that pledge a senator? >> i do. >> do you still think you can silence the budget? >> not overnight. it was greeted by a reckless administration. those are all complicated problems that will have to be addressed. >> you have to start dealing with reality, martha. the tax cuts were talking about will create and immediately jolted the economy and create jobs. and as jfk called for across-the-board tax will create jobs. that's not a gimmick, that the reality. and you think about that there's plenty of blame to go around. i'm not going to be living and

working. i'm working to adjust the mistakes that today. and there are broke the differences between the two of those in the very simple issues. and if you think the tax cut is not going to work, but i think your seven stake in. >> is to brown, let me ask you about this question. we've got a tax cut in the bush years. and we did not have this looming growth that you've assumed. and the congress is also benefited. people aren't afraid in washington to take an entitlement program, social security, medicare, and medicaid. now i want to know if you also have the courage when you go there to take on the entitlement programs or are we once again going to duck and say it is going through roof? >> i'm the only one here who is talked about spending and identity entire campaign. you know why? because spending is difficult to cut. if easy to look at the people maddi up and say we have to cut entitlement programs. it's just the truth. we have to do it. the reason why nobody wants to talk about spending is because it cost them votes.

but you know what? every single time you go out there and say i'm going to figure taxes and raise your entitlement programs you're just lying to get votes. we have to cut spending. >> medicare, medicaid, and social security? where would you cut? >> yes, and ready to take on the entitlement programs. i said it before and i'll do it again. >> senator gregg has filed a bill that will be similar to the bill. a look at entitlements with a bipartisan commission that will actually look at everything and make a recommendation to us. and i look for to that opportunity to give my input or not. >> and if that commission came in with tax increases you would support a? >> know, i would not. i think we can do better. i would not support it but i would certainly look at entitlements or make a recommendation. at least with a choice and that's what the board. >> you know, david, we've spent a lot of taxpayer dollars unveiling out big corporations millions and billions of dollars

on tarp and stimulus money. taxpayer dollars that is not to be spent if we'd done better regulation. so i'm not going to turn around and say we are going to take away social security for our greatest generation, for folks with whom we have a contract depend on us for their prescriptions. there will have to be ways that we reach our obligation on that. and i think we have to start with where the blame does fall and how we turn this around. >> bottom line, ms. coakley, what is your position on whether the congress ought to consider and be open to reforming social security, medicare, and medicaid in a way that brings down the cost curves and all three programs? are you opposed to that door open to that? >> i believe that everything can be looked at but i will say as i stand here today i think if we look at new generations coming and who don't have this entitlement, this is not the first place i'm going to look, david. >> is that we are going to but because that is where the money

is. >> this is about more than just the budget and how we got into the deficit problem. it's about the obligations were senior citizens and people of this country. >> is not about blame? is about solving the problems of today you to do a to bottom of every program to make sure that we cannot the president called for actually agreed with him on that do we do that to find any waste. returning here and we can do it in washington. we need to forget about blaming people. let's try to solve the problems today and of course any to look into entitlements and we need to look into every other program and project in washington. >> let's move on. unfortunately, the tuesday year, but the clock is working in another direction. so i'd like to go to a new question and mr. brown, this goes to you first and will work our way through. after the incident with the bomber trying to take the plane down over detroit.

the president said we are in a war against al qaeda, strong words. how do we win this war, mr. brown? >> well thank you. not only is it coming to our airports and shopping malls it is time here to the attempt to kill her kids at the mall. i'm glad he's finally realized that we are at war. he was a little slower to react in that situation. one of the main differences between martha and me as she believes that these individuals like the christmas bomber should be given constitutional rights, tourneys, blurred up so they can take the fifth anti-unlike ordinary criminals. they should be interrogated to the laws of our land and made sure that we find out exactly if there's any other attacks coming. that's a major difference between martha and me. half a billion dollars is going to cost when given constitutional rights in a stake in the fifth. instead of us getting information from him is getting information from us. and murtha agrees with us.

i don't. you should be treated as an at we have to fighthe three them with my military experience in the training that i have an issues of war and peace and looking for to that opportunity. >> ms. coakley? >> thank you or there's nothing more important than keeping the country safe and our homeland security say that our ally saved. we need to do a desperately as we can. we've been at war since 9/11. there is no dispute about that. i worked as a district attorney and attorney general every day keeping our kids safe working with our federal authorities, state authorities, local police fired to make sure that 9/11 never happens again on our soil. and that means that we have to be smarter and we have to work better to use better intelligence and analysis about where al qaeda is and how we will neutralize that. and so, i'm surprised with scott because he is a lawyer and does defense work with jack and i think he understands what

constitutional rights are about. i don't think is one of our supreme court justices that the constitutional rights is a suicide pact. ple in military tribunals, do that as we can be successful. >> if we want to secure the people of america, we have to not say, where wegrbrb rbrb occupy these lands. we need to take an pullback the

individuals who are deployed today. we need to take the money that is used to >> we need to take some of the money that is used to pay for that deemployment -- deployment and secure our borders. we would have fewer enemies and continues traiting our forces where we trait them, which is in america. >> i'm glad you recognize my service. i'm a lieutenant colonel with 30 years. i do not recall weave given constitutional rights to terrorist. so think that we would give people to want to kill us constitutional rights and lawyer them up at our expense, instead of treating them as enemy combatants to get as much information as we can under legal means, it makes no sense

to me. it shows me that you don't understand the law when it comes to enemy combatants. >> yes? >> if i can respond, the reason that we started was so that we would have rules and regulations for our own soldiers to make sure we treated people appropriately. we still and always will have the option if it makes more sense to get better information and intelligence to treat people in the military combatant forum. >> i understand your differences on the legal treatment of prisoners. what i would like to understand is how you would win the war on the around. >> thank you. may i? >> yes. >> that's another different. i support his effort to finish the job in afghanistan. we need to provide the tools and resources to keep them safe. number two, the president thought after four months what we needs to do is finish the job. the job is make sure the taliban do not get nuclear weapons and

exploit them around the world. it's simple. we support our supports and president, unlike martha, in a time of war. we are at war, at wars at airports, shotting malls, -- shopping malls, i have to be honest i'm scared of some of the policies giving enemy combatants constitutional rights. and claiming them up. i want to know when the next terrorist strike is going to happen. we're not going to find it by the policies that you're supporting. number one. i support the president. >> just in response to that, certainly we've had over -- almost 200 civilians trials and events in holding peopl -- people accountable. symboly the attorney general can and will do that. i don't agree with president brawl's decision to send troops in afghanistan.

so as a side note, he can pick and choose, apparently that's the right policy for the country. >> how do you think we'll sec seed in afghanistan? >> in afghanistan, i think we have done what we are able to do? >> you think we should come home? >> i think we should plan an exit strategy. >> how would we succeed? >> if the goal was we believe -- i supported that goal. they are gone. they are not there, yemen, pakistan, let's focus on efforts on where al qaeda is and not always decide -- >> would you send troops into yemen? >> no. this is not about sending troops everywhere you think the al chi coo could be. our allies who work with us. the focus should be getting the appropriate information on individualed that are a threat to us and use the force

necessary to go after those individuals. >> excuse me. one belief intervention. >> let me explain the mission. the mission is to make sure the taliban do not join forces with al qaeda, get nuclear weapons and exploit them around the world. number one. to think al chi coo is not everywhere we are talking about, and we should not address the real concern is naive. we have some real problems. >> i think it is naive that we send troops everywhere to terrorist that disappear and get on planes frankly with bombs in their shoes and other pieces of clothing. >> excuse me, one second. >> but then you are saying once we catch these people, we're going to be giving them constitutional rights. >> that's not what i said. you're talking about ground wars.

you want mohammed to get lawyers. we should have taken the time to find out what's next. >> we a.ly have information from him. neither you or i know what this is. >> i tell you what. this is -- that is we're going to allow each candidates to ask the other two candidates a question and get is minute-long response. we'll start with ms. coakley. i think it may be a continuation of what they've been talking about. >> or may be not. >> may be not. >> scott, you supported legislation that would allow hospitals to deny emergency care to rape victims if it was their choice. you have also received the endorsement of the massachusetts right to life organization is that said you will be a vote for right to life in the senate.

do you accept their endorsement? or do you disavow that? >> well, first of all. thank you for your question. i have a very big tent. this isn't about democrat, republican, and i welcome everybody's sport. you have many special interest group support that are rallying around you. yes, i did vote on a bill to allow women who are raped to get treatment. i supported that. you and i both have the same portion on abortion. roe versus wade is the law of the land. i'm against partial abortion, you are not. >> that's not right. >> martha, with all do respect, you wrote an editorial that anyone can go online and find when you actually criticize partial-birth abortion. the fact that it's not allowed. i don't believe that federal funding of abortion should be allowed.

i believe in strong notification law. someone that's being supported by the let's, you will go down as a social crusader as everybody else. i want to be a jobs crusader. i don't want to be social crusader. i want to deal with the issues that are important. especially my two young daughters to think i wouldn't allow them the opportunity if they were raped to have the immediate attention i think is aimportant. >> am i wrong with that the bill allows? >> the time is up. then you have a chance to ask. >> am i wrong that the bill you filed allowed for emergency personal to deny care if it's within their decision? >> yes, you are wrong. >> i'm wrong or right? >> you are wrong. >> what does that amendment do? >> i'm not if your courtroom. i'm not a defendant. let me answer the question.

the amount that referring to allowed hospitals that had religious preferences not to perform those services. >> emergency contraception. >> once again, i'm not an defendant. let me speak. the bill passed. i was proud to vote for it. will do it again. you think it's a correct position to take. i just want to be clear? >> to allow women to get an emergency contraceptive if they can be raped. >> and they can be turned away if it's up to an individual. >> you're twisting the bill around. >> we would love another hour. >> we will. ms. coakley, we're going to move to one question. i'm going to ask mr. kennedy if he would pose a question to either one of the two candidates? >> okay. >> we have a health care bill in front of us that will cost $1..

right now the total amount of money that's raised by all taxes that come in via the federal income tax is at 1.08 trillion. so this is over a 10-year period. are you lb. willing to increase taxes on everyone 11% to pay for this health care bill? because that's what it costs? and it won't be able to be done by just taxing the wealthy? >> no, because i degree with the premise and the facts. i appreciate that. i think everybody appreciates that health care needs reform. it is complicated. we can stand here all night and throw numbers around and argue about it. but what it requires is getting down and figures out in massachusetts and look at cost. as we go forward. we can't afford not to do health care reform. we can figure out how we have to pay, what we will save by early preventions and screenings. the ways in which we turn around

how we pay. we pay far too much for the results in health care. >> just for the record, the numbers are from the government and tax foundation? >> and the congressional budget says within ten years it'll be deficit neutral, budget neutral. we will see the kinds of things that we want. we will see the cost are down. they won't be in the emergency room. we'll see the people that pay out of the pocket that insurance companies won't pay for. as a friend of mine found out. the insurance companies saves money while she pays $3,000 for a screening test. our system is upsidedown, wrong headed, and it doesn't take care of the people that we can. we can do it, and get better results. we're not going to do it overnight. >> mr. brown, you have a chance to ask one the candidates. i can't guess which one. >> all right. i'll tell you. it'll be martha.

that's the consensus on the trail. we have many differences. one of them is the issue on terror. you want to provide constitutional rights and treat them like ordinary criminals. i don't. little bit of a difference. simple question. if muhammad is found guilty of killing innocent men and children, should he get the death penalty? >> he will. >> do you agree with that? >> yes, because that's what the federal law says right now. >> you said you don't support it? >> i said i don't personally. but i understand that he's being tried now in federal court because he wasn't tried in a

military tribunal. i said the attorney's general decision on where. we've done it successfully many times. we made the decision where to go. if he is found guilty, he's not going to be walking down the streets ofman hat a tan. we will face the death penalty. that is the law of the land. i support it, but i do not agree it. >> he was treats as -- >> why didn't they bring him? >> he was interrogated and of found valuable information. by lawyering him up at our expense, knock that all off. and it's problematic. that's another difference. >> let's move on to the next round. i'm going to come back and ask the candidates a couple more rounds of questions. then we're going to have time

for closing statements. i would like to ask each of you this time to be directed individually to you. and i'd like to raise some concerns that have been out there on the campaign trail. but if you could answer a couple of questions. i'd like to ask you a couple of questions. roe versus wade. you said that the the law of the launder representative. but you've been endorsed by right to life groups who are campaigning for you. would your reference -- preference? >> no, i know you are not history of area. i live in a hospital of women that i'm very proud of. to try to have people twist my record around. >> do you support it? >> that's never been an issue. that's always been the case. >> do you support it?

>> all right. let me ask you a second question. that is the question on climate change. you were recently quoted in the newspapers as someone ask you whether climate change was a big fraud. and you essentially said, let's wait and see. as if we don't have enough information. do you believe that climate -- global warming is caused by manmade activities. or are you september -- skeptical? >> first of all, that's not accurate question. the climate is changing all the time. what do we do? cap-and-trade -- >> let me quote it back. do you think global warming is a big fraud? i think it is always heating and cooling. the newspapers -- what paper are you talking about.

it's probably a combination of votes. that's the key. i think you are asking how do we address it. we need to make sure we do a bunch of things. wind, solar, she is in favor of cap-and-trade. so, yes, the climate is changing. i don't care how it's changing. i want to address the fact that we can step back. pretty simple. >> okay. ms. coakley, there are some who wondered whether you as a front runner have been a little come place sent. but now you are catching fire. given three people. given the fact that kerry

campaigned, he said one on one. what about you? >> i think it was a very good decision. and i think that joe, as you can see tonight, added a lot to the debate. it's added a lot to the discussion. and the position is always been as i'm familiar with debates here in massachusetts is that people who are on the ballot should be able to get up when it's a public sponsored debate and have voters judge them as they would scott or me or anyone else who gets the significants to get on the ballot. we've said plenty of opportunities. there are lots of ways in which voters get to compare us. but in a public forum on television, everyone has access to a lot of sense. >> as you look back, do you have any second thoughts about the way the campaign is unfolding? >> absolutely not. campaigns are not dress rehearsals. they move forward. we had a tough primary. we work hard on every day. we're doing the same thing in this. we're taking nothing for granted. we worked very hard.

i think voters didn't want to hear from me. so suggest that i'm taking this for granted or not working hard. you can look at our policy papers on the web site. you can look at the phone calling. i don't know what's going to happen. but i'm asking voters to vote for one of the three of us, hopefully me. i'm working very hard day and night as my campaign and all of our volunteers to make sure we get our message. >> you've run a tough hard campaign. we're coming down to the final days. if you were not to win, do you have a preference between these two candidates as to which one you would like to see win? >> so in all honesty, i think the most important here, and i will answer your question, i think the most important thing that we do here as a third-party candidate is to get the message out. none of them have been willing

to talk about spending. if they can't, you can't have any discussions around the economy. and essentially, i will weigh, you know, my answer would be whoever can actually start talking about cutting of spending, neither one of them has been willing to do so. i would support would be the person who whenever they decide to starts being realistic about what's going on with the economy and talk about cutting spending. >> i talked about cutting taxes. my issue is that last year he had the opportunity when we had the referendum to cut the income tax. he's been calling from across-the-board tax cut. it was voted down. that's $3700 that could have gone out. a year later now that he's

running he's calling for the exact same thing that he didn't want to have a year ago in the same economic conditions. how do voters trust it? i don't know. >> yeah, thank you. i'd like to turn to one final question to each of you. then you'll have a chance for our closing statement. this is about -- it's more personal in nature. and that is as in the state of talking of people in the press, talking to voters, there's a common refrain. that is if people sense they knew senator ted kennedy very well as a human being. he was senator for a long time and had a chance to get to make a lot of personal connections. and they have a lot of respect. they all think they are nice people. they don't sense they know you were well. they've had a hard time penetrating. could you tell us beyond what you said in your advertising could you give us an insight into what you would like the voters thinking who you are as a person? >> i think that's a great

question, david. part of it is we are constrained by these forums. i'm pleased. my husband tom, my sister, mary, my brother-in-law, minever knew. i come from a big family. my mother was youngest of 10. my dad owned his own insurance agency and didn't have much use for politics. i think he'd be proud of the work that i do. passionate or victims, domestic violence, kids, keeping them safe. i do take my work very seriously. those who know me well, i don't take myself seriously. i can be funny. even though most people don't think they are laughing. they are laughing because they know. i enjoy my life outside. cook, downhill ski, i have two great labs. i feel blessed to work and have a tremendous husband that loves

me. i'm very lucky. >> thank you. >> i think it's best to state i'm close to my family. my father is a minister. and i think the best thing that people should understand is when i called my father up and told him what i was going to do here the words out of his mother were o, no. i'm very proud of you. >> and i told him why i was doing it. and i think that people need to understand the reason why i'm doing this. this would be a pay cut for me. this says the press has been less than fair the amount of time that i get on stage is usually less than fair. this is very difficult for a third-party candidate to do. but the reality is the message has to get out there. i would risk every single thing that i do on a day-to-day basis to make sure that somebody is actually supporting the people of the state of massachusetts. because when i look at the taxes that i pay at the end -- when i look at the taxes that i pay at the end of the day, i see that they have to be cut. i support a family.

and everybody else does too. >> okay. mr. brown snap >> thank you very much. i want to thank you for participating and thank you for having this as well and for being here, david. i'm hoping that people will get me to know more the media portrayed me. they did a good job opinion but there's more. it's hard to talk about. i didn't come from a lot of money. my parents were divorced. my mom was on welfare. i have two beautiful daughters, a loving wife of 23 years. i've been serving this state, the state that i love, that i was raised here, and i would probably die here. and the thing that i have loved about this race is the fact that i've been able to travel all around the state and meet some great people, see some great businesses and know what their needs and hurts are. it made me appreciate and love the state and country more. i'm hopeful that people

appreciate that fact and appreciate my service as a legislative leader and military service. i'm hopeing they give me a chance. >> thank you. we'll now turn to closing statements. the order has been determined by lottery. >> thank you, david. thanks again for hosting us tonight. i'm asking for voters on january 19 to vote for me for u.s. senate. because we need to send somebody to washington who will address the difficult problems and get results. i've done that as your attorney general, as a district attorney. i know that the economy needs regulations, and i know that we need to get people back to work and bring jobs here and know how to do that. i intend to do that. i appreciate the kinds of idea that joe kennedy has brought to. as my friend, jerry brown in california said, we've been spending too much stuff on stuff

we don't need. this is true individually and as a government. that doesn't mean there aren't very important things and things that we have to spend our money on. i will do that. i brought back $1 billion as a attorney general. that's my first priority. making sure we use our money startly and keep our people safe. >> david, thank you to you for coming out. thank you to all of you for being good sports. thank you to the viewers for participating. i'm honored to be on the stage. i'm honored to be even considered to be the next united states senator for the great state. there's nothing more that i'd like to do as i've done here in west massachusetts. as lieutenant colonel around 30-year member of the army national guard, i understand the differences between the candidate on terror. i support the president and his efforts to keep us safe. i think i can bring that exper tease to washington. i've looked to cut, looked to hold the line on taxes, that

governor patrick and political machine are pushing on us. it's happening in washington. washington is starting to look like massachusetts in that regard. taxing before saving. i think we can do better. i think we can go down there and at least bring conversation back that's broken. it's broken like it's here. it's broken in washington. the 60th senator, the debate will be cut off. that's not what our founding fathers wanted. i'm hopeful that i get the opportunity on january 19 that i appreciate everybody being here and appreciate what you have done. thank you very much. >> david, thank you for moderating this evening. thanks, everybody for coming out. this election a week from now is really about the economy and about the future. this is about big government candidates against a small government candidate. what you really need to ask yourself is scott will spend money on more, martha will spend money on health care, but the reality is who do you want to spend your money? do you want the government to

spend your money? or do it you want to make those decisions for yourself? i'm the only candidate that will go out there and i will cut spenderring, i are repeal obamacare, with and appeal legislation to spend the wars. i will bring that money back to the massachusetts and the rest of the country. i'm the only candidate that is willing to cut the spending. you have to ask yourself, who do you want spending your money? do you want it to be the government? or do you want to make those decisions yourself? >> thank you. ladies and gentlemen, this concludes tonight debate, a final debate before the election next tuesday. as we leave, i'd like to thank if we might the edward m. kennedy institute of the united states senate for host host -- for sponsoring this debate. i'd like to thank the university of massachusetts at boston for hosting this event. i'd like to thank our media partners who have been covering this, 8 television stations,

three radio stations, the biggest gathering in memory and for a reason. because this election is so close. i'd like to urge all of you if you have the moment and to do this given what they've put into to go vote. encourage all of the -- everybody here who's involved would like to encourage you to vote. this is important. now if you would, i'd like to ask full join me in thanking the candidates who would come here tonight. thank you for your public service devotion. thank you one and all.

: