world and a global financial market and we need ways of pulling people together. whether it's the g20 or some other vehicle but we want to go -- don't want to go too far in contradicting activities to the point where we tamp it and dampen down growth as dr. tan said or that we stop investment. that we need the investment in order to provide good standards of living for people around the world. and it's only through the capitalistic forces that we're going to have the investment required to do that. but that gets to the fundamental question when we look at the long term versus short term, i think we agree there's a lot of short-term activities going on but there needs to be a long-term set of goals here and that really gets to the heart of the question of the matter to whom does market capitalism serve? i guess my own conclusion i would put a point on that is to say that it must serve all the players in the system.

if it only serves the bosses, if it only serves the shareholder, what i pejoratively call the shareholder of the last 5 minutes. it cannot work. it has to serve everyone in the system. it has to serve by definition corporations are chartered by societies. and they have only a reason for existence and we're seeing the united states pulling back on some of those cheaters. -- charters. and we're moving now to a situation where capitalists are realizing around the world we need to have ways to work together so we can serve all the players in the system. the customers, the employees, and all the shareholders and in that way we do serve society in making a strong market capitalism system. so i want to thank the panelists for coming today and thank the audience for your participation. [applause] [inaudible conversations]

>> we take you live to the mayflower hotel in washington where the peterson pew commission on budget reform is hosting a half-day conference today. they'll be talking about government debt and the influence of politics in the federal budget process. it should get underway shortly and scheduled to run for the next several hours. it'll begin with comments from former congressman charlie stenholm. that's john podesta. he's one of the many speakers scheduled for today. this event should run on midday. to the left is former arizona congressman jim colby who's with the jail term marshall fund and a former member of the u.s. house. one of the speakers in the later panels. there's former congressman

stenholm sitting down. and again, this event should start shortly. we'll have it for you live on c-span2. [inaudible conversations] [inaudible conversations]

>> waiting for the start of the discussion on government debt and the influence of politics in the federal budget process. charlie stenholm former congressman and now the cochair for the committee for responsible federal budget. he'll start the proceedings. and we'll also hear from former comptroller general david walker, a former congressional budget director, douglas holtz aiken and others as well. the associated press is reporting that president obama defending his economic stimulus plan on its first anniversary which is this week is dispatching his cabinet across the country to try and calm anxious -- the anxious public as democrats head into potentially devastating midterm elections. president obama today will be talking about job creation and energy spending. and vice president biden is heading out to -- heading out to saginaw michigan touring a small business facility and a jobs program.

[inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations]

>> if everybody could get your cup of coffee and assemble at the due starting place, we'll be getting this morning's session on the way. i'm charlie stenholm. i have the privilege of being one of the three cochairs of the pew foundation commission on the federal budget. i want to begin by thanking the pew foundation and the peterson foundation for funding the effort. you have the first report of our effort thus far. it was handed to you as you check in. the rest of the plan begins -- well, it began about two weeks ago with now the hard part.

making the recommendations of how you should be able to balance the federal budget. i already had a couple of conversations with some that we'd kind of been annual perennial, whatever the next word is -- at least the 31 years i've been around this town talking about the budget and the deficits and what we need to do about it. it seems that nothing seems to change except the problem gets worse. and i think there's now a more of an agreement and an understanding by the american people that, yes, it is possible that america is not too big to fail. when you start looking at the accumulation of debt as we are accumulating it over the next 10 years and anyone who believes in the marketplace is coming around to saying, you know, it's kind of like -- it was herb stein -- i like to quote yogi berra's version when he said it that which cannot go on forever usually won't. and i think more and more are beginning to see that.

and everybody knows what has to be done. you have to restrain spending and you have to do it in the area where spending is occur. 40% of the budget that deals with the so-called entitlements. it shouldn't be that difficult but in the political environment, it is seemingly impossible. and that's what we have elections for. every two and four years. and six years. and this november is going to be an interesting one. but i would just make one other comment. i've been of the opinion that the only way we're really going to solve this -- or put it another way. people ask me, well, charlie, you've been up there a long time. do you miss it? no, i don't miss the environment at all. but if there's one thing you could do -- one thing and one thing only, what would you do? i always said it's easy. i would change the way we would redistrict every 10 years. i would make sure districts are

drawn based on the people and not on the re-election of incumbents of both parties. we've all been guilty of that. and you just see what happened in virginia this week in the editorial in the "washington post" this morning. if you think about it for just a moment, i had the privilege of representing a competitive district. and that made me have to listen to both sides. there are too many districts that do not have to listen it off ultra right left and the republican party. that's my offer as to what can be done. now we're going to listen to the experts getting down in the mundane of actually talking about budget, the problem, the challenges we have and how we need to go about it. with that i'd like to introduce the president of our little effort here, maya mcginnis who will introduce the first panel and get us off in the discussion. thank you all for being here. [applause] >> good morning, everybody.

it's so nice to start a day with no snow, isn't it? i was panicked last night. do our panelists want to come up and join us? our three panelists -- our fourth panelist is still stuck in traffic. so i'm maya. i'm the president for the committee of responsible federal budget. and i'm one of the members of the peterson-pew commission on budget reform. for those of you who don't know the committee for responsible federal budget -- it's a bipartisan organization. our cochairs -- you just met charlie stenholm. and the board of directors is made up of really the leading budget experts. the folks who run the congressional budget office, the office of management and budget, federal reserve board, the budget committees in congress. so it's a wonderful group of people who lend their voice to reasonable budgeting. unfortunately, sometimes when i mention the name it's treated as a laugh line these days. but we're doing our best. and that's one of the purposes

of this conference today. the peterson-pew commission has really been a wonderful project so far. and it's going to continue for another year. this is a commission that was started by the peterson foundation and the pew charitable trusts to bring together the leading experts to deal with the broken budget process. and the first report we came out "red ink rising" we really turned our attention to focusing on the need for a fiscal goal. and that's one of the things our first panel is going to talk about today. the importance of actually having an objective to which you're working for in writing us, writing our budget path or putting us back on a sustainable path. so thank you so much for joining us today. thank you to our c-span viewers. i'm going to briefly introduce the panelists. we do have bio sheets available for everybody and for c-span viewers, if you go to our website, crfb.org you can look at both the program and the bios there.

so today we will shortly be joined by john who's stuck in traffic. he's the president of the newly launched american action forum. we will start by hearing this morning from rudy penner, who is a former director of the congressional budget office. and he recently cochaired a very important study on choosing the nation's fiscal future that i hope he'll talk a little bit about today. he's also a board member of the committee for responsible federal budget and commissioner of the peterson-pew commission. john podesta is the president and ceo for the center of american progress. he was the white house chief of staff for president clinton. and he and some of his colleagues have done a good deal of important work of putting out ideas for fiscal guide path to put us on a sustainable deficit path and bob former president of cbo -- as you can see we have a lot of cbo directors who are part of our organization is also the president of the urban institute.

and we'll be hearing from rudy, bob and john first we'll hear from doug when he comes and there'll be time for questions and answers on all of our panels today. again, thank you for joining us. >> well, thank you, maya. but obviously we should have one. the target that puts the budget on a sustainable path -- it's obviously necessary to have a target. to judge how we're doing. and so the president and the congress can be judged by the american people and held accountable. the only real question is what should that target be? it's nostalgia to look at the budget. it had adhered to the first 175 years of history except in times of war or recessions. the rule was unquestioned

intellectually. and it was an extremely powerful force. recently been looking back at the 1950s to see when budgeting was a lot easier. and it was interesting to see eisenhower terribly embarrassed by a deficit in 1959, which would amount to about $13 billion as we now count it. and he was bound and determined to balance the budget the next year. and he and the congress did just that. admittedly it wasn't real easy. and they used some budget gimmicks but they did do it. and along the way president eisenhower said that he really liked to provide a middle class tax cut but it was more important to balance the budget. what a quaint sentiment. well, recently as maya said i cochaired a committee for the national academies of science and public administration.

and our first task was to set a fiscal target. if we had chosen to target a balanced budget, we would have been laughed off the street because the policy changes required to do that today are so implausible politically. so the best we could do is enunciate a target of stabilizing the debt g.d.p. ratio and then the question was at what level. as you raise the target, the deficit with stability rises and then with it the negative effects on our standard of living. and, of course, as you raise the target, the risk of a meltdown in bond markets grows ever larger. but as you lower the target, the changes necessary to get there become more and more implausible. well, we finally decided on 60%. starting on a path toward it to

2012 so not to dampen the economic recovery too soon. and we didn't suggest attaining the target incident 2022. and if you look at our report, the policy changes to get there are really quite extraordinary. the american people today are not remotely prepared for the kinds of changes that are necessary. and when we add state and local debt to make our numbers comparable to those of europe, anything higher puts us into territory where some developed countries have already gotten into trouble with their bond markets. we do have some room to go before we hit the greek level of 120% of g.d.p. and they didn't get into big trouble until they lied about their budget situation. but wait, there is some analogy here. our budget doesn't have fannie mae and freddie mac in it even though it's owned lock,

stock and barrel by the american taxpayer. and there's the matter of over $3 trillion of mortgage backed securities that they guarantee. that appear neither on their balance sheet nor on the balance sheet of the u.s. government. thank goodness the cbo does the accounting properly. well, to sum up, we're living in dangerous time when the most ambitious target that we can hope for is to have a debt g.d.p. ratio stabilized at 60%. and, frankly, we're a very long way from being able to even do that. thank you. >> thanks, maya. and i think particularly when doug gets here, the reason we're assembled here at this table this morning is to probably note that there's more agreement across the political spectrum of

what the targets ought to be than there is the capacity of our political system to actually produce the results that would reach those targets. but, you know, i come to this from a couple of different perspectives. first as someone who runs a think tank that believes in a progressive policy solutions and investments. but also believes that if you don't get there within a fiscal framework that creates fiscal stability, that the pressures of the overall federal budget, the increase in interest payments on the debt, the instability that results from a federal balance sheet will squeeze out investments for the people that the country needs -- that need them the most. on education, on the environment, on important programs that are there to build a strong middle class. and i think that today the real

problem is that policymakers i think are faced with a very serious and very delicate challenge at this particular moment in trying to grapple with the problems that rudy faced. because the deficit outlook is truly dangerous in the long term. but we're also in the midst of a great recession. and the need to try to create the right balance, to thread that needle -- i don't even know what the right analogy is any longer. to drive an aircraft carrier through the panama canal maybe. you have so little room on both sides to be able to make the short-term investments that will keep the recovery going, get job growth back into the economy is critical. and at the same time there has to be a credible path towards a better fiscal position for the united states. sxoing that's really what the -- what the challenge is.

that the president is facing and peter orszag of the office of budget management are facing to try to put this together. to both apply an appropriate level of stimulus today because if they don't do that, i think the prospect of job growth will -- the prospect of potentially a double different recession will increase. and that will, in fact, make it harder over the long run to address the deficit outlook over the next decade. but as i noted large state budget deficits and high levels of government borrowing can make it politically more difficult to enact public initiatives. they siphons resources to pay off the debt. i think they leave the country enable to go further into debt at the time of crisis. and they'll ultimately lower future incomes. they'll raise interest rate. they'll spur inflation and make the economy more susceptible to

financial crisis going forward. i think we're seeing today what the future could hold if we don't get on top of this and we're seeing play out in southern europe as we look at what's happening in countries that are obviously not as strong as the united states. but that could be our future if we don't take action now. i think that the near-term deficits -- let me step back for a second. i think that the problem again that we face today comes from two problems that are distinct but interrelated. one is what's happened over the last eight years or the last period of time. i, of course, served in the clinton administration at a time when we actually brought the government's financial system into surplus. we had back to back surpluses over several years. i think that was the result of a lot of hard work.

and a lot of political courage in both parties. first with budget agreement that president george h.w. bush entered into in 1990 followed by the budget plan that president clinton entered into in 1993, which passed without a single republican vote. and then the bipartisan agreement in 1997 that got us the rest of the way towards balance and surplus. but over the succeeding course of the administration, we saw the dramatic fiscal deterioration. that was the result, i think, of deep tax cuts while we were running two wars and adding a substantial benefit to medicare without paying for it. the other part of the long-term budget problem, though, i think relates as this group is analyzed and it's fairly well-known. i won't go into it in detail.

but the aging of the baby boom and the inflationary costs of healthcare. health reform is critical it off containing costs and addressing this problem over the long term. and i assume maya will get into this with questions and i won't go into it in detail. but i think that it is -- it's imperative that we -- that we begin to reform the way we deliver healthcare in order to get savings over the long term from the healthcare system, particularly, in the public programs, but that's true in the private programs as well. we're going to need to reform the other entitlements including social security. and maybe we'll get to that. i think we have -- in my own view, we have -- we have an unsustainable path on the national security front. we're spending about -- in real dollar terms about nearly 50% more at the peak of the reagan buildup on defense.

and if we don't -- if one assumes that we're going to keep that rate going both on a -- from a fiscal perspective, and i think what it's doing to our overall armed forces -- i think that's something that has to be addressed. we need a commitment to setting priorities and spending tax dollars on programs that work. and are smarter and add productivity to the delivery of government services. maya mentioned this at the center, we propose that you could manage this problem if you manage a path. we saw that work, i think, during the course of the 1990s where the combination of paygo legislation and discretionary caps in the budget led to the -- to the first the reduction of deficits and then surplus. we proposed a intermediate goal

of a primary balance by 2014. by that we mean total revenues equal total spending. by 2014, the federal government should be -- for every dollar of revenue taken in -- excuse me, should only pay for dollars worth of program based on a dollar worth of revenue taken in. and that we need to work the debt problem off over a longer period of time. we believe that you could balance the budget on that path by 2020. those targets need to be supported again by a system of statutory mechanisms. designed to enforce fiscal discipline. and make it difficult for congress to deviate from the path. paygo was just reenacted. we can discuss whether those changes need to be made. but hitting those requirements will require a lot more than just a cap on discretionary spending.

particularly leaving out spending. it will require a new commitment that has to be enacted by congress. and i'll end where i sort of began, which is this is not a problem of analysis. this is a problem of politics. and a problem of the ability to find the will to get agreement to move the country back onto a more sustained path that will lead to sustained growth and greater opportunity for the american public. >> thank you, john. yeah, i think that all of these discussions are going to turn back to politics 'cause that's so clearly sort of the toxic piece of all of this at the moment. we have a third panel that will focus on the politics and i've told them not only should they assess the situation but they have to solve it. so that will be done by the end of the day. [laughter] >> we're going to turn to bob now and then doug who, of course, has been fashionably late to this event will go last and hopefully not repeat everything that has been said. so, bob, please. >> well, thank you, maya.

i was intending to speak after everything had been said at least once. and so what i thought i was -- i would do was to try and place goals for our fiscal policy in the context of the six steps that we have to go through to reach a fiscally sustainable position. and those six steps in order are first convincing the public and their representatives that something has to be done. we're, of course, at a point where rhetorically that is the case. but the next step doing something doesn't seem to be on the threshold. second thing -- second step is obviously to specify a goal. the third is to set a date to achieve that goal. the fourth is to establish some

intermediary benchmarks or a path as we've heard. fifth is creating some mechanism that will encourage or force decision-makers to take the necessary steps to reduce the deficit. and finally, there's the question of enforcement. let me just say a word or two about each of these steps. the issue of convincing the public and their political leaders that something really has to be done is one that i don't think we have overcome at this point. there are really four that strikes me arguments that one can make and i will go from the better to the worse of the

arguments in terms of what we'd like to see. the first, obviously, is the moral argument that we are in a sense doing to our children and our grandchildren what our parents and our grandparents didn't do to us. we're handing them a huge burden to pay for the public consumption that we've been unwilling to pay for ourselves. there's an international aspect to that in the sense as long as we run large deficits that are financed largely by foreign capital we're draining capital that otherwise could be used to invest and raise living standards in countries less wealthy than ours. and that is not the way the world is supposed to work. the second argument or motivation for doing something

would be because it benefits us. that we would be better off in the future. our g.d.p., our living standards if we act to put our fiscal house in order. ... >> and very different geopolitical ambitions. do we want to be a nation where,

before the president sees the dalai lama or before we decide to send $10 billion worth of military aid to taiwan, we have to sit down and think about what reaction there will be among our creditors. with respect to goals, they need to be understandable. and as rudy pointed out, balanced budget was very understandable to the american people. the goals we are talking about now, all three of the reports that have come out, are more complicated. they involve debt to gdp ratios, balance and the primary deficit, things that don't translate very well across the breakfast table in a discussion with, let alone in committee hearings in congress. they have to be unattainable in

the sense that they have to be politically unattainable and economically untenable. we don't want to get ourselves trying for goals that would undermine the strength of our economy. and finally they have to be flexible. all of the goals that have been set up so far have a degree of absolute as to them. but we live in a very uncertain world where economic conditions can vary where there can be wars, where natural disasters can strike, where there are inevitable economic cycles. and there has to be some kind of flexibility within the system one is designing. with respect to date for achieving the goal, we all agree that getting to fiscally sustainable position will take time, and given the current

economic situation, it's going to take a good deal of time because we had to get the economy back on its feet. but whether the goal should be achieved in 2018 or 2020 or 2025, it's very hard to make a case one way or another, if this makes the whole challenge that much greater because of procrastination and avoidance is really the things that this town does best. with respect to pass, that's also difficult because there are 1000 roads that will get you to any particular goal. and there is no real consensus among our political leaders now about what would be appropriate path, or what the composition should be, how much taxes, how

much spending within spending, how much should come from entitlement programs versus other programs. with respect to mechanisms for forcing decisions, we have tried the normal legislative process, and it seems to have not responded. there are special procedures, such as commissions or summit meetings, grand legislation, line item veto and so on. we have to think of what mechanisms are the most likely to produce some kind of packages that can bring the budget deficit down. finally, with respect to enforcement, we have to have a mechanism that, when the political process fails, and the

goals seem to be receding into the distant future, something happens. and the most promising of these, i think, is some kind of trigger mechanisms that in a balanced way, increased tax revenue and reduce spending. in ways that may not appear to be desirable, and so the congress will be encouraged to find its own better solutions. so this is a complex issue. there are lots of pieces that have to fit together, and i take some hope that many in this town have decided now is the time to begin the journey. >> thank you so much, doug. i have already introduced you,

and mentioned, so please go ahead. >> thank you for the chance to be here today. i apologize for arriving late, and a bad combination. but i don't want to procrastinate about even talking about the problem. i took my homework to the three questions, does the u.s. need a fiscal goal, first? secondly, what should that goldie? and then lastly and most difficult, how do we get this done? and let me touch on each briefly, and then return to the discussion. first i think it is transparent that united states needs a fiscal goal. and has always been a source of bemusement to our international colleagues when they visit the united states and ask about how fiscal policy is set in the united states and i have to explain to them the message doesn't have fiscal policies that it has fiscal outcomes.

the house does its thing, the senate does their thing, they do economized. we have a series of budgetary outcomes that are not reflective of any sort of plan. and it is obvious that we have to change the way we do our business. i won't belabor the dire nature of the outlook for the federal government budget, but i think it is very, very fair to say that if one looks at any realistic projection of the kind of policies under which we are currently operating, we are endangering both our prosperity and our freedom. and this is something that is and the most fundamental sense, and unfair to the generations that will follow us. we do need to have a fiscal role. with a fiscal goal will do, if broadly adopted, is raise these considerations to a higher place in the pecking order, and

ultimately give policymakers a way to say no in the way they simply cannot right now. constituents, and have things they would like to have happen. they sound like a good things. they sound like good things. but they have to be good enough to trump the fiscal goal in order to be implemented. it gives you a way to say know that we currently do not have in the united states and which is put us in a very precarious position. so moving to a fiscal goal, moving to a situation where these considerations, the debt that we will leave behind, the rising level of spending that burns our economy, these become more paramount. decision-making i think is impairment. i am all for moving toward something give us a fiscal goal in the united states. what should that goldie? well, i have long advocated that the appropriate goal is a ratio of debt in the hands of the public to gdp. this is a sensible goal because

the numerator, the debt in the hands of the republic, is reflected broadly on the actions of the federal government. how much money comes in, what spending goes out, what is brought as a result, and achievements over time, it is not sensitive to these year-to-year considerations that undermine fiscal goals. the denominator is a broad measure of our economic performance. and we will have to place a better economic reform at the centerpiece of moving forward, and fulfilling our obligations to the next generation. so have a goal that would in the the numerator reflect how you're doing budgetary and the denominator, how those policies effect economic reforms i think is exactly the right thing. the trouble is there are about four people who care about debt to gdp. and selling it to the general public i think will be very, very difficult. i want to come back to that because i think bob's point is exactly right. the educational aspect of this

is imperative. i think would be important to translate those debt to gp targets, stabilizing it, getting a lower back into targets for taxes and spending. and in doing so, place the focus on the real problem in the federal budget. and that is the rate at which spending is increasing. there is no way to sugarcoat it. the united states will not be able to tax its way out of this problem. it will have to get its arms around in a deep and sensitive way to spending programs in the federal budget. and that hopefully will trigger a debate, a deep, important and lasting agreement of what it is the federal government will and will not deal in the society, as a result what transaction will and will not show up on its ledger and how we will get its budgetary problems under control. so i think we need to focus on

the debt to gdp, translate into the levers that policymakers care about, and in doing so place a focus on the spending problem that the united states has. once that happens, there are lots of mechanisms that can be brought to bear to help them stay on track. but the biggest thing is getting the basic decisions made and getting on track. so last question, how does this get done? obviously this is a very difficult problem. i think nothing happens without having our elected representatives go back to the home districts and have their constituents say to them, what are you going to do about this, this is unacceptable. and you know, you did a good job, thank you when they make the hard decision to cut spinney, raise taxes or both. until that happens in a democracy of the type we live in, we're not going to make great progress we have to display this is a problem. we have to explain it is in the interest of the society, broadly, to undertake rectifying this problem, and have constituents report their

elected representatives were doing it. i think there's a place the kinds of nuts and bolts that dominate the discussion inside washington. there's an important role for white house leadership, regardless of who is currently residing in the white house, no major reform happens in the united states without presidential leadership. it is imperative that this become the top focus. the president of the united states, it is our biggest problem. nothing else should get in the way. and has to be a way to have congress change is a way of doing business in order to grapple these issues. the regular order has held us. with her discussions of departure from regular order whether commissions, special legislative procedures like a reconciliation. i am in favor of having to congress change the way it does business in or to ask but the consideration of these bills. because that is part of placing a fiscal goal of of the regular

business as usual, and that's the paramount that congress has to take that obviously lots of details, but i think doing this is an imperative and tiny ways, to make it easier for elected representatives to get it done is the most important job we face right now. >> good. thank you so much to all for a few for those very sobering warnings. i think made all of them more sobering by the remarkable background and experiences that all four of you bring to this. and the different political viewpoints. it's one of the things we found on the peterson-pew commission that even though they're such a vast array of political perspectives there was an awful lot of agreement on fiscal goal and what that fiscal goal should be and how to get there. and we've seen that any subsequent reports that have come out. there's just so much agreement that it is time to focus on a fiscal goal and develop a glide path to get there. there's also widespread agreement that you want to announce that goal as quickly as possible, and buy yourself some

time to phase it in a little more gradually in order to not stabilize the recovery. i'm sure within this group there's a whole lot of disagreement about whether there should be additional stimulus which is another topic that i'm going to ask one question, but because there's not much time you can choose to open it up to other people. i do think the fiscal goal is the critical first step that allows you to say no. it allows you to have comparisons of different policies to get there, but any and we can only avoid the bottom a question of what policy changes are we going to make to change the budget situation. i'd be curious in your answers to other questions you choose to, you say sort of the one specific policy change you would like to see. you can speak on behalf of yourself rather than your organization, if that's useful. right now i would love to open a. the audience is filled with experts. i will open it up to folks here. and theicrophones that are going around.

if you wait until the microphone comes. >> thanks, maya. i wanted to ask the panel what we really need is and an overall fiscal frame of of the kind you describe, or whether it's actually a fiscal framework for medicare and the sense that when you look at the drivers, the contribution for medicare is so great. do we need actually to focus in on a fiscal framework either capping the amount of spending relative to gdp or medicare, a tax to make the direct cost of this irrelevant immediately to public? how do you think about the medicare component of this and how does it relate to the overall strategizing about the budget? >> jump right in. >> i have some sympathy for your analysis, numerically. if you look at any other projections done, for example,

medicare budget jobs out on medicare quite frankly as a drive of the longer fiscal position, but i don't think that it makes sense from a political comedy point of view to single out and say the problem is this program, and to rule out trade-offs between programs and to take off the table what is the commonly received and i think correct conclusion that everybody has to have some shared sacrifice and making tough decisions. so while i understand the numbers, i don't think you can make this a medicare problem. it is a budget problem and you really have to address it that way. >> moreover, in the next decade or so, it isn't all held. it is the retirement of the baby boomers, so you have to consider in limiting social security growth as well. and i think as you try to do those things, you have to get some notion that the sacrifices widespread and therefore have to look at other programs in the budget as well.

frankly, i don't think you can get much farther than 10 years in the kind of policies that we have now without provoking crisis. >> i guess i'm an outlier on this. i think it is the heart of the matter. i was going to answer, if you had to make one change, to maya's question, what would it be? it has to be in the delivery of healthcare. we are spending 17.5 percent of gdp on healthcare. the oecd average is about half that. the next country, switzerland, is 11%. we are headed to toward. is going to bankrupt the country if we don't reform the way we price and deliver healthcare, reduce errors in hospitals, do the kinds of things that i thi think, there's again broad spread agreement on with respect to driving change from, away

from a system that rewards the volume towards one that rewards the value. and i think if we don't do that, then medicare is going to go bust, and i think more important, the country, businesses, american families can't really afford the system that we currently have. so hope springs eternal that there will still be changed of it on the healthcare agenda this year. maybe we will all be surprised and there will be some agreement in the summit that will take place next week between republicans and democrats at the white house. but if we don't get on top of this, and i think and isolate and drive change and reform in the healthcare system, i think that this challenge and this problem is just insurmountable. >> just to give john some kind of solace that he is not an

outlier, i basically agree with him. at the point is making is, you can solve the healthcare problem, which is nationwide, by tinkering around or even radical changes within medicare program alone. you have to restructure the way we pay for and deliver healthcare in the country at large. the other point i would make is that even if there were nothing wrong with our overall fiscal situation, we would see an increase in retirement related expenditures, and we should see that given the nature of the programs, and a shrinkage in a relative sense of these other programs. so you don't want to go in and just sort of say, we're going to solve this whole thing on the back of medicare, because if we look at the numbers, medicare or medicare, medicaid are the source of this problem.

we, as the nation matures, are going to redistribute public expenditures in a way towards the aged. and that is unavoidable. >> thank you. >> morton of all call. sense report came out in december, we have had the presidential budget and his roadmap for the future fiscally. would you evaluate it in terms of how close to the goals that you cite it comes? >> shall we start at that end of the table? >> evaluated? b. you know, the basic outline i think is appropriate, but once again, we reach out in the sense

i magic astrid in the form of a commission to get to the goal that the president has laid out. i think all of us at this table have a more aggressive goal and path, but this is really the first indication that a president is willing to go out and endorse a particular goal and path for the future. [inaudible] >> yes. >> welcome maybe i just answered the question. and incorporated into my answer. there's something so like and there's some things i don't like, mort. i think they bit the bullet on the high in tax cuts and they should be allowed to expire this year, not pushing that down the road. if you look at the budget passed

over the course of the next 10 years, they don't achieve, i think, what all of us think is necessary, which is a stable debt to gdp ratio. except through the use of the commission, which the president tends to execute by executive order, it having been voted down in the senate, another casualty of our broken politics, i think. but the charge they are making to the commission is the one that actually that i mentioned, which is they delay it a year from what we propose, but primarily balance by 2015, which stabilizes the debt-to-gdp ratio. they do about half the work together, but have to work remains to be done through a bipartisan process. and the one thing i think that i'd been critical of is limiting the discretionary cap to to the

so-called domestic side of the agenda. i mean, and not extending that to a very wide spot for spending that is called security spending under the budget. you know, if that had been limited to supporting the troops in the field in afghanistan and iraq, i think one could argue that not only sensible, but necessary. but if anybody thinks that every dollar of the department of homeland security is being well spent and therefore, no budget discipline should be applied to that, it seems to be a just take you down the wrong track. and i think that from an overall perspective, i think they would have been to try to execute something the president talked about during the campaign, which is an overall national security project. so that trade-offs are not made within the national security programs, and that the necessary funding to support, you know, against the ground force that is

deployed in afghanistan is put up against other trade-offs, particularly within the defense budget but across the security budget overall. >> our committee took on the challenge of actually specifying various policy packages that would get you to a 60% debt gdp ratio. and i must say after 40 years or so of messing around with budgets in this town, i was shocked at how dramatic those policy changes had to be. and i think the great problem today the american people are not hearing a thing about the kind of dramatic changes that will be necessary to stabilize the situation. they surly didn't hear about it in the president's budget. and we've got to start the groundwork of preparing them very quickly. if we're to start on this path as early as 2012, which we

suggested, then you've got to start on it pretty soon. i didn't mean in my answer to the last question that there don't have to be changes in medicare. thereto, very substantial change. there has to be changed in social security as well. or else there has to be massive tax increases of the sort that are really a imaginable in this country. so that's the work that has to be started, and i just don't see it being done yet. >> i want to echo what would he said, which i found the combination of the president's budget and the economic report of the president disappointed, not just in the numbers that were bleak and make no progress towards problems, but in the nature of the solutions which are trotted out. commission, let them go solve with the magic asterisk. if you look at the report, they hold out the hope for healthcare

reform, theoretical ways, most of all of our problems. but if you look at the actual bills, they actually make things worse for independent evaluations. let's move to the next solution, waste, fraud and abuse. we've heard that before that does very little. and then the high-end tax cuts which is a trivial amount of money and which is at odds with the rhetoric about how you get to the sink in recession. we certainly couldn't cut spending. i think the idea that somehow any congress can move quickly and dramatically enough to and into the economic recovery is ludicrous. and to send a message that you can't touch some of these things because of the recovery, i think is missing the point. you need to put in the presence budgets or his to take on serious problems that you need to echo that, and i think these didn't do that. >> there's a question right there.

[inaudible] >> i have been particularly interested in medicare. the experts over the years have said to save medicare, cut benefits in half. do you think we should tell the public very bluntly the truth, or do it diplomatically and slowly? [laughter] >> i think without to scare them to death. i mean, this is a serious issue, and the notion that somehow we have to diplomatically explain to them, we are robbing their children's future, i think is entirely misplaced that there are too many americans that think we should just cut out the budget balance. which is an enormous misunderstanding of the nature of the problem. i think, my experience in the chatter that surrounds policy debates in a political environment, is that you have to say one thing very, very clearly, 100 times a day for to penetrate the public consciousness. so i am in favor of taking the gloves off and leveling the american people.

>> and if you want to scare them, just have a look at southern europe. look at what's happening in ireland, with huge cuts in civil service pay, with a dramatic cuts in social programs, tax increases and spending cuts that amount to 5 percent of the gdp, i guess more than that. these are the kinds of things that lie in our future if we don't do anything about the problem. >> of i was going to take two questions appear. >> my name is jessica. a question about this public information. i think of all spoken about the notion that the macro numbers, are hard to convey. i'm wondering if the better approach would be social security sends every year a letter to every future social security recipients saying what

their benefits will be and explaining at different ages. should we, or might reconsider, would it be effective to send every medicare recipient and the united states a tally every year of their lifetime balance of medicare use? and maybe even consider, although i don't think you would be much revenue raising, given poverty in america, but maybe even consider linking it to an estate tax so that we agree, we want every elderly person to be taken care of in their lifetime, but we're going to tell them how much their lifetime expenditures are. and if they are left with some substantial amount of money, we're going to claim that back for the next generation. i mentioned that also because i don't actually think that it is just the older generation that's benefiting from this. i think you have a lot of

interest in the generation behind them and protecting the families money intergenerational effects or whatever the u.s. government will pick up, either in social security or in medicare, is an easy benefit to the family, in terms of not having to save for intergenerational care. >> thank you. let me try to slip in one additional question that was right here. both of you have questions? you have two quick questions. >> thank you. norman bailey, it is traditional but i think unfortunate that the discussion was centered on spending and very little discussion on production. there are after all to waste to approve the dead-gdp ratio. and i would like to a lot more discussion about how to increase reduction, entrepreneurship, the widespread public ownership of productive assets and manners of that kind and not entirely on how we can reduce the increase

in spending and so on and so forth. thank you. >> i will make the next panel after that as will. there's one more question here. then we will do quick summary. >> norman from the center for economic and social justice. i want to amplify the point by doctor bailey, and say that maybe we have to look at goals beyond the keynesian box. and that is, not only full employment and balancing the budget, but also thinking in terms of full production, full employment, full ownership, and full economic empowerment of the people through widespread ownership of future capital. >> thank you. okay, everybody can weigh in on any of the questions and their final last words. >> briefly, i think that is the desired global that the debt-gdp foreign relation to to get to

policies that produce the same net debt, but one is progrowth, it will look better using that formulation and that's the one that we should choose as a society. i am all in favor of that sentiment, getting the policymaking apparatus there i think is the key. with regard to information statements, i think it's good to inform the public, but sending someone a statement without changing the incentives, their ability to understand their healthcare choices, get higher quality outcomes for less money, i think misses the fundamental problems of medicare, which is a deeply broken system and needs to be reformed. and until we will reform it, quite frankly, it will continue to grow. and because it will continue to grow, even one time to pay off the accusative debt will not solve the problem of the future. we need to solve the problem, and i think that's the message that should come out of events like this that we have deep problems rooted in our federal entitlement programs, that they need to be addressed, that they

are driving us to a position where we are in danger the next generation street from international pressures and their basic prosperity. it's time to get down to business. >> i agree we should be looking at the tax side to pick it is a situation that just cries out for tax reform and we have to figure out how to deal with the amt, how to do with the extension of the bush tax cuts. and if you were to broaden the base, especially if you were to cap the exclusion for health insurance, you can generate enormous amounts of revenue. raise the same revenue we're doing today with much, much lower tax rates. and that would be really conducive to economic growth. >> let me say one word, one point of disagreement with doug. when he said the problem is all of the spinning side. the problem is also on the revenue side. last, a 2009, our receipts were

the lowest they've been since 1950. after the president's budget is fully enacted, the revenue figures as percentage of gdp will be about 2% lower than they were under president clinton at the end of his administration. now, you know, i might be nostalgic but i remember pretty strong growth in the 23 million jobs the united states created, probably we had growth that was twice as large under the succeeding eight years. so i think that this question of how you get revenue and the nature of reform to produce that revenue out to be front and center. and i agree with rudy that we can have a system that actually potentially has, particular on the corporate side that could lower the rate by getting rid of a number of attacks expansion that are currently locked down

the code which had the same effect of spending. but spending on special interest rather than the public interest. and do that in a way that produces fundamental tax reform that produces revenue, that is necessary to support the important innovations that need to be powered, i think through investment, particularly an education and having a strong ability to create a human capital that's going to produce the ownership and innovation that you discussed. with respect to the other question, i am for more transparency than less, but i think this is a place where do agree with rudy. i don't think the transfer mechanism works very directly because it breaks down the insurance system that ought to be the central feature of medicare. >> a couple of points. with respect to the transparency

issue, i think social security sends everybody a statement that says what their benefits will be under certain assumptions, but it doesn't highlight the fact that in 2037, or whenever the trust fund runs out of money, there is a high probability under current law that benefits will be reduced by about 27%. that might scare some people. it might not. we all know that when you go around and ask 35-year-olds, you know, will social security be there when you are 62, they all say no. so if they really believe that, this won't really affect their behavior or their willingness to sacrifice, i don't think at all. with respect to medicare, you could send beneficiary statements saying how much medical care they used and what you would be doing is largely

sending big, scary notices to very sick, very old people. [laughter] >> and you know, the second part of that was, and we could institute a pay-as-you-go tax nor -- in other words, try to recoup some of the. but the vast majority and people with any kind of retention would have anything to transfer. so you know, i don't think that is really a way to go. with respect to, shouldn't we be more concerned about economic growth and pushing that forward, yes, we should. it's not like there's a magic elixir that we can pull out of our pocket and sprinkle on the economy and cause growth to surge. the thing that we should be

doing is investing more in high quality education, research and development, to do a lot of that, maybe some deregulation is in order but also as we've seen in the past, this takes public resources, and public resources are what we are a little shy of right now. >> so let me just mention a couple of points that i heard to end with. one thing i think is clear is when it comes to dealing with this budget, pretty much all areas of the budget are going to have to be part of the solution, but clearly we should be focusing on the drivers of growth and those would include healthcare and include the programs that are driven by aging problems in the country as well. as well as other areas of the budget that i think the second point that was made was the president's budget needs go farther than it does. i think it ministration was quite clear in saying this is further first step that it will need to go farther. but one piece is missing is sort of a public awareness of just what that means exactly the

types of pauses that will have to be involved. and for any of us, or you have gone through the exercise of trying to pick a fiscal goal and achieve it, it really does take some very dramatic measures. finally, i think this point but economic growth is a critical one that while everything is going to have to be on the table and most will have to be part of an ultimate budget deal is my prediction, you want to think about it carefully. so when you're looking at taxes we want to consider fundamental tax reform as well as tax increases. when looking at spending we want to think about protecting the areas of the budget that are most productive. and that is also going to require shifting away from a lot of parts of the budget that focus on function. i think those are important things to think about going forward. thank you so much to a wonderful panel. we really want to thank all of you. [applause] >> as they leave, but i'd like to do is introduce our next speaker.

and david walker is the president of the peter g. peterson foundation, and prior to joining that, pot for just a second. prior to joining the peter g. peterson foundation, he was of course a couple general of the united states and ahead of the u.s. government accountability office. he's also a member of the peterson-pew commission on budget reform and a committee for a responsible federal budget, and he has recently written a book that i hope he will talk about. he is one of the leading spokespeople in the country who has been putting this issue on the map. is not only talked about it from the platform of his position. he goes around the country and speaks to this and all sorts of different forms. so he talks with leading experts and he talks with people on the credits was a great sense of the issue that he has done an incredible amount to push this on the national agenda and so we thank him for the. i will ask you to come up to the podium and talk.

[applause] >> thank you, maya. is a pleasure to be here and thank you for all coming this winter as a maya mentioned, pete peterson, my boss and i are both privileged to be members of the board of the committee for responsible federal budget, as well as having been members of the peterson-pew commission. and our foundation that peter senge peterson foundation was pleased to partner with the pew charitable trust to fund his commission. i am a practicing roman catholic. and so the answer to the question is, do we need a fiscal goal is the same as the answer to the following question. is the pope catholic? [laughter] >> the answer is yes. we don't just need a fiscal goal. frankly, we need a strategic plan. this country has been in existence since 1789, and it's never had any strategic planning framework that is future focused and results oriented. thirdly, we need key national

outcome based indicators, economic, safety, decree, social, environmental to help understand how are we doing on outcome basis. are we getting better or worse, and very, very importantly, how do we compare to our peer group? because when we look at our peer group comparisons, and public finance, in health outcomes, and education outcomes, investments and outcomes on critical infrastructure, we are below average. a great nation does not stay great by being a debtor nation, and by being below average on a number of key leading indicators that help determine whether or not the future is going to be better than the past. in my view, we are at a critical crossroads in the history of the united states. and the decisions that are made or that failed to be made, within less than five years, will largely determine whether the future for this country and our families will be better than the past.

the ones that are made and the ones that are failed, failed to be made within the next five years will determine our history and large part. the problem is not solely spending. that is definitely true, but the problem is primarily spending. in many regards. george w. bush was the biggest spending president since lyndon baines johnson. he also expanded entitlement benefits. first one to do so in a major way since lyndon baines johnson. and president obama has obvious a significantly increased discretionary spending, based upon the two appropriations bills that he signed. and there is a great debate about the size and role of government, but returning to spending, there is some very simple principles. habitually spending more money than you make is irresponsible. a responsibly spending somebody else's money is unethical.

and if you are a fiduciary, a fiduciary breach. and thirdly come in responsibly spending someone else's money when the person whose money you're spending are too young to vote and not born yet is immoral. and all three of these things are going on right now. we need to recognize that not all deficits are equal. it depends upon their size, their nature, and whether or not they are likely to be recovering in nature. for example, in fairness to president obama, he inherited a $1.2 trillion deficit. due to recession, to wars and a variety of other actions. and it's understandable to have large deficits when you have a recession and a number of non-business cycle challenges dealing with housing and

financial services that require some action. that's not what threatens our ship of state. what threatens the ship of state are the largest known and growing structural deficits that will be with us, once the economy returns to growth, once unemployment levels are down, and once the undeclared wars are over. win those three things happen, we face large known and growing structural deficits that threaten our collective future. and we need to do something about them. and it's not just the issue of the deficits. it's the composition of the budget. when you look at the nature of the budget, it has change in profound ways. today, less than 40 percent of the federal budget is a discretionary. meaning that the congress gets to decide how to spend the money. each year. and if you look at the constitution of the united states, you will find every

expressed responsibly envisioned by the founding fathers, for the federal government, is in discretionary spending. and that's what's getting squeezed. and don't get me wrong, there's plenty of ways and defense and there is plenty of waste and homeland security. but the fact is what the founders envisioned is becoming a smaller and smaller part of the federal government. and something needs to be done about that. we have to recognize that within 12 years, without an increase in interest rates, that the single largest line item of the federal government is expected to be interest on the federal debt. let me repeat. without an increase in interest rates, which is totally unrelated, and what do we get for interest on the federal debt? nothing, not a, shine know as we say in the south. absolutely nothing. and that is the path that we are on. so it's not just deficits.

its debt. and you know, quite frankly been engaging in a number of creating accounting itself been practices for a long time. they finally caught up to greece. although greece have somebody to bail them out. we don't. if you look at our creative accounting practices, we've had creative accounting with the trust funds for a long time. you know, in washington they use words that don't mean the same thing as webster's dictionary? like cross winds. you can't trust them. they are not funded. like cuts. it means reduce the rate of increase rather than an absolute reduction. or like requirements for the military, which is a wish list where you're not even supposed to consider the affordability and sustainability. no wonder the american people have such low confidence, no wonder that our representatives have so little credibility with the american people. we need to speak plain english and talk straight to the american people. so if we look at our situation,

we see that if we actually were accounting for the trust fund properly, our deficits have been larger than advertised. our debt is larger than advertise that we owe social security and medicare trojans of dollars in debt. guess what? we will honor that. will not default on the. but we do want to call that a liability. and so therefore, our debt to gdp ratios that are typically talked about in the press only represent public debt rather than total debt. if you look at total debt, we are 85 percent of gdp. we'll be it over 95 percent by the end of this year and heading up. we will not default on that trust fund debt. so we did to recognize we have to be more truthful with regard to how we account for things. the real challenge, frankly, is the fact that it is our off-balance-sheet obligations. 38 trillion for medicare alone. 7 trillion for social security, seven to eight.

manageable, actually it is not that difficult to solve that problem. and by the way, these numbers don't count, the federal reserve, they don't count the entities because those are the latest practices. we own, the american people, a significant majority of the government-sponsored entities and yet they're not being consolidated in the financial statements of the u.s. the fed is engaging in a number of different types of practices because the congress and the president either couldn't or wouldn't, and as a result it's got its balance sheet doubled or tripled. and it is also buying a tremendous amount of u.s. debt, which serves to hold down interest rates in the short term, you can have a short-term impact on interest rates. you cannot change market forces indefinitely. and so the fact of the matter is, new and larger, franco, self-dealing practices in creating practices have come to us, have come to the floor in the last year or so and they are extremely troubling.

dependency, the united states has become increasingly and importantly dependent on foreign lenders to finance our deficits and debt. we are fortunate that china, japan, and all exporting nations have been willing to lend a significant sums of money at low interest rates. but it is imprudent to continue to rely on the. it is not in our economic, foreign policy, national security interest that you must pay attention to your foreign lenders that they have already spoken of the reason that all of us and all taxpayers and american guarantee $5 trillion in fannie mae and freddie mac debt is because japan, and china demanded it. and while interest rates haven't gone up yet, and i look forward to hearing the next panel, the actions of our foreign lenders speak loudly. they are reducing their appetite for our debt. they are buying shorter-term maturities. the duration of their obligations are going to pick

they are looking for commodities that they're looking for other alternative investments. they are looking for inflation index estimates such as a tips, because the factors say that inflation will go up over time. and that will compound our problems. we must recognize that there are four key parallels between the factors that cause the mortgage related subprime crisis and the federal government own deteriorating finances that a disconnect between who benefited from preventing policies and practices and to pay the price and bore the burden when the bubble burst that a lack of transparency as the nation extent magnitude of the real risk. too much debt, not enough focus on cash flow and overreliance on credit ratings. and a failure of both corporate and government oversight, risk management, regulatory functions who acted until there was a crisis at the doorstep. there are two big differences.

first, the size, the scope and the potential adverse consequences of a meltdown on the federal government finances, and the milk that would seem to be a loss of confidence and our ability to put our federal financial house in order. and second, nobody is going to bail out america. we have to make tough choices. and we need to begin that process very soon, and before we pass a tipping point. the good news is, the american people get it. i've been to 46 dates in the last four years doing town hall meetings, business community leaders, editorial boards, local media. 80 percent of americans believe that as getting relies on for leaders should be a top priority. exceeded only by the economy and jobs. way ahead of healthcare, way ahead of climate change, way ahead of important issues. second, two-thirds believe that washington is not paying enough

attention. and 70% support a fiscal commission where everything is on the table to try to deal with the problem. there's no question it will take an extraordinary process, because our regulatory process and washington is broken. and the decision by senator biden not to run for reelection is a troubling indicator of just how broken it is. as long as, as well as decisions by other senators, such as senator voinovich, senator gregg, et cetera, these people are promoting fiscal responsibility. these people are focusing on the future. and they are disgusted, not just with partisanship, but the ideological divide and a stalemate that we face. it is one thing to have a stalemate in washington when things are going well, because after all, government can come and listen to me carefully, muck things up. that started with an intimate. that when things are not going

well. and when they are degenerating with the passage of time. having the stomach is a disaster. and that is where we are right now. so i want to commend president obama for recognizing the problem. his steps with the go to the fiscal 2011 budget were modest. they were modest with regard to the short-term. they did not have the type of really goals that we really need to see, but i do want to commend him for recognizing that we need a fiscal commission. it's sad, but we had seven profiles indicating in congress when seven sponsors of the conrad gregg bill didn't vote for it when it came up for a vote in conjunction with raising the debt see the limit. so john f. kennedy's book, profiles in courage would even be thinner today than it was back then. but the simple fact is having a presidential commission is better than having none.

but there are key factors. the scope, everything has to be on the table. secondly, the role, it must educate and engage american citizens beyond the beltway on the truth, the tough choices, the prudence of acting sooner rather than later, and the potential consequences for our country and our families if we do not. thirdly, it must set goals, and the goals of just 2015, deficit to gdp, in my opinion is not enough. we also need a debt to gdp ratio for the longer-term, which is what the commission recommended. and i think we also need to make meaningful progress on reducing the tens of trillions of dollars of unfunded off-balance-sheet obligations. so a triple gold for any type of fiscal commission. for membership, you need to have cable, credible and committed people who are not only capable

and credible in washington, but in the real world outside of washington's beltway. because right now, that's a real problem. and thirdly, i mean with regard to committed, they have to be committed to come up with nonpartisan solutions that can achieve bipartisan support. and they have to be willing to spend the amount of time that will be necessary to accomplish all these objectives. obviously, the end result, recommendations that should be acted on by the congress. timing, this year is the year to engage the american people with the facts, the truth and the tough choices. and as well as other interest groups. and ultimately set the table for a tough vote either in 2011 or, you know, late this year, although i think there is clear controversy having a lame duck congress address an issue as difficult as this. in summary, we are a great nation.

arguably the greatest in the history of mankind. you know, the grease was the cradle of democracy. greece was a great, great civilization. greece was once great, too. and we need to learn from history. not just greece which is in the news today, but think about the roman empire. it fell for a number of reasons. decline of moral values and political stability at home. over confident and overextended militarily around the world. and fiscal irresponsibility by the central government. if those sound familiar, it's time to wake up and start putting processes in places to make tough choices before we passed a tipping point. we must learn the lessons from history, and act before a crisis is at our doorstep. and to begin, i look forward to

what president obama has to say about this commission, and i'm hopeful that political parties won't play politics with it. and i think if they do, they just might be punished at the polls. because in my view, what happened in massachusetts was not a victory for republicans. it was a rise of independence. it was discussed with the status quo. it was a desire for real action, and it was a calling for washington to become more connected with america. i know we can, i know we must, i hope that we will make tough choices sooner rather than later. and if we do, our future can be better than our past. and if we do, the american dream will stay alive. and to me, that's the only option that we should be pursuing. thank you very not. [applause]

. . do you think congress should go back and try to pass one again that would have more teeth? >> well, first i have great respect for all the panelists that were here before. but, frankly, i've been to 46 states doing town hall meetings. and so i think i'm a little bit closer to where the american people are.

secondly, we have commissioned, meaning the foundation, a number of statistically valid public opinions, surveys with peter heart and public opinion strategies. the results that i gave of the 80-66 percentile responses were as of the end of november. and if anything i would bet money they had gone up since then. now, what the american people aren't as much together on is how do you solve the problem? they know we have a problem. they know it needs to be solved. they understand it's prudent to do it sooner rather than later but exactly how you do it. you know, how you reform social security. how you reform the healthcare system. what do we need to do on the tax side, et cetera. that's where this commission has a very important role to play in start talking about solutions. and, quite frankly, that's what my book "come back america" talks about. it talks about solutions. policy, operational and political reforms. and we need all three in order

to help put us in the right stead going forward. >> we have one more. >> on the commission. >> on the commission i think a statutory committee is clearly preferable. it's preferable so that you get buy-in from the congress and the president up front. it's also preferable from the standpoint that's the only way you can have a guaranteed vote. so i strongly favor a statutory commission. but in the absence of being able to get a statutory commission, a presidential one will do. doing nothing is not an option. at least it's not a prudent option. >> last question. >> i'm from the university of central florida. between 1970 and 2000, improvements in healthcare were estimated to be worth about $95 trillion to the u.s. economy. and over that same period of time the national institutes of health received $200 billion in funding. so you could look at in terms of return on investment. and i was curious to get your

thoughts about an investment-oriented budget and investing in those things that we might believe would lead to longer term savings downstream like medical research, like education, et cetera. >> i believe that first we need to do a fiscal future commission to pass -- to avoid passing a tipping point which would be a loss of confidence by our foreign lenders and our ability to put our federal financial house in order. we need to make a down payment on that. so i think we have to do that first. the next thing that i advocate in the book is a rebaselining of the federal government. most of the federal government is based upon conditions that existed decades ago. that may or may not exist today. priorities that were determined decades ago. we need to relook at our spending programs and our tax policies to make sure that they are future-focused and to make sure that they are results-oriented.

if you do that, you will find that you will end up eliminating a number of things, consolidating a number of things, cutting back on a number of things. and free up resources to better be able to target the things it can help grow the pie, help improve our competitive posture. but we can't layer on top. that's what government has done for too long. they've assumed that the base is okay. and they added on new spending programs, new guarantee programs, new tax preferences on top. when, in fact, the base was unsustainable. so we've got to look for those opportunities but to afford them and fund them and sustain them, we have to engage in the fundamental restructuring. thank you very much. [applause] >> thank you very much. what i'd like to ask the next panel to come up as we switch over. a quick housekeeping note while the new panelists are coming up.

we have an overflow room, as you probably noticed, and we have brilliant budget economists, journalists, and luminaries who are standing. so if you have a coat or a bag on a chair, would you mind removing it so we can make sure everybody gets a seat, please. okay. i'm really interested to see where this panel is going to go because i think this is one of the most fascinating topics of all this. the economic, the financial, and the global component of this fiscal path that we are. and we have an all-star panel to discuss the issues. first, right here on my left we're joined by dr. martin bailey. he's a senior fellow at the brookings institution. and he is the chairman of the council of economic advisors during the clinton administration. richard berner is the managing director and cohead of global economics and chief u.s. economist at morgan stanley. he's written widely on the

potential effects of fiscal issues and situations that could affect the financial market -- the fiscal situations, how they could affect the financial markets. carlo cottarelli, and i direct the papers that the imf is putting out on this topic. many years ago i switched fields because i discovered cbo payables and how fascinating they were and that got me fascinated on the budget. recently the same thing i found is happening with the papers coming out of the imf and carlo's name is regularly on them so i really direct you to the work that they are doing. i have given them first wide range of topics to discuss. i think one of the fascinating things is so often we're on a unsustainable path and we risk a fiscal crisis but very little is understood about what that means, what it looks like and how that might play out, what could be a tipping point for our financial markets. i don't think our panelists could answer those questions but i hope they would address them. as we're moving on in the policy

field, the time where we need to start talking about specifics, we're moving on in the economic and financial field at the time we need to be learning quickly from what's going on around the world and have a finer sense of how markets are watching and responding to the situation. so please, dr. baily if we could start with you. >> and i assume we do this in 5 minutes each? >> there you go. >> or less. the title of this session, if you read it one way is what are markets thinking, lessons from overseas and that sort of sounds like a book that might come out of the brookings institution or aei. you could read that title a little differently. you could sort of say what a muck it's thinking. it's kind of an odd situation we're in because 10-year treasuries the last time i checked were yielding about 3.6%, which is pretty darn low. and suggests -- and indeed as a result of the greek crisis, although that may be dissipating

now, both the dollar went up and treasury interest rates went down as there was a flight to safety. now, when you listen to the panelists and to david walker, it's very funny to think that the -- that u.s. treasuries are a flight to safety place that you would go. since we're looking at these enormous deficits, we have a relatively broken political framework. so it's an odd paradox that interest rates are so low. why is it? and what does it indicate about this tipping point that we've heard so much about? i think it's probably because however bad the situation looks in the u.s., it probably looks better in some respects than many of the overseas economies. china, of course, is a different story but china is not a place

where you would necessarily go to buy their debt. they're a capital market that's more restricted. so i think markets are expecting a recovery in the u.s. an economic recovery that's probably going to be stronger than in europe. i think there also may be greater room to resolve the problem in the u.s. we start with lower tax rates than europe has. we could have the potential to institute a value-added tax or a gas tax or something like that. so i think markets, global markets, are reflecting that they're a little bit more optimistic than the message you would have gotten from the speakers this morning. now, does that mean there isn't a tipping point and the speakers were wrong? no, i think they were right. i think there is a tipping point. i don't know where it is. i know that treasury and tim geithner are very concerned about it. i don't think they know where it is. either. whether it comes with debt to g.d.p. or a deficit level. or the fact that the u.s. is so

big, which cuts in two doctors. -- two directions. when we have a deficit or we're financing our deficit overseas, we're talking about huge amounts of money. 85% of the available capital in the global market in the years prior to in this financial crisis came to the united states. we are really sucking up the global supply of savings that comes into the global capital market. so i think this tipping point is there. it would show up as higher interest rates and potentially as a lower dollar. and the dollar had declined somewhat before the greek crisis. now, part of the mandate for this session is lessons from overseas. i think one lesson from the european crisis that i hope we learns and congress learns is that the tipping point really is out there. that if you go too far and

greece clearly went too far, then the value of your debt starts to depreciate. and as various people have said, somebody out there may bail out greece although i don't think greece will have such an easy time with this situation. but i hope congress learns the lesson from what's happening in europe to say that let's not push the envelope on this one. now, various of my colleagues have said to me, you know, congress is not going to get serious about the deficit until they actually see interest rates rise. so i think if that's true, what we've got to hope is that interest rates rise slowly, though we don't hit a tipping point and drop off the edge and congress does indeed react to rising interest rates or declining dollar by reining in the fiscal deficit.

there was comments earlier that we're in the hands of our creditors. and there's obviously some truth in that. however, they are in our hands, too. i mean, you know the old axiom if you borrow a dollar from the bank they own you. if you borrow a million dollars, you own them. and i think there is some truth in that with respect to china. if they start unloading debt or not taking on more of our debt, then it will affect their own exchange rate and their own ability to export. and they're probably more scared of that than they are of default on u.s. treasuries. so they'll complain a lot about u.s. treasuries but i suspect they will continue to hold and keep buying those in the future. and i think that's another reason markets are sustaining reasonably low interest rates in the u.s. there's nobody really, the europeans, the japanese, the chinese, others in asia, nobody really wants to see a collapse of the dollar. and a lack of access to the u.s.

market, which is -- which is still so important. to the global economy. quickly, i'm going to slowly -- there was a question about can we grow our way out of the problem? and in the earlier panel john podesta mentioned a number of things that had been done that gave rise to the budget deficits when he and i were in the clinton administration. and he's absolutely right. there were some very hard choices that were made around policy. but we were also helped very substantially by the rapid growth of the economy. that we had an increase in the rate of productivity growth. we had very strong employment. now, some of those things may have been helped by the policies that were followed. but we were also somewhat lucky in getting that rate of growth. are we going to have that in the future? is that going to bail us out? well, maybe. it certainly is not in most forecasts. i made a prediction that labor

productivity in nonforeign business would grow at 2.2% a year. and i was talking to a reporter from the economist and he said, wow, that's a high number. well, we had 2.5 in the 1990s when we balanced the budget. so 2.2 is not a particularly rapid rate. we also know that -- you know, hopefully employment will increase in the recovery as we get back to full employment. but the rate of growth in the labor force is not going to be all that strong because of the demographics that is affecting the entitlement programs but is also going to affect the rate of growth of the labor force. i think there are some things that can be done to increase the rate of potential growth. around technology, education, and those things have been mentioned. about encouraging entrepreneurship and having more gazelles in our economy. companies that start small and grow rapidly and employ a lot of people. but those are tough policies to do. and it's tough to get a big bump out of them.

so while i certainly hope for that kind of rapid growth, i don't think we can count on it. and my last quick comment is going to go back to some of the earlier points about the nature of the debate. and i want to say that i think we do not have an effective debate either about the budget or about medicare and medicaid, which is such crucial components of medicare. and i want to mention a couple of things. a u.s. senator was holding town hall meetings around the time of the healthcare debate and the healthcare option. and he was being yelled at by everybody in the room. some were tea party folks. some were on the left and they were all yelling at him. and at one point he said, now you guys do know that medicare is a public option. it's a government program. whereupon half the people in the room started calling him a liar. and saying no, it's not. and so i don't think, you know -- i have great faith in the american people and all that stuff.

but i don't think -- [laughter] >> i don't think we have at the moment a very well-informed debate. i would also mention paul krugman and he wrote an argue in the "new york times" last week that said, you know, this roadmap for the future is really a trojan horse to dismantle medicare. well, maybe. but i don't think you can get re-elected in the united states if you're going to dismantle medicare. i actually don't think that's right. i think it's actually worth thinking about, whether we want to create a budget. for medicare. and, you know, what -- what form would that take if we actually put some limits on the spending for medicare? and what would that mean? and then, you know, you would have sarah palin and other of my favorites in the public debate. and she says no death panels. okay. no death panels so we're going to spend half a million dollars

somebody who's 90 years old alive and where he's going. okay. maybe that's right. maybe that's the moral thing to do. but on the other hand that means we need to raise medicare taxes from 2.9 to 3.9 to 4.9 to 5.9 or whatever it's going to be in order to balance medicare. so i don't think anybody is creating the right debate around healthcare and other budget items. and until we get the right debate, i don't think anybody is going to vote for the politicians that are going to make the decisions that need to be made. and so that as the earlier panelists said is a big part of the solution. thank you. >> great point. it's really interesting. thank you. >> thanks, maya. so my homework was to try to assist what markets are thinking. and i thought i'd start by asking the question, what do markets want? and i think like everybody in this room, market participants both at home and abroad would like to see a credible plan to

get back to fiscal sustainability. by definition credible means a lot of the things that bob talked about including one that does not kill the economy. so what are the thoughts of investors at this stage of the game and to answer martin's question. why haven't we seen some of the concerns about the budget showing up in various asset prices and interest rates? well, i think investors are in between some of the tail risks that are out there for the budget. they risk the tail risking but they don't think they are clear and present dangers. they think we have a little time to do something about our budget. not as much before but it's not a clear and present danger that requires immediates on austerity like some some other parts of the world. they are alarmed by the prospects of looking at deficits as far as the eye can see. a phrase we heard some 20 years

ago or more in earlier budget debates. they do know that there is no credible plan yet to really grapple with the budget problem. and so what do they fear and how are they likely to make that play out in financial markets in the future? to answer that question, i think i'd talk about four fears that investors have that line up with some of the components to interest rates that we observe in financial markets. four components are inflation. the factors that drive real interest rates. and two kinds of risk. currency risk and just the risk associated with the uncertainty that is bad news for financial markets. in a nutshell i think there are a lot of investors out there who believe today and in the future ultimately sovereign credit risk, whether it shows up in greece or the united states, will be inflation risk. the temptation to erode the value of the deficit. and the debt.

and the legacy problems that we've inherited is obviously strong in some abstract sense. and there are some economists who have proposed that we actually raise the inflation target temporarily in order to facilitate that process. unfortunately i think in the united states at least we have three problems with doing that. first, if we were to announce a higher inflation target, that would show up immediately in nominal interest rates and would be counterproductive. second, if i'm not incorrect, if i look at the budget that we have in the united states, and the outlay side, roughly half of our outlays are either officially or unofficially linked to inflation. and you could argue that medicare, although not officially linked to inflation with excess cost growth would respond to inflation overall with even more of the same.

and third the federal reserve, it seems to me, would still -- and i say still because many perceive that the fed is up against the wall politically would still respond appropriately and strongly. and i know we're going to hear from our lunch time speaker on that score. the second risk i think relates to the factors that drive real interest rates. obviously, as everybody here has indicated, from david walker to martin baily that real interest rates are comparatively low compared to other markets in the world. and while we have massive treasury borrowing needs, the economy cyclically is in a point where private credit demands are very weak. as the economy recovers and private credit demand recovers as well, with a lag, it seems to me that there is a very real risk that real interest rates could rise very significantly.

and that's a factor that i think is not right in the price today but it seems to me that it's going to be there in the future. ironically with a recovering economy. the third risk is one that others have talked about, namely currency risk. there is diversification going on away from our debt. global investors and sovereign wealth funds and reserve portfolio managers don't need to sell treasuries in order for that that to happen. they simply need to buy less of them. and all the investors around the world whom i've talked to are contemplating buying fewer treasuries. maybe they won't buy fewer dollars but if they buy dollar-denominated investments they're likely to buy strategic investments or they're likely to buy other things besides treasuries. and i think that's certainly a risk out there. the last risk is one that we typically talk about as a risk

premium or a term premium in bond markets. and that arises from pure uncertainty in markets. typically we think in markets we know how to quantify risk. but we don't know how to quantify uncertainty. and the biggest risk right now, it seems to me, is a political risk. the political risk is something we can't quantify but in financial markets people have typically talked about gridlock being good for financial markets because it keeps politicians off the streets. it keeps them from interfering with markets. and so that's generally perceived in the past to have been good. right now i don't think that's the case any longer. i think that we've got problems that demand political choices and political solutions. gridlock is now -- it's now dawning on investors that it's bad for financial markets and i think you're going to start to see that play out in our markets as it is in others as well.

i'll leave it there and will take questions. >> thank you very much. i was asked to give a bit of an international perspective. and i would say a few things about some basic facts, the risks and the possible solutions. basic facts, the fiscal problem that the united states is facing is common to most advanced countries, not all but most other advanced countries. the emerging markets are in a better situation. not in america, asia, they're in a much better situation but much weaker in europe. but this is a problem mostly affecting the advanced countries. we project that between 2007 and 2014, the public debt to gdp ratio in advanced countries in the g20 advanced countries will

increase by 40 percentage points from about 80 to 120% of gdp. second point, a small part of the 40 percentage point increase, only six percentage points is related to discretionary actions taken by governments in support of the economy, the so-called fiscal stimulus and of support of the banking sector. most of it comes from revenue losses related to the recession, lower payments from consumers, for households, lower payments for enterprises, lower payments from banks. it comes from an underlying increase in spending in some countries like security spending in the united states and health spending in japan. and it also counts for the increased burden of interest payments.

third point, even if we assume that the fiscal stimulus -- the discretionary fiscal stimulus is not renewed over the next couple of years, and even if you assume some other reduction in temporary spending, the united states as well as the advanced countries will still be running a structural primary deficit in 2014. what does it mean? structure means the netting out of cyclical factors when the economy is back to where it should be. even at that point, the advanced country will still be running a primary deficit. a deficit net of interest payments. so revenues, net of other spending will not be enough to pay for interest payments of the debt. this in 2014 at the time as i said the gap will be closed --

we don't expect to see -- we see unemployment going back to normal. it can happen before but by 2014, it should be the case. at the time also when the demographic shock with most advanced countries in full swing and at the time when the public debt would have risen to a level that has not been seen since essentially the aftermath of the second world war. even now if you take the g7-advanced countries in 2010, the level of public debt is back to where it was in 1950. in the aftermath of the second world war. these are the facts. what are the risks? there are short-term risk of the kind -- of the kinds of development that you see in europe, a sort of loss of confidence in public finances. but there is another medium-term risk namely that -- well,

everybody agrees that public debt can't increase forever. the increase is if governments could decide to stabilize public debt in relation to gdp at the post-crisis level. which would be about 110, 120% of gdp depending on the countries. what would be the consequences of leaving with a public debt of gdp ratio of this level? there will be consequences for interest rates. we estimate that as a result -- it would involve an increase of public debt of about 175, 180, 200 business points. two percentage points of gdp roughly speaking. there may be consequences for growth. our most recent diplomatic work will show that leaving a public debt of gdp ratio about 40 percentage points higher would

reduce -- could reduce potential growth by about three fourth of gdp. so every year as long as you keep public debt at this level, growth would be lowered by about 0.7, 0.8 of gdp so these are important facts -- important things to keep in mind. what are the solutions? i don't think inflation is a solution. as was just mentioned some economists they've argued that inflation should be brought up to say 6 percentage points for five years. we have computed what would be a affect public debt of inflation to 6% for five years. and, yes, there will be a lower public debt to gdp ratio but the erosion coming from inflation of public debt will be only about 7, 8 percentage points of gdp

for the advanced countries against a trend increase of 40 percentage point of gdp so less than one-fourth could be eroded by inflation unless you want to bring inflation of very high level all of a sudden which nobody really wants. growth must be part of the solution. growth has huge effects on the fiscal accounts. for a country like the gdp ratio of 40 percentage points of gdp like europe, a 1 percentage point increase in growth, if you save the additional revenues that you receive as a result of growth would lower public debt by 30 percentage points after 10 years. ...

>> so what i'm afraid is needed is a tougher procedure on spending. first the adjustment is large. they needed adjustment is large. as i said, if the debt-to-gdp ratio is projected to go up by 40% this point, if you want to bring it back to 60%, in the next two decades, the primary structure about us of advanced has to improve by about eight

percentage points of gdp. it's a very large number. 8% points. it's very large. but it is not unprecedented. in the last two decades, we have seen 12 countries who manage to adjust their primary balanced structure primary balanced by eight percentage points or more. and 22 emerging market countries that managed to do so. it's not impossible. it will be very hard but not impossible. what makes it harder is that we had to sort swim against the tide because not only we have to swim far, reduce the deficit by quite a lot, but they will also have to do this when there is a trending increase in spending for health in patients related to the aging of the population. we compute that for the advanced countries, the trend increase in health spending, healthcare spending and patient spending over the next 20 years is about

four to five percentage points of gdp. we figure a bit higher in the u.s., but also very high in europe. these are the forms are critical in desire, but they will not be enough. because of the age of the population, what can be expected is to keep spending in relation to gdp. that means that what i was referring to before, we have to come from other sources. the last point i want to make is that this will be a lengthy process. one cannot expect to bring back the debt-to-gdp ratio to what was it just a matter of two, three, or even forgers. it will take time. and because it's going to take time, it is critical to maintain the course of fiscal policy for a long time. and this may require in some countries, maybe most advanced

countries, reforms in fiscal institutions. germany, for example, has really silly and his -- has introduced in the next for five years net of the effect of all of the recession. unless there is a recession the ballot should be the fiscal account should be balanced. i'm not saying this isn't the only solution, but i believe most of the countries to the strength of their institutions, the fact that united states there is a need for strategy for a better strategy for medium-term plans. and i think this is true for the united states and this is true for all, most of its countries. thank you. >> thank you very much. you bring up a such an important point about where we end up stabilizing the debt because i feel like in the first panel and and of the discussions that have been going on there really has been a consensus about the need

for the fiscal goal, and that fiscal goal should be stabilizing the debt at a reasonable level, over and reasonable amount of time. i do think it will be pushed back at some point. when people start going through this exercise of what it takes to maybe up that level where we start to stabilize the debt. one of the big risks there is as useful economic growth and also you have a real loss of fiscal flexibility, the kind of advantage that we and other countries had going into this crisis that we had relatively low levels at debt and were able to ramp it up to respond. if you don't break it down to pre-crisis levels you don't have that flexibility going forward. one question i have for the panel, i think when we talk about monetary policy or regularly when the talk but monetary policy, you talk about exit strategy. i think that's critical for fiscal policy. in the peterson-pew commission we did talk about weighing the trade-offs between implementing fiscal consolidation too early, but there's another component which is the global factor. you have countries around the

world who are facing the same situation would have fiscal stimulus and will need to pull out of the same as at some point. to what extent does that need to be coordinating and to exit our countries working on coordinating that? >> the fact that many countries have to implement fiscal adjustment at the same time over the next year complicates things obviously, from the demand, from the world demand management perspective. i think that the main coordinating that is needed to release a correlation between monetary policy and fiscal policy. as i would expect the fiscal adjustment takes place, we will see increases -- we'll see the less of a need for racing over the next two years because essentially interstate could be kept a bit lower in fiscal

policy withdraw, withdraw stimulus. so as to be able to crowd in the private sector as the private sector crowds out. is going to be more difficult to have coordination of fiscal policy and terms of the main fiscal arguments across countries. because this country will withdraw based on its own domestic needs. and not all countries have the same needs at the moment. some countries the recovery will come other than in other country. the fiscal promise also not the same across country. where i think more coordination would be possible would be some structures, for example. that policy is something i think will be harder because of tax competition.

for countries to take tax measures in a global economy without discussing it with other country. so that i think is where more corporations will be needed in the future. >> the comment i would make on that is in the period leading up to the crisis, we had these very large global imbalance is with the u.s. huge and growing trade and current account deficit, and the rest of the world, notably china, but some other countries having very large and i think it is widely thought those global imbalances was one of the tributary factors to the crisis. i don't think he was the only one, but it sort it was an issue. as we get back to dealing with the budget deficit problem, i think there is a sense in which the rest of the world has a responsibility to make sure that we don't get into a global recession. the u.s. needs to have a forward growth path which is more export

oriented, less consumption oriented. we have sort of done that in this recession because the assumption has dropped so much. we need to go forward on a more sustainable balance growth path relying less on foreign borrowing. but the other side of that coin is that the adjustment of the rest of the world has to be to maybe import a little more, or sustained demand, there to mechanistically to make up for the short for what the u.s. was providing to the world economy. so that's i think the key coordination that's needed. >> i would just add a worry in the hope. the worry is that in this environment, one of the policies that might be perceived on a local basis to be helpful is protectionism. and clearly, that's not going to be helpful at all, but to protect local jobs and all jobs as opposed to creating new ones i think that's a risk in this

environment. a hope is, as we see, you know, other countries as carlo mentioned who are outperforming because of structural changes and transformations they are making their economies, some of which you can attribute to changes in fiscal policy. and i point out in some latin american countries, notably brazil, and in others, those have borne fruit. that the outperformance their overtime will contribute to an example so that others can follow. along with that, and you know, that those lessons are lessons that we can learn in the developed world. >> we have time for a few questions. yes, right there. >> thank you, maya. you guys, the commission always puts together a pretty good, a

very good panel, informed. i am with america's for generational equity. i just have a question onto topics, inflation and the savings rate. if you could comment on these two. inflation in the context of, how would you say the market is interpreting, i mean, i mean, i reluctantly agree with the imf in saying that inflation is not the preferred way of going, but would you say the markets interpretation is the only way that we are kind of, you do, kind of going out of this debt problem is to inflate our way out of this? good example is tips, the popularity of treasury inflation protected securities sales, it seems like the markets kind of like, aging on the side that we might let inflation kind of inflate our way out of it. and then secondly, the savings rate. just even we talked to a demographic shift, entitlement programs. we even talked about how people

under the age of 35 are not expecting that much by the time, so shouldn't it be a rise in the savings rates? in that regard, and i would also kind of put in the context of -- >> can you wind up the? >> greece saving rate was below and we look like japan, there debt to gdp ratio is high but if other savings rate is much higher than the u.s. so doesn't that have a lot to do also without balto our debt to gdp ratio would determine the fluctuations in the market? >> maya slipped out. she is bored with this discussion, but she made some other excuse. but anyway, dick, do you want to respond on that, inflation? >> sure. you know, you don't see, you just see a rise in break evens and the financial markets. but i think that the real key to

thinking about how investors are positioning themselves for inflation is to look at things that are not so evident in the tips market. people are buying options on inflation. they are in the minority right now. they are possible powerful forces. there. and therefore being disinflationary. and there's a lot of truth to that. the questions what is the policy response? in the policy responsibly is if you're going to bed at much higher inflation, then you are betting on taking away the power of the central banks to be and to keep inflation and price stability as it has been, a primary goal for central banks in the past that and some people are starting to bet on that, but we don't yet see it in markets. on a saving rate, you know, i think what martin said earlier is really important. namely, what we have benefited from, saving from abroad, no

question. and we're boosting our domestic saving which helps to be balanced the u.s. and global economies. but the problem is the fiscal problems we face are so massive, that no amount of increase in private saving is likely to help finance that deficit. on the contrary, it seems to me that if we were to save a lot of we would run into the paradox of thrift, in which that jeopardize our economy. and second, if anything i think as we start to see our economy come back and credit demand start to come back, we will start to see the effects of the clash between public and private borrowing show up in our financial markets with higher rates. >> one of the things that i worked on with the mckinsey global institute wasn't look at different adjustment pots, and we were struck by how short term the u.s. treasury market is at this point. it's rarely predominately under

two years maturity, so inflating your way out of the debt problem is not, i think, a great solution for treasuries. now and would probably change in the morgan market and some of the private debt if you had an abrupt rates and inflation. but i think to get out of the government debt is not very strong. i will see back to you the chairmanship. so go ahead. >> one minute break. yes, question? >> i have to question. the chief economist produced a report last week's adjusting that central bank should raise their inflation target from right to present to the four to 6% rate. is this now the official policy of the imf and dorsey higher inflation the solutions are fiscal problems? credit demand a both a household private sector is declining. we've had a big reduction of bank loans in the last six

months and so on. let's look at 22012. is so there's no progress on this fiscal problem we're talking about here today and we're still looking of budget deficits, 1.21.3 trillion. how high could bond yields go in the election year, 2012, if we don't make any progress of the budget deficits? 6%, 7%? something that might then frighten congress into taking action? >> okay. thank you. maybe i should ask my friends, next time with me. the views that he has expressed are personal views. they have been issued as part of the publication that contain in his paper, top position, presents use of individual, not view of the imf. but i would like to say that he was looking at this from a specific point of view, namely how to manage aggregate demand in case of a recession. when interstates cannot be

become negative. so from that he was just lucky from his specific perspective. from a broad perspective, the issue that i was referring to was the fact that inflation, not all is not the right thing to do, but it's not really very effective. in reducing public debt. as i said, unless you want to push inflation very high levels in a very short time which don't want to do because it would be very costly to bring it down. it would harm the poor that nobody is really thinking about that, that sort of thing. on the question of the bond yield. i have already expressed my views on this. i believe keeping interest rate, keeping public debt at a high level would have consequences for whatever applications for interstate government is paying. the basic number that we have is

that one percentage point of additional debt, implies increase in interest rate of 5.6 or four percentage point increase in public debt would involve about 200 business points increase in interest rates. all of the condition being the same. than if the private sector start saving more as mentioned, obviously the effect could be lower. but in itself, public that 40 percentage points of gdp would involve and argue something like 200 business points. of higher, higher interest rates. >> david, i agree with carlos econometrics. and i'm a card carrying member of maya's club which have a part of the critical issue here is to come up with a truly incredible plan to do something about our fiscal problem.

lacking that, however, i am skeptical that we will in the short run. lacking that, i think when private credit demand comeback i think we can see 10 year treasury just go to 5.5 percent in short order. and that's our view. and i think that doesn't necessarily mean it will kill the economy, but it means higher interest rates will make it difficult to reduce the deficit because they'll push up the deficit, and in a get ever more quickly. >> just in case people don't know our people on c-span audience don't know, the announcement of the something we copied, great at the other club, we now have a long list of impressive budget people who support the notion that you need to credibly commit to a budget plan now, it didn't phase it in vasodilator, thereby binding sometime in economic space to let the recovery take hold. so i'm so glad that we have

wonderful members like a decorative. we're time for one more question and we will move onto the next panel. >> i'm a writer on economic issues for the state department's public diplomacy bureau. and the obama administration has proposed taking the proceeds of recovered funds from t.a.r.p. and funneling it into the recovery act for further standards. how do you think the markets would react to this policy? primarily, you, mr. berner and the others if you would respond. thank you. >> the administration had, if you will, you know, announced and put in place in its budget for last year, that was very large for future t.a.r.p. spending which didn't occur. since this penny didn't occur, taking that allocation and

moving it to new spending, which might occur, i think markets are see through and look at that as a net increase in public spending. juno, a political judgment near-term as to whether that is dated for stimulus i think is one thing, but nonetheless, i think markets will correctly look at that as increased spending. and at this stage of the game, i stick to what i said before, namely, if we are now in a process of working towards bad gridlock, and there is no vehicle plan to reduce that, my expectation is that's going to show up in financial markets that much more quickly. >> i want to comment about how the market, how the markets will react because the position to answer that. but the porno want to make is the difficulty of the current situation the u.s. and other countries are facing is there is still the economy is still very weak. it is clearly still very weak, and that's why the imf says for

2010, it will be necessary to continue to support economic activity through fiscal policy. on the other hand, nobody wants to have loss of confidence in the fiscal account. so what is necessary to reconcile this too needs? and maybe need to implement an important fiscal reforms that do not have any immediate negative impact on aggregate demand. but they have long lasting effects on the fiscal accounts. and entitlement reform, and increase for example in the retirement danger, in europe, it has been computed in one year -- into your entries in the retirement age in europe, could save as much as 40 percentage point of gdp net present value of the public debt. reforms of this kind can be implemented now, even in a recession, and do not have

negative impacts on aggregate amount. this is the kind of measures that are needed at the other kind of measures that can be implemented now are the institutional reforms to strengthen, strengthened financial institution. things that have medium-term but did not have a negative on regular demand now. >> let me just add one more thing, which hasn't been brought up on this panel, and only limited on the. and that is our fiscal federalism. you know, if one started to become why that we have a huge state and local budget problem. i'm not sure most people are aware that we could have a whole inches in state and local pensions alone that could be as high as two or more trillion dollars. that is on present while you basis. that funding gap, and leslie break promises to future retirees, is something we'll have to deal with data by breaking those promises or raising the revenues is somehow to pay for them.

but it's even worse than that and it speaks to carlos call for fiscal reform. and that is when you think about fiscal reform we think about the structure fiscal federalism when it comes to medicaid, which is essentially a put by the states back to the federal government and to the taxpayer at large. so that medicaid is a program that is shared by both state and local, state and federal governments. but when we get into a financial crisis like the one we had, or even a recession, medicaid eligibility goes up dramatically and the means to pay for at the state level goes down dramatically. so when you think about that from a cyclical perspective, and they need to fill the hole, and the burden of places on the federal budget which can be long lasting, that's one aspect of it. but the other aspect of it is that these promises that were made at the state and local level, not just for pensions, but also for healthcare, are

likely, in a poor fiscal environment for the states, likely to come back to the federal level. and we are seeing the dynamic, the political dynamic of that playing out in the southern debt crisis in europe. and it's likely that we're going to see the same dynamic played out in the united states that the solution, of course, is to reform our fiscal institutions, and that includes fiscal federalism. >> yeah, i think that's an important note to end on that one of the problems we have in dealing with these huge challenges is how compartmentalized our policymaking is. and that is true in both policy areas. and i remember dick, many with you years ago when you warned me, that it will explode. and fortunately it seems like the timing of this, and potions will all take place at once. so thank you so much for the really constructive and informative panel. and i hope and i'm sure we will

all hear -- i will turn to politics. >> economic growth will help. >> there is the free lunch, economic growth. and that we will turn to the really, really depressing topic of politics where it all breaks down. so thank you all so much. [applause] >> okay i'm going to do quick introductions of our panelists when they come, as they. if you can all join us. and again, longer bios of all our panelists at today's comes can be found on the website, crfb.org. you can learn more about the announcement club there. i think we have many members of the announcement club for joining us today so for our palooka panel, first i'm not sure what order they're going in, but jim colby is a former member of the house of representatives, he is truly a senior fellow at the german marshall fund and important his a member of the peterson-pew

commission on budget reform and a member of the committee for a responsible federal budget. client growth is an editor at the monthly, the commentary for the financial times. norm ornstein columnist for "roll call," well-known observer of the clinical seen. jamal simmons is a principle of the raven group, jamal? reagan grew. and he has a vast expanse as both a commentator, political consultant and a pundit and i just have to take that as a good friend of mine, jamal a summary we went to graduate school together, and every time i raised my hand to make a, jamal raised his hand before he had heard what i was going to say to disagree. [laughter] >> so i'm going to abuse my position as moderator today to disagree with jamal. so what i've asked our panel is to do is to comment on the political environment, and if

they have any constructive ideas as to how to improve it that will be welcome. i think that maybe above just about everybody's a great right now but perhaps will come up with some interesting ideas. so we will start with you. >> i have just a few brief comments on this. i want to respond to things that have been set in the earlier panel. something more of a political context that the way i think about the politics of the issue is really boils down to this, is the country scared enough yet to do something about this problem? and the answer is no. plainly, no. and let me give you some indications, some sites i think that is the case. and some test of how complacent the country still is about the problem. there's still a big, wide strand of influential opinion out there. maybe not initiative, but out there that says we shouldn't be worrying about the deficit. we shouldn't be worrying so much about the data. the first order of business is to stimulate the economy, again,

and mitigate the present recession. we will deal with the debt problem later. i mean, there is something to be said for that view, but it is a sign that we are just concerned about the long-term picture. we aren't concerned enough about it. in my view, there is a linkage between short-term stimulus and long-term consolidation, both in the politics and the economics. it seems to me that a credible commitment to long-term fiscal consolidation, long-term fiscal prudence would actually assist on the short-term stimulus front. but this connection has not been made in the debate that is going on out there. i see that point made hardly ever. the point is far more, do we need more stimulus? if we do, then what long-term debt concerns to one side.

i think that is a sign that we aren't taking the problem seriously enough. i want to respond to something bob reischauer said with all due respect, i mean, i admired robert reischauer's work for years. but i was very struck by his answer to the question from the floor, how do you grade the obama budget. b, d? he went through i thought an excellent analysis of what we need to do to solve this problem. . .

>> if we were scared, if we thought that really strong action were needed now, nobody could be saying the budget obama just introduced by a b minus. we're talking about deficits, especially in d.c. and all credit to the peterson foundation for pushing this subject in front of people. but we with aren't talking about how to solve it. there's very little conversation, it seems to me in the country, serious conversation, about spending cuts or tax increases.

and in in effect is deference because that is where the public is. the public is concerned about public debt, but not concerned enough to contemplate serious entitlement reform. not concerned about to talk about tax increases. look at the failure, recently, a couple of people have mentioned this. to establish a statutory fiscal commission, it seems to me in circumstances, almost a minimal step. politics trump that initiative. they cosponsor the legislation, voted against it on the basis of what i take to be a wise political calculation. there aren't votes in it yet. the bottom line, maybe this is the best litmas test of all,

anyone calling for the president to break his promises on taxes. i don't hear a voice, maybe there are a couple of. but who is demanding that -- the circumstances have changed and obama should no longer try to keep his promise not to raise taxes except on the rich. that view simply isn't be expressed. i think the, you know, the conventional wisdom and political circumstances in washington for obama to adopt that position that we need to rethink that. it would be political suicide. well, if it would be political suicide, that's just another way of saying we aren't scared enough yet. just a couple of other very quick points, can we solve the problem, can we get to a solution without really fundamental reforms? instinctively, i'm inclined to say, yes, you know, these problems can be solved without

big bang solutions. and that's certainly what happened 90% of the time. one would look at the numbers and take seriously the number of the cbo and the work that the peterson foundation just published, you have to wonder whether this time that's going to work. the gap is so big and the prospect for growth are so poor or disappointing compared to what we saw in the '90s, that it's hard to believe that we can do this without fundamental measures. there are room for possess miss there. we do need comprehensive entitlement reform, married to comprehensive tax reform, otherwise we are going to solve this problem before it hits us in the face. and i don't see the conversation of those two things even beginning. one last observation, i mean

despite my carefully cultivated american accent, you've probably -- one or two of you may have guessed i'm a brit. i do look at this situation somewhat from a european perspective. when you look at the long-term budget numbers, it does seem to me that the u.s. is taking a step towards european levels of social provision. i mean, it's hesitant and it isn't explicit. but i think if you look at the permanent increase in discretionary spending and the budget, it sort of points you in that direction. this is where the country in many ways wants to go. there is an appetite for health care reform, this is an appetite for universal health insurance. these are -- you know, there is a mood that says we need to do more, we need to move towards the european muzzle in some of these areas. where is the corresponding

appetite for european levels of taxation. seems to me that is one of the underlying problems that the u.s. faces, that the countries app airtight for public spending is now running ahead of it's appetite for taxes. and i think you have to add that political problem to all of the other problems. all of the other obstacles that we've heard about that militate against tackling the issue. and i want to emphasis just one that increasingly strikes me as important. and that is the way that the u.s. tax system, the income tax system has been other the years, well, since the last big reform in the 1980s. so comprehensive hollowed out. and i think actually a lot of the country's fiscal problems relate to this on health care and on other issues. but one big thing is that the constituency for spending discipline has been seriously

undermined. more than 40% of the country does not pay any income tax. that is a startling, a startling figure. where -- what interest is that 40% of the country have in spending discipline? 40% of the country understands that any new spending initiatives are going to be paid for by other people. this seems to me sort of quasi constitutional issue that is going to be need to be address as part of comprehensive tax reform. and it inclines me to suggest that the u.s. needs to take very seriously the idea of a v.a.t., it's a broadly-based tax of course. if it were high pot indicated -- hypothecated and linked to a program, and i think linking v.a.t. to universal health insurance, then i think you would create a constituency for spending discipline in a way that we don't have at the

moment. again, i just ask you to reflect. i see people shaking their head. if the country is not ready to even think about v.a.t., if that isn't even coming on to the agenda, it seems to me that underlines my initial point, that we aren't scared enough yet to deal with the problem. if i were a betting man, i would say it's going to take an outright fiscal crisis to get the problem addressed. >> okay. thank you. i saw the reischauer raining down, we'll see from him if he wants to pop in later. jim, could we hear what is going on with your former colleagues on the hill? >> well, thank you. if at the end of my career comments hear you scratch your head and say does he think the political will, the answer is i'm agnostic, sometimes there maybe and sometimes not.

i put my summary up front there. at the beginning here before we with started, those gathering around the speakers table, we asked them have you ever seen such a toxic political environment. each person sitting down said no. so there was consensus at least on that among those on the panels here today that we've never really seen a toxic environment quite like this. how has it gotten that way? what can be cone about it? i have a whole lecture that i give on how congress has gotten to the state. i think that charlie's remarks at the session of the today was quite right at saying hat heart of all of this is a problem with the redistricting process. i'm going to leave that aside. i think that's very much at the heart of it. all you have to do is go back to

the 1900s and the things about president and the things that were written in yellow sheets to know there's always been politics and it's never been often not fair or accurate. so it's been there. we have had this in our political system for a long, long time. we've also found through the year that is we found a way to rise above that. whether you are looking at something like, of course, at the beginning of world war ii when the question of whether the united states should enter the war in europe or not was quickly put aside by the attack on pearl harbor. americans have a way in coming together. but even other things that were not as catastrophic as that, the nato plan, the marshal plan, americans have had a way of rising above that on a partisan/bipartisan way to solve some of the problems. civil rights legislation would be another example of that. so why has this disappeared

today? why do we not seem to see this? why do we sit around the table here and say it is the most taxic that we have found. there's a lot of things going on aside from the redistricting process which is at the heart of smaller things. whether you talk about the smaller amount of time, it is not a comment on supreme court rulings, but just an amount of time that the members are spending on the fund raising process. the constituents want members there all the time in their home districts. the family demands that are there mean that members of socializing much less than they ever did before. that's one the thing that is really struck me between my going to congress and 25, 22 years later leaveing congress was how many less socialization takes place of members today than than. i think you can't deny the general societal aspects of what's happening. there is a more -- there's a

nastier tone out there. there's less respect for authority, and less respect for people who are in aauthoritative positions. maybe that's good. but sometime it is may not be so good. i think you have to look at the general of society. so the question is really when is the public going to decide this is their number one priority. you heard david walker saying they have, he's the 46st state, you heard clive says not. sometimes i think it is, and sometimes i think they have come to that conclusions. what i think is important is -- what -- if they do, i think eventually they have will have, what kind of solutions will the public embrace as a way of resolving this or solving this. will they be willing to steer, to go to fundamental problems that we've heard talk about today over and over again for example reform of the entitlement system, reform of

the tax structure. will they be able to go to those kinds of things or do they have to simply look for the similar simplistic notions that will solve it. somehow saving less than 1% of the spending over the next 10 years is going to resolve the problem. eliminating ear earmarks, another one that's always favored. somehow that's going to resolve. when i was chairman of the foreign operations, just get rid of foreign aid. and of course waste, fraud, and abuse. that's always the favorite. herb is forgetting waste, fraud, and abuse. we haven't figured out how to accept the budget problem. or will they accept the reality that entitlements really in my opinion are at the heart of the problem. i do agree as david said, it's primarily a spending problem

that we have. if it's primarily spending, it's clearly entitlements that are at the heart of the problem. you know, it's sometimes -- when we look, the last panel mentioned for the first time in the discussion here this morning, the role of states in this. and i think it's instructive -- constructive to look in a state like mine, arizona, california, the inmates running the asylum. that is the public has taken control of the process over the last several decades. they've taken control of the process through the initiative process, a legislative administerrive constitutional initiative process. look what they have? limitations that you can't increase spending, that you can't increase taxes and they've added spending in and fixed it at certain rates. the legislature is not able to do that. well, in an economic downturn, that's a recipe for

catastrophe. what do they do? they point to the legislators to ask why haven't you fixed the problem? they can't. so will the public accept their role in this? i think the answer is unknown on that. i do see a glimmer of hope. i'll end on this note. i do see a glimmer of hope in what's happening today on the political scene. there's clearly something -- look, i think can comment on this better than i can. i'll be interested in his ideas about this. there's clearly something happening out there politically state. it isn't just massachusetts, there is something that is happening, and there's this mood out there of the getting rid of incumbents, people that are in office, it doesn't matter when their political office is. it's a rise of trying to take control and do something of the question is what is it driving this, will it be channeled into a constructive force.

will the people that replace if there is oo massive turnover, will the people replace them be true reformer, or popular looking for the kind of simple solution that is i was talking about. will they be true reformers willing to step up to the place to be the kind of statesman, and willing to put their fortunes and lives on the line? that we don't know. but education of the public is clearly at the heart of all of this. that's what i think much of what this can be is educating the public about the nature of the problem that we have. >> thanks, maya. i guess we could say it all started down hill from jim kolbe left congress. i actually thought it was quite interesting when president obama was asked the other day whether taxes for people making $250,000 would be off the table, he said

that he is agnostic about that. that everything is on the table. and there wasn't nearly as much blowback as i might have imagined. and the fact this he was willing to do that and not take the cheat way out itself was encouraging, at least mindly encouraging. i would start with this. dealing with this problem, much less solving it, would be tough even if we had highly functional politics by american standards. democracy and ours especially are very reluctant to take short-term pain for the if, come, maybe of long-term gain. elites are much more willing to accept that notion, but even now that's not as true. that would be the case if we had a real creditable and easy path. the difficulty policywise now of pivoting swiftly from the need

for massive stimulus deciding when that has to end and then move as rapidly as we can to major cutbacks to build in fiscal discipline. it's not to be underestimated. i tried to come up with an analogy before. the one that i come up with is evil question neil says he's going to take his motorcycle across the grand canyon, then he has to stop because 1 4urbgs -- 100 yards ahead is snake river canyon. doing that is not easy. having said all of that, the fact is in the past when we faced really serious problems we've taken at least credible if not sweeping action and managed to keep ourselves from falling into a canyon as keep as the snake river canyon.

whether it was grant rodman, an imperfect but still meaningful vehicle, the much aligned but seriously important 1990 budget agreement that continues to pain me that george hebe better walker bush dances away from what i would view as his greatest domestic achievement by far. the pay-as-you-go rules really had an impact and moved towards fiscal balance and surplus as anything else. we with could mention others. but we've managed at least at times to do this before. now you have to be at minimum uneasy. because we have to add in the disfunction that we do have right now. i would join the course saying i'm going on 41 years of immersing myself in the politics of washington and kicking around

the holes of capital hill. and i've never seen it this bad. it's been bad before. going back to the early 1970s and the impeachment of richard nixon and all the way up through the impeachment of kyl clinton -- bill clinton, we've had our times that we can say it's never been this bad. but this is worse. it's not just because of the problems inside congress. i agree that redistricting is a serious problem. and i'm trying to spend a lot of time now seeing what we can do about it here as in campaign finance. we have a supreme court that has not concept of reality. and can't be counted on for any help. it goes beyond redistricting. the senate doesn't have districts. and the forces, the power

magnets that pull people away, and have people like bob bennett facing a serious primary challenge from the right has had chuck grassley very uneasy about a serious primary challenge from the right. that -- i mean that there's this heavy price to pay if you try to find bipartisan solutions. all exterior and interior issues in congress make it worse than what we've seen before. if you lay around that, that heavy level of populous anger. the distrust of virturely all institutions and leaders that senator more on government than anything else makes it very difficult. to get meaningful action, when you are asking people to accept short-term pain for the long-term gain requires broad

bipartisan with leadership consensus. we are 0-3. we don't have bipartisanship, we don't have leadership, we don't have consensus. and that, of course, brings us to the surreal quality of our politics this year. it's not just as david walker said, that we have seven cosponsors of the gregg-conrad commission voting against their own bill, both to deny president obama a victory and to preclude the possibility of tax increases being in some kind of commission report. it's also michael steele and other republican leaders trying to kill the health reform package by standing up for a medicare bill of right that is said we will support every dollar of medicare spending into perpetuity. that does make it a little bit difficult to deal with the issue

that is everybody here has talked about. when you get the kind of politics that suggest that there is reward that coming from that kind of behavior and objectively, reward has been coming. the come we nation of massachusetts, the gubernator corral elections whereby and evan bayh's process doesn't lead to the kind of politic that is we would like. is there a glimmer of hope was jim suggested? it is a bare glimmer. it requires more than more than -- it requires perhaps enough of the bump in the road that we can get to a more meaningful commission that isn't going to have a true action forcing mechanism that will require an upper down vote that will put

people on the record for some kind of a pack aage that can make a difference. at the same time, i think there's a slim chance to move so meaningful reform. one of the most disappointing things for me about the obama administration and policy in his first year was that he bought on to extending a large number of the bush tax cuts. i wish we had play add game and said they are all going to expire. for a minority party now, every incentive, the real power comes from delaying, retarding, and blocking action. but if a blockage of action mean that is you get the worse-case scenario, you actually force people to the table. forcing them to the table could lead us to something that might include some of my preferences, which would be a replacement of a large portion of the income tax with the value-added tax or the payroll tax with a carbon tax. tax things you want to discourage, stop taxes things you want to encourage. that might also then lead to not

just a better tax system, but a better sense of the blast between the revenue that is you are bringing this and the government that people want. we may be able toquet to some semblance of that in 2911. 2011. but the road is rocky. we have seeing a revolt. whether it is a revolt of the center that lead to center sense call politics or a revolt that could lead to more irrational and constructive politics, the kind of rationalism that involves protectism, isolationism, and the trashing of leadership is a very open question right now. the more we try to focus on it, the more i get a headache. [laughter] >> okay. good morning. i'll move this closer.

i'll do my best to agree with you as much as possible to do today to keep our tradition again. in 1965, president lyndon johnson embarked on a war on poverty. he also increased our involvement in the war in vietnam. they called this guns and butter. but 1967, he was saying he would not longer afford to do both without increasing taxes. in 2001, president clinton left george bush a $236 surplus. the president decided to cut taxes for the wealthiest, and increased defense spending. by 2004, we had $413 billion deficit. still refusing to raise taxes, he added a medicare benefit that

we couldn't pay for. i called that guns and caviar. congress has proved they are willing to point fingers at him for spending money while they collect checks for congressional districts writing letters to ask for more. the president can't complain. nobody asked him to take this job. in fact, he worked really hard to get it. for those people that like to point out that looking at who created this less is whining or looking backwards, i'd like to see of a cartoon i saw during the bush administration, a little boy, the father goes into the son's room. the room is trashed. he looks sternly at the son, and the son says dad, let's not play the blame game. it's important to remember the context here. it isn't just a problem of the last few years. we've been getting here with some of the entitlements for a long time. we've heard from the experts about policies.

we're going to talk to you about politics and compare to the policy. i think it makes the policy look very easy. the truth is the politicians have nothing but negative examples when it comes to dealing with the deficit and long-term debt. see george bush in 1990 and democratic congress in 1994 after taking action with the economic program. both actions were pho followed by the electoral defeat. i've spent most of my career looking in the south and west places like georgia to see nevada, arkansas, florida. most of the people that i encountered in those states were small government people, people with traditional values who looked at washington with a great level of disstain, and they were sort of a pragmatic drifting people who take a practical look of the deficits and debt. if i make $40,000 and i spent $50,000 a year, that's not really going to work out very well in the long run.

you have to bring in more money or cutback my spending. all of the talk about sustainable deficits sort of sounds like what comes out of the of the wrong end of a male cattle. instead, i think people -- there's a political reality that's out there when people talk about deficits. that's that practical reality. but there's political reality. but you talk about deficits and you hear it, the polling said the deficits are ranked in the third, economic first, jobs/unemployment being second, deficit is our proxy for people feeling like the government is not operating in their favor. so because the government is not operating in their favor, they are losing their jobs and we're spending money on t.a.r.p.. they are losing their jobs and we're spending money to bailout the autocompanies, and there's a