>> will cause removal authority. the fact and the matter is the intent and design is to take power and authority away from the president and make it even more -- we have talked about lack of judicial review. there's also not any kind of accountability really by the president. and any regulations that are issued by these independent authorities are not going to go to the white house. they are not going to the office of management and budget from

review. does that pose constitutional problems under the president article ii authority, and does it make any sense to take it out of the control and influence and judgment of the president who is afterall supposed to be accountable? >> yes, i think alan from the director of consumer bureau. that is a person that's not going to be under the control of the government or the fed. so i think there's a real problem there. and peter, why don't you pick up. >> yeah, there are actually several problems with that. you pointed out one of them is not under the control of the president because appointed for a term, single person appointed for a term, not under the control of the fed, the statute has specific language that says the fed cannot have anything to do really with what the director of this cfpb does. but finally, this is to me the

most striking thing about it, they are not under the control of congress either through the appropriation authority. because they are given, by statute, 12 -- 10% now, then later 12% of the fed operating funds to use. which coming out to about $600 million a year now. now let's remind what we have with the feds. the fed first of all is independent of congress and doesn't get any operating funds from congress anywhere for good and sufficient reason, we think. that's been constitutionally challenge and upheld. but now we're taking another institution and we're grafting that on to the fed and giving them some of the appropriations that the fed has for itself through it's management of the -- of monetary affairs. it does get any buyer leave from congress. but the important thing it seems to me to look at here, the fed at least, independent as it is

of all of the branches in a very informal sense, not formally so, but informally independent of the branches, is at least made up of people who are appointed on a bipartisan basis in a commission like form. here we have a single person that's insulated from control from anyone. this doesn't have constitution implications, it's an amazing thing to me. look at the range and scope of this administrators power, there's nothing that coming close to it in the government even at the cabinet level. nowhere. because what this person is able to do is to regulate not only the largest banks, but regulate the check cashing firm on the street corner in any little town in the united states. everything from the top to the

bottom can be regulated. i can hardly believe the constitutional muster. then again. >> there's also -- you mention omb. it's also a provision that says that omb can't reveal the budget either. it's a dig, gratuitous dig. >> another question? >> can i speak to that one too? alan, i appreciate the question. wouldn't be a debate without the unitary executive. i say that fondly. not in a snide way. [laughter] >> now we, of course, have a new case. i'm sure that the separation of powers junkies and the audiences are aware of the free enterprise in which the supreme court held that the public company accounting oversight board was unconstitutionally constituted

because it had what the court called a double layer of constitutional protection. the pcaob members could removed only by the fcc, and the fcc members, could, it was assumed, although apparently it's not true, it was assumed could be removed from the president only for a cause. the court says that is unconstitutional. we're going to sever the former of those provisions so they are freely movable by the fcc. that'll fix it. in holding that that fixes it, the court has, without exactly coming out and said so, reaffirmed the hump if -- humphrey's executive case. one level is okay. you can't say. now it's fine. so i think that although the debate is eternal, especially in these auspices, and it's not

going to stop here, the latest world from supreme court as of three months ago, one level of removal of protection for cause is constitutional. okay. second, we have -- what else do we have? the appropriations committee. okay. they are shut out of the action. i guess the nominal rules of congress are the appropriations committees are supposed to stay out of policy issues and just look at wise spending of the money and the like. everybody knows that isn't fully honored. and appropriations committees do get into those issues anyway. but the idea that it's unconstitutional not to let them do so strikes me as a little unusual. so the fact that they chose to keep them out of this one seems to me eyebrow raising, but probably not of constitutional dimension. then the fed can't control them. okay. but i guess i'll know there was

a political compromise regarding the consumer protection bureau and some people wanted a fully independent agency, and some people that would be dangerous and so forth. it had to be within the fed. so you came up with the very awkward compromise. which i think probably nobody thinks isn't awkward. but if it would be constitutionally okay to have it as just a garden variety independent agency, then the halfway house probably is okay to. is it really a legitimate constitutional argument to say the appropriations committees should not have any jurisdiction because well, you know, they are just the appropriations committee? s? and congress -- one the powers that was given to congress, i thought again in my old fashioned ways about the

constitution, one the powers that was given to congress as part of the whole separation of powers idea was that they had the power of the purse. right now that's maybe a little old fashioned. >> right. they don't have to exercise that power every time. i would go back to what i said before. they fore swore that power themselves. they could change the law and reassert it again. it's not a power grab. it's the reverse. and generally separation of powers was more tolerant of people letting others do something than of seizing something that maybe you shouldn't have. >> if i could judge that, i can't resist to point this out. and like ron said, there's a marvelous dissent by briar which he points out under the court's opinion, which describes the law, the fcc is not an independent agency. the fcc, i repeat, is not an

independent agency. why? because it was carterred in the gap between miles and humphrey, the only way to argue constitutional intent was to argue that congress intended to do something that was illegal. so it's very interesting side light to all of this. >> yes, it's fascinating. >> the next question. peter, on the appropriation, it's not nearly a power of the purse, but the constitution prescribed there shall be no expenditure funds expect with the appropriation by congress. and on the -- so really it's an obligation to appropriate. although as ron indicates, congress can do it in different ways, including perhaps the standing appropriation that they've done here. in the free enterprise case, while i agree with that analysis that there seems to be a blessing of humphrey's

executive, the court did say notwithstanding the relinquishment from his authority in the agency, that it was still the responsibility of the supreme court to adjudicate whether the executive gave away too much authority. in this case, they cured it too easily. they did note you can't willingness relinquish it if they want you to hold it. >> okay. another question. >> as told earlier, congress was told to act before receiving the reasons of the crash. peter wallison has pointed out some of those causes, in addition to fannie and freddie for low income borrowers and ability to pay, and favoring residential mortgages. they were sold into mortgage pools and so forth.

so what extent does the legislation, if at all, address the structural causes that have been identified, even if not formerly reported to congress. are we likely to have another bubble for exactly the same kind? because the same forces will be at work again. >> that's a good question. do you want to take that on? do you want to start? >> i wrote that question. [laughter] >> someone has been reading what i've written. and i appreciate it, thank you. i think my view is congress did not at all address the real causes of the financial crisis. when i say this, this is my view. not necessarily the view of the fcic. it may well be different from mine. this is a really important fact about this legislation, it seems to me. i can't make it into a

constitutional issue, however. but it is a really important fact that what i think can be demonstrated to have been the cause of the financial crisis, which is the u.s. government's housing policy, was not addressed at all in the legislation that was proportedly intended to deal with the financial crisis. >> anybody else on that? >> i would just add, i think the statute partially addresses some of the causes. there is a title towards the end on mortgage products. i mean clearly when you allow mortgages to be made based on the teaser rate with no concern about whether the borrow could pay the full rate, that's a disaster waiting to happen. certainly there's an attempt. whether the attempt will be successful or not, that has to be scene. there's an attempt to get sounder mortgage lending. certainly i think if we've learned everything everything -g

it is sometimes it's better to rent than to give someone a mortgage that will ensure default and foreclosure. that's essentially what we were doing. as i suggested, and i won't repeat what i said. i think to me what drove the crisis beyond bad lending, but the bad lending came from was really run from and funded by these large too big to fail institutions. fannie and freddie on one side, and the big wall street firms and banks that were competing on the other side. you know, we had not enough capital, all kinds of subsidies problems and moral hazard problems. as i've indicated, i don't think we've even begun to deal with the too big to fail and subsidy problems. so i think it's at best a very partial and inadequate response in those areas. >> just let me fill in a little

bit on this to get into more detail. 27 million subprime and alt a loans. those are very weak and failed when the bubble started to deflate. 19 million of the 27 million were the responsibility of the government through fannie mae, freddie mac, or fha, and the banks that were required to make the loans under the community reinvestment act. were those issues dealt with in this legislation? the answer is no. author is correct. there is something in the bill that provides for a qualified residential mortgage to be defined by the regulators and to the extent that that is done, then the private sector could securitize mortgages, that are of a certain quality, high quality, presumably, if they

don't create a qualified residential mortgage, if there isn't one that is being securitized, then they -- the private sector, has to have a retainage of 5% for each mortgage that it securitizing, in order to give them, quote, skin in the game. the point is over 2/3 of all mortgage that is were made up to the time of the financial crisis, the crash, were made at the instance of and bought by and responsibility of the u.s. government. and when congress in the dodd frank act came to legislate, they didn't deal with it. they exempted fha from the requirements of this qualified residential mortgage. which means that fha can continue to make crummy mortgages for which the u.s. taxpayer will ultimately be responsible. >> on the issue of whether the

dodd-frank bill zeroed in and on the causes of the financial crisis, you might study section 342 of the dodd-frank bill which requires all of the new agency creates and the firms which will be regulated by the agencies to adopt firmive action programs regarding hires. next question. >> well, my name is bonnie. that was a really a lead into my question. because i was also going to build on peter wallison's writers which are able for anyone to read at american enterprise institute about the government hand in the crisis. i also add you'd been warning about freddie and fannie earlier, it forms this question. i bit a little bit on what a speaker was asking on one the panels yesterday, which is the so what question?

as we both know, the fed is powerful right now. they forced america to buy lynch and told citi they wouldn't by wells. they are stage managing. i personally think they are doing a good job. although others can disagree. but your comments, you made a number of lawyerly comments about what might happen in the face of this legislation in the big grant. but i'm a little -- i'm interested in focusing in on your thinking about is there something in particular that you think will happen? not what they might do, but what -- is there something that you think they are likely to do that would be a misjudgment or something that we should be concerned about? >> yeah. i can do that. actually, what worries me most of all about the feds power, and i outlined in my remarks what

enormous power they had over all of the these very large institutions. and the thing that bothers me and worries me having in my practice, practiced before the fed before bank holding companies, i could see the enormous power that they have over the decisions that are made by these bank holding companies. you would say to your client, wait a minute, they don't have the power to stop you from doing this or they don't have the power to compel you to do it. and the client would say, yeah, but there are regulators. and that was the end of it. we're not going to take them to court. we're not going to refuse to comply with what they require us to do. so what we have here and what i think will happen, this is a prediction, is that we are going to creation a partnership between the government in the form of a fed. and the major financial institutions in this country. so that they will not be

competing so much with one another as turning to the fed and asking by your leave can i go into this business or that business, can i enter lending on the west coast where i will be competing with bank of america, or do i have to stay on the east coast? that kind of thing will happen. the fed will have the control. this is scary. >> they already have the power already. >> they only have the power to regulate bank holding companies and some banks. they will have banks, and companies, and insurance holding company, security firms, finance companies, funds, you name it, if it is a large financial institution, they will be able to regulate it and provide for

everything that is at the heart of the businesses. including their activities. because if the fed says the activity is too risky, the fed can terminate the activity. this is a remarkable grant of power. ultimately turns those companies into tools of the fed and that's why i've always called this act obamacare for the financial industry. >> i would add to this if i can. [applause] >> yes. obamacare. [applause] >> i would add that you don't have to be big to be covered. there's financial times about the whole thing. about big banks trying to figure out who's going to get caught in the net? and hedge and equity funds. how can they do that since they have no governmental deposit insurance. then they quote from a banker.

fearing competition, the banker said quote as many more financial institutions that can be brought the happier we are. >> former chair of the financial services group here at the federal society. question for the panel which is the creation of the consumer protection bureau already has some apparent flaws, perhaps constitutional flaws. but the administration chose to perhaps exacerbate those issues by instead of appointing the person who know leads it as the director, which is clearly required under the act, creating a czar to run it. my question is: what type of additional legal challenges could be expected for the consumers protection bureau given the fact that she's

already creating an infrastructure and putting together things the director was required to do? >> well, if she starts to engage in rulemaking, which i'm sure she's going to do, that i think would really be a revolution of the bankruptcy clause. she was not concerned by the united states senate to the job that statute does, at least in in instance, require congressional. she would be acting without authority if she started issues rules. exactly what theory, appointments clause, bankruptcy clause, lack of confirmation, i think there's a real problem if she starts to do anything substance. >> i think i agree on the substance. but it would be decided on a more mundane level. it would be a question of her authority. there's only certain things she

can do. if she did those things, that would occasionally come up with a legal challenge. they thought about it carefully. they came up with the tortures compromise to not appointment her was director, but also to involve her in the planning process in ways that do not implication legal rights and, therefor trigger the potential channels. but you could envision perhaps crosses that line inadvertently or more likely daring to do it. i think it would probably just a straightforward question of authority under the statute, rather than the larger constitutional issues dominating it. they might lurk in the background to be sure. >> well, it is just about time to close. i wanted to leave you with this observation. with all of the heavyweight legal talent that we have not

only here on the panel, but in the room, i did a google search last week and i found that the constitutionality of the dodd-frank bill has been challenged exactly once so far in a lawsuit in knoxville, tennessee by a bank that says the setting of debt fee charges under the act is unconstitutional. all of these questions, i still have to be sued on. with that, we will leave you and go see. [applause] [applause] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> this afternoon, president obama and vice president biden are in kokomo, indiana where they are visiting a chrysler autoplant. live when they speak, you can see that on our companion network, c-span. >> from barack obama to george washington, learn more at the c-span library, biographies and more searchable and all free. it's washington your way. here are some programs c-span is

airing thursday starting at 10 a.m. jeff bridges talked about his work to reduce youth hunger. jane goodall, john roberts on the supreme court of the supreme court, later lawyers discuss the impact of the john paul stevens, and the liberty award medal being presented to tony blair. thanksgiving day on c-span. >> a live picture from the capitol hilton hotel here in washington, where we've been bringing you coverage on the federal management. it's hosted by the federalist society. starting shortly, a panel of current federal budget members will be talking. live coverage starts in just a couple of minutes here on c-span2. until then, phone calls and comments from today's "washington journal."

[inaudible conversations] [inaudible conversations] >> host: more from the susan paige article in "usa today" this morning. 28% of those surveyed say obama should have the most influence on government policy. bailiff -- >> host: we want to

see what you have to say. our first call from new york on the line for republicans. adam, you are on the "washington journal." >> caller: good morning. in any election cycle, i believe the people should always dictate where this country should go. i think this is a really good example. this obviously doesn't always occur. and i think this is a great example where the tea party influence has captured that and there i believe that the tea party should and will influence the direction of legislation where this country should go. specifically if you look at the contract from america where i believe it was about 300 candidates that signed to the contract from america where it was various ideals that they will be pushing for, one of them being, i think, it was point number four, true fundamental

tax reform or tax code replacement. how the federal income tax code is sucking the life out of america. and, therefore, we should see a lot of activity towards that and also the other items, i'm sure, that are on the list. >> host: were you seeing a lot of influence of the tea party in new york? >> caller: heck yeah. i'm one of them. i'm trying to create excitement. >> host: on the line for democrats, who should influence the government policy the most, president or the tea party? >> caller: i think it should be as the constitution, all three branches of government, and fairly and equally. it looks as though when i saw the poll numbers that a majority of the people say republicans. but out of the republicans, it looks like the tea party is stronger actually than what would be the establishment of the republicans. so it just looks to me as though the republican party is going

too far right. and i'm hoping that the american people see the tea party for what it is. and i'm hoping that american people begin to use common sense and understand that we need a, civility, and b, to come together as a congress. if we do seek gridlock, 2012 is going to be devastating for the country. i fear for my children's sake that people are not going to do what they need to do in washington. therefore, our country is going to going into an area that is going to be stagnant much longer than what people understand it is today. >> host: vance on the line for republicans in oklahoma. welcome. >> caller: thank you very much. what i think is this, i think coming up in about june of this year, this coming year, -- >> we'll leave "washington

journal" to return to live coverage of a panel discussion on federal budget management. it's hosted by the federalist society. >> less formally, the good, the bad, and the ugly of budgeting. what works well, not so well, and what we can do to improve it? to tackle this topic and many others, we are extremely fortunate to have four experts, robert sunshine, barry anderson, former head of the expenditures division and economic cooperation and development, now a private consultant; marvin phaup; sue irving, at the u.s. government accountability office. we will have plenty of times for questions and answers shortly. encourage you to think about them and utilize the mike in the middle of the floor. now i'd like to start off with

the good, the bad, and the ugly of budgeting and turn it over to jonathan. >> thank you. thanks for those kind words. i think milton friedman was once introduced similarly. and he said he's the kind of person -- >> microphone. >> -- he's the kind of person that gets applause before he speaks and silence afterwards. [laughter] >> but, in fact, just to say a word or so about this panel, one the big issues in organizing a panel like this is to decide the order in which people speak. when we arrived here today, it is unclear on what kind of reason could one apply to the difficult task of figuring out which order we would speak in. but it was all settled, pretty much settled when jonathan said, well, we are going to use danny's performance measure. which is this panel will succeed

if at it's end, at least half of the audience is still awake. [laughter] >> whereupon my good friend barry anderson said let's have marvin go first. if we get through that, success is assured. [laughter] >> it's actually marvin wasn't here when we picked the order. >> not true. not true. >> actually, i like the other -- i like the formal title for this panel. looking back in order to move forward. because i actually have some trouble with trying to apply a good, bad, and ugly classification to the federal budget process. for a couple of reasons. one the reasons is, i'm not sure about the hierarchy. is it true as the order seems to imply that ugly is worse than bad? i mean because there are many parts of the budget process that i would say are so ugly, that

they ought to be rated pg or higher. but they are not necessarily bad. some of them are effective, and so for me, i'm not sure i can make that hierarchy, that classification fit. i'm sure others on the panel will do a better job of that. there's a second reason that i think we probably agree on more than the way that good, bad, and ugly fits. that's the question of how do you actually judge a budget process. how do you determine whether or not it's a good one or a bad one. i think the answer is that you have to judge it as a whole rather than by the individual parts. you could have, in fact, it seems to me, many budget processes are better than the sum of their parts. and the criteria, i think, for judges those results is does a budget process and a budget itself succeed as forming an effective financial plan? more specifically, does it

accomplish the two key objectives of budging? whether we are talking about family or government? i think the first of those objectives is to smooth consumption over some planning horizon. now to avoid sounding too much like an economist. i would like to restate that and say what we really mean by the smoothing consumption is can the household, can the government plan it's finances in such a way that consumption can actually be smoother than income? so that when disaster strikes, when a war comes along, when a recession occurs, or when the breadwinners lose their job or when the price of the owner occupied house that's mortgaged falls, can we get through that period without the deprivation and sharp reduction in living

standards that are better financial plan would have succeeded? does it provide consumption and financial stability? i think the second objective of budgeting is not so much over time, but for every point in time. that is does the budget process result in good choices? do we choose those things that we really want to have that are most effective or, i guess, in danny's terminology, are they the best investments for our money? do we get the biggest bang for the buck? now i think that experience suggests that you get budget processes that are more or less likely to be successful by those two criteria if they have three elements. the first one is and i think this is absolutely the core is that there have to be limits or constraints on the resources that are to be used during the period. and i think those limits have

to, have to be acknowledged up front rather than the end. it is not budgeting to take a sequence of actions to spend money, whether it's a household or a national government. and then at the end, when the process is finished, add them up and say, well, that's our limit. because all of those things on which that we are confronted with that we may want to spend money for, they are all good things. there has to be a constraint or limit for a budget process to succeed. second thing that it needs, maybe this is so obviously that one shouldn't say it. i'm a great fan of the obvious. that is there needs to be an empowered and rational, motivated decision maker. resource decisions don't just happen. they have to be made by someone and they have to be made by someone who has the information, at least as much information as

anyone else in the group has about the choices that we're going to make. and the third thing that i think budgeting need is they need comprehensive and timely recognition of the cost of every action. make a decision to do this, not to do that, and you want to recognize at that point in time, all of the cost of the decision when you under take it. i think the panel will agree, although i'm happy to be shown wrong, that recent experience suggests that there are two periods within all of our memories, well, at least the members of this panel's memory, in which the budget process of the federal government worked better and when it worked not so good. i think the 1990s under the budget enforcement act were generally agreed to be a period in which the budget process performed better at least in terms of providing financial

stability. maybe the choices that people made that we made about particular budget items weren't the greatest. maybe they didn't meet danny's requirements for best bang, best value for the buck. but there was at least fiscal stability. i think the way the bea has played out during the period of the 2000s is a less effective -- shows signs of a less effective budget process than during the '90s. i think the bea in the 1990s had two of the essential elements that were misses in the 2000s. one was there was an effective constraint provided by the discretionary caps and by paygo. second, backed by the political leadership of the congress, the budget commit tees were in the effective, empowered, informed

committee. capable of taking decisions that reflected a broad agenda. in the 1990s, i'm not sure that any of the three elements have been present. there's been little evidence that there is a limit that was effective for decision making or that any one was capable and prepared to make those decisions. this have been the era of the deeming resolution, meaning that we simply deem that there's a resolution being adopted. moreover, when you talk to members of congress who refuse to adopt the budget. you end up with explanations like why endure the high cost of passing a budget resolution when it has almost no effect on subsequent fiscal decisions. i think limits were missing, and empowered decision maker were missing. i think also in both periods, we were missing this upfront, comprehensive measure of cost in many cases.

but in -- two out of three is not bad for government work. thank you. [applause] [applause] >> thank you. first of all let me say how glad i am to be here. i think you remember "seinfeld". one the of sods that kramer had doing a coffee table book was around the world because i threw a coffee book on the buildings housing of bureau of the budget. i went all around the world talking to people. by the way, if i really have done this, not the book, but if you want to look at the most interesting building, it's in berlin. because the budget office is in the building that survived the war. and next to the berlin wall.

they were sitting in the lunch room. they overlooked at berlin wall. but my purpose in raising this wasn't to talk about the buildings, but rather to talk about the people. in the last eight years as i've been traveling around the world, it makes me so happy to be back here. i would do this not trying to be an ugly american and come out. instead, i would just listen to what they have to say. and it is amazing how much we, you export overseas. how they really listen to process things and adopt them. sometimes they are not always good. times they misuse them. it was never a problem for me to talk to groups like this because i knew you could understand what i was saying. most of the time, overseas, i have to blame some of the ideas. i am very happy to be here today and see the group. with that, let me start off with

something that i think ought to be said upfront. that is something that you've heard many, many times before. that's the process is not the problem, the problem is the problem. and even though this is a process group and we are talking about it, i think we need to talk about the problem a little bit. and then tie it to the process issues. we have just had a variety of different policy proposals, put forth by some commissions and groups and different people. and taking the view of the good, the bad, the ugly, i'd like to talk about some of those. first of all, the good. my experience with commissions was not good in the past. i wasn't pleased at all when i heard that president's budget for 2011 really didn't budget at all for the year, just put in some numbers there. isn't have any anything what to do. instead, it maims a commission. i've been thinking back to all

of the commissions i've been familiar with, the budgets commission, i couldn't remember another positive commission that i could recall. that said, the simpson commission, the work that they've done, and the chairman reliefs, i am incredibly impressed by. they have done such a good job even so far. why do i say that? well, first of all, they ignored the phoney assignment that they were given. balance the budget and the primary balance by 2015. look at the cbo baseline. the cbo baseline accomplished that without doing a thing. yes, you have to let laws expire that are in place and are due to expire. given the political process we are facing now, that may well happen in the next month or two. what kind of target is it when it's in the baseline that you

don't have to do anything for it, let alone for you who know about primary deficits, not a concept that's used frequently here in the u.s. but it's used very frequently at the imf. for third world countries. that is for countries that can't get their act together, why don't you guys just try to balance the primary. then do something real after that. that wasn't exactly a ambitious target to give to the commission. what did bowles and simpson do? ignored it. they did what they should do. they looked at the larger issues, particularly the level of government. what level of government do we want in this country. i don't mean today, next year, the year after that. but the long-term issues we are facing because of demographic and health, those long-term

issues, you must resolve a level of government question before you can address it. i am very enthused that the bowles, simpson chairman plan did exactly that. they looked at the long term, they looked at tax expenditures, something that i've been talking about overseas, and export that we've done here from the u.s. which i wouldn't necessarily say is one of the better ones. they look at the solvency of the social security system. and that's exactly what they should be doing. looking at the solvency and taking a long-term look. i also live revland did a great job. not because i agree with the proposal. there's pluses and minuses. it's the idea of looking at the long term, addressing the level of government, ignoring some of the gimmicks and things that could have been done and taking a broader view. thank goodness.

i'm so positive on bowles-simpson that i would suggest to you a week from now when they finally do take a vote, if the vote on the chairman's mark is 16-2 against i will still think very good of the commission. i think they've done what should have been done. i don't know what will come out. even if everybody else votes against it, in fact, even if it's 18-0, even if they change their mind, i think it will still be a good one. that's the good. let's talk about the bad a bit. let me take representative shaar cow ski's proposal. it it not address the size of government, long term, it only attempted to look at the phony goal of balancing the budget in 2015 which can be done without policy proposals. there are policy proposals in it. i'm not taking a position. the tax increases, spending cut,

good for her what few there are. but it is not a serious effort. if you look at the cost, they are not going to address the trillions of dollars of difficulties that we are facing. i'm very critical of it. i would call it the bad. because it doesn't address the long term and the size of government issues. okay. bad. what about ugly? of course, those in the room when talking about budgeting and ugly, we can't get by our former vice president. deficits don't matter. i can't even though i've spent a good portion of the last five or six years overseas, the impact of that resonated with the vice president of the united states saying that deficits don't matter is still something that can't be under estimated. but let's get more immediate on some of the ugly.

in response to the bowles-simpson proposals we have speaker of the house pelosi saying unacceptable. fine, where's your plan? to say something is unacceptable but not come up with another plan, i would suggest is ugly. you have richard trumka of the labor, the bowles-simpson plan basically says dropped dead. we've always heard the language used in budgeting before. if he doesn't like it, fine, where's his plan? what kind of spending does he want for the future? what kind of revenues? we had grover-norquist saying this is a lousy plan. it violates the new tax pledge. another thing that i love about bowles-simpson, and rivlin, they

both didn't fall into the trap. this isn't the issue. particularly, it's not the issue in the near term -- i mean in the long term. the issue in the long term is what can we do to change the hideous tax code that we have to make it better in terms of raising the revenue that is we need for the size of government and efficient in promoting economic growth. they both tackled that. i admire them both. mr. norquist only says it violates a tax pledge. this is what i would call ugly. unless the people are going to come out with an alternative themselves that addresses these positions, then taking these sound byte pop shots at this, i don't think is good. so if you don't want to cut taxes or if you don't want to increase taxes to pay for the level of government that we have now, fine. show me where you are going to cut spending. if you don't want to cut

spending, fine. then let's be upfront about how much of a tax increase? and if you don't want to do anything, then i'm afraid that's what i would call something that belongs in the ugly category. thank you. [applause] [applause] >> i'm delighted to be here. the last time that i was here several years ago, the organization was gracious enough to prevent me with a reward doing budget estimates. on the same day that it presented rudy penner for a paper that he wrote that was analyzed and was very critical of cbo budget estimate. i wasn't sure how to take that. i'm glad to be here today. first of all, in terms of the good, i think we need -- i think

there's perspective is full that we've actually come a long way, i think, in the last few decades. i wasn't working in the area when the budget act was put into place. we have mechanisms that are more effective now than we had in the decades -- several decades ago. we have a system for looking at the budget over all. before 1974, committees did their things, congress passed bills, somebody added it up, whatever it turned out to be, that's what it was. now at least we have a system of an overall budget resolution and a mechanism for budget committees pulling things together. we now at least have a mechanism for looking at the budget as a whole. we have the congressional budget

office. which provides independent cost estimates to the congress. which provides -- and it doesn't have to depend on the executive branch and whatever biases there might be in estimates that it provides. and cbo is a place and been there for over 33 years. i think we all ought to be proud of the things that it has done and the ability that it has given the congress to function independently of the executive branch. we have a frame work now for looking more than one year at a time. we have budget baselines, we have budget resolutions, that go out over a period of -- number of years. we didn't have that before the 1970s. and we have frameworks like pay as you go for that -- that's in place now that was not in place for a few years. and reck -- mechanisms that we've tried like paygo, that

have worked at various times. we face the challenges. we as a nation as put in place some mechanisms and procedures and some institutions that better equip up to deal with them than we had before. on the other hand, i think we don't have in place effective mechanisms for addressing the problems that loom 20, 30, 40 years from now. we are already on the path towards, those problems have already started. but there's nothing in the budget process -- there's no structure, mechanism, there are no degreed upon tools for dealing with really long term budget issues. in terms of what i think we need, the first thing i think we need to be effective is the broad range of the problem. both in the congress and in the public.

an acceptance that we are on a path that's not acceptable in the long term. secondly, i think we need some kind of agreed upon target and metric for deciding what's a good path -- what is a good path to be on? some people talk about let's set a target of some percentage of debt as a percentage of gdp. we need to agree on something, some metric that's metric to use for the government long-term fiscal sustainability, and we need to -- we the public, congress, need to agree on some kind of target. what is the right target? what's the reasonable benchmark for us to aim at accomplishing? and then we need to make some decisions. and one the fundamental decisions is how big do we want our government to be? we are used to -- over the last

40 years, we have paid about 18% of gdp. we on a path to spend 25% of gdp by 2020. so do we want to -- so that if we want a government that we are only willing to pay 18% of gdp for, then we have to trim our spending by 1/3. on the other hand, if we want to have a government that's 24 or 25% of gdp, then we have to increase our taxes by maybe 1/3. so we as a society have to make the decision as to what type, what size, what services and benefits, and we have to bring and create a match in how much we are prepared to pay and how much we want to receive from the government. there's a mismatch. we are adjust come and expected to receive much more from the government than we are accustom

to. we as a society are going to have to make that government. do want we have government that's 23 or 25%? that's the key decision, i think, in terms of once we decide on a target in terms of the overall budget metrics, then we have to decide, you know, what kind of government do we want. that's a big decisions. because if, in fact, we're going to match the government to the amount of revenues that we take in now or would take in under current policies, that's a dramatic change in the nature of the government. on the other hand, if we want to match the tax system to the amount of the obligations and services and benefits the government is providing, that's a dramatic increase in taxes. and somewhere, obviously, there's plenty of space in between to work out some kind of

match. but that's going to be a real challenge for us as a society. and ultimately, i think, the political system will only be able to do that effectively, if the public is prefaired to support it. and if the public is willing to say, okay, i'm willing to accept -- willing to pay more taxes or willing to accept less in benefits of into some broad consensus, then whatever mechanisms get put in place can work. if the public doesn't do that, if the public says, -- wants it cake and eat it to, then it's going to be very hard for the political assistance to enforce whatever mechanisms. the need for national consensus on addressing the long term problem i think is critical. we need a system that puts in place some kinds of mechanisms to meet some targets. it has to be flexible to be able

to respond to emergencies, economic disruption, wars, but not too flexible so that it can't be misused or taken advantage of to avoid the constraints. we have to control health care costs, and the other major entitlements. and cbo, the most recent baseline estimates, social security, medicare, medicaid, and other health programs came to 9.7% of gdp in 2012, growing to 11.5% of gdp in 2020. that's 1.8% of gdp increase. in today's dollar, that would be about $250 billion. just to keep doing what we are doing. :

>> for addressing a problem that's going to occur 20, 30, 40 years from now. [applause] >> well, it's always hard to be the last. everything has been said, but not everybody has said it. i do like to try, first come at

gao, as some of you know, insert as tom has picked up, we ran the first long-term stimulation in 1992, sorted before everyone did it. choco as comptroller general at the time felt really strongly that we need to highlight the long term was already been in some stress. unfortunately if i had to measure my effectiveness by whether those reports created action, i might not be doing so well. and we, of course, would agree strongly in the need for education in the public. in fact, we would use the stimulation we do as motivational. we go off on enough to include areas where it can't happen here but herb is often quoted as saying, for his famous statement, that things that are sustainable and to stop it but as robert reischauer pointed out it matters how they stop.

the soviet union was unsustainable, but we are very likely get sort of went out instead of blue a. we've been lucky and able to carry on as a stable fiscal policy because we are the strongest, safest, most secure political economy in the world. and you can see that by what treasury is going for today. and every time someone makes a speech, talking about how, i don't know, people move their money to the eurozone, first of all, as barry knows, there's no euro bond market. you have to buy irish funds or greek funds? [laughter] >> but what i think the public has now come to a greeting there's a problem, i think they label it incorrectly, the problem is that it. we have to oppose debt. that is the result of all these other actions. and we need to focus groups and surveys and all of this, which many of my colleagues do, what people think is that foreign aid makes up about 50% of the budg

budget. and so we could cut back. we can get rid of fraud, waste, and abuse. sometimes i worry -- [laughter] >> sometimes i worry overlap and duplication has become the silver bullet. and i'd like to stand back, you know, that said, i absolutely agree, i would like to stand back and great -- look at process agile generally. first, is anybody asking with the greatest contribution of the 1974 act was, i would agree with a lot of which was it was the creation of cbo. the ability of congress to get independent estimates and to get them on their own time horizon to get it passed only be in those days, it was amazing how overworked they were. some of you may or may not know that there was some disagreement or disconnect between the house and senate use of cbo. at the time the house thought it

was a manhole cover. you drop a deal in and you get numbers. the senate envisioned a place that would be broader. and it was sort of an impasse also over who would be the director of an indian when adams became the chairman, sir turn two stefansson we're fighting this over what? the story is they flipped a coin and altruism became director the giving of your more about that story, i'm happy to talk to you later. but in terms of other good deeds of the has to do with what i think of as facilitating choices and understanding of comparisons, i would put credit reform on that list. it's hard not to list credit reform. and since it is messy, the quality of the estimates range from really good efforts to broaden. -- rotten. when we treated direct loans as grants, and lone duties as free.

in which case i used to spoof memos on creating a balanced budget and them and the first thing we told everybody to do is convert all loan programs to loan guarantees and that would wipe them all of that year's budget. and if you have noticed most balanced budget amendment only measure one year at a time to i'm concerned however that are discussion today has focused on the idea of a process aimed at a particular goal. a particular policy goal. so i think the first thing for people to ask when they think about budget process is, are you looking for a process that is general and will survive different times as i understand it won't, but this -- or at a process that overlaps with enforcement for ago if you have selected in design of the process. so for instance, i didn't think i would agree, the process should be sure that you move toward, the process as structured to be sure that you move toward sustainability.

it should, however, highlighted what's real. that is, where you're going so you can discuss whether you want to head off a cliff. and i think the other thing he judge across this on a number one, doesn't highlight the important choices. that is, if you think of the range of decisions, members of congress and the president have to make in this debate, you're not possibly going to re-examine everything. any equipment of the zero falls on its face just and overworked. but does the surface the choices that are more important? how much we spend on investment versus consumption. what is the distribution will burden? whatever you think, we at gao in the past have suggested that you should be able to have really good estimates as possible for the near-term, and the medium term, and then you should have order of magnitude and direction for the long-term. i get back to that again. but not pretend that a 30 year estimate for most -- most

programs is as accurate as a team year. some programs it's easier to run plausible on long-term. and does it allow to get there like things on unlike bases? that sort of what i mean by the credit reform change. does in fact disclose what you're putting the federal government on the hook for? this is why people like me and barry, and cbo tend to be pretty rigid about up front funding for us is incremental funding know it's a great benefit to agencies to pretend to lisa both only two years at a time, even if you're planning to be there by 20. but it's more expensive for the federal government. similarly, if you want to think of some of the supposedly leases for things that are only used by the federal government, we're going to pay another company to borrow the money. we borrow more cheaply than that of the country.

so i used to say to people you have a of choices. you can raise taxes or cut spending and pay for it now. you can add it to the credit card and have your children pay for it later. or you can pay someone else to borrow money and have your children pay a bigger bill later. so i don't think i would judge a process by whether i agreed with the decisions. each one of us confronted with the federal budget outlook now could, although it would not be easy, make your own decisions about what size government we want and how we would like to pay for it here at the challenge is to have a discussion about that, and i frankly don't believe very much in the rational act or model of political discourse. and i don't mean by that what the english lay which has come to think of as a rational. i think it's too hard. rational actors, all the choices and you weigh them. none of these guys are saying

that. but i think that why it matters, which means you service, which means you pay attention to. one of the things i think is probably both bad and ugly in the past, and marvin referred to this, the unwillingness to use the budget resolution as a framework, and then stick to it and enforcing in enacting even one-third of the budget that runs under the appropriations. i think there's a budget resolution that sometimes people know that they can't enact appropriations bill they will stick to the. the budget resolution becomes a signal. we would like it to be only tax that if you add up all the things you support, it doesn't. that's because the american people don't know what the composition of the budget. i think there are places where we can make improvements. gao has suggested you move to insurance. something you might call it missing premium. i'm old enough to remember when the pension benefit corporation was a profit center in the

federal budget. because we score the increase in premiums on a cash flow basis. cash in. in fact, i believe one year it was used to offset a trade agreement, which raises another problem because that was lost money over five years, not intended i think you at full funding for things like military housing, corps of engineers them pick your don't want to build a third of the dam. you want to avoid either real or imaginary cliffs. sudden expirations, if our history is that we don't like sudden expirations, and you don't want to score it assuming there's an expiration that you don't believe will be allowed to take effect. on the other hand, we need to find ways to let things phase out. finally, i think we can learn a lot of things from the successes and failures that marvin pointed out that one of the big lessons from bea is the enforcement with targeted to the action.

gramm-rudman, when across the board. if you wouldn't want to make a complaint with the ceiling you got hit twice. bea was the committee that didn't they got it. it succeeded as far as its reach in paygo. that is, the constraint growth but it did nothing about dealing with the base. finally, i think i like is that it's important to remember that everyone wants a small government until they don't. [laughter] >> most of, if you read the surveys in louisiana, most of them on a very small government. but i seriously doubt that they meant from that no support when katrina hit. we live in this country with the midst of a self-made man in the west. the government built the tower, built the roads, all of our roads, and set aside land for the land grant colleges that educated a lot of people in the west. i don't think today is the same thing but i think although we have to get to the decision

about what size government you want and what you're paid for, we first have to start with this is what the government you're getting now is. this is how much you are paying for. and go back into various -- berries but which is if you don't pay any more in taxes, then these other kinds of things you have to cut. not just the amount that actually some examples that if you don't want anything cut, then this is the kind of taxes you're talking about. we've done that on the road. people say i did mean either of those and you say okay, now let's talk. where in the middle will we end up? but stuart butler once analogized coming to agreement about the long-term, is less than a numbers problem and is kind of a problem. who goes first? had to make commitments when you're not sure about the trust? how do have a discussion that in 24 hour news cycles does not have announcing everything is unsustainable. i think the fact that everybody on both sides said it was a

terrible thing, it survives, is something to advance the discussion. and there's an awful lot of things we don't know what the implication is an we don't know today, and we need to have new information structured in a way people can process it, and decisions that matter. one more point of sort of a opportunity in budget process. the functional category, which served as a proxy for what we it's called national needs, or the goal of the process, we'll be one way to think about looking at all the different ways we do things. you don't want to just look at the appropriated programs that go toward goal packs are but about the mandatory programs, what about credit programs? what about tax expenditures, angle that something looks if you want to know how much we support imports of energy here to look at all of them because we pick if it tools for each mode. and that's just the hard cost, but i am encouraged, and hope

maybe we can make progress. anyway, i think on behalf of all of us we would like to thank you for being one of the few groups in town that would sit still for a discussion on budget process. [laughter] [applause] >> if you're a student watching on c-span right now or in the room right now and say you don't have a dissertation topic, or your next independent research project from this discussion right here, i would suggest you turn your volume on because they all write there. they already to happen. microphones innocent. be happy to take your questions that if anyone would like to throw out the first one. if not, while you are thinking about it, we had thought beforehand about transparency. we heard it here again today. it has become routinely advocated. we saw one version with the recovery act. what does transparency mean in the context of federal budgeting? what is or should the goal of

transparency being as it applies to the federal budget process? i look forward to your questions. >> well, i drew the short straw. i think that sometimes something like transparency, it gets loaded a as a becomes a universl good that you would about, sort of information overload issue. to me what that means is some of the things we've all talked about. which is the action you're about to take on the policy you're about to enact looks like x today. doesn't live on a line? over the next, young, 40 years? does it grow with a gdp? does it explode? doesn't grow with demographics? what drives it and what are you looking at? there's some areas where you can do things very concretely that every time we commission a nuke or severing we commit the federal government to waste cleanup. we don't show that. now i'm not positioning you would score that any budget, but

it's a relevant point is you want to do better with explosion -- explosive -- exposing the program that everything you create tax proficiently dreck spinning program, mandatory program, it grows with some other indicators that you have a clue how it goes. so i think that you need to think about that. >> when i get the word transparency i think of other words. i think of words like clarity, understandability, accurate measurement of cost, which others have also talked about. i think it's important, and there are conflicts i think between some of these things. credit reform is an example. credit reform is complicated. and some of the estimates turn out to be wrong from an economic point of view. it is a better job of telling us what credit program is. but it's not as simple, not easy to understand as simple cash

flow numbers. the recovery act information at the website has -- shows jobs created in very places by spending that account from about one-fifth of the budgetary impact of the so that in information, useful in the context in which it is presented. but then the other for these of the act, very's tax cuts, for businesses, people, benefits payments. a whole for writing of things that aren't showing up there. so we presented information. but not all the information. so sometimes you wind up with a situation where we have a really good information about the tip of the iceberg, but we don't have much information about the rest of the iceberg. and various people at the estimates, cbo has been estimates, this agreement really about what the rest of the

iceberg looks like. we also have to be careful about mistaking the tip of the iceberg for the whole iceberg when we are presenting information. that's a little bit of transparency but it doesn't tell the whole story. >> ed bingham was at omb and i followed him there to the housing branch add-on be. when i first got there i tried to cover up his mistakes, but failed miserably. [laughter] >> in particular we looked at programs any federal housing administration and had to do with middle and low-income housing. and after i was there for a short time i realized that basically no matter what changes we made didn't really have a mpeg pic it was at that time, i think i so remember, that i first came across concept of tax expenditures. that basically what was running

these programs was, at that time called syndication of the accelerated depreciation. and so i convinced a law firm that was very popular in selling these things, lane and it's an. in fact, if you are up to montgomery county, there's something called -- to give me a free entry course in syndication. and i started learning how tax expenditures, these tax laws, really dominated the programs. and, they would change dramatically in 1986, but at least you could have an impact on them. i say that now because that was 20 years ago. and 30 years ago. and we've come a a long way on tax expenditures. thank goodness with respect to transparency. we really have gone so far, and

of these proposals that i mentioned before, now they are explicitly targeting tax expenditures. which really, really need to be done. i would mention another one broad view of transparency, and that is in, they talk about payroll tax holiday for a year. thank goodness. because with respect to the social security trust fund, don't have any trust in it. by that i mean it is not a trust fund in the same sense that private individuals, you and i, might classify a trust fund. well, at least they're being transparent and saying, okay, you guys won't have to pay fica tax for the next year. they think they'll agree to and have, to 7 million jobs or something like that. but more importantly to me they say look, don't worry about getting your benefits because we will have the general fund make up for what is not in the trust

fund. while of course the general fund is going to make up for it. because there really isn't a trust fund, and all they're trying to do is to paper over what has been an unfortunate myth in budgeting for 60 or 70 years now. so i am very optimistic of the trend towards transparency, building at what both sue and bob have said. >> can i just -- one thing we haven't thought about is the policies broadly in the sense of lumping together and trading off between tax expenditures and spending. when we think about housing policy, we often, the government often thinks of spending programs in the things about them over here, and the mortgage interest deduction and thinks about it over here. and we don't often laid him up against each other and say how do they interact and had we make the trade-offs between them? but the same thing with the other polls. employer paid health insurance.

we sort of, we still have been inserted separate silos. we have a spending program and the tax expenditure. so i think we're doing better at identifying the tax expenditures and measuring them, but we still, i'm not -- party has to do by the way even in congress, committee jurisdictions. not all the same committee jurisdictions spent i think those are the two really big ones but there's a lot of smaller ones were maybe the steps will be made there. that is, if you think about, you know, there's something about ethanol the other day. there's a regulation requiring a certain amount of ethanol. then you get one tax provision for doing it that there are other things where there are both, if you think about some the educational provision for higher education, tax provisions, and some grant provisions and someone provisions. so that even in areas not as a dramatic and huge as housing and health. the question is could you at

least start recognizing that is you're trying to, when you're looking at renewing the higher education act, could you at least bring into the discussion what are the tax and grant provisions, and direct spending provision, sort of interact with that. because sometimes, i mean, it was so confusing, families would even making the choice. that was most to their advantage. because we don't, there's no way to certify to look at the tax provisions and that grant provisions together. >> i agree with what you're saying, but sue had mentioned national needs and i see can kelly here who even predates me at the omb. we used to do a much better job. we're all in be used to a much better job at presenting tax expenditures. mandatory programs, direct appropriate programs. in the section on functions of

the national need. and then that was i think i read of my memory, served by darman in 1990, that we change that process. your point is still valid. even if we go back to the better way we presented information, and tied it with performance, which we never did, some got a performance measure. still, the congress is not organized in that way and our political process is not organized to consider them for trade-offs. >> i would just like to add that transparency is a complicated matter. is a young man in indiana university named neil buckwalter who is writing a dissertation entitled transparency in budgeting on search for clarity. and he makes it pretty clear that it's not just open access that you're looking for, but rather to your disclosing the information. and the kinds of information, the kinds of decisions that information forward, dishes and support.

and one final word. i hope that recovery.com won't be the template for what we mean by transparency. i mean, i know a lot has been made about the millions of yet compared to other more informative websites run by the federal government, but, you know, if you want to know why people, i 403 people went to that website, it seems to be the which are defined out either how much, how much in check their neighbor got from the stingers, or how much their competitors did in terms of contracts. as bob points out, a limited disclosure their of a part of the stimulus package. there's hardly anything there that would enable you to evaluate the value of the spending, and certainly there's no indication how we might pay for it. now or in the future. >> thank you guys very much that any questions from the audience? time for about two more real

quick. >> we put him to sleep. should we call on somebody? [laughter] >> if you have a crystal ball, what would -- >> go to the microphone. >> what decisions will be made? >> the question was if you had a crystal ball, what decisions will be made by december 31? >> i was asked this question by hedge fund -- [laughter] >> two months ago. and i would say what i told him. i said, whatever the outcome of the election, because this was before the election, i said whatever the outcome of the election, the republicans are going to gain lots of strength. they certainly have. this will give the obama administration a rationale to compromised. they will compromise with respect to a one year extension

of both the top and below 250,000 tax cuts. that will be unacceptable to the republicans. they will fight for at least two years. and i think the republicans will win, and so sometime in the next five weeks we will get a two-year, not longer than that, but two-year extension of the tax break. that will be the last budget action of any significance until 2013. [laughter] >> nothing will happen until -- we will have to do something on the debt bill, and sure, they will be appropriations passed. and maybe federal civil servants will not only have a pay freeze, but have to take a cut, or something. but there isn't the dynamics to do anything real between now and then. that doesn't mitigate the praise i get to these commissions though, because you have to live the groundwork for this. and in 2013, we not only will

have the greeks to thank to show us what can go wrong, if things -- but we will also have the irish. and by then a few more countries too, probably. >> i suspect at least bob and i are hoping that one of the actions will be either continued the omnibus appropriations bill, we will be employed by the federal government. [laughter] >> thank you very much. i would like to thank our panelists for the insight and discussion today. [applause] >> i know you all have a full day of events this afternoon. we appreciate your time today. as a token of our appreciation you have in front of you a lovely giftwrapped aabpa mug. before you all step off the point i like to present melissa for a special presentation.

>> thank you, john. i hope everyone is having an enjoyable day and you're learning a lot in your session. i am happy to announce that i have two very special jobs as past president. one is not to panic the morning before the symposium, which i had a wonderful thing this put that in the second is to announce our award winners. occasionally aabpa selects someone from our own budgeting community, and to give this individual that james l. blum award for distinguished service in budget. these individuals we honor with the support have distinguished record of a competent and public budgeting. they are respected leaders in the budget community. they have made significant advances in the state of knowledge of budgeting and analysis. and set an exceptional high standard of achievement, professionalism and ethics for all public servants. and it is my great honor today to announce that this years

james l. blum award winner is superb in from gao. -- winner is sue irving from gao. [applause] >> for those of you who don't know, sue has had a distinguished career in budgeting. she's worked for the senate finance committee for the president's council of economic advisers, and most recently and for a long-term and gao working on long-term debt, the long-term outlook, and his director for the federal budget issue. thank you. [applause] >> well, i hope you can tell i was we surprised. and i am really appreciative to get something named in honor of james l. blum is really an honor and to follow some of the

previous awardees is really an honor. so i am really pleased. i am in part of cores the beneficiary of getting credit for the work by phenomenal staff. i have been very lucky in my years to have people have figured out that budget is sort of an elegant way to be a generalist because everything important goes to the federal budget. and some of them are here today, and i just -- i am really have been very, very lucky. so thank you all very much. [applause] >> not only has to make great contributions to the budgeting community generally, but she's also been a long-term volunteer for aabpa. we thank you very much for your service. thank you, sue. [applause]

>> thank you, melissa. again, congratulations. at this point, a few thank you time opportunity. it is confident would not be possible but for the voluntary efforts of our general session speakers, continues, and speakers of our six panels that a number of those individuals were able to join us for lunch that i would like to recognize them at this time. it should all pleased and so we can give you a round of applause i would appreciate it. we are truly appreciative of your work. [applause] spent why we're thinking people i would like to thank the rest of the board of aabpa your with us here today. joe, shelley mcallister, melissa merrill, melissa newman, sheila, merrin, michael, james taylor, julia, and patrick washington. i would also like to thank out symposium, laura for her planning of today's events.

is an effective job. in addition, to trusted advisors, passport numbers and low temperatures to aabpa, and brigham and join hi -- joan. [inaudible] i would have to be at 6:30 a.m. and i really appreciate not having to do that. i would also like to send a special thank you to our webmaster, george, and our executive secretary chris commute you probably met throughout the day. george didn't have this job of keeping our website up-to-date industry much looking for to the new and improved website will be coming in 2011. so, thank you guys very much. [applause] spent at this time unlike to wrap up our lunch session by encouraging you to visit our sponsor. the next panel begins at 2:00 so have a few minutes to get your bearings, talk with friends, make new ones, visit our sponsor tables and enjoy deserves.

your evaluation forms are not in your pocket. they will be e-mailed to you tomorrow. enter to win two tickets. we will see you all back to this afternoon for ice cream. thank you all very much. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] >> every wednesday when apartment is in session british prime minister david cameron takes questions from the house

of commons.

>> the republican governors association held its annual meetings last weekend in san diego. of next a group of governors offered advice to some of their newly elected counterparts. governor haley barbour of mississippi, bobby jindal of louisiana and chris christie of new jersey, and tim pawlenty of minnesota. this lasts about an hour. >> as you can see to my left with a distinguished panel of governors. governor haley barbour of mississippi, governor tim pawlenty of minnesota, governor mitch daniels of indiana, governor bobby jindal, louisiana, governor chris christie of new jersey, and governor bob mcdonnell from virginia. in the midst of them is

something that probably doesn't need any introduction to you, but i will. bill is probably one of the as a great communicator, especially on our side of the aisle. he has been an author, community or, we are thrilled has taken the time to be with us. please welcome our moderator. [applause] >> are you getting clicks you are thrilled that i'm here with this lineup? i will spare you thomas jefferson dined alone find. i was once a with ronald reagan and margaret thatcher for about a minute and they said, all the children lead. adults have work to do. this is a thrill and a great and exciting day for me. when we came on you might have noticed the sequence, christie,

barber, bennett, a powersuite. coming around the left side. and old fashion look called balky chic. [laughter] >> we may killed a little this way, that's okay. we're a great diversity are to come and a big party. michael baran, the guy who makes the studies, this may have been all things considered, the biggest republican victory ever. what happened in the house and senate. the federal level of governors, wonderful new group of governors we have here in the state houses. extraordinary, extraordinary victory. two years ago i remember haiti barber said get your chin up, to look at your feet, get your chin up. things will get better. you are right. think of the time after watergate when there was a brief discussion changing the name of the republican party. now there is discussion i understand on the other side of changing their name to republican like.

or republican left, as the case may be. it's my pleasure to be here. the second plenary session of probably entitled leading by example, good policy because the politics. these are leaders up here. my job is it to introduce than, say what about each and get out of the way. governors are the elected officials closest to the people. to implement policies today that showcase the difference is solid republican ideas. these gentlemen up here today, ladies and gentlemen, have real jobs. they have real jobs. today we'll hear from six governors who have been making a difference in the state putting ideas into action. it is a result of expense of good politics because of their good policy. they will speak in this order on this side of the breakthrough. it's up to them. joining us on the panel is governor haley barbour who is has years of experience. knows how important the next policy and politics is that both

the state and federal policy. will also hear from governor bobby jindal is one of the sharpest policy minds in the nation, is doing an unbelievable job turning the louisiana around. bobby jindal in motion, we all saw that during the vice president crisis, a man on the spot in the middle of things. we'll also hear from tim pawlenty, the governor is brought commonsense conservatism to a very blue state, conservative ideas and sensible ideas in education, which i'm very partial and develop the idea of the republicanism. we will learn a lot from our friend mitch daniels. governor davis is a real example, good policy ideas making. he was up for election in a very tough year in 2008. he won reelection by a mere 17 points. you can only wonder what 2008 would've been like for republicans if we covered at the federal level like governor

daniels did in indiana. the fifth panel is is governor mike mcdonnell. bob mcdonnell. governor bob mcdonnell, another very popular governor in a swing state, got virginia back, or ever virginia was supposed to be. let me take a difference between a republican governor and a democratic governor. when tim kaine was leaving office, the last budget would be bounced with a one and half million dollar tax. but thanks to governor mcdonnell those tax hikes never came and. he got rid of it, balanced and got rid of it. he also found over a billion dollars by doing an audit in the virginia department. lastly, we are joined by governor chris christie. phenomenon, heartthrob, youtube sensation -- [laughter] >> that makes me think if i ask the right question, we would get another 100,000 views on you do. but there's a reason chris christie is so popular. even more, much more vibrant than the president of new

jersey. he tells it like it is. something quite like authenticity. there's nothing like the real thing. you always know where you stand with governor christie. at times like that, something the american people, the people of new jersey particularly deeply appreciate. let's get started. as our to be here. governor barbour. >> thank you very much. we are tickled to have you here. bill talked about the descriptions of us up here. bill father talk about the audience can you talk about his data. [laughter] >> it's good to have you here. we have the honor to serve in the reagan administration together, and when we talk about good policies, good politics, that's what we all learned. ronald reagan stood for principle, good policy is good politics. you could do the right thing and

succeed and get reelected. don't try to do what makes people happy. do what's right. that people want you to do what's right. and i can tell you, there's never been more true than today. today the american people understand the country is going the wrong way. they understand that the policies of the obama administration are catastrophic. they understand that this election was a repudiation of those policies. and i think we republicans need to be able to distinguish between disliking the president that america wants our president to succeed. including this president. but the american people know the policies of this administration and the pelosi reid congress are terrible. they know that all of this spending has actually hurt the economy rather than help it coming.

your family can spend yourself rich, the government can't spend itself rich. but at least 1.3, 1.4, $1.5 billion deficits in the last -- first year -- this year in nature of the obama budget. man, when we were in the white house that was the budget. they got deficits today as big as the budget was, not so very long ago. and the american people -- they know who will pay back the debt. our children and grandchildren and how disgraceful is that for a generation to saddle our children and grandchildren with 40,000 or $45,000 in debt for every person in the united states quick more importantly the american people know all that didn't work. that, in fact, it has made it harder to create jobs. that obamacare, the tax increase

that is right around the corner in january, the federal financial reform statute has created uncertainty. how can i -- how can a business person in milwaukee, powerful people, when they don't know what the effect of mandatory health care is going to be, when they don't know what their taxes are going to be, don't know what the tax rate is going to be, don't know what the financial rules are going to be about being able to borrow money, all of that uncertainty is making government the enemy of job creation. bill, i think we republicans need to understand something that the average american has already figured out. the other side wants big government and that's made a smaller economy. we need to be for a bigger economy, and that means smaller government. now, that, that's the equation the american people have come to

understand. and come to grips with. now, what does that mean for the new republican governors? do what you said you're going to do. and i promise you, that is good advice. do what you said you were going to do. and when people say, it's too hard, people can't tolerate cuts, this is going to hurt services, anybody who thinks there's one department in your state government that can't save money, doesn't know what the hell they're talking about. there is no department. the highway patrol, the crime lab, the economic development, there's nobody in state government in mississippi that can't save money. and they have had to save money over the last three years. so be prepared to do that, and i think you will be enormously successful. spirit governor general speak mac i want to start echoing everything he said.

i guess they both made jokes about the size. i was talking to back state. he joked about a year ago he would have to lose 40 pounds to run for president. they told i had to gain 40 pounds if i want to run for governor. i want to start echoing of the music that i want to talk about the policies that governors have implemented the restrictions governors face that washington doesn't face. we don't go to china to borrow money. and my constitution most of our constitutions we have to balance our budget. in our constitution louisiana but makes a super majority vote of the legislature to try to raise taxes. i have made it clear i will veto any increase against to my desk that it takes a super majority vote to grow the budget faster than a combination of inflation and population growth. in louisiana we have line item veto power. the governor does. this is made one of most important things. we've got a part-time legislature in louisiana like most states do. i have made the suggestion we

used to pay farmers not to grow crops. made we can pay members of congress to stay out of washington, d.c., and not pass laws. [applause] >> mark twain said it best. washington is safest when they're at home. we have made they can't get at every governor is facing some degree of fiscal challenge in the coming fiscal year. in louisiana we cut our spend. i'm not talking of freezing, we cut our spending. this year's budget is 14% more than last year's budget. our overall spending is down 26%. we have eliminated over 6000 positions, held off 10% of our state cars and privatize services. but to the theme of this panel, good policy is good politics. when i was campaigning i was very up front with our people in louisiana. that was even before it became so painful obvious that washington was going down the wrong path with all this borrowing and spending. i made clear everything were

going to do was centered around one priority. 425 years greatest greatest challenge has been we have been the only state in the south has been exporting our greatest asset. our people. so i made it very clear to our people, our number one priority was to create a fast growing economies were kids and grandchildren will stay until. we have done it by doing five easy steps to get is -- as haley said it is important you can have a stronger private sector. there's a context against and why we are making tough decisions. one, we had a special session on ethics at the very first thing i did with my first 30 days as governor. you have a lot of momentum coming in. you campaign on specific policies, your and your honeymoon period. your first initiatives should be some of your most important initiatives that it's important we started with ethics reforms. i'm not going to bore you with all the jokes. fill in the blank. bill uses a we were half are

equal were underwater and the other half are under indictment any given moment at time. i will let christie to you about new jersey politics. we passed dozens of ethics laws. we went from 44, bottom five, better government integrity association, and integrity index to the top five. the reason this was important, our survey, they said were the most important things to attract investors was to crack down on corruption. during the campaign i talked about when we pushed them away, this wasn't just about symbolism our ranking. it was about sending a strong message. they can't do. just like they say you can't cut spending, you can change your state. this is the way it's been done for decades. is a new day in louisiana. people are expecting change that people in each of these states are expecting change. second thing, we cut a bunch of

taxes. largest income tax interstates history. got rid of business taxes on debt, unequivocal in mainstays like mrs. passionate mississippi didn't have. literally about a week and a half after our first special session with a second special session. i made medal meant -- i made a commitment we are not raising taxes. we want to send a strong message. we welcome to business investment in louisiana. the third thing we revamped our workforce can program 70% of the company to want to move or expand interstate. won't tell you all the steps. one example, we've got the top ranked louisiana fast start program, the top right program in the country. i will say this to new governors, steal ideas and examples from other states that georgia has a great workforce can program. we hired people from georgia to come to program. competition among the states is

a great thing. we can learn from each other whether policies or ideas, or even personnel. that's been a great benefit to our state. we also offer a day when guarantee. our workers will be ready to work on the first day when we return them for free at our community and technical colleges. we have more for students in charter schools than any other city in america are. we have got a scholarship program, give choice to many parents in new orleans. we have put discipline back in the classroom. the number one reason we lose good teachers is a lack of discipline in the classroom. we have invested in teachers south. we are at or above the average. the first time we've been there in a long time. the number one reason where the good teachers, we've got strong accountability programs. student performance to the beginning to the end of the year to the teacher evaluation. we have tested a red tape and bureaucracy. finally of invested in our infrastructure. investing more even as was cut overall spending. we invested in our roads and

ports more than the last three administrations did combined. it's about results. i told you we had to make tough choices. a lot of our government have to make tough choices to cut their budgets but we're able to show our people these choices were made for a reason. we made these cuts to create a stronger economy. we now $7 billion in private capital investment. over 38,000 new jobs of economic developers. unemployment rate is below the national so the rate every single month since we've taken office. second best economic performance. third best at creating jobs. my point is good policy is good politics, even as you make tough choices, as long as you explain to your voters will you making those choices. you are making those cuts so they can a better paying private sector jobs. i do a town hall, we call the parish is that every parish in my state, everything of your. i was telling christie by the third year you can't expect people to come up you instructed

link more and more. there will be deeply don't like the cuts, that would prefer you to protect their programs. i've been amazed, and i will close on this point, the last time louisiana face a recession this powerful was back in the '80s. it was painful for our state. and, indeed, we were one of only three states in the recession. and it was tough because ever else was watching the rest of the country booming. why wasn't louisiana growing? this time as i traveled the state our people, they know the country is facing tough fiscal times. they are making the tough choices in their family budgets, their personal budgets, in their businesses and a small businesses. they would be surprised if you were making tough choices. when we explained will not raise taxes by making the tough choices we will being bringing better jobs. i agree with the premise of today's panel that good policy is good politics. it is important to remind you people while -- why you're

making tough choices. because the alternative is exactly the d.c. approach that no state has ever attacks, borrowed or spent the way to prosperity. a couple have tried. none of them have succeeded. i have to agree that good policies is good politics. >> good morning and afternoon. bill binnie, thank you for your great leadership for our country over all these years and decades. we are honored you're here to moderate this panel. i'm glad that all of our other guests are here to support the rga. we appreciate every one of you. i'm hoping this panel was he the benefit of being supportive of and evolve in the rga. it's been an honor for us to be a part of a. it's an honor to be the vice chair. on the topic of today i think the election of 2010 will be and i know for my fellow governors in the rga, affirms the wisdom and common sense of the american people. i think the country basically says that president obama and impose a region led congress, we don't like what you're doing. we thank you taken us off on a path away from the principles of

common sense that maybe country great. and we are telling you to knock it off and we're putting it under new management. and with dynamite all of us a program like to talk about freedom. some of our friends in immediate who are cynical snicker at that and say it's an old word, it doesn't mean much anymore. i think it means as much or more now than ever before for this reason. when we talk about the scope of government and the reach of government into the lives of america, into the lives of our economy, this issue of freedom on the continuum between what government can do and what can do to unleash the american spirit, matters a lot. and we sometimes defined threats to freedom and externally. we say we are very worried about what might happen in iran or north korea, as we should become and we should be very diligent about those extra threads. but every day there are internal threats to our freedom that come in the form of school board decisions, county decisions, state decisions, federal government decisions, and as they push into space and take

over space that previously was reserved for the private market, they crowd out and discourage the american spirit and freedom that as they push into space that used to be reserved for families and neighborhoods and community and charity and places of worship, they push out and crowd out the american spirit that as they pushed into the private market and do things to discourage entrepreneurs and dreamers and designers and innovators, they crowd out and discourage the american spirit. so this issue of defending freedom and raising it up and educating people about it and applying it to the policy challenges and opportunities of our time is really important. i think the american people understand that. i think the american people responded to that with a result of this election. as to some of the specific policy applications, what that means under the hood, i think it means that is the number one issue is the economy and the job, don't go to washington, d.c., and ask the politicians in washington, d.c.,

most of them have never worked in the private sector, what are those things that we can do to stimulate private-sector job growth in the country? you want to ask and answer that question the best thing we can do is go ask the people who actually do that, who deploy capital, take risk of infant stuff, growth jobs, add jobs and the like. when you ask them what they tell you is this, governor, or governors, make the load lighter, don't make it heavier. ..

>> we have a third of our kids dropping out of high school. we have a children who are not able to access the economy of today and tomorrow. minnesota is very fortunate because we have the highest act scores in the country, some of the highest nape scores in the country, and our college attainment levels are high, but the stories are different if you come from an area of concentrated disadvantage. [inaudible] >> we -- [inaudible] sorry. okay. >> in minnesota that we have a

challenge and our focus has been more competitive and governors try to brag about the various ranking and yesterday was we have classes and government spending that makes costs more competitive. we are not going to be a successful country because we're in the place we are or because we're the cheapest place. we have to be the smartest. we don't have that for all of our citizens yet and hopefully we can get into the education system more broadly. we have the figure in the nation to have charter schools and require kids to get out of 8th grade have algebra one and

algebra two out of high school. we have the benchmark against the rest of the world in the late 90s coming in 16th or 17th as a state testing. we took that test again a couple years ago and came in 5th and 6th in math and science. those are good policies and politics. thank yous for being here. [applause] >> now some relaxed homespun wisdom from governor mitch daniels. >> sorry, you just would not give me any money at all, you were right, i was wrong. [laughter] >> i had forgotten what a rich bane of humor louisiana politics provided us over the years, and

i remember when you were running, i was talking to a friend from your state, and a very savvy person and i asked tell me about my friend bobby, can he win? he said, you know, i don't have a clue. we've tried smart, and we've tried honest, but we never tried them both at the same time before. [laughter] so it was a great, you know, encouragement to us. >> i'm just struck by what a moment of enormous opportunity this is for all the principles expressed here in the way it matters most which is in intangible action and the results that come from it. i'm so excited for all our new colleagues and any of us with a chance to serve at this moment in our nation's history. first of all, there's clearly an appreciation for the need of rebalancing between the sectors

and economies in government. it hasn't always been there. it's not so uphill. in fact, it's uphill for anybody who flinches, i think, from the job of challenging spending and challenging government intrusiveness. it is a time in which the skepticism about washington and, i would say resip pri call confidence in the greater trustworthiness and effectiveness of state government has never been wider, and people will be receptive, i think, and very supportive of actions taken by people in jobs like ours. i'm so thrilled. one of the positive aspects last year or two is that i heard people talk about the 10th amendment for the first time in sense high school. i think certainly a lot of

judges forgot the word 10, and yet, interestly, people have begun to speak, i think, pretty knowledgeably about the importance of freedom and the importance of, you know, fidelity of the original concept that the states ought to be more vigorous. there's a chance that i haven't seen six years in this job that really challenge credibly and maybe effectively, especially if we do it together how washington dictates, and i would say this on the basis of some experience, but i think our fellow citizens have never in long time at least been so conscious of the need for government to be pursued on a limited basis, and what haley

said i would echo to the new governors. i mean, you're going to have a field day especially if you follow the democrats. i mean, the fruit hangs very low in state government. you know, my military friends. call it a target rich environment on what it ought to do and spend and go for it. you will find in every corner even if the states have been well run and through a ringer the last two year, you will never be done finding ways to stretch taxpayer dollars, but i think i would urge you to remember americans, i believe, i want government to be more limited, but that does not mean inert or inactive. within the sphere which you will define for yourselves and fellow citizens of what government ought to do, i think people will

really expect vigor, and they will expect action. it won't be enough to say, well, i spent less money and tax less. that's a good start, but it won't suffice. you better have action items improving the lives of every day citizens, and i would urge you to tilt those, not just your rhetoric, but your actions in the direction of the least fortunate people in your state, and those who are only on the first rung of life's ladder. there's a huge opportunity there now available to us, the flip side of that is failure to act effectively on it will be penalized, but i don't think that will befall any of the new ones who just got elected. it's the best crop of public life we've seen in a long time. >> thank you. 235 years ago there was an outpouring of wisdom on politics

the world had ever seen including 5th century athens that took place in virginia on mount vernon. we got virginia back. >> thank you, bill, and thank you for your support and great generosity. the reason we celebrate this success this weekend is because of all the help you gave us, and bill, thanks, you're one the great ideal guys for the republican cause and devoted your life on craft k policies that some of us now can run on. we really appreciate that. i realize in our campaign and chris did as well, it was all about jobs in the economy. my first bumper stickic popular was bob for jobs. if everybody remembered that on election day, i it a good chance of winning. it actually encouraged some of the new governors to consider that.

bob walker and bob brewer that thought would be great. [laughter] this was an election cycle as well that driving policies 23409 only campaign, but governing like a cam pin and getting results is what people wanted, and then things that were unique to the state. one thing i did after getting legislated was call mitch daniels and others here and asked what worked well for you and how did you translate your policy proposals from the campaign to real ideas on the ground and how did you get them done in the first session? it was very helpful. >> it's pretty evident in this election cycle with congress being in the numbers of a 20% approval rating, people are tired of rhetoric and partisan fighting.

they want solutions and results. we saw congressional candidates running on positive ideal laiden come pains, and democrats were running from their ideas. they didn't run on health care, cap and trade, or micromanaging the free enterprise system, but attacked republicans on character and other things. it was a contrast that the republicans were the proidea party during this election cycle and that's why the independent voters came this way and why we had such success with the 23 new ceo's of the states we got here at this meeting. >> james collins wrote a couple books, but one book he wrote talked about the idea of big hairy audacious goals, and if you put the policy meat to it, people will follow. i think that's really important, and that's why i've tried to set a goal when i started a couple

modest things like virginia is beginning to be the most business-friendly state in the country and best place in america for veteran to leave the service and stay, that we would be the energy capitol of the east coast. we set about in the first session trying to actually get those things done, and for most of the governors at first, there's a limit to what you can do. haley, you said the main thing is keeping the eye on the main thing on the main thing. [laughter] >> that's right. >> i think we'll hear about that later today. i thought we should do three things well. get the budget under control, create a economic environment with new incentives, and try to reform our education system. bill, as you pointed out, we got rid of the $2 billion tax increase, balanced the budget by cutting spending by a couple million dollars and ended up at the end of the year with a $4

million surplus. there's not been a time in america in modern history where people are willing to accept more sacrifice and cuts and bigger ideas to come up with innovative solutions than right now, and they realize that bobby, as you said in your personal life with their credit card, business environment, you can't spend more than you have or you go broke, and so running these cam campaigns and governing works and it's more prosperity for your state. when we cut health care and education in our state, people said there was 30,000 teachers unemployed. it didn't happen. because people managed resources better if you give them less of it. i think those ideas around fiscal responsibility really will drive our governorships for the next couple years. we need to do a better job with

competing with other states. i know they were aggressive running around the country attracting new businesses in their states. we passed economic incentives to cash in on that promise that we were going to be all about jobs. with the 10% unemployment and 7% in virginia, and 3,000 people in the state unemployed, it was unacceptable, and getting people back to work, all the polls and travel showed that that was a key issue, and focusing on all of those things tim talked about in promoting small business and entrepreneurship and talking about the lofty goals of rekindling the american dream in your state are things people want to hear about and led by and putting that in the projob creation policy is important. the third thing is long term we have to do better with our education system. long term for people to have access to the american dream,

they need to be well-trained. we are not just competing with other states, but china, japan, and not only great work ethic, but tremendous education systems and more accountability and focus on results. we decided the ideas in place were ideas that had more charter schools, the worst law in the country, college laboratory schools using innovation from our universities, virtual schools using technology to exchange information across school districts, and all of those things passed. we're trying to find other ways to push the envelope. we want to prioritize stores, and i ran on that with the business community behind it. we got the public behind it. we have to get the legislatures behind it, it's a complicated idea you have to do a little work on. we want to find ways to improve

the energy capacity in virginia with some new things, so i just think that these, the promotion of big ideas is more timely now than ever. the focus on reducing spending and getting back to the constitutional roots, di cueing the 10th amendment and what that means in governing at the state level is so important. i live in a state where the second governor of our state was thomas jefferson, and when he said things government closest to the people governs best. you should not take from the mouth of labor the bread of concern. it's nice to have governors before us who have big ideas because we don't mess with jefferson in virginia. [laughter] with that, i look forward to the questions and proud to be on the panel. >> thank you very much. [applause] >> in fairness to virginia and new jersey, james madison left

to go to the college of new jersey. i think you're talking about the intersection of policy and politics here. the one thing that the new governors and those who are expected much from them can't underestimate is that we study in rooms like this and we talk about these big ideas, and we talk about how the public is more willing to accept pain and difficulty than ever before. all of those things are true. here's who is not. the government that you inherit, the government that you inherit whether it's a republican governor or a democratic governor before you, the mind set was different, and what i think is one of the biggest struggles governors have, the one i'm still having, is to get under control the bureaucracy that you inherit, and it's a to turn around the culture of no, the culture of we don't do it

that way, the culture of it's never been done that way, and you will also be vownlded by professional politicians in your state, members of the legislature, members of your party, who now that you have seized the governorship for your party and in their minds for them, they now believe, listen, let's not take any risk. okay? all these things you said in the campaign, that sounds great chris, and you ran a great campaign, wow, and you won. now, let's not take chances or kick anybody that we shouldn't kick, and you'll be fine. let's increment the lives here and just make people just a little bit angry with us and cuddle up with them some other times as well so that you request inch your --

you can inch your way towards 2014 for all of you, and be in the best position you can be to win. i am absolutely convinced that if that's what you do, when we come back here in 2015, you will not be here because the public, this acceptance of greater pain that we're talking about up on the panel, what couples with that is greater expectation from us that we're actually going to tell them the truth, that they're not going to hear from us speaking in ways that make them fog over and change the channel, in ways that don't make them through their newspapers down in disgust saying i voted for him or her, and they are just like the other guy. if you decide to follow that path, i think it's a path that most certainly will lead to failure, and you will have people in your state that will

tell you these things. they will say to you, listen, don't take on the public sector units. for those of you who have states like mine, we have public sec ton unions that are strong and prominent. they say you cannot do it, don't take on that fight. i will tell you that i think that is just the wrong philosophy to take. that we know, as governors and all these folks here in states with a lot of public sector unions, that if you don't take on that fight and solve that problem, you'll never solve your budget problems. you'll never solve the underlying problems that we need to solve as a state in new jersey and as a country, and so that's going to mean taking on folks that have not been taken on in your state for a long

period of time. now, in new jersey that's meant the teacher's union, and you will get no greater resistance to political movement, than from your political advisers when they tell you how many members are in your teacher's union, in your state, how much they spend on advertising and ground gain, and how much they spend on every other issue, and how everybody loves their teacher, and it is true. most people love their teachers, and i love the schoolteachers in new jersey, but i can't stand their union. [laughter] the reason i can't it because they tell you that it's about the children. they tell you that they want to do everything for the kids, yet in my state and the four years before i became governor, the average salary increase demanded by public teacher unions was 5% in a 0 inflation world.

in the state of new jersey, unions demand that teachers pay nothing towards health benefits from the day they are hired until e -- the day they die. when i asked them about the $11 billion deficit i inherited in a $29 million budget, and i asked them to take a pay freeze for a year, a freeze, not a cut and contribute 1.5% of their salary to the health benefits and for most teachers that's $750 for vision, dental, and health coverage. they called that the greasest assault on public education in the history of new jersey. this is what you have to believe to believe that. we have four children.

our young est is 7 in the 2nd agreed. you have to believe this scene occurs in your house. our daughter came home with our first report card a couple weeks ago, and the grades were not good. she said, dad, i can't con concentrate. i can't think, i can't study. why? why can't you study? you made my teachers take a pay freeze this year. [laughter] o' boy, and now she is to put 1.5% of her pay towards health insurance. dad, stop the madness. [laughter] [applause] just give her that 5% pay increase, and then i promise i

will get a's. [laughter] you laugh, but that's the crap i have to listen to in new jersey. [laughter] for all the new governors, you're going to hear from some of your advisers don't do it, you can't take on those fights, and all i have to say to you is if you care about great politics and good policies and it's the right phrase, but it's not easy. it's easy sitting here talking about it. when you get home and that bureaucracy is pressuring you, when you get home and the special interests pressure you, when you get home and your political advisers say to you, take your foot off the gas, governor, do the easy things first. you got to do the hard things first. you are never going to be more pop poor lar than when you go

home now or when you take your hand off the bible on inaugust gracious day, and you better understand that i believe this, that political capital is there to be spent. it will dispalet if you don't spend it. you have a choice. you can spend it or put it in the top drawer of your desk, and then one day you open it to spend it, and it's not going to be there because time will dispate it. you know, i think good policy equals good politics, sure, of course, but it's when you get home and tough choices need to be made and you have to do it, and if you don't do it, not only will you not do what haley suggested which is absolutely right, do what you said you were going to do, not only do you break faith with those who supported you financially and spiritually, but i suggest to you you put yourself on the road to political ruin as well, and putting your state on a road

that will not lead it to prosperity at the more optimism without a path to the same old same old, and if this election means anything, it meant they don't want that anymore, and they deserve better and it's up to all of us to make sure that happens. thank you. [applause] >> the program says i'm in charge. i'm not really in charge. do you have time for questions? all right. may i ask a question? >> sure. >> wonderful comment. i had a chance to meet with the freshmen congress last sunday. i content tell you -- i can't tell you how impressed they are with you. they are the real guys and a lot to do why washington. let's think about something big that one of the themes throughout the remarks that the governors, the states, and i

remember in 1996 the republican ideas about welfare reform came out of republican governors, came to washington, and not only passed in washington, but it passed over the objections of the administration, bill couldn't sign the health care reform bill, but there was no greater example of the federal policeman than the federal welfare program, but thanks to the republican ideas and energy that moved, i think we need instruction in washington. we need to be taught from the states all the comments made about the election, and my favorite is this was not a vote, this was a restraining order. [laughter] that was the stop. if there's a go, what's the go? what's the big idea or a couple big ideas that you have done or are percolating that washington can learn from? >> well, just quickly, i hope all of you ran on something that

would resemil or could be put together into an agenda. you know, we had haley's plan, and we have seven different areas of government where we say we're going to do things. the best thing you can have going for you is something that you can say the people voted for, and then do it. i mean, we did tort reform my first year. i campaigned very heavily on tort reform. the senate, both the houses were democrats, the senate voted three times for tort reform in the regular session, and the speaker would not let it come to the floor in the house, so the session ends on a sunday. on monday, i called them back into the special session on wednesday for tort reform, and in the next 20 days the senate pass the tort reform three more times, and finally the speaker caves in, he can't hold the votes anymore, and tort reform

passed two to one, literally 78 to 79, two to one in the house. we could have never done except i ran on it. i guarantee you there's stuff you talked about all the time. make that your agenda and claim that you have a mandate and do it because people are ready. mitch is right, it's not enough to cut spending. they want you to do something. i used to tell trent a lot when he was a mar seniority leader, senators talk about things, and governors do things. to me, the best thing if it can be ingrafted into an economic growth job creation plan, that's the thing, and i will venture to say every one of your campaign has those elements. if you have not made a is simple

and easy unplan, go and do it, and then actually implement or ceo cute that -- execute that plan. that's what i would say. >> good. >> one of the things that's both good policy and good politics is essential if we're going to shrink government in the country and make it sustainable is to overhaul the employee compensation packages. chris touched on this, but some examples from minnesota. public employees used to be underpaid and overbenefitted compared to the private sector counterparts. now by any credible study, they are overbenefit and overpaid and they are not aligns to performance and jut comes, but to how many years you've been around. when you look at teacher union area, you ask folks what do you get paid on, it's based on seniority. do you know what the correlation is between the staff and the

academic success of the students in the classroom? it's nearly 0. like everything else, we have to define the mission of the enterprise, make sure that we align the money to the measurements of that enterprise, and do a better job. we had bus drivers in minnesota who could work 15 years, retire, and be eligible to receive health care benefits for the rest of their lives. i said, if you don't work in government, get to work 15 years and retire and have the government pay your health insurance for the rest of your life? did you know the bus drivers get that? did you know you're paying for that? no, we didn't. do you think we should end that? yes, we do. we shut down the entire transit system for 44 days. by the way, the congestion in the twin cities, the 15th largest metropolitan area in the country was better during the bus strike, not worse.

[laughter] it's for reasons we still don't understand, but the public is on our side in this issue. we said to our teachers back five years ago we're going to performance pay and we're the first in the country to offer performance pay, and now other states are doing bolder versions of it, but i had to take that bill hostage and threaten not just the government shoutdown and the special session, but the school not starting that fall because the unions rose up and it was world war iii just to get an early reform for teachers. we had a battle over how we pay for their health care, if you go somewhere that's expensive with crappy results, you're paying more, and if you go to somewhere that's more efficient, you'll pay less. our premiums have been only 0

for five years in a row. those are the changes we need to make, but it's good politics and policy because the public is with us and it needs to be done, and frankly the union would stick a shiv in us if they could. >> we have 5 minutes for governors want to comment. governor daniels, please. >> that's good advice. don't take any polls. [laughter] i mean, with apologies to my friend who do this for a living. don't take any polls. as chris mentioned, it depresses you and you decline after polls because of gravity. what haley talked about in doing versus saying, here's a huge difference in your favor. it is hard to talk the public into a different point of view, just words, but you can act in

ways that the public may think they don't like, but if it produces results, they will change their mind. results change people's mind in ways that even the most eloquent piece of words. if you act perhaps in ways that are different, the media will always pounce on how controversial these things are. i was congratulating martinez and the chairman of the dga, and when we're there in washington for the national meeting, he's holding press conferences as the chairman are always asked to do, and i got feedback they asked him to forecast the results. he said it's too early, but we're going to kill that guy in indiana. he can't possibly make it.

he's done this and this and this, and that jarred people. governor richardson, sorry about your luck, because it didn't work that way. [laughter] i just can't tell you what an opportunity awaits you. i really believe this if you follow your instincts and do the things you thoughtfully concluded will make a material difference, that will change mine. that will change the surveys don't mean much because people are very fair-minded, and if they see actions and results and what these guys are already getting, it will work out just fine, and i know that's what lies ahead. >> someone who works in words, you're right in results in doing stuff, but telling the truth is a big deal. >> sure. >> you guys are all truth tellers, and it rings and resinates. a way to see a crooked stick is

hold a straight one next to. we have six straight sticks here. >> i think this president has proven his words exactly right. i think this president may be the most gifted speaker in the white house since the president you and haley worked for, and yet this lerks two weeks ago with his response was he didn't do good enough job communicating. he gave more speeches in a year than most presidents give in four years. what can congress learn from the new governors, and governors up here, i think three things. one, mitch is exactly right that the administration, congress needs to be focused on what the voters care about. i know there's a line that our prices are opportunity, and they didn't want to wait and used this economic challenge to push on obamacare and cap and trade and card check, and when the voters wanted them to create the conditions for private sector growth. the first thing to learn from governors is focus on what the

voters care about and creating the conditions for private sector growth. now, congressman create jobs, not government, but they can get out of the way. the first initiative is do no more harm. story after story of companies in my state have not invested in capital because they are waiting on dc. the second thing they can do is learn from the structural forms. each governor balances their budget whether it's requirements or votes to raise taxes or limiting government styles. every governor operates under constraints, and washington doesn't face that. what i worry about is we have a honeymoon period, and then at some point we throw them out and legislate a new group. the third we haven't talked about up here but is important is learn from the states about health care. welfare reform is the greatest reform from the 90s. everybody but washington

realized if you insent vise people to work, people will work. who knew if you insent vise people to stay home, they would not go to work. experts said it would never work and people would be screaming in the streets. it didn't happen. it was a great success. mitch implemented reforms in indiana with market based health care and in response to obamacare i think the new folks in congress can listen to the states. one thing about obamacare that concerns me is 16 million new enroll lees in medicaid. each governor is now confronted with a larger medicaid program. instead of a one-size-fits all approach, they need to give flex the and states are ready to lead the way with health care as well. >> last comment. >> shakes speer is not only witty in himself, but witty of others. these gentlemen have good ideas

themselves, but also around the country. please send them to washington. we are desperately in need of them. thank you very much. [applause] [applause] >> as you can tell this is closing out the two session and session three will start within the next five minutes because we are moving quickly, so if you need to take a break, this is the time to do it, but be back in three to four. thank you. >> in florida, republican rick scott is the republican elect after beating alex sink 48-49% competing to succeed charlie chris. he graduated from southern methodist law school and is a health care executive. in colorado, john is succeeded

bill ritter who chose not to seek reelection. he served as the mayor of denver since 2003 and a restaurant owner with a masters degree fromless weian university.

>> coming up next a forum on the u.s. economy kane what steps should be taken next to reduce spending and a president's report on reducing medicare costs hosted by the american enterprise institute and national review institute, this is just under an hour. >> all right, so as people are coming back in from the break, we'll go ahead and get started. i'm steven the staff writer for nation review, and i'm moderating this panel, and the question of whether or not those two things are compatible is going to probably dominate the debate over the next year and over some of the years to come. just quickly before we get to our panelists, i'll try to provide context for the debate. i think we have two debates going on right now in this

country over the budget. there's a short term debate focused on what tax and spending levels are going to be next year whether or not we extend all of the bush tax cuts or some of them or none of the bush tax cuts, and there's also question of appropriations for the next fiscal year and will the democrats in the lame duck session pass a new bill trying to lock in very high spending levels for the next fiscal year or pass the resolution that funds the government at the current levels until the end of september of next year or pass a short term continuing resolution that just punts the issue to the republicans in early next year in january or february, so that's going to be an important question that i think we're going to see some developments on in the next couple weeks even, and i'm sure our panelists have some things to say about

that, and then longer term, after the election concluded, we saw the release of a number of deficit reduction plans focused orcht long term unstainability of our entitlement programs and spending directories. the obama's fiscal commission, the co-chairman of that commission released a report that generated a lot of debate in terms of how they address some of those questions. again, i'm sure our panelists have a lot of thoughts on that, # and since the release of that report, we've seen the release of other reports each representing kind of a different method of grappling with these long term debt and deficit problems, so with that in mind, kind of that short term focus and then zooming out to look at the bigger picture, i'll turn it over to our wonderful panelists. we have at the end of the table here speaking first is kevin,

director of economic studies senior fellow here at aei and a writer on tax and budget policy for bloomberg and national review. we have next andrew biggs, a resident scholar here as well, principle deputy commission for the social security administration where reoversaw the agency policy research efforts, and he's been working on this stuff for a long time, and one of the most knowledgeable people about entitlements in this town, and then to my right is robert stien, and you know, he'll be talking about economic growth, the policies compatible with that and looking ahead, how can we get this budget deficit under control without doing a great deal of damage to the economy. with that, i'll turn it over to kevin. >> yes, so peter was right that this is a little bit different

from some of the panels we've here at aei, and we're trying to think if republicans have an agenda, what might be it be? i assure you the extent we arrive at recommendations there's many follow-up conferences in the next few months bringing in experts 20 -- to tell us whether that is sensible or not. putting on your republican hat and what they should do is a useful exercise to kick off debate. i can say it's not necessarily the republican part that is not necessarily relevant in this sense that i am about to spend my time praising president obama's commission, and i honestly think it's the best commission i've ever seen what they've done so far, the glim pes of it. i'm not saying it's going to succeed politically, but a matter of intellectual content, the members of that commission

are to be commended. andrew and i have been working on about a year frankly almost been locked in a room with a pile of data figuring out what the data tells us in the area of fiscal consolidation, the idea when you have a big mess like eluded to, how do we fix it? well, the sad history of human foibles is there's many, many countries over the years with significant problems like our own. they had debt to gdp higher than we had and tried niewrm rows things to -- numerous things to fix that problem. we looked at the literature in the data on who succeeded and who didn't succeed and what was the basic characteristic of the things that succeeded as a guide for u.s. policy. the objective of the work that we're doing, and we're going to have a big conference on this in january is to say if we copied the fiscal consolidations of the

past, then what would we do ?a that's a data driven exercise, not a political one. i think you'll see something that's interesting. the answer is we would take the sketch of the simpson planned we leased by the two chairman in accidental law or something like it. my presentation is deviating from most of the others. i think the other constraint which for me is more severe usually for the fact that we're doing this conference of national review, we were not even as economists supposed to have slides, and the only way i got this slide up there is i reminded everybody i'm the chart guy at national review. there's a chart that i put in there, and as long as i put the slides in narnl review in the upcoming issue, then i'm allowed to put it here. [laughter] >> special exemption. >> special exemption. this is actually a chart that

characterizes and there's literature and squabbling in literature saying what are the characteristics, and this is drawn from work that matt and andrew and i are doing that is about to come out in our working paper, but if you look at the literature, there's quite a bit of dispute about the characteristic of successful or unsuccessful consolidations depending on what pair that you're -- paper you look at. the x's are fiscal consolidations that were unsuccessful, and by unsuccessful, they failed to reduce the debt to gdp. there's a reasonable measure of success. okay, we're going to fix our deficit situation and try to get our debt to gdp down over the next to five to ten years, and then we can see if they accomplished what they set out to do. that's a hard-nosed accounting

measure of success opposed to the ones where the economists use where it's in the eye of the beholder. the question then is there's a lot of variation over time and what samples authors are looking at and what people call fiscal consolidation. some use data-driven methods saying if there's a big change in revenues it came from underwriting change and others use a country that says, hey, guys, let's have a franky and annette and then they do, and the o's in this chart are the ones that succeeded, and the different colors show which paper we're talking about and the basic idea is that the people that try on the y ax us,

is goes up -- this is right on a 45 degree line because the x and y axis and the ones on tax revenue, you are all the way up on the y axis, and if you rely on tax expenditure reductions you're up on the x axis. you can see the exx -- x's try to do it with expenditures, and the o's try to do it with tax revenue, and so there's papers that say the proportion that is expenditure reduction is bigger than 100%, and some papers say, no, no it's between 50 and 100%, but there's no successful ones that try to get more than half of the reduction by tax revenue, and if

you want to be really safely in the zone of having successful fiscal consolidation, then this chart suggests you want to be down on this side of the chart. the next one is that probably will be the one that will be in national review because it's interesting. what we did here is using the actual data now and relying on a few different methods in the literature. this is characterize of the range you could possibly get and using a few different definitions of successful, so a modest success is one that reduces debt to gdp by 2.5% and a rip-roaring success is reducing it to 6.5%. the x's are failures and o's are successes. this is drawing not from what

paper said, but from the data. the interesting thing about this chart, the point of the republican agenda, is there are two successes or the fiscal commission has a plan with two extra spots on this chart. the blue try angle is what was sketched, and the orange diamond is the bipartisan policy center's plan, and so you can see right here that even, you know, bowls and simpson for me i would want to be safer on the other side of the boundary, and i would be willing to slide down this way a little bit, but the simpson plan draws on a pretty strong history of success. it's, you know, safely into the region where we can expect the consolidation to work. now, it doesn't mean just because it worked by the way, it

doesn't mean you want to do it. that's why we have to have another conference. it could be at works by killing the economy or something. we have to look at gdp and unemployment as to what happens before you do it to say that's what we ought to do. you can see the fiscal commission's plan is pretty ill-advised given the lessons of literature. what i conclude is that we're in a pretty rough situation. the debt to gdp in the u.s. is looking at like it's going to finish the year at 86%. that makes it higher than it was for the typical latin america country that defaulted. latin america countries tend to default on their debt pretty readily. [laughter] they perhaps are willing to do it, you know, more than they should be, and so that doesn't

mean we're necessarily doomed, but we are in a danger zone where you can really expect markets to start to punish us if we don't do anything. my observation would be if this most recent election was about anything, it seems to have been about smaller government. there is this really wonderful brilliant paper written by a graduate student in ucla and took paragraphs of the signs and characteristicked what the signs said and almost all of them said smaller government. if there's a wave that tells us that we should pursue a policy or take seriously a policy, then for me, i would say that the way it's telling us that simpson is on to something. now, they have their own plan, but that doesn't necessarily mean that it's the best plan that would most match the fiscal consolidations of the past. for example, there are

subtleties like if we're going to reduce spending, do we do that through entitlements or military or what. andrew has been the part of our team that's been working on this working really hard on taking the compositional things from this past successes and matching it to specific u.s. policies, and what he's going to do now is sketch where we are on that and what we think. >> thanks. >> that was the formality of introducing andrew to do what andrew said he'll be doing. >> well, that having been taken care of -- [laughter] thanks, kevin, for leading into these things. it's evident wf a large challenge to get on top of the budget gap. it's called the fiscal gap which is essentially the change in revenues or expenditures you

need, not necessarily to exact balance the budget, but keep the level of debt from exploding. the measures over the next 75 years, the fiscal gap is 80%. i'll put it in terms that might be more meaningful. that's equivalent to a permanent doubling of all income tax revenues or like wise equivalent to eliminating the social security and medicare programs. that's the scale of the problem we face, so i think it really makes sense to pay attention to the literature in what works to fix the problems because we have a very, very large task ahead of us. as kevin mentioned, the existing literature that is looked at fiscal consolidations overseas has really concluded those succeeded in reducing deficits in debt did so principally by reducing government expenditures rather than by trying to

increase taxes. there's an additional finding though that pops up in the literature that talks a little about the areas in which successful fiscal consolidation focuses their reductions and expenditures. in other words to succeed if you have to cut spending, what is the types of spending they tended to cut? the two areas successful countries focused on was first social transfers which in the u.s. context means welfare and entitlement spending and the next is a government wage bill, the number of government employees you have and the relative pay for each workerment i think it's worth focusing on that and to pull quotes from the literature which are not known as particularly right leaning institutions, but the oecd says "an emphasis on cutting current expenditures is associated with overall larger consolidations, and a large weight on social spending cuts increase the

chances of stabilizing the debt to gdp ratio, like wise the ims said those that concentrate on the expenditure size on government wages are make likely to succeed in reducing the public tax ratio than consolidations." i like it when they sum it up cleanly like thatment one question is why would this focus on transfer and entitlement spending and government pay be so important? one answer that is sort of a direct economic effect that lower government transfers encourage people to work more and save more, and in doing that, that stimulates the economy. when you think of the debt to gdp ratio as a fraction, you have the debt and gdp on the dot tom -- bottom, you want to increase the numerator and denominator to increase the economy. if you shift labor from the

private sector to the public sector, that also helps the economy. there's also an indirect effect that the litture points to that is just as important. there's a signaling affect when governments are willing to tackle issues of entitlements of government sector pay because these are considered to be third rails of politics, things that are very, very difficult to get on top of. governments that take on these issues signal their seriousness about fiscal reform, and they signal both the public, you know, the general public and the financial sector that are truly committed to getting on top of these problems so when people see the government tackling the toughest fiscal issues, individuals become for cognizant of their future and invest more in themselves and businesses. the financial sector may become more confident about the government's ability to service its debts in the future, so you might get more favorable interest rates and things like that.

the two esks that seem to work together should be focused on government spend l and worker pay as one the recipes that countries have looked at with success. i want to talk a little bit in broad terms about what a successful fiscal consolidation in the u.s. might look like. echoing kevin's comments, you know, i give credit to the chairs of president obama's fiscal commission. i think they have outlined an effort of balancing the budget that is at least roughly consistent with the historical background of what a successful fiscal consolidation looks like. looking over the long terp, your biggest driver of deficits and debt is entitlements, social security and medicare. ..certainly we have heard from some already today, and

obviously there is more at aei. one idea, a simple illustrative approach that kevin and i have looked at essentially introducing a deductible to medicare. sangha seniors above some given income level would pay the first x dollars of the health care teacher, and then medicare would kick in to cover the rest. something like that would reduce medicare costs directly in terms of simply introducing an extra source of revenue from individuals into the system. it might have a more important indirect effect by giving individuals some skin in the game, some incentive to care about the amount of health care they are consuming. if you believe the rand health experiment in the 1970 and 1980s, individuals who have some cost sharing came to visit the doctor less, they go to the hospital less, they spend less overall on health care, but they don't have health conditions that are worse. there's a real key incentive effect their that i think could

sort of accelerate the effects are excellent the improvements. social security i believe the key is to refocus the program back on its original intention, on its most important function, which is to provide insurance against poverty for the disabled, for survivors, and the old. today, much of social security expenditures are on peope >> if you go back to 1950s, the typical person claims social security benefits at age 68 or 69, despite the fact they had a life expectancy around a 76. today the typical person retired at 62 or 63 and can live into their early 80s. that means a typical person will spend 1/3 of their adult life in retirement financed by the government. it's great to retire whenever you want when you saved up enough money. a lot of people haven't. i think we want to have a real push in terms of social security reform, in terms of encouraging

people to work longer. when you have an aging amount of population and support more retirees, you want to encourage people to work more, save more, and retire later. i think that raises taxes to fix the system will encourage people to work less, save less, and retire sooner. the final point i'll make is on public sector pay. in a sense, there's a split opinion on whether federal employees are over paid. every year there's a report that says they are under paid, but this report says there's a pay gap that grew from 2008 to 2009. you have three decades of economic research that has found that federal employees receive salaries 10 to 20% higher than those of similar employees.

recently, i've updated the work with the heritage foundation, we use government salary and control for differences in age, education, marital status, depend -- gender, every available, even after that, there's a 10% pay premium. there's no reason they should be under paid, there's also no reason they should be over paid. it coming to around $1400 per worker or over $40 billion in total. i think as a way of controlling the federal expenditures, but as a way of demonstrating seriousness to the public while they are going to be, you know, expected to take some sacrifices on social security, medicare, and other programs that we're not having exempt population that doesn't have to share the pain. i think that's a way of, again, show their commitments to the moving forward on this and getting buy in from people around the country. this just scratches the surface.

i'll pass it off now. we can go from there. >> thanks so much, andrew. i should have mentioned also that robert in addition to working at first trust advisers was before that assistant secretary at treasury department, chief economist for the senate budget committee. he's been working on the budget for a long time. >> i was one of those over paid government workers. >> so was i. okay. >> first thing i want to say is disagree slightly with something that andrew said. i think federal workers should be under paid. they should be because they can't be fired at will. when i was at the treasury department, frankly, if anybody is looking from the treasury department right now, not talking about you specifically, but i wanted to get rid of 20% of my staff. it would have been taken all of my energy for six months to do that. i do didn't get rid of anybody. they should be under paid until they are fireable at will. >> it's like an insurance policy

against -- insurance policy against unemployment. and if you were to go buy something like that in the private sector, it would be expensive because it's valuable. >> you are right. exactly. i'm going to take a little bit of a different tackle. i'm going to talk about the economy for a second. then i'll get into spending. i think this is probably not a commonly held view. but in my view, the soft patch over the next several months is going to be revealed to not have been quite as soft as most people thought. the government is having a lot of problems adjusting their data for oil prices. we had a lot of volatility in 2008. in the third quarter growth, once we get around to it, people are going to realize it was more like 3. the slightly above 4% growth we got last year, last quarter in

2009, first quarter in 2010 will get around to saying that was about 3 too. i think the under lying of 3% growth over the past year is correct. we didn't accelerate quite as rapidly as we originally thought we did late last year, early this year. we didn't go into the ditch again in the middle of the year. what we can do in terms of public policy to accelerate short to medium term growth, first thing that i would recommend is resisting the siren call which both parties have fallen to over the past decade, of short term demand management. this goes back, originally in view, to paul o'neil in 2001. there were several reasons that paul o'neil was a poor treasury secretary. one of his insistence in negotiating with republicans on capitol hill that we send out checks as rebates of the

previous years taxes right away. he insisted on that. it was an attempt to manage the economy through demand over the short term. and we have fallen into that again and again. president bush did it multiple times, president obama has engaged trying to send out extra checks for inflation that didn't affect social security recipients over the past couple of years. we need to resist that. instead, i would focus first on extenting the top tax rates that were enacted in 2001. dividends, capitol gains, and regular income. notice what i did not say. i didn't talk about the other tax cuts that everybody on capitol hill agrees should be extented. i'm not talking about the tax cuts from the middle class and below. now those will probably be extent the. they are certainly not going -- the extension certainly won't hurt growth over the next couple of years. but they are really not very

important. almost all of the tax cuts, almost all of the expenditures, related to those tax cuts, almost all of the deficit increase related to the tax cuts doesn't hit people at margin. even if you are in se -- in say what would have been the 28%, now 25, most are people earning money above that bracket. they don't matter that much. i would call them cross dressing tax cuts. they look like cross side tax cuts, but they aren't. second thing i would do is accept the president's proposal on full expensing in 2011. now to me this is kind of like a booby trap that larry summers left for the president. [laughter] >> he got the president to agree to that. frankly, i think the president knows what's going on. he can't sell full expensing on a permanent basis right away. they are just asking for it in 2011.

but can anyone in their right mind say the president that the united states seeking reelection in 2012 wants to be full expensing only in 2011, and then go back to regular depreciation in 2012? once we do it one year, it's going to be extended and made permanent. the republicans should accept that and move on to something else. in terms of cutting spend, i'm also enthusiastic about the deficit commission. i'm not quite as enthusiastic as kevin is. in terms of social security proposals, we achieve about 80% of the 75-year deficit reduction within that program. it's related to reduction and government spending. 20% related to an increase in taxes. frankly, i would take that. i prefer 100% to 0%, but 80 to 20 is good enough.

in terms of medicare changes, i'd prefer to see something that raises the retirement age. most of the proposals are nickel and dime proposals. i'd take that too. better than nothing. in terms of discretionary spending cuts, i think the commission, i think -- i'm not the greatest budgeteer of all time, i think they are fudging. it didn't line up between the early pages and page 16. it appears, it appears, i'm not 100% certain about this, it appears that the bowles-simpson commission is using when it calculates how much money it's saving through the discretionary spending cuts, the presidents budget, not the cbo baseline. and the presidents budget is inflated with proposals over and above what the cbo baseline would require. the triangle that you showed

shouldn't be at the 80/20, it should be further up when some of those xs appear. if it's calculated a little differently. i'm more worried we are not getting the bang for the buck in terms of the discretionary side that bowles-simpson commission is saying they are achieving. in terms of the medium term budget out look, trying to get there is daunting. cbo baseline for 2014 is a budget deficit of about $450 billion. let's say we extend all of the tax cuts. but all of the tax cuts, i'm including the alternative minimum tax as well as the other expiring provisions that always ends up being extended. then we have a deficit of about a trillion dollars. that's about 6% of gdp in 2014. let's take out the interest out lays and try to get to a primary budget balance or a budget

balance excluding the money that we have to spend on interest. that's about 3.5% of gdp. to put this in perspective, it's about 45% of all discretionary spending in 2014. i'm not talking about all social discretionary spending. i'm talking about everything. 45% of social, and pentagon spending combined, homeland security also. it's an amazing amount. now it's about 17% of all spending, that includes social security, medicare, medicaid, and obviously we're probably going to do something more long term rather than short term. so getting to a sustainable fiscal position over the medium term, it can only be done with drastic reforms to entitlements that not just bring those programs into the line for the long term, but are used to generate savings for the rest of the of budget. if we are going to avoid a tax

hike over the next several years. that's it. >> thanks, robert. just a couple of quick questions for the panelist before i turn it over to the audience, i wanted to start with kevin. but any of you can feel free to chime in on this. we talked a lot about the broader big picture stuff. although robert, you got into some of the current tax policy debates. but in terms of spending on the spending side, republicans, i think, are going to come under some pretty intense pressure right away to deliver spending cuts to the grassroots movement that providing so much of the fuel for their electoral triumph. i was wondering, how aggressive do you think republicans should be on this year's appropriations, that we areing

at in the lame duck, or in february, do you think it's possible for republicans to come in right away and deliver on drastic cuts in discretionary spending, the $100 billion that they've talked about. what are some ways that we can advise them in terms of what should be cut, what should go first, that kind of thing? >> the fiscal consolidation literature looks at what happens in the near term to countries that do this. some of the papers find that you set you have a near term boom. andrew alluded to this. it could happen if you say that companies thought were sitting on hoards of cash and weren't spending it because of uncertainty about future tax policy suddenly they see it with clarity future policy. i'm going to start buying machines and stuff. you can set off the near term boom. there are other papers that have subsequently, they are real -- relatively new, and it looks

like in the near term, it's a wash. especially for a big country like the u.s. in good news, within the framework of a significant fiscal consolidation, we were to cut government spending, then i don't think that you could expect a sort of cainian style. my concern would be that of some sort of haphazard spending reduction that wasn't within the context of let's give you clarity on the future movement. in which case it would be very difficult to predict what might happen. you might continue to have the uncertainty. the bet that you'd want to bet on would be the cainian effect. i don't think it's as big, but it goes in the direction of harming us a little bit in the short run if you do only that. i would really like to see them, you know, take the big job on now. the scale of the problem is actually characterized well by the last point. mr. boehner at one point said in

a speech that we should go back to 2008 spending? that's sort of depending on what point of time. it's lopping like $600 billion off on the spending side. that's the scale of the problem to have a genuine consolidation. you have to be back and then grow really, really slowly. my prediction is what they will do next year own -- year on spending, it's politically salable, and they will have a freeze. rather than roll it back to 2008, they will be able to get very strong political support for a freeze. >> great. thanks, kevin. andrew, just a quick thought. >> there's short of tension between focusing on short term cuts on discretionary spending and focusing on the long term budget issues. and it's concern i -- it's -- i

think both of them rough important. i think you also as a signally effect of seriousness, showing you are willing to make some tough choices. on the same time, you want to keep your eyes on the prize, which long term is the entitlement. if they have enough political capital and they think the public has enough attention span, you want to focus and get some stuff done on the discretionary end in the short term, but fully engage on the fiscal and trying to move that process forward. i think there's some reason to believe the president would be interested in at least the latter part. you know, i think he wants to produce something of substance on that. it'll be interesting to see how that plays out. >> someone famous a couple of years ago said we shouldn't let a crisis go to waste. [laughter] >> well, there's the shadow

hanging over the republicans. they failed in '95, early '96. looking back, the unemployment rate was 5.5%. it's very unlikely to be 5.5% any time soon. or even 7% frankly. so if we are ever going to have enough public support for the republicans to cut spending, it's now. and if they don't do it in some way, and i agree that the discretionary side really is more signaling than anything else. then it will be a signal that they are going to fail on the entitlements as well. they need to just to keep the faith of their supporters. >> fantastic. with that. i think we've got about 20 minutes left. i'll open it up to questions from the audience. got one back there. >> rick from virginia. i think the voters -- i mean

this last election republicans won by 7%, i think, in the house. a lot of the margins were really thin. i don't think the voter really as you guys well know, i'm sure, are getting the information that they need to make intelligent decisions. i don't think they know for the most part who's fiscally conservative, liberal, they don't know the make up in the senate that there's about 44 fiscal conservatives know. you need 60 obviously to get anything done. last year, total spending, $5 trillion. $3.5 federal, $1.5 state and local, then -- that's 36% of the $14 trillion economy for last year. we usually just use the 25% federal share. then atr comes along for the regulatory cost.

they are saying $2.5 trillion. that's $7.5 trillion of the government-created cost. that's 52% of gdp -- excuse me. that's what creates the job loss, the budget deficit, and according to the national association of manufacturers, the trade deficit with china. because production level labor in manufacturing is only like 11 or 12% of all manufacturing costs. they've sited census data on this in committee testimony. the landed cost for chinese product here is about 20% less than a u.s. domestic manufactured product. what do you guys think about the 15% tax credit just aimed at manufacturing? maybe that'll attract some

bipartisan support with the unions, and can you tell me what the savings would be on a high medicare deductible $5,000, or $10,000, on the single gross income of $50,000. >> thanks, rick. whoever wants to take the manufacturing tax credit issue. andrew might have things to say about the medicare deductible component of the question. >> yeah, i gave some testimony on something like that. it was only person in the hearing that -- in either party or on the panel who argued that we shouldn't favor manufacturing. but it's bad economic policy to favor this over that. and the fact is that i think you can scaremonger with decline and manufacturing facts. that there's been a decline in manufacturing as the gdp for 50 years. and it's -- i think, to the decline in the percentage that's agriculture.

and we don't feel that we need emergency measures to revive the percentage of gdp in agriculture. >> don't tell that to the house ag committee then. >> i do think that manufacturing is hard hit by the high corporate tax rate, and it's very easy to locate manufacturing facilities overseas. the thing that i would add is that very often manufacturing facilities overseas are extremely capital intensive. and despite that, firms are deciding that it's better to be abroad, and that can only really be a tax story. because if it were a labor cost, then i can understand how text tiles or someone on the sewing machine. but for a lot of, you know, if you think about even just like what's a chip foundry is kind of like one guy in a lab coat out front who hits the start button. everything else is machines. it's almost the model.

that's a sign that we need to have a fundamental change. i wouldn't have a credit. i'd reduce the rate. if you add state taxes, it's below 40%. i know japanese are cutting their taxes. we are the highest. we need to reduce by 15 or 16%. that's why something like the bowles-simpson plan is crucial for getting the economy moving forward. they figure out a way to do that in a fiscally responsible way. >> on the idea of a medicare deductible, i don't have numbers in front of me. i have calculated them. you go to 2030 or so. we look at projected cost. how high would the deductible have to be in order to keep the system in rough balance? i think it would have to cover about 20% of the average cost. which doesn't mean you cover 20% of whatever cost you have.

if the average medicare expenditure person today is around $9,000, you cover 20% of that. so i don't know, 1750 or something along those lines. that assumes that the presence of the deductible has no effect on outlays at all. which i think is probably not the case. so it -- to the degree, that's a very large amount. it is a large amount. it just shows you the extent of the under funding and of the rate of cost increase with medicare. the source of things that we've looked are aren't to show, this is an easy way to balance. in a way, they show here's how tough it could be. looking at the fiscal commission tells you the same story. they are making changes to social security, medicare, to defense spending with to taxes, all across the board just to try to balance this thing. we really do have a very difficult task facing us on this.

>> yes, sir? >> larry ruser from mitsui, usa. you have all said that the reducing deficit is reducing the entitlement cost. the house republican who are now going to be in the majority and pledge to the america took social security and medicare as well as defense off of the table. polls continue to show that the public is not very excited about the prospect of cutting social security, medicare, so how do you think this is actually going to play out in congress over the next couple of years? >> that's a good question, larry. i will leave that to the panelist. it is -- i would note that in addition to being left out of the pledge to america, even the bowles-simpson plan which was fairly bold on social security

did a little bit of magic wand waiving with medicare. they say we are going to control the cost increase of 1% of gdp. how are we going to do? we are going to strengthen the panel that as our last panel pointed out, the medicare advisory panel is not really projected to be all that effective at controlling cost. i'll let any of our panelist weigh in on that if you wanted to start, andrew. >> i wasn't -- i mean i didn't look very closely at the pledge to america. for skeptics out there, i don't have it in front of me. i'm reading off of somebody's talking points. i don't believe they took social security off of the table in that. i think they may not have addressed it. i don't think they said we can't cut social security benefits for anybody. i think it's interesting that john boehner will be the speaker and steny hoyer who was then the majority leader on the democratic side have both essentially endorsed the idea of

raising the social security retirement age. so, you know, there's nothing like impending fiscal doom to focus the mind and bring people together. these are sorts of things which five years ago, probably neither of them would have endorsed. i think there's some possibility of progress. social security is the most likely case to do that because we understand the issues. it's a mature policy issue. we know the pros and cons. and it's also a game where you can split the difference. we can do a little bit on the tax side, a little bit on the benefit side, also bit on the retirement age side, we can compromise very easily. medicare and health care in general is tougher. we have a system that's neither fish nor fowl. not enough government or health care control. we have pulling in different directions. the left tends to want to solve the health care end with more government control, more dictates, more rationing.

the right wants to focus on the consumer-based approach. it's tougher to compromise, because you are pulling in different direction. it's harder to split the difference on health care than it is on social security. >> go ahead, robert. >> i actually think there's room for bipartisan agreement. at least in the near term late this year. probably more likely very early next year. i'm not saying it's going to happen. it's not in substantial, the odds. ultimately president obama knows his legacy depends on getting reelected. without that, he can't guarantee the health care enacted in march will be fully employed. if it is isn't, he goes down as the greatest squanderer in the political majority. he doesn't want that to happen. i think he's going to draw very clear lines on health care. and not so much on other issues. i don't think frankly that he takes seriously the idea of a

challenge -- a primary challenge from the left in 2012. and if there is, i don't think it would gain much traction. i think he has room to not -- when i say triangulate, that indicates he's going to pull a clinton. i don't think he's going to do that completely on many issues. he will be very strict on health care to protect his health care bill. i do think he's willing to compromise on things like social security, top line level of discretionary spending. if she's in -- if he's in a debe on the republican, if he can agree with the republicans, what to spend on, what the priorities are, then he's on turf that's more favorable to the democrats. and is less likely to be a political problem for him. so i think he's willing to

compromise on top line discretionary and perhaps social security. :e paper we're coming at. we're going to have lots of tables that show you the different deductibles and ask what you accomplish, but if we told people who are currently retired that they had to pay a deductible, it would be wrong because they had no advance warning, they thought they had medicare when they retired, and what we want to do is we want to signal -- if we're doing policy well -- the time for people to adjust. so what we would want to do is tell people if you're, well, i don't know, pick a number, 55 or younger, then when you retire then the first x dollars are out of pocket, and people have a chance to safe in anticipation of that. save in anticipation of that. the thing is that i think if you were to say we've gotta have, you know, a thousand dollar deductible for medicare for all current retirees starting this year, then you'd have zero

chance. again, i'm not a political scientist, but i don't think i need to be to make that statement. but i think if we were to say, okay, beginning in a decade there's going to be a deductible in medicare that starts out at $200 a year and then grows depending on government's ability to constrain costs. if government's bad at constraining cost, the deductible has to go up to keep it in the balance. then you set up a game that's actually the right game. so government realizes, oh, we're going to have to defend a big deductible in the cost management side, but i believe you could get a deductible in as part of a big fundamental fiscal consolidation because it's something just like changing the retirement age, if you do it often in the future like was done before, then people kind of understand that that's something far off in the distant future that we'll have to start to do to address our long-term problems. and i think for me it's very hard, but amazing how much you can get with a deductible that starts kind of small and then grows over time and doesn't look so terrifying from today.

>> well, one of our previous panelists wanted, i think, to possibly make a point or ask a question related to that quickly. >> sure. i was just wondering what you have to say about wages and take-home pay which, you know, as you know a lot of people didn't even before the recession think they were living through a boon because that was stagnating. so what can we do? obviously, health care's part of the story, but beyond that what can we do to get wages and take-home pay going up for the median worker again? >> the first thing that comes to mind is that if you look in terms of private sector pay over the past year over and above inflation, it's up in the 3 3.5% range mostly because people who are already in the work force are working longer hours

and average hourly earnings are up a little bit, too, and it's been outpacing inflation. ultimately, what we need to do to get the median worker to earn more is to have a combination of faster economic growth and a lower fringe benefit cost which gets back to health care. now, over time the fact is unless we make some market-friendly reforms -- and even if that occurs, it would just be a one-time benefit over several years -- that health care is going to cost more relative to gdp over time, and that's just a function of higher wealth and living standards, and we just have to live with that. so as long as health care costs come as a business expense through fringe benefits rather than through the wage side, we're just going to have to live with the fact that wages are not going to grow on a real basis as quickly as the overall economy and overall compensation. and that's okay because, you know, big tvs are going down

in price, so maybe we don't need as much. >> this is another thing that i've been working on with stuff i haven't come out with yet, but there's a web site that everybody can go to right now called payscale.com. and it's an internet site that if you go and, like, type in everything about yourself, then it tells you how you're being paid relative to people like you. it's pretty detailed, but i think it's actually the sort of labor database out there because 23 million people have done this, so a big sample. not a random sample, but if you go there and look, they now have a national wage index that's better than the government ones because it tracks wages for people who change jobs accurately. and so, and so the wage data that we just heard about is really the people who have kept their job, so most of you in the room have a job, your wage

didn't go down, right? but the people who lose their jobs and then get another one, they take a big pay cut. so it turns out that wages have actually been declining in the aggregate pretty sharply, and it's a trend that we miss. and so i would just finish with that means the sort of crisis go to waste point is is really important here, that we need to understand that it's worse than you think in the labor market out there. sure, the unemployment rate is is really high, but the average wage has dropped a lot, too, and so o it's not clear that they're keeping up -- or they aren't keeping up with inflation. and so, and so that calls for changes in policy, frankly, and, again, you know, we have this paper that's subsequently been confirmed by a dozen other papers that shows the high corporate rate is squashing u.s. wages. it's not really rocket science, but it's clearly in the data. we have to do something about

this. it it seems like -- this would be the final observation. the mood in washington has been we've got all these crazy problems like broken fiscal situation and corporate taxes that are too high, and instead of fixing those problems, let's just try to jack up the economy with a keynesian stimulus, and so we'll keep these bad things but hope that this positive thing offsets those. if there's a hope for me about where we go from here, it's that that reasoning, those sort of larry summers' timely targeted and terrible is is probably the third t -- [laughter] that that's just off the table, and wages and unemployment are the fundamental reason why we can't play that game anymore. >> this okay. i think we have time for one more question. this gentleman's hand has been up for a while. >> thanks. one kind of expenditure that was not mentioned which i don't think how large the total is, but as agricultural subsidies would seem to me to be total

waste now, unnecessary but significant and something to which the republicans seem very much wedded. do you think there's any chance that the agricultural subsidies will be reduced? >> go ahead, robert. >> no. [laughter] i think if you look at the co-chair's draft in the fiscal commission, they had some small reductions -- >> 10% or something. >> yeah. i think the size of those reductions in a plan that is otherwise pretty ambitious shows that bob's right. >> and then here's, i guess, a fun fact that will help put it in perspective for you. the agricultural land is the only real estate item that's continued to increase in price over the last few years, so it's -- like, there's even talk of a farm price bubble and so on. but it actually doesn't necessarily have to be a bubble because government policy keeps bringing up higher subsidies. >> [inaudible]

>> i don't remember the total. >> i think it's something in the area of 18-20 billion a year total on agricultural commodity support, so it's not the total farm bill which also includes food stamps and other programs like that. i mean, you know, i'm surprised there's so much pessimism. you know, one of the things that the last time there was a republican wave election they were able to do was the freedom to farm bill that actually started to phase out subsidies, but then a couple years later a total reversal once crop prices went down -- >> that's why there's so much pessimism. [laughter] >> yep. okay, great. well, thank you so much to our?

>> in our discussion on u.s. national security interest in the middle east. we'll hear from former national security advisor strain shows and stephen hadley, hosted by the aspen institute, this is just under an hour and 25 minute. [inaudible conversations] [inaudible conversations] >> everybody ready? thank you all very much for coming. it's a great honor to have steve hadley to his national security adviser for president george w. bush. and we had sandy berger, but sandy is a little bit under the weather. and on the theory that all form a national security advisers are fungible in look-alike, we have daniel jim jones. actually, i don't think anybodyn has confused you on the street or sandy berger, right?

[laughter] willis at the back of national security visor, so general scowcroft two with -- [laughter] cochairman of the aspen strategy group, it george h.w. bush's national security adviser. and i think that sends henry kissinger dined alone has thereh tional sther national security advisers. don't just argue general jones and leap right into it, which is to think in the middle east that pr prime minister netanyahu and president abbas can really get ge peace or should we take more of that into concern? >> well, i think the administration houseware diligently with both of these gentlemen for quite a while. it hasn't really -- it's been not quite two years, but we've certainly spent a lot of time. o bring them to the table and trying to get into understand just how important it is a

strategically, globally that we find a solution to the middle east problem writ large. i don't know when the time comes that you go to another solution, but it's clear we're having a difficult time figuring out exactly what it is that gets them to the substantive part of the discussion. the lines have been drawn a pretty tactical level, so the strategic discussion and global ramifications of failure to find a solution to this longstanding problem, around which it seems to me there is a convergence of views between the europeans, the arab world, the united states,

this is a moment that even though we have not reached success yet, this is a moment that has enormous potential, if only we can figure out the right vectors to get too parties -- >> the convergence of views is -- i know you cannot speak for the administration, but -- >> that has been advocated, certainly by some of the leaders of the arab world and the europeans. it is certainly something the administration might have to consider at some point. what ever does, we have to find the solution. failure is not an option. one of the reasons we have this synergy that represents some hope for the future is the shadow of iran lurks ominously on the horizon as a potentially

bigger problem for the arab world and one they want to address trade but before they can do that, they want to get this middle east situation figured out. i think there is enormous opportunity internationally to figure out the way to ring the two parties together. the question is what is the best way to do it and at what time do you shift to another strategy? >> do we know what the outline of the plan is? >> most everyone knows what it's going to look like. the question is how do you get there? do you get there all once or sequentially or gradually? on that issue, i found the

palestinians are reasonably receptive to a certain time frame by which things will happen rather than say nothing is agreed to until everything is agreed to. i don't think that's a major stumbling block. what it looks like at the end is fairly well known right now. >> do you think prime minister netanyahu is willing to give up land? >> i don't know. he has a difficult coalition to deal with. as a result of the nature of it, it's difficult to get clear picture on what it takes to move forward. many times with our going to make progress only to find we could not get there. to use an analogy like lucy and the football -- somebody has to

hold that football. >> doesn't somebody have to be the football -- be the guy going up to the football and get pulled away? >> somebody has to. >> everybody knows what the solution is. two democratic states, israel and palestine, living side by side in peace and security. palestine as a homeland for the palestinian people and their citizens, israel for the jewish people and their citizens. because of the negotiations under president clinton and president bush, a lot of the contours of the deals look like are out there. there are a lot of incentives to do this. president abbas made history when he said the need to get

through a palestinian state through negotiations and not violence. he needs to show his bold decision he made is going to work. netanyahu has a historic opportunity to and the de legitimization campaign against israel and establish israel as a homeland to the jewish people. the arab leaders clearly want peace. they're building the institutions of a palestinian state now under occupation, which is very important. it shows the palestinians that a state is real and it shows the israelis that will not be a safe haven for terrorists. how do you get there? we've got to somehow get the debate of the issue of settlements and construction breezes onto the issue of the terms of peace.

the settlements issue politically as a winner for netanyahu and the loser for us. if we got the issue of the terms of peace, that's an issue public opinion shows 60% of palestinians and israelis want that. >> would tabling the plan help? >> i think it's something we ought to do, but timing is everything. but we are running out of there is in our quiver. the plan has to be done at a time that will catalyze progress and not become a dead letter. i think it's an element of an end game. the question is when? i think with the settlement issue still in front of us, it is premature. what i hope we would get and what secretary clinton has been signaling is we need to get a negotiation going, start on the issue of borders and security and get a preliminary agreement

because that makes the issue of settlements. >> can be done in 90 days? >> i think it can be done in fairly short order. it moves the issue of settlements and the question becomes do you actually stand up that state with provisional borders while you continue to work on issues? >> that gets to the issue of whether the united states should veto irresolution that recognizes the palestinian state and will exercise its veto. should the u.s. give that guarantee to israel? >> it depends. the administration has to be careful trying to convince the parties and make commitments that get in the way of what may be a solution.

>> how easy that? >> i think steve plays it out pretty well. i personally believe that state head, -- statehood, however that is defined, gives them international legitimacy. >> un recognition of a palestinian state? >> yes. if they are willing to, as i think they are, willing to agree to reasonable gradualism in terms of how you get to the final status, that's not something that's going to take 30 years or 20 years or 10 years. i have a feeling it's not more than 10, but somewhere between zero and 10. >> i think the cause would be dramatically enhanced.

>> can you imagine them being recognized as a state without there being an israeli- palestinian agreement. -- palestinian agreement? >> that would mean a major shift in how we have been approaching this in terms of trying to stimulate both parties to see that this is in their interest. frankly, i think both parties generally want to achieve this solution, but the local politics -- the >> i don't think you can do it over the israeli objections. if you can get a negotiation on borders and security and could get israelis and palestinians to agree on what that is, then the proposition you put to both of them as wooden did advance

that process and be in their interests if we stood up with that state with provisional borders, security and borders having been resolved. the question is whether you could persuade them if that is in their interest. >> a country like ron does not want to see that happen. ed immediately changes the equation. strategically, in a geopolitical sense, this would be a good thing. >> i'm going to take a quick break for our sponsors. -- leading to a question, i see

someone with our middle east investment -- before you were in the administration, you worked with a lot of us. to try to build up the economy in the palestinian territories and in particular the west bank. the middle east investment house how much money? >> $70 million in loan guarantees. are u.s.-palestinian partnership -- i think jean case, you just did up a venture fund to go up with it. first want to say what that isr close, most of it toward technology companies. [inaudible] >> does this look to the peace

process or is it a way of helping netanyahu placate the palestinians and not get to the peace process? >> in my view, it has not changed from what i was working with steve and secretary rash. i should thank them for that opportunity because of clearly one of the most interesting things i've ever done and unable to be a part of. tony blair, by the way has also been very helpful in all of this. the idea was basically to help the palestinian authority assert its governance over the west bank. in so doing, to show it would succeed and if the janine model work, to expand it. it was a bottom up economic approach that would stimulate a

whole of everyday life of palestinians on the west bank and it would also have a dramatic affect, hopefully on gaza to hopefully show there is a better way to live in peace and security. i was pleased to see the israeli reaction to this as well, the idea -- that strategy was unchanged from counter-terrorism to counterinsurgency and that was not an easy thing for them to do. under the rubric of if they do more, we will do less, they built up over time a pretty healthy relationship with the security forces of the palestinians and have been generally pleased with what they have seen. i still think it's a very good model and it is not a way for the israelis to placate them, to

keep the status quo, but it is flat as to happen if we're going to be successfully the future. the top down issue is important at the international level, but this bottom-up approach has its own energy and force that brings it toward the solution everyone wants to see. >> i completely agree with that. i think it is one of the most helpful things going on now. there is a lot of cynicism about whether there's ever going to be a palestinian state and if so, what kind of state is going to be? by building the institutions now even under occupation, it reassures them they can see the state beginning to emerge that is real. it reassures the israelis that it's going to be the right kind of state, a state that already cooperating with israeli security forces to deal with terror. for them to say let's shall the

negotiations for a while and focus of this bottom-up, i think the better argument is the institution building can only go so far without the political cover of credit bola associations and that's why the administration included both its top down and bottom up. >> he has a two-year program. it is to be completed in the fall of 2011 and it will be very interesting what happened at that point and what decisions the palestinians and israelis make and i think it depends on where we are, whether there is an active of -- and at debt negotiations. >> the director of the palestinian authority, he gave

that horizon and his argument was with the help of the palestinian partnership, we will build a state in two years and we will build it from the ground up. once we have built that, they cannot deny it to us. does that mean at the end of 2011, now matter what the status is of the peace talks, the world should think about recognizing the palestinian state? >> the issue at that point will be on the table. it will be decided on the basis of where we are at that point in time. >> i agree with that. >> do you have thoughts about where american policy should be

toward the middle east now? >> i think parties by themselves have demonstrated that they are unlikely to ever be able to come to agreement by themselves. the circumstances are so different, one as strong collapse what is weak, they both have opposition groups, and for them to have a chance to get together, they have to do something to their own public. we don't want to do this, the united states made s. they have to have a scapegoat for doing what they have to do but are unwilling to do it. there has to be and that is here. >> it has to come from the president or does the secretary

of state have more credibility in the region? >> it has to come from the president. the united states has never done anything like presenting here is something. good, but they't laid out -- >> the timing wasn't good because was after the election. >> it was the end of the head of the restoration. for a variety of things. '67 borders with rectifications, no automatic right returns for the palestinians, jerusalem the capital of both countries and a non-militarized palestinian state. the problem the futures good deal with borders is you cannot do it without taking up all the other issues. if you draw the borders, what happens to the opposite sides of

the wrong side of the border? you have to do the population thing and part of that is the border. it moves it had, but i agree that settlements is going after one part of that which cannot be solved separately. a comprehensive offer -- all of the issues now are inter- related. >> so i pushed by the president -- do you think the president's ought to take a proposal at a fly to jerusalem and speak -- >> i don't know what he ought to do. it seems to me a u.s. proposal, i think the europeans would love it. to me, the worst outcome for the

israelis is that the palestinians give up by two state solution. that presents the israelis with three fundamentally disastrous options. i think we need to get them to realize they need this as much as the palestinians. >> i agree that we are a point where something has to happen. likelydon't think it's we will have this convergence between external entities and the europeans and us that have this historic sense that this is the moment. we have got to figure out what

ever that solution is to force it to its logical conclusion. unfortunately, logic does not play a big role in this. if you talk to both sides, they both logically say we want to do this. but they will not let us. we have to find a way -- a >> day of meeting the population? >> the other side. it's always about the other guy. we simply have to find the right formula to take that step. once you take that step, you might be into a whole new world that might be irreversible and very good. >> i agree and i think the way around it is if you wait until you have negotiated to close all the final status issues, you will never get there. it is just too hard.

what i think the ad ministration has said that as you have a free market agreement that sets up the basic principles of these issues, but you don't stop there. with that agreement, give some restaurants about how it's going to come out. let's focus on border and securities. that's the issue where there is the most convergence. let's see if we can nail that down. and you may have an option to see if you can convince the parties to stand up to the state and that would be transformative. i think it will buy you some time to then turn to the issues of the final terms of the refugee issues and the jerusalem issues and then you can put it altogether in a final status agreement. but i think you're going to have to do this in a couple of bites.

waiting for the grant agreement, i think that's just too hard. the administration is setting up the potential for a different kind of approach. >> i think so. waiting until everything is agreed to is what we have been trying to do for a long time. [crosstalk] i don't know if the ambassador will let me do this, but the next question logically is whether there is a syrian track. do you have any thoughts? i know they have been trying to get a syria track going. do you want to say something about whether there is time for a syrian track? >> if you want me to ask a

question, i would like to hear comments -- the obama administration his has been telling us that they believe, and this is a major difference compared to previous administrations, that peace in our region cannot be achieved unless it is comprehensive and on all tracks. they do not believe it can happen on one track and they don't believe in the game of playing one track against the other. i would love to hear some comments on that. >> if you would, talk about whether you think it would be good in our level and sequence for syria. >> where the bush administration was, president bush had a conversation and urge him to go after a comprehensive peace,

including syria and also will not. that was the goal -- as -- also allow the non. -- also lebanon. we authorized the turks and the israelis to tell the syrians that it improve -- that improved relationships with the ad states went through a syrian- israeli agreement. we tried to be as supportive as we could of that track. it made some progress and, at the end, it got overwhelmed by a whole series of things that everybody knows about. general jones will speak and by cents is the administration has tried in good faith to get a syria track going. >> i think that is correct.

obviously, it would be to everyone's advantage, the peace we have extended to a broader area included syria and lebanon and i think the -- i know the administration has been working quietly to see what the potential is to do that on several fronts. i think work on the comprehensive nature of it can do it and there is reason for some optimism there. the players we have talked to on this issue, it is certainly something that would be in everybody's interest. >> how would this help on iran?

if you are able to achieve consensus and results in obtaining a piece that is foundational for the region and you build upon, it serves to isolate iran a little more than perhaps it is right now. the combination of peaceful negotiations plus the sanctions we know are having a major fact , it will send a very strong message to iran that perhaps it is time to return to the table and start negotiating seriously. >> if you see syria andld

lebanon are serious, does that send a message to iran? >> it does send a message of what the middle east is going to be. but there are fundamental issues with iran. one is the nuclear program but another is the nature of that regime. the unhappiness many people in iran are showing. >> do you think the sanctions are helping a lot? >> there may be comments from people here, but i have been surprised and pleased with how well the administration did getting the people around the table to impose sanctions. they did better than i expected they would and i expect a lot of other folks. i need to talk to people to get a better feel for it, but the theory of sanctions is you are putting a lot of pressure on

business class is that middle- class is to in turn put pressure on their regime. the iranian president and a date regime is putting pressure on the middle-class. that's the center of the opposition and i wonder if we don't have a perverse alliance between our sanctions activity and a regime policy, everybody squeezing the middle-class. so i worry about that. sanctions are right and i worry they are not going to be enough. i think you need to marry sanctions with major support in a way that does not discredit them for the forces of change in iran because i think it is domestic pressure for change that's more likely to convince the regime that they don't want a domestic confrontation and in international confrontation at the same time and may be more willing to deal. finally, we have to start thinking very seriously about

what happens if it does not work. we have a lot of false debates on iran. this debate about can iran be deterred is a false debate. can they be deterred from using nuclear weapons against the united states? of course. can we deter the adverse effects that come once it's clear they have a clear path to a nuclear weapon? i don't think so. what are those things? and empowered iran called willing to interfere with its neighbors, its neighbors going after their own nuclear programs with processing so that egypt, jordan, turkey, saudi have the same options that iran does. we need to think seriously about the problems of iran with a clear path to declare weapons and we have had another false argument about this issue of the do you go to war against iran?

it's easy to demonstrate that would be a leap in the dark, but that's not the right question. the question is, is there some way we can visibly set aside and setback there and ticket the -- their activity, which is the route for a clear weapon capability. can we visibly set that back in some way? diplomatically, but some other means to set back. president obama has said not just that a nuclear iran is unacceptable, but we will prevent iran from getting a clear weapon. >> how do you stop them other than striking it if sanctions don't work? >> what is diplomatically, hoping the sanctions work. the other thing they need to do is think of other options. >> like cyber?

the worm or other virus? >> it is that an option? i don't know. it is difficult, but look at what the israelis did it taking out the syrian nuclear reactor. it was done covertly and not acknowledge and syria decided to let it go. by ali point is i think we had a big public debate of whether or not to go to war with iran and we need a more sophisticated public debate about what do we do if we are faced with a stark choice of either going to war which nobody wants to do or accepting iran with a clear path to nuclear-weapons, which i think is acceptable. >> that's a great summation. i would add a couple of things. one is i think the president's thinking of this has been consistent all along.

the idea from the outgo was to see if iraq was willing to negotiate reasonably, but to always leave the door open, even as we move toward sanctions. the sanctions results, at least the process, was a foreign policy achievement that has not received its just due because of how hard it was. the fact that the end of the day, even russia and china came to the sanctions protocol, the close relationship with the european union that followed on the heels of the un sanctions was also very, very welcome. that's something that did not happen automatically. the united states participated

rigorously. i think we are still six-eight months away from having the full effect of the sanctions. >> so what happens if they don't work in eight months? >> obviously we are not just betting on that and nothing else. there's an awful lot of dialogue with other countries. the israelis and particular. i think this has had a calming effect in terms of the hype about eve got to do something now. steve is right. there are three reasons why a nuclear iran is a bad idea. first is the fact you have another nuclear capable state. but you can deter that. secondly, the fact that it would probably trigger a nuclear arms race in the middle east is something that is pretty well a

foregone conclusion. that would be very bad. thirdly, and the one that is the nightmare scenario because, without trying to overstate things, it might change the world we live happily, a country like iran exported that kind of technology to a terrorist organization. >> with a joint israeli-military -- joint israeli-u.s. military action likely if we have a israeli-palestinian peace? does it help solve iran if we get a israeli-palestinian peace? >> i think it peace process that is ongoing in movingly the right direction is probably one of the best things we could do to show iran that it passed is the wrong path. i think it's extremely important to leave the door open, as we have, on official and unofficial channels with iran.

they have shown a certain willingness to come back, at least to the conference table. we will wait and see whether that happens or not. but i wouldn't necessarily believe that all right now and say sanctions are not going to work. i would not go too far the other way and talk about what we might do if the sanctions don't work. one of the things that has happened between us and the russians and israelis and others is we have arrived at a kind of sense of what that timing is. we know more about their program and it's having difficulty. we generally have a more common view as opposed to 18 months ago. >> what is your knowledge [unintelligible]

talk aboutgoing to that. >> i think we ought to let the sanctions go forward. you have to look forward to where we might be a year from now and be doing some careful planning about it. second, i think one of the impact of the election as there will probably be more support for president obama and what ever decisions he makes should we get to that point. i noted particularly the comments at halifax security council where there were talking about regime change. >> i think there is support for him to do something, but if we get to that point and the sanctions don't work, -- i would

say if there is some difficult work, it needs to be done by the united states and not israel. >> either military or covert action? >> something needs to be at the end of the day. >> real quickly and we will open up. four or five times you have mentioned how helpful russia has been in this situation. how harmful would it be to this process if the start treaty is not ratified by the senate? >> i think it would be extremely harmful. i think it would be a blow to the prestige of the united states. it certainly would be a blow to the president, which is not a good thing in terms of his clout around the world as an influence. especially at a time when i think the united states has

reasserted its leadership with regard to nuclear issues. the things that have been done working toward the start treaty, which i think was done in consultation with both sides of the hill, on a regular basis, there was a clear understanding of what the red lines were from some of the would-be opponents. i think we work really hard to try to meet those red lines. there are all kinds of reasons for passage of this start treaty and i shudder to think well happen if we did not get it. >> i'm probably a little and the metal. i think russia has been quite cooperative for the bush administration and the obama

administration. in terms of how they handle the negotiations, the bush administration got for security sanctions resolution and that russia supported them. i don't think russia will stop that, but it's an unnecessary argument. there are problems with the start agreement, they can and should be addressed in the ratification and that is being done. we need to get agreement on the modernization program, so as long as we have a clear programs which will be for a considerable time, they are monitored. there is a way forward that early on in the new congress we can get. >> not in the lame-duck? >> early on in the new congress. we can get a good number of republicans joining democrats in ratifying. >> you think senator

>> i think there is a modernization program that he and a lot of other people -- we both talked about the need for a modernization program. i think that it can be done. i would like to see it done that way. i think it would be a good start for the new congress, working with the president to be bullish show the week ended the nation's business done on a bipartisan basis. after they have addressed these concerns. >> i agree with gm and with

steve partly. i did not see the objections to the treaty. none of them are really the defense to -- really advanced. that is my problem. some of them need to be fixed, but they need to be fixed by fall lot negotiations with the russians. that can only happen if we ratified the treaty. i think that psychologically, it will hurt -- they are not going to make decisions based on that, but the whole progress that we have with russia, not only iran, supply lines to afghanistan, there is a gradual -- we ought to encourage it. i think it would be [inaudible]

>> >> thank you very much. thank you for sponsoring this meeting. i think it is a great idea. the arab league has its peace initiative. it is a comprehensive framework. looking from my experience, when i was involved in that the egyptian-israeli peace negotiations, i think if president carter had not presented his own proposals and ideas to both sides, we would not have reached an agreement.

i did not think that what israelis fear sometimes that there should be imposed on the process. it is just a proposal put on paper. but israel is trying to now to get from the united states, to veto any attempt from the palestinians and octane endorsements. i think this is a very on helpful development if this happens. the united states should be perceived throughout as an honest broker who takes no sides. on the question of erotic and

nuclear weapons, -- on the question of iran and nuclear weapons, it should apply to everyone, including the arabs, israel, and should have a zone that is free of proposed threats. thank you. >> do you want to comment on that? >> add some bridging proposals will be how you get the peace. at some point, you may want to lay down a comprehensive proposal. if we are talking about a framework agreement. timing is everything. we have seen a lot of things get played. second, you in resolution -- it is a complicated question, i think. the best thing to do is to try

to get these negotiations back. we have a lot of discussion about nuclear free zone in the middle east. once you have a middle east peace, there are other threats other than nuclear weapons. when to get a comprehensive middle east peace, then we can talk about how to build on that. >> [inaudible] was subject that has not, is the 1.5 palestinians live. a lot of the focus of the administration is on making some sort of peace agreement. what should be done with gauze that?

how do you ultimately incorporates that part of the palestinian territory and is there a point at which you begin to reach out to hamas? >> why am i entering the question? if we begin to make progress on palestinian peace, hamas can not afford to be left out. we take away some of the leverage they have now to say no by beginning to move. they will feel compelled to participate.

>> i think the west bank is where we start. what this state will look like at some point. that does not mean that you cannot make progress. trying to fix this now will only impede progress of getting the to stitch together in the future. >> if you get a peace deal that involves the establishment of a palestinian state of the west bank, you are in a position to go to hamas and said, are you in or are you out? if you are in, you have to give up terror.

if you can get that piece, and show that a palestinian state is coming to the west bank, it will be -- a double shuffle the deck. >> [inaudible] is a hopeful sign when president obama extends its $3 million inducement to israel in return for simply it 90 days of a settlement freeze? >> this is the matter of the table as to what is the -- what makes it worthwhile.

in exchange for a 90 day settlement freeze. the israelis, to my knowledge, have now responded to that yet. the will to talk to wait and see what happens. the discussions between the u.s. and israel on israel's security have been ongoing with some tremendous detail for the last year. the united states and the a ministration has spent extremely generous, even ride up to this point -- even right up to this that secuving assurs to something that we pay a lot of attention to. i also want to come back to the point that is extremely important. the united states should be perceived as being an honest broker. we have to be careful that the

skills tool tip to 41 way or the other. -- that the scales do not take one or the other. >> the worry i have is that i think the settlement freeze has not done with des >> i'm not sure going another 90 days ending up in 90 days where we are now. again, i'm not parting to these discussions. there may be a lot more there. >> stop digging by letting the senate -- >> or go the other way and say the formality of a freeze on construction is a problem. we need to get some other understandings that address palestinian concerns, but also address israeli politics, and get off the settlement issue and get on to the issue of negotiation on the peace because that's where we ought to be, and, you know, we're --

and we've got to get there before we go into another u.s. president election cycle and leaders of the arab world start retiring other dying. we got to get on with it. >> you're sponsoring this, i'll let you talk. >> thank you, and thank you everybody for being here. i really have been privileged to work closely with the aspen institute and tony and the institute has done phenomenal work -- >> give them a shoutout too. >> and phenomenal work in support of the palestinian people on the ground and made a tangible difference to the region, and i've seen that firsthand. furthermore, i'd like to draw our attention to what the general said, and that's two-state solution is in fact perhaps jeopardized at this point and continues as a result of pessimism on the ground to be

further jeopardized. at what stage do we reach a point where it becomes not an option anymore? are we close to that or not? >> what is the alternative? >> you know, i think we're -- i don't think we're close to that because of the synergy that exists between the arab world, europeans, and the u.s.. the watching outside world is really more together on necessity to be successful than perhaps at any time in my memory, and so i think that the prize is still on the table, it's still achievable. we have not figured out the right come by nation -- combination get, but impressed by the fact that everybody who plays in this game really

passionately believes that there has to be a solution. it's not just a regional problem, but a problem of global dimensions, and solving this will help the world we live in in many, many different ways. >> beryl and then bill. >> well, i think most of my concerns have been addressed, but i am very much concerned with reading, and i presume it's true this offer has been made by the united states in the terms that have already been discussed. the question that really is a concern is you're dealing, and it really hasn't been discussed in an essentially fragile palestinian authority. while the economy and security improved, it's nonetheless an unoccupied area with its own unique problems. what concerns me is you talk about our having to be an honest broker, and you talk about the

timing problem as being crucial. i accept all that, but if you are in the palestinian west bank right now, and i don't want to go into the hamas issue, how uncomfortable would you be if you knew there was a kind of a proposal where the israelis as an occupying power will receive more order nants, more strike fighters and that kind of thing, and exactly why would that bring the palestinians to the table? i would think that it would drive them away, and that's what concerns me greatly, and then you look at the end of the 90-day period, and while there is some optimism expressed in the long run as a matter of necessity, what is going to happen? what is the, you know, let's assume that it doesn't work and very various reasons of politics, the palestinians don't

feel comfortable coming back to the table under these circumstances. what happens then? whether it's steve or general or anybody. >> is that the time of the chamber of proposals if you were not speaking of the administration? >> well, i would simply say that it would seem to me that we would want to make things conditional on progress, that if, in fact, we did x, that y would be the result, and if y fails, then x is off the table. i think you have to tie some of these things to good faith and a demonstrative will to be courageous and make some of these decisions to move in the right direction. >> the $3 million in security or di nants should not be done?

>> my personal opinion would be that the president would expect that there would be some momentum that would lead to follow on progress. i don't know that for a fact. i left the administration before they made this proposal. i read about it as well, but, you know, i think you can't simply just keep putting down payments on things that don't work out. >> right. bill, and then i see many hands. i'm trying to keep them in order. >> just to get back to iran for a second and the issue of sanctions. now, if i were the adviser to the iranian government i would say something like steady as you go. it's been working pretty good, there's sanctions and doesn't hurt that much as far as with the government and the government in a strange way, u.n. sanctions are pressing the

same group. i cannot imagine as a law of probabilities that sanctions are going to work, and so i say, all right, in business you deal with a law of probabilities and there must be a plan b and c, but i'm always kind of surprised if i were an advisor to the iranian government, steady as you go, and yet we're talking about sanctions, and i know you have to try, but when they become obvious they are not going to works, there has to be something else. there has to. did i say that wrong? >> that was pretty clear. look, this is an open forum, and i think one has to have faith that responsible people are thinking about these things as well. i mean, you know, we can't talk about it necessarily in a public forum before the event happens. we hope the sanctions work. we hope the sanctions create a

sense of logic and reason and the iranian government go bring back to the table to say that door is open, but if it doesn't, i will go back to what steve said. our declared by the president of the united states that we will prevent iran from acquiring nuclear weapons capability. >> a straightforward statement. >> dave, were you raising your hand back there? >> i actually wasn't, but i just got back friday, and gist to get the -- just to get the barrels point and i saw the prime minister and i was actually more optimistic that even with this rumored package that they will come to the table and that the key to me is what happens when they get there because, well, steve knows

about how we very much share this view, and i've written about borders a year and a half ago and it's the way to go, but what was surprising to me on the jerusalem part of the trip was the opposition of this idea is hitting because they feel their cards so to speak are all territorial, so that leads them to believe they have to move forward on all issues which in theory is what we all want. that would be unanimous in this room, progress on all issues, i'm just skeptical on either side they have conditions of societal landscape, and once you, you know, borders and securities is like a dirty word over there. i think it's a mistake. that's my personal view. steve knows that, but i think that's the one way. i don't think we can solve these issues in 90 days, but i think you can make progress, but i think you're coming up with the

moderate elements in the coalition against this approach, so i think there's still some work to be done here. >> great. george, one of the founders of u.s. palestinian partnership. >> thanks, walter and for the three former national security advisers for their commitment to peace in and out of government. i was in cairo in 1995 negotiating the final details of the palestinian authority. that was to be a one-year temporary status. that was 15 years ago, and we're in the same legal lingo where the palestinians don't have sovereignty or borders or access over control of water or air or the rest of it. everybody thinks we have about six months to negotiate, make real progress on negotiation on a two-state solution if the united states is to lead those

negotiations because of our political process and status here. a concern that a number of us have is that the conditions that are being set by the israelis for the extension. moratorium -- extension for the mori -- moratorium will be so great the tensions will be nullified or dimensioned. those of us in the business for most of our lives know that three months is not a long time to negotiate something as important as borders. if you have a border agreement that doesn't encompass jerusalem, it's a nonstarter in terms of the arab league, so the best mechanism other than a negotiation for an independent palestinian substantiate is the u.n. cord which they are working on under the leadership, and that will be presented

potentially in 2011. if there is a u.s. veto threatened for commission, that will severely undercut that option, and so then you are going to be led to a one-state solution which, quite frankly, i think the majority of the people in palestine today are leaning towards, particularly the young entrepreneurs because they don't have much faith in the honest brokerrism of the united states or americans or the ability of the israelis to give up land that they have been colonizing and occupying since 1867. all of this is a way of asking if we don't get it done in three months, what? >> in some sense you have the wrong witnesses up here. i mean, i've indicated my skepticism of this approach, but said i don't know really know the details, general jones is more involved in that, but in a

way, the questions you raised are serious questions, but they really got to go to the administration. they are really not for us to be honest. it sounds like a dodge, but i think, you know, i share a lot of those concerns, but, you know, it's questions that have to be put to the administration, and they are going to have to explain why they think this is approach is anything other than continuing to dig in the hole that we've been in for the last few years. >> do you think it would be useful if another administration said if this approach doesn't go very far, at some point we will have to recognize a palestinian state if there is indeed a viable state on the west bank? >> well, these are hypothetical situation that may come our way. >> not all that hypothetical.

>> yeah, i think i'll pass on that one. >> they are trying to set that up. the formulation is after two years i want to get to the point where the only thing wrong with the palestinian state is occupation. we wants maximum pressure on that state to get this resolved. >> the question -- >> and, we'll see what happens. >> but we will leave up that option rather than threatening a veto? >> i don't know. >> david? >> i'm sorry, yeah, david. >> thank you. >> i would just say that i think the least attractive way out of this problem for a lot of reasons is the negotiating outcome with everybody in agreement is much to be observes, just is. sorry. >> i just want to sound a cautionary note about the idea

of this new approach, a framework agreement, and then focus in on borders and security. first of all, i just do not see the israelis being willing to now endorse a jerusalem as the capital of both states. this government simply would not do that. if you set that aside and simply start to negotiate on borders, again, you run into the question of jerusalem, and even if you carved it out as something to be worked on later, then you get immediately the question of settlements, and we're right back to where we are today. i just raise that as a cautionary. >> what i would like to do if i may and there's a few others, but i'll let a few others make comments or questions, and then at 1:30 allow you all to answer the withins you want and ignore the ones you want to duck since you've been on the spot

already. >> what is president abas said to the united states, fine, with this 90-day moratorium freeze except for east jerusalem, we will come back not table if we all know what the end game looks like, they want east jerusalem at the capital, and go ahead and build your settlements in east jerusalem, wink, wink, what if he comes back to the table if the u.s. promises me to pay for dismantling of every settlement in east jerusalem and pay for relow catting the individuals -- relocating the individuals sitting in the settlements illegally right now? >> judy? >> thank you. having three national security advisors, i'd like to ask the question since 1979, the u.s. has been very busy at peace

processing, invoice, plans, ect., but we haven't achieved very much. the big things were done by the parties themselves, but since the arab peace initiative and the fact that everybody, the most hardlined people in this town in the west bank and the mountains of afghanistan know what the final solution looks like, why is it so hard for a president -- what is the impediment for a president who really wants is to get this done because every american who understands something about israel knows that the support for israel runs through the blood of the politics of american. it is not a jewish issue in the u.s.. secondly, the safety, security, the fulfillment of the zionist dream, will not be done until

the israelis draw a line with the palestinian. it's all the palestinians who can finalize for good and forever the israeli states. why can't we get this done? >> let me see if there's anyone in the gallery who didn't get the seat at the table. is there a question back there? final thoughts? >> all right. let me start if i may. do you mind giving us your final comment on the questions asked? >> i'll just rest. [laughter] >> all right. general jones? >> well, you know, the second question is why is it hart forward president to do this? it is hard. it is hard bought of the history, the emotion. it's hard because it's so important to everything that we do. to me, it's the one thing --

i told the president this in 2009 shortly after he took office. i said, you know, if you could pick one thing that you could fix, you know, with all the problems that there are, i think it should be the middle east, and i think that remains really at the top of the work. the question is how do you do it? government's change, our government changed, the israelis government change, there was a period of adjustment in 2009. we all know each other now and had face-to-face meetings with the palestinians and israelis, and i still remain optimistic that there is a way for this to happen, and the reason i'm optimistic is not because i think that the two principle

participants are going to somehow wake up one morning and say we got it. it's because of the passion of which the rest of the world who are watching this on the three main blocks i talked about have a feel towards the necessity of getting this done, not just for the two party's concern. i mean, that's a big benefit from it, but the fact it touches on so many other global issues that we think is extremely important, so it is hard, i think that the president is showing great courage on taking this on from day one, as opposed to waiting awhile. this gives him for time obviously. he's got two more years to go on this term, and so there is time, and it's not something that he's

ducking away from, but we are trying -- he is trying very, very hard, and the whole team is trying very, very hard to make sure that the right path is found and the path is as comprehensive as possible, but at the end of the day, i don't think yoir going to see -- you're going to see president obama kind of say, you know what, this is too hard, i have too many other things to do. >> out of government, if there was some way of cutting the guardian not of negotiating letters about settlement or whatever, is there some other approach in international conference, an arab european american -- what would you do out of government? >> well, there's been a lot of proposals. president czar cozy has tried to butt something together in bars -- barcelona, but ultimately people around the world on this issue

look to the united states. the europeans do, the arabs do, and ultimately there may be a day when this president will have to confront the hard choice and make the decision that you know what? we might not get there using the tactics or the strategies that were ongoing. we may have to shift to something else. that's something that i can't speculate on. it might come. it might not, but i think he wants to give it as much time as he can, as many energy as he can with his team to see if there's a way to get the two principle parties for their own good to do what needs to be done, and there are other options certainly that the president could consider. >> like what? >> well, like a more direct involvement in terms of bringing the outside world in to with

proposals that would have more of a forcing function on the two principles. in other words, instead of having them be the arcticlators, there is -- because it is such a global issue that is so important that there might come a time when we would have to look at another option, but that's, you know, that's for the president to decide. >> the global -- when you were over there working closely, do you think she is a key to this and really wants to make a peace settlement? >> i was very impressed with foreign minister when she was in office, and i know secretary rice and steve and their team, our team because i was part of it, worked very, very well with her, and in my discussions with her since then, i think she's generally committed to finding the path to the two-state

solution. >> do you think prime minister is generally committed to that? >> i think so. i think so. i think he's certainly represented that to the president of the united states both publicly and privately. >> does he seem to say or ever say or feel different there? >> well, it is -- local politics make an impact on people, and we have to -- look, what's going to be required here is for president abas and the prime minister to rise above poll politics and do what's right for the region, for their people. both will benefit from this, and i think both, from my experience, both understand this. both are struggling to find the right path to make this happen, and the president of the united states, leaders in europe, leaders of the arab world are

also weighing in to try to push these two towards doing the right thing, and there will come a time or may come a time when they will have to, you know, come to their own conclusions as to whether this is going to happen or not. for now, i think we ought to let it play out. >> i'll give a quick response to the questions. it's ironic it's the creation of the a palestinian state that can make israel a jewish state in the middle east. we should be saying that over and over again. why is it hard? israelis are a democracy, and in a sense palestine is building a democracy, and they have to have a deal built that the people will go along with, and that is a difficult thing. when you have a negotiation, you start with the hardest issue, or sometimes you start with the easiest issue to build progress, and david, that's why i think why under a framework agreement,

you still have borders and security. if we have to get agreement on the jerusalem issue up front, we're going nowhere. third, agreeing to pull down settlements and pay to relocate settlers, we're going to be doing that big time i'm sure as part of the peace agreement, so that is clearly in everybody's future. four, i've tried to be very positive in my statements about president abbas and the prime minister and what they are doing in the west bank, and i believe, but we have to realize there's a question out there and we talk about questions, but there's a question about whether any palestinian leader can accept any concessions short of 100% of their declared position because a lot was offered to arafat by president clinton and a lot was offered to president