>> well, thank you. and it's good to see you all here. mr. reich, thank you for joining us. i'm sure we can't mom you the comedy that has been on this stage before, even the political drama from carly. the issues that we have to discuss here are big and important ones and ones that -- you know, we've all been grappling with. and you've written a very short book about so i think without further ado, we'll dive into your central issues here. >> it's much harder to write a short book than a long book. i mean. this is the shortest book i've written and was it the hardest to write. it's like a haiku, you know, trying to boil things down. but i think per page i live the reader much more than ever before.

[laughter] >> we're at the end of a historic financial crisis, at least we hope we are. most importance don't understand the complexities of what happened in the financial system and yet they feel they have a fairly good grasp of exactly why it happened. it was too much debt. maybe we took it thought our house prices was going up. it was too much consumption, greed, careless bankers. according to your book none of this was the root cause at all. it was entirely different. what was going on? >> i think greedy bankers who treated much of their responsibility as kind of money that they could spend and invest and risk any way they wanted to make a short-term gain. they were partly responsible.

the proximate cause of the great recession but i don't think the basic cause. if you peel the onion back there's a deeper cause and that is americans spent more than they could afford. we spent beyond our means. but that can't be the end of it either because you have to ask a more fundamental question, which is why did our means not grow for 30 years? when the median wage for the typical male worker, i say male worker because 30 years before that workers were male workers, why did the male worker median wage adjusted for inflation did not grow and the economy grew. why did families find the necessity of first of all having women move into paid work and then everybody working longer hours and then the entire household going deeper and

deeper into debt and just to maintain their means and standard of living and that's the deeper question and you believe we resolve its question and understand its future implications we may never get out of the gravitational pull of this great recession. >> people didn't have enough money to spend? >> they were spending too much relative to what they had but the underlying question is why didn't they have more? that is the economy was growing. in fact, had grown over 30 years. the median wage was stagnant. where did all the money go? and why didn't more of the middle class defined very broadly to include working class, to include most americans -- why didn't most americans have more? why do not they have more today? can we ever get out of this great recession until the vast american middle class does have more because that's where the demand comes from in this society. >> leaving aside for a minute how we get out of this, let's go back and see how we got into it.

you talk about people's reasonable expectation to be able to spend more to earn more and spend more. and yet for many people, this is being seen as a moral -- very much a moral issue that overconsumption and the willingness to take on personal debt is a malfunction of a consumer society that has gone a bit amuck. has people basically spent too much? >> you can take a moralistic view. indeed, in 1930, 31, '32, many who looked upon the great crash and the fundamental reasons for the great depression did take a moralistic view, economists and business leaders said including andrew mellon, hoover's personal secretary. people spent more than they could and should and, therefore, we've got to let them just

basically rot. well, you can take a moralistic position but that doesn't really advance the cause of getting out of the economic dull drums and it doesn't really tell you very much about the structure of the economy. yes, undoubtedly. people should not spend more than they have. but unless you address that more fundamental question which is, how did we get into the predicament where the economy kept growing but most people had to go into debt in order to keep up their standard of living and then you're not really addressing the underlying problem and that was the problem with herbert hoover and andrew mellon and a lot of those in the late '20s and early '30s. they had a moralistic view but they didn't look at the system. >> we're hearing even from president obama that people need to spend less. they need to borrow less. they need to save more. we need to export more. these are the current nostrums if you would like, i think, wrong.

>> yes, so wrong. they are wrong in the following sense. because if you don't deal with the fact that so much of the nation's incoming wealth has gone to the top -- a record degree -- i mean, we haven't seen this concentration of wealth at the top since 1928. and unless you deal with that, you are simply saying to people, you've got to get poorer. you've got to save more. you've got to let the dollar drop. you've got to thereby spend more for foreign goods. you've got to, if you want to have a job you've together settle for lower wages. all of this eat your spinach type economics may be technically correct. but it really is not correct in terms of what a buoyant and growing economy should be able to afford its citizens. >> politically or socially perhaps, you know, one might make a strong argument for a greater less inequality in incomes.

economically, though, where is the argument here? perhaps some people are better off with their spending money. perhaps the middle class can't consume but export and trade should be able to plug some of that gap. why do you feel that actually it takes middle class spending in this globalized economy. why does it take u.s. middle spending to save the u.s. economy? >> i draw from the work and writings and thoughts of a fellow who's almost today. mariner eckels. he was chair of the fed from 1934 to 1948 and a brilliant man. one of the leading industrialists in the united states before he took that job. one of the richest men west of the rocky mountains. and he set his mind

understanding why the great depression took such a great toll. his conclusion was that so much money and wealth went to the top and accumulated at the top by 1928 that the vast majority of americans simply didn't have the buying power to keep the country going unless they went deeper and deeper in debt and that debt bubble was less sustainable. you look at what happened to the three decades leading to 2007 and there are remarkable parallels. you see, this country theoretically could rely more and more on exports. that is, yes. we could let the dollar continue to drop and we could hope that aggregate demand could be supported by exports but that would take a huge change in not only the organization of this economy but the organization of the global economy because as you know, so many countries are dependent on the united states consumers and we would get into a very, very quickly currency

devaluations. we would fool ourselves if we could get china to appreciate its currency but given all of the moment but that requires americans settle for a lower standard of living because everything they summon from abroad it would cost more. >> perhaps in the short term but the orthodoxy among many economists now long-term it's the only solution. >> but why is it? this is very important. because it's long term is the only solution. most economists in washington refuse to look at the distribution of income. and when i said to you a moment ago that we have now, when we looked in 2007, 23.5 national income going to the top 20% to the united states, compare that to the late '70s. we had at that time 9% of total national income going to the top

1%. the last time in this country where we had anything close to 23.5% of national income going to the top 1% was 1927. i think that it is unrealistic -- >> it sounds to me you're wanting a direct correspondence. >> i'm suggesting that it is -- it is ill-advised for policymakers to simply decide that the distribution of income has no consequence at all. that it's not a significant part of the problem. and not only economically but politically and we'll get into that, i suppose, in a moment. >> you talked about going back to 28 and how distribution of income had concentrated by so much by the '70s. in your book you carve out the last 150 years into some very big chunks and you essentially say there was a 30-year period,

just there was a 30-year period after the second war and you call it great prosperity where income distribution was wider and social safety neither were built and that this was -- these are the house and days for the u.s. economy and yet it's only a 30-year period that you isolate. given that the rest of economic history and modern economic history has seen much greater inequality, isn't it fair to say that inequality is the norm? that is like it or not the basic infrastructure of the u.s. economic system and the u.s. has prospered after -- >> if you have median wages stagnant or declining how can you say that's prosperity? between 2001 and 2007 the median wage in this country adjusted for inflation actually declined.

this was no trickle down from the top at all. so prosperity to me means widespread enjoyment of the fruits of economic growth. prosperity to me is not defined as a few people at the top enjoying most of the benefits of growth and then growth is slowing down because there's not enough aggregate growth from everybody else. back to your question, i do divide modern american industrial periods in three periods. from 1880 to 1929, 1930 being a period of consolidation of income and wealth. tremendous consolidation. and i do believe as did mariner eckels that that did contribute to the great depression. it was not sustainable. and then you have a second period. beginning in the 1930s but really reaching a kind of

victorious creshendo and the gains for economic growth were much more widely shared and that in turn generated a kind of -- a virtuous cycle because as the gains for growth were widely shared, the country had not only enough aggregate demand but the country could do many things, investment in education, rebuilding, europe, rebuilding japan. things we could never conceive of affording but we could afford with a very buoyant economy and taxes that were the kind of tax rates on the wealthy that we would never even entertain -- >> i want to get onto that in a minute. >> and then a period after 1980 when the pendulum swung back and we saw more and more concentration of income and i

dare say sowed the seeds of the great recession. i think the pendulum will swing back again because it must. >> looking at that period, after world war ii, does it raise tinted spectacles. it was in 1970s in rampant inflation. a crisis of confidence indeed in the country's place in the world. i mean, the pendulum has swung back in 1980 very strongly. didn't that show that actually the previous system had failed to some degree? >> no at all. the double-digit inflation of the late 1970s was brought on largely by the oil producers. jacking up the price of oil and that, of course, flowed through the system and generated double-digit inflation. jimmy carter was blamed. paul volcker broke the back of

inflation by raising short-term interest rates and, of course, also broke the back of jimmy carter because that was the end of the carter administration. fed chiefs can do that to presidents, but, no, i think the great prosperity ended largely because the structure of the economy was no longer conducive of widespread prosperity. you had a dim musician of labor unions and you had a fundamental change in the organization and production towards deregulation and privatization. many people say, yes, but the economy did so well under the reagan-thatcher type ideas but that begs the question, what's the economy? you see the median wage -- and i keep going back to this because i think if you define an economy from the ground up, as what do most people experience in terms of their wages and their benefits, median wages and

benefits, late 40s, '50s, early '60s kept going up as a very remarkable pace and then happened in the late '70s particularly after 1980, stagnation this was not -- >> but a lot of people felt at the end of the '70s what they were experiencing was not very pleasant and they voted for reagan on the basis of that. and you're suggesting here that somehow a system was subverted because of inflation caused by oil. it seems -- is that not an overly simplistic explanation of carter economics. >> is that overly not simplistic? is that just a rhetorical question. >> i'm sorry. >> i don't think it's overly simplistic. you look at the data i think the economy from the standpoint of the average working person was functioning very well except for by the late '70s double-digit inflation brought on by oil

prices. what we began to see after 1980 as median wages stagnated and as many people discovered that they had less job security, their benefits were eroded, health benefits, pension benefits and everything else -- the people at the top did better and better. the stock market did better and better. those indices did better and better but if you're an average working person or in the middle class broadly conceived, no, since 1980, you've not done better and better and that is exactly the problem that we fundamentally could avoid through these coping mechanisms. women going into paid work and everybody working longer hours and then finally everybody using their houses as atm devices. but we've come to the end of those coping mechanisms and everybody has to face the awkward fact that adjusted for

inflation -- most families are barely better off than they were 30 years ago. >> the deregulation that started in 1980 and that, in fact, was carried through the in the clinton administration of which you're a part, in many people's views unleashed a greater prosperity, perhaps not as distributed widely as you would have liked. are you saying that everything we lived through in that period was, in fact, a mirage? >> i think some of the deregulation was good. economic deregulation of airlines -- i think by and large good. deregulation of trucking i think by and large good. >> and of wall street, glass-steagall was repealed -- >> no, that was bad. i think the repealing of the glass-steagall act that was under the clinton administration certainly and congress at that time. i think also a failure by alan greenspan and i'll also name

names, larry summers and bob ruben to heed brooksly borns about derivatives and their failure to agree with her and the danger she saw in derivatives getting out of control and that also contributed to the problem. the complete deregulation or virtual deregulation of wall street is, i think, part of the very damaging legacy we lived with thereafter. >> deregulation and lower taxes from 1980 onwards is widely credited with unleashing much greater entrepreneurial energy into the u.s. economy. is that not right? >> some of it is right, undoubtedly. i mean, one of the great strengths of the u.s. economy is not only entrepreneurialism but also a venture capital community that supported those obtain

newers but by the time you get to the late '90s most of the entrepreneurial was occurring on wall street. it was not entrepreneurialism in terms of new gadgets but it's in terms of new financial devices and that was a zero-sum game. it was taking money into one pocket putting into another. it was taking a casino capitalism that ultimately was its own undoing. part of the problem has to do with financial incentives. and it's not so simple. and here you and i probably are in much greater agreement than your questions might suggest. >> i'm just asking the questions. [laughter] >> i have no opinion here mr. reich. >> the construct in some people is over here is government and here is the market because it's simplistic. there would nobody market if you didn't have government rules as

to how the market is to organized. and when franklin roosevelt said and his labor secretary francis perkins one of the great labor secretaries in history basically in 1935 created the opportunity and the legal basis for collective bargaining and created social security and a minimum wage and a 40-hour work week for time and a half for overtime and all sorts of other incentives that changed the organization of the market followed by a period of time in the late '40s and '50s and '60s when this country invested in education, higher education, primary school, secondary schools, infrastructure to a huge degree. the national defense highway act -- i mean, we as a country, as a government working sometimes against business sometimes with business we completely reorganized capitalism, american capitalism and made it work for everyone.

>> i mean, to quote one thing from your book from that period that you seem to quote with approval -- you talk about how american business was organized and how incentives were operated and you quote a book at the time, all our employees are not owners, their place on the system depends on the rules of the bureaucratic entry and promotion. and you say corporate bureaucracies had a leavening effect on incomes so to most people look back now at those bureaucratic times as an economic disincentives? >> i agree with your point. i did not quote that with praise. that was a sociology textbook of the time. and i thought it quite ironic i was kind of doing that with tongue and cheek. no, the vast bureaucracies of the time, five major chemical

producers and four major steel producers -- no, they held back innovation. although they did help in their way foster unionization because much use of the union around them then much more competitive industrial structures, innovation was not nearly what it could be and what it should be. my only point there was that the economy was in many respects designed so that instead of ceos earning 350 times what average workers earn which is what they do today, the typical ceo was earning 35 times what an average worker was earning. people on wall street were not coming close to the 7, 8, 9 figures they were earning. wall street was a handmade

industry rather than the boss of american industry. it was a time we had many social problems look at mad men. who would want to go back to a period where women were treated so poorly. where blacks were second class citizens but at least by the '60s not only were we enjoy widespread prosperity but we were making some headway a voting rights act, a civil rights act. we were conscious, beginning to be conscious about women's opportunities. and lowering many of those barriers. >> one thing that comes across quite strongly on that tipping point, that turning point at the end of the '70s is a sense that vested interests somehow reexerted themselves. and you talk a lot about how the game is rigged against the ordinary person. explain a little more about that. in what ways are the ordinary

middle classes disenfranchised economically and how do you fix that system? >> well, when i -- when you say that i say the game is rigged, i actually am reflecting upon the way many people are viewing the system today. the wall street bailout, for example, if you look at polls and i have some of them in there as to how ordinary americans view that, it's not just the tea partiers on the right. >> so you're angry, too? >> who say, you know, that was a capitulation of wall street by taxpayers and by the government with no strings attached, but there are many liberals, there are many democrats who say although the wall street bailout may have been necessary to do it in such a way that there were no conditions really, very few conditions put on wall street -- i mean, you know, they didn't have to in a sense allow homeowners to reorganize their mortgage obligations if they were deeply, deeply imperiled.

there was no or very little demand on wall street to limit the pay of wall street workers and bonuses. there was very little requirement with regard to loaning or lending money to small businesses and on and on and on down the list what we ended up at the after the wall street bailout is fewer big banks, not more big banks. each of whom was even more likely to be too big to fail so that for the typical american, unfortunately, i really think this is a terrible thing who was already discovering that his or her coping mechanisms were running out, the wall street bailout -- i think that on top of the history of enron and all of the 2002 degradations began

to look -- >> and why does that happen? is that a loss of political nerve at the white house? >> it's a good question. i think that the obama administration did inherit a terrible economy and did inherit the troubled assets relief problems, t.a.r.p., the wall street bailout. i think in retrospeck and it's good to be a monday morning quarterback, in retrospect i think hank paulson and tim geithner could have been tougher on the banks and could have insisted particularly when we came to financial reform legislation that derivatives be better controlled. there are now loopholes in that new law so big to allow a lot of traders to drive their ferraris right through them. i think it would have been possible to put a cap on the size of large banks.

i think it would have been possible to tie executive compensation and traders compensation to longer-term profits rather than the kind of quarter to quarter year to year that they are now bound to. britain was much more successful in certain ways and has been in terms of financial reform than has been the united states. >> but it's potentially in a much bigger hole that it's -- >> britain is in a deeper hole, that's right. and i mention in that book that it's not by coincidence that britain is the most unequal of all european countries in terms of the distribution of income and wealth. >> so again, why was the wall street bailout fluff? why was it mishandled? >> what happens when wealth and income go to the top to such an astounding degree as we've seen over the last 30 years, is that

without accusing anybody of malfeasance or nonfeasance inevitably there's more political power at the top. every politician in washington is much more dependent on wall street and big business and rich donors than ever before. i spent, let's see, i think about half of my adult life in washington beginning in 1967 in and out and washington is entirely different from what it used because there's so much money and most of the money is coming from big corporations and wall street and very wealthy individuals. >> health care reform, you've criticized in similar terms in some of your writings. was that also a situation where vested interests could be bought what they needed and what they wanted? >> well, there i was during bill clinton's attempt to change the health care system and i saw how vested interests absolutely killed that.

and so i congratulate obama for getting as much as he did but for health care reform he had to pay off the pharmaceutical industry giving the pharmaceutical industry a limit on how much they would lose by the reforms and also explain to them how much they would gain. that is on top of george w. bush's medicare expansion for the drug industry which also, i think, was a bit of a big payoff to big pharma. the health insurance industry in washington is extraordinarily powerful. and in order to move something like health care there had to be these payoffs. but the problem is, with these payoffs, ultimately, americans will be paying more. there's very little cost control in the health care legislation largely because all these vested interests said you're not going to control our costs. >> so well, let's move on to

some of the solutions or some of the threats or the risks for your analysis. you talk about populism, the rise of populism and indeed it seemed that was quite strong 18 months ago during the financial crisis. we now seem to be in a period where that populist anger is ebbing somewhat. people are getting on with their lives. >> i don't believe that for a moment. i think populist anger is showing up all over in this midterm election. it tends to be more visible on the right. and the republican party is deal with the tea partiers but every poll i see and everybody that i talk, i've never heard people so angry. you see it's not rocket science. when people are scared about losing their jobs or their homes or their savings, when they're

economically frustrated and anxious and secure there is a tendency to want to find somebody to blame. and these situations and you see historically in this country and also tragically in europe -- these situations do breed the possibility for demagogues to come along and say, well, your problems are really related to them or them or them. the upsurge in anti-immigrant sentiment now, i think, is indirectly or sometimes directly related on the economic pressures people feel. the upper surge in anti-muslim sentiment. you know, the irony after 9/11 you didn't see the ugliness the hatefulness that we are now seeing. you didn't see it after -- well, we could go on and on and on. you get my point. and it's happening in europe as well.

a kind of anti-immigrant sentiment. a right wing nationalism xenophobia, isolationism. we had it in the 1930s. we had the smoot-hawley tariffs. we had a lot of right wing and very left wing antiforeign upsurge. and it could be very dangerous for an economy and for society. >> president obama tell us that the band-aid across the financial system is holding. the stimulus spending is starting to have an effect. job numbers starting to creep up very slightly in recent reports. so he's telling us actually, you know, stick with it. things are coming around here. do you feel that confidence? do you feel that we're on the right path? >> no. i do agree with the president to

one extent and that is inevitably -- to the extent this is a business cycle phenomenon that's the reverse of isaac newton's law what goes down must come up. people to have replace appliances and cars and other durables that wear out. eventually, factories and businesses have got to replace machinery. and inventories have to be replenished but you look at what big business in this country is doing with $1.8 trillion of cash, they are not creating jobs. they are not expanding. why? because they are not sufficient customers. why are they not sufficient customers because consumers are hunkering down and they are hunkering down because they are scared and they're still coming out from a under a huge, huge amount of debt and they are worried about their jobs. and so what are businesses doing with this $1.8 trillion of cash? they are buying other businesses.

mergers and acquisitions are going up. they are finding markets abroad and buying back their stocks and none of this creates jobs and so when the president says everything will return or the job situation is getting better, i can understand where that optimism comes from but i'm afraid that unless we as an economy, as a society deal with this fundamental imbalance that i point to you in this book we're really not going to be getting very far. aggregate demand which i believe is very central to an economy is just not going to be there. >> president obama has talked about a more progressive agenda protecting people from the vagaries of the markets, regulating the markets more closely and so on. i assume that's an agenda that you subscribe to. has he simply not been aggressive enough in pursuing that?

>> well, i'm a great fan -- i really am a great fan of the president. i think he's a wonderful president. i think we're very lucky to have him. if i were trying to be constructivively critical, however, i would say he could do more to connect the dots. so though people that what he has tried to do and the problems they face are very much related to this fundamental imbalance in the economic system. and that he needs to mobilize and energize supporters around rectifying this balance. no democrats in washington, certainly no republicans that i know of, are really going to the people and saying, not only do i feel your pain, not only do i feel your anger, but i don't want you to be resentful or angry at the rich. this is not a matter of class warfare.

this is a matter of understanding for organizational reasons, for structural reasons we've gotten to the point where just -- we are so misaligned in terms of who get what that even people at the top would do better off having a smaller share of a rapidly growing economy in which politics was positive. than a large share as they do now of an economy that is almost dead in the water and politics is more negative. >> and we're going to go to questions very shortly and i'm sure we'll get a chance more about those. in very broad terms it seems in america there's no political backing for progressive agenda for higher marginal tax rates on the wealthy, for income support for the less wealthy and so on. what political hope do you think there is that such an agenda will come back.

you talk about the pendulum swinging back. why is it going to swing back? >> i think it's going to swing back because in a year or two or three when the stagnation or anemic recovery continues and many people see that the forces of xenophobia and nationalism are growing, many will conclude that the only option is the fundamental reforms that i've suggested here. now, i'm not suggesting anything as radical as dwight david eisenhower presided over when he was president. i mean, nobody accused eisenhower of being a socialist but understand president eisenhower, republican, former general, the marginal income tax on the highest earners was 91%. now, again, east loop not going there. -- i'm not going there. but i do want -- i do want to

remind people that we did think differently about this 30 years ago. and the big debate in washington now is do you say to the top 2%, who got the lion's share of the bush tax cuts of 2001 and 2003. well, i'm sure the bush tax cuts which was never intended to go beyond 10 years which is how they got through congress, by the way, you can't have them. you've got to go back to the clinton marginal tax rate of 39%, is that so bad? as i recall, the economy did pretty well under bill clinton. we have a long-term deficit. if we don't say to the top 2% i'm sorry, you've got to go back as expected to the clinton tax rates, then we're going to blow a $36 billion hole next year in 2011 in the federal budget because that's the windfall that the top 2% would get.

>> long term, is there a case for going back of 40%? >> i think we have to look at the total tax system. i mean, most 80% of americans pay more in payroll taxes than they do in income taxes and the payroll tax system has become more regressive over time. americans now pay hugely in sales taxes which is very regressive because the poor and middle class pay, you know -- it takes a much, much larger chunk out of their income than the very wealthy. if you look at the total tax system which is getting more and more and more regressive. this puts a huge burden on the middle class and the working class and the poor already terribly burdened. >> so the answer is yes? >> what? >> so the answer is yes you would have a degree -- >> if you're looking -- yes, all of the tax system, absolutely. >> all right. let's go to questions. now, we have a couple of

microphones in the audience. and we'll take one of them back there. you don't mind introducing yourself and waiting for the microphone to get to you and introducing yourself. >> hi. my name is joah johnson. my question is i'm assuming you would have some higher tax on the extremely wealthy people if income disparity is a problem but it's my understanding if you rely on the upper percent of earners in a country, then if they don't do well then your economy tanks and it's the responsibility of only 5% of people whereas you tax the middle class more equally then you have a more stable economy because you're relying on the whole population instead of the top 5%? >> we're talking about a matter of degree and a matter of balance here. again, i'm not -- don't accuse me of being john eisenhower. i'm not going there.

john mainard keynes in his general theory, he did admit obviously we need and an economy does base itself on an economy otherwise there wouldn't be sufficient incentive for entrepreneurs and people to build businesses. but the question is how much inequality do you need and john mainard keynes looking at the degree of inequality in the britain and said we don't nearly have that degree and that's one of the central problems of capitalism. that it tended to over time move to more and more concentration of income and wealth. the only thing i'm saying is that trickle down economics as supply siders have tried to sell it has fought worked. the bush tax cuts did not trickle down. the median wage after 2001 and 2003 actually dropped. adjusted for inflation. there were not a lot of new jobs created. in fact, between 2001, 2007, a

very tiny fraction of the number of jobs created the -- under the clinton administration were created. don't buy the ideology. you know, i mean, this. we've got to get beyond the labels, beyond the name-calling. and look at the data. and i think anybody looking at the data would say our distribution of income is nuts. and we've got to do something about it. and we do have a long-term deficit. and we do have to make investments in education, job training and infrastructure and with all of that wealth and income at the top, i mean, it just stands to reason we need a more progressive tax system. >> do i see another one? let's take one over here, the lady -- >> hello. my name is ella pennington. i would love to hear from you if you identified other nations that have managed this and

handled the redistribution of income and if you've seen models that we could aspire to, particularly non-european models 'cause i agree with our interviewer, i think the progressivism of europe is largely not acceptable here. thank you. >> in the book, rather go to our own history. and the advantage of going to our own history is that we see we did it. and we see not only did we did it we did it marvelous successfully. that economic growth and prosperity went hand-in-hand with a wider sharing of prosperity between 1947 and 1975. and tax rates on the wealthy were much, much higher, marginal taxes. we organized society in ways that we for a whole variety of ways and means generated an economy that permitted the recipients of wages to turn around and buy what they produced.

it was sort of the model that henry ford in 1914 originated. i don't think it's -- it's kind of odd to think of henry ford as a huge progressive. he wasn't politically but in terms of business he was. henry ford said i'm going to pay my workers $5 a day which in those days was three times what the normal industrial worker was earning. because i think that they can come around and they are consumers. they will buy model t's. the "wall street journal" accused henry ford of being an economic criminal. he was accused of being a socialist for doing this. but he was a smart businessman. and we as a society put into effect that henry ford principle between 1947 and 1975. let's not go to another nation. let's just look at what we did.

>> you know, one thing that we haven't talked all about is the impact of globalization and arguably henry ford would not be able to do that or a modern henry ford would not be able to do that because of global competition. it's a fact that doesn't play very high in your analysis and yet it's behind a lot of people's feels of job insecurity and even more so pay insecurity, that fear about depressed wages. isn't that a much bigger fact here? >> i think that globalization certainly is a factor. but we fool ourselves into thinking that it's all about globalization. it's more about technology. remember, we used to have a lot of telephone operators and service station attendants and bank tellers. they lost their jobs not because of globalization. they lost their jobs because of automated technology. even factories today are automated factories. you look into as i do whenever i

have a chance modern factories in the united states that are still here. and what do you see? you see numerically controlled robotics and a few technicians sitting behind computer consoles. the idea that manufacturing is like the old assembly line labor intensive does not view the reality of technology. and so to blame globalization on what's going on in terms of the difficulty that routine workers -- i'm not talking about what peter drucker called knowledge workers. and i'm not talking about your personal service workers in retail, restaurant, hotel, transportation and all the people who are sheltered from global competition. i'm talking about your routine workers who could easily be replaced by either workers abroad or likely software -- >> but whatever the reason it's hard to justify those people more is what you're suggesting. that's what i'm saying? >> i know we want to go on -- when you just said that it's

hard to justify paying those people more, i would love to examine that language. hard to justify who? >> economically when you can be replaced by software, whether it's a chinese worker or software? >> and that's a very strong argument for education. >> my name is dana sherman i'm afraid you've taken -- that you've taken my question. between 1947 and 1975, because of the damage to europe and asia there wasn't much economic competition but now on a globalized society, wages should not be compared to american wages. they should be compared to american wages overseas and how can we compete with the american wages overseas? >> let me suggest to you that one of the big problems that the american economy faced after the second world war was a demolished europe and a japan that basically was unproductive. we rebuilt europe and japan not

only to prevent the soviet threat from extending into europe and japan. we also rebuilt them because our leaders understood that a dynamic europe and a dynamic japanese economy would help us. it's not a zero-sum game. the more that they can produce and the better they can produce the better we can have markets and we can produce, i think that -- and this gets back to what we were just about to talk about, in a globalized economy and a high technology global economy, we've together invest much more and much better in education. and in structure. -- structure. here in in early childhood education and including free public higher education. i teach at, i believe, the best institution of public higher education in america or perhaps in the world and it's being decimated in terms of budget cuts. the exact opposite which we ought -- of which we ought to be

doing. we're cutting teachers. i mean, how can we actually lay off teachers? that's exactly the opposite we ought to be doing. >> i hear a vested interest being in for the here. let's move on to a question over here. >> my name is serbia mikhail. i'm going back to your statement where you should it's $1.8 trillion where the corporations are keeping there and they spend them outside of their countries. instead of taxing them why don't you incentivize them to use the money in the state. my problem is always when you tax somebody it goes to the government and the government spend the way they want it. you're better off if you incentivize it to spend the money here and go from there. >> please don't get me wrong. we've tended to focus in terms of my proscriptions in the book on higher marginal income taxes but that's a very small part of

what i talk about in the book. and i'm not talking about increasing taxes on corporations. at all. in fact, as i said in my last book, i would rather get rid of the corporate income tax all together. i think it's just ridiculous to tax a corporation -- a corporation is not a corporation. they don't pay taxes and when you invite ludicrous, grotesque supreme court decisions like citizens united against the federal election commission that treats corporations like they're people with first amendment rights. you don't want to go down that road. no, i was saying something quite different. the reason that corporations are sitting on $1.8 trillion is because they are not consumers out there to buy in the united states. their goods. the reason they are not consumers is because consumers are very much afraid right now. the stimulus package was not big enough. in order to get people back to work.

consumers given the underlying mall distribution of income and the failure and exhaustion of the coping mechanisms that i talked about before just simply don't have the money. and so their problem is not their corporations are doing anything nefarious or malicious by not investing or creating jobs or expanding capacity, no, they are being rational. they are just not consumers out there -- what we got to do is focus on reble the middle class, the working class, creating the capacity among our people to have a higher standard of living. >> a question back here. >> my name is jim flannigan. if we benefited on the rebuilding of europe and japan's economy and the development of technology in the semiconductor, now we have the internet and we have the greatest opportunities in the world of building consumer societies 2 billion new working people in the world in economy, china, and india and so

forth, why are we not receiving the same broad benefit in the united states from the opportunities that are available here? i think we're not receiving the benefits and it goes directly to our discussion and who is sufficiently educated and connected into the global economy increasingly technologically driven to get the benefits of trade. we're seeing a relatively small sliver of americans. most americans actually are turning against trade. if you look at the latest polls because they feel it's burdens. they don't feel it's benefits. >> you are threatened with protectionism and the attendant xenophobia.

and protectionism is a very real threat. >> and my point is unless we get serious and my ideas that in the book may not be the only ones, i don't suggest and i don't presume that they are the only ways forward but unless we get serious about widening the circle of prosperity so that more americans gain from global trade, some more americans gain from technological change and more americans enjoy the benefits of an expanding economy, not only do we have a problem of aggregate demand but we also have a political backlash against trade, against immigration, against -- many of the things that enable americans to -- enable to us look outward rather than inward and be part of the global economy. >> all right. we'll just take two more. >> my name is june lee. thanks for this opportunity.

i'm totally convinced by your description about the eisenhower prosperity marginal tax. and right now i want to switch gears. >> in the short term, we do need expansive fiscal monetary policies. because when the private sector, especially consumers, are

deleveraging, then as john maynard keynes taught us -- and i think we are moving back into a keynesian period -- you know, for a number of years the biggest threat was inflation. i think the biggest threat beginning in 2008 is deflation and continuous recession. as we move back into a kind of keynesian period, then we do need an expansive fiscal monetary policy. my point is that's not enough. that's like pushing on a wet noodle. we've got to expand and enhance the ability of the vast american middle class to improve its standard of living. otherwise we're relying only on government, and we can't do that forever. we have a big deficit. we do risk inflation by just keeping interest rates down. at some point. but also we can't rely solely on exports because for a lot of the reasons we talked about.

e i think that there will be big export markets, but exports cannot be solely relied on, and i want to emphasize this point: the only way we can build much of our export market is by letting the dollar drop which has all sorts of repercussions around the world. and it also means that everything we buy from the rest of the world costs more. which is another way of us getting poorer. there's no secret to creating more jobs by getting poorer. believe me, i can give you many, many ways we can create more jobs by getting poorer. that's not the goal. [laughter] that can't be the goal. >> it's much more complicated as a nation, but as individual and financial specialist and as an individual if you have a credit card debt and the only way to get out of it is to pay back. whatever money you get to pay back. so i appreciate. >> yeah. >> good work. thank you. >> do we have one more -- got one in the front here. in a minute we'll let you, we'll

find kindle and ipad versions. >> i do. i'll sign anything. i'll sign your forehead. [laughter] >> asking a senior professor this question might seem impertinent, but what would our co-sponsor, peter drucker, say about your book? this, of course, gives you the opportunity to share how he might agree with you, but also can you think of any issues that he might share a contrasting view or -- well, enough said. >> well, i have the great privilege of knowing peter drucker and corresponding with him. we had a number of discussions about many issues in the 1980s. peter drucker not only, as you all know, was an extraordinarily brilliant and visionary leader and thinker, but he also was

very concerned, as i am, about failure of a society to invest adequately in education. as an infrastructure. and build up the work force. he was very concerned that managers were not paying sufficient heed to their workers as assets to be developed, were too often thinking of workers as costs to be cut. and he and i talked about that, and indeed, his writings formed a fundamental basis of my thinking when i was both labor secretary and also in many of my books. peter drucker also came out very strongly for more progressive income tax. that got him in to some trouble with the business community. i think he would love this book. [laughter] [applause] >> and on that note, on