is hypertensive so now will have difficulty having children. this is the real aspect of foodborne illness and what it really comes down to. . . of people injured each year and are ones that are never

correlated to and actually foodborne illness outbreak. so what we are trying to do is follow on the heels of local, state and national agencies that are investigating foodborne illness outbreaks. so we want a first of all find out if there's an outbreak going on that we know about that we believe might be responsible for an individual's foodborne illness case. by the way, i want to just digress for one quick moment. we've been looking today at the metaphor that seems to be active is google earth. when you look at google earth it drives around, you get dizzy watching it for older folks like me, then you suddenly come down in kazakhstan or wherever it is. we have been looking at this as a pointillistic view of this, and the view that i would like to focus on is not the, you know -- all of which are important, i'm not suggesting - more important -- but the emergency room, which is where i often see

these people in the hospital where you have people interested not in the politics of foodborne illness, they are not interested in the regulation of foodborne illness, the year interested in getting compensation for the losses that they've suffered, and they want the system fixed. they are outraged that the food that they've eaten and taken on good faith is please send. so, what else are we looking for? i can't tell you how many cases and get each day or calls from people around the country saying i'm sure that it came from the hamburger i just ate a couple of hours ago or the place i was set yesterday because i really didn't eat anything and then i got sick. well, you first have to know what foodborne pathogen state, and the only way that we can really identify that is through a store will test. everything is about stool in foodborne illness. it's either the backend for cowal or the back end of a victim, and we need to first of

all identify which pathogen is responsible and that is usually done by a store test that will identify with it they have had, for example, e. coli, but e. coli really doesn't 20 thing. when we are trying to narrow down the keys is what we need to look at, the metaphor is at the top widest part it might be a stoole test that confirms the of e. coli, but e. coli doesn't tell where the e. coli came from. then the next step we have to figure out is oelwein 7587 or one of the other species we know account for human illness and then further down is then trying to come up with a genetic fingerprint. that is the important one that demonstrates whether that pfge pattern matches up with other old brick victims. that is the microchronology of these outbreaks. then lenny to look at the epidemiology if we know that it came from a particular food or

restaurant, we need to be able to show notwithstanding the fact they have the same pfge pattern which may mean almost the determinative fleet that's where it came from, we still need to be approved date the product at the same restaurant at about the same time in the same general area to understand the bin edemea logically linked as well so we are looking from an outbreak and looking that they have the actual pappajohn associated and then we are looking for the micro biological evidence that determines whether they have the same genetic fingerprint or the epidemiological evidence that demonstrates that in fact they were approximately related to this particular product. then the other thing we are looking for is frankly because this is a business, this is about money, or the damage is substantial enough to justify the time and risk and effort that we have to put into a case? because after all, we are as plaintiff lawyers pure capitals.

everybody hates the plaintiffs' lawyers because we think that we are antibusiness, but in fact we don't get paid until our clients get paid so we are the ultimate capital. and then the final point which is somewhat cynical is to make sure the defendant has enough assets to justify making a claim against them because in fact poor wrongdoers are oftentimes not held morally and financially accountable for the harms and losses because. so this is the first issue, documented outbreak of foodborne illness. if you look at -- if you go to the fda or the usda there will be all >> reports. this is a summary of one. this involves the national stake and poultry one about the year-ago. in the stool sample, this is a

little stool sample humor. [laughter] if you do google images which is transformed my ability to become speaker i came up with this one man who would have fought anybody to give stool samples enough consideration to think about something like that? this is a pfge pattern. basically what pfge is -- i don't want to cut shawn off so please let me know if i'm -- am i getting close? all right. pfge is just basically the testing involved. this is the epidemiological evidence. this is the famous curb the plaintiffs' lawyers will get to make sure the sickness occurred in the time period in which it occurred substantial damages, this is the hemodialysis machine with enough assets this is a country cottage restaurant and oklahoma there was a huge - 01578 outbreak about two years ago. scores of people were sick and

if he were killed. this restaurant had a million dollars in coverage. there was no point in bringing a claim because there wasn't enough money to go or not to compensate all of the terrible victims of that. i was going to talk about more of the legal issues of how we prove these cases but in the interest of equal and -- equals opportunity for defense lawyers i will end my remarks and thank you all very much for listening. [applause] >> we will have time after the last speaker has gone to talk about some of the other issues he didn't have a chance to go over either through questions or for speaking among each other. let me get the next presentation

>> i would like to start by saying thank you to fred. he could have very easily spoken for hours on these topics, given his depth of expertise, and he truly is an expert in this area, and one of the best. and in litigation, plaintiffs always to go first followed by the defense, so he's very gracious in allowing me at least an opportunity today to speak following him. my name is shawn stevens and bayh with milwaukee wisconsin. for a decade now i've been representing the food industry defending foodborne illness claims and one of the only attorneys in the country who has devoted his entire practice exclusively to defending industry in these types of matters. now our mantra is probably defending the hard-working

americans who feed our families coming and we do that in a couple of ways. number one, preventing litigation. speaking to the industry groups, talking with clients, helping them find ways they can reduce risk. also, when the inevitable sometimes does occur, managing out bricks and of course defending the claims brought by plaintiffs lawyers like fred that will always follow. now everything i'm going to talk about today is also located -- >> i don't know what to hit. it's gone. let's try that. >> i can just told the computer and walk around [inaudible]

>> no technical experts here? >> [inaudible] [laughter] >> it might actually go back on. hang on one second. >> by the way, this is the most important lesson of litigation, always falls proved your [inaudible] >> fred, what did you touch?

[inaudible conversations] >> perfect. well now we are on the right side of things. [laughter] i'm going to talk about is also located on the website to the extent the projector times aubuchon it is defendingfootsafety.com. we are going to talk about uncovering the truth of foodborne illness litigation. we are opening of the umbrella from seed to stomach, and some people will talk about it in the context of from farm to the fork and in the world in which fred and i operate, it is really for court. [laughter]

how many people in the room have seen the tv show "did least catch." it's a television show a lot of hard-working americans who go out and attempting to do their best in the face of adversity to feed our families and they go out to see many times each year, trying to raise their families and also feed our own. and in the context of doing that, they are faced with all sorts of unpredictable scenarios, things that they know might occur but oftentimes are an anticipated from the winds to the ice freezing on the ships to individuals, men or women falling overboard and of course the waves. what we confront with with the food industry, despite how hard some companies to work, despite the best intentions of the leadership or quality assurance people, no matter how robusta

their programs or the intervention the use, we are talking about microorganisms that exist naturally in our environment and oftentimes despite those efforts unknown to us it can still make their way into food, so i like to think of this world more i can to the deadliest batch, and it's the same issues and problems that confront the hard working americans trying to feed our families and sometimes when pathogens to make their way out into our food supply, in all intention is focused on one particular company, things can be very difficult. and that's where, of course, individuals like fred will step in. but i want to talk a little bit today about dismantling the plaintiff's qassam liability, and the circumstances where indeed, there is a true defense. now product of bricks and recalls have always occurred and they will continue to occur. when they do occur and there is a lummis there will of course be lawsuits. now if you do a google search for slip and fall attorney who will get about 20,000 hits.

if you do a search for food poisoning lawyer you will get about 300,000. and of course fred is at the top of the list. there's a lot of lawyers out there who are just waiting for the next outbreak so that they can try to get a piece of that so they can file a lawsuit. food safety of course is in the news, and when there are outbreaks, those lawyers will bring lawsuits and file claims. in a lot of things that we need to be there on the plaintiff's side of the bar or the defense, and fred talked about this, understanding the pathogen, understanding the scope of any outbreak that may have occurred and understanding the circumstances of the illness. and i am not going to talk about those issues. fred and dressed them and if he's done his job right he has a claim that will be difficult to defend. but what i want to talk about today is the instances an outbreak investigations and litigation where mistakes can be made. just because we hear about an outbreak or if a particular company may be at fault it

doesn't necessarily mean that it is. we often see is what is only on the surface, the health department showing that of the iceberg but what is underneath the water? and we are going to talk a little bit about that today. that raises the question can we extract our client in any instance from an outbreak? and that leads to my second mantra which is being innocent can and should count for something. when we are trying to understand the real source of a particular topic or illness it's important to look at incubation periods. it's important to look at our own internal production records; were doing everything right, following the cylinders, and we have safety plans and with a working? it's important to look a distribution records i will touch on in just a moment and then preparation records, how was the product prepared? was it prepared by a restaurant or the individual consumer in such a way that would ensure order of least make it less likely that that particular product was a source? i had a case where a woman had

cooked hamburger and she testified that she had cooked in the often for three hours at 450 degrees. that's a little bit of an exaggeration to the extent any pathogens or anything living might have been present it was likely killed. and then of course other illnesses. thanksgiving dinner this 13 people. the young girl was the only to get sick likely wasn't thanksgiving dinner, and the same type of -- the same applies to restaurants, any particular given day we serve 500 hamburgers but hit only one person alleges they got sick cities are the different types of tools we use when we are critiquing the source of an illness. i want to look just quickly and closely at the distribution records. let's assume for instance i represent a client that makes hamburger patties based in georgia and there is a woman in indiana who claims she went to the store, brought this patties, put them in her freezer and eventually took them out, cut them, a few days later became sick with e. coli and was a

horrible course. she was in hospital for six weeks, developed renal failure and his $1.5 million of medical expenses and swears up and down it was our product. fred talked about genetic typing and the first thing i'm going to do in that circumstance is go to the cdc and find out how many other cases assuming this is an outbreak or acclaim or an individual who was cultured not linked to any particular not prepared to know how many cases through the country have the same genetic strain. one else did it appear? if the answer is none, then i am going to take a close look at the product we produce and where we send it. during the relevant period i sent to million pounds to the west coast which represents 8 million choices and 3 million pounds to the east coast which represents 12 million there's no other illnesses anywhere in the country. it's very unlikely my product was a source. the same analysis applies what if i do find other illnesses scattered throughout the nation that have the same pfge pattern?

maybe some in washington, a few in north dakota and a few in texas but i don't distribute any product to those geographical locations. again, it makes it unlikely my particular product or mike clay at's product was a source and there are different scenarios we can run with respect to epidemiology and while epidemiology helps us to attend these claims and show that these individuals and associated illnesses in the country didn't necessarily get sick from a product mike clay and produced, it also creates problems with respect to solving outbreaks, and we've learned in recent years epidemiology alone is not always sufficient. a good example is in 2008 the national salmonella outbreak associated with at least originally tornadoes. a few weeks for tornadoes, right? through door tornadoes away, hide them, keep your children away from tomatoes. everybody in the country, not

helped by the media outlets believe there's a wide scale salmonella outbreak associated with this product. and of course the media have a lot of fun with it. attack of the tomatoes, they cried. after a few weeks went by we discovered it had nothing to do with tomatoes and was peppers grown in mexico and imported that actually carried the strain. so mistakes can and do happen. another is simply like to cite is 2008, to doesn't mind salmonella outbreaks. there were mistakes made as well and the original days -- this is august and september of 2008 -- this was showing up on the cdc radar screen as a large scale low-level salmonella outbreak and there was a cluster of cases in ohio, and it just so happened a few of the individuals have been to eat at the same restaurant. aggressive and probably rightfully so health investigators immediately determined that the source of that particular cluster must have been something they ate at that restaurant because they all

ate chicken they assumed that it was undercooked. the health department report was being written. the source of that particular cluster in that state was that restaurant when additional cases appeared scattered throughout the country and eventually we learned it wasn't under cooked poultry a restaurant, it was salmonella in peanut butter. i mean just going to show you quickly a couple e-mails over the years relating to different of bricks we've been able to collect from various health departments and health officials and the cdc showing that although people with this intentions they are doing their best under a lot of pressure, limited resources and constraint for time trying to figure out a lot of overlapping outbreaks. here's 1i like. unfortunately i think i may have confused the salt creek with a different one. i think i may have typed the cluster number wrong. sorry everyone, but i am getting really, really confused. we have several continent things going on in the risk of confusion as high.

i suspect our lab made an error. well, that's not good if you're the company in the crosshairs of the investigation. good grief, our lab over the weekend must have gotten the clusters patterns. they're checking now. sorry for the confusion. a little bit of fighting between the federal agencies pat got upset when someone at cdc in plight we should be doing something else to make sure things were done right. there's been more communications on timoney issues associated with this than i have time to write about. are you okay with this report, final report, did he call to coordinate the fight? in putting a particular company is the source. he did not come to coordinate and i am in disagreement with a lot of what he wrote. and then of course the media has played a role again with respect to increasing the confusion in some instances. as of 11:30 on sunday there were 17 and articles nationwide relating to the suspected source of an outbreak. this is getting out of hand, they wrote.

we don't even have confirmation yet. apparently the law firm, and it's not fred's firm, has cross pollinated the two outbreaks for some reason. somebody needs to tell him they are wrong. and that is where we come in and i am going to give you one example of a very large-scale outbreak where at least on the surface it appeared that everything was done right. it appeared the health department investigators have found the actual and right source. but india, they had not. my client was a national verse retrain, delhi service and also caters food on a regular basis. in this particular instance is the wreckage during thanksgiving dinner for a local church and the membership of the church would come and get together and eat these thanksgiving dinners and the church was repackaging the food and styrofoam containers and sending out, volunteers would send it out through the community. individuals who were elderly or have less resources couldn't get to the church at least they could have their thanksgiving

dinner. at the same time on things giving the also prepared a large number of meals for local warehouse. what we discovered was of the 600 meals that were sent to the church, 300 people got sick either eating them at the church or at their homes. 25 of the 50 people who had received those meals at the warehouse had gotten sick. that's a very high tax rates, about 50%. and of course there was appointed someone who had received one of the meals at her home and was always their tradition to get together with their friends, have one of these meals delivered and sit down and eat and then different would leave at the per together evening they had their dinner, the friend left and assumed she went to bed as she usually did. the next day friday after thanksgiving he tried to call because they spoke of reading on the phone but the phone rang continuously and nobody answered. the following day on saturday he tried to call again and the phone rang, tried to call multiple times and he began to become concerned. eventually when he called the last time and still nobody

answer, she went to her apartment talked to the neighbors and nobody had seen her. there were two days worth of newspapers sitting in front of the door peter was very concerning. they were able to gain access to the department with the assistance of the police and the scene was modifying. the bed was covered with diarrhea, a public by area flowing down the side of the dead. this woman was still alive but unconscious lean on the floor between the dresser and the bed. there was fecal material can print on the wall. the alarm clock had been pulled off the debt stand and was laying on the floor and the assumption was the phone was ringing and she was laying on the floor semiconscious trying to reach for the phone but could not. she eventually was rushed to hospital and died two weeks later after a very country difficult course. now the pathogen at issue here

was [inaudible] the assumption was after dinner this woman resulted in decembre technology that because of dehydration stroke and she was paralyzed on her body when they found her. the question was was a decatur, the turkey dinner or something that occurred at the church i talked to somebody from the of the part that a few minutes ago and this was issued about a week and a half after the outbreak occurred stating they hope to have a news conference on friday. do not see anything but they will be able to identify the pathogen and the source. it's not the desert, which by implication means it was the turkey. of course there was a news conference. it was bad temperature control the assume that the delhi. they found the bug and the plaintiff and they found in the turkey. the turkey was to blame. and of course you know what followed, a lawsuit. the client asked us to take a look at this case to see if we

could help because this is the type of work we do it originally said no i'm sorry, you are dead in the water. there is no way we can help you it sure looks to me like it was you. no, we've got great employees, employee-owned, they are well trained, we haven't had any turnover in this department three years. we have a really robust food safety program. we don't believe it was us. okay we will take a closer look. so we went back to the original e-mail talking a press conference and what struck me, a red flag went off because was only a week and a half or a little more than -- less than a week before they actually identified the fact an outbreak had occurred and the optics often take a long time to investigate. i thought to myself what are they doing to have a news conference announcing the source while the investigation is ongoing and sure enough, a week later -- and this was the county health department director that had this press conference -- his day in the spotlight, and the county was receiving scientific support from the state level,

state epidemiology and microbiologists providing support and the state epidemiologist a week after the news conference wrote as for the data i've broken everything in every direction i can possibly think and even did the tables by hand and i did that for all the times people eat and with the aid and everything. the turkey just isn't showing any certain to become significant. following a telephone conference with the director of the health department the turkey not significant statistically and then in parentheses yet. if you torture the data enough it will amount to anything so they were trying pretty hard. there were other problems as well. i was hoping to get another draft of the report but we need to review the chain of custody forms to determine what samples with which of brick. my fear is this a ploch associate with one outbreak is also being investigated is actually a product from a different outbreak. i will spend some serious time trying to get this sorted out.

confusion with respect to microbiology. in the did pfge testing on the streams remember found in the plant is and also the food. they finished the eye slits that were able to grow and preliminary testing should the allies were different. and that actually ended up in the draft report. toast to the compost field showed the two samples were different. there was no genetic match meaning they likely didn't come from the same source but when we look to the final report issued by the county that sentence had been deleted. there's also a reference in the final report turkey contained a high number of pretensions -- perfringens. and the draft report there's another sentence that said the food isolette, the turkey, didn't contain the chain, the c. perfringens, and you need this gene for the perfringens to cause illness. without it, nobody get sick. about 50% in this room are carrying the perfringens in our body and you will find it in about 50% paltry. it has to have the gene to making get sick. well, it didn't.

and that sentence was deleted from the final report as well. so suddenly, the conclusions that had been issued by the health department were called into question. what also didn't end up in the final report was the fact that the local deli had also catered meals to local news station and nobody had gotten sick. they also served 300 people that day at the grocery store itself. the family members, wives, children, husband of the people who were working and actually making the food, nobody got sick. investigators, because early on the determined turkey must be the source, eight ward 15 other pot luck items that were served the church that day as well as 100 food handlers call volunteers. they were all ignored. they were not interviewed and nobody collected or did samples for testing. the warehouse facility, malling pot luck items from some the same as the church, were ignored. the food handlers were ignored, and also ignored was the fact that the church and the warehouse were only 1.5 miles apart, and some of the orders to

the co-workers of the warehouse were also volunteers at the church. the state epidemiologist and i took a deposition said despite the county's attempt, it appeared to hurt to focus the attention on the turkey. she personally thought that it was a virus outbreak, not the perfringens and you can imagine her surprise when i hand it to her a lab sheet showing the plan to turn the case had indeed tested positive for the virus she started crying. and the case promptly dismissed. another fact that wasn't referenced in the final report. and there's more examples to what the last decade that we have stumbled across where mistakes can and do happen. so, some final thoughts. in today's environment, we of course our lawyers on both sides but from our perspective we need as many tools as possible to show our product was not involved. if we can't show it wasn't over product, i personally need to convince the media, the public and the jury we were able to

find and fix the problem and the food safety system is working. if we can do that i can stand up in front of you and say i probably defending the hard-working americans that the hour families. thank you. [applause] >> thank you to our panelists for the three really interesting and important presentations. i want to make sure we have enough time for questions from the audience, and also for the panelists if they have questions or comments for each other to come forward. maybe we can start with an audience question-and-answer adamle -- yeah? >> the regulation question may be the first speaker everyone can address with, but i was really struck by the recall that involved the farms in iowa

because in doing research for a project a year or two ago about factory farming and i look, i had come across an article that was maybe five or six years or even older about the environmental problems at the farm operations in terms of discharging waste and polluting air and water, and i think -- i'm wondering whether there are any links around food production facilities especially with livestock that don't properly manage their maneuver outside the facility and then what the food safety issues are in sight, and might it make sense to have some kind of linked where people were cited for discharging the new or illegally and the sort of environmental regulatory context to than a red flag that facility for infection by the fda for what is going on inside that might impact food safety.

i want to get a chance to respond and i should say first of the i didn't -- weigel i was at the agency during that i didn't work on that particular project. so, what i say is not related to any personal knowledge on that case, but there is work that has been done. i position epidemiologists and i and thinking of the doctor in johns hopkins school of public health and has looked at environmental contamination and the possible consequences with human health around, and i would consider this a species of concentrated animal facility paltry and people who are connoisseurs' might draw the distinction but i will open them together. so, there are -- i think there is good public health research that suggests there is a link.

getting to the second point, which is is there a link between the outside of the planned and the inside of the plant, i don't -- i don't know that there is a sort of formal position on that. - certainly the public health scientists i know and the bacteriologist who i know would suggest that there is because you've got ingress and egress and the sort of direct link and then the secondary link is a plant that is not taking care to conform to the environmental requirement may not be taking care to conform to other requirements and it indicates it is direct evidence of a lack of attention to detail. the final point is, you know, one of the area as the fda has been working on very hard i think in the last five years or so is to try to increase the web

or expand the web of information upon which it can draw, and so it's been doing more and more work or attempting with the state health department, and part of that involves the environmental health in that aspect of the state health department, so i think that is something the agency is becoming more attuned to but not necessarily have a formal policy to deal with. >> i think that we are involved in that all three cows will and there is an indisputable connection between the environmental damage and the food safety that occurs as a result especially in the context of amol waste -- animal waste because it might be organic but

it's still a toxin nonetheless, and when you have the proximity between fecal matter and food production, you are going to run into danger to get the spinach outbreak. that was identified as basically, you know, you've got wild boar, the working hypothesis that treats through and that was adjacent to the spinach field and ran into the spinach and that is how -- and then mixed all together and is concentrated area where they brought the spinach from all these things ground up one crown up mixed up and then i became a national things and you got basically fecal matter in close proximity to food and always a danger. but you can't avoid. >> can i had a very quickly i agree with fred that sanitary

conditions and food processing are absolutely critical, and everybody at every stage needs to make sure that we are not seeing circumstances like we saw with respect to the eggs. the debt doesn't involve my clients and i'm not involved in a particular client, but i would also say that this theory about the wild boar is fascinating to me because of it wasn't the wild boar, what if it was some birds, migratory birds perhaps or any other animal or tradition of nature and it demonstrates perhaps at some level and some point avoidable it demonstrates how difficult it can be in this industry to avoid the tremendous a far cry with what we saw. >> one i was thinking and i know you'll are the experts but for regular people who don't know the information that you know the first thing when i hear that

peanut butter has salmonella, you first think how does poop deck in peanut butter and on lettuce? and has to be to have people ask me what that does become contaminated? so it's just, you know, to hear the wild boar fury i never did understand what poop deck on spinach when you don't have animals involved in it? another thing i was thinking and this is just my a torrance, you know how you see the debut, the undercover video is done by peta? could you use or in your litigation the information that peta uncovers to show how animals are treated or how salmonella might get into some of the hamburgers at mcdonald's? could you use something like that? >> this kind of the holy grail, when you can find somebody that's on the inside of a plant. we were involved in a litigation

with an outbreak in the northeast in 2002, in which for those of you who don't know, the fury is probably the most virulent but relatively rare foodborne pathogen. but in this particular case, but we did to find an insight in the plant is to look for the workers' compensation records for the plant which were a matter of public record because oftentimes workers' compensation injuries involving plant workers and a meat packing plant involved very disinfected workers who might be willing to talk to us who are no longer a employed to try to find out what goes on because when we get involved in an outbreak it is a fact, it is long after instrumentality has been introduced into the plant with two product so we are looking for somebody that can go back in time looking at the light from long time ago and that is what we are trying to find someone

with knowledge about what they did from contrary to what the golden plan says about what they're supposed to do these are the people that work saying we never change our uniforms were never washed our hands. so yes, when we can find peta or insiders of that is why we are looking for. >> i would start by adding real quick of course none of my clients would ever have any of those to the llosa associated with the way they conducted their business, but i think there has to be some connection between that particular entity, the video and the causal connection with respect to the illness or at least in time and proximity and then just to follow up on your question with respect to animals and spinach fields. 0157 can be shut through its fecal material or saliva like eating plants, there could be bird droppings and there is a fury to the extent there's a small stream that overruns every

once in awhile and is contaminated it can contaminate the field or lettuce can even pull bacteria through the root system so there's a lot of different mechanisms possibly they could become contaminated. >> leaves just wondering as people who deal with the system every day and assuming no amount of regulation put in could ever get rid of all so it probably won't put you out of business, what more could the fda do for you? you see the system not as litigators, but having gone through litigation what more do you think the fda needs to be doing to keep the american food supply safer? >> you know, i can't speak for shawn, but to be honest with you, we don't get involved -- i mean, the regulatory people and the litigants have attention we

want to get as much access to their records, the government records, the government says you can't do that because then they're basically shields for litigation and we can't do our job so there is always that tension about privacy versus proving causation versus policy issues involved so i'm not sure from my plaintiff's practice will do much of anything that's going to materially affect what i do except if i can get more access to their records and their people which in a given case is almost impossible. >> i would just add representing industry and defending industry i consider myself a food safety advocate and i've been involved in cases where things have gone

wrong and i had a lot of exposure to the different scenarios that can result in problems and i often share those with my client and help them really help themselves and i think from the fda standpoint, you know, maybe not much more than it's already doing i'm very encouraged by the new regulations. i think it will take some time that that's going to have a positive effect. beyond that, i think the changes going to be driven by folks like fred in the industry to the extent that outbreaks cost companies a lot of money. it's bad publicity, the year is damage, they don't want to be on the times. they are going to do with the can as best as possible to limit those risks and when the large players like kosko and wal-mart began demanding to see from their suppliers i think that is where the changes going to take place.

>> any other questions? >> all right, it looks like we are finishing on time. i want to thank the panelists and thank the audience. [applause] >> thank you. >> you had an eventful panel and a symposium, but your ideas and expertise came through and i can't imagine a better person from each particular field to have been here so we really appreciate it. thank you. another hand to these three. [applause]

at this discussion about social security, the social security

public trustee warned that the program faces a substantial financial imbalance. other panelists include a social security had been a station deputy commissioner and public policy analyst. from the woodrow wilson center in washington, this is about two hours. good afternoon. i'm sonya mashaal director of the united states studies here at the wilson center and i am delighted to welcome you to this panel on rethinking retirement the past, present and future social security. you may notice a slip in an extra word for some reason i forgot when i came up with this panel but obviously it's important to speak about the present because we can't think about the future without taking that into account. this panel is being co-sponsored by the global economy and the director and i would like to

thank him and his staff for helping to plan this even. before introducing the speakers let me say a few things about the woodrow wilson center. as many of you know the center was founded in 1968 as the nation's official memorial to the 28 president and is a living memorial intended to perpetuate the values that characterized president willson's life and the commitment to the scholarship and public service to address issues of general concern. today's meeting is very much in that spirit. we have with us some of the leading experts with academics and advocates on the issue of social security, and with their help and i'm sure some spirited debate we will have an opportunity to explore this cornerstone of social policy within the american context and also comparative perspective. this couldn't be a more opportune moment to address the issue of social security since

it seems to come up in nearly every discussion of the current budget crisis. social security assessed as a part of the budget or does it separate funding stream and remove it from consideration? our current projections the social security trust fund would run out of money in the land would never appropriate here are those projections accurate, can and should today's workers support the retirees for decades to come? can and should future generations of workers expect to rely on social security? what reforms if any are needed? as a historian i can't help think about the impact of social security on the american society. before the social security was initially passed in 1935 and really began to take hold of the decades that followed for the millions of americans old age meant poverty. as workers build up their accounts old age insurance, which is part of the program people usually mean when they

talk about social security old age insurance began to deliver substantial benefits to the elderly and to their dependents spells as and survivors and the problem of old age security began to fade from the collective memory. since that time the prospect of economic security combined with substantial gains and occupational retirement benefits, pensions and individual retirement accounts as well as major advances in health care we integrate longevity and have offered americans every different prospect from retirement from the one that prevailed before the 1930's. to be sure congress has seen fit to amend the social security act, multiple times since its initial passage, but its existence has never really been called into question. now hover at least some in congress and beyond are calling for social security to be put on the table along with other entitlements, and this shift along with the decline in private pensions and retirement accounts resulting from the economic downturn it's having a

dramatic impact on the way that americans are currently thinking about retirement. is social security in danger and so what can be done to fix it? i'm going to identify since you have longer bios in front of you and then we will proceed in alphabetical order since by happenstance this will allow michel borkenstein who is our competitive to go last after our other speakers have had a chance to give their perspective on the status of the united states. so starting from my left we have the american enterprise institute, charles was a senior research fellow with a new america foundation and a member of the social security -- >> a public trustee. >> we of the economic policy institute, heidi hartmann, for the institute of women's policy research, barbara kennelly of

the national to preserve and secure medical security and then mitchell orenstein of european studies at the school but fans international studies at johns hopkins university. and as i said, all of these panelists are experts in one way or another on the ferc aspects of social security, so we are really very fortunate to have them with us. i asked each of them to limit their remarks to about 12 minutes so we will have plenty of time for q&a and discussion afterwards. mr. biggs, the floor's yours. >> thank you very much tall of you for coming. i really appreciate the opportunity to speak on the social security that is such an important and timely issue for today. i'm going to try to abstract the to technicalities. you overwhelm the numbers and formulas and technical things and social security ultimately depends on those things, but i want to talk in a big picture

qualitative sense of what we think of social security and where the program may go in the future. i would like to start with social security look like if we were designing it today from scratch? this goes back to the question of the management expert what we do what we are doing if we were not already doing it? when we talk to the congressional staff instead of the technical what you want this program to do the response is a weekend the design a program from scratch and we have this system but most of the reform people talk about wouldn't be fully implemented for decades to come and the young people today are going to enter the work force effectively weaken the design, with adverse system for them we want, and the question is how we transition to that system? it makes a back way of the question. the first i would ask is why do we have a social security program? what we want a system to? if you answer the question

social security forum becomes easier to manage. the first social security program in the u.s. and around the world is effectively to force people to save. if you didn't require people to save for retirement a good number would fail. they wouldn't be looking ahead, the and in poverty and retirement and they depend on other people for assistance. so requiring everybody to save their income each month, that helps not just people themselves but also helps the taxpayers that might otherwise have to bail them out. the second task is to redistribute money to the lower earners, the disabled and the survivors. these are people even if they save responsibly every month wouldn't have enough money to provide for themselves at a decent standard of living and retirement. the third task of the social security program is to help people productive consulting their assets to even if you survive age 55 you know your life expectancy is around age 83 but a lot of people live significantly longer than that and it's very hard to design and

protect yourself against that risk. social security's benefits as an annuity that lasts as long as you live. by doing that it provides insurance protection against ending up in poverty when you are 90 or 95-years-old and don't have the option of returning to the work force. so to answer that i ask the second set of questions and that is what we think about the social security program in light of what we know about our aging population. we know the population is getting older, we have more retirees, few workers to support them. what would we want to do in that circumstance? why would outline in an aging population you easily want to encourage people to do three things, work more which means greater labor participation, save more which means more savings for individuals to prepare themselves for retirement and more savings to build capital to get more productive, and their commitment to encourage people to retire later. it feels like extended work lions delay and reduce the effect of the population, so if

we encourage these three things it helps smaller populations and workers become more productive to support larger populations and retirees in the future. i think that i'm confident you will hear folks saying we should fix those securities problems, financing problems mostly by raising taxes rather than reducing benefits. let me lay out here how would raising taxes affect these goals for addressing population aging? if you raise the security taxes people tend to work less. heitor taxes means lower the words and low were rewards to work using the means less work. likewise people tend to save less, have less to come to put in their retirement account commesso and vegetables are almost surely reduce the amount they save and third, they tend to retire earlier. if you raise social security taxes, the after-tax replacement rate in the ratio of social security benefits to the after-tax earnings will increase that will encourage people to

claim his retirement benefits earlier rather than later so that approach tends not to work with these goals that i think are pretty reasonable when we think about how to address the aging population. given that, but what i propose? we require people to save in this day and age i say just require people to save. back in the 1930's we didn't have mutual-fund for the internet or anything like that, so people couldn't save effectively on their own you had to do it through the government. today we could sign everybody up for a 401k account. to contribute to .5% of the earnings to a 401k matched by their employer would be 5% more set aside for the retirement. second, i would have a flat bit of benefits to protect everybody against poverty. the idea would be of benefit would go to everyone regardless of their earnings and this would be designed to be a protection against poverty in old age.

today 15% seniors are in poverty we could erase poverty in old age for about half of the social security currently spends we take a poverty level benefit which is about $850 a month and give that to everybody at retirement. the idea is a combination of the poverty level benefits and mandatory individual savings account would equal the generosity and the current social security program third, we would like to help protect against running out of assets and retirement by requiring to monetized of the savings account and get the account to retired you need to convert part to annuity so you don't run out of money at old age. the idea there is if you are replicating the basic protections of social security you are doing it in a way that will have a much stronger safety net for the low-income people because the savings base will be better incentives for people participating in the workforce, better for the economy, and and

it provides many of the same protections that are consistent with what we think about retirements in the twenties and fifties and kratovil 1950s. so i guess to some up, i would say social security is not the biggest problem for the budget challenge, but it's a challenge we know how to fix today. we know the pros and cons of the different approaches and we just have to come to some sort of agreement on what to do about them. something like medicare by contrast we don't even know how to fix the program if you look at the recent health care debates there is disagreement even today on whether the health care reform bill will greatly increase budget deficits and greatly reduce them. we just don't understand the health care issue nearly as well as social security by solving social security today i think we give both the americans and financial markets' confidence that the government is capable of getting on topics long-term budget problems and we are in a recession like we are today increase the continents in a good way to get you out of it.

with italy will leave it. thank you. >> thank you very much. [applause] >> i need somebody's help. >> is richard here? >> i probably could figure this out, but i'm risking wasting everyone's time. that presupposes i don't waste time. >> all right, great. okay. i'm going to do something that's really -- first let me start by thanking the center. i haven't been back here since so it's great to be back here and is a wonderful place to look. absolutely marvelous people got very idyllic environment. i wasn't actually working on social security when i was here.

i was working on pensions and it's hard to read about and player provided pensions unless you have a good environment to concentrate heavily and not be distracted by anything that's more interesting than pensions which is pretty much everything in the world, so i really appreciated the environment that was provided here and in a good of the wilson center. i'm going to do something that is pretty out of character for me. those of you who know me, some of you on the panel know me, some of you in the audience know that i have a pension for arriving at presentations like this with monk powerpoint presentations and charts and slides and all sorts of the commission that is more than anyone human being can absorb. ..

>> this program faces a substantial imbalance between what it is promises beneficiaries it will pay and the resources it has on hand to pay those promises. wop way or another, that very substantial balance has to be resolved. that's not an if. it has to be resolved. the government cannot send out the checks without collecting the resources to send out of checks or the deposits or whatever. they have to get the sources from somewhere. we're not talking about whether

to deal with social security, but how. we can either plan for it and do it in a way well in advance or we can just let things happen as they would happen under the no action scenario which would be the most unfair possible set of outcomes, but it's not a question whether something's going to change. something has to change because we have this substantial imbalance, and it has to be dealt with and it will be resolved one way or another whether we deal for it or not. the longer we put off dealing with it, the more disresultive the -- disruptives the changes will be. economists make that point, you know, the more disruptive the facts will be, ect., ect., and it bounces off people's skulls and they stop thinking about what that means. this is a very real consequence, and it's going to have a very real impact upon real

individuals, and we need to wrap our minds around the fact that the longer we put off action, the poorer many classes of people will be. we're going to be responsible for that if we don't act. i'll give you the extreme scenario. we don't do anything until 2037, and then therein benefit cuts across the board of 22%. that's not just affecting people retiring in 2037, but everybody on the rolls, including a few people collecting benefits today. if they live long enough, they would get a sharp harsh reduction of 22% in their benefits. now, by bipartisan consensus, there is a general agreement that we shouldn't cut the benefits of 595-year-old widow by 22% which raises the question what if we try to shield people

already in retirement? suppose we implemented this bipartisan consensus to shield already retired people from change? how much would the reductions been then? turns out you can cut the entire benefits to the new class of 2037 and still not close the system's imbalance. you realize these very extreme outcomes that take place in 2037 are all inacceptable. you then work the problem backwards. how bad is it if we act in 2036? still bad. 2035, 2034. you walk the problem backwards, and you realize the window for having a fair solution to the problems is closing fast. if we don't act within the next few years because the demographics and baby boomers and because we don't want to cult benefits for people already retired, we don't have fair outcomes in resolving the short fall and reducing the chances to

get bipartisan agreement on just how to do it. very important point. this is something that i think a lot of people have exactly backwards. you hear people saying, well, i'm worried about legislation to deal with social security finances. i don't want there to be social security reform because i don't want there to be benefit cuts. that's exactly backwards: if we reform the system today, in theory, not i'm saying to do this this way, but in theory, reform the system, you didn't raise taxes or cut benefits now, and future classes get benefits that are higher in per capita terms relative to inflation rather than what today's retirees are getting. you would have cuts to not reel diff to what people are getting now. we don't have to worry about benefits being cut or slashed. there's no plan that produces benefits if enacted today blow today's level.

the longer this balance plays out, the closer we come to the date in which we have real benefit cuts. you get to a point where the incoming taxes are unsigh to fund the promises we make without someone accepting a decline in levels previously to what was paid. politicians instead of saying i'll defend you from cuts should be saying the opposite. you have to worry about benefit cuts if we act today, we can avoid them. here's another one. this is just a pet peeve of mine. actually, there's a few, but often we get into a rather silly debate talking about people going after social security and other people defending social security as if somehow this is a debate between people who are trying to tear the system down and people are trying to preserve it. that's wrong and a damaging way to think about it. the reality is we have an imbalance. now, we're not doing anyone anym

promise benefits it can't fund. that helps nobody. when we don't account, we are concealing from people the changes that we know are ultimately going to be necessary. we don't know how they're falling out, but we are concealing from something something that will happen to them. benefits will be lower or taxes will be higher than we are currently saying, but in this case, people don't know what's going to happen. we are not fessing up what's going to happen. that's not a defense of social security's workers to basically conceal from them the effects of corrections we know have to occur. all this inaction means is that participants have adverse effects that they are not warned about and cannot plan for. another very important point, the social security trust fund is in theory solvent until 2037. i find that when i am in discussions about social security that there's a lot of confusion about that. you will hear people saying, well, if the system is fine

until 2037, why make changes now? wouldn't it be breaking faith with people on social security to make changes say to the benefit level well before 2037 in the system is sell vaunt for another 26 years. this confusing and confounds a lot of issues. it's important to keep them separate. first of all, the trust fund didn't tell us how long we prefunded benefits in any way. if you accept the portrayal of the trust fund as a meaningful meth -- method of funding, the trust fund is never holding assets that's equal to more than three half years of benefits roughly going forward. it's not like they prefunded 27 years worth of payments. the vast majority of benefits would be paid by taxing workers through the payroll taxes. we haven't prefunded 27 years worth of benefits with the trust fund. we are depending on younger

workers to keep the benefits flowing. the trust font doesn't tell you -- fund doesn't tell you anything. your benefits are determined by a formula that's written in the law and that has nothing to do with the trust fund or little to do with the amount that you personally put into social security. it's the set of formulas in the law that's a function of your personal wage history. now, in fact, not only is there not a direct relationship between the trust fund assets and the formula, but there's actually a great inconsistency between the too. we have benefits increase inmy night and well beyond 2037 and advancing benefits are cut after 2037. the two are not aligned. they didn't measure the appropriateness of the formula. the trust funds measure past taxes over past expenditures plus interest and that tells you nothing about the appropriate

formula going forward. it doesn't tell you when action should be taken. go through the experiment if you wait until 2037 you get the worst possible outcomes. you get the best outcomes if you act today. the fact that it's solvent doesn't argue for delaying action in any measure. okay, well, i thought before i was going to go through my biggest pet peeve, but now i will. [laughter] whenever you talk about social security reform, there's, of course, a lot of people who are worried about the effect of social security reform and raise arguments about why it shouldn't happen, and over the past several years, i think the biggest red herring has been the myth that the social security projections that were overly conservative. if you know, for me, personally, this was always the first litmus test frankly because you cannot

read the social security projections and reach that conclusion. this is a mean that's circulated around the block and was picked up in mainstream press reporting. there's absolutely no grounds for it. the basic idea was that the trustees were being conservative in the growth projections. if economic growth was just consistent with historic norms everything would be fine, and the trustees of the past have been too conservative anyway. that's all false. the trustees were not projecting the per capita growth was slowing down, but projecting it would accelerate a little bit. most of the problem is still there because it's driven by fertility and longevity and other factors. looking at the history, it's not conservative. they are too opt -- optimistic. there's no grounds for this whatsoever, but it got repeated over and over as an argument like the problem is not really there. now, we've had the recession,

and now the program finances are very obviously so much worse than projected in any previous trustee's report that people stopped saying this because no one's really taking it seriously anymore. now there's a new red herring not to deal with social security because it has nothing to do with the problems of the rest of the deficit and it's not a contributor to the deficit and social security is being targeted and not necessarily for cuts that are necessary to balance a federal budget that is out of balance and has nothing to do with social security. this is ridiculous. first of all, social security has an imbalance. first of all, social security is contributing to the deficit now. it's clear about that. it's running a deficit. more money goes out than comes in. it's not correct that the program is not contributing to the deficit. it's a bigger contributor in the long term to everything that's not medicare or medicaid.

it's bigger than anything else. that's substantial. when you rule out everything that's not medicare or medicaid in terms of your fiscal practices, then you run out of corrective actions quickly. putting that aside whether you think social security is part of the budget or not, it doesn't matter. social security is out of balance from the narrow view of the its own finances. no one is proposing to cut a penny from social security beyond what is necessary to balance the books. this idea that anyone is targeting social security unnecessarily is beyond absurd. the idea that policymakers go after the most sensitive area of the budget and cut it rather than deal with other sources of budget deficit is ridiculous and flies in the face of other good proposals put forward none of which require social security to sub subsidize anything in the federal budget. couple of points to make on solutions before turning it over. one is that we need to be very

clear on what constitutes a face call correction. in 1983, they did good things and also made mistakes. one of the mistakes made is they did not look at whether to see the solution they came up with is balanced on an annual basis over the next 75 years, and we went at this with a set of reforms that produced large sur surpluses in the early years and deficits in the later years. that can only work if you can do something to bank these surpluses and reduce other federal debt payments or improve the fiscal position of the federal government. to improve the condition to finance the deficit in the deficit years. most people on both sides of the aisle recognize that's not effective, but there's a myth out there that that was the intent in 83. it was not the intent. i have a chapter in my book on this history, and it's very interesting. a number of advisory and technical panels said don't make the same mistake again.

don't just look at getting the actuaries saying the program is balance in 75 years on average. you so to be sure -- you have to be sure to resolve the annual balances otherwise you left it for future generations to deal with. this does not mean you'll treat it as a real obligation. every plan does that, but if we are serious about corrections, we have to deal with two things. we have to close the very large short falls over the long term and have to deal with the real source of the financial short fall, the big cost explosion over the next quarter century. the vast problem relieses in that cost growth. if we don't get a handle on that, we're not solving the problem. i'll end with one opinion. i'll look at kathy as i say this because she disagrees with this, but i can't go forward without a description of the problem without offering something on the solution side, and i would say my personal opinion,

president obama's fiscal commission did a great job on the proposal. they are not my preferred policy, but i personally for reasons that i think an due would agree with but i think the proposals are reasonable middle ground between competing visions on dealing with the social security short fall. i have a more, i think, positive view of the commission proposals than some others do, and i have written favorably about them in the past and will do so in the future, but i think there are reasonable starting point and worthy of discussions going forward, and that's that. thank you. [applause] >> thanks. [inaudible conversations]

[inaudible conversations] >> hi, good afternoon, i'm heidi hartman from the institution research. this is a report we released last month on social security vital to women and people of color and men increasingly reliant. i 4r tell you about -- i will tell you about our findings from this report and i'll take a special look at the program from a woman's point of view. first, i want to go over a few basics because i did notice they were kind of missing from the excellent presentations that we just heard. just to give you an idea how big

the system is today, this is what we're paying out, about $670 billion is going to 53 million people, so it's a large share of our population, and a very large number of people in households that get some social security, even more people than those 53 million. most of those people are retired workers, some are disabled workers, and some are survivors of deceased workers. i noticed in andrew's preferred program, he didn't say how he would deal with those who die early or become disabled at younger ages. he talked about his ideal retirement program. the individual accounts obviously wouldn't help those people very much because they wouldn't have been able to pay into them for very long. when you look at who is getting the money, it's 4 million children, that's 3 million minor

children under 18, but it's another million who are disabled adult children or children still in high school, 18 and 19 years old. 21 million men and 27 million women. women are the majority of recipients, and that's why we like to say social security is a women's issue. this is funny the little clicker works, but i guess i'm doing it the right way. this is the size of the trust fund. now, i think those of us on the panel admit that the trust fund is real. it holds u.s. treasury securities, $#.7 -- $2.7 trillion. chuck said that social security wasn't in deficit this year, actually, the trust fund grew this year. if i had a trust fund growing, i wouldn't think i was in deficit actually. what happened this year is that tax receipts did come in lower than payouts partly because of the recession with fewer people

working and fewer people putting in taxes, but this trust fund earned interest and takes in income taxes on taxes on social security benefits. it is continuing to grow, and it will grow until 2025. at that point since it was built up to pay for the baby boomer retirement, it starts paying, and it will gradually decline until it reaches 0 in 2036, and at that point as chuck said, benefits fall for everyone 22%-25%. now, one of the interesting things is chuck thinks it should be a prepaid system and have this money in a trust fund and shouldn't be in notes because the government will really pay you back. it should be in gold. if we had prepaid the entire retirement of the entire population if we held it in something, i don't know what, other than notes, it will be amazingingly deflation for the economy as a whole.

i can't imagine that economy. it was never intended it to be a prepaid system, but a pay as you go system. that means current workers pay for current retirees. the reason we pay 70% of benefits is because that's what's coming in from the payroll tax revenue at that point. we did build up with trust fund because of the baby boom unlike senator simpson, the actuaries for the social security system did predict the aging of the baby boom and tried to take into account and, you know, ideally that change back in 1983 would have lasted 75 years, 2037 is not quite 75 years. what happened during that time to make us not get to the full 75 years without having to address sol yen sigh again? well, income grew unequally. the income is not as equally distributed as it was at the time. i think we used to be just a few years ago we were more unequal

than any other time since world war ii, and now we're back to 1929. our income distribution is as unequal today as 1929. that means less and less of our income is paying into the payroll tax, and so the revenues are down over what they were projected to be. these are just some of the basic facts about where we are. that trust fund is still growing, and a lot of people say, oh, but the government owes that money, # so that money, that's social security that's causing the deficit and causing the government to owe money, but if you think about who holds government bonds and we hear about how much china holds of our government bonds, do we think china is causing the deficit? the fact is we will have to pay back the chinese or anyone else who holds the bonds, but we don't think of those people as causing the debt that we have. the debt that we have, the

current deficit is a lot because taxes were reduced, unequal income, taxes were reduced, fought two wars without paying for them, and now we have a major recession. even the high health care costs are not really, you wouldn't really attribute the whole deficit to them. going forward, they are important because they are expected to grow above inflation, but really we should be looking at where the debt and the deficit come from, and it is not social security. i wanted to take a special look at the system from the a woman's point of view, and one of the good things about it is that to be fully covered and to get all the benefits disability survivor benefits for your survivors requires only that you work 10 years at $3460 per year. they made it change. if you work only one quarter and

own $4360, you get the credit for the full year. that was important to women because they don't always work four quarters a year. 95% of women will be covered. people retired today, only 70% are fully covered, the other 30% are only getting social security benefits because they married a man who is eligible for benefitsment going forward, 95% will be fully covered because of their own work. today, looking at those 65 and older, 95% get social security, and another good thing about the system is as a wife, you can get money either through your own work or through your marriage, but it had to be ten years and it had to be ten consecutive years to the same guy. if you got divorced, you have to say ten years to get those benefits. keep that in mind in case that's

a strategy for you to pursue. [laughter] these benefits are fully adjusted. that's particularly important for women because they live longer than men, and returns are higher for lower earning workers than higher earning workers, another advantage to women, and this is not subject to market risks or investment decision. this is a graph showing how things have changed for women. the pink area is women who got benefits, all women retired today, 62 and older, some are still working, but are receiving benefits. the share has gone up slightly to 49%. the share that is dually entitled because of the marriage and because of their own work increased to 28% dead, and the share using only benefits because they are married or were married to a man for 10 years is

only 27% today, more than half than 1960. women are working more and getting more earnings because of their own work effort. looking at how much people depend on social security, women depend on it more than men for 67% of their income. these are all people 65 or older. sadly, that circle is bigger for men because men have more income in retirement than women do. the gist of the new study going through this quickly is that reliance on social security has increased for those 65 and older in the last 10 years from 1999 to 2009. this is just looking at those who rely on social security for 80% or more of the income. looking at the men with 80% or more in the middle, you see it go up to 39% over the 10 year period. that's a big change on the share of men relying on social security for 80% or more.

for women as a whole relying on social security, 50% or more, it didn't increase that much. what's happening for women is they are shifting towards the higher end of reliance on social security. for men, it's up overall at the upper end so 80%-100% reliant on social security. that means that almost 2 million more men rely on social security for four fifths of their income than ten years ago and 2 million more women as well, and the proportion of women relying on it is higher. the big change was really among men, not women. the first set of bars here is white, second blacks, the third set is hispanics. each minority group is more dependent on social security than whites. people who are 75 or older are more dependent than those 65-74, and women, the green bars, are more reliant than men, the gray bars. social security is very important to people of color and

especially important to women of color. there are some disadvantages to women in the system, and for many, many years, the women groups talked about these, and then when social security became under threat of privatization and losing benefits, everybody forgot about the problems saying we have to extend it no matter what because people are attacking it. we stopped talking about it. now, a good strategy would be to strengthen social security so it's better for people, and now groups are talking about this again. it's based on the 35 years of earnings and since you have 0 earning years, that could be a disadvantage to you. there's no spousal benefits for you, so there's no way for care giving to be taken care of, and the earning wife gets no additional benefits compared to her next door neighbor who did not pay anything to the system.

this working wife is dually entitled, but she doesn't see benefits increase, so some people consider that to be a disincentive for women's work effort. what we need to do to improve social security for women, we want to account for the fact that women increased their work effort across the kids. we want to see them get reward for that. we want to address new family structures, take care of care giving outside of mother especially single mothers, we want to increase benefits for women who live alone, those who are most reliant on social security is the unmarried women, especially older unmarried women, and we want to strengthen social security and other benefits for retirees and not just cut back on social security as economic insecurity increased. in closing, i would say, you know, what people have said that we might design a system differently if starting now, it would be good to do something now. i don't disagree with those

points. it would be great just to solve that long term funding gap, but i think it is useful to keep a perspective on the idea that benefits will fall to 75% if we do nothing. if you look at the bold simpson plan and other proposals, they do take you down to benefits at about that same level, maybe 80% of current benefits. they just take you down more slowly. ..

>> thank you for letting me go out of turn here. so the answer here to social security and what we do about it depends very much on what questions you are asking to begin with. andrew asked some sometimes questions and posed a -- an answer to what's the purpose of social security? that i think is too narrow and might have been adequate 30 or 40 years ago, but given where we are now is no longer -- i don't think -- is the right approach, the right framework. the questions that we need to ask and answer about social security are what is the state of retirement security today? and what will it be in the future? will people have enough to survive decently in their only age? and will social security benefits be enough when combined with the other resources

available to provide workers a dignified, financial secure old age. the answer to these questions, i think, doesn't lead to the kinds of solutions proposed by the deficit commission which was 2/3 cutting benefits and 1/3 finding increased revenues. here's what i consider the key fact about where we stand with social security. older americans are going to need more help from social security in the future, not less. and there are a number of reasons for this. if you look at where things stand now, it's already a very different picture from 30 years ago, the last time in 1981 -- 1983 when the greenspan made adjust wants to social security. the average household led by someone in the peak earnings of

32 to 64 had retirement savings that are about $90,000 too low to have -- an average to assure an adequate retirement. this number goes up the closer you get to retirement, the worse it is, unfortunately. this calculation was made by the center for retirement research, and it takes into account all major resources of retirement income and assets, social security, traditional pension plan, 401(k) plans, and other forms of saving and housing as well. it assumes that a household in retirement will take out a reversed mortgage and spend down their entire equity in the home. it assumes that think will work longer than they do now. they will retire at 65 instead of at 63 1/2. even using the conservative assumptions, they calculate the total retirement is $6.6 trillion.

that's trillion. of course, the federal budget deficit for this year. reducing social security benefits at all, whether my raising the retirement age, or changing formula to reduce the replacement rate will leave retirees with less income and make the retirement income deficit even worse. why is? you know, what has changed since 1983? and why is it bad? why do e expect it to get worse? pension coverage has been falling. it's about 1/2 in the private sector what it was when the greenspan commission met in 1983. less than 20% of private sector employees are covered by a defined benefit pension plan. and if you look at people who are already on the cusp of retirement, people in households age 60 to 62, only half, a little less than half, expect to

have any pension income at all. what -- those who do, the median is about $10,000. it isn't very much either. going forward, a smaller percent of each successive generation of retirees will have pension income, because employers are continuing to do away with defined benefit plans and unions are finding it nearly impossible to win plans through collective bargaining. so this is a road that's leading basically to the disappearance of pension plans, traditional plans. andrew's solution is the 401(k) that will have people save more through 401(k) plans and ira. we have a lot of experience over the last 25 years with 401(k) plans and frankly they have been a disaster. they have left families with less and less retirement income. the wall street journal just this weekend published a great

story called retiring boomers find 401(k) plans fall short. how short? well, the average -- or the median household nearing retirement had about $150,000 in it's 401(k) plan. half had more, half had less. how much did they need combined with social security to meet -- to maintain their living standard in retirement? they needed $630,000. so they were way behind. now this is worse than the retirement -- center for retirement research numbers that i gave you before. partly because this is post financial collapse. but people, you know, people lost 1/3 to 1/2 of their assets in some cases. so the boomers are in bad shape. and they, you know, the question is, well, we've got this lousy

experience so far. will it get better? is there any reason to think that people will do better if we force them to save more and more not through the government social security plan, but through their own 401(k), there's no reason to hope it will be better. employees put too little in and employers put in even less. that could change. but employers can cancel their contributions as they did during this downturn, many employers didn't make the match that they had been making. employees mismanage their funds. they are not skilled investors. skilled investors sometimes don't do that very well, but the average person managing a 401(k) does pretty badly. broker funds, administrators, skim fees off. they can -- the fees over a lifetime can reduce the assets in a plan by as much as 25 to 30%. and then, of course, when you have two stock market crashes in

one decade, the assets get globbered. then finally, we allow people to borrow from their 401(k). they do. they lose the job, they borrow with hardship, they borrow to finance a home, send kids to school. and they end up without money when they need to retire. and, of course, unlike social security and pensions as heidi pointed out, 401(k) plans aren't guaranteed by the government. so what do we expect? the center for retirement research looking at how risky -- what the risk is for the various generations going forward cohort s to actually have a secure retirement, maintain their standard of living found that more than half of early boomers, 64% of late boomers, and 71% of genexers are at risk,

significant risk of not being able to maintain the living standards in retirement. so we ought to be improving benefits in the social security system. not looking to cut them in any way. you know, if our goal is to help people have a secure, dignified retirement. so what should we do about social security? as i say, the first thing that you should not do is cut benefits. raising the retirement age, which andrew proposed,-didn't say exactly how he would do it, but raising the retirement age, making people work longer is a benefit cut when we raise the retirement age in 1983 from 65 to 67, it cut benefits for the average worker who retired at 65 by 13%. meaning that over the course of their retirement, they would lose $28,000. if we raised the retirement age to 70 now, that would be another

19% cut and another $35,000 loss retirement income for people covered by social security. people say, well, this is the fair thing to do. people are living longer. and everyone, you know, is living so much longer. we should raise everyone's retirement age. everyone is not, unfortunately, living longer. and people, especially low income people, have hardly gained, in fact, they have -- their increased longevity at age 65 since 1983 is the less than the increased retirement age that we've already enacted. men, lower-income men, have increased their longevity at age 65 by about a year. upper income men by five years over that period. so the effect of this, it's not

-- it's doesn't have the same effect on everybody. raising the retirement raise obviously is a problem for people who are physical jobs. and there are still, you know, something like 45% of americans who work in physically demanding jobs. if you are on your feet all day long as a cashier or lifting patients in a nursing home, or driving a truck, working in a steel mill, it's very different from the kind of work we do. we can work forever. but, you know? not that we all want to. but raising the retirement age is much harder on low income people and people in physically demanding jobs. and it's -- you have to remember social security benefits are not very generous already. the average retiree gets $14,052 which is less than the minimum

wage for a full-time worker. we're in a situation where the social security replacement rate is already declining. it's going from 41% in 2002 to 36% in 2030. so on top of the loss of pension coverage, we have already declining replacement rates in social security. so what's the solution? if you are worried that lawyers and bankers and professionals are going to live for 30 years, and we can't afford to pay their benefits is the answer to cut benefits on hotel maids and janitors, or raise taxes on the people that can afford it. i would say the answer is clearly you should raise taxes on the people who can afford it. a construction worker who makes $50,000 a year, paying 6.2%

social security tax on every dollar. but a bankers who makes $1 million pays 6.2 on only the first $106,800 meaning his effective social security is less than 1%. when you add in the employers tax, the construction workers is paying 12.4%, and the bankers $1 million is taxed at less than 1.5%. you know, there's a real problem here. a real equity problem. the tax cap was originally this $106,800 was set in 1983 to cover 90% of wages. since then we've had tremendous -- a tremendous growth in inequality in the united states. and to the degree that it's -- the numbers are almost -- well, they will stun you probably. 55% of all the income growth since 1983 has gone to the top

1% of americans. so as a result, only about 83% now instead of 90% of total earnings are covered by the social security tax. wage stagnation for most workers, coupled with the growing inequality is the main reason that social security outlook has worsened in recent decades. the actuary says it's that not unexpected or even the expected growth in longevity, increase in longevity. if the richest 10% of americans had the same share of national income throughout the 25 years from 1983 to 2008, that they had in 1983, their income would have been $11 trillion less. and the income of the top 1% would have $6.5 trillion less.

so i think that taxing salaries fairly would -- well, the social security actuary has said if we remove the cap and tax people on their entire income, it would completely solve the long-term solvency issues that social security has. rebuild the trust fund and guarantee full benefits for 75 years and beyond. i think that is the fairest solution that we could have. [applause] [applause] >> thank you very much, ross. >> thank you. and being the 1, 2, 3, 4, -- 5th speaker in the program. very much of what i planned to say has probably been said, and

said very well. >> not everybody has said it. >> but not everybody has said it. exactly. i'm the president of the national committee to preserve social security and medicare. my members come from all walks of life, republicans, democrats, inaffiliated, what they share is their passion for social security and medicare. you know, i've had a long history. i'm one of those people like alison rivlin, we just don't quit. we are here. it was never -- social security was never intended to be the sole source of income. there was going to be savings and pensions. we know our rate of savings in this country went way down. it's coming up a little bit, thank heavens. it would weigh down. pension, defined pension plans is a thing that's going to be a memory that some people have them, and they are lucky. but future people will not have them. and now where we are right now is that one in three seniors

absolutely rely on social security for 90% of their income. six out of ten for half of their income. and the benefits, as you said, when it can't be said enough. the benefits are not overly generous. i mean we're talking about an average of $14,000 a year for women $12,000. you try living on that. guess what, there's a lot of people that are living on it, and there's a lot of people that i want to be able to continue to live on it. and it's -- we have to keep remembering. when we had the last commissions. charles, by the way, i want to congratulate you, charles is the new public trustee. we haven't had public trustees in a number of years. we have two of them. and they are very, very important. although the other people have other jobs. we're counting on you. there's no doubt about it. but, you know, right now we're at a point where we have to remember the -- you know, the last time we had a commission on social security, they didn't

even think about disability. didn't even think about it when they had the privatization situation. and we have to think about that. and also people who are the main breadwinner for the family, they die. and, you know, i know you know in this audience, and this panel obviously knows. but six million children rely on social security for part of their family income. and why do i take time to go over these figures? because i think we have to. because right now the time is ripe. i am shocked at the huge amount of our deficit. shocked. absolutely. i can remember when i was in congress, $200 billion deficit. what are we going to do? pay as you go, et cetera, et cetera. when you look at the deficit now, it is truly shocking. as a result, everything is being thrown in to figure out what we are going to do. don't get me wrong, social security has to be strengthened. no doubt about it.

you know, i have ten grandchildren about to have my 11th. and yen -- and i know it has to be there for the future. we have to careful how we tackle this and how we cut the deficits. and we certainly don't want to add any more to the deficits. you know, it's a dedicated -- what social security has which people don't remember all the time, is social security has a dedicated source of income, very different from the regular situation for the rest of government. it's dedicated because it coming out of your payroll and mine. i've been paying it for years. every time i get a paycheck, social security coming out of it. the thing about social security, by the law, and i'll talk about that in a little bit in the future. by the law, social security cannot add to the deficit, and it can't do anything to borrow from government. the money that comes in is money that goes out. and then we have the money that's in the trust fund.

and let's look at social security funding. look at the trustees report of 2010. we are taxing 156 million for the social security. they are paying in 6.2% of their income. when -- if you are have a small business or something, you are paying 12.4%. you know what, guess what we are taking in 2011? $707 billion we're taking in. and, you know, that's the money that's coming in. now there are other sources of income. we have a tax, and let me tell you, this was one the most unpopular things we ever did in congress. we tax higher income people on their benefits. and that tax is $27.3 billion in 2011. it's not a lot of money.

i can remember when 27 -- when a billion used to mean something. the remaining source of income, i think this is what's up for debate constantly is the interest payment. currently what happened in 1993, by the way, i was there in 1983, i was on the ways and means committee, i remember it like it was yesterday. currently in the trust fund we have $2.6 trillion. if you put the interest there, it's $120 -- just this year, 2010, it's $120 billion. when you look at this, we are -- you have to match up the obligations where we have to pay out. and that's exactly what we have to do. and we have to address the shortfall. and 2030 -- you know, i can tell you about how strong the program is and how, you know, it's going to be okay. until 2037. then 2037 we're going to have

paid down all of that extra money and, you know, 2037 we have to look at what we're going to do. should we wait the 2037? of course we shouldn't. and, you know, can i tell you there are people in washington right now and i'm sure charles will probably be on the commission, there are people inform washington right now, we're scared to death about social security being looked at as part of the whole deficit situation. there are some very, very wise people in this washington situation that could be on a commission and would understand that we'd have to get real about the future of social security. and, you know, let's talk about the trust fund. it was established in 1939. it's been with us since 1939. it wasn't important. very small. it was only used because there was extra funds. as a continueing, there were a few problems. but no big deal.

just a minor role. in 1983, it really got to be important. because in 1983 -- i enjoy watching what's going on. senator simpson said we didn't know the baby boomers are coming. where the heck was he? they were in their late 20s and early 30s, we knew they were coming. one the things we knew we had to do when we were looking at this, look, i'm the last one to be talking about the good old days. it was a bipartisan agreement. i mean it was tipped and our president ronald reagan, it was some wonderful people who knew that social security was in a terrible, terrible situation. and they knew they had to come together and do something about it. and so they did. but, you know, now '83 is a long time ago. and now there's questions, constant questions, economist that we have right here argue

it's -- the trust fund is not economically meaningful. how do we deem all of the bonds? guess what, we know how to redeem the bonds. a lot of people don't want to redeem the bonds. you know, those bonds are there. you know, what do we do? i think, and you can have the next speaker talking about the international situation. i think any country worth it's salt has a social security program. and ours is not that generous to be very frank. but now if we are going to have a mix into the time, very difficult times with we are getting with the deficit. at least some of us think we should protect our social security system. and let me just read you about the trust fund. americans who expect the trust fund to be honored have the law on their side. it's quite clear and right in the social security act to section 201d basically it stays each obligation purchased by the

trust fund shall state on as they said it is incontestably in the hands of the trust fund to which it is issued. that the obligation is supported by the full faith and credit of the united states. and that the united states has pledged to the payment of those obligations. i mean so many people just want to put that whole situation aside and just go on. i don't think that is a good idea. i really don't. when you look at what people are going through in this country, i travel all the time. i talk to my members all the time around the country. my members are not well off. let me tell you. they pay $12 to join my organize, because they can't go to washington and lobby. i'm a lobbyist. believe it or not, i am a lobbyist and very proud of it. i lobby for social security, and for medicare. and i think this country has to protect those problems. -- programs. but, you know, i know we are in a crisis situation right now. i know we are going to have to

make some very tough decisions. but let's not make those tough decisions on those people who are just trying to get along. [applause] [applause] >> thank you, barbara. >> hi, i'm mitchell orenstein from john hopkins school of international studies. i'm bringing to the panel a rather different unique perspective, which is an international perspective on the problem of social security today. my research has focused on

pension privatization worldwide on the trend which i'll talk about in a moment of privatizing pension systems. and emphasizing issues of learning from one country to another. countries don't deal with these problems completely with their own resources, but also rely to great extent on the experiences of other countries to consider solutions. i've always been looking since the financial crisis working on a new article on the future of pension privatization pend after the crisis which is quite interesting. the questions that i'm going to ask are rather more comparative. where does the united states fit into an international perspective? how is the united states affected? and what lessons can the united states draw from other countries? so first let me address this question of where the context

is, a sort of historical context in which we are considering social security reform to date. since 1981, there's been a major trend worldwide which has partly touched the united states. but it has been experienced by many countries, most countries i would say. which is a large, a very concerted campaign for privatization of pension systems. that was led in large part by the world bank and other organizations actually based in washington, d.c. with the support of many u.s.-based academics. and economist primarily. that advocated for replacing social security type systems around the world and it is true that as was said previously, most countries worth their salt have a social security, some are more generous than those in the united states, some less, i suppose. and these organizations began to promote a replacement of social security systems with ones based

on private individual pension savings accounts. and about 30 countries worldwide, start, chile in 1981, and continuing through most of latin america, a lot of central and eastern europe, including russia, including poland, including hungary, including bolivia, in latin america, and as well as some countries in africa and asia has privatized their pension system. :

but as the good news. the longevity is increasing but it also means pension systems are put under considerable pressure because people were spending a long career period of their life or proportion of their life in retirement but also because of the trends that were mentioned before towards income inequality and stagnation of average wages also have this tendency to put pressure on social security type systems. so that's the broad context in which the united states considered privatizing its pension system in 2005. as you know, those proposals were made and they were rejected by congress. it has to be said that the united states to some extent has

privatized its social security system as was said through the back door which essentially means as there have been gradual cuts in the replacement rate of social security, and as there have been increasing -- increasing tax benefits for individual retirement accounts the government is spending more and more on the private retirement system and less and less on social security also it's been more moderate than in other countries. the financial crisis i believe radically changed the global penchant picture. radically changed the debate. it should be set the financial crisis hit both social security tie pension systems and funded private pension systems. both of them are in trouble, and in fact, one take away from this is today everybody is were soft

the and they were before 2008. regardless of your such situation. [laughter] it's been interesting that privatized pension systems were much worse affected than social security type pension systems and countries around the world. because of that, the trend towards privatizing is basically stopped. when i stopped, might be the bases and chablis is all countries around the world, what are they doing in their pension reforms. and when you see is that since 2007 no country has privatized their pension system which is a big change because there were a couple countries in the years before that. of course that is one metric for looking but another was also mentioned here that the assets decrease in these private

accounts, so anybody who had a private retirement account or any asset asset prices declined precipitously and the figures are mentioned it was about half or a third. people were losing their value and their accounts and therefore their retirement income if they were relying on those recounts for income. interestingly from that perspective social security did really well during the crisis. social security benefits were not cut dramatically in 2008. in fact, they were maintained the same level as they were before. and there was obviously a huge boom for people who were relying on those benefits as the other assets were decreasing. this was a matter of stability for them personally but it was also a huge matter of stability for the economy at large because i don't know if the word automatic stabilizer means

anything to you but it was often used in europe to indicate that when we and the united states ought to stabilize the economy and to stimulate the economy social security actually played a pretty important part in that because it maintained that level out payment and maintained people's incomes at the time when other incomes were declining and being cut or people were losing their jobs. so i think that opinion within the community of people that think about pensions and social security shifted radically in 2008 towards realizing the importance and a crisis benefits of social security and the way the date -- the private pension systems could be vulnerable to the crisis you could think of this has pros cyclical countercyclical terms that private pensions tended to be pro cyclical meaning to come into crisis the same time the economy is in crisis whereas

social security attempt to be countercyclical because at the time of the crisis it does better than at other times. what have country's been doing to react to this reality? a couple of countries have gotten rid of their private pension systems, only a couple of the of 30 or so that have privatized the systems, but it's an important trend and needs to be watched. argentina which was one of the first countries to privatize the system in 1994 the government seized all assets in the private pension accounts which total around $30 billion they took that money into the social security trust fund and used it to set its deficit rate and began to pay benefits promising that those money people had contributed would be credited to

words their social security pension and the future. a similar but not exactly the same process has unfolded in hungary which was one of the first former communist countries, they actually reversed the privatization a few weeks ago under a right-wing government. this isn't a left and right thing. argentina it was left government that did that in hungary it was the right wing that did that and the reason is that the need that money that was living in people's private accounts to cover their deficit that, and the imf actually approved of that on the basis that there was went to help them get out of the debt problems. some countries cut the contributions. this was a more frequent solution. others have made participation voluntary, but i think it's fair to say that the privatized pension systems have been badly

hit and destabilized by the financial crisis. u.s. private pensions as was mentioned before are also in crisis. those people who have private pension accounts of the various types know that they have been dramatically reduced balances. there was a joke going on about 401k becoming a 201k, and i've seen that in my own family. the -- there's also the problem discussed before that there is general in adequate that's going to result in the baby boom generation perhaps more than others. at the same time, because of the broad fiscal crisis of the government will only in the united states model for the world governments are having serious problems meeting their obligations, and i will speak about europe and a second. there have been a number of discussions about what to do and how to bring peace pay-as-you-go

social security systems and to balance which is obviously an important challenge. by far in europe are the more comparable countries to the united states. the most popular thing to do is to raise the retirement age, and i want to just focus on that for a second. you may know, i will show you in a couple slides and a second there were protests in france against raising the retirement age from 60 to 62. and spain interestingly also recently there were protests against raising the retirement age from 65 to 67 and they agreed to do that in the spanish case of the unions agreed to that and the french case they didn't agree to it but i think it happened anyway. but i think it's instructive to look at these increases and note that in the united states the retirement age for a believe my generation is going to be 67.

in france the increased it from 60 to 62, in great britain women were getting i guess a good deal that age 60 retirement got their retirement age raised up to 65 to parity with men and there is talk of their planning to increase the age to 67 starting in 2020 force of this postponed for a while but they are going to do that. germany is increasing gradually from 65 to 67, the the netherlands from 65 to 66. i mentioned span already, 65 to 67. usually these are phased in over a number of years. it doesn't happen immediately. for a benchmark year life expectancy in europe is currently around 76 years for men and 82 for women and they aren't expecting that's going to go up by about eight years or seven years by 2016.

and the european commission right now is trying to suggest the countries should legislate further increases in the retirement age that would keep them in line with increases in life expectancy in the future. but what is interesting is very few countries are thinking about retirement age increases beyond 67 which is actually where we are presently. the united states and 83 the was part of the 83 legislation mentioned. they put in place that increase already and served foreigners in net. we don't see anyone else talking about -- you see brereton talking at 68, you don't see anybody else talking about 70 also that is obviously where things need to go if you were to solve the problem by retirement age increases. so, what are the lessons that the u.s. can derive from looking at some of the international experience as? i think one of the lessons of

the financial crisis was pension privatization can't really solve the problem. in the u.s. if we were to do a panel one u.s. pensions or workplace pensions or sometimes called occupational pensions, 401k, you would find in the u.s. private pensions are more broke and social security is. they provide insufficient, our system which costs a lot of money in tax breaks that are driven primarily to wealthy individuals provides insufficient volatile pensions and the volatility tends to be when people need the income the most unfortunately. our system as was mentioned, the 401k of the understand people on the panel agreed with this if it were to be redesigned as something effective it has to be totally redesigned from what it is today, and that begs the

question of if we haven't been able to do it well until now how exactly are we going to be able to do that in the future? i also agree the problem in the united states in this international comparison is not that we have too much social security but to little. the issue here is that further cuts are will impoverished elderly people. the scope for the retirement age increases i agree they can be and should be considered rather more limited than a country like france which has 662 retirement age. taxes need to be raised. was talked about the payroll tax threshold in particular if you are going to deal with this. however, i do agree with one of the previous speakers that this could be a good time also to consider not only strengthening

social security systems but also undertaking the redesign of the occupational workplace or 401k system at the same time. that is more crisis than the social security and we could look to britain and its current mess pension system that is going to be produced in the next year as a possible model. i was talking with a panelist earlier maybe new zealand is another to have interesting ideas for interviewing seating on top of social security. after what we've seen the last couple of years it's protecting income. it's not about cutting social security, it's about meeting even more than is presently in social security for people to retire on and taking on that challenge means of addressing the the bigger problem than the private system as well. thanks very much. [applause]

>> as you can see there's a number of differences among the panel but i think rather been giving them time to address them now i will give them time at the end because you all been sitting here patiently for quite awhile so let's hear from you now, your questions and comments please wait for the microphone and identify yourself and try to keep your questions and comments relatively short. >> with the congress project at the willson center. we've heard references made the president's commission, but little reference made to the president himself and the congress and the vacuum there on taking leadership and doing something about this. i'm wondering whether any of you were going to speculate where this is going politically both with the administration and the congress in terms of coming to some type of i don't know whether it's going to be a summit or what but where you see

things going. >> i am pessimistic since this is going anywhere. my view is a pretty substantial opportunity in danger of being lost. we have split control of congress right now. it's very hard to do a social security fix when you have one party in control of everything and the minority party in such circumstances to help the majority party help them solve the big problem. when reagan did the social security tax in 1983 you had both parties with some skin in the game. we are also at point where the president's bipartisan commission has reported and this was a star ranging as senator coburn on the right and center durbin on the left to their names behind. we also have the budget office

saying the deficit since march last year are not permanent features of the finance. you have an increased substantive imperative to act and you have unusual circumstances that would allow for action. i don't think the president's budget presentation moved in the direction of action. basically the rhetoric is basically a series of thou shall not cut benefits for the most vulnerable or privatize, thou shall not cut for future generations. that puts them in the company of a free author and reform plan, but it doesn't really tell where we need to go. at some point you have to pick between saying this is what i won't allow to happen to explain why action is unacceptable and would present it on health care reform the last two years they were not specific in their budget but they had a place holder and they said these are the broad fiscal condors to

achieve in health care reform and the company rhetoric this is why we want to change in the positive benefits maybe something could happen but i fear the opportunity is being lost. >> i would just answer a different reason why nothing is going to happen is because to have this work even under the deficit commission is a terrible solution to have two-thirds benefit cuts with revenue increases republicans are led by people who say there will be no tax increases, they will not vote for tax increases. if that's the leadership position and they do in force in the house of representatives the

president would be crazy to step forward and say i'm for a balanced package of cuts and tax increases immediately attacked for the cuts and he will never get the tax increases, so it would be a politically suicidal thing for him to do, and unlike my colleague i was happy to see that he didn't in his state of the union take that step. >> i would just like to add so much of what we do here in washington as politics, but i think the president knew very well that the freshmen were going to do their things and discretionary cuts. only 12% of the legit but discretionary cuts so why would he come forward doing something else? he did his discretionary cuts, but volume convinced if we would separate what's happening with

social security for the whole budget we are in, i know there are people in this and you know them, too, that can sit down and solved the social security future problem very well. the problem is we throw it in the deficit reduction and that didn't have anything to the deficit so that is the up and down of the whole thing. >> i'm going to be one of his pet peeves in the future. [laughter] >> i disagree. there's been estimates of that that basically are arrived at by saying let's take the provisions and throw them in different categories and say here's the revenue provisions and here's the revenue provisions and we will add them up. two-thirds are in the benefit site but that's not how you do it. each provision has benefits.

the the impact on both to get a sense of the impact you have to have each side and after that it is roughly 55/50 on the revenue side so i don't agree on the characterization. second, i don't agree this is about the republicans. we saw the commission put together last year. republicans were not the ones. this is in the white house. in the terms they told the president it was a republican, yes republicans don't like the tax increases and after opening bargaining position there's no change in benefits but the predominant pushback on the commission from work was not from the republican side, and i think to be realistic we ought to recognize that this is a dialogue between the white house and the left on the social security. >> if i could just sort of follow on from this the

president is dealing with his own party. when the president can to office, there was talk then he was going to appoint a commission to look to the deficit and they were on the verge of doing it and he didn't go with it. eventually he said i'm going to appoint a commission and they come up with a set of proposals which he gets pushed back from the left and says i'm not going to do anything, he's not going to say anything to the state of the union. there's a story in "the wall street journal" where on named presidential aides say thinking of proposing to cut benefits and reducing cost-of-living adjustments and tax cuts but he didn't want to go that far. i fink by definition leadership means you go first. some of the president wants to get it done he has to be willing to stand up and take some heat on it and whether you like what

president bush proposed one of he stood up and he took the heat. >> and he lost. >> but the question is did he want to get this done you have to take some risks and be willing to put yourself on the line and if president obama doesn't devotees not going to get anything from. >> can i china in from the left? [laughter] >> don't sell yourself short. >> first fall that assumes the commission was a balanced commission. it was not paid to our disappointment the president appointed well-known heaters of social security. senator alan simpson appointed 20 or 30 years ago, so he isn't a guy we would look to to come up with a balanced plan and the plan was and rebalanced. similarly people were singing to has to be on the commission. we've already got them about the

membership of the commission or the co-chairs. [inaudible] secondly but we are talking about here is the consensus in washington. the only people who think the social security problem should be solved by cutting benefits me to be on the editorial board of the post and "the new york times," and they are many people beyond the panel were from around in washington or in congress and it is an elite position, and when you ask the american people what do they want the say don't raise the retirement age, don't cut benefits, by a wide margin even a multi-party people and independent and republicans and democrats. the vast majority are actually willing to pay more taxes if that's what it takes. so you have a populist that is

trying out for the security of social security. we will even pay more for it and for medicare by the way. and you have a leadership that is out of touch with with the american people want. the interpretation i can put on his action is he has shown this result and they are being carried to members of congress in both parties in the house and the senate and people are understanding what the american people don't want, they want the program to be more secure that they have to pay more for it they will so i don't think president obama is of touch at all. >> this gentleman right here. >> my name is gordon smith. i lived in the washington area along period of time and i honestly didn't find a lot of

difference in your opinions. i thought they were somewhat close because no one said let's get rid of social security and i think that is the yen and jiang. i went to work when i was 21-years-old and i am now 78. i still go to work and i collect social security but they still take it away from me. i don't understand that. but if i calculate my social security payments had gone into the stock market not mean making selections but just the average of the market, i would have made 6.9% and real returns over that period of time and now i get about 20,000 year on social security. if i had gone to the other program, i would have had $3.8 million if you amortize it over the rest of my life span, i could take down $305,000 a year

as opposed to 20,000. and if the market fell in half i would still have 1.9 million i did have 152,000 year. >> the question i would like to pose to use social security now invests in short-term government bonds that's not risky. i would argue it's very risky. only one issue or the u.s. government some people say are going to go broke and have to default on the debt that's a very risky and no investment adviser would ever tell you go with one company and put it all in short-term notes. you're not making enough to recover inflation so the question and why is this and social security invest in the broad market? gist ethridge across the board said the cost is low and it

would help the country. >> okay. >> i guess a short answer you are presuming there's something to invest, a storehouse of savings we have sitting around but we can choose to make an investment. going forward in the future we are looking at deficits. >> a surplus between what goes in and comes out each year. >> let me try to strip down the question because i think it's something that a lot of people get very confused about. you're individual rate of return is not a function of follow up with the social security program has invested in, it's what tax rates have you been assessed and what does that benefit from ilyse it is going to give you and those determine your personal internal rate of return. if you look at how different people are treated there are certain broad trends you have to look of the system treats

everybody. you can't just look at the bonds, you have to look at the whole package. there's certain trends. one is if it redistributes from higher to low-income people generally and the system redistributes money from leave her birth years to earlier to people who retired on social security first got a lot more back than they put in and then the next generation came and they were finding their benefits. the reason your personal return from social security might be low is because of because what is happening with the bond and trust fund but because you're dollars paid for the previous generation. as it happens, the worst treatment by far is going to be for young third-generation zandt this is one reason why it's so important to reform the system early because if you exempt people now from the solution, you are locking in enormous negative returns going forward because the personal returns are driven by these demographic forces and the relationship between the tax burdens people. the benefits they can afford to

pay them. the last report had an estimate if you just leave current benefit formulas where they are people entering will lose the net 4% of the lifetime wages and that's not the tax burden, that's the loss, that is the difference between when they collect the benefits and what they put in service system will subject net worth from the generations. getting back this isn't a function of the systems invested if we the formulas work who's paying for what and a certain amount of that is better than the current system already simply because we've got a lot of people in retirement, too late to fund the benefits and invest in something there's only one place we can get the money to fund those and that is by taxing young girl generations and we are stuck with that problem. >> anybody else want to -- heidi? >> on the last point i would say it isn't absolutely that younger workers we could start taxing

the non-wage income and financial transactions. we produce general revenue it doesn't have to be supported by a payroll tax in fact some of the work done shows that that first generation that all generations should be no shared and we would have a decent rate of return. >> it just changes the distribution of pay. the loss is still there. >> assuming a lot of things, i'm just saying you could reform the system to make the system a lot more generous to the younger generation. it doesn't have to go the way you say. >> during the transfers of would still come out of the pockets of

the younger generations. that doesn't change the calculation. >> how will this bill gates now? he's not exactly a young. >> with the tax or payroll site is irrelevant to the calculation. it's a generational income transfer. you can do it through income tax and payroll tax and the loss is the same. >> you could tax people today who are very wealthy and that might help the younger generations in the future. i just think there's a lot of ways to do that which wouldn't have the impact that you are talking about. >> could you talk about and leave these questions aside and just address is a man there is the money to invest i understand there may not be but if there is money to invest why is it that it's invested the way it is? why is the rate of return set the the id is and if in fact the money were invested in the stock

market as suggested the rate of return over a certain period of years increasing that amount of money in the fund. >> i would say first why is it the way that it is? the bonds issued in the social security trust fund are basically under law designed to be reflective of the government rate in the private market. so in the statute what it says is whenever the system runs a surplus a special issue treasury bond to the fund and the rate of interest would be determined by the market rate on all securities with a duration of four years so that's how it's calculated and it's meant to represent the idea that hasn't worked up this week but it's meant to represent the idea because the government to start a from social security when it runs a surplus it has to do less borrowing on the market so the interest is to pay is equal to the rate we would have had to pay in private markets so that's the idea behind it. now as to whether stock

investments reduce the size of the problem going forward i would argue know because basically you have a certain benefit your trying to pay and preserve to insulate beneficiary is from risk. you could offer a high return if they're willing to accept the investment risk and under president bush's proposal for a simple, we could say people can expect a high rate of return from the personal there's a risk involved so they might get higher or lower. once you insulate people from the press the more you can offer is a riskless rate of return which is generally a low rate of return to the government perspective the least cost method wave that is simply through issuing treasury bonds and investment stocks because it is trying to offer a risk free benefit, then basically due to variations on those then met expectations w. we have to have available isn't made any better. i probably didn't word that a

very well. andrew has a paper on this, the cost and benefit guarantees that you can reduce them by stock so maybe i should like andrew go. is connect certainly hi fever personal accounts in the past so the question you're asking if i instead had invested in stocks i would have done so much better. okay. there's a couple reasons why that doesn't really work and i will say this argument was the behind the idea of personal accounts and made it attractive and at the end of the day i don't think it's correct and the reason is the social security is an intergenerational program. so lewd would be great if i could take my money out and put it in other investments like a bird a higher rate of return without taking any risks, just putting it in government bonds. the problem is is currently paying for my dad's social security so, unless i want to cut his social security which i might be willing to do on the

family basis thomas lynn melling to cut the social security we have to come up with extra money to pay eight. if i have to pay extra taxes to pay his social security while taking my money putting it in the stock market the rate of return sort of balance is out because of that. you have a transition cost. once you factor the transition cost, the market rate of return is necessarily higher. now you can get some return by investing in risky assets, by investing in stock you get a risk premium and that is how the market rewards you. he would have invested in stocks and got in the risk premium and would be a winner. other people would have been a loser. the stock market doesn't give away money for free. the return is a compensation for risk and doesn't give it away unless there's a risk about losing money. i've done studies and papers showing by and large investing in stocks has been a great deal. the problem is what happened in the past may not happen in the future. we take the issue with transition cost from a

pay-as-you-go system and the issue of market risk the rate of return is what is and there isn't anything we can do to improve it. >> you are absolutely right in that but i can't remember more people know that than i do probably the clinton administration had the commission when a was 20% to go to the trust fund i thought there was a terrific idea because the individuals taking the risk it is the shared risk of the government, and the way things have gone on the table anymore that was a good idea. >> here's the kind of rhetorical question how the municipal and state pension funds invested in the stock market what models are made for that. [laughter] >> that's important because this temptation to try to think to ease a bit part traces by turning more and larger social

security to the other parts of the retirement scheme three devotees because the same problem everywhere we go. people say well, the 401k accounts, we need to have more defined benefit pension savings but then you look at all to defined systems, the same problems to the employer provided systems, state and local systems, social security, you see amazingly similar problems but each is about 1/5 to a quarter underfunded, each underfunded for similar reasons which is that it's easier to kind of promise more than you can actually willing to fund. it's easy to rely on accounting methods to hide the actual scope of the problem and the state and local pension systems they hid behind aggressive discount rates to make the light of these looks more the use the trust funding to make it look smaller. but the bottom analysis is that no matter where you go you're not doing anybody any favors by promising more in benefits in the system has resources to pay.

that is equally true in social security as in the other systems. we have to be careful before we start talking about benefit increases that we only do this in the context that will action to balance the system's books. if we do it outside of that we are making empty promises and that isn't doing anybody any favors. >> i would like to jump in and say the groups that are proposing government increases are indeed proposing ways to pay for them. i did want to go back to the issue of the wealth and income would talk about how the income is very unequally distributed and even more unequally distributed and by and large, it is the older people who have the larger accumulation of wealth. on average people are not particularly rich and are on average relying on social security. but where the wealth or are a different generation from the struggling parent who at the same time they are paying people taxes and supporting young children. so i think if we tax financial transactions of investments, if

we tax wealth it will was transfer a problem the you spoke about because we did have a transfer to that earlier generation sort of gift and we haven't really made up for it in the system and according to the war such analysis that is responsible for part of the shortfall that we have now. that was my proposal. i think my proposal does make some rational sense. i would like to suggest that. [laughter] >> yes, right here. >> from the wilson center think you also much. this has been a really interesting. understanding that there's a difference between what he might like to have happen and what is politically possible, can we just look at what we might like? my assumption is if we think about the impossible it will never happen, so just to speculate a little bit, the question of if we raise the

level, the income level you have to go on paying taxes we could take care of the problem, how high would we have to raise that level? what we tax all people in, wouldn't go to a certain amount of the 186,000 or what would it have to be? the second question coming into this this picking to hot-button issues together. it does anyone think about the consequences, the possible consequences on social security income of immigration reform, are there economists' thinking about that and what the impact would be of legalization on the social security system assuming that there are a lot of undocumented immigrants who are not now paying social security taxes. >> let me just talk about first piece, about scrap the cat is what some of my friends want to do. i've been with social security so long. one of the basic things of

social security is adequacy and equity. adequacy that lower-income people got more return than the higher income people but equity was higher income people get somewhere. if you just raise the cap of winep, where is the support for the program? the decision makers would walk away from the program. what would happen if you raise the cap, take away the capex it's ridiculous we get no return. as far as immigration those i would be much more knowledgeable about that than i am but i do know that many immigrants are here and pay the social security and the money goes into social security and the never collected so it's not all -.

>> obviously i disagree with barbara about listening to the colistin the cap. there is no cap on medicare -- >> but it's a much smaller percentage. >> the tax is a smaller tax it's true, but i think there is a general agreement we can find out from the other panelists when the congress set the rate cap in 1983 it was covering about 90% of all salary and wage income, and now it covers -- the cap hasn't kept pace with the inequality which has so much of income salary and wage income far beyond the cap now that we would have to raise it to it think about $180,000 to get back to the level that we were at. that does not make up for the 28

years or so that we haven't been capturing 90% but that would go along way. you would be for debt. >> i have a different perspective about policy but i want to talk about the analysis. first full before i get into the analysis, there's a very good peter on this that cannot by mark that i recommend to people that you often hear people say that in 8390% of all ages were subject to tax. wouldn't it be good from the equity perspective to get back to 90%, and of course as he said, the reason it slipped is because of asymmetry of earnings we have a lot more earnings above the cap and below. with the paper have here, super rich is where a lot of that income growth is

occurred and when the skewed the growth occurs it causes it to rise more rapidly. now it drops as a percentage of the whole of the people that get hit the hardest are just right above the cap so if we go back and say because of this earnings we are going to raise it again to cover 90%. we're going to disproportionately hit the people who've already been hit as a consequence of the faster because of this q earnings growth on the tops of its appealing at first glance in the equity argument but it doubles on the people who got the biggest hit. people below are not hit when the cap goes up faster if they are indifferent to it. people love of would get hit those are the people hit the hardest over the last 25, 30 years as it is. from the fiscal perspective you have to be careful. 180,000 is about the level but remember in the social security system benefits and contributions are linked to collect more in revenue you obligate more benefits so you have a reform for the first

approximation brings more revenue to the system that makes the initial payments to people who need them the least. if you go to the studies that look at what happens you take off the cap completely obviously you're paying these benefits to people who are incredibly rich and you still don't sold more than a fraction of the problem now you could come in to could choose to sever the contribution and not pay benefits on that. two points about that. one is that fundamentally changes the nature of social security. george's of a link in the benefits and maybe we want to do that is the type of system than we have now. we have to have a very knowing decisions we basically want to bring that barrier and destroy that flank before we do. it seems to get you from the perspective in reality doesn't get that much it postpones the deficit by a few years and because of that a lot more bonds in the trust fund but the deficits go on starting in the

mid 2020 s and go on forever and if you look at the year by year flow with the proposal that doesn't accomplish as much as you might think from a perspective raising it back to 90% only close is about 15% of the cash shortfalls even though it seems to do a lot better if you look at the trust fund of it. >> i will make a quick point on that because i think talking about raising the tax cap is we have spent a lot of time that it makes sense because it is one of the policies that is out there. i would agree if you eliminate the cap that the trust fund buildup which would be spent on something else and then bigger benefits down the road you have to think those bigger benefits on the road somebody's going to have to pay for them so i don't think we are solving the problem in the bookkeeping sense for future generations. the second point i would make is the effect of the cap on the top tax rates and it's worth running through a little bit of a quick math. under the obama administration's proposed budget, the top

income-tax rate will eventually rise to a little over 40% to get rid of bush tax cuts and eliminate a couple of exceptions. the medicare payroll tax rate has risen to a little bit under 6%. the top estate tax rate to around 6%. put those together and the top marginal tax rate for somebody today is around for the industry should proposal around 53%. if you are in a high tax state the additional dollar you pay more than half of that she either government in washington or the state level. he limited the tax cut for social security, you are adding on ten percentage points of the top tax rate goes on 63% of an additional dollar so they pay the government. i personally philosophically think that's too high from the economic perspective and i think it's particularly too high when you say that all of this assumes we haven't done a penny to fix medicare or medicaid which are much bigger problems so you've got the top tax rate 63% without

fixing medicare and medicaid you are in big, big trouble. >> we are going to have to close dillinger ask any final thoughts and/or their other countries thinking about this in a different way and what insight might we draw from that? are other countries willing to pay 63%? >> i guess the one thing i've been thinking about a lot is looking at the british reforms now. one of the things i think it's quite interesting is that during the fiscal crisis britain brought in a government that was a conservative government, and was conservative and liberal space government coalition. and they evaluated the possibility -- we were in the midst of the wheat cultivation of the social security system

and also considering a number of options and the privatization or adding more and dredging private savings and what was interesting is even during a very, very deep -- the government in contrast to hours has initiated major cuts, a major deficit-reduction, cuts across the board and the government deficit of 20% to 25%. they decided not to cut social security in britain and instead have initiated a system of private individual savings accounts that is going to be added on top of social security and is going to be financed by an employer contribution an extra employee contribution of 3% each. so why think that it's telling for where we are in the u.s. today. that just because of cutting the

budget deficit we don't need to cut social security which is set low level of the adequacy of ready. and to encourage more savings and then we can think about adding to people's tax burden to fund the types of legitimate retirement income that they expect in the future. >> one of the things we can be sure that is increased longevity we have time to continue to debate these issues and hopefully in the near future we can have time to talk about medicare and medicaid which we haven't really touched on but it is an even bigger problem and one we should talk about so i hope we will be able to bring some panelists back to that. please join me in thanking everybody very much. [applause] please note copies of i think the one book on social security are available for sale. thank you for coming.

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british deputy prime minister and a greek prime minister choi in the president of the european central bank and others on a panel to discuss europe's economic future. the panelists focused on the strength of the euro, trent currency and governments and the role of the european central bank. this one hour panel was hosted by the world economic forum in davos, switzerland. >> good afternoon, ladies and gentlemen. it is a great pleasure for me to be chairing this session notbuto just editor as the financial times but also as a former brussels correspondent.s watchie i spent six years watching the hero created in the 1990's, ands

now we have ten years long europe and we have an expert panel, a panel with different perspectives from the political to the central bank, to the private sector. i think we are going we are going to have a very interesting discussion this afternoon. now the format is that each of the speakers will speak briefly. i will then ask if you very gentle questions, and then i will open it up for the floor for questions. we can have an interactive discussion. so without further ado, i would like to ask george papandreou to speak. >> thank you very much and i'm honored to be here this year again. i will begin by a few comments on the general theme here in davos which is on governance and

equity and do we have common values in this world. why europe? what is europe's purpose and we go back to where it began. it was basically a peace project, a project for democracy and even as we see what is going on in the maghreb and and and humanitarian and the cypress in the balkans it still is a peace project, but i think the mage or challenge for europe today is to be a model of governance which is also sustainable towards green development, which in the end humanizes our globalized economy. the thing that i just want to make three points. one is on governance. the greek pelham is not a debt problem. it is a debt problem also but that is a symptom. it was a problem of governance and we have over the last year

made major changes in a system which was nontransparent, there was ways. major changes cutting our deficit by 6%, reforming our pension system into a valuable and robust pension system today. opening up professions and we are doing that right now. we are to have done some. we have change the tax system, reform the local government and reforming central government by making everything on line very transparent. but, the markets haven't responded. the last year the question to me around was -- default? this year the question is will greece default? and the question is, we have been doing everything by the book. we have done with the recipe says to wind their markets responding? while i think the question

towards greece is really looking at somewhere else. it is looking at brussels, it is looking at frankfurt, berlin paris and maybe even washington and maybe beijing but basically it is what is your doing you are doing as far as governance is concerned for the eurozone. and this is a challenge and i think there are three things which need to be done where i would say it is not simply come i don't want to use the word austerity. i would call it responsibility. there are three areas of responsibility. the first is that the member states. we have to do our homework and we are doing that. secondly, it is the financial system. we need more transparency, regulation and possibly moving ahead in some areas where they may need recapitalization. and thirdly, the necessary tools and rules and arsenal for the european union so that we can calm the market and do what we can to calm the market.

whether it is the bond market, whether it is the issue of debt and this is where the mechanism should be able to be robust and flexible enough to intervene and help in this way. finally i would just say that it means also that we need full transparency and in the last few week statistics were as they said the shortest jump and today we are at the forefront of being the most transparent country or one of the most transparent countries in the world i would say with everything on line. i think the age of transparency is very important to develop the trust and the confidence in our societies and in the world. before i finished there finish there are two other points but i will get back to base on the question and answer. the question of equity and inequality and social cohesion are very important if you want to be managing the risk.