>> the changes have been larger in the working-class then the upper middle class but the even greater class difference has to do with what i will call a fact of secularization. de facto secularization is when you tell the interviewer you have a religion but you don't go to worship services more than once a year. if you combine hard-core

secularism and de facto secularism the upper middle class went from 26% in 1972, to 42% in 2010. good-sized increase. the parallel numbers for the working-class, 35% to 61%. or to put it another way, the substantial majority of the upper-middle-class retained some meaningful form of religious involvement where as just as substantial a majority of the working class does not. another case of data not matching popular impressions. the idea that we have especially those of us in an audience here in washington, d.c., is that it's among the intellectual elites, the upper middle class that the secularism has really taken hold. that's true for intellectual elites in washington, d.c., and new york city, san francisco, and overeducated people like us. it is not true of the upper

middle class in atlanta and chicago and des moines in the same way. furthermore, it's not true that fundamentalism has been growing in the working-class as percentage of all the members of the working-class. among those who still professed religion, at the same time with no breeze seems to have noticed is actually religious involvement in the working class has plummeted like a rock. i've been talking about dk in the virtues of the working-class but i began his lecture by saying that there is an emerging new lower-class. that's not the same thing. it's a subset of the working-class. what do i have in mind? in many cases i have in mind pleasant, personally unobjectionable people. so don't think initially about mathematics and disorganized welfare members. a better way to think about most people in the new lower-class is in terms of your own extended family and the extended family

of your friends. someone or a couple of someone's in that circle problem is someone who is quite pleasant, you enjoy the company but they have never been able to quite get their act together. that's mostly what the new upper lower-class involves. individually not much of a problem. if one adult male this with a hard-pressed sister and her family, because he just somehow can't manage to hold onto a steady job, that does put a lot of stress on the sisters family. but that's manageable for the community. if a whole lot of males in the community are living off relatives or girlfriends, that puts lots of stress on the community. a man who fathers a child without meaning to and then does a married mother, maybe a nice guy who is sorry it happened to me he tries to do what he can, to keep contact with the child, but that doesn't change.

the nature of the situation, the child faces. if you have a whole bunch of such children, doesn't make any difference if they are all nice guys. you will still have the same problems with the socialization of the next generation for reasons that are beyond the capacity of the individual fathers to control. people who don't go to church can be just as morally upright as those who do. no doubt about that but they do not generate the social capital that the churchgoing population generates. it's not their fault that social capital deteriorates. that doesn't make the deterioration any less real. the empirical relationships that exist among marriage, honesty, religiosity and the production of a self-governing citizenry means that the damage is done even though no one contends it. how big is the new lower-class? know, there are no sharp edges for assessing who belongs and who doesn't. still it is possible to get a

sense of the magnitude of the problem by consider three sets of people who create difficulties for a free society. the first of these sets is men who can make even a minimal living. the second of single women raising minor children. and the third is what i will call social isolate. they're fully grown adults but they have no children, no engagement with the church, no engagement with any activity. such people are still very rare in the upper middle class and they're very common in the working class. altogether, using algorithms i will not try to describe tonight, i put the proportion of the pop of my in the working-class at about 35% before the recession, compared to about 10% in 1960. whereas in the upper middle class those problematic populations have been steady at about 5%. there's that divergence again that is different in kind from anything the nation has ever seen. how do these numbers translate into real life and real

communities? they translate into an unraveling of daily life in small ways and large. go to any working-class community and you will find a variety of people who are making life difficult for their fellow citizens. it's not just that they are nice guys who can hold a job. there are growing numbers of men who have no intention of working if they can help it, and to convince the girlfriends not going to support them but sometimes bankrupt them. alongside the nice guys who inadvertently fathered children, are others who abandon their girlfriends as soon as they learn that a pregnancy has occurred and are never seen again. alongside a single mothers who are trying hard to be good parents, our mothers used their three year old to babysit infant while they go out for the night. plus the common outcry cases of physical and emotional abuse of children by the current then

boyfriend. churches that used to be said for community activity have closed. local schools find that they can't count on the same kind of parent involvement data used to take for granted. problems that used to be solved by the neighborhood without calling in the authorities are now transferred immediately to the social service bureaucracies. it's not a crisis. it is as i said at the outset the unraveling of america's civic culture. focus on the bottom third of white america. almost all of the trendlines going the wrong direction in the working-class our continued to go down, so whatever is bad now about the situation is getting worse. there's another thing to keep in mind. 50% of the population in the middle i haven't talked about, their trendlines are going the wrong way as well. they're going -- things are getting worse.

that's enough bad news for a while. here's the good news. the good news is that the upper middle class seems to be doing pretty well. but the bad news there is were also developing within the upper middle class i knew upper class. at this point we're talking another half a dozen chapters in the book, so i'm not going to try to give you more than the quickest sketch. here's the essence. back in 1994, richard bernstein and i argued that the book called the bell curve, that the nation was in the midst of a fundamental change in the nature of its elites. three trains had gathered force after world war ii and were in full cry as we wrote the increasing market by for brains, a college system that got almost all of the town attribute in college and did a really good job of sorting the very smartest ones into a handful of elite colleges. and, finally, the increasing

degree to which the most able married and the most able and passed on the other financial success to their children, but their abilities as well. we also saw an increasing isolation of the elites from the rest of the country as they developed a distinctive culture of their own. in the new book, i take a look at the situation 16 years later. i'm able to add new evidence about all three of those trends and add some new evidence about new trends as well. after all the abuse the bell curve took, mostly for completely irrelevant reasons i try hard to avoid saying we told you so, i don't think i'm entirely successful in that effort. many of you in this room, me among them by the way, recapitulate what's happened to the nation as a whole regarding the new upper class in our own lives and maybe that's the best way to talk about it since i'm not going to give you a lot of data right now. the older you are in this room,

the more likely it is too statistically that your parents did not have college educations and the more likely that you grew up in a working-class or a lower middle-class home yourself. you on the other hand, those who did growth in such a choice and probably did get a college education since you find yourself in this room tonight, and probably your spouse is almost all have college educations and i was all of your children's college educations. the younger you are in this room, the more likely it is that your parents were in the upper middle class were college educated and that you spent your entire life living in an upper-middle-class environment. because we're in this room in washington, d.c., we also recapitulate what's happened to the nation in terms of residential segregation. most of you live in capitol hill or northwest washington for in northern virginia, suburbs or montgomery county.

some of you in this room probably live in exclusive neighborhood such as georgetown or mclean. but a lot of you are probably in neighborhoods like kensington maryland. north of chevy chase, south of wheaton. where i lived for several years back in the 1970. around washington, d.c., kensington is seen as a pretty run-of-the-mill suburban neighborhood. well, let's just see how ordinary it isn't. take for every zip code in the united states the median income as of the 1960s -- sorry, 2000 census, and the percentage of adult 25 years or older with college degrees in every zip code of the country as of the 2000 census. then combine those into single index and rank order all the zip code in the united states from top to bottom. and create a percentile score for each zip code that is just like a percentile scores on

academic tests. if you're at the 80th percentile of the sat that means that only 20 people out of every 100 got a higher score than you did among people who took the test. if you're in a zip code that is in the 80th percentile, what that means is that of all the americans of the united states only 20 of them live in a zip code with the combination of education and income as high as your zip code. so for example, lets take zip code 20007 your that's georgetown. it's percentile score is 99.6. [laughter] >> out of all the zip codes in northwest washington west of the park, and the two tiers of zip code's above the border of d.c., montgomery county, it is correct that kensington has the lowest. 96.7.

all the others are in the 99th percentile. to those of us who live in washington it looks like there's a world of difference between georgetown and kensington compared to the resignation they're both they are both at the very to the top of the pyramid. that wouldn't be so bad -- by the way, those of you live in virginia i shouldn't leave you out. all the way from great falls down to arlington, although zip code, 99th percentile. this wouldn't be so that if most of the people came to washington had grown up in places where most americans still live. cities like buffalo or peoria or waco or trenton, or in small towns or in rural areas because that's what most americans still live. but once again the older you are, living in this room, being in this room, the older you are the less likely it is that you grew up in a place like that. i'm sorry. i had just gotten that sentence completely wrong.

the older you are, the more likely it is that you grew up in a place like that and that you bring with you to your mature success memories of life in those parts of the country. the younger you are the more likely that you grew up not only in an upper-middle-class suburb, but one that was a suburb of new york, chicago, st. louis, dallas, seattle, or one of the other nations major cities and that you've never had an expense with any of the kind of america except maybe for four years when you live attached to but not of a small town that house williams college or middlebury college or bass or some other elite school that you attended. speaking of elite schools, that's another consideration that comes into play when we talk about the isolation of the upper middle-class. a great many of those who hold any positions have not only been in the upper middle-class bubble, but in the elite college

bubble as well. one of the chapters about the new upper class attracts the residences of more than 14,000 graduate of harvard, yale, and princeton. i assembled the zip code where they live when they're in their 40s or early '50s. the highest density of graduates of those three institutions is in the zip codes west of cambridge, massachusetts. the second highest density concentration of such people is in princeton, new jersey. the third highest is in the zip codes of northwest washington and the adjacent montgomery county zip codes. third highest in the entire nation. when i asked my aei colleague michael varona to donate the directory for his harvard class as part of his research, he wrote me an e-mail about the place in northwest d.c. where he lived for 31 years. on my former blog in washington, d.c., where my next-door neighbor's princeton

57 and radcliffe 66, the folks next to them both harvard 64, and the people across the street, yale 71 and he'll law school 74, plus many harvard 66 and yale law 69, just a typical american neighborhood in other words. [laughter] >> when the people out in the rest of the country say that america doesn't inhabit the same planet they do, they are exaggerating only a little. the same thing applies to the new upper class across the country, especially in the city with the most powerful figures in the entertainment, news, i.t. and financial industries live. that's new york city and los angeles, and san francisco. was the picture i'm thinking. a new lower class whose members are increasingly unsuited for citizenry in a free society, a new upper class that is

increasingly isolated from ignorant of, and some that haven't gone into but is also true, increasingly hostile toward a larger mainstream culture. given that kind of portrait, what does the future look like? that's another four chapters of the book that are not going to say much about except a few things. you can find lots of reasons to think that all is lost for the american project. the parallel that keeps nagging at me is a row. in terms of wealth and military mind and territorial reach, rome reached its apathy. i've given authority in saying this, reached its apathy under the emperors and remain powerful for two centuries beyond that. so was the end of the roman republic way back in 49 b.c. a big deal or not? in terms of the wealth and power and territorial reach of rome,

rome was not a big deal. but the romans who treasured the republic, it was a tragedy. it was a tragedy that no amount of imperial splendor could redeem. the united states faces a similar prospect. continuing on its roads towards a european-style welfare state remain at least as wealthy and powerful as ever, but leaving its heritage behind. i'm not evoking the image of an emperor led united states. we still have a president and the congress and the supreme court. but the united states will be just one more in history's procession of dominant nations. everything that makes america exceptional will have disappeared. so there are many days better wake up as a pessimist, but by midmorning i start to recall a few brighter spots. the first is that over the course of the next decade or so we ended the united states are going to be watching the

european model implodes. it's going to implode in some countries that do not permit massive immigration because they just can't pay the bills anymore and they will go bankrupt. the welfare state circuit in other countries that do encourage massive immigration to help pay the bills, they will undergo cultural transformation. the people of new political power in those countries are not going to be built -- who will not be people who bought. as we watch what happens of the advanced welfare state of the next decade is going to be a cautionary example, and trying to emulate it is going to look less and less attractive. the second consideration is the increasing obviousness that there has to be an alternative. we are the richest country on earth. with a couple hundred nine people out of our population who don't need a penny in government support. the entire welfare state can

disappear tomorrow and they would do just fine. and yet we spend a couple of trillion dollars here on transfer payments. for those of you who don't think that social security and medicare are transfer payments, you have not been paying attention. for people like me, this is already crazy. we are not looking at a situation in which we can save a few tens of billions of dollars without hurting anybody. we're looking at a situation where we can save a few trillions of dollars without hurting anybody. as the amounts of money we transferred continue to balloon over the next years, at some point it will become obvious not only to libertarians like me, that this is crazy, it will become obvious to everyone who is not a certifiable. there must be another easier way of dealing with human beings than this behemoth of the advanced welfare state. the third consideration is that the united states has a history

of new founding pessimist. whenever the american project has suffered a wound that looks like it might be fatal, somehow things have always worked out more or less. can it happen again? why not? the phenomenon of the tea party i think is a case in point. if you go to the tea party's webpage there is a list of core principles in total reads individual freedom, limited federal government, personal responsibility, free markets, and returning political power to the states and the people. that's it and there's not a single item in that list that to me ought to be controversial with regard to the original nature of the american project and what it stands for. it remains true, however that the tea party itself is controversy. any tea party event in which anybody expresses a whiff of know nothing isn't or theocratic ambitions or ethnocentrism, that gets plenty of coverage on the news is the hundreds of other

tea party events that have none of that, that are focused on the core issues, core principles of america, they don't get the attention. but i also have to admit that some of the more visible people who set themselves up as speaking for the tea party are just as up dashing as objectionable to me as michael moore and keith olbermann. there are problems with the tea party but the bottom line is this, a huge grassroots movement has risen spontaneously in defense of the principles that animated the american project in the spring of 2009, it didn't look remotely possible that such a thing could have happened. a lot of people have gone broke many against the resilience of the american project, and i'm not about to take that chance when i get around to setting down my best guess about the prospects of the future. from the beginning, america has had defects largest ball including the largest, them

bearable contradiction of slavery and its aftermath. but the history of the american project taken in its grand sweep has been one of breathtaking progress in which free people without the dictates of government steadily remediated the nation shortcomings while creating a civic culture that in spirited not only our own people, but those around the world who came here to share it. we are now in a phase when we still have to convince many of our fellow citizens that the federal government is again to the rooster who thinks it's growing makes the sunrise. but that is the case that can be made, not just with the rhetoric, but with the empirically with numbers, data, with evidence. what we have going for us is reality. from the founding through its first two centuries, the united states fostered a different way for people to live together,

unique among the nations of the earth that is still precious to some very large number of americans. who are determined that this way of living together will endure and prevail. thank you very much. [applause] >> thank you. we have questions and the drill is what i call on you, somebody will come and bring a microphone. i saw a hand up back there. christopher, former president of aei, but long-term abbas. >> -- long-term boss. [inaudible]

>> so as to avoid misunderstanding, so as to make the conclusions particularly start. within fq presented all of the data that you have assembled, you drew conclusions about america as a whole. so from your data you are moving directly to this is what's happened to america. i understand the reasons for your analytical approach, but i wonder if when you're characterizing america as a nation, as a people, what do you try to add the blacks and latinos back in? and if so, how that affects your portrait and your conclusions? >> that's chapter 17. >> you're right. it's very important to say at the end of this, okay let's expand.

i have to say this is one these cases when i saw the results i was surprised. after i saw him i could think back and said i shouldn't have been surprised when i was a price for following reasons. i'm familiar as most of you are that the out of wedlock births are higher among the black population than among the white. that's true for other kinds of indicators as well. it doesn't work that way. when you add in everybody you're adding a variety of populations and a lot of times they counterbalance each other. the fact is that when you present these trend lines for all americans, they look almost identical to the ones that i present for white america. remarkably close. i found that even though it's surprised me to be wonderful.

we are one nation after all, much more than we realize. but paradoxically one of the ways to get people to come to grips with that fact is by forcing them to read the preceding 16 chapters based on white americans. right down here in front. >> thanks for a wonderful and fascinating talk. can you say a bit more about the middle 50% and how the numbers then come out? are they different from the top and the bottom? or just halfway in between, or are they themselves bifurcating into an upper and lower part? what about that middle 50%? >> what about the middle 50%. first to get a sense of who the stage% are, you're talking of k-12 teachers, nurses, technicians of all kinds, you're

talking about salespeople, people in all kinds of white-collar jobs who are not in managerial positions. middle-class. different indicators show different things. sometimes that middle tracks closer with the upper middle-class and sometimes they tracks closer with the lower class. there's not a generalization to be made about that. the generalization is there always in the middle. there's no case where the middle class is higher than the upper middle-class in terms of an indicator. if i had to say was the dominant theme, they look more like the working-class than life the upper middle-class. i don't want to emphasize that too much because they are pretty much in the middle. it looks as if the upper middle-class has been remarkably stable on a whole bunch of things, and everybody else has not.

yes. >> to quick question. first of all in your index on income by zip code, you also account for the cost of living because of the causal link in these different counties is very different and if you adjust it for that, people might be better off than some the lower income counties. second come in my county, montgomery county, you can see influx of immigrants, particularly asian immigrants so it's not who are doing very well with sending, cumming, who are upwardly mobile source not as though these counties are completely static in terms of just established upper class. the also have people who recently moved from other areas in them. >> that's true. first, with regard to differences in cost of living,

and try to take that into account but in a sense it's not relevant. in the following sense, diana. if you go to new york, you will find somebody making $175,000 a year, who was living in a very small cramped apartment, but holds quite a prestigious position let's say in the faculty of columbia university or something like that. so when you get zip codes that qualify under constant income thing is to their standard of living can be quite different. if they're in new york their standard of living is an si as if there any zip code in des moines. but that doesn't change the fact that they're part of an elite in the way of people are making more real income. so when these criteria for ranking zip codes put the upper east side in the upper west side of new york up in the 99th percentile, i don't think that's a misrepresentation of their role of the new

upper-middle-class. this aspect involves immigrants and a lot of people are making their money initially for the first time, and all of the churning that goes on in american society, and i do not mean in any way to deny that, however it is also true that in your most elite is zip codes, that's not kind of person you're getting. you do have a high percentage of people in the elite zip code who are asian. that's true, and i can't from the census data tell you whether they are new immigrants or not. maybe i could but i haven't. they are about double the percentage of asians in the population as a whole or in the elite zip code. so you probably have some of that kind of phenomena you're talking about their to also have in the zip codes a great deal of continuity. so that i went back and look at the 1960 a look at the top

neighborhoods in 1960, and the top neighborhoods now and they are very similar. i can comment thing any more detail about that particular issue because i have a look at it detail. okay, we've got a lot of fans. >> thank you. my question largely pertains to sort of the framework that you are utilizing. i'm a great admirer in a lot of your work on libertarianism in general, but i tend to get a little weary using something like raise as another trick because it's a little bit fuzzy. it's sort of fluid and highly variable over time. we might consider whites today, they may have probably been considered some mayors of other ethnic group at some other point in the past. i wonder if when we implore that, for the same reason i have some concern about some of the other metrics would talk about

religious also be or marital status a sort of driving factors, not to which -- but if we're not potential overlooking some other important in shaping factors, i find myself in broad agreement with most of the conclusions towards the end of your presentation, but when i consider, for example, income stratification and all the other things, i presume there might be some other things that work in the broader economy like a changing in the nature of the opportunities available to most people that require a higher level of educational again, sort of greater stratification. or with these white cohorts we discussed earlier, if there is a decline at the rate come in the rate at which it is pertains to the last comment as well, immigrants are joining this cohort, my dad account for sort of i guess a degradation of the protestant work ethic which is

so central to the american project as you described it? >> one of the nice things about using working class composed of whites, ages 30-49, is that a whole lot of the competition issues about what's happened in the labor market and how that affects labor force participation and all the rest of it, a lot of those get pushed aside so that you know what the major issues about black unemployment in the early 1970s and block drop out in the labor force was the argument professor wilson of the university of chicago at the drop some of them in a city, from the central city out to the suburbs and so forth. so all that kind of stuff gets swept away. that could have affected white's central city neighborhoods, but you've got a whole bunch of other white around those country where those were coming to them as opposed to leaving. that can emphasizes the ways in which what i'm talking about whites ages 30-49, why is it

that the changes in labor force behavior, there's a whole set of things that don't enter into the. this is not to say that white labor force behavior was not affected by what was going on, in other words. i think an interaction effect there was quite possible. but that leads to a really interesting thing to ponder. and let's talk about the late 1990s when jobs were edward or anybody want a job in the late 1990s could find a job. why is it that a white male age is 30-49 would not be in the labor force? why would you have larger numbers of them leaving the labor force? well, you can say it's kind of the interaction effect you talk about. maybe so, but in some broader sense it's reflective, doesn't make any sense -- difference what the causes were. it's reflective of a different attitude toward work, toward

industries this thing used to exist. a fundamental change in a norm. and so i guess what i would say to you is that's what i have identified in this procedure. and we could all talk and about why this happened. but the fact that it has happened is important for the future of the american project. michael? >> i'm a little disappointed find that my former zip code was only a 99.6%. [laughter] >> no, no. maybe cheap apartments. anyway, charles, you presented this as an aberration from a long-term trend in american life and have made reference to contemporaries in describing our characteristics. but i wonder if the starting

point of 1960 is a little specific to a generation and not necessary typical of american life. you have at the end of the baby boom generation, or we had rises in birth rates rather than declines which usually get on society, more affluent. and i wondered if we couldn't look at, say, 1910 or 1900. don't see some of these same things in the cities that theodore dreiser is writing novels about? the huge gap between incomes, between north and south. and one suspects industriousness as well. maybe we've gone back and forth in our history which perhaps gives us cause for optimism now. than the presentation you made. >> well, there are some ways which we can go back further. for example, it takes something like the poverty rate, we have

our scholars have calculated retrospectively using the decennial census, the poverty rate i think back to 1930, but i know that as of 1940 we were still i think a majority of the population is below the poverty line in constant dollars using the official poverty definition. and we also know that from 194 1940-1950, 1960 it dropped like a rock which is of course the great irony in all war on poverty which we made incredible progress in those 20 years. so in one sense, you can say there was an inflection point around the 1960s. that's true. whether you had ups and downs, you certain have been in crime. certain he had in crime a big spike in the 1920s. did you have a spike in labor force participation? have you had ups and downs?

i don't think we have the data for that. i don't know a thing but i will say this. i did choose 1960 partly because that was the earliest feasible time i could get all the data i needed, but for another reason as well. on the whole bunch of trends the united states was heading in the right direction on industriousness, religious also the, honesty and marriage. we are headed in the right direction. things changed in the 1960s. social capital is a fascinating example. but what's happened is social capital it is not the case that back in 1920 we were really a religious nation and the we became a less religion. no. are much more religious in terms of the measures of attendance in church in the 1950s and were in the 1920s. i don't need to go into all the other ways in which things really were headed in the right

direction. and so many of those turned rather him not only had in the right dress for the people at the top, they were headed in the right correction for the people in the bottom 30%. and so when you been writing about these issues as long as i have come your kind of afraid that you're sounding like a broken record, and i bashed the 1960s and 1984 in losing ground. it's kind of pathetic someone bashing the 1960s now. but doggone it, the 1960s have a lot to apologize for. robert putnam, bless his heart, a wonderful scholar, i admire his work enormously, and he takes all of these ways in which social capital was going up during the 1950s, starts to go down, and he says at one point in the both the mobile year in which these trend lines reversed was 1964. then he says he doesn't think these conservatives who say that they government had something to do with our right.

and i say 1964 is the turnaround point? i start with 1960 for that reason. the united states could have kept on getting better in all sorts of ways. without what happened. right behind michael. >> you've described -- you've described how he ranked zip codes by combining education and median income. have you looked at data that similarly ranked, ordered zip code in terms of contribution as reported by the federal election commission? and how much of an overlap would they be? my guess it would be almost complete. >> what a great idea.

i didn't realize that those data were available by zip code. i'm heading home tonight and -- that's a great idea but i would love to see what happened. i will tell you what i have done, which is i have computed the ada rating of representatives of zip codes during the 2000 congresses after the redistricting from the 2000 census i have the average ada rating for the congress and for all the zip codes of the country i have started look at that sort of thing and that is yielding real interesting stuff. not just what income and education, but on another dimension. which is that are red zip codes and blue zip codes, even among elite of zip codes that provide very interesting contrast in terms of the segregation of the zip codes, from other americans and collateral characteristics of the zip codes but i hadn't thought about doing what you're doing. wonderful idea.

>> i'm sure you look at the big sort. i can't remember the author, maybe -- thank you very much. inflection points 1965 they specifically the summer of 1965, and some of the key turning point, this is the falling away of trust in major blows and other institutional think people i trust them. and the vietnam war involvement with 20,000 at the beginning of the year, 200,000, the high point of the civil rights movement as the voting rights act and the riots in watts, too big indicators. two events. the question is what is the indicator? i want to know what you thought of that as a reflection point. second, there are some parallels

innocent, they had they had just been a landslide election of the democratic party after the november 64, goldwater lost. and a huge expansion arguably over extension of the democratic party agenda integrates aside in the vietnam war. you have a similar event with the election of obama, huge event for the democratic party. argued that an overreach of the democratic party with health care legislation but arguably a similar involvement expansion of overseas involvement with what we're doing now in libya and elsewhere with a surge in afghanistan. do you see a parallel? and the rise of the tea party in response. is there a parallel there? >> by the way, bill bishop bruno called the big sort that the chip in reference it's a terrific book and it basically talks about the way in which we have sorted ourselves, especially politically into homogeneous enclaves.

it's very hard to talk about the mid 1960s without considering the profound effect of race at that point, and the civil rights act of 1964, the civil rights movement, and what was a very fundamental change in the role of the federal government with the civil rights act of 1964. just a landmark change. not argue that good or bad or anything, i'm guessing it was huge. and along with that, i'm not going to get too specific with 64 and 65. i think it's the mid 1960s were a whole bunch of other things come together. because it wasn't just the war on poverty programs. it was also supreme court decision which radically changed the role of the federal government. and it was at that time, and then thinking on my future because your parallels fascinating. there was at the time and think a broad sense in middle america

this is not what we bought into in the past. this is not what we thought our covenant was with the government. and i think that there is a similarity with what happened the last couple of years. speaking for someone on the right and someone who hangs out with other people on the right, i know for a fact that a lot of us were saying, you know, these guys are not playing by the rules with the health care bill. this is what you do when you get signals from the electorate that we don't want. you don't go through -- is a sense you guys are not playing fair. that i think probably also the mid 1960s, and with a sense that you guys aren't playing fair comes a breakdown in all kinds of trust. it is a broken covenants, and i think is probably what i would in the process of answered a question had live like this, that's what would stick in my mind as a common feature between 1965 and the last couple of years.

that's a really interesting idea. we will try right here. >> i'm sorry i'm not able to get to all of you. >> you began by talking about the american way of life and changes that you traced from the '60s about the things that we think of as being american, and yet so much of your focus is also want the welfare state and influence of the welfare state on behavior. so i'm wondering if you look at all at the european experience, their welfare states predated ours? and whether they had seen similar social consequences with marriage, industriousness and so on. they're older welfare states expect i look upon the events welfare states of europe as the canary in a coal mine. and not in terms of the underclass so much as the whole

population. if you're talking about industriousness, i mean, the united states is an outlier if you take year and the amount of hours that americans work compared to europeans, plus you take attitudes towards working, completely different. in the united states large large proportion of people still say they love their work and that they find their work hard to put aside at the end of the day. much higher than in most european countries. a couple of exceptions. religiosity, many of you all know the story about that. western european is in -- and you know church attendance, christian churches in countries that were once one wants 100% christians, 10%. table. marriage, marriage rates are far lower than europe than there are in the united states and they drop more precipitously. you are probably mostly the my with the childbearing rates,

fertility rates way below replacement. by the way, in terms of honesty, crimes, they've also seen decreasing crime rates. if you take any of the institution through which we are talking about the sounding virtues and you look at the european counterparts and look at the welfare state, i don't think you can make a case that these having decayed enormously in ways that suggest a very close causal link with the features of the welfare state if something i've written about a lot in a book called in our hands. >> i pointed at you. >> my name is bill. i'm a founding board member for charter school. we have just come we're in our six year. we have one all kinds of awards, national and international. we have over twice the number of

african-american students than the county district with a limited the achievement gap which is unheard of. the county is under federal injunction because of the achievement gap, and yet the people who support the regular schools fight us tooth and nail. and i think we have apartheid in our educational system. we started another school in baltimore. we will put another one in laurel and we have the secretary of education for the state of virginia, three delegates from state of virginia and about eyed other people -- >> we have a whole bunch of people waiting to cast a question that i don't mean to be employed by think we need to get to questions. >> until we get k-12 in my pen is the most dysfunctional institution we have. >> that's a book called real education that says that that i wrote. so you getting at another gathering and i will do 20 minutes on your question, okay? i'm not going to do it tonight because of the different nature of the topic, but godspeed with your charter school.

the gentleman right next to you if we can get a question from him. >> charles, i really appreciated positive note on which you and your talk. so let me perversely ask a question about the possibility that optimism is not warranted. as a colleague of mine who likes to quip there will always be an american, it just might not be in the united states xmi question is, if that were to come to pass, where do you think it would be? where else in the world to see the trends and the culture going in a direction that might produce the equivalent of an american project? >> no place comes to mind. it's a rare combination, of qualities you have to have, and the thing i'm thinking of especially, i know i have libertarian friends who think

i'm a wuss for talking so much about community. but there are lots of cultures around the united states -- around the world, that have wonderful traditions of hospitality. but there are very, very few cultures around the world that have wonderful traditions of people voluntarily helping their neighbors who are not related by blood. very few. when i see very few, name just one. with inkling having sort of second place in england with its class system, second place isn't that close. the united states said the culture whereby -- civic culture whereby everybody marveled at, whereby americans costly severe pursuing their own self-interest, but in practice they spent huge amounts of energy collaborating with each other to solve problems. i just don't know anywhere else in the world that has ever done that. and i don't see anywhere else in the world that looks like it's possible for doing the.

when i talk with american exceptionalism that's pretty much the top of my list. >> you mentioned putnam and also 1965, and i know you said immigration, immigration will not solve it but obviously 1965 we had the immigration act and putnam said it was the most negative effect. i'm going to your talk, -- i'd expect you must issue the. a hearing is not the chris and i'm having a hard time following your. >> well, the lower class has to compete with immigrants for jobs, go to school with him and live around them while the upper class goes to private schools, lives in the suburbs and hires immigrants to be their nanny i know you said immigration would

not solve this but it exacerbates the problem. >> if we're looking at problems which had, trendlines, the trend line had tilted upward in sync with the competition for jobs, i think in that case is a strong one. in most cases these trendlines started going in the wrong direction before immigration became an issue. i agree that the competition for blue-collar jobs posed by illegal immigration has been really serious, and that there are a lot of white to blue collar workers who are incensed that you illegal immigrants working for a couple bucks less an hour and the employers don't have to pay them benefits, and it's making life difficult for them. i agree that all that is true. it is also true that if you go to small contractors or painters or plumbers or electricians, or

other skilled labor and you can get into, to your house for a while because they are so overloaded with work and when they do, to house and say why don't you just add more people? and they will say that it's almost impossible for them to find young white males, or females, who want to learn their trade in return for good wages. they don't want to do it and they can't find them. i don't think that this is a matter of anecdotes. i think this reflects the kind of deterioration and industriousness in the working-class that i use statistics to try to prove. so, immigration is relevant to the issues of the reasons you said it is, something else is happening in the working-class that's much more insidious. down in the front year.

>> john sullivan, independent economist. has there been, has moral relativism played any role in this? i can think of churches about moral rectitude, and now you hear from a lot of our church-based institutions, discussions of victimhood and system and stuff. and i wonder if there has a been a psychic shift. to them money, i'm a catholic and i'm wondering if the vatican didn't screw things up. [laughter] >> you know, one of the curious things about the new upper class and the upper middle-class is precisely that. they are behaving in all the right ways. they're getting married, they're working hard, the hours worked per week for the upper middle-class is huge and have gone up rather than down for most of his very. so they're doing all the right stuff, they won't dare say this

is the way people ought to be. they will not preach what they practice. and i have this down to non-judgmental -ism which has it works for me, but who am i to say that this is appropriate for someone with different backgrounds, different ethnicity. and what are the things in the book where i do my own preaching is to say this is got to stop, it's almost as if the upper middle class is keeping the good stuff to itself. i talk about the ways in which these things that industriousness, religiosity and marriage and so forth contribute to human flourishing. the way that people are happier because of it. elite more fulfilled lives. the upper-middle-class knows this. why not say it out loud? and say what we are preaching here is what we are practicing, and it is not because what -- is not because we want you guys to work harder so you pay more

taxes. it is because this is the route to human flourishing. edward crane. >> i wanted to defend the gentleman with the charter school for you so abruptly cut off, charles. it seems to me -- >> i'm so glad you came here tonight. spent i knew you would be. it seems to me that, in fact, the public school system is very much a driver of the social pathology fewer talking about. that they don't teach moral values, ethical standards, the concept of the stigma because they think it's, you know, that's a sign that their secular. but there has to be a way and i think it's these charter schools, school choice ultimately that will create an environment -- they say monkey captains send their kids to private schools because they get better moral grounding. [laughter] >> and i think that school

choice is a very big element of solving the problems you outline. >> i agree, i agree with that. i'm sorry that i could not respond fully to the gentleman because i had so many other people like you sticking up their hands. [laughter] >> this will have to be the last question. you've been very patient. >> thank you for your presentation. i'm wondering whether you could comment as to the extent to which the decline and industriousness and work in the working-class is specifically a male phenomenon. minus 10 which may be wrong is the decline in work among the working-class has really been until, is that right or is this a global phenomenon by gender or just an american phenomenon? and what do the answers to those

questions suggest about potential causes of this phenomenon? >> and i've got three minutes before 7:00. point everyone is, you're right. it is concentrated among males. is almost exclusively among males, and women have intercourse participated. you can't tell what's going on with trendlines but it's a male phenomenon. why? what's been going on? whether its international i don't know. i think a large part of the explanation lies in some phenomena that other people says has been. males are floundering in the working class as to what their role is a more. that women don't need them as much as they used to as mates for the children. the women themselves are competing with them for the same jobs and getting hired a lot of

times it's a will work harder than the guys who. and i think there is, i think that was the upper-middle-class, a lot of the turmoil of the change in roles in the workplace, gender role, a lot of that, people are feeling comfortable. i think the working-class where a guy is working a lot of times at a pretty boring job, and not that well of a paint job and it was really important that he be able to say to himself, hey, i'm supporting my wife and children, if it weren't for me they would be in bad shape and that's changed a lot. and with that change has become a i think a demoralization that israel. i don't use this as an excuse for what's happened. i still think that they're being reckless. but i think that may be part of the explanation. this has been lots of fun. thank you very much for your attention. [applause] ..

[inaudible conversations] >> up next, from the world health care congress, a discussion on health care costs and federal policy. we'll hear from congressional budget office directer doug elmendorf. the senate will be in at 10 eastern. after morning business, they'll begin work on a measure that would repeal the 1099 tax reporting requirement that was included in the 2010 with health care overhaul law. live senate coverage here on c-span2. >> c-span2, one of c-span's

public affairs offerings. weweekdays, live coverage of the senate. and weekends, book tv. 48 hours of the latest nonfiction authors and books. connect with us on twitter, facebook and youtube, and sign up for schedule alert e-mails at c-span.org. >> up next, a discussion on health care costs and policy including implementation of the one year old federal health care law. we'll hear from congressional budget office directer doug elmendorf and former tennessee governor phil bredesen. this is hosted by the world health care conference. >> quickly, we're a leading global diagnostic testing andglb global management provideresti working with employers, health plans and physicians. we are keenly interested in allp things having to do with determining actionable goals ann implementation strategies to demonstrate quality, consumer choice, cost effectiveness and

transparency in health care. thinking back to last year,e. almost to this very day, the big news at the conference was thebg just-signed patient protection and affordable care act. as we all know, a 2,000-page bill designed to change how 2 health care is delivered and paid for in the u.s.re and on this same stage last year our next speaker, doug elmendorf, discussed in great detail how the cbo hadin calculated the multiyear impact that this bill would have on the overall p and l of the federal government. now, for those of you who werehe here last year, you might recall his final remarks, and whether he meant it as a touch of humor or, perhaps, political fortuner telling i'm going to paraphrase here, but he finished theo

presentation by saying, "and of course, all bets are off if in the midterm elections we see a substantial shift in power."t i think it's safe to say that we have with seen that shift in power a few months back. so earlier this year i've got a conference with the blue cross blue shield association, and as we all know, it's a group of about 39 companies that collectively manages about 100 million lives here in the u.s. and is clearly, i think everyoni would agree, is on the leading edge of those companies that will see much of the action, much of the action when it comes to the 32 million folks who are expected to enroll in healthpe care programs over the next three years.o and, again, perhaps a bit of foreshadowing. one of my favorite sessions was titled, something along the lines of, you have survived thes first year of health reform.

now whatsome and on a positive note, as i travel around the country talking to health plans employers and providers, theree is a growing concern -- and i'mm sure everyone here wouldwing agree -- about the sustainability of the current system of health care delivery, and it's a situation that is compounded by rapidly rising costs as well as ap growing shortage of primary care providers.tage these concerns have triggered interest and approaches to mitigate the advance of chronic disease and a much greater focus on prevention. and given health reformsr provisions covering provision,v many employers are already well down the path of adding programs that focus on prevention to their overall health strategy. now, employers i talk with are including screenings, health fairs, both telephonic and online coaching and other innovative programs to help tel their employees. more importantly, as we speak to

employers, they're beginning to see the beginning of positive te changes, positive changes ini their health care costs. certainly, that's a step in the right direction. and whether you're in favor ofg health reform or whether you're working very hard to unfund it, a number of the bill'sh provisions are already takingf effect and beginning to change f how health care is delivered. so programs such as making small businesses eligible for tax credits, if they contribute to employees' health insurance coverage. also establishing temporary state-level health insurance pools for people who can't get pre-existing coverage. and finally, extended coverage for adult children under the ag. of 26. ext i think we'd all agree, those things are starting to take effect, but they're just the tip of the iceberg.rg still to come arees a few topics that will for sure be controversial and subject to spirited debate and, no doubt,

probably take a few turns in our federal courts. issues such as whether or not we can require all u.s., legal u.s. residents to have health care coverage or whether to expande medicaid to cover all uninsured people up to 133% of the povert line.o and finally, establish state-level insurance exchanges for individuals and smallnal businesses.als again, how this congress and future congresses wrestle with the ongoing issue of delivering sustainable and affordable health care many america will directly impact each of us in this room today and, also, our children and our children's children which i'm sure everybody would agree is a veryu sobering thought. so over the next few days we'reo going to hear there a number ofo experts both from the u.s. andn beyond our borders, and it will be interesting if collectively by wednesday we are any smarter on how we overcome the

challenges we face rolling outr health reform, and if we're any closer to understanding how to bend the trend on health care costs and achieve cost effective care. it will be interesting to see if we're there by wednesday. so that said, i am delighted to turn over the stage to doug elmendorf who is the directer of the congressional budget officed who will give us the year onef perspective on health reform,t and i'll also turn it over toh amy goldstein from "the washington post" who t will t moderate our first keynote session, "the cost of health se care reform." thank you and enjoy ther conference. [applause] >> thank you very much. it's great to be back at the world health care congress. and be i'm impressed that so many people are up so early thin morning to talk about federal health care spending. i'm going to talk about restraining federal health care spending. i'm going to discuss threefede

specific topics. first, and i hope this isn't asp surprise to anyone here, growth in spending on health care programs is one of the central fiscal challenges facing the federal government. second, last year's major healt, care legislation made important changes to medicare in many an effort to restrain -- in anre a effort to restrain spending, ane third, the federal governmentd has other tools it could use to restrain its spending on health care, but applying those tools will not be painless.t let me lab rate on each of those -- elaborate on each of those points. growth and spending on health care programs is one of the central fiscal challenges facing the federal government. in the current fiscal year, the federal government will spend more than $1 trillion on health care.h more than half of that will be through medicare, a little more than a quarter on medicaid andec the children's health insurance program or chip, and a remaining fifth on veterans' health care,e

the military health care systeml health research and other programs. all those outlays together represent about 7% of gross domestic product, the totalpres output of the country. moreover, spending on those programs would increase rapidlyu under the policies we followed in the past tiew -- due to both rising costs per person and an increasing number of beneficiaries of federal government programs. in addition, of course, last year's legislation expanded the government's health care programs which will also push up spending. let me touch on each of those reasons.ng. in terms of rising costs per person, here's the mostg co important fact.e between 1985 and 2008 medicare spending per beneficiary adjusted for changes in agefici distribution increased an average of 1.5 percentage pointt faster per year than gdp per person.pe over the same period, such growth in medicaid was 1.2 wit percentage points.

thatnt was not a fluke of thosew particular decades. if one looks back over a longer period, one finds even more rapid relative increases ini spending for those programs. another significant factor in the next few decades will be the increasing number of people eligible for medicare due to the aging of the population. the oldest baby boomers are becoming eligible for medicare this year, and we project the number of medicare beneficiaries a decade from now will bes a one-third larger than the number of beneficiaries in medicaree n today.r the third factor pushing upt federal health care spending is lastth year's legislation as aa result of the expansion in subeg is itys and changes in insurance rules from that legislation. the country is now on a path toward achieving 95% health insurance coverage among the legal, nonelderly population compared with 83% today. our most recent estimate is that those coverage provisions of ti legislation will have a net cost to the federal government that

exceeds $150 billion a year by 2017 and increases further beyond that.reas the legislation also, of courset reduces spending for medicare and other existing programs ando raises revenues in various ways taking all the provisions together we estimate that the legislation will reduce budgete deficits.re however, at least through 2021 it will be increasing federal health spending. now let me turn to my second point. last year's legislation made important changes to medicare in an effort to restrain spending.e specifically, the legislation included many provisions designed to con train spending -- constrain spending on health care in ways that would not explicitly shift burdens to beneficiaries or harm their health. from an economist's perspective, that sounds like the sort oft free lunch we are trained to be skeptical of. at the same time, there is evidence of unnecessary spend anything the health care system and considerable consensus among

analysts and practitioners about the broad types of changes that would be useful, moving away from paying for procedures or treatments toward paying forg value in improving health.ts p equipping providers and patients with better information and providing stronger incentives for both providers and patients to control costs. last year's legislation included many changes. one thing the legislation didin was to reduce payment to medicare providers relative torp what would have been paid undere prior law.p fee for service updates for many types of providers will grow at less than the rate of inflation in expectation of ongoing productivity improvements. ini addition, payments tomen medicare advantage plans will bp cut sharply.care those reductions will impose greater pressure on providers or to increase efficiency in the delivery of care or else suffere financial losses on the care they provide to medicare beneficiaries. of course, any fixed paymentfici

provides an incentive to increase efficiency, butince cranking down the level of such payments reinforces the urgency of that effort and lets the government capture more of any savings that result.nt we estimate those cutbacks in payments to providers will save the federal government about $500 billion over the next decade.$5 whether the reductions will be sustained over a long period of time remains uncertain, howevere last year's legislation also, included numerous provisions intended to identify opportunities and create incentives for providers to make changes to the health care delivery system.ry provisions include a wide variety of decisions, others establishing processes to develop information that could guide decisions for futuretion changes.gui the more specific provisions include establishing paymentc incentives to report measures of the quality of care, creating payment incentives to lower costs and improve quality bye

establishing accountable care organizations, bundling payments for different types of care for a single medical event or condition, and imposing paymentc penalties for readmissions inn certain cases.the by contrast, provisions that c seek to develop information that could inform future decisionslo include activities designed to improve the measurement of act quality, the expansion of research on outcomes for medical care, and the developments of a mechanism to test innovationse and to implement those that reduce costs and improve quality.cost these experiments are veryu important not only for medicare, but also because improvements i the program as large as medicare are likely to have positive spillover effects on the efficiency of health care outside of medicare. however, it is unclear how successful the experiments will be for three reasonsment first, there is little reliable evidence about exactly how to move medicare in the directions experts support.re problems faced a by previous medicare demonstration projects

show the difficulty of making ideas work in the real world. a second obstacle is that to try to reduce spending in ways that do not impinge on health, witht we need to measure the qualityhl or value of care being delivered. such measures, of course, exista and are being developed, but much more needs to be doneut before most providers and patients will have great confidence in thosee measures. a third issue is that the legislation included important limits on the experimentation that will occur. with those considerations in mind, cbo has projected limited savings from the experiments duringm the next decade.g th even with all those provisions in effect and assuming the 30% reduction in physician payments in medicare scheduled to occuryn under the current law and the law preceding last year's legislation, cbo's projections still show spending on federal health programs rising relatived to gdp during the next decade, r thus putting increasing pressure

on the federal budget. pre that brings me to my third point; the federal governmentt has other tools for restraining spending, but applying those tools will not be painless.ools let me briefly describe five possible approaches, i want to emphasize cbo is not for or against any of those approaches. our role is to analyze alternative ways of addressing budget issues and then to let congress make the decisions. one approach is to reverse the expansion of medicaid and the subsidies for purchasing insurance that were enacting in last year's legislation. as policymakers make decisions about policies that effect insurance coverage that will inevitably face trade-offsv between the level of insurance coverage and the budgetary costs and intrusiveness of federalry policies. c significant numbers of people, especially low-income people, won't purchase insurance at itw market price unless they are subsidized, encouraged in some nonmonetary way or both. as a result, achieving near

universal health insurance coverage is not possible without significant subsidies and significant changes in rules from those in place prior to last year's legislation. i don't mean that achieving near universal coverage should be our national goal. that's a judgment for others to make. and i don't mean that achieving near universal coverage requirec precisely the combination of subsidies and changes in ruleses in many last year's legislationl but i do mean that near universal coverage cannot be achieved cheaply or easily. another approach to restraining federal health care spending is to reduce the number of beneficiaries of federal health care programs in other ways. one specific possibility of thiy sort is to gradually raise the medicare toege for 67, for example, to line it up with the eligibility age for full retirement benefits and social security. another specific possibility under the broad approach of reducing the number of

beneficiaries is to turn theber federal medicaid payments intocr block grants instead of matching payments to increase the amounts of those block grants over time at a rate that is below the rate which spending would increase under current law and to give states much greater flexibilitys in how they spend those funds. under that change in policy, cha state governments presumably would put tighter limits onn eligibility for medicaid or reduce benefits in some other way, especially if the size of the block grants fell relative to the amount that would bel a provided under current law. a third approach to restraining federal health care spending is to increase the premiums orar cost-sharing amounts paid by beneficiaries. for example, one option we've analyzed would be to increase the basic premium for medicare part b on a gradual basis to 35% of the program's costs from theo current level of 25%. a related option would be to change the cost-sharing

structures for medicare andranc medigap insurance by replacing the current mix of cost-sharing requirements with a single combined deductible, a uniform coinsurance rate above that and an annual cap on each enrollee'f cost-sharing liabilities and by also -- we've estimated the budget tear effect of that change in policies that would appreciably change andul strengthen incentives for moreen prudent use of medical services. it would also provide greater protection against catastrophic costs. at the same time, of course, the change would put a greaterch burden on average on medicare beneficiaries. a fourth approach forurth restraining federal health carel spending is to take costs in account in medicare's coverage decisions. currently, medicare pays forsion nearly any medical treatment or that a doctor recommends. if new treatments or procedurest

are more expensive than ways of dealing with a specific health problem and doctors recommendlth those new types of care, then medicare will pay, in general, a the costs. an alternative way to structure medicare payments would be for medicare to pay only the cost ot existing payments -- existing ways, excuse me, of dealing with a specific health problem unlesf a new treatment or procedure is shown to be better for beneficiaries' health. under such an approach, patients would be able to use their own money to pay for the morebe a expensive care, but the federal government would not pay more itself unless the more expensive care was shown to be moremore valuable than the less expensiv care. such a system is much, much easier to describe than to implement. it would be an immense challenge to formally classify procedures into sets that address the samer health problems and to evaluateb whether some treatments and procedures are better for somebe or all patients. accordingly, cbo has notcifi

estimated specificc options of this sort, however, it is an approach that analysts outside the cbo are analyzing. a fifth approach is to cut backe a tax expenditure rather than ae direct outlay. tax expenditures are provisions of the tax code, deductions,isi credits or exclusions from income, that are similar toio government spending because they provide financial assistance to particular activities or groups of people.viti the largest tax expenditure is the exclusion from taxablendi income of employers'th contributions for health care, health insurance premiums and long-term care insurance premiums.i last year's legislation changed the tax treatment ofla employer-sponsored healthti insurance but only in 2018 and beyond. that provision could be accelerated and strengthened. other approaches than the five i've described here exist, and55 my list is not meant to be comprehensive. hefer the less, the daunting long-term budget outlook meansnt

that some combination of those or other approaches will ultimately be needed in order to put the nation on a sustainable fiscal course. thank you very much. [applause] >> thank you, doug, for letting us know what our hard choices are.m go i'm going to pose the first couple of questions, and then we'll turn to your questions. so to start with, this is,tart obviously, not the first time that somebody from the federal government has articulated the notion that health care spending unrestrained is going to really pose a big problem for thispend country. and as you point out, there areh some provisions in the health pi care law with respect to medicare that are going to slow spending. t at the same time, there's a long history of people in the federal government ducking this issue. there have been commissions, there have been studies. they haven't all led tost slowdowns in spending. there were provisions in thee

1977 balanced budget agreement to slow spending on physician payments in many medicare, and congress has repeatedly flinched at carrying out that provision. so i'm curious, at what pointso are we really in trouble if we don't act, and can when will we know when we've reached that tipping point?an >> well, so what cbo has said on a number of occasions is that wc don't know how to predict whether there is a tipping point in federal debt or what thatn fe tipping point might be exactly. um, but the, the retirement of the baby boom generation is not. a surprise. i've been going to conferencesnf noting for a decade noting that n that happens the burden of social security and medicare and medicaid would go up sharply and the country should be making plans for that. as you say the changes in policy have been enacted but none of them so far that to put us on a sustainable path.

i do think what is different now is first of all the retirement of the baby boom is a pun off and thus the projected increase in spending that he's the only in the long run budget projections are now write upon us. the second thing is that the event of the past few years, the economic crisis, financial crisis, the policy responses have led to a large jump in federal debt relative to gdp. so we start this period of the next decade and a must become much worse than we expected just a few years ago. although we don't know exactly that tipping point might be if one proceeds over the next decade with the sort of policies proposed by the president and recommended in congress one ends up with that pushing up towards 90 or 100% of gdp pushing towards the highest levels we've seen in this country.

so i don't think this problem would be diverted for that much longer. let me ask you something broad. the congressional office created the neutral adviser to converse. increasingly, office exists in a kind of accurate part of the partisan climate. and i'm wondering as the director, why do you cope with the increasingly shrill republican suggestions that the effort to the delegitimatize your numbers and the suggestions that your projections showing that the affordable careful long-term beneficial effect is based on fraudulent but it. how do you cope with that criticism? >> most members of congress, nearly all members of congress are glad to have an organization like ours they're providing independent objective analysis. even the ones some specific

estimates, those members might find the numbers and convenient for them or impossible to them. my predecessor tells the stories of acrimonious partisan environments that they worked in so i don't think my problems are just mine and i think in general we did a tremendous amount of support from the members of congress on both sides of the all for the work that we do. that doesn't take away the fact some members again on both sides of the all will be unhappy with particular pieces of analysis. and that is the situation we are in. i think what is important for us is to always do the best and impartial analysis we can to explain it clearly and then to let the political debate occur without ever getting further involved. >> okay. you don't sound too black and blue.

let's go. we only have 06 minutes, so let's start going to your questions. the first is from dave oppenheimer who is a physician from the san diego. he asks how wealthy a co interactive and allow for the laws governing the corporate practice of medicine those states with such legislation exists? >> that's a good question. >> would you like to expand aco or for example? >> aco accountable to organizations are an important avenue through which last year's health legislation and before that a number of analysts think that we can with our health care delivery system to provide a more effective care and less expensive care and the basic point of the accountable care organization is to have some growth providers responsible for taking care of the elmendorf, and to coordinate among

themselves and get paid a essentially once, not a piece by piece of the elements of the care provided to me. and then to be paid in a way where if becerra can get high-quality care and provided to me have a lower-cost some of the savings to the federal government as go to the providers. just last week there were hundreds of pages of regulations released regarding the aco and. i haven't talked with people all my stuff to read them and i don't know those exactly and i don't know how that would interact with the state law i'm afraid. >> i was told we would have a steady supply. the technical failure but i'm wondering does anybody want to raise their hand and ask a question? >> must be some its 8:00 in the morning when you look alert.

>> nobody? >> okay i see one brave soul. >> shout loudly. >> why would reducing the pain and medicare providers. why doesn't it, people to leave the system? that is one of the concerns. in the past when payment providers have been reduced one reaction tend to be an increase in a number of or complexity of the procedures are treatments that are prescribed to patients. there is a quantity feedback to the direct reduction in price per unit being paid for the

procedures and treatments fulfill enough one would expect some physicians to simply stop providing that procedural trick to the net care beneficiaries we see that medicaid today, medicaid providers and sources of medicaid are paid on average much less than providers and private health insurance. it varies based on states, and because of that, medicaid beneficiaries have more difficulty finding physicians to treat them than people with private insurance to so that sort of outcome is possible if payments go far enough and this is a topic we are to written our concerns about in last year's legislation but we haven't developed the capacity and a

quantitative way the thing that there's a growing amount of research on how doctors and hospitals and nurses and other providers respond to the direct financial incentive the face of that research is still in a fairly restage and doesn't speak that clearly to exactly what would happen with the cuts of the magnitude that are now in the current lull so the physicians in particular it is for 30% cut roughly in the payment would be well outside of the range of historical experience and it comes after a period of a number of decades in which payments have been reasonably country already said that puts us to a different place so we don't really know what will happen if we got there and if the congress actually let that take effect. the payment restraint for other providers in last year's legislation takes effect

gradually over a period of will come every year going forward, and whether sufficient efficiencies can be realized to keep those payments at oral of cost for most providers is also not clear. i think the concerns you raised are legitimate ones and are one of the reasons i said in my comment that it is unclear whether those payment reductions will be sustained for long period of time. >> i've got another electronic question. what are the areas of the greatest variation in your health cost i'm going to interpret that, what are you on certain about? >> we least certain about everything. [laughter] >> i said in testimony last week about the estimates that nobody is more aware of the uncertainty of these projections and those of us who are responsible for putting them together. and i think in particular the legislation moved the health insurance and health care systems outside of the

historical experience in a variety of ways. so one very important uncertainty is how employers will respond to the existence of subsidies for buying insurance coverage and the new exchanges by our estimates there will not be very much dropping of employer sponsored insurance because in fact the subsidies in the current tax code and other advantages will encourage employers to continue offering health insurance as a benefit to their employees. we might be wrong about that. the savings from the provisions in medicare, not the payment cuts so much which are uncertain enough, but the savings from the other provisions, the accountable care organizations, the center for medicare and medicaid innovation, the other more experimental parts of the legislation, the savings in those provisions are an incredibly on certain. much more might be saved and we expect but much less might be as

well. >> thank you very much for those answers to hard questions. so let's think doug elmendorf for being with us this morning. >> thank you very much. [applause] >> the governor can put it to terms of the 48 governor. he was elected in 2002 an >> winning in later when 95% of the counties in his state. he focused on a lot of things during those eight years, budget crises, education, land conservation, creating jobs but for purposes of this conference, most relevant is a series of very tough stances he took with respect to tennessee version of

medicaid. tencare was proposed as long before virtually every state in the nation is now faced with medicaid ruining its state budget tencare was the head of the pack. he can to the governorship after eight years as the mayor of national and before that he had moved deep in the health care industry in 1980 he founded of america corporation, healthcare management company that he later sold before entering public life. he studied physics as an undergraduate at harvard and at the interest is a licensed pilot, hunter and painter who is known for creating the covers of his family's christmas cards. he told me that if the 16 years in government, ten years after that, ten weeks after that he thinks he has won more solid career in him. there's not yet certain what that is. governor?

>> thank you very much. i'm just getting used to my ten weeks, my new life here where the car doesn't go anywhere it could just go sit in it and all those changes that happen when you leave this i thank a need for that and enjoy hearing mr. elmendorf's tauter earlier and i have a couple comments about things he said. i want to talk about the future, the affordable care at what ever is law. the shift of the political wind in washington. we still await the supreme court's view of whether the health insurance mandate is going to work. employers, there might be a lot of people in this room, and insurers are working overtime to come to grips with the added complication of the political litmus tests being applied to the strategies.

everyone right now understandably is focused on the next three years. it's doubly important also for for us to step back and lift our eyes of it and looked on the road a bit further to keep ourselves oriented on where health care is going. there's a long road after 2014, the cost problem hasn't gone away it will get worse. we will still have 15 or 20 million uninsured in the country and that is really why i'm here this morning to talk a little bit about that long for her rise in, and this talk is brief and has a very simple structure. first, i believe we've passed the health care reform that is deeply flawed and exacerbates, not solve our problems. that is a country in view for a democrat, and i will explain why i feel that way. second, i'd like to talk about health care costs. have you ever watched an artist look at the landscape and squint

up her eyes? she does that so that she can get out of -- she can get through the distracting detail and color and see the big shapes and i want to do that for health care costs. and third to finish up, i would like to get an out of the box idea that might prevent the change things and actually might be politically practical. it ought to be productive in that, how you combine those things that need to be done with the political ring devotees of the day on the other side and get bigger things done and the important things done. let's start with reform. the affordable care act, i try to do so in a way that a civil disagreement with the ideas and not some ad hominem attack on anybody who is involved in it. the obama flake word o oc

because of think it is disrespectful and out of place. this is hard stuff and courageous people from both parties struggle with it. governor romney and president obama most recently. but i do believe that the underlying structure of reform is deeply flawed. first all. it's completely about expanding the number of people covered. that's important. this is also the best chance literally in decades to start doing some of the hard things that actually take to make health care sustainable. the narrow scope, creating severe economic tension and health care beginning to require some personal responsibilities and most of all, taking on some of the economic interests of all kinds of providers in the system. when conditions are right you do the hard things and it's hard to imagine them being any better

than they were in the first few months of president obama's term. we really didn't try to those hard things. several years ago when we had to make the cuts to tencare i learned clearly that it is 100 times harder to take something away and to never have given it in the first place. with reform we've not only covered more people, we have done it with a broad benefits and with their eighth large subsidies. we've created expectations we can't possibly meet in the long run. we haven't solved any of the big problems we just made them bigger for some future president and future congress. second we not only didn't to get advantage of the chance to reduce the costs we did some things almost certain to increase the great deal. have you focused on the size of the federal subsidies available through the exchange for a

family of four with an income of $90,000 that subsidy is still 44% of the cost of the health care, health benefits. it's about to become very compelling for employers to simply drop health insurance coverage and help employees obtain subsidized coverage through the exchanges. there is no longer a moral imperative of employees to get excellent guaranteed issue of health insurance elsewhere. it's arguably better for the employees with more choice and more flexibility. i did an audit for "the wall street journal" last fall and i look what would happen if the state of tennessee the first corps employees for 40,000 state employees dropped health insurance and made it up to the employees and their pay check and pay the federal fines we would transfer about 44% of our health care costs to the federal government if we did that. there's a lot of policy problems

with reform controlling the costs of talked about and that is certainly one of them the impact on the states of medicaid that as represented by the concept of the mandate. i want to just finish this discussion of reform though. bye saying that a lot of these could have been addressed is the presentation of the finances of reform by the congress have not been so disingenuous had we really confronted what was going on for cost. you remember the reform of the finances were made acceptable by setting up a straw man with the cbo to say that would reduce the deficits the straw man was settled, it was very compliant with allowing the issue to be defined in that way. i've always found the cbo to be very straight up in their work, but given a set of rules set by the congress under somewhat

otherworldly. they said yes it would reduce the deficits of the legislation passed literally within hours it was good political theater. but with even a few common sense adjustments that's just not right. one example and mr. elmendorf mentioned earlier a part of the cost savings that were needed to reduce the deficits on hundred and 90 billion of them came from future reductions in medicare position provider payments. there is almost no one who knows what they're talking about. the of looking in the eye and the reductions are actually going to take place at least the corner of the mouth creaking out into a laugh. in previous cut in 2002 had no trouble being deferred whether democrats or republicans are running the show. these cuts aren't likely to

happen and everyone knows that. this approach to appear to pay for it and fix the plater is offensive anytime and doubly so for something as important in the nation and people as a result chrysostom. you've seen the movie casablanca. the scene and rex four the french police captain is with the actor laszlo, the czech resistance fighter and he says it is a bottle of your best champagne and put it on my bill. and he says captain i couldn't, no, please. he says please, sir, is a little game we play. they put it on a bill, it's very convenient. the finances of health reform are likewise very convenient

asquint like the artist as health care of the landscape and particularly that the cost of and see if we can make out any large shapes. i know of no field where there are more distractions and color and complexity details and red herrings than the issues of the cost of health care if you need is a vanishing way have to cut through the clutter and see the bigger pictures. this is a very sophisticated audience and time is short so what we cut for the bottom line. if he remembered nothing else for my being here this morning i like you to think about this. at its core, the high cost of health care in america and its high rate of growth is not the result of a new technology or administrative overhead or aging population or chronic disease or malpractice suits or the lack of information systems or the lack of transparency, the symptoms, for sure, at its core is the

direct and inevitable result of systematically removing over decades the economic tension between buyers and sellers that makes efficient markets work. we've created a system of health care as a seller's market where there is virtually no one with a necessary power and knowledge and a clear stake in the cost to be a careful buyer. patients don't care, insulated by the payment systems even when they have anticipation for the kuhl insurance for example it's mostly not in a form that drives in a behavior. if i have a state hospital i might get a share of the discharge but it hasn't driven any behavior i can control it is just a cost that i have to deal with. doctors and hospitals don't care, sometimes they have no economic state in the decision, the doctor writing a prescription of referring to a

specialist for example when they do have a stake it often almost always favoring more and more expensive treatment. and you know this well and insurance companies don't really care. the industry has a variety of initiatives to contain costs some of them very good, but in the end, they and their government and equivalents in medicare and medicare to be a commodity or financial intermediaries. higher costs don't fundamentally threaten their business. they are just something that has to be accurately assessed and passed on to their customers. the affordable care act has made that financial intermediary role even clearer their job makes it very clear is not to manage it is to pass on 85% of the premiums to the medical industry as efficiently as possible when you brush with the confusion the picture isn't all that complicated. what we've done with health care in america with the best of

intentions is to carefully build a highly in the economic system one where the volume doesn't depend very much on the price. when he took economics 101 in college, you learned that there is a scientifically correct strategy for a seller in a highly system and that is to keep on raising the price. there is no rocket science here. we've created a economic system and health care by insulating the buyers feeling the price and sellers have responded in the rational and predictable way by continually growing the price. it's a particularly easy in health care because the sellers often control not only the unit price but the volume as well. all of our rules and beating of insurance companies and pilot programs and information technology incentives are struggling upstream against barry the country powerful

economic currents working against them. it's been no contest for a generation and it's not going to be a context in the years ahead. now this feature of health care economics is hardly a fresh observation. a lot of people understand and have spoken about this. but if we see it as the fundamental source of the cost issue, that understanding can be used to change things. the problem we need to solve is how do we in a practical and a reliable and ethical way reinvigorate this economic system with some economic tension between buyers and sellers? it's not easy but it's the core of the issue. if we can keep our attention concentrated on that, and not be distracted by administrative overhead or single-payer errors or information systems or transparency or anything else, we can make progress. to slightly pared a phrase as has been done many times, to slightly paraphrase

mr. carville, it is the economics, stupid. i have written -- the reason i got invited is i've written the book about how we might do this. it is a longer subject and this morning permits but there are a number of very practical ways to move forward and reintroduce this tension in a sensible and ethical and workable way to get the economy of this country which is active in so many areas working once again for us. i want is a one last thing we talked about reform and its small and zero adamle economics of health care. now let's finish with just a big idea that might actually be politically practical. a balanced budget amendment but one of limited to social insurance programs amending the constitution might seem like

overkill for a budgetary issue and i would argue the functions of the federal government have become so large and are so new there such a threat to our security that it's warranted. these ideas balanced budget amendment are not an ally year. it's not a crazy idea. in 1995 the congress came within one vote in the senate of passing the one and sending it on to the state. there are nine of them circulating around the congress at the moment. but the broad ones trouble a lot of reasonable people, myself included, as being dangerous. the typically specify the balanced budget on the annual basis but if we start cutting budgets every time the economy slows, we just with salt and amplify the cycles and the economy. there's a second obvious concern, nearly every proposal has some form of a super majority override as a necessary protection, but we shouldn't hold hostage the country's ability to fight the war or deal

with economic crises by being able to ability to assemble a super majority in the congress. that's like a unilateral disarmament of the country. the country needs flexibility in dealing with the acute crises. deficits aren't always bad. most of us can easily see the rationale for passing on to future generations the costs of the war work for dealing with an economic crisis but i can't see any rationale whatsoever for passing on the future generations or for asking china to fund the day in and day out costs of old age pensions or medical care for america. so the matter of debate to modify the amendment limited to the social interest programs might make sense. any social the gerrans program constitutionally has to operate as a trust fund which is balanced and that truly sound over a 20 your time horizon. you can borrow any economy suffers and build reserves when

it's strong but it has to balance on a 20 year time frame. i've come to believe that it would take some kind of an external construct of forcing congress to act. right now entitlement reform is immediately tied up and bogged down in the specifics. it's not about social security's solvency. adjust rapidly becomes about whether you are raising the retirement age to 67 or not. separating the principal from the specifics might be a sound way to approach this. they might be guaranteeing freedom of speech while mr. assange is publishing confidential cables and the church is picketing military funerals, the principal would be confounded by its immediate applications. we have strong guarantees of freedom of speech in our country because we guaranteed the principal in the first amendment

and in doing that we separate the principal from the immediate and usually the on popular applications of the problems of the day, and perhaps that could work for entitlements. my thesis is simple. we have an unsustainable health care system. the reform has made the problem worse and what better. the core problem in health care costs the inelastic economics and solving that problem is the route to success. i've noted some solutions and invite you to read about them. the congress is dysfunctional right now with the constitutional amendment applying that only the social insurance could force them to act and eventually deal with our health care in a constructive and long term way. thank you for inviting me here. [applause] thank you for knowing how the health care lobby is and has a

blanka. >> i'm going to ask you questions and i see we have some questions to keep them in. one of your central point was essentially that. they've begun to doubt its usefulness and there's lots of vocabulary these days that get to that notion. accountable care organizations about what mr. elmendorf, the global budgeting, the episodes of care, and i guess what i wonder is how much do you think the private health care marketplace can gravitate in this direction and how much, even leaving out your idea of the balanced budget amendment and as much as the contras may be the function to become dysfunctional is going to stand and what can the markets due? >> i certainly believe that the fee-for-service approach has long since outlived its usefulness. it's something that worked just fine in the 30's and 40's at the

beginning of it. it's like the employer based care. but it doesn't have any rationale to bid anymore and it creates all this inefficiency. things that move us away from fee-for-service into purchasing care on an integrated comprehensive basis i think are the future of. i would take things even further in the account of your organization and say look i talked about setting up systems of care that are entirely responsible for the care for an individual and a strong quality auditing system to go along side of that with external to keep their feet to the fighter to provide the best possible care to set up the competitive system. but the things like bundling, they are good in the sense that they removed some of the transactions to go for that and increase the overhead.

but they also don't get at some of the core things. we do vastly too many spinal fusion in this country. tens of billions of dollars within this country that are probably unnecessary. bundling their provision might make them a little bit cheaper but it doesn't get at the core issue of should we be doing $20 billion worth of the fusion so why themselves it isn't the answer. .. it was. >> 170,000 adults were cut off medicaid. and i recently read that you had told us that you considered that set of cuts the largest mistake

from your time as governor. and i'm wondering what you might have done differently in retrospect. >> no, i guess i would -- i feel certain i didn't say the cuts were. i think that dealing with the medicaid by trying to be reasonable with a series of advocates was a mistake thatos cost me a lot of time. i should have recognized that they weren't going to compromise at all and dealt with the issues earlier. but the problem with tenncare, it's actually, i think, one of the problems we're about to have with health care reform. everybody makes up these spread sheets, and you have costs in them, and they've got all the anticipated savings that are a going to come along, and anybodo who's been in business knows that those have a way of the costs all come true on schedule starting on monday morning whend you add people. these savings may or may not be there in the case of tenncare, they weren't there. case