hoover that you would like to? >> guest: well, i was surprised by the emphasis is placed on the polish guarantee as a great blunder of british diplomacy. i was less a price because he had said so publicly but he develops it elaborately in this book by his argument that he'd made the greatest blunder in the history of american diplomacy by an alliance with stalin, propping up stall and when hitler attacked. he said that was bound to legal smiley to an expansion of communism in the world and he felt vindicated in that process. i think one of the interesting parts about this book is its emphasis on the tehran conference, not yalta so much with the tehran conference in 1943 is a lost opportunity for trying to reign in the imperialistic appetites of joseph stalin so that was somewhat surprising. i think what i find most often about the book, not quite

surprising, because i have known about it in other ways, was the sheer energy that he brought into this. here is a man who in his 80s got up at 5:30 in the morning. he was at his desk at 6:00 and he would write until 6:00 the next evening with short intervals of breakfast, lunch and unlike coffee break. ..

>> are there unpublished manuscripts still in the baltic as it were? >> i did discover in researching, various drafts of what has been the parallel volume where he discusses his domestic politics involvement 1933 through the 1950's. if he called that his crusade book that has yet to be published. >> host: hopefully you will bring it to us.

we have been talking to george nash the book is freed of the trade.

>> we will get started here. a whirlwind day for professor frank here in washington d.c.. i want to welcome you to the new america foundation on a nice gray, of all day thank you for joining us. and also to the c-span watchers who are joining us as well. i directed the asset building program at the new america foundation. this is a policy program that explores innovative ways to promote economic security by helping families with lower incomes and fewer

resources save and build up assets over time. our guest has something to say about savings and other matters. for the advanced ideas to dramatically increase savings and investment in our economy especially compared to ways that are less productive forms of consumption that are very pervasive in our society. he has chronicled the luxury arms race of the will to do and has explained why it is a waste role. there are better ways to promote economic growth such as investing in education and infrastructure in my colleagues in the economic growth program have proposed creating a new mechanism to finance this kind of investment.

talk of a savings and investment at the new america foundation in rear pleased to host this event featuring the new book the -- "the darwin economy" liberty, competition, and the common good" for it is a very timely book with a provocative conceit they will look back 100 years from now to reorder the intellectual pantheon elevating dar wind alongside or above the adam smith. that is interesting for a number of reasons. not so much for the failings of smith who has been simplistically reduced the of current discourse to the concept of the invisible hand but has more to say about par wins insightful approach to competition and what that can tell us about the world today.

if so for these legends and how that deploys him i think we can explore but looking to exploit with professor frank some ideas of where we are today in the discourse and why darwin is so useful. he makes a very a compelling and forceful case for implementing the consumption tax and only the valuable contribution based around taxation and raise the we should think about how our -- our our society is organized. but the political discourse is not allow this level of debate. but with those policies on the table to assess. with the flat tax we have

obama proposals and hope we can do that together. it was written before the wall street protests began but it has provided of big foundation for the critique to unify the demonstrations across the country. lourdes about conscience stations and when they are concentrated at the very top they could undermine the common good. perhaps we hear how darwin helps us to understand and what policy prescriptions they should put up on their posters as they gather. then below open up for a greater discussion and just

so you know, , a professor of economics from cornell university since 1972 and an early teacher of behavioral class is playing a role in that body of work in policy development circles among other things among influential books including luxury fever and a winner-take-all society co-authored with philip cook and continues to be influential and we may have seen his work as a "new york times" column is as a monthly contributor to the economic scene that runs the business section. we're pleased to have him here with us.

[applause] >> thank you very much. is microphone working okay? have been great day is grateful to work with the new american foundation for their studies to promote infrastructure investment and when we talk to friends about why i got off the couch and sat down at the keyboard, one of the examples i use for them is the utter frustration i felt what passes for a conversation about public policy regarding infrastructure and other things. the examples that is vivid

is the 10 negative zero stretch of interstate 80 in nevada that needs repair, resurfaced, it is very heavily trafficked by trucks and the subject to heavy weather cycles. then a bad idea t. estimates if we fix that stretch now we could resurface as $6 million if we wait two years according to the estimates that the cost rises at $30 million. so it seems it would be good to do the job now rather than in two years but when anybody proposes something like that, they are greeted by shouts that is government spending, we don't want to empoverish our grandchildren in we cannot run up more debt, , etc. but those too not make sense at all when you subject them to a moment of scrutiny and richard b.

better? fix it now 46 million or 30 million? which would saddle the grandchildren with more debt? does anybody seriously propose not fixing it? would they be willing to say sell out loud? and so we make decisions about public policy with issues like these. so the argument for making those changes is based on the cost escalation figures not taking into the changes at all they have been hard hit sitting idle so they're not giving up 1/8 goods services they need work and

the materials to do the work of art cheapening the world markets. the equipment that you need to do the job 16 nido in away from other useful tasks. 1.7% was the courage t-bill rate fell never be lower i am assuming but there is no case for not doing this work now. i was at ed debate three weeks ago at the cornell club with p.j. york, the conservative satirist and i were debating what should be done about the current economic situation. we did not agree on much but we left the advent agreeing to write the op-ed together and we propose to we send the minnesota bipartisan jury into our room with the

american society for civil engineers recent report card on infrastructure in hand the one that identifies 2.2 trillion dollars worth of desperately overdue maintenance projects in the infrastructure rolm roads and bridges and schools and the charge is to identify the things we should not do on the american and civil engineers a list. make a list and all other projects get the green light we do is many as we can as quickly as we can while they're still willing to lend us money. we have not placed our op-ed yet but the next place going to the hometown newspaper, not that nobody has proposed infrastructure problem before that is not part of the piece but the

selling point* is to people from such far apart end of the spectrum could agree to write a peace like this. that is so stupid the political conversation has gotten in this country. a group that i call movement libertarians come i use that term to distinguish them from my a many thoughtful the rotarian friends who think intervention should be kept to a minimum. it is simply crybaby he wants to do whatever he was to do whenever he wants to do it without any restriction nonmember -- a matter how much harm fit his behavioral cause others he wants to do with no matter the value it may be to him. everything else is social engineering or interference. every able amounts the stump

to denounce all taxation as theft on the media ed disemploying out there is no society that has fallen six -- voluntary taxation it would have been quickly discovered people would not pay taxes on this basis they would say that is not fair then you cannot maintain a government or an army and you would be invaded by a country that had mandatory taxation and then you pay mandatory taxes to that country's government. if you get up on the stump to say all taxation is theft you are announcing you're not a serious person. why would you want to do that? sold within and not to seem

impartial that they will just report all taxation is theft as if it is a legitimate position. anybody who has looked at the numbers if we balance the budget i am hawk. a really does not make sense to keep borrowing more and more money to add to the national debt but it would be a huge share of the national and come with the impoverished nation as the results but anybody who looks at the numbers knows that you cannot do that with spending cuts alone. every president in my lifetime has promised to cut government spending. some made a good effort to do so and bill clinton stood out but every one of the administration's, spending went up. government programs have constituents if you are forced to engage in cuts

come with the ones that get cut are not necessarily the ones that should be cut but whose constituents screams of leased loudly it prompted by fed deficits run up five the deficits and the two wars what did we cut? the national science foundation research support budget. that was stupid to cut the lifeblood of our competitive disadvantage we don't have new ideas to develop two young mothers are poor mothers those are programs that cut off cost in the future that we will lead zero her. the most jarring two my eye was to cut the energy department's budget for rounding up loose nuclear materials and the soviet union. what of bizarre thing to

cut. these are materials guarded by soldiers who are not paid reagan to become a drink too much, the facilities and not very well fortified, it is easy to imagine where they would end up that we should lock those materials down as fast as possible, not cutting the budget for a program like that. to balance the budget you need revenue. have a super committee to is wrestling with each of the members to sign a pledge never to improve but tax increase of any sort of any circumstance for each of the republican nominees of the first debate responded to a question, what do you think of the proposal that envisioned $1 of tax increases for $10 of every cuts? not acceptable. so basically we are headed

for economic train wreck and the dialogue and we cannot talk about what to tax even the term and unless we can move past the slogans that shut the conversation down will be to the nation the only encouraging thing for me is the victim of something cannot go on forever, it won't. at some point* we have to come to grips with the need to do talk about what to do with our current situation but at that point* we have some incredibly attractive options on the table in full maybe could talk about them. read mansion and adam smith and my dismissal of him. but i am a great admirer. if you go back to the original text, you will find

rebuttals to the popular portrayal of the invisible hand mechanism that they never thought it was the last word on this subject and the free marketeers say get government out of the way tin of by market forces and smith did not believe that. and often to get good results behavior by individuals the entreprenuership is not as trying to make life better for consumers the most of the time trying to steal business and that it succeeds in the short run if he has a good idea but the dynamic that unfolds is what the predecessors did not see clearly everybody rushes to restore their market share

and competition and drives the price down to the new lower-cost and when the dust settles the beneficiaries are the consumers, not those introduced the innovations and that consumers get better products which is a steady advance over time. it is a great story. i bemoan the fact they graduate from college not understanding what an incredibly rich milestone that constitutes. we have been incredibly wealthy because of the process in addition to. i don't sell smith short by any means but i argue in the book not a bold prediction to say 100 years from now people in the economics profession will identify darman as the father of economics and nobody could tease me if that does not

have been. but in time before 100 years pass to understand the process is different but it -- much richer the invisible hand was not his own the view of the process would be seen as an interesting and special case for the darman vision. it is his observation that trades are favored in the competition for their capacity to promote individual reproductive success. sometimes those streets are in harmony with interest of the broad lourdes groups of the case in point* the mutation in that those individuals that first occurred could catch more prey and the mutation spread

but now the surviving hawks could read this 6.lot on the washington in white page directory taped to the back of the room for i could bear the tell you there is anything written on the page of the they have keen eyesight. it is not advantageous to have at any longer. all hawks have keen eyesight but as a group they have been incredibly successful as a species because evolution forged the eyesight. that is a nice replica of the traditional invisible hand but contrast that with the traits that are selected for their ability to confer advantage when individuals battle or compete with other members of their own kind for a think of the cover illustration on the book.

they are huge, 4 feet across in the modern animal in weigh 40 pounds. it is said terribly in covering appendage there easily surrounded and killed if the antlers are much smaller they would be better able to escape require they sell big? the darman answer is a group interest doesn't coincide. the species generally the mails take more than one mate if they can because if some succeed others don't get any mates at all which makes them the ultimate losers to pass their stuff to the next round is of course, the males fight to better leave for access to female so whole game is at

stake but in the case of elk the weapon is heavily favored and spread like wildfire so or the surviving animals have huge dealers said is essential to remain competitive to be embattled but in all other respects are the encumbrance but if they can vote to, they would immediately favor a proposition to cut back every rack of antlers by half. in each would be better able to escape from creditors. not thinking much about the collective actions and to recognize the obvious fact that communication and cognitive skills to problems like that. they were a stock.

bubbly however are not stock berkeley can talk to each other and recognize the incentives and often change people's incentives to attenuate those conflicts and that is what the book is about. there are huge opportunities because we have not -- and it would be easy to attenuate those conflicts. but with the introduction and it is a progressive consumption tax. not a 9-9-9 tax are rick perry but aflac tax to spend a lot of time discussing them no chance they would be adopted because they would be a distributional disaster. a huge tax increase for

those in the middle and below par as long as there are two parties in congress, although you're never sure, there is no chance a proposal would be adopted. but we could adopt progressive consumption tax to implement that measure. what we would need to do is report our income to the irs the same as now and we should group -- simplify that as well and it is too complex with a slight of hand but not because we have progressive rates. and there is them erie did -- period of the examples and it is time to clear that out again so you report your taxable and come much simplified to the irs and how much you saved

during the year the citizens of this country and most do so already income negative a mazes how much you spent. you don't have to save receipts it is just income negative savings. that about negative a standard deduction of 30,000 for a family of four is your taxable consumption. you pay tax on that at very low rates to begin and end at as consumption escalates then the rates escalate and much more sharply than under the current income tax. the fear that we would scare away investors from saving and investing to not apply but on the country, the steeper the rates on the top

levels of consumption the greater incentive to save and invest so by that measure breeze stimulate people to allocate funds in a very different way to impose no hardship on any consumer, would not require anyone to sacrifice any precious political freedom, and would free up in the process $3 trillion per year of resources that could be used to pay down debt and rebuild the infrastructure to do other useful things. it sounds like the optimist promise to transform into gold. i admit we have a salesmen but the claim rests on some very simple logic that a few dispute i am eager to hear butterfly use the id it during the discussion period.

. . in fact context matters. it matters in a transparently obvious way. i was a peace corps volunteer in nepal and lived in a two room house with the grass roofs that leak no plumbing no tuesday. if any of you lived in that house you wouldn't want anyone to know where you lived or good if you had kids they wouldn't want their friends to see where they live. they would be ashamed. i never felt ashamed of my house in nepal. is actually pretty nice house in

the context i was living in. other high school teachers and the schools where todd lived in houses that were not nearly as nice as the one i lived in. entertain people with no thought that people would think ill of me for living in that house. if my friends in nepal saw the house i lived in ithaca they would have thought i would have taken completely of my senses. why would anyone need such a grand house? you would not think that but to a surf the context of the matter in the shaping of consumption demands. that is to talk about a world completely unlike the world that we live in. and so, what we have seen in this country is a shift in where the money goes. unlike the three decades right after world war ii, we saw all the income growth go to the people of the top of the income ladder since about the mid-70s. that is a subject phil hogan i wrote about in the winner-take-all society but it's largely market force driven although yes indeed securing

political regulatory favors has played a role in some industries that is quite conspicuous too so you have got money concentrating of top. the people at the top of spend more. that's a natural response when you have more money. many people wag their fingers at the lavish purchases they see people at the top making but that is a failure of perspective. the standards are local in social groups. 70,000 square feet doesn't seem too big if you travel in a certain circle but what we do know is that when everybody builds bigger, the effect is merely to raise the bar that defines how big a mansion people in that circle feel they need. i would wager my entire retirement account that of the correct answer were in an envelope i would wager everything i owned that the answer would say people are less happy when everybody has 70,000 square feet than when everybody

has 40,000 square feet. it's a nuisance to have so much more space to keep track of and have staff to manage. why do you need so much more square footage? because you have got to entertain in the style that has become the custom for your group. now your daughters wedding reception in your circle is held at home rather than a hotel so you need a ballroom. people in the middle don't get angry. they see pictures of the mansion and that is cool, maybe i will have one someday they say to themselves. the rich are in a different league. we are not competing with them so we are not offended when they have neat things. we look to them as entertainment more than as objects of envy. of the people just below the rich so they are the same social circle as the very rich and so that next level down feels bigger because their frame of reference has been shifted by what people at the top do and then people just below them and so on all the way down the income ladder, now the new house elf in the united states united states in 2007 had 2300 square

feet claws of living space. the media and new house in 1980 had 1600 square feet so a 50% increase in house size. the real hourly rate should rate for men during a period was lower in 2007 than in 1980. wired to people in the metal spending more? the only coherent answer is there has been an expenditure cascade's bond by higher spending at the top. you could say as many people did indeed say during the 2008 campaign that well, people shouldn't be buying a house that they cannot afford it. the middle class has no more money how can they afford to buy a house 50% bigger than before? here is the rub. if others like you are buying 2300 square feet and you buy bye-bye the 1600 square feet that you can comfortably afford, it's your kids who will go to below average schools. does anyone not know that the good schools are in the more expensive neighborhoods?

that is true in every country i have ever visited or read about no matter what the school budget formulas say. the more expensive neighborhoods are the ones served by better schools. all parents want their kids to go to the best possible schools. if i'm the median earner what must i do to achieve that goal? i must outbid 50% of all other bidders to get a house of at least average call it a school district and if parent's didn't have that ambition we would think ill of her so parents did to the extent they can and because others are spending more they feel they have got to spend more. they commute longer distances and work longer hours and they are under more financial stress to be sure. i think that is what a lot of the ows movement is about, people who have huge debt burdens they will not be able to cope with and they are not sure why they are saddled with these debt burdens. there is not a cogent theory guiding their thinking about this process much less a plan to

do -- what to do about it but that is the root of the malaise that has kindled a social movement. i don't have any prediction of where we'll go but one thing we have learned is we can't predict movements like this are going to go. nobody saw the arab spring coming or the fall of the eastern european governments in 1989. where it goes is anybody's guess at this point, but what we also know is that there are things we can do about it. when everybody is engaged in a fruitless bidding war that drives up the prices of the houses and a better school districts nobody gains anything from that. have the kids still go to bottom half schools, the same as before. when people rob their savings to bid more aggressively for housings in better school districts and everybody does that. we bid up the houses of the prices of the better school districts. is the conflict between individual and group interests again. if we all stand to see better

nobody sees any better than a fall had remained comfortably seated. there is no presumption once you grasp darwin. there is no presumption that group interests and individual interests coincide and if you want to try to change incentives that individuals face, think the most promising q2 lean on for how to proceed is the lessons of anbar model movement. we learned that command and control and detailed prescriptive regulation wasn't an efficient way to get the smoke out of the air. when i first got to upstate new york there were articles every day about acid rain. acid rain was falling on the adirondacks because companies to the west of us were emitting as the two into the air from their smokestacks. why were they doing that? because there was no charge for admitting s02 and it was expensive to filter it out. finally, we adopted in the 1990

clean air act dave permit system, system whereby firms have to have a permit for every time as the two is discharged into the air. two levels quickly were brought under control. for about one-eighth of the estimated cost it would have taken to achieve the same air quality targets under the command the command-and-control approach. don't tell people they can't do what they want to do. some of them have no alternative to do what they are doing and others have very attractive alternatives and can switch. if you make people pay a fee that represents the harm they are causing to others, they will look for the most efficient way to escape paying that fee and will pay it only if there is not an efficient way. taxing consumption does not tell you you can't build a bigger mansion. is just us recognize when you spend more on on a coming-of-age part, the ceo spends $10 million on his coming-of-age party raises the bar for others in a

circle. now americans spend an average of $28,000 per wedding. in 1980 in real terms the corresponding was $11,000. does anyone think of people getting married now are happier because we are spending more? what a bizarre view that would need. the bar has simply been raised that defines what is an acceptable way to mark a special occasion. that is self canceling these expenditures. if we channel those same dollars into other uses it would be pure again. nobody would be any less happy so think about the guy who was think about delving a 2 million-dollar addition onto his mansion. he is spending already $4 million a year. the marginal tax rate is 100% on the next dollar. that just means that the spends 1 dollar he has to spend not only that dollar but 1 dollar of tax on that dollar. somebody satirize my proposal as

the nines -- -- 9-9-100 plan. i will except that. if you put it in context it not the 99 park at the 100 is accurate so i will build a toomey dollar addition. that is going to cost me $4 million in what we know is that the rich scale back when things get more expensive. some people don't believe that. go to new york and compare the living space the rich living in new york with the living space they lived then in wyoming. the high real estate prices in new york induce the risk -- bridge to build smaller living spaces and someone thinking about building a 2 million-dollar addition onto his mansion would say in response to this tax, hold that i'm going to scale back to a 1 million-dollar addition in that way with the tax that it will cost no more than i was planning to spend and if we all scaled back in here is the alchemy inherent in the tax, if we all scaled back none of this

is any of the worse for wear. it is a relative mansion size at some point that matters. if we each build smaller additions nobody is less happy than if we each build bigger ones than in the meantime the government has got a million dollars worth of tax revenue and a high-end spenders have a lot more money in their tax-exempt investment accounts to help the economy grow and tax revenue can help pay down the debt and rebuild bridges and roads and so on. so it's a free lunch basically. we are so grossly inefficient now because we can't have an intelligent conversation about tax policy and spending policies that we have kind of painted ourselves into a corner where we are on a collision course with bankruptcy where we seem to have no place to turn but the ironic thing is that there is a very good place to turn. a very simple set of steps we can take that would get us out of this mess. i am not naïve enough to think

that writing a book about this is going to change the conversation. i used to think that. i wrote a book in 1985 it came out in january and i thought i november there will be bills winding their way through house and the senate will deal with this. nothing is happened in the meantime but against social movements are hard to predict. of the conversation is going to change and it could change tomorrow. six months from now we could say we knew all along we ought to be doing this. that is my contribution to thinking about a possible way to change the conversation. i welcome your questions and thanks for turning out and i am sorry i was delayed getting here by the radio interview. [applause] >> we look at the conversation going. at me start by asking it you to talk a little bit more about taxes and the common good. as a child i was taught that

taxes were the price we pay for a civilized society. i wasn't taught that it was theft or a little bit of my freedom being taken away. but how has that concept of taxes been divorced from the common good and don't we need to find ways to connect them? >> yeah. i am suspicious when everybody focuses on a single cause of something. it's usually much more complicated than that and i think it would be good to at least think about the huge dollar expense that has been undertaken to promote the simple slogans. i think of the olin foundation, the hundreds of millions they spend to educate people to think about free-market slogans, the mellon's gave the hundreds of millions that he spent at most recently the code brothers have been spending hundreds of millions of dollars to promote the slogans, these libertarians slogans that sort of stopped

stop the conversation in its tracks. the media have been oddly compliant in this. i think when people make these statements, it's the media's job to say wait a minute that doesn't make any sense. do you want to go to somalia? do you want to go to haiti? do you want to go to a country that does not have the power to tax? know we would want to live in a country like that so it think we do need to start calling people out who say these things. i am doing my best on the to her and other conversations to reach out to the thoughtful libertarian friends. in my own conceit i call myself a libertarian. they all off but in the sense that i really don't like somebody telling me what to do. i feel like i am a kindred spirit at the very least. i took a lower salary as an academic just because so few people tell us what we have to

do at any moment. so, the libertarians i think can be persuaded bad if what you are doing is sufficiently harmful to other people and confers airy little benefit for you it's probably better that you not do that. i had logging interview with matt welch, the editor of reason magazine and he seemed skeptical about my proposal. he thought people should be able to buy whatever they want and i asked him to imagine a guy who was almost indifferent between a ford expedition 7500-pound load suv and a ford focus wagon, which ironically has almost the same hauling capacity is the bigger vehicle. he is almost indifferent but as a mild preference for the suv so he buys it. he has completely ignore the fact that by buying that have

your beagle he has put every other pedestrian and motorist out there at greater risk of injury and death. he didn't gain much in my assumption about the example. he was almost indifferent and yet he up had nor this huge cost that they imposed on others. why is that the best way to have that decision unfold? why shouldn't he pay a tax proportional to the weight of the vehicle or whatever the relationship is between weight and the likelihood that you will kill or injure somebody so he doesn't even have an incentive to take that into account or cut taxes on such things kill two birds with one stone. we have got too much weight in the vehicles. that would encourage people to take that into account when they decide what to buy and we also need revenue. we need to fix the bridges so i think the libertarians can win if we are willing to talk about implements of taxes like these. what is not to like? if you make the economics prize

vigor which taxes on activities that cause undue harm to others do, then it's always possible to carve the pie up so that everybody gets a bigger slice. >> you have mentioned though that is necessary to distinguish between the rational responsible libertarian and that of movement libertarian whose views kind of our ideologically and consistent and often meshed with some of the right wing and they are funded by some of the same folks that you mentioned. and so there seems to be a big problem in having an honest exchange here and i was kind of curious what you really hope to gain by engaging with that libertarian mindset at this point? >> i mentioned to you that p.j. o'rourke and i are doing an op-ed together. that will probably have no effect whatsoever. look, i'm sitting on the couch feeling bad about the nonsense i'm hearing so i want to take it

punch back. i write a book and i take a few punches and i feel better. that is what i gain. >> is very valuable to have the respect for the power of the state and be concerned where it has over reach and civil liberties can be encroach upon. i think we all should have a healthy libertarian streak in us. so alright a lot of questions. i've a few more but let's open it up here and we have a roving mic so let's start with these two gentlemen here. >> i am norman from the center from atomic and social justice. a couple of assumptions. that is, are you familiar with harold malle needs to be president of brookings institution. a question to you, whether new investment, new growth has to take place through savings, ordinary savings class as a

matter fact our view is that you should be, bad investment follows consumption so that if you reduce, if you reduce what could go into consumption you are going to make your investments less feasible so he has a book, the formation of capital, to which we are republishing because we are think is important. second what i did not hear it is, didn't even hear the word ownership because one of our -- wrote about ownership saying that if you break the assumption that all investment must take place out of savings and you begin to look at what moulton suggested which was financing new growth out of credit, out of bank read it, that is an exchange that, which would be repayable on a future savings.

>> so the relationship between savings, consumption and ownership? >> i should have stated at the outset that you would not want to implement the tax proposal i described in the current climate of 9.1% unemployment. we have far too little spending going on and that is why we have such high unemployment. i would recommend that congress, not today, there is no time today but tomorrow if they are in session, pass a steep progressive consumption tax into law, schedule it for gradual phase and once the economy is back to 6.5% unemployment. that way we kill two birds with one stone. we would provide every wealthy american who is thinking vaguely about someday building an addition onto his mansion to get on the phone with his architect and get that program going right away in order to get it done before the tax comes into effect

so hundreds of billions of dollars of immediate economic stimulus without one nickel of additional government borrowing plus we would reassure the people who are worried about that, we have this under control. i don't think all investment has to come out of the past savings. that is a totally valid point, but savings is a good thing. the miracle of compound interest is in isn't just arbitrary math. if you want to maximize your consumption during your lifetime, it's a very simple exercise to get an excel spreadsheet and compare a family that saves 2% of its income with one that save 30% of its income if all savings is invested in an account at five or 6% interest. that is lower than the long rand rate of return and the assets generated. won't be very many years before 70% of the high saver families

income is a greater absolute consumption number than 98% of the low savings rate family's income so this is not an anti-economic prosperity proposal. china is saving 51% of its income, gdp. the household savings in china's 39% in and hear the figures are 10% and 5% respectively. a consumption binge is not the pattern that is going to get us into a prosperous position for the rest of the century. paul krugman had a nice remark in may 2005 column. what does the american economy do? it borrows money from china and build bigger houses. that is not a formula for economic growth in the future. we have $2.2 trillion worth of infrastructure to rebuild and savings of money would be a good base to put that to good use. >> is important you are

distinguishing savings at the household level rather than savings at the aggregate macroeconomy. plays a different role for a household been using it to finance and make investments in the broader economy. okay, right here. is the mic on? >> my name is henry cole. i publish a blog called eco-squared. it deals with the similarities and differences between our human economies and those of nature which our ecosystems. and i really like your idea of the president consumption tax but there is one thing that i think you need to talk about which is what happens to this collective savings? we know that huge amounts of pension funds and savings went down the drain in 2008.

we also know that a lot of money is being sucked out of communities to go to global casinos, to go to be invested in other places where labor is cheaper, and ecosystems, there are many mechanisms which keep the savings a productive and b within the system. what we have now is hemorrhaging rather than a saving and cycling of the savings. a big oak tree has a lot of wealth when it falls, it's not too big to fail. it rots into the soil and all of those nutrients go back into the land. so how do you address what to do to make sure that savings go to a good purpose? >> alden trillin had a great piece in "the new york in the nw

york times" a while back. he said the real problems that the economy started when the smart people went to wall street and he said it used to be the c students from harvard who ran the big investment houses and they were happy with a four bedroom house in greenwich and a 30-foot sailboat. then the really smart guys started going to wall street and cooking up derivatives and other instruments and finding out ways to leverage their bets and make really big money and ever since then we have had trouble. i think the point about pension funds getting eaten up in the crisis just speaks to the need to regulate the banking system and a much stricter way than we did. people bought favors. they bought regulatory favors from the government. robert reisch worried about this in his book called super capitalism. if you chart the rise of money the corporations and other interested in giving to the government in the form of

campaign contributions, they have been making very prudent investments by securing legal change that ask ax in their own interest. of bank should not be too big to fail. bank shouldn't have the opportunity to lend money on instruments where if it pays out they get a huge return on it and if it fails the government picks up the tab. all that encourages bad behavior so i don't have any constructive thoughts to offer about whether investments need to stay within this country or should be free to go abroad. i mean economists in general are predisposed to the notion that you should invest where the return is highest and that is in everyone's interest that there but there might be specific cases where we would want to reconsider steps to keep investments closer to home. >> upfront, here. >> progressive consumption tax, you talk about taxing consumption and not savings and

investment. how do you distinguish between savings and investment in everybody's want to be classified as an investment under that scheme. >> you can't report to the irs that i put $1 million in my mattress and i'm going to deduct that from my income for tax purposes. you obviously have to go through the same steps that you would need to go through in order to be able to deduct savings in a 401(k) type account. and that is going to create a demand for a lot of new instruments obviously. the existing financial instruments that serve people who deposit money and 401(k) accounts would not be up to the task of serving this broader market for people with a lot of money to invest but i think the capital market can respond to that and again we need to think about regulatory framework for setting up those accounts but you do need to document what you save, obviously. >> iannuzzi with the postgraduate school and i've just started reading stiglitz

new book missed metrics. and the argument he makes is