whatever the last policy was. [laughter] i've been warned about that. but maybe we won't. >> [inaudible] before general scales came out with his editorial, i was thinking we have -- [inaudible] >> we have what? >> vietnamization of the troops in afghanistan. you see ten years of fatigue, you see people sacrificing their lives. the local population is really not into their being there. the whole consequence of how the families are struggling back home when kim kardashian makes $10,000 just by opening her mouth, they're struggling to make -- i mean, it's a psychological effect on these guys that's tremendous. and none of us in this room --

except for the guys who have served in iraq and afghanistan -- can attest to it. so how are we going to deal with this troop fatigue? >> okay, tom. >> look, i think it's worth thinking very hard about this. um, and not leaping to conclusions from anecdotes. ..

el-keeb abell russlynn el-keeb abdel rahim el-keeb rahim el-keeb, premier el-keeb. >> people would've said oh, my gosh, the force will break. well, again, you don't know where the cliff isn't so you kind of fault offer to be sure. it includes the reserve components have played a huge role in this. so, you know, it's something that is worth watching, and being sensitive to, and it would be nice if our politicians actually encouraged people not just to be thankful for the sacrifices that encourage people to share the burdens as well. it's one thing to make folks the castro, another thing to sign up or to support force. so i mean, drawing a policy conclusion from anecdotes, when given what they've gone through,

the discipline of force has been just astounding by any historical or measurement that we would have. >> thank you. a good friend of mine who's kind of the in the martial of nato talks a lot about the need for a gentle giant, and that we are it. there is no one else. probably will never be anyone else. and i remember jim, the commercial -- in paris 20 years ago who would remind me that commerce department wears brown shoes and state department wears black shoes. he had all kinds of messages, but one of those that is not just commerce that determines our foreign policy. there's a different dimension, and you've been talking about it. well, with that in mind, after

the 9/11, all the focus naturally moved to the middle east. nothing was said today at all about central and south america. and yet it's our next-door neighbor. and so we went to europe to help them time and time again when they get in trouble, but are we really watching, and i guess the bigger question is, can we afford to be that gentle giant and have some sort of a balanced? i'm talking both under the previous administration and this administration, where there was one friendly meeting with the president of mexico, with bush 43, and then 9/11 happened and that was it. and so, are we able to keep having that balance in looking at all the areas of the world? >> i'm going to do a real quick search. what you have to say about latin america?

>> no. it's 130 test pages. [laughter] if i'd written all the stuff you would've known about it already. but no, it's a very important point. the famous line fo for a very lg time has been the united states will do everything about latin america except think about it. it's a recurring theme. you could've gotten up anytime the last 100 years and said, shouldn't the united states be paying more attention to latin america? that's been one problem. and i think the answer to question is certainly yes, there needs to be more attention. we really got to be able to walk and chew gum and pay attention to latin america at the same time. it's not that demanding. all that having been said, however, things in latin america are not that bad. in historical terms. i would say things in central america are quite bad. mexico is seriously bad but there were some positive elements about latin america today, including a continuing relative success of democracy.

you have the rise of a global power in latin america, which is, that hasn't been true for a while. and there are a lot of things move in a whole different direction. polonia has moved in a whole different direction. we have american citizens by the way. i think the american approach in two administrations to shove his which is basically to ignore him as been more or less successful. it doesn't mean there's a lot of problems. i was happy to see the obama administration get those trade agreements get through. they were symbolic commitments to the region. and i would say don't underestimate the degree to which latin america benefits to some degree from a certain amount of american neglect. because when we did get heavily involved, we tend to be bigfoot a little bit, right? so it's a careful balance. i'm in fundamental agreement with you, but i still, but i stipulate thing still are not as bad as it could be in the region. >> how about someone over --

you, ma'am. right here. >> thank you. i am an independent tv program producer. i think about national security, and she mentioned democracy, education, but i think there's inconsistency and how began to sense america is not doing right. someone if you can address even more for instance, eisenhower, industrial complex is bad for our nation, but we ignore that, and you know obama at the beginning, antiwar, continue to have prisoners without charge. and education, talking about -- probably should be used, that

many ph.d, they are uninformed or become generals. i just wonder if you can assess all this inconsistency so we can move forward, and we should be more against injustice here inside domestically, rather than against humanity overseas. >> well, i'm not sure the there's as much inconsistency as you're suggesting, but first of all, i thought among the many things that i didn't like about eisenhower, that speech is one of them. i really don't know what he was talking about. i don't think that her country is controlled by the military-industrial complex i any stretch of imagination. so i'm not a big fan of that quotation. i do think obviously the united states is constantly forced to measure itself as it passes judgment on the rest of the world. there was a time when the united

states was, you know, expressing its moral disapproval of other nations, while certain minority in this country had no rights. and in a way one of the products of the cold war was greater pressure on the united states domestically to live up to some of its pronouncements globally. i would say there are few countries in the world that work harder to perfect their imperfections than the united states. they are two nations are more self-critical than americans are, and work harder to try to address inequities in our system. and by the way, they frequently fail. and hypocrisy is a human attribute. it's an inescapable human attribute. but my view of the united states is that we need to compare americans to humans, not the angels. and compared to humans i think americans do pretty well. >> i which is apropos the american investor complex and the national teacher the state

and civil liberties. i can't explain it causally but there's certainly a correlation through the cold war between american power come are the rise of american power, and expansion of dimension liberties at home. civil rights, beginning with brown v. board of education, through women's rights and gay rights and rights and rights and rights. so there's i think in historical, internationally true, there's a correlation between american power and human liberty, again to say that it is causal, you know, requires elaboration. but there is, you know, compared to other world powers, going back to bob's original point, this is not only a remarkable, peaceful and prosperous era but a remarkably free era, especially for americans. so i would actually worry that

as we become, you know, if we are shrinking and in decline, whether we will be so expansive, you know, granting rights and encouraging civil liberties here at home, the question never gets asked. spirit just a quick point. you know, because the united states as a human right's agenda will always be accused of both inconsistency with our values and the way their plight at home and inconsistency in what we apply our human rights abroad. consistency is not the highest good in international affairs and american foreign policy. and if we can do something somewhere on human rights agenda even if we can't do them in other places, i would rather be accused of being inconsistency of at least doing nothing. >> this is to at least set out the presidential election, and so this might be a good point to bring out. a minor issue that has arisen in

this campaign, and that is president obama's apology to afghanistan for the burning of the koran's. and i was immediately criticized by several of the republican candidates. i'm wondering what any of you think, american leadership, american exceptionalism, and america's claim to stand for human rights and liberty, what does that imply? what does that imply of the united states when you have a situation like this when u.s. troops do something that is so offensive to people you're trying to serve? was that apology appropriate or not, sort of in this context? peter. >> i view it as very pragmatic. at the end of the day, the commander-in-chief has responsibility to soldiers in afghanistan. that was a way to kind of reduce the kind of tension in the country. clearly that was his primary

intend to the other is as the worlds only superpower i think we can apologize without it being a problem. to what constituency, how does that damage is? i find income principle, typically when an apology is needed. i sort of some point on this, november 26 we kill 24 pakistani soldiers, and there's an investor show both sides of the border about what happened. as is often the case, you know, it was ms. communicate and on both sides but at the end of the day pakistan is supposed to be one of our allies. the fact that president obama hasn't apologize for that, and i think that sometimes, to me that sort of the opposite mistake. even if it's inadvertent it's okay to apologize, in my view. >> now, i'm not really concerned about the apology in and of itself. just what he said it's a measure of sporadic attention on the part of the president, apropos

peters pakistan point. the only thing worse than having to deal with people at home pashtun harmed karzai, pakistani army is neglected doing so. so what i really would prefer to see is more actively engaged in. i worry that we are not managing the people who really are our allies are better or for worse, as well as we might do. >> in that case you referring to pakistan? >> both actually. i mean, i would defer to peter but have actually a balance of, a coalition in afghanistan that could be sustainable, but again requires certain amount of energy together. >> let's go back to the audience now. there was somebody back -- right here in front.

>> thanks. elizabeth with new america foundation. similarly i'm kind of wondering if you talk a little bit about the extent to which the subject of america's role in the world as being talked about on the campaign trail. and wondering if any of you see any of the gop candidates as doing i guess a particularly good job of speaking about or kind of addressing this issue, aside from simply kind offering reactive comments about afghanistan and syria? >> the comprehensive position is ron paul's. i think the republican candidates have a very consistent problem which goes to what we discussed already, which is you can critique around the edges on afghanistan but at the end of the day, you know, there were 30,000 troops in afghanistan in 2008 and one up to 100,000, we're drawing down this year, and to what do you say, what, we would've a 400,000 troops, state for decades?

there's not much you can really say to critique it. similarly with pakistan. okay, so obama quinn tripled the number of drone strikes. should a republican candidate in office should they have quinn tripled the quinn tripled? i think it's very hard to criticize someone has been quite aggressive. similar in somalia and libya. there might be some debate about syria. [inaudible] >> well, as advisor to governor romney i think it is an excellent job. [laughter] know, look, first of all he has in he has, in fact, laid out a very comprehensive, by far the most comprehensive approach to foreign policy in a very long white paper. is given a big speech on the subject. but as is normal in the nature of most primary campaigns, it

just hasn't been the topic does you were. and you don't get a chance to let out the grand vision of american foreign policy when you're debating contraception and you know, all the other important topics that you're debating. so i think you'll see more. a better time to ask this question will be in the general election. because then i think it would be a discussion about american foreign policy. i think that there has been room for criticism of the obama administration, and i know that one of the major approaches of governor romney, for instance, is that for quite some time and effort is part of the world, president obama has not been particularly great with a number of our allies. he's now by the way scrambling to repair that damage. is meeting with david cam is intended i think to undo the slight that was allegedly committed when he returned to winston churchill and he has had to work very hard to prove that he is a good friend of israel,

as were in this election cycle. i think there's legitimate case to be made, and that much of the administrations early outreach to adversaries and potential competitors to the united states, whether the reset of russia, the outreach to iran, inevitably some of that has come at the expense of traditional allies who may be themselves competitors and adversaries of those players. and i think that's a legitimate assessment. >> let's let richard go first. >> if i could just add one thing in terms of the foreign policy debate, and having worked with a president again in 2008 but didn't win, i have some insight into how these debates take shape. this time around, quote everybody knows that this is going to be an economy election, foreign policy and national security issues will not matter. we all hear have a vested interest. but i think has the virtue of being untrue in the sense that

both candidates are going to have to convince the voters that they are the commander in chief who at the end of the day can be trusted with conserving the national security of this country. and that's why you're going to see all kinds of speeches and activities that are trying to bolster their case for the perks are even while you may see the press pay most of the attention to the economy, behind the scenes at a minimum you will see a real debate on national security matters, and it will matter at the end of the day. >> not to criticize the press but everyone of these debates the number of foreign policy questions addressed by the media as opposed to the infidelity questions addressed by the media, the ratio is, you know, low. >> one attempt to deepen, unicode to add something of value. one way to look at this, kind of

a generational split. the biggest, you know, differences tend to be the more, again with senator mccain and senator lieberman, who were examples of this, of guys who have a pretty traditional convention of view of foreign policy in america's role in the world versus a whole host of younger politicians, post-cold war generation politicians have a much diverse, more incoherent set of foreign policy views as -- [inaudible] >> no, but that's -- well okay. ride unless. again, there are different, the point i just said, they have not congealed around as much around the consistencies and traditional habits, and it's been sometime now. in many ways i would think the

continuity of things that we saw during the clinton years, for fa whole host of reasons. >> in the back. >> this is very much a follow-on question as all of the panelists have addressed this in part but not explicitly. what exactly are the top one, two or three defining issues that will define how the national security election should be determined? granted that leadership are the key overarching issues, but how will that come down to one, two or three issues? >> just quickly go down the line. >> you know, any president has to pull the cards that have been dealt and the cards that have been dealt this president and the next president are what's happening in the arab world. i would say the most substantial events of our current period is the arab awakening and arab spring, whatever you want to call it. because however it shakes out is going to reshape that part of

the world, which remains a very do.rtant part of the world. i do think that, you are saying beyond the level of global leadership but it do think the defense budget, given the sequestration issue and the potential damage of it, really needs to be way up there. i will let others add more. >> i would put iran first, because i think that the candidates will draw distinctions on their approach to preventing iran from obtaining a nuclear weapon, then the war in afghanistan and how they might, even if it is a marginal, even if the debate is on the margins. that would be an element in the debate because we're seeing so much in the news on this. and then third i would agree to the middle east and the way the middle east is headed. >> richard? >> some people have predicted that china is going to be a big issue you're certainly in the

context of trade difficulties. >> it will be an issue maybe buy a four rather than a three. china is number four, but in terms of the content of the debate and everything i would put that behind those three. >> the four big issues that we are addressing are in syria. anybody deviates from that is, you know, out of this. write that down. but look, i mean, go by the title of bob's book. we are living in a world that we made and nobody can and make it or change it more than we can, for better or for worse. i think in dominant, historical terms all the challenges that are out there are relatively manageable. you know, compared to, say, napoleonic france or the rise of germany or something like that. there's many better reasons to think for a good outcome with regard to china bigger many

problems in middle east and the iran nuclear one could be good if transformative on that sort of shifted this collection of issues that we've been able to manage into something sort of they get out of hand. but there doesn't seem to be anything that's beyond our ability, particularly because we're starting from such a position of inherent strength and has had a century's worth of success in establishing this world. so, you know, that's why we kind of wanted to start with this framing issue. >> five years ago if we have had this panel the first answer would've been al qaeda or jihadi terrorism. we haven't discussed that today essentially because al qaeda is essentially basically out of business. that's my area of expertise i have every reason, it's like being a sociologist. you need to find something else. but in terms of something we

tend to sort of forget, didn't -- pakistan is going to be the fifth largest country in order to as the fastest growing nuclear program. it will have more nuclear weapons than britain. may have already happened already. managing our relationship with pakistan is incredibly important it is also very difficult one to one of the more difficult for and policy challenges of president obama for president romney or whoever it is, president in the next several years is sort of a mumbai 2. an attack on india that promote -- the idea that terrorists can buy or promote nuclear weapons is an area fantasy. what is not in the area fantasy is a terrorist trading a nuclear war between india and pakistan to india exercise a great you restraint on the move by 2008 attacks. the indian government would find hard not to do something with a similar kind of attack in the future. but pakistan is to tackling the weapons the concert sketch out the scenario. that is a major foreign policy challenge that any president

will have to think about very carefully in the future. [inaudible] >> i'm interning at the cato institute. my question is really about the nature of diplomacy. as you saw through the 2000s, the rise of the stateless violent, al qaeda and whatnot, and also obama's massive escalation of drone warfare, in the day of the nuclear age, and, we are almost hyper diplomatic because that was the great fear. but in the day we are not necessary talking to nation states and where violence can become much more anonymous in terms of germ warfare, anybody could really be attacked by anybody come it seems, how does that change your diplomatic priorities, first of all? we saw obama attack in pakistan,

you know, without contacting the state first. so seems like diplomacy might be taking it back in to american policy. do you share these anxieties about the future? >> it's a really interesting question. >> you know, these didn't, the new complexion of the international system is something that we've been talking about for well over a decade. and without minimizing the issues that you raise, i'm actually underwhelmed by how revolutionary it's all been. i find state to state relations, remarkably relevant in the current era. i am not overwhelmed by the presence of nonstate actors in the international system. it is dealt with al qaeda and others and will continue to deal with them.

but as i look around dealing with most of the crises that people are dealing with, they are very much about state to state cooperation. and that includes dealing with weapons of mass destruction, which is about cooperation among states on the high seas and detection and shared intelligence resources. that is very much about diplomacy. and so i continue to believe that diplomacy is still of the greatest value. i don't read think it is china. >> i would just point, just today we have seen the swift organization has agreed to sanction banks, iranian banks, and the front page of the financial times today had the story about iraq iran's oil looking at decade low. so i think at least as far as the conflict with iran is concerned, that diplomacy's front and center. spent if i could add, even on

this question of drone strikes, diplomas is critical important. you want drone strikes, drones have to take a from somewhere. where did they take off from? where did a flyover? most of the time working with foreign governments and/or to secure the rights to do the sorts of things. it's the rare case in which we're just doing things unilaterally completely on her own without any sort of diplomatic relations with the state over which we're flying. so over flight rights, landing and bases and intelligence cooperation and diplomatic corps nation, all those sorts of things get at the heart of what we're doing diplomatically with country. so even in the case of drone strikes i think the diplomacy is critically important. >> tom, peter, final thoughts? >> actually everything has been said. it just hasn't been said by me. [laughter] in this case i think i will defer as i think we've covered

the landscape extraordinarily well. >> all right. well, thank you all very much for coming. the book, bob's book is the world america made. i can't believe you're not selling it here. [laughter] >> it's about promoting your message. but it's a very readable very well written, and very well thought out. so i would like to thank my panel is, for so bob kagan, the author of the book, and then peter bergen and tom connelly and richard fontaine from rival think tanks, as it were. i'd like to think american enterprise institute for doing this, and best of luck to you, tom, in the rest of the series. so thank you very much. [applause]

>> [inaudible conversations] >> if there's anything that concerns the american family today, it is this. our government hasn't caught up with the new facts of american family life. families have changed so why can't washington? new facts, moms working, nearly 65% of all mothers are working. part-time, full-time, all of the time. keeping the family together, making ends meet. making america more prosperous. working mothers need affordable day care, and the pay they

deserve. how often they can't get either. >> the saturday merit and senator barbara mikulski will become the longest-serving female member in congressional history with nearly 13,000 days in congress. she'll surpass the record held by the massachusetts a government representative edith rogers who served in the house or 1925-1960. watch senator mikulski speeches from the senate floor, and other c-span appearances all archived and searchable online at the c-span video library. >> this is -- nextgen c-span2, we are live at the fifth annual form for human information at, and all day event will feature experts looking at issues such as transparency and openness in government. they will also discuss some of the current litigation, which changed under the obama administration. it is just gotten underway here at the american university law school in washington. live coverage on c-span2.

>> for those of you more mathematically inclined, that means that center second program in 2008 we have now held 17 are exactly three per month. which is a record of which we are quite proud. we also celebrate international right to know day in september. our audience here knows what freedom of information day is. but worldwide the international community knows that is on september 20 and will be having our sixth annual international right to know day celebration. this coming september 28. so that's something to look forward to. but today we continue our tradition here at the washington college of law of not only holding a day of law program and celebrate james madison's birthday in particular, and sunshine week in general, but we also have the tradition of

presenting the award. this is one that is now presented, this is the fifth time, and we are very pleased that we have an honoree who came in from out of town as a matter of fact, to award. she's the first lady to receive that award of the four others who have received thus far the last four years. and we are very pleased also that we have last year's board recipient, alan morrison, as an associate dean at gw law school to make the presentation. we do things sort of academy awards style do. if you win best actor when you got to present best actor the next year and the like. i'm very pleased that professor morrison has agreed to continue that tradition. professor morrison, i will introduce you first. everyone should know that you

are the founding director, together with ralph nader of the public citizen litigation group, which i think is fair to say has been over the years, over the decades, the leading openness of leading group in the land. and then he retired in 2004, where he went to then teach at a number of law schools, stanford, nyu, harvard, georgetown, tulane, sudan university in china, and even here at the washington college of law. professor morrison has argued 20 cases before the supreme court, including some particularly significant ones, and he was a well deserved recipient of this award last year. i'm sorry to say that professor von himself was unable to be with us this morning. but professor more simple

present the award to professor long. we have all professors here. very answer i suppose. this is a small community, is it not? and then professor long will be giving you the benefit of her long, long years of wisdom in this area, that's for sure. so without anything further, we try to stick to tight time limits you as best we can. let me pass you over to professor alan morrison. >> thank you, dan, and welcome. i did not teach at all those law schools and a short period of time between 2004. i'm fast but not that fast. sense we are celebrating foia day today, i made a resolution, i have to find at least foia

requested day. unfortunately, i have a client who i need to have him sign some papers before i can file the request, so it would be deemed to be filed today, although it actually won't be filed today. deemed is -- [inaudible] >> deemed is my favorite word i tell students. it's a meaning of let's pretend, as if it didn't happen but we will pretend it did happen. so when you see deemed in all these opinions you know it's not true but they're pretending it is for other reasons. there's an old saying that i'm from the irs and i'm here to help you. well, today we'll turn that around a little bit saying today is imfc long and i'm here to help the irs, the japan of justice and fbi and the dea and just about everybody else in the government. she's really here to help them. they have a quite figure that out yet, and she's really there to help them. but we all know that she is.

of course, she's really there to help the american people understand what their government is all about, which is after all the purpose of the foia, or at least that's what everybody has always said it was. when most people think of foia, they think of it in terms of exciting revelations, scandals, abuses, abu ghraib, fraud waste and abuse. and those are important because scandals and misuse of the government are always important to the american people. but they occupy a very small portion of what foia is all about and why we have open government. and they don't focus on why ordinary citizens should be concerned about what their government is doing, and not doing on a regular basis. and that's where sue long and her late husband field, and her current sidekick it was unfortunate disabled, unable to be here today, david, working

with trac, are doing for the american people. they truly appreciate the value of data. small bits of really important information. but they also realize that this data is meaningless unless it can be accumulated and put together in some sensible fashion. and they understood far before me and almost everybody else how important the computer was going to be in figure out what the government is doing and how important electronic records were in being able to take the information that was there, run it through a computer and come up with new ways of looking at information because nobody understood, had any significance at all for the public before. so, they understood the importance of computers and electronic data, and the importance of combining the two of them together.

and to produce information that was interesting and important, because it told us things about our government we could never figure out in the absence of that kind of combination. and, of course, it was available because those were not really secrets that were being hidden. it was just information that was in an inconvenient forum and was useless unless somebody like sue long to figure out a way, to put it together. that's what she and her colleagues have done. but, of course, before there was all this data collection, they were the manuals she got out of the irs, and these were really important because, although they didn't have the word law written on them, they were all about the law and what the government thought the law was and what the government thought the law was not. there was every reason they should been released because

that's what we're supposed to know about our government, what the government thinks the law is. there was of course no basis to uphold them, and she prevailed in getting these manuals released. now, the one thing you have to say about irs manual is they are really not very sexy. can you imagine being the public relations person who has to draft a press release, irs enforcement manuals released today, coupled by john's. but those of us who know how important those manuals are, recognize the great service that suited, not only with regard to the manual she got released, but the president she said and what it told everybody else about having to disclose what the government is really doing and thinking about its obligations under the law. there's one other point i want to make, and that is, if you'll pardon the double entendre, that sue long is really a long distance runner. that you have to be willing to

stay in the fight for a very long time. my calculation it's almost 40 years now that you've been doing this. i know because that's about how long i was doing it, too, as a citizen. and there's no way that you can continue this kind of work unless you're prepared to look at it in the long run. it may not seem like it's 26 years in all these cases, but sometimes it feels as though it's running 26 years, and at 26 miles. and surely some of the lawyers in some of our cases felt that he was going on for ever as we on lawyer after lawyer, to keep up the battle. and, of course, if you are willing to go the long distance, you know that the bureaucracy will wear you down and you will end up not getting what you want. so sue long, better than anybody else, understands the importance

of being a long distance runner. for that reason, after all of the other reasons that i've given, and others have given, i am honored to present this award to you today, sue. congratulations. it says in recognition of the remarkable career as a uniquely successful sequester for government information and creator of litigation president over the course of more than four decades under the freedom of information act, march 16, 2012, foia legend award to susan b. long. [applause] >> tell us where -- [inaudible] >> folks, one of the formal photographs are being taken, we have another very particular industry here at the washington college of law, and for our

broadcast use you may not realize, there is a leading tape precedents going back to 1972 called long versus rosa which established the legal -- in which cases are litigated. named after that case like, for example, a miranda warnings, named after that case, agencies now file what are known as long declarations, and the mean for foia litigation pieces to be adjudicated. so we do have a long declaration in that spirit to read with respect to professor long. it begins, where as susan b. long works with the freedom of information act for more than 40 years ago, when she was one of the first persons to realize the ask potential for shedding light on federal government operations. were asked together with her husband, philip, she utilize foia with common sense in his early decades, most particularly

as an agent of change at the internal revenue service. where as she promoted kashmir also a remarkably successful foifoia litigating to the creatn of such litigation precedents as long versus irs come which the government received only a second foia denial after the rosen case by the way. whereas, more than 20 years ago she founded the transactional records clearinghouse known as trac with david byrne which has through both foia and foia litigation made copperheads elite available to the public detailed information on federal enforcement staffing and spending. where as, the last whereas, whereas in so doing she is uniquely influenced the development of the foia during its formative years and beyond. therefore, susan b. long is singularly deserving of this recognition as recipient of the 2012 robert vaughn foia legend

award. now, there's one more thing. as fits the type of the legal document the fed has to filed in court in foia cases, the final sentence reads as follows but it is hereby declared under penalty of perjury in accordance with 28 usc, that the foregoing is true, is correct. thank you your professor long. [applause] >> thank you, dan, and thank you, alan, for all the silly kind words. -- for all those kind words. when dan called to let me know that we were all going to reward me with this very significant honor, and it had the word legend in a, i immediately thought, you know, oh, that means i am really old, to be a

legend. at least i'm still a living legend, not a dead one. so sometimes if you live long enough you, too, could become a legend. because it all started when i was a student at the university. and i thought about gee, what should i say that my be interesting. i'm a statistician and i knew you did not want to hear about in databases and statistics and all the wonders of that even the get very excited about that. and i thought maybe i should think back about what was it like back in 1970 wind, first started foia activity, and think about what's changed. and i really hadn't done that. just, you know, because you don't think back that long. you're too busy in the present. and so i want to sort of contrast, tell you some stories, contrast that, and then

hopefully close with my vision of the future. so, i need to paint this picture, 1970. i am a student at the university of washington, you know. my husband to be, phil long, it's in small family business, you know, and he gets audited, gender, an ordinary event that happens to many millions of people over the years. you know, you know, he feels like, and takes the law very seriously and felt that he had, you know, paid his taxes and he was an honorable man. and irs wasn't really very nice to him. [inaudible]

>> as you can see where having a problem with our signal. we're trying to fix that. this is live coverage from american university. here on c-span2.

>> just want to let you know, we are taking that event. will show all the two lead and a schedule. we hope to be able to get it back live for you and we're working on it right now. lots going on and watch and an area but also outside of washington as the president heads for a couple of both fund-raising events, both in chicago and atlanta. we will cover both of them, particularly when chicago. this afternoon at 1:35 p.m. the president at a fundraiser there and that will be live on c-span this afternoon ahead of tuesday's primary. both mitt romney and rick santorum also in the state of illinois today. that's at 1:35 p.m. president obama in chicago. also live today on c-span coming up in just a few minutes, a discussion on ending the end of the iraq war and national security issues. and our live coverage today also includes a look at religious freedom and extremism.

that's at georgetown university. that is coming up at 10:15 a.m. and i will be on c-span3. again here in c-span t. we've been bring you the freedom of information forum over at american university, and we are working on the problem. in the meantime we're going to take you to an event from last night. timothy geithner spoke to the economic club of washington. >> [inaudible conversations] >> ladies and gentlemen, the secretary of the treasury, timothy geithner, and chairman of the economic club of new york, andrew.

[applause] >> good evening. i want to welcome you to the 419th meeting of the economic club of new york. now in its 150 year. the economic club of new york is the nation's leading nonpartisan for economic policy. more than 1000 speakers have appeared before this club in more than a century. establishing a strong tradition of excellence and importance. this tradition has been supported by the contributions from 158 members of the club's centennial society. their names are listed in the program, and i thank you. tonight we are pleased to welcome back to the club treasury secretary timothy geithner. secretary geithner last spoke to the club in june of 2008 when he was a club trustee, and more importantly he was president of

federal reserve bank of new york. secretary geithner was sworn in as the 75th secretary of these united states treasury on june 26, 2009. he previously had served in the treasury department under three administrations. before coming to the federal reserve, he was at the imf. earlier in his career he worked for kissinger associates. secretary geithner graduate from dartmouth college and from the johns hopkins school of advanced international studies. we are pleased to have secretary geithner deliver his remarks, which we followed by a question and answer period. please welcome secretary timothy geithner. [applause] >> thank you, andrew. houdini. nice to see you all. thanks for coming. at the pleasure to be back here

at the new york economic club. this great forum for national debate about economic policy, and to be here at a time they some fundamental important choices about politics and economics. it's nice to see so many former colleagues here. i can see some of you. and i want to particularly pay tribute to my former colleagues at the new fed you are sitting here somewhere. i know some of them are here. they are, as i hope you know, an exceptionally talented group of public servants, brave in created in christ but it was my great privilege to work with them. as you know, i left new york for washington in november 2008 at a particularly dark moment in american history. my timing was not good. [laughter] the u.s. economy was contracting at an annual rate of 9%, growth around the world was collapsing. the actions taken by treasury secretary hank paulson, the federal reserve, the fdic,

authorized by the congress earlier that fall were essential to stemming the worst of the financial panic, but the economy was deteriorating at an alarming pace. you will remember that our banks and financial markets were still in a state of shock, sucking more oxygen out of the economy, helping push the u.s. and the world into the worst crisis since the great depression. businesses were failing at an alarming rate. those able to survive were laying off hundreds of thousands of workers each month. house prices were falling rapidly, and remember, in early 2009 they were projected to fall another 30%. so as the president prepared to take office in gender 2000 it was clear the situation was very grave. and the president understood that an additional actions were urgently needed. he did not sit around hoping the

crisis would burn itself out. he was not paralyzed by the complexity of the choices or the terrible politics of the potential solutions. he decided to act early and forcefully. and his strategy to stabilize the financial system, combined with $800 billion of tax cuts and emergency spending in the recovery act, the restructuring of the u.s. automobile industry, the actions of the federal reserve, and the court needed global rescue he led energy 20, were very effective in restoring economic growth. you may recall from the political storms all those early months in 2009 that, how should i put it, people were not fully confident in that our strategy would work. i remember when i got my first letter of concern and sympathy from a friend in february or march, and a friend quoted teddy

roosevelt famous line about the man in the arena. i don't know how many of you know these words, but it does come if you summarize, it's not the critic who counts, credit belongs to the man whose face is marred by blood and sweat. i was touched and moved by that letter. but then i got five more of them. [laughter] and i thought, while not, they seem to be worried about me. [laughter] but he believed at that time that we had a very good plan. and that plan worked at it than any of us hoped. within three months of taking office, the pace of declining growth began to slow. by december 2009, the american economy was growing again. and just let me say this sharply. and about six months, the economy went from contracting at an annual rate of about 9% to

expanding at an annual rate of about 2%, a swing of almost 11 percentage points in a remarkably short period of time. we were not just able to avert a second great depression, but also to begin the long, long and budget process of repairing the damage and laying a stronger for economic growth. so how has the economy performed since that early start? i believe that by any measure the president's policies are making the economy stronger. since the summer of 2009, the economy has expanded at an average annual rate of 2.5%. over the last two years, the economy has added 3.9 million private sector jobs. growth has been very broad-based, with strength in agriculture, energy and manufacturing and services in high-tech. growth has been led by business investment in equipment and software, which has risen by

more than 30% over those two and a half years, by exports which have grown about 25% in real terms over that same period. productivity has risen. households have made significant progress in reducing excessive burdens of debt, bringing the savings rate up, leveraging the financial sector has declined very substantially. our fiscal deficits have started the decline as a share of the economy, and our current account deficit which measures how much we're borrowing. overall, the total amount of income and output of this american economy is now above the pre-crisis peak. millions of americans now have health care with better coverage because of the affordable care act. and health care costs are rising less rapidly. we are becoming much more efficient in how we use energy, more reliant on clean energy

sources, less dependent on foreign sources of energy. and in communities across the country, we are seeing promising reforms in education to improve the quality of teaching in science and math, and to improve access to the higher education. the early shape of the expansion we should all find encouraging for the future trajectory of the economy. this growth is led by private demand. ..

>> we still have a very tough economy and still face some very tough challenges ahead. unemployment, of course, is still very high and improving more gradually than any of us would like. and while we're seeing some welcome signs of stabilization in the housing market, we have a long way to go there. pension values have recovered much of the losses in the crisis but, of course, as you know, house prices are still very low, and these are the tragic legacies of that financial crisis. in addition to these legacies, we still face a dangerous and uncertain world as the recent rise in oil prices demonstrates. americans, of course, can now feel the effects of higher gas prices, and there's no quick and easy fix to that problem, but it reinforces the importance of more progress to develop additional sources of energy on all fronts. now, if you look at this expansion in historical comparison, this recovery is faster than the recoveries that followed the last two recessions, but it's somewhat

slower than previous recoveries from very deep recessions. what explains this, what accounts for this? recoveries that follow financial crises are slower and more protracted as carmen reinhart and ken rogoff have famously written. they are slower and longer and harder because the causes of financial crises, typically a large rise in borrowing by households in the financial sector and too much investment in real estate, those act to hold down growth as they are unwound. as people bring down their debt burdens and raise their savings rate, they spend less, and as banks are forced to reduce risk and restore more prudent lending standards, they lend less. these forces work against the impact of lower interest rates, dampening the otherwise potentially powerful effects of monetary policy. there's a paradox in this in that the changes that are he's to unwind the causes of the crisis and lay a more lasting foundation for growth in the

future, those changes necessarily slow the pace of expansion. the president, as you know, inherited very large fiscal deficits swollen to levels well beyond any experience since world war ii. and the dramatic erosion of our fiscal position between 2001 and 2008 and the size of those proo jekylled future deficits -- projected future deficits made the elected people and their elected representatives uneasy about stimulus, and this diminished our capacity to legislate significant additional fiscal actions beyond those in the recovery act. state and local governments, as you know, have had to make severe cuts in employment and services, raise taxes offsetting part of the substantial stimulus for the economy provided at the federal level. and, of course, in addition in 2010 and 2011 we were hit by a series of very substantial blows to growth from outside the united states; the european debt crisis, the oil shock and

japan's crisis. and these three shocks, these three external shocks took about a percentage point off gdp growth in the first half of 2011. and on top of this, finally -- and remember this -- the fear of national default provoked by the debt limit crisis in july and august of last year did terrible damage to business and consumer confidence. the fall in confidence at that time was quick and brutal, as large as the declines in confidence you typically see in recessions. these are the most important reasons why the pace of expansion slowed after those first few quarters of recovery. and without those challenges, without those forces, without those factors the recovery would have been stronger. but looking forward, the question is what's the right economic strategy for the united states, what's the mix of investments and reforms and

policies that'll make growth stronger and economic opportunity broader in the future? the three most important imperatives we face today are to support economic growth now, to make the right investments and reforms to make our economy more competitive over time and to restore fiscal sustainability. these imperatives will require that we resolve the fundamental political divide in this country that exists today over the appropriate role of the government in the economy. first, and important to remain focused on this, we have to stay relentlessly focused on strengthening the economy in the short term. even though growth is gradually getting stronger, of course, we have a long way to go to repair the damage caused by the crisis. we face the additional challenges of europe facing a severe and very protracted crisis, and the world engaged in a critical struggle with iran

which is adding to upward pressure on oil prices. for these reasons we think there's a compelling need for additional action by the congress to strengthen growth and help get more americans back to work more quickly. so we'd like congress to act on the president's proposals to rebuild our nation's infrastructure, to help small businesses and to prevent more layoffs of teachers and cops and firemen. we need to continue to repair the damage to homeowners and the housing market by helping americans refinance their mortgages to put more vacant homes into the rental market and help families who can afford to to stay in their homes or to transition to more affordable options. the president will continue to use his executive authority to help. for example, by streamlining approvals for new infrastructure projects or streamlining regulations whose costs are large relative to their benefits. but these measures cannot

substitute for action by the congress. now, again, recoveries that follow financial crises are necessarily more tentative, more uneven, more protracted, and it's going to take years to fully repair the damage caused by this crisis, and this is why it is so important still that policymakers continue to work to get the economy growing faster in the short term and not shift prematurely to excessive fiscal restraint or shift the focus of policy entirely to reforms with only long-term payoffs. now, the second economic imperative we face is to build a foundation for a stronger future growth. this crisis, as you know, came on top of a set of economic challenges that took a long time to build up, had been building up for years. among those challenges are a long-term erosion in the relative qualities of education for many americans, a long period of stagnation in real

median incomes, diminished confidence in the ability of americans to exceed the economic achievements of their parents, a substantial, ongoing shift in the risk and cost of health care and pension security away from employers to employees, poverty rates much higher than those that prevail in any economy with comparable wealth, and the deteriorating public infrastructure. now, these are relatively new and unfamiliar challenges for this country if you look back over history because we were remarkably successful as a country for a very long period of time in achieving much better economic outcomes than we saw in most countries around the world because we had leaders who put government policy to work in providing health care and retirement security for retiring americans, universal, primary and secondary public education, the g.i. bill, the great public infrastructure projects of

eisenhower and others in the last century, large investments in scientific research and sensible safeguards over the financial system. now, these long-term challenges for us as a country are more difficult in part because other nations around the world, like china or brazil, are getting better at making their economies grow and develop, and their success -- though it brings huge opportunities for our country -- has put a huge amount of pressure on large parts of the american work force who are engaged in making things that other countries are getting better at making. now, the president's strategy, we think the best strategy for meeting these sets of challenges is to focus on reforms in education, investments that support innovation, to encourage public and private investment and to expand exports. and these challenges are not challenges the private markets can solve on their own. in education the president's working to make it more

affordable for people that go to college working to improve the quality of teachers, to improve training opportunities across industries where we are short of people with the necessary skills. these investments in educational reform need to be matched by greater investments in innovation. the economic case for government support for scientific research rests on the reality that private innovators, private investors can't always capture the full benefits of research and development, so they tend to underinvest relative to what would be optimal for the economy as a whole. now, these investments entail risk, and they need to be very carefully designed to focus primarily on research and to maximize the role of the market in determining which technologies ultimately prevail. and these programs support innovation, should be combined with longer-term programs for promoting public and private

investment. infrastructure investment is one of the most efficient means we have to create employment, to improve the overall productivity of the economy over the long run. and alongside a strong, multiyear program in public infrastructure, we need to improve the incentives for private investment, to modernize the framework of institutions and incentives that help allocate those resources more efficiently, and this, of course, requires fundamental reform of our tax system. that system, as you know, today is a complex and unfair mess of subsidies, temporary and permanent, with a very high statutory tax rate and huge differences in the effective tax rates across companies in different industries. the president's proposed to reduce the overall rate to a more competitive level by reducing or eliminating the corporate subsidies in the tax

code and to strengthen the incentives for creating and building things here in the united states. we want a system in which businesses compete on the quality of the products and the services they provide, not on the creativity of their tax engineers or their lobbyists. and along with these tax reforms we need to restore what were the great strengths of the american financial system, the highest standards for consumer and investor confidence in the world and the most creative and efficient model available for channeling savings to finance investment innovation. and in our judgment as a result of the reforms the president has put in place, our financial system is much, in much stronger shape today with much larger cushions of capital against risk, greater transparency over firms and markets and is now in a much stronger position to be a source of credit for an expanding economy. we need to work to expand trade and exports. we've been aggressive in using

the safeguards within u.s. trade law to protect american companies from unfair trade practices. we want to see the market share of u.s. companies expand overseas, and we want to see a large part of the growing demand in the emerging market economies met by things that we create and build here in this country. now, this economic strategy which is focused on education, on innovation, investment and exports is, in our judgment, the most promising path available to us as americans to create broader economic opportunity and stronger future growth. but, of course, these reforms -- if they're going to be effective -- have to be combined with long-term reforms to restore fiscal balance. without more substantial steps to bring down our future fiscal deficits, then over the long run the incomes of americans will grow more slowly, and future

economic growth will be weaker. these fiscal reforms are essential to insure we have the room for the investments we need to improve growth and opportunity in the future like in education. and in this era of more limited resources we have to be able to target those more limited resources to investments with the highest returns. we have to make sure we can meet our changing national security needs in a more dangerous, a still dangerous and uncertain world, and we have to agree on reforms to make sustainable, make more sustainable, make more affordable our commitments to protect health care and retirement security for the millions and millions of americans retiring in the next two decades. now, this debate about how to restore fiscal sustainability began with the bowles-simpson recommendations for a balanced mix of tax increases and spending reductions, and this debate will likely end there.

the debate when it ultimately concludes, will result in legislation that has roughly the same overall dimensions of those proposals. and that is because the case for balance, for a balanced mix of tax reforms and spending savings, should be obvious. to reduce our deficits to a more sustainable level, we need roughly $4 trillion in savings over the next decade, about 3 trillion on top of the cuts agreed to last summer. and to do this, we propose an overall mix, an overall balance of roughly $2.50 in spending cuts for every dollar of revenue increases. the president's plan, like any credible plan, will force savings across the government in programs we can't afford that we have room for investments in things we need, it will force

savings in military spending, reallocating funding to meet future threats, it will reduce the rate of growth in health care spending while preserving and protecting our commitments to retirement and health care security. and it proposes, as does every bipartisan plan and even as endorsed by the business round table a few weeks ago, the president's plan proposes a modest increase in revenues from the most fortunate americans. if you don't raise revenues as part of the plan to restore fiscal balance, then you have to find another 1% of gdp or roughly $1.5 trillion over ten years from defense or social security or medicare benefits or education or low income programs. so as each of the bipartisan commissions who have looked at this question have concluded, it's just very hard to do without sacrificing things that are fundamentally important to

very large majorities of americans in both parties. now, the republican budget proposals introduced last year show quite vividly what it takes to restore fiscal sustainability if you decide not to raise any revenue. in their budget in order to preserve what are at present historically low effective tax rates for the top 2% of americans and in order to sustain higher levels of defense spending than those the secretary of defense and the joint chiefs believe we need, in order to achieve those two objectives, those budgets proposed by republicans, propose cuts that would reduce the level of benefits, cut deeply into the safety net for americans and cause damage to programs that

fund education and infrastructure and other investments reducing the total size of what we call discretionary spending programs to 1.6% of gdp within ten years which is a level more characteristic of pakistan or sub-saharan africa. now, some republicans have proposed capping overall government spending at a fixed rate of gdp like 20%, some said 16%, some said 20%. but remember this, if you try to do that with 25 million americans becoming eligible for medicare and social security over the next 15 years, to achieve that cap, live within that would require you to effectively end the decades-long bipartisan commitment to maintain a guaranteed health care and pension benefit for retiring americans, or it would

leave us unprepared to defend the nation, much less offer americans a better education. so remember these realities when you consider the competing proposals for restoring fiscal balance. and if politics of this moment in this election year prevent us from addressing these challenges before the election, both parties are going to have to work together very quickly after the election to start to make some tough decisions. because as you know, at the end of 2012, at the end of this year we face the simultaneously expiration of large tax cuts and a large across-the-board cut in spending together which amount to about 5% of gdp. and that should provide washington with a very strong incentive to agree on a balanced package of fiscal reforms. so we, of course, have a very tough set of challenges ahead as a nation, and yet as tough as they are, they are manageable

for the united states. and i would prefer these challenges to those of any economy anywhere in the world. we can afford the investments that are going to be important for future growth, we can adjust to the changes that will be compelled by the need to bring down our future deficits, and thanks to the action of the president alongside the fed, we are in a much stronger position today to meet those challenges than we were three years ago. now, i gave my wife some unwelcome attention a couple weeks ago when i was writing to express concern about amnesia about the financial crisis. and as we face the great political and economic choices ahead, remember how terrible that crisis was. remember that so many americans are still living with the scars and the damage of that crisis, and remember when you listen to the debate about taxes and medicare and medicaid, remember

that even before this crisis almost 20% of children in the united states were living in poverty, and 40% of children born were born to parents covered by medicaid. and remember that the fortunes of children born in america today, the quality of the public schools they attend, the quality of health care they get, the chance they have to go to college depends still in this country today, still depends significantly on the wealth of their parents or on the color of their skin. and remember, too, that we're a country of great strength and resilience. we've successfully navigated the most dangerous phase of the worst economic crisis in generations. we need to bring that same creativity and force and sense of national purpose to the many challenges we face ahead.

and that's going to require better results from our political system. no economy can be stronger over time than the ability of its political leaders to come together and make some tough decisions. thank you very much. [applause] >> thank you very much, mr. secretary. and as you know, you don't get off that easily. so we're going to have a couple of our members join you and serve as questioners. the first is alan blinder who is the professor of economics and public affairs at princeton and has served as vice chairman of the federal reserve board. the second is john lipsky who is

the distinguished visiting scholar in the international economics program of the polynesian school at johns hopkins university and recently left the imf as the acting managing director. and if you have any questions that you might want to lob in here, you can e-mail them to jan hopkins it's --@questions@econ club.org. [inaudible conversations] >> i need to get out my blackberry. [laughter] >> all right, who's first? >> i am. mr. secretary, thank you very much for being here tonight. one of my favorite geithner quotes is we saved the economy, but we kind of lost the public in doing it. you spoke to the first half of

that at the beginning of your remarks tonight but not the second, but i'm not looking to draw you back then, but rather to get your thoughts on whether it's possible, and if so how, to get the public back. >> well, first, you know, just remembering that people saw their lives upended by a set of choices mostly they did not make. and, you know, they saw the world burning around them, you know, a broad run on the financial system the first time in memory people faced the risk of losing their savings or this depth of loss in wealth and employment, and then they saw the government forced to act to rescue the people they thought were responsible, fairly or unfairly. and they were angry, understandably angry and scared and frustrated. and i don't think there was any

path through this that would have made it easy to do the things we needed to do to so the crisis -- to solve the crisis and at the same time win at that time broader public support. i say this just because if you look back at the history of financial crisis, the reason why governments normally screw it up, the reason why they normally wait too long to act, the reason why they're so tentative at the beginning is because they sit there, and they stare at the deep political costs they know they're going to have to confront when they act. so they wait, and they hope they can avoid acting. and that's what causes financial crisis to be worse than they need to be, and it's that fear of political consequences that normally causes governments to be too tentative at the beginning. and we were lucky as a country because we had people who were willing to do those tough things early. at a relatively early stage in the crisis and to do it with

really overwhelming force. and it was necessary to do. and it worked much more than we thought. again, if you wonder about that, you know, you just need to look at a history of the path of financial crises from the great depression on or look at europe today and look at the consequences of trying to adopt a more tentative, gradual, slow approach. and i think if you're, if you're a, if you're president, you want somebody who's president who's willing to say i'm going to put the politics aside, and i'm going to do what i think is necessary to fix it because, ultimately, i should be judged by our ability to make it better. so i think the only thing that you said what brings people back, it's for people to see the evidence of sustained, gradual progress and to have a chance to

assess the alternative choices offered by competing politicians for where to take the country in the future. i think that, um, you know, i always like to say that life's about alternatives. and, you know, what's good about the country today you see two very stark choices about what makes sense for the country in the future, and that, i think, helps a little bit. when people are confronted by alternatives, it's easier for them to assess relative merit. so, i don't know, time will help, steady progress will help and having people think more clearly through the alternatives, that should help too. >> thank you. if i may, this is going to sound like a three-part question, but it's really only one question, and it comes back to what you were talking about the long-run budget deficit problem and in particular you mentioned simpson-bowles -- bowles-simpson, i guess.

bowles-simpson. part one, can we realistically expect to solve the long-run deficit problem without significantly higher taxes? i think you answered that. >> no. >> can we realistically expect to solve it without huge reductions in the future costs of health care, and can we realistically expect republicans to accept the first and democrats to accept the second? [laughter] >> you need, as i said, you need the combination of modest revenues tied to reforms that slow with the growth of costs. and if you look at the underlying drivers of those costs, you can achieve huge benefits in sustainability in making more affordable and pushing out solvency with what are modest changes in the trajectory of health care spending growths. i think a lot of people look at the numbers today, and they say that looks, um, beyond our

capacity to contemplate, too hard politically, but i think that's mistaken. remember, for the next ten years we're talking about finding agreement on 2% of gdp. half in taxes and half in spending/savings. that's a -- those are very manageable adjustments for a country like the united states, much easier than we've seen countries around the world do in a very short period of time. so it absolutely is possible. it's necessary to do this. the sooner we do it, the better. easier to adjust to it the sooner you do it, and it's understandable why they have to happen together because most, most americans who know they're going the bear a greater burden on the tax front want to be confident that those increased revenues go to a plan that is reducing deficits, not sustaining the unsustainable. and most people who are going to be confronted with accepting lower growth in benefits want to

believe that a bit of burden sharing across the american economy in that context. so there's a compelling political reality and a fairness reality that those two things go together. i think it's very hard to imagine either happening without them happening together. you know, again, just one more -- why people will be reluctant to see their taxes rise, they're always reluctant, understandably reluctant unless they think they're buying meaningful improvements in our long-term fiscal position. people are going to be reluctant to see their benefits cut unless they think those benefit cuts are not going to sustain tax rates we can't afford. so they go together. there's no alternative. it's going to have to happen, and it should happen -- it'd be better for us if it happened sooner and with design in it than to happen too late without the opportunity to give people time to adjust. >> thank you. john? >> yes, mr. secretary, i'd like

to turn to the international side of events for a moment. as you're probably aware, i'm sure you are, the international monetary fund recently cut back its forecast for global growth this year and next year by between a half and three-quarters of a percent reflecting mainly the expectation of much slower growth, modest recession this year in europe. how do you assess the efforts that the european authorities have put in place and their chances of success, and aligned with that, what views do you have about efforts to expand the global financial safety net to protect in case of an adverse outcome? >> i think if you look back to where the world was in october, the europeans are making some progress. the combined effect of new government in spain and italy, a pretty creative ecb, a broad strategy to get the financial system stronger, their fiscal

compact, the combined effects of those actions have substantially calmed the really acute financial tension of the last 18 months. and that's very important because what they've done is make more convincing that they want to take the risk of a catastrophic outcome out of the markets. and that moderation of financials as you see in lower interest rates in the weaker countries in europe is very important and very promising even though you're going to have a long period of weak economic growth in many parts of the country. and i think that means that, again, relative to last fall although, again, a tough and uncertain world, i think the downside risk to growth around the world are significantly less than they were. and, again, for that to be sustained you've got to keep a close eye on oil and iran and

gas prices, but you've got to make sure europe keeps moving to sustain this progress, and that's going to require them building a stronger financial -- [inaudible] which i believe they recognize and are on a path to doing. our view about the imf, as you know, john, is that if europe demonstrates to the world it's willing to put more financial muscle behind this broader endeavor, build a substantial firewall, then we think it would be easy and appropriate for the imf to go raise some supplemental resources so that they can demonstrate, too, that if it's necessary for the imf to play a larger role in europe, then they're going to do it without the ability to help the broader membership. if europe moves on that front, i think you'll see the imf try to reinforce that. >> thank you. taking a broader look, it's obvious from growth figures that the relative balance in the global economy continues to shift towards the dynamic

emerging market economies, and that's likely the case for some time to come. in that context, looking to the medium term what do you see is the role of the u.s. economy, the u.s. dollar and the u.s. financial system? >> well, i think the u.s. is going to be an enormous beneficiary and a huge participant in that long boom of growth ahead for those countries. you know, those countries on average are going to be growing 5, 6, 7% for pretty long periods of time. europe and japan much lower growth potential. much worse demographics than we have, and we'll lie somewhere between those two. and we have lucky as an economy we're so much more broad-based and so much more resilient and productive that we're in a very good position to benefit enormously from that growth ahead. but, you know, you're seeing an important change in the basic growth strategies of china in particular because as they grow to be so large, they can't rely

on an export-dominant growth strategy as much as they have in the past, and they have to shift to more domestic sources of growth. the imf's been playing a leadership role and their going to shift the broader set of incentives they have in china to encourage that shift. that's going to be a necessary part of making that transition sustainable. but i would say, again, mostly promising for this country, and if you look at, um, really any major american company, any industry today, you see them well positioned, better positioned than their peers in many countries to take advantage of that huge wave of growth. >> if i may, i'm going to cut you off here. my apologies, but dinner is about to be served. i just want to thank you -- >> no e-mail? [laughter] >> anyway -- >> [inaudible] >> i thank you very much again,

and just for those who are interested and able, the club is hosting a dinner for the first chief executor of hong kong. on april 23rd the club is hosting a lunch for the president of copy bank. deutsche bank. invitations will be going out shortly. again, mr. secretary, thank you for your insights, and we appreciate you being here. [applause] enjoy your dinner. [inaudible conversations]

>> c-span's road to the white house coverage continues this weekend. the missouri caucus is on saturday with the process continuing of determining delegates for the summer's national convention. puerto rico holding its primary on sunday, the illinois primary on tuesday with mitt romney and rick santorum in that state ahead of the primary. early voting ended yesterday. rounding out the month, it's louisiana and into early april with primaries in d.c., maryland and wisconsin. and you can stay on top of all the political coverage, make c-span.org your clearinghouse for coverage information. as a matter of fact, the latest tool we have on there for you is the interactive map of primary and caucus results. they change as the primaries and caucuses happen. all of that at c-span.org/campaign2012. >> our system is fundamentally

undemocratic in a number of ways. one of the ways is closed primaries. so in half the states in the country, 40% of all the voters can't participate in the primaries. and so they had no say in who gets nominated. and as a result, we get more and more extreme candidates on both ends of the spectrum. >> saturday night at 10 eastern on "after words," linda killian writes that the most powerful bloc in the u.s. are independent voters, and they've decided every election since world war ii. also this weekend on booktv, saturday at 8 p.m. david brock on how roger ails turned fox news into an extension of the republican party, and sunday night at 10 syndicated talk radio host mark levin and his thoughts on "ameritopia: the unmaking of america." booktv, every weekend on

c-span2. >> the atlantic hosted its all-day economy summit earlier this week in washington. among the panelists and speakers, former treasury secretary robert rubin who said that america needs to deal with the debt and deficit immediately, and he believes progress could be made after the november elections. this is about 90 minutes. [inaudible conversations] >> welcome to the economy stunt at the flick, thanks very much for being here -- at the atlantic. i'm going to resist asking you what that joke was you just shared with chairman volcker. >> i'll tell you what it was. i suggested did you ask us a first question, which is the better fly fishermen, paul or me? [laughter] >> and his answer? >> we each had a different answer. i said me, and he said he. [laughter] >> that somehow doesn't surprise me. look, i think this is an interesting time to be having a conversation about the economy in particular because of how much has changed at least in

terms of the perception of the landscape in the last few months. if we'd been having this conversation at the end of december, early january, it would have been darkness all around. the euro's on the verge of breakup, the eurozone is headed into recession, in the united states the economy seemed to be barely growing, possibly on the verge of another recession, you know, the fiscal picture here was, you know, all screwed up. we had enormous question marks about the extension of stimulus, tax cuts, sequesters, and the federal reserve wondering if it should do quantitative easing. what a difference two months makes. stock market hit high levels yesterday, good news on retail sales, so just to lay the landscape, i'd like to ask you, are things, have they gotten as much better as the market leads us to believe? have we gotten past the biggest obstacles and risks to the global economy? >> i think the following, and i've been around these issues for a long time, there have been

good numbers over the last few months and, clearly, a lot of analysts have raised their estimates for 2012x hopefully that -- and hopefully that turns out to be right. but my view at least would be we also face or continue to face, i should say, very large headwinds as we have strong headwinds, and we have for quite some time. the consumer is still not back where the consumer should be in terms of their strength. we have issues around housing, foreclosures, oil prices, the eurozone, possibilities -- although i'm not saying this is the case -- possibilities of issues around china, stagnant median and real wages, very large fiscal deficits which create uncertain in the business community, and the list goes on and on. so my view, at least s that while i certainly hope that's right, i think there's still enormous amount of uncertainty, and the way i think of it in my own head as i think about these things is that a consensus forecast is somewhere around 2.5% for 2012, and i think it

could turn out to be anywhere within a very wide range of that number. that is the short-term perspective that i have at least. >> in the last year and a half, the single biggest risk has been europe. i mean, in 2010 when the greek problems first blew up, that caused a soft patch in the american economy. it happened again last year. but so far it looks like one of the reasons markets are feeling better is because europe, at least by the looks of it, seems to be getting a handle on these problems. greece has consummated what may be the first restructuring of a country's debt so far without a hitch, and the european central bank seems to have saved the day with unprecedented amounts of liquidity. has that, in fact, changed? have the europeans gotten past the existential crisis that the euro.zone faces? is it more likely to be better or worse this year? >> let me respond in two parts

if i pay. my impression having been around markets for many, many decades and running trading operations for many, many decades is markets tend to look one way or the other. they either look at the positives and disregard the negatives or look at the negatives and disregard the positives. in terms of the existential crisis in europe, the eurozone in my judgment cannot continue in this form. there's going to have to be major structural reform. i think that's going to take an extended period of time to accomplish. the more immediate, pressing question is will they reach some stage of interim stability that can last them until they either do or do not get to long-term reform? what the ecb did, the european central bank did was to buy time though, i think, an enormously serious question about whether they bought as much time as most people think. i think they probably did not. but they did absolutely nothing about the long list of substantive problems they've got to resolve if they're going to

reach interim stability. and i think at least, i think it's clear, actually, that the leaders, the eurozone leaders were behind the curve in dealing with greece, and they're behind the curve right now. and they've got to get their us austerity regimes in place, but they've also got to balance that against not having too much austerity and so undermining gdp as to offset, undermine, if you will, the effects of the austerity. capital for banks and o so forth, and very, very importantly they've got to have, got to have reform in labor laws, restrictive measures that effect business because the crisis countries are, without exception, noncompetitive and, in addition, have to take whatever measures they can to promote growth. >> another interesting question -- >> so my answer is, let me give you a conclusion to that. >> yeah. >> i think that a failure of the eurozone say over the next year could have effects that are

somewhere between severe and extreme. and i think on balance despite the failure of leadership that eurozone leaders have displayed, since this crisis began i think the probability is the extreme, extremity of the consequences of failure on balance probably create more likely than not a scenario that they will ultimately -- that they will meet their challenges within this period of time. but that still leaves a lot of risk. and if they do not and they keep going right up to the edge of the abyss and pull back, when you get to the edge of an abyss with the markets and underlying conditions are uncertain, you're taking a lot of risk that those markets get out of control. so i still think while the probability is somewhat greater than not that they will reach this period, this place of interim stability, i still think there's a lot of risk. >> now, you said a moment ago you thought the ecb had bought time, and i think that's one of the big questions here. everybody knows central banks can put a lot of liquidity into

the system which has the effect of a giant band-aid, but just a band-aid. how effective do you think this has been, and how much time has it bought the europeans? >> there is a prevailing -- my impression is, and i do spend a lot of time with people who live these issueses. my impression is the ecb has bought a considerable period of time, i think it's bought a lot less than most people do. >> we're talking weeks? months? >> oh, no, no. i think they bought a year more and probably quite a bit less than a year. and the reason is twofold, greg. number one, i think there is the risk that if leaders don't act, that at some point the markets are simply going to say -- sort of the inverse of moral hazard. the markets are going to say these people aren't acting, they're not going to act, and then you could have a serious market problem. and the other possibility is that the ecb continues to bribe

liquidity, now they had two tranches, right? >> yeah. >> so they could continue to provide tranches or some variant of it. and leaders still haven't acted, but the markets could say the system is going to be flooded with euros, and at some point that could create some very serious issues. it does raise the question of how committed the ecb is to combating inflation over the long term, and that could create a market reaction of, to get rid of, in effect, all your denominated securities and that, too, could create an undermining of the markets. so i think what the ecb has done is very constructive, i think they have an excellent governor, but i do think there are real limits as to how much time can be bought, and i think the real question is will the eurozone leaders finally do what they need to do and establish this interim stability, or will they continue to kick the ball down the road? if they do, i think they have less time than a lot of people think. >> i think that when people say,

yes, the ecb has bought time, but political leaders have to create more permanent solution, you get two radical views about what that solution is. you could take the german view which is austerity, austerity and, third, austerity. and, therefore, that takes the form of, like, really turning screws down on spain and italy and saying cut your deficit now irrespective of the economic and social consequences. it takes a form of fiscal compact. every member must amend its constitution to balance its budget. they've looked at america's debt ceiling and said, yeah, we want that too. [laughter] >> they haven't looked very carefully. >> that said, that is what's going on there. there's another view that, um, austerity is the wrong thing right now. what they need is growth, and the best path to growth is to take the risk out of sovereign bond markets. spain and italy, it's not their budget debt and deficits which are not that large relative to,

for example, the united states or great britain. the problem is their bonds are being treated by junk bonds, and people do not trust them to pay the money back. so what europe really needs is some form of debt mutualization where each of the members takes responsible for each other's debts. so these are opposite types of prescriptions for the problem. what's your view on these two? >> well, i think you covered a lot of ground in that, greg. let me go back to, i think, the mutualization issue. i think mutualization is going to have -- i shouldn't say have to, but to me, almost surely has to be part of long-term reform. i think that's going to take a long time to get there -- >> but does it have to be part of the solution? >> no, i don't think it can be part of the solution. it can't be done in the time you need to reach an interim position of stability. so then you get precisely the debate you said which is some people say there has to be the massive austerity to retain the confidence of the bond market, and i think there has to be

austerity, but i think you have to find a balance. enough austerity to support or to win the confidence of the markets, but not so much as to undermine the economy to the point where you're actually losing the effect of the austerity because you've had such an adverse impact on growth. so i don't think east answer's right. -- either answer's right. the -- extreme austerity isn't right, and no austerity is right because you'll lose the confidence in the markets, so you have to find an in-between place, and i think it's that balance that each of these countries has to find. you say italy doesn't have large deficits, which is true, but they have a large debt to gdp ratio. spain didn't have large debt to gdp ratio, but they have large deficits, and both of them are uncompetitive. >> that's true. >> it is true. [laughter] >> let's move to the united states now. we talked a bit about some of the efforts the european central

bank has been making to pull the european economy back from the precipice. let's talk about the federal reserve now. this month's issue of the atlantic has ben bernanke on the cover calling him a hero. mr. volcker was just asked what he thought about that, he said it was his policy not to comment on what other fed chairmen did, however, you were not a fed chairman. [laughter] so let me ask you, how's the fed doing? >> oh, look, i think ben bernanke has done a good job. he came into an impossibly complex situation and took somewhat unprecedented actions which combined with t.a.r.p. and other activities prevented us from going over an abyss, so i think he's done a very good job. i think that's a little different, though, from the question that we now face which is from where we are today, what do you do going forward? and i think even if economy slows down -- even those who have a buoyant view of the economy are projecting growth

something like 3% of gdp which is still a slow recovery, and they're projecting unemployment 8% which is still very, very high unemployment. the consensus forecast is 2.5%, that's an even slower recovery, so cleary we have a long way to -- clearly, we have a long way to go. having said that, i think there's a lot of discussion about should there be a qe3. i think a qe3 would probably accomplish very little, virtually nothing. i was at a dinner last night with a group of really -- i'm not an economist, but i was in a group with really distinguished economists, and one of them guessed that qe2 had about a ten basis point effect, so even there the thought was it had very little effect on interest rates. the rates are already so low, but much, much more importantly whatever effect it might accomplish -- and i think it would be very limited -- i think that that effect on interest rates would have relatively little effect on business and

consumer behavior as compared to all of these other forces that are affecting what businesses and consumers do, and i'll just finish that up by saying we all remember from college economics this notion of pushing a wet noodle. monetary policy eases, but the actors in the economy -- businessmen and consumers -- don't want to act. and it's all those other factors that influence business and consumers, in my opinion, are going to determine what happens and having slightly lower interest rates, i think, will be relativelier relevant. >> and the fed, you know -- >> and there are risks. >> well, that's exactly what i wanted to ask you. the fed would say, well, why not do it even if benefit is small? >> i think the principle risk, greg, is that i think we are tremendously dependent as an economy on confidence that the fed ultimately will combat inflation as paul volcker so heroically did when he became fed chairman. and i think the risk is, is if

you keep monetizing, you go from qe2 to qe3 to whatever you do after this, i think the risk is the global markets lose confidence in your ability to combat inflation and become concerned that you are going to monetize the debt if we continue to have these kinds of fiscal deficits. and that at least creates two problems. one is in the longer -- not inflation right now, probably inflation right now is extremely low. but that is two problems, greg. one is, it feeds inflationary expectations over the long run, and number two, if we don't deal with our fiscal situation, at some unpredictable point i think we're going to have severe adverse effects and the real possibility of a severe market crisis. and if you have not only the unsound fiscal conditions we have, but you add to that a heightened fear -- because there was some fear anyway about monetization -- i think you increase the probability of that happening. though when that might happen is absolutely unpredictable whether

it's a year from now or five years from now or whatever it might be. there are risks. >> takes us neatly into the whole fiscal side. picture the second week of november, we've just had a very important presidential election, and you're called into the president-elect's office, and he says, bob, or mr. secretary or whatever the position is -- >> sir. >> sir. [laughter] >> wasn't that what president clinton used to call me, i might add? remember? >> a number of things are going to happen. payroll tax cut will expire, sequesters kick in, all of president bush's tax cuts expire, that's roughly 2% of gdp, a couple of other dogs and cats in there and, by the way, we're about to hit the debt ceiling, you know, and your former colleagues at treasury

tell us we only have four or five weeks, that takes us to january 1st, of all that neat shuffling around you guys used to do. what do we do? [laughter] >> can greg,, i think, i was adding up the numbers, if all these things happen, you've got about a 4-5% hit to, 4-5% of gdp hit, already more toward 4 or 5, and gdp, growth is already going to be -- the situation in which growth is already moderate at best, slow recovery no matter what, and i think this period, i think all of us should be watching this with enormous interest. i think this period, the postelection period which is to say the lame duck and, say, the first couple of months or thereabouts of january are periods of enormous importance to the country in terms of monetary policy, and i also think it's going to be a period of intense political strategizing and negotiation. i remember during the first the

debt ceiling problem in '95 which was really, had the potential of being a crisis, and then the government shutdown. we would go into the chief of staff's office day after day, hour after hour -- laura will remember that -- and we would try to negotiate, what are the issues, what are they going to do, what are we going to do? i think it's going to be even more intense. and in a broad sense i think there are three possible outcomes, greg. i may not have gotten to all of those, but three strike me. one is -- and i think there's a realistic chance this could happen. maybe it sounds hopeful, but i think there's a realistic chance this could happen. that the parties will decide to work together in some fashion that then produces a constructive and serious response to our fiscal challenges. now be, i don't know what odds to put on that, but i think it's at least a realistic chance especially since paul's now shown there's about an 8 --

polls now show there's an 84% disapproval rating of congress. [laughter] if enough incumbents lose, maybe a whole bunch of elected officials will recalculate and decide maybe it would be better to be more serious about governance. so i think that is a realistic possibility. another possibility is just kick the ball down the road. take the tax cuts, extend them for x period of time, whatever it is, undo the sequester in one factor or another, in which case all of our problems will remain unaddressed. certainly possible. and the third possibility, although i think this is a relatively low probability, is they do absolutely nothing, they neither kick the ball down the road, nor have a constructive response in which case all the things that you said happen, and we have a 4-5% negative impact on gdp, and you have the middle class tax cuts go up which certainly is not what the democrats want, and you have the

higher income tax cuts go up, you have a sequester which nobody wants, so i presume the probability of that happening is relatively low, but i suppose it's not inconceivable. >> does it matter who is the president? let's say it's president obama, you know? what, that does what to the probabilities of your various scenarios? >> you know -- >> and by the way, that would probably be with at least one if not both of the houses, chambers of commerce -- congress controlled by republicans. >> i, obviously, would like to see president obama, there are people with a different view. let's take your scenario, a divided government. i think a divided government might offer a higher probability of getting to a constructive solution than a government which all three are controlled, all three parts of the government are controlled by the same party. and the reason for that is this. if you have a divided government and you face the scenario that you outlined before and each

party looks at it and says we really do not want the outcomes that will happen without our acting, then they're going to be forced to work across party lines because they have a divided government by definition. if all three, the house, the senate and the presidency are in the same party, then they might decide to work across party lines, and i think there's a real chance they might because it might be that party isn't going to want to take sole responsibility for the extraordinary lift decisions they're going to have to make. ..

to adopt something that is more into one end of the spectrum. >> we have about ten minutes left. i'm going to take maybe one or two more questions, but if some folks want to go to the microphone i'm going to take the opportunity to ask a couple more questions here. seven weeks is not a lot of time to like fix a fiscal problem that has been developing for decades. tax reform -- the last time we did it as i recall took years, you know, the final process -- the result had to begin before the election. what are the odds even with the best of intentions we can get what needs to be done in seven weeks before we hit the debt ceiling to come before this kicks and, before this other stuff happens? >> i think it could be done, but you're point is well taken. you can't get a comprehensive tax reform and that period of time or entitlement reform in that time that i think when you could do, i think that first and

balls and alan simpson did a surface by setting up a free market and if you don't agree with the specifics but if you don't agree on the specifics i think they did the country a tremendous service setting up a framework that ten years was to get to the point where the debt to gdp ratio stabilize and then slide against the decline. i feel he could not do the tax reform, i agree with that. but you could, i think, greg, put together a structure of changes that would get you to a ten year program that stabilizes debt to gdp with a few simple measures, and you'd probably want to defer the implementation of that program for a couple of years to give the recovery more time to get traction and you certainly want to have robust public investment within that context, because as others can tell you, we've got to have infrastructure, we've got the

basic research, we've got to have a whole host of other programs if we are going to be dependent. and i think you could do that. if it takes a few months in 2011 to do that, in which you need is some kind of a bridging mechanism, and i think there are various legislative strategies you could put in place that will bridge you to the point we did that. the danger of the bridge of course is always that the first bridge then they can't agree then you get the point where they kick the ball down the road instead of acting. but if you could put in place a bridging mechanism that's the key that would increase the probability they would actually have to add. >> how do you prevent them from building a bridge and then kicking a can over it? [laughter] >> you are mixing metaphors but the point is nevertheless. [laughter] >> they never let me get away without one. let's start over here. please state your name and affiliation. >> my name is monica, an economic reporter of the huffington post.

you mentioned there could be a market crisis if we don't feel deal with our fiscal problem soon. u.s. treasury bond interest rates are very low right now so why do you think we have to deal with it soon? >> i'm sorry, why do i feel we have to deal with it soon did you say? >> yeah. and also do you think we should have a public investment program right now that eventually could help stimulate the economy, may be raising, and eventually help raise tax revenue? >> let me -- i think i got the question right. let me give you a short answer. fighting within the context of establishing this on system regime is an essential to have -- i said this before, to have robust public investment. we need to be competitive with an emerging market world, china, etc. and they are investing heavily to increase productivity. we have to the same thing, basic research, infrastructure and others. we have to make room with that. now, i don't think -- i think the probability of the fiscal crisis in the short term is very

low, but i can't the probability of a serious and adverse effects is the result of our fiscal situation if we don't ever set up some unpredictable times is extremely high and within that context, one of the kinds of adverse effects you could have would be a severe bond and currency market crisis, and whether that's a year off in time or five years off in time or ten years off in time is unpredictable. one thing i can tell you from sure in my entire adult life is markets can change dramatically. and almost instantaneously with no notice. and so i think it is imperative that we act, and that probably of a crisis increases as time goes on. why are rates so low right now? there's little private investment, a lot of money is flowing in from all over the place because the problems in europe and to some extent china because the concerns in china, and also there's a lot of risk aversion, so there's been the desire to have treasuries.

but not only are we not normalizing rates and return to normalize streets to make our fiscal situation more serious, but i would not take one bit of comfort from that in terms of whether the probability is that at some point the of the point may be well-off in time or near in time that we would have extreme -- we have a high likelihood of adverse affects of one kind or another and within that context a serious risk of the severe crisis. >> would you prioritize public investment or deficit-reduction? >> i don't think that is a false choice. it's a good question. i'm not critical of the question i just think it's a false choice. i would put in place, and i think that ernst did this if i remember correctly and i know president obama did. remember he gave a speech in april and then labor day and the day after labor day that he said that the economic furloughing and they did the same thing. i think that ernst did the same thing. which as i would get ourselves

back on track fiscally because i think that is imperative. but we have to significantly increase revenue and we have to have discipline about prairies and by increasing revenue and having discipline and that priority and reforming the entitlement so they are on a sound financial footing, we can -- we have to create room for the robust public investment if we are going to be competitive and deal -- you are right, if we are going to deal with what is a very serious income distribution problem in this country. the stagnant wages and increasing inequality is on healthy economically and certainly on healthy in terms of the central cohesion and i think it is imperative to address. >> we are almost all the time but i want to take the prerogative of asking the last question and i don't know whether this will be answered quickly but you came up with chairman volcker. there's an op-ed in today's "new york times" by i guess now the former executive of goldman sachs that he ran for a number of years before you entered public service, and he basically argued that the culture of his firm in wall street had changed dramatically from being a client focus and firm focus pity i

wonder if you have any sort of falls on the whole notion and more broadly we've been through period of the enormous crisis, enormous, you know, change some financial reform of all sorts and, you know, the felker role. do you think that the reforms that have been put in place are adequate and they do what is needed to have to avoid what we've been through? >> but what you basically had -- i have heard about it but i haven't read about it. i left by the late december of '92. but anyway. [laughter] know, i'm just saying i've been away from it a while so we don't have a lot of feel for it but i haven't read the article. let me comment because i think it is a good question. all of the questions are good questions. we get into a crisis that virtually nobody saw coming. there was a pale risk and was a function at least in my view function of a lot of the law opportunity the same time. the biggest institutions didn't see it and i lived my whole life, i didn't see, the regulators didn't see it, even with respect the congressional

oversight didn't see it. virtually nobody saw it and that by the way is one of the reasons it was serious because of large number of people had seen it coming, there would be more predatory reaction if you will. so, you wind up with a financial system that's far more downside and sorry, for more downside than bush and anybody anticipated. we clearly need to have serious financial reform to put in place measures that would protect us against the levels of systemic risk really virtually nobody thought we had. and i think on the whole what has been done is sound. i think the consumer protection agency was the right thing to do. not only would protect consumers and would reduce the systemic risk. the provisions on derivatives are the right thing to do. having said that i would do something different. i wrote a book that came out in 2003 for those that haven't read it it's a good book and available in paperback. [laughter] and what i said was that i thought the real solution to the real -- i thought i said there was a lot of serious problems and that the most effective

approach, and i still think this hasn't been done yet the most effective approach should be marginal requirements and capital requirements but i think was done right. the volcker rule is a complicated issue and much debated. the question back to the felker rule is what is the distinction between the proprietary trading and market-making going to be defined and i noticed the other day the regulators now defer their decision on that and it's not surprising to me because i think it is a large line to draw and it is if immense importance in terms of how markets work and what is the structure and advanced system will be. >> thanks. that's all the time we have. [applause] >> former director of the economic council, we were going to dive right in. there's been a lot of discussion today about how difficult the

last decade has been in the global markets, global economy. we don't need to be labored it but what is your dalia consists of the problems? >> well, you know, i think the guilt that we should all have frivolous hubris is in order to be at my profession started talking about how the economy had changed, how we were in a new normal, hal, you know, we conquered a variation. and all that tends to do in the long period everything is moving of these people tend to take more and more risk because the longer it goes on, the more they think things will keep going up coming and the risk still doesn't. we had a huge crash in early 2000. it had a bad economic effect. we pulled the textbooks off the shelf. they said fiscal monetary stimulus. we did it. we started up again, and while, everything worked and only build our confidence further.

that near-death experience of having survived it made us even greater. we all took more risks. and i thought it was very interesting in bob rubins observation nobody saw it coming. we all kind of bought into it. we are all in the establishment, people in this room would tend to be the center of the establishment. i tend to hang out with the center-right establishment but we are all these troubles and we blow it. we are the ones that were suppressed be keeping an eye on it and we don't. we enjoyed it. we enjoyed in the 90's, we enjoyed in 2000, and we weren't being skeptical. and my message for today is the public out there is mad at us because they told us collectively responsible. and you know, the usual line in washington is the sort of poo-poo you don't know what you're talking about. if i can leave you with a soft today is that in the establishment we need a little bit more introspection because

we did a lousy job and we'd better start focusing on the quality of jobs we do rather than say it was dever guice fault -- the other season. [applause] that is a laudable goal. what is the key to making that happen? >> the first way to solve the problem is simply talking about it is important, and i think each side has to start holding its own office holders accountable publicly and privately. you know, if you don't know my history there's a reason i'm in the private sector. [laughter] and i think we have to do it. we each have to hold our own side accountable because they are the only one still will listen. so, i can tick off the budget of sample how we've neglected the quality of policy. these are not hard.

i don't need a calculator. we can talk about them in certain sections of math will give you an example of just how bad it is. let's start with obamacare. i will pick on the left and i will pick on my side. every private sector estimate of what's going to happen on january 1st, 2014 has the cost of obamacare way higher. it's very simple. all i as the firm have a choice of buying my employer $6,000 worth of coverage myself or paying the government $2,000 to take mine employees of my hands. i could take the $4,000 savings and split it and give the employee a $2,000 raise or to my bottom line - of the rest. this is very simple. the estimates are 30% of private

sector plans will hold. it may not be the new york times but it is commonly known. okay. so we are going to lose $4,000 on each of the 40% of the workers and the work force. 140 million workers, that's 4,000 each. that's real money. that is mental math. obamacare is going to jail on january 1st, 2014 or shortly thereafter. why aren't we holding them accountable for that? for one aspect that i guess this would be more bipartisan even though the guy that i worked for pushed it, immigration reform. we are all for immigration reform. we want to test the citizenship. i'm for it. i have three kids about it from overseas. i'm very much for emigration. part of my family. i went through the nationalization process with them. from arlington where i got to go

the doors open at 8:30 you be there to become better be there at six thanks 30 or you don't get a number sufficient people to give you a head for the rest of the day. that is what is going on in the imf. we process 8,000 people a year. let's say we doubled the passage of the imf so we can do another. if we built a fence, no more illegal immigrants, just to process than 11 million who are there, no new editions, it would take 14 years. how is it that we in a bipartisan way are putting forward an immigration proposal that in 30 seconds i've described as a mathematically impossible to carry out? we should be ashamed of ourselves. we should get our math right. it's no different than estimating the cost of the war or what have you. on each and every crown, unless we start holding our own people accountable for simple basic math we are going to be digging

the hole deeper. i don't care how you solve the deficit problem, but we will not solve the deficit problem unless we start making smart decisions, getting quality out of our money and not just worrying about a few hundred billion there and here. estimate before we talk about deficits we want to talk about the ability to reach clarity on some of these issues in a presidential election year. you were an economic adviser to george w. bush during the campaign. you studied the dynamics of the campaign promises and then the actual administration follow-through on that. what is your analysis of the current climate for realistic economic policy as part of the campaign? >> welcome a right now on either side has a campaign in place that is realistic. on the republican side they are preoccupied fighting each other and are not giving the resources

where i think they should. the president has all the resources in the world plus the whole government and he's not doing it either. so, you don't for example put forward a budget that has a print for one year's economic growth of four and a half percent. today's wall law land. no president should do that, and the media, especially the sympathetic media should be calling them on it because that is who is going to pay attention to it. so i think both sides can do better than what they are doing. in 2000, and i'm not sure why it was true in that case we had an internal forecast. the forecast turn out to be closer to the mark than the one the cbo was using at the time in the economy. we had a budget, we had money we actually imposed on ourselves. i'm not saying everything was perfect the campaign, but i think that at least we gave it a good faith effort and we were ready with, we predicted a

slowdown, the slowdown was worse when we came to office than what we had thought we had a policy in place to deal with it to fit in the budget constraint. i don't think it is that hard for a campaign to do it, particularly if it is insisted that we do it. now, one way suggested that the reason we had to do it is there was a lot of skepticism about the president or them governor bush's mathematical skills. and so, maybe we were being held to a higher standard by the media and have had to sort of counter that. and i think that proves me why each side should start holding its own accountable. if the basically sympathetic media started holding this president accountable for the kind of numbers he's putting out those numbers would improve i guarantee it. and as fox news started expecting the same thing as mitt romney and rick santorum, their numbers would have improved as well. so, i really think that you

know, we in the collective solution if you will the blame is on us. we are not holding our own accountable right now. it so in a perfect world what are a few of the key issues that you would want addressed during this election year brought to the national discussion would ultimately -- voted on ultimately? >> i think the key question that we face is how to get our fiscal house in order without wrecking the economy. if you take out the a arithmetics and you, you know, assume we basically keep doing the same policy that we have been doing, we will have reached levels for the rest of the decade. we are running about 10% of gdp. maybe eight, basically that's where we are. that's the numbers.

that's not sustainable. we often say that, you know, if increase could have only printed its way out it would have been fine. well, we have the printing press already committed. i don't know if anybody has noticed, but the fed is committed to holding down long-term interest rates as well as short-term rates. they are already doing everything they can. let me put the size of the problem into perspective. last year and will sam borrowed an average cost of 2.5 percentage points. the average in the last 20 years, which was sort of, you know, after the new normal came in, low, basically low historic plea was 5.7 percentage points. that 320 basis point difference times the size of the deficit at the end of the decade amounts to

about 800 billion a year, 800 billion in the added interest cost. added interest cost, that's larger than the defense budget. that's roughly twice the current corporate tax. it's about 80% of personal income-tax receipts. so, in other words, not to shrink the deficit but just to pay the average we basically have to abolish the defense department completely, or we would have to have an 80% rise in all personal tax rates. no, doesn't work. the markets are going to call us on it long before that. because we are in a situation that economists call fiscal dominance. our monetary policy, unintentionally, has now become dominated by fiscal necessity and we are not admitting it to ourselves yet and we didn't get

there because we chose to for the right reasons and i am not criticizing german bernanke for the choices that he has made, but those are the facts. we are not going to be able to back out of our current highly expansion and become highly accommodative monetary policy until we get our fiscal house in order. and if we continue to run to reach the deficits with why don't we call it old style greek monetary policy, monetary policy we know where it ends. history has done this over and over again and it isn't pretty. >> so you're very concerned about the deficit. you think the estimate is for cut the growth and spending is not realistic and the administration and the public debate generally. how do you tackle that? is a combination of tax increases, cuts in spending? what is the responsible approach to dealing with it?

>> yes, we will need all of the above, but if i can go back to the original theme, we need quality as well as quantity, because if you simply do the tax increases and the spending cuts needed to make it close, and you continue to spend and design policy hands wastefully as we do now, you will doom of the economy. what we have to start thinking about is how to improve the quality with which we collect taxes from and how do you improve the quality with which we deliver services. that's what i think has to be on the agenda right now. we'll talk comprehensive tax reform. i think if you look at what is actually being proposed there isn't a lot being proposed in the administration even on the republican side i would give it

a best c. you can do a lot better, my side can do what the attack site, your side can do a heck of a lot better on the spending side. that's where we have to focus. and again, if we come and again i'm going to put what is collectively in the establishment, we are going to be held accountable. it is our job to get these people to do the right thing. and that's why we, especially the media guys that are out there, need to start holding these folks to the fire. >> can you go into a little more detail on the way that you approach it? >> sure to read on the personal side, i will start there. i think that bowles-simpson made a good start there, but they collected more revenue with

laurates across the board, and much more progressive tax. mao was because bowles dominated and i might want to tweak it here or there but it is doable based on the examples of the shelf. corporate tax reform come here is the simple case where both sides are talking like a like corporate tax reform. and no corporate tax reform from your eyes have already glazed over. i know. i'm going to give you two words that you should listen for, okay, because these are words we all understand the meaning of and when you hear them from a politician, you know that they are lobbying because they don't really understand it. my favorite is the word territorial. everyone is for a territorial tax system. the president is for, romney is.

what this territorial mean? it means you tax things within the territory. traceable to the plan english. no jordan. let's think about this. we have after japan the highest corporate tax burden in the world. so, if we apply a territorial standard and don't cut revenue collection we have just put on the highest corporate tax burden on things we do inside of america. not exactly a job creator. a very simple. when i hear the word territorial they don't know what they are talking about on the job creation. the right word you should hear from them, but you don't, is bordered adjustable. border adjustable means when the goods hit the water coming in, they are subject to an adjustment above levels the playing field and when the goods

go out if they are subject to a border adjustment on the tax rebate that levels the playing field. example, in a bmw the of support, the company gets a 17% the value rebate. it hits no tariff when it hits america. when we ship a cadillac to germany, it has a 17% tax imposed upon it. from germany is doing border adjustability. we are not. we are getting to ourselves the word isn't coming to mind. do you know what i'm talking about? we are doing it to ourselves. let me put it that way. got out of that one. [laughter] this is a self-inflicted wound. the chinese are doing it, too.

the politicians talk about territoriality. tax is something being done in america when we should be talking about border adjustability but we are not. very simple. i hope i didn't go too jargon just think of what those words mean and what the politicians say. >> we have a few minutes for questions. i will give you a minute to stand. there's a microphone over there and over there if you want to stand up. if you have a question. while we are getting the questions ready, you refer briefly to a activity of the said and bernanke do you place yourself in either the violin or the hero cambone bernanke in your assessment of this? >> i have had forced into the government, and for me to think that anyone is anything other than human after all of that would be crazy on my part, so basically i think he did a hero

like job under very difficult circumstances. in general and member of the central bankers union, the international brotherhood of central bankers i had a union card coming and we do not criticize our brothers. i do think though going back, kaine said as a way of justifying short-term action it was not a way of denying the long run we are all to agree dead and the more years the we drag on doing the same old thing, the closer we are to buying and that's why we'd better start paying attention to it. this isn't a long run sustainable policy. monetary policy is the way of buying time and if we don't use the time wisely we are just running up a bill without having solve our problems. >> we are going to go to

questions please state your name and affiliation. >> the example you cited in the border adjustability which i think is very clear and interesting, wouldn't we accomplish the same thing by doing what 150 other countries do and impose a value-added tax? >> absolutely. in fact, i didn't get this chance, i once testified before the senate in fact i was on a panel of four people across the political spectrum coming and we didn't compare notes before we went in, and what we told the senators was, all four of us is we should have the value added tax and the senators and proceeded to tell us do you know the senate voted 93 to 22 never even consider the value added tax and there we are. what i think we should do if you are going to follow that logic you want to tax everything into

the value-added tax, not just the corporate tax. do want the entire tax system to the border adjustable. that's how you make america competitive again and get rid of the self-inflicted wounds. so if i could revise and extend my comment my simple tax reform is income based taxation and value-added state taxation. and there are ways of making it progresses but i'm not going to go into the details of that. very simple. makes it more adjustable and competitive and what we should not do, and i see laura taking notes, so i just want to make it clear, but what we don't want to do is add another layer of taxation and another leader of accounting on top of what we already do. that will make things worse, substituting the value added tax for income based taxation will make things better.

>> questioned? right now if they would just step down and let us we would be fine. >> i am a recovering government economist and free-lance writer. you mentioned before what you say is the u.s. is of highest corporate tax rates in the world but are the corporations paying effectively only about the average tax rate compared to the other countries? >> so again, i think the way to think about it is we economists agree the decisions take place at the margin, so when you have a higher marginal rate and lower average rate you are really doing damage because you are doing the maximum disincentive of that wild reflecting enough revenue to justify it. so, yes, i think that will be an example of why we cry out for

tax reform plus the complexity is just ridiculous. >> time for one more question. let me get a microphone on. >> ibm pc with the american society of civil engineers and a number of the speaker's earlier have spoken about infrastructure investment as may be a piece of the fiscal discipline going forward. any comments, the role of the private sector and for stricter, the public sector, state, federal i haven't heard your comment on that. >> great. i am all for it. what i wanted to be done in a cost-effective way and what is interesting is that in general our actual road construction costs are much higher than elsewhere and the reason has to

do with federal contracting and here again i can see our news glazing over. what we've done is got a federal contract, symbol total contract so complex that only large firms with a dedicated person to filling out forms actually can get the contracts, dedicated first for all personnel at the department. so, you know, a new construction company where the guy hires his cousin doesn't have a chance. we have rules that compel the paying essentially as union wages. we have set aside rules where companies basically set up the corporations with the right ceo in order to qualify. we have all kinds of rules and regulations that our

environmental but are not cost-effective. i'm not for no environmental regulation. the real cost benefits. i fink if we were able to get those kind changes in place, you could do 25 or 40% more of what you want to accomplish for the same amount of money. that is the estimates that are out there of how much the ridiculous regulatory burden is driving up the cost of infrastructure spending. by all means, let's do it but let's get maximum value for the buck. >> our time is up. thank you very much. >> thank you. [applause] this is quite a creative talent that you have unfolding in front of you but i do want to commend this interview. for those of you who don't know he is one of the most eminent economic scholars in the world, and an authority on the monetary

history of the monetary economics and monetary policy and an author of a wonderful to volume federal reserve. i know you are not in the [inaudible] tell us why. >> well, i do think -- and i commend him for responding to the question at least he responded to it so i applaud him for that. now she's doing the administration's fiscal policy and that isn't a good thing for a central bank to do. so the proof of the pudding is going to be whether he is a hero is going to be whether he is able to get rid of two or $3 trillion that he's put on the

balance and shrink it back to 1 trillion. my guess is without difficulty and that has been compounded because now the european central bank is adding fuel to their inflationary five-year and the bank of japan has finally decided that it wants to inflate, too. so you know, when you see all the central banks in the world countries are running big deficits and the central banks are printing money as rapidly as they can continue know that inflation is coming and people say to me well, where do you see inflation? i see it in a lot of places, but one of the places i see it is unlike the federal reserve, i think the bubble is caused by people getting out of money. the exchange rate is declining because the fed is printing money. so just to give you a few little examples, when president nixon left the system there were 360

to 1 dollar. there's now .8. there were four and a quarter and there are now .8. we've depreciated a dollar 70% against stable currencies and we are doing more all the time these are signs of inflation. productivity has slowed, productivity growth sloan. compensation is rising that surely is a sign of things to come which aren't going to be nice. >> okay. sciu see inflation in the works. i want to come back to that in a moment. the first part of what we said when you said that the fed is doing the government's fiscal policies and how easy is it to understand what you mean by that and in what sense is the fed doing this? >> when it buys a trillion dollars worth of mortgages it is doing the government's business

to feed it has no business morning will long-term assets, central banks, the weld run central banks never do that, and the fed in its history only did it during a wartime. now it is doing it fairly well. that is government policy. you know, why? because the treasury, the administration can't go to congress and say they want to spend more. so the fed is doing the work for them and it's also doing the work which are much deplored of recapitalizing the banking system by keeping it slow, letting the banks borrow a very low interest rate and land at the somewhat higher rate and now heaven forbid saying to them now you have all this capital you can pay dividends, you can buy back shares, this is our taxpayer money we are going to pay for in inflation. it's a ridiculous policy.

>> let me pushback olden and put myself in the position of the fed official. i'm sure that listening to you they think well, you know, we would do things that made us very uncomfortable the fed is split right now on whether to pursue some of the policies or begin to reverse them. but i think they say what's the alternative? i mean, you know, wasn't a government capable of doing what you think it should have done? the fed stepped in because nobody else would. >> i heard paul volcker speaking at lunch, and i've known paul volcker since we both worked in the treasury can be lean back in 1962. we didn't always agree. but, he said something very important. for the long-term problem that's my view we need a long-term solution. we are not going to solve our

problems by printing a little more money today or having a bigger deficit tomorrow. what we need to do, and what i would want to do is say we have a long-term problem, in fact a number of them. so let's find long-term solutions. let's say how the central question is how do we get back to a long-term growth path for the american people that has low inflation? that's what we want to do, and we want to develop a systematic stabilizing policies over the long period of time. does the congress do it? no. does the administration deutsch? no. do they even think about it? no. that is the worst part. just to finish this, i use more federal reserve minutes more than any other human being ought to read. [laughter] you never see a sentence that

says if we do this today where will we be a year from now? never. the exception is she knew she couldn't and inflation in the months and he had a longer term policy. it disappeared after he left. it's all about what are we going to do this quarter and how were we going to affect next quarter? that's not the way to stability. in fact it is a way to disaster. >> i've written so many columns over the course of my career in favor of central bank independence, which i think is goes to the heart of what you're talking about here but i have to save the crisis in the correctness of that view is precisely because the central banks have to accept the political constraints that confront them. they can't push them away.

what i want to ask you is let's suppose you would be running the fed which is not such an outlandish supposition. it is a job you might have had -- let's suppose you were doing that job and you confronted the problems that confronted bernanke and 08. what would you have done? >> let's see what he did and what i would have done differently. i wanted his response to the failure of lehman brothers even though i disagreed the idea in the midst of the recession without announcing in the advance you change the policy that's been in effect for 30 years without telling people in your going to do that that is enough to scare anybody. but, he did that. then he clean up the mess and he said look these are short-term securities so they are going to run off. but they didn't. when they started to run off he brought long-term security. that's where i would have gotten off the train. when the long-term security

began to run off he bought mortgages, wouldn't have gone to that step. i would have stopped before that, and i would have said look, my policy is to get back to long-term growth with low inflation. and so i'm going to do what i can to clean up the mess but i'm going to do it in a framework that says i know where i'm headed over the next three to five years and i'm going to consistently go there. but if he had stuck to that, you know, that line we might describe it that way what do you think would have happened to the economy given the fact that congress hasn't been in the position, hasn't chosen to do its job since the lehman brothers class or at least some might argue. what would you have expected to see happen in the economy if you had taken that hard line on the monitor a propriety?

>> i would have assured people if there was a crisis i would respond to it. but i would try to strengthen their expectations just the way that paul volcker did when he was reducing inflation. that wasn't a popular action. there were demonstrations against them all over the place. but here is the lesson which i think is very interesting. in january, 1982 first of this recession if you went to las vegas we need to end inflation now and if we give in we are going to start over again and it's going to be even harder. they gave him a standing ovation. why? because she was telling them this is where i'm going. get ready for it. because in the end it's going to be better. and he was right. that is what i would try to do. get them to believe that what

you're trying to do is going to be in the long term because that is the only thing the policy can effectively do. >> i understand across the universe i think many people, most people would agree she was a hero but he did was both a brave and right. one might also argue the situation confronting the u.s. and 08 was even worse. one could argue far worse in the situation that confronted volcker, and if the fed had stuck to its guns and said we do the monetary policy with an oddly on a long-term, if congress isn't capable of mitigating the short-term crisis, tough. how bad do you think things would have become? >> volcker did this with the ronald reagan deficits. we just didn't buy government

bonds. now the fed is lobbying able of the bond issue. is that a good idea? i don't think so. and i don't think they are going to think so when it comes time to sell. the important question is not whether what is he doing today, tomorrow, next week is a good idea. the question is how is he going to unload a couple trillion dollars, trillium, it is with a t fitting it is he going to sell a trillion dollars worth of mortgages into this market-to-market with this housing? not on your life. you will hear the screams from honolulu to portland, maine. >> i want to ask you about the policy and a moment, the risk being overly consistent. let me just try one last time on how you think things might have dealt. if i understand you correctly, you are saying that the fed failed to soften the recession.

you aren't singing of the policies followed in the short term. you are saying that was the wrong goal they shouldn't have concerned themselves in the short term. how bad the short-term might have been if you had been running the said. >> let me answer that slightly differently, in a slightly different way. the fed is 100-years-old. those years have been used in which we have stable growth, relatively stable growth and low inflation. well, there was 1923 to 1928. the gold standard. then there was 1985 to 2002 when they followed something called the tayler rule, more or less followed it. not identically every meeting that pretty much followed it. the rest of the time they reached a great inflation, the great depression, a whole

variety of business cycles, and they contributed. they didn't cause they contributed to the crisis, so that should tell you that all this discussion and making policy judgments from quarter to quarter is a bad idea, and the economics profession is a solidly on the side of the rules daughter going to work better than discretion. and you know, what we have had troubles if we have followed this? no, we would not. the bubbles are people getting out of money and into the assets trying to protect themselves the fed can't do much about that. but it can do a lot about preventing that. and that is what we need them to do. we need them to provide stability, not to be ambitious. when it comes to regulation. >> okay. i am tempted to keep going, but let's move to the issue of revisiting the policy thing. we all understand your view that

it was a mistake to this extraordinary extent in the first place. but it is being done. what do you think is the likely course of action now to free verse? what would you do if you are in the position? >> i would start to address it. i would raise the interest it slightly to 1%. i would look around and see what happened. if it was too much, i might back off but i certainly wouldn't go further if it didn't create a lot of problems. i would go a little further, slowly working towards some equilibrium. let me say think about this. there's $15 trillion worth of u.s. government debt. approximately 12 trillion is held outside of the government

itself. every one person that we increase the interest rate is going to raise the cost of interest payments by $150 billion. so while we are thinking about the congress struggling to cut a little bit off the budget deficit, we are going to be adding three percentage points of interest rates adding 450 billion or $350 billion. is that good? no, it's not good. people say it doesn't matter what we don't pay it to ourselves we have it to the rest of the world. so that's going to have bigger repercussions on the balance of payment. we have worked ourselves into a terrible position. and we are like the guy that says, i'm like the guy that says stopped digging. >> one argument -- we are going

to talk about terrapin just a moment because i know you have strong views on that also, but a few compare the u.s. and where they are right now, you might conclude that there is something to be said both for a strong fiscal stimulus which the u.s. had by global standards and for aggressive monetary ease which again the u.s. has much more than year but did because the u.s. is actually seen to be emerging from the recession, does it not? you don't see those signs of recovery by any means in europe. >> i think the europeans have a mess me to get into a bigger mess. the greek bailout is surprising and extremely disappointing that when i read the financial times for the discussion, never is the word used about the cost of

production. but increased has a cost of production, unit labor cost, 30% high year than germany. so every time they make an estimate of the greek economy is going to do, it is going down. now they say by 2020, they are going to have a debt to gdp ratio of 120%. don't bet on it. their economy is collapsing. now, what are the solutions that are being given to them? they are told they practically have ever been this is what the germans print money. germany's debt is about 80% of gdp if it does with the financial times tells it to do it will soon be in a sink others have had and the idea that germany is going to fight its way out of this is nonsense. it has the highest product growth rate of any of them so the result will be the theaters will in fleet relative to

germany and that goes in the wrong direction. the german response is let then deflate. what are we talking about? for greece we are talking about a 40% deflationary. 40% deflationary. it's like the great depression in the united states. would you bet a nickel that is going to happen? the greeks are very slow to implement any reforms. if 30% reduction in wages it's just not going to happen to refer the the id is 20 to 25% and spain its 20 to 25%. nobody even talks about the cost of production but the cost of production is a solution to growth so my proposal is a very simple one which no one in europe wants to hear and i will tell you why they don't want to hear it in a moment. but on cities keep the euro, take the seven countries and have a soft euro, float it against the hard bureau that can adopt the fiscal restraint, the

soft euro will be devalued and once the value is to the new equilibrium, it is jarring the fiscal responsibility pact they come back into the heart of you. that would do what the greeks, the italians, the spanish used to. that is use of the problem by devaluing it. and that will cut wages without having to go through the massive recession which is being imposed on greece and italy and the others. now, that would require to solve the problem that the germans and the french who after all run the you don't want, and that is the have to fix their banks because the banks would be many of them under water. so they would have to come in my scheme of things have to lend the money to the banks to keep the capitol up when they do this, but that would solve most of this problem and get europe back to growth.

they don't want to do that? i have a close friend who is an adviser to the top of the german government. they don't even want to hear about it because they don't want to do what they have to do for their own banks. first of all let me say - you might find this more support for that kind of analysis in europe than you think. including i will just say a word from my former employer i think i have seen the occasional competitiveness issue within europe. i think they are aware of that problem but let me just say i know a little surprised to hear you are due to hear you say that, you know, you're a long-term solution for your up includes the year of -- euro proposing this adjustment that would be a hell of a -- have a hell of an impact on the european union. i'm not saying it is a small

thing but then you go back to the exchange rate. i think i might expected to argue that the exchange rates were a mistake in the first place. >> i'm not fond of the exchange-rate system. i take that as a constraint because everybody that speaks about this says we don't want to give up the euro, so i am trying to find a way in which i -- >> you do accept some political constraints. >> i believe -- i am perhaps on the side of saying that policy and politics have the same route and it is not an action. [laughter] >> okay. so, you think there is a way to rescue the euro with increase in the system provided they are about this one shock devaluation? >> right. that will prolong the exchange rate system. will it prolong it forever? who knows. my crystal ball doesn't look

that far ahead. >> i'm already, as we are running out of time. i feel like we are just getting started. if people go to the microphone i will turn to see if anyone has a question but to have another one if i may while people are organizing their thoughts. another interesting column you wrote the other day for "the wall street journal" took on a number of issues to the american politics right now you argue differing understood correctly are we making too much of this issue in the u.s., that it isn't a distinctively american phenomenon dealing with the inequality problem if we have an inequality problem shouldn't be the organizing principle or shouldn't be an