primary, there is an opportunity to talk about the faults of the media. it is a constant drumbeat about what stupid thing did newt gingrich or rick santorum say today? who is up, who is down, and substance is being ignored in a constant turning of the horse race and the drumbeat that turns off of what of voters. i don't think the voters in the center, polls have shown

they think this is also in s and calling for the advantage. they will focus and october and what the republicans fight it out to get a nominee. fed as an independent voters will start to pay attention. >> host: looking further into the future and be realistic but optimistic and 10 years time, i do you think the system could be in better shape than it is now? >> guest: i hope so. i really hope all of those people who are fed up up, independent voters and others who say yes, someone gets it.

they hear what i am concerned about and get active. we face such an serious problems that we have to reform the system and make changes so we can address them. i hope the voters will read this book and get of salt and impress the officials. >> host: a the swing vote to. linda killian thank you for your time. >> guest: thank you for having me. obobobobobob

>> [applause]

did he evening. i am director of metropolitan museum end i like to welcome our distinguished guests this evening. for the important discussion. an art museum a seem like the unlikely form for a conversation like this but we are an institution that deeply connected to history's economic forces. throughout history artistic production linked to prosperity and society develops so did the output to with a collection largely reflective of that dynamic. from vampires dating as early as the ninth century bc created on the wealth of

the roman empire the gold thread found in ancient tapestries to the portraits that has the humanists ideals of 15th century italy. indeed the galleries chart to the rise and fall of civilization throughout history. the exchange the artistic objects is a crucial component in the development of the trade route around the world. the development of critical ports nine the abundant exchange of ideas and resources by the beginning of the first century a.d. merchants and diplomats and travelers could with some difficulty clot negative cross the ancient world from the mediterranean to china and japan in the east.

such trade routes with the communication highways allowing the flow of believes languages and social customs and artistic styles. just visit our asian gallery to see how the sculptures from pakistan or northern india have been influenced by the style popularized by the romans. would get the conditions of this museum's founding you'll find you will find a link to the economic circumstances of post civil war new york. the idea of private $0.7 to found this art to museum built from railroads and industry lolling it to happen. no egyptian excavations out the likes of jpmorgan and

certainly the collections here without one businessman who made locomotives in paterson new jersey until 1902 gave the metropolitan $5 million equivalent of hundreds of millions in today's terms. when the match was founded 1878 did not own a single work of art its growth during the 19th and 20th century is a reflection of america and new york economic prosperity over the period. today the mehta is the largest museum in the world with an annual event -- annual gross operating budget of $300 million of the highest attendance of any museum in the united states. under 5.8 million last year with an audience 40%

international. the largest acquisition program of many western museum spending $4,050,000,000 annually many time coming in the form of guest. we maintain the largest exhibition program in the world. about 30 per year and the largest publication program and we will produce 22 scholarly art history books this year alone. not funded by the government but private philanthropy benefiting for the long standing americans with critical tax incentives introduced 1917. today nearly 90% of the annual operating budget is privately funded and the past 17 years of $1 billion has been raised from private sources to support our

capital project and endowment. looking to the future we have quite a vested interest in a continuing prosperity of the american economy. i hope i will hear good news from our panel less. let me end by suggesting the met was uniquely positioned to a gauge in a global dialogue outlined the program. of large part of what the mehta offers our international audience is to envisioned the future within the context of history. tonight's program is integrated with that part of the mission i and delighted to have the editor of the new york review of books robert silver.

so now i turn it over to you. thank you. [applause] >> thank you. also to the members of cement staff economic and mention a more congenial place for this for road than the metropolitan museum. symposium on world economic problems brought only to not only by the new york review of books and the met but also our friends at the foundation in oslo that often collaborates with review and supporting them meetings such as this one. also torture soros to donated copies of his just published book you saw on the table outside. finally and to be a major

organizer. and remind you books by other panelist will be available following tonight's the bench. we raised several issues and thought of the continuing problems of zero. and greece has three speak and the question how the hero is a common courtesy without the european treasury or at stronger constitution. we also thought of the shaky situation of the indicted states and how the problems of high unemployment and stagnant and come is affected by our situation here as well as the crisis

in the eurozone. third, we raise the question as an engine with global economic growth in recent years. what if the u.s. remains weak? and for it to be integrated could these are remarkable with the commentators we have paul krugman, whose work we read in "the new york times" who has been a skeptical commentator of the direction of european austerity and american and

fiscal policy. he has won the nobel prize and a professor princeton and also the crisis of 2008. we have professor at columbia, edmund phelps winning also the nobel prize 2006 for his work on the relation between short run and long run the facts on economic policy. author of the book rewording workout to restore participation and so support to free enterprise. geoffrey sax is a director of the earth institute at columbia and it deals with such problems as climate and environmental degradation and poverty, a dixie's, a sustainable use of resources.

he hasn't biased many governments and author of the book the price of civilization. also george soros has written nine books and the political economy of the indebted states and the working domestic and global financial markets. i already mentioned his new book he is chairman of the open society institute and the soros management fund and has given away over a billion dollars to a vance human-rights to public health and education. [applause] now to all the very distinguished purchase of

fans we made it clear we are leaving it to them to arrive at their own answers to the questions and the emphasis they applied to give to the questions. each will speak between 12 and 15 minutes. i have a yellow card and a will waive s each speaker approaches to minutes. then we will have talk among ourselves for about 15 minutes then questions from the audience. now our first speaker. [applause] >> thanks. talk about greece walking a

tight rope by guess i see them walking the plank. [laughter] will they falloff? [laughter] and on those topics mentioned, climate change trumps everything else. if we don't do anything about that nothing else matters so therefore i will not talk about a battle. we are suffering it is a tired cliche but it is the worst recession since the great depression and not much less bad for a number of countries but not as bad because we had a great terrible depression in that it is plenty bad and in a number of other countries it is as bad. and is a terrible economic crisis. nowhere close to being over.

almost as heartening to see people reacting to last month's whom poin report to say that is solved and will take a reasonable estimate to 52 months is says good negative january we could be full employment by 2019. buried deep in the poll. of course, europe is not even that. a very bad situation. the most important thing to say is a although it is uniquely bad, it is not unprecedented or mysterious. might a imago version of a crisis that it was said

we're experiencing a garden brady of the financial crisis but what we're going through it is not mysterious obviously there are many details that people did not foresee to its full extent but not unheard of unprecedented event. there was a very good book i disagree with some things that talk about a wonderful title this time is different meant to be sarcastic because very related is it different. we face of standard slump that the basic problem that people are not spending enough. we haq of workers needed not the a deal mix of skills but we don't have enough spending. the reasons behind better

clear. we have a big joke private sector debt private borrowing with the house aimed loopholes then debt bubbles but because of deregulation and it was a long time the economic crisis as they breed caution for the next crisis. this may be a psycho we need to go through. but no inherits reasons why the adjustment or hang over past to be as bad as this. the job of the government when something like this happens is monetary expansion because no good is

done by allowing 13 million workers to be unemployed. it does not help anybody to produce one troy and dollars less than it should to have vast numbers of workers to do those things sitting idle. is to be through government spending and aggressive policy to minimize the economic damage as we work our way through the consequences pass the judgment. we have been doing that to automatically. the biggest reason is to have a much larger government. when the economy collapses the medicare bills keep

being paid and the checks keep going out but effective policy woefully under powered stimulus which has now faded out. austerity programs and a number of countries and at this that were forced on them. in some ways exacerbated the findings. why are we doing this? for me is we spent years of economic thinking. a basic understanding not too bad. when push comes to shove many just chalk the textbooks ride out the window. how they flash and cut spending to increase the

incompetents. the literature is leading in confidence. and obviously we have political constraints but it has been very disheartening. soleil thing i think i can do is keep plugging to turn it around. europeans have a special problem they have set the and situational structure that makes things a lot worse. they do not have a single government that can redistribute to resources to the most hard-hit region. comparison between nevada and ireland that look almost exactly like.

terrible housing bust but to in nevada and other retirement programs come from washington. there is a lot of automatic buffering that ireland it does not have. is not good but they don't have the same problems. europeans are in a terrible mess but without a willful disregard what happens if something goes wrong and they are not prepared? the only way to make this work is to do the kind of things we should do in the u.s. but more so to be even more aggressive than those

should do it which is germany and a few others. i will say since the ecb shifted more of what needs to be done has been done and i have been impressed by his subtlety to say the ecb will not deal with sovereign debt but we will lend unlimited amounts to the bank as collateral. say one thing and do the opposite. i don't think i should talk about china. actually i want to come back to the broader issue. here is somebody who wants to be wives and renamed to

work on the fundamentals. it cannot expect a quick recovery is extremely foolish and i leave but the reality is we always have problems right now we have a problem short run $30,000 car with the bad battery. fix the dam battery per barrel replace it. we have more less awful economy we to do that again. we could if only we have the political will. every argument people make right now how we can about do that people make the same version of the same argument tile even if there is a big

demand we could not get back to full employment. when the united states began spending before pearl harbor vellis 7% increase in unemployment. of those arguments were disproved before the japanese planes dropped to their bombs. from a we have the political will. it is the job of people like us who. [applause] >> now we have professor edmund phelps. >> our country is suffering

from two basic intellectual failures. first half has not learned how to combat structurally many economists to not know how to recognize one. policy makers are fixated on tax rates if they ought to be raised austerity, or or. fellow level of discourse is the indictment from the department. from the renewal and reform on the economy and has failed so far to obtain a consensus on the good life a.k.a. the american train and economic justice.

this is an indictment of universities mired in sheikh post modern relativism never caught behind any one of the good life on the first failure the public discourse polluted by those on the rate this say the economy is fine again if we would stop violating. and put up new violations. to finance justify else -- justifies subsidies and future commitments. those on the left see the economy into productive or indestructible apple orchard. it has to be regulated more

tightly to address the inequality which means ever more help for the middle-class with medicine, housing, a college tuition and everything else that the middle-class is entitled. i know our or debase our was keen to talk about greece. inspired by his interests i am starting with these myself. people think greece as a moral parable it is a warning to the rest of the west but it has flaws are mistakes and it is far too crude to blame the crisis on the over large welfare state

are on pandering after the votes of public employees. germany, holland, sweden avello was the unemployment rates in europe despite huge welfare programs and civil servants. fairs saved by their horror of under taxation. there is no such horror among i agree piss-off left greece allow the public debt and its outlays to soar in relation to tax revenue. the moral to be drawn is spend what you like but pay your bills on time. a press report tells us ordinary citizens of greece did not know of the now scandalous under reporting of the under taxation.

the report say that the crisis results from the unpreparedness of the country to determine how the cost ought to be share and benefits adjusted. tax increase or rollback of civil service pay. everybody is that loggerhead. the moral of the story is do not keep the truth from the public. we need openness transparency. nothing to do with the welfare state or pay for civil servants. both lead us to believe a country that indulges in deficit spending and unfunded entitlements come

as those other claims on future tax revenue, it would be fine again. was sick cats it under control even if it suffers a sharp recession resulting from the increases of tax rates are cutbacks that have to take place that is open to a fall and fast recovery. a hollywood happy ending. hi entitlement countries such as italy and france will be okay. this is precisely the economic thinking from

ronald reagan to george bush to barack obama. when employment sags, cut taxes and let the deficit flow we will grow out of the debt. but what of productivity growth stops as it did in italy and the 1990's and also france? i forgot to look at. the problem is increased wealth that is created by the deficits on top of the bofa already existed the traditional taxes levied to service the debt to do not reduce the bloated wealth and reduce wages so you get

both net wages the the rise of the denominator. that is bad. that is all i have to say about unemployment. it is important to focus on. italy and france have a big problem. they amass loopholes a private wealth fatter huge relative to rages. now the budgetary deficits of times past that they did not have to pay that would offset the wages and benefits paid out by the state's all of those have added a lot of paper wealth to the true private wealth of the italians and the french. as measured by what they

could consume. as a result the supply of labor force purchase of asian rates remain depressed for years as national's work off their wealth and for productivity growth pulling up wages. the question in america is if we face when it lanfranc's face over the future. the bright side is over the past 10 years, americans debt wealth slowdown in tandem with a slowing of productivity and wages. that net wealth of households as a ratio to

their disposable income stood at the same 515% in 2010 from 2000 to. not a dime's worth of change. not like italy with the explosion of wealth and france. we should now be enjoying the 2003 and employ a great here and now 2,012th of life the unemployment rate that we actually have. we knew lot of other things have intervened. that is where the analysis goes at the moment but then comes bad news. we have to reckon with

people's entitlements. not only their private wealth but their social wealth. created by a stroke of the 10 by the government. the calculations made by one financial economist finds american entitlements net of social security funding adds up at $66 trillion at the end of 2010. fed is the president discounted value of all entitlements. that is more than 500% of disposable income. now have five 1/5 team trillion dollars of private wealth on top of that

$66 trillion of entitlement wall. i'm sorry 515%. the fed is around 12 billion vend 60. private wealth is 60's trillion and now with the several strokes of several pens the government creates $60 million of social wealth. is common knowledge in entitlement spending has been exploding and that 500% of social welfare as a percent of disposable and come mustache shown huge increase compared to the level back and 2002. so both considerations to 9.two getting back to the employment rate of 2,002.

it is much worse than that. weirdness slump of regulation that one dozen years or so. budgetary deficits will add another $1 trillion to the wealth. very briefly i have ideas what i would do. i would aim to rehabilitate and reform the economy. the institutions and economic culture to the generation of innovation. it is the elixir of economic life. the conception of crude keynesian is some by pushing the right buttons rican dial the employment level that we want to handouts to increase

consumer demand construction projects to employee strong back labor is discredited by cross-section studies of what explains high employment and low employment among nations. what this would require a first on a broad front to encourage more entreprenuership and finance in startup companies to encourage those two imagining and exploring. to the extent they succeeded it would lift job satisfaction and employee engagement and raise employment days of when a. we want dynamism with economic justice and economic inclusion.

that does not mean a social inclusion but throwing people into the economy preferably into the business sector where new ideas for new products are conceived and pulling up wages and the lower echelon end and must be a government program of subsidies, companies or employment of low-wage workers. in my book that robert soldiers kindly mentioned, i estimated the cost of a planned big enough to make a big difference was close of 2% of good gdp. he likes to use that in his way but this is a terribly important way to use it.

this mission as many of you know, is a fusion of the best part of hijack and john walls. high-tech understood and made more and more clear that a modern economy is an organic saying is capable of the imagination and creativity. not the mechanical thing of crude keynesian is some. i argue to be a part of the system for most people is the only way by which they can expect to have the good life. exploration and discovery. the use of their mind and

emotions. but then to understand the economic justice involves not just transfer payments to people but permit them to consume more or to work less hard to not work at all that is not at all what he meant by economic justice. that involves modifying the distribution of the rewards in the society's economy to favor the advantage as much as possible. interestingly in his last decade hijack aligned himself with this perspective. i am hoping whiff time the country will become persuaded this is the way to go the only way to get back to an economy with the

excitement and the sense of challenge oppress away once new until a couple of decades ago. [applause] >> thank you very much. let me add another thought to the discussion. we do not have a global economic crisis. not even close. we have a mess in the united states, agrees, a crisis in spain, greece, and some of the other countries of southern europe, ireland. but even with europe there is no crisis in germany.

unemployment is at very low levels though crisis in denmark, finland, sweden, no rway, northern europe is doing rather well. budget deficits, rather high employment and high prosperity. by e*trade imbalance imbalance -- balance our surplus. looking beyond western europe then it is even less of a case of a global crisis. and asia, developing asia india, a china, southeast asia, a kaman growth rates are act of unprecedented levels by historical comparison. china has been growing at a

rate of 10% per year for more than three decades. doubling every seven years. even 36 years china's economic growth is around 8 percent per year. india is a bit less but other countries are run 6% or higher. the world economic growth is around four or 4.5% which means so whole world economy doubles roughly every 18 to 20 years which is astounding for a world of 7 billion people and the average income of $10,000. $70 quadrillion doubling every generation or less. i have attended the g20

meeting says part of the delegation of the secretary general. it is an odd feeling. most of good teetwenty what global crisis are you talking about? >> they eurozone? the u.s.? that is different. it is not a global economic crisis. we need to gain some perspective wise this budget to but to these developing countries call the emerging markets achieving robust economic progress by leapfrogging technologies and high savings rates and

making a tremendous amount of economic progress to narrow the gaps with the richer countries. china was one 2% of it income when the borders were thrown open to globalization. it is now 11% compared to the u.s. 18 percent down from 24% one generation ago. and plausible extrapolation say the two countries will meet at to 16% each of the probe the economy. as a refill with geopolitics but this is had a profound effect on the u.s. and part of the west. it is true. we don't have a general

economic crisis in the united states. and a great depression anything close. for college grads wow! valhi at -- labor market is soft compared to three year four years ago the unemployment rate for those with a bachelor's degree or higher is 4%. it is up little bit. the income levels of people are most of us fortunate to have thought of a good education with good support and has been very strong for the last 20 years. under the dynamics of globalization it is the bottom half of our society has experienced a remarkable collapse the neighborhood factory is no longer there.

this no longer exist in this country. what used to be the pathway to the middle class, high-school diploma and a job at the local firm disappeared also a divergence of a remarkably successful top of the income distribution of the fabled 1% and all of may have a couple of elements to that. first applicable economic environment has a crisis with it to derive a from china surge in may the most

reduction of poverty in world history with greenhouse gas emissions of climate change in juicy fax therefore environmental catastrophe within china itself was part of this. worldwide deepening and profound crisis recognized everywhere except that editorial-page of the "wall street journal". [laughter] [applause] if it gives getting worse. also continuing upheaval not only because of globalization has shifted worldwide jobs and competition that is unprecedented, to the detriment of lower skilled workers those that can

invest all over the world but our role this under unprecedented flocks of the astounding revelation of information technology changing the nature of jobs everywhere. is a ultimate disruptive technology of our time leading to the policy implications we need activist government to to help go through the challenges. because government is critical infrastructure infrastructure, skills, educ ation, support for the upstream technologies of change in the future and of course, vital to help those

who otherwise cannot get a foothold. that is a remarkable 50% of our society living in low-income households. ready to face the question so the children and can get through school and get a college education. only one-third of our kids get a bachelor's degree only 11% have a bachelor's degree this is social and a quality. government needs to help but is not right now. and those that tax themselves adequately so the public good can be provided. to get education and other higher education if they need it.

it appears structure could be modernized. to get to out of that end their deep and profound challenges. the fundamental problem of my opinion since reagan came to office 1981 declared the fateful words that government is not the solution to our problems, a government is the problem we have been on a 30-year jag of dismantling the very means to address the challenges that we face as a society. [applause] i will close with one piece of fortunate reality. literally the bottom line.

'02 omb did to the of that is where you find the budget. then click on summary tables. i say because 51 to find out the old and a trend we're on but since we do not tax ourselves squeezing government to the breaking point*. even obama who gives wonderful speeches about the need to invest in the future does not match those fantastic speeches with the funding to actually do that. what is most important is the non security discretionary budget of the u.s..

with infrastructure, energy come as science and technology epa, small-business administration, of federally and management, everything except the military and transfer payments. national income in 1970's then came reagan who took it down. for that combined a vital function of government. 30 years reaganomics has rule. 3% with small variations. i don't have time for the details but where are we now? with debt service payments and that aging population

and with relentless tax cutting the the president bush's and the president's budget will fall from 3.1% of national and come down at one point 8% in the year 2020. rear dismantling the very means to address the needs of our society. thank you. [applause] >> and now george soros. >> i am not in disagreement with your conclusions but i would like to take issue with your premise that is

the wages have a good discussion. [laughter] i am in the global crisis of the global financial system is not functioning the way it is supposed to. said is practically paralyzed by the degree of uncertainty. and to understand into just are not that the deep end. to understand and control nature is much greater than the ability to understand

and to govern itself. that disparity is growing and that is actually at the core. >> i am sure with that this bereday between the natural and social sciences with the scientific statements? to serve as independent criteria the validity could be touched but to produce such amazing results.

by contrast, the subject matter of social sciences and then from then natural scientist i don't have an independent criteria by which a of their views. facing those suspicions and and then eight other men of uncertainty is absent for the natural sciences and interferes with the ability of the social sciences to

produce compatible results. . . and that certainly today is absolutely dominating our lives. this has far-reaching consequences, because economics

became so influential. the interpretation of the financial markets led to the progressive dismantling of regulations and firewalls. this caused one financial crisis after another, and the widespread use of mismanagement methods and financial instruments like cbo's and cbs which were based on unrealistic assumptions. it greatly aggravated the impact of these -- the bankruptcy lehman brothers in october of 2008 started a meltdown that prevented only by the putting markets on artificial life support and they are not yet back to normal.

now, there is one regulation that the official markets have failed. there have been many other in natural science when a prevailing paradigm was discarded, but none have had such profound practical consequences on our daily lives. even in the present case, there is very little understanding how deep-seated the failure is. in my view, economic theory must be like a natural science and

come to terms with the uncertainty of the subject matter. that will require a fundamental rethinking of the methods and criteria that compo late as a science. i have done some of the rethinking. i have developed a conception framework based on the 10 concepts the fallibility but i have very little company, even among my fellow speakers who are actually closer to my view then most other economists. so we should have plenty to talk about. [applause] well i think we do have 20 to talk about because there is,

there seems, even know if we accept that economics does have some actual systematic vases, there does seem to be a disagreement about the kinds and depths and excess of government action that seem appropriate in the current situation. and therefore, everyone has mentioned the lack of some kind of stimulus. everyone has mentioned the lack of some kind of government investment. everyone has mentioned the need for some kind of intervention, but the different kinds of intervention, because more closely we listen, seem quite distinguishable so i would like to ask what more specifically do

you think is lacking in the way of intervention? >> okay, so i may keynesian and i agree with jeff very much on establishing the long run stuff but we also have an immediate unemployment, large number of workers who are employed and the government should be playing a large role in pumping up the -- right now. i have been saying -- i'm going to haul them off and punch them in the schnoz. it is not. i may state them pretty, there are people who have very well thought out economic models and

this happens to be the golden age for macroeconomic research and there is wonderful work being done and it's coming, a lot of new work that basically says if only the government were -- we would be in much better shape than it sounds very wise. it's not very wise to say there are no short resolutions. that is totally wrong and we have an overwhelmingly short run problem right now that could be solved in two years if only we had the political will. unfortunately, both of those are sorely lacking. i want to make a couple of points and i want to say something about greece. it's common knowledge that we have had an explosion of entitlements in recent years. i guess i don't share that common knowledge.

my knowledge is there is an explosion of unemployment benefits, substantial growth of food stamps and considerable growth in medicaid in recent years and those are not policy decisions. that is not the expansion of the safety net. it's just that they're more people falling into the net. this expansion you've seen in the last few years is entirely the consequence, not the result of government suddenly deciding they're going to throwing a lot more benefits. i think that is an important point to make. jeff says that is the bottom half that is hurting. not according to my read. i have been doing some work on this and what is happening to recent college graduates. yes of course college graduates will be better off than someone who is not a college graduate but it's terrible. to catastrophic fall of the unemployment rates. not to much unemployment that

the unemployed have dropped sharply in wages have dropped sharply probably not because the wages for college graduates, that you employ a college graduate for have fallen but rather large numbers of college graduates are working as burris does and so forth because they can't find jobs. we have a fair body of research where someone graduates into this bad job labor market and does not initially get the job he or she should be given -- getting given the training. how long does it take to recover from that? young people graduating from college right now will be scarred. their careers will be scarred for the rest of their life so this is a broad crisis within united states. there is no substantial occupational or educational group that has not been duly hard-hit. it's not the case that it's only the bottom half of the population. within europe, yeah it is true that germany is floating along pretty well although i'm not sure we will have that same

story next year. some countries are floating but germany is floating along well because it is getting an enormous trade surplus which is the flipside of a large trade deficit. what the germans tell you is basically they say why can't everybody be like us? we should all run gigantic trade surpluses. nafta asked me where we are going to find a planet to ask court -- export to. we don't have a single government which is a tragedy but as you look at the european economy as a whole is doing a lot worse than the united states. none of us have said much about greece and that is a good thing because i have been protesting for quite a while about the -- of our discourse here. everybody talks about greece and gives greece has a great example of what is going wrong. greece's pretty much in a class by itself. portugal a little bit but even

within the crisis countries in europe none of the others have a crisis where governments responsibility was a large share of the crisis. look at spain nec it was a monstrous private sector. the spanish government was running as budget surplus with low debt. guess they have a large debt which is an inheritance of irresponsible policies but quite a while ago. they were steadily reducing the debt-to-gdp until the crisis had so greece is a parable. unfortunately because of this underlying weakness in the european situation if greece blows up which is extremely likely it will probably hit -- but does do not think of greece is being a role model. >> well i still think, i know that --

i think there is still a search of specific kinds of intervention because -- >> can i say one thing? jeff talks about cutbacks but you want to look at something right now, over the past four years we had a roughly 3% decline in government employment which is mostly -- and of course given population growth we should have had something like a 4% increase instead. provide money to the local government so they can rehire all those people that they laid off. [applause] >> i'm not sure that is what he had in mind. >> we welcome this opportunity to chat with paul. he is pretty elusive. i've not run into him for about two years. at that time we have the same diagram for the black ward but it hasn't been the same since.

well i agree with everything paul said about greece. i was thinking of a similar point, that reese is totally and representative what is going on in italy, france and america, sorry to say. and i don't want to draw on the obsessively -- drone on the obsessively about the d word, no, this d word. but let me say, if we were having a textbook keynesian slump, we would have seen maybe not out right deflation, falling price level but we would have at least been a heck of a lot of disinflation, a big declines in the rate of inflation. we haven't seen that and we can probably argue the details all

night but i think broadly speaking it is fair to say it that we have not had anything like the marks disinflation that we would have had if our problems were in essence coming to us through monetary mechanisms and so-called effective or aggregate demand. second, paul refers to a diametric work which i haven't seen which shows the importance of government expenditures for employment. i can't help but have this feeling that there is a bit of trading here on the obvious. sure, it's the government, it's somewhere if somewhere in the public sector somebody fires, somebody gets fired, the world is full of fiction in that person goes into the unemployment pool. he doesn't instantaneously get

employed by the economy as a whole thanks to some miraculous auctioneer who somehow has been able to figure out who should go where. so of course there are short run effects when there is a contraction of government expenditures, but lots of us in the economic position have models, not every day, not exclusively but lots of us do have models that don't have many of them. and do you know what? if government expenditures drop, there is an increase of unemployment, so this doesn't establish the validity of the whole keynesian apparatus just to say that there are some effects of shocks to government expenditures on unemployment.

and, i guess i have made both points that i wanted to make here, so i will stop. >> now we know that george has been listening. we have heard about this 50% and now paul has added to that 50% a decline in not only among the people who would have normally had -- but to higher levels of the economy and it seems to me that there is something that you might want to respond to. >> sure. i think that the gist of what i am suggesting is that we have a lot of investment to do whether

it is in skills or technology but that the idea that we can find solutions to these instantaneously, paul mocks this all, i think is wrong. we have what we are not doing in this country is thinking beyond a one-year or two-year time horizon. what passes for stimulus now is tax cuts, a one-year payroll tax cut or extending the bush era tax cuts or half have of the original stimulus was tax cuts and nothing in the governments actions for the last three years, sadly, has been for the longer-term and so what we have ended up with over this period is an explosion of debt but very little to show for it over the long-term and that is why we see

the prospects in future years of actual shrinkage in the core areas where we need to take better action. we are ending up with less government, not more. we are ending up with our tax base being further decimated. we are ending up without the of the structure and the president himself acknowledge to, so it turned out there were no shovel-ready projects after all, and there weren't. because in modern society of the 21st century, we cannot build a national infrastructure on shovels. it's impossible. we need plans. we need decade-long investments. we need to take and -- think in the medium term. we need expenditure which is viable but instead we get year-to-year improvisation that

passes for some kind of stimulus, and the implications of this for us, if it does any good, is unclear, but even in the short-term it is not doing any problem-solving for the long-term. what shocks me and worries me about our country right now is our inability to think longer-term. our political system is relentless. there is no day that isn't a campaign, no matter plan. there is no decision that we have even come down to two month policymaking. extending the tax cuts for two months or for six months. it is completely absurd, and we face problems of the new energy system here. we have antiquated infrastructure that is more than 50 years old. any of us traveling abroad in the so-called developing

countries see the claiming of the structure and then comes back to jfk or elsewhere and we know what we are really facing in this country right now. we are not doing anything, anything ladies and gentlemen, to solve this. there is no budding revenues, there is no longer term plans. the so-called job at his one year's budget, fiscal 2013. that is a jobs plan? that is no jobs plan. that is an election-year platform. >> and we need something more. how are we going to graduate 40 or 50% of our kids with a bachelors degree? houri going to get the skills matched when the manufacturing sector is saying that they can't even fill six or 700,000 jobs of skilled craftsmen, technically trained workers and they are applying for h-1b visas to try

to hire foreign workers to fill these positions, because our kids are not getting through school and they are not getting the training that they need. they are going in in fairly large numbers in the first year of college and then dropping out in very large numbers because they can't get tuition. the point that i'm emphasizing is we need to take longer-term. we believe in activist government, all of us but you do have to pay for it and that means understanding we have to pay taxes and we have to have the revenues in order to be able to carry out the longer-term investments we need. we are not going to solve the problems except that we have an adequate time horizon to think them through and put a real public investment strategy into these areas. >> a final thought, i want to just agree with george and not say that i don't disagree with

you on a broken financial system and it is points you emphasize, you have taught us improved it also, about the inherent nature of financial instability. a lot of those -- it is all the reason to try to get our financial sector back under regulation because the biggest damage we did was the repeal of glass-steagall. [applause] and how was is it that the author of that seems possibly to be named an ex-bank president? you tell me that is american accountability. larry summers. i don't get it. [laughter] but this is how weird this country is. every day there is criminality on wall street, new fines, new

evidence of the misbehavior that all this deregulation made possible and encouraged in fact and there's just no accountability whatsoever. [applause] >> alright, i am very much looking forward to george having a comment about the different ranges of government, government need for a stimulus, need for regulation. i wonder what your own view is that government growth? >> all of us agreed on the need for an activist government but i think we represent at this point a minority in the country, because i think the idea that government can't do anything

right, that the government is wasteful, that everything is the fault of government, has gained the upper hand. it has been extremely well promoted. it is the manipulators who have done it. it is not only money. there is also love of talent and communication. [laughter] which seems to be lacking on the other side. [laughter] but, it has been very effective and it's a kind of a -- to the prophecy because if you have the government proving they can do everything right, then clarity

believes to approve it so this is what we are up against. and while you are right, saying that we have to take a longer view and unfortunately a four-year election cycle does lead to shorter thinking and also the quarterly reporting of corporations lead to short-term thinking in the private sector. but it's not just short-term and long-term. there is a more fundamental division now and something has gone quite significantly wrong in the political system when you have two parties more interested in defeating the other than in following politics that will benefit their country. [applause]

and right now i think you have a republican or conservative, conservative message, which is more interested in cutting government spending then maintaining the economy. because by insisting on balancing the budget and avoiding any new taxes, including new taxes, the elimination of tax loopholes. that is considered new taxes. then there is only one way to go and that is to cut services, and

of course that is a fiscal constraint on the economy. >> i think we have arrived at a rather difficult point because we have, we have come down to the political core of the economic analysis as our experts would make it and i think we have time for questions from the audience about those matters. one person who is here and who is a contributor to the new york review and particularly -- i would like to call on to ask the first question and that is just. after he has stated that question we can have other questions from the audience but i want to make two cautionary

notes. please keep any questions brief. please avoid explanatory statements and please make sure that everything is put in the form of a clear question because if it's not, we will pass on to someone who does have a question. now i hope jeff is here and i hope you will ask a question. >> up to that expectation, maybe i should sit down. in any case thank you up and thank you for an excellent presentation and one that was entirely -- i think i speak for almost everyone in this audience and my own enthusiasm for public investment to the extent i read about it and i'd been writing about it for a long time. the issue is, how do we get from where we are today, which i do think is a precarious position, to public investment down the road? i would like to bring this into the year now and ask you this

question. can the u.s. government survive what is going to be, can the u.s. economy survive what is that there is going to be a modest economic stimulus and can it survive a crisis in europe? we haven't talked about that. will this lead to a serious recession in europe and what will be the consequences for the u.s. economy because if we slide into another recession, we are not going to get to the public investment that jeffrey sachs was talk about so i throw that out to the panel. what are the odds of recession and crisis in europe having serious fallout for the u.s.? >> i think that is a good question and i think there may be some response. he is talking about the possibility of another recession. >> so, i guess i'm up verse. a probability the probability of that european recession, the question of how --

[inaudible] >> can i say something? >> if it does turn into a full-blown international crisis, the actual direct trade linkages, we'll talk about global, we only export 2.5% of our gdp to europe so in terms of the actual impact to the exports comest not all that big. if it turns into a lehman -- all bets are off but i think there are a lot of reasons to be very concerned about europe among other things because europe is, the european project which is democracy and peace, has to succeed or the world is a much worse place but i am a lot less scared about their economic impacts them a lot of people are which probably seems --

>> i am making the point that when there is some weakening somewhere in the world, that has a bright side as well as the dark side for the rest of the world, and that is, that comes from the fact that the weakness in some part of the world lowers the world's interest rates and that is good for the stock markets. businesses appetites for investments over. i remember i was in hong kong one-day talking in an academic way about this interest rate channel from one country to another and the news came on, the news came and in that there were some weakening of the u.s. economy in a quarterly report. the hong kong stock market took

off. stock phrases jumped way up, so the public doesn't understand the linkages between say europe and america are very complex. we can't be all that sure how things will come out. >> very quickly, i think what paul mentioned is worth underscoring, that when mario druggie came into the european central bank and varied deftly increased liquidity, change the perspective from what was unmitigated disaster and a self-fulfilling crisis over the cliff to what is today a very painful period for reese but not a catastrophe even ford the other countries of southern europe. so i think the european situation, while still very

unpredictable, largely because germany -- german economic policy is so bad that we can't predict that germany will guide anything properly in the end. it's just ideologically driven, manifestly not looking into reality right now, but mario druggie has the most important job by far in europe and that is the european central bank and he is doing what is necessary there to stop the self-fulfilling collapse and it's changed dramatically, the scene over the last few weeks and that is why the move is brighter. and that is why spain and italy suddenly can sell and this is a reason for optimism. >> the u.s. economy is

spontaneous it's basically in manufacturing interestingly and the shale gas, now shale oil, which is much much cheaper in the united states than elsewher0 per cubic foot in america and -- dollars in japan. i won't go into the problems of pollution. everything i have found so far, even though it could be

contained by reservation so it is an exceptional move for error -- america and also asians have made it competitive so exports. now i think that there will be a fiscal drag on the recovery. i mentioned the attempts to try to put the brakes on the recovery and that will affect this year's performance i think. as far as europe is concerned, mario draghi is relieved with the credit crunch which was

really beginning to hurt the european economy, so that is a very important relief. now there is still problems, but the downward pressure is relieved and interestingly, you have a counter positive influence on the global economy from china, because china is in a period of transition, thinking over later this year and they are determined to voice social unrest during this period.

the interesting thing is, actually china is facing a needs to -- its growth model. i cannot maintain the current rate because it is all based on exports and infrastructure investment. there is only one third of the economy so even if you move over to stimulating, stimulating by the other two-thirds has to diminish. it will be a slowdown in the growth rate but that will come next year. this year, i think the stimulus,

the tiny stimulus will have declined so the out book is mixed. >> i want to tank our -- thank our panelists for the short answers. we have another question we had one from that site so i think we should have won from the side. >> thank you. i worked for two years in a hedge fund with larry summers. i left to work in the risk management. >> can you speak louder? >> i worked at a hedge fund with larry summers during the credit crisis. i left to do risk management and it did credit default swap modeling in 2,092,011 and i finally left, discuss it disgusted with the whole thing. i have heard this come up tangentially in everything you guys have said that one of the things i cannot help but think about the credit crisis and a financial crisis, what is

different about it from the previous, the great depression is the complexity of the system itself and you know for example i think we mentioned last eagle was revoked but actually it was revoked when it was essentially already moot because of the shadow banking system had gone around the rules. we have the bulk were ruled that is coming, new regulations, the volcker rule has been essentially written by the lobbyists and the reason it was written by lobbies is because politicians and the fec did not extend the financial system. >> you are making an exposition that we haven't heard a question. >> the question is, how are we going to deal with the complexity if we give money and it just goes to the people who are fixing the system, how is it going to have? i like to understand how we are going to deal with making it a simpler system?

[laughter] >> that was inspired by paul volcker to some extent an even earlier by the narrow banking and then recent times -- has taken up the case and the day's position is yeah too much complexity so it got simplified. we have got to simplify the commercial banks and they do one thing, they take the retail deposits from households and invest them in the routine familiar assets. and then you have some hedge funds. they do said more dangerous things and they are all so simple, so you get a kind of division of function. you don't have behemoth to do 17 different things before breakfast. so at least to get greater

clarity, greater transparency on what is going on and it should be much easier to regulate such a system that you have got to restructure. you can't just take the existing structure and say okay we are going to regulate now. >> have a quick take here. dodd-frank is not a stupid bill. and basically giving financial stability oversight council a lot of ability to crack down on what might be a name for an institution so that is something that strategically is an important execution. which i think is, and my initial reaction was it's probably not going to work but it's having a higher chilling effects and people are afraid they might get so classified.

the thing that worries me the most about it is it relies on the quality and honesty and integrity of the compositions of this might work under current management. when president santorum appoints ron paul as chairman. [laughter] [applause] >> i think you have constrained the special interest. that complex city will be greatly reduced. [applause] unfortunately, unfortunately, citizens united and all the other, we are going in the opposite direction so bad government has become a self-fulfilling prophecy.

[applause] >> very quickly, think there are four things that i would also mention in addition to the simplification. one is corporate boards that have legal responsibility and that are held accountable. [applause] second, leverage we know is the ultimate elixir of this explosive risk. third, it was known at the end of the 1990s why regulation was needed in the jury produce market. larry find it very hard but it was not a mystery. and forth, now that we have seen relentless lawbreaking on wall street, relentless fraud during this financial crisis, there has been no accountability whatsoever. [applause]

so this isn't just risk-taking. this is absolute financial fraud by every marquee firm, knowingly gaming the system and we have one fine after another but it's being paid by the shareholders and the ceos are remaining in place. there is no criminal investigation, though president obama finally said maybe, but not so evident yet, so i think it's not dionne does. we have been through this kind of financial crisis before and twice our country was rescued by the roosevelt from the gilded age and from the great depression. >> i wouldn't go that far

because there is peculiar 80 peculiarly and there always has been on wall street, but it's not endemic and it is not peculiarity that is causing the problems. 's. >> in punitive. >> it's easy to look for scapegoats if we can find some but it doesn't explain the pervasiveness of the flaws. it's systemic. individual misbehavior. >> i think it's important to notable that goldman, citigroup, bank of america, others teamed

up, teamed up with hedge funds, knowing, toxic assets to their own clients, knowing that they were designed to fail and that now they are paying fines on them of several hundred million dollars each but these were decisions taken by senior bankers, many of whom are still in place, still receiving, still receiving their bonuses and compensation was some ceos remaining and this is financial fraud as far as i'm concerned and as far as the sec is concerned. [applause] >> i don't want to defend wall street because -- but i think the emphasis is on individual wrongdoing is the wrong answer.

it's systemic and even though you have those excesses, the ceos that were designed to fail, the fact that you have ceos and they were used the way they were, that should not have been allowed whether regulators. the regulators have failed by failing the regulators. >> course i agree but there are several lines of defense against the sand when we arrive at a situation with his tiny little outfit, aig financial products is writing unbelievable sums of cbs's and credit default swaps with no backing whatsoever, helping to bring the whole financial system to a crash at the end, and then larry summers

says we are a country of laws. we have to pay them their bonuses still. how are we ever going to get it under control if there isn't accountability ultimately? >> i think george would agree on accountability really, but i think we can ask one more question and i think it should come from the side. >> thank you first of all for taking the question. steams -- seems the concern over spending -- >> louder please. >> it seems the concern over lack of stimulus for spending is -- by the panels tonight but there is emphasis about the efficiency of the u.s. government spending is also reasonable. are there any policy changes that the panels would recommend that might enhance the confidence of citizens and government spending and political will around that kind of spending?

thank you burkas be what is your question? >> can we change policies to make people mark friendly toward government spending? >> alright, i would say that a lot of it has to do with trying to get across. politicians and so much time trashing government and people don't have an idea of what the government does. 44% of social security recipients say they do not benefit from any government program. 40% of medicare recipients. [laughter] we talk about government workers, they are talking about financial office is doing nothing.

in fact we have seen 500,000 government workers, 500,000 person reduction in the government workforce and 300,000 of them are schoolteachers so a lot of it is not that we have a government that is bad that we have people who trash it and of course there are bad decisions made in government. does anybody read dilbert? of course we want it but the problem is not with the government. it's the way we have portray government. [applause] >> so i think because our time is short and we want the audience to have a chance to ask a question -- >> thanks. i've been listening and i heard professor sachs say a big reason

for lack of economic growth in the long term is because we don't have to have improvement and paul mentioned in an earlier piece that the rate should go to the clinton level but even higher. i guess my question has to do with how you explain the would explain the success of countries like hong kong. they have a maximum tax rate of 15 to 20%. no taxes on capital gains or investment and free trade and stable regulatory environment so don't to attribute any of the success of those two states which have a higher per capita gdp income than even the united states and 50 or 60 years ago were -- to rate is for a policies that are fair and low tax rates generally? >> you are saying, why don't we have the flat tires is the kind of thing you are getting it?

>> my question is don't you think that there is any incentive to lower tax rates, free trade and federal regulatory environment because it seems like the general consensus of this panel is saying that we need more regulation, higher taxes and an even higher rate than was the case in the '90s and that is the main reason for lack of long-term economic growth or even short-term recovery from the financial crisis. >> i think this is a good question. [applause] on which to and because it represents a very shall i say current form of thinking that is implicated in our current political situation. >> would be worth having comment on it but, singapore is not the innovative kind of economy that the british economy was over

much of the 19th century and the american economy was from the 1830s right up through most of the 1960s. singapore is swimming in the stream with a lot of big players and doing heavy lifting for a long time. you can't possibly say that the trouble with the united states is not that it's not like singapore. it just doesn't make sense. it won't compute. of course, in some sort of stationary state where there is no, there are no projects left to do, we have perfect knowledge and we are all kind of brain-dead from lack of use, then we could have very low tax rates but we are in a very changing world, lots of

challenges and lots of opportunities for innovation, that's for sure. with all those minds now working in a commercial business sectors around the world, sure we are going to have an immense amount of new ideas and new products coming up. so we are going to want to have an economy in america that is able to play the game and is able to take advantage of this new climate for innovation. but right now we don't have the financial sector that is serving innovation. we don't have an education system that is providing young people with any kind of mathematics are languages that might be necessary on many of on guard firms. we don't even have a rhetoric anymore of discovery in challenge and change and

exploration. now they talk about the american dream as if it was having a house. preferably one you own. wide isn't it that the american dream is beyond me. used to be that the american dream was to do something you would be proud of, and to have the involvement and the challenge. that is what we have to get back to. we don't want to be more like singapore. [applause] >> i want to say, do you have something to say? >> i just want to say that speaking from a small faraway country of which we know nothing and saying that as well.

so many of us know so little. the social security that all of a sudden the retirement system. this is no way to make the argument. the question i want to ask is, how is the united states going to pay for the things it wants to do? if you are willing to say we are going to abolish social security and medicare and medicaid, then we can have lower taxes, fine but no one is running elections on that case. romney on the budget says president obama's failing to take on the problem of entitlement and the first president to -- medicare. we are talking about taxes, paying for what it is that we want. [applause] >> i want to link both of those

questions and also follow up on that.. the government together with the private sector in complex ways played a crucial role in the age of computers. of course the internet started as a dfar -- department of defense products, in genomics, and space signs, and many of the absolute crucial world changers that were crucial for our economy as well as for our well-being. none of this happened overnight. all of it required some foresight and some extended national effort. president kennedy in 1961 did not say we will put a man on the moon and bring him safely back to earth by the next election. [laughter] he gave nasa a full decade to do it. he said at the end of this decade. when was the last time we had

taken on a national project in recent years that extends beyond the stimulus, beyond the next year, beyond one year at a time? we are not doing it anymore so if we want effective government, we have to think ahead. we have to actually put out timelines. we have to actually put out numbers that extend over several years. we actually have to have, and it's one of the most hated words in the american political and economic lexicon. we actually have to have a plan once in a while for what we want to do, not a central planned economy but a plan for what our energy system might look like and what our rail and road network might look like and so forth. [applause] i can tell you, they don't do it anywhere in government right now. they are scared to death to write down any planning at all,

because they don't want to be held hostage to it, because of the lobbying, because of the publicity, whatever it is. there are no plans being made on any crucial objectives for our country right now and that is why the government isn't able to function adequately and that is why we are going around in circles, ladies and gentlemen. [applause] >> i want to say we have reached an gone beyond 8:00 and i think we have had -- i want to thank you our [applause] [applause] i think we have had a useful, very useful discussion of what we