standing by and finally decided now that they are shooting we better go in and try to stop them. and, they did. they made some arrests, arrested the doctor, and the doctor ended up with all people, clarence darrow as his attorney representing the doctor and his family members. and i would just say to answer some of the racial issues, read the two long posts i have in that chapter, clarence darrow's closing arguments. in the first trial, the jury hung. the juror said i don't care what the facts are, a so-and-so has

been accused of shooting a white man and i will burn in hell before i declare it a black man for shooting a white man. that was a quote from one of the jurors on the hung jury. darrow went back and wanted acquittal testimony. read clarence darrow's quotes in this book and asked me that question some other time. >> okay, i want to thank you daniel brooks for hosting this. [applause] >> you have to love independent stores. >> for more information visit the author's web site, thomas peele.com. >> now john taylor former treasury undersecretary of international affairs says that a return to our founding principles of economic and political freedom is necessary to make this country successful

again. this is about 40 minutes. >> good afternoon ladies and gentlemen. i am ed fuller, president of the heritage foundation on behalf of my colleagues on the board of trustees and the staff of the heritage foundation. it's a great pleasure to welcome all of the two are lehrman auditorium today for a very special presentation on an important book. as it happens, i have used exactly that same introductory line at least twice before with this particular author, because every time john taylor writes a book, it's an important book, whether he is reflecting on lessons learned from financial reorganization post-9/11 in the middle east, or whether it's on the causes of the recent, shall

we say unpleasantness on wall street and in the u.s. economy. john is always a man of great insight and grade erudition, reminding us of how we got where we are and how we can get out of it. and that i guess is what is so special about this book. "first principles." what john does is talk about how we get back to where we should be and there is no one better equipped to do that. professor john taylor, ph.d. princeton, they voted successive number of years. i think they finally retired the trophy as the most popular undergraduate professor at stanford university. the george shultz fellow at the hoover institution, former undersecretary of the treasure, former member of the council of economic advisers, a man who knows the washington policies

seen, even as he knows the radical and practical economics. it's a very great pleasure to welcome professor john p. taylor back to the heritage foundation. john. [applause] >> thank you so much ed and thank you for your leadership that they are at its foundation and for inviting me to come here and talk about "first principles" which is something the heritage foundation has empathize so much. the underlying theme of the book as i'll describe in a minute is economic freedom and one of the problems we are struggling with in the kent is weird deviating from these principles. again the heritage foundation has been on the forefront of making sure people know what economic freedom is about with the index. let me start a little bit with the current state of the economy, because one of the reasons for writing this book is, i think we have a problem with our economy and i just want

to go over that. so we are now in a recovery from a deep recession. we are actually two and a half years into the recovery and there is news that people are talking about the things are getting a little better but the truth is this recovery has been pretty bad from the start. and the way i think about that and explain that is to compare this recovery from the most recent recovery we had from a very deep recession and that recession ended in 1982. so if you look at the 10 quarters, two and a half years following that recession, look at that recovery and can pair up with this, the differences are quite amazing. this recovery, the average growth rate has been 2.4% and that includes the most recent data in the fourth quarter of last year. in a recovery in the 80's, in the same 10 quarters, two and half years, the growth rate was

5.9 so there is no wonder that unemployment remains high. more importantly if you look at the amount of jobs created in this recovery, it really pales in comparison to that earlier recovery. a fraction of the working age population that is working now is actually lower than it was at the bottom of this recession at the beginning of this recovery. that is quite in contrast to the strong growth we had in the early 80s. so there are explanations that people put out for this. one is deleveraging. people have to adjust from the high debt levels and so they are saving more and consuming less. but that doesn't fit the facts when you compare the early 80s recovery. in fact the savings rate in the early 80s, 83, 84, 85, was almost 10% in this recovery is just three or 4% so it's not as if people are saving more now

than they did then. and you can look at other special factors. most of them don't really hold up. what i have concluded from this comparison and for many other comparisons is that the problem here is economic policy. and the economic wolesi itself is the main problem that is holding growth back and keeping jobs from being created at the rate we have seen in the past. and for me the best way to explain this is just to go back to the first principles of economics and in the founding of our country quite frankly, and to point out by historical examination of the facts and the offense and the policies, that this is the most plausible explanation for why the economy is not growing as it should be. now for "first principles" the first principles are principles of economic freedom. i describe economic freedom pretty succinct way. that is, people evan economic

freedom to buy what they want, to sell what they want and to work where they want and to hire and to help people the way they see best but they do this, and this is the american convention in my mind, they do this with a framework and it an bald cypress. one is a predictable set of policies, monetary fall policy, fiscal policy rate at tory policy etc.. viewer and just in the rule of law, number three reliance on markets and number four company, the incentives that come from reliance on markets. number five, a well-defined and limited role for government. and when you look at those principles, i think you can see that the united states from its founding has done very well. that is why so many people came to america and are still coming to america, to benefit from the opportunities that freedoms create, those economic freedoms create. but there is also where we pay

more attention to those and we adhere more to those and where we adhere less to those. what i tries to do in this book is to really go through somewhat more recent history than the whole history of the united states at the last 50 years and look at the events. i see some pretty remarkable changes. from the mid-sixties to the 70s, that would less largely appeared back where we tended to deviate from those principles. our policy was less predictable and i will explain that in a few minutes. the performance of course was not very good in the 1970s, double-digit inflation, double-digit employment and double-digit interest rates. then we move to the period starting in the late 70s early 80s quite frankly where we moved back to these principles. there was moored here and stew more predictable policies and rule of law, less intervention in the economy. that lasts lasted i think dry

period economist called the great moderation. it was the long boom with mild recessions and strong productivity growth by the mid-1990s. this period were you look at the way policy is being conducted, it's not clear when exactly did change. it wasn't just in this current administration but this administration has doubled down. we moved to a predictable policies, fiscal policy. we have stimulus packages, monetary policy come intervention is then not reliance on rule so much and so you go down these lists, bliss blessed that i have nec i think quite an amazing contrast. again if you think of the street periods, low performance in the 70s, good performance in the 80's and 90s until recently and obviously a terrible performance now. now for me, it's necessary not to just sort of save these events, principles, but also to look a little bit about how these movements happened and i

put in the chapter, who gets us in and out of these masses? what really goes on? i have spent time in policy and sometimes people with the best of intentions to follow these principles, they don't quite get it and of course sometimes there are people who don't care so much about principles. if you look at this historical period you can see that's a very briefly i think the movement towards that deviating from the principles, deviation from the principles really began in the mid-sixties and in fact in 1962, what i call the keynesians came to town and it be an economic president 62, the beautifully written report, very persuasive, arguing that we need to move to these more interventionists fiscal policies, monetary policies and wage and price guidelines for the economy. that was really advocating that we didn't need to be so concerned with these principles of economic freedom as i do find

them here. remarkably in 1962 another book was written, capitalism and freedom by milton friedman and argued the exact approach, more reliance on markets and of course going away from wage and price guidelines etc.. so you saw that contrast there but the powers that he were more on the interventionists site. there was an election and richard nixon came in. he espouse some of these principles quite frankly in the election and was it lies by people but he ended up not following the principles. he imposed the wage and price freeze and wage and price controls and economy, exactly the opposite from what we think is important and the federal reserve to be more expansionary and less disciplined and was apparently successful in that. and of course fiscal policy became and remained active so that is why i say so much is you

have to look at what actually happens. it is of course followed by president ford who tried to make some changes but ultimately stayed with the temporary tax rebate as an example and then-president carter whose philosophy was really not so much in the direction of moving back from these interventions that encourage them and so in fact we saw stimulus packages. we saw first-time homebuyers, ideas and things like that. then they switch more towards economic freedom i think amy with president reagan. hebron unless principles and of course you challenge president ford in 1976 almost principles. he brought in people like milton friedman and george shultz and many people who supported what he was trying to do and we moved away from those kinds of policies. there was no stimulus package packages anymore. it was more steady as you go permanent reduction in tax rates. paul fulcher in the federal reserve tried to move the same direction getting away from

these monetary policies. point by president carter but encourage dramatically by president reagan. i think for the most part to make the story, a long story short as possible for the most part that kind of approach continued with president bush 41, president clinton, president clinton's term we had state of the union address was big government and the a welfare reform bill which involves responsibility to the states and an enormous change in limiting the role of the federal government. more recently we switch back, i don't know where exactly to mark the states and we had our temporary rebate in 19 -- and the stimulus package in early 2008. we had a very interventionist policy by the federal reserve in this period and of course now we have had an enormous number of interventions, a large stimulus

package, first-time homebuyers, temporary extensions of the payroll tax, just exactly the things we have seen that did not work very well in the past. so based on these evidence and a little idea of how these things actually happen, by looking at individuals and looking at decisions i think it's important to do that sometimes it's difficult to do that but it's important to do that. i think you can learn about what we should do going forward. just to wrap up this idea of applying the basic trends bulls, let me just go through very quickly what we do now because the principles are one thing but what -- the way you apply them as a is a different thing. in terms of the dead which is exploding and i have some charge in the book that illustrate this. this is not a joke. obviously we need to get the deficit under control and i outline a plan that all you need to do, very simple, brings branding to the share of gdp that tour was in 2007.

shouldn't it shouldn't be that hard. that is 19.5% of gdp by the way. we could do better but i think that is a reasonable thing where we could move ahead. if you do that you can balance a budget without increasing taxes and therefore the opportunity for tax reform. just think of it that way, very simple, spending as a share of gdp that's where it was before the recession, before the crisis. on the federal reserve, it's necessary to have a more rules-based policy. i worked with paul volcker and a good portion of alan greenspan's term and more recently. the most important thing is to ask the fed to go back to a more single mandate, and the dual mandate that it should consider a wide range of rules put in at the height of all this interventionist policy. let's take it out and reform the reserve act in that way. that will have the benefit of

actually reducing unemployment in my view. then there are also the goals of restoring some reporting requirements in the federal reserve act that were removed in 2000. the federal reserve used to have to report about monetary growth rates. they don't have to report that explicitly anymore so going back to a requirement the federal reserve report a strategy for interest and congress shouldn't dictate what that strategy is. the fed should be able to describe what it is. entitlements and three very important here, think here the simple ideas just to keep, simply keep the growth of entitlements from expanding in the share of gdp. that really shouldn't be so hard for people to understand what that is about. social security programs are expected to expand the beneficiary in real terms. just to keep the growth from expanding in real terms than you deal with that entitlement program. very similar thing with respect to medicare.

how to control the growth relative to gdp. there is a plan that i think does that. paul ryan put it forth. he is getting more support for that and he uses the market. he uses the market system as is an individual choice. another idea is ideas actually president obama has put forth, also control is but does it with a centralized group of people that make the decisions at the federal level. so as you go through our current problems and apply these principles, it seems to me you do see a way out of this mess and to get the economy moving more strongly again. the world is different than it was 10, 20 come in 30 years ago so when you apply these principles the problems are different but the same idea in and the same approach will work. i think that is what this book makes very clear. based on history, based on the simple things that people should recognize based on their own experiences are based on their

knowledge of american history. they think applying these in broad outline are the way to proceed. thank you very much and i would be happy to enter any questions you might have. [applause] right up front here. >> in your review, where does the issue of debt fit in, the tremendous explosion of student loans and the housing bubble and the credit card debt and of course the company debt. apparently politicians are -- expanded more than the tax.

we know what they ought to do. how do we get them to do it and how do we deal with the debt? carter and reagan had a huge inflation to deal with and then johnson, the war on poverty but they had a much more serious recovery with all the credit. where does that fit in to your equation? the first of all getting into this mess i think was because, a a lot because of too much debt that it was encouraged by government policy. in my book i focus a lot on the period of 2004, 2005 compared to the policies that followed in the 80's and 90s and i believe that was a factor in excesses in mortgages, very low teaser rates to get people to adjusted rate mortgages. and encouraged a search for yield so to speak where people took on higher risks in more

dead and their other aspects of policy, fannie mae and freddie mac have to be up on the list. i think there were these issues but to a large extent they were encouraged by policy. you are right, there is no question that there's this great incentive for politicians to spend more than they have. that is why i think this kind of book which points outlook, some politicians went different directions and things worked better as a result of that. moreover maybe we need some constraints like these balanced budget amendments that do have to have a constraint on policymakers as a way to enforce some of these principles and get away from the day-to-day actions. but i have to say just looking and format that matter being involved in policy in a lot of this period and in talking with the people who were there like george shultz for example, there is no question that the people themselves made a huge difference and the courage that

concern about the country in a broader sense. i emphasize that a lot because i think the voters need to look at candidates from that perspective as well and find the people that are not only committed to these principles which i think make so much sense but also who have the ability and the courage to go on with them despite all the pressures that you will get when you come to washington. [inaudible] [inaudible]

>> i talk a lot about that in the book and what we want to look at is the history of the individuals and how much they have paid attention to these principles. quite frankly, one of the most remarkable stories here is -- challenge sitting president who was more moderate. after he lost that challenged he did these radio addresses where he would write down in his own hand, the importance of these principles of economic freedom but then gave examples of individuals and families and businesses and obviously committed. he also chose people to advise him, like i mentioned, george shultz, tom seoul, art laffer who were there all the time and clearly committed to these ideas. he could look at his

appointments when he became president. the appointment very much people along these lines, and so they didn't waiver. for the most part, it wasn't perfect. he also pointed to a group of outside advisers. his committee was chaired by george shultz before he came secretary say so that group enabled him to stay on course a little bit because within the administration all sorts of things happen. so that is the kind of thing you look for and you value and it keeps people on track. once you get to washington, but also having the principles at the beginning as is important as well. different people are different and different characteristics but to me that is one of the examples you can look at. you can go to others and get it direction. that would be like examples of richard nixon. a question here. >> thank you for being here,

professor. i was wondering, do you think the wage and price controls were his success from the standpoint of a process of elimination? >> yeah you do something so terrible that you can learn that you don't do it again? [laughter] >> just the general idea of tinkering. could we look to that always? >> you do learn from history if you don't forget history and the experience ways and price controls was so bad. actually if you go back and look, tim made as an economist, a lot of economists did not object to that when it was announced. it was very soon afterwards they start to say it was a terrible idea but the difficulties of deciding which kind of food would be subject and what kind of food would not be subject to the controls. it was a real mess, but i would say, and here just to bring us back to our current

circumstances a little bit, i learned by the end of the 70s and i think many economists economist learned, that these temporary fiscal actions like the temporary tax cuts, temporary stimulus packages, we saw that this didn't work. i worked in the council of economic advisers for president ford and he went ahead and did these temporary rebates but it didn't work and in fact by the last economic report of his presidency, it said it didn't work. they said don't do this again very explicitly and the carter years were more experience but then lo and behold here we are, dealing with these things again. again, many economists support these things. i didn't, but many dead and i think that is why the history so important. if we just pay a little more attention to what actually happened and don't forget, think we could go a long way to preventing these things. that is a lot easier said than

done, especially based on what has happened in the last few years. >> i see spect you are preaching to a very sympathetic audience in this building, but on the public policy argument, there are at least a couple of great challenges in the approach you have described. one of course is, maybe the government and interventions government might actually work. and another is for example, to this administration, distribution and free markets don't really distribute fairly. >> in the case of china, what i have always thought is china, 30 years ago, moved in the direction of the principles that america has a spouse. it basically moved away from central planning approach and

encouraged more economic freedom. it has a lot of questions on other kinds of freedom and for that matter there is still huge questions about the rule of law in china and that may come back to haunt them. but compared to where they were, it was a tremendous move in the right direction and the success should convince anybody that you don't want to go back and the other direction. it's also think america's leadership that do we are still there is browsing these principles because china could move in another direction or encourage other countries to move in another direction and if we are not out there with a strong economy that is shown to work as it has in the past so much, i think the world as a whole will suffer from the loss if you like of american leadership here. this is an issue not just for the united states but also i think for the world. about income distribution, there's a lot of debate about what causes income distribution

and i think here i would say education issues are to me one of the most central. we are disappointing and leading down a large segment of our population, especially in the center cities and are fighting education. education is provided by government and so what is the problem there? it seems to me we are beginning to learn going back to these principles that if you try to rely on more individual choice or more incentives that you will be able to improve this distribution of income problem and in fact so often, that causes of dispersions and wealth occur because people are too closely associated with government. that is the crony capitalism and they get what they want. so breaking that down to a less regulation it seems to me is the way to go at it. so maybe it's not so good for people and you have arguments on the other side that seems to me we do have to think about income

distribution and opportunity but the way to do it is i think from these principles and we deviated from them. things have not worked out at all. 's a thank you for being here. terry miller from the heritage foundation. could you comment a little bit, and your book you, it extensively on the influence of political leadership and the political process and making this work that we also aren't seeing much in the way of market discipline on our economy right now. we haven't had major currency movements for the u.s. dollar. we haven't had high interest rates. the market is permitting the government to continue this massive incursion of debt that we have got. it seems as if they me we have done something some things that have weekend market discipline

for our economy as well. i wondered if you could just comment on that? >> well i think we have reduced market discipline to some extent. i think the federal reserve has pumped up so much liquidity into the economy that they are reducing the role of the market. it is very evident in the money markets because they are basically holding the interest-rate essentially to zero and they have pledged to hold it there for a number of years. that is not the market working to determine that interest rate. it's actually, we need to have the market determining its interest rate, especially now being interfered at the long end of the market. i think that is a concern and people are beginning to worry about that. of course in the meantime, there are a lot of benefits that come from the financial sector, from a policy. they are largely encouraged by

the financial there. on the other hand the interest-rate and certainly other parts of the financial sector who are objecting to it. there is another issue of market discipline here that is a concern to me and that is so so-called too big to fail problem. we saw that with the bailouts beginning with bear stearns and that is not gone away. if anything it's worse as large institutions are even more, getting so big that it's hard to see how the government wouldn't bail them out again. i don't think the dodd-frank legislation did that. it basically created the role for the fdic to intervene. i don't really see the fdic being able to do that with these large firms so it will probably be a lot again if they get into trouble. that of course is unfair because they get the x'ers banishes of relying on the fact that government will come in and rescue them. in the meantime there's an enormous number of regulations

coming out of the dodd-frank bill. they are affecting the smaller institutions and they don't have the ability to fight them off as much. i would think -- think one inc. improvement and i have argued for this, we have the reform of our bankruptcy code so it would be possible for large financial institutions to go through bankruptcy process without figures of chaotic effect on the markets. we have done a lot of work on that and that was discussed in some detail in the book. there is a lot of interest in moving in that direction now so that we don't have to do the bailouts. so there are lots of examples where the markets are not providing the constraints, the incentives that they should, but almost all of them i think are due to the things the government is doing to interfere with that market operation.

the one in the back i guess. >> thank you john. thank you for being here. j.d. from the heritage foundation. the fed under chairman bernanke has rewritten the book on monetary policy and a lot of the chapters i suspect you will find will fall into the category of don't do this again. but what we have today is what appears to be expansionary monetary policy yet inflation remains subdued by the price indices and the value of the dollar and exchange rates and it seems fairly stable given what is happening in europe. so is it really not the case of monetary policy is expansionary as it seems or why else would inflation not yet take off or are we still living in a period where we are fortunate to have

low inflation that mate indicate an awful lot of trouble down the road. >> as i began my discussion the economy still very weak. basically it is putting downward pressure on a lot of goods and a lot of which is. that doesn't mean you are not in certain areas like oil. that is what usually happens in the housing bubble was not as broad-based and popped up in certain areas and they think that is part of the issue. a second explanation and a lot of the monetary expansion is simply being located at the banks, expansion of what will you call bank money and the banks are just sitting on that and again they are sitting on it because there are so many concerns about policy and what with the regulations will be and the economy is basically week. but i would add one thing to this, and that is even though the main goal of the federal reserve should be price stability and maintaining purchasing power of the currency, it can do a lot of

other things and we have seen in the past a lot of those things are bad. monetary policy, you have to prevented from doing terrible things like it did in the great depression. i think the kinds of things that led to the crisis that we have now and for that matter i think a lot of the sluggishness of the economy is actually due to the monetary policy. is itself creating uncertainty. they don't know how much affected by up on the markets. people think it's a big factor in the market. i don't see that, but we don't know for sure. so i think this whole thing about a very interventionist, unpredictable, equal e3, how long rates will be low, think that itself is negative economy. even though it may not be negative on inflation, it's negative to the economy and the federal reserve, that is the one reason why it would like to narrow its focus a little bit so it doesn't do things that are so

harmful. >> one thing i have learned that ben bernanke is a student of milton friedman's and he proposed that the great depression would not have ever happened but do you think his hand is being forced in deciding these policies or are they something actually believes? >> things are incurred sometimes and you can support or the other from people. i think the interventionist approach is what they are following so if you happen to have a more interventionist philosophy you are going to be supportive of that. if you have more of a rules-based, predictable type of roche to policy you are going to be against that. i think you're seeing support from one side and not others, largely for those reasons. i can answer about the political

side but i do write in my book and i tried to be a substantive about it is possible, the extent to which the interventionist philosophy on the chairman side is a major factor here. i trace that back to many many years ago and the interactions with the chairman myself but also reactions that people like milton friedman had and some of the things that chairman bernanke wrote. there are explicit discussions in there about what milton friedman was saying, so i think and of course the federal reserve works in a situation where the chairman has extraordinary power. the ceo of the organization and it works by consensus voting. you have many people objecting so the thing you do have to think through is the role of the chairman as an individual here when you're assessing these things and i try to address that as best i could keep into the facts as much as possible in my book.

>> thank you. [applause] >> thanks very much john and in conclusion again, it is a good read. it's good policy and good economics and we are grateful to you for sharing your insights with us today. ladies and gentlemen, we are adjourned. professor taylor has agreed to sign copies of his book if you would like to buy one. thank you. [applause] >> by thank barnes and nobles for hosting this so we can get together and talk about issues that i think are very important. there seems to be some confusion and the united states.

a lot of people don't realize that america has failed. they think it's still going on. just as i entered here, some guy said to me i didn't know america failed. i also wanted to just locate this particular talk in terms of the stuff i've been writing. this is, why america failed is the third trilogy. the first one was american culture published in the year 2000 the second was called dark ages of america and this came out about a month ago, why america failed. there was however a collection of essays that i published i've published about a year ago that came between book two in book three. half the essays are about the

united states and take kind of want to encourage you to have a look at that book. is called a question of doubters and the reason it is important is there is material that is not in any of the other books but that deals with the kind of unconscious programming that americans have that leads them to do the things that they do, whether it's a person on the street or the president. and that sort of completes the picture so i just want to encourage you to have a look at that. the title of this talk tonight is the way we live today. despite pressure to conform and the united states and to celebrate the united states is the best in the world, the nation has critics. the last two decades have seen numerous works criticizing the u.s. foreign policy, u.s. domestic policy and particularly economic policy. the american educational system, the court system, the military, the media, corporate life and so

on. most of this is a student i have learned much from reading the studies the two things in particular are lacking in my opinion and i have a very hard time making it into the public eye partly because americans are not trying to think in a holistic or synthetics fashion and partly because the analysis i have in mind is to close to the bone and it's too difficult for merrick and to hear it. somebody would say, i didn't know that. the first thing is an integration of the various factors that i'd done have done the country and. these studies tend to be institution specific, and so the institution under examination existed in a kind of vacuum and could really be understood in parts of other institutions. the second thing i find lacking is the relationship to the culture at large where the values and behaviors that

americans manifest on a day-to-day basis. as a result these are superficial. they don't go to the root of the problem and this avoidance enables them to be optimistic, which have had places them in the american mainstream. the authors often concludes the study with practical recommendations as how particular institutional functions they have identify can be rectified. they are as a result mott not much of a threat. is usually mechanical analysis with a mechanical solution. they are related to all the other problems and are finally rid of in the nature of american culture itself, in its dna so to speak. the prognosis would not he so bad and it would become clear that there simply is no way out. turning around is not really an option at this point. to take just two examples, michael moore and noam chomsky. i admire them greatly.

they have done a lot to raise awareness in the united states, to show that foreign domestic policy as currently pursued are dead ends or worse, yet both of these men assume that the problems coming from the top, from the pentagon and the corporations. which is partly true of course. the problem is that this rests on a theory of false consciousness. that is the belief that these institutions have pulled the wool over the eyes of the average american citizen to is ultimately rational and well-intentioned. i would say to them, get out and talk to some people and find out how accurate that is. sober than the solution is one of education. pull the wool away from the eyes and the citizenry will spontaneously awaken and commit itself to some sort of populist or democratic social vision. is that happening now with occupy wall street? that's an important question and i think we should talk about it