calinchvent overwhelmed the support for a free market. it's a little under an hour. [inaudible conversions] >> i wto thank you all v, ch foig. amande, the editor of the manhattan institute's city journal. it's a great pleasure to introduce luigi zgales, one of our valued and met me -t aos cin nttids, who's here to speak about his brand new book, "capitalism for the people: recapturing the lost geus of american prosperity. ' now, when luigi first arriv in this country to study ons in e 1, ntasllbr er d; i at what brings you success is hard work, not luck, not who you know

which was too often the case in his native italy as it is in many other democratic countries. he recognized, has been an extraordinary engine of prosperi, making even our poor rich by global standards. yet as luigi warns in his ou n fiia csrtant nbook of massive taxpayer bailouts of failed banks, of political insiders profiting from their connections to an ever-expanding federal leviathan, of a renewed faith in government planners, of a sugglgidd cs,th nirisps profound risk. there are disturbing signs, he believes, that the u.s. economy is transforming into a berlusconi-style cro capitalist system. a development that wve fll emi ve

dan bleaker, more corrupt futu. now, how we got into this mess and how via a more competitive free market we can escape it, ig aesin bk a llk t tonight. luigi received a ph.d. in economics from mit and joined the faculty of the universi of chicago's boot school of business in 1992 where he's now the robert c. mccormack professor of erepreneurshi d fince. wena nal acocopics including in our pages ranging from financial regulations to the economic effects of culture. his earlier co-authored book s called "safing capitalisfrom the cal," tme ntto noo, a wdatht "the dawn of american capitalism." in 2003 luigi received the

bernekksa prize for financial innddiorf iamanntly t come italia and a member of the american academy of arts and science. he also serves on the committee on capital markets regulation, and he has a long list of other appointments. now, capitalism for t pe lrergne scon eon tyler cowan recently said on his very influential blog marginal revolutions, if i had to pick out one book to explain what is going on right now to a popular audience of noneconomists,s mighwellit uln ri i a -r t provides a lucid call to action for rediscovering what makes america exceptional. ross stow vat echoed the point in a recent new york times column urging the romney mp tread i thhoenag yo utge apyyo

haven't already. but in the meantime, let me welcome the manimself, luigi zingales. [applause] thaouyuia d k yo to come. and thank you to the manhattan institute and the city journal who not only sort of help me in the process, but motivate also writing this book. is not s oyr a ad wavloer gsdo rite sort of a, attempt to write a more popular book. and i think that the incentives are not there, but i think is the right thing to do. and let me explain sort of why i wrote is bk anwhy t vbl aman as brian was saying, sort of i was born in a country that invented the term "nepotism." [laughter] basically, lived by it.

literally sort of emgenc ro ofirpoca aia. and where it's much more important who you know than what you know. and so coming to this country was, first of all, a big liberation, but also made me moreware ofoky t trs whre ndnst it possible to have a system, a free market system, which has some wid political support. because one of the chacteristics which is, i ink, unique of tni ats igo ad, free market system is really supported by a vast majority of the american people. this is not true in europe, it's not true in aa, it's not true in latin america. apeoofptainrstanding of this, it level. what drives this support for

free market system? because there is a tension between free markets and democrac decracyeh ttoe drionan f rk deliver unequal outcomes because it's unnecessary to provide the proper incentives. so why people should support adding an outcome, and the answer is because, number one, soic t tkes sortind ery ers engine of growth, and brian was talking about. number two is because of this growth they get sort of a decent enough share so that even the poor are reached by ternational standards. and ththirone beus fand se, it's a bit of a vicious circle tat what do you think is fair depends a bit on your view, and if your view is sort of the market

competion is fair, you vew isyste f. yoedli the le are set and they're not weak against you to believe in the system. and to my concern, all this elemts that really made amera great a madehi kd of calculus different from the ones prevailing in the rest of the world are weakening. and i think that my only comparative advantage is that i can see these things more clearly because i've seen them before. and whatre the eles rit eysmo to some extent, after world war ii in america we or you depending on the point ofview had et easy. why? because erica ended world war vind peitp oty terms of institutions. and if you were an american firm

and you wanted to iest, there was not really a safe place to invest. the va majority of the wod unlenbyicr,it mmm taking over country after country, and even western europe was not a secure place to do business. so as a result of that, business america were investing in amankesetting a rent we say in economic term, was getting some extra benefits because of this cost factor. the institutions of america were sort of unique to america,nd ofxaen o then was getting at now, america led by example. the rest of the world has pretty much copied what america did. and as aesult, these initutions are not soniqu

d eman wer a etwihet e rlndsak m difficult. so part of what we observe in terms of income inequality is really this competition that has taken place wodwideand why the p ofheso of ediohete ss is probably the best in the world. that's not true through other distribution. so that really creates a tension and a feeling of people being left behind. but this willtf b desehe lack of a sense fairness that i think was prevailing in the united states before. there was a sense that you can trust your government ac i ies es and that th were an thha h disappeared. i remember as an italian arre anything boston the first time there was a tornado watch and

there was a city ordnance that everybody had to stay at home and tape their windows, my reaction was, firsof all, i must bherr heor ucap aur] second, i do exactly the opposite because what i've learned in italy is if you say, do the opposite of what the government says, you're always fine. [laughter] and so i was shocked to see that l elosaner ow thorees very closely. why? because there was a diffuse trust that the government was acting somehow in the interest of the people. i think we have lost that trust. fiia but age whether they thought that secretary paulson was acting in the interest of the country or in the interest of goldman sachs. and 50% of the people, 50% of tht i endents saidth

ref ma sachs. and whether this was true or not iser relent because in politics perception is as important and sometimes more important than reality. and when people feel this other interest that is driving policy that the country not run anything the interest, that the rules are not the same for everybody, they tend to revolt against the system. ale reltwe have s rtont c from the tea party t actually occupy wall street are an expression of this sort of feeling. and historically this isorf edaoubionf hin middle class, increasing equality, sense of unfairness. it is really a perfect

combination, a perfect storm to have a massive form ofopulm ma sm. tr d prm h institutions are in that situation, they are trying to protect themself by distributing favorite privileges here and there. and this creates tsyst me do cup aato or nt for the system. so it's basically a vicious circle from which it's very diffult to exit. that's the reason why i brought this book, and i try sothing a bitor ry. i n'ry neistu sense of revolt against the system. you can see they're unfair. in the direction not of destroying the market, but restoring a betterket, a moreor o l,e

inelat wl lead to sort of a more effective form of capitalism. and the aim of the book is really to say how can we do it. you kn, the typical reaction wheneeu n ua, pt to say let's do massive redistribution. and massive redistribution doesn't work, and, you know, in europe they have stistics about incomeinequality that are much better than the united states bause the rst opov onao or to the united states. and they don't appear in the statistics. that's the reason why the statistics are better. [laughter] we don't want that here as well, ecis have looked at soccer teams, and they've shown that in sweden the soccer teams are terrible. why? because all the best players go to spain.

and spain might be bankrupt, but they treat their soccer plars 20arl trarent and surprise, surprise, they have the best soccer players in the world. [laughter] so that's not a solution. but, so what is the solution? i think i focus on threeain themes. e fionis w al a of sectors that today are protected either by government regulation or by subsidies. including the sector in which i operate which is education. if you look at thetists, e ontmens ely fngi is because their wages don't grow fast enough to cover the cost of health care and the cost of education. and those are two sectors that are heavily regulated and heavilyubze doseecth c health care because is embedded

in our sort of paycheck, or it's taken away from the paycheck before you even see the paycheck. so we don' eercien bee oarthll oatoi and this is a very distorted decision that should be changed if w want to contain costs which is the primary thing we want to do. ..

th nruec t to y -- you always make engh money to pay this back. why they say you should not worry about it? because making up for the difference. cof tortta.my dau and this has really pushed the cost of education much higher and prevented innovation. in most secrs innovation starts at e bottom, not of the anarwhnir ov ihe mkeland need to find new ways to operate and we need more of that innovation in education. on toet t wtheme that i -- focus mioly.

either to regulate or to subsidize an industry or sector. imt. indtry a that sector is thlilcomy is the father of the people the benefit a lot and the rest of us to pay. so it is an unfair game, and the subsidy of the particular so hhations always when fiof, deregulation must be simple. class stiegel was 23 pages and the dodd-frank act i 2,400 s tans 6 ses d egatn 0's really difficult for anybody to actually keep up with that except if. [indiscernible] and that is not a way to run a a rtrtedet of lobbyists.

some might claim is, number one, we want regulation that is simple enough that even a congressman can understand it. and the second point is, we know om enost p o ew,as t same. if you want to subsidize something then you t the substitute. so, if you want to subsidize because you think their is a lue the home ownership tax igionessm. w easy it is for me to go to congress and say, i want a tax to make the american dream more likely. not very good. why? because the pol ecomics t tted interest and benefit. so it would be against introduction of annualize taxes

which on the one hand is good cause we are going to have less government intervention. therot here, if you explain to people they might be convinced that a tax is a good thing. let me make an example. why not a tax on lobbying? we know that lobbying is exssive. weno tobinhasec m pusible activity in this country, and i don't say just legal activity at it. elective the because i don't sotiub togives you the sae. giio that will impose a tax. text title, beside defrauding investors, berda and notay any taxes. soli sat osinenot t

subject this kind of corporation average corporate taxation. so we know that because now he's hed n aail and written a book. special job. so for the price of 150,000 a month the 8-team started to work. thwo on two fronts. on the one h creating fakeasrooi t ait itele in t other hand dealing money to the campaign fund of the republican senator. in less than a few months, maybe fehe m othey we ae toay $4 million.

$4 million. there is no activity that has onolution t redeturns. theer sio to. i don't think we should go through a complicated legal arguments. simply a nice taxation will do the trick. the third point, which is really bringing sort close to home, inarcular business school should think seriously about that. why we learn from that self-intert probably sort of th bcooret we never learn that greed is good. thinking about hearing something like that. le. heasor

in the end is destroying the consensus for the free-market system. and so while individuals, businessmen may have a different interestr agenda inind nechatge t ea o t s of free-market. so they should have, and their interest got to teach the students not only skills, but also some social norms of behavior. fill,o it in class. also, when you celebrate alumni you'd celebrate alui that made them money and decent way. it went in business and his claim to fame is to have imported the modern marketing techniques to gambling.

he bically targeted people who eicd toam mievue now, this is clearly illegal behavior. but i don't consider a good behavior. destroy the image of capitalist makeor tnef catalis stng year. in the business school we should not endorse someone like that should not be a great : discussion not be something that we bring as an example. skltheee we teach sort of a ch basic social norm, not normal mom. not a deeply religious person. so i have no qualifications to wh ger nmsork well andut i d have made the market work in

what norm's don't. and i think it is incumbent upon us to push for thoseorms wh use rnhe massive regulation. as a libertarian i prefer to have social norms that are naturally born from the law and can only b enforced with t consensus of tajority of pie eglatit eslm thatike in congress and is lobbied upon. the social norm does not go through any committee in congress. must be approved by the majority of the people in order to be viab. i think that we, the moral dimension crucial to preserve it

ununys o whi this country. and i think we should act before still late. [applause] some time for some questions. all feel them. if you could wait for the microphone to alive and introduces up really. please keep the questions anou vy t [inaudible question] >> you mentioned to the lobbying tax.

>> tax on lobbying. i was curious if there were any ecific policy proposals to do something like that and if so how much sto thehave giv tact a by ntia j cmu between individuals. it seems really scared over seven that. i was curious. >> you know, that is a very good question. bisetle pic ok is more book of idea. rich and to try to change sort of a conversation. i would work at all the details. when we talk about lobin er a vtanf of che a rm freedom of speech and even me writing this book is a form of lobbying for free market. i think that is one level. ths ey t.d.ict

when you have an activity which is not after some activity styi when need to find a way to address it. the simplest way to address it is with the tax. precisely because the nature got imss to regulatl then there is an intellectual dilemma. had you get a congress which is addied to lobbyin to impos a therel tbyin public pressure can achieve all lot on that targeted an simple objective.

my example, insider trading by members of congres las how much they're doing. of -- pulp passed both the house and the senate. this clearly was limitg th por cones. ey fthed r pub. my goal is the start asking the question that leads to change the system. >> right down here. ou dcu the ill effects that come from lobbying on behalf of corporate institution and other narrow and dress. the most costly policies tt haecuprtik

ax d, medicare, the employer tax solution, these particular programs are policies cost the government trillions of dollars a ar is it really tru that we cahe fth deacubc, seems quite the opposite. >> and n saying 's always the case. i thinke need to try to channel the debate in the wayen. the onlyensible is to have none. the charitable one. the moment you open the floodgate is impossi. o t o l dse o sannof it. i think that if we make it clear to the american people that that

is sort of the goal, i think ou have support behind it. ouay oh, we xcon xhe erybwiavn exception. not only that the mall but you will have a gigantic amount of lobbying. really, really vulnerable. that is why sul elina ts. y rllththal vuable, do it with a tax. i agree with you. th most dangerous lobbying india, the lobbying items aiso ownership? nobody is -- and so if you can cover of your naked interests with a grand ia like thatou come iesti has a wy to avoid by

saying if you want to do economic policy you are to convince me that the taxes did. that is a much harder to pass. >> she just told us that lobbying is the highest profit margin business that there is. they're only goi to pass along that tax in tsslohere t. et it gups, anti-smoking groups. lobbying takes on many, many, many, many different shapes. why is ttax poly wch sost ner wd, i'd be interested in the examples where tax has inhabited or undermined a fundamental policy that you

beeve we should be derng ou bppo. where is that tax policy that has produced that? with the vendor can pass along to pasalong to the ber >> not always translated to the buyer. depends on the democracy. we know that taxing any activity would reduce the activity. when you t income peowoh ss.at's a ptty mpf tawinro ren. i want to tax that activity. tax resolution is a much more effective way to solve problems whye s aotfting pollution. guon

pass a complicated regulation. now, if you really think that da pop is bad because ternieax sop. it is something that is easy for people to understand. an iu about the same is true w to solve the problem is to increase the capitol requirement which is basically imposing a tax on them. and if they do that, 2,400 pages i'thoy pon working in trying to implement the legislation. i think that they did taxes, always great texas.

thasy oneesffti the only way you can intervene is that. >> down here. >> professor, it would seem that to advance your ideas a wie todm catosu others. the benefits of not subjugating the rest of us to mull. whe woue vocaome om rom other parts of society?

steve jobs instead. averizofdility wh th dur e auall advocate this idea. the advocates should come from. >> that's an excellent question. first of all, the reason why unrstand that defending free-market does not mean all the time defenng business interest. we free-market years and feel thees thtnd tisays a gigantic cost in terms of public opinion. if people understand my logic at think that there are two ways in which crony capiisml b

ha cern t. the level of accountability, a large diffusion of data. in today world is more hor a lot of sharing them. they prevent evidence t har dtu those discussing with the manager of italian bank they found that not only woman in the bank or severely underpaid the me. chor pe

they don't want to study to be released at large. i av aolag to my teaming up with some people at the federal reserve. rudd a fast adding paper showing that the state regulator a bay tias in the direction of banks. the federal reserve has no interest because is competing with federal regulators. reasav t s like any for the use of data. i can understand that the so-called ratgs that our federal reserve or state regulators may not be rea meat.

caus tinancial concern, there is no justification for not having them released. who cares. c gacd t whether the air useful useful-hasselhoff are not. i do believe in a given policy. think that the reason intt thadc w umon because if i want to write a more exciting paper i want to sort of show some problems. and so on going to dig up the th b to orderoure those nfti os combination of competition in the media and the academic >> the crony capitalism, the

industry, the message succeed world leaders in spite ofhis. the human capitals so great that it will overcome all the verses. lf industries that don't require a larger infrastructure, the guns still operate in decay. ballot of talent and a

few individuals, not a large organization the requires static deficiencies. that is where italy has its competitive advantage. we are fantastic and prong pctke, a noo iro rs fiat. so in the system that is not transparent and not made the ita mdcu l oizns. much more difficult to have large organizations. mhaantereally is deficient. immersed from the left of american capitalism encapsulate it by the work of the economist. has it that inequality has

inua dinhed lind that this reveals a fundamental flaws in the system that you are extolling. i wonder if you think, one, if you bie tnd lin a enfi aur ed to, whether if that trend is verifiable, that is because we prtirkyseady strayed deedyrony or never, whether it is a function of global competition that you discussed earlier. as a result, andn either case, eato aripllhiqit sense that they don't go in a populi direction.

>>nd tlnequalit have foug eacincrsing. concern for everybody. and that to my discuss what can be done th. some is the global competition. say about or do about. thses w think ineffective competition in the controlled market i have a f

proposal ou w iornt to izatoero h a truly competitive system we must make an effort in the clause in the starting point. fahahe uaies, the decrease social mility is an issue of importance. we to understand better a fight. maet w.ou fn h by improving the level of schooling with only a voucher based sysm. but about a se system ti p od we a lot of programs like affirmative action

. maybe cycling may be justified. today if you are from the uppers ifoua white in the port areas he didn't tell. si sbyaye k s the disadvantage. very easy to calculate. coming from certain neighborhoods in terms of your performance in school. d weryeeruecht p that come from those areas so that they can get to the schools and have a shot at competing for better colleges. now e sm inhi

dheigh-school level you can get into the best colleges and succeed in life. many people, they don't arrive weeeonghemp. of competing one model, even if i don't play golf, golf is a very free-market one of the things that of does is create a handicap to equalize . 'rt trg. at of course, would destroy incentives. they're trying to equalize the starting point. so that is the direction we should go into it. >> and down here ro >> by your book. the concept of tax on cigarettes

r hin tecow. >> is taxation really another form of regulation? he tax cigarettes. bu the regulation. and so how do you get that implemented? taon sple anderyhe i little, cost waste. when you have a regation people go in a lot of ways do f a t eyes ofound it, modify

the voters. and so they have no say on that. and it is away from the eyes of the voters inevitably going to be captured. so t taxheer we re on tax and cigarettes , the rule of majority will prevail and we decide how much we tax. i thinkhat in my view is the i e,aor ofo deregatn. guont i wasteful. by the way, the fact that on the side we raise revenues is not. we can reduce the social t. so if we can raise more of this tax a heesax coll btt f. >> time for a few more questions. >>o what extent?

the problem of income ecy he cognitive. >> i think that moving forwa i see thats ais en t tboutd because it is not my cup of tea. from what i understand i think that moving forward this is going to be much more of an issue because of the way the rk waytou ea ago. at the moment i don't think that this is the biggest problem. i see more, a huge return on lock. esally in ar like the ft ius rgal c of ct ed zero.

you tend to have basically the lucky on to get disproportion return. faokreed t e completely disoportionattoning. so tha tre iso fix fo this aspect. again, the best fixes to say you have to realize that there is this component. alheheple with thesort of least amount of wealth give it back. i think they have to recognize that, sure,

>> the obama administratn is encouraging year to pressure spain to use it scarcer resources to rapitalize its banks and thereby protect privatereditors torite itns. is this a good idea? is it good for capitalism? and does is send the signal at dodfranis sposethe tloarile erway? >> it's clearly sending a tile signal. a friend of mine was observer at some point that tererl ex gece. ehra.

don't worry, the government is bend us. people might discuss whether there are too big to fail dorine caused the crisis dnft ts now, at in terms of europe but think that i do want to have creditors pay the part of cts ineaheekrtf cheated. they had the responsibility to what the lenders he did not check. the systemas been a system re the creditors. between 2010 and 2012 most of the private credit left. now let's hurryifficult for gree to get out bhe

otug mey t can restructure with. so coming to spain, you don't want to the spanish banks to collapse because that will have dratic negative effect oe mn ho protect all the creditors. there is a way to intervene that doesot do that. that has been always my favorite way of intervening. sort of t ltlpie quite strong in 2008. that is the way to go. >> stock for one last question. lo >> oe critiques about market system, lack of long-term

time horizon on the part of horizons of finance capital. would you support a tax on short-term speculative transactions? >> i don't have enoug hard th nheashat is thease, b idoha e most of the time it's funny. this criticism comes from government. mht sfer to advocate a differential capital gain tax rate based on the length of holding? escialooucra lot of sense.

stock, especially for pension funds. we don't need to have them turning over their portfolios every six months. we are supposed to go for the long term. in fmaonl irang he it is overvalued, hideout. >> thank you very, very much. the book is capitalism for the ople. it is justut tnk yorin nit. >> you're watching 48 hours of nonfiction authors and books. ining us is the director of publicity. i want to ask u.s. some of the

books let's start wit icahn, kevin ouw as oran fite a author. coming out 1775. and what kevin does, heebunks the myth at 1776as the retirshed year fhemen stloo 15. the complex happening. and as ual v nua, cu rearch woue controversial. >> and viewers are fans. our in-depth program. you can go to a booktv.org and you can watch three hours thpeft cner.

i wanted to ask you about another book that is coming out. the party is over. >> the party is over, and i rebls czy subtitle says it all. the middle class. the subtitle says it all. twenty year veteran of capitol hill. heeally just lay an all- >> coming out in early august. >> carolyn the marjorie. >> says. on susan mary l. subareas sure american aristocrat. she was married. she waseorgetown washington

an things were made in her living room than in the white house. so many movers and shakers i the u.s. andneogray . t? he ponady to. >> what should we know about biking? i tnksng l 7 ars. the logo, a beautiful viking sh. wha kind of titlehe led or

>> serious nfiction, literary fiction. we also enjoy the commercial fiction as well. lied breath of is makers. we really focus on boo and authors tt diue lrn m and start getting people curious. >> we a here at polkxpo america in new york city. idiiman ci n when everybody gets to talking aut the physical book. it's all about reading, getting excited about the book. a bit the get all the great ve heing wt people are excited abt. william bowen to get the dialogue going. >> has your job changed unless

e blood years with the advent so ia. f oks? mainstream media npr, review coverage. our sociadimp h stwnonal juskn t h bn really focusing on social media and the block. the author's presence online. really important. >> i want to askou anthk >> how the mind works. he is just of full future. in his upcing book he talks br.evse e o t le usttr