>> thank you very much. i appreciate people coming here although the discomfort. list this book crowd of an article from "vanity fair." but i did discover it was

more appropriate than others [laughter] it summarizes what i will say that is of fam by and for the 1% and talks about our economy. that went viral us the in the age of modern technology might publisher tried to get me to expand and it got bigger and bigger. i try to describe the magnitude which people have not fully grasp.

is bad for the democracy the way it manifests itself budget to macroeconomic policy and then a few words of what could be done. it is not those policies of what we have adopted. picking up on the remark that was made of the presidential candidate said you should not talk about these things in politics -- public talk about the politics of envy. it is the justification of

level of inequality. most americans don't realize it has more equality in any of their the industrial countries. a but market forces are there all over the world. what we do affects how all those operate the it results of more equality that it is a cause of reflection. not only that but it has been growing.

watching inequality grow is like watching gas broke. since 1980 national income going to the top 1% has doubled in. is one at a five but in a quality is even greater 40% of all of the wealth. however you slice it in the quality is growing. their sheriff gdp has tripled. and in 1910 -- 2010 with the

recovery but what have been this they got 93% of the growth of our economy. even more disturbing is what happens to opportunity. ryan, the head of the budget committee said we interested an opportunity but unfortunately that is not better. united states has leased quality of opportunity. the life chances of somebody born at the bottom are much

less than born at the middle or the top but higher correlation of a child some prospects in any other advanced industrial countries. we faint of ourselves ourselves -- think of ourselves as the land of opportunity. reno immigrants who made it to the top. when economists talk, what happens on average? what are the chances? america performs more poorly than any other country.

what's this bodes well for the future committed is more likely we will have even more inequality that i will come back to later. this is not inevitable. even the increase is not inevitable. one decade ago there was the highest level of inequality but it has been increasing rapidly while others managed to tame that and a few have reversed.

one example is brazil. they look over the precipice with the political or social or economic turmoil. they developed a cohesion. thick continuation should not go that way. president cardoza and to say it is important to to get in education. then no child should go hungry. and to do a lot of the poverty in that country is

reflected in the data. in a relatively short period of time. although there are many but increasingly fuel, a the politics of envy everybody benefits. that is called trickle-down economics. eventually everybody benefits. given that level everybody would be in good shape. look at the data most

cannot -- are worse off adjust for inflation there or the and 1997. american economy has not been working for most of america. but not or the majority of americans. win new parse it out to what you see is the extent of which it has done for the. one group is males male workers full-time it is

lower than 1968 if you want to understand the frustrations to find that if the american dream is not true. the bottom a smaller share this slice gets bigger is wrong. and said decade immediately after world war ii and our economy grew much faster

than after 1980. then it grew more rapidly at the bottom but not as the people at the top so it is not an accident it has been harming our economy. as those at the very top receive their income because of their greater contribution they have made.

with standard economics what people pay is related to their contribution. what happened with the great recession some with those coming to the brink or those with a society where is ambiguously negative walked off with bonuses. i sometimes joked they thought it was negative correlation instead of positive.

[laughter] desai added to change the name to retention bonus. [laughter] why do one to retain somebody who brought you to the brink of ruin? that is one of the reasons there is discontent. look at who made the most important contributions those who'd talk about the transistor nine of them are in the top wealthiest in our

country or the world. i will come back to that. not only is there too much money at the top but it is the fraction of of population and it is getting smaller and a significant a larger fraction -- fraction in poverty today. one example of that to on a front-page there is an article how one out of seven americans on food stamps.

they go to bet at least once a month hungry. because they cannot afford food. america it is supposed to be a rich country but even here so many cannot afford food and and remain hungry. the recession made them worse particularly in the area of wealth because most of the wealth in their homes they lost everything.

that leaves two statistics six members of the lowballed and family that is the bottom of a testimony not only how rich the rich but how pour the border. every other dimension bring this life to it -- expectancy is lower because you don't and have and a commitment to providing health care for everyone. let me explain this source each part of it increase of

poverty has its own explanation. i will talk about one of the arguments is a lot is located to the right rank seeking that is the income from your ownership landowners got rent. b.a.t it is very simple. remaking the pie bigger zero or of bigger share of the pie? so that you make it smaller.

with toyo countries like russia what most americans don't realize is that that diminishes is like monopoly. not by producing more but restricting output. not my judgment but the american court. another example occurs from corporate governance. the ceos have been very

successful to get a larger share of the corporate pie. mrs. increased enormously. much more in the united states and any of their country. new look that pay is unrelated as it illustrates. is somebody that worked for you is obvious. they should work for the shareholders but they should

stop a simple provision other countries have such legislation to say it is the end of capitalism. they are held accountable. that is an example to get a larger share of the pie. market forces to play a role affecting inequality but the laws and regulations shapes those. take the bankruptcy law. that gives a first party to derivatives that required a bailout of $150 billion.

those of the most important new verve rages, derivatives. the consequence is resources move to derivatives making the economy more unstable. the other extreme student debt cannot be discharged even in bankruptcy or the school does not deliver on their education. normally use say satisfaction guaranteed. but these for-profit schools they say you cannot get your money back and the student loan is an albatross for the rest of your life.

we have three introduced partial indenture servitude. what is deeply disturbing is the way the financial sector with predatory lending which effectively moves money from the bottom to the top why there is some much money at the top and so little at the bottom. this gave the framework to do that. but it has to do with government they use the political influence and it

takes money -- many forms one task list to identify corporate welfare. a lot is buried in the tax cut. it was as fair and very large. but we could not do anything about it. the largest act of corporate welfare was the bailout of the bank. edition their fur hidden subsidies were is the government pays more of the market prices from medicare

part d but how one sentence can make a difference largest purchaser of drugs could not bargain which is half a trillion dollars over 10 years and gift to the top of the other is to sell public assets we ask only a nominal amount not related to fair market value. it is a giveaway and makes

the u.s. with the most distribution of been come but what is remarkable is we do less to correct inequality through progressive taxation to make our society more equal. in the things have gotten worse. with the most egregious example is the tax rate of the top 1% of his around 15%. much less than those from of much lower income one person

who falls in that category not paying his fair share of taxes. we have special provisions for taxation of capital gains but what is not doing? if you make money by speculating and cause turmoil you are taxed at 15%. if you were card you are taxed at 35. how does that reflect our values zero were are system of inefficiency? it reflects politics.

but first i want to explain why america is in a quality is so bad for our growth. in the narrow sense sense, economically, it is bad. this is associated with more instability. it is not an accident the last time it has reached a level comparable was for 84 great depression. the people at the top of a significant portion save but

the people at the bottom cannot. you may reduce the math. to say i know how to keep demand going. they got to rid of regulation and it kept to the economy going despite the low demand. it to work to put on the temporarily. now we deal with the aftermath. we still have that degree but we also have the bubble. that means hive levels

consistently. -- high levels consistency. it comes from the analysis of the inequality five when of the sources is that you try to get more money from others rather than add to the both of the society to persuade congress to give you a gift rather than using it to more productive way.

other teachers field the frustration the best to dance disproportionately went and into finance. students would have went into medicine or teaching but because of the magnitude of money if all the mccaskill is in that area there will be consequences. 1/3 and resend why they don't do well relates to the phenomenon with the least you quality of opportunity. people at the bottom are not don't do well relates to the phenomenon with the least

you quality of opportunity. people at the bottom are not living up to their potential. it depends on the income of their parents which means zero large fraction of americans are not living up to their potential. a strong economy requires public investment of technology and education but with a very divided society it is hard to get support. a 1% at the top of worry too strong of the government worried it would use the powers to read distribute. for them government is a threat to. then they are wrong.

the overall economy will not perform well and they will not do well. one important idea look at the old textbooks talks about the trade offs but to pay a price is lower growth and lower gdp. more equality has to pay a price. this s we could have the more efficient economy. that it is really hurting the time a. that is the price. i want to talk about other

aspects of our society that level will weekends the democracy that the standard theory says in a democracy the outcomes should reflect that want more spending and those that want less. is the puzzle i tried to analyze why that is not true. there is a process of disenfranchisement that we saw in florida. or disillusionment to.

politics that the two outcomes that are the same matter what happens it made make some difference but not a lot. clearly in the last election of 2010 rear own a 20% that bother to show up. it is extraordinarily difficult and bad for our democracy. the other reason has to do with advance of behavioral economics and marketing

firms learn how to sell products that even if there was evidence it did cause cancer but they said over again that the point* is you could sell bad idea is. those that have the tools, of water resources and you see that over and over inequality has been shaped they don't want to see how on equal we are. it is not out, but

opportunity but we don't have that. there is a concerted effort to say there is not a problem but there clearly is. is to show how it affects every aspect. we are used to thinking is determined by rule of law and justice for all. it should protect those at the bottom.

under the rule of law that no nothing. what is the bank's response? those that were thrown out that did know something with those that got capital punishment but that is the mindset of the bank's look at the other aspect not justice for all but what this important look at the battle of the budget you may think it is about the deficit. it is not. but to remember so large

that and thus reduce something about it relocate it back and he could not conduct monetary policy. if you think about it in 2015 we almost paid back the national debt. i believe they could have gone to congress to say we face a national emergency. i cannot believe congress could not figure out to away to spend more and get the deficit up. but he makes that argument with a straight face. congress passed a tax cut for millionaires on the basis of that argument.

to say things happened then you realize we converted the surplus into a big deficit. the obvious way is to reverse the four things of our position. with that discussion is on the agenda. with a deficit reduction package they talk about capping said tax rate. it is the agenda to reduce the element reduce aimed good degree of distribution so the final chapter is that

it follows the top and the middle and the bottom ferris is dead difficult question while it is easy to write down economic reform agenda but my editor said i could not list 21. [laughter] we know what to do but will the politics allow it? we will have to have political reforms.

but with campaign finance reform it is a vicious circle. it proves it makes for more economic inequality how the you cut into the vicious circle? i don't have answers. that leads me to the final question. is there hope? i have two mines but i want to 210 -- and on the upbeat note people don't buy books if they get depressed. [laughter] my book became afraid but

nobody wants to buy it to and they underestimated the cost of the war. and gain on the optimist -- optimistic note but there is some skepticism [laughter] our country is that heigl's of any quality of other times. the gilded age, roaring twenties, each time we step back. we had the progressive era all whole set of legislation we know about the whole set

of legislation that makes the society come together. our hope is americans will realize where we are, the consequences and the price we pay and what we will pay if we allowed it to to continue. if we step back from the brink what is one of the most pressing problems. think you. [applause] >> that was absolutely spectacular. >> a good way to start. [laughter]

is the leveraged buy-out of brent seeking activity when the money that comes out goes into the financial economy to stay there? what is the matter? those who are squeezed the months -- most why do they vote republican? it is true. could it do that there is no leadership? we don't have fdr or say the word liberal.

there are some other theories about the ability to exploit social issues that do play a role but i think, to me, the explanations i focus on in the book are the two most persuasive

>> i'm a retired professor of mathematics, and i just realized in listening to you talk that my biggest failure in life is that i was never important enough to be a catalyst crony. on a more serious note, talk about instability. i was reminded of aristotles politics where he says, if you have too much and many have too little, troubles arise and states come to an en. so 2500 years ago, aristotle recognized the extremes of the terrible consequences of the extremes in inequality that you mentioned, but you emphasize -- you didn't emphasize the political instability that will result from this economy.

>> let me say i only had half an hour and i overran that time. but the political instability is one of the real risks, and i say that democracy is a peril, you see what is going on as a result of the mall performance of the economies in europe. the rise of extreme groups, the knee fascists, and that's the kind of political instability that can arise. i should also say about social instability, in those countries that have -- in which he's kinds high levels of inequality have persisted, you find that 1% live in gated communities separated from everybody else. they're in a kind of prison but the real point is, the different communities live totally apart, different lives and it's not -- it really undermines the notion of a community.

>> you used the motto, another world is possible, and that's also a motto for a coalition formed out of seattle during the wto protests, called the "our world is not for sale." and that coalition has worked very hard to try and turn around the trade agreements that really are harmful to the kinds of issues you're talking about here. and it's very, very difficult -- you know, the negotiations go underground and you can't get the documents now. so, my question is, what would you do to begin to really mobilize people? at it like we have a super saturated solution right now. what would you do to mobilize people? to begin to really make a change. >> the particular issue that you

discuss, the trade agreement, i think one of the points is exactly the point you made, that many of these tread agreements are negotiated in secrecy. right now many of us want to know what's going on in the partnership agreements with asia we're talking about. no one really knows. and the result of this is that, at the end, we are prepared with a document and they say, we already negotiated this. you can't check it now. one of the real demands ought to be more transparency, and that is -- we may disagree -- people may disagree with the contents. i believe with greater transparency people would say this is not acceptable. this doesn't reflect our values. >> i do want to just make the point that the corporations do know what's in those -- >> they know but the rest of us don't. that's the concern.

>> i was lucky enough to hear you on the radio a couple days ago so i have had two days to think about this. you said that stockholders had more control over ceo salaries until about 1980. or correct me and then -- >> basically what happened was we didn't change our corporate governance law but there used to be a social consensus, kind of self-discipline, that the ceo said, it is wrong for us to take a salary that is a thousand times that of our average worker. and in ', the norm was ten in japan in europe, maybe 30. in the united states just went out-of-bounds. so you might call it the social contract disappeared in the

united states, and then because we had no corporate governance laws like australia had, there was nothing to restrain. and finally, the breaking of the air traffic controller strike, weakened unions, which had served as a partial constraint, and then we got into the situation where the company would say, we have to pay you low wages because we don't have the revenue and the reason we don't have the revenue is because we're paying myself $400 million salary. so, they said that again with a straight face. >> did you have any ideas? i'll bet a few people here are stockholders of some companies. >> there is a movement for shareholder activism, and really striking in europe is it's actually working. people are voting down the

exorbitant pay of a lot of ceos, and the interesting thing is, what they call exorbitant is minuscule compared to american exorbitant ceo pay. >> thank you. >> it's a pleasure to finally meet the face behind the bilines bylines i didn't read. myself and my friends, about one you're or two years out of college, find ourselves in limboland where we're too experienced to get any enterships and not experience enough to get jobs, and we noticed there's a seeming inequality within the internships world itself, whereas those who have wealthy parents and can afford to take an unpaid internship at a very prestigious institution, and those that can't end up waitressing or something -- not

that there's anything wrong with that but they don't have the opportunities. so i was wondering if you could speak on unpaid suburbships. >> i actually talked about that in the book, because it is one of the mechanisms by which inequality gets perpetuated. the question is, why is the united states becomes the country with the least equality of opportunity, the highest correlation between parental income and the child's income, and that's one of the mechanisms by which we perpetuate inequality, and obviously it's also -- cab form of exploitation as well. there are some interesting books out on that. >> i'll have to buy your book. thank you. >> okay. >> thank you, sir, for coming. anytime the same situation that he is. i'm a recent college graduate as well. i wanted to hear you thoughts on the "occupy" movement. i was down there the other night and it was a rather sad sight.

only a few tents there, the park pretty much trashed. the restaurants around there talking to the newspaper saying how glad they were that "occupy" was gone. they could have normal business again, and then i see the tea party and i see the republicans pretty much going to the tea party and the tea party pretty much starting to take over the republicans, and i don't see that with the "occupy" and the democrats. where would you say that "occupy" went wrong? >> first, those young people who don't have a job, i don't know if this is going to make you feel better but if you were in spain, there is a 50% -- more than 50% unemployment rate, and there's no prospects of things getting better. so you might say relatively, you're better off. but that should not be a good answer. i think the reason the -- this

is a difficult year for movements like "occupy wall street," because it's a political season, and what the tea party did is linked itself with a political party, with the republican party, and try to take over the republican party, and i think there hasn't been that kind of link between the protesters, and an attempt to have their voice heard more strongly within the democratic party. so, at least that's at least one possible explanation. let me just say one more thing about the "occupy wall street" movement. in spain it was called something else. i spent last year -- i went to

tunisia and cairo, and they had a common theme in all of these, and that is that markets were working the way they were supposed to. markets when they're functioning, you're supposed to be able to get a job. their demand is supposed to equal supply. the basic law of economics, and part of demand equals reply is in the labor market, and clear that the labor market isn't obeying the basic law of demand equals supply. moreover, our economy, we have underutilized resources and huge unmet needs. so again, something is wrong. there are also articulated views that politics hasn't fixed it and they're articulating the view that is consistent with this book, that something is unfair about what is going on so the politics doesn't word. there's inequities and

inefficiency. the difficulty is having an agenda to fix it. they articulate it head was wrong but didn't have an agenda. the tea party movement has a simplistic solution which will make things worse and be worse even for their self-interest, and that -- i think that's eventually they'll figure that out, but it may be a very painful process, not only for them but for the whole country. >> thank you. >> hi. i'm a college student and unpaid intern, by the way. my question is, how do we lure these people away from the financial world into the world of innovation and policy if you're proposing to abolish rent, seeking, i feel like that's devaluing ideas and discoveries. so how do you convince a culture -- >> no, no. discovery is not rent, seeking. just the opposite of rent-seeking. discovery is creating value by creating something that makes

the size of the pie bigger. that's the major distinction. one way of redirecting resources is more progressive taxation. when you have rents, if you tax rents, it discourages rent-seeking. so i a lot of the income at the top is rents, you make it less attractive to go into represent, seeking activities. it's not an accident, think, that the lowering of the tax rate at the top has led to more inequality in the before-tax income, because it provided more incentive for people to engage in rent, seeking. so there's an interaction between our tax structures and our before-tax income, distribution of income. >> test, testing. >> we have time for a few more

questions. >> okay. >> i didn't get to read your things when i was -- when i was an economics major, you had not written your first book yet. i have one question but it's a little bit involved. and it's not about inequality but you're the right person to ask the question of. if economics is a science, why are there competing economic their theories with different answers to the same question, or do the different theories have different economic goals, and if so, why and what are they, or have the tiers of alex smith, and hayak, and milton freedman weren't misrepresented to us. >> that is a good question. the problem -- the difficulty with economics is it should be a science but the

pronouncements -- economic analysis has political consequences, and that means there are strong incentives for formulating ideas that support your political perspective. so, let me try to give examples of what i'm talking about. in my own research on asymmetries of information, that means information is imperfect. some people know something that other people don't know. what we showed was that the reason that adam smith's invisible hand was invisible was that it wasn't there that is to say it was not the case that the pursuit of self-interest leads to the well-being of everybody. the bankers pursue their self-interest and i i don't think that would say that led to the well-being of all of us. so that theory has been totally discreditedded a a theory. but if you listen to milton freedman and his disciples, you

would not believe that there was this research that is taught in all of the graduate schools, accepted everywhere, but they have a political agenda. hey want to ignore these results. now, of course, what they try to say is, oh, yes, this is a little pecado, imperfect information. in any research i showed even a little bit of imperfect information changed the results in a dramatic way. a disconstant newt. they don't want to pay any attention to that. the reason you hear different their riz -- not completely -- there's a political alleged shop theories. there are other cases where there is ambiguous empirical evidence. the world is complicated and we have to interpret the world.

let me give you an example of very briefly of where there ought to be unanimity but there is a controversy and i will try to explain. there's a big debate about the role of austerity. now, there has not been a single large economy that has ever recovered through austerity. not a single one. now, those on the other side look -- have identified a few instances where governments cut back and economy grew. those were all small economies, and if you look at what happened, it was very simple. they were lucky. they were lucky because their trading partners were going into a boom.

and so as their government spending went down, the gap was filled -- more than filled by exports. so, there are some circumstances and you could even manage it, you know to increase your experts, if you're a small economy, especially with flexible exchange rates. but we're not a small economy and our trading partners are really not in good shape. so, there is no way that we can hope to grow to austerity. there is no way that europe can hope to grow through as state. there have been experiment after experiment, you might say -- call it a real life experiment -- the first one in recent history was herbert hoover, and he tried austerity, converted the stock market crash into the great depression. i don't know why anybody wants to try that again but there are some republicans who want to do that. but then, if we didn't have the enough evidence, the imf did more experiments, instant

volunteer tear -- on some involuntary patients, and it had austerity and indonesia, korea, thailand, argentina, and in each of these instances it was a disaster. down turns were converted into recessions, recession turned to depressions. not one of them worked. so i think -- that's an instance where people can say, oh, yes, you haven't looked at the data. there are successes. when you look at the data more carefully you realize, there are none. [inaudible] >> i hope he listens. >> thank you for your terrific presentation. i look forward to reading your book. as an irish national i can directly relate to what happens when the majority of the population shifts from productivity to rent, seeking which is what irelanding tries

to recover front i have to questions for you. the first one, would you care to comment on the loss of manufacturing base in the united states? the rise of china india, and other economies, as to what the impact is on the price of inequality. and secondly, would you like to close this evening by letting us know whose policies, obama's or romney's are better for curing the price of inequality? >> okay. the first question is not easy to fully answer. the role of globalization. in this whole process. let me say that 30 years ago, there -- we could have kept moving more in the united states. but we decided to let it go.

we decided not to have any industrial policy, as it's called, no strategy, and once you let it go, you start losing your -- what we call dynamic comparative advantage. they learn, we don't learn. they develop institutions and take -- germany -- you mention asia but germany maintained their industrial capacity but they have good education, orient around it. they have a set of financial institutions, they have what they called the middle shaud, instead of entrepreneurs so they managed to maintain it. but we have lost it and it will be very difficult to recover. for those who -- let me also say, even if we were able to do a little bit in recovering, we have to rafaelize that manufacturing is a little bit like agriculture 100 years ago. we are the victim of our own

success. increases in productivity in agriculture meant we went from a world in which more than 60% of people were on farms, to a world where 2% of the population grows more food than even an obese population can consume. manufacturing is the same. we're increasing productivity, and as a result of that manufacturing jobs in china are going down dramatically. so we're getting a smaller share of a declining employment, and that's why we have to restructure our economy. now, your second question is really an easy one. the fact is that one of the candidates simply doesn't understand inequality and doesn't want to talk about it. should only talk about it in hidden rooms, the politics of envy. the other one has finally come out and realized there is an important part -- this is a key problem for america. and reflecting that, i mentioned

before that romney is only paying 15% taxes. warren buffett is also paying 15% taxes, but warren buffett said, it's wrong, and has only come out with a lot of other billionaires and say it's wrong for him to pay a lower tax than his secretary. i have not heard that statement from romney. he evidently thinks it's right and that's very disturbing to me. disturbing both about the likely policies that they would pursue, and about a sense of moral compass, about what are the right directions for our society? [applause]

what are you reading this summer? book tv wants to know. >> the homeland security committee and i sort of now going over my personal reading so i'm reading a number of books about american response to 9/11, what we're doing as far as boys in the afghanistan and iraq. the main book is hard measures. the head of the team that put together the interrogation methods after september 11th. including water boarding, which was criticized. a very well-written book.

the art of intelligence by hank compton. he was managing and directing the war in afghanistan after 9/11 and fascinating reading. and a book about the obama administration and what they're doing and iraq and afghanistan, hour their policy is being pursued, and indicates his policies are not that different in many cases from president bush's, and the book, the hunt for bin laden, which i'm just starting now. details the ten-year manhunt for bin laden, which of course ended very successfully in may when he was killed. and then judy yackson, -- jackson, has a book called, battle to solve muslim, which is an american muslim's attempt to

focus american muslims on the war against al qaeda, against islamic extremism, and then another book which is from 1961. i was in college at that time and it describes all that went into behind the scene office the construction of the berlin wall and interesting to compare those times with what is happening today. and finally, a complicated man, biography -- oral history of bill clinton. i was interviewed for the book, so i guess it's a bit of ego there reading because anytime the book. again, i was -- served under bill clinton and it's interesting to read that. so al -- all told, for the basic set of books, islamic terrorism, foreign policy, and biography of

bill clinton thrown in. >> we did not begin as a city in kentucky. there was only a vague native american region and later a county in another state called kentucky. but we began in 1778 as virginiaans