social security and medicare benefits. this is about an hour. [applause] >> thanks very much for the kind words of introduction, and thanks for the opportunity to be here. thanks for coming out tonight. two hundred years ago the united states went to war. the group that was driving american politics at that moment was known as the war hawks, the original war hawks, led by henry clay who was speaker of the house of representatives. they were belligerent, they were in a confrontation. they got one with great britain. and they didn't want to pay for it. they didn't want to raise taxes. they also didn't believe in a national debt. they had abolished the first bank of the united states in the runup to the war. it was not a central bank, but it was a prototype public debt management. this war did not go well for the

united states on many fronts. they hadn't funded the military, they didn't have a strong navy, and in the summer of 1814, the british seized control of the chesapeake bay area, they invaded the american mainland, took control of washington, d.c. and burned every single official building in washington including the white house. the british came to the treasury, they broke down the doors, and they smashed open every strongbox. and the only good news for the americans was there was nothing in it. [laughter] we were broke. and this, for those of you who keep track of the details, and the details are very important, this was not a default. the u.s. didn't miss a payment on its debt, but it didn't have the capacity to fund it government. this was a fiscal disaster as complete as any fiscal disaster that you will see in the near future, and i believe you will see some. so the question before us this

evening, the question we address in the book and the question we're here to talk with you about is, will this happen again? will the united states have some version of a fiscal calamity, a slow one or a fast one, a european-style one or our own home grown, american one. we are an exceptional country. [laughter] and how do we avoid it? what do we need to do? how difficult is it to pull back from not just the fiscal cliff and all these other discussions you have heard, the immediate cry for political attention and the drama you'll see at the end of this year, but how hard is it to pull back from a bigger, more serious fiscal chi -- cliff and put this country back where it used to be which was absolutely among the most fiscally-responsible nations? to address that question, i'll say a few things about history,

both distant history and which i think we can all pretty much agree more recent history where there may be some disagreement, and then i'll turn it over to james who will talk about what needs to be done. and i should tell you two things. first of all, he only has unpalatable truths and unpopular recommendations, and secondly, i'll be sneaking out the back while he's talking. [laughter] so, no. it's a difficult conversation. it always has been. and the first point, the most important point is we've been here before. in fact, the people who founded this country had exactly the same issue at the very beginning. alexander hamilton was an aide, one of the most important aides to general george washington, spent most of the war of independence writing letters to the continental congress say, please, send money, please send shoes, please send anything you can. congress didn't have the power of taxation. there was no federal government

in a modern sense, and they struggled, the americans struggled in the war of independence for exactly that reason. after the war of independence, the u.s. was in default on its debts. the country was born in default. people like hamilton and james madison got together and decided that this was not the right basis in which to build an economy. they had -- they persuaded their colleagues to call a constitutional convention, and the key breakthrough there was to establish the right of the federal government to tax. and to issue public debt, although hamilton's specific implementation of that was controversial. he had a big falling out with jefferson and with madison over that. and the interesting thing about the war of 1812 and that debacle was it was totally unnecessary in retrospect because hamilton had already put in place a robust public finance system.

central taxes, issue debt when you need it at a time of emergency, and then bring that debt down subsequent to the emergency, but in a gradual fashion. it fell into disrepair, the war hawks pushed it aside, and they faced the consequences. after the war of 1812, there was agreement, very broad agreement across the political spectrum that you needed to implement a version of hamilton's system. fiscal responsibility as designed by hamilton representing his version of the intent of the constitution was the right basis for a modern economy. now, you can still argue about alexander hamilton. that's the great thing about this country. i think we'll be having the same debates that hamilton and jefferson had from now until the end of the republic which i hope will be a very long time from now. so we can argue those details, for sure, and we take that up in

the book. but you can't argue with the fact that for the war of 1812 until recently this country was carefully run in terms of public finances. there have been six increases in debt in the united states, big ones, big debt surges. independence, war of 1812, civil war, world war i, world war ii, first five. all wars. and after the war of 1812, they used the hamilton system. world war ii, the the biggest debt surge on record. the u.s. goes from a small military in 1940 to one of the largest military efforts the world has ever seen in the space of two years. financed initially by debt. and then by increasing taxes, and then by bringing the debt down gradual hi in a -- gradually in a strong growth environment after the war.

not precipitating austerity. the sixth debt surge, of course, is the more recent one and the most difficult one. and it wasn't -- yes, there was a war element with two foreign wars, iraq and afghanistan. wars are expensive. but that wasn't the main driver of the increase in debt. and, yes, there was a tax cut. there was the perception of the end of the 1990s that taxes could and should be cut, that the budget was in surplus. something perhaps of an overstatement. but there was that perception. and taxes were cut. and those so-called bush era taxes, i would now call them the bush-obama tax cuts because they've been extended under president obama, miss proposal to extend them, those tax cuts are an important part of the agenda that we need to talk about this evening, and they may be the most difficult part of the conversation.

and a little bit of it, honestly, was also medicare part d, a public policyrogram that you may sport where actually some of the biggest supporters of medicare that you'll find in the public policy arena today in the united states. but you have to pay for it. and medicare part d was not funded. but the big surge in debt, the real reason the debt is front and center of the political agenda, the reason there will be a debilitating debate and fight over this in congress -- there was one last year in the summer, there'll be one again this year, probably towards the end of the year. we'll see. the reason's very simple. it's the financial crisis. that financial crisis, the explosion of the banks, the damage that did to the real economy calculated by the congressional budget office -- and to be clear, i'm on their panel of economic advisers, but these are their numbers, not my number -- they calculate that the final impact of that

financial crisis on debt relative to the size of the economy, debt to gdp which is a key measure here, look at the whole time scale of the economy going down and then what we still hope will be a recovery, a slow recovery it seems but hopefully a full recovery. the additional debt you will have, we will have, 50% of gdp. or let's call that $7.5 trillion in today's money. it's colossal. second largest debt shock in american history, second only to world war ii. and i know what we got from world war ii. i know what we achieved, i know what the world became like after 1945. i don't know what any of us got from the excessive risk taking, the mismanagement and the calamity brought on this country

and spread around the world by huge financial institutions in the runup to 2008. we were fiscally responsible for a long time. we had a strong agreement about that. we have lost that sense of focus. we have drifted too far in a damaging direction. the risk is not, i think, the economics as james will address. i think we can fix that. the risk is the politics. and our inability or perhaps the inability of our political system to reach an agreement. but maybe also our inability to push our politicians in the right direction, to make the financial system safer, to pay for the government services that we want to properly fund social insurance programs.

and with that, i turn, turn it over to james. >> thanks, everyone, again for coming this evening, especially on such a warm and beautiful evening. the deficit and the national debt are back in the headlines just the past couple of weeks. they're going to be in and out of the headlines through the end of the year, certainly through the election, and to some extent -- well, certainly into december as well. but i think at a simple level, the general public understanding, the least common denominator of the issue can be stated like this: debt is bad, and we should either cut spending, or we should tax the rich. those are basically the options you hear about if you boil down the news. and there are two problems with this framing of the issue. one is that neither one of the solutions would actually work. if you wanted to, essentially, solve the debt problem by cutting spending as outlined in paul ryan's budget, you would end up -- if you look at his projections for 2050, you end up with a federal government that's

smaller even than in the 1920s and, essentially, a government that does, that does nothing. and then on the other hand if you wanted to close the debt, close the deficit solely by tacking the rich, president obama's proposal is essentially to make the bush tax cuts permanent, bush-obama tax cuts permanent, i'm sorry, for everyone who makes up to about $250 or $0 -- $300,000 a year. the unfortunate fact is the tax cuts he would repeal only make up about 20% of the total bill of the bush tax cuts. o simply taxing the rich is probably not going to work. but more importantly, this is the long question, the question of should we cut spending or should we tax the rich. it's the long place to start. a budget is a statement about what the government does, and so making, in making these decisions we have to have a conception of what we want the government to do.

the federal government is a tool that we use to meet our needs and to solve problems that society faces those individuals cannot solve on their own. now, one of the problems we have in tackling this debate is that there's a great deal of, um, misinformation about what the government actually does. so there's a study we cite a lot by a political scientist named susanne nedler, and in the study -- some of you may have heard about this. she asks people, do you benefit from any government social programs? vast majority of people say, no. then later in the survey they ask, do you get social security benefits, do you get medicare benefits, do you have -- do you take the mortgage interest deduction and so on. and in the end, what the numbers say is about 40% of the people who get social security benefits had earlier said they don't benefit from any government social programs. same is true for medicare, same is true for unemployment

benefits. for the tax breaks, mortgage interest deduction, it's more like 60%. which i can understand why people wouldn't call that a social program. but the more important point here, it's not that people don't realize that social security is a government program. the checks say u.s. treasury on them. i think they have a statue of liberty also. um, it's that people take, people when they think of the government, they don't think of these programs that they all benefit from. and this is why we have this curious situation where if you poll people and you ask them what should we do to reduce the deficit, about 45% say we should just cut spending. about 45% say we should cut spending and raise taxes. about 5% say we should just raise tacks. taxes. but then when you ask -- so this is 90% of people want to cut spending. then you ask if they want to cut medicare, overwhelming majority

says no. social security? overwhelming no. medicaid? no. even funding for culture and the arts the majority of people do not want to cut. so americans very clearly are of two minds. on the one hand, they think the government is too big, they want to cut spending. but on the other hand, they don't want to cut anything they actually get from the government. and i don't mean to blame americans for this because it's not everyone's job to know what the government does, it's kind of a boring topic, and it's pretty complicated. i will make it simple for you. about 20% of the federal budget is social security, about 14% is medicare, about, i think, 11 or 12% is national defense, and another, um, about 8% is interest on the national debt. that's largely what the government does. so if we're going to have, if we're going to figure out what we want to do with the budget, we have to decide what we want government to do.

and here we face two choices. one which was misstated coherently by mitt romney and his allies is we should have a night watchman state. we should have a government that protects the worders, you know, provides protection against crime, runs the federal court system, fbi, border patrol, that's pretty much it. and if you believe that, then the tactics of the republicans over the past 30 years make a lot of sense. the other alternative, i believe, has just not been well articulated. i think this is something the democrats have failed to do, which is provide an argument for why the government is an important, plays a crucial role in our society and how we would not -- and fails to make the argument that without the government services we now enjoy, we would essentially not have the society we have today.

as i said earlier, we have the government to solve problems that we can't solve ourselves. the very obvious example of this is national defense. none of us individually can buy an aircraft carrier. now, the set of problems that people believe can be solved by government has been shrinking o over time. whether or not that's good or not, i don't really want to get into that now. but over the past 30 years i think we've all seen more and more people, including a lot of democrats, saying the market can solve problems better than the government. but i would argue that, well, so i would say that that has been transformed into a mantra by a lot of people, that the market can do everything better than the government. and i would say there's some important things that we cannot do by ourself os that individuals and firms cannot do, and most importantly i would say it's protecting ourselves from major risks. so think about social security.

what is social security? well, when you enter the work force when you're 21 or 22 years old, you don't know what your career is going to be like, you don't know if you're going to get sick or become disabled, you don't know how much money you're going to be able to save, and you don't know how long you're going to live. and social security is a tool that we use to protect ourselves against these risks. and we use the government, we need to use the government to administer and run this tool because if you think about it, is a promise to pay you money in the future, the far distant future. there's no private institution that you could trust to be around 70, 60 years from now, 50 years from now. there's no private institution that you could trust to be able to borrow enough money to pay off all of its obligations. now, social security is often framed as a transfer program. you know, we tax people who work, and we just give cash to

the elderly. but there's another equally valid and i think more valid way to look at it which is that it's a risk-pooling system. so when a cohort of people, when people graduate this year and they go out into the work force, they don't o know which ones are going to make a lot of money and which ones won't. and this is a mutual agreement to pool their money in a system that will pay out something to everybody. social security is a modestly progressive program, but it's not terribly -- [inaudible] the same thing is true of medicare. it's even more true of medicare. if you think about, again, the 22-year-old who just graduated from college, he has even less knowledge about two things. one is his health status during his life, the health status of his family, and another one is the cost of health care in the future. so social security's indexed to average wages and then to inflation. the great thing about medicare from the perspective of all of

us is that medicare benefits are stated as a percentage of whatever health care will cost to you when you're older. so if health care continues to become more expensive as it has over the last 40 years, we are all more or less protected. it's not a great program, 20% co-pay for part d, but it's a lot better than nothing. um, and that is something that you could not buy on the market. i mean, how do we know this? first of all, if any insurance company, if you're 25 and an insurance company is willing to sell you an insurance policy that will kick in at age 65 and will pay inflation-adjusted health care benefits, you shouldn't buy their policy because they're probably not going to be in business 40 years from now. um, i just bought long-term care insurance. long-term care insurance give you a nominal inflation rider. they will say they'll pay you an extra 5% per year, but they will

not index it to real inflation because no insurance company can take the risk. the only institution on this continent that can is the federal government. so i think, you know, a lot more to this debate, but i think certain lu our main -- certainly our main insurance programs are fair, they're civilized, they're a decent way to deal with the problem of poverty which is going to be with us probably forever, and in a sense they encourage risk taking because with they give people the security of knowing that they will have something at least at the end of their lives. now, paul ryan's budget essentially, you may have heard this, i'll try to make it very clear because there's been a lot of demagoguery about this. paul ryan's budget would convert medicare into with a voucher program where you get a voucher, and you can use that to buy

insurance from a private company or traditional medicare -- that's the new version, that wasn't in last year's version -- but the voucher is going to go up in value each year at an amount that is linked to growth from gdp. now, health care costs have been growing faster than gdp for the last 40 years, so what this program does is it reduces the federal budget deficit, but it doesn't necessarily do anything about health care costs themselves. in fact, the cbo last year said that it would simply cause total health care spending to go up. and as a result, if you think about this, what's happening is the federal budget deficit is lower because these costs have been shifted not just dollar for dollar, but more than one dollar for dollar to families. and that, you know, i don't think that's -- if we think about it, again, the government is a tool o solve our problems. it's kind of perverse to solve the government's deficit problem by importing it onto ourselves. so again, the key get before we

can talk about questions like what should the budget be, what should we do about the spending and tax cuts is we have to decide what kind of government to we want. do we want. and as i said earlier, this is something that, this is a debate where the republican position is very well framed and very clearly articulated. and is somewhat compelling on kind of a gut level to a lot of people. and i think that progressives in the obama administration, the democratic party, have not done a good job articulating the other side of the debate. because ultimately, what kind of government we want will dictate what kind of society we live in. i mean, the government is -- well, we all accept society in many ways in daily life and social life, but government is the tool by which we collectively decide what we want, what kind of society we want to live in. and the question is really do we want to live in a society that is every man for himself, or in a society where we pool risks

and we provide public goods that enable all of us to be a little bit better off? so, again, that's the debate. i don't think you're going to hear a lot of it in those terms over the course of the year. um, you know, what's happened in the past 40 years is that american politicians have figured out that the best way to deal with deficits and the debt is to say that you're against them and stop there. or to say that you're against them and then do things that increase the debt. so the most classic example of this was, you know, november 2010 we had the tea party election. wave election. the day after both john boehner and barack obama both said it was about the public's desire to rein in government. and to reduce deficits and spending and the debt. one month later both parties overwhelmingly passed an enormous tax cut which added $900 billion to the national debt. in just two years. to put that in perspective, the

debt ceiling prom poise from last -- compromise from last summer if it's actually followed through on which will eventually have reduced the debt over 2 billion. again, there's no incentive right now for politicians to do more than claim to be against debt. but at the end of the day, you know, this is the important issue, i think, from an economic perspective. this is the major issue that america will face over the next decade. so i agree with many democratic economists right now, jobs are a very serious issue. but this is -- it's not the number one issue now, it's the issue for the next decade, and it's an issue that will shape the kind of society we live in, and that's ultimately why we wrote the book. we wanted to lay out the issues and, again, you don't have to agree with us on our recommendations, but this is what's at stake. thank you very much for coming. i think we have about half an hour for questions. [applause]

>> first question on the left here. and i'm under instructions to summarize the questions to make sure everybody hears them. okay. >> if there was a difficulty caused by the war of 1812, and i wonder if there had been no war, no wars, would we be in similar difficulties, or would it have not had much effect? >> well, so the question, yes, the question is what was the effect of the iraq and afghanistan wars on our current fiscal situation, and if we we hadn't had the wars, would we have this crisis or perceived crisis? that's a good question. wars are expensive, and we didn't pay for them. they, um, if you look at the total swing in the deficit relative to what people were expecting back in 2000 when they said there was going to be a surplus, i would say that was about one-tenth of the swing in the deficit came from those two

wars. so it's significant, no question, but it's dwarfed by the size of the financial crisis. and the financial crisis was mostly driven by process quite different from those wars. lady in the back. >> this veers from your topic a bit, but i've been reading that our economy is based on continuous growth, and that's based on neverending oil supplies. and if we don't face up to that, we're going to just slide into a recession, and i'm wondering what your thoughts on that. >> the question was, um, the economy is dependent on continuously increasing supplies of oil and since supplies cannot continuing increase forever, what with implications that has. [inaudible] >> sure. the -- look, and supplies of energy are clearly a constraint

on global growth, and there's concerns about the environmental consequences of using fossil fuels. we take this on to a modest degree in the book, and i have to say that the number one question i get from tv interviews is, you're proposing to increase tax on gasoline? are you crazy? have you bought gasoline recently? slow down. i'm proposing a higher tax on gasoline and also a carbon tax over two decades, phase that in recognizing the real costs to all of us from using oil and oil by-products and moving the vehicle fleet -- which is the main issue -- moving the vehicle fleet over 20 years to become more fuel efficient. now, i'm not pretending this addresses all that's implied in your question by any means, but it's a step in the right direction. and i think that james did miss one key, unpalatable detail. it's always awkward to bring

this up, which is your taxes. if you believe in this version of government or anything like what we have now and if you think, if you think we can issue unlimited amounts of debt indefinitely at 2% interest which is our current situation, then you should don't worry, be happy. but that's not the way the world works, that's not what we see in american history, and that's not what's likely to happen in our future. you're going to have to raise taxes on something. and, again, we suggest spreading out those taxes other time, over various -- over time, over various parts of the economy.

>> the idea that they were essentially separate, as i said earlier, risk pooling systems where we put money in, we get money out. that's something you could debate for a hong time. there's one federal government, and we should measure all the money that goes in and comes out. one reason is that social security and medicare, especially medicare, while medicare very clearly is not a

self-contained system, medicare part b is 75% funded from general revenues. so medicare has a very kind of -- and part c, prescriptions is at least 50% funded from general revenues. so medicare has a very weird funding structure, and calling it a, you know, a self-contained system is just wrong. social security -- [inaudible] because it has been self-contained until now. the question you have to ask yourself though is, if 2033 comes, payroll taxes do not go up, the social security trust fund runs out of money, what would the government actually do? i believe that the government would continue to write checks and pull money out of general revenue. i cannot see any government stiffing social security beneficiaries. so in that sense i think it is you have to lump all the accounting together. if you're going to separate them, you have to say that social security will actually be allowed to run out of money, which i don't think is likely. >> but there are certainly

arguments on both sides. and the other question. >> with oh, yeah, i'm sorry. i said a long time for the short answer. we can talk about this after, but back of the envelope, ending tax cuts on the wealthy is probably half a percent of gdp. raising the cap -- eliminating the cap on social security is, um, at best maybe half a percent. so, i mean, it's significant money, i'm not saying it isn't, but it's not going to close the gap. >> yes. >> yes. um, the founding fathers have become a big touchstone to the conflict of today, especially with the tea party. and generally they mean jefferson. why do you think that hamilton has kind of been not considered as one of the founding fathers or at least appearing in the current debate? >> so the question is why does thomas jefferson feature more prominently when people cite the founding fathers than alexander

hamilton. um, well, i think that's entirely by design. i think people -- you cite who you want to cite. and by the way, we have some good words to say about jefferson here and in our other book about his rather more skeptical attitude towards the banks. but on public finance hamilton had the answer. jefferson, when he became president, hired his own secretary of the treasury, albert galliton, and told him to dismantle hamilton's system. he eventually refused to do this. galveston said, no, this is a sensible system. you can manage it with different levels of government spending, and there remains debate to this day. but as being able to fund the debt, fund the government in an emergency with debt issues and then bringing that debt down gradually and backing the entire

scheme with central government revenue, that was a brilliant idea. it's always madison who gets overlooked. madison after the war of 1812 who switches -- he's still president -- he switches to support fully the hamilton system. so jefferson is the odd man out, i would argue. so if you want a solution to the european crisis today, you should look at the founding fathers, the debate, look at the constitutional convention, look at this hamilton model. central government with fiscal revenues. that would do it. the problem is that hamilton in addition assumed the state level debt. and that was controversial, but eventually people were persuaded because of the war of independence by the states. there was no way thier marms were going to -- germans were going to assume the italians debt. that's not going to work. so the european problem is, if anything, more difficult than what the u.s. face inside the

1780s. lady in the back. >> of course, the other big crisis in the world is in europe which, arguably, has a more cohesive social safety net than we have. i have to admit i'm one of the people in the financial community that's argued for a long time that the social safety net is unsustainable which raises the question, you know, i hate to admit that the republicans have a point, but is there something inherently debt-inducing about social safety nets? do they make people feel that less responsible? i mean, it is, correlation isn't causality, but here you have the countries with the big safety nets being the ones with the big problems. >> okay. so the question is whether, first point is that the europeans have stronging safety nets, they also have a serious crisis, and the follow up part of that question is whether having a stronger safety net makes countries more prone to crisis. let's take that in two parts. i'll answer the first part, and

james can answer the second. i'll put on my imf, former chief economist had to answer this one, that's what i worked on for 25 years. and i don't want see that, that correlation. now, the europeans, to be sure, are in a very big mess. that's a technical term. [laughter] and it's a fascinating, somewhat complex mess in which, yes, some government overreach absolutely played a role in some countries. for sure, greece. yes. in other parts it's more about private credit expansion, real estate bubbles and busts, spain, ireland and the u.k., obviously, outside the eurozone. and most importantly they have, um, locked themselves into a fixed exchange rate arrangement with germany that's just not sustainable. they need to change it. but when they locked the exchange rates, they threw away the keys. they have no other currencies, and they said they'd never have one, so going back to the old currencies is going to be very difficult, and when people see how difficult it is, they're

going to get severely traumatized. so the whole thing unravels. in that context there will be massive austerity. either way. and i don't think there's any escape. it's self-inflicted. it's bad economic management. that version will not happen to us. we haven't locked ourselves into a crazy exchange rate system. our future and our fiscal future depends much more on us. and the point is do we decide to pay for what we get? do we decide to fund social insurance in a sensible, sustainable way? if we do, we'll be fine. if we don't, it's going to be much more difficult, particularly when the world turns against us, and the financial markets decide the it's our turn to face that pressure. >> so on the second question, quickly, i mean, you know, i can't give you a definitive answer. it's quite possible you know a lot more about it than i do, so i should be careful.

but i don't quite see the causality. i don't quite see why having a government-sponsored pension would make me, say, more apathetic about the government's fiscal situation. i mean, i believe -- this is kind of just anecdotal, but i have this belief in european countries at least some of them with a higher safety net there's a stronger willingness to pay taxes. here we have this curious situation where people get quite a lot from the government and don't realize it. again, there might be something there, but i don't quite see the link. >> over here. >> thank you. first of all, mainly for simon to pick up on the europe question, if you were an adviser to party the radical left win the next round of elections in june, what would you advise them in terms of how to negotiate with the imf and the european

central bank, the european commissioner, whoever in this period leading up to the election, and what would you be advising them as what they should be prepared to do let's say if those negotiations don't lead to a change in the memorandum? and then for both of you, you're all talking -- we're here talking about the deficit, people like paul krugman are saying, you know, we really ought to have a stimulus. we really desperately still need a stimulus. shouldn't we be talking about how we could get a proper stimulus? >> okay. so the question in two parts. first of all, i've just been appointed an adviser to the party of the radical left in greece. i think it was for sins in a priest life. [laughter] previous life. and can secondly, shouldn't we be talking about stimulus first in the -- first and foremost in the united states. so i'll take a cut at both questions, and james can come in he wants. so the party of the radical left which is getting bad press, um,

recently -- and, certainly, we can imagine rltively confrontation always and relatively self-destructive ways to handle this. but in terms of the letter that they sent recently to the european commission arguing the debt burden's too high, entirely reasonable. greece really did borrow too much, and the current imf program envisages the debt will, they'll have ten years of austerity, they'll make more transfers to foreigners than the germans made in 1920 through the reparations or the latin americans made in the 1980s when they were trying to pay their debts, and they'll end up with a debt to gdp ratio of about 120, 130% after ten years of austerity. so it's not a very compelling message for anyone, and i don't think it's going to work politically. now, the problem though is much more throughout the eurozone. it's much more about -- there's not that much the greek leaders can do for themselves except try

to prepare a more orderly exit from the euro, and that's where i would be taking this. if their neighbors and friends don't want to help them with that, it's going to be very difficult if they can't get assistance. the imf has said they will continue to work with the greeks under any circumstances and they should take that up with them and prepare an exit plan. but it's not going to be easy. there's no magic bullets. there's no other currency. all contracts in that country are in your roan. -- your row. very disruptive if they leave. the point about stimulus, it is entirely feasible to have, in fact, peter organization sag is the former director of the budget for president obama. his current position is that having short-term stimulus is completely consistent with having medium-term fiscal consolidation, and i agree with that. if you had a single, if you had a parliamentary system here, you had one party in power and that party wanted to take such action, you could do it. you could lock in medium-term

fiscal consolidation, rising tax revenues, for example, or you could not extend the bush era tax cuts and then replace them with a temporary payroll tax cut of the kind that are out right now, and the kind we talk about when we present our book, we usually talk about that as you remove the support for the economy from this big tax cut, and you replace part of it with a temporary payroll tax cut. but you could go the other way. you could put more, additional stimulus in. i just really strongly do not recommend the issues of medium-term consolidation. see, that's the mistake the europeans made. europeans believed for a long time there was no constraint on the amount of debt they could issue and what the government could do. because they were the richest, they claimed largest, most developed bloc of countries in the world. unfortunately, it catches up with everybody. if your public finances are not

on a sustainable path, you are asking for trouble. and that trouble involved, as you can see in various european permutations, tax increasings. you don't want to go there. it's completely avoidable in the u.s. context, and that's what we're working for. okay. gentleman here. >> yes. you stated that the taxing the wealthy part won't work. >> not sufficient. >> well, and the reason you stated that is the way you defined it was in terms of repealing the bush tax cuts. now, to take it from a different perspective, we all know there's an enormous redistribution of wealth in this country in the last come decades. if you look at the wealth that is in that subset of the population and then say --

[inaudible] how much wealth is there, how -- [inaudible] in solving this problem? >> so the question is, how much wealth is there at the top of the income distribution, the 1% we might call them, and to what extent could taxing that wealth go towards fixing the budget? ..

>> as we do the numbers, of the don't find enough revenue on the top end. the top marginal rate to around 40%. >> it is 24. >> i tried to sugar coat it. [laughter] we're not going back to 90%. they are relatively high tax rates. we're not proposing the european welfare state.

keep what you have got to funded properly. you cannot find the revenue if just after the top. middle-class society is the success of this country. >> [inaudible] >> it is trivial. >> take a crack at the book.

[inaudible] he also has power and morality. also is a huge subject of $1 trillion worth of student debt to on the next generation. also. [inaudible] >> i enjoyed it the first half of the book. the question was, to comment

on the david gregory book. it is about to origins of debt to and the money and the importance of debt to a society. look at the implications today we are heavily indebted at all levels. it is quite clear this debt to has been manufactured. they have been doing that to increase volume. it is not fair that it serves a good purpose.

we have a situation where student loans are for profit but many students cannot find jobs. it is the for-profit educational center. i do not have the optimism of david gruber that it will not lead to chaos. i am certain he is right about money and that. but we have the world we have now.

initially, it is a telling story. initially they believed it. they saved money and a sacrifice. but also the uplifting believe they go to heaven. there is no belief in a more. now is the work ethic but not the belief. it is beyond my powers to imagine. >> heidi think europe will

affect our economy like the credit freeze from 2008? >> it cannot be cut. [laughter] i think the european financial system is in much worse shape. it has more fragility and a large stocks can jump and ignite serious problems and other countries. the derivatives market involving larger institutions will come under pressure. but what extent it moves from europe to the united states.

unfortunately those in charge of rebuilding the financial sector unfortunately have been casual about the need for additional safeguards. as a result we have more vulnerability then we should. jpmorgan chase 2.5 trillion dollar bank, more like $4 trillion lost $4 billion in a moment through their own carelessness. straightforward risk not systemic. that is sorry some.

we have to make the system safer. this time we may be of lucky >> >> and this station has achieved since world war i as a predator nation. world war ii ended the depression and the unemployment problem. what has occurred i am not sure yet. with the defense expenditure and virginia expenditures, they have a

multiplier effect to create support. could it be that to what is the worst case scenario? also what we could not afford? >> the statement is warfare has a beneficial transition in the economy. as well as being expensive. can we not afford the peace? >> at the simple level spending on military equipment stimulates the economy.

economists say it is the multipliers. which is more effective? i know the military gave us my career of been, radar, internet, fax machine, but most agree military control does not foster innovation. the way the military buys things will not get used the free-market innovation and competition. >> the last question of. [inaudible]

dodi think we have reached a point* is a social contract? to explain the cost of health care, . [inaudible] don't you think you speak of

the deficit, led to we agree? do we have the government that has the increased complexity? these are just human beings. [inaudible] said. >> the question is from a european if it is too complex and the social contract that we are defending and trying to finance is impossible to manage.

to we have a process for the right to contract? >> conversation, organization. >> you know, that you are at harvard square? there are other places to talk more openly. [laughter] >> that depends what type of activity we're talking about. health care, two issues. spending on the last six months of life but these are questions we should decide

as a society why we have a democratic process. leave it to the free market. we had an attempt by the private sector to give us better health care. look at people under 65 and the uninsured people. medicare advantage with the etfs private insurance provides policies that work attractive but low and bold the only way to get them to

participate is give them the subsidy. said general point to think about what is beyond the capability is with command-and-control system is a very good point*. with health care, the free-market has not done a good job. struggling with health care cost with a better outcome, i would rather have that. [applause] thank you very much.

>> booktv took a speeeleven of books that shaped america up. you can participate in what books shaped america up. if you are interested in bridges abating e-mail us at book tv's at c-span.org. >> books that shaped america and booktv we have roberta shaver why you called it books that shaped america of? >> as opposed to the other

words like change america because pokes slowly have an impact and shape has the better word with that connotation. >> host: what book comes to mind immediately? >> no one book shapes america up. indeed the very essence of what america it is is, impossible and improper to pick out of 88. >> host: the exhibit starts with common sense. >> the earliest is from ben franklin on electricity. we have to books about common sense. one is about dr. spock

raising your child and the thomas paine book that saved the american revolution. >> host: are they all first editions or rare? >> guest: not all of them but many are if not one-of-a-kind. some have inscriptions by the authors or other famous people. to books are part of the armed services reach four people surveying in the military. books that soldiers were sent bride believe now they are sent on the ipod but in the old days. one is tarzan and i cannot

think of the other one. >> host: in this exhibit a lot of novels not only those that the common people bet but also those of highbrow appealing to people of all ages. children's books. charlotte's web. the "wizard of oz." >> host: also "gone with the wind". >> many identified who we were becoming or the aspirations we had as a nation. others told of experiences white the diary of lewis and clark.

"huckleberry finn." those that talked in dialect shape idea is and how we speak today. >> host: you also have social and cultural books. you also have cookbooks and the book from the alcoholics anonymous. >> to look at those of self-help or those that broke barriers. we did not want to limit to what type their chandra or certain kind of author or writing style. it kind of showed america looking for practical

solutions that used books and stories to inspire going to the frontier. >> host: you were in charge of the process? >> guest: it was definitely of large committee with no chairperson. we had discussions over the titles. it was not difficult to select the books bru-ha-ha there is no article in the books. we wanted to choose books to get america talking. of vs. choosing 500 or 100

books. we did not needed chairperson. >> host: some created social movements. rachel carson, upton sinclair. >> guest: 90 books not only create a social movement but some lead to legislation. we look at the edge on gold that was the four runner it was social change and. >> 88 is wary we started -- decided to stop. we avoided 10, 25, 100. it was up for grabs.

it does not give anybody the impression it is complete. we have poetry running the span of two centuries. even walt whitman. we tried to be clear this is part of american history to writing and reading poetry. that continues today. >> although books and not associated with a religion had they moralistic tone. we thought that was more representative of of america than a particular religious book.

we tried to look at her spiritual personae ban particularly religious books. >> host: how o did you start at the library of congress? >> over 30 years ago assistant to the law library and. fresh out of law school. i fell in love. you cannot keep me away. i run to work every morning. working here with books, manuscripts, and musical scores, movies, the gamut of knowledge of america is a thorough and privilege you will have trouble getting me to retire. >> host: is the exhibit opened to the public?

>> guest: through the end of september. we also have a virtual version on our ebsite and parts of the conversation is the open website we ask people to comment on and will be selected why something it should not be on the list or should be added. we have heard from 5,000 people. go to our website and you will find the list of the books and to complete a brief form. >> host: roberta, the last book published in 2002.

>> guest: we decided to put a cut off. if they shape to america ugh give them an opportunity to prove their worth. is an organic endeavor. we will keep looking at books and a decade is a good place to stop. >> host: and some of the books in here including caesar chavez. randy's book had a huge influence on aids research and raising our consciousness. and also cesar chavez of leading voice of america.

>> host: worthies book's best sellers in their time? >> yes. and many continue to be. that was not a criteria but so many have been translated. >> host: emilie dickinson book of poetry? >> she is a must have. the book is from a corporate giving cuba they made a facsimile of house and a tree made out of recycled material. she is a phenomenal poet but we did not discover until the 1950's win we could read

her work and added it. >> host: who did? >> the professional editors white to make her conform. >> host: preferred issue further from library of congress. books that shaped america. at the library of congress, washington d.c.. >> that is the books that shaped america is exhibit. we want your employer to. what books should or should not be included? if you would like to participate with the on-line discussion we will then air on booktv email us