>> vermont native, calvin coolidge was president from 1923 tonight 1929. a recent conversation at dartmouth college discussed with the vice president coolidge may not for candidates that ran for president. former vermont governor, howard dean. this is an hour and a half.

>> i haven't followed so many professors i graduated. thank you all for coming. you know, we were going to call this panel what mr. coolidge retail mr. obama, but then it struck us that mr. coolidge was singularly short on his words. you probably heard that famous story to this report of an up to him and said mr. coolidge, i've made this big bad that i can make you say three words. mr. coolidge looked at him and said, you lose. [laughter] and so i thought if we had mr. coolidge talking to mr. obama, expensive president would go into this big explanation of why he was doing what he was doing to mr. coolidge might just say, not. or he might say, my man.

so, let me -- i'll take a few minutes to frame this distinguished panel we have. as david mentioned, what is unusual is where some of the best minds in the country, but they're not just is in the field, but they have played a role in public policy, so they know what it takes to make public policy. to that mix is what is going to make the panel so exciting. but i wanted to tell you that if you went about an hour from here you would come to the village of limits march, where calvin coolidge was born. if you happen to go there on the fourth of july, which i would urge all of you to do, you would find a crowd gathering by the general store in this village, surrounded by hills that looked as it did a hundred years ago. and there'd be visitors and tourists gathering at a store run by ethnic coolidge's father

and after a while you might notice a small colorguard from the vermont national guard that would appear carrying a brief that the white house and peered as you know, calvin coolidge was the only president born on the fourth of july. and after a while, the colorguard reads this troop request to road and you'd be hard-pressed to know which belongs to calvin coolidge because unless you saw this week from the white house they are. and if you could please pass them for very moving ceremony. but he managed not only to give you an idea that this president became president when president harding died. it took him four hours to know that the president died. his father swore him in with a kerosene lamp. so just to give you a picture of

the times. there was no internet, no radio. there were no interstate -- interstate at that point. come on coolidge had to send the marines to nicaragua and he had to use a secondhand german folk are to provide air support. it was a very different time. the tools he had to work with her rudimentary, coast-to-coast radio was a novelty band. but the country had come out of a war, come out of a recession. and what i want to tell you was during the coolidge years, he turned the economy around and it started to grow at 4% a year. national unemployment was peaked at 25% in some cities. wright, 25% came down to 4%. the stock market was rising from

the top marginal tax rate was handed down to 24%. and think of the tools he had to work with. no radio, internet, facebook, twitter. how can anyone work without twitter? so let me take you forward now to today, right? so we have deemed a situation where the economy seems to be in the doldrums. but now the word is interconnected to the 7 billion people of the world are interconnected. nothing can happen anywhere without something happening elsewhere. we have all the tools of instant communication. twitter, facebook, internet, the tools that calvin coolidge used were prehistoric compared to the tools that we use today. so why is it then that that president was able to do these things and we are struggling? right, this is a question a

common coolidge memorial foundation puppy training center and that is the question we pose to the piano that i'm about to introduce you to today. so that is just to frame the topic of the panel. so i'm going to introduce this panel from my far right down. superstar but are faster matthew slaughter. professor matthew slattery's associate dean of the mba program and professor of management at the tax school of business. he's also currently a research associate at the national euro of economic research chemist senior fellow at the council of foreign relations. member for the academic advisory board for tax policy forum and academic advisor to the delurk center cross investment from a

member of the u.s. department of history committee on tax policy forums. served as a member of the national council of economic advisers and executive office of the president affiliated with the federal reserve board, international monetary fund from the national academy of sciences. he received a specialist degree summa cum laude phi beta kappa from university of notre dame and doctorate at the massachusetts institute of technology. governor howard dean, who all of you i'm sure no, six term governor of vermont, which by the way is the second longest turned than any governor served in vermont. he currently works as a part-time independent consultant , focusing on areas of health care, early childhood development come alternative energy and grassroots politics around the world.

as a former dnc chairman of presidential candidate. dean is founder of democracy and also serves on the board of the national democratic institute where he focuses in southeast europe and china. dean created and implemented the 50 state strategy and is credited with helping democrats make historic gains and of course he used the internet in the tools and pioneered a nose. he graduated from yale and a ba in political science and received his medical degree from albert einstein college of medicine in new york city. he cracked this internal medicine and shelter, vermont. mr. roger brinner is partnering chief economist of the parthenon group, global strategy consulting firm headquartered in baltimore, london and bombay.

he spun on its expert economists come articulate analyst at the u.s. international economy. he has he has many long-term relationships with corporate clients on issues relating to the strategies, market growth in the pricing equity valuation. dr. brinner extras include positions at businesses, academic and government institutions. dr. brinner received a ba from kalamazoo college and phd in economics from harvard. and last but not least, professor douglas irwin is the robert e. maxwell professor of arts and sciences and department of economics at dartmouth college. and that economic historian and he will open our panel and a moment. he's the author of trade policy disaster, lessons from the 1930s can't particularly pertinent to the topic today entitling protectionism, the

great depression and other books. he's also working on a history of u.s. trade policy from colonial days to the present. as a research associate at the national bureau of economic research, also served on the staff of the president's council of economic advisers and the board of governors of the federal reserve system. he has a phd in economics with distinction from columbia university. so what we ask these tenement gentleman to do is take a few minutes and give his opening remarks. at 10 of which we may engage in some discussion amongst ourselves or we may open it up to questions from you. so professor irwin, me ask you to start. if you come to the podium, it will make it easier for c-span. [applause] >> well, good afternoon. my role is to set the stage for the panel that will follow and

talk a little bit about the economy of the united states the 1920s, presidents coolidge role in the economy during that period and perhaps raise one or two analogies that the economy of the 20s versus what we have today. you might've heard the phrase, the roaring 20s as a description of the economy during the 1920s and actually that's largely true. it is untrue with respect to one sector come to in a moment. as the introduction ofa, economic growth is really strong during the 1920s. 4% or so. there was a major recession in 1920 and 21 but for the rest of the 1920s and was fairly smooth sailing. also technological change. a lot invented in recent decades really became imprinted on the u.s. market. for example, the number of houses that had electricity rose from 35% in 1922 mike 70% by the end of the decade.

the number of cars in the united states returned 6 million in 1919 to 23 million by the end of the decade. newspaper -- radio became widespread in american households and this is thought to be the death of newspapers, something we hear about today. now, president coolidge presided over this economy, not to say he was possible for it. in fact, he did little to interfere during this period, but there was a few blips in the road. one was a mild recession in 1927 and one of the reasons, not the only, but the one with the henry ford decided to shut down all the ford plans for six months during the one year to retool them to transition from the model t. to the model eight. i was wondering what would have been today a major u.s. corporation or shutting down for six months while we retool? what would be as a comic as she

"silent cal." we've already heard one story about "silent cal." my other true story of a "silent cal" was in the white house he was asked once, how you chose pressures of the office like so many people asking for favors, ask you to do this and not. you just can't do it all. how do you cope with all these demands? said well, i listen. i don't say anything am eventually become so uncomfortable they leave. last month while i've never tried this myself, i've often thought when students coming to ask for a re-create, maybe i should invoke the "silent cal" treatment. i have yet to do so. it went as far as i know unremarked at the white house did produce a little bit of a downturn in the economy. they henry ford was not adequate for steve jobs to this day because he didn't want to do it no model changes. he resisted coming out with the

model a pose for us to buy the market. one thing that did happen is people were so excited in anticipation that a million people turned out to get a glimpse of the new model. i don't know whether that's a half the people turned out to get it clumps of it. when i think about people waiting overnight to get the new ipod, the same thing was happening in the 1920s, owners automobiles of the time. now of course i was not the only stretch for the economy with rabid technological change. the caveat to the 1920s was of the roaring 20s is agriculture. agriculture at the time was 20% of the force was not doing well at all during this period. the story behind agriculture was turned over one demand during record levels and farmers respond to higher prices by buying more farmland, buying more machinery and equipment,

investing in firms and expand output as they naturally would. surprisingly, prices to collapse at the end of the war and this kept the going on. he reached. what happened in 1920 and 21, farm prices collapsed by 50% and they didn't come back. it was a permanent flow. what happened as farmers very much in debt with through the entire decade of the 1920 during the massive foreclosures on property, second mortgages, high rates of indebtedness that they just couldn't deal with it and tremendous political pressure to do something about farmers during this period. some of you may have seen ken burns recent documentary aired here at dartmouth on the dustbowl. as a wonderful documentary that i do quibble with implication left in 20 minutes his films to the 1920s as agree. relative to 1930s.

it was not agree. for agriculture. farm tek was very hardheaded. the labor force being hit with hard times i'm summer farm prices edge in combat, what to expect them them to do? asked the federal government for assistance can exactly what they did. twice in congress during 1920s, congress passed and from supporters for american farmers to target prices back to the prewar level. what do you think "silent cal" thought about this? he would give them the silent treatment because he didn't think government interference was warranted. but of course this is a nonpartisan or bipartisan effort. it was a midwestern republicans, southern democrats represented that wanted us to come of the calvin coolidge twice vetoed the legislation. what is interesting or ironic is that in vetoing the groundwork

because the farmers said we had rejected twice, won't get anywhere with resident huger in the 29th and 30, so instead of asking for price, and for his spirit daily deceit for seeds for what later metastasize 1930 which had a lot had a lot to do a trade wars of the 1930s. so there's perhaps a lesson there up unintended consequences if you don't help at the sector, they're not going to wait. he's going to come back in the form data to support could be detrimental to the economy overall. that is a very brief sketch of what was going on in the 1920s. let me conclude by talking about two perhaps analogies with our current situation. what can we learn from this. the issues coolidge dealt with. the first one is agriculture. as we speak, congress is debating trying to pass a new farm bill which they do every

five years. lo and behold we do with the legacy of the 1920s and 1930s because even though the farmer scott the terrace, which they later said repudiated insane to give too much to manufactures and not enough to the farm. and could help exporters as well, what we do with president roosevelt new deal was priced support and age reproductions, were third of the crop in 1933 was flouted as our notion that we somehow reduced supplies that could increase the price. the problem is not the generalized assertion. dude is overproduction, no evidence for production from past years. price supports of the 1930s was a legacy of today. we are still dealing with and this is what calvin coolidge had to say about price support at the time. government price-fixing when started is no justice in no one.

it's an economic fallout from which the country has every right to be spared. in the 1920s and 30s come in the sector was poor relative to the rest of the economy. because they were redistributing from the rich to the poor. but there's a situation today? we are helping out agribusinesses and redistributing income from the port of the rich. that is one thing i hope congress keeps in mind in terms of the farm bill is who's getting the subsidies? of course ethanol policy is the most egregious example. as governor dean can attest, most presidential candidates had to go to iowa. i'm what you have to say? faced with farmers i support the ethanol program even though it doesn't make economic sense, environmental sense, doesn't make agricultural sense. $6 billion tax subsidy to refiners and blenders.

we have massive tariffs on imported sugar ethanol, which is much more environmentally friendly coming from brazil. this corn farmers in dealing with that legacy. where's the other point which made, no and appeared it would be an end to subsidies. but congress is now instituting is not direct payments for farmers, the crop insurance. if you know any other commodity prices, they've been a high levels. what this means is if those prices fall as they probably will at some point, guess who is on the hook? everyone in this room and everyone watching this broadcast. so no justice, no end. coolidge was present in predicting not. second point, just as in the 1920s, we have some economy and society to his difficulties for structural change. here are things easier in the 1920 sickest most structural change between agriculture and shrinking the culture of moving

labor into the manufacturing sector and services sector. coolidge had it easier because the economist karen rapidly. much easier to transition from one sector to another when creating jobs and you can facilitate the transition as difficult as it may be. were faces today is another transition, not from agriculture and services. the sector is small in terms of employment, as is the manufacturing sector. that is good news because that comes out because of privacy sectors. we produce more manufactured goods than we ever have before. weroduce more farm goods. we just don't need people to do it because we advanced to launch a time intensive methods. consider structural changes within the structure to more certain jobs are obsolete because of new technologies, weatherby bank tellers because of atm machines, or readers because of kiosks that will soon appear because of tables for

your order by tapping the screen, rather than telling a person what to get for you. not making this transition will be very difficult one with a stagnant economy that's not creating jobs. so i think the challenge for current and next president is much more difficult than the one by calvin coolidge in the 1920s. on that rather somber note, alternate over to the next panelist. [applause] >> that was pretty somber. i also did a little research about president coolidge and he's identified with small government conservative. he backed that up by keeping federal spending fairly flat. now, our next president is likely to reside where the federal databases by 40%. that is even with some action taken that congress is currently

envisioning. we're in a path that everyone but washington does is unsustainable and we don't seem to find a bipartisan middle that can tackle it. we have commission after commission that's bipartisan, that comes out of sensible recommendations have been against torpedoed by both parties. part of the reason why we can't have any bipartisan agreement i think is fair at dean in washington on the basis and it does rather than facts. there are things they believed they just simply aren't true. i have two daughters, both of the science background, once a pediatrician was a phd organic chemists. and they told me the internet first became popular that if you searched for roger brinner, but you found us a quote, plural and anecdote is not big on. last night i set that up to cut

sometime in the early 80s, just made it up and that scientists use to bash one another when their presentation actually isn't exactly. so let me bash some populist myths that are not based on fact. one theme of this election coming up this certainly class warfare. in the end of the american dream. there is this feeling -- the assertion that middle-class incomes are shrinking and that this middle class is doing far worse than it has in the past. precious absolute falsehood. not a shred of evidence from many statistical agency in washington. they just make it up in the media and the politicians read the media and follow it. another myth is that the tax legislation reagan, clinton and bush benefited the rich and the expense of the middle class in the lowest income groups.

nothing could be further from the truth and i'll share with you facts are not. first of all, let's talk about this poor middle class. it turns out that their incomes if you look at the u.s. divided from top to bottom, turns out the groove three from business cycle peak to business cycle over the last 40 years has been almost identical. 1.5% per year compounded annual growth year after year, decade after decade, no deviation maker of the citizen power, republicans, democrats, would we are talking about would translate into higher pay, higher income and the middle class is doing just fine. those numbers i cited are for the second, third and fourth of the five quintiles. what about the bottom? they do have the lowest growth, but it's still positive. and the growth over the last

business cycle is about the same as the previous. they only had incomes rise by about half% a year. and the top portrayal or quintile as always is rising at about 4% a year. so the gap is getting bigger. the pie is being displaced in similar proportions and the pie is growing. this notion i've heard the president talk about 50 issue today is not about growth, but about redistribution. it is clearly based on this false premise that the middle class is suffering and the rich are the beneficiaries. part of that of course is a story about personal income taxation. it turns out if you do look at the bush and reagan tax cuts with some changes in the middle by president clinton, what you find is the bottom to quintiles of the population, that people

with the lowest 40% of taxable income actually remove from the taxpayers to net recipients of the earned income tax credit, both quintiles, not just in total, both the bottom and second from the bottom quintile went from being taxpayers to check recipients. returns are filed, they get a check back a notch in the government. but about the middle class? actually had its tax burden cut by 40% to 50%. what about the top to quintiles? or tax burdens were almost unchanged in total. what was done first by a bacon and then amplified by bush was to create this very large zero bracket because taxable income to get it to a certain level and then a smart piece of bipartisan policy, instead of raising the

minimum wage, they created an earned income tax credit, which says the market isn't really working to generate a living wage at the bottom end. rather than raising the minimum wage and forcing people out of work because of create automated teller machines and parking lots in new dispenser of soda at a convenience store with a fast food restaurant, both are going to do is say the government, if you're working hard enough and you're trying because you've got the wage, we will match part of that. that's it the earned income tax credit is. smart bipartisan legislation, but that is the reduced and taken it so that now and 2010, 45% speed zero federal income tax actually cut a check back here before the break in years his 19.

at the end of the reagan years who is 25%. at what the bush tax cuts, which expended vast, it went up to 40%. so, it would be useful within these debates in washington there is actually a fact, just now and then. i look at the ibm can see the shocked looks, like how could i've been told so many lies for so many years by reputable newspapers? ..

they didn't come to one another's aid on a proud basis. they are in recession and it is impacting us. so when i talk about the need for a move to budget balance, what i have in mind are gradual adjustments coupled with long-term fixes and entitlements. we are going to have to realize that the current promises we make and the cap. the vice chairman of the concord coalition started by two senators, tsongas and rugman, different parties. they said during the reagan years, this doesn't make sense. we have got to do something about it. finally during the '90s we got to surpluses again so i am and anti-deficit hawk, but i am a -- and by the way the coalition has its membership highly concentrated in what age group?

senior citizens. why? we are saying cut social security, fix medicare, do things like that. the senior citizens say, my grandchildren's standard of living is at risk and less we do -- it's the only responsible thing to do so we do need to address that. our major federal health care health care programs in 1972 were 1% of gdp. they are 5% headed for 8% of our total national income. we have got to have some incentives that are put in place. douglas was referring to coolidge's philosophy and that the quote from this farm legislation period. he said business must stand quote on an independent aces because quote government controls cannot be divorced from

political control. talking about agriculture, but today i am sure he would extend it and say we should modernize and reduce costs read and regulate prices. that it sounds like what we need to do in health care. in fact, if you look at our post-war experience in health care, and i'm actually going to post the charges or you can go to the coolidge web site to see. and when you look at national health as a share of our national wallet, it goes up -- it's not a steady movement. it's every three to five five for sometimes 10 years. the federal government decides to get more generous, and the subsidization of our youth and guess what? if somebody else is going to pay for it we are going to take another pill every day and we are going to go along with what are doctor says.

but let's do things that aren't really necessary. we need to as they say then the cost curve, the smart about what medical tools and services we use and pay for them to the extent is affordable out of our own pockets of those are the kinds of things that i think cal might have thought about in today's environment. thank you very much. [applause] >> well, thank you roger. there's a lot to disagree with in the question period. i do want to say couple of things before i start out talking about president coolidge. it is very introduced that i was introduced as a second longest-serving governor in vermont which is actually true. most people make the mistake and entries me is the second longest

sitting governor in the history of the state of vermont. that is not true. i served 12 years. many of you may know that, because you are vermonters and i'm particularly delighted, vermont is an independent republic for 14 years before it joined the nation. it's seeded from great britain and we were not allowed to join the state until 1791 and of course very much of that time new york claimed half of us in new hampshire claimed the other half of us. it's a little-known fact we could have course agree and what our capital for the 14 years and we played twice our capital in what is now new hampshire figuring that if we put our capital in new hampshire than new hampshire would stop trying to get our land. we had one in charleston and i frankly forgot where the f1 was so i served as 12 years as the government of vermont. thomas chipman who was the governor for a lot of the time during the republic served 17, when you're terms that aid in the republican nine as a state

governor in vermont. so just a little piece of vermont history. i have actually, what i was called to ask to do was some passion to defend calvin coolidge because he is after all a vermonter and the homestead is actually beautiful down in plymouth which i have been to a couple of times. and actually he is not as hard to defend from a progressive democratic -- as you would expect. it is true that he was actually a free-market kind of guy and said a lot of those things but there were some other things about him that many people don't know. he had an illustrious political career, a very decent person. he was known probably as breaking the boston police strike and ronald reagan quoted him when he broke the air traffic control union in 1981. but what is not known about coolidge is that he once said

this about industry. we must humanize industry or the system will break down. he was also when he was in the state legislature president of the state senate he was asked to lead a committee to broker and to mediate the strike and he did so and both sides agreed to the proposal that he championed as the chairman of the committee which was essentially a significant wage increase for the workers. he was extremely pro-civil rights both for catholic, jewish and african-americans. all of them of course were persecuted at that time. that was a time in america when the kkk was very powerful and most of us here in yankee land think the ku klux klan was designed as an organization to persecute african-americans. the truth was the kkk was first invented in the midwest to persecute catholics and then jewish and african-americans and calvin coolidge, and they also

played a big significant role in politics in the united states. people were afraid to publicly contradict them and coolidge had no problem supporting and being very clear about the rights of minorities. one of the extraordinary things that he did in 1924 was giving a american indians full citizenship rights which doesn't sound like much today but given that in our history of what we did the american indians that was a major step forward. he was also a very big supporter of women's suffrage which was quite an issue at that time as well. if you know anything about grace his wife who is exactly the opposite of calvin coolidge who is outgoing and the life of the party, i suspect she probably had a fair amount to do with that. but if you think about this -- how many of you are for -- from vermont, residents of vermont? about half. this is part of the vermont character. people don't understand much about vermont. that understandably we are so

liberal today and labor were so conservative. we didn't have a -- 109 consecutive years. i don't think we have changed that much. what we really are is a libertarian with a very strong feeling of communitarianism which sounds like a contradiction in terms. how can you be a libertarian and a communitarian at the same time? even today you see that where people argue for three hours about whether they should lay out $150,000 for a new greater or can they share it with the next town over? we are used to making our decisions. we are not used to having government tell us what to do but we are used to doing things for ourselves together. we never could have recovered from what happened a year and a half ago with irene had it not been for that communitarian streak and libertarian streak and that's what made calvin coolidge what he was. i think health and coolidge has anything to say today to our president or president -- i

would say get with the program. it was basically that when you get into politics people will call you a demagogue. don't pay any attention but don't demagogue. and don't be afraid to do what you have to do. basically his tenure was marked by willingness without as it says in the oath of office for anybody serving in vermont without fear or favor of anyone. that was the kind of person he was. so this is almost going to be coming up fairly soon on the 100th anniversary. he was an extraordinary guy and he really was a son of vermont. i quoted this in one of my non-girl addresses first i really urge you to read the quote on the net that he said, the angst he said about vermont and extraordinary courage of the

people there. it's a wonderful quote, bit of a long quote at when you go home i wish she would google calvin coolidge and that quote will come up, calvin coolidge in vermont or calvin coolidge and vermont. he said what i think is the truest thing that anybody has said about the state of vermont and is consistent with the matter who is run the place were of the last 200 years. the ellen brotherson were very colorful had lots of -- [inaudible] a lot of interesting things about vermont. the last one before eyes stick it to roger ever so gently to get the conversation going. there is an overwhelming factor here. frank smallwood served in the legislature as a state senator. he wrote a book called the biography of -- should be mandatory reading for anybody interested not only in vermont that the american revolution. thomas chipman like many

immigrants from connecticut and we still have a lot of those but their incomes are higher these days, he had an eighth grade education and like any of the people want to see if they could make a better life. land prices were getting pretty high in connecticut and that many people as an eighth-grade eighth grade education he was very crafty and very smart and every time the hampshire the new york assembly would claim that they were going to exercise the governor to hampshire -- would grant to grants for each piece of land so that they could double up on the money and this was the way things went and colonial america. so when the new hampshire legislature and the new york edges later started to begin to exercise their claims, chipman would send a few of his buddies to montréal to go out drinking and make sure the

revolutionaries spies found out and of course montréal at that time was british territory. the british tactics of the revolutionary war were to split new england off from the rest of the colonies by coming down the hudson valley which is what the saratoga and the battle of bennington and all those campaigns were about. so when word got back to washington that chipman's dragging buddies were in montréal carousing with the canadians the word would go to albany to knock off the nonsense and stop talking about land claims in vermont because otherwise the vermont makes a deal with the canadians the country is in big trouble. and they did. what chipman did was carefully maneuver these two much more in port and states to either side of us and in those days they might. so they would eventually give up their claim in the interest of the greater unity of the united states. it was an extraordinary thing

and it's a wonderful thing to be able to look at what washington and all the players were doing through the eyes of the very small state with a group of very determined people. so let me just conclude, and we have to kick this off with a good controversy. i do disagree with roger. it is true he did not make up any statistics and he and i agree that the media often -- in the way of a good story. but it's also true that warren buffett secretary pays a higher percentage of taxes than he does. why? roger did not mention payroll taxes and they don't go down. they have gone down recently because of the 40-dollar, two-week payroll tax that obama put in but if you could put payroll into that equation, in fact going come people still pay a higher percentage of income, certainly not more taxes. the he other thing that is

interesting, i took a bunch of print notes, the errant income tax credit with i completely agree with roger about is a good way to read -- to redistribution. it started by a guy who today would be a conservative business democrat and he couldn't get anywhere near the republican party and his name was richard maxon pat moynihan at the table. two more things. i am actually, i do agree with the notion that we have to be careful. i'm also very much of a hawk on the deficit. those of you from vermont when i served well remember when my great friend from across the river mccormick the senator from windsor was quoted in the par as saying why do we need a republican governor when we have got being? i think those were the days before the -- so i looked at that slightly differently. [laughter] but i am a deficit hawk. i think however we have to go over the fiscal cliff.

horrifies almost everybody in washington but i will tell you why. there's no chance we are going back to the clinton tax rates unless we do that and we need to go back to the clinton tax rates. secondly there's no chance we'll cut the defense budget unless we do that and we need to cut the defense budget. yet they are some things that will be very painful for those of us on the progressive side and it will tip us into a recession according to the congressional budget office, the most nonpartisan people in the country look at the budget and we will see a 1.3% decline for two can set of quarters in a 2.3% increase over the years. it's a very tough price but as the -- there's going to be no agreement in washington and i also agree with roger completely on it. the fact is we need to do these things. he cannot go on with the kinds of deficits we have and we have been saying that since the coalition was put together by warren buffett and paul tsongas. that was a long time and with the exception of bill clinton and gore the recession has

gotten worse. we cannot afford it. i'm telling you that as a liberal democrat. the reason we had so many programs and when i was running the state, all the school changes and all these things, the environmental and northeast kingdom land deal is because we are a stable budget and these things were not treated as one-time expenditures that were somehow going to go away magically. when we cut taxes we cut expenses and we also played a framework for gradual expansion of the role of things that i thought needed to be done particularly in health insurance for all children. you can't do that if you don't care where the money comes from and if you're fiscally responsible. you can only do that if you have a basic fiscal responsible it sees to pay attention so when you do these things that the programs are sustainable. i think that is important i think we cannot continue to run these kinds of deficits and i don't think anything is going to get done with a harmonious agreement. i don't blame the democrats for this. they're not going to continue to

allow tax breaks while we are cutting social security medicare. i think you can get entitlement reduction but you are going to do it by significant tax increases as well as cuts. that's only fair way to do it and i still don't think you will get bipartisan and i'm happy to see us go to the fiscal cliff to get the defense cuts. the defense contractors are very smart and out of four and 35 congressional districts they have planned, 420 of them, there a lot a lot of job so we have to do with all the problems we have with the budget. it's not just medicare and social security. social security is not that big of a problem that medicare is an enormous problem. the last thing i want to say is this. we talked a little bit about health care and i can go on about that all my. i'm not going to put if you could only make one change in health care come if you could only make one, you want to control costs, the biggest drivers in all of health care is the fact that you pay -- whether you like it or not. if you continue to have a fee-for-service system in this country you're never going to

get health care costs under control. the republicans are talking about the market force. there are no market forces in health care. the market forces in the health care drive costs up because we get reported or doing as much as we possibly can. the more often we do the more we get rewarded. i don't think doctors are anymore -- then lawyers or teachers but incentives to infect work in all the incentives in the health care system that we are part of our to spend more and more money. the way to deal with this is to have, to get paid by the patient, not by the procedure and then left the health care system decide how they will do that. and it's happening. is happening often enough and mitt romney pioneered obama carried massachusetts and it's true in five years down the line massachusetts is doing very adjusting things including having hospital -- insurance companies. want to get integrated care into the hospital with massachusetts being one of the greatest metal their countries, once you have vertically integrated care and

you have a payment by the patient and have actuarial from the insurance company inside the hospital you now have a mechanism to pay hospitals by the number of patients they have not been a by the number of procedures they do. the entire medical system changes to begin to report the whole medical system for wellness instead of illness and that's the only way we are going to become a grade -- if the great health care cos under control. thank you. [applause] >> you so, i've had the pleasure of listing my three distinguished panelists and i want to get into the conversation so i want to share and i appreciate the kulisch foundation for inviting us in participating tonight. spent more about the economic performance of the united states in the time of president coolidge and trying to connect that with where we are today. and it does -- there was this

roaring period in a lot of basic indicators we looked at and there is a juxtaposition, a jarring one from where we are today in the kent. today in the ide we have about 23 million under an unemployed americans. the number of private-sector jobs we have the united states today is a little over 111 million. that's a same number of private-sector jobs we had 12 years ago. we have had no net growth of jobs in the u.s. private-sector during a period in which the labor force has grown by 15 million. and we today are sitting in the wake of a dramatic world financial crisis. we are still struggling with trying to figure out how to stabilize the economy and our financial system and we do that while we -- across the atlantic ocean while we see what is happening this hour today with greece, spain and portugal and other countries tomorrow. as a reflects a little bit on

where we are today in contrast that with a period of president coolidge, i think if we can magically bring him to earth here and ask what wisdom would you impart to us today for the challenges the united states basis, i came out with one word which is humility. humility in two dimensions that i want us to think about. in terms of the broad issue of the political economy and i dare say the labels change and its governor dean has wisely pointed out to us where today we would replace someone like governor coolidge and which party is quite unclear given what's happened in this country. so my word of humility that president coolidge might have today is for democrats, independents and republicans and people across the aisle both at the state and local level. so i will explain this with a quote. we have heard a few quotes from president coolidge. in early 1925 he gave the speech

to a press association, a u.s. press association and the quote was a fun. the second half of which i think a lot of people may be familiar with. he said the following, it is probable that a press that maintains an intimate touch with the currency of the nation is likely to be more reliable than it would be if it were a stranger to these influences. after all, the chief business of the american people is business. they are profoundly connected with buying, selling investing and prospering in the world. fast last segment i want to unmount before couple of minutes to get us to the humility. one of the striking things is president coolidge stated those words coming from background that had little to do directly with business. he studied as an undergraduate at amherst, another fine school where his main course of study was philosophy and economics. not long after that he went to the study and practice of law and spent a lot of his career rising in public service. so he is not someone who had

spent a great deal of time directly in the private sector and yet i think the quote of the chief busine of the american people is business is actually very profound for this notion of humility that he brought to his office in terms of thinking about his stewardship of the u.s. economy so i want to think about humility first of all in terms of what drives economic growth. wintuk united states today are struggling with slow economic growth as rogers and others have pointed out and creates a lot of -- in terms of virtually no sustainable job growth. you look at the 1920s, and one of the reasons it was boring what was happening in economy was how innovation and technological change and new in new products and industries work so he said of the acid we didn't have twitter and the internet in the high-tech industries of them were things like electricity, automobiles, remember air travel was becoming more of a viable thing in commercial so both

households and the business sector, the 1920s was an astonishingly innovative period in american history in the way economists look at it. you can't find any quotes of president coolidge traveling around the united states laying claim to that innovation, laying claim to that economic activity. the macroeconomic activities were a lot of basic ways we care about. gdp growth averaged 4% per year and the unemployment rate has fallen to a quite low level of around 5% so there's a regional aeration. for the overall economy things were going quite well. a a lot of what that tends to mean when economies grow quickly, innovation, we tend to get searches in income and tax revenue. part of the recent tax cuts were able to be made during that period in an environment of federal budgets were balanced during surplus for most of coolidge's period it's easy to do that when you have surges in

tax revenue soar more recent pitt maine if you look at the late 19 '90s we had balanced budgets for a few years, the last few years of clinton's administration. part of that had to do with him and republicans as well in congress raising some marginal tax rates in some ways earlier in the 1990s. an awful lot of that had to do at the unexpected surge in productivity and united states and therefore growth in income that have to do with the i.t. revolution. that was the period where the spread of computers, netscape the first internet browser had its initial public offering in august of 1995. the second half of the '90s was was up reluctantly unexpected period were productivity growth and income growth surged and that was a big piece of what allowed the united states to come into fiscal surplus for a few years. the first thing i want us to think about with humility is an awful lot of politicians on both sides of the aisle at the federal and state level lay claim to a lot of economic

activity that happens during their period in office and i suggest that we economists don't know a lot that one of the things we don't know a lot about is how you sustain economic growth. >> economist, scholars and practitioners have tried to unbundle this clear it has some things to do with basic federal government support for research and education infrastructure. that has an awful lot to do with the incentives given in the third, entrepreneurs, small businesses and large businesses and when you look at the united states and some of the sobering things that explain slow economic growth there is a dramatic slowdown in new business startups in america. it has to do with the global economy with a lot of global corporations more and more pictures after thinking about where they want to hire people into innovative activity and make investments is not just what we are are doing in america. is in the beyond countries because part of what has happened in the past generation we have a few billion people that have succeeded in the global economy and we are kidding ourselves in the n if we think we have this ordained

right to good jobs and good wages. humility is one theme in terms of economic growth and i want us to think about and the historical record for president coolidge proves that. the second dimension of policy humility i want us to think about is more speculative but speaks to the financial crisis that came after the rain of president coolidge and we are living in the aftermath of today. president coolidge said the american people are profoundly connected with buying, selling, investing and prospering in the world. one of the dimensions of that is what happens in asset markets and capital markets and i think one of the lessons i take from president coolidge at the time is during his period the u.s. stock market, the dow jones industrial average that measures equity prices rose dramatically and he left office kind of on the cusp of the peak of u.s. stock markets and in 1929 dadar came black monday in the crash and that was a peaceable

contributed to the financial calamity in the real damage that we have come to know today as the great depression. we have had financial crises for centuries and we probably will continue to have financial crises for a long period after that. so i think when we think about what government can and can't do humility about how capital markets work i think is warranted today. that is not to say we don't need to have sound, aggressive regulation of capital markets but i think when i hear a lot of the policy conversations today starts from a couple of places that i don't think you're quite accurate. one is that financing is inherently evil and individuals when you think about is not to say -- but it is bowling alleys and banks and you name the industry i can find it. and the other is there's a sense today at least in the united states a lot of people are thinking about reform of capital markets. they speak as though all sort of

crises and capital markets can be done away with if regulators are smart enough and trusting enough and that is one message i take away from president coolidge's time and again i don't know if you would read, is to have a little humility there and realize capital markets and definitions are hard things to predict and a different way to think about it from a regulatory perspective is how can we try to reduce the risk of those things when crises arrive and reduce the damage they do in the broader economy. it's a fundamentally different way of thinking about how they want to regulate capital markets. very for people and if we just get the right way of doing regulation we will do away with it forever. so that is the second dimension of humility i would want us to think about which is our country and any other struggle with the aftermath of yet another financial crisis. i don't like this back but the reality of how capital markets work is we have had crises like that for centuries. in the future we probably will have future financial crises and

we will see what happens in europe in the coming days and months. hopefully we won't have another one but humility in terms of thinking about what drives economic growth and humility in terms of thinking about how you regulate capital markets or two things that i think are present in what i see in economic history during the presidency of coolidge have to do a lot with what we are facing today. [applause] >> thank you very much. i have one question and then the moderators prerogative i think, and that is a that the u.s., we are the most productive country on earth from what i understand and in that basically means we do more for less. the criticism is often made that companies are making all this profit that they but they are not hiring anybody. where the most productive country and we don't need all

those people. so can you just sort this out for me? are we going to have to go through a whole generation before people start getting wealthy again and everyone is project if and what? can you help me out anyone? >> i would be much more optimistic than that. productivity growth since 1900 the u.s. has averaged 2% a year. we had a surge to around 4% of your during the information technology revolution and that matt was talking about but it's really surprising, if you go back and look at the historical statistics in the u.s., and they are actually actually reliable facts about 1870. 2% is the magic number and we managed to take the higher income with a more productive per person and by more. by buying more we created more demand. so it's not the notion of there is a fixed of demand and each

employee is more productive and more people would be unemployed. demand keeps rising and as we are in a dative we sell not only to one another but all around the world. if you had told people that 20 years ago, looking ahead 20 years, that manufacturing jobs would be reduced by 60%, they would have said that would be a gross recession and the u.s. but in factor in that period be an employment rate in the business cycle still averaged about 5%. as you look around the world to try to understand why some nations are high-growth and some nations are loathe road on a continuum, not just year by year but over 20 or 25 years stands. what you find is that the distinguishing characteristic of bottom versus top poor tile countries and you can see it in

the middle quartiles as well, is if you invest in people through education, more primary and secondary and more tertiary, if you invest in research and development and more capital goods, better machines and better tools for the people to work with, there is a perfect correlation between the level of investment in people, machines and knowledge and the growth rate of the country. so the growth does not destroy jobs. it creates rising incomes. in the cyclical setting, how do you ask how do we manage to get out of our current problems? that is a tough one because we have got this horrible european environment of recession that is going to be a drag on us and then howard and i disagree on how rapidly we should take the cure. i am very fearful if we have a 4% of gdp, and we are talking about the fiscal cliff equal to

4% of our total outlay. for took that out and left without which is what would happen forever, we would have not a recession, not a great recession. we would have been even greater recession than we have now. europe has try that experiment. they have cut their spending by 1.5% of gdp and it has brought them into a situation. >> let me give governor dean a chance. >> there are other panels with economic backgrounds. i rest my case on the fiscal cliff. i think at one point, 3% consecutive drop in gdp for two quarters is not great but we have to deal with the deficit and washington is certainly not going to do it so i would stick to my guns on the fiscal cliff. i think there are two things that we have not talked about. one comment i think one is good. in in the long run but it is very painful and that is free trade. my friends in the labor hate

free trade in the truth is free trade is good for the world. geopolitically it stabilizes people's behavior. george w. buh was first elected, people have forgotten us, a short time after he was elected one of the fighter planes was spying on the chinese coast in the chinese claim that it was in its airspace. one of their hotshot fighters crashed its fighter into our plane. our plane was disabled and their plane went down and he was killed. in 10 days, not just the crew came home but the plane was dismantled and sent home back to the united states of america. that never would have happened 20 years earlier. why did that happen? is the chinese are doing so much business with us that they can afford to provoke a major international incident and they will be much more careful than they would have been before. so i think international trade is a very good thing but it spread -- been very painful to manufacturing the manufacturing countries of the world.

the adjustment will continue. i think we are beginning to see that you can get through that and develop different kinds of jobs in high-end jobs and i totally agree that education and so forth will be part of that. so i do think that is a permanent structural change in the american economy. we will have to make adjustments in continue to make adjustments to make it tougher. the other thing is i believe our capital systems are not working and i think it is because of the size of banks. you can do visitors and better so big that they can't take risks. he has talked about the punishment of excesses of capitalism and failure. he can't fail you can imagine the kind of mistakes and that is what is going on to this day. the banks are too big and they are big enough that they we need to bail them out than they are too big. why do i say that's? is not just their bad behavior investing in credit default swaps and all this that doesn't do much.

85% of credit default swaps are just gambling chips were 15% is reasonable hedges. why is this a problem other than turning wall street into a gambling -- because i used to work for the biotech industry and you can't get people to invest in biotech. they can make a hell of a lot more money feeling around with credit default swaps and collateralized mortgage. and u2's change the tax code. i'm the only democrat in america who believes we have to give get right of all taxes on all capital gains in the next five or 10 years and have no capital gains whatsoever for investments of the same people will start thinking about investing their money long-term as opposed to investing in these for is financial instruments that don't do anything but create a few jobs on wall street for kids who want to drink a lot of liquor and smoke cigars. this does remind me of the 1920s and we can do better. [applause]

>> okay, i am anxious to start taking questions from the audience so again the rules are that if you can, if you are comfortable please stand back in any case identify yourselves and keep your questions short and don't direct them all to governor dean. [laughter] >> my name is marcia reed and i live in new hampshire. i'm a state legislator. and i constantly hear the term entitlement programs, and social security is one i like to take an example of. it's not entitlement. uyghur and it. we paid into it. all our working lives, and so did our employers. everybody is worried about the future of social security for our children and our grandchildren. where's the stupid cap? why doesn't anybody ever consider just lifting the cap on

it? >> a good question. roger do you want to have a quick shot at it? >> there are two answers. one is, not you personally that you the american public did not pay enough to afford the benefits on an actuarial basis. there are sequential pieces of legislation passed by congress who grossly increase them and promised more than the tax revenues could ever justify. finally in 1987 there was a greenspan commission, bipartisan, that reduced and postpone the retirement their retirement ages but it still couldn't do enough so the next questions raised were why not just raise the cap? social security is uniquely among plans partially designed so will what you as an individual put in has relevance to what he was an individual will take out and it is true

that the lower income groups get a positive rate of return on that and the higher income groups get a negative rate of return on that. so what you're proposing by raising the cap would just be having a tax on higher income groups to provide some other benefit. let's face it, it is just a tax to finance something that we never paid for. it is a tax. >> well, why not? our fair share of taxes. >> let me move on in the speakers will be here for a while longer but let me take another question from this gentleman here. >> i am from the government department and want to thank the panel is. i think it's been a terrific presentation and i would make one comment with reference to something that are faster slaughter said that was very important which is the role of

technology. one of the huge drivers of economic growth is technology. i want to know how many members of the panel know that every automobile maker in europe is introducing hydrogen powered cars? hydrogen has no pollution. no co2. you make it by splitting water and it's in the united states that we developed the technology up using solar panels and a cobalt catalyst to split water, so use solar energy to split water, restore the energy in the hydrogen you'll sell to drive the car. that can be done anywhere so it's no huge cost of shipping oil all over the place and we are not spending a quarter of our fuel to buy gasoline or oil

from people who hate us. which is sort of a stupid thing to do. so mad, we are using so much gas in washington we don't have any left which is obviously not the right answer but go ahead. [laughter] >> no, so that innovation is, few would have said tommy which which evicted technologies would create 20 million jobs in the united states in that last 10 years, my honest answer is i have no idea. the anecdote i will give is, think the story is true that a lot of microsoft officials when netscape was created in doing a special offering did a lot of thinking internally on this thing called the inch and it. do we think this will fundamentally change what do at microsoft and their initial answer was no we don't think it does. my point is humility as i am not smart enough and i dare say most

of us won't be able to predict what will be the next technology. when i hear governor dean, one of the many wise things we have heard on all accounts things that matter for growth in ways that are difficult to quantify and predictor things like can we set up a tax and capital markets system so there's a lot of risk-taking in biotech, clean tech moguls, solar and wind and industries that i don't even know will exist tomorrow. i feel a lot better about the prospects for the future if i saw a lot of things have been washington and other states in america to support that kind of dynamism. roger statistics are great at my friendly amendment amendment is there is no love physics that says the growth in u.s. -- and a great education matters. i was born in 1969. to high school graduation rate in america during my lifetime has not budged at all. in sharp contrast to the 20 century where the high school graduation rate in 1900 was about 5% and today we are still at about 75% so is the subtle

things that collectively i call called humility that matters if we are trying to create those opportunities. [inaudible] >> can we wait for the mic? >> it is a happening now. be that may be and i'm happy to talk to it after the panel will let take another question in the back please. the gentleman and then the lady right after that. [laughter] >> not for long. better enjoy it for now. >> the gentleman's point on hydrogen is one of the things i have thought about years and years. i'd forgotten how old that technology is good half of my lifetime is how long it's been around. >> could you please identify yourself? >> my name is orrin and i live in vermont.

probably 20 years ago or 25 years ago i asked a stock record to get me some stock in maybe one or two of the companies here that were doing the search on that. his reply was oh hell you don't want to bother with that. there is nothing there for years and years. i wish our stock workers were little more industrious and a little more reputable and a little more farther seeing. it's not just the laboratory that where the money comes from. >> is there a question there? been no. i am not one for questions. >> is their question here? the gentleman right here. >> is as it might turn. >> indeed with my apologies. >> that's okay. >> we need to get to questions very quickly. >> cannot just say one anecdotal

thing to matt? you have mod -- matt tiabbi to blame for -- have you ever read him in "rolling stone" about correlating these financial industry to the bloodsucking squared or whatever. anyway, okay. my question is, i am the mother of two boys in their 20s. one just graduated from college at the atlantic and is working in farm and wilderness in vermont. both of them have no interest in voting or getting involved in the political system. i live in vermont, bedford. i have many dartmouth students, what's going on, are you going to vote? i am getting blank responses. so my question is, what would you tell the youth of america because everywhere i go i find them conspicuously absent in the concert halls, here come everywhere and my goal is is to

reinvent the youth of america. i am an educator. i was educated in new jersey, excellent high school. i am fluent in spanish. i see an incredible decline. >> my question is what would you tell young people? in this coming election what would you say? what are the reasons for voting and four getting involved in the political system because they see a complete lack of -- disassociation people at have already commented that washington -- >> got it. i'm going to give in to governor dean. >> i actually have high hopes for this generation. they are renting -- reinventing america schools and they are redesigning the way everything is done. molly katchpole's --

[inaudible] the attack on verizon to pay their bill on line. they elected obama and the only time in my lifetime and election in this country where people under 35 turned out to both. i'm not worried about young people but i do think they ought to vote and i tell them politicians may not help you much but they can hurt you so it does matter who wins. you at least ought to vote and that is part of the price of being a citizen is voting. paying taxes and voting as oliver wendell holmes said the price you pay. but i wouldn't give a little bit long song and dance. it's repulsive what's going on in washington and i don't believe -- lame people for being disgusted and as winston churchill once said democracy is the worst form of government except for every other and i wouldn't want to try some of the others. i think they have got to vote in its part of their duty but i think they will make their mark

in america doing things outside the political and reorganize the whole lot of things that need to be reorganized and won't have to worry about institutional failures of wall street and politicians because they can create. they can get on the net and find printer people to agree with them without it lyrical front. >> i agree with everything governor said. tuck students at dartmouth foist a lot of concern and that sense. the economists respond it's kind of a mess but the opportunity for you to make a difference could be greater because the world is desperate for leaders both in the private and public are still a few your aspiration to become a person that can change the world frankly being in this impairment offers a tremendous opportunity. it's hard but a tremendous opportunity. >> and by the way i asked them to recall counting --

counting chads. remember that in florida? a couple of votes may have made a difference. see my name is many. i don't live in vermont but i eat a lot of fine organic vermont cheese. [applause] i have a question for everyone. my question really relates to the fiscal policy in the u.s. and when i think about it the saying which comes to mind is it's not enough they succeed, your friends must fail as well. it seems that our her situation could be much worse were it not for the crisis in europe and we are the only safe haven. if you project a few years forward where people continue to see slowing down, people who buy treasuries a lot of those folks plan. how would you think of the fiscal situation of the u.s. in that context especially because i believe a lot of metrics used to judge how the middle class is faring are somewhat flawed. it doesn't take a lot of key

ingredients into account. i don't have to look at cpi, can look at the price of education board here at murphy's or the price of organic cheese in vermont which has gone up fairly in excess of cpi so i would love to get all of your takes on this one. >> why do you rephrase the question. are we benefiting from europe's problems and are we able to float our treasury cheaper than we otherwise would be? they used to be useful for people to live in vermont or new hampshire because you probably heard the story about two people who met a bear in the woods and they said this is horrible because they cannot outrun the bear. the person said i don't have to outrun the bear, just have to outrun you. [laughter] we have what is known as an exorbitant privilege because the dollar is the world reserve currency. we are the only country i dare say hesitant to say this but in

the history of the financial crisis who have a financial crisis and the dollar appreciates. people buy more currency. ugoda latin america asia europe if you have a financial crisis people want to sell your currency so we are living to greenland in terms of fiscal policy and we can get away with these deficits in and many countries could not. now how to deal with that. i think that does not change overnight because once again it will take another currency to be the dollar and people don't trust the euro any more. the japanese yen doesn't seem to be used around the world. the chinese r&d most people don't trust china in terms of their capital market and investment so we are going to an situation where i think we can afford to pay for it an dead if you will and a fairly low interest rate. that is why i was interested in hearing governor dean say we need this fiscal cliff sort of as a wake-up call and i think then the role is if we do have this fiscal contraction, the burden is on the federal

reserve. monetary policy keeps economy going and that is a whole separate issue. >> let me just ask you, it is now 6:36 and we are going to finish at 6:30 but i would like to go to 6:45. is that okay for take a few moments? in the interest of time let's take a couple of questions and bind them together, select you have a question from here and perhaps a question from back there. if that is okay with the panel. >> you just brought up part of my question which is we have been talking about this cliff and the large amount of debt that this country has and how bad it is. but what happens if congress doesn't do anything? what if we don't try to shut that off a cliff in don't try to slash the budget? what's the worst thing that happens it at that level stays as it is? as you said this that has been a

problem since paul tsongas was in the senate than that was some time ago. what happens if we keep -- >> a a point of order, congress does nothing you go off the cliff. >> so if congress does just enough to not go off the cliff but not enough to slash at down? >> okay, so let's take another question from back there. >> i have the health insurance question. it frustrates me when i see that, i don't think business has taken the opportunity under the affordable care act. and the state for don't want to put up these insurance exchanges which would then go to the federal government but it would seem to me that business in general has missed a great opportunity for hasn't forced themselves to say we want to be out of the health insurance business. is it efficient for business to decide what type of health insurance at some plays are going to have? it would appear to me with the heart -- start of the health insurance exchange while it may

not be as efficient as a single-payer system which isn't going to occur it appears that the health insurance exchange would be a great way for business to say basically taking a defined contribution, giving employees the dollars for what they're currently paying and get themselves out of business a good well-run health insurance exchange would allow the ability, portability and it would he i think if business thought about it they would be pushing parts of our political system to really back this type of approach. >> professor irvin -- irwin cannot ask you to handle the first one, going over a cliff or anything like that and governor dean if i could have you handled that insurance question. >> the fiscal cliff, world war i and world war ii where we had to cut back on federal expenditures and predictions of economists in 1945 and 46.

in fact there was a mild recession and once again because there was so much pent-up consumer demand the recession was mild to once again a forget the underlying fundamentals of getting our economy going -- a major recession. >> there was rationing and people couldn't buy cars and so that was all this pent-up demand. that doesn't exist today and we would be raising taxes by about 3% of income because you would lose the 2% payroll tax cut in half to 2% increase in average income taxes so you are going to walk 4% out of after-tax income from the household and you are going to cut government spending so there is no consumer to take up the slack like there was. normally, the federal reserve could step in and cut interest rates, simulate housing, have

interest rates of zero. 1.52% has run out of ammunition to offer the fiscal cliff. >> you sound like a very good keynesian economist. also i would say the federal reserve is absolute and not out of ammunition by any stretch of imagination. >> that leads to a whole different dollar. i want to go to the insurance exchange question. >> actually what you describe is exactly what's going to happen. i believe the mckinsey report was right and democrats want to say that because it will increase federal expenses on health care. was going to happen is exactly what you describe are go small businesses wholesale will leave for for the health insurance market because small business has no business being in health care. the employment connected system in those countries a mistake. it's a historical accident and makes her businesses uncompetitive notches with india or china over labor costs but with the germans and canadians.

their health care system goes up at the same percentage as ours does which is two to three times the rate of inflation. every time the germans spend 3.5% more in health care that gets spread over the entire economy and when we do it he gets mostly spread over the business community. this is not a way to keep our businesses competitive. what is going to happen his small businesses always struggled with this question, health care plus whatever else they do as they is they are going to pay a fine which isn't very big and they will probably give insurance -- employees insurance and guess what? if you are a restaurant and you happen to be giving health insurance which not many do they book on exchange and get a nice subsidy from the federal government to help toward insurance in they will be out of the individual market on these exchanges. ..

resurgent protectionism against the background of the international global economic difficulties. >> and another question right here, late in the third row. >> i actually work. talk. and to follow question to governor dean's remark about the

reporting wellness. dartmouth helps connecting the system that president can set up before you ask. i was wondering if you knew anything about it, and if you do a fast server system you're talking about. not a fee-for-service come a patient basis done. >> i unfortunately don't know anything about it. >> let's get a fair question. anyone waiting for a question right there in the center. hold on, hold on, hold on. thank you. >> white river junction, vermont. a day to come back to the original comparison between obama and coolidge. i'm reminded of jean hughley to decimate outcome of the close of the presidency, which claimed the american people what two contradictory things. one, they have been increasingly the opinion of the actual performance of their presidents and other national leaders, but

two, they want to give those national leaders more and more things to do. and that seems to me to be a fundamental difference between coolidge. this comes back to that spotters point about humility. my question is, how do you return to a state of affairs in which there's more responsibility for their own affairs and have less responsibility to the federal government in washington? >> so let's start with the resurgence of protectionism. anyone want to take a shot at that? >> i had a couple thoughts. >> for some outcome of "the wall street journal" op-ed two weeks ago was exactly on that issue. while i was not worried about it for many quarters that the financial crisis, there were worrisome signs others are beginning to intervene. the problem is that affects our exports. one of the bright parts of the u.s. economy during the financial crisis in there after

his export keep the economy going. we always hear about imports and trade deficit, but experts have been very good at creating a lot of jobs. to the extent other countries restrict trade, they restrict export and matches with a further tent in the u.s. economy. so it's something we have to as a country address. >> i'm very worried about the rest of protectionism in part because few countries make up one morning and say i would love to start a trade war. so what i worry about is we don't have enough leaders telling americans that a lot of that will hopefully get out of the economic trouble we're in right now is by building more jobs in america are connected to the world. part of it is imports, exports, firms growing and responding to demand and the rest of the world, assuming that demand. if you flip over your iphone, nearly everyone in the room has an iphone.

there's a great symbol of globalization going on around the world because this was designed by apple in california, assembled in china. it's a lot of industries that supports the dynamism that we talked about could be realized moving in the other direction. we talk to the clean tech earlier. by my eyes, the united states and china and other countries all over each other to do more to protect their tariff barriers and subsidies clean tech innovation. i am not smart enough to figure out what is clean technologies. i let the force of international trade and investment help our country's figure that out. but we're moving in precisely the opposite direction. >> anything on the wellness? >> i can't do the wellness because i'm not familiar, but i do have thoughts about people taking responsibility. my experience of our children's generation is that's what they're doing.

they want to have a political system and they go down a mark for teach for america or teach for india or teach for china. it's an incredible generation. are they all doing a? of course not. a huge percentage of kids going over the world. one of my students they teach at yale, pardon the expression here, one of my students from duke started a company based on solar solar chargers for cell phones for companies with no electricity and the next is they'll sell chargers so they can charge away so the kids can read. it's unbelievable. a 22-year-old woman coming-out woman. she graduates from the university of vermont, mr. romagna ancestor project which is much better than the united states because she asked that the villagers while before she sends the $3000 and they get

the plane in take responsibility. the skits are unbelievable. aggregate these are not ever single tape, but it's not just people from gale and dartmouth. it's people from all over the place. it's an extraordinary thing. they're determined to remake the world of matter what politicians do. >> one additional thought on bad is it does make sense to have people pay a fraction, a co-pay that supports a little bit of the guardian. it's good to have a health provider decided holistically. but if we have undifferentiated premiums that don't reflect whether you're engaged in risky behavior in terms of eating, drinking, smoking, you name it, we are not doing enough to prevent the oscars. so they have learned that when

they put incentives with large or positive health behavior, better behavior happens in total costs are down. so is the set up these exchanges, we need to differentiate premium based on personal behaviors. >> i was once told a good moderator never offers an opinion, but i will break that rule and offer an opinion. i think we've had an extraordinary panel and i would think if you would please join me in thanking. [applause] and we have a small gift for each of you. douglas irwin, power dean, roger brinner, slaughter, thank you. come back again in cs. [inaudible conversations]

[applause] >> which is more important? it is not set by the victors four years ago. it is the kind of nation we are. it's whether we still possess the weight and determination to deal with economic questions, but certainly not limited to fans. all things do not overwhelm their poverty. i know this firsthand and so do you. all things grow from doing what is right. >> look at what is happening. we have the lowest design rates of unemployment and inflation and home mortgages in 28 years.

[cheers and applause] 10 million new jobs, over half of them high wage jobs. getting the raise they deserve with the minimum-wage law. >> c. stennis aired every minute of every major party convention 1994 and now lead the countdown to this years inspirit watch her live gavel to gavel coverage every minute of the republican national conventions. c-span, c-span radio streamed online at c-span.org. all starting monday, august 27. this economical to these afterwords, and their book, who's counting, john fund and confines bukovsky of the heritage foundation is a very serious problems with fraud in the u.s. elections system. >> there's a whole series of things you have to do to make sure you've got an election with integrity and everyone is

confident, the person who got the most votes is declared the winner. >> at this discussion is sequestration from homeland security official at the george w. bush administration warned additional defense spending cuts over zürich and hollering out of the national guard. part of the heritage foundation homeland security we. at sequestration without further action in congress will trigger an automatic $500 billion in defense spending cuts over the next decade. this is an hour and a half. or good morning. welcome everyone to the heritagi foundation troublous laminitis taurean. we welcome those who join us on

our wheritage.org website onoc these occasions, those who joine us and it is us today.e we remind everyone of us inen te house who opposed the program within 24 hours on our website our viewers aree reference. our viewers are always welcome to send comments to us,and questionsanel by e- mail. hosting our discussion this morning is steven bucci. is senior research fellow for defense and homeland security at our center for foreign policy studies. he looks at special operations and cybersecurity as well as defense support to civilian authority keith. he served america three decades as an army special forces officer. in july, 2001, he assumed the duties of military assistant to defense secretary donald rumsfeld and worked daily with the secretary for five and a half years if. when he retired, the continued at the pentagon as deputy

assistant secretary of defense, homeland defense, and american security affairs. immediately prior to joining us and heritage, he served as a lead consultant to ibm on cybersecurity policy. join me in welcoming my cci.eague steven ybu [applause] >> good morning. we hope to have a lively discussion this morning. i have a couple quick plug before my introduction of our esteemed speakers. first, today is national emp awareness day. electromagnetic pulse. it came up in our discussion yesterday and is kind of nice that this is part of our homeland security week discussion. electromagnetic pulse is something we need to worry about, because in a country like ours where everyone is connected

electronically on a continuous basis, it would affect us. any of you who remember the blackberry outage we had last year for six hours and everybody in washington was in a panic, you can imagine what would happen if if we had an event where we lost all our capabilities in a city or maybe all over the east coast for a while. the other thing is today is the official rollout of this document. these are are two speakers in the suits. [applause] this paper, critical mismatch, the dangerous gap between rhetoric and readiness in dod civil support missions. this is a critical issue. there is a problem with our capability to do our job, the job of the nation. this does not deal exclusively with the national guard, but the

national guard is a huge part of this and need to be. hopefully, our speakers will touch on that a a bit this morning. this is available outside and we hope everyone will share it. it is an issue that affects each of you. if you are at ground zero when something happens, you will want this nation to have the capability to respond properly and expeditiously. right now there is some debate as to whether we have that capability or not. our subject for this morning is the price every state will have to pay: the effect of sequestration on the national guard. i never served in the national guard. i spent 28 years in active duty in the united states army. but i had the opportunity numerous times to work with the national guard. as i became the deputy assistant

secretary of defense for homeland defense i got to work with them pretty much every day. i have to tell you, if you don't understand what the national guard, army, and air guard, what they do for this country, you are missing something, because those men and women are heroes for this country. they are the lineal descendants of the minutemen. that is in their simple and it's very appropriate, because they are regular citizens. are not just weekend warriors. they are people who have real jobs in our communities. and then when the call is given, they put down that plow or whatever they do and then pick up a musket and they are ready to help their fellow citizens and most of the time at great personal sacrifice. these folks are important. i cannot think of canada better people to discuss this with you than are two speakers.

the first is paul mchale, president of civil support international, a consulting firm in washington. paul was my boss at the department of defense. >> can you say that again? >> my boss. only two people are still referred to as boss. that is secretary mckale and secretary donald rumsfeld. they are two gentlemen that i hold in high esteem, not just because of what they have done and who they are, but because i have seen them at work and i have seen their dedication to this nation. secretary paul mchale is a former congressman from the state of pennsylvania. he served on numerous positions and the most relevant to this is the was the co-founder of the national guard and reserve components caucus in the house.

he came to work at the pentagon. i will be honest, i was the military assistance to the secretary of defense at the time and i said, a former congressman, this could be painful. as it turns out, he is an incredible gentleman, easy to work with. easy to work for. he wants you to perform properly. the happiest i ever saw him was when he recruited me to come work for him and then shook hands and said i will see you in about six months, i'm going off to put on my marine uniform and he went back to afghanistan. already retired from the marine corps reserve, recalled to duty so he could serve as an adviser to the minister in the afghan regime. he was so happy to be a marine again. they never stop being marines. he served there with great distinction and then came back

and continued being my boss. his dedication to the national guard is not just professional. he also found a beautiful woman who is a national guard general, who he then married. where is martha? that's his lovely bride. from vermont. next to him as the gentleman that he was joined at the hip with the whole time we were there in the building, lieutenant general retired h. steven blum. the whole time i knew steve, he was the director of the national guard bureau, not a very glamorous, but a very critical job. he later became the deputy commander of u.s. northern command, the first national guard officer ever to serve in that position. steve is also a special forces officer, which i kind of like, because i was too.

he has served pretty much in every position you can have in the national guard. he is a man of infinite imagination, infinite energy, and vision. even before the rest of the department of defense started getting ahold of the issue of chemical, biological, radiological, nuclear, and high yield explosives response, he was the one who picked up the gauntlet and said the guard can contribute to this and the guards will contribute to this. he made to the guard a critical cog in that responsibility. these two gentlemen fought that battle against a lot of naysayers and achieves quite a bit during their tenure. i will let you read paul's paper to get the status of it now, which is not quite as good as it was when they left office, but

these two gentlemen i am proud to call both of them friends. they are personal heroes for me, because i have seen the work they have done for this nation, not for self aggrandizement and definitely not for money but for the sake of this nation. i would ask you to join me in welcoming paul and steve. i will give each about 10 or 15 minutes to make opening remarks. and then we will go into question and answer. i will tell you, as i call on you to ask a question, if by the end of the second sentence i don't hear? , i will ask you to stop. questionon't hear a mark, i will ask you to stop. we will start with paul. [applause] >> steve, thank you very much

for your kind words. i truly don't think of myself as your boss. i think of you as my friend and colleague. i was honored to serve by your side during 3 or four years of pentagon service. general blum, my good friend, and my wife, the general as well. and the colonel just back from afghanistan, sir, thank you for your service. [applause] ladies and gentlemen, there was a very fine article in "politico" yesterday in which secretary of defense leon panetta was quoted. "i realize there are a lot of other things going on in this country that can draw our attention, from the olympics to

political campaigns to drought to some tragedies we have seen in communities around the country. i thought it was important to remind the american people that there is a war going on." the only thing worse than the fog legislative strategy of sequestration would be its actual implementation. with military men and women in daily combat, 41 were killed last month, says secretary panetta. it is a deep breach of trust to put the department of defense on automatic pilot. across-the-board cuts in d.o.t. funding would severely jeopardize the operational capabilities of our active forces, sent a message of u.s. defense vulnerability to our adversaries, and irresponsibly weaken the national guard in its ability to protect the u.s. homeland."

because the sequestration cuts, totaling approximately $500 billion over 10 years are across the board, it's difficult to determine precise with the impact. but a substantial reduction in military personnel is a near certainty. recently it was reported thatbye chairman of the house armed services committee and secretary leon panetta on july 25 when buck said, "we have 100,000 leaving the military." it's expected there will be a reduction of 100,000 personnel coming aboard donnelly from the army is what he's saying, as a result of cuts that have already been approved. then he went on to address

sequestration. he said, "if we will have another 100,000 if sequestration takes effect." in response, secretary panetta said, "it would obviously add another 100,000 that would have to be reduced." there is uncertainty as to what the impact of that reduction of an additional 100,000 would have on the structure and strength of the national guard. some insight into that was provided on may 17. that was when ray odierno, once the special assistant to the chairman on homeland defense issues. he and i worked together on a daily basis. i have extremely high regard for him and his professionalism. he provided some insight into how that 100,000 production in end strength would impact the

national guard when he said, "if we have sequestration, it will affect the reserve component and the active. it depends on what the balance we picked. what i talk about a lot is 70,000 out of the active component, 30,000 out of the reserve. the army could be reduced anywhere be 400,000 to 425,000 soldiers. the national guard might lose an additional 20,000 soldiers. the army reserve might lose an additional 10,000. the net effect of all that is if we have sequestration beginning in january, it's very likely the army national guard would lose an additional 20,000 men and women. in addition to the yen's strength productions, it's

reasonable to assume sequestration goes into effect in january, national guard title 32 funding account would also be reduced. the negative impact of such title 32 reductions on homeland defense and defense board of civil authorities would be immediate, both in terms of training and operational missions. over the last decade, some of which was described by steve a few moments ago, there's been a shift in dod policy. steve and i were intimately involved in that shift in policy, police in a far greater reliance on the national guard for the execution of domestic military missions. while that policy shift has correctly emphasize the role of the national guard here and home, it has also tied the domestic mission of the national guard more directly to the variables of d.o.t. funding, including sequestration. let me take a moment to explore some history now, if i may, to give perhaps a more practical understanding of that shift in policy.

if my memory serves me correctly, and i believe it does, in 1992 during hurricane andrew, when it was necessary for the military to provide support to civil authorities because of the magnitude of the destruction that occurred and the aftermath, the majority of the force that responded to provide assistance to civilian authorities came out of our active component. a great deal of that came out of the 82nd airborne. a smaller portion of that force came out of the national guard. if i remember the ratios correctly, and i believe i do, roughly 70% or slightly less of the force that responded to hurricane andrew in 1992 came out of the active component with slightly more than 30% coming out of the reserve component. but the benchmark was roughly with an emphasis on the active component participation in the

defense support of civil authorities discommission. that policy of using primarily active component forces changed radically in the aftermath of september 11 and in response to the requirements associated with domestic preparedness. i was nominated to become the first assistant secretary of defense in 2003. i met with the senate armed services commission in his office, senator john warner, distinguished gentleman. he wished me well in my new job and we talked about a few other things of a personal nature. he reminded me that we should not use the zero defunding to support discommissions executed entitled 32 status. -- we should not use dod funding.

warfightingdon't her money and use it for civil support missions domestically executed. -- our warfighting money. i thought that was probably a pretty good advice. my view of the subject changed considerably once we experienced the operational requirements of hurricane katrina. the national guard can function increase statuses. it can be in 10 states status. that is traditional. the national guard forces and states tennis are under the authority of state law. they're under the command and control of the governor of that individual state. they are funded by the state to execute those missions. state's status. federal status is kind of the opposite end of the spectrum. when the army guard or the air guard are brought into the title 10 federal status, the army guard becomes part of the department of the army and air guard becomes a part of the department of the air force. they are fully integrated into the active component of and are

subject to federal law and are under command-and-control of the president of the united states. the funding comes from the department of defense. and there's a middle ground between those two and has become important middle ground, title 32 status. in title 32, the funding for title 32 status comes from the department of defense. the law that applies is generally not federal law, but command and control remains vested in the hands of the governor of that individual state. so it really is the best of both worlds from the vantage point of the state. the training, equipment, the funding comes from the department of defense of command-and-control. president.h the d title 32 status, national guard forces are not covered by 1878 statute that forbids the use of military personnel for law enforcement-related activities.

under command-and-control of the governor in title 32, the national guard may be used for law enforcement-related functions. during operation liberty shield, which was the term we had in 2003 in the federal interagency to describe are prepared this domestically for any repercussions associated with a possible war that we thought might take place with iraq. surely prior to the commencement of ground operations in iraz, operation liberty shield provided for certain enhanced protections here at home because we were uncertain as to what action iraq might take or could take within the u.s. in response to a combat action in iraq itself. just before we went to war in iraq my very good friend and former colleague in the house, pennsylvania, tom ridge, initiated operation liberty shield. he called upon the governors of

the individual states to provide protection for their critical infrastructure, utilize in the national guard. i got a phone call from the governor of the state of arizona, who is today the secretary of the department of homeland security. governor nepal tonneau was very creative. she had the distinction of being prematurely right. -- janet napolitano. she wanted to use the national guard to protect critical infrastructure within her state and she argued persuasively that because this was a terrorist threats from outside the united states if it was a threat really to the nation and not to the state of arizona and the funding for that title 32 mission should in fact the federal in character and that the state and state funds and state status should not be protecting infrastructure against our international adversaries. that was not policy at that time. i had to tell her, to my regret,

but she cannot do that. she was not happy about it and i was not happy as the messenger and a couple had to communicate that guidance, but that was the policy. that has since changed. let me tell you how it has changed and then we move to steve for his comments. hurricane katrina occurred in august of 2005. two months before hurricane katrina, the new strategy for a homeland defense and civil support was written. when i began my talk a few minutes ago i mentioned the ratio, 70-30 in terms of the military assistance provided during hurricane andrew in 1992. we changed that in the strategy. it made no sense to us in a post 9/11 world that we would continue to use active-duty military forces for these domestic missions when we had ample strength and structure in the national guard for these domestic missions. why should we use the 82nd airborne for civil support missions when the 82nd airborne was trained and equipped for

overseas warfighting and we had superbly trained national guardsmen who could execute domestic missions without impairing our ability to project power overseas? that was the rationale of our strategy until we broke into the strategy -- and i personally wrote the languages that said henceforth the department of defense would have a focused reliance upon reserve component capabilities predominately the national guard for our domestic missions. that was a direct reversal of the policy that had been in place during hurricane andrew. we did not realize just two months later during hurricane katrina that policy would be. put into be when hurricane katrina occurred august 29, 2005, most of the force, 70% 70% of the military response to hurricane katrina, 50,000 national guardsmen, came out of the reserve component and 3%

came out of the active component. a change in policy and i think a good one. an amendment was passed by congress subsequently. that amendment allowed national guard forces to protect critical infrastructure in a way in which we previously would have relied upon rapid reaction forces from the active-duty army and active duty marine corps. mission transition to correctly to the national guard. that would mean the national guard forces in title 32 would defend critical infrastructure. it also meant that secretary janet napolitano was right. the policy finally caught up with her vision on that subject. we were henceforth able to use national guard forces in title 324 critical infrastructure protection. secondary i will mention and then i will move to a conclusion. i realize i pushed the limits of

my time, steve. steve blum, through his personal leadership, build, expanded, and in some cases initiated cases initiated see burn response capability that was unprecedented. that capability was located within the national guard. the national guard recognized that in the 21st century our adversaries accommodation states and terrorists, for now have the capacity to acquire incredibly destructive weapons, weapons that can be miniaturized and easily transported, that could conceivably cause great numbers of casualties within our own country. we were extremely vulnerable to that type of asymmetric chemical, biological, radiological, nuclear, high explosive attack within the borders of our nation. the national guard under steve's personal leadership step up and said we can do something about that. under the leadership of the national guard, 17 enhanced

response force packages were created. 57 civil support teams were established. ultimately, and a little later, homeland response forces got all established in title 32 status within the national guard. increasedf dod's reliance on the national guard for domestic military missions, critical infrastructure protection, any reduction entitled 32 funding will directly impact on the safety of the american people here and home. cuts would reduce the national guard ability to protect critical infrastructure from terrorist attacks, would diminish the national guard ability to respond to vote major disasters whether natural or man-made. let me close with a quotation from craig moe tenleytown, steve's successor as chief of the national guard bureau. speaking in may, when talking

about the impact of sequestration on the domestic military missions of the national guard, critical infrastructure, disaster response under very challenging circumstances, the general mckinley, stepped down as the chief said the following, "we find ourselves obviously in the midst of constrained budgets and depositions. no doubt we must all curbs spending, but not at the expense of our security. that's why i must tell you that sequestration would allow the force, would follow the for substantially and devastate our national security -- -- would hollow th force. the national guard is already facing difficult budget cuts, cuts that impact equipment and personnel. further reductions would significantly limit the guard's ability to function as an operational force, a decrease its overall credibility, and

reduce the department's capacity to protect a homeland and respond to emergencies. if sequestration is imposed under the provisions of the budget control act of 2011 and in january the d.o.t. experience is an immediate cut of $55 billion, none of the bill are power projection capability is produced overseas, our domestic security will be placed at risk because of inadequate national guard title 32 funding. that means 20,000 fewer national guardsmen with less equipment, less prepared to execute their domestic emissions. that is the ultimate impact of sequestration upon the national guard. >> thanks, paul. that is and unintended but perfect segue to what i want to talk about. first, thanks, because i think

you laid out a very good umbrella and background approach to what we are really facing here. this is a serious time, no question about it. the nation does not possess infinite resources, limitless resources. we really aren't everyday becoming more aware of how finite those resources really are and really why we have to be better stewards of those resources than we have been in the recent past or even in generations. -- we really every day becoming more aware. this is not a bogyman that does not really exist or a threat that's not out there. this is the reality that we are facing. the national guard is not an organization with substantial

discretionary budget money. it is a bare bones, underfunded organization historically, because it was a originally intended to beat it strategic reserve for so long, for 67 years, that was to be a deterrent force against a threat that is no longer out there. commission of the guard is still the same, but its utilization as an operational force in rotations overseas is well known to most of us in the audience. if not, the u.s. military has not done anything in the last 15 years overseas without significant dependence on the national guard, so that we could expand the capacity and capability theour active forces and reduce the stress on our

active duty force and an all volunteer force of professionals, professional airmen and professional soldiers, so we could expand that and actually serve when necessary or at least reinforce the forces in the field or expand the forces in the field or capability is required to utilize in the national guard. so this is no longer a national guard that sits around and waits for world war iii and is not used in the meantime, so you can afford to underresource it in terms of equipment, not trained to be ready, let it stay dormant in a somewhat less than ready posture. it has to be ready on a moment's notice. that is for overseas missions. for domestic missions, for usage in the united states at the command and control of the

governors that are the commanders in chief of the army and air national guard when they are in the service of the state rather than in the service of the nation -- when they are in the service of the nation, they fall under the normal chain of command with the secretary of defense and the president and they are entitled 10 status and are in distinguishable. the good news is the training now is uniform, the standards are uniform, so everybody is trained in the same schools with the same standards and has the same enlistment criteria, same selection criteria to become a member, and to remain a member, so that their performance is absolutely identical to the active duty force when it is called into service of the nation. what most people don't realize is that the national guard is called into the service of the governor's each and every day. i did not realize how much that

was the case until i was lucky enough to be appointed chief of the national guard bureau by secretary donald rumsfeld under president bush back in 2003. for the five and a half years i have the honor of being the chief of the national guard bureau before i went to be the deputy at u.s. northern command i kept a record of how many states call out the national guard on any given day and the daily average was 17 states had their guard called out on some level -- some as few as a few people with a truck and water trailer going to an area where a municipality might need water where a well was contaminated or the border purification system -was purification system -- water purification. the aftermath of christina in

2005, we have the largest, fastest, military response to a domestic disaster, natural disaster, not only in the history of our country but in the history of the world. -- the aftermath of hurricane katrina. guam, puerto rico, distrt of columbia, and every state of the 50 states send their national guard. they were asked to comment not ordered -- asked to come and not order. they drove and pull together in record time over labor day weekend. it happened on a labor day weekend. in less than six days we generated 60,000 citizens soldiers from members of code in this country with exactly

the right capabilities and sometimes in excess capacity, because frankly we did not know exactly what we needed down there, but we guest pretty right and we really restore the faith of the american citizens, particularly the citizens of louisiana and mississippi, in the fact that their government would not respond when the local situation was overwhelmed. we were operating seamlessly with active-duty soldiers that came in later from northcom that were ordered in by the president. shoulder to shoulder, side-by- side, in distinguishable to the people that were receiving help. they saw the active-duty forces and national guard forces actually operating in a seamless fashion to save american lives. 17,443 american lives were saved by national guardsmen in the aftermath of hurricane katrina. that was a small city that would

have been lost had we not intervened. 70,000 u.s. citizens removed from an area of uncomfortable, suffering and misery to be able to reestablish their lives in new places or at least be taken out of the misery and suffering and maybe even ultimately disease or death if they would have remained in that area. today, if you check, it's almost invisible to everybody. if you really peel back who is responding to the fires in washington this morning, washington state, it's the national bar. who is responding to the drought relief or anything that happens that above and beyond the normal ability of the local and state governments to handle, the national guard comes in. one of the good things that happened to the guard, frankly, was the decision to use the

guard as a part of the operational force, because not only are they value added on the battlefield overseas when they bring civilian skills to these complex environments like afghanistan and iraq, but when they come home from that they are far better citizen soldiers and citizens airmen with contemporary, real world combat experience they can apply, the same command and control, logistics, planning, and reaction, and highly disciplined response to anything we would require them back at home. so we now have probably the very best force of citizen soldiers this nation has ever been blessed to have. it is an all volunteer force. how did you tape people that you have asked go overseas 3 or four goore's, walk away from their

family and their jobs as long as two years, 18 months, six months on the short side, repeatedly over the last decade, whether it is to appear at an airport on no notice because we did not have tsa at the time and we need to secure the airport zappos 9/11. whether it was to guard the skies pose 9/11 or critical infrastructure. whether it was to expand the capability of governors to protect critical infrastructure in the last 10 years. whether it was to put boots on the ground in places like afghanistan and kuwait, the horn of africa, iraq, and 34 other countries where the guard has been asked to serve. and they did a superb job in the balkans, close of zero, bosnia, all at the same time. -- in kosovo. katrina hit with no notice. 50 cows and national guardsmen

from every state and territory responded. at the time we have the high water mark for the deployment overseas. we were literally surging in the army to allow the u.s. army to step the army into their current configuration. we stepped up and took that rotations of the u.s. army to take a pause in the war and reorganize and refitted to their combat brigades. some of you may remember that. so you take that and take the last 10 years of what we have asked them to do. and now you have this specter of sequestration hovering over an organization that is under sourced, is pure muscle and bone, has very little discretionary, has no big accounts like intelligence or

research and development, underfunded for equipping themselves, are trying to come out of a whole that was dug in 1947, and now tell them get ready because you are going to be part of an across-the- board cuts. if you are overweight and have want toounceds and you lose 18 pounds, there's. a way you can there's. this is a couple ways you can do it. you can change your diet and exercise and become lighter and better and maybe even more attractive. as attractive. or you could cut your head off and lose 18 pounds immediately. but i don't think that is the preferred way for weight loss. this sequestration is much like that. when i look at the audience and i seen who is represented and

where you come from and hopefully where you go back to and take some benefit of our discussion today, i would like you to consider two things, and then i will turn it over to the moderator. the most successful businesses in the world today size their full-time work force that get full benefits, retirement, entitlements, health insurance, pension plans, matching 401k plan, all that kind of thing, they size that for their smallest, steady state, business day. they size their part-time force, trained, medic professionals, salesman, distributors, transporters, retailers, wholesalers, all of them. they size that for their most optimistic market demand. and then they adjust that and

let the market drive that. and they make a profit internationally in a very challenging economic time even today because of that model. the companies that are failing today are those that are failing to make those kinds of adjustments and are hanging onto an older industrial age model that predates the 21st century. they are finding it very uncomfortable and very unprofitable and are kind of melting away like an ice cube. that is one thing i want you to think about. when you are talking about a sizing of the active component and the reserve components, particularly when the reserve component is not the same reserve component that it was 10 or 15 or 20 years ago. it is a much different reserve component. is an interval, interdependent

and not interoperable piece of the entire service and joint force that fights and protect our country here at home and overseas and has great utility that reduces the burden on the active force to respond domestically to a significant degree. so anytime you diminish that force, you are actually raising the probability you'll have to dip into the already too busy actor forced to do something that they are really not comfortable doing or they want to do, nor are there really trained or resource to do, nor do they have the local knowledge, political, geographical, social, and otherwise, that the citizen shoulders who come from that area have. not to mention it will have to live in that state afterwards. so how they deliver their capability and capacity will be quite different than someone was 18 years old and came into active duty and learned how to fire their weapons and do their

military jobs and then are transplanted into an area and culture they're not familiar with and then are going to leave. the degree of acceptance and respect is intangible and is something that should not be ignored. the second thing is everyone of you lives someplace. very few of you in this room live anywhere that has a 100% full time professionally trained and paid firefighting force to protect you. anybody that lives in a place called a county does not have a full-time firefighting apparatus. but none of you sleep at night and stay up worrying that if your house catches on fire that the fire department is not going to show up on time and they're not going to come with suspicisufficient people and trg to save your structure, your life, and your loved ones and

pets that. you that. so how do they do it? they do it with either a mix of a few full-time professionals to keep the equipment ready and keep the communications and alert system ready. they depend on citizen fireman, volunteer firemen who stop whatever they are doing, get out of their own comfortable bed in the middle of the night if necessary, walked off their jobs if necessary in civilian life to respond to either a danger or alert system or just sirens in some small towns. they go and when they show up nobody asked them if they are part-time or full-time. anybody ever ask that question? when they come, they have gear that makes them all look like a fireman. nobody comes on an old firetruck

that barely runs. nobody comes with handy down fire equipment. hand-me-down. the community saves on the huge expense of having to pay full- time firefighters. so they rely heavily on citizen volunteer firefighters. i suggest that in a time where our nation is facing finite resources and a significant risk, a way to buy down the risk is not to do the real jerk reaction the pentagon has already announced. sequestration is coming, we already have it and regardless this way. that's like hitting your knee with a rubber hammer and it flipped as a reflex action.

the pentagon and the system has reacted to budget cuts like that this way for so long that it's almost an automatic, unthinking response. i am saying, since i'm talking to people who are from the think tanks and from the hill and from organizations with in this arena, that maybe it's time to look at how people do that our profits matched their active full-time force with their part- time force. we look in an area because you're going to get this is not a business, this is the military and in the military we are about saving lives. let me tell you, if you want to talk about an organization that response on no notice, or lives hang in the balance every day ,.

and is the fire fighting community in our country. they are putting their lives on a line to respond online, on target, to ensure that you survive and your structure survived and your neighbor's house survives. i'm thinking maybe we put away some of the old paradigms' and start looking at some new paradigms' as to how we are going to apply precious resources that we are going to be providing to the taxpayers. clearly this will allow us to buy down some risk. sequestration is obviously not the answer. sequestration will gut the national guard. it will exist. it will survive, but it will be in under equipped, less trained. it will have less money. you will find how painful this will be because when they start

closing 600 armories and shutting down 1800 construction projects that are on the books, armoriesgoing to find >> shutting down 1800 construction projects that are on the books. you're going to find that these armies into industrial districts that people care about, you'reyi liteg to find that it literally kill off small businesses thatns are dependent on and have waited for and competed for and have been awarded this contract that will no longer be there to build an army or maintenance facility ings t or a repair and refurbish center, things that haven't been looked at in 40 years -- youd e going to find that even if you start this am is not going to be easilyng recoverable because the unintended consequences, most of youd don't realize is that there

are state matching funds in various percentages and those have to be voted by theth also legislature, and if they have aa chance to take that money back for the cancellation of the project, they o will. probabi and your probability of seeing thatth money again in less thant years is veryy remote. if it is a renovation project, you really have to lay that indefinitely. if it is an expensive andprobabh project, you probably have lost it. you will find out how much thath will matter because the citizens of the towns and communities ans that o congressional district ae to make their feelings felt to the congressional representatives. be personal.uence of suestra and this is an unintended consequence of sequestration. sequestration is coming you t know, hryou don't make friends o to fight for.ng had certainly if you're going to carry through with his coming haveve to wonder, this is not a

shot in the foot. you might as well cross your feet and get both feet with thah shot if you want. the unintended consequences ofse sequestration are walking back the most superb force this co ountry has fielded in its history and walking back, literally, 30 or 40 years, backw to the force -- i don't know about you, but looking at the landscape internationally right now, this is not a benign landscape. we used to talk about hotspots and places that could be talk problematic quickly and two or the of them. virtually come anywhere you look right now. there are some real issues and real tough problems out there that can cause us to do things with our military that we do not

foresee, nor do we desire. and that does not mention weather patterns, earthquakes, of the natural disasters that occur, not to mention that the chlorine tanker does not have to fall off or railroad track because of a terrorist. it could be because our infrastructure is decaying. it could be because of human error. but the effect is a release of chlorine in an urban area will be unbelievably painful. if that or anything like that were to occur, the requirement for the guard to respond would be absolutely one of the first things that would have to happen. a guard under even minor sequestration, under minor cuts, would been slower in its

response and it might be two or three states responding rather than one state. in my people of all your hours getting there or a few days before you could get everybody over there. let me give you an analogy or metaphor. if a loved one has a heart attack in your house, you call 911. three days later, five ambulances show up to your house in response to that call. you are not going to be satisfied. you're not going to feel like you are well served. what you expect is the ambulance would be there on time to save his life. if they are going to show up late, they may as well send the mortuary unit, because they're not going to save your loved one. so time delay really translates

into lives lost. domestically, you are going to get one chance to do this. i've said this over and over and i will say it one more time. this will be the last thing i said before turning over to steve. we took palfaluja more than once. in afghanistan and iraq and in almost every military operations be have had places and towns that we took it and they took it. we retook it and they retook it. that works overseas in a combat zone. you are not going to get to redo in cincinnati or on losing d.c. or wherever you come from, wherever your hometown is. they are not going to tolerate the american military not being

able to respond properly and on time here in the united states it. we saw that in spades in 2005 in hurricane katrina. that close from theme u.s. military swinging and missing on louisiana and mississippi. we were lucky to recover that. it will shake the confidence of the nation and for any administration when the american military cannot properly respond and home. read secretary paul mchale's paper. read this and think about what i just said. you will not be very comfortable when you read this. the trouble with this paper is it's true and it's factual and

accurate. thanks. >> sequestration is an irrational and irresponsible approach to national security policy. when most of us walk in here this morning we knew intuitively that a cut of $500 billion over the next 10 years, a cut potential in january of $55 billion would inevitably impact on the department of defense ability to project power overseas. i don't think it was as obvious when we walked into the room that sequestration would have a devastating impact on our security here at home. because of changes, the changes in policy, over the last 10 years, the protection of critical infrastructure in the united states against a terrorist attack has been primarily assigned to the national guard in title 32 status. that would be subject to any reductions imposed by

sequestration's. over the last 10 years, because of good changes in policy, the primary reliance for disaster response has been tasked to the national guard in title 32 status. that changed during katrina when steve and i walked down to the deputy secretary's office and encouraged him to approve the title 32 status for those 50,000 national guardsmen who had deployed in response to hurricane katrina. that had never been done before in u.s. history. to the great credit of the deputy secretary, he proved that. now we used title 32 pretty routinely for major disaster response. that would be subject to any reduction caused by sequestration. we must recognize that our domestic security would be

similarly impacted. >> i have a couple questions are listed at the beginning, but you guys have answered all of them. i don't know if i want to beat a horse or not. anyone have a question? >> thank you both for being here. i wonder if you could drill down a little on border security? if you could explain the guard's presence on the southwest border and how sequestration might affect their mission? >> i have a little trepidation because i am not absolutely current in terms of the existing status of national guard forces on the border. but i am pretty sure that i have a grasp on that. with the risk that maybe i impartially in error, let me

answer your question. i have the responsibility for civilian oversight of operation jumpstart. that was the initial deployment of national guard forces along the southwest border. we have roughly 6000 national guardsmen deployed over a two- year period along the southwest border. we spend a lot of time together, stephen drive, discussing the rules of the use of force and everything and what status the national guard would have during that order of deployment. my recollection is became to the conclusion the guard would be entitled 32 status. that's the middle ground where gubernatorial command and control would be exercised over those forces but dodpay for tho. in general answer to your question, the type of funding used to pay for the national guard forces, traditionally along the southwest bodborder,

would be adversely impacted by sequestration. >> a think that is an accurate answer. just to give you a little bit more, the unintended consequence would be -- dod would be faced with less money than it would normally have to do that mission. it was painful to dod to do it when we were better-resourced. it created frankly great thank you to -- great angst. where were told to pay the bill and transfer the money to the national guard. so they had to reduce the number or defer it or not do it at all. it created some unscheduled reprogramming.

it created angst that was not seen because everybody tries to stay professional. but it hurt the relations between the army and the army guard because the army, who was under funded at the time, had to give more money to do a mission that they did not see as important and frankly felt that the border patrol or department of homeland security should have paid for it. but that decision was made at far higher levels than even the department of defense. in answer to your question directly, sequestration might mean that we couldn't do it at all, to be zero -- to be totally honest with you. or, worse, we would do it on the cheap and it would probably not be effective. so then you're really wasting your money because she did not quite put enough of the right capability and capacity in there

because you're trying to do it basically based on a $-- a dollar sign rather than on the requirement cost. that is what i find so absurd about the sequestration peace because it is not attached to upset stomach abilities or risk that the military is supposed to put their resources against. >> this is an important footnote. in that paper that i just prepared, one of the points i a emphasizes that the cultural aversion within the department of defense, with regard to the domestic mission of the military, including those of the national guard -- dod is heroic and has predicted our nation

over many decades. but in the 21st century, september 11 being the prime example, asymmetric attacks employing weapons of mass destruction must be seen as part of that national security landscape and the protection of our cities and our people here at home must be seen in a larger context of national security and the role of the department of defense. frankly, at dod, there are some folks who are steeped in the traditional power projection who have not realized that changing circumstances. what can you do if you can fight effectively in baghdad that you cannot protect brooklyn. -- you cannot defend brooklyn? our adversaries are likely to employ it asymmetric attacks using ever more powerful weapons for decades to come. and that recognition has not really been inculcated in the warrior the close of the department of the defense. so when sequestration hits and

dollars need to be say venture -- and missions need to be chosen responsibly, the missions that are most likely to be pushed aside are those in the domestic arena. at least within the department of defense, absent a change in direction. we have made considerable progress since 9/11, but what i spelled out in a monograph is that we return to the status quo ante -- the status quo empty. i am worried that sequestration will hit domestic missions including critical infrastructure protection and the burn response disproportionately. -- and seaborne response disproportionately. >> as of last week, the

administration in formed leadership that they intend to do that. but the across-the-board cuts gone from 8.5% to approximately 11.3%, do you see potentially a hollow force to develop for the national guard to revert to a strategic reserve? >> the unintended consequence of what you just said, if you think about it, means that the only place you can get your savings is equipment, operations and maintenance, and that is critical, tempo and training and education. even if you keep the people, you really reduced their capacity and capability in that the will be less trained. the will be far less equipped and the equipment they have will be far less maintained than what we currently have.

in the 21st century, what makes us the greatest military in the world is not that we are the biggest, not the mass numbers. we don't send mass, a human wave against an objective. we have highly trained professionals that are superbly trained and educated in the use of the equipment that we give them and we give them the best state of their equipment that science and technology can deliver and it is highly maintained so it is reliable and effective on the battlefield. so everything that i just said -- and they are highly motivated volunteers. so you take highly motivated volunteers and you start giving them less equipment than they are used to, poorly maintained equipment, and start reducing the training that they have become accustomed to, how highly

motivated will they remain? or do we have less members, less quality force and a less capable force? the answer to all of those questions is yes. that is not the intent, but that will be the impact of sequestration appeared >> is it morally responsible to keep the people and then put them in an opera -- put them in operational jeopardy? that is really the net effect of that approach, which has the benefit of perhaps retaining 20,000 national guardsmen who would otherwise be cut, but then denied to them, as a result of reductions and operations and maintenance funding, the equipment, the training, the capability they need to go forward and execute their missions? that is hardly a solution. i had to the house of -- the president of the united states called off of the house floor to tell me that i should vote on a

bill. i said to the president, sir, you don't know what will happen in the senate and neither do why. i can only consider what is in front of me right now. after it comes back from the senate, i will be happy to support it. and i did. we would hope that we can protect the 29,000 national guard personnel that would otherwise be cut. but it is the height of irresponsibility to shift those funding cuts. we're talking about domestic missions. we have to make sure that when we send those men and women in uniform for word that they have the equipment that they need to execute their mission. and that it is easy enough to protect the personnel. it is a lot harder to ensure that they have the training and equipment and capability that they deserve. >> if you think back to

chernobyl, the courage of those people was enormous. the commitment was enormous. the casualty rate was horrific. they all died within 30 days, most, some a few months later. and the reason was that they were not trained and few had the resources they needed. there responded, but they paid an awful price for that. we owe our young men and women much more than that. >> where would you take money out of the pentagon? >> if it comes in a part of the

question in timing? for instance, i believe that, once we come to irresponsible resolution of our combat operations, is inevitable that we will see a drawdown of the force. i would support that. historically, we have drawn down the force after major combat. we have done that in the context of very poor judgment. we have not been very good at intelligently drawing down the force. but when u.s. were would you cut coming the aftermath, that might be 2014 and it might be later than that, that we have essentially completed the drawdown from afghanistan. we should look at a very thoughtful reduction in the overall size of the force. we have not done that.

and unless we have very significant civilian oversight come including congressional intervention, what we're likely to see is a disproportionate cut in reserve component when coming in fact, i think the drawdown should be primarily in the active component, maintaining a robust capability, but a drawdown in the active component while realizing a cost effective nature of the reserve component. we ought to retain a very strong operational reserve and draw down the enormous personal cost associated with an active component force that was correctly sized for ongoing combat operations, but is probably too large for a peacetime or a relative peace time environment. secondly, without going into details, there are in number of weapons that i think are highly questionable and we ought to take a hard look at some of those systems that are enormously expensive.

but the reality is that something like 70% of the defense budget consists of personnel costs. a drawdown in the active component would make sense in the aftermath of the conclusion -- not during a conflict, but at the conclusion of a conflict in order to right size a forced during peacetime environment. >> natalie that makes -- not only would that make sense in which he is talking about, but in a business model for firefighters and municipalities where they decide to go across the country with great success, but frankly what he just described, and expansion -- an expansion of citizenship and only a small percentage of them serve, we don't want a candor that turns into america's

foreign legion. -- a cadre that turns into america's foreign legion. when the guard reserve cents a unit from you name it, small town whatever state you're from, whatever county or from, that is your home town team going. that whole town deploys with them. that whole town tracks that unit and its record and what is going on with that unit the entire time it is gone. that whole town now has skin in the game or equity in what we're doing and seeks to better understand why we -- why they were sent, why is the pew and be in church on sunday or at the synagogue on saturday or at the mosque on friday. -- on friday? my neighbor, why isn't he here?

why is he serving? or in the classroom or the business place were fellow farmer or educator, whatever this person might be, a doctor or nurse electrician, it doesn't matter. there is a whole area business in every social gathering, at every dinner table. these people now have neighbors that have equity in this america. in other words, when you call-up the national guard, you call out america. the only people they know that went with the local vendors in, say, fayed bill, not carolina and it will have an economic -- , north carolina and

it will have an economic impact. when you call up the guard, you do in fact call out america and that is a very powerful message to send to our adversaries. and on some of these stability and operations, peacekeeping operations, more complex operations that we have been involved in in the last 15 years to 20 years -- when the people in that country coming to you and find out that this man here in the blue shirt and tie that i am looking at is wearing an american flag and the informal one of the services uniforms and realized that he has a job and a family and this is not all he does and he doesn't have to do it, he volunteered to do this, it says more about what is right about our country than our state department and our finest ambassadors and foreign service officers could ever say. and that is an intangible that

you don't want to lose. and that is an intangible, frankly, a trained full-time professional soldier, sailor, airman, or marine has a lesser message. when i go back, i'm going back to my farm. you have a farm? why are you here? i chose to be here. i am here to help you with your problem. and when i am done, i am going back. that is a very different message then and occupier or a mercenary in the eyes of the local people, that you are a personal -- a professional mercenary rather than a citizen soldier. it is a very powerful tool. we should want to optimize. the constraints on the budget, hopefully, could have a very positive outcome. if you're going to maintain a volunteer force, you have to have the backing of the american

public and the decision- influences, the coaches, the teachers, the parents, the neighbors, the employers -- all of that has to be feeding that system if it will be successful, particularly if it has to grow much larger than it has in the past. the way we are able to bring that up, our capability last 20 years has been the guard and reserve. it is a far better value for the american taxpayer because you are paying them exactly what you would pay an active duty force when you need them. but when you don't need them, they are out earning their own living, paying their own taxes, raising their own family, building their own communities, building our country. and they are getting civilian-

acquired skills so that, when they do get called by their nation nor their governor to respond, they will be much more capable and have a much greater capacity to respond than they would otherwise. >> it is worth pausing to recognize -- there is a terrific subtext your question. your question is where would you make the hard choices? making hard choices is the antithesis of sequestration. sequestration is arithmetic. it is multiplication. it is irrational. and it is a breach of trust your men and women in service. it is a way to avoid hard choices. i am fairly sure that my views would differ from others. but it is an abdication of leadership and responsibility and ultimately democracy if we fail to make those choices. if we resort to sequestration if we resort to sequestration an