taxes and entitlements and non-defense discretionary are such that pentagon describes this -- the president does. he will instruct the secretary of defense as to what the deal is and the secretary of defense will -- they want to resign, more power to them. but they will come and present a budget after the budget deal is done where they basically do what they are told. >> yes. >> i have a question. first, president obama says we can have a national ability and the chairman, you mentioned it too. how could you saves money you don't have? where is the money coming from? the second is there was mention

-- defense spending. anybody know how much in terms of defense spending and should we talk about that to deal with it? the third question -- the world is changing. i think we have a new defense strategy. once you have a strategy you will know what kind of leadership you can have and what kind of armed forces you have and also defense technology. should we have discussion about this defense strategy? >> a couple thoughts. you say how do we invest domestic affairs, money we don't

have. depending on the nature of the deal to raise revenue, basically you are saying money you are not spending will be available for the purpose of public investment depends on the larger parameters of the budget deal. as for waste in the pentagon mentioned whether my colleagues for a percentage on, it is the and pervasive and depends how you define it. if you are buying a weapon you down need, i would say yes. there are smaller waist in terms of procurement policy and so forth, but that is the key target. we could do a whole panel on an alternate strategy but it is clear that on nuclear weapons, preparing for counterinsurgency and the overly optimistic sense of what we can do with drones and naval power. of these are things to consider but we could have a whole

conference on it. >> one barry specific way of thinking about waste is during this period of growth that the slide shows, there was astronomical growth in contracting and the project on government oversight and taxpayers for common sense estimate you could impose a haircut. i believe it is a 10% hair cuts and pentagon contract in which would make up $300 billion of the $500 billion from sequester and if you imagine that there is not 10% of waste in contrasting the panel has a bridge would like to sell you. one way of thinking how much waste or inefficiency or unnecessary spending is there is enough to deal with sequester, enough to make the sequester

contribution and on the strategy question, it has been true throughout american history, bernard broek said strategy where the $ $ in point of fact -- actually having a strategy conversation completely apart from a conversation about money and national investment is what brought us this steep line on that curve. what we want to have is a strategic conversation in which money and where it comes from and where does and it's relationship to national power is part of the conversation and i agree with you, that is desperately needed. one other point in response to that because it is something that happened. power followed this money. winslow wheeler and carl made a points about the defense department being different from the state department and as a proud alumna of the state department in the clinton years i say this with some grief but

the defense department is different from the state department. it is more powerful. in point of fact your regional command commander these days engages in at least as much diplomacy as his diplomatic counterpart and has a lot more resources at his disposal. unfortunately -- i don't thing is a good thing but one of the challenges we face when trying to reform the pentagon is trying to move this power back to civilian institutions. that is separate but not unrelated to the numbers discussion. >> on the weight thing, to make another dimension to my remarks the basic problem of the pentagon not knowing where the money is going, not knowing what it does when it gets there and not going out the other end.

to understand however you want to define waste, and i am fine with the broad definition, you don't know how much there is until you have succeeded in audit. that is going to be some time after the 27 deadline the pentagon set up for itself. in 2014 they say budgetary resources tell us where the money went. in 2017 they say they will have an audit of the assets which is stuffed. nowhere in the plan is what happens with the money when it got to the recipient and that is the key part and that is the part they somehow forgot to put in their plan. and so knowing how much technically definable waste, fraud and abuse occurred is nowhere on the pentagon horizon.

>> and donald rumsfeld said there has got to be 5% waste, there has got to me. he didn't identify nor did he get rid of it. in the 1990s when the curve was coming down there was a great deal of interest in defense reform and i believe it was the national commission on twenty-first century strategy which was the red team to the officials strategy thinkers in the pentagon, they identified something like 15%. what we accomplished that is identifiable had to do with base reductions and that turned out to be 3%. most of that evaporated as soon as we talked about reorganizing our global posture. now we look at the military construction accounted has gone through the roof but the key thing is there is no incentive

in the pentagon to economize and until you produce that incentive you are not going to be able to identify waste. it is as though there was an open accounts you could go in and get money and spend it. there's no political downside to spending money on defense. at least there hasn't been until today because there is greater recognition that dod versus everything else, if you want to find that trillion dollars it is there so there is more sensitivity to it today but prior to today there was no incentive. on the strategy in question, we need a strategy we need to think of strategy as not just being defense strategy but strategy, national security strategy which should bring in the state department and other elements of government treasury, commerce, they all have a role to play and there is national strategy. the important thing is to understand as a nation when we face challenges abroad and at

home. that will inform the other levels of strategy. >> time for one more question and answer. >> anything you point to as the key organization and on a separate tissue, what about nondefense spending in the defense budget, many were the programs because it was politically possible. >> i will start with that last piece. there was an effort early in the first obama term to move some programs out of the pentagon and back to state candidates and clinton negotiated and it was set up and wired and went to congress and congress set your getting this from the pentagon and that is money don't need and they x an equivalent are somewhere else in the state department budget and gates said

we are never doing that again and he said i need those programs to get that and i am happy for you to do them and we are not doing it yet and that -- there had been a good faith effort to think about doing that and it stopped. that-the bigger issue this raises, your national leadership has to be willing to think about institutional reform at a time it is also thinking about national security challenges and getting the economic car out of the ditch and back up to speed on highway and any administration of any political stripe, you have four years to get something done. are you going to make a priority to root out waste and change contract in practices win as bill's book documents so well they have been doing this their whole careers and beat you at it or are you going to focus on trying to get a nuclear deal

with iran or improve the afghan army or something like that as your legacy? that is a long way of saying there were good intentions around that. i am fairly pessimistic about that at this point given the intense -- everything we set about pentagon budgetary pressures are more intense and nobody complains how many ambassadors it kills with security. >> are we done? >> if you have one. >> one overlap that shouldn't be happening is the pentagon running its own military program. the state department should be overseeing that because there are no human rights qualifications, no transparency, it runs out side the grain of foreign policy. a runaway train. most of the assistance programs need to have much more scrutiny overseen by the state

department's broader foreign policy. >> i think we have had the discussion of why a military sequester might be well command for good reasons and i want to thank the audience for paying close attention and panelists for their presentations. >> more now from a new america foundation forum on the so-called fiscal cliff. over the next hour and 10 minutes a discussion about automatic budget cuts benefiting social programs. >> i am vice president of the economic policy center for american progress and i will be moderating this panel. i caught a bit of the last panel and we will be moving from guns to butter i guess or something. as we talk about how we are going to deal with the fiscal cliff, whether or it will be a grand bargain or models through or whatever happens, there are a

number of programs that are undoubtedly going to get particular attention, really hot potatoes. they are programs that are very much the public is very aware of and things very much in the political discussion. for people who are pushing for substantial budget cuts in general, one phrase you hear is getting entitlements under control and what is notable about that phrase is it doesn't have the words social security or medicare it it and it implies something about control. what we will be getting into on this panel in part is what happens when you get beyond that phrase and it becomes a very different discussion. the other thing to nose is when you get into a fiscal cliff deficit discussion, there is a natural gravity towards making the numbers add up. i have done this, several of us

have done this. making the number that up is very busy if you subtract from the consequences. what this discussion really is going to end of being, what our society and economy really need and some of that our programs like the entitlement programs but also things like dealing with bridges and roads and infrastructure and other things the federal government does. that is what we are moving the discussion to and we have a great panel, i think. . ..

michael has been an editor or staff writer for "the new yorker," harper's magazine and "the new republic." he's published and appeared and spoken pretty much everywhere, and written everything. ease in terms of writing, everything from much a claimed serious and important works of history, to a prize-winning children's book. moniqumonique morrissey, who yon probably figure out which person that is, has been with the

economic policy institute since 2006 where we were colleagues for a, i don't know, a year or something. she previously worked at the afl-cio's office of investment in the financial markets center, she holds a ph.d in economics from american university, and her areas of concentration in her ample research inviting include retirement security, executive compensation, the federal reserve in financial markets. lastly, sherle schwenninger directs the new america foundation's economic growth program, global middle-class initiative. he's also the former director of the bernard l. schwartz fellows program. sherle was the founding editor of world policy journal and the director of the world policy institute at the new school. he also served as program coordinator for the project and development trade of international finance at the council foreign relations. he's also a senior fellow at the world policy. so that's the introduction. i thought they wanted some elaboration since they are a

very accomplished panel, and i think we will kick off with monique. >> i have my notes on a powerbook, but there's no charge, and you can't see them it's okay. it's basically notes to myself. but my title is avoided and not so grand bargain. and actually, jamie galbraith used the analogy that i was going to use which is you're getting the hard sell, he said condo, you could say roger, car dealer. but his point was that when you're getting the hard sell it's time to stop and think. i would go a little further and when you're getting the hard sale you will know do not getting the best deal you can. don't stop and think, walk away from see what happens and then come back. and my particular focus even though historically i've looked at federal reserve's, these days it's been a lot on retirement and social security. some particularly concerned of social security. i thought it was going to be taken the last slot, and so i

had sort of, i was going to plugging holes that people have made particular point in tax expenditures are but i would give a little bit of an overview and then go specifically about social security. one of my preoccupations is that many progressives even are at this point convinced that social security really is in trouble. and also in general there's a big problem with aging in demographics. i think one of the reasons the other side wants to deal very quickly right now is because, you know, for people who are antigovernment, the new deal program is sort of the jewel in the crown. if they try frontal attack with privatization and now they're trying to shrink it down and they don't need to have private accounts. you can just keep shrinking social security and then talking up the need for more retirement savings and publicly subsidize retirement accounts and you come up with the same thing.

and so i would say that in particular, if there's one thing want to accomplish today is to convince you guys that there's no rush on social security. they should not be dragged in, and if the democrats do one thing right it's to make sure that social security and the new deal programs in general are left out of any bargain. but first, let's see, how do i -- because i'll be skipping over a lot of this very quickly, i put in a plug for epi publications. i also neglected earlier to thank our hosts, which i am very grateful to be asked to participate year. we all are very much like minded, but i want to say that the fiscal portion is very overview of trade-offs, and is also well-written, which most economists don't write very well. so i would say they just want a little bit, a quick rundown of some of the issues and trade-offs, the other thing is

the epi health progressive caucus on the budget for all. this is an example, many kinds of things ep i worked on. the point is that if you're worried, the main point i'm going to make it is it's all politics, it's not economics in these kind of things demonstrate there are ways of reducing the budget long-term and that don't require, they're not the sort of economic constraints we've been told about with the aging population, we need to do this. those trade-offs, and this is a short-term budget. ten-year budget window but it shows one way of doing it. becky is here, and so if you're more interested in that, at one point i tried to get her to be here instead of me because she worked on social security and she works on budget issues so she's more of an expert on these things. so okay, this is kind of obvious but as i mentioned i don't think

-- once you wanted to mention was one of the issues, long-term real challenges projected health cost inflation. as many people have pointed out, my famous everything is politics politics. one of the things is what is considered a realistic projection or not. this is become very, very publicized. the same people, and this includes mostly apolitical, nonpartisan actors like the congressional budget office, will protect -- project on forward unsustainable health cost inflation. meanwhile, when they do, their more realistic projections they will tap down costs containment measures. they're sort of this bias built into these projection. this is our something to keep in mind. projections, the decision about what's a realistic assumption or not is very political. and it includes supposedly nonpartisan actors like the

congressional budget office which does a lot of good work, but now, this was partly for my own purposes. this is an extremely simplified, you know, i wanted, very, very cynical idea of what the republican party were and the democratic party's work went into this grand bargain negotiation. and i already realized that there's an error in there because i was told by the last bill that republicans are not really that hard core. these are supposed to be priorities in terms of a birding cuts in defense spending. -- a birding cuts. what republicans want is they want cuts in government. they want to shrink government. separately from that they in particular want to get the new deal. and substitute what epi did previously called a year on your own society. so the republican vision was an

ownership society where, the democratic vision -- one which a look at it is democrats historic event favor of historical insurance. the republicans historically have wanted the same subsidies funneled through private means. and as of late the democrats have been complicit in this expanding the size of government and health care and other areas, but doing it in with us for by soft private industry at the same time but it's very expensive. so it's not, if we really are in a belt tightening mode, it's important to keep in mind it's not just the pentagon that is not done things very cost effectively. i'm a big fan of the reason health care reform but one of the strong points comment it was not cost containment. in addition to cost containment measures that were there were not viewed as credible. that was a political decision,

partly it was a function of how it was done. and i'm being cynical. i say the republicans if that's -- republicans are not monoliths, but some republicans generally don't want to increase taxes on the middle class and genuinely don't want a double dip recession but i would say the way the party, the preferences in recent years is there much more concerned about the wealthy than they are about these things. the democrats, so we are told now, it's a bargaining position. the president has gone all out same with the one thing you really want out of this is tax increases, to reverse the bush tax cuts essentially on the wealthy. and as the party in power as the responsible party they want to go -- they don't want to go into another recession. they also have also drawn a line in the sand. they won't go below that.

and they generally don't want to drastically drink the size of government in general. and they go along with some things that i would consider to be leading to the programs that they are not, it's not something they would generally prefer. but that's the danger point. how many democrats are sincerely worried about the deficit and believe, genuinely believe that it is important to cut the social insurance programs to achieve that. objectively the democrats have the upper hand, because the thing that happens automatical automatically, the expiration of the tax cuts, so as someone pointed out earlier sort of, part of it has become, it's semantic. yarn arguing about who gets tax

cuts restored as opposed to tax increase, which when you talk, with republicans might be something, but, you know, the tax increases would be a done deal which is an argument again for not trying to strike a bargain before these things take effect. the thing with the democrats are vulnerable is again, even though it is a slope it is going to hurt the economy. it's not going to happen overnight. were not going to go into a major recession overnight but democrats clearly don't want to sacrifice unemployed workers and the economy as a whole. and so that's where they are vulnerable. and this is hyper simplified. this tax increase is not just the bush tax cut but it is the payroll tax cut which i can talk about later. unemployment is not a big factor. so, you know, sort of the point,

okay. well okay, going to skip ahead by just a couple points to be made here. you know, economists are all glad, or team seems are glad there's an implicit -- keynesians are glad the whole discussion around the fiscal cliff implies that you're a keynesian. that you believe the economy is going to go south if you close the deficit even though it's not usually stated in those words. you know, a couple of details our, you know, yes generous speaking you reduce the deficit, you will have contractionary effect but i do it matters a lot. if you actually, famously the tax cuts on the wealthy were not very expansionary versus tax cuts for middle-class. even better than any of that is spinning on infrastructure which is another thing this panel is supposed to talk about. these things don't cost very

much a they have a big effect on jobs. and any other point, this is a point my boss, research director at epi, you know, since a lot of democrats who do believe that deficit reduction is important and there's some literature that points, you get to the point where debt as a share of gdp, then all of a sudden things go bad for the economy. looking carefully at these studies do not really very credible. but in any case the point being that even if you believe, even if you believe that it becomes -- this assumes that you got full employment. so it's a high-class kind of problem. if you worry about that thing. it's not what we've got to worry about is years and years and years of full employment. so since, i'll skip ahead very quickly i would just like to get to social security.

the thing that social security is people have been convinced, and this is why they want to deal and they want to put social security is i think we've reached a high point of scaremongering on social security. people are convinced osha's good and medicare together are going to bankrupt us in the future. and medicare is all health care. if we don't solve the problem we have a whether the government spending or private spending. agent is not a big from. social security can we save money in the trust fund passed most of the key to boomer retirement years. life expectancy growth is a moderate as a factor compared other things. that once the baby boomers retire, also the sheer gdp level off. you can't with your naked eye see any growth. there is a little bit of growth because of life expectancy but it's very money. the chief actuary of socialist purity will tell you, it's the drop off in bursts, not in the

population growth which has to do with immigration and birth rates, and not with life expectancy. and for the record i'm in favor of gradual increasing the payroll tax to offset increases in life expectancy because it would be so slow and so modest that it wouldn't be much of a tax increase and it was sort of shut people up altogether. but usually it is an excuse for raising the indictment age, which is an across the board cut and well beyond what would be necessary to offset. i've written a lot about this issue so just refer you to other stuff i've written because it is very hard to convince people this is not true. life expectancy at birth has written. influx of women in the workplace, people working longer already that balances off the demographic issues and it turns off a big reason for the social security shortfall has emerged has been more of a slow wage

growth and wage inequality, the more earnings. and so -- >> one minute. >> the last point i make them will be that, well, i'll make to last point. one of them is, the other business osha's good and medicare tend to be his people look at and they're like okay, social insurance is mandatory 14% of gdp, including military spending, 9%. you have to go where the money is. but what gets left out is tax expenditures which are about 8% of gdp and sort of don't, they're not consider spending. they are reduction in taxes. but that is where there's a lot of ways democrats have been complicit in a. a lot, for example, like a social security instead of cutting subsidies for 401(k)s, two-thirds of which go to the top 20% of the population but in general that's

the case for most tax expenditures. very inefficient. and today's "new york times" had something about how the, it was something the republicans were pushing during the election and the democrats are now easing up to it. there's no reason if somebody tells you that social security is the third rail, that why is it that the home interest deduction for 401(k)s subsidies are considered untouchable but social security really isn't? it's because pete peterson has spent a lot of money, and i should own up at epi is also worked with pete peterson on stuff like this but we don't agree on this. he's trying to scare people about this and convince people you have to touch the third rail. am going to wrap up with this provocative. generally speaking this is been above this. everyone has agreed. i want to give bruce bartlett a bear hug. i don't think he is here any more.

but there are three areas i think that are important where progressives disagree and people on this panel disagreed. potential areas, might be interesting to discuss. one of them is the importance of deficit reduction. i've laid it out. we tend to be dovish on this. i don't think it's a long time to come. the other area is part of that one area that were a lot of progressives are willing to cut social security is by purchasing the cost of living adjustment. epi is behind the state the right now, we're trying to get economists to sign but if you haven't signed already, with about 300 people have signed on to something. you know, saying it's a cut in benefits and it's a particularly bad when. it goes to the most elderly beneficiaries, disproportionately. but the reason some progress is a this is because it would also increase revenues because the same thing what happened in terms of marginal tax brackets. this is an area of disagreement to another area is whether to

extend the payroll tax cuts. within my own organization there's disagreement. we all want, we are worried about the economy, one way to do but i believe it is a republican trap to make it seem like the cuts, it could turn out to be something hard to get out of. thank you very much. >> thank you, monique. [applause] >> what makes a bargain brand? -- grand? president obama would like to have a grand bargain. the most familiar template of a grand bargain is the simpson-bowles plan, written by the two co-chairs of the presidential official on the

budget whose members rejected the very plan that the co-chairs wrote. this is now being pushed by a coalition called fix the debt, funded by the billionaire t. peterson, to the tune of $30 million. funded by a number of corporations, particularly in the financial industry, but not exclusively. the basic template of that in some of grand bargain deals is that in return for averting the fiscal cliff, averting what some of called more accurately the austerity bomb in the near future, congress will agree to long-term cuts and entitlements which do not include tax expenditures and even the people are entitled to them, but they do include social insurance programs as monique pointed out, social insurance, medicare and medicaid. so in all the different versions of the grand bargain, long-term

cuts to social security and medicare and medicaid are considered part of the deal, whatever the other details of the deal may be. and why is this virgin? we are told we need this grand bargain because we have to deal with the immediate explosion of the public debt. that has occurred not just since the financial rash of 2008-2009, but also in the last decade. so if i get this right, thanks to the center on budget and policy priorities, have done this very useful chart, showing where the components of the explosion of public debt in the last decade have come from. you may not be able to read it. basically it's the bush tax cuts, and the unfunded wars in

iraq and afghanistan which were funded exclusively by borrowing rather than by mixing borrowing and taxes, which make up an enormous chunk of it. the rest is revenue that was lost from the recession simply as individual payroll and income tax receipts, corporate income tax receipts. a little sliver for federal spending on the t.a.r.p., the bailouts of freddie mac and fannie mae, federal unemployment insurance and so when. so if you look at again, from the center of budget policy priorities, if you look at the chart to see what was the explosion in social security, medicaid and medicare spending by shipping to this, you can't see. you can't find it even with microscope. it's not on the. social insurance has not contributed at all with the exception of automatic stabilizers during the

recession. medicaid to some extent employment insurance to the present crisis. it's the two wars, recession and tax cuts, which disproportionately instead of the rich. -- benefited the rich. we've been told we have to urgently deal with the demographic tsunami that's a tidal wave of costs which are going to escalate in near future and bankrupt america because we can't afford spending on the elderly on social security and medicare. well, i think if you're an oceanographer or even a surfer, none of these, and this comes from the "washington post," none of these actually look like a tidal wave. i know it's kind of small. it goes out to 2040. if you just look at the top to, health care spending, public health care spending, medicare

and medicaid, social security the second chart, look at social security as monique said earlier, it goes from a little less than 5% now to about 6% by the middle of the 21st century. that's not exactly a synonymy that threatens to destroy our civilization and calls for immediate urgent action. what it means is simply over half a century we need to either raise revenues by about 1.5% of gdp or the alternative, if you outcome you could cut social security benefits by that amount, or you could have some compromise, or you could think about reform within the context of the retirement system as a whole, and arguably as i would suggest, expand social security which is the most stable part at the expense of reductions in the volatile and unstable part of our retirement system, which is

tax favored 401(k)s which have done a terrible job compared to social security. these are all the dates worth having. with decades to have been. it's true, by the 2030s when the trust fund is exhausted there will be a drop in congress presumably some years in advance will have to deal with it. do we have to deal with social security as its long-term financial outlook in the lame-duck session, the next couple of weeks before the holidays, or even by july 4, which some of these deficit reduction, some of the deadlines, evidently not. there's more of a problem from a fiscal point of view with verizon medicare and medicaid costs. but even this, we have this going up to 10% by about the year 2040, 10% of gdp from under 5% today. that's not insignificant. that's a significant amount of gdp. do we really, are we confident

that we know what share of gdp will go to health care, whether it is channeled through public medicare or medicaid or the private sector in the year 2040 a.d., i think that the but, in fact, this chart does, does not serve the purpose to scare people because say it goes will last from five to 10 in 40 years is not terribly frightening, apocalyptic. and for that recent the scare mongers and doomsayers about medicare and medicaid typically use a chart that goes out to the 2080s, whereas james albright -- james galbraith said, that we pay these costs strike up to 40%, which is scarier than 10%, 40% at 80 years. conceivably, i do if anyone done the experiment. may be projected up to the year

2200 a.d., and show that it would be 200% of gdp, right? the point is, are these projections, yes, we will have to at some point, or and less new technology or delivery system for something solves a problem which is quite conceivable. is it really urgent that we try to settle this problem to the extent it's a problem between now and the holidays, or in the spring of 2013? again, a rational person would ask this is kind of like saying well, and, your parents had cancer when they're 60 so at the age of 20 should go ahead and have that operation to get it fixed, right? you know, just to make sure. it might develop in 30 or 40 years. wheldon, wiser, this is a political question. not an economic question. why is anyone talking about fixing social security and medicare in the next six months,

or the next for that matter five or six weeks? as part of a grand bargain. why are we discussing this? even if there were a few irrational people saying these sorts of things, why would anyone take it seriously? this shows the answer. this is one of the ways that you can cut social security, efforts that have been discussed as a possible part of the grand bargain. monique mentioned another one, raising the eligibility age. this is using changed cpi, consumer price index. it's an alternate measure of inflation. i'm not an econometrician. i defer to experts. the point is this actually appeals to individuals and organizations who want long-term social security cuts.

now noticed that the erosion of social security benefits by changing cpi is a key and it gets worse and worse as you get older. when you're 65, less than 1%. if you live to be 95, assuming this has been adopted, then it's nearly 10% cut in your benefits compared to today. so i'm not going to debate the merits of this. you can make the case of the. i'm just going to make a political point. if you had a separate national conversation on what to do about social security over three or four years and there was no rush and there was no deadline and there was no sense of urgency and check commissions and they came up with proposals, legislation in congress, i think it would be a lot more difficult

to sell this to the public, to say that, you know, we're not going to talk about any of aspects of the budget at all we're going to talk about his social security and our plan is to cut social security benefits through stealth inflation tax by 10% 4905-year-olds, vote for us. i don't think that would be very popular. and the same is true of a lot of other medicare reforms which involve not reducing the price of medical services in the u.s. which are overpriced by oecd standards. not improving delivery system efficiency by just rationing out years. if you have a separate freestanding national conversation, no deadline, no sense of urgency, what to do but the future of medicare and medicaid, and one group just said we want massive permanent rationing of access to health

care, again, that's not going to go anywhere. so if you favor cutting entitlements like social security and medicare and medicaid, by methods like this, it makes perfect sense for you want to bury this in the fine print of legislation on another subject like a bird in the fiscal cliff. it's just like putting a rider on a defense department bill for something that has nothing whatsoever to do with the defense department. that is, i think the fruits and united states which were ideological reasons, and cases of the financial industry, want to cut social insurance in force people to buy more private for-profit sector products like annuities or private health insurance, they know they can't win this argument if the grand bargain is unbundled, if these are separate debates. their best chance, first of all,

create a completely artificial sense of urgency. we have to do all of this now. the clock is ticking. by december 31 or by july 3, 2013. and second, to bury this, right, to bury the cuts and, like some grand comprehensive package which will include tax increases, avert the alternative minimum tax, averts sequestration and all that, it's a brilliant political strategy. it's probably the only political strategy that can achieve what they want because unless they ran this through in a hurry, if you have a many feel instead of a grand bargain, which sets aside the long-term title of reform and focuses only on the immediate obstacle course of various issues, we will revisit all of these things, social

security, medicare, medicaid for generations to come but you won't have that sense of urgency and you won't have the ability to ram through a lot of they'll consider, ill debated questions in the middle of the night right before the deadline. thank you. [applause] >> it's always a challenge to follow my esteemed colleague, michael lynn, who served as policy director for economic growth programs, and has headed up all sorts of social contract initiatives over the last couple of years. i want to come back to the question that goes back to the first panel, and in doing so i

want to talk about what i believe is the actually most fundamental fault in the grand bargain as represented by simpson-bowles. now, if you remember, whether there was not a trade off between public, public investment in infrastructure, education, research and development and 18 our social security and medicare obligations. and my argument is that, that this is indeed a false trade off. and moreover, that increasing spending are both necessary over the next five to 10 years to have a successful economy and sustained economic growth. now, the grand bargain components would innocents try

to get people in general and the centerleft community between those who favor increasing spending for maintaining levels of spending on education, research and development, infrastructure, versus people who want to defend the new deal programs. but, in fact, this only shows or should lead us to understand where the fundamental flaw is in the grand bargain position. and that the fundamental flaw is that in a sense, the simpson-bowles framework attempts to impose a failed model of economic growth on us in perpetuity. that may not be appropriate. now, what is that central model of economic growth? well, in essence they are

calling for lowering the tax rates as if tax rates in his supply-side magic is the key to economic growth. yes, they're broadening the base by cutting certain tax expenditure trying to increase its efficiency, that the overall thrust of their message is to keep tax rates low, keep public spending low, to prevent public spending from crowding out private investment as it capital is scarce in the world. but this is not the economic conditions that we face now, or that we will face over the next five to eight years. beyond eight years, i won't venture to extrapolate because as jamie galbraith pointed out, some of these trends become discontinuous after a certain point.

but what if you want to stress here -- but what i do want to stress here is that this model of economic growth, a model version of supply-side economic philosophy that has guided economic policy for much of the last decade or two is fundamentally ill-suited for the economic conditions that we will face over the next five to eight years. indeed, these economic conditions, i would argue, call for greater sustained public spending, both increased spending on growth enhancing public investment and increased spending on social security and public funded health care. i want to touch on the sixth trans fat i believe will define our economic conditions -- six trends that i believe will

define our economic conditions and explain why i have come to the conclusion that we need both increased public investment and increased spending on social support programs and new deal programs in order to have robust them sufficiently robust economic growth at the first trend is the obvious one that we're still in early stages of the global deleveraging process. in the u.s. the best measures suggest we may be nearly halfway there, household deleveraging. but europe has just begun. china has not even begun to confront its deleveraging problem. it will have after the buildup of nonperforming loans which will become more apparent as we go on. so the consequences of this in the u.s., which we face another three to five to eight years of private sector household deleveraging, but also face a

worldwide problem of weak external demand, that we will have a process of paying down debt that destroys demand in the private sector, also private investment. therefore, otherwise we would expect economic growth. second, we have to demographic trends that are intersecting. you hear a lot about the aging problem, but, in fact, in the interim 58 period, year period, we have to demographic trends that are going to exacerbate the supply demand equation of balancing the global economy and increased the relative weight of savings versus demand for investment. first we have the emerging economies, many of which are already high saving and producer oriented economies will enter

their peak savings and production period. yes, consumption will increase in those societies, but if those patterns all other democrats ask, the actual portion of savings will actually increase in society. the goldman sachs study on this two or three years ago i believe is impeccable, and everyone should read it. this will occur at the same time that we're having a period of private savings catch up in the most of the advanced industrialized countries. most of the baby boomers have five to 10 years left of earning capacity. most of them have under saved. many of them are going to be saving to catch up, and because of many of them faced problems created by repeated market setbacks. so you are going to have

abundant capital, and in particular you're going to have a shortage of fixed income investments, which is going to complicate their retirement income planning process. that means that you will have enormous demand for u.s. treasury debt, partly because you have problems in other parts of the world. the third trend is you're going to have the ongoing mechanization in autumn this is of manufacturing -- optimization, not just in the u.s. but globally as well. and what this is going to do is reduce the demand for labor and the available of middle income jobs. at some point in the u.s., we will reach certain limits about automation, and even well maybe

say some slow down in productivity growth. but we still have a long ways to go in terms of the fact that machines are still replacing laypersons in many parts of our economy. therefore, labor will be abundant. employment and jobs will be very constrained. and we will continue to face this tribute to the challenges of pressures of technological change giving rise, to rising inequality or continued inequality. the fourth trend is that absent a more complete breakdown of globalization we're going to have continued intense global competition and trade sectors of both the advanced and newly emerged economy. which will result or place limits on companies specific research and development and

infrastructure investments. that means more of the burden for r&d and infrastructure investment actually will fall to the government and the public sector of the future. simultaneously, we are going to have continued financial constraints at the state level in the united states, which means that the federal government will have to compensate for cutbacks at state level in education and other necessary investments as well as support for social programs. finally, and this one is slightly more optimistic, but continuing with the theme of abundance, we will see the development of an energy surplus because of technological advances in exploiting both oil and natural gas resources,

combined with new energy efficiency measures that will greatly reduce u.s. energy use. now, the u.s. has now predicted the international energy agency predicts the u.s. will be the number one producer of oil by 2020. it will also be probably close to the top of producers of natural gas. this will give us the wealth and income michael lind mentioned 1.5% of gdp. we need over the next what is it, 15 or 20 years to make up the shortfall in social security and 45% in medicare. well, the explosion moving from an energy deficit to an energy surplus will more than half close that gdp gap. so, we have an economic

conditions that suggests that the challenges we face are the exact opposite of what the bowles-simpson grand bargain would impose on us as a growth strategy. the conditions that we're going to face over the next five to eight years, with some in the ration if we do the right things, are an ongoing shortfall both domestic and global demand, excess capital and labor, and excess capacity and many major industries overcapacity in many sectors of the world economy. a distributed and any party challenges caused i ongoing automation. in those circumstances, i would argue, we need both, more public

investment, but we also need stronger social security and public health care programs to these a distributed challenges that also to ensure adequate demand employment and the economy. so more public investment is needed to create jobs to fill the demand whole, and to ensure adequate infrastructure and research development and training. but stronger social support programs are also necessary in a demand employment constraint world in order to help further fill the demand whole, create jobs and help correct the inequality and distributive justice challenge. in other words, we need a growth strategy that is built on public

investment led growth that will, in fact, help crowd in private investment, and fill the demand gap that we face both domestically and globally. let me make one final point, which goes to the politics. having said and laid out the economic case for an economic growth strategy that is very different than that would be imposed by simpson-bowles, i do understand the problem of political constraints. the political constraints on public spending, the inability to grasp the meaning of stephanie's very important contribution and cheney's comments earlier today. so that in effect would also need mechanisms that will allow us to span the budget, budget

multiplies, if you will, and the principal budget multipliers would result from the revival, what my colleague michael lind calls a public purpose finance in the u.s. cheney mentioned the private finance, many respects is still broken. and at the same time we have suffocated our public purpose finance mechanisms. the credit of the federal credit programs and guarantee programs that are needed to leveraged private capital with out putting it on the public balance sheet. so i think one of the most important ideas is to support the idea of that bernard schwartz as long supporter, which is to establish a public bank for infrastructure, which would allow you to leveraged private capital and greatly increase public-private infrastructure investment at a

time where private companies don't want to take it. but to do it in a way that doesn't add immediately to the public debt, only adds to the public debt to the extent that the risk of these projects not able to return. so on that point i will include. [applause] >> thank you very much. i'm glad to be here and appreciating part of this. i'm always in all of trend is ability to put these issues in a broad as global context, and really must think differently about it. i think i'm going to start by narrowing it down a little bit and then bring it back to some of the more mundane politics. one thing that i think doesn't come up enough in discussions of the fiscal cliff is actually a reminder of why there is a fiscal cliff. why are all these things hitting at once. part of them as we know, some of

the temporary stimulus measures in the early obama administration and also in 2011 coming in, tempered tax cuts that were designed to give the economy a boost that are by their nature temporary, and should be revisited, we make conclude the economy still needs that does and that's totally appropriate. some of it is the alternative minimum tax, things we always broken always need some changes to it. the sequesters on domestic and defense spending are products of the blackmail episode of 2011 when congressional leaders refused to do as routinely done and extend the debt limit and created this sequester as a way to force action had no intention of doing themselves. but the biggest part of it comes from the bush tax cuts, and the reason the bush tax cuts expire is an interesting story. in 2001 and 2003, 2001 we had a

budget surplus, and both democrats and republicans wanted to cut taxes but democrats wanted to cut them by but as half as much, and put more emphasis on middle-class, less tax cuts for the rich. republicans not only, they wanted what we had and they didn't want to be in a position would have to cover my for the democrats at all under a new circumstances even though they probably, regional compromise with serbia have passed. in fact, their own to my to pass but they didn't want to risk that. so the use the procedure known as budget reconciliation to pass those tax cuts with just 50 votes in the senate and avoid having any kind of compromise. upon is the only you can use the process of budget reconciliation is you can't do anything that increases the deficit in what's called in the out years, and years beyond the ten-year budget window so they didn't want them to expire but they made them expire in order to use that process. so you have something that begins as deep of aggressive

political maneuver that is now turned into as i said, as jamie said in the opening and others have said, it is now turning to the kind of a different kind of tool, one that is designed to force action so budget decisions, as mike said, would not be the action we would take otherwise. so that by creating a fiscal cliff we are now under the gun anyplace where decisions that are likely to be made, we're using the tags and other things as leverage on social security and medicare, in particular, to force some changes that we might not make otherwise, such as raising ages, chained cpi or other ideas. there are what you would do if you have to throw something together in the middle of the 19 or to avoid yet another blackmail episode. so i think it's important to read a nice that we think about the fiscal limit and not a natural phenomena. it's something that was created

by a series of decisions, which, you know, many of which really shouldn't have happened. and then once we're on the other side of the fiscal cliff, not only do we have some room to think about these issues in a different way, but also some pretty good things that fall into place on the other side of the fiscal cliff. for example, people were talking in the campaign, you're both romney and sometimes obama has talked about some kind of overall deductions. guess what? we had something, roughly so much that mostly for high income earners, those have been out of that effect since the bush tax cuts. they would come back into effect on the other side of the fiscal cliff. not a bad thing. capital gains tax rate goes up from 50% were it is encouraging album and just if you look at the wrong attacks occurred, for example, all the loophole, hedge fund pupils from all those are products of such a low capital

gains rate and incentives to define incomes are so high, capital gains rate goes up to 20%. that should be at the same level of other incomes but that's progress. dividend rate goes up to the level of normal income. those are good things on the other side of the fiscal cliff. there are things that you would want to change. you would want to restore some of the child tax credit and refund the child tax credit and the middle-class tax cuts and so forth but there's a lot of good on the other side of the fiscal cliff. then there's also an opportunity there i think to think and talk about medicare and social security in the way that michael has suggested, with a little more rationality to it. i've often worried that we do treaties programs as, you know, sacred and untouchable, and i don't think that's really appropriate. there was a lesson that was over learned in 2005 progressive did a very smart thing when president bush proposed privatization of social

security. they basically said you know what, we can't play this game. we all have other interesting ideas about how to improve drinking. we have a whole bunch of other things. they're all good. were not entering this game. if we do, that was very smart for 2005. but i think as we go into a different era, different political configuration, i think we have a little more of courage to say social security needs to change. basically it's been changed every other year since it was created but it was change that six times by franklin roosevelt. it was changed to adjust in many ways to women entering, first eliminate the bias against african-american workers, changed to reflect a greater role of women in the workplace and so forth but it's been changed dramatically. we should be unafraid to be willing to change and improve these programs, not just to cut

their costs but to say what are they doing well and how do we really achieve these had we better achieve the goals of social security and medicare. last week right after the election, david brooks wrote a column which had, you know, classic, you agree with some of it and some of it is inferior rating. and his quote of the income he basically said look, to the republican party, you were tempted to pick the country as half the people on, and have not, it didn't resonate with people and most people, you know, they understand the government can be helpful to them as well. he concluded by saying to republicans, don't get hung up on one of the federal government is 20 or 20% of gdp. let the democrats be the party of security defending the 20th century welfare state. d. be the party that celebrates work. that's a classic portrayal. what we as defending care of these crusty old programs, all

they do is provide security so that they don't have anything to do with actually lifting people up. nothing could be further than the truth and we need to get out there and will establish the point that real economic opportunity comes from security but it comes with having the security that your health care is depend on your job so you can take advantage of his opportunities, of knowing at least a portion of your retirement savings is secure. if it was all of the youths have to put some of it in the secure us to form of t-bills. something like that. so that base is important to your ability to think of economic risks and a chance to i think we need to establish that. and on medicare, obviously i think it is, regardless of how, where we see the budget deficit, i think a path that puts us to medicare, spending 5.7% of gdp

in 2035 is projected, i'm as skeptical of everyone as projections were, that's not a good use of our national, that's not a good statement of our priority. but there are ways to get their, by properly and implement the affordable care act. it begins to show which cost savings to work and don't work, and which can be blended into medicare, and also into medicaid to begin to reduce those costs. it would certainly be, i saw the other day christina romer said, you know, raising the eligibility age for medicare could be okay because the affordable care act is going to cover people up to that age, which my feeling is, that might be but we are nowhere near being able to say for sure that that's going to work in a way that will support people in that age. and i think we would want to think about, and basically saying how we make these programs work better to allow

people to take full advantage of their own aspirations, we really want to look closely at what's happening, what are we doing for people in that age range of say, 58, 62 up to 65. jamie galbraith when i was at the american prospect, we published a great piece suggesting with the pressures on young people, the difficulty for young people find employment, maybe we should just actually make it much easier for people to, -- fall out of the workforce at age 62 in order to encourage the. i think is one interesting idea. we are servicing a lot of people in that age range, that's what a lot of the long-term unemployment is concentrated. you see two-thirds of people are already taking social security benefits at age 62. there are points where the

that's economically rational or not. i'm guessing a large portion of those people are not making a rational economic decision about how to do that. it's just there in a situation where they need the cash and i think that the population will need to think about, what's a way to be that transition from the later years of working life towards retirement, possibly some other savings vehicles might be part of that. answer within social security. and also i think we ought to be willing, there's an interesting part of the never touched the social security reaction sometimes progressive. there's a reluctance to really and embrace the payroll tax at the height and. i've held that view times because it creates something we think social security only works because basically it's a good deal for everybody. it's not. it is a certain amount of progressivity in it but not so much that anybody is really worse off.

it's not a massively redistributive program to the more you raise the payroll tax rate the more it does become a redistributive program if you're not changing benefits in the same way. so if you're racing season on papal tax, you create a population of well off people for whom that social security payment becomes a little bit more of a bad deal, depending on how high you can. i've always been wary of that but i think in keeping with the principle of let's be unafraid to make some changes, i think we should maybe be less wary of the. i think the public is less unwilling -- the public has more recognition that we do support, we do have programs that redistribute the support people who have less that others pay more. you see in the public support for programs like state child, childress health ventures program. i think there's a willingness to accept the. i do think we have to kind of claim to the funding model of social security exactly as it is, and should be willing to entertain some of those payroll tax increases.

but all that is on the other side of the fiscal cliff. thank you. [applause] >> i guess the format is that people have questioned, they can go to the mic. i just want to start off with kind of not yes or no because there's three choices, but a collection just to run down the panel. in terms of the fiscal cliff, big deal, small deal, go off the cliff? what is your preference? >> i would say small deal. i understand the logic that if you go off a cliff been the third week of january you can then clawback, then, make tax cuts and all that. i do think you have to worry about business confidence and markets and that sort of thing. maybe that's exaggerated but i would go for small deal. >> mark? >> off the cliff.

>> off the cliff. >> what was the first choice of? >> big, small, cliff. >> i actually think it's a bigger deal than the consensus here, because i'm thinking about a lot of the people i know who are barely making ends meet, and they are going to be shocked january 15 when they get their next paycheck and they're going to see 50 to $100 less, and that will mean the difference between making rent, paying the telephone bill or not. and that's going to have a much bigger, you know, there's this is uncertainty but there's also consumer uncertainty for large numbers of people that are going to be dramatically impacted by given a fair -- fairly small increase in payroll tax, some increase in withholding. i'm cink's also at a time where,

at least my reading of the economy why we saw some few encouraging signs, we've seen a lot of peaking of the economic activity in the july through september period, and a lot of trends that are now turning downward. so the economy is also bottom. i think it's a bigger deal than, now, we shouldn't be rushed into making bad grand bargain. that's clear, but we should be concerned in my view about falling off the cliff. >> the bigger the deal deal the more opportunity, as well as the bigger the risk of bad things happening, sort of my perspective on for a good deal. starts there. spent i'm very sympathetic this morning. one point of fact, the budget medicare part d program passed in 2003, the cbp chart shows early did not include any budget impact from that, pretty legit.

even chuck grassley, senator grassley played a major role in passing that law, said later when he been asked why didn't pay for, he said at the time, not pay for things. which is one of the single most outrageous statements in the last 10 years but that was the largest expansion in a generation. it was a really big deal. it wasn't paid for. i was working a lot on transparency at the time, was one of the least read and most ill put together bills bills by the congress has ever passed for at least the last four years or something. and i think it's worth communism even if you believe every time isgrigg. my mother benefited everything. i think we should acknowledge that it was not pay for and is not the way we want to do these kind of programs.

and i don't know, i just think it's a point of fact, big deal and ought to be counted. and i think that cpb the chart is misleading and wrong. >> okay, i've looked at the cbp chart, though not recently. i know we had a similar chart and it certainly included that increase in spending. it didn't get its own section but it was in the sort of increased spending under president bush category. [inaudible] >> i don't think anyone thinks it will explode more than, you know, like the other programs. but even if that's the case, our whole conversation is that how to become -- not about how much does it cost. and this is what we actually have to have a national conversation about. medical goods and services in general and the united states,

physician fees, hospital stays, pharmaceuticals, cost much more than they do in every other oecd countries including canada. that's not universally the case but that is generally the case. light is that? is a consensus and the scholarly literature that no one in public life, democrat or republican, talking about it, you never mentioned, which is that every other industrial country has price controls basically. it regulates the prices of the medical business services by means of something called all-payer rate setting. the government negotiates with representatives of hospitals, the pharmaceuticals and physicians every couple of years, every two or three years. they said rates. an appendectomy cost this much, and aspirin costs this much. that's what it is. until there's a new round of negotiations. i've gone for years to discussions in washington about health care cost reform.

and comes up with more general practitioners, delivered home, that delivered from. that's not actually the way it's been. not to say this can contribute. but until we are willing to do with the rest of industrial world does come at us to have essentially utility style rates, that the medical industry treating it as utilities where the government doesn't set prices. what we have is a hybrid system where medicare does this but it has its own fees. but then you have the private system jacks up prices in order to reach their predetermined parties, what doctors should make or what profits should be. and unless we have a conversation, the entire conversation is going to be about rationing access to overpriced medical business service in america, rather than lowering the prices without rationing access. spent to i apologize. i'm getting a high sign it's time to wrap up.

might be able to grab people on the way out. so thank you, and thank the panelists. [applause] [inaudible conversations] >> in a few moments, the head of the federal trade commission on the agency's agenda. and and a half hour, republican senator rob portman of ohio on the future of the gop. >> several ligands to tell you about today. the house energy and commerce committee holds a hearing on the recent outbreak and if it could have been prevented the members will hear from commissioner margaret hamburg. that's on c-span3 at 10 a.m. is to also at 10 a.m. decent on c-span2, house democratic leader nancy pelosi holds a news conference to talk about her future role in the democratic party.

and president obama as also having a news conference today. live coverage on c-span2 at 1:30 p.m. eastern. >> from the red carpet to the national book foundation awards ceremony, watch tv online live later today. streaming video from the 63rd annual national book awards in new york city and red carpet interviews with nonfiction. all online live today at 6 p.m. eastern. and add your comments on evening at facebook.com/booktv. spent now the head of the federal trade commission, jon liebowitz. he spoke for half hour at "the wall street journal" ceo council meeting.

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>> one of the business community has generally embraced, called do not track which would allow consumers to opt out of third party tracking if they wanted to. it's a much more moderate approach and say that the you what they're debating, whether to allow any sort of collection of information at all. and if so to do it on an opt in approach. this would be opt out. >> used it at the white house in favor and crafted to do with the online advertising community about do not track to everyone that hoped this deal would be done. i think probably fair to say it is faltering a bit. i'm a little more optimistic. but whether it will be done by the end of the. >> i think this has been a process in which we are two

steps forward and one step back throughout. but we're still making forward progress. after all, the advertising community has built something called an ad choices network in which they now serve over 1 trillion advertisements with an opt out every month. so i think that's pretty meaningful. the question is whether do not track is going to allow consumers not to of information collected about them, and we're still sort of working through that process. is a group called the world wide web consortium that is involved. i think, though, i think companies want to become and you know this better than i do, want to be on the right side of consumers. and hitting on the right side of consumers is allowing some modest opt out for americans so that if they don't want their information collected, that doesn't have to happen. i think that's at the end of the day, wishing more support support in the business community. we already have all the browser

countries, microsoft, google and apple are supporting it. we have a lot of online publishers but i think we're making progress and i continue to be optimistic. it's not a certainty. >> right. there's one thing that has emerged during this whole process is that the advertising community is not itself in agreement of do not track. the one thing that seems like it might emerge is like a partial commitment, that some advertisers will agree to it, and someone. and so i wonder is from a consumer perspective is that actually helpful? if you're using something that doesn't prevent tracking, is it a false promise? >> well look, i think, the answer is if some companies are covenant, allowing consumers to opt out of tracking and others are not, i don't think that's a good endpoint. but again, you know, industry i