>> thanks for an interesting panel and conversation. i want to come back to the then part of the seven deadly sins. and suggest let's try, call it arrogance and talk about scientific arrogance both as exercised by individual scientists and perhaps institutionally.

of course, there are lots of reasons why this would exist, first and foremost but -- >> that's a nice thing to say. >> power and personality are involved. my question, we can take this out of the mythological framework of the catholic church and just say well, maybe there's a problem with arrogance and science needs to be addressed. we would have better science and better scientists, and a better society if we could deal with that your and what are the structural reasons for it, and how might we mitigate that? that would be my question. i think some of that has already been addressed as a competitive nature. but the other would i want to throughout his height. -- hype. i think the human genome project is a wonderful example of something that was very important and very much

overhyped. so we see that all the time. so that would be my challenge. sins are bad, and we all have them, and how do we mitigate them is what my question would be. >> i love the idea of a arrogance mitigation project. we can discuss how that might look on the ground, but, you know, as you are speaking, such -- given what stuart writes about certainty and uncertainty and ignorance in his book, and, i think taking it back to the hubris aspect, one of the deepest manifestations of arrogance is in the life statements of certainty, that something is exactly this way, will always be, that the future,

nina, the kind of specific things we are talking about. and this is what i think the emphasis on finding the right question and context for those questions is so vital. i don't necessarily have an answer to your query. >> i would just balance it a little bit. i mean, i certainly have to agree with you there are a few arrogance parts in science, no question about that, and they tend to grab the headlines. but i would say overall, really doing science for most scientists is one of the most humiliating thing you can do. i mean, most of the time it's a battle. it just doesn't work. so i think it can actually be quite humbling. and as a scientist who doesn't understand humiliation, somebody wants to do -- nothing more tragic in science spending beautiful theory filled by an

ugly fact. that happens everyday and happens all around the world. selection i think there's this great humility it in most of sides but i agree with you that unfortunately the headlines -- that's not so good. >> i think the media needs to be talked about here as well. it's not merely institutional funding structures for the individual vices of researchers, but there's a culture of a desire for certainty in a world that is increasingly global, technological, physically connected, and ambiguous in the way that -- we want to know, we just want to know something, right? >> i will say one more thing without getting too much into a rant. there was some big changes that went on at nih over the course of the bush, the second bush administration, that i think in the end created some of this

problem. nih is an organization, please were scientists and biologists go get funding. the wait is typically done was about 25,000 proposals a year would come in, and it was a huge marketplace of ideas. 25,000 people would write their best ideas down, then they would be renewed by panels of a scientist who would place them in some priority order and find something like 15-20% of it, something like that. the bush administration didn't cut the funding any particular way but they changed the way it operated. they came up with this thing called a road map. that was a disaster. this roadmap was how will we make scientist serve a purpose, not just idle curiosity driven stuff like that. and so they had a roadmap. suddenly if you were smart and jeanette operate this roadmap, like he wanted to do age research, you could get five grams. you didn't need five but you could get five. if you wanted to basic virus research you could get one

anyway. so this roadmap turned nih from a bottom-up kind of market-driven idea market of ideas driven organization to a top down earmark organizations like the rest of the government is, and is largely dysfunctional in many ways. i think that's part of the problem. now you have a loudmouth and a big program and -- this was at to get the real money. that's i think, that's made a mess of it i would have to say. >> it doesn't mean those questions are uninteresting or unimportant, but how we decide what remains a really important question. >> it's not that there's too little money at nih. of course, there is, but the really is enough money at nih just distributed wrongly at the moment. hasn't been corrected i have to say. >> i'm a political science

student, my question may be coming out of left field a little bit so bear with me. i just graduate from school after setting four years of politics in america. a lot of political scientists, myself included, have come to the conclusion that americans and the american electorate in general is an uninformed electorate. it's uninformed, not quickly acted and most pertinent to this lecture it's not a scientifically literate electorate. you know, there's been numerous studies that go on to back this up, and the question i have for you is, in a very scientifically illiterate society like ours where we're supposedly such a strong economy, how can science correct this issue? because without cracking this issue i think having an illiterate society, a scientific illiterate society that affects the market demand for the science to come about. my friends who are not that scientifically aware, they just want a faster phone and want

more pictures on facebook and they want a faster internet connection. what they don't want is a unified theory of physics. they don't want more nasa funding or anything about life. how this -- can science alone fix this problem or is it a bigger problem to society itself? >> huge issue. >> science can't fix big problems like that. they can help but i think the best thing scientists can do is make it more interesting in grades before imagination and creativity have crashed. largely -- 90% of the people educated -- that's what i never took a course in english at the university because i feared the deadening effect of the conventional view of literature. i'm glad i did it. i took the examination.

>> it worked out pretty well for you. >> exactly. i'm how to write and i have my own idea that i didn't need to listen to the conventional wisdom i already knew was wrong last night. >> i take issue with the idea we have a scientifically -- i don't think we have a scientific illiterate populace but it looks that way because we're the most sophisticated scientific structure organization. the science community in the world over the world has ever seen in this country. and so i agree there is a gap between the professional and the public come and that's a problem but i don't think -- there is a certain amount of illiteracy. all kinds of illiteracy among all populace this large. it's just there's this big difference between us. the question there is -- >> the decline do in both scientific funding, awareness,

and ambition for scientists. >> explain creationism. i'd like to your -- i don't understand it. >> that's a great example. why is creationism still being debated in the political sphere in america. people don't understand how to acknowledge a scientific fact anymore. i still are friends from georgetown university who contest climate change. they say some scientists still don't accept that fact and they don't know what a scientific fact means. i think that kind shows there's been a drop off at least. >> [inaudible] >> pardon me? [inaudible] >> i agree. there's no question that all exes. i'm really saying that it's more, it's a wide gap rather than -- i still think the population of this country, regarding scientific letter see, probably compares very friendly to most other countries around the world. maybe a few would be ahead of us. the issue is how to engage more more people in a scientific

process in a way that they find they can kind of engaging. right now it's some huge encyclopedic collection of facts that nobody could ever hope to imagine. that is a problem. puzzles and questions and the kind of uncertainty is very appealing. >> and have mentors and teachers. i assume all of us in this room who have , to the panel tonight have an interest in questions and these kinds of issues because we had a speaker who really lit a spark, right click so that kind of inspiration can't be overrated, cause, you know, cultivating and appreciation for how much this is a puzzle along with the sense that hey, i really can get the

skills to solve this kind of puzzle, and isn't this goal. and also on the cool factor, wouldn't it be fantastic were scientific americans get the traffic that paris hilton.com gets? this is part of the meet dynamic of things. i'm not necessarily saying make a grand unified theory, because not entire sure how you would do that except it would be really awesome. you know, but there are so many things towards which we can direct our attention these days, courtesy of our wonderful electronic devices and digital elect -- technology that we make choices that individuals and communities, friends, et cetera about what is interesting. so it's a question about what we choose to attend to, and how do we cultivate people to pay attention to these kinds of things. >> george, why don't you interview paris hilton? >> that we hilarious.

>> meghan, what would you like to say? >> if i could just make a quick, because we've used as an example for complications, with christiana's brother-in-law is not only a very actual scientist buddies also mentors mental schoolchildren and has been doing so for the academy for almost two and half years now. so we are just going have a poster child of a great next generation of scientists. i just like to point the also really liked working with middle school kids. >> and his name is john, and he is sitting right over there. he's an accident educator. he is coming into my seminar in theology and science next week to explain stem cell science and cell biology to a bunch of graduate students in philosophy and theology. >> oh, good luck on that. >> aha ha ha. [laughter] >> calm down. because we started late we were bound this another 15 minutes to

a footnote i got here to meghan, and afterwards we will break and continue the discussion for all the amazing questions after. if you have a point of order? you have to get in line for questions unfortunately. please. >> so, i'm wondering our site is the wrong people to ask about stem cell technology? the reason i say that in order to get what they are scientists have to be skilled at solving technical problems like integrals are taking careful measurements. but they don't have to be skilled at understanding economics or knowing what makes a good business model or understanding societal pressures. so would it be better to have on this panel a historian of science or economic historian? >> how about a science effect -- science-fiction writer? not a bad idea. a lot of things were predicted in science-fiction and actually.

there's a movement international union to call it the clarke orbit. >> but your question is really, it's part of the competition of the panel, it was framed flying cars or whatever, but we kind of talk more about pure science. >> well, we are happy to -- >> on this panel speaking about experts. what makes you qualified? >> past. >> i placed bets on the future. i started a couple of genetics companies. you know, i tend to put the ball in the game. but it's a good question. of course, i shouldn't be doing it alone. everybody should be doing it. but it requires a conversation i

don't think we quite have enough of. >> i hear your question, smallbore, what is innovation reside. and i think it's undeniable that any kind of political economy that we have at present, people who have a vision, get the job done, i comment it for various market failures were failures of imagination whether that's a prototype or whatever tends to be innovative silicon valley business types. there are many, many other examples. people from harvard business school or whatever, who have both the social, the social financial wherewithal to go ahead and start something. as well as a vision to say, you know what, postal service really isn't doing that great of a job. let's think about how to do it a little bit differently. so i think you're right that it would be very interesting to have a tech innovation person here as well, you know, historians and scientists sure.

but also someone who has seen a need any particular way the facts can be filled. and yes, tends to be profit driven motives, right? but nonetheless it's an effective way of pursuing progress. other people see that, jump on, competition, yada, yada. and i think, one of the things i study for america's freshwater, and one of the big issues there of course is technological engineering, technological innovation whether in engineering or other rounds. this is a realm where, sure there's some research going on in government funded and publicly funded kind of ways, but there's a lot going on in private innovation as well. because everyone needs water. >> thanks. >> a twofold question. it will be more of applied and

towards the premise tonight. questioning the gap between where we were decades ago and today's reality. rollback scores of years, you know, the predictions are wildly different from where we are today to a friend of mine argue specifically that the biggest gap was in the failure to anticipate the information technology, the drive towards ananda, the explosion of the cpu and all that. my question, how active is that, doesn't address life science or anything like that but widely divergent reality that we have today that we saw in science-fiction from 40, 50 years ago. i would argue that the second piece that's missing, highlighted by the slides, was energy slashed proposal. we went from kitty hawk to luna in 60 something years, and sideways almost completely the

last 40. that's an enormous gap. was that a function of us going through live -- low-hanging fruit with energy star system -- with systems for energy, or was that a function of military budgeting, or is it more than that? so first question is, was information technology the real big mess? or is energy and/or propulsion after failure to do anything fair for the last 40 years also part of our miss and the reason here today? >> oh, well, certainly it's a great candidate, and you can see the exponential rise of it. and that happens for lots of areas like energy, transport. but these are saturated. here's some of the candidates. we have doubled -- up next to a,

here's a flying car by the way, for those who care about flying cars. you can buy this. they came out this year. and it's really kind of fun i think. i mean, today's era car. it's not completely dead. people have largely not notice that we have increase agricultural productivity a great deal and that's not so much important to us but to the rest of the world, otherwise these giant starvation's that fall -- the current science advisor predicted would have happen. they just didn't see the green level issue coming. it's also true that the increase in the means of the lifespan has been extraordinary. it's gone up 50% in the 20 century. either way it did that in 19 century, too. that's an enormous leverage because you get much more out of people. spent 30 years producing somebody with a ph.d and that means i spend was 50, well, do

the math. but now people like us just seem to go on forever. that's a huge increase in productivity. you get out of the same people. and we don't notice it. because every three years you remain alive in the 20 century your means expected lifespan went up about one year. and because its gradual you don't see. so there are other candidates. >> i would, by the way, add to that, not only from individuals but we have at least in some countries this one in particular have essentially doubled the workforce by including women in science and education, so that we can do 40 years ago even. >> most people didn't see that coming. isn't that right? we are about the same age. people didn't talk about that as an economic factor. it's okay rosy riveter but then they went home. >> talk about the green revolution, -- [inaudible] there

was a prediction that undermined itself. >> it was a challenge. >> 1984 was deliver the chosen, by the way, 1948 was published in inverted. but the best thing you can say about it is that's -- one of the roles of scientists. >> but going back to the question do you feel making technology was a ms.? >> pretty much. i wrote a story about the future of the internet published in 1970, and fred pohl wrote one that clearly has personal computers and the internet. called the age of the pussyfoot, not his best title, and i think 1965. i remember people reading think this is an interesting future but didn't see that might be a real future. so it was kind of a state. look, the standard in science-fiction for decades was a machines that filled the room and you got to go can worship

the console and all that. these guys, very few saw this coming. >> they also missed viagra. [laughter] >> that was another big mess. >> can we go back to the slide that has progress covering -- oh, my gosh. i need to get a copy of that. >> i like the fig leaf part. because what they didn't anticipate is you ran the governor, at least in californ california, you could -- [inaudible] >> i have two questions that i think have not been touched upon here. one is on predictions. there is a society, a future society, that pretends to do professional predictions. i happened to be an amateur member. if you know anything about the society, what about the

professional members who are doing it? and the other question, i have not heard very much of focus on what i think might be an alternative to access the pride or hubris, or there's another word you used, which is paying more attention to human limitations. i thought that the examples in the beginning from popular magazines was an excellent example of pride going wild. namely, on what we already have accomplished, limitations. all you have to do is think particularly hard about like professor firesign is doing, about the enormous amount of ignorance about the very complex system we live in. and when you start thinking that way that i think the whole thing might begin to separate.

predictions which we heard up her first, but i think our gracious predictions, remains -- namely, the reports. image and 70 and said they are all on the then one of the senior reporters spoke right here from that stage a year ago. he said quite the opposite. they have published updates every year. this year they are no longer doing it. every 10 years, i'm sorry. every 10 years an update. this year one of the early members who, now one of the, only one active anymore, whose name i don't remember, published a book about what the next 50 years of the earth might look like, from humanity. and to me that is a really serious question because it's about sustainable development. and those are, to me are essential serious predictions,

but here everything gets mixed up when it came to questions talking about predictions. so i'd like to have your comments on this, thanks. >> the problem is they make specific predictions for dates and that led to people placing wagers and winning. i mean, what's the price of copper now in fixed dollars? is actually lower now. but it's too expensive you get into something else. >> which is true. in the initial publication, innovation and substitution were not properly accounted for. with regard to things like copper, you know, the green revolution and the kinds of crops consolidation and genetic engineering that have gone on, that's true. this technological innovation or the premise of substitution have limits? i think yes is the answer. and can we make a general statement about that?

probably not but they didn't i study water and global water scarcity, and it is the case that freshwater is not substituted in the sense required, or assume but economic theory. namely, it is regenerative there is nothing like it. possibly would might some day invents a substitute for but i'm not quite sure how that would look at this point. and it's a certain kind of hubris to imagine that we can invent a substitute for this most essential element of life. so there are some things, some material aspects of our world that cannot be remedied by these economic assumptions. i think there's actually a lot of good philosophical insight in the limits to growth, and i'm glad you brought that up. >> i understand that. it's just that shut to

understand something we're going to run out of some stuff. it's actually hard to get a policy on it. >> we are running out of time. let's take -- unfortunately. we are taking, let's take two more questions, and that doesn't mean your questions are being ignored. we will be around here for probably another hour after this. stood out about it each person asks a question. >> but all like in a row spent so, my question is, is about failure and, we totaled the about uncertainty and that's what people like to make predictions, and i noticed that when we put off all the stuff from the popular mechanics everybody kind of growth about things that have failed. and i think as kind of quasi-scientists, i'm a medical doctor, you know, i learned more from my failures than i do from

my successes. but our society and our media, and in particular our scientific media, the journal, really don't like publishing negative results and negative failures. and i want to know what the comments from the panel would be. >> this is a whole other panel meeting actually. i think as gertrude stein who said it, a real good failure nation and you need no excuse. and certainly phaser is a crucial part of science come and it does go unreported. i think scientists and laboratories understand this. that's why mentioned before commiseration. [inaudible] interviewed by member of princeton university paper, and this reporter said

professor einstein, you always carry a notebook with you to write down your great ideas. the reporter said tell you this, i i don't have that many great ideas. which in a way is true by the way. he had a few. so how many do you need is the point? you know, 1% of basically -- it would be a huge bonanza. so i think someone would have to get that idea straight. but yes, failure is something we don't do well. and it's a shame because it's the crux of the whole thing, in my opinion. >> i run the danger of telling the sides had to do their work. but i think your point about resistance to negative outlook result is a very good one. how about in the interest of time let's have each person asks a question and we will collectively go from them. >> good points that i want to raise the question, that is been a wonderful presentation, many

different questions have been raised but there's one area that has not been addressed, which may shed some light on all these other. the psychology, the psychology of these scientists and as doctor fierstein said, scientists do science because it is interesting. and they do it because the enthusiasm, it's a puzzle and a scientist can devote ourselves to a question their whole life, the same question, pursuing it. ..

>> really what they want is a simple yes or or no, and this is f i pay add from my point of view, psychological point of view, inherent not only in human beings, but in the whole animal kingdom. is it good or bad? ethics. but for an amoeba that wants to know is it good or bad, that means should i go forward and eat it, or will it eat me, and i should go that way? >> right. >> every animal has this. >> right, right. >> so a lot of people want the simple answer, so that's -- because the world is too confusing. >> so there's a distinct psychology of the science versus the nonscience. >> okay, that's one question. >> what would you like to ask? >> you mentioned the power and about culpability and nonculpability, but do you think

there's such ting as either too much -- such thing as either too much knowledge or bad knowledge? could ignorance actually be safer? thank you. >> could be bliss, yes. >> okay. >> good question, thank you. >> interesting. >> and feel free to give just the brief answer, but if the problem of prediction is human pride, and as we heard some psychology, is the fact that we have computers that can take an enormous amount of data, data that no human being can process and, like, point out specific probabilities of each to car insurance occurring -- occurrence occurring, does that change the equation? should we now be more confident in prediction because we have computers -- >> good question. >> -- presented in the beginning? >> in limited areas, obviously, it's useful. but the big questions are not subsumed under computer models.

>> what kinds of things -- >> well, ask your computer for a general theory of everything. even in climate science there are a lot of assumptions behind every climate model, model, ande seen battles over people if you do aerosols in the -- rutgers, i think, says you'll create a diminution in the monsoon. the other models don't believe in that. the worst threat in the monsoon is the flooding. of. [laughter] so tape orerring it down might actually be a good idea. but the point is you have to have a sense of pace about computer models too. the. >> uh-huh. >> alan touring once said this if you build a machine that's infallible, it won't be creative. >> yeah, right. >> that goes to the failure thing as well, i think. >> just one brief remark i'll make on that. i do think what computers have

done is and it's not widely appreciated is they've opened up a new branch of science. so we have experiment, we all acknowledge that as means to truth, theory blackboard stuff, and computers have kind of opened up another kind of modeling data analysis. so in a sense, to the extent that having a third pillar of truth verification is helping us and making us less -- >> yeah. >> -- to what you're saying. so the middle question, we're kind of going backwards here, is whether it's possible to know too much and whether we're better off kind of blissfully unaware. >> are remember those '50s movies that concluded there are some things man wasn't meant to know? i always walked out of the theaters and said, yeah? name one. [laughter] >> i think as someone who came out running a dissertation on scarce water that is inherently disciplinary a lott of times in

the library solo, there can be too much information bashing about in one's own head until we have the structures to begin to think about it well, and i think that's true in general. there's a lot of of data. and to choose to be ignorant or to be ignorant is sometimes easier. you know, various commentators have pointed out there can be a psychological advantage to limiting the information that we take in as well as limiting the existential quandaries or the questions about responsibility. so, yeah, there is a potential health benefit to a kind of contrived ignorance. but there is also, i would say, is a moral responsibility to think about the textures of our knows and our asking questions. and, yeah, i guess i'll leave it at that. >> [inaudible] >> let's come back to that afterwards. stuart, i'm going to give you the last word about --

>> uh-oh. >> i'm not going to let you talk about ignorance, even though you wrote a book about it. talk the first question about that. is it distinct? is there a scientific type that somehow more -- >> i'd like toty that there isn't, to tell you the truth. i think that everybody loves a puzzle, and that's what science is like. and everyone can enjoy a good puzzle, and we're all scientists in a way. we're all out in the world trying to figure things out. we make predictions, we test them, we try things out in our own way, and science just maybe gets more technical about this, that or the other thing, has gotten a little deeper into it. but, no, i don't really see a significant difference. i didn't start life as a scientist. i had a professional year in the theater -- professional career in the theater before i became a scientist. i knew creative people in the theater, and i knew pedestrian people in the theater. i know creative people in science, and i know pedestrian people in science. so i think being a scientist is being a human being.

>> that's great, beautiful way to end it. >> here here. >> thanks, everyone. [applause] >> and we're going to orbit the vicinity for another 45 minutes or so. >> sunday and monday c-span is your front row seat to the inaugural actives. president obama is officially sworn in on sunday in a private ceremony at the white house. our live coverage starts at 10:30 a.m. eastern with your calls and comments. monday, watch the public inaugural ceremonies including the swearing-in at noon and other festivities including the afternoon parade. throughout the day your phone calls and comments on facebook and twit wither. the second inauguration of president barack obama on c-span, c-span radio and c-span.org. >> why did you write a book about your experience? >> it was an important period of history. i felt that the fdic's

perspective should be brought to bear. there had been some other accounts of the crisis that i thought were not completely accurate, especially in terms of what we did and i did. so i thought it was important to present our perspective. and also i think currently for people to understand that there were different policy choices, different policy options, disagreements, and that if we want to prevent this crisis, another crisis from happening again, i really felt that the public itself needed to engage more on financial reform, take a bigger interest in it, educate themselves better, make it an issue with their elected officials. so i tried very hard to make the book accessible, and i have some policy recommendations at the end of it that i hope people will take seriously. >> sheila bair on the government's role during the country's worst financial crisis since the depression. her book is "bull by the horns." sunday night at 8 on c-span's "q&a."

>> next, a discussion on the debt ceiling and deficit reduction debate. this was part of a brookings institution forum on jobs and the economy. this panel is an hour or and 20 minutes -- an hour and 20 minutes. [inaudible conversations] >> all right. should we get started again? um, i'm either using that vision, or that clock is way off. but i'll use my watch. okay. so if everybody could come in from coffee and sit down, we'll get started on our second panel. and we're delighted to welcome a really terrific set of panelists, lew kaden, vice chair

of citi, maya macguineas who is now involved in or leading the fix the debt campaign. bob mcdonald who is the ceo and president of procter & gamble, and ralph schlosstein who's the ceo of ever corp.. so really a terrific group. let me just give a little bit of context, at least while everyone's filing into the room. i'm martin baily with the economic studies program at brookings. if we cast our minds back to the 1960s, the 1960s, obviously b, was a troubled decade politically, but economically growth was pretty strong. productivity growth was strong, economic growth was strong, unemployment was low for really almost all of that decade. and then that was followed by, um, i don't know if you'd say a lost decade, but a much more difficult period economically in the '70s and the early

1980s. and the thing that hung over the economy at that time was inflation. we just couldn't seem to deal with the inflation problem. so we had a deep recession in '7 4-'75. we had another recession in 1980, we had another recession in 1981-'82, so a double dip recession. and then finally, paul volcker who was chairman of the federal reserve and his colleagues decided to whack the economy over the head really hard and take the inflation out of the system, and finally it did, although it took a while. it wasn't really until the fall in oil prices in '86, but we really got rid of the inflation demon and, i think in some ways, laid the groundwork for the period following that in the 1990s when we had strong productivity growth, we had strong markets really starting in the mid 1980s. so the analogy in my mind is we have this deficit that's now hanging over us, um, and for

some of the same reasons it's a really hard problem to solve. it lacks a federal reserve, so we don't have the equivalent of an actor like paul volcker who can come in and say, okay, we're going to tackle this problem. and this is unpopular, but we're going to do it. instead we have, obviously, the decision being made by congress and the administration and the two different parties, and we're just caught up in the political gridlock trying to deal with this very difficult problem. you know, even if we, even if we had sort of unity of purpose, it still would be a hard problem to solve. we are still in the process of recovering from a really deep recession that was brought about by a financial crisis. there's still a lot of slack in the economy, so from, you know, a standard economics, keynesian, if you like, we still want to get more demand growth in the economy, and so fiscal

consolidation is, goes in the wrong direction in terms of getting us back to full employment. but clearly, it's necessary over some time horizon because the deficit path really is not sustainable that we're on. so we need to sort of deal with the deficit but not kill growth. um, now this, this panel is part of our growth through innovation as you've heard several times, and i do want to mention one sort of hopeful note along with the problems that i've just outlined. there are a set of folks, bob gordon, tyler cohen, i think there are others who sort of say we've seen the end of growth. no more innovation, no more growth, we've now just got to settle down and deal with the fact that we're not going to have anymore growth. and i think the evidence is really strongly against that. there is in your pack and i'm doing a little bit of a plug here, james is a senior, external senior fellow here at

brookings as well as director at the mckinsey global institute, and he and i are working on a project with the support of others looking at this question what are some of the game changers, what are the ways in which we can get innovation and, actually, as we get out of this mess on the deficit and the recession really start to get stronger growth in the economy. and the thing that's really needed, the thing that we didn't have in the first, even the first seven years of this century was sort of innovation-driven, output-driven growth. we had a lot of restructuring productivity but we haven't really had for some years now real output-driven innovation and growth, and that's part of what we're looking for. part of what this project at brookings and working with the mckinsey global institute is what we're working for. so that's my plug, that's in your -- some beginnings of that are in your pack. all right. now, let me turn to the panel, and i'm going to turn to you,

lew, first. now, how do the responses to this budget deficit and the reforms and what's going on, how do they impact the broader economic policy challenges as you see them from your vantage point having sort of ridden the rollerrer coaster of this recession? >> thank you, martin. let me just make two or three points on that. first of all, it's obvious to anyone who's followed these debates in the last year or so or watched the events in europe that political up certainty is the enemy -- uncertainty is the enemy of economic growth and investment. we've seen the effects of that on the pace of recovery in the unite, and we've seen it even more in stark relief during the last year in europe. at the same time, the dynamic qualities of the u.s. economy also when contrasted with europe and other parts of the world

suggest and demonstrate on a regular basis that notwithstanding the political uncertainty a great deal to be optimistic about. there are a good many positives when you look or for signs in terms of the prospect of the faster pace of growth and recovery if only the political uncertainty were changed by progress on fiscal balance. and those signs are more apparent every day. you'll look at the positive changes and different segments of the housing market and housing finance welcome notwithstanding remaining challenges, you look at the pace of recovery in the auto industry, a market with 14.5 million unit sales last year and the prospect for more this year notwithstanding the overall

economic conditions and the country still in a slow recovery, it is very encouraging. and i think most important of all you see the dynamic qualities of the entrepreneurial and venture community in this country. you contrast that with the lack of any counterpart in europe, you see tremendous benefits, always been a source of the entrepreneurial source has always been a source of strength in this country, and it's in stark relief today as the venture community spreads from its concentration in california to more and more metropolitan centers around the country and the strength of the capital markets at every level of private and public capital raising is very positive. and even in the jobs market which is the most stubborn

negative on the, in the picture of the u.s. economy as you saw in the discussion of the last panel, a good deal to be more optimistic about in the revival of manufacturing jobs and the increased productivity and the restoringstoring and the other s that were discussed. but the bottom line is that confidence is everything in patterns of investment as, indeed, it is i know only too well in financial services and banking. and at the moment confidence levels remain low, and that's a discouragement to certain kinds of investment. the levels of liquidity or investments, standing on the sidelines ready to be put to use are very high across the business community and the

financial community in the u.s., and the spotlight is on this town and whether our political leaders are capable of resolving this. now, also on the positive side i think while many of us would have preferred a broader framework -- and there'll be more discussion about that from the other panelists here as well as from me -- the practical reality we know we can dissect why that was and why they missed an opportunity and came down to 24 or 48 hours and were able only to deal with the tax issue. but for the most part, that's history at this point, and the fact that a they were able to do that is at least a step forward. it added, as you know from the summary of the state of play that the president gave yesterday in his lengthy press conference, it added $600

million to the billion four of spending cuts that had previously been enacted and put into effect in the last two years, and the interest savings on top of that come to a total overall of 2.5 trillion other the ten-year period that we all have gotten familiar with as the measurement period for deficit reform. and two and a half is not all the way to the target of four that almost every independent group has adopted as a reasonable way to stabilize the debt in relation to the growth in the economy. you could make an argument that a little more or a good deal more would be helpful too. but four trillion over ten years is not a bad target, and two and a half is a fair bit there, and

so we move to the next chapter which promises to be messier, uglier, nastier than the first one. but i think there is some room for optimism pause as we saw -- because as we saw the first time around, i think after the election, both parties at the leadership level recognized and came to a conclusion that it was in their interest, in their political interest longer term to resolve this. that doesn't mean that they like each other, it doesn't mean necessarily that they communicate effectively every day. it doesn't mean that the process is neat and clean. but it's a fundamentally important starting point if the politics can be neutralized short term, which is very difficult in our government, i think it remains true that the

four or five people who count the most have come to a conclusion that it's in all of their interests to resolve this. so my own view is to be a bit on the optimistic side as we go into the next period. however, to put it in the context of broader economic policy challenges as martin's question did, i always start with the proposition that necessity does not equal sufficiency. deficit reform is critical at the moment. we all know that, even talks about it or writes about it on a daily basis. but it's not sufficient to meet the economic challenges we have, because the fact is we have a fiscal testify sit, but -- deficit, but we have many other deficits, some of which were discussed in quite wefective fashion -- quite effective

fashion in the last panel. so i'll just list them for now, we can go back to them later. we have an education deficit, we have a skill development deficit that is closely related to education, we have an infrastructure development and repair deficit of e enormously important proportions, and you need only look at the experience of other countries coming out of the recession including countries with very different political systems than ours to see the close relationship that infrastructure investment development has on the likelihood and the pace of recovery from a severe global downturn. we also have an important and urgent need to address the issue of energy independence, an

opportunity that more than ever before is sitting right in front of us ready to be advanced in the next year or two. but again, it requires leadership and initiative in washington and immigration reform, again, a subject that was discussed before. one more word, finally, about the process. and for this i kind of go back to a much earlier part of my life when i was a professor or of law at columbia, and one of the summits i taught -- subjects i taught every year was negotiation, negotiation in a variety of contexts from international to commercial and transactional to labor management disputes. and i came out of that experience and the practical experiences accompanying it before and after believing that it's a mistake to keep score on

a daily basis in difficult negotiations, especially in the political environment where each participant has multiple constituencies to which they're accountable in some fashion and paying attention to. and so you take the last few days, clearly in a state of play that involves positioning, and we can be critical, it's easy to be create -- critical about why that's kind of the reaction everybody always has in a labor dispute. why can't they just get in the room? they know the range of substantive outcome. it's not a secret, it's not hard to find, why can't they do it this afternoon? and similarly, observing events in the fiscal negotiations, everybody looks at it and say, well, why can't they get those

four or five people around the table in the roosevelt room this afternoon and resolve it? the subsequent outline has always been there, it's been this in every private conversation with maul groups of members -- with small groups of members of congress from both sides. it's not elusive. the details can be complicated especially on issues like health care costs, but the broad outlines of a resolution of these problems are not hard or to define, and we know that if we look at the results of the discussions in the summer of 2011 or the results of the discussions in december. there was barely a hundred or two hundred billion dollars over a ten-year period separating the principals, but they couldn't quite bring it to a conclusion. i think it's preferable not to keep score that way, not to look at whether they like talking to each other or why haven't they met more often in the early

stages, but rather to see this as a messy process that's going to unfold over the next six, eight weeks, and the important thing is whether they get to the finish line this time. not how -- it's unfortunate we have to go through that process. it will take it toll in terms of economic activity. but the price of not reaching agreement is far more significant than that, than that process. so i take some heart once again in the fact that in every conversation i have with anyone who matters more than most of us do in this process they see pote political and -- both political and national interest advantages to their side of the debate in reaching a resolution. one has to hope that they do in a timely fashion. one final comment, i think

probably all of us would agree at some point in the future we'll get a consensus on this in the political process that the debt ceiling has no rational place in this. the president addressed that yesterday, but the fact b is playing russian roulette with the u.s. economy and the well being of our population has no place in an honest debate about how much spending should be cut, how much investment should be made to address these broader economic and social deficits and how to resolve in the and get on to other parts of the national agenda can. sooner or later i think the congress and the president will agree. you saw approaches to this in senator mcconnell's comments in the last couple of weeks and,

obviously, in the president's that the key control is in the authorization and appropriation process and the ability to pay those bills through either revenue sources or borrowing ought to be attached to the decision to spend, not used as a point of leverage in broader and more important negotiations. >> thank you, lew. can i just follow up, and i don't know if this is a little bit of a tangent, but i think i just want to ask you because of your position in the financial sector you say that unserbty is -- uncertainty is holding back recovery, and i agree with you completely. do you think funding is also? i mean, we know that a missing piece of this recovery is business hiring, business investment. the large businesses generally have fairly favorable access to capital markets, but a lot of

small and intermediate businesses do not. do you think lack of funding, and is this a legacy of the reis session? is this something that's come out of the financial regulation, or do you see that as part of the problem also in. >> yeah. i tend unlike some of my peers and competitors not to put much weight on the regulatory. all of us have specific issues, definitions that we would do differently and opinions that we voice every day. but the core elements of the regulatory reform that are common around the world, i think, were necessary coming out of the experience we had in the reform and should not so long as the playing field is level, the u.s. institutions will be strong and capable of responding to them. on the funding issue, i think it's a question that has more parts to the answer. our capital markets are very

strong. those borrowers who have access to them, which tends to be larger enterprises, have multiple options to choose from in funding investments that they choose to make, assuming they're creditworthy. and the same is true of bank lending particularly for averager enterprises -- for larger enterprises. the major banks have stood by their large customers pretty systematically through the crisis and certainly in the recovery period. the problem comes in as you go down the chain through mealed yum and smaller -- medium and smaller enterprises and as you get into households where the experience of the particularly housing finance and consumer finance were in a transitional

period where we haven't yet figured out what takes the place of the consumer finance industry which has been largely destroyed for -- t a decent business -- it's a decent business, and you can see examples that have survived. there are basic decisions to be made about how much it should be regulated and how much it should be supplied by a shadow financial services part of the industry. and in the middle in smaller business and to small and medium-size business enterprises, the financial system is weaker. >> yep. >> there's less capacity coming out of the crisis. there's a credit deficit in the, in the community and some regional banks that, again s a serious public policy problem to address in the next couple of years. >> thank you. maya, we want to get your

perspective both on the short run and the long run, but let's start on the short run because we are right in the middle of this mess or at least we've sort of avoided the fiscal cliff. so 40 how do you see things -- so how do you see things evolving over the next couple of months, and how is this going to play out? >> okay. well, if anyone knew how things are going to play out, i would be thrilled to know that answer, because it was one of the more confusing moments. but let me just sort of start by saying it's a moment which feels like there's an awful lot of good news and aen awful lot of bad news, and i think your conference today is focusing on the overall economic picture and the piece that go into fueling economic growth and innovation. there's so much good news to be had, there's so many good ideas that we have, and you're sitting at a think tank where so many of them are developed. our country is in a good position to use those and really have a very positive outcome. if, one, the whole fiscal issue

sort of feels like it's sad to be involved in an issue that feels like this, but it feels like it's gumming up the wheels of everything else, and there's no oxygen left for other issues. as we want to think about education and immigration and energy policy, this one is going to have to get resolved in one way or another before we can kind of go back to the exciting ideas that can lead to the next, the next waves in the economy. um, and the other one is the political environment. where we actually -- oh, boy, sorry. >> with can't blame the audience. [laughter] >> it's really going to be hard to ignore it, but we're going to do it. so the other piece of it is the political environment where we have the ability to fix the situation. we basically know what the fix is. we know that you need a comprehensive debt deal that's big enough to stabilize the debt, and i think we all remember the period when we were actually trying to balance the budget. we're not there. we're not going to be there anytime soon.

but you certainly want to make sure the debt's not growing faster than the economy and that it's actually put on a downward path, and we know that the problem is big that to accomplish that you have to look at every part of the budget. you have to look at defense spending, you have to clearly -- and focus on -- look at health care costs which are growing faster than the economy. we have to fix our social security system which makes promises that are bigger than what we can, that we can pay out down the road. we have to raise revenues. we've started down that path, but what we haven't done is look at how to do it while overhauling the tax system which when you want to raise revenues, you can do it in a way that's bad or good for the economy. it helps competitiveness and modernizes our tax system. so we kind of know what the answers are. we're going to fight about the specifics of all of them, but we know what a big deal that would fix the problem would look like. but we don't know at what point the political system is going to be willing to make all those choices which are are difficult,

compromise on both sides and put this issue to rest so we can go back to fighting about all the other things that we're going to fought about. but i think the fact that you can see what the policy solutions are and we're kind of past pretending this doesn't matter. you can't possibly imagine real growth coming without a sense of stability that would come from knowing what these changes will be so that you can have planning, so that you can have investment, so that you can have job creation, all the necessary pieces of moving the economy forward. but, you know, the big wildcard is when people are going to be willing to make these tough choices instead of using them to kind of fight in the normal political boxes. what do i think is going to happen next? it's already off on a different path than i would have thought was the best. if you think about prospect theory which basically says when you're delivering good news, you want to do it in lots of little pieces. first you want to tell someone that they've got an promotion, then you want to tell them

they've gotten a raise, then you want to tell them they've gotten a bigger office. if you're doing bad news, and just think if you're waiting for an airline that's going to be delayed, you just want the bad news in one big piece. and that's true of so many things. i think it really applies to a budget deal. what we're doing is we're breaking out the way we're going to fix the budget, and we're doing it in little pieces. we had some savings early on a couple years ago in continuing resolutions. we had some savings that came out of the budget control act. we talked about the sequester which i think is not hike hi to hit, though it's starting to look like they might leave that in place for a while. but when the supercommittee failed, sequester was put in place. we just raised tax rates on the well off. so we're sort of doing this in pieces. each one is a bloody political party. each one leaves the parties more angry at each other than they were before making it harder to do the remaining harder policy pieces. so we know what he was left,

right? we have to deal with health care costs which the truth is we don't know how to fix the system in its entirety. we're going to have to keep looking at ways to control health care costs to get in control of our government programs and medicare. and we're going to have to go back and do this every couple of years. but we have to study what works and then we have to put more of the policies that are working in place. we have to deal with our other entitlements. social security reform is incredibly contentious issue in this country. it's always a political tough battle. but the longer we wait to make these changes, the more difficult it is for the people who depend on these programs. there's no question about that. and we have to go forward with tax reform which is great when you talk about it broadly. we all know the tax code is a disaster. none of us like the tax code. when you talk about the ability to broaden the base, lower the rates and raise revenues, that's a pretty good system. it's pretty desirable to think about how to reform the tax code. but there are a lot of tough things in there when you start talking about the specifics of

the fact that we need to deal with the home mortgage interest deduction or state and local taxation. then it gets more difficult. so what we've done is we've done the easiest pieces. capping discretionary spending is easy. you don't even have to talk about a single specific policy. taxes the 1% is pretty darn easy. it's going to take more than that to fix the problem. now what we've left is the hardest parts, and so it's how we're going to unravel those next bits. so clearly, the next piece is going to have to focus on entitlement reform. that's the biggest fix that has yet to be addressed. we have three action-forcing moments coming up in the next couple months; the sequester, which they extended for two months, and it has broad-based, across-the-board spending cuts which is just the wrong way to do policy. some of those spending cuts might need to take place, but you don't want to put them all in place abruptly. you want to phase them in gradually, and you want to pick and choose instead of staying

this is too hard, we're just going to let an across-the-board cut go in place and not do our job which really is unforgivable as a way to make these policies. second, you have the tet ceiling. it is -- the debt ceiling. it is the wrong thing to hold the country hostage. it is also going to be a play. we know there's going to be a fight over the debt ceiling. in the past it was kind of a speed bump that reminded folks we were borrowing too much, and we needed to make changes. it could be a useful reminder, not if it goes as far where people start to really worry about the faith of the u.s. government and it starts to do economic damage, which is what we saw last time. the third or piece is the continuing resolution, the fact that government spending is going to expire, and the sort of triple witching hour of these three issues is another kind of fiscal cliff. the question is, is it going to force angst with the hardest -- action with the hardest pieces still remaining, or when it came to the fiscal cliff for all intents and purposes -- listen,

it's good we raised some revenues, but we basically punted. we punted all the hard choices, and they sort of tried to declare a bipartisan victory. but it wasn't there. and so the question is, what's going to make these next action-forcing moments more effective in getting us to really take on the policies? and this was part of your question, that will deal with the necessary savings for the next ten years? but just as important or perhaps more, put the policies in place that are going to bring savings down gradually over time in the ten years -- in the next ten years. because it's the long term that really is a threat. if you look at my of these charts -- he's a chart. probably should have brought something better than that. [laughter] >> we get the idea. >> over time it's the growth in spending that comes from health care, our aging of our population, interest because we're borrowing too much which really blows up the budget. and making gradual changes now whether it's through fixing the way we measure inflation or promising to gradually raise the

retirement age down the road, those kinds of small savings that compound wouldn't save you so much money in the short or medium term but do an immense amount of good in terms of bringing our long-term imbalances back into place. and so the question is how you can help the political system which is not in great shape be forward looking enough that a tsa willing to make a lot of those changes now which will do a great amount of good down the road. and i am -- it's hard to be overly optimistic right now. the fiscal cliff deal could have been so much better than it was. i believe these changes will happen because they have to happen. and we are the luckiest country in the world dealing with this because of the gift that markets give us as us being the safe haven, of us having more time to put these changes in place than any other country. we don't have to do them quickly and abruptly. we can say we're going to do them and start them down the road which buys us more time for an economic recovery. we'd be so foolish to walk away

from that opportunity to do this in an easier way by waiting til markets push us to. i hope and i continue to believe that we wouldn't do that to ourselves as a country. we'll make these choices in a way where they're in advance and they give us planning room. but the truth is, we've already waited longer than we should have. the political system's willing to wait on whether it's the next cycle, and it's already taken an economic toll on what could have been. because the bottom line is not only do we have to put these kind of savings policies in place, we have to be thoughtful about how we do them. and when we're talking about spending, we have to think about how we not only bring spending down, but we readjust and reprioritize it. we need to turn that on its head. and when we talk about revenues, no question that with an aging population you're going to have to bring in more revenues than you have in the past. but if you do that in the same outdated, anticompetitive tax system, you're going to choke

your economy. and yet if we're really world about the tax reform -- bold about the tax reform we need to kind of open up our economic system to a globally-competitive system, you can do this in a way that's actually good for the economy. so we have hard choices to make, and we should give ourselves the time and thoughtfulness to actually put the policies in praise that both deal with the deficit but also help in addition to know what's going to happen in terms of promoting economic growth. >> let me pick up on one piece of that around health care. as you know, government spending on health not necessarily the biggest cause of the deficit right now, but if you look out 20 years 30 year, the alligator that's going to swallow everything. i was on a panel last week, and there was a lively argument around should we raise the age for medicare, should we just try to change the system and move away from fee for service? has the obama administration

actually done a lot to lower the cost of health care going forward so we don't need to do much more? what do you guys think is in practical terms what needs to be done on health care? because it's a really unpopular issue. i mean, if you poll people, they say we don't want to cut medicare. so where do we go in dealing with that piece of the puzzle? >> yeah. that reminds me how when i was in graduate school, i went to graduate school to study fiscal policy, and it was right around the time they balanced the budget, and i thought, oh, my gosh, now what am i going to do? change careers, and now the problem is solved. i realized the long-term problems were still there, and i had to make a choice where to study social security or health care, and it was easy. social security is easy, so i jumped right into becoming a social security expert because health care is so hard. now, that's not to say that i haven't been studying health care over the past years because there really is no other issue at the core of all of this. and the problem, martin s that we don't know the answers.

and the best thing that we can do right now is be putting in place as many different atents to control -- attempts to control health care costs and evaluating what works. we don't know whether the new health care reforms have worked. we've seen health care costs coming down, and that could be in anticipation of about what's to happen, that could be temporary, and it could be permanent. so one of the things in all of this, in fact, is better data, right? bath gathering the information, analyzing it and figuring out what's working and doing more of it. i think one of the important things that happened in the changes that we just made were the exchanges on health care. that does give you the room to put in an increase in a medicare age which you wouldn't have had before. that would have been devastating to a number of people before. now because we have health care exchanges, it certainly makes sense as a policy to think about increasing the retirement age for medicare so at least it lines up with social security. as we're living longer, we all know this, the huge health care costs aren't the biggest one

right now because the costs of aging are the biggest costs right now. and it's an incredible cost on society as we're aging as we are, and we need to find productive ways to keep people who can in the work force longer. so creating those incentives is certainly important. but i think the bottom line with health care is the most important area is in the incentive structure and the cost-sharing structure and how we set up the delivery system so the incentives in the delivery system and the incentives for the consumers of health care, none of them make sense right now from just any basic economic perspective. and we need to switch those. and you can do that while protecting people who depend on these systems and not shifting the costs to people who cannot afford it. but if you have a crummy incentive payment structure, you're going to have a crummy system. and while that's not going to fix all of it, that's certainly one of the biggest starts. >> let me turn to bob mcdonald who is, as i said, the president and ceo -- chairman and ceo of procter & gamble. can you tell us a bit -- you've

got a lot of operations in the u.s. and around the world. what do you see as some of the most important growth-promoting strategies that can be followed here? >> thank you, pathen. i'd -- martin. i'd like to talk about two important components that i think are important for economic growth-promoting strategies. the first which has been discussed already in some length by our panel is addressing our deficit trajectory so that our public debt doesn't crowd out our private investment. that require reforming the entitlement programs as maya and lewis have already talked about, because they're the primary drivers of the spending growth. if we don't get them under control, they won't be secure for future generations. so that's critically important. the second thing and i think equally important is improving our country's global competitiveness. in doing that through free and

fair trade as well as true a more competitive and comprehensive tax reform as maya was referring to. the recent congressional action on the fiscal cliff is a short-term fix. it avoided us falling off the cliff and sending the economy into recession, but it really failed to address the larger issues affecting the deaf -- the deficit and also the economic competitiveness of the united states. and those of us running global companies, obviously, care very deeply about that. a critical and very important to creating pro-growth tax law that will enable american companies to compete effectively against companies that are domiciled in other countries around the world. we need a level playing field. we don't have a level playing field today. in the united states, we have

the highest corporate tax rate in the world, and also the united states is one of the few countries in the world with a system that, um, is called a global tax system rather than a territorial tax system. during the 113th congress, we're going to continue to advocate for comprehensive tax reform that broadens the base, that reduces corporate tax rates and can that moves to a competitive territorial system. procter & gamble pays income taxes in over a hundred countries around the world. business tax reform should provide a level playing field so that each business has the confidence of knowing that it pays roughly the same amount of income tax as its competitors in markets both at home and abroad. in terms of deficit reform, the obvious problem that must be addressed is the fact that currently the united states has

been spending at a rate that far exceeds the rate of revenue that we're receiving. this situation often occurs during recessions as the lagging economy produces less revenue from income and payroll taxes while government spending programs continue to expand. the longer-term problem isn't related directly to the recent recession. despite the unpress kented amount of -- unprecedented amount of stimulus. for example, some economic literature suggests that when a country's debt to gdp ratio exceeds 90%, the country's long-term gdp growth rate structurally slows down. now, this adversely affects everyone's potential standard of living. the u.s. deficit now exceeds 100% of, um, debt to gdp ratio. so we already may be experiencing the initial impacts

of extended deficit financing. the longer-term program is to a very large extent the product of key into it respect programs that are -- entitlement programs that are an important part of the nation's safety net for the elderly. slowing the growth of spending in the nation's entitlement programs can help make these programs secure for current and future workers, and we think that's very important. by 2035 there'll be only two workers per beneficiary, and a typical 65-year-old retiree will have about a 50% longer retirement than occurred in 1995. so this is a very serious issue. currently, the social security retirement is as a pay-as-you-go system that provides more or annual benefits than the payroll tax collects. if left alone, this eventually will lead to insolvency particularly with the rapidly-increasing number of baby boomers who are retiring every day as was referred to by

maya and lewis. while there's neither the time necessary today nor do i have the programmatic expertise necessary to suggest specific solutions, it's important that the congress and the administration analyze acceptable methods to assure that these programs can be available to future retirees. reforms can and must be adopted that don't undermine the benefits of current retirees or, obviously, they won't be accepted. medicare and social security retirement programs and benefits must be preserved for the millions of americans who are now participating in the work force. it can be done, and if we act sooner rather than later, we'll have an easier or chance of getting it done. in terms of innovation, innovation has been the chord of procter & gamble's success over 175 years of doing business.

we spend about $2.5 billion a year on research and development, that's 40% more than our next largest competitor. we spend about $400 million a year on consumer research trying to understand the unarticulated consumer needs that we can design products to solve. innovation is our lifeblood. it's the primary way that we accomplish our purpose of touching and improving lives. and innovation is what prevents commodityization of categories. it's what helps us reduce costs, it's what helps us deliver products that are affordable for consumers around the world. and we serve over four billion consumers every single day. over decades our company's demonstrated the capability to innovate consistently, reliably and successfully. we've had a robust, multiyear innovation program on our core business, and we've increased our focus on discontinuous

innovation. think of that of innovation of wholly new categories that haven't been thought of before since as when we introduced swiffer as a way to quick clean your floors or blinds, or think of it as our new single-use laundry detergent that can be put right in the machine that's the most concentrated form of laundry deter jebt available today. we transfer innovative ideas around the world, and that leads to growth around the world. for example, we -- this pods technology that we've invented we're now in the process of expanding around the world, and that's leading to jobs overseas because our plants have to be near the consumers we're trying to serve. we can't export pampers disposable diapers from pennsylvania to china and make money on it. so we have 150 factories around the world. but never the less, that business that we do internationally results in jobs in the united states. 20% of our jobs in the united

states rely on international business. 40% of our jobs in the state of ohio, our home state, rely on international business. so that international business and being globally competitive is incredibly important to the growth of our company and to the growth of the economy in the united states. we have the world's best global companies in the united states, but right now we're putting them at a disadvantage with our tax policy, with our fiscal policy and with many of the things that i've already talked about. thank you. >> thank you. um, i actually agree with you strongly that we have to do a tax reform, and we can't have taxes that make our companies uncompetitive. and i agree with you that we've got to reform entitlements and bring down the cost of entitlements. but as a leader in the business commitment, you have a bit of a pr problem, don't you, in selling that message? so i'd like you just to face that a little bit.

how does the business community sort of frame it message to be part of the debate about what to do? >> well, i think, i think any american who knew that we had the highest corporate tax rate in the world, second to none, would agree that that's probably not a good idea. particularly since, you know, the american people are the workers in our companies. it gets back i think, martin, to global competitiveness. having the highest corporate tax rate in the world is not globally competitive. having a worldwide system that prohibits u.s.-based multi-nationals -- and we have the best ones -- moving money from one country to the other or even o moving it back to the united states to make an investment here and having to pay double taxation on it, that's not a level playing field. >> right. >> and i think we want our american companies to have a level playing field with the international companies they compete with.

it's interesting, i was in china not too long ago, and i'm the chairman of the u.s./china business council, and the government of china was asking our help to help them understand how to create globally-competitive companies. and they were or asking american companies, american ceos to help them create globally-competitive companies. i think we need to reform our system to allow our companies to be competitive before international companies who have advantages given to them by their government and by their systems, um, become fierce competitors. >> i, i'm involved at the moment in a project on financial regulations, and one of the things we're looking at is do we need to change the architecture with the different numbers of regulators. i was told that the chinese are in the process of setting up their regulatory system, and

they came to the united states and said, well, should we do it the same way as you do it? i think we said, no, maybe not. [laughter] >> i'm sure ralph wants to talk about that one. >> ralph, you're really part of a very, part of a private equity company, investment company. what do you see as the significance of this fiscal debate for innovation in the u.s. and the economic performance here in the u.s.? >> well, i think the -- i agree with a lot of what has been said already, and i think the, this whole fiscal issue is, centers around the competitiveness of american business and american companies and american production in the global economy. because we can't go back ten years or twenty years and hope that one way or another through trade protection or other means we will insulate or protect our businesses or our workers from

winning globally. and so the only path to america winning economically is that we create a regulatory environment, a tax environment and a competitive regime here in this country that actually allows our businesses and our workers to win in that global competitive game at the moment. now, we have some extraordinary assets in this country. we have a highly educated, motivated work force that in many respects outperforms -- not always outeducated, but seems to outperform from a productivity point of view -- workers in every other country. we have the most efficient capital markets in the world. our companies have the lowest cost of capital of of any

companies anywhere or around the globe. it was alluded to earlier, we have a spirit of entrepreneurship and innovation and a capitalist system and commitment to a capitalist system that is really the envy of virtually every other country in the world. and we also have increaseingly, it was alluded to in the earlier panel and have always had very strong natural resources, but with shale oil, shale gas and the incredible strength of our agricultural industry we have great natural resources as well. so there's a lot to be bullish about in this country in terms of our economic opportunities. but this fiscal deficit, our fiscal policy is an enormous

cloud or retardant on us reaching that potential. you know, i work in the investment banking industry, i used to be in the money management industry, and there's a phrase that sometimes yets apply -- gets applied to companies. and you would say about the company good company, but bad capital structure and maybe bad management as well. and that was used to describe a company that had, you know, great products, highly motivated work force, was winning in the eyes of the consumer or whoever the purchasers of their products were, but they maybe had too much debt, or they had a management team or structure that just didn't take advantage of the enormous opportunities that they had in front of them. i think we're perilously close in this country today to the phrase great country, but with a bad balance sheet and bad managerial structure.

and, you know, that is the core of the fiscal issue that we face here in this country today. why is that a concern? because if we don't address this, we will be effectively prevented -- just like an overleveraged company is -- from making the investments in, you know, in infrastructure, in education, in r&d that are the key to us winning ten years from now, twenty years from now, thirty years from now and which ultimately are critical to sustaining a high level of growth and a high level of employment in this country. and we'll do a second thing which is even in some respects more screenal, we will saddle our children and our grandchildren with the responsibility or for paying off or paying down the debts that we

incurred because we wanted a level of government, but we're not prepared to pay for that level of government. and so this is a really critically important thing. and as i think maya and bob said, i this -- and lew as well, i haven't met a single, you you know, democrat, republican, even socialist -- we have a couple of those in the congress as well finish or independent who doesn't have a pretty clear idea of how this should, what the answer is. and it's very frustrating for, i think, many of us who don't spend a lot of our time in washington that we're not getting to the point where so clearly we need to get. because if we don't get this e behind us, there are three, you know, massively important issues to addressing our

competitiveness; corporate tax reform, individual tax reform and entitlement reform. and if we don't get a big start at addressing our fiscal issues, i think we're going to miss an enormous opportunity to address all three of those issues. let me just close with one comment, and lew referred to the importance of confidence in, you know, growth and investing and, you know, you run a business like bob does and you have the uncertainty of the fiscal cliff and the uncertainty about the direction of the economy, it makes you a little more cautious about investing, it makes you a little bit more cautious about hiring people. because if we actually do go into a much weaker economy, then you have to reverse course, and you have intense pressure on your earnings. so, um, this whole issue of, you know, confidence in our

governance structure and the confidence in the ability of washington to address these critically-important issues is pretty fundamental to, you know, our economic growth and to our, to the success of the real economy. and, certainly, it gets reflected very quickly in the capital markets, but we saw in the july and august of 2011 that a sloppy job here in washington has pretty profound effects on the performance of the real economy. and, you know, hopefully, i mean, i must say i look at some of the discussion around the debt ceiling discussion, around the debt ceiling extension, and i share l everything w's view -- lew's view that, you know, this is really the height of irresponsibility that we're sitting here discussing whether the united states should default or not on its debt which is debt

that has been incurred as a result of spending that has been approved by both bodies of congress and approved by the president of the united states. there are 535 members of congress. i assure you that not a single one of them if they were confronted with a credit card bill that they didn't like would simply say i'm not going to pay that because they know that the implications for their credit rating, the access to future bank loans would be affected for 10, 15, 20 years. and so it's kind of appalling that we're sitting here discussing whether we would do that with, you know, this country that we're all so incredibly proud of. so -- >> let me for my last question try to be a little bit prosock ty here -- provocative here. folks like alan blinder, very well respected economists peter

diamond, and i'm blanking "the new york times" economists paul krugman who has clearly identified on the left, but he's quite influential, now, they basically say seeing the problem, we've got to get this economy going again. we need demand, we need growth, we need to do something about our infrastructure, we need to spend more on infrastructure. there's all this worry about the deficit at least for the next two or three years is a mistake, and business would respond if we could get that going again. so what do you say in response to that? >> well, i say like many things that i don't completely agree with, there's a kernel of truth in it. [laughter] >> interesting. >> i think the answer here is that, you know, i've said it a number of times that i think what we need is the three bs. it needs to be big, which means

four trillion or more, it needs to be balanced which means, you know, i think the consensus is 1.3 trillion of revenues -- 1.2 trillion to 2.8-$3 trillion of expense reductions, and the third thing is back end loaded which is sensitive to a the fact that we're still performing well below potential and that we need to make some investments to stimulate our competitiveness. i mean, it's embarrassing as a country that we're somewhere in the 20s in educational achievement. it's embarrassing, you know, the degree to which -- i mean, you go to many other countries that we used to think of as developing countries, and their infrastructure and, you know, roads and, you know, train systems are better than ours. so that's the kernel of truth. but there is no road to a competitive, successful united

states 10, 15, 20, 30 years from now that does not strongly address the deficit issue that we have. >> um, i've shortchanged the audience a little bit, but let me try and remedy that by at least taking one or two questions from the audience. yes, come and yet a mic there -- come and get a mic there. could you identify yourself, please? >> good morning, i'm ron williams, i'm retired chairman and ceo of aetna. couple of comments and question. in business strategy follows your budget, and i'd be interested in comments around getting the strategy right and in getting the budget. the second question really is a question about alignment. and the question is, is there any combination of structures that make it so if we don't have a budget and we don't have a

approved deficit level, we don't pay congress or the president? it's pay for performance. [laughter] so i'd be interested in your comments on that. >> anyone like to tackle that? that's kind of an intriguing thought. maya, do you have any comments? >> i'll jump in on the first one because i think it's so important which is when you think about what we need to do, and we know, we use four trillion as shorthand. we know that we need a deal around $4 trillion or something that would stabilize the debt and put it on a downward path, and that's really hard to do. but it's not sufficient to fix the problem. and i think you've kind of heard that through this whole panel, and you hear it whenever you hear policy people talking about it's not enough to get the fiscal situation under control, you also need the right fiscal or budgetary policies. and what's kind of astounding in this country, let's just start with the fact that we don't have a budget. the way that the federal government operate os without putting a budget in place is beyond any of us. but the fact that we also don't

use it as the opportunity to pick our national priorities. what are the most important things for the country to do, what are the best ways to do them, should government do them, should it be at the federal level, should it be at the state level? you can tell i went to public policy school, these are the things you do in public policy school, and then you come out and realize that's not how it works at all. you don't go through this exercise of national priorities, and then assuming they're important enough to do you pay for them. i mean, i think ralph's point is just so clear that you need to pick priorities that have long-term growth and competitiveness among other values that are leading them, and then you need to pay for them. because it's absolutely unacceptable to, one, fix spending policies that don't even achieve those goals and, two with, hand that bill off to your kids. i keep trying to explain to my kids that's what we're doing to try to make what i do interesting, unsuccessfully. [laughter] but you can't explain it in any way that makes it acceptable.

and quickly to your second point, you know, it sort of feels like this is this moment where we need these gimmicks. particularly those of you who have run companies have such frustration that we hired a group of people to come to washington, and the amount of energy that goes on two teams beating each other up instead of solving a problem that no matter how much we might disagree on the role of government or the perfect way to solve it, we all know has to be solved just seems completely unacceptable. and so there's sort of those moments where you need the no budget, no pay or the other kind of gimmicks if nothing else just to focus attention on we have to work on this until we get it done. >> i kind of like this idea, lower the base pay and get a bonus that depends upon performance. that's kind of attractive. yes. >> um, i'm garrett mitchell, and i write "the mitchell report," and i want to follow on that with another thought. ralph schlosstein, i think, captured it when he said great country, bad balance sheet, bad

management, ie, bad gore nance. and -- governance. and it seems to me that if there's any lesson that we get from this panel and other discussions is there is a way to fix the balance sheet. not clear that there's a way to fix governance. in the first panel mayor fisher talked about moving at the speed of business. and so this is a question for mr. mcdonald. in an earlier life, i competed directly against your company in the advertising business in a category that at that time we were pretty successful at which was the mouthwash business. one of the things that i learned about proctor, among many others, is that marketing plans were three pages long. and it occurred to me that if the arguably the world's largest, most successful consumer products company can

direct its product managers to put their annual market plans in three pages, that we might be able to take some of that magic and instead of having a 2,000 some odd page health care bill or other bills of that length that nobody reads, um, that les another place where the business community might be able to have some influence on this third problem that mr. . >> loss steven talked about which is bad management and bad governance. >> i think, i think, garrett, you raise a very interesting point. we spend a lot of time training our new hires in thinking up front so that they can connection still their -- distill their thinking to those one-page, two-page or three-page memos. i'm interested in asking maya what she learned in school about creating policy be, because i almost think that there's some

pride taken in the longer the -- and the more complex the better. i don't know. .. >> i was going to ask -- >> i would add, first of all, i think more attention to the quality of management, the training and development of public managers in government, especially in people who to vote

on large part of their careers to public service, i think as an important subject. i think some of you may be familiar with the partnership proposal services devoted to that cause, but essentially the only organization that i know of that is. we have many talented career public servants, we happen to have had in this administration both the first treasury secretary and the nominee, who is the second, both of whom have essentially spent their entire career in public service, and matchup with the best public servants i think you'd find anywhere in the world, in the field. and i would say the same thing about, about the current deputy secretary of state, completing

30 years in public services, one of i think only a couple of career foreign service officers to rise to the rank of deputy secretary. but we need to put more energy and resources into the development of those public sector careers. i think the other point which was more troubling, and has been a lot of commentary on this, and have to recognize that there have been changes in our political demographics, partly as result of redistricting and partly as a result of changes in the country that have pushed more of our elected legislators toward the extreme ends. more concerned about the challenge coming to them because more and more districts are essentially single party districts. and so the political threat to an incumbent comes on the right

flank or their left flank, depending on the party. and that creates a foundation for the kind of partisanship and division that we see. technology, money and politics, transportation, availability, all of that adds to it. my first job after school was on a senate staff, and eventual campaign that came out of it in 1967-68. robert kennedy. and the first thing that senator kennedy said to me on the first day i started in may of 1967, i was the most junior member of the legislative staff was, and he was hardly someone who would grow up or was devoted to its into process, but the first thing he said to me was, he was going to set up a series of

meetings with some people with whom he disagreed about a lot of subjects, but who knew and loved the senate and its process. and so for the first couple of weeks i got to spend time on the democratic side with senator long and senator russell, and on the republican side with senator dirksen and javits. i think that kind of thing, that kind of experience doesn't happen very much anymore. and it's just one anecdotal indication of the change. somehow, we need more people, more thoughtful forums with those kinds of issues that affect our political process are discussed as well as juxtaposition we've been discussing today. >> yes. at the back. let's have one question from them, back, and then we will have to wind it up. >> thank you. my name is paul at lee, i'm a

communications and marketing consultant. the name of this panel is deficit reform, resolving uncertainty and promoting immigration. and i heard a lot of discussion of, resolving uncertainty, vis-à-vis what the government's responsibility is, what congress should be doing, what the fed should be doing. but i haven't heard very much about what business should be doing in terms of innovation, and so i would present that question to the panelists. thank you. >> well, i'm not sure that's right but i think the panelists have commented on it, so let me go and make this the final word from the panelists. we will start at the far end. spill let bob go first because he runs a much bigger company. >> innovation is in many ways

the solution to many of our problems. there was a wonderful book written by a man named matt ridley called the rational optimist, and matt is british, and in the book he talks about innovation, really solving the majority of the world's problems. what has gotten us here today. and he reminds us that back in the mid-1800s, those people who lived in the uk at the time thought that we're all going to die under heaps of horse manure because of the number of horses we all needed. and, of course, that didn't happen because of the invention of the automobile. the invention of the automobile brought other problems, but i do think innovation is the solution, and it's why we spend so much money trying to improve people's lives through innovation. the way to get that done is by having the best schools, by having competitive schools. we've got to have competitive education. most of our international

partners are educated in the united states. some of them would like to stay here, but, unfortunately, when they graduate they can't get the visas to say and have to go back. so education and the infrastructure is sort and one thing. i will stop there so the other panelists can comment. >> i couldn't agree more with what bob said, in the gist of your question. at the end of the day, as i said a little earlier, for america to achieve what it is capable of achieving from an economic point of view, it's fundamentally dependent upon our ability to continue to innovate and to create and to invent, and i think what, we want a governmental system, i believe, and i don't mean that as business, i mean we should all want that, that effectively allows business to do that

because ultimately that's how will you create more jobs and more economic output here in the united states. but does that in a way that is respectful of the populace, populace as a whole. so we do need the environmental protections. we do need a safety protections. we do need the licensing approval of drugs because none of us individual are capable of ascertaining the safety and soundness of those individual products. but having said that, we win as a country if we are using government to play the role as a protector of those things that, where expertise is required but within allow a more unfettered investment in our people and in our innovations to win. i mean, if you look at the industries where the united states is winning globally, they

are almost all industries where, you know, technological or, you know, sensitivity to consumers, deeply researched consumer need, i would say our financial industry is an industry where, you know, we are winning globally, and one that i agree generally with lew's comments about the regulatory environment, though i think we have to look at that also to make sure that we're not rendering an industry that we are winning in around the world today to be less competitive. >> maya, any last comments? >> i was thinking about all the questions that came up and comparisons about this is an public sector and what it can be learned from the other. and i was thinking of in the public sector, how we just don't -- back to first book, we don't just start with what your objective is to you all think you would do if you are running a business but what your objective is, sort of how your

most efficiently going to achieve it, do the and operation. if you look at government is organized, it doesn't make sense. it's completely compartmentalize on so many issues we need to be problem-solving. so the operations that we use to achieve those goals, then cut the evaluation. we just never spent any time figuring out what works and what doesn't and using that and finally back into changing thanks or redirecting our resources. but you don't want to overstate the comparison because there's a bottom line -- a bottom line and business. it's not as though you can run public policy. is a public interest, non-rival, non-divisible. the things the private sector can't do in many ways. so i think there so many useful lessons about how we can improve government, but you also don't want to overstate them. but then i was also thinking about the fact that this innovation problem is so true in government as well. i think the same broken system in government that is keeping us

in solving problems that we know are there, and i always come back, asking partisanship as a big part of this problem. the fact that two sides would rather be themselves up rather than come up with an answer. i think it is affecting our innovation in government. there are public sector problems we need to solve. if we were able to find a way to be more entrepreneurial and innovative and government which is again a lot of what you do anything think but to have that work in our political system and have more partnership in the private sector in solving those problems, this country would be moving forward so much farther and so much faster. so i will come back to work started which is, the fiscal problem just seems to me like it is coming up with a will's of everything and there's no reason it's not okay to disagree on what best to get them. them. if we're breaking our system that allows government to financially function at all, we will not be getting any of those discussions. shame on us it would end up not being poised where we are with respect to tremendous next

couple decades and we choose not to make the choices that allowed to go forward with those. >> last word? >> i think the point about the value of investing in innovation, and i would add talent, and how it managed to the. nothing is more important. one of the leaders in the global business community because it's the priority, bob has attached to the. citigroup coming directly out of particular financial crisis, we established innovation centers, the kind of don't work of the lab at some technology companies have. one in our outlook and one in singapore, and although it's only three or four years, we are already seeing an extraordinary value in that. and the other i think lesson of the time i spent in the business

world is that every investment you make in talent at every level of the talent gene, every aspect of talent management is about the best thing you could do with that amount of resources. >> thank you. you made a great segue really to get us to our last day in which you talked about our innovation in government and improving government are formed from and what we're going to talk about with darrell's leadership after lunch. and so we will look forward to that panel. i'm going to take a leave. this has been a terrific panel. my thanks to everybody on the panel and the audience for coming up [inaudible] >> and we will see you later. [inaudible conversations]