>> we are delighted to have glenn hubbard and tim kane to discuss why powerful nations in civilization breaks down under the heavy burden of economic imbalance and white america could be next.

d. hubbard has co-authored an number of books that remain prolific included the health care system, the role of business development in africa. and his most recently takes on a broad topic with "balance." he has formed a great partnership with co-author tim kane in the latest book. as a chief economist -- economist at the good hudson is to also a large banner in investor. in addition to a senior research tools at the here today foundation, and he served twice as a senior economist at the joint economic committee of u.s. commerce. their block balance and economics at.com and he also offers leading talents with

u.s. military that has been reviewed by "the new york times" and the "national review." more information on both can be found on the information sheet on your chair. so i will ask d. hubbard and glenn hubbard to talk about their partnership in the book then we will move to a question and answer session i have a few questions up my sleeve i welcome you to start thinking of any questions you might have about this very important subjects. >> figure every betty for coming out tonight to talk about the book with tim and i. we are radicals. i know that we do not look like it sitting here tonight but i think we are because the book is not one of the minitel is that explains why

decline is inevitable to say no for america and to answer roadmap so is a clinician so spotting common symptoms and treating them and to look get very specific ways to avoid the historical fate economists tend to be excited of economic growth. but this book and books of great powers are different because they are about explaining why growth stops which sounds like much less fun and is much more

important and to set the stage, and would like you to imagine that you are standing in 1913 on the verge of world war i that per-capita income of today's dollars and much of the industrial world was a little over $3,000 at the time. if you are fortunate neff to be an american it would be $1,000 higher if you dial back in the common era would be $400 per capita income of today's money. but if you dial the clock to rome, people were better off than in the subsequent period and what happened to rome? here is where historians have said what happened to

roll was classic overstretch of empire that had to reach exceed its grasp and we know what happened. that is not our view. we think would happen to rome and many great powers is more akin to under stretch, politics not keeping up with economics and looking inward rather than now word. the greatest view from historians was the book 25 years ago called the rise and decline of nations with the classic overstretch thesis and what caught our attention about kennedy's book, i am one of those people that read "the new yorker" and i read the cartoons. buffers, my attention was the cover. on the cover was the globe with people crossing it and somebody had already stumbled off its and it was a symbol of the united

kingdom. the person who is beginning to stumble was none other than an old coliseum. guess who was the rising at the top of the globe? japan. it was 1987. i was skeptical at the time. and i think paul kennedy was not alone in many economists trumpeted the japan old and the rise and this comes from this famous textbook where for many editions the soviet union was predicted to overtake united states but with its each addition the date caps lifting in the 1989 edition for reasons that are familiar, it disappeared from the text. even the greatest economist the struggle with the notion. we've looked a lot of case studies and we're very fond of rome as a starter.

we also attending china as a period and then the world only to see them killed that and to look at the ottoman empire which applies to a lot of people was very a word and inclusive and diverse until taking over from the internal forces but we do lookit japan through the lens of the game of go. if you are a golf fanatic you know, what the beginning it is like a blank slate and anything is possible and that is what we argued japan is struggling with. to look at the decline of the in words looking and the failure to make more people british with the british

empire so look at the state of california, but what we've really had in mind to think of the book was the contemporary united states. the wes is fundamentally imbalanced with the gap between its interest in the consumption of the present versus the interest of the future and indeed a great symbol of this is what has happened to the budget of the united states. if you look prior to 1970 and what the federal deficit gdp ratio over time from the revolution what you think the pitcher with a klay? not numbers, just shapes. yes.

is "war and peace." not just united states i could've said britain or fate france but prior to 1970 the debt would rise in wartime and in peacetime spending fell and ratio's decline to afterwards there was a large spending and social security and medicare with social welfare spending without the industrial world increased the debt to gdp ratios substantially where tim and i come down is that this is not a book about policy or economics. we see it as a political problem and each of these great powers have a system that is too polarized to do with the problem right in front of their eyes.

and to get out of it is three things. the standard e economist joke, and the game of basketball and reading the audience. i can look you and tell you the economics was the favorite class in college. how does that look? and you remember the classic economic -- economists joke which we hate but of course, it is the economist and a physicist arthur on ned deserted island in a can of soup washes ashore an a chemist says we will he to that it will explode the businessman says we will even open and the economist assume a can opener. we cannot assume the good government.

so to think about public policy the political process is fine we just needed economic cancer. so if you cannot assume a good government that made me mean you need to change the rules. here's where the basketball comes from here is our basketball comes from in the '30's it nearly died there was another shot clock, and not a free plane shot we have the tall man problem they would dominate player around the hoop and it might be interesting for the players but not for fans. then enters a man named howard hobson who was a coach from organ at the time

with a ph.d. from from colombia and you might to be asking a ph.d.? absolutely. but what howard hobson figured out is the answer to the tall man problem was the three-point shot. they tried out in 1945 columbia one and it took awhile to make it into college ball in laundered into the nba where it makes the career of michael jordan changing the rules. how you change the rules in a way? here is for the oddest so remember the story?

so to hear the songs of the sirens so we talk about a number of budget will reforms and indeed but to have a spending limitation to come back and process but to close a over to tim this book really is optimistic. i was left that to pitchers one was of agatha christie and another was ben franklin. agatha christie i had in mind her book and then there were none. remember there were rich people doing things in the mansion and then a murder happens.

and then pandemonium breaks out. but soon people come back together but then another murder happens and then another and then there were nine. the country without changes on the agatha christie pass but what we think is more likely in the book is ben franklin. at the end of the constitutional convention, franklin commented he spent much of the time watching the back of george washington's chair and on the back he said he was curious to figure out if the sun was rising or setting and he thinks it is rising we think is a cautionary tale but not that indicates the sun is setting but we think it is still rising.

>> i think i just caught up to listening. we have done a few of these. >> makes up. [laughter] -- makes it up. >> we do have several copies year ended do want to mention there selling it over there so thank you for being here. on the ma spurs fans but they're in a decisive game it is a big deal so if anyone else is a spurs van and is in to basketball they said the record with the most three-point shot in the nba finals game few other night. the highlight reel is amazing and to think that would not be possible with the wise man from columbia it is interesting.

michael jordan's public doesn't know who howard hobson is that maybe the greatest player of history but maybe he wouldn't have been without that equalizing rule. people were saying the tall man problem is so out of control we will have to cap the height if you are higher than 6-foot 6 inches you are too tall go play volleyball. that is that a smart way to make discrimination but we need a three-point shot into think of our rules to constrain the playing field to get politicians back to making wise choices and inefficient -- in effect that is what it is about. we tend to look at history with the airforce academy in they have great battles with great power. but the economist says run

the clock back and you can see the power that loses and rome was strong for so long with the barbarians at the gate by centuries of stagnation with the economic imbalance was a political and balance. so with our plan how to fix the budget but there are too many blue ribbon panels already. , because democrat or republican there are some great smart economist it is just as they cannot work together with people can make rational reasons where

they get to prisoners separating but not even in that case when they're by themselves they have a better outcome the matter what the other person does. if they admit what had happened even if it looks irrational over a longer period of time. we only have to extremely divided parties which is what our politics are but a political prisoners' dilemma to be locked into the equilibrium where one party is fighting and the other is fighting for higher spending and they are okay. neither one sticks their neck out to say the republicans really or spending and democrats want to raise taxes even though

they have complete control we don't see the balance brought back. we need to work on that it is like peanut butter and jelly. going brad on the upside but good stuff in the middle. with one catch -- case study and one thing to apply for history the you don't see in foreign policy journals and the pundits on tv when they say great power, a superpower, soft power, they have meaning that they don't have measurements. what economists have done even 100 years before when william petty wrote the book to hear all of these politicians talk about other

powers in europe. there was no such saying as gdp here in the u.s. but we need to bring numbers and weights and measures and in looking at a measure of power. with currency exchange rates that was perfected -- perfected and it is not just the amount of goals but the productivity of its people. and then gdp was developed. you want to make an intellectual contribution to how to do economic measure. for what is great power with the 80th turnaround too vague and it leads to the pundit class like the

boogeyman the soviets. here comes japan, china and to analyze 50 articles by leading newspapers about the economy of china to see how many times the manchin growth, how frequently the phrase gdp or anything referencing the size of the economy measure and what is really important is gdp per capita and with "the new york times", "the wall street journal", and a gross was mentioned in 80 percent of the articles. the others not at all the gdp was mentioned 11 times. gdp per capita is six to what we are worried about is this great power growing at 10% per year we only grow 2%

a think we both want america to grow faster and we have some ideas about that but my daughter is growing 10% per year she is sick shares sold. i am not worried about it yet. [laughter] you need to put these things in context so we have things as a measure of power. i think it is exciting but what people focus on is a policy prescription our politics broken and how can we fix them? glenn points out the only appendix is a one-page proposed balanced budget amendment. the reason your optimistic with a chapter in california because the fate of america is not just the federal government but also the 50 states. california is a golden state

has a gdp higher than the rest of the u.s. one of the most powerful countries in the world -- economy in the world i think it is number 10 just with the military bases but california suffered from political and balance they gerrymandered their districts and have strict term limits won the problems of politicians they have a short attention span. not as a criticism but they have to think of their election. but when you said determinate and seems a fair and non responsive. throw them out and clean house. these are individuals who are very hard-working and to tell them your career can only be six years long?

will they will not care too much about your number eight or 12 or 15 when the consequences come due. so to shore and the consequent rise in that is a bad idea. here is a fun question. which to states have the worst fiscal dilemma in the net -- u.s. and have the shortest term -- term limits? it is not illinois. they are bad economically he would say michigan has had a rough decade and california have the shortest term limits in america but california just pass a state initiative that will have gerrymandered districts and is said by a nonpartisan board. if there is hope for california there is hope for america. [laughter] with some of the things that we found we were asked

earlier edition not give away, which power most resembles america? when we talk about which great powers to include come it took great courage to pick them because when they say you neglected rome how can you not mention in great britain? there things we did not know. of the ottoman empire was not my area of expertise but we knew they had to be talked about. the thing with great britain that is so funny is we did not want to include neither of us thought they really declined. just like agatha christie you cannot have a mystery if there is no dead bodies that we knew we would be criticized if we did not include them.

so to be so expensive to set up a tremendous colony in the new world then decide not to let the subjects become citizens. they brought in northern ireland into parliament after the revolution and adam smith called for this in the wealth of nations. the prime minister called for it with british and to still have as the most powerful country in the world. when it comes to that question i will endeavor on a pessimistic note. it has to be by definition it is the most powerful

country in the world it is the next to decline but a dozen have to be this century or next century may be five centuries. that is within our aim will be on top 2030? and another that might surprise you why citizens united is one of the best thing to happen to the american political system in the long time. maybe we should stop. >> it is fascinating but thank you for what you have shared so far. tim, will you share from the other chapter that is relevant to their interest. >> the only way i disagree with him is that nothing is boring in the book. [laughter] it is all peanut butter and jelly. [laughter]

>> chapter on japan was personal because i was stationed in the military in south korea so i had a perspective from hall economies grow when they tried to catch up. that was my dissertation. what has been fascinating to look at the japan trajectory is the predictions and the assessments is that japan, up to america. the good data that we have now we really compare one countries income with what they can purchase but it never broke past 90% and settled into the 80% ratio of gdp per capita and america is setting that. that 80% level is the same that we have been hovering

around in france and germany so there is the equilibrium that japan found we are both scholars of the entrepreneurship to create new technology to push that forward and create jobs to follow the economy where japan developed or is it big companies and industrial planning and it shocked the world how fast you can grow. but it is the ketchup model requiring you to reopen to exports in biotechnology you don't need the entrepreneurial class so that all have the entrepreneurial class in japan. if you want to make that transition from a very successful developmental model to growth and innovation such a pate and

give up with a strategy it was copied by many of the country's and it is a three-point shot. a need to come up with a new strategy so don't cry for ship -- japan is a wealthy economy they're way ahead in robotics so they need to take a second look. >> there also folding. dean hubbard you postulate in the book there is said chapter can you elaborate? >> this is about a special interest groups to manipulate government for their own advantage what you

see a great power decline when i was speaking earlier i talked about the ottoman empire and they started out well but started to takeover but in the case of u.s. there are two elements and one is the fact some of the social programs are growing so large to create constituencies that they run the risk to crowd and everything else that government does. with the political leaders with the extreme polarization of the congress relative to the american people and the way to combat that's would be much more political competition and

citizens united is very pro competition. >> tim? >> but to hear from a military perspective so it was incredibly long lived. so they preserved so long because they were slaves to the empire and committed to preserving the structure. but a great power after a great power to be collected overtime but there were only recruited from foreign land usually christian then converted and essentially so finely somebody seceded to the with the notion they become self serving getting their fingers into industry

but then to serve the empire who are they today? but over time they are perverted to serve themselves that is the question we throw there to think about so with the government itself that is so we need to stay on guard for. >> so is radical change is the u.s. ready or are we still very cautious?

i told julia radicals but i think the american people are far more prepared with care -- then the political leaders but the problem is role was the first chapter the great power decline generally does not happen quickly. is more of us slow-moving cancer than a heart attack but there is a more significant change to mobilize it and focus on that. but that could be something much faster but i would love to say the groundswell.

>> with the american people democrat or public the book is not about economics with parties but we all agree to politics are broken and we have got to do away to fix them. so to give the mechanism to amend the constitution but that is the balance we are wrestling with to talk about pandora's box legislative constraints haven't worked so we can't find the democratic will power but they are not a fundamental constraint with the ropes that tie us down they have not been strong enough. but in training governments

what their powers are somehow this constraint is broken in the 28 amendment i think be the solution. probably not next month but i do think in the next decade this might be done. >> can you speak more about that amendment? >> the 28th amendment we have in mind is very different when people called the balanced budget amendment they have been very skeptical of balanced budget because they exacerbate business cycles and governments have to raise taxes in bad times and they are hard to measure because the focus on the deficit but rather wider use a spending limitation spending is capped. the reason we put it that way with some on the right

to say we should do everything possible but what we can do is promise ourselves more than repay four. said to have any exception it has to escalate. it is for in six and then five and seven and that will tie things up. but this relatively simple solution could have been. but with the endowment goes exactly according to the moving average but it almost

became law it passed the house but one vote shy of passing in the senate then 10 years later passed the senate but not the house. with the earlier version was more balance with democratic and republican network but the only exception would be no more. -- a board. couldn't get the president? so that is a bad exception to have. you don't want to define it we don't know the crisis in the future and it went to be the guy to say in alien attack is not a war. we know what to say with a constraint. is an eager to see with

escalating majority clause but the draft that we have is very different than what the republicans are pushing for but when we first were thinking about it with the institutional changes we want to recommend? is in their wackier idea that is bad? it is. if you are required to fix spending this year to what your income is a dead you lose your job. some years you have to bridge the gap but by a the same token the way we frame it is suddenly you get a bigger raise you will not change your moving average so i think it is written in in a way that larry summers may think it is a crazy idea, we did to but it makes a lot of sense, politically

neutral and returns power. >> at columbia business school we spend time talking and i never even speak as entrepreneurs and that is part of the solution for the economy. to you have any examples current or historical where that has been represented in the political system but services operation moving forward? >> above that. but the way it applies to seeing this is the duopoly. not only naturally but it has taken over the regulatory apparatus and is

punishable so starting in the 1970's which is a strange coincidence with piper partisanship and fiscal balance goes crazy, that is when there was a law passed if you wanted to give money to a candidate of more than $1,000 you have to funnel through the party and they got a lot stronger and literally the notion of the party line became a lot stronger so few were a candidate with an orthodox idea we cannot be defined with those are. some will be bad but some could be like the political and japan dort abraham lincoln with the whigs and the democrats with the of 1850's there not be the antislavery revolution or abraham lincoln would not have been president and what a tragedy

if we a people who want to run for office and raised their voice but thinking the regulatory apparatus they cannot even get a nonprofit status approved. we see a problem with the government and the parties in bet together reinforcing that and we need political entrepreneurs. >> but ty from giving to nonpolitical pirate -- piles and while i personally am not a tea party feeling, i celebrate the factory will get ideas from progressive groups on the left in the tea party on the right to challenge the orthodoxy of the democrat and republican parties. it doesn't have to be these two. >> released these two with a career interviews but maybe competition is a good thing.

but with appro competitive element. >> with competition as a good thing and no open it up we have a microphone. >> the with their backs against the wall cavity see that in the future? >> it is a great point of economic crisis anwr one reason we were for the rule change if i could be candid the politicians had difficult times to deal with long-term present values in the here and now and we may have to manufacture that.

overtime for what did people take for granted will diminish. so i think the crisis will well up but that is unlikely. >> you and vespers. [laughter] >> with the air force academy graduate elands from other teams that have gone before. the crisis doesn't have to be american. we can learn from rome and china but we can also learn that we hear from my mom and dad they are alarmed of the capitals of europe. the biggest crisis is what happened to these countries

and are the vans to economy with their own physical imbalance? they will hit the wall. but then that meta federalism with the 17 countries we use, one of those has a different economic model. we call it does super model. the nordic countries are thriving and are more economically free. . .

it's not purely a political issue. it's actually an issue of intellectual disagreement over what the right prescription is. >> certainly disagreements over prescriptions, but i think there's a continuum of economic use of fixing the long-run

problem to illustrate what europe and the u.s. are suffering through now is things like sequesters and debt ceilings in the united states, and economics in europe, because politicians can't address the long-term problems, and that i would agree with paul krugman, much as it may pain me. it's still the case, it's that difficulty that is leading to the trouble, and i suspect if you have 100 economists in the room, 50 democrats and 50 republicans, 100 different ideas, but all of them could be consistent with the notion of getting the long-run problem stablized. we're not advocating a particular way of doing it. we're saying, let's get a system that allows parties to come together and always be disagreements about i don't think there's much disagreement on the scope of the long-term problem. the problem is the politicians

are not dealing with it. it's not an american only problem. europe this same way. so we get this hair shirt and the here and now that angers the left because we don't have the courage to deal with the future. >> ever seen a hair shirt? my next gift for you. >> okay. one more question over there. yes? >> when you talk about balance, talk about stuff like charles murray's book that said we're having a cavity gap -- a wealth gap and education gap. does that play into this as well? does that come into the great powers as well? >> we got accused of not talking about income inequality in a separate online question. we read the comments people make, and really good comments. it might be the television interview i did once, four minutes long, and people say you didn't talk about income

inequality or the gold standard. i said i wanted to but that darn producer. but sometimes you're just limited by what you can do, and to glen's point, go back to the very first thing he talk about. just 100 years ago, 1913, the average income in the world was 3,000 daz -- $3,000 a person. here in the u.s. it's closer to 40,000. there's still inequality and most economists agree that growth is the solution to debt inequality. but median incomes have wavered but gone up tremendously. the world has never seen this kind of prosperity. that makes us optimistic, and today robert fogle pasted away, and people thinking about hard data, we should tip our hat to him and appreciate how wealthy we are. i say this because when glenn and i approached this, we were

both from relatively humble backgrounds and what makes it so amazed by the opportunities this country has given us. >> to your point about income inequality, there are two kinds. income inequality that comes from rent, seeking as opposed to the natural outcome of market forces, is deeply troubling. we talk about that in the book, and here's a case in great power decline and this massive rent-seeking can lead to that income inequality. >> another question up here. and then two more questions. >> i just want to start by referring to the famous philosopher, pogo. we have met the smiled he is if. i'm a child of the 60s and 70s. now in my 60s, and i see myself as part of a generation which grew up thinking we could have everything we wanted.

he had politicians who gave it to us. we borrowed our way because of our power, and allows to us basically have everything. we have a cognitive dissidence within our society such that people want to have everything and don't want to pay for it. we elect politicians to do it. the system works perfectly well. reflect exactly that cognitive dissidence, the problem is inside to us understand the things you brought up. the 1880s strike me as a time more similar to what we're experiencing now. this idea of having lobbies and rent control. we had it in those days and we also had it between 1814 and 1859, before the civil war. >> and your question to the speaker? >> well, talk about the budget. we don't have a long-term budget for infrastructural armies. we have a budget and one talks

bat budget amendment, how does one make the distinction between those which the government can and should do for the longer run and those things which right now they don't do. >> can i make a comment? >> yes. >> one of the trends we saw there wasn't just one country that was a parallel to the united states. every great power, we saw the center consolidatele its authority, its sovereign authority. ancient rome under emperor august just, had more like a house staff. not a big budget. the cities of rome were independence to have their own rules. and it's when the united states displaces the sovereign authority of the 50 states, we'll have, if i can be a little bit employ police cal. one health insurance name and one minimum wage and one speeding limit. can't the states said their own minimum wage? just when we look to the president to solve every

problem, and we used to not do that as a people. the constitution was established with the tenth amendment to have the states and the people hold on to the power. the documents written to constrain and limit the sovereignty of the u.s. so we have gotten drunk on the notion that the federal government can solve everything. that's a really dangerous line of sovereignty to give up to one location. and it's what preceded -- it will work for a while, for maybe a century, and then what the chinese call the bad emperor problem. one emperor who has all this power and says, we don't need free trade anymore because a group of advisors said the merchant class is threatening our power. let's cut off their legs and end free trade. that will work. oops. let's not consolidate power to much, to your point. >> to your point of decentralization, switzerland is a very decentralized nation and is also nation which has a much

lower coefficient, meaning it's more equal than our country. what in terms of income what does that say in your mines when you compare states like utah and tennessee with the lowest coefficient, as compared to the district of columbia number, connecticut, the highest coefficient. we have big government, a lot of inequalities, less government in switzerland and utah and tennessee, lots of equality. what does that say about the role of government into the future? >> i think glenn you mentioned -- . >> your question is amazing. i was going to leave it there. it does suggest that remedying inequality is harder than it sounds, and the better thing is to go at the foundations of the inequality itself. mainly, the opportunities for the least well off among us. tim and i worked on another project, and lincoln has always

impressed me as a father of the republican party. not just because of his radical abolitionism, but for his muscular role of empowering people. lincoln was for the railroads, land grant, colleges so that massive muscular empowerment, and that's the equality. >> the most powerfulling powerfr country to empower people in my life what public libraries. it breaks my heart when i see libraries closing early on saturdays or closed on sundays. it breaks my heart. and that we can't find money for that, and i think to your question exactly, and glenn said this earlier. when you see rent-seeking, the military industrial complex, the government makes a lot of money and doles them out to certain companies that have connections with the people in power, and then that doesn't filter down

and get to the poor. so a great education system and a diversified education system which each state can set its own standards. we're central nicing again, and you can buy a copy of balance and give it to your local public library. >> there you go. last question. >> a quick comment and then a question. i saw the -- that interesting with this conversation but i'd argue that the -- it became -- african-americans were not allowed to play and then it changed and that has become global. so thele best player from the spurs is french and the second best player is from -- the last thing i want to say on that is at the time -- the very best

players are not known for the three-point shot. lebron james is not the best shooter on the team. the question is -- . >> we needed a rule change that only nateed at columbia. >> last year there was a -- i thought a very important book called "why nations fail." >> we talk about it a lot. >> their thesis was more like mason -- their conclusion, nations fail. so -- [inaudible] >> well, talking about the book -- fabulous book called "why nations fail." and i think the difference is that the problem with exclusive and distractive is that in a moment of time you can draw that distinction but many of the case study we cite were inclusive or

distractive. the question is, what kind of political process led to that within the country? so we view as explaining that phenomena. what we have in common is competition, the inclusiveness, whether it's for market forces, competition in the labor market, competition in the capital market, is the hallmark of success. one good thing about our book is it's shorter than "why nations." >> so we learn from war games that tic tac toe is the wrong game and we learn from your book that go is the wrong game. what is the right game, bridge? is it that sort of teamwork? something to think about. >> yeah. i think go is the right game, just have to be creative and come up with new strategies. >> entrepreneurial. >> basketball is always the right game. >> all right.

so an that note, thank you both very, very much. [applause]

next, an -- annalee newitz. this program is a little over an hour. [applause] >> well, thanks so much for coming out to hear about the end of the world. and thanks to the town hall for putting on this amazi