>> now a recent visit to stanford university with a guest who sat down with the author of the book first principles. it was conducted in an interview on campus. it is part of a college series interviews. >> host: now joining us is john taylor how to restore america's prosperity and the secretary is getting started on the book. want to give everyone an idea of where you're coming from. >> guest: we have a number of stents that we went through in government. one was in the u.s. navy. then i served with president

ford and met a little bit with president carter and came back. ../c&b/a/b/c/ú/c6b >> is getting the policy to coincide with the principles. >> host: in your government experience in the macro sense, what do you think you got right and what do you think you didn't

get so right? >> guest: i think over the long haul when we got right was what happened mostly in the '80s and '90s into recently. we learned from the '70s i served in the ford and carter administration. outcomes, unemployment started people learned was if we had a that began in the late '70s and continued until recently, a e sort of off-track again. practicepractice, seeing a littt about how policy gets made. of economic ideas that i've been talking about for a while. >> host: what are the first principles?

what are these five keys that you speak of? >> guest: the basic idea is the principles of economic freedom i call them. the kind of principles i've been teaching my students for a long time. is the idea that people have the opportunity to decide what to people have largely come from role in where government should getting that right. >> host: is one more important than another? >> guest: i think they're all over the years, economists have warned that the first two are more important than we thought. and that's why start with those too. we tended to forget them. the predictability of policy so

that people know what the game is, what's going to happen with tax policy. was going to happen with monetary policy, interest rates. and also the rule of law. i think economists emphasize how important the rule of law was until relatively recently. but to me those are the hardest government goes back many years. they are not emphasized in the. >> host: on those two >> guest: absolutely. you are seeing innocent some of the dangers of unpredictable people don't know what's going to happen to the deficit and the debt and a lot of quarreling about that. it seems a unpredictable or uncertain that many people including myself think that's one of the reasons economy hasn't gone so well. on the rule of law, you see

examples where, for example, on the bailouts of financial institutions we help others and not everyone if you like. that sort of questions how the rule of law has operated. john taylor, does that, the fact that you make those the first two rules, does that say in any way that we are too dependent on government when it comes to economic policy? >> guest: i would say we have gotten a little too dependent if you like. people are beginning to expect more i think than the government can deliver but at least in the way it's been doing this. what's best as i can see, so for example, the rule of one is it's clear what is going to happen if you take this action, or that action. or if there's a regulatory role for financial institutions that they shouldn't take it so much risk or they should have capital. that those rules will be enforced by the regulators. you would have special favors or privileges to others. so it's not so much dependent on

government run will. i think it's a concern that we're dependent on government that isn't running so while. >> host: what happened in '08, in your view? what went wrong country leading up to it, i think i'm going to to maintain. one is the federal reserve in 2003, four, five decide guilt interest rates very low. that caused people to what we call search for you, try to get higher interest rate. they took on risk. the banks, financial institutions and it also caused this boom in the housing market. and ultimately the boom turned into a bust and people saw the extra risk and that led to the crisis than altima to the panic in 2008. >> host: what about the tax cuts in the early part of the bush, the first bush administration or bush 43, the first term? we hear often on our call-in program on c-span that president

clinton left president bush with a surplus, and he squandered it. >> president clinton certainly did leave president bush and a guy with a surplus. a big reason for that is he brought spending down during the '90s. as a share of gdp, spending fell by 4.1% of gdp. 4.1 percentage points during the 1990s. and that enable us to have a surplus. in the '90s, federal spending has risen, reversed that completely as a share of gdp. it's gone up a size 25% from 18-point to in 2000. so it seems to me that one way we've gotten wrong here is that we have ratcheted up spending as a share of gdp, more than is

sustainable. >> host: sure those tax cuts have taken place? >> guest: i think the permanent tax cuts were good to do. they help the economy. i quarrel with this temporary tax cuts in 2008, for example. part of the sting was to try to get the economy going. but everything i see is reducing the top tax rates, reducing the lowest tax rates. remember we took the lowest tax rate from 15% to 10% trying to reduce those tax on people across the board. i think that was healthy and it helped people. the real problem is we didn't control spending and it's gotten worse. >> host: and john taylor writes about that time in an when he was serving as undersecretary of the treasury from 2001-2005 in "first principles: five keys to restoring america's prosperity." secretary kerry, you also write about what you call the nixon shock. what is that? >> well, amazingly in 1973 presidents nixon impose wage and

price controls on the entire economy. the reverse of a market approach. and i think that was a shock. it wasn't expected. it was a factor in the poor economic performance that really lasted throughout the '70s. it led to other problems and big monetary policy too easy because the fed could say we don't have to worry about inflation for a while, we have everything frozen. that monetary policy ultimately because you couldn't have wage and price controls for ever led to this high inflation. so it's an example of a deviation from these principles that i emphasize so much. in that case, first of all, it was completely unpredictable. second, it really went away from the idea of markets being able to provide incentives for people. we lost about. >> host: when you write about crony capitalism and "first principles," what are you

writing about? >> guest: is largely in the financial sector that i focused on. i think it's broader than that. one example would be the case where the banks had a lot of regulators, supervisors, many on the premise of the major wall street banks who somehow didn't see the actions that were taken. an example, why that happened, we don't know. another term for this is regulatory capture worthy institutions are able to persuade one way or the other the regulators or the supervisors that what they're doing is okay. it should be a concert but it's one of those things about not hearing enough to the rule of law. we have these rules, we have these laws, and if they are not enforced, the suspicion always is there some kind of cronyism, special favors going on. it's not only unfair and not only makes people question how our economy works, it is literally not good for the

economy. >> host: you are the winner of the high-tech prize for which year, and why did you win at? what is at? >> guest: it was awarded last year. it's a prize that celebrates the writings of hayek, books like "the road to serfdom," but many others. and i think the people who decide on the prize thought that what i was saying here was consistent with that. and i do refer to hayek, special on the things about rule of law and predicted a policy. he emphasized the rule of law as a way to preserve and maintain individual freedom for people. really the rule of law protects people's freedom. that's what's emphasize so much. and for me predictability, rule of law is good for economics. it makes the economy work better

but he emphasized there's another important reason to have that, it guarantees, it helps guarantee personal liberty and freedom. >> host: if milton friedman were to read "first principles," what you think he would take transit i would hope he would like to. i know friedman was a good friend but i have always ready set to reject what he would've said. he always had his own views. one of the reasons he was such a fascinating influential person. i would hope you would like it. >> host: what you do here at stanford? >> guest: well, i teach graduate student. i teach freshman. we caught the course of economics. i've been teaching for years but i really enjoy the. kind of coming in the begin and towards the end as well. i also do research at the hoover institution. i'm a senior fellow at the hoover institution, and that's and we are more of a policy kind of work i do. we are more focused them on a monitor policy, how could it be

different. the budget, how could he be different, rather than pure academic research. >> host: you are the george p. schultz senior fellow in economics at the hoover institution. you spent some time with secretary schultz sitting in that chair a little while ago. he said he resigned as secretary of the treasury because of president nixon's wage and price control. >> guest: yes. you know, george schultz had for cabinet posts, and each one he served admirably in my view. it was hard when he was treasury secretary. one story he may not have told you which is how paul volcker worked for him at the treasury, and they did some important reforms of international monetary system. then years later when paul volcker became chairman of the federal reserve, and i write about this in my book, he used some of the same ideas to make monetary policy much better. so in a way schultz's influence

extended periods which you don't always think about, and various you don't think about. >> host: what was your biggest restoration as undersecretary of the treasury? >> guest: when i went to washington i was expecting a different job than it turned out to be because 9/11 occurred right after i got there. so rather than going to some fancy halls of negotiations on international finance, i went to kabul, baghdad and in north africa to think about much more difficult problems. we had to put a new currency, a new monetary system in place in iraq. one of the most difficult things i've ever had to do. it was frustrating in a sense would call on ideas and people were not used to that but it's also really amazingly rewarding. it worked. the theories work and were able to get the financial system up and running with a lot of cooperation from the iraqis and

i would say the combination of frustration, if, to me, the frustration of policy in general is that we have gotten off track because it's frustrating, almost tragic that we had a good set of, i say we, i mean america, had a good set of policies in place for nearly a quarter of a century. and we are not there now. it's very, very frustrating to me to see this slow recovery and problems that other countries, to. >> host: you also write about paul on new and "first principles." how did he do? >> guest: he wasn't there too long. he left pretty early. there were some disagreements to some extent with the administration on policy, on tax policy i think was one of them. but i always liked paul o'neill. he gave me opportunity to make

some reforms in international monetary system. the workings of the imf and, our policy with respect to emerging market countries which i think did improved things. we had a bailout problem with emerging markets in the late 90s and early 2000s, and with some reforms of the imf that sort of stopped. we stopped doing that, and fortune as result of emerging markets, whether brazil or turkey, india, performed much better. so that's a good story about economics. they kind of went towards these first principles i think and as result they survived the financial crisis much better than we did. they are doing quite well. >> host: when you hear the phrase too big to fail what do you think? >> guest: well, it worries me. of course, what it means is there's institutions largely financial institutions which are viewed as too big our connected to fail without causing damage at the financial system.

it's not really gone away. and where the financial crisis has made it worse because people saw the bailouts of those institutions. because they were too big to fail. now to say that they're bigger and it's really not disappear. so a lot of the work, and it's written up in his book how you could reform the bankruptcy code so even a large financial institution could go into bankruptcy just like united airlines winning the bankruptcy and people kept flying on the planes, we would like to if necessary a large financial institution do the same thing but people can still use its services and they don't get any special deal. that would be a much healthier system. we're working on that. i think there's some promising opportunities to put it into place but it's consistent with these pretzels because it says we have the law, called the bankruptcy law and it applies to this firm, applies to that for. no special favors but we got to work on the because financial firms are given a more complicated. and to raise these questions

about too big to fail. >> what is this to we are looking at in "first principles"? >> guest: this is a chart of the unemployment rate in the united states going back to the 1940s. and it shows how unemployment has tended to increase when we deviated from these principles in the late '60s and the '70s but you can sit steady increase. and we got back to the principles. you can see the unemployment coming down and then we've gotten off and it's back up again. it's not a proof. it's and is quite striking when you look at the underpinnings of that curve any cd interventions and the lack of interventions, it is for this us -- that's just a strawberry of -- >> host: this is c-span2 and california. were talking with john taylor, his first principles, not one,

deductible policy framework. number two, rule of law. three, strong incentive. reliance on markets is number four, and clearly limited role for government is number five. john taylor is the winner of a hayek prize as well. is the cover of the book. you're watching booktv. >> next from stanford university, booktv interviewed peter berkowitz of the hoover institution about his book, "constitutional conservatism." he outlines principles of governing that he argues both conservative and libertarian should support. >> host: and you're watching booktv on c-span2. booktv is on location at stanford university where we're talking with professors and scholars about their works. joining us now on booktv is peter berkowitz. is the author of "constitutional

conservatism: liberty, self-government, and political moderation." here's the cover of the book. was on this cover? >> guest: this is, this is a depiction of union from, a double depiction of union and liberty that's in the federal capital building. i think about 1869. >> host: you write a lot about edmund burke. he was edmund burke? when did he live, et cetera try to edmund burke was a great come one of the greatest british statesman. he was born in 1729, died in 1797. he was a member of the way party. he's most known -- way party. he's known for reflections on revolutioonthe revolution in frh was published in 1790. and it is an angry attack on the french revolution, on the french revolution