then the g20 in russia and the global economy. economics reporter with the "the wall street journal." "washington journal" live at 7:00 a.m. eastern on c-span. trying to maintain family time and protect their privacy, ed roosevelt -- >> rest and repair to the president. close enough he could get out here as often as needed. but far enough away with wilderness. this was a family place. in this sense it was unique for the roosevelt.

it became a place where it was a hubbub of activity. it was the one place where it was private family time. now a look at china's economy and the challenges china faces in trying to maintain their rate of economic growth. the international monetary fund china mission team was part of a brookings institution discussion on the repeat imf report outlining china's local debt, it

financial sector, and real estate market. it's an hour and a half. [inaudible conversations] [inaudible conversations] interest and some extend mystery second largest economy in the world and the largest contributor in the world growth. the enormous interest about what is happening in china not just within the country but around the world. this morning we have an extremely distinguished panel to help us sort through the issue. on my left is marcus. he's the deputy director at the imf and the mission chief to china. marcus, actually has studied not just economic but also law and international relations which makes him perfectly suited to

have him figure out not what is happening in china's economy but the broader implications for the world might by. on my right we have steve roach. who spend a long and distinguished career at morgan stanley. he jumped to my side of the fence. in the global economy. and before that the world bank office in china. so of all people who know china intimately. what we start off is with a

presentation by markus. tell us about the main findings of this year's annual report that the imf writes on china. that will give us a basis for discussion and bring in the panelists and leave some time at the end for questions and answers. to begin with, markus. >> good morning and thiewng brookings for fighting us here. thank you to eswar for agreeing to be on the panel. before i start, i would like to acknowledge what they have done china and china, of course, is a team effort. all you see or hear today you see our report published on the website. steve is the head of the china division, and -- [inaudible]

the main message of report this year. a lot of concern early in the year potentially in china. remain confident that the growth has been moderate. we don't see a major risk of a sharp imminent decline of growth. hard landing in china. at the same time; however, vulnerabilitieses have been growing for years. they have continued to grow over the past year. if you compare it to last year's imf report you will defect some heightening of concerns about the growing vulnerabilities in the chinese economy and greater urgency to financial structure reforms that has been -- that put the economy on more sustainable growth path. growth in china is typical much more policy dependent than it is

for many other large economies. and the actual growth protection in china always very closely linked to what thinks about the government's policy reaction. how strongly will they counter act any decline or risk to growth. and so far quite positively i would say the government has signaled the tolerance for growth in line with its own target. which is around 7.5%. in contrast to the past, whenever there was a final slow down, the economy would move strongly investment this year. the response has been significantly more moderate, and the chinese has not appeared to want to prop up activity above the target. so coming out of china now at the high frequency and many of them over 100 the third quarter in to a first few days of this

show that -- the second half of the year. there has been a little bit of slowing retail sales well in the double double digit. we donl -- don't see any decline. also the trade data recently has come back somewhat. we have confidence that assessment of growth of 7.5 is about right. as i emphasized since the global crisis. sustainable because the sign of risk might be growing. significant buffers to whether

-- are not an imminent crisis mode. the margin of safety are clearly diminishing. these three risks sort of which jump out and look at the finance of the economy. they sort of reflect deeper vulnerable underlying problems in the economy along the current growth path. which remains based largely on capital accumulation and credit finance investment. in a nutshell, these three risk you see on top they reflect a process where by capacity is being accumulated well ahead of final consumer demand, it's financed by credit expansion. and this has lead to wide spread access catch, pressure on corporate profitability,

diminishing return to investment, and rising corporate and local government debts. in order to sustain growth the economy need to be transformed away from the pattern of growth based on capital accumulation to one more based on total factor productivity. let look a bit closer at the financial sector. china's stock of credit on the left-hand scale is among the highest in the world at the level of income. you see the red dot china and the domestic banking credits close to 150 percent is clearly an outlier. but on the right you see it's growing extremely fast especially in the nonbank segment not included in the left. on the right-hand side you see total social financing calling china bank credit and credit

given outside the banking channel. that financing has increased by 60% of gdp in four years. and by the predominant source of the funding still remains in the banking sector traditionally and increasingly larger has come through other channels such as high yielding wealth management product and other nonbanking source of financial -- and it's very positive in many ways because it moves the financial closer to the market. it carries tremendous risks and a problem because first of all -- better regulated banking sector. it's an area of weaker surmings. supervisorrers have a hard time catching up what is the so-called -- and the speed of some of the progress is nearly overwhelming.

the consequence what you see here is nearly explosion of secret a steady buildup of leverage which is eroding the strength of the financial sector . so this questioning of rising leverage means that the corporate burden has always risen. if you look at the leverage in the corporate sector they are manageable. a growing share at least in -- out of the firm data available. a growing share of the firm are showing interest coverage below one. and, you know, it's -- it's not again a crisis proportion continue this recent trend would suggest constrain on the corporate sector and marc -- macroeconomically. second point local government debt. the buildup in credit has been accompanied bay large increase

in local government debt. infrastructure spending by local government is an important tool in china. a lot of fiscal spending comes from the local government social and investment. it has become so since the global financial crisis. and a large part of this local government spending investment spending is being done off budget. it's not recorded as part of general government spending. now to better assess the microeconomic scale. to be at the front tried to construct what we call an augmented fiscal balance. the recorded official general government data together with the off budget fiscal transaction. looking at it together shows us that the actual debt of the public sector augmented public sector is much higher than the official 22% official. but augmented debt including the

off budget spending comes to somewhere around 50% of gdp. we have 45 because we don't include something. if you look on the right side the market estimate and the government estimate which has been around for the last two or three years of the side of the government debt. it's somewhere between 50 and 60% including what you saw on the liability side. and of course, the rate of that is official debt is much higher means also that the public deficit, if you include the augmented part is higher than measured on the order of one, two, or 3%. around 8 to 10% of gdp.

real estate -- on the left-hand side you see relgt accounts for a very significant share of gdp already. it's 12.5% of output and about 14% and remain now a key engine of growth; however, one has to realize that existing distortion s make this market acceptable to large political swings boom and bust cycle. on the supply side we have local government. which rely on land sales for financing and real estate development for gout. which often leads to push surprise to the market. on the demand side, the market is prone to bubbles because housing representatives a uniquely appealing investment opportunity for the private sector given that the interest rates are close to zero. given the restriction that can put their money abroad.

there's a history of robust capital gains. and also favor tax treatment. on the demand side there's a huge incentive. so this is a risky situation and clearly over the medium term real estate development will have to slow down a more sustainable pace. the challenge is to do it in a way not just by restricting price growth of trying to control it from the top but removing the underlying distorts that create the incentive to the risk. as we said the three risk. they sit on top of the underlining deeper vulnerable related to china's growth model which remains on capital accumulation. investment, which is being implemented through quasi -- state-owned enterprise

investment. that investment has been used to support domestic activity, and to offset the impact of external shops. by this of course had spillover effects for the global economy. it has -- tremendous the domestic imbalance between investment and consumption. there are signs in last years that the imbalance is no longer worsening. but the shift toward consumer based economy has yet to occur. for the last year investment as a part of gdp remain flat of a share of gdp. and antiurban household savings rate increased which mean more consumption. on the left-hand side you see china remains an outlier with investment and share of gdp much higher than consumption lower than other countries.

on the right-hand side you see from the supply side. what is the composition of china's growth. secondary sector remains the main driver of growth not forget about the other challenge. of rebalancing and of challenge which is, for example, while there has been a major reduction of pot in china over the past years, inequality at the same time has increased tremendously over the past two decades. you look at the staff report that it shows how much has increased in the past two decades which is the largest increase of the market economies. and last but not least, the environmental challenges, of course, of adding factors of

production and investment and resources tremendous and not sustainable. so clearly the time is running out on the current growth model. we have growth accounting exercise that the south over the past two or three decade it's mainly factor accumulation. putting labor and new factories together, and producing for exports. clearly this growth can no longer continue. it it continues, you see the orange line here on the bottom is china, if it continues it can go on for a few more years. it will run out of steam eventually you will create too much capacity of enterprises for profitability -- [inaudible] at some point in time there will be a crisis or sharp slow down. china's convergence process which measures the ratio of

china's gdp to the u.s. which has proceeded steadily over the past two decades. the visk that convert -- [inaudible] might stall which has done for many others stage of development. the choice for china is to either change the growth model and sustain the conner have jensen process. if there's a -- it can actually continue to con jeering closer toward advanced income levels. what the key policies explaining details in our report. successful transition in china will require a decisive new round of reforms that will define to unleash these new sources of growth. which are based on productivity growth. at the same time need to address

the risk in the various spot of the economy. and at the same time make growth more inclusive and environmentally sustainable. and not diminish the challenge all of this caused in an external environment which likely will remain difficult at least for some years. the challenge is tremendous. it may entail over the next few years somewhat slower growth in china. not in the 8, 9, so 10% range. what is strategy at the strategic level. i think it highlight three points. an increasingly greater role to market forces. through continued liberalization and government. stronger qof mans. that's important we mention it. as we increase the role of market forces, we need to see stronger govern mans at the lower level of government and

economic units. and statement shifting income toward household and increasing consumption. these are strategic -- in term of economic policy the agenda include a broad set of fiscal financial sector, exchange rate and other structure measures that need to be taken over the next three or four years. many of these reform directions and policy objectives have actually indeed outlined in the government's recent announcements. so we are confident with the authorities we see a great recognition of the challenge and clear understanding of the policy area that need to be addressed, and the direction that policy needs to take. and you have seen it in a various announcements that come out over the last six month.

what is needed is clear and specific policy measures and timely and focused implementation. let me sum up again. ernear term look in china 7.5 percent but the vulnerable are growing along the current path. while margins are still there, they're diminishing. and financial structure reform must be accelerated to contain the risk and form the gross model. thank you. thank you. do you agree with marcus' assessment of the short term and medium term. specifically, do you think what he laid out in term of what the right one. do you have anything to add or

subtract? >> thank you. i like the imf report a lot. the bottom line growth of seven and a half percent this year. risks building up and the need to transform the growth model. i like to agree with this as an opening remarking. what i want to do is briefly emphasis the risk are really quite serious. the risk that are built up are quite serious. add a couple of additional issues to the structure reform agenda. i agree with the issues markus touched on. i want to broaden the agenda a bit. first, on the risk. i like his figure that shows china's private consumption and investment as a share of gdp compared to other countries. china is extraordinary. it has investment and low private consumption. we haven't seen it before. on the investment side. if you invest 50% of gdp at the stage you double the capital stock in six years. during the inviement push.

the capital stock has been doubled. it will be doubled again in six years. there's evidence that the return to investment is dropping, and so i'm pretty convinced if you double capital stock looking forward the next six years, there's not going to be demand to use that capital stock. you run in to some kind of financial or physical problem in the imf report brings that out. i want to emphasize that's serious. i agree with the reform agenda touched on. i would add two areas that i also think are important. the first is, reforming household registration system. if you look at china, there's been obviously been some rural urban migration. it's rather limited if you compare to the historical experience of other country. if you include the migrant it's about 52% for the emigration rate. when south korea was at the same level it reached 68%.

the household system obviously restricts mobility. one result china has very large rural urban income difference. by restricting the ability of vie grant to move to the city. you restrict the ability of many rural people to move and find higher income. it's particularly difficult for people to bring their family, children, old people, and if they move to cities, you know, that would provide quite a bit of additional demand for social services. the government would have to find the resources for those. there would be challenges. if you think about shifting from an vestment-driven knowledge more consumption-driven model, i think easing up on the system and encouraging more real migration of families from the country side to to the city consume more greater provision of government surfaces. the other area i would briefly mention is state enterprise

reform. the official statistic it takes more than 40% of the recent years has been in the state-owned sector. there are a lot of enterprise with mixed ownership. that's probably the lowest. and state enterprise they operate in quite a few sectors, but i see them as being especially visible in modern services like financial is services, media, telecom, logistics, airline. these are sectors there's a small number of state-owned incumbent, chinese often refer to these as monopolistic sectors. monopoly sectors. they are a lot of profit or perhaps we would call -- economists calm it rent. they pay very little dividend to the government. nice thing in the imf report the statistic in recent years centrally own state enterprise

have paid 0.4% dividend to the central government budget. basically you have a system in which protected uses earn profit and they reinvest it. if took more of the government income to the simple reform and expand the social services, that would be shifting some resources from investment to consumption. my general point is there are important institutional features of the china -- chinese system that encourage investment and discourage consumption. it makes sense to target some of the reform area. i strongly agree with the report the financial system repressed financial system is an area for reform, but i also adding the labor market institutions and the state enterprise institutions as important areas for reform. so we look to the new leadership. i look to the new leadership hoping there will be some

relatively bold reforms announced over the next few months that tackle the issues comprehensively. >> thank you, stephen. [inaudible] tended to be more optimistic about china in term of the prospect and the ability to undertake reform. do you share it and also the end point about where china thought go? >> i do, ease eswar. like david i commend markus, stephen, and the team for once again laying out a very comprehensive assessment of the agenda that china faces in trying to deliver on this important and critical growth tran formation.

the only bone i would really pick with the assessment, markus, honestly in keeping with what you, you know, the billing you gave me, eswar the optimist. i would prefer to call much of these issue, much of the issues you raise as challenge rather than risk. i think in assessing the prospect for any major economy in the world today, we could point a broad menu of risks for every single one of the economies that are equal to if not more severe than the ones outline for china. including the united states, europe, and, you know, the new poster child for economic reviable japan. there is a lot of risk in every single one of these economies today. the one area i would pick up on, and long -- really agree with

the point david made. i'm a little bit on the other side of the issue you raise with respect to investment and the doubling of the capital stock. marcus, you and your team pointed this tout me before pointed out that this capital stock growth in china while it's high, in consistent with the extraordinarily high investment share, the level, the stock is low. especially in looking at capital per worker which is what economist prefer to look at is the driver of long-term productivity growth. i'm not nearly as worried about rapid growth in the capital stock as many are. i recognize that lacking a

market-based system of capital allocation, there are some areas to be critical in the way which that capital is allocated. i want to see the capital labor ratio don't rise on the low base i think that is doing to happen in light of the point you made on urbanization. urbanization is a capital-intensive endeavor. you made the korea point. china is at 52.6% last year on the urban share, probably headed to 70% over the next, you know, ten to fifteen years, and that's got to require a lot of -- the final point i would make is that in looking at progress on rebalancing, and i have to give a lot of credit to any friend

knick sitting here who has written a lot on china balancing and developing indicators to cage the progress of rebalancing. my view is that sort of the last thing that tells you that the economy is rebalanced is to look at the major shares of the big sources of demand like consumption and ineducation port and the like. i prefer to look at the building block that drive the shares as early warning signs. one of the ones i most encouraged about and nick has got this as one of his compound of the rebalancing gauge is the accelerated growth in the service sector. i think it's impressive right now. you have a chart, markus.

it shows the shares through 2012. if you look at the growth rate of those shares and the sectors, the first half of this year, the service sector has grown by chinese data 8.3%, where as the secondary or manufacturing construction sector has grown 7.6%. there's a pods gap of about seven tenth of a point. relevant to the big traditional engine. to put in context it's been the other way around. manufacturing and construction has grown on average for thirty years i like, you know, the fact that you are beginning to see,

early sign of growth momentum shift to the services sector which is less resource intensive, it's more labor intensive. it's more environmentally friendly and allow the economy to grow at the slower rate and still alive a lot of. >> thank you, steve. you talk about how you anticipate growth being 7.5%. what are the big things of the what do you see as a sort of worse case scenario of china? the rest of the -- what happens to china.

if the external environment remains unforvel. if the reform -- [inaudible] do you think there's -- [inaudible] >> i think the report have the policy level to respond to contingency. there are downside risk to the external environment. picking up strongly and probably be picking up even more when you say -- [inaudible] we see seven and a half plus for the year.

-- >> growth is going to be about that rate. the question is there going to be rebalancing that put that out of sustainable path for the long-term or is it the old growth model for a few more years? and then the risk start building up and you can get something unpredictability in the world and you can imagine a rather sharp gross slow down. i wouldn't expect it in the future. now we talked about china having a fiscal space to respond in the short term. as marcus pointed out there are a lot of problem building up when you take the over all system in the account in the country's largest central government to look at china's

response in current slow down i agree with david and markus. there have a slow down over the last couple of years that if you look at china's response to earlier slow down what -- pretty strong fiscal stimulus. they didn't do it. they have done a little bit at the mar skin. it they're willing to accept slower growth and wean the economy off the major construction spending, infrastructure, type package and of course the biggest one

whether you call this fiscal deleveraging or a more prudent cautious dispoliticked approach and the monetary policy. i think this is a the two generations we have seen previously. now it's early on in the leadership, but they don't want to go back to debt intendive growth. that's not to say your first question is the china disaster scenario. if china -- or environment collapses for reasons we haven't figured out. don't go back to another big stimulus. markus rule it is out. i agree with him it's highly unlikely.

so i think there's a lot of focus in dealing with the debt intensive -- the shadow banking system. the nonbank institutions that are now really coming under heightened scrutiny by the financial regulators. that's a good segue. you talk about the one essential reform. i think there general agreement on the panel to achieve this growth over the long toarm get the economy to a more sustainable growth [inaudible] so it seemed to be taking step

in the right direction toward lab really aizing do you see the significant progress one of the big things that remain to be done? free lending rates today we have margin around the deposit rate. i think a lot of progress has been made. going forward, if, you know, we have a number of things. liberalized interest rates. to be able to liberalize interest rate and achieve when the financial system.

you need but you also need able and willing to compete on a marketed based system which means you the financial constraint and discipline that lending limits that has to come from which means that investors who make bad investment decisions because they take -- have to be able to go broke and lose money. banks are savers in the intermediate ya and overly competitive way have to be resolved out of the market in a transparent and clear way.

being guaranteed and there's failure in the stock market. so far we haven't seen the failure of one fixed interest instrument. the perception that virtually everything here is guaranteed. and so these things have to change for interest rates to work effectively and not raise new risk of crisis liberalized created in the -- everywhere else in the world liberalizing too early and quickly without supportive reforms underground that actually make it work. we also need reform in the banking system. true resolution framework, strengthening of the monetary system. instead of controlled it's a

whole host of reform that need to move together rather than looking for one big headline item liberalization tomorrow i look for a consistent coherent approach that lays out the step what are we going do over the next two or three years to achieve what we need to achieve which is truly market base financial system. what economists would like to see. what are the things you actually do upfront, david? >> there's a lot of talk in beijing about liberalizing the capital account fairly dramatically. frankly, i'm kind of surprised.

ic markus -- alluded to this. other institutional features are not in place. one thing i introduce to the discussion i think opening up foreign investment and financial services is related to opening the capital account. it's actually a different issue. china has rather restricted system in term of openness to investment and financial services. it's pretty much the most restrictive g20. and general opening of the financial service investment and trade strengthens the financial system. so i think that the sequencing issues is hotly debated in china. ic it should be debated. i would personally open up financial service. i agree with the point about liberalizing interest rate. there's room for china to move more quickly. i would think opening up account would come later in the sequence. but as i said right now there

seems to be a pretty active debate in china. >> it's more of a question you're not just, you know, a moderator. you're a real live expert on china. maybe i can ask you a question, if i might. [laughter] >> modern china got going late '70s, early '80s with reforms and deng xiaoping aggressive reforms of implemented by former -- reforms were the driver, aggressive risk reform that took on risk internal and external

political risk. do you think china's forgotten what they got out of reform? have they gotten tbrown so rapidly and gotten so strong. has the power structure colensed around the state-owned enterprises and sort of local government thief come and replicate the intensity of reform we saw in the early stages of this post deng xiaoping era. >> this will be the only question permitted to the moderator. [laughter] thank you. that's, of course, a very perceptive question based on your deep understanding of the history of reforms in china. my sense is that china is now to

keep moving forward each of the reform is enormous risk as economists -- [inaudible] especially the initial starting with poor legal frame work institutional frame work. the risk on the part to be end point of very significant. but having said that, the chinese are effective at using external triggers and good reform. having said that, the question is how do you manage to get around the enormous political -- it is very well for a lot of

politically powerful people. it's where i think the chinese have, very clever at creating a reform. if you think about capital and liberalization, the notion of a big and important country having a big an important currency in the world economy is not an end of itself. it does create the right what do you need to do domestically in order to have the currency be a world power. you need better financial market and more open capital account. you need a better legal framework. that's one attitude. earlier they announced a plan to reduce inequality. usually when the government said it's inequality it's a bad idea. let's reform the state-owned enterprise and liberalize interest rate. and undertake some i think it's

a more effective way of getting it out the obstacle we form are very great i think they have their heart in the right place. >> great answer, thank you. >> we go back to our traditional roles. [laughter] >> once given you have give us a segue, stephen, to what we should think about. you refer to the fact that the leaders have talked about this the five-year plan and otherwise. do you accept there's political will among the senior leadership to get it. we'll start with you, marcus. in other words they know what they need to do. are they prepared to pay the price and take the risk of doing it? >>ic we'll see over the next six months. [laughter] i think there is political rhetoric, it's stronger than in

addressing this issue. man we've seen in a long time. it started literally the day that deng xiaoping first addressed the media after being appointed general secretary of the party. in a rhetoric and actions are two different things. so there is a very important central committee member in november that will really put down some important markers in judging whether there is teeth to the rhetoric teeth to the type of reform that you really did an complint job describing.

there have been some commentary pieces written recently about the significance of this third of the central committee comparing it with the, you know, the of i want to say the 11th central committee meeting back in 1978 which was the platform for deng xiaoping. to really put down what in receipt -- retrospect. so we'll see. thing a surprising short period of time as to whether or not it's rhetoric or a plan for action. >> let me push a little bit. because you have the many of the in chinese leadership if you were asked to sort of define the

approach action plan for china. what would key elements be that you would like to see in there? service is one. it's a credible building block of the consumer transformation i alluded to earlier. urbanization, as david has alluded to is also important because of the reason he mentioned. you can couple it with service and job creation. the third is one we haven't really talked about today, but it is really making a social safety net in china far more robust. the focus thus far has been on the number of people enrolled in the retirement plan nationally or locally or the number of

people covered by the quasi universal health care plan. the benefit level are pathetically low. the plan ares are in massive need of injection of funds. if you don't do that you can generate a lot of labor income. it won't be spent. it will be saved. and, you know, the point that marcus made on the rising urban saving rate is an example of fear-driven procautionary saving in the absence of a are robust, secure social safety net. what is your sense whether they have a stomach for reform and what we might hope to see. >> i think expectations are so

high that will definitely come out so with some reform plan in the fall that, you know, will touch on probably all the elements we raised. i think they'll announce something that sounds pretty good, may well not be a lot of detail in some key areas. i agree with the colleagues it's probably going to be six months or longer until we know how serious they are. they're going announce something and seriously resue reform in most of the areas we're talking about. this being china they're probably not going to be doing radical. they will have reform. they won't be radical. we'll see planning. to me interesting question whether it's fast enough reform to put them on a sustainable

path or whether or not some external shock or build up the vulnerable we talked about whether they'll derail them. i don't see how anyone can confidently predict that. there's so many variables involved. it's going to be fascinating to watch over the next few years whether you get gradual reform that succeeds. or whether you end up with some kind of more of a dislocation. >> the external trig one of the thing being -- is the by lateral investment treaty. what do you see of the prospect becoming a reality. do you think that will shake free some of the political structure in china that could help the reform? >> that's a good question. if you follow our economic dialogue between u.s. and china. one of the important outcomes was an agreement to move ahead seriously to fry to negotiate a bilateral investment treaty between china and the u.s.

it would require from the chinese side liberalizing a lot of sec toward foreign investment. i mention financial service, for example. many other sectors i mentioned would have to be opened up to direct foreign investment. more than they are now. it could become important anchor for one aspect of china's reform. china, in tush, feels the investment is often not welcome in the united. they're looking and asking whether it can create a more secure environment more growing chinese investment in the united. there's very much for a winning agreement there. it's going to be difficult to negotiate the dpreet. -- details. that's going to be one of the signal about whether the leadership is really serious about reform if they can bring that about but i think a good by

lateral investment treaty would create benefits for both sides, you know, us business interests would be behind it. can you agree with that? when it comes to getting something through the u.s. congress, which is, you know, fearful of anything associated with the chinese, this will be very difficult. >> i agree with the significance and the importance of pushing ahead on a by lateral investment treaty. it would be absolutely phenomenal. i look at this, you know, all the hand wringing over this deal involving pigs, and, you know,

the senators claiming this is, you know, cuts right to the heart of food security in the united and they accuse them of floating 15,000 pigs down the river in shanghai when they have no pig farms anywhere near there. >> you sympathy the deal is not going to go through? >> no they sent some signal it looks like finger cross will go through. let's move from such interesting topic. since we're on the topic of washington. one thing the imf brought for a long type the crcial interest in washington which is the chinese currency regime. things stabilize absolutely.

while the discussion about the level of exchange rate has diminished, the china has appreciated in real terms since it opened up the system in 2005. in this year, in the face of a slow economy in a risky situation they have appreciate -- it's not the issue of the level. clearly the exchange is tightly managed. ..

>> to help manage his statements. and with the market's domestically? spec guys suspect you don't have enough distance to have a half thought diaz takes this is a priority of the

then to force the tide of its own policies? from its undigested do they think it is a priority now? >> it is very important. with the market-based transformation to have a flexible currency is an important part of the mechanism now they have managed that a good deal higher in the last eight years but management and market-based flexibility dylan the right direction -- go in the right direction and in my mind that is where they are headed with the number of pieces to fall into place before they get there. >> you talked about with

this pretty what you said with the social safety net with the labor market dec urbanization and? with the support system? if urbanization he said chile is the umbrella for other folks or what do hope the organization of project will do? why is it important? >> i think of the underlying reform. and to they feel they don't have the resources they have to provide with the unsustainable pattern with

fiscal reform that insurers local government against the resources it needs to provide social services and with entitlement reform so to me it is a set of reform that leads to more urbanization but a result of people's choices that the deliberate effort but that is the distinction. some voices i'd like to create centers of the country. and they take a lot of capital investment that is a channel for investment duvenecks to few years. i would prefer to free

things up and move to the existing coastal cities they are actually small so there's more room to move to the city there's more room for investment that is a less intense of past. >> the traffic time increased fourfold for me in the nine year period by its and if you look at it there is a lot of potential to build up more density. there is a room to move to

the coastal cities in china. >> the urban share was slightly less than 20% and 22 of 22.six. and by 2030. we in 50 years this is the most dramatic urbanization we have ever seen. it is a transitional self -- shift from a peasant society to woefully a more modern higher productivity economy. with the article for report report, and they stressed a critical transition between the extensive and intensive growth to focus increasingly on total factor productivity. the transitions we're

talking about the accumulation of story is not so the agenda shifts dramatically now more than half of the year urbanization behind china with this that they described very well in this report. >> in the short and brief question is if you can. >> withy global capital problem but to emphasize it should be cautious to show

the qe. and we never thought the from the other a mergee dead trees but is that the impact with the move after birds every have seen a lot of maturation in countries. d.c. that later this year? >> for the u.s. and global markets greasy it right now. the good news for china is not getting hit but it is the current-account deficit in the economy especially india, indonesia, brazil, tu rkey, south africa with big

deficits. those that baby had a hard to address their own structural problems with five years of free monday courtesy and with the yield curve for triage those flows are the been quickly. and china is now one they are in serious trouble and that is a big destabilizing event for current-account deficits developing economies and attentive to their reform agenda. >> i have been teaching the

past 10 years and i hear my father is a long complained about the cost of food and the difficulty to find a better place for him to live. although of china was accustomed to relative high growth without which sacrifice now the talk of reform seems to be accompanied by the increased crackdown of dissent and criticism. >> would get the pattern of growth than rely is it was holding back and of course, it provided a tremendous shift of growth in but if you look at the actual average wage growth

has been small compared to what has been spent on investment and other things. briefing part of the strategy is to improve the livelihood by shifting more of the fruits of growth. and that could come by raising wages and social benefits allow wage from the unenumerated and unproductive activities for those lucky enough to experience and, etc. and with it in the quality and in comes a normal levels much more than the current growth pattern.

>> i am from the u.s. treasury department. i just want to follow up and asked a question about your a wire diagram and with its share of investment but the cluster of countries are not have stellar performers as you are criticizing but there it is a feature -- the figure that per preference household declining i am sure that this is a typo. the share has declined but income is growing at eight or 10% in real terms.

i think there needs to be a voice of a sober revaluation of the report in your comments than major conclusions of its vulnerability for example, of the non-bank financial growth is 60 percent over four years so the share declined so if you could comment it seems there is trouble and is in his doing well and we are poor performers. >> that goes pretty back to steve with the initials of lovell's. >> we are to he evans is the

speed if you'd invest half of your income you grow 60% over four years when the you a half credit growth of 60 or 80% to provide supervision that is at best trying to give up to say raped but to look at one sector in some areas they cannot speak of one in china that is usually and diverse as. >> would get the speed of growth there in the current

growth in just be general passage is of a calorie. >> from the voice of america there has been investigations having businesses in china over the rivalry and did to fix some issues. and to say they're being prompted by the enemy probes so can you talk about those intentions of. >> it is part of the discussion. with the senate banking

committee and to explain the concern to ask steve affair was a realistic concern. we run around $3 trillion worth of trade deficits with china since they joined now they have 3.$4 trillion worth of foreign currency reserve. and most of its so that is why some have a concern because traditionally we don't want our government owning chunks of our economy is a lot of legitimate concern to be worried the party controlled would own it chunks of bowery economy? and the fact the chinese now have so much with foreign currency reserves that could be a pretty good chunk of

the economy over time. >> my view is those concerns are a foil for our inability to except our own responsibility for not unprecedented shortfall of national savings and the need to run to import surplus savings more broad and those to run the massive current account china was the largest by the higher math but that left 101 other countries. we have them will -- massive

move collateral problem because we don't say china is a bilateral deficit with the united states is large by also hugely distorted by the supply chain dynamics that puts china in the role to be the assembler of a lot of in power -- imports. >> turning your exchange into dollar-based assets the implication of your comments is that we would like china to buy power treasury's repellent to control the deficit but today there is more company. we cannot have it both ways. if we don't have atlantic chaney's accumulation in the

u.s. assets that we need to act more responsibly as a nation to save that one dash save mack and. >> my reaction to the question is if these that are part rather minor but he said the assets to china is also minor self we could get a treaty that would have to wait investment and i am convinced it would be a good deal and if we could not negotiate is the important deal with that is part of the bilateral treatment it would have to open more sectors to direct foreign investment in the united states house to the war --

more whelming but the but he looks at the national strategic offals a the other zero investment treaty. [laughter] >> in reviewing a relatively small number. >> if the national security implications including countries that have signed the bilateral post treatment crete -- you should know the chinese company asked one dash three were asked to

review. >> but they did not go out to ian and sees it the chinese company announced if we could review it i was busy. >> thank you for saying that there are many threatens we will take some questions here. >> i am from george mason university. considering climate changes and carbon emissions in the coalition is there hope for the zero growth model? >> but with the central government budget in china. and my question is an end if

we don't see they have sustainability. thinks you. >> i taught a couple of years or a decade ago by building on to a question, and the increasingly important water shortage because all across northern china and the shrinking of the himalayan glaciers and member is spreading so what do they see as a long-term impact of

lack of agricultural products across the north? and for china to be more independent than other countries. but to build off his and your questions, what is the standing committee thinking? legacy do have a strategy but we see the crackdown but aside from the free trade and in shanghai -- shanghai don't -- spin it but they

should depreciate those that came out to to push it back down somewhere they so afraid of depreciation? >> you'll have one minutes each. the zero growth model i don't think that is what you have in mind and national resources to see with their thinking end local government finances so so ak

model of a bit in the balancing the have all talked about a should be less intensive with air pollution, curbing emissions , we will see them peak and decline will it do it by 27 that path that we talked about includes water, urban living is less intensive part merely because it is mostly based on agriculture. you have raised challenging questions in the economist would say it is rational to import significant the more food if she could feel self-sufficient to import more than it does now that will help china to deal with the water situation in. migration matters but if you

really free and up from the other allows. >> the broad range of topics joe the on dash don't forget the north and water transfer but the point i'd like to an end of on that but to go to the wayans of riskier and catastrophe and threats in

the things a are a fraud cheerio wrong i am sorry but they're still out there with his website saying it will come any day now. what is said about us in the united states that continues to see china as a threat to? what is it that uses the perceived threat to with that least to -- listing of her own structural bilateral agenda. with china.

but to be used as the lightning rod to deflect attention from the congressional policy agenda that there is a a accomplished direction but it is an important question many to think about carefully. >> just three points quickly with the environment we have a section that tries to look at that. we need and local government clearly? a thread the we're coming in under control.

>> but to invest rethink the issue is more structural because you have the concept of the direct and investment inflow but to close i would say having this point made by state -- steve to chuck about challenges, not risks. where do we come down? are we bulls or bears?

to say we are cautiously optimistic that china will find the way through we are at the at the way to overcome tended to it -- china if dave would with this for the new area of growth. we're cautiously optimistic because there is a lot tumult -- and uncertainty of their. how it will evolves and places will you fall off. there is still a capacity about developments that secretly but in the end of the authorities they need to watch carefully they will be

china watchers and at some point find out as much as we can. so i would like to thank you again for having us here. but think you for coming. we can answer questions. [applause] [inaudible conversations]

>> host: when did you and james steele star working together? >> 1971. >> host: where did you meet? >> guest: it is interesting.

>> we actually arrived on the same day. >> we never knew each other and have almost no contact during the first years. >> the paper recently changed ownership and he was very interested in the investigative arm those newcomers may be and will but we both love to research and report and neither one of us particularly likes to right.

it is similar but. >> host: donald you you remember your first project for "the philadelphia inquirer"? >> yes? >> the fha and it was a fascinating project because it drug onto year. >> they thought they would focus together for three months and we have written articles sandy is generated a tremendous response. poor people were being that

they encourage us just keep digging to see how far it goes. >> but we just kept producing more and more. >> but the madness of how word he used? >> we had done a series and in mid 50's of his empire was tied to the federal government we call that the silent partner of howard hughes. it blew everybody's perception with the rugged individual the hated government so the publisher said how about doing a book on him? we said great idea and

signed a contract in one month later he died. the publisher said how about we make this a full-scale biography? years later the result was his empire. a boat clear very proud of my was impressed to 1979. >> host: what were the howard hughes connection? >> it is hard not to imagine your hard to figure how he wasn't connected. his contracts man across the board. from the cia defense, and they were huge. not a small. he did very well at the taxpayers' expense but but

to put money but they didn't do anything on their own. >> your most recent book out last year the betrayal of the american dream. this is a quote from that book and it talks about the issues in your dealing with today if congress had not an a hat -- inactive the bush tax cuts or congress had not open to new loopholes we would not have discussions about the danger of the federal deficit. tax did not just that in the back account the in ashley bank accounts. >> absolutely this is one thesis have bankrolling often known we did not puerility muffin and said

global economy and all of this is inevitable and the rest of the world was catching up and my income is stagnant -- stagnant. we show it is because of public policy in these things are not happening on their own to put the tax is. one of the statistics of the book that stunt but back in the '50s and do a percent of the income was taxes on the verge of economic meltdown meltdown, the richest americans the percentage was down as 16 percent that is a huge difference in to people

don't realize what has happened with the tax burden because of the tax cuts. not just the last cuts but those receiving as well. >> you cannot create massive deficits. you just can't. >> host: do you consider self? is that a fair word to use? in mecca i suppose the rest of the world's we tried to tell people with those stories that are out there we test a hypothesis. we don't start with a game plan to prove this whether it is a book for journalism we try to show here is an issue are the rich getting richer and aaron that deficits.

>> i have never done that. ever. take this subject on the basis we will do a number on this person it is not a good idea. plus it is unnecessary. usually what we do comes as a result of day question from the editor or "the reader." >> host: do you consider yourself advocates? >> i am sure people would but i don't think so. one of the more interesting things over the years, as a general rule we are perceived to be extreme

liberals but that is the. >> conservative but to look at what is right and what but the response of the book we did 20 years ago much of the liberal folds the new there are many that like the aspect of the book especially with the corporations. it is very hard to generalize and one of the things about advocacy read phillip we just brought things to light, it is part of another part on the

process. somebody picks up it is the way it goes. >> but they feel crushed. >> host: in your 1994 book who really pays attention? here is a quotation in the attempt to tax the country out of the deficit will prove utile then a more of a federal spending amounting to 10%. >> this sounds like it could be relevant to you today. [laughter] >> we have always believed that both taxiing and a certain amount of restraint

is not the problem but to date is not the emphasis on cutting and the force there has been a slight quiver that those seem to recognize you do need one and not the other. >> host: what about wall street in your view and washington? >> without any doubt in the movement between wall street and washington everybody that works on wall street put the terrorists they they come at a from a different perspective that is not what

is there approach to government? >> you begin at "the philadelphia inquirer." how long? where did you go? where you know, ? >> we left in 97? we were there between 70 and 97v posts were connor on and so we've teamed -- were out the net "time" magazine for 10 years and now "vanity fair." >> host: james, give us a quick history of the awards you to have one. >> guest: to that we won two pulitzers 75 and 99 in

national awards at "time" magazine it is unusual for people to win in both categories because net magazine are the equivalent of the others so most of the major journalism awards over time we won i believe round 50 began to that comes back. >> host: welcome to booktv. co-authors james steel and donald barr let. of the authors of eight books we will show you in just a minute.

we will get to your calls quickly but right now here are there books beginning 1979. empire. 1985, forever more. 1982. america what went wrong?

ninety-four, ameritech, who stole the dream? said great american tax dodge how it is killing fairness in destroying the income tax of what came out in 2000. how health care became good business handbag madison in the portrayal came out in 2012. >> to use of american and america throw your book. when did that became a trend? >> i guess america out what went wrong that was expanded because they think the idea was these books are about average americans for the most part in but they go through. it is not endemic in to anyone particular area and

they run is on it -- resonate with people and give a powerful meeting with the readers he gets to the heart of what we are about. but then it seems. >> now with every book but many of them. >> 1996, america who stole the dream? you received 36,000 letters in response to this feature? how did you research that 1996 book? >> of the 96 books a real

big one that we realized and refinished to is the extent we felt the we should have but -- who stole the dream has a much heavier emphasis. >> host: i want to read to

quotations from america, who stole the dream? in the global economy constructed by washington and wall street, all americans live next door. the second quotation quotation, because there is little real difference for parties on trade with the national trade policy, the revolving door. >> we talk about it very much and it is one of the things people find most enlightening especially recently because people say i am for free trade it is agreed a deal we made the point on a much more broader palette it is a great to or

you don't have true reciprocity but the government being taken the vantage of plus we have trade to deficits and none of the major trading partners take them what also has been encouraged is the movement in and out of congress to lobby that has but then in the real world you see how we practice is not the way that it should be. that is why we have the trade deficit -- deficit and all trading partners can maintain policies that are detrimental to us and our workers because they know we will never get tough on an issue because we're such

free trade believers in a lot of it is encouraged by the influence peddlers. >> host: in the betrayal of the american dream you talk about the bullying corporation and how do those involved free-trade? >> in with a series of agreements with china when date yet will come to regret because the company will be a chinese subsidiary were working for the benefit of china.

but that technology is the equivalent of the 737 because they need bowling is some point the chinese will say we will keep you around but we don't need you. and how this can happen in billy says more about the governments of what one dash involvement with trade policy but will can see what you think. >> the bargain is for an exchange of something it is transferring more of its production and the idea fed

and as just mentioned a mule which has put together over decades and some of it cephalon shirt term but the chinese are very of find that have created their own commercial aircraft industry started by the government, of the scenes. >> host: you rightfully 70 percent of the 77 dreamliner is foreign content including to the

employees of aerospace the union that represents boeing engineers. in contrast to 727 was originally built with 2 percent for it content. >> things have changed. [laughter] it also explains why employment in the future will be very dismal. because those job. critical condition to take bad medicine coming out in 2004 and you write whatever their purpose prescription drugs in the west cost between 30% and 60 percent more than the exact same medications sold anywhere else in the industrialized world because governments elsewhere to not consider drugs just to be another item like cars and clothing by products vital to the

health of their people. >> guest: the leading every change is 60% is lot. there is no doubt that there is one that has just come on the market $20,000 for a single treatment. people want to understand but then they just need to look at drug prices and the prescription. they have more on a per capita basis than anyone in the world. >> host: if we had a ceo from a drug company they would say what about the research we put into this what about our investment?

most drugs. >> the effect of an actor is but nobody tells people that in the fbi comes along to take off the market the industry will bring the people that say i will die for many. -- many. they just don't work. and i have always found it amusing in the medical industry the response is

vitamins. you excrete them and in no time and they don't work. with the same is true with prescription drugs. they don't work, a 50% of the case is. not across the board but feeling 25% they are worthless been echoes of depending on the disease in these are from the drug industry's own internal some of that is out with the drug industry and their own data. >> the reason the industry says they need the profits for research is basically the only argument they have to justify higher prices.

>> can see the reflection of the advertising. when they advertise these drugs, they are the most profitable drugs. so many studies have shown us.

americans are responsive to advertising. it is why some countries don't >> you can chart this as well from the time. >> in the year 2000, the great american tax dodge came out, destroying the income tax evasion, which is a crime. avoidance is perfectly leader. >> host: it has to do with the way that this country promote tax laws. >> we got this into great detail and with the significance, it was a part of the offshore with

all the jurisdictions. also within the pacific, obviously, we begin to show how that have become such a great and powerful factor. coupled with that was the growth of the internet and suddenly the internet was a way of democratizing tax avoidance and also tax evasion in some cases. all of these were neutral. we talked about this in the book. congress berated the rs for the way it was going around texas. unlike state taxes, i don't care who you are. it's one of those things that goes on. but the problem wasn't was with the irs. the problem was the way that they amended it, or did not amend it, but we have an opportunity.

this has gone on for years and that is what creates this market is up there with the whole explosion we have documented me, the amount of money sitting offshore untaxed -- some of it has been legal, and it just skyrocketed. there has been almost no effort bringing it back. that, too, would help our deficit. >> we have a multi-trillion dollar deficit on this. >> a lot of talk about reform of

the tax system at this point. the sales tax, the flat tax, supplication, deduction. >> you can go over the last 50 years and see the same thing. >> the american people are being played for suckers and after while there's only so much you can take. and the taxes -- is nothing going on the camby said very simply by treating people equally. and that is said about this work of art. the word fair we cannot use and try not to use because my perception of what is fair is going to be a little bit different than yours or someone else's. the treating people equally should be easily understandable

across the board in taxes because the special interests on the tax bills in congress and there is no provision of the tax law. >> one of the things you talked about was the issue of simplification of the tax reform. these words are part of the debate on taxes you can find this in a congressional record over the last 70 years about closing loopholes. legislation that was passed. >> you should see the codes in the congressional record how we need to simple by the tax code. all of these things are historic all the time.

anytime the word tax reform is mentioned, you really have to be careful, because very often becomes a door for them to get what they want were certain broad-based things to happen like reproductions when they held a handful of people in this country. every time that we try to reduce this and broaden the base, we will always hear this out. that is almost invariably how it works out for the benefit of the very wealthy and to the benefit of the average person gets not probably my favorite newspaper, which i think we have now converted into a book, was identifying the provisions from the 86 tax reform act that benefited a special person or a

company or a corporation. what we did was plug the actual language that a person is born on a certain day when a person is living in a certain facility within these identifying characteristics and will be excluded from these new tax laws. >> you know, again, i get speechless because this is so corrupt that it just boggles the mind. >> this is an old tradition. >> we had one book that was a big one and these things are not new. that is the point is very

important to recognize that you cannot believe what is written when it comes to issues like tax laws. it is one of the provisions that repeal is this really heinous tax law in the virgin islands and we got rid of all of this and then right after it is a section above and it is specific. >> host: you remember when that occurred? >> guest: yes, this was a company making use of this. someone else put this in, exempting him from what everyone else had to go through. we decided to call them egyptologists. we had u.s. attorneys call it

that. so i never knew this guy was. so they give her telling me who he was. they would say. so anyway, this is an old pattern every time a tax reform comes up. let's simplify the tax code. let's use it as an explanation for simplifying. simplification has nothing to do with rates at all and has to do with the rest of the code. you are still going to look up this and they're so much foolishness about the tax code. >> they are year in and year out when it comes to that.

>> host: from the great american tax fraud, i would like to read about the end of the story and we are talking about the section about to read. the ones triple curtain that had protected the family from prying eyes for generations was unexpectedly pierced on the night of september 3, 1997 and jocelyn returned to the couple's opulent manhattan home after a visit to the families of 66,000-acre ranch in kenya. walking into the six-story townhouse on east 64th street next door to the gallery come a few minutes after midnight. she found her husband in bed with a 19-year-old long legged blonde. grab a 9-millimeter handgun and

pointed at his wife and two bodyguards and said i wasn't expecting anyone, he screamed. with a touch of understanding. the bodyguards summoned the police who arrested him and charge him with three counts of second-degree menacing. what does that say about this? [laughter] >> both in new york and europe. and the way that that fit in his basic memory of that, they hear they had a tax case with various regulations that had come to

life. one of the reasons that this came to light is what opened the door to this otherwise glimpse of their finances. >> this is a pattern that we have found over the years and it really describes some of the issues that would otherwise he would never see. i mean, we have contrasted him with a woman that worked for 35 years. we talked about the pension and people would say when the world did you get this and they had to show us how much money she needed to support the homestead. and those are the kinds of things that really resonate with

people. because it may see who these people are and how they live their lives and how this works. >> guest: it is generally not known how it would work if taxes were public. if you go back to the 1930s, if you go back your total income in the tax paid, it was a public record. there is no question about it. it breeds corruption, no matter what it is.

which people are saying, that's not fair. but why not? so why not make the playing field level, just open up. just those two items they were public. and much to the wealthy people of the time, they would do their best to keep that information secret. >> what was interesting as you is you go back and look at this

data. and they are the really wealthy people and what they pay in taxes, there is an education if we look at that. and we have the same two pieces of information. >> host: a final question before we go to the call. you have to be a so-called egyptologist? >> picking the most demanding. but what we found is it's not so much that you have to have any special training. you just have to read it and try to follow it through and see who it applies to. some of these were actually quite obscure in terms of special interest positions, saying that a company required us to go to the state and go to

whatever it was for this. and the one thing that we ran across had to do with one company issuing 900 million bonds or is something like that. so we will research this and save anybody could issue this and sure enough they came up with the name of the company and other bits of detail matched that as well. and that's how that is how we are able to decipher it. it is more difficult. and we found that this is why we do interviews and we talk to people and we always start with records because it tells you what is going on. it tells you something that may be complicated. it also tells you whether or not they know what they are talking

about. sometimes people are not like you, but they don't know what they're talking about. if you have a little background on education, that gives you a leg up on the people that are rely -- relying on you. ..

>> this is a very important to issue the you're raising. lee wrote in this book about apple in particular bailey not of this country completely eliminated in almost all manufacturing bases, all the jobs that were created here and it

sent to tide of. what is interesting is apple will tell you the global corporations that do that continue to maintain the patents in this country and if they will pursue as apple did accusing it of violating patents cover they expect use the u.s. legal system even though they don't have employment year that doesn't amount to anything. so there were things you were thinking about so why would but to underwrite a

legal system of corporate america if not for any serious employment in this country. >> host: we will start off with facebook comments. tina put saw and money and politics is the biggest threat to equitable representation in our government. what does your research we feel? >> guest: she is absolutely right i see there is widespread agreement that even those parties would or someone anyway. we did that explore in great detail what some of the solutions would be. but she is absolutely right.

the amount increases is in the election cycle is now a continuous other countries have found ways to restrict that to a shorter time frame. then it saved money in that sense. >> host: dozen that restrict the time? are there ways around that? >> no doubt about it perhaps the was deaf people are checking -- looking guess you cannot change the free trader the tax code. even with debt financing and tell we figured a way to get

behind the influence of money and politics. >> it may not even be possible now the supreme court has deemed money and exercise of free speech that really raises the bar. it just means anything goes from here on out. >> host: we have a tweet how our people to understand said true amount of what government spends? where is there accessible and understandable data? >> here is really a lot the problem is to analyze it. one that we both found it disturbing one whole story that social security is in immediate trouble and that is totally bogus.

will it have to be changed and the retirement age erased? pus -- possibly the the fund is not in danger that is a different animal but they are a vote together. >> just looked at the u.s. budget in brief you can see a lot of the issues. that is interesting utah have to go to the library as much as i love them you can do this at your computer for free. wherever you happen to be set. >> i would not settle on a single site from multiple sources. >>.

but i suppose if you are a conspiracy theorist some believe could be living night. >> behalf to learn how to read that. >> does take time. there is no short cuts. it is not exciting working and people say had he ever been threatened? baby get. >> free of government present city at the library table looking at this data but it takes time to go through that but it is open to the average citizen it was more difficult a few years ago. >> putting your finger on a critical problem that goes unmentioned and that is the

news media and especially now it is under such pressure and will never be the same again it is hard to to imagine how this will play out by calling back in time to what existed over the last 200 years you can lay the blame by the failure to ask the right questions. of for those that didn't have the in depth reporting? spee and if there are a lot of system machines and that means you are surrounded by arizona state. >> guest: i thought one of

us were supposed to be dead first? [laughter] every year it is amazing fact that as of the engine regional level and sometimes in is to the deaf? >> one of the great breakdowns rental nana. -- right now. there is still quite a bit of that going on. if you go back decades there is actually less of it

professor and as long. >> because whenever betty is worried about. >> especially true be cast most people get the year inflation for breakfast that is said shula it does not do it data all. it is relevant but. >> host: arkansas, a thank you for holding. >> where do i begin the? you are so refreshing. the first time in years that i have agreed with many of the gas. i am so surprised.

of but with the world trade and the deficit we are here started feeling helpless because if c-span remembers coming in the early '90s they begat not one call for nafta. now one of us wanted it and this is republican and democrat and still shoved down our throats of least -- so we feel helpless because nothing changes because one example i was reading of better than i wrote to my

husband and overseas i said they're talking about closing the post office on saturdays. it is still the same. [laughter] i go back to my tapes that i have taped in the '90s and everything is still the same with the same problems. >> host: we will get a an answer by the way she is the unofficial archivist. >> a good person to have. >> official she just records a lot and nearly all. >> you are right on. what we do with the latest book to read never really have the four is go back over a long period of time showing not just a nafta but trade agreements before that that everybody said they would do for employment to make a fair for workers at

home. it is still one of the most dramatic to examples of people have been promoted to the soviet great thing to send exports to mexico in the actually had a trade surplus and people made all kinds of claims how they would be created. the trade surplus almost evaporated overnight every independent but we don't said we should do these things but what we say is we need to enforce reciprocity with ever partners mother mexico or japan or china or

the vetting of jobs will continue to adjust manufacturing but the whole service sector as well. that is part of the new book to get people to wake up and realize we need to have a different policy and a different approach of we will continue to lose these jobs. >> global free trade is the invitation to cut cost of labor a home or shift them abroad. the shipments into for offshore began imperceptibly as a way for companies to trim costs and the so inconsequential in the beginning it posed no threat to u.s. workers but america has invented outsourcing that you realized how rapidly it, along with other

trade policies but industry after industry were sacrificed with unrestricted free trade. in reading through your books, it seems that you don't go for the interviews with the member of congress. is that a fair assessment? >> we do some of those but we take the official statements that people make the congressional record is still banned in the case of corporations with the annual reports or speeches, . >> we do interviews but the hardest to piece them together from multiple sources.

what has happened is also by the interview for whenever it shows that data will be. >> as a way to make sure that people don't come back tuesday and was not quoted accurately because we deal with things and have been in print when one is challenged to. >> it is amazing him rich position in you find it, the record and a better trade and the civil that they love

before mexicans driving cadillacs out of this country as fast as general motors to make them because of the new prosperity. >> host: at the next caller is from hawaii. >> figgie for your buck america, what went wrong when i purchased that book and got on line from position papers to realize how rolled -- unrolled and how much they're not interested in forming that managing the population. i think if a person does not take it upon themselves they will the every had

$1 trillion of debt to blend george bush second we have almost $14 trillion and i believe it is a rare in the range 80 percent was generated by republicans administration and military defense increase sandy at it is strange how the republicans think they are the fiscally sound party of conservative values when in fact, but what i found but they never make it clear to the republic it is the republicans to diddle the damage to the country. i am not saying clinton did not because he did with that cap nafta entreaties and they had to have known what this would generate.

i believe they are creating this on purpose and i believe the media is serving as gatekeepers to manage the society into this arena in which. >> is like you are mentioning our book. [laughter] but in terms of the deficit we have been very frustrated by that covers. to talk about the deficit deficit, those who want to restrain or cut with the entire emphasis is on entitlements and in time and spending is out of control but what is overlooked his social security and medicare of course, taxes are collected to support those.

it is not just that it comes out of the general fund budget with a surplus of social security continues to mask how bad some parts of the deficit are. you're absolutely right from the late '70s on their growth has been phenomenal clinton years, some point to of that went on. if they have a significant role with free trade and regulation. in over mine to the democrats have been more savvy what needs to be done with taxes and spending reductions but on other issues both parties unfortunately this the -- the finger print is all over these things. >> back with this news media

thing now that you have the cable channels for someone who wants to think what is happening it is a great source. if you look at cnbc the business news channel, all that is fine but on the one hand they promote investments with a drug companies they gave you the best return.

you cannot say the pharmaceutical industry is a great source of investment put your money in their then save the government isn't doing anything to trim the deficits when they are encouraging and you cannot have it both ways. >> host: diana does that on her own but we do have the official archive as well run out of purdue everything c-span has covered since the 1980's is available on-line at c-span.org it is friendly so there is the official archive as well. you are on with donald barlett and james steele.

>> i am wondering if they would agree of the democratic party the conscious decision in order for them to be relevant national party they had to go in against the foreign policy establishment as well as will street said they would become in devil they to hear there take on the chefs but the issue of motivation right things -- why things happen that makes it very clear and obvious. we just heard what happens

and no doubt the democratic party is a far cry i could not believe that with the debates people stood up in the audience 57 year-old man standing item want government to deny health care. they're already there through medicare. the reason we have medicare is the democratic party in the '60s through lyndon johnson we have social security. says there is a rich tradition to do these kinds of things as a democrat. no doubt that it is based as a once was but whether the country as a whole has shifted that much or read

the the unfair, and treat on dash country has been. >> host: all of the subjects are basically revelation of corruption of the stereotypical ideas. what do you believe is more the norm? corruption or idealism? will want to always be pessimistic of america? >> yes. [laughter] i don't know how i could be anything other than with being at health care it is portrayed routinely by people in congress as a world-class health system you have to be deaf blind in dawn to believe it but it is done all the time. pessimistic? you better believe that and tell people wake up and realize their pockets are

being picked by congress and wall street. >> it is astonishing this debate to get the top rate up to where it is only applying to those 400,000 and above? apparently they have no realization as to what rates used to be like in this country. in the '70s and '80s. of the top three to read to of raise interesting and feat as high but it has raised from 50 debt that 20. we're so far below what we would call a progressive tax system but even to get this little change is almost like

moving mountains it is a reflection. it is a day it may be unethical or bad behavior where people signed on to certain issues but those that present the broader interests of the population we will be in this trouble and that is what we are worried about. america is the land of idealism look what they made the country people have done things santry makes the point you come here and gingrich but the maid american dream is to take care of their families with a secure retirement with a decent paying job and helped the kids do well or better than they did. that is what the dream is

about and that is what is the sacrifice in our book the numbers of people. >> did does not have to be that way that until we shift the policies this will continue. >> host: what do you say to those taxpayers that think the money is being wasted? it is my money. give it back? >> that is a legitimate complaint. on the other hand, tax fraud is through roof that includes people saying exactly that. this is why i wait -- wipe my hands this is how bad it is. how unfairly the irs has been targeted it doesn't

congress tells it to do and people have become masters to switch the blame to the irs. back in the '60s and '70s irs it had a fairly decent handle on fraud in this country with a system that really worked it worked hough to do well thank congress said we have to get rid of this is a very sophisticated program to identify the areas in the code that were subject but

nobody gets elected to congress by cracking down their taxes. this is why it is almost insolvable because whenever they want a tax system that is honest? everybody don't. >> host: you right throughout american history in the economy it was hardships for the many by congress in the warehouse responded often reluctant mate usually after deal they've been in the event they responded three days

but to whom have a the hold process and many, many false starts in the whole basis was to create a tax that somehow taxed greater portions of the country that at the time and not going taxed but averages taxes to support the government for time to kick off? but they had the basic of medicine with food and water with scores of revelations and children dying.

that was publicized for a long time before it got through. similar thing sandy acc -- the exchange commission to bring the oversight at the time. visa happened over time the increasingly you will see this under carter tuesday regulate the industry spec companies will do what they will do it of the best for the economy there is a reason for some as we found out with the whole mortgage meltdown. this happened and was a whole switch but when we

bought our first house but if they really wanted to make sure they could do this, it is flipped with the last generation the reason is we have figured out a way to package those to pretend they are equities or bonds a great way to make fees whether or not the person that could support that are not it also opened the door to a secondary mortgages from people that were fooled or tricked. that is a huge tidal shift because of the environment that says anything goes. there is a reason for regulation has to do with the public good. of the east with regulation the same idea goes beyond that in the financial business world.

>> host: atlanta georgia your on the air. >> caller: this is a treaty and a real pleasure. i have good news. right now on hugh tueber -- there is the film narrated by a former president of georgia tech. the president the name is all american citizen. it is the effort that assembly has been involved since the 1970's. there is a problem taking a cpac of looking for love and all the wrong places. [laughter]

>> we don't have the problem with the government were elected officials but it turns out to be free throws to have sent the problem is is lunacy on the american people. but to find out what it is is, we are using the wrong form of government. >> host: any comment for that caller, james steele? >> guest: i assume the parliamentary party of government although i may speak at adjourned but frankly we don't know the answer but clearly to the

scene that could be said for those that really do want to do the right thing and seen the right thing done the focus has further convinced us those that are out there who are concerned and would like to make sure the right kinds of people are represented that the problem is the way agreed to select our representatives to create this local one for a while and it will continue but. >> my response to a big problem is it is illustrious of briard.

-- where we are. if you want to send us of the government we should have we would be happy to continue the discussion. the e-mail's are at the website we look forward to hearing from anybody. >> host: day you work in the same office? from home? >> at this point we work from our homes but we did work in the office but now we each have our office also of the electronic stuff it is not so important to sit across from each other but now we know what works may be the first month but the electronic era made this possible we have set names

to each other and we talk a lot and we work on this story and we have always edited each other significantly before be sent anything to an editor just to make sure he will look at it to say you forgot this or we could put this in their. it is strongly based on that effect of each contribute to each other's stuff. >> does one of you right to a first draft? >> no. that usually is determined by who has done the most research. that is all. >> host: are you personal friends? >> guest: no. i n a curmudgeon. i don't like anybody. [laughter] >> key is very soft targets.

[laughter] >> host: el paso texas you are on booktv at c-span2. >> is an honor to talk to you all for cahan -- the belief everything you write is the truth? what you write is that is it with no other truce?

you don't know how patriotic people or in the border towns. now we do need to free trade agreement and mexico is our neighbor. i don't want my neighbor to be pour in and buy it and i don't want fabricant and free but the balance of trade we were taking a many odd of mexico but now we do is to commerce. do you get my point? >> host: we will get an answer about what kind of work do you?

>> i m.a. trained economist and i am a mining consultant i have worked in both i am mexican-american. >> host: is it fair to say you are a supporter of nafta in general? >> i am a supporter, and know i am not a supporter of nafta in general but of free trade. >> host: okay. do you find in your view highs it and have evinced the benefit costs mexico and union states to begin with. dollars but thanks to the

treatment legally but they could not allow too much more to modernize. politically the united states was supporting in those people were stealing the money but now things are better and as you can see the the economy is growing at 5%. >> host: thank you so much for calling in we appreciate your point of view. >> two things. you raise the question of what we have written is true? we do believe that however

but what we have written is our view the way rethink these things have worked out but the issue you're talking about, we don't dispute for one minutes although other parts have been detrimental felicitous since there in terms of becker coulter there -- we a understand that and that is understandable but how it has day incurred for mexico the problem we have had in our book that none of the free trade and dash.

>> but with the case of nafta look beyond the case of the border in mexico. you have to and no other

country really has that. . .