mentioned that we get to the point we are going to have a mismatch between what we are producing domestically, and our ability to meet the capacity within our refineries. so just understanding and appreciating that it's getting to the point now where we have reconfigured as many refiners as we can. maybe there's a little room. we are looking to some pretty

significant decisions. when you are moving crude from texas to the panel to come up to the west coast refineries and still hoping to make a profit, we are looking for some solutions but this issue of timeliness is one that i have been trying to track. on the latest report they say the growing volumes of oil that cannot leave north america are increasingly posing a challenge to the industry putting a spotlight of course where we are today which is the oil export ban so this comes -- i'm not asking mr. hamm but when as a date certain that these initiatives collide if you well with production, and when do we hit that misalignment or that mismatch that would then cause some disruption and something that i think that we shall try

to avoid. i will start with you mr. hamm. >> i think the mismatch is beginning to happen already. so many refineries are outbid for heavier crude here domestically. what they do is with the tarsand oil. so with those retrofits the crude doesn't fit well with some of them. so you need to move that then to the ones that can handle the low sulfur premium crude oil that we are producing in north dakota and other places now. so, the mismatch is beginning to occur and a lot of people expect it to occur almost as much as the oversupply of natural gas,

but the supply and demand was equal. the price had been elevated the little bit with the shortage in the future but with oil we have come from a 60 per cent deficit in the u.s. and the yen and imports -- imports were 60%. we went about 30% in nine years and that is a really good move. it was slow at first. mr. heinrich says it is coming soon. when are you going to see the mismatch? >> when you look at the model of the trading of products and cruid oil, people anticipate that by 2016, with the flow will be so high that mixing them in to the crude stream exports to canada, using a petrochemicals and refineries will max out the physical facilities unless there is a giant upsurge in investment

which is not on the horizon right now. in 2016, we would face a situation where the companies like the continental resources might actually have to stop drilling because it would be eight containment problem. we wouldn't be able to find a place to store all of this if we can't produce and export it. >> and we haven't seen a new refinery in 25 years? >> we have seen two companies that i know of a marathon and valero has put an expanded tower in such a way to use more compensate and marathon has made an investment in ohio. but, you know, these kind of investments take time. and so, if we don't have a giant investment announced in the next year or so, then i think it will be very difficult to absorb the

flow. >> i well over my time. i know that mr. weiss -- >> if you could quickly offered your view. >> i just want to -- the energy administration has documented that the refining capacity in the last dozen years since the line year 2000 has 2.5 million barrels per day even though we have a refinery, and the utilization rate is about 87%. so, there are numerous refineries expanded over the coming years in north dakota and texas. >> senator manchin is next. >> thank you mr. chairman. this will be yes or no pity if you could explain why you would be no on this question do you believe the xl keystone pipeline would be a strategic advantage to the united states of america? >> i have been at the camp and remain at the camp.

the thing that has hurt everybody up there, this deily that is going on with it. >> so you are in favor of the jury? ms. jaffe? >> the only way to keep the canadian oil sands -- >> but you are in favor of the pipeline? >> we need to address the pipeline. >> not because of the huge increase that would occur, and because most of the oil would be in other products exported overseas so we get to keep the pollution and others will keep the controlling products. >> my next question would be for those of us, especially all of our states but in west virginia we don't understand we keep talking about energy independence and we still pay high prices at the pump. can you explain the position and are they always going to

maintain that cartel and be able to control the pricing can never change to where we can benefit? >> the market share, the more monopoly power they have to control the price. so as the united states becomes a bigger producer, and let me say that the eia projections are based on current knowledge we have a total paradigm shift in the way that we look for and produce oil not only in the united states but eventually around the world and so these temporary projections in my opinion will -- >> would be indirect. my point is as the united states and north america, mexico and other countries produce more oil from the unconventional

resources, opec will have a smaller share of the market and therefore the producer power will be reduced over time. to the extent they export lng at the free market pricing in the countries that are in europe and countries in asia are able to find a spot markets incentive oil and gas at market competitive prices with the antitrust laws in the companies that sell and advise that opec power will be reduced dramatically over time. >> three years ago the oil ministers said they wanted to have $100 a barrel. that's about what it's been with some exceptions. they are a cartel that controls about 40% of the oil produced and it's easy for them to say let's turn this spigot one way or another to get the price they

want. that's how they work and it's hard to see the united sees increasing production at a million barrels a year to be able to really challenge that power. the other thing would be the way the pricing on the crude or oil based on natural gas, why is there such a difference? we are not on the market with gas and we have a lot of flexibility. >> there is not a worldwide market in the natural gas in the way there is an oil. it is at $5 a year it is $15 or so in japan. it's because transportation is harder and because the supply is much -- >> for either mr. hamm or barnett de you see as bringing the price down for people in virginia and all over the country or the ever going to see any relief at all? >> we see the decrease of about 20% with both diesel and gasoline past 18 months and i think everybody's realized that.

schenectady haven't seen a 20% decrease in the price at the pump. we are still 350, 360 in that neighborhood. and in some places you will see that an oklahoma city we are about $2.85 or $2.90 and it's about 60 cents a gallon. it was running close to 5,000 -- >> what someone help me explain? very quickly or my time is up. >> 72% of the price of gasoline is due to the crude oil price. when you lower the price, the gasoline will come down. >> we have been told there are going to be four votes on the senate floor that by my calculation the senators can have their five minutes that would be good. >> thank you mr. chairman. i want to commend del tougher

buying econ finery in pennsylvania. that is good if you are using the accrued from north dakota. also, andy is an outstanding individual and as a good job and i want to commend you as well. my questions are for mr. hamm. the number one priority for americans when you talk energy is they want what they call energy independence. i know you would refer to this as energy security because the global market but essentially producing more oil than we consume and i can't think of anybody that's done more to help us achieve that. we aren't there yet but i can't think of anyone that's done more to help us move in that direction than yourself. and so, my first question for you is what can the federal government do to help us produce more energy in this country but specifically more crude to help us continue to increase the

production. i looked at this graph and it doesn't show was producing more so how can we get there and what can we do? >> we need to change the rules that are archaic and that limit what we can put on the books in five years it's been to take the next 15 to 20 years to develop its. the totals are distorted. we have to teach them how to count. at one time there was only the crude oil numbers. one stated that they finally realized about 12 cleaves 6 million production in this country. so that's the first thing. we have to get the numbers right, and those numbers are totally pessimistic. the next thing, do no harm.

if we don't have a lot of tax changes and things like that, if we can get this lifted where people can go ahead with their business, we can get with there. but we produced in the past in this country for the past 160 years is basically what leaped off of these and now we can produce the source rocks effectively. we are on our way to get their both with gas and with the oil and all we need to do is basically do no harm. the second question goes to transportation. we have the rail moving crude. tell me what we can do and what we should be doing so that we can make a transportation improved by rail savor.

>> rail has come a long way. the regulations put it out of business. it's come back and it's doing a good job and we have a lot of rail companies that are doing tremendous. i think there's three things. first of all, the safety is ultimate. the prevention of accidents, preparation, everybody is working on that. so, rerouting trains effectively. they are doing that on the inspections they go on how to two a month at least. and they are trying as quickly as they can. so this is a new thing that is going to have some standardization that needs to be done. they are working on it and the safety is of the utmost importance to them and they are

certainly doing their job. >> as we develop the energy we need more infrastructure and we will pipeline rail. would you agree? >> certainly and pipelines cost more. it will put it in the places you'll need it like the refineries and will take the place of it. >> one more question how we expand and develop more refineries for north dakota, i think the first one in 25 years or something, greenfield. but how we get more refinery expansion and development in this country? >> the gentleman is right. there have been some capacity added in the existing refineries over the year because it couldn't start from scratch. there's so much federal regulation you couldn't just start one. so basically expansion of the new power has been done by the

refining industry. i think that overall, looking at the regulation from building new ones they are more efficient and better and certainly needs to be looked at and so forth. >> i know i'm tight on time. >> there is sufficient capacity in the united states today and being able to absorb all of the types. the issue is an infrastructure and getting it to the refineries we have started taking some backing and we would like to take more that the infrastructure isn't there yet. so they are all in progress. it is just like the oil is there and is being produced, and it will come. >> we have 15 minutes.

senator? >> i want to go back to something that you touched on and then what like to get everyone's thoughts on it. one of my concerns is the potential lost opportunity in terms of our we exporting crude or those refined controlling product squawks it seems we produce more jobs by the refined petroleum products than by exporting the crude. can you expand on that and then if any of you disagree with that position and how i explain to me how we create more jobs by exporting the cruid oil than the refinery products because when i was a kid my mom had a textile industry and now we just export cotton. we don't make it in the products in the jobs have gone away. give me your thoughts on that. >> i have an opinion on that when you are doing the complex trading and it is kind of hard to say.

but what i would say generally speaking is that the experience in the industry is that companies like continental resources, when they have a better cash flow, they invest more into drilling and therefore we have even more in this country. that creates a lot of jobs. when a refinery raises its throughput to 90% versus 80%, that probably doesn't create very many jobs at all. refining is not a very job intensive industry and it is part of the reason why saudi arabia has trouble creating jobs because refining and petrochemicals is not a labour intensive industry the way the textile is and so i would say on balance of the goal is 100% jobs, you would create more jobs having more cash flow to the up street side and the downstream

side. >> the university of massachusetts did a study several years ago that found that investments in the oil production and create one third of the number of jobs compared to investments in wind, solar and other forms of clean energy. so if they are what you're interested in the and the investments and renewables has a bigger payoff than the investment in the petroleum controlling this capital-intensive and not as leader in intensive -- labor-intensive. >> there's been more jobs created in this sector than anywhere else over the last ten years. so, refineries, i used to work on one. it's not very intensive with 80 or 95% capacity is about the same. but in our business, we create a lot of jobs.

>> one thing i want to emphasize is that the export product in the competitive market is not into the free market is controlled by opec and it's better for the united states to keep the value in the country. they are all building refineries because they want the value to stay in the country, too. >> in the interest of getting to the senator i will yield back the last of my time. >> gracious. san measure -- senator scott. it's been it's one of the biggest threats to national security and you tested a lifting the export ban on the crude oil could help improve the trade deficit. can you expand a little bit on how exactly this will improve our trade balance particularly with regard to china klaxon >> we are going to be yoakley in a unique position where our

imports of cruid oil, which is a huge part of the trade deficit is going to go down over time and we are already seen that and we are going to have a situation where china is coming in the opposite direction and they are going to have a higher and higher rising amount of the trade that is a and b for importing cruid oil. so as we move forward, they will be increasing their vulnerability to the national oil market and we will be held to strengthen our economy through the improvements in our trade and one of the things china does with all of the geopolitics is they have us any great cycle and the support i ran to -- iran and we have to

send our military out there and our young men to try to help with those and they make them more in debt and to china because they are buying of treasury bills and so forth. so, when we can get out of that pattern, where we are not having this burden of rising prices on the trade ballett, and china is the one that feels the pain of all of the instability and we will find it easy to bring china to the table to negotiate with us about stability internationally. >> i want to get one more question in and give the balance of my time. you have been one of the best in the business so to speak and you said that by 2025 we could see them coming out of the oil and gas industry. when you think about of lifting the crude oil and north texas we

have seen a tremendous surge with north dakota as well. what does have a major impact on the jobs that could create and if we do not lift the ban blacks >> as she talked about the transitional place such as in texas has produced a lot of comments and personally don't have a were to go with them. and it can certainly put a cap on the stagnate what we are doing in the future. so, it is not a good thing. we are going to keep this growing come and get to where we are energy independent and cause opec to have a severe setback and we need to follow through on this. >> thank you, senator. as long as we have the difference between the consumption and supply, we are going to have a trade deficit on

oil, with the export or not, because if we export more oil, the less -- samore oil we have in part to make up for the gap. we reduce the oil trade deficit the number one thing we can do is dramatically reduce the consumption. we have the new fuel economy standards the will get 54.5 gallen bayh 2025 for the average car. we could go beyond that after 2025, and that is how we would reduce the trade deficit by dramatically reducing the consumption. >> two things. i saw you shaking your head, dr. jaffe. i would say very quickly we could solve the problem of our deficit by allowing us to get on the federal land where we have hundreds of years of resources. dr. jaffe? >> i want to point out every refinery has a different configuration what kind of crude it can and cannot refine.

whether we export order don't export we are not going to physically change that except over a tenure period overtime and because of the distance, the refiners will invest regardless whether we are expert or not. if we have an imbalance of quality we are either going to leave it in the ground or export. if we have a balance of what kind of quality can be refined in the country and what kind of quality it can't. and there may be a time when we could produce as much in this country as could be physically by the perils that we need, but we are still going to have the heavy crude because there will be some refineries that exist in the gulf coast that certain configurations and there's just only so much they can put through the system. we are going to have to import crude. >> i yield back my time which is - 16 seconds. [laughter] >> senator scott.

>> as i mentioned we are experiencing a propane crisis right now. a very short supply is increasing. so i am very interested in the subject matter of the hearing how it will affect propane. i have two questions for you. i mentioned that one of the major components of our protein shortage in the midwest has been the result of significant infrastructure changes, pipelines that have served the region for decades are being purpose to serve in the oilfield. we & that one pipeline in april will be purpose but has traditionally supplied propane to the area. has the oil production increase i think that these infrastructure pressures will only increase and if more american infrastructure is

dedicated to oil heading overseas is it adequate training infrastructure in the united states that other fuels like propane continue to flow to americans? >> whether the crude oil is refined domestically or exported, the logistics problems remain the same. historically, in the united states, cruid oil arrived in the gulf coast and was from south to north. the movement has reversed and as we are moving from north to south and reaper was in the pipelines to get more and more to where it needs to go to the refineries. so, i don't know if that answers your question, but it is going to continue. i think it is also a very good argument. >> do we know what impact the export of cruid oil will have on the prices and the availability of propane and other critical

fuels that are used in everyday life to heat homes and power tractors and do all sorts of other things? >> i'm afraid i don't know the answer to that question. >> the exporter won't take propane in your state. basically that's from liquids out of natural gas production. and so when we export crude oil or not it's not going to matter. these infrastructure problems hopefully we get where we can build the pipelines in this country, quickly and, you know, so people don't have to realize that this is going to go forward as a part of the renaissance and it will put money back into the infrastructure as necessary. >> i have been trying to school myself on the production of

propane, and because of the crisis that wisconsin is facing, the crude oil has been a proponent of the production. it is also producing from the gas. >> primarily from the natural gas. >> can i just elaborate? so i talked about the export. when you produce both natural gas and also cruid oil, natural gas liquids can be a byproduct, and propane is one of the things that gets stripped out of the natural gas liquid. so the export of cruid oil to the extent that it stimulates more production in the united states or the export of natural gas to the extent that it stimulates more production in the united states, it will produce more and more propane all through time. and so, people are expecting actually a giant surplus of propane overtime.

.. i could want to follow up on that. if not at this hearing, afterwards. >> thank you, senator baldwin. i will be very brief. there has not been an independent analysis to try and

predict the impact of lifting the crude oil ban on the price of gasoline and other refined products. one thing this committee could do is to ask the energy information administration to conduct such a analysis. unfortunately due to sequestration, and other budget cuts, eia has to scale back the amount of work it does. i think that is for another hearing. >> i have run out of time but i did want to follow up with you, miss jaffee about that. i certainly heard that in your testimony at the end and something we need to look at not only in wisconsin but other states impacted by the propane shortage. >> you all may be experiencing another first here in the senate because you're about to get what amounts to a joint question from myself and senator murkowski. we were both kind of wrestling with the definition of energy independence.

i frame it to how you define energy security and i give it to senator murkowski. when i contemplate energy security, i ask myself, does this mean no more imports? or does it mean the capacity for no more imports? or does it mean more exports than imports? and i think, this whole question of what constitutes energy security, you may want to characterize it as energy independence, i want to let my colleague weigh in on this because you are seeing our bipartisan efforts perhaps in one of our, we always try to find new ways to demonstrate it. we never asked a joint question to my knowledge but there is always a first time here and, let me let senator murkowski be

part of this. this will be the last question for the morning. then we have the vote. senator murkowski. >> it is such an easy question here. i was joking we're acting like an old married couple we're thinking same way. pretty soon we'll be finishing one another's thoughts. i hope you let me finish the thoughts on oil exports. >> you're on. >> but i too have been thinking about how we define energy independence and we have got a couple end of the spectrum here. we can be either very insular as a nation and try to do it all ourselves and basically thumb our nose at the rest of the world, kind of difficult in most areas, or, we can, we can do as senator wyden has suggested in one of his alternatives where we allow for greater flow of exports and opportunities across our borders and insulate

ourselves from the shocks of, of world prices. when i think about energy independence, energy security, it, it goes to things like economic security. how do we insure that, that as we deal our energy needs, we have also helped our economy become stronger. we have also worked to create greater jobs and opportunities but, i don't, i don't view energy security to be a situation where we kind of close in on ourselves, but rather that we are, we open up to a greater extent. but by doing so, we become less vulnerable to, to the impacts of other, of actions of others. so i do appreciate my colleague let hing me join in on this i

said, no, you can't ask that question, i'm going to ask it. i think it is important ands the ranking and chair on this committee to wrap up this very important hearing to take us back up to 30,000 feet. what are we really talking about here? because i think it truly does go to the whole issue of not only oil export but export of our energy that we're successfully able to produce in this country. so i thank the chairman. >> the vote is on. so if each of you take about a minute, we can still make the vote. mr. hamm. >> yes. i think it's plural instead of singular. you never get rid of, i heard here earlier that the upstream producers were foreign-owned. i would assure you that there are more foreign-owned refineries, motiva, at leasts owned 50% by the saudis. venezuela owns their own

refineries. you never stop them from being able to ship their oil in. i take it we're energy independent when we're exporting less, or more than they're bringing in. so that is the way you have to look at the balance of the two and so, i would suggest that we look at it overall, not being inclusive of just what we are and what our needs are. >> mr. burnett. >> this will define what i mean by energy independence. that includes crude, gas, coal, alternative energies, it is all energies. you need to define it as energy independence for north america, not the united states. it has to include canada. and if you include canada it is feasible for north america to be energy independent before 2030. what that means, there will still be crude imports. there is quality arbitrage as was mentioned earlier but it would mean an increase in

product exports and probably exports of coal and other energies as well. >> miss jaffe. >> i would say agree with that, given my slogan of the tyranny of geeing graph if i. there will always be balancing for different kinds of energy sources in and outside of our borders. we have a free trade agreement with mexico and canada. but i do want to end with the following two points. number one, supply bottlenecks, no matter how they're created are things that make volatility intense as we heard about propane and the second thing is that that senator murkowsky is correct, a secure global market is what is going to bring american consumers the lowest price and most consistent stability in fuel prices. and that is what the u.s. should seek to be a responsible participant in making sure we have the secure global market.

>> mr. weiss. >> thank you. i'm, i appreciate the joint question. i'm sorry we are not able to give you a joint answer. i think all of the discussion about energy independence or almost all of it is focused on supply. that is something we control some of and some we don't. my view is we need to focus on reducing our demand because that is something we do have control over. it will help save consumers money. it will help reduce the carbon pollution that will cause extreme weather that will disrupt our energy production and transportation system. we need to focus on reducing demand. particularly when it comes to transportation which is fueled over 90% by oil, we need to invest in alternatives to oil, whether it is electric vehicles, whether it is natural gas-fueled trucks, whether it is public transportation, advanced biofuels. all of those things will give consumers choices so we're not solely dependent on this one fuel to run, essentially run our economy. as long as we are, we'll still be here having discussions about

energy security and energy independence. thank you for having me. >> mr. weiss, thank you. suffice it to say this is the first hearing apparently on this topic. it will not be the last. i knew it would be a piece of this will be in the to be continued department. we thank you all, and thank you for your patience and the committee is adjourned. >> last day of the month house and senate are out but ben bernanke retiring at head of central bank.

chairman bernanke helped guide the country through the first financial crisis since the 1930s. already some news about his successor janet yellen. nbc's frank thorpe tweeted that the new chairwoman will make her first appearance before congress testifying at at house financial services committee meeting on february 11th. as we get more details you can check our website for any coverage plans, c-span.org. tonight here on c span 2 we continue our coverage of state of the state addresses by the nation's governors. we begin at 8:00 p.m. new mexico governor suzanna martinez, followed by illinois's pat quinn, nebraska, dave heineman. and south dakota's. watch them on our website, c-span.org. this week the house passed the farm bill which set funding levels for crop subsidies, food stamps and other agriculture programs. the senate is scheduled to take up the house and senate compromise on monday and we spoke with the chairwoman of the

senate agriculture, debbie stab now, our guest on this weekend, newsmakers on c-span. -- stabenow. >> we are very focused on the sochi olympics and we have seen an up tick in the threat reporting regarding sochi. and this was what we expected given where the olympics are located. there are a number about extremists in that area. in particular a group which is probably the most prominent terrorist group in russia. the leader of that group last july announced in a public message that the group would intend to carry out attacks in sochi in connection with the olympics and we've seen a number of attacks stemming from last fall, suicide bombings in volgograd, that took a number of lives. the tourists are becoming more sophisticated and they're going to school on the repeated disclosures and leaks so that it is allow them to burrow in.

it made it much more difficult find them and to address the threats that they pose. so when i look at the threat relative to 9/11, we as a country have done i think a great job of addressing some of the vulnerabilities that exist in our system and putting together and information-sharing architecture that allows you to move information very quickly but you never know what you don't know. >> the probability of attack now compared to 2001 is, at least received very hard question to answer because minutesly, this -- minutesly the dispersion of the new threat. we're focused initially in that time period on al qaeda, al qaeda core. now we are facing a much more dispersed threat. >> this weekend on c-span the nation's top intelligence chiefs on worldwide security threats. saturday morning at 10:00 eastern. live sunday on c-span2, your

calls and comments for women's study professor, bonnie morris, author of, women's history for beginners and revenge ever the women's study professor. that is at noon on "in depth." we tour the reconstructed 1864 confederate winter quarters of general samuel mcgowan, sunday evening at 7:00. recently appointed us air force secretary deborah lee james, says there is quote, systemic problem with the force that is protect and maintain the nation's nuclear arsenal. she addressed the cheating scandal as well as the air force budget constraints. this is 40 minutes. >> ladies and gentlemen. i've been getting high signs from people in the room that have to get back to the nursing home so i have to get this program started. i'll referring to john conoway

of course, the only 80-year-old guy in the crowd. good morning i'm craig mckinley i'm president of the air force association. on behalf of our chairman of the board welcome to our first secretary of the air force breakfast in 2014. so happy new year to everybody. thanks for being here. [applause] madams secretary, normally we have to go through a buffet line and it takes forever, but for some reason when you're here we get plated, sit-down breakfast. thank you for that. i hope you come to all of our breakfasts. we even have dick cody here. what is an army guy doing in the air force association? he said he wanted to make sure we were taking care of his army air forces. so good to see dick cody -- >> army air corps. that's right. we've got a wonderful group of senior corporate executives, industry leaders, attaches from around the world and we've got a

lot of patriotic americans in the audience today and we couldn't have a better keynote speaker today for our first breakfast series than our new secretary of the air force. secretary deborah james is the the 23rd secretary of the air force and she came into the job, i was talking to chuck, probably the most uniquely qualified secretary we've ever had. with vast amounts of experience in industry, in the pentagon and in government. and i can't think of a better person to lead the world's greatest air force than secretary james. you all have read her bio so i don't need to take up much time and you didn't come here to hear me speak. so without further adieu i would like to bring secretary james to the podium, and thank you, madam secretary, for being with us this very cold and brisk morning. thank you. [applause] >> thank you so much general

mckinley. if i could also add what a pleasure for me to be back into a position where i can work so closely with you going forward. and i also want to start out by saying thanks to the entire air force association team that i know worked very hard to put this breakfast together. i'm told there are about 250 of us here today, which i'm told a high number, a record-breaking number for the first of the breakfast series here in 2014. that is of course extra pressure on me. i only hope i'm worth it. you will have to be the judge of that after you hear what i have to say. thanks for the whole time for putting this together and all of the work you do throughout the year. i'm sure in addition to braving the cold today we might have some sleepy heads in the audience. i'm tired having stayed up late as i am sure many of you did to hear the state of the union address. doubly glad to see you this morning and you made the effort to come in. i don't know about you all, but my favorite part of the address last night was the recognition

for a member of our army, army ranger sergeant first class cory remsburg, who after 10 deployments overseas, was very seriously wounded by a roadside bomb. he has been through many surgeries and great struggles but he is coming back and he will come back, including come back and serve actively in a very active way on active duty with the army and his motto is, never give up. so that actually brought a tear to my eye. it was very inspiring. i'm sure there were many other americans who felt that way about sergeant first class cory remsburg. the air force association without a doubt is at the very top of the list when it comes to our services and our airmen's strongest advocates and this organization is truly a rallying point for innovative air-minded

thinkers. no wonder we have a such a long-standing positive relationship between our air force and the air force association. and when it is coming very next to our dod military and our civilian workforce which are so terribly important to us, the other part of the team that want to recognize that is extremely important within our military capability. that of course is our industry partners. i enjoy talking with some of you today. i look around and see people i've known from all walks of my life professionally, from the hill, from the pentagon in my early days and days in the industry. great to see so many of you as well as meet new colleagues. i want you to know, that because i just finished walking in your shoes, meaning industry shoes, i understand how important it is to make, to have that open communication line and make sure people in government and people in industry are cross talking all of the time.

i also get how difficult it has been not only in government but also in industry with all of the recent stops and starts and uncertainties with the budget that we have been through in recent years. so my point is, i understand that. i walked in your shoes. i will work hard as the secretary of the air force to make sure that we keep communication lines open because there is no question about it, we can't get our jobs done without your active support to make sure that we are fulfilling our national security requirements as quickly as possible and at the best possible costs to the taxpayer. i would like to thank the members of defense attache corps, many who are here in the audience. i look forward to working with all of you as we go forward visiting some of you in your home countries. in in the immediate future i look forward to an event we'll

have in the coming weeks so thank you all very much for coming as well. with your indulgence there are really three topics i would like to touch upon this morning. i would like to share with you, number one, what i've been up to in my first four or five weeks as secretary of the air force. second i would like to talk about the priorities i laid out in the air force we'll be tracking on going forward and third i would like to offer up some comments about our nuclear forces in the air force. as you said, general mckinley, i am the 23rd the secretary of the air force and believe you me the honor and privilege of a lifetime. i was actually sworn in on december the 20th, but only last friday i had just a wonderful ceremonial swearing-in. it was reenactment by the secretary of defense and some of you actually were there. of course all of this came on the heels of that lightning-quick senate confirmation process that i so very much enjoyed going through.

[laughter] but seriously when you raise your right hand as i did last friday in the presence of the secretary of defense and the chief of staff and all of the band and honor guard and the flags, boy, you really know that the deal has been sealed. and so i am just so delighted to be here and what a wonderful event that was for my family and for me. as everybody in this audience knows this is a very, very exciting time to be serving, to be serving in all of the capacities that we serve. the strategic environment that we face is dynamic and the threats to our national security, both overseas and here at home, they continue to evolve and they come from state actors and they come from non-state actors. the fiscal environment that we face is also extremely challenging. and even when we, are thankful and take into account the budget agreement which was recently passed, and the fact that we will have some relief and some

certainty, at least for the immediate future going forward, nonetheless, remains a challenging environment and will for the foreseeable future. so when i put all of that together, it is clear to me that maintaining and in some ways shaping and growing for, growing a capable air force, not only for today's needs but also for tomorrow's challenges, this is a paramount importance and we have to always keep in mind both the strategy element of what it is that the nation might ask us to do but we have to keep in mind the budget element. without consideration of both of those things we may welcome up with plans simply not realistic and that is not helpful to anybody. so this is why, as we in the air force look to the future, i feel quite certain that we will become a smaller air force, but, it will be an air force that will remain highly capable and on the cutting-edge of technologies so that we can always step up to the plate and meet the country's need.

it won't be very long before general welch and i go to capitol hill for the hearings on the fy-15 budget proposal. i got some practice at that when i testified during my confirmation hearing and i also got some similar practice at that just a few weeks ago when i testified before the national commission on the structure of the air force. this was just in early january i did that. and i made the point to the commission and i would like to make that point here again today that going forward there is no doubt in my mind that our air force is going to rely more, not less, on our national guard and reserve forces. not only does this make good sense from a mission standpoint, it also makes good sense from an economic standpoint. and by the way, the commission is due to report in the next day or two. and i don't certainly have all the details but i think we're going to find that there are a great deal of symmetry if you will between many of the recommendations of the commission, and i think this

will be a excellent body of work to inform us in the future, and the way that the air force is proposing to go for war. i think there will be a lot we can agree on. and a lot. i certainly look forward to getting into the report and digging into the details. i've been working on budget. i've been working on force structure but beyond those issues i'm also very pleased to tell you i had a chance to get beyond the beltway and see some of our airmen at work. in december, while i happened to be in california on vacation, i dropped by to visit the airmen at the los angeles air force base which is part of our space mission and believe you me, it is hard for the secretary of the air force to drop by or pop in on anybody because it is kind of a big deal but i did my best to try to keep it loco and had a wonderful visit with them, all bee it way too short. i've also been to dover air force base three times in the last month. two times i was sorry to say it

was welcoming home fallen airmen on a occasion known as a dignified transfer. when i also had the opportunity to meet and try to provide at least some small, small, measure of comfort to grieving spouses and family members. and of course this was extremely sobering and humble, humbling experience. the third time i went to dover it was to meet with our airmen who of course are involved with a number of things including the mobility mission. then last week i visited our intercontinental ballistic bases at warren in wyoming and minot, north dakota, and momstrom air force base in montana. i finished up the trip at global command at barksdale, air force base. we saw bombers and missile teams and will have more to say about that in a few minutes. later this week i will go to congratulate some of our newest airmen as they graduate from basic military training in

san antonio and later on in the month i'm headed to the air force academy in colorado springs. so i point is, i'm trying to mind the important work here in washington that needs to be done, getting ready for the budget but also trying to get out and about because i am learning as this audience already knows in great detail that our airmen, active, guard, reserve and civilian, underpins everything, everything that we do and they, we are extremely, extremely fortunate to have them. all right now let me shift to the three priorities that i have laid out for the air force. and the first, which is probably no surprise, it certainly has been a key part of my career and that is people and taking care of people is going to be job one for me going forward. now what does that mean to me? well it means that we need to continue our focus, if anything, kick it up a notch when it comes to making sure that we recruit and retain the right people into

the force. that we shape the force, reshape the force, you might say, as we go forward, not only for our immediate need but again with longer term in mind. it also means compensating people fairly and we probably, in fact i'm quite certain that we will not see the types of compensation increases in the next decade as we saw in the last decade but still we need to make sure that we keep pace and that we compensate people fairly. taking care of people also means growing leadership and developing what i call diversity of thought in leadership. protecting the most important family programs. it means balancing our talent across our guard, reserve and active components so we make the most of each of those components. it means very importantly to insure our climate where everyone is treated with with dignity and respect. we need to keep on working the issues of sexual assault and sexual harrassment very, very hard just as we have been doing.

so keeping that people close and taking care of people is certainly job one. we need to keep on communicating what we're doing because people want to know what's going on. so as i travel around, i do all calls or town hall meetings everywhere i go and answer questions and do my best to keep people informed. i mentioned that we're going to become smaller and this needs to be done correctly because we have overages in certain skills and underin other skills and we need to get right balance in these skills through both voluntary and involuntary means. doing as much voluntary as we can and doing involuntary if we can't get to where we need to be. so taking care of people is priority one. second priority is finding a right balance between today's readiness and tomorrow's readiness. so to me, that means, i have to work very hard to make sure that we restore the air force

readiness levels to higher levels because it has slipped in recent years. the readiness levels particularly flipped last year when we were facing sequestration and we have to get those levels back up, back up to a more acceptable level because we certainly owe it to our airmen to make sure they have the right training and right equipment and supplies to be able to successfully do what we asked them to do. with the relief that we will be receiving in fy-14 and 15, through that budget agreement and the lifting of sequestration and numbers going up a bit, certainly readiness will be the top priority for placing those resources going forward. so that's the readiness of today. the readiness of tomorrow, what i mean by that is our modernization programs, making sure we're looking out. where are the threats going. what are the key technologies we need to be in front of. objective we continue to control the skies just as we have for

decade in the past. that we continue to be able to project power like no one else, extend our global reach for many years to come. so that's the point. we need to make sure we are modernizing as we are also protecting the readiness of today. so as everybody in this room knows, we have our three top programs, the f-35 joint strike fighter, new tanker program, the long-range strike bomber. so these will be top priorities for us. there rather as as well. so the readiness of today and future is tomorrow, the readiness of tomorrow. . .

i'm hoping those skills and that knowledge brought to the table of the air force will help us do even better on this. and we also owe it to the american people to be able to audit our books. so it's striking to many people i think out in america that we are not able to deliver a clean audit. we are marching down that path trying to get there. we need to stay on that path. it's our vice chief of staff who has led the every dollar counts campaign and i told them i wanted to in big time with him and work this one hard. now, the details, the precise details about how we're going to advance those three items of course will be forthcoming when the president's budget rolls out in march. but please no as i said earlier, despite his budget relief which we are very grateful for, the budget still will remain tight and its budget, you will see it

when it rolls out, we've had to make some tough choices. there will be decisions in there, some of which you may like and some of which you are not like. i guarantee you there'l there we something there that congress will like and others that congress will not like. we've had everything on the table. there's been talk about retirement of some fleet of aircraft. the force shaping initiative will be reducing headquarters so there's going to be lots of detail in their and it -- and very hard decisions have to be made. i'm hoping as we go forward that we can count on everyone in air force association to help us tell the story when the time comes because it's a story of needing to make savings and achieve savings in certain areas so that we can reinvest in other areas. it's really quite simple in that regard. that it becomes more difficult when you get down into the details. i certainly hope that we can work together on that and we look forward to doing so. all right. let me now turn, if i might, to the nuclear world.

while the air force is responsible for many and credible and important missions, early on i knew that sort at the top of my list i wanted to visit our nuclear enterprise basis as soon as possible and to learn more about it as a mentioned i did visit last week minot, mousetronaut and the air force strike command at barksdale. continuing to strengthen our nuclear enterprise is a top priority for me. -- malmstrom. >> after all, our airmen are entrusted with the most powerful weapons on earth. this nation is essential to our security. and the security of our allies and partners. two weeks ago general welch and i held a press conference, and we didn't have very good news to report. it was at that time that we brought forward and disclosed that an ill legal drug

investigation had uncovered a certain amount of cheating on the icbm forces monthly proficiency test. now, general welch and i try to be as clear as we know how to be clear, by making the statement that this behavior is completely unacceptable and it is contrary to our number one core value, which is integrity. and i want to say again we will get to the bottom of this. it is an ongoing investigation, but i also want to say again and reassure everyone here that this was a failure of integrity on the part of certain airmen. it was not that there of the nation. the nation is strong. it remains safe, secure and reliable. i'm very confident of that. we are continuing to investigate and when this whole thing first came to light, the immediate top in the action i took was to direct our office of special investigations to put all resources on this to get to the bottom of it as soon as

possible. we took other immediate corrective actions as well, including we retested one in% of the crew members across the 20 the air force -- 100%, and that was completed quite quickly. and the entirety of the missile force past at a 95.5% rate. so that is to say, 95.5% of the people took the exam and passed it. so that's, to me, another indication of great confidence. at pass rate is much in line with our historical averages. we also took immediate corrective action to put in place tighter test development control and administration procedures. so basically better proctoring procedures during the exam taking. and, of course, there are ongoing nuclear inspections of our missile crew proficiency with what's called nuclear

surety inspections, or nsi. so the 91st missile we just went through one, demonstrated a 100% pass rate in a similar environment, and the other wings will be going through this and complete by the end of february. so the nation is strong. i want to say that again. but i want to say can achieve and i will get to the bottom of this and we will do it with transparency, and those who don't meet our standards will be held appropriately accountable. that means people who were involved with this, it also means we are assessing leadership to try to understand what went wrong. secretary hagel is also very committed. issued a memo last week directing a review of u.s. strategic nuclear deterrent forces which will involve key stakeholders within osd, the air force, we are bring in the navy to see what we can learn from navy practices, and we will be sharing best practices and developing an action plan over

the next 60 days. there's also going to be an independent panel that will focus on personnel issues related to our nuclear forces. so now what i would like it is i would like to share with all of you some of my impression from the trip that i took last week. by the way, on the trip at each location i not only had command brief and i not only learned about the mission and talk to the leaders, i also did town halls and i also did small focus groups, just me and airmen. i did with enlisted, officer, a variety of levels and i found the focus groups to be very enlightening. so i've come up with a list of seven, i'll call them observations, sort of focus areas. all of these will be discussed at greater length and we will have a way forward in all of these seven areas when we developed this action plan that i talked about earlier. here's my list of seven. my seven occupations.

my first observation is my opinion really, is that we likely to have, we do have a systemic problem in this. the need for perfection has created way too much stress and way too much beer about the future. i heard repeatedly, especially in the focus groups, that the system feels very punitive. it doesn't feel that you're incentivized for good but rather you are punished severely if anything bad should happen. i also ordere repeatedly there a level of micromanagement within the force that should be transformed into empowerment. and i also heard repeatedly that the airmen here that the nation is important but we don't necessarily put our money or our attention where our mouth is. so it's the difference between what we say and what they feel that we do. that's my first observation.

that would probably do have something systemic going on and we need to get on top of that. secondly, i served that we may have lost within this team the distinction -- i think it's an important distinction, between training and testing. in the current environment there is no room for error. no room for error all of the time. and yet when you're talking about training, the idea of training is learning, and mistakes happen and to get better. that's what training is all about. but in this environment is headed to me like everything was a test, and that perfect test scores have become an important gauge. in some cases i heard the only gauge, allowing commanders to differentiate among airmen to promote them. so i think this is wrong. we need to address this. i think rather than making 100% test be the make it or break it for these young people in the future of their career, i think we need to look at the whole

person concept, but don't tell the of what they're doing with the test being an element but not a make or break element all the time. looking at training and testing is my second observation. third, we clearly have to have accountability at all levels. i already mentioned that. for those involved, some of them actually cheated and some of whom knew about it but didn't stop it. there needs to be accountability and there will be. we are also looking at the leadership as i mentioned earlier, and that's a third element is accountability. the fourth is i think we need to look at professional and leadership development. because within this career field we may not be doing the best we can do. i call this the human dimension. we have to take a look at the human dimension. this is an area where the independent panel might be able to give us some thoughts and advice. we need to look at how we commissioned the officers from a different commissioning sources. we need to look at the training

that goes on at vandenberg air force base and ask yourself, are these airmen getting the right leadership training. are they being professionally mentor to the way our young leaders elsewhere in the air force on mentor to? what about their career path opportunity? to the understand what they are? are the appropriately laid out? in short, we need to work to make this grid act in fact and in perception something that young enemy want to do and they aspire to do. fifth, we need to reinvigorate our campaign on core values. enemy and need to understand that being a good wing man does not mean protecting others who lack integrity. and, of course, airman have responsibly not only to act with integrity and own action also to report wrongdoing that they see going on. somehow that got a bit lost. so we need to go back to some basic tier, look at those core values and remind people that there are ways to report things

both directly and through anonymous sources. i heard over and over again, airmen don't want to be perceived as reporting on their buddies. that's not good when it comes to matters of integrity. sixth, and visit back to the people part of the equation, we need to examine the incentive, the accolades, the recognition that is available to the nuclear force. we need to ask ourselves, should we take steps to make this career field more attractive. by the way, that's not just only on the officers side, i'm also talking about the enlisted rank here as well. so this gets into the world of should we consider some sort of incentive pay or, income scholarship for certain types of work. looking at those sorts of incentives and accolades. should we do a medal or ribbon? we need to look at all that. lastly, seven, we need to look at other types of investment. are they appropriate for our nuclear force. and this is sort of, very

important, we need to put our money where our mouth is. this is everything from perhaps we should have additional funding for banning levels to get them up, high priority military construction. i saw some leaky roof's. things of this nature. there might be some quality of life things. should we redirect some of our investment toward this force. that's my seventh observation. these are all the areas we will be looking at over the next 60 days, and we'll have more to say in an action plan to address the entirety of the force. i want to now close by sort of a minminute that although we certainly face loss of challenges, be they for structure or budget or people with challenges, that out of every challenge comes also an opportunity. that's sort of the way that i look at it. and to return for a moment to sergeant first class, nothing, nothing in life that is worth anything is easy or free.

and again i was inspired by those words and i think he is very, very right. i am actually proud of our air force and our military these days simply can't operate without the air force. the air force is embedded in every operation that is important around the world. and the capabilities that we bring to the table, simply the military can't get by without a. that tells me our future is very bright. whether our airmen are launching a satellite from our facilities in florida or guarding a missile silo in the great north or refueling and airlift or over the pacific or providing close air support in afghanistan, or facilitating personnel and budget decisions right here at home at the pentagon, our security simply depends on our airmen. i know that. i believe that we will be working very hard to protect them throughout the next several years. i would like to thank the air

force association one more time for being such a strong advocate. we need you more than ever as we go forward. please, please keep it up and thank you all for your support of our airmen. [applause] >> well, they stood up. that's a good sign. that's a good start. >> we have time for a couple of questions. the secretary has a hard stop at nine soviet going to try to get as many as we can and we will start over here. >> please identify yourself. >> icom secretary. i am with air force magazine. you spent quite a bit of your speech talking about the nuclear issues in the air force.

i was wondering if you could give us your insight into how the five year -- five years after the air force started global strike command brought in new leadership to reinvigorate the nuclear enterprise, how these issues are still so prominent. >> so the take on that is that although the nuclear enterprise has certainly gotten focused through the years, i think we tend to focus pretty heavily when something goes wrong. and we tend to focus very heavily on the element where it went wrong. and perhaps, perhaps what we haven't done as well is persistent focus, meaning persistent and brought focus. so that is to say, even when there's nothing going wrong, are we still focusing. and when things do go wrong, are we taking a broad look or are we just taking a new look at the one element that went wrong. so that's my take on it. and going forward, of course we have to deal with the immediate

issue before us and we have to look at what went wrong there. but i think and believe and hope that the seven observations or the seven areas of focus that i outlined, that this indeed will be a broad view that we can try to come up with a plan to go forward and look at the overall enterprise, not just what went wrong in this particular instance. and that out of that we will also come up with a way to provide more persistent focus. not only just when there's something that is going wrong, but constantly, everything. >> just a question on the number of people, airmen under investigation. we've heard now it's probably doubled the original 34.

how many people are under investigation? how many of those are for actual cheating or as you said, those additional people, how many of those additional people are for not reporting on achieving that they knew was going on? lastly to you have a sense when it comes to accountability people who knew about cheating but didn't report it were also removed from these wings? thanks. >> so, i don't have a specific update on the investigation and the numbers to be able to share with you today, but i do promise, i do commit we will have an update on that in the not-too-distant future because part of this, you may recall, we actually brought this to the american public. so i promised transparency then and i meant it. i just don't have that today. i can tell you the numbers are up. the investigation is ongoing and we are going to let that investigation take us wherever it takes us. whatever the facts are, those are what we will share with you. as i mentioned, the secretary of defense is also very committed.

so there is a number of us that would be actually, later today, we will be meeting, this joint group i talked about where we will sit down with the navy and the secretary and whatnot, beginning those sessions later today as a matter of fact. so please stand by and we won't be too much longer before we do have an update on the specifics and the numbers. >> last question right in the middle of the room. >> welcome, secretary. we've heard your important message about every dollar counts. what are your thoughts in relation to make every dollar count for energy efficiency for both the facilities and your weapons systems? >> this gentleman even gave me a heads up use going to ask that question, so i hope i do all right because i have out -- i've had a look i do think about. some answer to that is, obviously we spent a lot of money on energy. we're in a tight budget environment.

number one, it's in our best interest to look for ways to spend less on energy and energy efficient and do what we have to do by spending less money. that sort of an obvious thing. we get the. there's also the obligations that we have to the planet and doing our best for the department. that's another reason to do it. we are working on it hard and it's everything from looking at how we purchase energy to alternative energies that maybe he can give us a help. i believe we are running pilot programs at military bases to see what we can learn. there's a variety of initiatives going on. so i'm committed to. i know it's an important area where there' there savings possd am looking forward to delving into it a little more deeply as time goes by. >> thank you, secretary, very much. >> thank you. [applause] >> i know our air force is in great hands, and we couldn't

have a greater opening speaker than our own secretary. i know you and mark are going to do a great job for our air force. we are very proud to be part of that. george wanted me to remind everybody that we couldn't do it without the people who've attended today, but we very much appreciate the leadership you have. this coin was minted for our team of the year award this year. because you are now on our team, we want you to have one. and even though it's a very large going, it's not as large as some of our officers in this room have made for themselves. [laughter] no names. no names. but we wanted you to have this for great, great speech today. thank you. >> thank you so much. [applause] >> earlier this week the director of national intelligence said that in his more than half a century and intelligence he has not expressed or crises or threats around the globe.

testified before senate panel, director clapper outlined a list of threats and address the impact of the nsa leaks by former agency contractor edward snowden. here's a look. >> sdn i this is my fourth appearance before the committee to discuss the threats. i've made this next assertion previously but it is of anything more evident and relevant today. looking back over my more than half a century of intelligence, i have not experienced a time when we been beset by more crises and threats around the globe. my list is long. it includes discourage and diversification of terrorism loosely connected and now globally dispersed to include here at home as a certified by the boston marathon bombing. the secretary more in syria, its attraction is a growing center of radical extremism and the potential threat this poses to the homeland. the spillover of conflict in neighboring lebanon and iraq, destabilizing flood of refugees

in jordan, turkey and lebanon, the implications of the drawdown in afghanistan, the deteriorating into security posture in iraq, the growth of foreign cyber capability. the proliferation of weapons of mass to charge and, russia, a competitive china, a dangerous unpredictable north korea, a challenging iran, lingering ethnic divisions in the balkans, perpetual conflict and extremism in africa, violent political struggles, and among others, the ukraine, burma, thailand and bangladesh, the specter of mass atrocities with increasing stress of burgeoning populations, the urgent demand for energy, water and food come the increasing sophistication of transnational crime, the tragedy and magnitude of human trafficking, the insidious rot of synthetic drugs, potential for pandemic disease occasioned by the growth of drug-resistant

bacteria. i could go on with this litany but suffice to say we live in a complex, dangerous world. the state for the record that we submitted, particularly the declassified version provides a conference of review of these and other daunting challenges. my second topic is what is consumed extraordinary time and energy for much of the past year. in the intelligence community and the congress and the white house and, of course, in the public square. i'm speaking of course about the most massive and most damaging theft of intelligence information in our history by edward snowden. and the ensuing avalanche of revelations public and broadcast around the world. i won't dwell on the debate about snowden's motives or legal standing or on the supreme ironies associated with his choice of freedom loving nations and beacons of freaks brush and from which to bring about what an orwellian state this country has become. but what if you want to speak to as a nation senior intelligence officer is the profound damage

that his disclosures have caused and continue to cause. as a consequence of the nation is less safe and its people must secure. what snowden has stolen and exposed has gone way, way beyond his professed concerns of so-called domestic surveillance programs. as a result we have lost critical foreign collection forces with valued part of. terrace and other adversaries of this country are going to school on u.s. intelligence sources, methods and tradecraft and the insides of their gaming are making our job much, much harder. this includes putting the lives of members or assets of the intelligence community at risk as well as our armed forces, diplomats and our citizens. we are beginning to see changes in between patient's behavior of adversaries which you allude to. particularly terrace, the chirping -- disturbing trend which will continue. snowden claims he has won and his mission is accomplished. if that is so, i call in and as

a compass is to facilitate the return of the remaining stolen documents that have not yet been exposed to it have more damage to u.s. security. as a third and related point i want to comment on the ensuing fallout. it pains me greatly that the national security agency and its magnificent workforce have been pilfered. i started intelligence profession 50 years ago and members of my family and i have worked at nsa so this is deeply personal to me. the real facts are as the president noted in a speech on the 17th of the men and women who work at nsa both military and civilian have done their utmost to protect this country and do so in a lawful manner. as i and other leaders in the community have said many times, nsa's job is not to target the dean mills telephone calls of u.s. citizens. the agency does collect foreign intelligence, the whole reason an essay has existed since 1952, performing critical missions that i'm sure the american

people wanted to carry out. moreover, the effects of the unauthorized disclosure heard the entire intelligence community, not just nsa. critical intelligence capability which the united states has invested -- invested billions of dollars will be risk because of compromise. moreover, the impact of the losses caused by the disclosures will be amplified by the substantial budget reductions that are occurring. the stark consequences of this perfect storm are plainly evident. the intelligence community is going to have less capacity to protect our nation and its allies than we have had. in this connection i am also compelled to note the negative morale impact this perfect storm has had on the workforce which was commanded by sequestration can furloughs, the shutdown and salary freezes. >> cia director john brennan and fbi director james komi also testified at the hearing. it and watch it anytime on our

website, c-span.org. today is the final day in office for federal reserve chairman ben bernanke. his successor, janet yellen is expected on capitol hill the next couple of weeks. frank thorp between early but the new chairwoman will make her first appearance before congress in front of the house financial services committee set for fabric 11th. we will keep you posted at c-span.org. jason furman, the head of the president's council of economic advisers says he believes the country has moved past the fiscal drag on the economy. he spoke this morning at a "christian science monitor" breakfast and address a number of goals outlined in the president's state of the union address. he touched on the debt ceiling which will be reached by late february if congress fails to act. this is one hour.

>> thank you all for coming. our guest today is jason furman, chairman of the president's council of economic advisers. this is his first visit with the group although we been honored to host a number of his predecessors starting with herbert stein back in 1971. mr. furman's associate with the council of economic advisers came in 1996 during the clinton administration when he was still a graduate student at harvard and was hired as a staff economist at the council. sits in his serve as a senior advisor to the chief economist of the world bank, special buys to president clinton for economic policy at the national economic council, and senior fellow of economic studies and director of the hamilton project at brookings. along the way is earned three degrees including a doctorate from harvard in one will london school of economics. he has been a visiting scholar and a visiting lecturer at yale and columbia. following the obama decision he

was the principal deputy director of the national economic council before being named to his current post in june last year. no introduction would be complete without the mention of our guests useful ago to earn money on the streets of new york juggling apples, bowling balls, torches, nice. a great training for spending your life about advising present. that ends the biographical porscha burke now on to the mechanical details. as always we are on the record. please, no live blogging or tweeting are the means of finding while the breakfast is under way. there's no embargo when the session ends except that our friends from c-span have agreed not to air video of the session into one hour after the breakfast is over to give reporters in the room time to file. finally, if you'd like to ask a question please send me a subtle nonthreatening signal that i will happily call on one and all. we'll start off by offering our guests the opportunity to make some opening comments and then will move to questions from around the table. asked again for doing this. >> thank you so much for having

me and for the long tradition of this breakfast. wanted to talk to us very briefly about where we are in the economy and where we are in economic policy. yesterday, we got gdp for the fourth quarter of 2013. it grew at 3.2%. that followed a strong third quarter, and meant that for the four quarters of 2013 as a whole, the economy expanded at a to .7% rate. that was the fastest rate in three years. one of the important things to understand about the economy in 2013 was that it was impending with the sequester which subtracted from growth, with the shutdown which subtracted from growth, and with other fiscal drags in things like the payroll tax cut expiration which we're

subtracting from growth. if you just looked at the private component of gdp in 2013, they grew at a substantially faster rate, the fastest rate in a decade. and that's important because as we are looking for 2014, we think that the fiscal drag is mostly behind us. the budget agreement in december was a substantial portion of the sequester and will put fiscal policy in a much more neutral stance. if we can, if congress does its job and since the president a debt limit without ransom or hostage taking, then will be in a position that if the private sector to repeat what he did in 2013, that we could have strong

growth, potentially stronger growth in 2014. but at the same time that the economy is picking up, we continue to have a number of challenges, and we have both short run cyclical challenges and longer run structural challenges. probably our biggest short run cyclical challenge is long-term unemployment. if you look at what's happened to the unemployment rate, it's come down from 10, the six by 7%. 1.2 percentage point reduction in the last you. so it's come down very steadily. and now the short term on the planet right, 26 weeks or less, is lower than average of the previous economic expansion. the entire elevation of the unemployment rate is now due to the unturned -- long-term unemployed. that rate is 2.5%, more than double what it was generally

prior to the great recession. and the president today at the white house, illustrate just what he can do with his phone and just what he can do with this been to a deal with our economic challenges. over 300 companies have signed a pledge to have best practices in hiring long-term unemployed. that's the phone, mobilizing all of those companies. we found $150 million that can be used to challenge competition for best practices in keeping with the long-term unemployed. that's something the president can do with his pen. and then we have about 10 foundations that have made a range of specific, tend to commitments to do things they wouldn't otherwise have done. that again, is the phone.

that's an example of how the president is putting what he talked about in his state of the union into action to deal with the short run cyclical problem. our longer run structural problems, the biggest is the challenges we face in terms of opportunity for american workers. and using several things the president has done already this week in that regard, including announcing that he would be getting a pay raise to federal contractors as new contracts come online, establishing myra accounts through the treasury, and finally a revamp of skills and training. so all this is what he talked to in the state of the union, the pen the phone. it builds on the strength of the economy we have, but deals with the outstanding challenges that we still need to make progress on. spent thanks for doing that. i will do to myself. and let me just pick up on what

you were saying about sort of prospects for a better economy coming along. moody's analytics expects growth this year at about a 3% pace, accelerating in 2015, about 4%. does that sound reasonable to use the? when the budget comes out we will have a new forecast for 2014, and 2015, but broadly speaking there's a lot of things that are unpredictable in the economy. there's always a lot of risks. we are constantly reminded that events in the rest of the world can have a very big impact on the u.s. economy. but broadly speaking the thing that is the most predictable right now is the fiscal policy. last year we cut the deficit by 2.7% of gdp in a single year, which was a big head went for the economy and the private sector muscle through that headwind. in 2014 were not going to have anything resembling that

magnitude of deficit reduction. we'll continue to see the deficit coming down. we will continue to be stabilizing the debt but we will be in a much less contractionary fiscal stance pics i think that's the single most important reason we are more optimistic about 2014. >> and 2015 as well? >> and 2015 as well. and the other thing is just in terms of the private sector of our economy. housing, we saw that decline in the fourth quarter after several years increase in residential investment. but there is a lot of fluctuation from quarter to quarter, which is also something fundamental. because of a growing population and appreciation of the housing we will ultimately to build about 126 million houses a year. we are only building about 1 million houses you right now. over the next couple years you'll make your way up from 1 million up to 1.6 money. that's about 2% of gdp that will be added over the period of time

spent last one, your dog but unpredictable things. there are unpredictable people including harry reid who as you know on wednesday said that i'm against fasttrack something that the president came out for in the state of the union. what is your reading on the fate of the trade deals that are pending? are they dead until after the election? >> i think senator reed's views on this were not a surprise to anyone. and were not really news in that sense. what the president called for an made very clear in his state of the union is that trade with our specific partners, trade with our atlantic partners can be enormously beneficial to our economy. they can increase our growth. it can create more high-paying jobs. they can give new opportunities for consumers. and for the united states in particular, we have lower tariffs than most of this

country. with your nontariff barriers and most of these countries and with many of the tpp, -- countries with higher labor standards. that means we have significant potential to gain in terms of improving trade, reducing those nontariff barriers and a race to the top in terms of labor and environmental such as in the economic piece the president made in his state of the union address. in terms of what we need from congress, we've always said that would be a process. that's something we would work with them on and that something that will be an ongoing effort and one that you will see us making. >> thank you. kevin. [inaudible]

>> what do you expect a labor market -- [inaudible] toggled it about what your expectations over seven years will be for the labor, participation rate. and then more narrowly, tied to the, how much do we know about the geography of the longer-term unemployed? some of the long-term unemployed may be different from someone and a bustling area like dallas. can you give us a sense of how do you avoid being overly broad in these efforts to reach out to the long-term unemployed? >> so in answer to your first question, there are two things that are impacting the participation rate. there's a lot of things but there are two important things. the first is democracy, and it was very much predictable that

after 2008 you would start to see it decline in the trend rate, the trend participation rate, as the first baby boomers turn 62 in 2008, became eligible for salsa security and started retiring. it wasn't just predictable. -- social security. i think it was 2004 they said you see an increase decline in the participation rate after 2008. cbo predicted it. others did. when we take a look at the data come you can basically look at the participation rate, holding constant for each age and demographic group. and then ask what would've happened if there were no changes in the economy but there is just a change in the ratios of these different age and demographic groups. with that type of methodology you find as a lot of forecasters have come back with advisors, goldman sachs, and other

researchers, that about half of the decline, the participation rate since the end of 2007 is due to the demography. if you just zoom in on the last couple years, the last two or three years, ready much all of the decline in the participation rate is due to tomography. you saw that in the study from the philadelphia fed which is somewhat different methods. the other factor that affects the participation rate is, is cyclical. and when the unemployment rate rises, there's some people who stay in school longer rather than looking for a job. so maybe after having a baby won't reenter the labor force. some will surely be discouraged and give up looking for a job. as the unemployment rate comes down, we expect to see those people coming back into the labor force, and that's important because as the president said, america is strongest when we are fielding a full team, but as those people

coming back into the labor force, the demography is going to continue to pull the participation rate down. for the next couple of years you're basically going to be seeing to offsetting effects on your participation rates. >> in terms of your second question of the long-term unemployed, to a first approximation, the long-term unemployed looking awful lot like the labor force as a whole. this is not some especially disadvantaged or less skilled group. in fact, the educational attainment of long-term unemployed is on average actually slightly higher than it is for the employed. so this is a group that for the most part, through the bad luck of the worst recession from something where we were losing over 700,000 jobs a month, at some point lost their jobs and have them enabled to get back on their feet since and now are in a position where you have a self

perpetuation cycle of, audit studies have shown if you just send resumes, lets a person has been unemployed for eight months they're much less likely to even geget an interview and someone with the same exact resume who is unemployed for one month. now they're just caught up in a bad cycle. what we are trying to do is work with companies, foundations as those best practices for the federal government to get them out of that cycle. >> mr. jackson? [inaudible] they are expecting some kind of deal in february on the debt ceiling. do you think will avoid the kind of debt ceiling standoff we saw earlier? >> yeah, i certainly hope so. there is no reason congress can't do what it did twice last year, and basically without, you know, ran some without hostagetaking, since the

president that limits the increased that he can sign so that we pay the bills we already incurred. and there's a reason they shouldn't be able to with less drama, at least the second of those to increase at that they did last year. in terms of deficit, i think he mischaracterized it a little bit. the united states hits the debt limit on february 7. that space on the statute that was passed. at that point the secretary will be able to deploy extraordinary measures. those extraordinary measures don't last as long as they would have at other times because we have a lot of cash going out in the month of february. as a result, by the end of february, beginning of march and the secretary said it was more likely by the end of february we will hit that point at which we basically exhausted those extraordinary measures and the need to raise the debt limit. [inaudible] >> me i really see no reason why congress would act and i'm very

much hoping that they can capitalize on the momentum we have in our economy, and in the greater fiscal certainty we're creating to take care of the debt limit and take care of it without drama or delay. >> jason, we heard -- can you talk about the different proposals, rubio thought about getting rid of -- [inaudible] is there a middle ground or a completely different vision? >> let me tell you a little bit about our proposal and we haven't put the details out you. the details will certainly be out no later than when the budget is released. over the last several decades,

we have greatly expanded the earned income tax credit for families with children. that's appropriate because those families both have higher expenses, and also have had higher poverty rates. the evidence is that's have profound effects in terms of, for example, bringing single mothers into the workforce, helping to increase mobility, for wages for those mothers and the impact it has on children. from better child nutrition to test scores in reading and math. but what we haven't done is pay as much attention to households without children. and their tax rate has basically been unchanged in the last 40 years, at the same time you've seen this dramatic reduction in the tax rate for families with

children. and the president is proposing we take that tool that has worked so well for families with children and expand it for households that don't have them. that is very much a work oriented approach. it's very much about increasing the reward t to work and you'd expected to have many of the same benefits in terms of participation and mobility. we certainly -- that's what he's going to be after proposing. there's absolutely no reason that we would or should want to cut back on what we've done with families for children. with children in order to expand opportunities for families without children. as i said what we've done for families with children has been proven to be, you know, extremely effective. and so to the degree which are talking about is something that

is budget neutral where you're taking from one group and giving to another group. i don't think there's a lot of space for the conversation. i think there's a lot of space for conversation though about how best to expand and build on the successes we've had over the last several decades, and make sure that we are reaching more people and benefiting more people. i think it's terrific yes, senator rubio talking about ideas in that space. you had glenn hubbard who is -- who was top economist for governor romney for his present accounting. you have a lot of economists on both sides of the spectrum talking about this, including many who criticize minimum wage but said instead of minimum wage this is what you should do, be good for those people to step up and support this and help push it forward.

mark? >> jason, lester the president proposed linking some benefits to less generous measure of inflation, called chained cpi. will the president renew that offer trying to bring down the long-term deficit? if not, what vision does he have for dealing with a long-term deficit in this year's budget speak was so, i don't want to lift the curtain on any specifics one way or the other about the budget that the president will be putting out. but i can say it is a budget that just like all of his previous budgets will take seriously the need to make investments in key areas for our economic growth. and also we will take seriously the need to reduce our deficit over the medium and long run, and to make sure that deficit reduction is done in a balanced manner, that includes revenue and protects the things that are most important.

the other thing i would say in thinking about the budget and the long run budget is i do think it's important for people to understand that there has been a significant improvement not just in the short run budget where the deficit has declined over the last four years by the most it has from the demobilization from world war ii but also in the long run outlook with cdo putting the fiscal gap which is the measure of how big the deficit is over the next 75 years at 1.7% of gdp. which is considerably smaller than estimates of the fiscal gap had been, even just a few years ago, it is because of the progress we've made on slowing the growth of health care, what we have done in things like the budget control act on spending, and what we been able to do on revenue and things like higher rates on higher income households that was signed into law the beginning of this year.

[inaudible] >> keystone is something the state department is handling and not something that i have personally been involved in any analysis related to. then i don't have any -- i expect the state department to continue doing that, that process. [inaudible] >> have you talked to the present have impact of this, how americans can get good jobs?

[inaudible] i guess i completely disagree with the premise of your question. cbo has said that immigration will expand output by $1.4 trillion. cbo has also said, and this is very important, that that extension won't just be because it expands the labor force but also because it expands what economists call total factor productivity which is the total amount you can create out of a given amount of capital and labor. and is the closest thing we have in economics to free lunch. if you look at immigrants, they,

for example, and this is a study done by the chief economist of the labor department, that they patent -- [inaudible] nativeborn americans, and americans into patenting even more when they're in the proximity of immigrants. so this is something where it increases innovation. you have a lot of entrepreneurial immigrants. have a lot of immigrants that create jobs and to think the basic flaw in your premise is this not a fixed number of jobs in the united states, and the question of, you know, how may people are there who are lining up for those jobs. the question is what you wanted you to expand the number of jobs and expand the number of good jobs. i think there's no doubt that immigration will do that. we are talking of the participation rate earlier. the degree to which you want to do with something like a declining trend participation rate which creates challenges, for example, for your budget and for data with programs like

social security, immigration reform helps with that. cbo says it increases their participation rate. it helps with the deficit. it helps with social security solvency. and cbo did not say anything about what it would do to wages of people are here in america and he would've been here in america otherwise. and wages, including lower wage people who are coming in on average would eventually be hired. [inaudible] >> to what extent does it actually increase opportunities for americans? actual americans. [inaudible] spent if you look at the president's speech that he gave, he talked about several parts of the strategy to deal with the inequality mobility opportunity challenges he's talking about in that speech.

the first thing he talks about was expanding the opportunity that would give this country. immigration reform is, all the economic policies that are on the agenda right now, the one that would do the most to expand it as i said it would expand it not just by having more workers in this country, but i have a more ideas, more innovation, more entrepreneurship. that has the potential to benefit everyone. in fact, cbo has said that that would ultimately raise wages for everyone, including the new set of people you're bringing in. >> an interesting discussion among -- now, whether there is -- [inaudible]

i'm wondering what your current view is on that. >> i generally don't think there is very good evidence for secular stagnation. i think, first of all, there's less of a puzzle to be explained in terms of recent growth, the proponents of the secular stagnation would have you believe. and second of all, in terms of where the economy has been lately and where it appears to be going, less reason to believe that going forward. so to take those two in turn, less of a puzzle. if you look at growth over the last couple years, relative to what you normally have come out of a systemic financial crisis like this, we have over

performed most of the other countries around the world, over performed our own history. that is despite the fact that we've had some very significant shocks and the rest of the world, in things like the eurozone crisis, and also a very serious, you know, fiscal contraction in the past year. so i think if you take those factors, they pretty much explain any deviation between what you might forecast and what actually happened. there is -- and then you look at going forward, and we talked about growth in the last couple of quarters and we talked about the outlook for 2014 and 2015. i think that tells you a lot of what you have seen has basically been a cyclical phenomenon, not a secular one.

the good thing about cyclical phenomenon is that they tend to end themselves. one important caveat to all of that, and this is what they secular stagnation is argued about. labor force today is lower than it was in the past but you don't have women entering the labor force en masse. you don't have a population as the baby boom enters into the working years that we have in the past. now you have women having plateaued them in terms of labor force participation. and you have the baby boomers beginning to retire. so that component, the gdp growth which is due to labor force, is growing more slowly now and that's one of the motivations for things like immigration reform, to help keep that labor force growth up and keep our potential growth higher. >> alexis. spent i wanted to follow up -- house you would think about how

economists analyze the differential between legal status versus a pathway to leadership? >> i certainly think there's a lot of arguments for why you want to have a pathway to citizenship. ..