content and the content itself shouldn't pea bee be treated the same. and i think what has been started under the bush administration and continued with the obama has been a failure. that is why this murky, legal limbo and going back and looking at the '96 act as it was written, it is the law all of the land, it should be on the table. the judges made it clear to the fcc, if you want to protect internet users you have to look at title 2 and pretending t otherwise doesn't give them the authority they need. >> guest: computer regulations

isn't being regulated in common carrier starting in the '70s under democrat and republican controlled fcc. they operated different than phone records. and it was under the chairman in the second clinton term where the pass was made to insulate the internet from common carriage. and so those types of communications were never regulated and didn't grow up from title two. they have always been out of title two's reach. that is what helped grow the internet we have today. and wireless broadband has been growing because it hasn't been burdened by the control style regulations. >> host: last word. >> guest: i think it is very clear what we are talking about

is a telecommunications or transmission service. if we are going to protect in r internet users the only viable way is through broadband reclassification and that is what the fcc should move to do. >> host: craig aaron, do you agree with robert mcdowell that it is time to rewrite the telecommunications laws in the country? >> guest: i think we should go back and look at the '96 act and enforce that. that should be the starting point for a conversation about bringing the laws up to date. >> guest: it says the internet should be unfettered by state or regulations. >> host: robert mcdowell now with the hudson institute and craig aaron president and ceo of

free press. >> comes up next, alan greenspan and then after that a discussion about the minimum wage with ceo director and later a panel with former cbo directors. >> we will hear more about the budget cuts for the military

on "the washington journal"and then later chris murphy will discuss the political situation in the ukraine and the united states role there. you can join the conversation each morning. >> on tuesday, eric holder will speak live. our coverage starts at 10 a.m. eastern. >> what we are told is there is all kind of sit-ins and demonstrations that occur but they are done by these famous iconic people. it is rosa parks who was so

tired she refused to get up from there bus and the young preacher who even the president referred to during the election as a young preacher from georgia who leads the masses of african-americans from racial oppression. so this notion that rosa sat and martin could do this stuff and jesse could run and obama could fly. they sound good. but they really simplify a much more complicated history. and that history involves so many african-americans, women and men, who proactively dismantled the seggration. rosea parks was an activist.

>> history professor and author of "dark days and dark nights" will talk to us on sunday live for three hours starting at noon eastern on c-span's booktv. alan greenspan talked about issues with the immigration system, the dodd/frank bill and inequality. this is 45 minutes.

>> good morning. i am hear with a man who needs no introduction. i am hear to talk about the changes in the policy and then recommendations dr. greenspan thinks are necessary to solve the stagant recovery. let's start with a generic-type question. what is your current view on the u.s. economic outlook? >> guest: i would say more of the same. that if it were not for the fact that acid prices were still under valued in part i think we would be in a more difficult series of problems. many of which, larry, went over. but we're still in the position where the equity premium on

stocks, for example, reached a 50-year high just several years ago. and they have come down only partway. remember that stock prices, over the years, have risen by 67% annually. fairly consistently at about half being real and half being inflation. we have had no changing for a number of years which means that, granted had market was high in 2007, but we have five years of fundamentally no change. so there is a slight set of pressures. but that is probably the only good thing i can talk about the economy. >> host: what about the debate on whether or not over the past

couple months economic data has been turning slower and a lot is being attributed to weather. did you believe that? >> guest: i think certainly part of it is. but we are going to see a significant downward revision of the 4th quarter gdp and we are seeing a definite slowing down. and we are definitely seeing slippage in the industrial introduction. we keep a weekly production index and that has come down partly because of weather. and car loading in relation to

the productive index is going lower and i don't think that is anything fundamental. i think that is a reaction to the excessive inventory. it is, as far as i can see, this 1st quarter looks like 2%. it may go up a little bit for the rest of the year, that still remains to be seen. standard models of extraordinary complex and did so well december 15th, 2008. i was shocked myself because i was a great fan of the federal

resever assistance. we missed it, and i am hard pressed to find anyone with a hard structure model who got it right. >> host: looking more simpler equity markets have done fairly well, are they getting ahead of themselv themselves? any possibility of a bubble there? >> guest: the answer to the bubble is no. but that is not the same thing as saying they will not higher. bubble requires a degree of euphoria that is not quite place in the market place. so long-term rates will start to

move higher and that is going to be difficult to deal with. but overall, that is what where our problem is. is problem is in a deeper problem and that is essentially a consequence of our response to the crisis that emerged. >> host: let's dig deeper into this. who do you think over the past six years the recovery has been so muted or what is your view on this? >> guest: well, i agree with some of the things larry mentioned in a somewhat different sense. but we are dealing with a situation in which you can see what is going on if you try to c construct the gdp on what goes

in. what you end up with is a weighted chart and it goes down gradly and then sharply lower. the major component of that decline in average durability is that fact there has been a decline in structures as a percent of gdp. this is including residential and non-residential. they lost 4 percentage point and that is a big number and translates to where the sl

sluggishness comes in with the unemployment rates. that is where the problem lies to me. it isn't evident that the remainder of the economy isn't behaving in a particular unusual manner. it isn't doing great. but as far as i can see the issue here is why is it that we have had such a dramatic decline in long-lived assets and not particularly in shorter-lived ass assets. here we slit the structures in the residential and business and examine each separately. i have a fairly long regression,

meaning long in time, that's measures the extent to which non-coperate businesses move their fixed flow. >> host: so putting your money where your mouth is? >> guest: well they have not been speaking too much lately. at the bottom, the ratio of capital investment to fixed -- or i should say fixed liquid capital investment is at the lowest point in peace time since 1938 and we are up only slightly improved from that particular levels. >> host: you have sat on

numero numero numerous boards, why is that? >> guest: well, when i was an active member of this organization, i was a consultant to a lot of organizations and i sat through what happens to a project manager and they would have to exhibit why a certain facility ought to be constructed. and they will trump out the usual data that i think many of you would be familiar with. and they get a tax rate return of 20 percent which is terrific. management goes what is the

variance? and that is where the big decisions remain. my experience is that it is very much more important to get a narrow variance which is usually the case in basically cost-saving equipment than it is to have a market e expense with a high rate of return but with a significant potential for loss. my experiences more often than not that stuff is pushed aside. so we are look at what causes the variance of capital expe expectations to spread. here it is uncertainty and i

have used this relationship of the share of cash flow going to capital investment and non-financial corporation. i tried to explain it using the dependent variable being capital investment in non-financial investment as the share of cash flow as the dependent variable and cyclically adjusting all of the independent variables which you can do and gives you the characteristic of multiple regression of the individual regression sums up to what the multiple regression is. so you can essentially see where the particular elements within

the regression are effecting the fitted. >> host: what were the results? >> guest: i had regression going back to 1970. the r-square is a little over .75. but it is a trendless series so you don't have bias when you get the r-squared when you have two population and the number of wart on the tree go up. but you know, what the data showed was that in a sense you do get an impact from, the biggest impact i should say, which the slack in the economy increases. that is probably half the decline or half of the measure has to why corporate investment

to cash flow moves. but the rest of it is not. and the rest of it is a big part is the cyclically adjusted net growth savings ratio or net, very close to the same. the net savings figure is, i should say the gross savings figure shows that large government deficits not only crowd out private investment in the longer run, the cbo offering states, but i see it doing con temperacy and the reason isbuse because ex-post savings in a domestic economy, savings minus investment must equal your foreign account balance, and

what we are seeing here is that issue basically causing an increase in government definitely as the and subtracting savings from the rest of the economy. and i was about to say that, to me, is what is causing the gross domestic savings rate to be declining very significantly to the point where now the net domestic savings figure is 0. if the the gross domestic savings is close to zero, which is it, in order to invest encapsulat encapsulatin is it, in order to invest encapsulat encapsulativestment, you have to add to net borrowing

from abroad and what is happening now is a dramatic decline in gross savings and partially offset from the borrowing abroad. but the capital stock investment is declining appreciatively and that shows why productive has slowed down. and unless and until capital investment is going up, meaning changing the components because the most important one right now is a very different one, it is the spread between the 30-year treasury and the 5-year note and

that is at the highest level in american history. meaning we are not only discounting the future, but the far don't future at a far more aggressive rate. >> host: i will quote your book on this and we can talk about remedies. this is interesting and struck me as the highest priority going forward is to fix the broken political system. there is no viable long-term solution to the badly warped economy. how do we go about -- what are your recommendations? you have several elements. the regulations side. >> guest: you are asking me how to fix it? >> host: how do we start? >> guest: let me start off saying my basic view of the way that the system is structured is

that you get a -- i don't know how to put this. the regulatory structure, perhaps defined at dodd/frank bill is not working and it can't work. it can't work because it doesn't address what the problem is. there is not a single issue which occurred in the breakdown in finance and remember in 2008 this wasn't a breakdown in the non-financial system. the non-financial system was in good shape. all of the problems were financial and all of the financial problems were of two forms. one was a failure to fully

address the issues of the extend to which fraud is centrally restrained because fraud is a very dangerous thing for a market economy. and trust is a fundamental issue in the way the system works. the remainder is largely the fact we had inadequate levels of capital in the financial system and collateral for different types of debt. that tells me if we didn't have all of the that type of problem, we would not be running into serial defaults of the type we saw which broke the whole system down overnight.

serial defaults can't occur unless you have debt. my solution, which i hope will be a factor because what they have now isn't working, is to have requirements, not only capital goes up, but more importantly that there be ma mandtory requirements to hold cocoa bonds. they are convertible bonds that are like the bentures. but you put pre-crisis triggers as to win and what objectively measured conditions that turns into equity. and it obviously the flotation

of those issues cost another 2-300 bases points. but that is the true cost of that debt if the lultimate is government bailing us out. then you would eliminate the possibility of serial defaults in the financial system. and that means you can have declines in the value of equity. but as it occurred after the dot com boom -- nothing. the gdp containings were barely visible in the period immediately following the crash of dot com boom that caused huge losses in 401k's and households and pension funds and all

various other means in which there is no leverage. and that is what i see is bake basically required to do as they are trying to do: avoid this from quote happening again. i have heard this several times and it is tiring. >> host: reducing the uncertainty -- how do you see that progressing? a year from now or two years are we still going to be talking about sub-3 growth in the united states? >> guest: until we have rationale budget policies and

fiscal policies i don't know sow we will solve this problem. the basic problem, i think,that the fact we have no domestic savings going on. household saves are down quit significant. business saves is up. undistributed earnings of businesses are actually doing fairly well as larry pointed out. but the major losses are in the hou household sabeing -- saving rates which used to be 10 percent and now they are 0. " ...

the half percent, the process, but the reasoning, the interesting question, is this something fundamental? and i don't know the answer to that question. but if this is end dodd-frank is actually going to be significantly counterproductive in squeezing down and creating despite the fact of what they are trying to do their creating institutions that it's too big to fail, which means that those institutions which took the support of from under them by government had said in-depth

looking for protection under chapter 11. now, this strictly a successful program which restructure its debt. but the too big to fail, it becomes intuitive. the savings of the society because unless you have created destruction, the obsolescence equivalency, you never going to make good. >> are there similarities there between japan? >> i would think so because i recall 1989 what became apparent to me is that the japanese

banking system was not called -- calling in loans. they kept turning them over. there was a close to zero interest-rate. it's not terribly difficult to do, but the problem essentially is that japan does not -- i remember a very prominent politician in japan it told me, what your analysis of why you have to have creative destruction to get productivity rising, standards of living rising, and you have to allow these institutions to go bankrupt. and he says to me, you have analyze this situation extraordinarily well. the only problem as, that is not the japanese way. people forcing people to lose

face is an extraordinarily an ethical thing to do in business. and to have a dodgy loan and your bucks, it's easy to get off and the united states, just basically wrote them off and people went into bankruptcy and then came back out, but they don't do it that way in japan. one of the problems of their stagnation is they have not allow the system. >> should china be looking at japan? >> they are, but not in the way that we would like them to be. [laughter] >> what lessons -- you know, what are your thoughts on what is occurring in china right now? >> well, i think that you should just look at the basic data among the shadow banking system. you know, straight up with lending is significant. we will was very disturbing, you know, that there is coal company

which went bankrupt. and everyone was willing to see what would happen because the presumption was that it was nearly $4 trillion in reserves, the people's bank of china where not about to allow the government institutions to go bankrupt. and consequently it was like the gst in the united states. it is a very inefficient system because capital was not moved to more productive, cutting edge technologies. the result basically is that the chairman, precisely the wrong signal that could be made at the time which was very difficult to get cutting edge technologies

have a significant advantage over less productive active investments, which means that the tremendous growth rate and productivity in china which has been essentially the result of borrowing from the developed world by bringing in capital -- the technologies, the trouble is that a couple of years ago thompson did a study in which their criteria, likewise, the 100 most technologically innovative companies. thirty-one american. zero were chinese. which means effectively, if thompson riders is right, almost

all of the economic productivity and the growth rates in china of from borrowed technologists. now, as the changes move significantly higher and closing the gap begins the developed world wage raise the productivity was going to fall sharply. and it already is. we are looking at a double-digit annual growth rate which is now approaching six depending upon how you measure it. and remember the chinese figures are not the same as we look at them. they can create whenever gdp they once by just acquiescing to the requirements of problems to build three office buildings to put people to work.

it was not. and that is symbolized by the state-owned bank under instructions coming from the state council. the result is that you did this gdp that is created there, but it may be as is more relevant to the problem, excess steel capacity which is built to create jobs, not so create anything else. >> it sounds like animal spirits , you said basically the impact of a bubble bursting, of that is due to leverage. is there a bubble in china in your opinion? do you think -- >> there is, but they're is a big difference in china. it's very comforting when you have in your call for over three and half know it -- three nab trillion dollars to do with as you want to solve your problems. i am not at the moment saying

that china is about to go bust of last -- unless the stuff they're holding, which is u.s. treasuries go bust. and i hope that is not -- [laughter] i see. and let's bring it back to the u.s. for a moment. income inequality. it has been rising pretty substantially of the past couple of decades. what is your view on that? policy recommendations? >> as i . out in the book, you can make a pretty high in regression if you examine the issue of various measures of income inequality with two independent variables. one is how -- the hourly earnings, average earnings.

one supervisory employee and the issue of stock prices. and that's fairly well fits the rise that is going on, first the decline, but then the rise in inequality and the issue is do we want to prevent -- do we want to knocked stock prices down to get the quality? i consider income inequality one of the most dangerous parts of what is going on in the united states. and there was a very interesting chart which shows us, going back to where it was in the 20's and 30's, which is probably part of the effort. it is -- a couple of professors but that dated together. i'm sure it quite effectively. so you can see the deteriorating

impact of that climb the current political system. you cannot talk about politics without talking about the impact on the economy. so my view is to recognize that what is causing this low rate of growth in average hourly earnings is basically so proud of -- slow productivity. slow productivity is occurring because of capital stock not rising sufficiently widely because capital investment is not growing. and therefore we cannot expect to keep borrowing savings from abroad to finance our gross domestic capitol investments. we cannot do that. and it i would just say that we cannot -- we have basically got to get to the position where we

get our economy moving at a 4% annual rate. in so doing if we succeed in doing that, that will solve the issue very quickly. but that does not look as though it is immediately on the rise in i just want to say parenthetically to my did not mention the fact that households uncertainty is best measured by the price of palms. from the years 2001 to 2004 there were a million additional of single-family owner occupied homes which is essentially meant the whole household formation, was drawing to owner occupied single-family dwellings, and that was because the price levels were rising and everybody in felt very positive about the distant future. homes last along time. and as soon as the prices began to turn the actual level of the

stock of single-family owner occupied homes has been going down -- not significantly, but gradually. and they shared ownership to total households which came down dramatically after the crash has not recovered despite the fact that home prices have come back. >> lack of confidence and uncertainty. >> it is another way of saying that if you are a homeowner, if you are basically saying a person about to form a household do you want to take a long-term commitment or a short-term commitment? and it is disproportionately going to grand a very short term

commitment. their home, which is a long-term commitment. looks exactly like the business community's reaction in a different context. >> you know, in terms of these indicators you're looking at, as an employee a bloomberg on your terminal what other indicators are you looking at or what other imbalances d.c. they are monitoring around the world. >> like bloomberg. >> on your channel. yes. what does a launch pad look like ? >> well, i can to let certain types of data. everybody, exchange rates mainly. at the moment i am always looking at what is going on with the yields, long-term debt in the rural area because i, as i said in my book, i don't like

particularly hopefully on being il-2 keep the euro in place unless there is political consolidation. extraordinary actions. we will do whatever is required. when you are essentially putting ads a means of financing with very little restrictions, people , commercial bank, my problem here is the fact that this system is not to stable.

totally stabilizing in. i'm nervous about that. greece is going into an election and the main problem is greece is solving its -- greece is solving its deficit problem, but they are doing it in a large part on surplus. they're getting to the point where there are no longer going to have a net cash flow. it will start to have to start to pay out interest. that is the danger point politically in greece, and i don't know how -- it is touch and go on this election. if greece goes to the extreme

and drops out of the euro, which is not a small probability, i am not sure what would happen. the contagion. >> is there any other country that is a red flag for you right now and the eurozone? >> no, actually, portugal is doing better. spain is doing better enough to be in really serious trouble. i don't know how it really is going to be doing with the new prime minister. >> i guess time for one more question. i will bring it back to the u.s. i read your book this weekend and you said that integration -- was one of the most important of least talked-about policies that the u.s. should be talking about right now. what do you mean by that? >> let me just go back to income

inequality for one second. a significant part of that by taking our h1 be programs while basically opening a the issue of allowing people, forcing them to go home. we have, as all the measures of education indicate, an unbelievably deteriorated k-8 -- grade eight -- we cannot imagine -- we cannot manage this staff. our very complex, highly sophisticated capital structure with what is coming out of bicycles. we used to be able to. we have high class best in the

world, actually. we have deteriorated very significantly, and is the -- it is getting worse all the time. if we are not going to educate our kids, bring in other people who want to come -- become americans, let them in here and let them use their skills which is what would happen. and that has a significant impact on their quality. h1ab subsidizes the income of everyone in this room, including you and me. and if we were to open up we would be finding ourselves competing with others that our skill level and our income

levels would not necessarily go down very much, but i bet you they would go down enough to really make an impact because income inequality is a relative concept. people who are absolutely at the top of the scale in 1925 would be getting food stamps today. it is a relative issue, so you don't have to, necessarily, bring up the bottom if you bring the top down. and so immigration has -- there are really two different types of immigration problems and we have. one is what do we do with the 11 million illegals which is a very tricky problem. what i would say is maybe half of them are in the work force.

we require them to leave the country, our economy would fall apart because you have no idea how much structure they build into it. so i think we are making a mistake in the into the -- immigration area. in many respects it could be the easiest thing that we could do to solve it. >> i was hoping to get a segment in on jazz, but we are out of time. so we will have to leave it that. thank you very much. [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> congressman, democrat of michigan announced monday he will retire after almost 60 years and alice at the end of his 29th term. the congressman, the longest serving member in history replaced his father. he has held his seat since the eisenhower administration. we will hear more about proposed budget cuts and scaling down the size of the u.s. army on our next washington journal.

wall street journal defense reporter was join us. and americans for tax reform president grover norquist will weigh in on efforts by house ways and means committee chairman dave campo over all the tax code. later a senator chris murphy chairs a subcommittee will discuss the political situation in the ukraine and the u.s. role there. you can join the conversation on this book and twitter. washington journal each morning at 7:00 eastern on the c-span2. >> i think there are some myths out there. people think the maraschino cherry is some miraculously preserved product, and it is really not. it is no different than a pickled cherry and the bryan process is no different than the types of, you know, sulfates you use in making wine. really, it is -- i would not call at a healthy product, but i would call it something that is

a tasty treat. >> in various stages of the process. the cherries that come in, even though we put them in water, there will still have bryan in the fruit. they will go through an extensive washington get the bryan, the sulfur, and the calcium back out. the practice of making maraschino is basically you are taking a brine and soaking it in a progressively stronger and stronger sugar and solution. over the course of that schedule you will see the color intensity picked up as the sugar content picks up. you can see or hear some that is very early in the process. whitely -- lightly colored. you see a much darker that is. that is much further along. gives you an idea of a yellow, pink, deep red. and it is just that cycle of the infusion and where it is that in

the process. >> next weekend book tv and american history tv look behind this tree and literary life saturday at noon on c-span2 and sunday at 2:00 on c-span three. >> more now from the conference with congressional budget office director. he discussed the most recent budget and economic outlook. this is 35 minutes. >> good morning again. i feel like you are drinking out of a fire hose after that talk, for sure. actually, after the last couple of talks. i was pleased that we have been having such excitement this morning. doug allan dodd became the eighth director of the congressional budget office on january 22nd 2009. he brings to us today an

impressive background to his assignment. his undergraduate degree is by princeton taught by beta kappa, received his master's from harvard, one of his dissertation committee member spoke to us this morning. he also had marty feldstein. our speaker was previously an assistant professor at harvard served on the staff of council of economic advisers and served as deputy assistant secretary for economic policy of the treasury. before he became cbo doug was a senior fellow in the atlantic studies program at the brookings institute. that kind of men's my biographical background. many people know doug and his work. from an administrative standpoint we will try to get some questions then. i know we have been little taxed for time. so at this time would like to invite dug his presentation and we will take some q&a.

[applause] >> thank you. it is great to be back. i am afraid that i will mostly stand here while i talk. rather than just focusing on the budget this morning at the audit would be useful to spend most of my time talking about the cbo perspective on the economic outlook and then i will wrapup by talking about the budget. and i your next session but go into budget issues in greater detail form. most importantly, al low labor market involve. together with their budget economic outlook released a few weeks ago we released the second report on the slow recovery of the labour market. we will start with that. how rapidly potential output will grow. but the pass for inflation, interest rates in the labour share of income and i will wrap up by talking about the results and projections for the budget.

i am at the labour market. in our view, the slow recovery of the labour market was a reflex low growth and the demands for goods and services with the smaller role. we think there is considerable slack. and specifically we think the economy is less 6 million jobs short of where it would be if the unemployment rate went back down to its pre recession level and the labor force participation rate went back up to where it would be with of the current cyclical weakness. the unemployment rate grasps three late last year obviously went up very sharply in has reversed a little more than half of its increased since before the recession. a net increase from the end of 2007 to the end of last year was about two percentage points. we think that of that roughly two percentage point increase about one percentage point he can be attributed to cyclical

weakness in demand for goods and services have roughly can be attributed to structural factors the erosion of skills, rising from long-term unemployment and the other half to a decrease in the efficiency of massing workers in jobs. partly from a mismatch in skills and locations. there are, of course, estimates and we rely heavily on our judgment. we tried to quantify these concepts and that will give you another set of qualifications as we go along. to be concrete about what we think is happening. with that the structural factors , the natural rate of unemployment, the rate that would arise apart from the weakness in demand for goods and services has gone up from by% before the recession to 6 percent now. and as we look ahead we see the natural rate declining to a five

and 1/4 percent by the end of the coming decade which is our normal or rise in for budget economic projections. and we'll expect the natural rate to decline as the structural factors lane. we think the actual rate of unemployment will fall back down close to but not quite to the natural rate of unemployment, and i will explain that gap in just a moment. by 2024 we think the unemployment rate will be five & that difference of half a percentage point will lead to what was the case before the recession has come from to pieces in our analysis. the first piece is a quarter point remaining extra employment at a higher natural rate of unemployment because of the big erosion of skills from long-term unemployment. the natural rate will be five and 1/4 percent rather than the 5% that it was before the recession. this shows, i think may very long shadow of having so many people out of work for such a long time. we also think there will be a quarter percentage point gap

between the natural rate of unemployment and the actual rate of unemployment which reflects a shortfall of output relative to the potential. let me explain the difference in our projection this year from our projections in past years. you look back at the gap between actual and potential gdp that we estimate over the last several decades you can see that there is lot more of that below the waterline and above it. in other words, the shortfall in output relative to its potential has been more frequent and larger than the axis is the output over the potential during economic theory that picture is even more striking if one asks over the last set of years of this very long and sustained weakness in the economy. projection going forward is that the output gap will narrow bill will not entirely dissipate, and we are simply taking our cue from the historical average.

on average over the past several decades, and the overall since the second world war actual output has been a little below our estimate of potential output on balance. when i predicted to up predicting any particular cyclical events of the second half of the projection, but we're trying to allow for the average. okay. the other crucial and at least to us surprising feature of the aspect of the labour market of the past few years has been the participation rate in the labour force which, as you know, has fallen quite distinctly, fallen more rapidly "then the years before. there has now been about a three percentage point decline in the unemployment rate from before the recession to the end of last year. of that roughly three percentage point net decline we attribute about half of one-and-a-half percentage point to long term trends, primarily the aging of the population and moving a baby

boomers into retirement. another percentage point with a tribute to the cyclical weakness in the demands for goods and services and people choosing to stay out of the labor force, to leave the labour force because they cannot find jobs and that job prospects are so poor. we attribute about half a percentage point to discouraged workers who have dropped out of the labor force permanently. some of these folks have gone into social security disability insurance programs which a number of people telling in have moved up very noticeably in the past few years. others have simply left the labour force to do other things of their time. but we think that about half of a percentage point on the% to about participation rate can be explained by those folks who we think will not come back into the labour force. in contrast the people we expect will come back as job prospects improve. our forecast for labor force participation rates so that a gradual downward trend of the next couple of years, the net

result of two factors, the cyclical recovery that we expect in the demand for goods and services and thus for workers will pull people back into labor force and pull the participation rates. but the demographic factors will pull down the participation rate. so over the next four years we think demographic factors will win that battle slightly. the participation rate will come down a little bit. beyond that point the cyclical recovery will be complete in our view and the demographic factors will push down the participation rate more sharply. another piece of this story that we also talked about an hour report which is the effect of fiscal policy. so between 2007 and 2024 and our projection the participation rate in the labour force to a fallen by five percentage points. of that five percentage point decline we expect about three nap percentage points owed to the demographic factors, again,

primarily the aging of the population. this is just the other side of the story i talk a lot about in terms of the pressures of the federal budget. people move into federal benefits and are much more generous. we think about a little under half a percentage point of the total five percentage point decline in participation rate comes from to discourage workers of left the labour force permanently in the last about one percentage point we think it is owed to federal fiscal policy the larger share of that stems from the affordable care at and reduced incentives to work that arrives when people with lower income receive a benefit which is then withdrawn as their income rises. the other part of this is their racket creep in individual income tax. as you know, the individual income tax bracket index for inflation but we expect that real income growth will outpace inflation and people move gradually to higher brackets.

if you put together the unemployment rate and participation recollected the share of the population that is employed. as you know, this bell during the recession and has essentially moved sideways through the end of the recession. as we look forward to the next four years we expected to edge up a little bit. this is, again, a cyclical recovery in the increase of the participation rate and a decline in a plenary. and to pull up the share of the population that is employed. meanwhile, the demographic factors are continuing to weigh on the share of the population. after this a typical recovery is complete of the project and about four years. okay. that was a quick review of the labour market. let me move on to the other questions that have raised.

how rapidly the potential of brophy this tree of the last 60 years so years with their projections for the coming decade. potential gdp grew by about three and 1/4 percent of the last 60 years. annual average basis. we think will grow a little over 2 percent over the coming decade nearly all of that can be explained directly by slower growth of the potential labor force. end the historical average we did not have which has now crested. and women between the ages of 25 and 54 now the participation rate.

so with the waning of that run-up in the participation rate of those women and the retiring baby boomer population the potential labor force will grow slowly he of which is that over long. so we are looking for, as i said real gdp growth averages two and a half% per year him.

under our projections rate of growth. i should note that this line separating the actual and projected falls after 22 of them before 2013 because the picture was taken from an outlook and computer economic projections before the epa released its estimate for the fourth quarter gdp. i don't want to skip these important variables. let me talk about each of them. the inflation rate, as you know, the inflation rate has fallen since the recession. has remained the core inflation

rate below the federal reserve objective. we think looking ahead inflation will gradually come back up and stay there for the rest of the decade. interest rates, as you know, the ten year rate moving up on average this last year will continue to rise to look for the federal reserve to begin raising for the second half of next year , the second half 2015. those rates level out and about 5% for the ten year rate and three and half for the three month treasury. labor compensation growth has slowed very distinctly since the beginning of the recession. think this is confirming evidence of substantial slight there remains in the labour market. as a result of that the labour share of income has fallen continuing.

as we look ahead the complication growth will pick up in the labour share of income will rise, but it will in this projection decades from now be below average -- over the past several decades in the persistent manner that will not go away just when this downturn in its previous of these economic projections, of course, the base on which we build, projections of the budget. this picture shows federal deficits and a few years of surpluses. the deficit has come down very markedly over the past several years for about 10% of gdp in 2009 to an estimated

500 billion, about 3% of gdp in 2014 under current law. the deficit will fall again a bit next year the deficits stay close to 3% of gdp which is there average share gdp. but that similarity is worth noting but also in some ways unmasks two important aspects of the budget that will be different. one of those aspects is the composition of federal spending. in this picture we showed social security spending is a share of gdp. forty years ago and their estimate for this year under current law and in our projection for ten years from now. you can see growth in social security exceeding growth in the economy.

a rising share of gdp. and that arises, of course, over the next decade from the aging of the population. we project it will be more than one-third more beneficiaries of survivors insurance ten years from now than there are today. the major health care programs are rising even more dramatically, that stems from three sources, the first is aging population which will place across medicare and medicaid. the second source is rising health care costs per person which has been underway for a number of decades and has slowed recently and the projection takes on more of that slowdown but none the less we expect health care costs per person and then the economy more generally will continue their rise faster than gdp per person. the third factor here is the significant expansion of federal subsidies for health insurance under the affordable care act.

in sharp contrast with the growth of spending for those programs we think it will be a smaller share of gdp over the next decade than it is now or was 40 years ago. spending is shrinking relative to the size of the economy given that the caps on defense spending and in current law and everything else is also falling at the share of gdp under that cap on funding. if you take that three right sets of bars, everything the government does, that entire set of spending will, one decade from now, be a smaller share of the economy than it has been at any point since 1940. so the growth of government

spending as we see in this glass said stems not from growth and the size of the government but generally growth in a handful of large programs. the rest of the government vote funding is heading to be a smaller share of the economy. the other way in which the future is different from the past is the level of debt. we project that that well be flat for the next several years but will begin to rise again. longer term projection, last fall, let me stop right there and see if you have any questions unanswered.

[inaudible] >> hal its estimated in your forecast. >> relative to the projections of output that we have made in 2007 -- their royal we come of a relative to the projections we have now marked down our projection of potential output in 2017 by a little more than

seven percentage. this is a point that larry and others have noted. of the reduction of more than 7 percent we interviewed a little less than 2% to directly deep recession and slow recovery there's a one and three 1/4 percentage by reduction in output coming from the persistent affects on the labour market, particularly the elevated levels of long-term unemployment and pushing people ought to work, encouraging them from looking for work. the weak recovery on capital accumulation and also the one in three 1/4 percentage point. the remainder, five percentage points comes in our assessment from a reconsideration of the various strands that were under way up to 2007. it is not directly related to

the recession and recovery but is a reassessment from our perspective in what the underlying growth rate of key variables in the economy are. we actually have a report which i thought would be up by next week which explains and documents. we do think that there is a long shadow from the recession and a weak recovery. but we also made a set of other changes on how we read the economy directly related. they are still, of course, relevant to how much the economy will grow, but incomes will be in what the revenue base will be. but i want to minimize them. >> we have a question, ratio is backed down. does this indicate we are back at full employment? >> it does not.

the number of people looking for jobs relative to the number of job openings is down from where it was a few years ago but still elevated to what it was in 2007. there are a lot of people who are measured as being unemployed, seeking work. and many other soon left the labour force out of this christmas but you can and we project will be drawn back into the labour force bill of this labor market whishes increase slowly over the past several years and what it was four years ago. a strong sign in which a

weakness of demand is an important factor. >> the slowdown in health care costs in the past several years has been very pervasive in medicare and medicaid, the private health insurance arena. along report last year documenting that within medicare it was very pervasive. you can see the payments for hospital services, physician services, payments for prescription drugs. you could see it in regions of the country, health care costs and lower health care costs. you can see it in the cost of patients who have high costs and patients who have low costs. a very thorough phenomenon. there has been some work outside of cbo on how much of the national health care spending in

be attributed to the weak economy and how much is left to other factors. the range of estimates. our analysis of medicare we could not find a role for the weakness in the economy or the loss of assets. in our report we quantify number of factors that play some role but end up with an untraceable amount in the weak economy or other factors that we can quantify. we think and talk at length in this report in a qualitative sense of the structural changes in health care in this country. we think that we have seen significant structural changes in the way driven partly by a realization on the part of health care providers and to some extent patients that some health care, not necessarily

very helpful in improving people's health and comes from a realization on the part of providers and beneficiaries that across the massive health care spending in the economy is really putting incredible pressure on other services that we would like to enjoy, the system that with those pressures of high health care spending any to look for ways to provide care more efficiently. what we have done in our projections is to take them down considerably. relative to our projections for years ago spending for medicare and medicaid, around 2020 is down between ten and 15%. we have taken a substantial signal from the slow growth that we have seen. it has lowered the rate of health care broke the little bit beyond. however, we have not marked down the rate of growth in definitely to match the slow rate of growth

we have seen of the past several years. he looked back at past experience, health care costs slowed them, they have been many cases been followed by a pickup in health care costs growth. so we think -- and moreover i would say that for all the changes that are under way in that health insurance system, but the federal and private health insurance, there is still an awful lot on which payments are significantly on a fee-for-service basis. the incentive remains in many cases to do more services, to build more facilities. in addition there is substantial amounts of ongoing work in developing new drugs, new medical procedures and treatments. we think some of the underlying drivers of high health care spending will persist. we have taken a substantial signal. pretty low growth rates of the next several years and some

return to somewhat higher growth rates, maintaining a lower level of projected health care spending, but not expecting that slow growth will be continued. and that think in our view that balances the risk, and we look for projections to be in the middle of distribution, possible outcome. the slowdown we have seen in the past several years really does last indefinitely there's been a larger structural change and we realize and projections will have been too high. there is a faster rebound because of cyclical factors are because of a step up in the medical innovation and definition of new health care treatments and procedures than the forecast may look too low. we think we will be balancing those risks. >> we have a couple of questions on unemployment. the first question relates to your measurement. can you explain how you're measuring structural employment? it is a gray area among

economists. >> so, those are good and hard questions. we have estimated the role for cyclical and structural unemployment looking at a variety of indicators and as i mentioned earlier, applying judgment to that. for looks at the judgment curve, unemployed workers in jobs and job vacancies one can see a very pronounced shift. then says to us that there are important structural factors. at the same time as i mentioned, we have seen weak labor compensation and people looking for work but cannot find jobs. that says to us that there are important cyclical factors as well. by structural factors what we mean, people who are out of work for reasons that would not be

directly resolve by having strong demand was stronger aggregate demand. so if monetary policy and fiscal policy or more expansionary in some way that could, in principle, take away the cyclical unemployment and would not directly take away the structural unemployment. that is how we think about the differences. the natural rate of unemployment , the term we used to refer to unemployment for structural reasons. the end of last year the unemployment rate was 7%. we had 5%. racine the natural rate of about six, the same thing as our saying about half of that extra unemployment is structural and half the cyclical. i think that the elevated rates of unemployment among young people are very serious concerns. and, as i mentioned, we think that a number of people are -- have been discouraged from working enough that they will not come back to the labour

force, even if the labor market improves. some of those people are older people decided to retire earlier than they might have otherwise, some are young people. they are lost from the labour force, it's an economic loss for the country as a whole and also potentially a very serious social loss. we have other work under way. it is not finished jeff command that don't want to get ahead of the work, but it is something of real looking and more closely. >> and other topic. elevating the unemployment rate based on historical observation. isn't that because of the historical emphasis on disinflation? does that make sense? >> so the pattern that i show, the pattern of output tending to fall short of potential on average, the similar six to five

similar picture that i have shown of the actual unemployment rate relative, you can see that pattern if you place the data and number of different ways. you can see it over each of the past 45 business cycles going back 40 or 50 years. you can also see it, as i mentioned, over the entire postwar time. on average over that time the actual gdp has been about half a percentage point below potential gdp on average. the actual unemployment rate. i am not sure that is the right way to calibrate that calf that

is partly because of the last half-dozen years. but preceding that falling more short of potential. first the pad and is clear enough. the long-term budget outlook. >> says cbo attached to the u.s. recession of the next ten years and what might be the impact on long-term services? >> we do not have an estimated public perception. the shortfall the early show of revenue potential could be an economy that does not have

recession, simply never quite gets itself to full employment. are an outcome that reflects a boom. the changes meant to take on average outcome. lots of combinations of booms and busts. that could get us there. this phenomenon, our long-term budget outlook last fall. over a longer time we at output that reduces the task all little bed, reduces tax revenue a little bit. a factor, making deficits and debts larger than they otherwise would be. ..

[inaudible conversations] >> on tuesday, attorney general older well speak at the annual

winter meeting in washington, dc. >> the house and senate veterans affairs committee hold a joint hearing on disabled military veterans tuesday. the economies committees will hear testimony from official odd the american veterans organization who will outline their 2014 legislative goals. >> the new c-span.org web site makes it easy for you to keep tabs on washington, dc andshire your finds between facebook, twitter, and other social networks. easy search functions let you access our daily coverage of events. new tools make it simple to create short video clips and share them with your friend via facebook, twitter, and other social networks, or send links to your video clips via e-mail.

find the "share" tools on the video player or look for the green icon links. if you see something of interest, clip and it share it with your friends. >> two former congressional budget office district yore weighed in on a recent cbo report that a minimum wage increase could cost jobs. this panel is 50 minutes. >> we're going to go right forward like we have been all morning, drinking out of the fire hose, as i mentioned. we have just heard from the ace director of the cbo, and now we'll hear from the first and sixth cbo directors. so, it's exciting to have this lineup. to help us navigate through this next session, i've asked matthew

shay, president and ceo o the national retail federation to moderate. i'm working with the national retail federation. the national retail fed rigs is the largest retail trade association we membership in more than 45 nations. matt is a graduate of ohio state university college of law and mba from georgetown, recognized as one of the top 50 nonprofit executives. i know everybody knows our other panelist so what i'm going to do i'm going to turn it right over to matt to begin this session. thank you. >> thank you, jack. good morning. it's a pleasure to be back with you again. especially a pleasure to be here with jack serving in his capacity of the association this year and we're proud and pleased to have him in that role, and it's a terrific organization,

and we're proud to be sorting it. it's especially pleasing to be here today to engage in this discussion with two of the nation's foremost economists on fiscal policy, jack mentioned their reputations obviously precede them, and i'll share from our perfect at the federation, is a one of the nation's largest private seconder employers, creating jobs for one in four americans in this country, 42 million in the work force, everything that happens in the economy affects retail. and fiscal policy in particular. so while we're frequently in the mid ol' of the discussion when it comes to security of the payment system or infrastructure or minimum wage or a variety of other issues we talk about, at the end of the day it's about consumer confidence, job creation, economic growth, and gdp. that really drives things

forward for us, and while it's nice to be in the middle of those things it house a downside, which i when things take a negative turn, retailers sometimes feel that very, very quickly, and maybe even more acutely than some businesses, and talking about fiscal policy and its ability to stimulate the economy and get the economy growing again at a more robust and sustainable way is obviously of great importance to us, and that's why we're happy to have the opportunity. you both know, i think, that alice rivlin and douglas holtz-eakin are foremost thinkers and experiences proving the theory there are only six degrees of separation. they are the first and sixth director of the budget office, and alice is the first so delighted to welcome them here

today and have them share their thoughts. i thought we'd -- >> i'd like to interrupt for a very special announcement. it was 39 years ago today that alice rivlin became the first director of the congressional budget office and thus launched a great institution and i'd like to offer my thanks and our congratulations. [applause] >> very well-deserved. congratulations. and thank you for launching this great organization. and so let me start with just a question of your opinions on long run imbalances in this country. do you agree we're suffering from those? if so, how severely. if so, what sorts of policy prescriptions would you suggest to maybe address those issues? start with alice. >> yes. thank you for recognizing that the cbo has endured for 39

years. i was sworn in by the speaker of the house 39 years ago. how many of you know who that would have been? it was carl albert. that's a trivia quiz for today. the outlook for the federal budget looks a lot less scary than it did only about three years ago. if you go back to 2010 and think about what things looked like then, first the short-term was very uncertain. the economy was beginning to grow again but not very robustly. nobody knew whether this was a really sustainable recovery or not, and most of us thought that the stimulus was working, and maybe there should be more of it. but there was great uncertainty

about the short run of the future of the economy. there was also a very scary outlook for the longer run. everybody knew that as the economy recovered, and as the stimulus sent out, that the deficits, which were then over 10% of the gdp, would come down, and they have come down. they've come down very fast. but what was looming at us was the combination, as doug said earlier, of the inexorable demographics and quite anxiety-making protection -- projections about the increase in healthcare costs. so we looked at this double phenomenon, and bipartisan

groups were saying, we don't need to have austerity in the short run. we should be careful about that. maybe even need more stimulus. but the long-run picture is scary, it needs entitlement reform that will slow the growth, especially of the healthcare spending, and give us tax reform that might raise more revenue with a more sensible tax code. hat -- that was the standard prescription at that time for a nervous-making situation. so, what happened? the deficit has come down in my opinion also too fast. fiscal drag considerable, as doug pointed out. but we haven't had a catastrophe. we have an economy still growing at reasonable rates, which i think is proof of the most -- of the resilience of the u.s. economy, when you throw a lot of austerity at it and ridiculous

behavior on the part of policiesmakers. closing down the government, have -- threaten to default on the debt. the political system did everything it could to derange the economy, but didn't work. and so we're on a fairly solid growth track for the near term. at the longer term looks a lot better, too. but my concern is that it may be based on a couple of false assumptions. if you looked at doug's numbers, -- doug elmendorf, that is. what you see is that while only a couple years ago we thought that the debt was going to rise very rapidly through 75, 80% of

gdp, it now looks more contained and sort of leveled off. now, 75% of gdp is scary, specially with interest rates going up. a lot of debt service to be paid off the top. but it doesn't look as scary as it did. that's built on two assumptions. one was, instead of heeding the instruction not to have too much austerity in the near term, we have had it. we have cut discretionary spending, and we have had the sequestration, and as the cbo runs those numbers out, as doug said, we would have discretionary spending at a lower level of gdp ten to 20 years from now than we have ever had. i think he said since 1940.

that the beginning of time. and -- and before that we didn't have much of a federal government. and the -- so one question is, is that level of discretionary intending sustainable? we're a much bigger economy with a lot here miami and more demands on our government. there's homeland security all sorts of things we think are important we didn't know about in 1940. can we run the government on that percent of gdp in spending? the other big one, which doug also talked about, is healthcare costs. they have slowed. they have slowed dramatically. over the last decade. it is not just a recession phenomenon. and part of that clearly is the slow growth. if we have the economy roaring back and high growth, we will

certainly have some increase in health spending above doug's projections. we should be so lucky. and -- but if we don't, we don't really know what will happen. so, there is -- adopting this slower growth in projections for healthcare spending, i think you go with the numbers you have, but it's risky. so, i think it might be worse in terms of the debt to gdp ratio and we should be concern about it. >> thank you. doug? >> i spend my career relearning the same lesson, which is do not follow alice rivlin either in a job or a podium. because i agree. and -- but let me just point out that i think there are two important outlooks, aspects of the outlook. one is the core imbalances in

the second is these risk management issues. the core imbalance is present in both in the private and public sector, an imbalance in favor of consumption over saving and investment and manifests in the private sector with the decline, really the demise of the defined benefit pension plan, a relatively thin pension safety net, low household savings, and this is not something that people have spent a lot of time ringing their hands out during the great recession but it will be something we'll come back to abuse we're not preparing for the latter aspects of their life cycle. the federal budget is a machine to move resources from saving and investment to consumption and that comes from a couple of things. the first is the composition of investment that doug elmendorf highlighted. i'm the original bearded doug.

and that is -- with the rise of the large social security medicare, medicaid, other healthcare spending, we're seeing these legacy programs of the past crowd out the remainder of the budget and crowd out discretionary spending. discretionary spending is the place where the core functions of government are financed, where the things the founders would have recognized. national security basic research infrastructure, education. that's also the investments in the future. and so we are literally as a structural matter letting our past crowd out our future and the saving and investment cop opponents of the federal budget. there's also the issue of financing. by and large, even if we ran balanced budgets, what we would do is we would tax consumption and savings, return of savings in order to finance what is largely consumption. politicians love to provide consumption because it makes people happy and they vote for them. so that's a systemic bias in the

structure of the budget and right now we're not taxing to finance it. we're borrowing to finance it. so when i look at where we are long term, we can and will recover from this recession. it's been far too slow and painful, but we will, and we'll be left with an economy that has some fundamental imbalance problems. on risk management, want to echo things nat don't get enough attention. first is the debt service associated with high levels levf federal debt relative to gdp. the cbo forecasts could do not have precipitous rises in interest rates, we have debt service nominally larger than defense spending at the end of the ten-year program and as a fraction of gdp, it's three percent, the traditional dividing line for deficits that are too smell. debt service will get you there. i think it's a risky position to

be in from the financial risk it presentses to the federal budget and also to future democracy that will have less flexibility to respond in difficult times, to whatever circumstances might arise. i think it's a disservice to do that. and the last piece of risk management is how you think about these healthcare costs. and the slower growth in healthcare spending per person is not a price phenomenon, at least not defintively yet. if you look at medical sources component of the cbi, we're in a low inflation era and there's nothing that stands out as special about the relative price growth in the health sector. it's the quantities that have gone down, and you have too decide whether that's good or bad because some of the quandt people should have and don't have, and that's bad health policy, and some which are truly unnecessary and not helpful and we could live without. so, the nature of that slowdown in terms of the welfare

properties is not clear to me, and how long it will persist is not obvious. there's the question of what is really changed that would lead too permanently -- there are things you might think about. larger copays, deductibles at of pocket. that is driving things. some changes in payment plans, and certainly more experimentation with putting providers and other entitieses at risk for the cost of the services they provide and that is driving it. but there are also some things that could be very well transitory. everyone in the healthcare sector knows the whole world has been watching. they're all paralyzed. that could two away and we could see them try to push spending increases through. there's the recession. who knows how much of an impact that has had it bit can't be zero. and the affordable care act idea

is toen in people so they will buy more stuff. so it's built, if successful, to drive the spending growth back up. i at least am cautioned by the history, which is in the late 90s we saw four years where the spending and health relative to gdp growth disescaped the high fives were done all around and then it went away quite dramatically, and there's nothing i can see that precludes that. if you're thinking about the risk associated with budget protections, -- projections, do you want to declare victory and not doing much in the reform of health care and run the risk of larger spending and bigger debt than i see in the point estimates, or do you want to be aggressive and perhaps get the debt down get the debt service down, and leave what i would think would be a better situation for the next generation. i know how i make that call. i don't hear enough sensible discussion about how we think about that. that's a core piece of the

outlook over the next ten years. >> so, maybe one more question on balances and imbalances, to go back to alice's observation that 1940s is the beginning of time. for the last 50 or 60 years or so, federal spending has averaged about 19.5% of gdp and federal revenues averaged 17%. looking forward over the long term, is that the right ratio? what shall we -- should we be restoring the balance? where do we go and what should be the optimum level of the ratio. >> remember, in that period, we didn't have very men old people. -- very many old people. the world has changed and it's not old people like me, it's the next generation of old people, the baby-boomers, retiring, and so the real question is, can we still run -- do the services that we thought we wanted over

this period, in the face of this demographic tsunami, and the rising cost of health care. it's the same thing we have been talking about. if we -- we certainly can do everything we can to make health care more efficient, and we can talk more about that. but we're going to want more of it as we get older, and it isn't just the baby-boom. it's the increasing longevity. so, i share the skepticism that we're going to be able to cut back on the major entitlements all that much, and if you don't, then you have to either raise taxes or cut the discretionary spending even more. everything else the government does, and i don't think we can. i think we cut it too muchle

already. >> i don't think there's a right ratio. i don't knoll how to answer that question. i do think that the fundamental distributive norms in the u.s. are not going to cause to us slash social security as a fraction of gdp. social security is one of a handful of programs that has had a demonstrable impact on poverty in the united states and is a big success. hard to see a you uturn on that. where we wind up with health, i don't know. can we gate system in which well-positioned decisionmakers, which are american families, can assess the value proposition in the next health self-and make good decisions and that will be what it will be and it will be quite expensive. then i'm with alice. the discretionary programs, every one of them needs fundamentally reformed and some need to be exported forever, leak the farm bill. but that's not -- we're not

going to get rid of the core functions of government. we have to finance them somehow, and looks to me like the budget projections just underfund them. so we're going to good higher and not lower, and that suggests we need a much better tax system. if you're going to raise more gdn taxes than we are now, we need to do it in a more intelligent fashion and that's a big challenge. >> i can pick up on the social security point? while social security is not a big part of the long-run deficit, it's only demographic. it's not -- doesn't get multiplied by the rising cost of healthcare. it's still significant, but the reason for fixing social security is not budgetary. it's to reassure people that social security will be there for them, and put it on a firm foundation for the long run future.

and i don't actually think that's very difficult. in roy in the previous session, one of them said something about 22 trillion. i can't think about 22 trillion as the unfindded liability. actually, very small -- >> there is no unfunded liability. that's the problem. under current law when the trust fund exhausts benefits are cut to the level of revenues, so there's just a dismal pension program being run by the federal government. >> i guess that calculation is running out to benefits. but whatever you can talk about being trillions. actually, fictioning social security means relatively small changes in benefits, quite far in the future. you can raise the retirement age another notch if you wanted to. you can change the way the cpi is calculated. you can make the benefits a

little less generous at the top and compensate by making them a little more generous at the bottom. dozens of commissions have looked at this, and it's not really very hard. but we ought to do it soon, because we idea to think that the trust fund would run out of money in 2033, and that was many years from now in the future, and we didn't have to worry bit it. but think about 2033. people already in the labor force, in fact middle aged people, peep in their 40s, will be retiring in 2033. we owe it to them to have a system that is on firm foundation, and not wave this notion that we're going to cut benefits by 25% in 2033. >> naib just released a policy survey, and not surprisingly seemed to be fair amount of

consensus about monetary policy, that monetary policy is about right, but there's not consensus on fiscal policy. too restrictive. too system lative, maybe just empty right. if we can play armchair quarterback and look back to the big fiscal stimulus, the american recovery and reinvestment act, five years later, too big, not big enough, effective, not well targeted. what are your thoughts about how it worked, if it worked. >> i have something. i don't always get to go first. want to start? >> sure. it's pretty tough to throw a trillion dollars at the u.s. economy and not do something, and so the whole notion as to how this has no impact is badly misplaced. it is shocking that it's had such little political success in term of political success this is an all-time loser. i think it could ease live have

been executed much better. this is a bill with an enormous number of design flaws, in my view, and in part that came from the natural inclination of the congress and the administration to pursue other objectives in the midst of, quote, stimulus. i don't think there's a good case to be made a stimulus bill should have included the clean energy and health information technology and broadband and other initiatives that were about the president's domestic policy agenda, and it tangled the politics up and that's proven to be a misstep. also made it very hard, i think, for it to be as timely as it needed to be. once you started -- my best example of this, -- we used to have rural broadband functions. and they spent a total of four baseball year, and then the

stimulus bill put 40 mill into rural broadband. there's nothing you can scalefield overnight successfully, not private sector, not public sector. and once there became concern about waste, every one of the managers in the programs started asking for ridiculous documentation before they hasn't out any money so they didn't want to end up on "60 minutes" as the poster child for wasting stimulus now. so it didn't go out. so by not picking a cleaner design, by mixing too many objective into the stimulus bill it harmed it and damaged its credibility as an effort to respond to the recession and looked like it was responding to political imperative. >> i basically agree with that. it certainly did a lot. i mean, the fact that -- this freefall of the economy turned around, is at least partly attributable to go monetary

policy and bailing out, if you like, the financial sector so it didn't midwest down completely, and to -- didn't melt down completely, and the stimulus. i thought when i testified in '09 on the stimulus, i said roughly what doug just said. it should have been much quicker, the phrase then was targeted and timely. that meant more increases in food stamps and things that people needed and sent out quickly, and less of the longer run things that would spend out slowly. in hindsight, i'm not so sure. i think maybe we should have done more total, and more of it in longer run investments, as in infrastructure. now, that is spent slowly if you do it well. there's no