they would pay the full tax rate coming out of the plan. what this effectively what to do is this incentivize someone who is putting in that upper income level and actually make it almost preferential to put into the taxable account. they would have to hold the money in the plan for 13 years to sort of catch up at the beginning. so i think the proposals to cast the deductions and make a credit and put a tax penalty would be very detrimental because the higher income participants would be hired. the second point is the contribution limits are important and one reason the controversial levels are currently important is because people's ability and willingness to save for their retirement changes over the lifetime so we find individuals as they move into the 50s and 60s are more likely to participate and contribute. 15% of people in the 50s and

60s are contributing at the contribution limits. >> thank you mr. chairman. >> please go ahead. >> if i could ask a question. >> the behavioral economics have shown a couple of successes into some of us are concerned about it contains some who rather than providing the much to help people navigate different decision-making would provide a full-fledged private citizens. it seems that some operate on the notion that academic and government technocrats are infallible and they tell how they should leave their wives and allocated to the resources. the former oversoul in the environment administration along with a harvard the harvard professor who pretend about the behavior of informed financial services regulations. one of the proposed schemes is to nationalize on the credit cards to get card issues the

government technocrats and use the funds for the financial education and other ways to help the private citizens. what do you feel about such a proposal and dvd that the government technocrats needed to effectively make decisions for private citizens on credit cards or retirement savings under the notion that they are not doing what the technocrats wanted to do? >> i wasn't prepared to answer that. i knew who you were talking about and i've read the article more than once that you referred to. >> what if i enter a slightly different question. what it does is tries to expand the scope of understanding of

what is actually driving the behavior and what are the tools that you could use to influence behavior and whether you want to take a light handed approach or heavy-handed approach that is a matter of personal preference so i disagree with painting all economists with the same brush. i think you're going to find people along the entire spectrum but i would be happy to go back and because look at that article and send you the response. >> i want to mention this is excellent i have questions for each one of you. >> as we have talked about in the past this is great to be a focus of the bipartisan tax reform and we look forward to working with you. >> thank you very much mr. chairman into you and the distinguished ranking member this is an important issue and i

appreciate the focus now and look forward to working with you. i would start by saying i'm a little surprised at the optimistic view. it's for the retirement research by the deficit in terms of what people are needed and what they are savings last year, 2013 national institute on retirement cost of 92% of the working households didn't meet the targets they needed for the savings in the 14 trillion, so i am concerned about the differences but i want to talk and ask specifically about a group of folks that we haven't talked about this morning. people are losing their jobs and

their homes and they lack the equity in their homes which is a major way that people save no class families -- middle-class families as well as some folks we know that people took hardship withdrawals in their retirement accounts and we are told that they increase as much as 40%. so folks were saving. and he had to take a hardship withdrawal because of what was happening for them. on top of losing the equity in their home, i'm very concerned about the folks that are now in a deficit position who are doing the right thing and were caught short because of what happened. it was way beyond their control in all of this. so, i would ask you first are there options you would suggest that would help the workers rebuild a secure retirement that's got behind the eight ball

because of the recession? >> we have to face up as we look at the fact that according to the 33% of the population households have no retirement plan at all and the federal reserve that isn't a very reliable source. about one quarter of the households, only about a quarter are preparing for the retirement. and i would look at that kind of data as new important than all of the tables about how many dollars are here and how many dollars are there and here's a case where common sense should override. so somebody that is in real trouble isn't easy and we should face the fact that the lower quintile of american incomes are $20,000 a year before taxes are

unchanged on the basis since 1979 and those people are not able to say if we want to help them there is simply no recourse to the lower end of social security. it's complex. but the money has to come from somewhere and that would be the best answer i can give to the question we have to look elsewhere. >> i would ask each of you if you could briefly respond. right now it is costing about $800 billion over the five years alone as we look at the retirement account. we also know that according to the cbo the top 20% of households have easy received twice as much of the tax benefits in the retirement savings combined and we

understand why that is but the question is as we are looking at the tax reform, you know, the households that need to lift the savings retirement are getting the biggest and the people that need the most targeting the least. how do we improve the targeting of the tax incentives and also if anybody has a thought on how we hope the folks that got put in the hold on the recession. >> looking at the high end of that. they have so many retirement plans and compensation reimbursements on the taxes paid things that are in my opinion socially outrageous. you can handle an opinion that strong and get all kind of benefits above and beyond what we can do and what we think

about in the retirement system. what are those savings making the retirement so easy for the wealthiest citizens to be transferred to those lower on the income scale and i can't tell you how to do it today. >> i think a couple of things. first is that if you think about the entire retirement system just putting an employer plans together with social security it is a progressive system and it is the combination of the two that create the joint incentive. second, this is where we have provided the caution is that if you begin to scale back and really right now the contribution limits are pretty modest relative to where they were historically when it was first set up and the individuals that take advantage of them tend to be in their peak earning

years. if you begin to carve that back or take her tanker with how the tax incentives are created you can have higher income employees not interested in participating anymore and employers then decided that it's better to give current compensation and not offer a plan and we could end up reducing the overall participation. make an example of that is in 1986 we removed the ability of high income workers to participate in the following year not only did the high income workers and the participants and the low income workers to dissipate, and it is complex why that happened. but it's a cautionary tale. >> if you all can give short answers that would be good. >> does anybody think that we ought to target the incentives and if so, how? >> i would remove disincentives

so that we could expand the access. >> there are disincentives that are already difficult for the employers to start the plans. senator hatch has a number of things that remove disincentives and the disincentives and make it easy for them to start so that more americans can be saving. >> thank you. >> if you are worried about low income and affordable taxpayers another characteristic would describe many of the individuals that are not particularly financially literate and you can create all sorts of complicated tax incentives and you're not going to get a book of traction because they are not solving the problem. the reason that they are not saving is because they are facing small tax incentives is because they don't know what to do do or their employees to allow for a plan. so it is far more sensible to create the incentive for employers to offer savings plans and automatically enrolled the

low income workers because that solves the problem of an action and individuals not really knowing what to do. >> i were free to reach a point from the testimony of which is the folks that end up in retirement without a lawsuit and a lot of bill are people with sporadic attachments in the labor force during the working years. these are folks that the employer-based savings plans aren't going to do very much but also folks that fall through the safety act in social security. social security serves a lot of these folks not particularly well because it is in earnings-based program and it has very broad distribution benefits even within the low income people. so we do need to rethink who is falling short and what do they need to do for them. for some it is more investment -- >> i'm going to have to stop you at this point. senator grassley.

>> the savings are more progressive than the progressive income tax. that is important from my standpoint because the critics of the current savings frequently argued the opposite so i am going to give you a chance to collaborate on how the current incentives are actually progressing. >> thank you senator grassley. in my testimony i provided a chart that demonstrates how americans who earn less than $100,000 basically represented 28% of the tax collection. the same group of americans received 49% of the benefit through the employer-sponsored plans. that seems more progressive. in addition to those that provide contributions to the plans because the way they are designed in the

nondiscrimination rules and incentives for the employers permit them to put more employee or dollars in without even covering this. >> as you know there are currently several proposals that would limit the ability of the upper-income individuals to deduct the retirement contributions. the 28% limitation is an example. now you discussed this with senator hatch on the employee standpoint. i would ask you how does your research suggest offering the defined contribution plans would respond to proposals such as the president's? >> it's important to keep in mind, senator, that a four o. one k. plan is an employee benefit and it's something when an employer is looking to attract, they know that attract high-quality employees they want to offer a benefit like they would any other benefits. if you have something in place that makes participating in the

defined country should plan on attractive for a group of potential or existing employees, they will say i'm going to use my resources elsewhere. i may just simply increase the wages or something else and not offer a plan. the example that i gave this putting a cap for credit in place what will happen if they would have to pay the tax going in and going out. and then for some of these employees would be better off simply putting their savings in a taxable account outside of their employers plan. if that begins to have been to say this isn't a benefit, you know, the number of my employees want an upgrade to offer that anymore and has many have pointed out from out, it's having the employer plan there and in place and auto enrolling people increases the participation and we would be taking significant steps backwards from the actions

congress has taken the last 50 years and we would potentially reduce the plan participation. >> employer-sponsored retirement plans are an important component of any retirement plan. 80% of the workers have access to the retirement plan this number is pretty employees working for the small employers with fewer than 100 workers. with someone that worked in the administration of the retirement plans what you see as the biggest barrier to employers particularly small employers offering retirement plans but a more important question would be what reform is complemented to increase the number of small businesses offered in the retirement plans >> there are several rules that were put in place early on.

they are better at managing the nondiscrimination requirements in the plan. so one of the ones that could be removed to be top-heavy retirement. that has disincentives highest many small employers from starting a plan because of the risk of how much money they may have to put into the plan to satisfy the rule. another big step in the right direction would be the starter. being able to provide an employer plan so they can start contributing where there is no risk of contributions until such a time that an employer becomes more financially stable and can benefit from a larger plan. >> and my last question what are your thoughts on the reform proposals such as the chairman to push more retirement savings should congress consider consolidating the type of

retirement account in order to reduce confusion or is it important for individuals to have more options? >> we are all in favor of simplification. one of the concerns we would have in terms of potential consolidation is some of the proposals like others that are trying to find ways to make it simpler for small employers to offer a plan to offer to make it difficult for the small employers to offer a plan and so that's why we've been in favor of contracts such as the starter to enhance and broaden the scope of the employer offerings of the retirement plans. >> thank you senator grassley. >> thank you for holding this hearing. i agree this is a critically important issue. it's been 15 years since the congressman and i recognize that

we had a significant problem in our economy. 15 years ago the economy was growing. and the workforce was growing and income was growing. we have the better indicator ended up with the savings ratio during some of those years. we also recognize we didn't have enough money in the retirement security particularly low-wage workers so we tried to do something about it and we were able to get a couple of significant provisions incorporated into the tax code. and i will build on that. the first principle is to simplify and increase the limits particularly the catch-up contributions because it is a point some of you have raised that when you're young you get family homes in all these issues you don't think about retirement later in life in order to provide for the retirement security. the purpose is pretty simple. it's access to retirement plans.

if the employer doesn't offer a plant is going to be limited access. it's in the higher limits and simplified plans. we also recognize that when they put money on the table more people will participate. the federal government. it's much more likely the workers will participate and that is one of the things we try to encourage. the alternative to that is to try to put some money on the table in the government because as important as the tax the girl is coming it isn't enough to the lower wage workers into the younger workers to participate at the level we would like them to go it was a substitute and it's worked.

millions today are using this credit so we have been able to get more participation. automatic enrollment was important not just for people and rolling but also the default investment option is more sensitive to the person's age which means they would be better investment for them rather than making the decisions themselves. then you mentioned the investment advice and that is all part of what we tried to do over a decade ago. as a result, we made progress. people have retirement plans that would have had retirement plans and options. as you know we've gone through a recession. you try to encourage people to spend, not save. we've lost ground. there's no question about it. we've been on the defense the last four or five years trying to preserve the options we currently have. that's been the strategy. it's going to have a strategy to move forward.

how can we build on what has worked and the issues that you've talked about with the younger workers not putting enough money away for retirement it deals with the problems they have with erisa. we try to do what is right for the employees that are already in a defined plan by preserving those options but the testing rules can be very challenged. we can get some progress made.

we try to simplify, but i would like to start with doctor reed. one of the things that has frustrated me is that when we decided the plans we made it too easy for people to take retirement money out for things other than retirement. one of the objectives is to have the income source that takes the pressure on social security off social security which is never intended to be the sole source of income for people retired. what can we do to encourage more income options for the retirement funds that are there. it's to start tapping the money

at 70.5. it's the minority of individuals that don't. the idea is to help the individuals spread out the savings over the lifetime are about double. i think that our concern is driving the tax incentives for the particular product. for the many low and moderate income households there are already heavily for social security. they may have that in the emergency purposes or if your need for something like that and we wouldn't want to penalize the individuals for wanting to keep the lump sum. but i think other types of proposals to help people spread savings over time into drawing it it would be valuable and we just want to make sure that these are products of natural approaches. >> one of the proposals is to get an exemption for a certain amount of retirement funds in the minimum required distribution for the purpose you just said so you could keep the nasdaq. one of the concerns we have is

people take money out and they shouldn't and we wanted to incentives for not any one product that incentives for the income that could help people not outlive the income that happens too frequently. >> thank you mr. chairman. >> i want to be clear that i'm interested in working with you and senator portman on the act and for those that are following this. this important legislation does what it sounds like. the church plans and retirement plans and churches generally are not subject to erisa and so we have a situation where you ought to preempt state law to add to it to the auto enrollment features that are so popular. and i want you to know we have a score pending. it is a sensible suggestion. >> mr. chairman, thank you for the hearing and i want to thank

the panel for your work on these issues. not only because of the pennsylvania residents and the impact in the state and the country, but we are grateful that you are here. >> we want to ask about the basic dynamic that is played out over a number of decades in the shift from defined benefits defined benefit and defined contributions and the implications of that. as you noted, the transfer of the trillions of dollars in savings and risks to the individual investors and from the corporations. give me a sense if you can as we try to design policies around the question of giving those individual investors the tools they need to deal with that basic change. the question of educating

investors, what more can we do. what model works in giving them the opportunity to become better educated >> it was turned into the retirement system you get a very close to where you want to be. in terms of the greater utility and efficiency for investors there is no question in my mind that there are investment returns that are improved. it's called the stock market, senator. it's an easy thing to conceptualize to picking up the right manager here and the right manager who doesn't do well.

the investors lose another two data costs built into the system in a staggering number and making the wrong choices is another 2% a year. 4% a year. so i think if we would simplify the system and at the same time take the cost out of it, investors would have a lot of the three removed and be willing to sign up for a plan. >> is there any experience that based on your work or based upon the work of vanguard as to the age at which the level of the period of time within the individual's life where the education could be especially. we have legislative attempts for the students at a very young

age. are there any strategies dan garda have that have been successful? >> to give you my own impression first way that we introduce young people to investing is to have stock picking contest. sending exactly the wrong message to them. we should start with a compound interest and show them how the percentage point bounce up over a lifetime to an astonishing amount. when you get to the higher level of age, i don't think that there is a single -- welcome a very, very few to be fair. it is an inefficient system serving the neutral fund investors it's about the inadequacies of the mutual fund system given by david manager of the endowment with such success

at the impeccable integrity. so if we listen around you could say i have a vested interest because anyone can start one but i would like to have more competition in the index area that comes down to simplification and owning the market and other managers if you're investing for a lifetime. ..

>> simplified, yet. mechanically what's the best way to do that? in other words, when you look at where we are today, the code as it stands today, what change would you hope we would make? >> that is an excellent question. i think that the tax code overall is very complicated. i think there middle and higher income taxpayers the alternative minimum tax and how that interacts with the rest of the tax code makes it a complete mystery. you have no idea what the incentives are that you're facing or the penalties to be one thing or the other on the lower end of the income scale. you can have the interactions between the tax code and all of our social welfare programs. i think very few individual accurately understand the tax

incentives that they are facing. i think the saver's credit, the motivation behind that to give low-income families and the senate to save is well-intentioned, but if you can't come if someone with a ph.d in economics from mit cannot sit down and figure out in 10 minutes, it's too complicated. i think the fact that we have so many different tax saving ways to save makes it complicated. am i better off saving, and it's not just the retirement system. if i am an employee and my employer offers an employee stock purchase plan, a 401(k) plan and health savings account, and a limited budget from which i can save, it's republican or to figure out where should i put that money, plus we have 529 plans. we have lots of different tax ways to save. i think some simplification and some consistency across these

different plans would be helpful. a 413 people in has to have different rules than a 401(k) versus an ira, you know, a lot of it doesn't make sense to me. i think there are a lot of things to do to make things simpler, more straightforward for both employers offering plans and for individuals trying to decide how do i save for health care for education, for retirement, or mortgage, things like that. >> thanks very much. thank you, mr. chairman. >> senator portman, you are already on a roll this one with your church click addition plan so as to promote auto enrollment and just keep going. >> excellent, well thank you. date our panelists also say they would agree with it and it would get enacted into law? >> we are getting scores as quickly as possible. it certainly shouldn't involve that many people are i think it's a constructive idea and

looking forward to working with you. >> i appreciate your interest in this area. i was here earlier cure some of the great testimony. and what a terrific panel. thanks for what you are doing. i know ben cardin was here earlier, and we get a lot of work together in the house on these issues ever introduced his church plan recently, but also some real effort is another bill on the whole issue of the nondiscrimination testing and hard freeze and soft breeze issue, is something we have actually talked to treasure about in open testimony here and i think this would be another good clarification plant that will help. i'm excited about what we've been able to do over the years. i'm looking at some statistics right here, charts on 401(k)s and iras. i know some are critical of these programs. here's the reality even with a tough economic times we have had during the financial crisis. we've gone from about four to $5 trillion in assets in 401(k)s and iras to about

10 trillion, over 10 trillion last year. so that's not bad given again what happened during 2008, nine, 10. we've got to keep it up. we've got to figure out a get more small businesses to provide these plans and that's the key to me is encouraging every small business to offer something so that every employee has the opportunity. as dr. madrian, to say, keep it civil. actually called simple, but there's more work to be done in terms of taking out some of the complication and cost, even liability in a. the saver's credit i think has worked pretty well. the auto enrollment issue, i think, when i talk to companies, i know you al all talk about is only about we go from about 75% participation to 95%, and that's

a great opportunity. there is more opportunity there i believe to expand that to more companies. recently senator warren and i introduced a bill that we hope will get outline centric we would love your support on this which isn't in the thrift savings plan move the default option from the government bonds. i don't know what you all think about that but a lifecycle fund seems to me makes a lot more sense for federal employees. if you're interested in that. i ask you that. what do you all think of that, for the default in the thrift savings plan? maybe dr. reid, dr. madrian you can start. >> certainly and the private sector the defaults that we put in place in the rules congress put around so that balance on and lifecycle funds have been extremely popular. i think they do help sort of the younger investors into and

saving more heavily in the stock market. and what we saw, even while there was talk about younger investors pulling out of the stock or, those lifecycle funds did certainly, you keep individuals who were in 401(k)s contributing. i think another point here that we would like to make is that the ways of expansion going to your broader question is that the concept of paying for smaller employers to help them more easily offer a plan would be a very beneficial change in adding to our system as well. >> thank you, i agree. dr. madrian? >> i agree with changing the default funds, huge volume of evidence shows that the default funds is extremely persistent under automatic enrollment. if the default fund is a bond fund most of the assets will be flowing into the bond fund, and you know, harken back is hundred cases question earlier, how do individuals learn and become more financially literate but

the evidence is the learned through experience. if you want them to understand how the stock market works and help diversification works in things like that, having been invested in a lifecycle fund which contains a better mix of assets makes a lot of sense. >> ask you quickly, so many things i would love to talk about but one is the minimum distribution rules. one idea that is after i find intriguing, should we eliminate minimum distribution rules for plants under a certain amount, say $100,000? a lot of people at seven and a half are still working. unfortunately, i just left a ceo of a major steel cover. they're trying to keep their older workers there because they have a series of skills gap. what do you all think of that? >> i think any ways in which we can help an acreage people to spread out their balances over a longer period of time, we certify most people wait and don't withdraw until they hit the seven and a half, given the

fact life expectancies have increase in the minimum distribution age has not changed it probably certainly merits looking at instead of whether not at least he adjusted and other ways as long as these are, and what we do is sort of product neutral again. i think again what we want to make sure is that we encourage no matter how you invested that minimum distribution age sort of is available to everyone. >> i think your conclusion is correct there ought to be some exemption for minimum distribution requirement, say $100,000 that can be taken out without being required to be taken out. i would also say on the thrift savings plan, i do think the thrift savings plan needs a portion, an option if you will where investors can sell my money saved for last years before retirement, let's say. i don't know what the market is going to do. no windows. if you want protection late in

the period before you retire, he should have a very highly safe function. >> that isn't through with these lifecycle funds did you go to fixed income towards the end of the cycle. i need to know, i did look at the more carefully to see the last two years. let me ask you a general question. i'm over time already and thank you, mr. chairman for the indulgence. there is discussion about savings in general and are still low rate of savings and how to fix the economy. senator cardin and i believe that and i think the chairman does as well. so there's talk about universal savings vehicle. this came up in the bush administration and again recently with some discussion about new ideas on the universal savings vehicle that would be available to everyone. what they're doing in canada. it's a ross typed in terms of the tax treatment of ross type vehicle there. what do you all think of that as it relates to retirement savings? one of the concerns is if you

have opportunity safer anything and pull out for anything, you would have even more leakage, even less assets for retirement, but is that okay because you're increasing savings and financial literacy and banking and so on. maybe just comment. >> quickly so we can get senator cantwell in. >> i'm sorry. >> i will pass in the interest of time. >> i don't know the particulars of the proposal you're talking about, but i don't know it would make sense to universal savings plan we can put money in and take it up for anything, unless you have much stronger incentives to encourage a jubilation in that plan to either going to let people take money out for anything, they got to be putting more money in in the first place and have to cover everything doing. financial incentives, every lever out there. you know, if it was a counterpart, so we know from behavioral economics the people engage in a lot of mental accounting and organizing their financial accounts.

one problem with the retirement savings system and it is would you allow people to take the money out. so it's not clear whether 401(k) is a retirement plan or it is a universal savings plan. >> but with penalties. i'm sorry, senator cantwell, i will let you go now but i just wanted to give any thoughts about that, including dr. biggs and we may do follow-up questions as well. thank you, mr. chairman. >> thank you, mr. chairman and thank you for this important hearing. i know according to a new america foundation, 92% of americans are not beating their retirement savings. i know as a look at our budget for social security and medicare and programs like s.n.a.p., this will have an impact on them. so to me i want to look at ways to encourage more savings, and certainly offer more of a lifetime stream of savings. so, mr. betts, i was wondering if you could comment on programs

like a lifetime guaranteed annuity product as a way to innocent americans to further save, and a way to help them make more efficient see out of the dollars. this is something that could be further incentive by congress. >> senator cantwell, our business is helping employers and design and implement and manage for employer-based retirement plans. we don't get into the products that go into them but we have seen current legislation, things that have introduced opportunities into these plans to have annuity-based structures, things were better at retirement with these plans. our biggest focus really is expanding the access so that more dollars are going in. we would like to see less the disincentives that prevents small employers from starting these plans so that more americans can be contributing.

and as they grow, as these grow up the employers would put more employer dollars in. it is getting access and can shipping sufficiently. we know at retirement there's a variety of different situations, and people need the flexibility to make the retirement systems they need. so the right amount of tools for an american person inside the retirement plan is important, but -- >> do you like the annuities that businesses are offering? do you think they are successful? >> they have a place for the right person who needs that type of structure, but we don't, that's not something we work on in our business. >> dr. bogle coming any input about annuities the? >> the problem with annuities today is like any fixed income or investments with a fixed income portfolio is the rates are just so terribly low. i've always thought there was a place for annuity because a guaranteed, eliminates longevity risk, and a place for bonds.

those returns are so unattractive today that i think investors have to at least vaguely think about whether they are unattractive investments. think about a savings plan, universal savings plan. we really know from history because of inflation and putting money into savings over the long-term is a losers game, probably has a negative return of about 1% after the cost of living is adjusted to we have to think differently about short-term investment and long-term investment. i think annuities have a place i think if you come out of the commercial system and going to more of a public system where the annuitant gets it the return. >> how would you do that? >> tiaa-cref does a pretty good job itself. it has to be an annuity that is run for the investors and not run for the salesman. it really comes down to that. costs are arranges in annuities and other life insurance products, if you'll forgive my expression, but i don't think anyone would disagree with that.

if you take the cost out, the rates are still going to be low but you get paid to. for certain type of investor who wants to ensure the longevity risk, i think they're an attractive option, it's fixed. >> but don't you think given the crisis that we're facing that it's important to have that opportunity fits? >> yes, we should have that opportunity. >> thank you. thank you, mr. chairman. >> thank you, senator cantwell. let me tell you first of all this has been very helpful. obviously, there are a whole host of issues to be examined. it's not a topic for today, but i feel very strongly about getting people to start saving very early in life and that's why we've been talking about child savings accounts. here again there are some common sense approaches you can take. one of the areas that struck me very early on is when you're talking about people with modest means, their eligibility for various programs can be damaged because somebody sets aside some money and they said it decided

early on and you weigh those kinds of rules. so start building a savings asset early. and today i think you have to be troubled by we are this debate has gone. the general accounting office has told us that well off taxpayers, more than 9000 of them, have over $5 million in their ira accounts in 2011. we've also seen press reports of executives in the high-tech sector with roth iras with balances over $30 million, and over $90 million. so you contrast that with what you all been talking about for the next, the last two hours, with a median ira account balance in 2012 being about $21,000, and it's pretty clear there's some important work to be done. so i think i would like to do just in terms of wrapping up, is have you all most pretend that the roles are reversed, and you're up on this side of the

dais and senator hatch and i and all of our colleagues are going to try on a bipartisan basis to stimulate retirement savings. and the way the debate is going to start when we get to it, as part of tax reform, is right now the american taxpayer is putting up about $140 billion each year to subsidize retirement accounts. this is the second biggest tax expenditure, the second biggest tax expenditure in the code. so you take that and you juxtapose it next to the general accounting office has told us about those mega iras and the $21,000 that people have come a median amount in the count and it's pretty clear this committee is going to have some tough choices to make. what i'd like to do is go down the row and asked each one of

you for just one suggestion, just one suggestion of where, as part of that effort with the $140 billion that is used to assist these accounts, where would you make a change to get a bigger bang for the taxpayer buck? you get to make one choice. this is going to be very similar to what the debate will be here in the committee as part of tax reform is making the choice along those lines. mr. bogle. >> the first thing -- >> one. you don't get a first. >> okay, thank you. [laughter] one thing we do is eliminate the larger deductions or have a tax credit instead of a tax credit instead of a tax deduction, which will impact large investors. i would not do that but that's a choice. >> very good. mr. reid. >> i would try to expand this is to make sure more small employers were more easily able to offer plans so starter k. or

map. >> similar answer to remove the disincentives and increase the incentives for small employers to start those plans. >> and one way you would like to do that? >> starter k., multiple employer plans. >> dr. madrian? >> you know $225 million in your 401(k) or ira by investing up to the limits we currently have and putting it into well diverse like mutual funds. you get there by putting in come into employer stock and getting really, really lucky. and for every winner with employee stocks, there are lots of losers whose companies go bankrupt. so i don't think it makes sense to encourage gambling through the tax code by allowing employer stock as an investment option and tax favored savings plans. >> so you would support a change in that area? >> yes. >> okay. dr. biggs? >> i would echo the other witnesses, and simplifying the offering for small employers to get a low income workers, improve incentives for them to offer those plans.

>> okay. at this point we have senator nelson on his way. i think what i would like to do is ask our guests, can you all stay a few more minutes lex okay. what we will do is, when senator nelson returns, he will ask his questions and then the finance committee will be adjourned. so with your lead we will suspend your for a few minutes, and senator nelson will be here to wrap up. and thank you all, both for your professionalism and for your patience with us on a hectic day. poor ms. schol schultz must stie stranded somewhere. >> i tried to help her. >> in amtrak land. [inaudible conversations]

>> senator nelson has arrived and is that a hectic day. senator nelson, it is our plan that you ask the questions that are important to you, and at that point you will adjourn the committee. is that acceptable? >> okay, mr. chairman. questions that are important to you because you are a member of the committee on aging as well, and we had a hearing about the extraordinary depth -- data that is carried, and would you believe by seniors, of all things, student loan debt. and to the point at which seniors are then, if they can't

pay, lo and behold their social security is garnished, and that brings them a low the poverty level because you can garnish down to $750, down to that level, and $750 a month for senior citizens today is lower than the poverty level. >> senator nelson, you are doing very important work here. i'm sorry, i had to go but the fact that so many seniors have racked up these eye-popping debts that ineffective going to color so many of their retirement decisions in the future is especially important and i look forward to working with you. >> and what i wanted to ask the panel is what impact does that have on workers trying to put money aside for retirement?

anyone. >> puts them in an impossible position. student loan debt is enormous, and selected but enormous camano see ho how you can save beyond e winner still trying to pay it off, senator. >> that's right. now, we recently had somebody talking about, you know our thrift savings plan here, and the senate has a very successful thrift savings plan if you are in the company they would call it a profit sharing plan but here it's called a thrift savings plan. the question was proposed an idea of opening up a thrift savings plan type entity to everyone. do you want to give any thoughts on the concept? yes or? >> senator, i mentioned this in

my written test when. i referenced your calling from florida who is advocating this idea. there are practical issues that need to be overcome in the sense that thrift savings plan is plan for government employees, streamlined bookkeeping. it is a very easy plan to administer and handle. i do favor the idea of giving savings options for low-income workers who were not offered pensions by their employers. so whether it's exclusively through the tsb or whether it's through a structure that looks very much like a tsp i think that's a very good idea. of sexually well-run line. it's simple, low-cost. and offers annuities so you can convert your balance to lifetime income. i think when you look at it and shahzad crush web about retirement security. we can design a good plan. we just have to go out and do it. >> how would you go about serving up administrator for a plan like that for anyone who

wanted to buy into it is? >> the question is do you have it run through those individual employers where they would not run the plant that they would deduct the money and senate to the tse, or do you write something like an irate or individuals themselves would have to do it? having their employers do it, it may make it less attractive but easier for the employee. if you run in an ira, sort of setuset up where the employee ms the decision, that has no burden on the employer, very easy on that didn't. on the other hand, many employees will fail to do. the question is how to make it cheap and easy? the problem for small employers, if you're a large employer, there's electronic bookkeeping, electronic wage records comp that's a fairly easy thing to do. your computer does it for you. it's the small employer who will most likely be writing a check by hand each month at the difficulty is how to make it work for them. that goes back to one of the points we made, a key for

encouraging retirement savings is making it easier for small employers to offer these sorts of plants. >> senator, the thrift savings plan is essentially what the long-term money in exit the short-term reserves, 100% indexed funds. they charge i believe the number is about 0.025 a year, two and a half basis points, which would argue it's even better than the vanguard 500 index fund which charges a shocking five basis points, twice as much. however, the thrift savings plan has her portfolio accounting, the accounting for their participants and beneficiaries paid in a different source. novelty about the same. i would answer essentially a thrift savings plan in a different guise is already available to any employer of any size in the nation. >> senator, i think to a go both

points, if you open a thrift savings plan's basically to potentially millions of employers you would never thrift savings plan anymore in part because the administered savings that they get from one employer with long tenured employees with very large accounts, those efficiencies would go away. as mr. bogle says, there are options that through mutual funds you can be indexed funds if you choose. they can be low-cost actively managed funds as well, but, you can call of anyone other fund companies or discount broker and open up an ira or plan or small employer can work with one of them to open up of payroll deduction plan to an ira as we'll. so private market does have something that is working very well. >> i'm not able to speak to -- >> turn on your mic. >> okay. i'm not able to speak to this plan, but i can say that my colleagues expanding the

accessibility to the savings plans is very important. in fact, i think you in one of your bills a suggested expandable multiple employer plans which would allow more small employers to offer these retirement plans, savings plans with some of these types of investments that may be similar. >> yes, ma'am. >> i agree with what the other panelists have said. >> well, thank you. thank you all for participating in this. and any further thing? okay. the hearing is adjourned. >> thank you. [inaudible conversations]

>> q&a is 10 years old and to mark a decade of conversation were featuring one interview from each year of the series over the holiday season. today an interview with lonnie bunch. after that a look at the death penalty and the american criminal justice system. >> i remember being shocked. i learnt a lot through "dead man walking" and being with people who were executed and how the hell criminal justice system lurk. it shocked me profoundly. and one of the things is when you write a book, do research

pixel i learned about in for example, the police brutality, more complaints. but also that when slavery was abolished in the 13th amendment, it was accepted for those who are imprisoned or indentured servants. it has not been abolished completely in this country. and i've been amazed. i'm just going to say it out, just to raise some in the racism in the supreme court. they did an extensive study in georgia about how when the death sentence is given, overwhelmingly it corresponds to when the victim is white, the death penalty is sought. when the victim is black it's barely a blip on the radar screen. i saw that in new orleans when i was living in st. thomas, and

when someone intent to think st. thomas was killed you are lucky you could find five lines on page 30 animals always it was formulated drug deal gone bad. when a white person was killed, it was always on the front page of the paper. >> just some of an event held earlier on the death penalty and the american criminal justice system did you watch the entire event tonight at eight eastern on c-span. here on c-span2 is booktv with authors have written books about economics. >> here's a look at some of the programs you'll find christmas day on the c-span networks.

>> that's this christmas day on the c-span networks. for our complete schedule go to c-span.org. >> the center for strategic and international studies hosted a conversation about relations between the u.s. and china including remarks from former u.s. ambassador to china jon huntsman. this is about one hour. [applause] >> well, thank you already much for coming. this is going to be a good one tonight and we have a great panel here. chris johnson down here as most of you know i think senior advisor, a freeman chair in china, studies here at csis. he's an asian affairs specialist. he spent more than two decades

in the u.s. government intelligence and foreign affairs communities. he's the senior china analyst, or was, at the cia, like a key role in supporting policymakers during the 1996 taiwan strait missile crisis, the 1999 accidental bombing of the chinese embassy in belgrade, the downing of a u.s. aircraft on the island in 2001 there in 2001 he was awarded the u.s. department of state superior honor award for outstanding support to the secretary, especially for aiding the office when chinese leadership changed hands in 2012. to my right ear is someone who has become very well known and recognized for his knowledge of china, evan osnos, a writer for "the new yorker." he covers politics and foreign affairs. is the author of a recent book

about china, titled age of ambition, it's based on his experience of living in china or eight years. he was also before he joined "the new yorker" was a member of the "chicago tribune" team that won a pulitzer for investigative reporting into my left ear, former ambassador jon huntsman. he of course was ambassador to china from 2001 -- how long were you there? and, of course, before that he was the governor of utah, to terms. he began his career in public service as a staff assistant to ronald reagan, to ronald reagan, served each of the four presidents since then, roles include ambassador to singapore, deputy assistant secretary commerce for asia, u.s. trade ambassador and most recently of course as ambassador to china. as governor of utah he focused on strong economic reform that

brought unemployment to historic lows. about this time, four years ago, governor, you were very busy getting ready to run for president. >> do we need to talk about that here? [laughter] spent i thought we were to start off -- are you going to run again? [laughter] >> i like to ask the obvious questions. >> no pressure. >> there was an editorial this morning which called me an ostentatious moderate. [laughter] and my response, better that than a panderer. since is no room for an ostentatious moderate for republican politics maybe we'll stay out for a little while but when you're just a simple problem solver, as most governors are, you look for solutions and ways to get to the finish line.

he becomes more complicated. >> so you're not going to run against the? sorry about that, bob. of my daughters who are on your program would love to a beer any time. [laughter] >> well, we have a think the overriding issue for policymakers over the next decade, and that is managing the china relationship. when i was getting ready, trying to learn something about everything before the last presidential debate, i went and talked to graham allison up at harvard committee pointed out that in the longest of the world, and this goes back to sparta, there've been 15 times when a rising power rose up to challenge whoever happened to be the lone superpower at the time. 11 of those 15 cases the result was more. so the big question for china in

the united states is dana policymakers on both sides find a way to defy the odds? so i want to just start with this review. crisp, why don't we just start there? i want to ask the three of you how would you define relations between the united states in china right now? what are you seeing as the main challenges for both countries? >> thank you, bob, for being with us tonight, and everyone for coming out. i do characterize the relationship as definitely on an upward trend following the positive summit meeting between president xi and obama on the margin of the summit and pushing -- invasion. i think both sides recognize that and wanted to use this as an opportunity to get things sort of back on the rails. i think we see that with some of the significant agreements that came out of the summit.

the climate change agreement, the military confidence-building measures and the very real world of economic interaction between the two sides, something simple like the extension for chinese business people coming to the u.s. i think the challenges, how do you escape the so called trap and the chinese have come up with an answer, which is this new style of a great power. they officially translated major country relations. so far neither side has really figured out how to define that. the u.s. has been somewhat reluctant. the challenge i think in the near term is, generally speaking, i think even despite the positive summit there is an assessment in beijing that president obama is severely weakened domestically after the midterms. what do they do with him for the remaining two years of his term? how do they interact? license is that there's two

schools of thoughts in beijing about had to do that. i think this is a high level debate. one side would argue that 2016 is uncertain territory. but there's a general inkling that whatever comes out of it is likely to have a harder policy towards china so perhaps we should invest in obama into a weekend with him to hand over to whoever comes next, whether republican or democratic administration. the of the school tends to argue that because he is weakened, he is therefore unreliable or inconsistent, which tends to be the thing that unnerves the chinese the most. so, therefore, they should keep the relationship stable and cracked but not necessarily invest but rather turned their intention to attention towards the region. we saw this coming to present xi jinping's major policy address foreign affairs work conference they had a couple weeks ago. that was a very striking speech where the message was very much, we are here, get used to it.

that was the message coming out of that speech. i think that's the chief driver that's going to complicate our relationship going forward is how do we adjust to that reality? >> evan? >> if i can first of all thank you for having me here today, and thank everybody for coming. if i can give a plug to chris bridges said the central foreign affairs work conference is not the most elegant phrase andy schleck, he is when some of the most eloquent stump on the subject so i encourage you to read. it's that easy to make that same and he has managed to make it fascinating. i look at what could have come out of this recent meeting with xi jinping and barack obama in beijing. it's easy for us to forget that if you go back five years to the moment when the president made his first trip to china, the reporting that came out of it was not good. this was a president-elect on an and was, the perception at the time, had been in a sense shown his way around. he hadn't really been able to

shape the concourse of -- the contours of the visit. he didn't seem in control. you look at it this time and the story was very different. they can out of it with the climate change agreement that was a surprise i think too many of the people watched the relationship closely. it came out also with something i think they did receive as much attention but is significant, which were a couple of deals about building confidence between the two militaries, the chinese and the americans. these were designed to help get rid of some of the uncertainty about what happens when you have these two big countries that are now playing in the same neighborhood on the chinese coast. how are they going to talk to each other? what are the rules of the road? this was the beginning i think of a more candid conversation about how do you avoid that very clear pattern of history. one thing worth mentioning, that pattern of 11 out of 15 times when a rising power has challenge an incumbent power, known as -- what strikes me is, you see the written about in the

chinese analysis and the chinese press. the fact they are talking about this trap and i will say that 15 times as he become de facto talking about -- it sounds nicer in chinese. at the are talking about that is a good site but it means we have established some of the same fundamental understanding of the risks we are in counting and what we need to do to avoid those risks. >> governor? >> bob, let me say what an honor it is to be with you and to thank everybody here. and to be treated to so many in this room who i have glanced at while being up here who i've known over many, many years and have worked with in a different professional capacity. it's an honor to be with many of you once again. i know how hard many of you have worked in promoting the u.s.-china relationship and making it what it is today. i would say that the u.s.-china relationship is based on one fuel type and one fuel type only, and that's trust.

sometimes the trust is depleted from the gas tank at which point you have to fill it back up. we are at a point where we need to fill the tank back up with the trust. that's where we are. the apec summit produced i think some pretty good results on the people to people these outcomes, military to military, to give more the heads up on exercises and the climate do. i'm not sure how that one works in terms of the verification part, considering 2030 nobody will be around. i would characterize the relationship today has been, as being status quo. it's okay. in other words, i sai say that because it could be so much better. generally the u.s.-china relationship is maximized when we have things to do that together we feel are part of the aspirations of our people.

when we establish the relationship in 72 we have a common objective. it was a geopolitical objective. we then saw the establishment of the world trade organization which i was involved with bob zoellick personally. that was in the thing that kept us at the negotiating table. both sides wanted the outcome that was aspirational and they kept us on us. we didn't fall victim to the headlines which can be a very distracted thing. i would say we're doing okay today. we are managing the downside risk, which is no easy feat. but we are missing the upside potential, which is vast between our two countries. that's the only thing i would say, what should we be doing in that regard? i think we're missing the economic piece. nothing came out of the last round of discussions that really spoke to the economics of the relationship, which is the glue that really holds us together, particularly to the times that are difficult, the choppy waters

which we inevitably have, and there's a whole lot more we could be doing there, whether it's integration. i don't think anybody knows how to make sense of that. they could be chewed turned into a huge opportunity. a bilateral investment treaty which could be a pathway in terms of representing early steps in getting us there. i would say we are doing fine. we're protecting the downside which is an important thing to do but i think we are neglecting the upside. >> this may have nothing to do with u.s.-china relations, but the reason i ask questions is because i don't know the answer. what will the china take away from the president's announcement yesterday that we're going to establish relations with cuba? their argument at the white house was that our relationship with china, relationship with

vietnam inform the decision to do this thing. they pointed out why it was a good thing. how will that be interpreted in china do you think, chris? >> to be honest i think they will have views but they won't dwell on for very long. i think they will look at me and asked the degree to which it was -- president putin given his difficulty and the fact that we had the recent russian bomber showing up in the caribbean again for the first time, and so on. i think they will look at largely through that lens. they will think about how it redefines latin america diplomacy, the venezuela issue. they do have investments all up and down south and latin america now. i think they will think about it in that regard but i don't think it's going to give them much cause spent what they like it, not like it's? >> it will change the economics of the cigar market. but i would say they would hope

to see is a little off balance in our own neighborhood. so what is the one issue that is kept as a little off balance with respect to caribbean, latin america? cuba number one and immigration number two. this takes the cuba relationship. relationship. it normalizes it somewhat editing china would see that in their eyes, they would rather see the waters choppy in our neighborhood. they see us as maximizing the relationship around them, and circle them, strong diplomatic relationships throughout the asia-pacific region and on their periphery. i think there aspiration would be to do the same thing in our neighborhood, and this would run somewhat counter to that. >> they may also see the president has a little more gas in his tank stand the thought. the unpredictability of it it would come as a surprise. they may say this guy may not be on his heels not as much as we thought which plays and how they approach them. you do see chinese presence very visibly in places that in the caribbean, and the idea that

united states is staking out a new position as there is not an entirely welcomed development. >> i must say what struck me about it, and this is a little off the point, is the fact that this secret deal, this town doesn't keep secrets very well as we all know. but everyone i talked to yesterday, stunned when this came about. the people who liked it, the people he didn't like it as well. i've never seen an issue that was kept so under the radar as this was. i don't know what that means, but it was, that was my take away from it. do the chinese see our tilt to the pacific as an effort to contain china? i think most people in this room would agree we have, that united states has a lot of this is in that part of the world and we should be involved there. what i've always wondered about is was a good idea to announce

that we were making that tilt? >> as to whether or not it was a good idea, my sense is yes, it was reassuring serving to our partners. i think the challenge all along with the rebounds has been, the rhetoric has been very different and policy so far. and yes, we have stations of marines and there is a move, this split with the navy, 60% in the pacific, 40% elsewhere. this will not change significantly. the complete app sense of any kind of an economic piece which is critical frankly to the rebalancing successful. because in asia economics is seeking to be taken to look at it that way. so if we are only pursuing the security side it may be easy for the chinese to say hey, we are about trade and growth and getting along. these guys are about creating difficulty. i do think that they see the rebounds as the challenge.

i think when president xi jinping for skimming office there was some dialogue among his advisers as to whether or not this would change what they call their so called period of strategic opportunity, which is this notion they have a benign external security environment. there was some question as that the rebounds by do that having had a couple years now to observe how the rebounds has rolled out, they have come down quite a bit. >> how do they react to the trans-pacific partnership? >> does that fit in with the way they see things? >> i suspect it is seen as an extension of fairly aggressive u.s. policies in their view of the two contained in somewhat. but i suspect they will also see it as opportunistic over time. so they have a look-alike, the agreement which basically is ozzie on plus three plus six. and so -- asean.

both groups according japan, austria and malaysia. our group is based on lower standard so they're not reaching as high as we are in intellectual property rights, on labor on a few other things. at some point they will have to go from why is the other states always trying to do things in a neighborhood without including us, too why do we work collaboratively, figure out what the transition vehicle is going to look like to integrate these two agreements? that will have to be done. but listen, china has benefited from our presence for very long time in the asia-pacific region. they have benefited from the tranquility and calm that has largely existed in the postwar period. now with the rise of china i think they are looking at the u.s. presence been a little more problematic. we have strong friends and alliances. it would like to have their own sphere of influence. they would like to do exactly what we're able to dupe which is to project power and to secure

and protect their lines of transportation and their supply of raw materials. that's going to bring us head-to-head in some areas, and that means while our pivot to so-called asia is inevitable, a little league but it's inevitable because we will follow trade flows and the flow of people. at some point we'll have to deal again with reconciling some of our differences in the region. they will be over islands and over geopolitical issues. >> ambassador huntsman hit on the key underlying issue a lot of us think about when we talk about, some of the pieces on the board. the board itself is the fact that we don't yet have an understanding, a mutual understanding about how the united states in china are going to orient towards each other when it comes to the pacific, the western pacific and asia. the president has said the united states is a pacific nation and will be through the end of the century. xi jinping fundamentally

believes china will an absolute return a position of dominance in east asia. it's a historical fact, and the question is when and how. we aren't really having an overt conversation about that. we talk about a lot of the smaller details but i think that part remains really unsettled. for me at least that's the one that is the greatest source of concern whether or not we do see the future the same way. >> do we? >> no, i don't think we do necessarily. the key point is this notion that governor huntsman was just referring to which is, they want to be able to operate with impunity. out to the so-called second island chain, out to guam, that's the plan and what the rest of us to accept it. we see them through their actions preparing the ground for this, and yet we've all been saying that's going to cost us to bump up against each other and want and well. what's interesting about the rhetoric that's come out in

recent weeks is this notion of greater activism. for many, many years chinese foreign policy was guided by we keep a low profile, don't stick her head up and saw the xi jinping has very clearly announced that period is over and they are moving to something different to what's important though is, especially in this town, for us to not take the term activism and say bad. like i could think about a value neutral term. we will have to watch and see what they do but it will be more active and we have to figure how we will respond to the. we need to have a debate in this country about how we respond to that and that's not happening. >> japan is perhaps our strongest ally, i would say, certainly in that part of the world. there are obviously problems between japan and china relating to these rocks that are out of there. how does the united states navigate its way on that problem

each when japan and china? >> well, you have some complexities. you have some complexity, at least starting with china and japan that goes quite deep based on history, based on geography, based on politics. taste own worldviews. you've got come in one capital, xi jinping, the son who was a deputy prime minister under mao, and on the other, in tokyo you have the grandson of a wartime minister and helped to add minister japan occupied. so already you can sense the tension that exists without even talking about anything else. view layer over that the geographic anthology disputes and the history which, of course, will be celebrating and celebrating and celebrating, and remembering at remembering and remembering. so mentioned that relationship, and i got the ice cold handshake

we saw in the media recently was a major positive step to who ever would've thought that kind of handshake. if you're a an advanced person d why does it have had a picture like that, you would be fired. everybody smiling and happy. but it was a major breakthrough because you know what it means in each capital. the fact they're standing together and shaking hands at the next thing we will know it will be a delegation going over and meeting at the lower level functionary in moving up to xi jinping and things will normalize on the trade sector we go through these very distinct cycles between japan and china come exacerbated by transition politics. not unlike transition politics in our own coach. xi jinping had his transition politics in which he had to talk tough. japan, same thing. a lot of of experience in the last couple of things is a result of that. the united states must be loyal to its allies, and with certain

commitments that we just must respect and live up to. sometimes we don't do a very good job when it comes to alliance minutes. something that we did in the days of general scowcroft, better than anybody. and we've got to get back to the. that's going to create some friction from time to time but that should be the centerpiece of our relationship in the asia-pacific region, building trust and confidence all the while. >> that's a very interesting point, and it makes me wonder, do you all think that japan and china, and the policymakers there, have a good understanding of our relationship with both of those countries? i mean, do the japanese, are they confident right now that we are the ally and that that treaty, that we will honor the treaty if it should come to a showdown with china? to the chinese understand that? and i guess the other question i would ask is, would we?

>> i would argue that both sides have had some doubts, that then calm down over time especially with the president's visit in april when he made for the first time by u.s. president a clear declaration with regard to article v applying to the area. and so my sense is the japanese are always concerned about the nature of our relationship with china, what's happening there. and i think as you address that from a u.s. policy guide issue make sure you pre-brief and post-briefed him every time with regard to interactions with the chinese, about wha which you are about to do, these sorts of things. likewise, with the chinese. ..

around economic growth and they are going to mobilize around the fundamental issues and one of them is going to be history and its relationship with japan. it's worth us remembering that because we can see these demonstrations that immediately assume that there is this reservoir of energy ready to be lifted at any moment and there's

a lot of opportunistic protesters who will go into the street for whatever is available. and if that is the issue they will go into the economic issues below that. >> speaking of hong kong would talk about that. you recently wrote about the demonstrations in hong kong. in 1997 when the british handed over hong kong, he talked about one country two systems. is that still the prevailing view in china or should we expect china to take a hard line on hong kong from here on in and what will be the significance of that. >> we have the basic law that was hammered out between margaret thatcher in the early '80s and we are now living with that. but the white paper came out when we were living in asia this last summer in june and that

created the response that hong kong will. it would be nominated or qualified and i think that it was problematic in terms of how well interpreted the changes were made. in other words it took the trust that has been built up from number of years and the expectations on the part of the 6 million people in hong kong, and a diminished that sense of trust. so you have bad politics but you still have good economics. people have jobs, there is stability in the streets. and because of that my sense was the demonstrations only go so far because you've got people that charlie had a jobs unlike what we saw in the middle east in the era of the spring where you have bad politics and bad economics and you can turn the market very, very quickly in terms of the reformers.

well while the demonstrators be back at it? they are quite different than those defined in other parts of china. they have been raised and educated under the conditions of the uk. but i think the bigger issue is really taiwan. all you have to do is look at the eve of actions that were held to just a couple of weeks ago where the democratic progressive party clean house with many of the major municipalities. having been in taiwan couple of times i was pretty stunned by that. so, the marketplace changed with respect to the reaction of the people in taiwan to the way that hong kong was handled as if to say this is a model they think will work for us they have another thing coming. it's coming out we have the rise taken over from the fire ran

afoul of. in if we have presidential elections not far under her eyes and and i suspect that this issue will loom very large and be transformative in terms of the politics in taiwan which leads me to conclude we thought maybe things have stabilized in the relationship with the good work and certainly the foreign minister in china who ran the office. he made a well chronicled trip to taiwan and i think that we are going to be at another problematic period with respect to the relationship and i'm not sure that a lot of people into sedated or are thinking clearly about that right now. >> i would add to that that is the piece of the approach to the

hong kong demonstrations but i do find counterintuitive and the fact they don't seem terribly concerned about that makes me wonder about their thinking but i think the other piece of it is this sort of parcel of the message that we have seen under the president with regard to the sovereignty issues and so i think that's what he is communicating through the response is this is the territory created reedit unannounced and 97 we are going to run it into a the minister at the way that we want and as the ambassador was saying the white paper than from other comments that have been made about the applicability now of the joint agreement that was signed with the british originally shaped the meeting there area so it isn't just a disappointment. they feel it is a social contract that will be traded and that will be the problem. and i think they will come back because the underlying issues that are driving it haven't been addressed. i think beijing took a very practical approach to the demonstrations which was that eventually they would be allowed

because hong kong are a very pragmatic people. but they haven't solved the problem. >> i think that there's a lot of ways to explain how the hong kong demonstrations have been. there was the immediate precipitating cause that was a declaration about how the elections in hong kong would unfold. the issues are also to do with the fact that they cannot abide an apartment. and it's getting on their parents couch because they cannot buy into the real estate economy and they feel that that is because the local developers are in cahoots with beijing. that is how they would describe it but i think the bigger issue than it is remains not just on the the result that it's also growing is specific to the air a and that is the question of how well china broadly defined and orient itself to the rest of the world. is it going to be defined by the effort or fight the global effort and if you look at hong kong as the original global city in beijing with regards to that way they see themselves as a product of the combination of

cantonese and english culture and what they are finding is that in this period, china is defining itself very specifically saying congratulations, you are china. they are not exactly sure what they think about that. [laughter] >> we have gone through this incredible episode of the hacking and sony pictures by what some say is north korea. and i know that you have been concerned about the technology transfer from intellectual property rights. what is the greatest danger for u.s. china relations? is it that we might accidentally stumble into the war but some of the things we talk about or is that fiber?

>> -- cyber? >> we have the description of silicon for example, the ones and zeros into and lots of them. that will change as the cyber becomes a different playing field or battlefield i should say and it shouldn't be just as we see space and air and sea we must also include cyber in that definition. and i'm not sure that we are very yet because we are looking at the internet, the most complex tool ever created i think in the history of humankind. and i'm not sure that folks know quite what to do about it. so it was developed based on trust and on the collaborative spirit of silicon valley and built on the premise where you didn't worry about the differences and now we have to worry about the defenses. so they have a distinct

advantage and we are seeing this play out with respect to the sony crisis. nobody knows what to do. there are no real answers. but i think the real damages on unless the cyber attacks that we have seen because again we haven't had a digital pearl harbor so to speak, but we definitely have seen a lot of intellectual property so that depletes the whole notion of the creative entrepreneurial society. why develop something and expand resources and the best ideas are going to be hacked and stolen. there is no punishment for doing so. it's interesting that in the defense authorization act for 2015 there is a new box created

for the response to cyber threat and an power the congress to be able to deny the evildoers access to the financial markets which is a start. you have to make it hurt if you're going to take us on but the severity is a big deal. and i think the theft of intellectual property steals jobs come to steal jobs, steals a gdp that is the heart and soul of the creative society. i think that is the biggest risk right now that we've we run. >> do you think that the chinese are sure we take him at their word when they are saying they are trying to do something along these lines? can make you think in terms of processing the problem? a couple things. i think to some degree, yes. there is always a risk when looking at china of going to the opposite poles. when it is a top-down authoritarian system and everything that everyone is doing in the system the top leader must know every day what is going on. the opposite problem is that it's c. and it's very

uncoordinated. the reality is they do have a one-party state state into a one-party system and certainly to the degree that one might make a case where the president or any other senior leader isn't aware of this problem, we've made aware of it several times. they've asked for evidence and we've provided evidence. so in that type of system come if you wanted to stop it, you could. that hasn't happened. the broad issue in a couple of points is the notion of the response in the u.s. especially so with kimberly the last couple of years. we will just keep innovating them and it will be okay. they have interesting work done recently about the. of history where you kind of hit the cap on innovation before there is another breakthrough innovation and any other argument at that point becomes more. i think the other piece back on the military side of it i do

think that we have to worry about we've been talking about how good the confidence building measures are and cyber is particularly dangerous because the pace of escalation is so quick and unknown about the other side's intentions and motives are very, very fraught. two ships come together they can see each other and have a sense of what is happening. in cyber, suddenly you are pushing your powerdown and, you know, the desire to then respond a symmetrically is very, very high. >> i get the sense that it is prone to the problem of unintended consequences. you look at the last 48 hours of the demonstration, who would have thought that a budding comedy about north korea would have led to this conversation about exactly what it is that american studios are doing and how they are responding to these kinds of threats not so much cyber but also the relationship and how we portray other

countries. it's actually a conversation worth having because in china, hollywood over the last few years how to deal with the question of how much do we cut the movies if we want to show them in china, for instance. so, what i mean is in its own way can the cyber can produce all kinds of confrontations that are less experience handling. and i think one last piece of that as you look at the way that the american business community has gone from being tolerant to a few years ago saying we will keep our mouth shut and see what happens. to being quite vocal. and in a way i think that the unintended consequence of that is that it changes the complexion of washington because it used to be that the american business community was one of the most reliable protectors of the chinese business policy in a way. and now that is no longer the case. i think that there's a lot of re-examination going on. >> you are all well informed. it does this appear to you to be the work of north korea's? this sony attack?

[laughter] >> well, i'm not that well informed. >> the story is all over town. the white house won't say that it is, but they say everything is a pity that the likelihood subcontracting out to partners. issuer seems that way. if the north koreans are then i would guess that they are better. >> one of the things of the cyber behavior is how obvious it is. and how clumsy it looks sometimes in terms of leaving the footprints when they come in. so i think something is a surprise to a lot of people. with regards to north korea, what is interesting to me is they have a backward economy so apparently they do have a capability in the area just like in the nuclear area.

when you devote resources in the singular manner, and it tends to produce its own. >> does it bother you that the studio has canceled this? it is almost like we lost the cyber battle, not the war, but what would be the impact of the reaction in this country to what has just happened? [laughter] >> and in the same room that you are on that. >> lets the studios make movies. they are better at making movies and responding to the crisis and i wish they would have carried on. that would have been a better thing to do. the north koreans are very good at threats. they are very explicit in terms of how they articulate their threats and to take them seriously you always have to take these seriously that there is a certain pattern and i think

that's just carrying on into doing what we as americans do typically would have been the right thing to do. >> i don't think that we saw enough of on the government side. you can't blame for theaters for making a business decision where the patrons and employees may have been in danger and also sparks a debate about the first amendment and so on. >> that you but you think that there should have been some response >> if you are a policymaker what would be the option of president obama had -- >> to say these are our values and we are going to go ahead. that kind of statement i think would have been helpful and reassuring. >> lets go to the audience. i know that there are a lot of market values. >> the market value now is skyrocketing. [laughter]

>> one of the things on the top agenda is this idea of the new silk road and one road built where they are building an infrastructure driven policy which should benefit all their neighbors. if you go to a lot of countries in the neighborhood, kazakhstan, they've actually done something with it. this has been seen with some skepticism here in the u.s. viewing it more as a chinese geopolitical ploy more than anything else. but they've been very open that this program is open for everybody's involvement. and when the president had his press conference with president obama he invited everybody to take part in this program. now, how that would work is difficult to say how we put it together but it seems to me that if you are going to talk about a major countries relationship, the idea of using infrastructure

to develop the rest of the world with the two major economic powers china and the united states together with b. a good model for moving forward with regards to china and i was wondering if you could comment on the proposals and do you think that the united states should be a part of this? >> there are a couple of different proposals. the latest iteration of courts and the infrastructure investment bank. i thought that our response was incorrect. i think that we should have engaged in helping to shape the rules of the institution supposed to spend time picking up north and south of north and south korea, japan and australia to vote against it. i think we could have been about more constructive engagement to help shape the outcome of which is to say that when it comes to central asia the collaborative efforts of the united states and china are going to be very important i say that because

china desires the benign external environment to grow domestically. you need to do something in building the involving the capacity and creating better economic opportunity. then you look at afghanistan and the advances of the taliban and pakistan india, nato troops out 2015. who is left with the security of afghanistan for the most part? china has to stay up and play the new rule. ultimately the long-term fix isn't just more and more troops as you have to build economic capacity. so a lot of this is built and targeted towards doing just that with the more immediate region you can have a country like kazakhstan which i think will emerge in the region as a balancer of swords could help in

defining such a strategy being a secretary for such a strategy. it's the frontier if the will and the united states needs to step up and participate fully. they've started that and we need to decide what the strategy going forward is going to be. >> space is one of the recent battlefield contests between the prc and china and also could you look at the image and deal and maybe specifically to you come and ask her is that a if the preview of the coming attractions?

>> is its political and then apolitical and then there was a mention of space. >> with respect to the corruption campaign, i think that it's gone well beyond what anybody in the room would have forecast a couple of years ago in terms of the sweeping nature of the drag back so. i would say the rules of the road and the way in which business is governed and add adjudicated is now outdated in order to get into the next level of growth things have to happen. who is going to govern that? the party is experiencing some difficult times because of the trust gap between the people and the party because the lack of transparency, little responsiveness and the core of corruption. and i think that he should have

stood up and said there is only one course of action i can pursue and that is to fundamentally fix and rehabilitate the party because if that isn't done, the party collapses based upon the internal watch and there is no alternative governing system in which case you have you have a calamity in all of east asia. so, my sense is going after this methodically and that is you have to cease taking on the tigers and what lies. >> when you round up, which has shocked everybody. then you find out that there will be a public trial when is the last time that there was a public trial for a member of the standing committee in china that dick sullivan can probably tell us. he's one of the foremost effort on this. the last time we saw a member of the committee it goes back to the gang of four. we have seen members of the bureau, but we haven't seen a

member of the standing committee since 1979 or 1980s of this is fairly unprecedented. i think there is a method to the madness and that is you have to have high-profile displays in terms of what you are trying to get done for the people to see and ultimately, you have to clear certain allies of the party tickets to the reform agenda or that is never going to have been happen so there will be the personnel aspect of the military included into the political aspects as well and there will be some big names involved. and i suspect by the time we get to the 19th party congress in 2017 will be pretty much through the anticorruption cycle and we will see how he is in terms of the overall strength. my guess is that the foundation will be pretty strong and maybe unprecedented since the days and

up to the congress to really focus on the reforms that were first floated around at the 18 party congress. they've kind of died down for the most part because the focus has been on the anticorruption side. i think that those five years will really be those years where the focus is on the whole economic reforms side. >> we would like to hear questions from some of the women here today. >> i'm from the afghanistan embassy in washington, d.c.. first of all, if i may, i want to thank these gentlemen for the services that they have provided in afghanistan and on their behalf all of the men and women in uniform but they serve that they serve in afghanistan. thank you very much. >> my question is we talk about

a lot of the complexity between the u.s. and china and the pacific and i'm glad that the ambassador mentioned that there are a lot of potentials between the u.s. and china and central asia. but particularly about afghanistan during the cold war. they were allies against the trade that came from the soviet union and especially when the soviet union invaded afghanistan. they both worked together to defeat them. now, there's another thread which is terrorism against the usa also china's national interest. don't you think that afghanistan could become a model of cooperation between the u.s. and china once again? >> i love to hear the views of the two fellow panelists but i think that you you are onto something important. china has played a game with respect to the resources and

clout and now being on the world stage they would have to engage more in terms of the international problem-solving and there is no more immediate issue than south asia and specifically afghanistan now that they've taken over and he'll has to look at the picture to say what do i do in terms of the negotiations in a of the telegram that has to happen at some point, what do i do about economic prospects and china will want to play a role in that. what do i do with the ongoing role in pakistan which will be the key, and then in india we have to factor in. so when we look at the players and the traditional prospects in that region of the world over hundreds and hundreds and i think that there's a huge opening for the united states and china to work collaboratively on issues of stability and security in this region and i'm glad you pointed it out because people say what can the united states and china

do and i think this is a perfect example. >> do you think that there's anybody in the government right now -- we have had more and more in the recent interactions and as our guest points out i think that there is a real opportunity. one thing that is interesting is how a lot of the forces that shaped the previous behavior thinking about these things are now shifting. so, for example, the largely focused on the commercial interest in afghanistan for the lack of a better term > nato security umbrella. that is going to change. so what role are they going to play. china has more un peacekeepers in the country found in any other country. they are starting to so they are starting to shift their mindset on that. likewise they were so involved at the time and that is also

changing. and the pressures that the governor is talking about, they have interest in these places now. so the point that the rock they have huge interests on the oil sector there. so i so i do think that coulter bolsters the cooperation. >> if you look at the comment that was made was the leader of isis, he identified china as one of the countries that is a target of the concern to put it mildly and what we haven't seen is how this could translate into chinese participation and the coalition. i think there's a lot of people in the united states without minimizing the significant possibility. we talk about people making the policy and we are waiting for china to build that role but it can play when it comes to iraq and syria because if you are going to be the kind of power that the generation and agenda china to be in the world, that means taking on some of the costs that come in the shared risks whether it is evil --

ebola. but counterterrorism is going to be part of that and we are waiting to see what shape it is going to take. >> next question. yes ma'am, right there. >> i'm an assistant professor at the university of virginia. one of the things we talk about today with we haven't talked about the other mental issues like air quality and food safety on the internal stability. i was wondering if you might want to elaborate further. >> i could say after eight years in beijing about these issues with me. what happened in the period is that issues that had previously been of interest to foreigners like the quality of the air in beijing or the food became a primy