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the size of the largest company, comcast, so i think it's going to get a very serious review by law enforcement officials. we're going to have almost 30% of broadband customers in one combined company. i don't believe this has the same problems that the comcast proposed merger with time warner had in terms of competitive problems, but i think it has some that are going to be carefully looked at. the big question for consumers is what happens to my cable bill? what happens to my broadband prices? do i get better speeds? new services? will the netflix, the amazon products, the google products, the new online-delivered video products be more available, or will this combined entity try to cut off my options? that'll be the big question for law enforcement. >> host: now you spoke about problems and we could dive into the previous planned merger, but what's on top of your list for this deal? >> guest: i think it's the over the top internet-delivered video

service because we'd love to have more competition. very few consumers have more than one wire into the home. some have satellite for video but hardly anybody has two broadband providers. wireless providers are available, but they can't provide the video streaming that you get from your cable company or fios if you have a telephone-delivered service. and so the question is where do you get more competition? the competition is coming over that very same wire, so it's the same company the cable company, controlling the service. one of it is your tv package, the other is your broadband service. a lot of content companies want to provide to both, and they want to provide new services packages of services. the cable company has an incentive to favor its bundled service so i think law enforcement's going to have to make sure there's no unfair benefits to cable through this con somation. >> host: commissioner furchtgott-roth, do you see

those concerns? >> guest: no, not at all. [laughter] look, every consumer has multiple path toss broadband services. most american consumers have three wires coming into their home and it's not that they're getting video services over all three but they have the option of getting video services over at least two which are their, the cable company and the telephone company which still, they still exist. they're not doing very well. in addition, there are the wireless options. and wireless speeds are increasing. lots of americans, particularly young americans under the age of 30 have cut the wire. they don't have either a cable subscription and they don't have a telephone wired subscription. they're purely wireless. and they get the broadband they want. these are not broadband-illiterate people. they're quite broadband sophisticated. and you have new companies coming online to compete

wireless broadband offerings. the idea that there's any sort of market power or monopoly power many this industry right now -- in this industry right now, i think is very difficult to understand. it's certainly in the consistent with information that the fcc and other government agencies have collected. >> host: mr. nagesh. >> for both of you, the capable industry itself, the pay tv industry is frequently a monopoly depending how you define it. there's usually only one cable provider in any given area. do you think the tv portion of this is going to be a concern for regulators? or is there view much like the comcast/time warner view, going to be focused heavily on the broadband market as gene suggested? >> guest: i think it's on the broadband market. it's not that consumers or kids are unsophisticated the question is what can you get

from your wireless device, and can you get enough that actually competes with cable? so you can get some things. the question is whether that market is going to naturally grow and expand without interference. and i think that's where the regulators are going to look. the government has already found market power in the broadband side of the business and in the cable side of the business. that was the review of the comcast/nbcu decision. that's not where the enforcement agencies are today. but i do think this will be different than comcast because this is a combination of companies that do not own content they don't own nbc universe ago and that's -- universal and that's extremely important to get content from. they're a pure transmission play. so it'll be a very different transaction under review. but i think the entire focus of competitive concern will be on the national broadband market.

>> guest: i agree with gene that the focus will primarily be on broadband side because neither -- none of these companies has much of a content portfolio. i, where i would disagree with what gene just said is i think a lot of the analysis will be on a local geographic market by market basis. these are geographically distinct companies that are merging, and i'm not convinced that they have any greater market power collectively than they do individually because they don't really have overlapping market areas. i'm sure that the regulators both at the department of justice and at the federal communications commission will look carefully at this deal at

least initially from the outside, it's very difficult to see that they're going to be substantially any trust problems. >> since the review will be focused on broadband one of the move that is the fcc has taken in the past year is they've defined broadband as being service at a speed above 25 megabits. how will that affect this transaction of view and the regulators' view of the market as a whole? we saw it play into the comcast review and also many of the phone company offerings that harold spoke to don't often meet that testify in addition. >> guest: i don't think the precise definition will matter that much. what really delivers the service? whether it's precisely 25 or something below you know where do consumers really have choice? and if harold's right if the phone companies really offer that some of them do, then i think you do have some competition. to me, it's not a precise number. it's real choice in the

marketplace as evidenced by what consumers take, and i think that's what will drive the analysis here. the fact that they've raised the speeds is, i think indicative of the fact that the consumer demand is for more video, and that requires higher speeds. >> guest: i think -- i agree with gene, with what he said. if you look back 15 years ago, the fcc defined broadband as 5050-600k. and over time the definition has increased. ten, twenty years from now it's probably going to be something more than 25meg. but what we do see if we look at empirical studies you do see consumers switching, and they're not -- the consumer doesn't say is it 25 megabits or not? they say can i get a certain service with this offering. and what we've seen is a rapidly

evolving, rapidly changing market both in terms of technology and in terms of competitors that are in the market and providing competition at the edgings. and a lot of that even with very small market shares, it disciplines the prices that they offer. also if you look at the national companies, they tend to have a national one-price offering. it's not that they'll sort of say, well, you know, in this market we're going to have this special offer than somewhere else. no for marketing purposes and for a lot of other reasons, the prices in all parts of the country are disciplined at a certain rate. >> gene, as a former antitrust official with the department of justice, how big a role do you think the antitrust portion of this will be? because we did see in the comcast/time warner cable transaction that doj did have some concerns about the deal, but they really had to work closely with the fcc, because

the fcc has a broader mandate to review and vote up or down -- >> my guess is you're going to see that collaborative work again between the two enforcement agencies. i think they tend to see market the same way. you can see what they did in the consent decree and market definitions both product and geographic markets. they were looking toward the national market for broadband and questions of whether the larger cable companies could squelch incipient or developing competition from internet-delivered video providers i think you're going to see the exact same analysis. i don't think you see all the elements of concern that were presented in the proposed comcast/time warner merger, so it'll be a little different analysis. i expect there will be a series antitrust review but i also expect the public interest analysis will grow in importance at the fcc because there the burden is on the merging parties to show that the transaction actually is in the public interest.

they carry the burden at the department of justice, the burden is on the government to show that it is harmful to the competition to block it s. so that burden creates i think, will create a greater focus on the fcc and what the companies actually say they can deliver through this transaction. >> and, harold, you used to be at the fcc. >> guest: yes. >> host: depending on your point of view identify spoken to a lot of people about this. some people call chairman tom wheeler the most pro-regulatory chairman we've had in quite some time others say he is the most pro-consumer. given he is going to be perhaps the question person many this transaction how do you think the fcc review will play out and what do you think of how chairman wheeler has acted so far? >> guest: well that's a lot of questions. [laughter] >> sorry about that. >> guest: let me build off of what gene said. and i completely agree with gene's description of the regulatory review process. there will be a regulatory review at the department of justice and at the federal

communications commission. if i just may provide my personal view, i would rather it all took place at the antitrust division. i -- the statutory authority for the commission to have a separate antitrust review and just the good government position of having due duplicative government reviews of the exact same transaction, i think is very troubling. and yet the fcc insists that it's going to do this. the fcc has a very different standard of information. they have a public record. everything that comes from the fcc is supposed to be visible from the public it's supposed to be a very transparent organization. department of justice is very different. they collect information and it's known it's going to be confidential. the public can't go to the department of justice and say i want to see everything there is about charter or time warner and so i personally am very troubled about the coordination

that goes on. specifically about chairman wheeler i think chairman wheeler is a great guy. i think he's a wonderful public servant. i think he's under a -- he's in a very difficult situation. he's in a very difficult situation with at least the appearance of suggestions from other parts of the administration. and i do not envy him his position. so whether he's the greatest regulator or the most regulatory or the most pro-consumer i think tom wheeler's in a very difficult position in an administration that tries to tell him what to do. >> guest: i think i even read that chairman wheeler started calling ceos of cable companies to kind of talk to them and kind of say look, we're not necessarily anti-this it's just we've got to look at these things. >> guest: there was that article, and i have to say i was -- it's completely inappropriate for a government official to be calling up the

ceos of companies and saying really anything. i mean -- [laughter] it's as if a judge called up parties and said, you know, come into my court and resolve your dispute here. the appearance it's just awful. >> guest: the fcc is on the firing line and in the public's eye, and so when ceos come out and say we don't think we can do anything, you know, i think it's perfectly fine for the agency to respond and say do your business do what's legal do what's appropriate. so i'm not worried about exactly general communications about how to think about the marketplace. if it were something that involved deliberation on an actual adjudication or something, that would be different. but i think my perception of tom wheeler is that he is someone who comes from industry and comes with an orientation of doing as little intervention as little regulation as is necessary to achievement and his

goals -- to achievement and his goals. his stated goals are competition in the marketplace. so i think he's constantly looking for ways to push the market and push for nonintervention by his agency and sometimes he's found that's not the case and has actually surprised people. so i don't think he's on one side or other. he seems to be an incrementalist who slowly tries to push the market as far as he sees its able to function. >> host: when this deal was announced, there were stories with basically, chairman rutledge of charter saying they won't impose caps that consumers can use, pricing, talk a little bit about is he going out there saying what we won't do and does that mean anything as far as a potential deal being made here? >> guest: i think that's an example of how the public interest analysis tends to push companies to describe their business plans going forward as a merged entity. a lot of this would happen

confidentially in business documents in the department of justice that are not open to the public. so the fcc invites them to say how is your deal really good for the american people. is so to go forward for charter and say we don't impose data caps and we charge, i believe they say a $40 price for a stand-alone broadband product and we intend to do this with a company that is twice the size of time warner, that sounds like it's offering some potential benefits to consumers. now, there may be a back story to this, a counter story, but those are important bit withs of information of their business plan that are really good for the regulators to review when they do their cost benefit analysis. >> host: mr. furchtgott-roth. ing. >> guest: well, i think as gene just said, all this information would be discoverable by the department of justice in the antitrust review.

>> guest: the conditions that are dangerous, you don't want to lock in a business model in 2015 that will apply in 2020 because we don't know how the market will unfold. i think there are certain kinds of precise prices or things like that that are dangerous long term. i would expect to see structural conditions, is what the enforcement agencies will look at. what -- do you have incentives and opportunities to discriminate against anyone in the market? if so what kind of limits need to be in place to prevent unfair discrimination and unreasonable discrimination? i think it'd be these kind of things most likely focused on broadband-delivered services. do you have incentives to favor your own cable product over broadband? if so, some conditions could be imposed that try to make sure that there's nothing unreasonable about the business practices on cable side that affect the broadband side. >> guest: i agree with gene. i think that's how it will play out.

having looked at just about every merger at the fcc over past 20 years there's almost certainly going to be conditions, and there are likely to be conditions of the type that gene described. and what we've also seen over the past 20 years is the department of justice usually -- letting the fcc put the conditions on because it's just, it's really easy for the fcc to put conditions on. they don't have to go to court, they can just say merger or no merger here it is. and that's how it will play out. >> so one of the things that has come up repeatedly over the last year is the fact that the broadband market is at a very crucial point. as i said we see broadband subscribers exceeding cable subscribers and at the same time we've seen a number of regulatory actions by the fcc. what would the open -- what role would the open internet rules play in this review or sorts of

behavior rs imposed on these companies, and would the fact that cable companies are now titled to common carriers have an impact on what they could do postmerger? >> guest: i think the open internet review -- order is under review, but we know the regulatory agency is to impose that kind of nondiscrimination requirement on a cable/broadband provider. so i would assume that will be the logic they would apply in reviewing the transaction. now, whether their rules take care of it or they would look at alternative conditions, i don't really know. at this point i think it's too early to say. but certainly that would be their orientation in reviewing the transaction. >> i think that's right. i think there are two types of things to look at in the course of what will happen. one is whether the commission had the authority to designate title ii to broadband. and the second is to me,

equally if not more troubling issue, it's just the extent of the forbearance authority the commission has. the commission designated title ii with one hand, and with the other hand they said well, we're going to forbear from all of the worst of the regulations. and then you look at the analysis that's there and it's not there, you know? it's just kind of a wave of the hand. and if the commission has the legal authority to simply forbear based on just what they think at some point in time without any clear documentation, without any record before it, then i think that's a very troubling situation. and some of these court cases will be -- you'll have at least the initial hearings during the deliberations on charter/time warner, but i don't think you're going to have the final court decisions on any of this. >> guest: i don't think it matters whether you're talking about title ii or forbearance in

the context of this transaction. it's the logic of what the commission was doing. they said there is an opportunity and incentive to discriminate if you are this, have this dominant broadband service. i think that's the logic they will apply. it's not really whether it's one part of the law or the other because this is a merger transaction. they won't be applying that part of the law. they'll be applying a public interest test to see whether the licenses should be transferred. so i think it's the logic that will be consistent and not one part of the law that matters. >> so there are analysts on wall street reading the tea leaves here, title ii blocking comcast/time warner or at least threatening to, and they have concluded the direction the regulators are moving is very pro-regulatory and perhaps negative more people in the cable industry. is that a fair direction to take? and do you think that puts this merger on more tenuous ground than it would be otherwise? >> guest: well, look at the amount of money that's being proffered for these properties. it's hard for me -- certainly

some entrepreneurs are guessing that the regulatory environment is very ripe for the business they want to run. they're willing to spend a lot of money for it. so i don't really see any one particular reaction on wall street that is reflective of a mindset about the government. seems to me some are cautious and some are extremely anxious to dive in and spend their money. >> guest: gautham, i think you're exactly right. i think the wall street analysts have assessed this very accurately. i think there's a sense that the government is involved in a very regulatory activity involving investment, and what we're seeing is charter rather than purchasing new plant and equipment to go out and compete with time warner. let's just buy time warner, that's the better solution here. and there are other troubling

reports about declining investment in equipment in the industry. >> guest: google's investing. google's building out fibroer in a variety of communities and i would say i would love if charter had done what you said. never in their history have they ever invested in overbuilding and competing head to head with other cable companies. none of them have. so there's nothing about this particular regulatory environment that's making that worse. our problem is we don't have enough head-to-head wires competing with each other, and maybe wireless someday will get there. i hope you're right. but at this moment in time, it's not delivering everything that a guy cross or a charter -- fios or a charter/time warner, cable/broadband service is providing. >> guest: the fcc has statistics quick back for many -- going back for many years. more than 90% of consumers have access to two or more broadband

providers, broadband providers. under the old definition, i'll grant you that. >> guest: pretty slow speed. >> guest: well, it's pretty -- a lot of consumers are pretty happy with it. so there actually is a lot of robust competition out there. >> host: i read something on the content side that netflix usage is up 37% or something like that. what does it mean going forward in light of mergers n light of the fcc's work on net neutrality? the ability for someone to get the content on end? >> guest: well, hopefully you're going to have mergers that don't interfere with that. that's one of the critical things that you actually have more companies like netflix like amazon, like google out there sony, delivering new services over broadband. and i think if the services are there, if the desire is there from consumers, the investment will come to build out as well. it'll be, a lot of it'll be demand driven here because i think people want the video product. and, you know, as much as harold talks about competition the

consumers i know see their cable bill go up every month, every year. the broadband prices have not been coming down. speeds have been going up, which is good, but prices haven't been coming down like they do in a lot of consumer electronics markets. so i think we're missing something on the competitive side. >> guest: oh, look, prices are going down, and consumers are going to the lower prices. they're called wireless services. the things that you can do with your ipad or your smartphone, it has convinced a lot of consumers to just completely abandon having wires into their home. but i think the point that you make initially, and i completely agree with gene, a lot of the -- there is an enormous amount of investment going on on the content side, and a lot of the broadband world is on the content side. it's companies like google and facebook and twitter and so on. and those are areas where the

american for whatever reason, the american economy dominates the broadband business globally. these wires, that's a local/national market. but i the online content companies that's a global market. fortunately, america's doing very well with this. >> host: one more question. >> to harold's point we do see mobile devices are now the majority of web traffic, and especially young people tend to spend more time looking at their ipad, iphone or android device than they do on traditional television. so is this all misguided? is it strange that we're focused on a cable tv and wired merger when it seems like wireless is the place that most younger consumers are gravitating towards? is. >> guest: well, we have to look at both. i mean, there absolutely is an explosion on the wireless side and apple is investing more and going into the video side. what you're seeing from all of the online providers all of the

wireless device makers, app developers and content distributers is they still need a lot of the video product that's on traditional cable in order to drive more demand for them to invest more. so i think the market is being transformed over time. we're going to see more convergence across the two. but when 60% of people still get that big fat cable package and a bundled service you can't disregard excess power in that transmission system. >> guest: i would just say that if one were to look at the market today and contrast it where the market was five years ago, ten years ago fifteen years ago twenty year years ago, this is a very rapidly changing market very rapidly changing technologies, and i actually have a lot of confidence in the department of justice to get these things right. there's a certain amount of humility that is required in

assessing mergers in a rapidly changing technological environment, and i think that's what we have here. >> host: before we let you go, one of the names that came up on the investment side on of this deal is john malone. who is he? why is he important to this discussion? >> guest: john malone is one of the great giants in an industry filled with giants. some people might say one of the great characters in an industry filled with characters. he's been a giant in the cable media industry for 30 years or more. first major company was tci, the largest capable company in the late -- cable company in the late 1980s, 1990s. he sold it to at&t in 1998 or so and now he's getting back in the business. >> guest: he's a character. he definitely has been a leader in the cable industry, and sometimes i think to excess. some of his earlier exploits led to the reregulation of the cable

industry with driving prices very high and preventing satellite companies from getting content. i hope he has learned his lesson and is happy to function in a purely competitive marketplace but i'm sure the enforcement agencies regardless of the personality, will just look at the facts and determine whether this transaction's in the public interest. >> host: joining us on "the communicators" this week is gene kimmelman with public knowledge president and ceo and harold furchtgott-roth, former commissioner at the federal communications commission. also joining us gautham nagesh from the "wall street journal." to all of you, thanks for being on "the communicators." >> guest: thanks for having me. >> the u.s. senate fail today agree on extending patriot act provisions last night and parts of the law expired at midnight. the senators did agree to move forward on the house-passed bill to renew the law with some modifications. they moved to bill debate and may vote on amendments this

week. we're going to show you about an hour of last night's debate beginning with democratic leader harry reid. >> mr. president, we are here now facing yet another manufactured crisis with the vitally important patriot act provision set to expire in a matter of hours. in a matter of hours. in fact, in less than eight hours before the expiration of this critical national security program. that's what we're faced with. tonight's deadline is certainly no surprise. as the junior senator from utah, republican, noted and i quote: we've known for four years this deadline was approaching. closed quote. but like so many other occasions in which brinksmanship has pushed the senate and our nation to the precipice, the dilemma we now face was completely avoidable. the job of the leader is to have

a plan. this case it is clear the majority leader simply didn't have a plan. the majority leader had five months to introduce a bill from committee that would reform and extend the expiring patriot act provisions, but instead he bypassed the committees altogether and brought this to the floor unilaterally. no committee hearings. none. the majority leader recently said more rule 14s, but that pledge hasn't lasted very long has it? the majority leader has, i repeat five months. in fact speaking to my friend, the ranking member of the judiciary committee the dean of the senate, he said this could have passed so easy the last two years. the majority leader though, had five months during the time he's been majority leader to coordinate with the house which passed fisa reform weeks ago. but instead he went it alone.

in fact it appears as if house and senate leaders are on completely different pages. everyone saw coming. everyone saw this coming. weeks ago it was clear. the senate didn't have the adequate time to consider trade legislation, the surveillance legislation and, of course the highway bill before the memorial day recess. i said that, others said that. listen to what one house republican, one republican congressman said. he said the majority leader's handling of this bill is i quote: could have handled it in a better way by manager more prepared in advance. they ran out the clock basically, by working on trade first. he probably should have ran the clock out on surveillance instead. i don't know what his strategy is here. i'm a little bit flummoxed. close quote. i say to my friend the congressman, he's not only flummoxed but so are we. in spite of all the warning

signs senate majority leader set up a collision course with no plan on how to resolve it. seems that only plan majority leader had on fisa was to jam it through last friday night. this despite the fact an overwhelming majority of house members oppose an extension. the president opposed an extension, and a dozen senate republicans opposed extension so voted last thursday. i'm sorry, last friday, mr. president. so then is it any wonder that even the majority leader's own republican senators felt it necessary to take matters into their own hands? the majority leader was also caught off guard by a member of his own republican conference last week who refused to allow the senate to extend the program the second circuit has determined illegal. but again the junior senator from kentucky didn't hide, he came and here was on the floor for ten hours or so. i disagree with the junior senator from kentucky but we're

not in the mess today because the junior senator from kentucky, we're in the mess we are today because of the majority leader. majority leader should have seen this coming. everyone else did. even those in his own party. meanwhile, the republican leaders has repeatedly lectured this body as to how it should function, but his actions have helped the senate not to function. we can do without more lectures and defiant statements. we can do for some more strategy planning and open lines of communication. because if the majority leader's job is to have a plan for what must get done or what would like to get done. in this case my friend from kentucky simply didn't have a plan. that's why we're here staring could down the barrel of yet another unnecessary manufactured crisis that threatens our national security. this is bigtime stuff, mr. president. we've heard what the head of the cia said today on the sunday show.

he's afraid that something's going to happen when this act expires. and that's not just my assessment of the situation or the head of the cia even senate republicans feel same way. the same way. republican junior senator from montana said yesterday quote: we could have done this a week ago. this it is nature of washington, always manufacturing crisis. closed quote. fortunately there's a clear way out. pass the usa freedom act which the house overwhelmingly passed with 338 votes on a totally bipartisan basis. all we need is a few more republican senators to vote with democrats and the bill will pass. just three, maybe four maybe five, but a few senators. all we need to bring this unnecessary cry is sis to a screaming halt. i'm confident we can pass this bill if the majority leader would bring it to the floor for a fair vote. now, procedurally, mr. president, it's going to be extremely difficult to not allow

this, not have this bill -- the law expire. not a bill, this law expire. any other -- [inaudible] passing bill would require the house to act before midnight. they're not here. so it's not going to happen. there's not a quorum of house members, and there are house members who will reject to a unanimous consent request anyway. passing the usa freedom act is the only way i can foresee the patriot act provisions do not expire. now is the time for the majority leader to do what's right for the privacy and security of all americans. >> mr. president a little surprised just to hear the senator from vermont talking about how the united states senate ought to just completely concealed to whatever the house -- concede to whatever the house passes over here. fact of the matter is we had a significant discussion on this issue all of the week before the

memorial day break. and it had gone on months, if not years before within the intelligence committee on which i serve and among members. this is one of the most important pieces of legislation that we'll have to deal with. it was drafted and spawned as a result of 9/11 when the american people said are we doing everything we possibly can to prevent something like this from happening again? and congress debated extensively on the patriot act and the tools that the intelligence community had suggested that we give them the authority to use to try to prevent that catastrophe from ever happening again. and doing everything we could to prevent terrorist attacks. along the way there have been modifications, there have been changes. recently there is significant national debate over whether one of these many essential tools

that helps us gather the intelligence to try to prevent and the understand the nature of the threat are used. and there clearly is a difference of opinion. so when the senator among members here in the senate and even in the house of representatives, and yes the senate did pass a reform measure that i think is flawed personally. i think it diminishes. it doesn't eliminate but it diminishes and some even believe it eliminates the usefulness of this particular program. and so we went back and fort on that -- back and forth on that for the entire significant part of the week before we adjourned, and the senator from vermont comes down and basically saying look the house passed this so therefore, we ought to just go ahead and pass it. he said there was no other alternative presented. but that was not the case.

we had a vote on house bill, and we had a procedural vote on the house bill, and we had a vote on the bill to extend this so we could come spend a little more time trying to figure out how best to deal with this issue. neither of those passed. indicating that the senate did not have the same consensus that the house reached which was partial consensus. and, therefore, that's what the senate is all about. we're not just a rubber stamp for the house. what's really ironic is the fact that for four years under democrat leadership of this senate the house under republican leadership, they sent us hundreds of pieces of legislation, and if we followed the senator from vermont's admonition to us, we would have just rubber stamped those. i mean, the house passed it, so why wouldn't we go forward? so i don't think that argument a makes a lot of sense.

senators are here to address issues in the united states senate. there are many things the house passes that i agree with, yes, my party controls the house. are there things here that i don't want agree with that -- i don't agree with that they've passed? yes. but we as senators act our prerogative in terms of to weigh in and ultimately, we take a vote. we either win or we lose. sometimes it coordinates with the house of representatives, and other times it doesn't. but then we go to conference if we pass an alternative. but to say that there hasn't been debate relative to this program and the program that the house passed is just simply not not true. there has been a such a significant unfortunately misrepresentation of what this program is and what this program isn't, and that has caused a lot of the angst in which we're

trying to deal with this. much of the public, at least some portion of the public is convinced that the government is listening to every phone call that they make. it's been said on this familiar that they're listening -- on this floor that they're listening to all your calls that they're collecting all kinds of data, they know everything about you. that is the furthest from the point of this program and the operation of this program that you can conceive of. and yet a portion of the public has been led to believe that big government is in their bedroom, it's in their house, it's in their car, it's in their phone, it tracks them wherever they go, they're collecting everything about yourself, what you buy at costco the movies that you rent through netflix. now, there are private industries that does collect that kind of stuff but it's not the government and it's not under this program. and this program, as a member of

the intelligence community i can tell you we have spent hundreds of hours hundreds of hours dealing with this program to insure that it doesn't violate anyone's privacy. it has more oversight through all three bran windchills of government -- branches of government the executive branch the judicial branch and the legislative branch. oversee this. there are six layers within nsa itself that it has to go through, that attorneys have to look at, that legal experts have to look at before they can even proceed to suspect and take something to a court to have a judge say yeah, you might have something here. now it's been said -- and it is true -- that unless you are your phone number is in communication with a foreign phone number known or at least strongly suspected and ultimately the court has to make that decision belonging to a terrorist organization, a member

of al-qaeda, isis or some group overseas that is attempting to do harm to the united states. why is this particular phone number -- not the name of the person who owns the phone number, but why is this particular phone number being called by someone in yemen? or being called by what we suspect strongly is a foreign operative through isis, al-qaeda, yemen, other points where we know terrorist activity is rampant? there's a signal that comes up that matches phone numbers, and they say we better look into this. but before they can look into it it has to be vetted by a court. it has to be taken to a fisa court or an intelligence court and judged by that court as something viable to pursue. at that point it's similar to what a court would order as a warrant to go and find more

information to see whether or not this suspicion actually is reality. now, we read about every day and we watch on television "law and order," all the shows and so forth how the law enforcement suspects that this particular activity is a criminal organization or this is a drug house or we have reason to believe that the perpetrator of the crime is this individual. they can't go be raiding your house, they can't go downloading their information about them until they go to a court and receive approval from a judge that yes, here you are here's your warrant, you can go check this out. well, this intelligence program is based on the same principle, and that is nobody can go and collect any information on anybody unless that court approves that operation and

then it's turned over to the fbi, and they look to see if it's the real thing. it is a tool that has been of importance and been a contribution to our ability to address the potential of terrorist threats and to thwart them before they happen. it's also been used as a way of proving the negative and that is that, no, this is okay. we don't need to follow up on this. and the best case of that is the boston bombing when the tsarnaev brothers' phone was accessed, and it was run against the numbers. there were some suspicions that additional terrorist activity would take place in new york, and it proved that was not the case because there weren't the connections made. so it became a valuable tool in that regard. instead of shutting down new york instead of putting new york on a high terrorist alert perhaps the nation's largest economy in operation there, we were able to quickly determine

that that wasn't the case. relative to those that basically say this this has never stopped a terrorist attack, two things. number one, this is one of the very many methods that we use to collect the threads of intelligence that come from different sources in trying to put together the mosaic or the puzzle as to whether or not this is something that we need to deal with and take it seriously. it's major piece of that puzzle that we obtain from the 215 program which is the collection of phone numbers not the names of who owns those numbers. it is collection of what's called metadata and it's been described as simply the same thing that's on your telephone bill that supreme court has said

is not a breach of the fourth amendment and is not privileged for privacy purposes. it is the date the call was made, it was the duration of the call, it was the number that was called, and that is it. that's the collection. and those numbers are put into a system whereby we can check against that a number that suspiciously is talking to a foreign operative in a foreign country. and that then triggers, automatically triggers -- you better look at this. it's kind of a ping. you better look at this one. nobody has access at point to any content related to that or even the name of the individual until it reaches a level of suspicion that is vetted through six layers of oversight and then sent to a court which looks at it to say we agree with you or we don't agree with you and if

we agree with you then it is -- we the fbi is alerted to say you better look into this. now, there's never been a time since 9/11 when we have dealt with a higher threat threshold than we currently are dealing with. you hear about it every day you read about it every day. isis has recruited more than 20000 it is estimated, significantly more than that of those from foreign -- 90 different foreign countries. it has made a direct threated -- threat toward the united states and its citizens. it is sponsoring and encouraging individuals to not only come over and train and join isis and then come back here and wreak havoc on the american people it also is inspiring those saying you don't want to travel over here just go out and kill somebody. join the jihad from afar.

you can be part of what we're trying to accomplish simply by doing your own thing. we saw it happen down in texas. we're going to see that happen in other places as people are inspired through isis for whatever sick reason to take up arms to cause destruction and to randomly kill and wreak havoc on the american public. it's been, it's been offered that the house fix the reform which did have bipartisan support and did pass the house with not a lot of, without a lot of debate is the solution to this problem. some agree that it goes too far, some agree that it doesn't go far enough. but there are problems with that particular freedom act which senator from vermont says is the golden grail here and will solve all the problems.

it is clear and it is the testimony that we have received from numerous officials in the counterterrorism business and in the intelligence business, it is clear that there are issues with this so-called freedom act fix that could render -- well, number one do render the program less effective and could render it totally inoperative. the fact that the nsa has not yet been able to come up with a program which would insure that we could have the kind of collection we need on the time frame that we need it, some of this is urgent and some of this is pending and some of this is imminent. and it already goes through

layers that delay coming to a conclusion and this adds, this adds more. but i it -- also they have indicated that the system is untested and exists only in name only. we don't know how the new program would be implemented and we don't know how it would be operated. and that's why many of us said, look, for whatever reason we're at this point. and, yes it expires at midnight but what we are trying to do before we left was get a short-term extension. we were negotiating, we think it should have been for a significant amount of time until nsa could test out its program, but we were willing to go much less than that so we would have the opportunity to come back and debate this further and get to some of the bottom of some of the misrepresented information that has been sent out to the american people and have an opportunity to counter that. and also work together to find ways through working with the house of representatives to come up with a more effective bill

that put the cup at more general -- the country at more jeopardy or, as some experts have said, undermine the entire program. we will obviously be less agile with the house bill. it requires an expansive regulatory system to match the level of oversight under current program. it requires -- i think the real problem here is it requires no retention mandate. the usa freedom act does not require companies to hold the data sought by the government. and therefore, the u.s. freedom act could be operationally useless as companies update their business model in response to changes in technology or market demand. the telephone companies, all 1400 of them, many don't want to go through the expensive process, through the oversight that they need to have process.

they want to sell phones. and they are hearing a lot from customers that basically say i don't want to buy your phone if it's going to be subject to them listening the to what everything i do and say d them to what everything i do and say is collected. well, first of all, that is factually wrong, but it's a narrative that has been said over and over on this floor by some members. that is absolutely wrong. it's just false. we need to have -- if we're going to go forward here, we need some intellectual honesty about what the program is and what it isn't. and it shouldn't be labeled as something that it isn't. and i can -- i will address that at a later point in time. but the freedom act by not allowing retention for a fixed period of time also lessens our ability make this program

effective. so, mr. president, this is -- i have much more to say on this. i know we're going into caucus as a party to see how we might go forward here given where we are. it's, it was not necessary that we be here on a sunday with the clock ticking toward midnight. we could have continued or we could have gone forward without getting to this particular point many time. in time. but now we will have the opportunity and unfortunately what looks like is we'll have the opportunity to debate this while the program expires. that is a bet i didn't want to take. the bet being nothing will happen if we don't have this tool. and the amount of time that's going to be taken to now address this. that's running a risk that i'm not sure members want to take. i don't want to be part of

somebody who says oh, well, this isn't important enough, and therefore, we'll just let it expire and we won't extend it for a day or an hour or a month or a sufficient amount of time to come to a reasonable conclusion as to the how we -- as to how we retain this very important intelligence-gathering tool to keep us safe from terrorists. but to go dark on this is a risk of american lives. it's a risk that we are taking that we're going to be responsible for our vote whatever that vote is. and i personally don't want the responsibility of saying oh, don't worry nothing's going the happen out there. the hundreds of hours that i spend in the intelligence committee tells me there's a lot that could happen out there. and members have every right be they're not on that committee every right to access what we access. we've invited people down to come and see it for themselves

so that they at least understand what it is and what it isn't. to my knowledge, only two have taken us up on that. there may be more that i have missed. but some of those who have stated this program in a totally false way have the siren song to people out there that think that big government is in their bedroom big government is taking every piece of information that they have about themselves. big government is storing this and, quote, listening to all your phone calls. it's the bunch of hoe chem, and it's wrong. and for those who we fuse to stand up -- who refuse to stand up and acknowledge that because they've had access to the program but refuse to take that access, have to bear the responsibility of sowing this wild theory and idea about big government in your bedroom and big government in your car, big government on your phone and big government collecting your e-mails and big government doing everything and storing it there

until the time when big government takes away everything from you. i didn't come here to do that, and this senate didn't come here to do that, and we will not do that and that's why this program has more oversight than any other program in the entire united states government. and we will put more oversight on there if that's necessary. i'll stay up all night and stand over at nsa and make sure they're not listening to to your phone call. but it's irresponsible, it is misrepresentation, irresponsible misrepresentation to factually state a falsity and not tell the truth. and it's time we, it's time we told the truth and it's time we stood up to this thing and made sure we're doing everything we can to protect americans from threats a lot of people and a lot of organizations that want to kill us all. they would like to see us, see our heads on the chopping block. and this is real in our country. as members not only -- people not only flock back from syria

trained by isis but they inspire people here to pick up weapons and do, and harm the american people. i know the senator has a question -- >> mr. president? mr. president? >> mr. president? >> mr. president, i have not yielded the floor. >> mr. president? >> yes. >> i want regular order -- >> mr. president. >> [inaudible conversations] >> the senator from indiana has the floor. >> i'd be happy to yield to the senator from arizona for a question. >> maybe the senator from kentucky should know the rules of the senate, that we -- when a gentleman has the floor and is open to a response or question. my question is to the senator from indiana, i want to say that his words are powerful and accurate -- >> mr. president? how much time remains on the clock for the side? mr. president? >> i asked for the regular

order, mr. president. >> i think the chair's made very clear that the senator from indiana has the floor. >> mr. president, i thank you. i know the senator from kentucky understands that when the senator has the floor -- [inaudible conversations] .. from indiana, you have seen the events lately that are transpiring. isis has taken palmyra. they are in the streets burning bodies killing people, going to destroy 2,000-year-old an antiquities. at the same time, ramadi has fallen with thousands of innocent men women and children being massacred. and at this time isn't this program as critical as it's ever been since its inception given the fact that the middle east is literally on fire and we are losing everywhere? mr. coats: it is more essential than ever, in response to the question of the senator from

arizona. it is more necessary than ever as we have seen a higher threat level since 9/11. of course, we didn't kw what th it is more necessary than ever as we've seen a higher threat level since 9/11. of course, we did know what the threat was in 9/11 so i'm not sure how far we have to go back but our intelligence today, whether it's any aspect of the of our intelligence agencies are sounding the alarms that we need to be as vigilant as possible. we need to within the law. we are operating within the law use every tool possible to try to stop an attack on the american people. 9/11 was a catastrophe that none of us could have comprehended. in 9/11 in the possession of nuclear radioactive, biological or illegal weapons would make new york look like just a small incident. it would be 3 million people

instead of 3000 here i think we have an obligation to do what we can without invading anyone's privacy. what we're trying to find is a balance between protecting privacy and protecting ourselves from terrorist attacks and protecting americans from terrorist attacks. we've done that with this program. if what has been said about this program wasn't true i would be the first to line up and say no we can't reach -- breached the privacy of american people. but the fact is none of it's true. there has not been one one act of abuse of this program over the years it's been in place. it has more oversight and layers of oversight. as the former attorney general said what for the government to violate and bypass this it would make watergate look like kindergarten activity. it would be a conspiracy that

would include hundreds of people and they would all have to swear that they would not reach their conspiratorial process -- breached. sort program that is overseeing the judiciary committee by the senate intelligence committee the house intelligence committee, the body of the senate access to this the body of the house at 535 people by the executive branch. the program that was endorsed by barack obama until he changed his mind apparently because the public was going the other way raised on false information, why people are out here basically making the accusations that they're making a try to take this down. and all we're trying to do is work with a house to find a reasonable way of keeping this to a life, keeping americans safe. >> would the gentleman yield? >> with the senator suspend? under previous order -- mr.

president? >> all time for debate has expired. >> mr. president, my understanding they're still five minutes remain on the opposition side and i request that time. mr. president? >> is there objection? >> i abject. >> how can we object would have a consent agreement says we have a consent agreement and just five minutes remaining, mr. president? >> that time was divided in the usual form and the time for debate has expired. >> mr. president, the time could not been divided equally because somebody somewhere must have given one side more time than the other. in the democratic time -- [inaudible] >> for five minutes of time that was allotted to the democrat

side was an unused and was equally divided at 23 minutes apiece. >> mr. president i was here for 30 minutes of the republican side speaking. i sat in my seat for 30 30 minutes and it was not 20 thirds of equally divided time. >> mr. president? regular order people don't know the rules of the senate. maybe they should learn all -- >> mr. president, average quest of the remaining five minutes of time on the opposite side. >> is there objection to the request of the senator from kentucky? >> i abject. >> i challenge the ruling of the chair and request gaydos and nays -- spirit is very sufficient second? there is not a sufficient second. >> mr. president, i request and live quorum call. >> the clerk will call the roll.

[roll call] [roll call] [roll call]

[roll call] [roll call]

[roll call] [roll call]

>> consent is not in order in a quorum call. >> he just wants you to call off the quorum. >> mr. president i ask consent to call off the quorum call. >> is there objection? without objection you may proceed. >> mr. president i ask consent to speak for five minutes. the fibers that was remain on the opposition side. >> is there objection? none heard, the senator from kentucky can proceed. >> let us be very clear why we're here this evening. we are deceiving because this is an important debate. this is a debate over the bill of rights, this is a debate over the fourth amendment. this is a debate over the right to be left alone. justice brandeis said it's a right to be left alone is the most cherished of rights.

the right to be left alone is the most prized to symbolize men. let us be clear. we are here tonight because the president continued to conduct an illegal program. go the president has been rebuked by the court. the president has been told in no in explicit terms the president has been told that the program is conducting is illegal. the president opines on television. the president wants to blame, he said anybody but me. but you know, what? the president started this program without congressional permission. even the authors of the patriot act say that the patriot act in no way gives authority to the president to collect all of your

phone records all of the time. if there ever was a general warrant, if there ever was a generalized collection of information from people to which there is no suspicion, this is it. we are not collecting the information of spies. we are not collecting the information of terrorists. we are collecting all american citizens records all of the time. this is what we fought a revolution over. are we going to so blindly give up our freedom? are we going to so blindly go along edges say, take it? i'm not going to take it anymore. i don't think the american people are going to take it anymore. 80% of those under 40 say we've gone too far. this whole collection of all of our records all the time is too much. the court has said, how can records be relevant to an

investigation that hasn't started? the court has said that even under these lower standards, even under these standards of saying they would be relevant that all of the stuff they're collecting is precisely irrelevant. now people say well they are not looking at it they are not listening to it. the tip of the iceberg what we are talking about. and realized that they were dishonest about the program until we caught them. they kept saying over and over again we are not doing this we are not collecting the records. and they were. ahead of the intelligence agency lied to the american people, and he still works here. we should be upset. we should be marching in the streets and saying he's got to go. we can't allow this. we can't allow the role of blogs to be so proud upon that we live in an arbitrary government where

they collect anything they want anytime they want. this is the tip of the iceberg. they are collecting records through executive order collecting this section 702. people say how will we protect ourselves without these programs? without using the constitution? what about using judicial warrants? the boston bomber, how will we look at his phone records? get a warrant. put his name on it. you can get a warrant. there is no reason in the world. you think anybody's going to turn down a warrant? we should have gotten a warrant before. we afford some people would have suspicion on. the simpson guy who was shot in garland. it already been arrested. we had suspicion. that's why i thousand more fbi agents. let's hire people to do the investigation and quit wasting time on innocent american

people. let's be very clear why we are here. president obama's at this program up. the president obama was once against the patriot act. the president obama once said, you know what, we should have judges write a warrant. the president obama once believed in the fourth amendment is the president now scooping up all your records illegally. and then he feigned concern and says we need to pass this new bill. he could stop it now. why won't someone ask the president, why do you continue? why won't you stop this program not? the president has every ability to do it. we have every everybody -- >> time has. >> i intend on protecting the constitution. >> time has expired. under the previous order the senate stands in recess subject to the call of the chair. >> before the recess i try to get a short-term extension of three provisions that will

expire at midnight tonight. section 215 business records section 206 roving wiretap authority, and the lone wolf provision. unfortunately, those efforts were unsuccessful your the lone wolf and roving wiretaps provisions, however, are not, i repeat not the subject of controversy with the house bill. so i would propose that we extend at least the lone wolf and roving wiretaps authority while the continue to litigate the differing views on section 215. or specifically i would propose we extend those two provisions, lone wolf and roving wiretaps, for up to two weeks. so mr. president, having said that i ask unanimous consent that the senate proceed to the immediate consideration of a bill which is at the desk to

extend the expiring provisions related to lone wolf and roving wiretaps for two weeks and other bill be read a third time and passed, a motion to reconsider be considered at length on the table with no intervening action for debate. >> is there objection? >> mr. president? >> the senator from kentucky. >> reserving the right to object, one of the promises that was given with the patriot act was originally passed was that in exchange for allowing a less than constitutional standard, we would only use -- >> is there objection? >> and against foreigners. we found 99% of the time section 215 is being used for domestic -- >> the senator from kentucky. >> no protection of the patriot act should be passed unless our targets are terrorists, not americans. i object. >> objection is heard. >> last week i proposed giving

the intelligence committee the time it would need to work toward the kind of bipartisan legislative compromise americans deserve. a compromise that would preserve important counterterrorism tools that are necessary to protect american lives. that effort was blocked. just now i proposed an even narrower extension that would have only extended some of the least controversial, least controversial but still critical tools to ensure they do not lapse as the senators work towards a more comprehensive legislative outcome. but even that very narrow offer was blocked. i think it should be worrying for our country. because of the nature of the threat we face is very serious. it's aggressive, it's sophisticated, it's

geographically dispersed, and it's not not going away. as the "l.a. times" reported quote, the obama administration has dramatically stepped up warnings of potential terrorist attacks on american soil after several years of relative calm. and the paper reported this is occurring in the wake of fbi arrest of at least 30 americans on terrorism related charges this year in an array of lone wolf plots. so these are not theoretical threats, mr. president. not theoretical threats. they are with us everyday. we have to face up to them. we shouldn't be disarming unilaterally as our enemies grow more sophisticated and aggressive. and we certainly should not be

doing so based on a campaign to demagoguery and disinformation launched in the wake of the unlawful actions of edward snowden. who was last seen in russia. the opponents of this program have not been able to provide any, any examples of the nsa to abusing the authority provided under section 215. and the record will show that there has in fact not been one documented incident of abuse of it. i think it's also important to remember that the content of calls are not captured. that's the general view but it's an incorrect one. i will say it again. the content of calls are not captured. i will say to the american people if you have been told

that that is not correct. that's what they mean about it campaign of disinformation are the only things in question are the number dialed, the number from which the call was made the length of the call and the date. that's it. that's it. detailed oversight procedures have been put in place, too, in order to protect the privacy of americans. now i believe this is a program that strikes a critical balance between privacy on the one hand and national security on the other. that doesn't mean the senate still shouldn't have the opportunity to make some changes to it. that's precisely the outcome i've been hoping to facilitate by seeking several short-term extensions. and considering all that's come to light about the house passed bill in recent weeks i believe this was more than reasonable.

the administration's inability to edge even the most basic questions about the alternative okidata system you would have to build under that legislation is to say -- bulk of data -- at the very least pretty troubling pretty troubling. that's not just my view. that's the view of many in this by including colleagues have been favorably predisposed to a house bill. in particular i know senators from both parties have been disturbed by the administration's continuing inability to guarantee whether the new system would work as well as the current one, or whether they would even be any data available to analyze. because while the administration has let it be known that this nonexistent system could only be built in time if telephone providers cooperate in building

it providers have made it abundantly clear that they're not going to commit to retain the data. they are not going to commit to retain the data for any period of time and less legally required to do so. and those no such requirement in the house passed bill. none at all. here's how one provider put it. we are not prepared to commit to voluntarily retain documents for any particular period of time pursuant to the proposed u.s. freedom act, if not required by law. if not required by law. quote-unquote. these are just a few of the reasons i thought it was prudent to try and get the senate more space to advance better

legislation through committee consideration and regular order with input from both sides. but, my colleagues, it is now clear that will not be possible in the face of determined opposition from those who simply wish to end the counterterrorism program altogether. no time to try to improve the house passed bill will be allowed because someone like that in the program altogether. so this is where we find ourselves. this is the reality. and so it essentially leaves us with two options. option one allow the program to expire altogether without attempting to replace it. that would mean disarming completely and arbitrarily based on a campaign of disinformation

in the face of growing, aggressive, and sophisticated threats. growing aggressive, and sophisticated threats. that's a totally unacceptable outcome. completely and totally unacceptable outcome. so we will not be doing that. and so we are left with option number two. the house-passed bill. it's certainly not ideal, but along with votes on some modest amendment that attempt to show the program can actually work as promised is now the only realistic way forward. so i remain determined to continue working towards the best outcome for the american people possible under the circumstances. this is why we are colleagues.

-- where. a house-passed bill with some serious flaws, and inability to get a short-term extension to try to improve the house-passed bill. and way we would normally do this there some kind of consulting process. so bearing that in mind i moved to proceed to the motion to reconsider the number 194 the vote by which cloture was not a vote on the motion to proceed to h.r. 2048. >> the question is on the motion. all those in favor say aye? those opposed no? the motion is agreed to. >> mr. president i moved to proceed h.r. 2048. >> the question is on the motion. all those in favor say aye you're those opposed say no. the ayes have it the motion is

agreed to. the clerk will report the motion to invoke cloture. >> the senate makes today at noon eastern and will continue debate on extending the nsa surveillance law known as the patriot act after a few modifications. senators agreed last night to move forward with a house-passed bill and work on amendments this week. meanwhile a number of patriot act provisions expired last night and will stay that way until the house and senate passed the bill. >> the new congressional directory is a handy guide to the 114th of congress with color photos of every senator and house member plus bio and contact information and were handled. also, district maps, a foldout map of capitol hill and to look at congressional committees the president's cabinet, federal agencies and state governors. order your copy today. it is $13.95 plus shipping and

handling to the c-span online store at c-span.org. >> tonight on "the communicators," public knowledge president and ceo jean kimmelman on the proposed merger between charter communications and time warner cable. >> we would love to have more competition. some have settled for video but hardly anybody has to broadband providers. wireless providers are available but they can't provide the video streaming that you get from your cable company. and so the question is where to get more competition? the competition is coming over that very same wire with the same company the cable company controlling to part. one of is your tv package the others are broadband service. a lot of content companies want to provide both underwater to make provider services. the cable coming as an incentive

to favor its own favorite product of its bundled service something law enforcement like to just make sure that no under benefits to cable through this consolidation. >> lots of americans particularly young americans under the age of 30, have cut the wire to have either cable subscription and they don't have a telephone wired. they are clearly wireless. and yet they differ broadband they want to is about broadband and literate people. they are sophisticated. you have new companies coming online to compete wireless broadband offerings. the idea that there's any sort of market power our monopoly power in this industry right now i think is very difficult to understand. >> tonight at eight eastern on "the communicators" on c-span2.

>> and what our live this one at the brookings institution for discussion on monetary policy. three panels today we'll look at quantitative easing or the purchase of bonds and impact that has on other economic conditions and indicators. financial experts and former federal reserve staff will be taking part in this forum. again hosted by the brookings institution your life coverage about to get underway in a moment or two on c-span2. [inaudible conversations] >> awaiting the start of a discussion on monetary policy posted by the brookings institution. should start in just a moment. while we wait the u.s. senate

comes in today at noon eastern. you can see the senate live on c-span2c-span2 after failing to renew some of the provisions of the patriot act yesterday. dynamics are expected and possible vote later today. the senate will be dabbling in at noon eastern right here on c-span2. in about an hour or so south to let republican senator lindsey graham will make a presidential campaign announcement invested capital of columbia south carolina. c-span love live coverage starting at 10:30 a.m. eastern. we will also take your phone calls and e-mails and social media comments. ps if this plant in new hampshire and iowa also this week. finally, on c-span3, live coverage of a form on the iran nuclear negotiations with former senators joe lieberman evan bayh and pharmacy director michael hayden who were part of a task force on iran. that was hosted by the foundation for democracy. again on c-span3.

one final event at 4 p.m. eastern a hearing on veterans health care allegations of dns management that will happen before a house oversight subcommittee. live coverage on c-span3. >> [inaudible conversations]

>> [inaudible conversations] >> [inaudible conversations] >> [inaudible conversations]

>> [inaudible conversations] >> a[inaudible conversations]

>> good morning. i'm david wessel director of the hutchins center on fiscal and monetary policy here at brookings. our mission is to improve the quality of fiscal and monetary policy and public understanding of it. hopefully we will not be judged by performance but it seems does that one of the most vexing questions that comes up with monetary policy is did the feds very aggressive asset buying come upon purchases known as quantitative easing contribute substantially to the increase in inequality? and if so, how much? this is a topic on which the us

a very strong opinions. there have been some analysis and our intent here is to build on that analysis, to think through the extent to which it's true if so, how did it work? and if not, what is it is only people think that inequality did result from the feds quantitative easing. we have three papers to present this morning. all of them already posted on our website, three different cuts at the issue. at our plan this morning is that each of the papers presented. we have a discussant and then will take some questions for a few minutes after each paper. and then at the end end of the morning we would end with a panel discussion that includes a few other presenters on what my colleague donald kohn and kevin warsh, formerly of the federal reserve, not stanford. it seemed to me as i was reading the papers some of which are more technical and economic

model based and some of which are not that the two really to keep in mind. the first is all that the federal reserve did was increase stock prices and then they wouldn't be much to talk about. obviously stocks are widely held by people at the top and people in the middle and the bottom. if stock prices go up they benefit more. but as josh bivens points out in the paper he will deliver in a moment, house price are pretty important factor in all this. for the middle class house prices are a large part of the assets. so the extent that house prices go up, they kind of '90s the story a little bit just look at what happens at stock prices. but the other thing that's important to keep in mind is one that economists do very well and few other people do which is to keep in mind the counterfactual. what would have happened if the fed not been quantitative easing? compared to what question which

by its nature hypothetical, is really important because you can't assume that something would have happened or at least have to examine the alternatives. is one of the things we'll try to do this morning. ivar introduced josh i just want to point out that ben bernanke isn't with us today. he is traveling in asia buddies interest in the issue and weighed in on his blog this morning, and not surprised by one committee rejected the view that the fed's monetary policies have hurt the poor and middle class at relative to the rich. you can see that on his blog. we are joined this morning by webcast cameras from brookings and c-span so this is live pics of those anything to do with the rest of the world to hear. and the pakistan by introducing josh bivens is chief economist at economic policy institute in washington. is going to look at the channel through which monetary policy works and discuss the distribution the consequences of each, and then do that important compared to what question what

would'

was intrigued. my prior is going in were successful macroeconomic stabilization policy is strongly progressive to company these useful and the poor to do but progressive bigger benefits to low and moderate income household. i ever thought expansion and monetary policy during every recession, should it be different? we know the monetary policy since the great recession has been different and how it sympathetic, the tools used. this is worth looking into. if my look at anything to this debate and who knows it might not, it's basically what they've talked about in his introduction to you want to specify some baseline against which were judging the effect of expansion and monetary policy and asset purchases in general over the past six or seven years. today signed up talking talking about but there's one other competitor fiscal policy stimulus that yielded just equipment impacts

on economic output. so that's one. and what would be but a special consequence from switching from one to the other the second baseline is going to be no change in other forms of macroeconomic stimulus at all. if the fed decided not to be the asset purchases in 2009, nothing else happened and what would be the consequence of that. the first baseline fiscal policy stimulus but yields an equivalent boost to economic activity is putting more interest to academics. this is a blogger copyrights at a place called worthwhile canadian initiative, a keen observer of monetary policy, worth reading. he framed the question like this, and basically what he thinks the right question is if we as fiscal policies that monetary policy, we just wish someone to another? so that's basically what i'm going to look out. there's a couple problems out of the gate. there's no such thing as a generic fiscal stimulus. you can do lots of different

things to provide fiscal boost to think about tax cuts but it's one kind of possible fiscal stimulus. we have a 2001 and 2003 tax cuts which were justified some of supply-side but in real-time to often justified on keynesian aggregate demand management ground. those are not particularly progressive. at 2008 tax cut part of the economic symbols that also signed by president george w. bush much more aggressive. within tax cuts are due characterized. transfers, the weight transfers or the nature of been in u.s. economy, they tend to focus most benefits on the bottom two fifths of the income distribution increases in transfers as a way of doing stimulus are going to be strongly progressive. and then an important issue concerns the benefits of direct government spending and investment increases. in theoretical models and entity in. research about the fiscal policy

that is effective when economy is to get the zero lower bound of interest with the government spending comes in really strong and so really probably -- the congressional budget office suggest allocating it into which the you can allocate the direct spending on a per capita basis think of it as a lump some spread across the entire population or you can allocate proportional to the same dish vision of income. those who yield to different results for the second one is by definition neutral if it is going to allocated proportionally to income. the first way is pretty progressiveprogressive it through is a lump sums spent on a per capita basis. then, of course, probably very different in the what kind of spinning we're talking about the distribution of applications. the defense then it's a different from grants to provide bus service in urban areas or school construction and poor district. the punch line is it's hard to think of a generic fiscal policy against which to judge what the

federal reserve has done since the great recession began. i decided to try to find a particular fiscal policy intervention that is about equal to the estimated impacts of the past six or seven years of economic activity. it turns out there's a decent one, basically the same as provisions are part of the content fiscal deal that sort of pushed back when the bush tax cuts on the top 2% would be rolled back. and you can see i which is sort of look at the two columns on the right the gdp effect and the unemployment of that. basically the stimulus portions of the 2010 fiscal to which are basically 2% federal tax on the employee side extend unemployment insurance and extension of refundable tax credits are part of the american recovery and reinvestment act. they basically have almost the same effect as big effect on gdp as the impact of the lsap at the estimated impact of the asset

purchases is a lot of variation. it's not really tightly estimated so this is rough orders of magnitude. the first question might be why did you compare to the american recovery and reinvestment act? the most high profile case over the past couple of years. the answer is the estimate and facts were really quite large quite a bit larger than as an index of the asset purchases. and i'm not really willing to say that the impact of the asset purchases are linear. you can scale them up and said let's say we've done too that would equal arra. i don't think that works like the. he might ask why don't i include the actual pushing back on the high end bush tax cuts? a cousin that i really, really small. the full range of tax cuts might invade but that was never going to happen every single politician in town wanted to preserve everything except it was affecting to 2% and below. so this is sort of the specific fiscal intervention i'm going to

compare to the lsap edges of the distribution of the 2010 fiscal deal, you didn't use the cbo to get a sense of where that money went. so the first column the payroll tax cut tells you that share of total payroll taxes paid by different income groupings. so the bottom fifth of the income distribution pays about 5.6% of all payroll taxes. this sort of 96-99% to 11% of all payroll taxes and did you compare that to the column to the left, that's the overall income their share of overall income. so payroll tax cut is mildly progressive. the extension come unemployment insurance extension, the way account is measuring a share of all non-social security cash transfers to go to different parts of the income distribution to come going to say that's a pretty good proxy probably for the unemployment insurance extensions with the you can see

those are quite strongly progressive, concentrated in the middle, say three-fifths of the middle this division and in the refundable tax credits, they are released on important for the bottom two fifths basically i allocated, and those from those of the portion of the income distribution actually have negative federal income tax rates in the data. so that's where i am allocating those. so the combined impact of fiscal provisions of the 2010 fiscal deal are pretty progressive particularly the refundable credit and extension, payroll tax for less. so now we can get to what is an large-scale asset purchase due to inequality? the concern is lsap will boost asset prices and income generated by asset holdings his concert at the top. and the second point that his concert at the top is true. this is just a measure share of total capital incomes claimed by

various percentiles. the top 1% the blue witch at the bottom. 1979 the top 1% of households claimed about 30% of income generated by asset holding. by 2007 in brooklyn 67%. the bottom 90% and their shares triggered this is the root of the concern. i actually went i dig into this and look at attempt to measure the actual impact of the lsap i think the distribution ethics of those asset purchases are smaller are often characterized in the popular press like some people have called them the fed doing a reverse robin hood. it strikes me as pretty strong and there are three reasons. timing, the fact they're not that different from conventional monetary policy stimulus except maybe a little as effective. and an effective housing that david talked about before. on the time issue, basically the asset purchases are going to boost prices that would've some point they will probably almost

surely be unwound and so that will put downward pressure on prices. if you held an index fund of the stock market and you held over long period of time you would see a fun to go up and then come down in terms of the marginal impact of lsap on the. stocks always incredibly concentrated so basically when you pushed up stock prices you helping today's stock owners to get expensive to mars but tomorrow's stock owners are not poor people, not even middle-class. they are pretty rich as well. second point, it's not that different with the lsaps are doing. convention mantra policies post a short term interest rates and any hope of arbitrage the long-term rates in african chip -- sort of fall in sympathy and that's how it's supposed workers lsaps capacity this is a short-term rates are only as a pushed down long-term rates strickland. the goal of both is goal of both is to push down those long-term rates and those rates cannot go down if you're not pushing up asset prices at the same time.

it's not a radically different thing than conventional monetary policy. and, in fact some estimates say the impact of a given a the decline in long-term rates as result of the lsaps is actually less on stock prices than conventional monetary policy. i think that's an interesting thing to examine but that was wrapped in a couple of different studies. part maybe when you're measuring the effect of monetary policy to zero lower bound you are measuring its impact in a pretty fragile and weak economy. it's interesting to think about. the last one that's important is housing is an asset price. i'm so housing is an asset and its price can be affected by the lsaps and it's an asset that is held it's important in the portfolio of the middle-class. so the thing i've highlighted is sort of the broad middle class middle 60% of the wealth distribution. we can see housing accounts for about 63% of the total wealth holdings. the impact on home prices stemming from the lsaps is

comparable to stock prices, then you really going to see a pretty neutral effect. what i found is most of the estimates or implied essence of effective lsaps on housing prices are probably greater than its impact on stock prices. what i found up stock prices to a broad scandal search, maybe 5% 10% increase. so that brought this division of housing wealth is another thing that makes come these impacts smaller than you might think. that i think the really important thing, that's sort of fiscal first monetary but then went to think about the real world. and is a bluetooth that is the fed i decided to not as much in with asset purchases that fiscal policymakers would've said of course we should jump into gap and so little in aggregate demand. this is what has happened to government spending over this recession and recovery. that line on the bottom, 2009 is what's happened since the trough

of the great recession. you see the red line, it slopes steeply up before the trough and that's basically the american recovery and reinvestment act of actually to do some real fiscal stimulus to fight the recession. starting at some point and about late 2010 company 2011 fiscal policy has been outright drag on growth and that's really historically kind of astonishing. if you look at the trajectory of government spending real government spending in this recovery versus all others fiscal policy has been a very large drag on growth. it is true that output stabilization is progressive at all then this baseline becomes really important and different to the lsaps managed to keep unemployment low than it would have been an overly strong and progressive ethics. we find low unemployment in the macro economic stabilization and will is progressive. these are coefficients on a slow

wage. you can basically see come and live wages at the 10% 50% of in the 90th percentile comp time separate from it and women are you can see the wages for the 10 percentile in the 50th are much more sensitive to to changes in the economy. the 95th percentile male wage does not significantly -- particularly significant. so there is a strong equalizing effect of output stabilization and low unemployment rate. so that has developed a really largely. if you think the lsaps help stabilize, this as they were quite progressive. just to end, what this says is that since the great recession as the fed has been pursuing expansionary monetary policy i think it's pretty clear that that's been a progressive intervention. i think when we are going to

choose between fiscal and monetary policy i would have greatly preferred fiscal policy carried a much heavier load in stabilization but not necessary because of distribution for i think the research says it's much more reliable and effective. and i think we should, despite the lower unemployment rates have really strong decision consequences testing we can look at the history of federal reserve actions in what is going to happen over the next couple of years. should affected strongly. if we go into contractor mantra policy to send in the coming years that will have some repressive application but was happened over the past years i think the fed post has been pretty strong progressive. i'm out of time. thank you. [applause] >> thank you, david for inviting me today. good to see all of you here. first i want to congratulate

josh on what is a very accessible and interesting paper on the impact of quantitative easing and lsaps in particular on any called it but he takes us through a lot of the theory and empirical evidence in a very accessible way and presents two very interesting counterfactual's, which is what would've happened if we had fiscal policy and what would've happened had the fed done nothing. so overall i find his arguments and argumentation in the paper very interesting, helpful for anyone to read. so i would congratulate josh. josh. i want to expand on his overall contention that in fact quantitative easing and the unconventional monetary policy for the last supper years have not noticeably or significantly worsened inequality in terms of other wealth inequality or income any called it. like josh i want to begin with a strong caveat that no one is dispute the fact that we've seen increases in both income in the

united states and in other countries come not only since 2007 but predicting that as a long-term trend. entity concerning trend to an economist in terms of aggregate consumption particularly for an economy like the united states where 70% of gdp growth comes from consumer spending. so the stagnant wages and incomes of a large segment of the population is indeed a concern. that said, i would agree very much with josh there is very little evidence that the federal reserve's monetary policies have contributed significantly to this. there's been no walks are three reasons why this is so. first there's been most of the attention has been paid to the impact of low interest rates and qe and asset prices. we did some work and report a year and a half ago looking at this question and found in fact are equity prices there's very little evidence that ultralow interest rates have been

responsible for the run of india's stock market. first point is that many people tend to forget, although i'm not one of them looking at my personal financial statement that at the end of 2008 u.s. equities lost 35% of the value. global equities lost 37%. so the increases we've seen in the stock market, first of all let's put in context of we are climbing out of a very deep hole. secondly, you need to look at the theory through which mechanism shall interest rates boost equity prices? the most direct mechanism would be to a dividend pricing model. so discount future cash flows and the lower the interest rate, the lower the discount rate, so that should boost in evaluation of the net present value of future corporate income strengths. you think i'll all right there is a direct mechanism. however, both empirically and theoretically there some problems with this argumentation. first is if your irrational investor you should realize that

quantitative easing and ultralow interest rates are a temporary policy and so you should not be valuing corporate prospects tenures out based on whatever the current short-term or long-term rates are today. secondly sophisticated invested should be using an overall cost of equity which includes not only the risk-free rate would you be the interest rate but also an equity market premium. and we have been modeling at mckinsey estimating what is the cost in equity and we find that it is actually a very stable figure over many decades, ranging between seven and 8% for u.s. equities, for instance. this holds true since the recession. so even if investors believe the risk-free rate has gone down, they are apparently increasing equity market risk premium likely with the expectation that, in fact that rates will increase. so theoretically there's no real evidence of there. the other argumentation is that

there's a substitution effect. you can't learn anything in bond funds so switch to equity funds. when you look at actual investor behavior again there's very little evidence that either retail investors are certainly not professional money managers and institutional investors in fact they equities as an alternative asset class to fixed income fund. so overall we conclude that qe has boosted u.s. equity prices by maybe 5% at most compared to where they would have been. so then the question is why had increased? well, corporate profits are at all time historic ties. companies are sitting on over a trillion dollars of cash. so there are good fundamental reasons to believe that equity prices have gone up. when you look at a one your forward-looking price earnings ratio easy u.s. equities today are valued only very slightly oval a long-term average would have put them at. so to the extent that the well-to-do of equities, it's true they may have gotten some

slices the valley of the wealth holdings. the more important impact has been on housing prices. and there is a much more direct channel because people buy housing with mortgages and so is the cost of mortgages goes down, it should have supported housing prices which begin let's be clear to have fallen dramatically, fell 30% or more of cross u.s. on average. but the evidence is a would've fallen even more and have had been even slower to recover without low interest rates. it's a more direct effect on economies were mortgages aren't variable-rate, like the united kingdom, the bank of england has said that low interest rates may have supported uk housing prices by 15-20% of u.s. is somewhat less direct because most people have a fixed rate mortgage. you need a good credit score to be able to refinance today defense of these low interest rates. but as josh's paper points