>> you've got the minute. >> i'm bullish on sectors related to construction. infrastructure and construction in africa are going to be growth industries for 50 years 100 years, and so things like paint factories, hinge factories, all the things, everything you need for construction on a day-to-day basis, i think are going to be fast-growing companies. and i also am bullish on ethiopia. it's a very large population and they're moving quickly, implementing a very aggressive i infrastructure plan -- aggressive infrastructure plan including the first light rail opening up. so i'm very, very bullish on ethiopia. >> as we say we barely touched on anything.

the book has -- [inaudible] thank you very much and appreciate you coming out. >> thank you. [applause] >> thank you leslie and thank you to aubrey jenkins. the book, copies of the book are available outside, and please join us for a reception to celebrate the new book and to meet each other. thank you. [applause] [inaudible conversations] >> every weekend booktv offers programming focused on nonfiction authors and books. keep watching for more here on c-span2. and watch any of our past programs online at booktv.org.

michael tanner talks about the growing national debt next on booktv. in his latest book, "going for broke," the cato institute fellow argues for sweeping solutions to the u.s. debt problem which focus on restructuring social security, medicaid and medicare. >> host: michael tanner, nice to be with you. so today we're going to discuss your book "going for broke." maybe you could just start by talking a little bit about what prompted you to write this book. >> guest: well one of the things that's frustrated me lately is people have stopped paying attention to the deficit and the debt crisis. we sort of think we've beaten it because the deficit is down, it's down a lot really in the last couple of years and people think that sort of solves the problem. but the reality is we're in a very temporary lull, and within just a year or so we're going to see the deficits go back up. we're adding to the debt every

year. we haven't even begun to hit the problem that's going to kick in when the real entitlements, medicaid medicare, social security start to add up, and if we don't start acting now while sort of the sun the shining, we're going to be in real trouble once the rain starts. >> host: so walk us through the numbers. so you say the deficit is down, the debt, we're still adding to it every year. i think a lot of people probably don't understand the difference between the deficit and the debt, so start there and walk us through the numbers of how we're doing in those different fiscal metrics. >> the deaf silt is this year's -- deficit is this year's shortfall, and it's going to be somewhere in the $450 billion range which sounds like a lot of money, but consider just about three or four years ago we were up in the $1.4 trillion range so we're doing a lot better than we were there. but as i say that's just a temporary thing. we're going to in a couple of years begin to see that begin to go up. if you add up the shortfall each

year, then you get the debt, and that's the total amount that we owe. and you can think of it sort of with your household budget that if you run short this week that's your deficit. but if you're running short every week and so you take more out on your credit cards this week and next week and the week after that that's the debt you're ultimately going to owe. and so when we talk about the national debt, that's what we're talking about, how much the deficit has added up each year. and the national debt consists of both the debt held by the public which is the debt that's in your portfolio. if you have government bonds, you have treasury bonds, you have debt held by the public. you're the public. of course, it's also the part that the chinese hold and the japanese and so on, foreign governments hold about 40% of it but that's sort of one type of debt. it's the most solid, the hardest debt, the debt the economists talk about a lot. it also includes, though, what's called intergovernmental debt which is debt that one part of the government owe f owes the other, the social security, the

medicare, the highway trust fund where the government, essentially, owes these programs a surgeon amount of money. and that -- a certain amount of money. and that adds up to $18 trillion right now a little over that. and that's the national debt that makes the headlines that everybody talks about in the papers. but there's also the third kind of debt which is the unfunded liability or intergenerational debt of these programs like social security and medicare where we know how much we owe under current law in the future to pay these benefits under these programs, and we also know pretty well what we're going to be taking in in tax revenue to support these programs, and there's a gap between the two. while that's not as solid as, say, a government treasury bond that we owe right now it's still money we've promised to pay, and we don't have the revenue to pay it, and that's a kind of debt too. throw all that in, and we're talking about a real debt that's anywhere from $70-$120 trillion depending on how you want to measure it.

>> host: those are some eye-popping numbers. let's go back down to sort of the first one, the debt held by the public. and as a share of the economy i think that's about twice the average that it has been historically. what does that mean for people? one of the things that's tough about these fiscal issues is connecting them to people's daily lives but what should people think when they hear, oh, the debt is twice the historical average or unsustainable trajectory? what does that mean for them? >> guest: right now we're in a fortunate set of circumstances because the rest of the world is so messed up that people are willing to lend us money at absurdly rates of interest -- low rates of interest. but the reality is when we talk about debt held by the public, there's a lot of problems with it. one thing, it actually begins to slow economic growth when it reaches the level we're at. businesses, for example find it a little more difficult to borrow money, or people are less willing to take the risk of investment because they see that down the road that's going to be something they're going to have to pay back through higher

taxes, so they're less willing to take risks less willing to invest. all of that slows economic growth, and it's been estimated that our children are going to be some $2,000 a year poorer simply because of the level of debt that we're carrying. >> host: $2,000 every year right? $2,000-$5,000 -- >> guest: that's right our children will be simply because of the amount of debt we're carrying right now. second, we have to pay interest on this debt, and that interest begins to crowd out other government spending. i mean eventually you end up with spending a lot of money that you're simply paying to foreign investors that you're not able to invest on things that you might want to whether you're a republican and want to spend that money on defense or you're a democrat and want to spend that money on social programs. instead we're paying back interest on investors who are collecting government bonds. that seems like a pretty big waste of money. >> host: yeah. a lot of times people talk about, you know, if we just got rid of waste fraud and abuse in the budget -- and this is all of us who look at the budget know

this is a silly thing to think we'll fix the budget, but one of the areas you could really make improvements is you bring down the cost of the carrying costs the interest payments. that's the fastest growing part of the budget those interest payments. >> guest: that's right. those interest rates right now are very low. if they get back to the historic rates of interest we've had to pay in the past, we're going to be shoveling money out the door again, that doesn't do anything. it's not defending us, not helping poor people, it is simply money going to people to pay them in essence, to lend us money. so it's a real waste of money in the classic sense of the world. think of it like your credit card, i mean, maybe you get something when you actually buy whatever it is, the new flat screen tv, but then when you pay that 16 18% interest on your credit cards that's just money you're paying to the bank. >> host: yeah. so i think i saw an estimate that if interest rates were to go up one percentage point, that would cost the government about

$130 billion additional dollars every year right? we're talking about staggering numbers in terms of rates are very low right now. if and when they go up, that's going to increase the cost a lot. and it can squeeze out whether you're the most liberal and you want to spend more money on social programs, if you're spending on interest you're not spending on those priorities. one of the things you talk about in the book is that there are arguments that people make, don't worry about this, we owe it to ourselves. talk about that. >> guest: that's right. that's the classic keynesian argument that says we shouldn't worry about debt because in the end, we simply owe that debt to ourselves. we can argue, of course, foreigners hold a certain amount of their debt, but we hold some is of their debt, so maybe it equals out in the end. the bigger problem with that is that the distribution of who holds that debt is not the same thing as who gets benefits from the debt today. now, to make the argument in a sort of classic sense if you borrowed money to go to college

let's say, and you took that money and because you went to college you then earned higher wages when you got out and you used that to pay back the debt, you're no worse off because you borrowed that money to go to college. the problem is that a lot of that money we're borrowing right now is not investment, it's not to make our wages better in the future or improve our infrastructure or do something that's somehow going to make higher economic growth in the future that makes it easier to pay it back. instead a lot of that's just redistribution today. essentially, we borrow that money to give it to somebody who then spends it. it's gone. so it's not being invested -- >> host: so it's consumption. >> guest: factually, it's consumption -- exactly. the person who's ultimately going to pay it back in the future may not necessarily be the same one who benefited from it today. so it may be like someone else had to pay back that -- >> host: my kids. >> guest: ah, there you go. and so there's an unfairness to the redistribution of it that

needs to be thought of as well, and people are going to think about that in the future. that debt's going to have to be repaid, and that's going to headache their decisions they make today in terms of investment and growth, so we may not see the benefits from that college education may not necessarily be there if some business that was going to hire you instead has to pay back your loan. >> host: i think it's a really interesting point about who's borrowing and who's doing the spending because you do hear a lot of people saying, don't worry, we're borrowing it from ourselves, not to worry. if we were investing to grow the economy for the next generation, that's very different than if we're consuming and we don't want to pay the bills, we're handing them to the next generation. talk about the impacts that are part of this. >> guest: in many ways it's an unfair taxation without representation. essentially, we get to consume today, and our kids have to pay the bills and they didn't get to vote on this at all. we're talking about generations

not even born yet are going to have to pay for our consumption today. it's like saying you're going to have a little party today, and you'll leave, you know send the bill onto your kids. they didn't get to go to the party. in addition to that, i don't think people realize how little investment we actually do. only about 13% of federal spending is something that's considered investment, and that's even a broad definition of investment on, say education and things like that. not just sort of the hard investment of building roads and bridges and so on. so when we talk about federal spending we're not talking about investment. vast majority of it's consumption. it's taking money from person a and giving it to person b. that may or may not be justified, but it doesn't do anything to grow the economy for the future. >> host: why don't you talk about discretionary spending versus mandatory spending or entitlements. >> guest: this is one i hear a great deal. people will argue, they'll say well, social security's not an entitlement program. i paid into the program when i

had, when i was working, and i get back what i paid in plus the interest or whatever. it's not like a welfare program where that's an entitlement. the reality both those sides of that are wrong. entitlement's really just a legal or accounting term that refers to mandatory spending. it's spending that congress doesn't vote on every year. there's no annual appropriations bill for social security, for example. there are people -- people are entitled to it assuming they've met certain criteria, and congress spends whatever -- the federal government spends whatever is necessary to meet those benefits. there's no actual vote on that issue. that's all an entitlement means. by that definition social security is an entitlement. but welfare traditional welfare is not because they actually appropriate the money on an annual basis for tan i have. those -- tanf. >> host: so one-third of the budget goes through the appropriation process.

two-thirds of the budget doesn't go through it at all. how do people decide which program is in which? how do you decide which is a mandatory program versus what's discretionary that goes through the appropriations process which is tricky each year, they often are not passing appropriations bills sometimes but how is it determined which is which? >> guest: it specifies in the original enacting legislation for the program, whatever it is, whether or not it's going to be subject to annual appropriations, how it is legally defined in terms of the budget process. so certain programs have five year, a vote every five years like the farm bill has or every ten years. some programs like medicare, medicaid, social security have no vote at all. essentially, you can look at the -- those programs are subject to congressional votes or domestic discretionary spending everything from the fbi to the fda department of commerce department of education all lumped into that. that's about 16% of federal spending. and another 16% is defense spending, at least defense

discretionary spending the non-war fighting part of defense spending. that's essentially it. that's all congress basically talks about when it's talking about spending. that's what the budget bill's all about really s those two sets of programs while everything from entitlement programs like social security, medicare and medicaid interest on the debt, multiyear programs all of that is outside congress' annual votes. >> host: and then to bring up another word people hear sequester. we put in place the sequester a couple years ago. talk about that. >> guest: sequester basically was a cap over the next ten years, i think we're about three years into it now. and, but that only affected the two types of discretionary spending. it only affected domestic discretionary spending and defense discretionary spending, and it limited essentially them. it was designed to impose, essentially, a set of cuts each

year that were going to be split evenly between domestic discretionary and defense discretionary spending. now, we're already seeing in the new, latest republican budget that they've managed to take some money from defense discretionary spending and shift it to the overseas contingency operations, the war-fighting portion, so it doesn't apply to that portion of it. but there was no, essentially there was no sequester reductions to the mandatory spending programs. there was some things that went on with medicare, but that was outside of the pure sequester. so it's, basically, a cap on those two types of programs, and it is largely responsible i think, for the slowdown we've seen in spending over last couple of years. >> host: now, you bring up something that we do a lot here in washington which is budget gimmickings. [laughter] the overseas contingencies operations oco it's kind of becoming a slush fund for other parts of the budgeter where the government talks about putting more money into this emergency area. they actually put normal

budgeting areas put the money into that, and then they're able to spend more than they're supposed to. budget gimmicks, we see that all the time here in washington as a way to get around things. what do you think of those? >> guest: i think they're purely dishonest and clearly what the republicans just did with the defense spending was simply designed to try to get out from underneath -- >> host: they don't want to stick with the caps, they don't want to pay for getting rid of them. >> guest: that's right. and if they waived the caps on defense spending, the democrats were going to insist they waive the caps on -- they essentially took the money that's not overseas war-fighting material or not emergency spending and they simply took routine spending and put it in there. >> host: uh-huh. >> guest: and the congress does this all the time with emergency spending whether it's national -- natural disasters which they end up spending money on states that had nowhere near the natural disaster that occurred or defense spending, of course, much of the iran and iraq wars was fought off budget.

and was simply spending that didn't apply to normal budget rules because of that. so the congress does this sort of thing all the time. and it makes honest budgeting very difficult. certainly, it also raises questions about how much you can trust promises into the future whenever they come up with these gimmicks they're going to have that says, well, we will balance the budget the ten years from now in some way. not exactly trustworthy when you really look at it. often those balanced budgets involve savings that are very mysterious. one of my favorites is that they continually save money by not invading countries -- [laughter] for years after we pulled out of iraq we continue to save money by not invading iraq. >> host: well, and a lot of those savings because they do ten-year budgets. you see the numbers for ten years, a lot of timings all the savings are -- a lot of times all the savings are back loaded.

right now you're actually doing more borrowing. >> guest: we just did this with something in medicare called the doc fix which is, essentially medicare was required by a law back during the bush administration to reduce spending every year by a certain amount. now, it didn't actually ever do that. but it actually did a little bit more than was necessary. the requirement was that you would have reduced reimbursement to doctors and hospitals in ways that was unrealistic -- >> host: cut doctors' pay in a way, have them drop out of the system. >> guest: exactly. everybody knew we really weren't going to do that every year. but faced with that, it did sort of force them to come up with other ways to save money in medicare and they did do some of that. maybe never as much as they were supposed to, but they did do some of that. well, they got tired of having to play this game every year and they've come up with what they call a permanent fix essentially, they got rid of this requirement that physician payments be cut back. and they said don't worry we

will come up with some additional $200 billion or so to offset the money that we're not going to save anymore. they just haven't said what those additional $200 billion in savings is going to be, but we shouldn't worry someday they will think of them. >> host: and they passed the bill without paying for them, right? so they added more money to the debt. >> guest: that's right. by doing this, they said, don't worry, we'll fix it someday and, in fact the republicans could at least acknowledge the fact they're going to have to come up with some savings they just don't. >> host: well, i think it's sort of at odds because within own hand you had the republican budget that assumed you wouldn't administer to the debt at the same time that they were passing a bill that was adding well over a hundred billion, i think even half a trillion over two decades to the debt. so significant borrowing. and what was interesting is, it was heralded as a big bipartisan success, because one of the only times republicans and democrats can agree in this very polarized town is when they're borrowing money instead of actually paying for things, because paying for

things are tough. >> guest: yeah. that's one of the real problems we've got right now is that neither party actually wants to balance the budget. democrats are happy to tax and spend, republicans are happy to borrow and spend. the common denominator there is spend. so the idea of actually reducing spending is something that neither party really seems to be serious about. >> host: let's talk about that because i think one of the interesting things that you bring up in this book and there's a difference of opinion about this, what is fiscal responsibility? so i often think about fiscal responsibility as you pay for what you spend. not all the time. in bad times you may need to borrow, you need to balance the budget every year, i would say but over a certain amount of time you'd pay for what you spend. you make the case, and i want to spend some time talking about this that it's less just about bringing your deficit down, but it's about bringing your spending down. so from your perspective, and we'll talk more about cato and libertarian perspective but from your perspective it's about the spending issue.

talk about that. >> guest: milton friedman used to say the real can cost of government is how much you spend. both taxation and borrowing take resources out of the productive economy and transfer it over to government where we have already seen most of it is not invested, it's consumed. and while this distribution affects different people who pay taxes than people who are borrowing, in essence, they're both taking money out of the economy and transferring it over to the government to spend. and they're both equally bad. the republicans and democrats prefer different ones of those because different people, different oxes are gored, i guess, by which of those you chowz. and in this book i try to make that point. ultimately, you can have a government that's simply so big and consuming so much of the economy that the economy can't function regardless of how you pay for it. the cbo has estimated that we will ultimately end up -- right now we spend about 21% of gdp or

so by the government at the federal level another 10 or 15% at the state level so you're spending a little over a third of the economy by the government. we're going up to a point where we're going to be spending 40-50% of the economy at the government level under the conduction projections. and i would argue even if if you paid for it all, if somehow you could raise taxes enough to pay for every penny of that spending, you still couldn't have a functioning economy where the government was spending half of everything the government -- everything that is produced in this country. >> host: so what would you cut? >> guest: well, i think we need to be willing to cut across the board. i think obviously the usual suspects but they really don't get you very far. >> host: the usual suspects being -- >> guest: republican, you know if you listen to them talk about waste, fraud and abuse they'll tell you well let's cut foreign aid or we'll kill big bird or defund planned parenthood. you know, that's not going to get you anywhere. the merits of the program --

>> host: the size of the budget, they're really small. >> guest: foreign aid's 1% of -- i think a lot of people believe we spend all this money on foreign aid. it's 1 percent of federal spending, and that includes some foreign aid that we want to keep going. big bird and planned parenthood, i think combine are one-ten thousandth of a percent of federal spending, so you're not balancing the budget that way. you know, defense? sure, defense is going to have to be on the table. despite the current climate there's no doubt there's a great deal of waste in the defense budget. we pick up the defense spending for a lot of other countries that spend a lot less on defense because we'll do it for them. there's a reason why we spend about 4% of gdp on defense. europe is one, 1.5 maybe 2% and maybe some of the big countries like britain nowhere near what we spend and that's because we're essentially being their army for them. so we have to cut there as well. but the big money is in entitlement programs. the fact is that we spend be

about 47% on just three programs alone, medicare medicaid and social security. you can't really do much of anything unless you're willing to take on those three programs. >> host: we're going to talk about those programs in detail. first, would you raise any taxes? would you look at fixing this program entirely on the spending side, or are there taxes you'd be willing to raise? >> guest: well, i think i'd want to bring through spending first. a lot of problems with the balance proposal they raise taxes today, and they promise to reduce spending tomorrow and i just frankly don't trust that. i want to see the spending reductions locked in and then we can talk about whether or not there are any taxes that need to be raised. and i'm not necessarily opposed to any specific tax specific taxes being raised as to overall revenue. there's certainly i think tax breaks out there that are distortionary.

special tax break for ethanol type of thing. those sorts of things, i think don't benefit the economy they simply distort how money moves around within the economy, and i have no problem with actually reducing those type of breaks. i would rather see it done on a revenue-neutral basis but i certainly don't think any particular tax break is sacrosanct. >> host: those tax expenditures are a trillion dollars a year in lost revenue to the government. whether you want to reform the tax code or get rid of them to close the deficit or spend them on something else, there's a lot of money there, and many people -- myself included -- kind of think there's much more spending through the tax code than they are actually lower taxes. so -- >> guest: yeah. i wouldn't argue they're spending it -- unless you believe sort of government owns all the money, and anything you don't get to keep is somehow spending on you; that said, i think many of these harm the economy. that ranges from everything from

the mortgage deduction or the tax break that you currently get for employer-prohided health insurance which is, i believe the second biggest deduction that's out there. that, these things actually harm the economy in many ways and i would certainly favor eliminating nearly all of these and moving to a much flatter simpler system, and then we could argue about what the proper rate should be. >> host: they tend to be really popular. [laughter] you get a lot of people pissed off, but people don't know tax breaks that are targeted toward certain things end up pushing up the prices of those things. so if you have a home mortgage interest deduction to help people buy homes you've made housing more expensive. a lot of it goes to the business and the industry which is why they end up lobbying so hard to keep those tax breaks. >> guest: that's right. a lot of it goes to second homes, vacation homes. that's right. and is you're right, this money is passed through whether it's the tax breaks or direct spending. in many cases it's simply passed

through the final end user. same thing is true with college aid. they just take that money and then raise their tuitions to go with it. >> host: so let's take a step back before we get into some of the specific programs. talk ate rl bit -- talk a little bit about cato and being a libertarian and how that affects your thinking in all of this. >> guest: a think tank here in washington, generally considered one of the big four, you have the heritage foundation which is a conservative, on the right think tank, you have the brookings institution on the left american enterprise institute which is sort of where i think old politicians go to hang out until their next administration. but -- >> host: considered to be on the right. >> guest: yeah, sort of center-right maybe. >> host: center from your perspective. >> guest: from my perspective. that's right. but it's -- we are libertarian b in orientation which means we take the idea of limited government very seriously. we believe government doesn't belong in your wallet, your bedroom, your business or your medicine cabinet.

so we would reduce government control over pretty much all aspects of people's lives. we're probably the only think tank here in washington that simultaneously wants to cut defense spending domestic spending legalize drugs. we would favor an increased immigration, increased free trade. so we are sort of across the board believers in individual liberty. >> host: and what are the issues that you write about and think about at the think tank the most? >> guest: well, i'm a senior fellow, i always say i have no fixed address, but i generally work on the domestic side of the budget. so i deal with social welfare issues including poverty issues, welfare programs things of that nature. i deal with health care, some of the affordable care act to medicare and medicaid to how we can reform health care at the local level. and also retirement issues like social security and all of that, of course, as it feeds into the overall budget deficit and the general need for economic growth. >> host: and you told me you're

looking at issues like poverty income inequality, a lot of those things. >> guest: that's a big issue that's very prominent. i've done a couple of books in the past on welfare reform, and basically -- >> host: i've read them. >> guest: thank you. a way to get people out of poverty. our goal shouldn't be to make poverty more comfortable which is what i feel most of our welfare programs do, it should be how to lift people out of poverty permanent and we need to do a lot more research on it. >> host: give us one thing we could do that would be the most effective. >> guest: sure. i think one of the most important things we could do right now is simply to end the war on drugs which makes it hard for people to invest, increases crime, lures people out of jobs that might have been the first rung on the economic ladder and lures them into a life of crime because they can make big profits in the short term off of the illicit drug trade. and leads to a lot of the criminal justice problems that

we're seeing as well. so i think that's a big barrier. most things that get people out of poverty are not things government ultimately can fix. that's one we can fix. >> host: uh-huh. okay, let's jump to the big parts in your book where you look at where you really think the fixes need to come, and let's start with the government's biggest program social security. talk a little bit about how it works and what we need to do. >> guest: social security, i think, is often misunderstood. people think when they pay their social security taxes that's somehow paying for their retirement. but social security, when you pay your social security taxes, one of that money is put away in any way for your retirement. it has nothing to do with you. you pay social security taxes that are, in fact, paying the social security benefits for people who are already retired today, and then you hope that when you come to retirement, there's another generation behind you that will pay into the system that will then support you in your retirement. this some ways it's a lot like a ponzi scheme or a pyramid scheme. the people at the bottom pay in to support benefits for the people at the top and the

people at the top -- generally the first retirees -- made out pretty well -- >> host: each generation was getting bigger and bigger. >> guest: that's right. now the pyramid's sort of inverted n. 1950 we had 16 people paying in for every person retiring and getting benefits out today it's about three, and we're heading down to two or slightly less than two who are going to have to support each retiree in retirement. now, we're making slightly higher wages that offsets a little bit, but still ultimately the system is going to break down. you can only tax those workers so much for each retiree before they're going to resist and, in fact the tax burden potentially on future generations is enormous. it could be about double in terms of the payroll tax in order to keep the system solvent long term. >> host: well, and so add to that we're all living longer, aren't we, than when the program started. >> guest: that's right. that's one reason why we have more retirees, the fact that they're living a lot longer in retirement. we can expect to spend as much of a third of our life in

retirement compared to our working lifetime. so that's quite a bit of time that we have to collect benefits as opposed to pay into the system. >> guest: i think the numbers are something like when the program first started and retirement age was 65, average life expectancy was 62. and now it's gone longer and longer. the retirement age has gradually moved up to 67 but obviously many people are living into their 70s 80s 90s. >> guest: that's right. and i know a lot of people discuss the idea maybe we need to raise the age in which people would become eligible. i believe you'd have to raise it up to 71 or 72 now to bring the system into balance. there's a couple of faults with that. one is political. for some reason, it's just the least possible of all social security fixes. people feel like you're moving the goalpost on them. they want that retirement or second careers or whatever they're going to do, and they hate that being taken away. politically, it just doesn't seem to ply. hopefully -- seem to fly. hopefully, that will change in

the future. the other is practical. for me, you raise the retirement issue, i'm going to shuffle papers until i'm 90 -- glz you're going to be writing these books. >> guest: exactly. it's not hard for me. if you're a coal miner and you say let's raise the retirement age to 72, that's a big deal. and you also have to take into account that you have at every age and income level african-americans don't live as long as whites, you have discrepancies in life expectancy, things like that, that are there. you already have about one out of three black men who pays social security taxes but then dies before they can collect benefits. how much do you want to increase that unfairness in the system? it's not as practically easy to simply raise the retirement age as i think a lot of policymakers think. >> host: you'd have to build in some different accommodations, certainly, for people who are working in fields where you can't possibly work longer and probably can't work until 67 in many of those fields. >> guest: but you end up with something like they have in europe, a different retirement age for every class. teachers are retiring at this

age and truck drivers at that age and farmers at a still different age, and you have lots of fights on who gets to retire earlier -- >> host: it gets pretty complicated. >> guest: and then the special interests, of course, constantly push for lowering the retirement age. one of the problems in greece i believe, is hair dressers have a retirement age of 55 because they work with hazardous chemicals, therefore, they can't work as long. >> host: so what do we do about social security? from your perspective, how do we address the big problems that we've made more promises than we have revenues currently slated to pay for? >> guest: social security, of course, is actually running a small deficit today it's about $65 billion or so, but that's only going to increase every year. it never goes away, it just gets worse -- >> host: so it used to be the money coming in from the payroll tax was more than enough to pay for benefit and we've now switched so that more benefits are coming out than payroll taxes -- >> guest: you don't have a whole lot of choices and overall the future unfunded liabilities run

to something like $25 trillion in the program. so this is real money that we are going to have to find one way or another. i don't believe you can bring in enough new money to deal with that without seriously hurting the economy and really being unfair to young people who are going to pay for a lot and get a lot less out. so we're going to have to face up to the fact that in the future -- not for today's retirees, but future retirees, certainly, are going to get less than we promised. there's a lot of way people talk about doing it. we talked about you could raise the retirement age. to get really wonky here, i think the best way -- >> host: we can get wonky. >> guest: has to do with how you calculate benefits. right now you get to use your 35 highest years of wages 30 years of that adjusted according to wage growth. i think that should be adjusted according to inflation instead. it's called wage to price index -- >> host: can you explain that a little more? it is complicated. >> guest: sure. when they calculate what your first set of benefits are going

to get, the first year you get your benefits based there's a very intricate formula that somewhat is redistributive so that lower income people get a greater proportion of their money back than do higher income people. but that formula when you look back say your 35 years' highest wages, so if you work for 40 years, five years count. if you look back 35 years ago, money you earned then is worth different than it is today. so you have to adjust what those wages were in the formula 35 years ago. traditionally, for most programs that's simply inflation adjustment. but for social security we adjust it based on how much wages have grown each year since then. and wages actually grow faster than inflation. so what it ends up with is you get a higher than inflation benefit throughout those 35 years or 30 years that are actually adjusted, five years

are not. and that means every year that retires actually gets a higher after-inflation benefit than the year that retired before them. and that seems to me to be both a little bit unfair and it also is very costly within the system. if you simply change it to an inflation adjustment, you could actually bring the system into balance in about 30 years or so. >> host: uh-huh. okay. and then are there oh things -- other things you would want to do to augment people's savings outside of social security? >> guest: yeah, i think that's the spinach, because we're telling young people that we lied to them. essentially, we told them they were going to get a certain level of benefits, and they're not. we're going to give them less than we promised, so i think what we ought to do is if they're willing to eat their spinach, we ought to give them a chance to have some ice cream. the ice cream for me is i believe we should allow younger people to take some of their payroll tax and save that where it's invested in some sort of real asset stocks bonds annuities or something of that

nature. now, that does increase the short-term deficit. >> host: because that money's not paying for -- >> guest: for grandma, that's right. >> host: a bigger hole. >> guest: in the long term, it takes deficits out there in the future moves it forward in time while reducing it. i often look at it, people talk about this as a transition cost. i say, look if you owed me $100 that you had to pay me next month, i say give me $50 today and we'll call it even, you wouldn't say oh, my god i've just incurred a transition cost. you're actually better off but if you don't have $50 in your pocket right now, you've got a problem. and we do have the federal debt right now so there are, it's going to be difficult to make that transition. >> host: uh-huh. right. so it's not an easy time to do something that would actually make the deficit worse in the short term. >> guest: that's right. and, essentially we'd face the same problems we'd face with overall program. you could raise taxes cut spending in other areas which

is, of course, my solution or you could borrow that money and spread it out over time, but ultimately, you have to face one of those three no matter what you do. >> host: let's jump to the other big government program which is medicare. >> guest: yeah. people worry a lot about social security medicare is even in worse shape. >> host: and, again, let's start by explaining the difference between medicare and medicaid, because i hear policymakers confusing the two all the time. >> guest: well medicare is the program for the elderly by and large. it is designed primarily to provide people who are over 65, 65 and older with some form of health insurance in their senior years. now, there's issues with it, the fact is the more sick you get under medicare, the less it pays. it actually phases out after a certain amount of time, sort of covers money up front but doesn't really take care of long-term care which is one of the problems with medicare. but, essentially, it's a health care program for the elderly. medicaid is a little trickier. people think of it as being a

health care program for the poor. that's what people on welfare are on, they get medicaid, and it provides a health insurance benefit for the poor. the reality though, is that a lot of the money that's spent for medicaid is actually back on the elderly again. particularly elderly in nursing homes. because you don't have that long-term care component to medicare, someone who goes into a nursing home and is going to spend the next four or five years there often takes money from the medicaid programs to pay for that. >> host: okay. so they're a little more interrelated than people might think of the two separate programs. >> guest: right. i think people think of medicaid as a poor program but it's also another program for the elderly. >> host: so medicare, talk about the problems that that program is facing. >> guest: well, medicare is also facing from the same demographic problems in many ways as social security -- >> host: more people aging living longer -- >> guest: living longer, you collect a lot more health care.

plus, people who are elderly tend to be expensive in terms of health care. >> host: sure. >> guest: that's where a lot of health care expenses go. so the net result is that we spend a lot of money but don't take in a lot of money to pay for it. it's estimated that for a middle income couple over the course of their lifetime they'll pay something like $150,000 in medicaid -- medicare taxes plus premiums when they get to be 65. >> host: stop for one second. how do you finance medicare? comes from -- >> guest: medicare's financed, actually, out of two different pot, if you will. one part is paid for by the individual, there's a 2.9 president be payroll tax that individuals pay in terms of medicare it's actually raised slightly for wealthier seniors. but for average income couple, it's about 2.9% tax up to 3.8%, i believe for people earning over $200,000 a year. so you pay that payroll tax and also when you get to be retirement age you pay a

premium into medicare. that pays for only a small portion of medicare. a lot of it is just simply funded out of general revenue. simply regular taxes are into the system, and then they pay for the shortfall. and that's what i was about to get to. that person, that couple would pay about $150,000 in premiums and payroll taxes in their lifetime which sounds like a lot of money. but the same family's going to collect $350-$450,000 in benefits -- >> host: people are taking significantly more out of social security -- excuse me, medicare than they've paid into it. i think that's not something generally know. again, a lot of people think they're just getting out of the program what they paid into it. >> guest: that's right. people think, i paid for it, and therefore -- >> host: they did pay for it, they just didn't pay enough for it. [laughter] >> guest: we all pay for it. but we're getting back more than we're paying in. and it's a combination of more people collecting and the cost of health care going up. and in many ways, we lose money

on every transaction to try and make it up in volume. >> host: but that's true that health care costs are going up throughout the whole economy faster than the rest of the economy, and even though health care cost growth has slowed it's still one of the faster growing areas of the budget. >> guest: that's right. we have seen the rise slow over the last decade. it predates the affordable care act, it goes back about ten years that we saw this slide in cost. and we don't really know why. the experts are all over the lot in terms of theories on it. a lot of it may have had to do with the e resession we just went through. when people are out of work, they tend to spend less money on health care, and that brings down costs. so we don't know what's going to happen in the future. in fact the different government agencies that look at this have different estimates on whether or not that cost is going to go back up to where it was. if it does, then medicare could really balloon in terms of its cost. >> host: so what do we do? how do we fix it? >> guest: well interestingly

both sides in this tend to have the same target in terms of how fast they want to let medicare grow. one of the things i think people for all the debate in washington, you see president obama's budget and paul ryan's budget have exactly the same future growth targets for medicare. it's about 1% faster than the economy which i think is still too fast but it's interesting they come in at the same place. they just want to get to that by different directions. >> host: stop for a minute though. it's so rare that republicans and democrats even agree on a goal. that's got to be something. >> guest: well, they're busy denouncing each other for how they both want to destroy medicare. they have the same numbers. we all anytime you can't spend -- admit you can't spend medicare's unfunded liabilities are somewhere between $50 and $80 trillion, and everybody admits you can't do that. so they come to the same point in terms of where they want to go. the president, essentially wants to push it down from the top. and what he would do is in various ways reduce

reimbursements to doctors and hospitals, pay them less and hope that that encouraged them to then provide less health care to people. that if we didn't cover as many procedures or cover procedures at 100% of cost, if we only covered at 80% doctors wouldn't do as many tests or wouldn't run -- see people as often and all of that would help reduce the overall cost in the health care system. paul ryan, essentially wants to do it from the bottom up with what's called a premium support system where essentially he would give people a certain amount of money. he doesn't like to call it vouchers, it really is a voucher. but, essentially you give people a certain amount of money that will pay for a certain amount of health care and if you want more health care than that, you have to pay for that additional can amount on top of it. and what he's hoping is that people faced with the additional costs will choose not to get quite as much health care and that'll bring down health care costs to that level. so they both want to end up in the same place it's just whether or not you think those decisions need to be made, essentially, by a group of

experts at the top or individual consumers at the bottom, and that's the debate we're having today. >> host: and what do you think? >> guest: i generally favor consumer-directed health care because i think they can make individual choices. you know people talk a lot about rationing health care in the united states, and the reality is that we do ration health care. every health care system in the world rations health care. >> host: right. >> guest: there's no such thing as a system that gives everybody all the health care you want whether you're talking europe or the united states or whatever. national health care programs, everybody rations it. the debate is over who makes the rationing decision. and one example i can give you for example, would be, look, if we had every american get a ct brain scan every year as part of their annual physical, we would catch a couple of dozen brain cancers early enough to save those people's lives but we're not going to do that. no country in the world is going to do that. is so how do you then make that decision on who gets that ct scan? well some countries ration by

fiat. what they do is they simply say you can't have a ct scan. you don't qualify you can't have one. some countries like canada, ration by queue. they say you can have one every day, but we only have one ct scanner available, so you might have to wait six months to get in to have it. in the united states, we ration it by price. it costs about $1,000 to have a ct scan. now, if you want one, you can pay for it. if you don't want to pay $1,000 you don't get one. now, the difference is that maybe for you the chances of you having brain cancer are infinitesimally small, but maybe your father or your uncle died of it. maybe you'd just sleep better at night, for you it might be worth $1,000. i think allowing you to make that choice for yourself, ultimately, is the best answer. most people aren't going to get one. >> host: so more consumer choice, part of the solution. >> guest: it's the same thing that works with other goods and services ultimately. when we first started in

washington -- well me, you're a lot younger than i am -- when i fist came to -- first came to washington, a computer cost a half million dollars, and they give it to me for free in my cell phone when i get a two-year contract. why? not because we had some government price controls, but because consumers ultimately demanded better quality at a lower price. and i think the same thing would happen in health care. >> host: let's switch to medicaid and i'm just going to say somebody who studies the budget medicaid's particularly complicated because there's so many different actual medicaid programs. but do your best to explain a little bit about how medicaid works, we can get into that topic. >> guest: it's funded out of general tax revenues, but as you mentioned, it's only partially funded by the federal government. the rest is funded by the state government. and there's a very complex formula for how much money these states get. some of it's supposed to be the idea that poorer states get more money than richer states from the federal government. in reality states with big congressional delegations tend to get more money than states

that don't have that. but it's sort of mixed between the two. and then the federal are government sets sort of broad guidelines, and within those broad guidelines, the sate states -- the states can make determinations as to types of doctors and procedures which will be reimbursed, who's eligible. there's a lot of state input as well. the problem is not just with the federal government, of course is that the state governments are having to spend more and more. in more states medicaid is the fastest growing if not the single largest line item in their budget, they spend more on medicaid than roads and prisons and schools. it's going to squeeze everything out, so that's a big problem for states as well as the federal government. >> host: would you do some of the same solutions you talked about for medicare or how would you address that. >> guest: i think this idea of having half federal money, half state money has not worked very well. so i think i would turn this

back to the states, essentially, and allow with the federal money going to them in the form of a block grant and then let them experiment because we really don't have a lot of good answers for how to reduce costs within the medicaid population. we know that we're causing a lot of problems if we just try to squeeze down reimbursements. one of the problems in the medicaid program is it's very hard for people to see primary care doctors because they reimburse so low that most doctors won't take the problem program. about a third i believe. so that's why they end up at the emergency room so often for treatment. so i think that that's going to have to simply allow the states to experiment with this. how much money do they want to give to the poor versus elderly in nursing homes? that's something the state should ultimately be determining, not the federal government. >> host: so are there lessons from other countries either in what they've done wrong o right that we can be learning as the u.s. is struggling with the fact that we're on this unsustainable course? we have, i would say a dysfunctional congress.

it's very hard to get anything done, very hard to address some of these problems. we have some really big challenges. are there lessons from what other countries have done or are doing? >> guest: i certainly think we can learn about what's going on in europe about what not to do which is to run up obligations which you then find it impossible to clerk the taxes for because people, essentially, evade the taxes. you're seeing that in greece today, and you essentially have a greek system that is really between a rock and hard place right now. there's no way they can pay back essentially the debt that they owe the european banks. and the type of reforms that germany's trying to enforce on them are going to be so painfully political, i don't know what they're ultimately going to do. but you can't have that go on year after year. i think you can contrast that with say, switzerland which has some innovative approaches. they have the debt break which essentially limits how much debt they can run up. if they want to run up more debt than that, or spend more money

and they're going to run up debt they're going to have to raise taxes but they have tax breaks as well, and in order to raise taxes, you have to get not just a majority of the cantons as well as nationally, so it's hard to raise taxes there as well. and that has actually been sort of forced them to restrain their spending along the way. you also see countries, a lot of the baltic nations, for example latvia estonia which responded very differently when the recession hit. they did a lot of cutbacks in terms of spending, especially their governmental spending. they made the resession worse for them in the short term, they got much more of a v a much deeper recession but now they're coming out of it in a ways that lot of europe went in an l shape. they didn't cut as deeply, and they haven't come out the same way as well. one counterexample is britain which actually is beginning to come out of the recession now fairly strongly. helped reelect david cameron. it was because they did some

austerity over there. they actually did some cutbacks in their spending. >> host: now, you talk in your book about stimulus. you're not a big fan of stimulus spending. talk about what you think we should or shouldn't do in our own economic downturn. >> guest: yeah. i think stimulus spending tends to not generate long-term growth. i tend to believe what it did was -- does is make that trough not as deep, but also keeps us from bouncing back to where we were. when we talk a lot about stimulus spending, we think of the magic money theory. the government can print money tax it, borrow it and somehow spends this money, and this money all does good stuff. the reality is money all comes from someplace else. and in the book, i talk about the french economist, and he talked about the seen and the unseen. and the example he gave was that, you know the french government -- suppose there was a french farmer who was planning to irrigate his field and he was going to hire a bunch of laborers to come and irrigate

his farm. before he can do that the french government takes the money from him, taxes money from him that he was going to use to hire those ditch diggers and they go over and build a road with it, and they hire those same people, now they're hired to go and dig the road. everybody says hey look at the french government, they did this wonderful thing, gave them all jobs to build that road. meanwhile, the farmer didn't hire those people, so they -- we didn't actually create any new jobs, but now the farmer can't irrigate his field so his crops wither, and ultimately, everybody's worse off because of that. so you have to look at the unseen consequences as well as the seen. borrowing a great deal of money or taxing a great deal of money in order to create stimulus jobs that are often temporary short-lived jobs often can do more harm in the long run by not allowing the private sector to create those long-term jobs. >> host: so that example was about raising taxes but you would say the same thing can happen from borrowing too much? >> guest: that's right. you know some short-term

borrowing, same way that people sometimes need to borrow money. not a zero debt person as a rule, but i also believe that you can simply borrow yourself out of prosperity. >> host: now, you also talk a little bit about paul krugman who has a different point of view. do you want to -- >> guest: well, paul krugman and i disagree on pretty much everything. he is clearly -- at least in his current incarnation -- a believer that deficits and debt don't really matter. he would argue that we've licked, in many ways, the deficit problem by reducing it down to where we're at right now. and he's a big believer in the keynesian stimulus. he argues very strongly that we can run big deficits today if we spend that money in ways that ultimately lead to greater productivity tomorrow. when we talked earlier about investing the money. and, you know, i say i think there might be a case. i might disagree with it, but i think he would have a stronger case if that pun was used to

invest -- if that money was used to invest. but the reality is each within the stimulus bill most of that was various forms of consumption. it was not heavily investment. shovel-ready jobs didn't turn out to be quite so shovel ready, but it also was simply that a lot of that money was never target today that type of investment. >> host: uh-huh. well that's one -- there's a lot of disagreement on that isn't it? >> guest: we've been arguing about it since keynes. [laughter] >> host: it's an argument that will continue, i'm sure. we just have a few moments left. tell you what you want people to leave understanding that they didn't know before, the big takeaways you want them to have are. >> guest: that the problem not only hasn't gone away, but it's a lot bigger than we think. politicians are very happy to ignore the deficit and the debt because fixing it involves a certain amount of pain -- [inaudible] >> guest: that's right. you know and so if they can somehow paper that over for a few years and say well, that's someone else's problem they're all too happy to do that.

and we spend a lot of time worrying about the crisis of the day, whatever that might be, and we don't spend enough time looking at the long-term problem in this country, but we really need to. we've got a little bit of a respite. the deficit is down. it's down partly because of sequester, partly because of stimulus money partly we paid back t.a.r.p., and there's some weird accounting measures that have to do with how t.a.r.p.'s repaid -- >> host: we have a little breathing room. >> guest: we have a little bit of breathing room. but if we don't take advantage if we wait until the deficits start to climb again and that debt gets worse and worse and the baby boom is collecting medicare and social security, it's going to be very very painful. as they say something that can't go on forever eventually stops. and we can't go on the course we're on right now. it's eventually going to stop. the question is, is it going to be a soft landing or a really hard landerring? you can look to greece and see the result of what a hard

landing is. i don't think we want that. if we start making changes to these programs today i think, ultimately, we can soften the landing. >> host: uh-huh. well, we have a little bit of time. hopefully, we have politicians who are able to come together and make some of these choices and help us get that soft landing. so, michael tanner, thank you so much for talking about your book today. >> guest: it was a pleasure. >> host: thank you. >> that was "after words," booktv's signature program in which authors of the latest nonfiction books are interviewed by journalists public policymakers and others familiar with their material. "after words" airs every weekend on booktv at 10 p.m. on saturday, 12 and 9 p.m. on sunday and 12 a.m. on monday. and you can also watch "after words" online. go to booktv.org and click on after "after words" in the booktv series and topics list

on the upper right side of the page. >> terry alford is next on booktv. he recalls the life of john wilkes booth from his childhood in maryland to his acting career and, of course, his assassination of president abraham lincoln on april 14 1865. >> every author needs a proper incentive to travel miles and go somewhere and give a speech and i'm always reminded of the wonderful definition of incentive given by p.d. east. p.d. east was a crusading journallest down in mississippi -- journalist down in mississippi down in the 1950s, and he was very progressive on civil rights and always getting himself in trouble for his editorials. and he wrote one he knew was going to cause a some trouble one day. people told him you better watch out that's an unpopular view this mississippi in the