>> host: you talked about your grandkids a moment ago. you brought along a picture that sits in your office. >> guest: we had to tape one of the newest one on top. there are ten of them ranging from 14 to new born and they all live within six miles of the house. >> host: how many kids do you have? >> guest: i have three children. i think they are done now. i don't know. my wife made the statement because there was no more room in the car. she said i think we had enough and i said i don't know if you know this but we don't make the call. >> host: have your kids and grand kids been back east to washington? >> guest: they have. i had one of the greatest

blessings and have a picture of my grandson hanging in my office and it was so he got to sit on the floor with me. >> host: would you like to say one of your kids or grand kids run for office? >> guest: that is up for them. i don't know. my children i am kind of wondering whether my son -- he is 34 and an attorney with four children and knows the strain it puts on the life. i would be very proud but i don't know i would push them that way. >> illinois of the 12th district in illinois, thanks for being with us. >> thanks for having me. >> coming up on c-span2, booktv features afterwards interview about books on economics. next, michael tanner discusses

"going for broke: deficits, debt, and the entitlement crisis" then americans for tax reform president grover norquist book on "end the irs before it ends us: how to restore a low tax, high growth, wealthy america." books about economics at 8 p.m. eastern on booktv c-span2. author of going for broke is interviewed by maya macguineas president of the committee for a responsible budget. this is an hour. >> michael tanner, nice to be with you. so today we will discuss your book "going for broke." maybe you can start by talking

about what prompted you to write this book. >> guest: one of the things that frustrated me is the fact people stopped paying attention to the deficit and the debt crisis thinking we beat it because the deficit is down a lot really in the last couple years. and people think that is sort of solving the problem. but the reality is this as a temporary lull and within a year or so the deficit will go back up. we are adding to the debt every year. we have not begun to hit the problem when medicaid, medicare and social security begin to start adding up. if we don't act now while the sun is shining we will be in trouble once the rain starts. >> walk us through the numbers. the deficit is down and we are adding to the debt. what is the difference between the debt and deficit so start us

there. >> guest: the deficit is this year's shortfall and how much more we spend than take in. $450 billion range is what it will be which sounds like a lot but three our four years it was $1.4 trillion range so we are doing better than then. that is a temporary thing and in a couple years we will see it go back up. if you add up each year, the shortfall each year, you get the debt and that is the total amount that we owe. and you can think of it with your house old budget if you run short this week that is your deficit. but if you run short every week, and take money out on credit card this week and week after that that is the debt you are ultimately going to owe. and so when we talk about the national debt, that is what we are talking about. how much the deficit added up each year. the national debt consist of both the debt held by the public, which is the debt that

is in your portfolio with government bonds and treasury bonds you have debt held by the public. you are the public. it is the part the chinese and japanese and foreign governments hold about 45% of it. that is one type of the most solid and hardest debt and the debt the economist talk about. it is intergovernmental debt which is debt one part of the government owes another. like the social security or highway trust fund where the government owes these programs a certain amount of money and that adds up to $18 trillion and that makes the headlines. but there is a third kind of debt which is the intergenerationalal debt or the unfunded liabilities of these programs like social security and medicare. but we know how much we owe under current law in the fiche tour pay these benefits under

these programs and we know what we will be taking in in tax revenue to support the programs and there is a gap between the two. while that is not as solid as say a government treasury bond we owe now. it is money we promise to pay and we don't have the revenue to pay it. that is a debt, too. >> host: what does the debt being twice it is historical? the deficit and debt being connected to daily lives is difficult. what should people think when the debt is twice the average. what does that mean for you? >> guest: the rest of the world is so messed up people are will

to lend us money. we are not as bad as we might be. one thing that begins to slow the economic growth when it reaches the level we are at. people are less willing to take the risk of investment because they see the debt down the road. they are less willing to take risk and willing to invest and all of that slows the economic growth. it is estimated the children are going to be $2,000 a year poorer because of the level of debt. >> host: $2,000-5,000 every year our children will be learning less >> guest: that is right. we have to pay interest on the second is second. and that interest begins to crowd out other government spending. eventually you end up with

spending a lot of money you are paying to foreign investors that you are not able to invest in things you might want to whether you are republican or want to spend it on defense and/or spend it on social programs instead we paying back money on investors. >> host: one of the areas you could make improvements is if you bring down the cost of the caring cost or the interest payments because i believe that is the fastest growing part of the budget. the interest rates. >> guest: that is right. and we are lucky the interest rates are low. if they go back to the historic rates we had to pay in the past we are going to be shoveling money out the door. it is not defending us, helping poor people, it is money going to people to pay them in essence

to lend us money. it is a real waste of money. think of it like your credit cards. maybe you get something you have actually buy whatever it is the new flat screen tv but when you pay that 15-18 percent interest that is not money you are doing anything with. that is money you are paying to the bank. >> yeah, i think i saw this.

>> guest: this is part of the argument saying we should not worry about debt because in the end we owe that debt to ourselves. we could argue foreigners hold debt and we hold their debt and it all equals out. the distribution of who holds the debt is not the same thing as who gets benefit from the debt today. to make the argument in a classic sense, if you borrowed money to go to college let's say, and you took that money and you went to college and earned higher wages when you got out and used that to pay back the debt, you are no worse off because you borrowed that money to go to college. the problem is that a lot of that money we are borrowing is not for any investment. it is not to make our wages better. instead a lot of that is

redistribution today. essentially we borrowed that money to give it to somebody that spent it and it is gone so it is not being invested in. >> host: it is consumption? >> guest: that is right. the person who is going to pay it back in the future nature be the same one who benefited from it today. it may be like someone else had to pay back that college loan rather than you. >> host: it is my kids. >> guest: there you go. if it unfairness that need to be solved as well and people will think about that in the future and that is going to have to be repaid and that will affect decisions made today in terms of investment and growth but you may not see the benefit from higher wages for college education nature be there if a business going to hire you has to pay back your loan. >> host: i think it is interesting about who is borrowing and who is spending. we hear we are borrowing it from

ourselves and not to worry. it is an intergenerational issue for many ways. we are consumming and handing them to the next generation. talk about the intergenerational issues. >> guest: it is unfair taxation without representation. we consume today and our kids vote on this. we are talking about generations not even born paying for our consumption today. it is like saying you will is a party today and send the bill to the kids but they did wantant go to the party.

it is taking from person a or b but doesn't do anything to grow the economy of the future. >> host: talk about discretionary spending more mand tory spending or entitlement. >> guest: people say social security is not an entitlement program. i paid into the program when i was working and i get back what i paid in plus the interest or whatever. it is not like a welfare program where that is an entitlement. the reality is both are wrong. entitlement is the legal or accounting term that refers to mandtory spending. it is spending that congress doesn't vote on every year. there is no annual appropiation bill for social security. people are entitled and the

federal government spends whatever is necessary to meet those benefits. there is no vote on that issue. that is all entitlement means. by that definition, social security and entitlement are there. but traditional welfare is not because they approprirate the numbers. >> host: one third of the budget goes through the appropriation process and two thirds doesn't. how do people decide which program is which? how is mandatory versus entitlement? how is it determined? >> guest: essentially it specified in the original enacting legislation for the program whether it is subject to annual appropriation and how it is defined in terms of the

budget process. certain programs vote every five years like the farm bill or every ten years. some programs have no vote at all. essentially you can look at the programs that are subject to congressional votes or domestic spending which is everything from the fbi to the fda to the department of commerce and education all lumped in. it is about 16% of federal spending. another spending is the defense spending and the non-war fighting part of the defense. that is essentially it. that is all congress basically talks about. everything from medicaid and medicare and interest on the debt and multi year programs outside of congress' annual votes. >> host: and sequester.

we put in place a sequester. talk about that a little bit. >> guest: a sequester was a cap on how much could be spent each year for what is over the next ten years and three years into it now. but that only affected domestic and defense discretionary spending. it was designed to impose essentially a set of cost each year that was split evenly between defense and discretionary spending. we are seeing in the new latest republican budget they managed to take money from the defense discretionary spending and ship it overseas to the war fighting part. it doesn't apply to that portion of it. there was no reduction to the mandatory spending. that was outside of the pure

sequester. so a cap on those two types of programs. it is larger responsible, i think for the slow down we saw in spending over the last couple years. >> host: you bring up something we do a lot in washington. budget gimmicks. the overseas operations are becoming a slush fund for other parts of the budget where the government talks about putting more money into this emergency area than they do normal budgeting areas and put money into that and are able to spend more than they are supposed to. budget gimmicks. we see that all of the time here in washington as way to get around. what do you think of those? >> guest: i think they are dishonest and what the republicans did with the defense spending was designed to get out of the sequester. >> host: they don't want to stick with the caps and pay to get rid of some? >> guest: that is right. if they waived the caps on one

they would have to waive the caps on the other. they took money that wasn't emergency spending and took routine spending and put it in. congress does this all of the time with emergency spending whether it is natural disasters which then stand up spending money on states that had nowhere near the natural disaster that occurred or defense spending is much of the iran and iraq wars was fought off budget. and was simply spending that didn't apply to norm leal budge rules because of that. congress does this sort of thing all of the time. it makes honest budgeting difficult. it raises questions about how much you can trust and promises in the future whenever they come up with gimmicks that says we will balance the budget ten years from now in some way.

they often involve budgets that are mysterious. they continuously save money by not invading countriesme. we pulled out of iraq and tined to save money by not invading iraq. >> host: when you pass a budget you see the numbers for ten years and a lot of times all of the savings are back loaded and that is the point you are maki g making. you are doing more bar borrowing sometimes. >> guest: medicare was required by a law factor in the bush administration to reduce spending every year. it didn't actually every do that. but it actually did a little bit more than necessary. the requirements that you would have reduced reimbursement to doctors and hospitals in ways that was not realistic. >> host: having them drop out of

the system. >> guest: exactly. nobo body knew we were not goin to do that. they did come up with other ways to save. maybe not as much as they were supposed to but some of it. they get tired of the game every year and come up with a permanent fix and got rid of this requirement that physician payments be cut back. they said don't worry, we will come up with an additional $200 billion to offset the money we will not save anymore. they just haven't said what the additional savings will be. >> host: and they passed the bill without paying for it. >> guest: that is right. it gets worse. they said don't worry we will fix it some day. and the new republican budget at least acknowledges the fact they will have to come up with savings they just don't.

>> host: i think it is as odds. you have the republican budget assuming you would not add more at the same time they were passing a bill that would add half a trillion over two decades to the debt so significant borrowing and it was hailed as a bipartisan success because the only time the republicans and democrats agree is when they are borrowing money instead of paying for things. >> guest: that is one of the real problems we have. neither party actually wants to balance the budget. democrats are happy to tax and spend and republicans are happy to borrow and spend. the common denominator is spending. the idea of reducing spending is not something neither party seems to be serious about. >> one of the interesting things you write about is what is the fiscal responsibility. i think about fiscal

responsibility as you pay for what you spend. in bad times you may need to borrow and balance the budget every year. you make the case is less about bringing the deficit down but more about bringing the spending down. from your perspective it is about the spending issue. talk about that. >> guest: melton freedman use to say it is about how much you spend and taxation and borrowing take resources from the economy and transfer to government where it is not invested but consumed. while the distribution affects different people with taxes and in essence they are the same thing.

i can you can have a government that is simply so big and so much of the economy that the economy can't function regardless of how you pay for it. right now we spend 21% gdp by the government and 10% at the state level so a little over a third by the government. we are going up to a point where we will spend 40-50 percent of the economy at the government level under the current projection. i would argue if you paid for it all, you could raise tax do is pay for the spending but the functional government can't work if they are spending half of

everything they are producing. >> host: what would you cut? >> guest: we have to cut across the board. the usual suspects don't get you far. >> host: the usual suspects being? >> guest: you will hear the republicans say let's cut foreign aid or kill big bird or defund planned parenthood and that is not going to get you compare. the marital programs aside -- >> host: the size of the budget of those is small. >> guest: foreign aid is 1% of federal spending. a lot of people believe we spend all of this money on federal aid. it is 1% and that includes foreign aid we want to keep going. big bird and planned parenthood combined with 1/10,000 of a percent of federal spending. you are not balancing the budget that way.

we pick up the defense spending for a lot of other countries that spend less on defense because we will do it for them. europe is spending 1.5 maybe 2 in the big countries like britain on defense. nowhere near what we spend. we are essentially being their army. the fact is we spend 47% on three framprograms alone. medicaid, medicare and social security. you cannot do much of anything unless you are willing to take on those programs. >> host: we will talk about those programs in details. would you raise taxes? would you fix the spending side or raise taxes? >> guest: i think i would focus on the spending first.

they raise taxes today and promise to reduce the spending tomorrow. and i frankly don't trust that reduction in spending. i want to see the spending reduction locked in and then he could talk about taxes being changed. i am not supposed to specific taxes being raised as to overall revenue. there are certainly, i think, tax breaks out there that are distortionary. we have a special tax break for ethanol type of thing which those sorts of things don't benefit the economy but distort how the money moves around with the economy and i have no problem reducing those types of breaks. i would rather see it done on a revenue neutral bases. but i don't think any particular tax break is sacrificing. >> host: those tax expenditures are a billion a year. so rather you get rid of them to

lower the rates to reform the tax code or use them to close the deficit there is a lot of money there. and many people myself included think they are spending through the tax code than lower taxes. >> guest: i would not argue they are not spending it unless you believe government owns the money and anything you don't keep they are spending on you. that said, i think many of this is the economy. that is everything from the mortgage interest deduction which is extortionary or the tax cut you get for employer provided health insurance which i believe is the second biggest deduction out there. these harm the economy in many ways. and i would certainly favor eliminating nearly all of these and moving to a flatter, simpler system and we can argue about the proper rate then. >> host: they tend to be poplar. you get a lot of people pissed off when you talk about removing this. but tax breaks targeting things

push up the prices of these things. if you have a home mortgage reduction to help people buy homes you made housing more expensive so it didn't help. it goes to the business and industry which is why they lobby to keep the tax breaks. >> guest: a lot knows to second homes or vacation homes. and you are right, this money is passed through, whether tax breaks or direct spending, and it is passed through the final end users. same thing with college aid. it helps drive up the cost of college. they take the money and raise the tuition to go with it. >> host: let's take a step back. talk about cato and being a libertarianian and how that affects your thinking in this. >> guest: the cato institute is a think tank considering one of the big four with the heritage on the conservative and you have the brookings institute on the

left. american enterprise institute. >> host: that is considered to be on the center right. >> guest: yeah, but it is a libertarian in orientation and 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 in those areas. we are probably the only think tank that wants to cut defense and domestic spending, legalize drugs, favor increased immigration, increased free trade. we are across the board believers in individual liberty. >> host: what are you issues you write and think about at the think tank the most?

>> guest: as a senior fellow i work on the domestic side of the budget dealing with social welfare issues including poverty issues, welfare programs, things of that nature. i deal with health care and the affordable care act to medicare and medicaid to how we can reform health care at the local level. and retirement issues like social security. >> host: you are looking at issues like poverty and income inequality. >> guest: that is a big issue i am working on. it is prominent now. i did a couple books on welfare reform in the past and the way to get people out of poverty. our goal shouldn't be to make poverty more comfortable which is how i feel most of the welfare programs do but to lift people out of poverty.

>> host: give us the one thing we could do to lift people out of poverty. >> guest: i think one of the most important things now is end the war on drugs. increases crime, makes had harded to invest, lures people out of jobs and lures them into life of crime because they can make big profits in short term off the illegal drug trade and leads to the criminal justice problems we are seeing. most people are not thinks government can fix. that is one we can fix. >> ok >> host: let's jump to the parts in the book where you look at where the fix needs to come. let's start with social security. talk about how it works and what we need to do. >> guest: social security is misunderstood by people. people think when they pay the social security taxes it is

paying for their requirement. but when you pay social security taxes none of that is put away for you. it has nothing to do with you. you are paying social taxes that are paying the benefits were people retired and you hope when you come to retirement there is another generation behind you that will pay into the system that will then support you and your retirement. it is like a pyramid scheme with the people at the bottom paying in to support benefits at the top. and people at the top, generally the first retirees made out well. >> host: it used to be each generation was getting bigger and bigger. >> guest: in 1950 we had 16 people paying in for every person and today it is about 3 and we are headed down to slightly less than two who are going to support each retiree. we are making slightly higher wages which offsets that but had system is going to break down. you can only tax those workers

so much for each retiree before they will resist and the tax burden on future generations is enormous being about double to keep the system solevent long term >> host: we are living longer as well. >> guest: we can spend a third of our life in retirement compared to previous generations. >> host: i think the numbers are like when the problem first started and the retirement age was 65 average life expectancy was 62. now the retirement age has moved up to 67 but many people are living into their 70s, 80s, and 90s. >> guest: that is right. and i know a lot of people discuss raising the age people

become eligible for social security but i think it would be 71-72 to bring the system into balance. there are a couple problems. one is political. it is the least possible of all social security fixes. they want that retirement or second career and hate that being taken away so politically it doesn't seem to fly. hopefully that will change in the future. the other is practical. you raise the age and it will not make much difference to me. if you a coal minor and say let's raise the retirement age to 72 that is a big deal. and you have to take into account at every age and every income level african-americans don't live as long as whites and discrepancies in life expectancy. you have one out of three black

men paying the benefits but dies before using them. it is not as easy to raise the retirement age as a lot of policymakers think. >> host: you will have to build in accommodations especially for fields where you cannot work longer and possibly not 67. >> guest: that is right. but the risk there is you end with something in europe with a different retirement age for every class are teachers at this age and truck drivers at this age and you have lots of fights. >> host: it is complicated? >> guest: yes, and special interest push for lowering the retirement age. one of the problems in greece is hair dressers retire at 55 because they work with hazardous chemicals so can't work as long. >> host: what do we do about social security? how do we address the big problems of making more promises

than revenue currently slated to pay for? >> guest: social security is running a small deficit about $65 billion and that is only going to increase every year. it never goes away. >> host: it used to be the money coming in from the pay roll tax was more than enough to pay for benefits and we have switched so more benefits are coming out than pay roll taxes? >> guest: yes. you don't have a lot of choices if you have more money going out than coming in. the future unfunded liability is something like $25 trillion. it is real money we will 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 being unfair to young people who are going to pay for a lot and get a lot less out. so we will have to face up to the fact that in the future, not today's retirees, but future retirees will get less than

promis promised. to get wonky i think the best way to deal with this has to do with how you calculate benefits. right now you get to use 35 highest years of wages. 30 years of that at adjusted according to wage growth and i think it should be adjusted to inflation instead. >> host: can you explain that more? >> guest: when they calculate the first set of benefits and you get cost of living increases after that. but the first year you get the base, there is an intricate formula so lower income people get a greater portion back than higher income people. but 35 highest wages, working for 40 years, five years don't count. looking back 35 years ago money you earned then is different to

now so you have to adjust what the wages were in the formula 35 years ago. for most programs that is inflation adjustment. but for social security we adjust it based on how much wages have grown and wages 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 adjusted and five years are not. that means every year that retires you get a higher after inflation benefit than the year retired before them. that seems to be both a little unfair and it also is very costly within the system. if you change to inflation adjustment you could bring the system into balance in about 30 years or so. okay. >> host: and are there other things to augment the saving outside of social security? >> guest: that is the finish i think. what we are doing is telling

young people we lied. essentially we told them we were going to get a certain amount of benefits and they are not. we will give them less than promised. i think what we ought to do is if they are willing to eat their spinach they should have a chance to eat ice cream and that is i believe we should allow young people to take current pay roll tax and save that where it is invested in a real asset, stock bond or something of that nature. now, that does increase the short term deficit. it would reduce that. >> host: because that money is not building interest. so a bigger hole. >> guest: it takes debt out there in the future moves it forward in time while reducing it. people talk about this as a transition cost. i say if you owe me a $100 you had to pay me next month you would not say i just incurred a

$50 cost. if you don't have $50 in your your pocket though you have a problem. it is going to be difficult to make that transition. >> host: right. so it isn't an easy time to do something to make the deficit worse. >> guest: that is right. you could raise taxes, cut spending in other areas which is my solution, or you could borrow the money and spread it out over time but ultimately you face one of the three answers no matter what you do. >> host: let's go to the next government program which is medicare. >> guest: people worry about social security and medicare is in worst place. >> host: explain the difference between medicaid and medicare. >> guest: medicare is the program for the elderly by and large. it is designed primarily to

provide people over 65 with some form of health insurance in their senior years. the more sick you get under medicaid the less it pays. it doesn't take care of long-term care which is a problem with medicare. but essentially it is a health care program for the elderly. medicaid is a little trickier. people think of it being as a health care program for the poor. the reality is that a lot of the money that is 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 goes into a nursing home for the next four or five years takes money from the medicaid program to pay for that.

>> host: they are more interrelated than people might think of. >> guest: both help the elderly more than the poor. people think of medicaid as a poor program but it isn't. >> host: medicare, talk about the problems it is facing. >> guest: it is facing the same demographic programs as social security. more people aging, more benefits, living longer, collect more health care and plus people who are elderly tend to be expensive in terms of health care. that is where a lot of health care expenses go. so the net result is that we spend a lot of money and don't take in a lot to pay for it. it is estimated a couple will pay like $150,000 in medicare taxes plus premiums when they get to be 65. >> host: how do you finance medicare? >> guest: it is financed from

two partsment. there is a 2.9% pay roll tax individuals play. it is raised for wealthier seniors. but average comes from the 2.9 tax up to 3.8% i believe for people earning over $200,000 a year. so you pay that pay roll tax and also when you get to be retired in age you pay a premium. that pays for only a small portion of medicaid. a lot of it is simply funded from general revenue. regular taxes and they pay for the shortfall. that is what i was about to get to. that person would pay about $150,000 in premiums and pay roll taxes in their life time which sounds like a lot of money. the same family collects $350-$400,000 in benefits from the program. >> host: people are taking

significantly more of medicare than they paid into it. and i think people don't know. i think they are getting out what they paid in. >> guest: people say i paid for it. but the vast majority -- >> host: they did pay for it. just not enough. >> guest: we are getting back what we are paying in. we lose money on every transaction trying to make it up in volume. >> host: health care cost are going up not just in medicare but throughout the whole economy faster than the rest of the economy. health care cost is exploding it is one of the faster growing areas of the budget. >> guest: we have seen the rise of health care cost slow over the last decades. it predates the affordable care act and going back about ten years where we saw a slide in cost. 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 recession we went through and people out of work tend to spend less on health care and that brings down cost. the agencies that look at this have different estimates on if the cost is going 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: interestingly both sides tend to have the same target in terms of how fast they want to let medicare grow. for all of the debate in washington, president obama and paul ryan's budget have the same future growth for medicare, which is 1%, which i think is too fast. they just want to get to that by different directions. the president wants to push it down -- >> host: it is so rare

republicans and democrats agree on a goal so it has to be something. >> guest: we all admit you cannot -- medicare's unfunded liability is $50-$80 trillion depending on the future cost of growth. they come to the same point on where they want to go. the president wants to push it down from the top. what he would do in various ways is reduce reimbursement to doctors and hospitals and pay them less and hope that encourages them to provide less health care. if we didn't cover as many procedures or covered at 100 percent of cost and only covered at 80% doctors wouldn't do as men test or see people as often and that would help reduce the overall cost in the health care system. paul ryan especially wants do it from the bottom up with a premium support system and give people certain amount of money,

he doesn't like to call it vouchers but it is, and essentially you give people a certain amount of money paying for a certain amount of health care and say if you want more than what we will pay for you have to pay for that additional amount on top of it. he is hoping people faced with additional cost chose not to get as much health care and that will bring down the cost. they both want to end up in the same place it is just whether or not you think both decisions need to be made by a group of experts at the top or individual consumers at the bottom and that is the debate why having. >> host: what do you think? >> guest: i favor consumer directed health care because i think they can make individual choices. people talk about rationing health care in the united states. the reality is we do ration health care. every health care system in the world rations health care. there is no such thing as a system that gives everybody all of the health care they want whether we are talking europe or the united states. everybody rations.

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 everything -- every year we would catch a dozen cancers. no body is going to do that. some countries ration it by fiat saying you cannot have a ct scan. you don't qualify under whatever set of qualifications and you can't have one. some countries like canada ration by queue saying you can have one every day but we only have one scanner available so you might have to wait six month do is get in. in the united states we ration it by price. it cost about $1,000 to have a ct. if you want one, you can pay it for. if you don't want to pay a

$1,000 you don't get one. the chances of you having brain cancer are small for you but maybe your father died of brain cancer or your uncle. maybe you would sleep better knowing you don't have it. to you it might be worth a $1,000 so allowing you to make the choice is the better answer. >> host: more consumer choice is part of the solution. >> guest: it is the same thing that works with other goods and services ultimately. when we started in washington, well me, you are younger, a computer cost half a million and was the size of a house. now i have one on my cellphone and they give it it me for free when i get a two-year contract. not because we had a government price control on computers but consumers demaryland -- demanded better quality. >> host: medicaid is particularly complicated because it goes through the states so

there are different medicaid programs. do your best to explain how medicaid works. >> guest: it is funded from general tax revenue and funded partially by the state and then the other part by the federal. it is mixed between the two. the federal government sets broad guidelines and within the guidelines the states make the determination the types of doctors or procedures that are reimbursed and who is eligible and who is not. there is a lot of state input. the state governments have to spend more and more now. most states, medicaid is now the fastest growing, if not the

singlest line item in the budget spending more on medicare than roads, schools, prisons and they are squeezing everything out. >> host: how would you address this? same solutions? guest i think i would turn a lot back it the state. the idea of having half state and half federal control isn't working. i think i would turn it back to the state with the federal money going into block grant and let them experiment. we don't have good answers on reducing the cost between the medicaid population. we know we are causing a lot of problems if we try to squeeze down reimbursement. one of the programs in the medicaid program is it is hard for people to see primary care doctors because they reimburse so low most doctors won't take the program. a third of doctors won't take medicaid patients at all and that is why they end up at the

emergency room for treatment so often. i think that is going to have to allow the state to experiment with this. how much to the poor versus the elderly and nursing homes? >> host: are there lessons from other countries on what they did wrong or hopefully what they did right we could learn as the united states is struggling with the fact we are on this unsustainable course and we have a dysfunctional congress, i would say, it is very hard to get anything done and address problems. are there lessons from what other countries are doing or have done? >> guest: i think we can learn a lot in europe about what not to do which is run up huge unsustainable programs which you cannot collect taxes for because people evade them. you have a greek system that is between a rock and hard place

now. there is no way they can pay back the debt they owe to the european banks and the type of reforms that germans are trying to force on them are going to be painfully politically. you cannot have that go on year after year. i think you can draft that with say switzerland who has innovative approaches. they have a debt break that limits how much debt they can run up. if they want to run up more debt or spend more money they will have to raise taxes but they have tax breaks as well in switzerland. in order to raise taxes you have to get it passed not just through the majority but nationally stow so it is hard to raise taxes. and that forced them to restrain spending along the way. you see the baltic nations respond differently. they did a lot of cut backs in

ter terms of spending. they made the recession worse for them in the short term. they got a v and they didn't go as deeply and they are coming out of it. they didn't go as deep but haven't come out the same as well. countering against west britain that is coming out of the recession strongly helping to relect david cameron was because they did austerity over there and did cutbacks on the spending. >> host: you are not a fan of stimulus spending. talk about what you think we should do going down an economic downtrend. >> guest: i think it doesn't stimulate long term growth. i think what it does is make the trough not as deep but keeps us from bouncing back from where we were. we think of the magic money

theory. government has the money, it can print it or tax it or lowering it and spends the money and the money does good stuff. the reality is money comes from some place else. in the book i talk about fredrick boston who is the french economist talking about the scene and unscene. he said suppose a french farmer was going to irrigate this field and hire people to do this. before he can do that the french government comes along and takes the money from him, taxes the money he was going to use to hire the ditch diggers and they hire those same people to build a road. and everybody says look at the french government doing all of these things hiring people. the farmer didn't hire the people and now the farmer can't

irrigate his field and his crops wither and everybody is worse off. you have to look at the unseen consequences and the seen of taxing a great deal of money in order to create stimulus jobs that can do more harm in the long run. >> host: that example is about raising taxes. you would say the same thing can happen from borrowing too much? >> guest: that is right. short-term borrowing the same way people need to borrow money. i am not a zero debt person as a rule. but i also believe that you could simply borrow yourself out of prosperity. >> host: you talk about paul colgan. >> guest: we disagree on everything. he believes deficits and debts don't matter.

and he would argue the deficit problem has been reduced down to where we have at. he is a big deliver in the st stimulus. he talks about owing ourselves and investments. i think there might be a case. i might disagree with it but i think the stronger case would be if the money was used to invest. but the reality was within the stimulus bill it was various forms of consumption. shovel ready jobs were not so shovel ready. but it was also a lot of money wasn't targeted to that type of investment. >> host: that is one there is a lot of disagreement on. >> guest: we have been arguing about that since cane. >> host: it will continue i am